Negotiating the Purchase Agreement for a Closely Held Business

Copyright (c) 2007 Elliott V. Stein (revised January 2007)

By Elliott V. Stein

Imagine that your client calls you and tells you that he has just agreed to purchase a closely held business. You are asked to prepare the purchase contract for the deal. Where do you begin?
You might begin by asking your client the following questions. Some of these address the substance of the business arrangement agreed to, while some are more technical in nature. You may find that some have not yet been discussed.
1. What is the purchase price? Is it to be paid in cash or some other form (e.g., a note)? When is it to be paid? Is the amount payable (1) fixed, (2) subject to events occurring after signing but before closing (e.g., a price adjustment based on net worth at closing), (3) subject to events occurring after closing (e.g., an earn-out), or (4) a combination of these?
2. Is the business to be purchased operated as part of a larger business or does it stand alone? If it is part of a larger business, is it a subsidiary or a division?
3. If the business to be purchased exists as a legal entity, will the buyer acquire the ownership interests in the entity (i.e., in the case of a corporation, stock) or will there be a direct transfer of assets from the entity?
4. After the closing, will the seller(s) remain liable for any of the liabilities associated with the business, either directly or through indemnification arrangements? (It is important to keep in mind that this is independent of Question 3. Through suitable indemnities, the parties can arrange any allocation of liability between them, regardless of the legal form of the purchase. Of course, indemnities raise issues of creditworthiness and collectibility.) What about liabilities that are not discovered until after the closing?
5. Will the current owners have any employment relationship with the business after the purchase? If so, there may be tax ramifications for both sides. In addition, issues of fairness may be raised if some owners will continue to be employed while others will not, because the employment relationship may be seen as part of the purchase price for the employee's stock.
6. How thoroughly has the buyer investigated the business?
7. How did the buyer analyze the value of the business, i.e., how did the buyer decide that the price agreed to was a reasonable price to pay for the business? Does the buyer think of the price as being derived from the balance sheet, perhaps as a multiple of book value? From the income statement, as a multiple of earnings? As a multiple of cash flow? Are there more subtle, nonquantitative assumptions about the business that underlie that buyer's view of the value of the business?
8. Is current ownership of the business distributed in such a way that the buyer will be able to contract directly with each individual owner, or are there some owners who will not be parties to the agreement? Are there owners who might oppose the sale?
9. Aside from the proposed purchase, is there any current relationship between the buyer and seller? For example, are they competitors or is one a customer of the other?
The draft agreement that follows this introduction is a hypothetical response to a particular set of answers to these questions. There is a lot of latitude in designing a draft in this situation and the form that follows should not be regarded as "the right answer," but rather as a choice from a spectrum of possibilities. The choice will depend on many variables, including some that are quite subjective, such as the negotiating styles that the lawyer and the client feel comfortable with and their judgment about the relative bargaining power of the parties.
Once issues of price have been resolved, the most difficult problem in purchasing a closely held business is usually the allocation of responsibility for unknown liabilities. There is typically no compelling logic in favor of one side or the other. The parties may have genuinely different tolerances for risk that make an otherwise reasonable solution impossible to reach. There are, however, rational neutral principles that can be applied in analyzing the situation; e.g.:
1. In most cases, the seller has more accurate knowledge of the business and should be in a better position to calculate the risks of liabilities arising unexpectedly.
2. It will rarely make sense to give one party the right to spend the other's money freely, so the party that bears a liability will expect to control the negotiations or other proceedings that relate to determining its amount or otherwise settling it.
3. Some liabilities will have a connection to the ongoing operation of the business, e.g., a product warranty claim made by an important regular customer or an environmental problem at an active manufacturing site. The handling of such a liability may have serious consequences for the new owner, even if the seller has agreed to bear the liability, so it makes sense for the buyer to be involved in dealing with the liability. The seller often points to this as a reason for the buyer to bear the liability.
4. The parties should always seek an arrangement that creates an incentive for liabilities to be dealt with efficiently, in the sense of minimizing the cost to the buyer and seller considered together. This is a familiar principle in tax structuring, where the parties often cooperate to minimize their combined taxes, then bargain as to the allocation between them of the costs or benefits. The same idea can be applied to any cost.
When the various factors are taken into account, there are usually some good reasons for the seller to bear the liability and some good reasons for the buyer to bear it. Don't overlook the obvious possibility of some sort of sharing arrangement.
Described below is the factual setting that was assumed in creating the draft agreement, followed by a brief indication of how the buyer's counsel selected the approach taken in preparing the draft.
 
Background of the Agreement
The business to be acquired is Spectrodyne Inc., a closely held manufacturer of umbrella handles, which it sells to manufacturers of umbrellas. Each of the two founders and principal owners, Ellwood Suggins and Maude Frickert, owns 37.5% of the outstanding stock, with the remaining 25% owned by about 20 current employees. Suggins and Frickert, who together constitute the entire board of directors, have been active in the management of the business, and both have participated in the discussions leading to the transaction. None of the other stockholders is aware of the deal, and Suggins and Frickert prefer to keep it that way until after the acquisition agreement is signed. The proceeds of the sale will represent the bulk of the net worth of each of the two principal owners.
The buyer is Universal Export Corporation, a large, profitable public company. It is much larger than Spectrodyne, and its ability to finance the acquisition is beyond question.
The basic business deal, as described by the Universal executive who participated in the negotiations, is as follows:
1. Universal will acquire all of the stock of Spectrodyne.
2. The purchase price is $ 10 million in cash; there was no discussion of price adjustments.
3. Spectrodyne will make "customary" representations and warranties. These will survive the closing.
4. The stockholders (all of them, not just Suggins and Frickert) will indemnify Universal for any damage resulting from a breach of Spectrodyne's representations and warranties. They will share the indemnification obligation pro rata, based on their ownership percentages in Spectrodyne.
5. A portion, not yet negotiated, of the purchase price will be put into an escrow account to back up the indemnity from the stockholders.
6. Suggins and Frickert will continue to be employed by the business for at least some transitional period after the purchase. They have also agreed to abide by a noncompetition covenant.
In addition, Universal's counsel learned the following facts:
1. Spectrodyne is an ordinary subchapter C corporation.
2. Spectrodyne has never paid dividends. The owners have received, however, significant salaries and bonuses.
3. The employees of Spectrodyne, including those who are minority stockholders, are likely to be very worried about whether the new owner has plans to eliminate jobs or otherwise dramatically change working conditions at the company.
4. Suggins and Frickert have had an informal understanding that neither would sell his or her shares in the business except in cooperation with the other, although they have never had a written stockholders' agreement between them or with any of the minority stockholders/employees.
5. Spectrodyne's business is relatively stable and profitable.
6. Universal is not currently in the umbrella handle business and is not a supplier to, or a customer of, Spectrodyne.
7. Universal has done a thorough due diligence investigation of Spectrodyne and is comfortable with its level of understanding of the business. The investigation will continue while the purchase agreement is being negotiated.
8. Spectrodyne's charter and bylaws are silent on the subject of whether its stockholders can act by written consent without a meeting. Accordingly, the default rule in Delaware (where Spectrodyne is incorporated) applies, and written consent is permitted.
9. Spectrodyne's principal manufacturing plant is leased, and the lease is terminable by the landlord upon a "change of control" of Spectrodyne, which is defined to include the acquisition of a majority of the stock by any single stockholder.

Analysis of the Buyer's Counsel
Based on these factors, counsel for Universal has made the following analysis, which is reflected in the draft:
1. It is not advisable to structure the acquisition as a direct stock purchase from existing stockholders, because (i) Suggins and Frickert don't want the other holders to know about the purchase until there is a signed, definitive agreement and (ii) there is no assurance that all of the stockholders will want to sell. (Note the lack of any stockholders' agreement with "drag along" provisions.) From Universal's perspective, it is essential that 100% of the stock be acquired; otherwise there will be awkward issues about minority stockholder rights as Spectrodyne's business is integrated with Universal's. Accordingly, the acquisition will be structured as a merger. Suggins and Frickert will act as stockholders by written consent to approve the merger at the same time that they act to approve the merger in their capacity as directors, thus making certain that the merger receives stockholder approval. (See the Postscript below.)
2. Between signing and closing, the business should be run in the ordinary course, and no dividends or other unusual payments to stockholders should be made. In effect, the business would be run for Universal's benefit in the interim period, because the draft does not provide for any price adjustment on account of interim profits. There is some risk in this for Universal, since it will not control Spectrodyne prior to closing.
3. In view of the status of Universal's due diligence, there is no need for a due diligence "out." There will, however, be a right of termination if any of the specific representations in the agreement are false or there is a material adverse change in Spectrodyne's business prior to the closing.
4. The fact that the acquisition is structured as a merger means that all of Spectrodyne's liabilities (known and unknown) will remain Spectrodyne's and, at least as an initial matter, will be for the buyer's account. This is in contrast to an asset purchase, which is usually selected when the parties intend for pre-closing liabilities to remain the responsibility of the seller, except for those expressly assumed by the buyer. Universal and Spectrodyne do not appear to have explicitly discussed the allocation of liabilities. Universal's counsel has decided to provide for known liabilities, as recorded on the balance sheet, to be the responsibility of the buyer, but for everything else to be for the sellers' account through the operation of the representation on undisclosed liabilities (Section 4.7). This will undoubtedly be contested in the negotiations.
5. Because of the relatively straightforward nature of Spectrodyne's business (low-tech, no direct sales to consumers, no apparent product liability concerns), Universal feels reasonably well protected by a moderately detailed set of representations. Thus, counsel has not suggested separate representations on inventory, receivables and other items that are captured at some level of specificity by the financial statements.
6. To deal with the issue posed by the change-of-control provision in Spectrodyne's lease, Universal will require that the landlord's consent to the merger (or, more precisely, the landlord's waiver of the right to terminate the lease upon the effectiveness of the merger) be obtained prior to the closing.
7. After discussions with Universal, counsel has chosen normal litigation as the method of resolving disputes under the contract, as compared to an arbitration clause or other alternative mechanism.
8. The amount to be placed in escrow as security for the performance of the sellers' indemnity obligations has been left blank, on the theory that it should be left to a discussion of the principals.
9. Universal will require that Suggins and Frickert sign side agreements obligating them to refrain from soliciting other bids for Spectrodyne (in their capacity as individuals). Moreover, if a higher bid is received and manages to succeed, they will pay to Universal the amount of any "spread" between the Universal deal price and the higher price that they receive as individual shareholders.
Following the draft purchase agreement, there is included a draft of the escrow agreement, which implements the indemnity arrangements for Universal's benefit. Also included is a form of agreement that Universal will propose to Suggins and Frickert to help insure that no competing buyer for Spectrodyne emerges after the merger agreement is signed.
Postscript: NCS Healthcare
In December 2002, the Delaware Supreme Court decided the case Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003), and, in doing so, significantly altered the strategies available to a buyer who seeks to structure an acquisition of a closely held (but not single-owner) company through a merger. NCS Healthcare was a public company where two officers controlled a majority of the voting power. After putting itself up for sale but finding little interest among prospective buyers, NCS signed a merger agreement with Genesis Health Ventures, Inc. Concurrently, as a condition to Genesis's willingness to sign the merger agreement, the two officers entered into voting agreements with Genesis, obligating themselves to vote in favor of, and therefore approve on behalf of the stockholders as a whole, the Genesis merger. The merger agreement did not give NCS the right to terminate the agreement to accept a higher offer, and contained a provision requiring NCS to hold its stockholder meeting and allow the holders to vote on the merger notwithstanding any change in the board's recommendation.
In deciding to enter into the agreement with Genesis, the NCS board had rejected a proposal from Omnicare that was at a significantly higher price than the Genesis offer but subject to significantly greater uncertainty. Following the announcement of the merger agreement, Omnicare increased its proposal, commenced a tender offer for NCS stock and, ultimately, dropped the most onerous conditions attached to its offer, causing the NCS board of directors to withdraw its recommendation of the Genesis merger. Nevertheless, if the NCS stockholder meeting had been held, the lock-up agreements with the two insiders would have assured approval of the transaction with Genesis.
Omnicare sued to invalidate the Genesis merger agreement, claiming that the approval of the agreement by the NCS board, in light of the voting lock-up arrangements, was a breach of fiduciary duty. The Delaware Chancery Court rejected this claim at the preliminary injunction stage, finding that the NCS board had acted properly in the circumstances, and had followed a sale procedure designed to result in the highest price reasonably available (even though the procedure clearly did not achieve this goal). The Supreme Court reversed in an unusual 3-2 decision and enjoined the Genesis merger. The three companies then negotiated a settlement in which NCS was acquired by Omnicare at the higher price and Genesis received an enhanced break-up fee.
The decision leaves open a lot of questions about how, or whether, a merger can be locked up with the support of a majority of the voting power. The approach taken in the draft contract included in these materials is to have the stockholder approval of the merger take place immediately following the execution of the merger agreement. This is feasible where stockholders can act by written consent and majority control is in the hands of a very small group, but would not be feasible in a typical public company.
Without further guidance from the Delaware courts, it is uncertain whether the merger structure reflected in our contract is effective to prevent a higher bid from succeeding. The draft merger agreement does not give the Spectrodyne board of directors a right to terminate the agreement in order to accept a higher bid, but Spectrodyne's counsel may assert that the Omincare case requires such a provision. Even if the buyer manages to keep this provision out of the agreement, there is still a risk that a court will insert it as a matter of law in the face of a higher offer. Unless Omnicare is clarified in a buyer-friendly way, this is a risk a buyer simply must live with, as it traditionally bears the risk of a higher offer in a typical acquisition of a public company. To hedge this risk, Universal's counsel is suggesting the side agreements with Suggins and Frickert; if a higher bid somehow succeeds, at least Universal with get some compensation for its time and effort.
Whether the Omnicare case will ultimately produce higher value for shareholders is actually a more complex policy question than might be suspected at first glance. Because the decision allowed a higher bid to prevail, a superficial analysis would suggest that the decision facilitates higher bids and therefore should produce greater overall shareholder value. On the other hand, a closer analysis reveals that the inability to "lock up" a transaction undercuts the incentive, which a seller often seeks to maximize through an auction process, for the bidder to put forward its highest bid. The dynamics of bidding situations can be complex, and whether Omnicare is good or bad for shareholders in the long run will probably be the subject of further debate.

AGREEMENT AND PLAN OF MERGER
by and among
SPECTRODYNE INC., ELLWOOD P. SUGGINS, MAUDE X. FRICKERT, UNIVERSAL EXPORT CORPORATION,
and
UE ACQUISITION CORP.
April 1,
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 1,     (the "Agreement"), by and among SPECTRODYNE INC., a Delaware corporation (the "Company"), Ellwood P. Suggins and Maude X. Frickert, and each of them, as representatives of the shareholders of the Company (the "Representatives"), UNIVERSAL EXPORT CORPORATION, a Delaware corporation (the "Purchaser"), and UE ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of the Purchaser (the "Acquisition Subsidiary");
WITNESSETH:
WHEREAS, each of the respective Boards of Directors of the Company, the Purchaser and the Acquisition Subsidiary, and the Purchaser, as the sole shareholder of the Acquisition Subsidiary, have approved this Agreement and the merger (the "Merger"), pursuant to this Agreement, of the Acquisition Subsidiary with and into the Company on the terms and conditions contained herein and in accordance with the Delaware General Corporation Law (the "DGCL");
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
Capitalized terms used herein shall have the meanings ascribed to them in this Article 1, unless such terms are defined elsewhere in this Agreement.
 
Acquisition Proposal: any proposal, plan or offer to acquire all or any substantial part of the business or properties or capital stock of the Company or the Subsidiaries, whether by merger, purchase of assets, tender offer or otherwise, or to liquidate the Company or otherwise distribute to shareholders of the Company all or any substantial part of the business or properties of the Company or the Subsidiaries or the capital stock of the Subsidiaries; provided, however, that the Merger shall not constitute an Acquisition Proposal for purposes of this Agreement.
 
Acquisition Subsidiary: as defined in the first paragraph hereof.
 
Balance Sheet Date: December 31,     [date of last audit].
 
Base Balance Sheet: as defined in Section 4.6.
 
Cash Consideration: as defined in Section 3.1.
 
Certificate of Merger: as defined in Section 2.6.
 
Certificates: as defined in Section 3.2.
 
Closing: as defined in Article 8.
 
Closing Date: the date on which the Closing shall occur.
 
Code: the Internal Revenue Code of 1986, as amended.
 
Company: as defined in the first paragraph hereof.
 
Company Benefit Plan: as defined in Section 4.14.
 
Company ERISA Affiliate: as defined in Section 4.14.
 
Company Financial Statements: as defined in Section 4.6.
 
Company Stock: the Common Stock, par value $ 1.00 per share, of the Company.
 
Confidentiality Agreement: the Confidentiality Agreement dated    , between the Purchaser and the Company.
 
Consulting Agreements: as defined in Section 7.2.
 
DGCL: as defined in the second paragraph hereof.
 
Dissenting Shares: as defined in Section 3.3.
 
Effective Time: as defined in Section 2.6.
 
Environmental Laws: as defined in Section 4.10.
 
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
 
Escrow Agent: the Escrow Agent as defined in the Escrow Agreement.
 
Escrow Agreement: the Escrow Agreement substantially in the form attached hereto as Exhibit 1.1.
 
Escrow Funds: as defined in Section 6.7.
 
Exchange Agent: as defined in Section 3.2.
 
Expiration Date: as defined in Section 11.5.
 
Indemnified Parties: as defined in Section 9.1.
 
Indemnifying Parties: as defined in Section 9.1.
 
Intellectual Property: as defined in Section 4.17.
 
IRS: the Internal Revenue Service.
 
Licensed Intellectual Property: as defined in Section 4.17.
 
Material Adverse Effect: as defined in Section 4.1.
 
Material Contracts: as defined in Section 4.11.
 
Merger: as defined in the second paragraph hereof.
 
Merger Consideration: as defined in Section 3.1.
 
Proprietary Intellectual Property: as defined in Section 4.17.
 
Purchaser: as defined in the first paragraph hereof.
 
Representatives: as defined in the first paragraph hereof.
 
Subsidiary: a person or entity of which the Company holds, directly or indirectly, fifty percent (50%) or more of the voting securities or securities or other interests sufficient to allow the Company to elect or designate a majority of the members of the Board of Directors or other governing body thereof. n1

n1 This term is used repeatedly in the Company's representations. The Purchaser might want to consider alternative wording if the Company has any significant minority investments. Note the last sentence of Section 4.5.

Surviving Corporation: as defined in Section 2.1.
ARTICLE 2. THE MERGER
Section 2.1. Surviving Corporation.
Subject to the provisions of this Agreement and the DGCL, at the Effective Time, the Acquisition Subsidiary shall be merged with and into the Company, and the separate corporate existence of the Acquisition Subsidiary shall cease. n2 The Company shall be the surviving corporation in the Merger (hereinafter sometimes called the "Surviving Corporation") and shall continue its corporate existence under the laws of the State of Delaware and shall be a wholly owned subsidiary of the Purchaser after the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL.

n2 Having the Company be the surviving corporation helps avoid issues, which can be significant, about whether the merger causes a "transfer" of assets and property, which can trigger certain types of taxes or run afoul of contractual restrictions on transfer or assignment. The choice can also have critical federal tax consequences in mergers that (unlike this one) are intended to qualify for tax-free reorganization treatment.
 
Section 2.2. Certificate of Incorporation.
The Certificate of Incorporation of the Acquisition Subsidiary, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter duly amended.
Section 2.3. Bylaws.
The Bylaws of the Acquisition Subsidiary, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter duly amended.
Section 2.4. Directors.
The directors of the Acquisition Subsidiary immediately prior to the Effective Time shall be the directors of the Surviving Corporation and will hold office from the Effective Time until their respective successors are duly elected and qualified.
Section 2.5. Officers.
The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation and will hold office from the Effective Time until their respective successors are duly elected and qualified.
Section 2.6. Effective Time.
Subject to the terms and conditions of this Agreement, the Merger shall become effective at the time at which a certificate of merger meeting the requirements of Section 251 of the DGCL (the "Certificate of Merger") is filed with the Secretary of State of the State of Delaware, or such later time as may be specified in such certificate, such time being herein referred to as the "Effective Time."
ARTICLE 3. CONVERSION OF COMPANY STOCK
Section 3.1. Manner and Basis of Converting Company Stock.
As of the Effective Time, by virtue of the Merger and without any action on the part of any holder of any shares of Company Stock:
(a) Each share of Company Stock (except for Dissenting Shares) shall be converted into the right to receive $     cash, without interest (the "Cash Consideration"), and a fractional interest in the Escrow Funds (the "Escrow Consideration"), such fraction to be determined by dividing 1 by the number of shares of Company Stock that are converted into the Cash Consideration and the Escrow Consideration. The Cash Consideration and the Escrow Consideration are hereinafter collectively referred to as the "Merger Consideration."
(b) Each share of Company Stock held in the Company's treasury as of the Effective Time shall be cancelled and retired and all rights in respect thereof shall cease to exist, without any conversion thereof or payment of any consideration therefor.
(c) From and after the Effective Time, the holders of certificates representing shares of Company Stock shall cease to have any rights with respect to such certificates or such Company Stock, except the right to receive the Merger Consideration or any rights that may attach pursuant to the DGCL with respect to Dissenting Shares.
(d) Each share of capital stock of the Acquisition Subsidiary that is issued and outstanding as of the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of capital stock of the Surviving Corporation.
Section 3.2. Payment for and Exchange of Company Stock.
(a) The Purchaser shall deposit in trust with an exchange agent selected by the Purchaser and reasonably acceptable to the Company (the "Exchange Agent") at the Effective Time cash in an aggregate amount sufficient to pay the Cash Consideration to the holders of shares of Company Stock pursuant to Section 3.1(a) hereof (such amounts being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable written instructions, make the cash payments provided for in Section 3.1(a) out of the Exchange Fund. The Exchange Agent shall be permitted to invest the Exchange Fund as the Purchaser shall direct, provided that all of such investments shall be in obligations of or guaranteed by the United States of America, n3 in commercial paper obligations receiving the highest rating from either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $ 500 million. The Exchange Fund shall not be used for any purpose other than the payment of the Cash Consideration in accordance with the terms of this Agreement and in accordance with Section 3.2(e) hereof. Income earned on the Exchange Fund will be for the account of the Purchaser. n4

n3 Sellers should insist that these obligations have a maturity of no more than six months, to eliminate the risk of market fluctuation.
n4 This is the standard arrangement. Sellers can protect themselves by surrendering their certificates under paragraph (c) immediately after the Closing.
 
(b) The Purchaser shall deliver to the Escrow Agent at the Effective Time the Escrow Funds to be held by the Escrow Agent subject to the terms and conditions of the Escrow Agreement and Article 9 of this Agreement.
(c) Promptly after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail or otherwise deliver to each record holder as of the Effective Time of certificates which immediately prior to the Effective Time represented shares of Company Stock (the "Certificates") a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates and payment therefor. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, the holder of such Certificate shall be paid in exchange therefor cash in an amount equal to the product obtained by multiplying the number of shares of Company Stock evidenced by such Certificate by the amount of the Cash Consideration.
(d) After the Effective Time, there shall be no transfers of shares of Company Stock on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates are presented for transfer to the Surviving Corporation, they shall be delivered by the Surviving Corporation to the Exchange Agent for payment as provided in this Section 3.2.
(e) Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the shareholders of the Company after six months following the Effective Time shall be repaid to the Surviving Corporation. Any shareholders of the Company who have not theretofore complied with this Section 3.2 or Section 3.3 shall thereafter look only to the Surviving Corporation for payment for their Certificates, without any interest thereon.
Section 3.3. Dissenting Shares.
Shares of Company Stock that have not been voted for adoption of the Merger and with respect to which dissenter's rights have been properly demanded in accordance with Section 262 of the DGCL ("Dissenting Shares"), shall not be converted into the right to receive the Merger Consideration at or after the Effective Time unless and until the holder of such shares withdraws his demand for dissenter's rights or becomes ineligible for dissenter's rights. If a holder of Dissenting Shares withdraws his demand for dissenter's rights or becomes ineligible for dissenter's rights, then, as of the Effective Time or the occurrence of such event, whichever later occurs, such holder's Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger Consideration.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser and the Acquisition Subsidiary as follows:
Section 4.1. Organization.
Each of the Company and the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company and the Subsidiaries is duly qualified to transact business, and is in good standing as a foreign corporation in each jurisdiction where the character of its activities requires such qualification, except where the failure to so qualify could not reasonably be expected to have a material adverse effect on the business, assets, financial condition, results of operations or prospects of the Company and the Subsidiaries taken as a whole (a "Material Adverse Effect"). n5 The Company has heretofore made available to the Purchaser accurate and complete copies of the Certificate of Incorporation and Bylaws, as currently in effect, of the Company and each of the Subsidiaries, and has made available to the Purchaser the minute books and stock records of each such entity. The minute books and stock records of the Company and each of the Subsidiaries made available to the Purchaser are accurate and complete. n6

n5 Sellers will object to "prospects" as being too vague or subjective. The definition of Material Adverse Effect plays a critical role in the agreement and deserves close attention from counsel for both sides. Interpretations of similar definitions were litigated in IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001) and Pacheco v. Cambridge Technology Partners (Massachusetts), Inc., 85 F.Supp.2d 69 (D. Mass. 2000). See also J. Jaffe and D. Marcus, "A Multitude of MACs," Corporate Control Alert, April 2000; D. Marcus, "Power Play," Corporate Control Alert, April 2001 (describing litigation between Consolidated Edison, Inc. and Northeast Utilities over the interpretation of a "material adverse effect" clause in a merger agreement between the two companies).
n6 Sellers will want to add "in all material respects." Purchaser will argue that any error in the stock records is material.
 
Section 4.2. Authorization.
The Company has full corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and to consummate the Merger and the other transactions provided for herein. The execution and delivery of this Agreement by the Company and the performance by the Company of its obligations hereunder and the consummation of the Merger and the other transactions provided for herein have been duly and validly authorized by all necessary corporate action on the part of the Company, subject to the adoption of this Agreement by the stockholders of the Company. n7 The Board of Directors of the Company has approved the execution, delivery and performance of this Agreement and the consummation of the Merger and the other transactions provided for herein or contemplated hereby, including for purposes of Section 203 of the DGCL. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable against it in accordance with its terms. n8

n7 Although Purchaser's counsel has not included a provision requiring the Company to obtain (or at least seek to obtain) stockholder approval, it is not intended to leave the matter unresolved. Purchaser's plan is to insist that Suggins and Frickert act (as stockholders) by written consent to adopt the merger agreement immediately after it has been signed. Purchaser will not sign the merger agreement unless it is convinced that this will happen, e.g., by having the written consents already prepared and ready to formally "deliver" to the Company at the same time and place at which the merger agreement will be signed. Even though there should be no difficulty in coordinating these steps, Purchaser is requesting a termination right (Section 10.1(d)) if there is any failure to supply the written consents.
n8 Sellers may ask to qualify this by adding "subject to applicable bankruptcy, insolvency and other similar laws affecting the enforceability of creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies."
 
Section 4.3. No Violations.
Except as set forth in Schedule 4.3 hereto, the execution, delivery and performance of this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement and the fulfillment of and compliance with the terms and conditions of this Agreement do not and will not violate or conflict with, constitute a breach of or default under, result in the loss of any benefit under, or permit the acceleration of any obligation under, (i) the Certificate of Incorporation or Bylaws of the Company or any Subsidiary, (ii) any contract, commitment, instrument or other agreement to which the Company or any Subsidiary is a party or by which any of them (or any of their respective properties or assets) is subject or bound, (iii) any judgment, decree or order of any court or governmental authority or agency to which the Company or any Subsidiary is a party or by which the Company, any Subsidiary or any of their respective properties or assets is bound, or (iv) except as set forth in this Section 4.3, any statute, law, regulation or rule applicable to the Company or any Subsidiary, except, in the case of subsections (ii) through (iv) above, for circumstances that taken in the aggregate could not reasonably be expected to have a Material Adverse Effect. n9 Except as set forth on Schedule 4.3, each of the contracts, commitments, instruments and other agreements listed in Schedule 4.3 can be terminated or prepaid on no more than 60 days' notice or at the Closing by the Company or a Subsidiary without penalty. Except for the filing of the Certificate of Merger as required by the DGCL, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency or public or regulatory unit, agency, body or authority with respect to the Company or any of the Subsidiaries is required in connection with the execution, delivery or performance of this Agreement by the Company or the consummation of the transactions contemplated by this Agreement by the Company, the failure to obtain which could reasonably be expected to have a Material Adverse Effect or adversely affect the ability of the Company to consummate the transactions provided for herein or contemplated hereby. n10

n9 The words of the exception clause at the end of this sentence are carefully chosen. The Purchaser could have taken a more aggressive approach to this draft by omitting "reasonably" and letting Sellers insist on adding it. The draft reflects a more moderate approach.
n10 The transaction is well below the filing threshold for the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which will increase to $ 59.8 million for transactions that close after February 21, 2007.
 
Section 4.4. Capitalization.
The authorized capital stock of the Company consists of     shares of Company Stock. As of the date hereof, there are issued and outstanding     shares of Company Stock, each of which is duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. Except as set forth in this Section 4.4 or Schedule 4.4 hereto, there are no shares of capital stock of the Company outstanding, and there are no subscriptions, options, convertible securities, calls, rights, warrants or other agreements, claims or commitments of any nature whatsoever obligating the Company to issue, transfer, deliver or sell, or cause to be issued, transferred, delivered or sold, additional shares of the capital stock or other securities of the Company or obligating the Company to grant, extend or enter into any such agreement or commitment. n11

n11 The draft reflects an extremely simple capital structure. More complexity often comes to light during the negotiations.
 
Section 4.5. Subsidiaries.
A correct and complete list of all of the Subsidiaries is set forth in Schedule 4.5. The Company is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each of the Subsidiaries, there are no irrevocable proxies with respect to any such shares, no equity securities of any of the Subsidiaries are or may become required to be issued by reason of any options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of any capital stock of any Subsidiary or securities convertible into or exchangeable or exercisable for any such shares, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may be bound to issue additional shares of capital stock of any Subsidiary or securities convertible into or exchangeable or exercisable for any such shares. All of such shares so owned by the Company are validly issued, fully paid and nonassessable and are owned by it free and clear of any claim, lien, charge, encumbrance or agreement of any kind. Except as set forth in Schedule 4.5, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.
Section 4.6. Financial Statements; Internal Controls.
(a) Attached hereto as Exhibit 4.6 are: (i) the audited consolidated balance sheets of the Company and the consolidated Subsidiaries as of December 31,    ,     and     and the audited consolidated statements of earnings, changes in shareholders' equity and cash flows for the respective fiscal years then ended, including the notes thereto, in each case examined by and accompanied by the report of    , independent public accountants and (ii) the unaudited consolidated balance sheet of the Company and the consolidated Subsidiaries as of     (the "Base Balance Sheet") and the unaudited consolidated statements of earnings, changes in shareholders' equity and cash flows for the    -month period then ended. All of the foregoing financial statements are hereinafter collectively referred to as the "Company Financial Statements." The Company Financial Statements have been prepared from, and are in accordance with, the books and records of the Company and the consolidated Subsidiaries and present fairly the consolidated financial position and consolidated results of operations of the Company and the consolidated Subsidiaries as of the dates and for the periods indicated, in each case in conformity with generally accepted accounting principles, consistently applied, except as otherwise stated in the Company Financial Statements and subject, in the case of the unaudited financial statements, to normal and recurring year-end audit adjustments.
(b) The Company and its Subsidiaries maintain internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements of the Company and its Subsidiaries on a consolidated basis, for external purposes in accordance with generally accepted accounting principles, including policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company and its Subsidiaries are being made only in accordance with authorizations of management and directors of the Company and its Subsidiaries and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company and its Subsidiaries.
Section 4.7. No Undisclosed Liabilities.
There are no liabilities of the Company or any Subsidiary of any kind whatsoever, other than liabilities disclosed or provided for in the Base Balance Sheet or incurred in the ordinary course of business since the date of the Base Balance Sheet. n12 There is no probable or reasonably possible loss contingency (within the meaning of Statement of Financial Accounting Standards No. 5) known to the Company which is not reflected in the Company Financial Statements (including the notes thereto).

n12 Sellers may request a materiality qualification.
 
Section 4.8. Absence of Certain Changes.
Except as set forth in Schedule 4.8, since the Balance Sheet Date:
(a) there has not been (i) any Material Adverse Effect, n13 (ii) any damage, destruction, loss or casualty to property or assets of the Company or any Subsidiary, whether or not covered by insurance, which property or assets are material to the operations or business of the Company and the Subsidiaries taken as a whole, (iii) any declaration, setting aside or payment of any dividend or distribution (whether in cash, stock or property) in respect of the capital stock of the Company or any redemption or other acquisition by the Company of any of the capital stock of the Company or any of the Subsidiaries or any split, combination or reclassification of shares of capital stock declared or made by the Company, (iv) any increase in compensation payable or benefits to directors, executive officers or key employees of the Company n14 or (v) any commitment or agreement to do any of the foregoing; and

n13 See footnote to Section 4.1.
n14 Sellers may request an exception for increases in the ordinary course and consistent with past practice.
 
(b) there has not been (i) any extraordinary losses suffered, (ii) any material assets mortgaged, pledged or made subject to any lien, charge or other encumbrance, (iii) any liability or obligation (absolute, accrued or contingent) incurred or any bad debt, contingency or other reserve increase suffered, except, in each such case, in the ordinary course of business and consistent with past practice, (iv) any claims, liabilities or obligations (absolute, accrued or contingent) paid, discharged or satisfied, other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of claims, liabilities and obligations reflected or reserved against in the Company Financial Statements or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date, (v) written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business and consistent with past practice, (vi) written down the value of any asset or investment on the Company's books or records, except for depreciation and amortization taken in the ordinary course of business and consistent with past practice, (vii) any change in any method of accounting or accounting practice by the Company or any Subsidiary, except for such changes required by reason of changes in generally accepted accounting principles, (viii) cancellation of any debts or waiver of any claims or rights in excess of $ 25,000, or sale, transfer or other disposition of any properties or assets (real, personal or mixed, tangible or intangible) in excess of $ 25,000, except, in each such case, in transactions in the ordinary course of business and consistent with past practice, (ix) any single capital expenditure or commitment in excess of $ 50,000 for additions to property or equipment, or aggregate capital expenditures and commitments in excess of $ 100,000 (on a consolidated basis) for additions to property or equipment, (x) entered into any transaction other than in the ordinary course of business, or (xi) any agreement to do any of the foregoing.
Section 4.9. Legal Proceedings.
Except as set forth in Schedule 4.9, there are no suits, actions, claims, proceedings or investigations pending or, to the best knowledge of the Company, threatened against the Company or any Subsidiary before any court, arbitrator or administrative or governmental body, United States or foreign. The matters listed on Schedule 4.9 could not reasonably be expected in the aggregate to have a Material Adverse Effect. Neither the Company nor any Subsidiary is subject to any judgment, decree, injunction, rule or order of any court or governmental body applicable to the Company or any Subsidiary which could reasonably be expected to have a Material Adverse Effect.
Section 4.10. Compliance with Law.
(a) The Company and the Subsidiaries each have all authorizations, approvals, licenses and orders of and from all governmental and regulatory officers and bodies necessary to carry on their respective businesses as they are now being conducted, to own or hold under lease the properties and assets they own or hold under lease and to perform all of their obligations under the agreements to which they are a party except such authorizations, approvals, licenses and orders the failure of which to obtain in the aggregate could not reasonably be expected to have a Material Adverse Effect. The Company and the Subsidiaries are in compliance with all applicable laws, regulations and administrative orders of any country, state or municipality or of any subdivision of any thereof to which their respective businesses and their employment of labor or their use or occupancy of properties or any part thereof are subject, except for violations which in the aggregate could not reasonably be expected to have a Material Adverse Effect.
(b) For purposes of this Section 4.10, the term "Environmental Laws" shall mean all laws relating to the environment, safety, health, and regulation of those substances, whether waste materials, raw materials, finished products or any other material or article, which are regulated by or form the basis of liability under federal, state or local environmental, health or safety statutes or regulations, including without limitation, asbestos, polychlorinated biphenyls, radioactive substances, and any other material or substance which constitutes a material health, safety or environmental hazard to any person or property including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or similar state or local law. Except as set forth in Schedule 4.10:
(i) The Company's liability under applicable Environmental Laws is limited to liability for the items disclosed in the environmental audit reports listed on Schedule 4.10, copies of which have been provided to the Purchaser.
(ii) Each of the Company and the Subsidiaries has obtained all permits, licenses, approvals and other authorizations which are required with respect to the business or property of the Company or the operation or ownership thereof under any Environmental Law, except for such permits, licenses, approvals and authorizations which in the aggregate are not material to the business or operations of the Company and the Subsidiaries taken as a whole or to the business or operations of any material facility of the Company or any Subsidiary.
(iii) Each of the Company and the Subsidiaries and each of their respective properties are in compliance with all terms and conditions of the required permits, licenses, approvals and authorizations and with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any of the Environmental Laws. n15
(iv) None of the Company or any of the Subsidiaries have received any notice from any governmental authority of any violation of or liability arising under any Environmental Laws or any permits, licenses, approvals or other authorizations which are required with respect to the business or properties of the Company or any of the Subsidiaries or the operation or ownership thereof.
(v) There is no civil, criminal, administrative action, suit, demand, claim, hearing, notice of violations, investigation, proceeding, notice or demand letter pending or, to the best knowledge of the Company, threatened against the Company or any of the Subsidiaries relating in any way to any of the Environmental Laws.
(vi) There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance by the Company or any of the Subsidiaries with the Environmental Laws, or which may give rise to any common law or legal liability of the Company or any of the Subsidiaries, including without limitation, liability under any of the Environmental Laws, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation of the Company or any of the Subsidiaries, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste.

n15 Sellers may request a materiality qualification.
 
Section 4.11. Material Contracts.
Schedule 4.11 sets forth a correct and complete list of the following (hereinafter referred to as the "Material Contracts"):
(a) all bonds, debentures, notes, mortgages, indentures or guarantees (excluding intercompany guarantees among the Company and any of the Subsidiaries) to which the Company or any of the Subsidiaries is a party or by which any of them or their respective properties or assets (real, personal or mixed, tangible or intangible) are bound;
(b) all existing contracts, commitments, instruments and agreements (other than those described in subparagraph (a) or (c), and any Benefit Plans) to which the Company or any of the Subsidiaries is a party or by which any of them or their respective properties or assets may be bound involving an annual commitment or annual payment by any party thereto of more than $ 25,000 individually, or which have a fixed term extending more than twelve months from the date hereof and which involve an annual commitment or annual payment by any party thereto of more than $ 10,000 or cumulative rental payments in excess of $ 50,000, in each case individually, or which are otherwise material to the business and operations of the Company and the Subsidiaries taken as a whole;
(c) all loans and credit commitments to the Company or any of the Subsidiaries which are outstanding, together with a brief description of such commitments and the name of each financial institution granting the same; and
(d) all agreements imposing a noncompetition obligation on the Company or any of its affiliates or any similar restriction on the activities of the Company or its affiliates.
Correct and complete copies of all Material Contracts, including all amendments thereto, have been made available to the Purchaser. The Material Contracts are valid and enforceable in accordance with their respective terms with respect to the Company and the applicable Subsidiaries and are valid and enforceable in accordance with their respective terms with respect to any other party thereto, in each case to the extent material to the financial condition or results of operations of the Company and the Subsidiaries taken as a whole. Except for events or occurrences, the consequences of which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, there is not under any of the Material Contracts any existing breach, default or event of default by the Company or any of the Subsidiaries, nor does the Company know of, and the Company has not received notice of, or made a claim with respect to, any breach or default by any other party thereto.
Section 4.12. Tax Returns; Taxes.
Each of the Company and the Subsidiaries has duly and timely filed all federal, state, local and foreign tax returns required to be filed by it, all such returns are true and correct in all material respects, and such companies have duly paid or made adequate provision for the payment of all taxes which are due and payable with respect to the periods covered by such returns pursuant to any assessment with respect to taxes in such jurisdictions, whether or not in connection with such returns or otherwise due or payable on or before the Closing Date. The liability for taxes reflected in the Base Balance Sheet (i) is sufficient for the payment of all unpaid taxes, whether or not disputed, that are accrued or applicable for the period ended December 31,    , and for all years and periods ended prior thereto and (ii) adjusted for the passage of time in a manner consistent with the past practice of the Company and the Subsidiaries, is sufficient for the payment of all unpaid taxes, whether or not disputed, that are accrued or applicable for all years or periods ending on or prior to the Closing Date. All deficiencies asserted as a result of any examinations by the IRS or any other taxing authority have been paid, fully settled or adequately provided for in the Base Balance Sheet. There are no pending claims asserted for taxes of the Company or any of the Subsidiaries or outstanding agreements or waivers extending the statutory period of limitation applicable to any taxes of the Company or any of the Subsidiaries for any period. Neither the Company nor any of the Subsidiaries has filed a consent to the application of Section 341(f) of the Code. n16 Neither the Company nor any of the Subsidiaries is a party to any tax sharing, allocation or indemnification agreement or arrangement. Neither the Company nor any of the Subsidiaries has been a member of an affiliated group filing a consolidated federal income tax return (other than the affiliated group of which the Company is the common parent) or has any liability for the taxes of any person (other than the Company or the Subsidiaries) under Treasury Regulation § 1.1502-6 (or any similar provision of state, local or foreign law). The Company and each of the Subsidiaries have made all estimated income tax deposits and all other required tax payments or deposits (including withholding taxes) and have complied for all prior periods in all material respects with the tax provisions of all applicable federal, state, local and other laws. The Company has made available to the Purchaser correct and complete copies of its federal income tax returns for the last five (5) taxable years and made available such other tax returns requested by the Purchaser. The term "taxes" or "tax" shall include all interest and penalties and additions to tax.

n16 Relating to "collapsible corporations."
 
Section 4.13. Officers, Directors and Employees.
Schedule 4.13 contains a correct and complete list of all of the officers and directors of the Company and each of the Subsidiaries, specifying their office and annual rate of compensation, and a list of all of the employees of the Company and each of the Subsidiaries as of the date hereof with whom the Company or any of the Subsidiaries has an employment or deferred compensation contract, whether or not expressed in writing. n17

n17 Sellers may want to limit this to written contracts.
 
Section 4.14. Employee Benefit Plans.
(a) Schedule 4.14 sets forth a true and complete list of each material employee or director benefit plan, arrangement or agreement that is maintained, or contributed to, as of the date of this Agreement (the "Company Benefit Plans") by the Company or any of the Subsidiaries or by any trade or business, whether or not incorporated (a "Company ERISA Affiliate"), all of which together with Company would be deemed a "single employer" within the meaning of Section 4001 of ERISA.
(b) The Company has heretofore made available to the Purchaser true and complete copies of each of the Company Benefit Plans and certain related documents, including, but not limited to, (i) the actuarial report for such Company Benefit Plan (if applicable) for each of the last two years, and (ii) the most recent determination letter from the IRS (if applicable) for such Company Benefit Plan.
(c) Except as set forth in Schedule 4.14: (i) each of the Company Benefit Plans has been operated and administered in all material respects with applicable laws, including, but not limited to, ERISA and the Code; (ii) each of the Company Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, and there are no existing circumstances or any events that have occurred that could reasonably be expected to adversely affect the qualified status of any such plan; (iii) with respect to each Company Benefit Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such Company Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Company Benefit Plan's actuary with respect to such Company Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Company Benefit Plan allocable to such accrued benefits; (iv) no Company Benefit Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured), with respect to current or former employees or directors of the Company, its subsidiaries or any Company ERISA Affiliate beyond their retirement or other termination of service, other than (A) coverage mandated by applicable law, (B) death benefits or retirement benefits under any "employee pension plan" (as such term is defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the books of the Company, the Subsidiaries or the Company ERISA Affiliates or (D) benefits the full cost of which is borne by the current or former employee or director (or his beneficiary); (v) no material liability under Title IV of ERISA has been incurred by the Company, its Subsidiaries or any Company ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Company, the Subsidiaries or any Company ERISA Affiliate of incurring a material liability thereunder; (vi) no Company Benefit Plan is a "multiemployer pension plan" (as such term is defined in Section 3(37) of ERISA); (vii) all contributions or other amounts payable by the Company or its Subsidiaries as of the Effective Time with respect to each Company Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with generally accepted accounting principles and Section 412 of the Code; (viii) neither the Company, the Subsidiaries nor any Company ERISA Affiliate has engaged in a transaction in connection with which the Company, the Subsidiaries or any Company ERISA Affiliate reasonably could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code; and (ix) to the best knowledge of the Company there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Company Benefit Plans or any trusts related thereto which are, in the reasonable judgment of the Company, likely, either individually or in the aggregate, to have a Material Adverse Effect.
(d) Except as set forth in Schedule 4.14, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) result in any material payment (including, without limitation, severance, unemployment compensation, "excess parachute payment" (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any director or any employee of the Company or any of its affiliates from the Company or any of its affiliates under any Company Benefit Plan or otherwise, (ii) materially increase any benefits otherwise payable under any Company Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits.
Section 4.15. Labor Relations.
Each of the Company and the Subsidiaries is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice. Except as set forth in Schedule 4.15, there is no: (a) unlawful employment practice discrimination charge pending before the Equal Employment Opportunity Commission (the "EEOC") or EEOC recognized state "referral agency" or, to the best knowledge of the Company, threatened, against or involving or affecting the Company or any of the Subsidiaries; (b) unfair labor practice charge or complaint against the Company or any of the Subsidiaries pending before the National Labor Relations Board (the "NLRB") or, to the best knowledge of the Company, threatened, against or involving or affecting the Company or any of the Subsidiaries; (c) labor strike, dispute, slowdown or stoppage actually pending or, to the best knowledge of the Company, threatened against or involving or affecting the Company or any of the Subsidiaries and no NLRB representation question exists respecting any of their respective employees; (d) grievance or arbitration proceeding pending and no written claim therefor exists; and (e) collective bargaining agreement that is binding on the Company or any of the Subsidiaries. To the best knowledge of the Company, no organizational efforts are presently being made involving any of the Company's or any of the Subsidiaries' employees and, for the past five years, none have been made. No union or other collective bargaining unit has been certified or recognized by the Company as representing any of the Company's or any of the Subsidiaries' employees during the past five years. During the past five years, no union or collective bargaining unit has sought such certification or recognition, and, to the best knowledge of the Company, no union or collective bargaining unit is seeking or currently contemplating seeking any such certification or recognition.
Section 4.16. Title to Properties and Related Matters.
Schedule 4.16 sets forth a correct and complete list of all real property owned or leased by the Company or any of the Subsidiaries as of [date]. The Company and the Subsidiaries have good and marketable title to, or valid leasehold interests in, all of their respective properties listed on Schedule 4.16 and all of such properties are held free and clear of all title defects, liens, encumbrances and restrictions of any kind, except, with respect to all such properties, (a) mortgages and liens securing debt reflected as liabilities on the Base Balance Sheet, and (b) (i) liens for current taxes and assessments not in default, (ii) mechanics', carriers', workmen's, repairmen's, statutory or common law liens being contested in good faith, and (iii) other encumbrances, covenants, rights of way, building or use restrictions, easements, exceptions, variances, reservations and other matters or limitations of any kind, if any, which do not and could not reasonably be expected to have a material adverse effect on the Company's use of the property n18 or otherwise have a Material Adverse Effect. No material improvements constituting a part of the real property owned or leased by the Company or any Subsidiary encroach on real property not owned or leased by the Company or any Subsidiary to the extent that removal of such encroachment would materially impair the manner and extent of the current use, occupancy and operation of such improvements. True, complete and correct copies of all leases under which the Company or any Subsidiary leases any real property have been made available to the Purchaser (including any supplements, amendments or side letters relating thereto) and such leases are valid and in full force and effect in accordance with their respective terms. All of the rental and other payments payable under each such lease by the Company or any Subsidiary are current, there is no default under such lease either by the landlord or by the tenant thereunder, and no event has occurred which, with the lapse of time or the giving of notice or both, would constitute a default thereunder. There are neither any actual, nor, to the best knowledge of the Company and each Subsidiary, any threatened or contemplated, condemnation or eminent domain proceedings that affect any real property owned or leased by the Company or any of the Subsidiaries or any part thereof, and neither the Company nor any Subsidiary has received any notice from any governmental authority of the intention of any public authority or other entity to take or use all or any part thereof. n19

n18 Sellers may seek to restrict this representation to the current use of the property.
n19 Sellers may want this to apply only to written notices.
 
Section 4.17. Patents, Trademarks and Trade Names.
Schedule 4.17 sets forth a correct and complete list of (i) all patents, trademarks, trade names and registered copyrights owned by the Company or any of the Subsidiaries which are material to their businesses taken as a whole (collectively, the "Proprietary Intellectual Property") and (ii) all patents, trademarks, trade names, copyrights, technology and processes used by the Company and the Subsidiaries in their respective businesses which are material to their businesses taken as a whole and are used pursuant to a license or other right granted by a third party (collectively, the "Licensed Intellectual Property," and together with the Proprietary Intellectual Property herein referred to as "Intellectual Property"). The Company and each Subsidiary owns, or has the right to use pursuant to valid and effective agreements, all Intellectual Property, and the consummation of the transactions contemplated hereby will not alter or impair any such rights. No claims are pending or, to the best knowledge of the Company and each Subsidiary, threatened against the Company or any Subsidiary by any person with respect to the use of any Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement relating to the same. The current use by the Company and each Subsidiary of the Intellectual Property does not infringe on the rights of any person, except for such infringements which in the aggregate could not reasonably be expected to have a material adverse effect upon the Company's ownership or use of such Intellectual Property. There are no pending claims or charges brought by the Company or any of the Subsidiaries against any person with respect to the use of any Intellectual Property or the enforcement of any of the Company's or any Subsidiaries' rights relating to the Intellectual Property.
Section 4.18. Brokers, Finders and Investment Bankers.
None of the Company, any Subsidiary or any of their respective executive officers or directors has employed any broker, finder or investment banker or incurred any liability for any investment banking fees, financial advisory fees, brokerage fees or finders' fees in connection with the transactions contemplated herein, except that the Company has arrangements with Investmentbank & Co., the complete terms of which have been disclosed to the Purchaser. n20

n20 If these fees will be paid by the Company, the Purchaser should take them into account in pricing the transaction.
 
Section 4.19. Insurance.
Schedule 4.19 sets forth a complete and accurate list of all insurance policies issued in favor of the Company or any of the Subsidiaries, or pursuant to which the Company or any of the Subsidiaries are named insureds or otherwise beneficiaries. As of the date hereof, the Company and each of the Subsidiaries is covered by valid and currently effective insurance policies issued in favor of the Company or a Subsidiary that are customary and adequate n21 for companies of similar size in the industry and locales in which the Company and the Subsidiaries operate. All policies listed in Schedule 4.19 are in full force and effect, all premiums due thereon have been paid and the Company and the Subsidiaries have complied in all material respects with the provisions of such policies.

n21 Sellers may be reluctant to address adequacy on the theory that it is not sufficiently objective.
 
Section 4.20. Condition of Properties.
The improvements, machinery, equipment, furniture, fixtures, inventory and tangible personal property owned, leased or held by the Company or the Subsidiaries for use in their business and operations are in the aggregate in such condition and repair as are consistent with and suitable for their present uses and there are no defects in any of the assets used in the business and operations of the Company and the Subsidiaries which individually or in the aggregate could have, n22 or could reasonably be expected to have, a Material Adverse Effect.

n22 Sellers should object to the "could have" formulation.
 
Section 4.21. Transactions with Affiliates.
Except as set forth in Schedule 4.21 hereto, no shareholder, officer or director of the Company or any of the Subsidiaries, or any person with whom any such shareholder, officer or director has any direct or indirect relation by blood, marriage or adoption, or any entity in which any such person owns any beneficial interest (other than a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than 1% of the stock of which is beneficially owned by all of such persons), currently has, or within the past three years has had, any interest in (i) any contract, arrangement or understanding with, or relating to, the business or operations of the Company or any Subsidiary, (ii) any loan, arrangement, understanding, agreement or contract for or relating to indebtedness with the Company or any Subsidiary, (iii) any property (real, personal or mixed), tangible or intangible, used or currently intended to be used in, the business or operations of the Company or any of the Subsidiaries, or (iv) any business or entity that competes with the Company or any of the Subsidiaries.
Section 4.22. Outstanding Indebtedness.
The outstanding indebtedness for money borrowed of the Company and the Subsidiaries determined on a consolidated basis in conformity with generally accepted accounting principles, consistently applied, as of December 31,     was $    . Since December 31,    , there have been no borrowings by the Company or any Subsidiary other than borrowings in the ordinary course and consistent with past practice. n23

n23 Sellers may object to this entire representation as being already covered by Section 4.6.
 
Section 4.23. Adequacy of Assets.
The Company owns, or has the right to use pursuant to a valid and enforceable lease, license or similar contractual arrangement, all of the assets (whether tangible or intangible) that are used or required for use in the operation of its business as currently conducted.
Section 4.24. Disclosure.
No representation, warranty or statement made by the Company in this Agreement or in the Schedules or Exhibits attached hereto, contains any untrue statement of a material fact or omits to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein not misleading. The information included in the data room located at the Company's corporate headquarters in Hometown, Anystate and made available to Purchaser, considered in the aggregate, does not contain any material misstatements of fact or any material omissions of fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. n24

n24 This is usually referred to as a "10b-5" representation because the language is taken from Rule 10b-5. Seeking such a representation with respect to the data room information is particularly aggressive on the part of the Purchaser. Both sides should consider carefully how a right of action under this representation differs from a right of action under Rule 10b-5 itself.
In addition to arguing that Section 4.24 should be deleted, the Seller may suggest the inclusion of a provision that has, as a practical matter, exactly the opposite result; i.e., that the buyer should acknowledge that it is not relying on any representation other than those that are explicitly spelled out in the agreement. This could prevent the buyer from recovering damages through rights of action that arise outside the contract, such as under the securities law.
Seller's preferred language might be as follows: "The Company shall not be deemed to have made to the Purchaser any representation or warranty other than as expressly made in Section 4.1 through 4.    hereof. In particular, the Company makes no representation or warranty with respect to (a) any projections, estimates or budgets heretofore delivered or made available to the Purchaser concerning future revenues, expenses, expenditures or results of operations or (b) any other information or documents made available to the Purchaser or its representatives with respect to the Company, except as expressly covered in this Article 4."
Two conflicting cases that analyse the effect of this type of provision on an action for damages under Rule 10b-5, and are well worth reading, are Harsco Corporation v. Segui et al., 91 F.3d 337 (2d Cir. 1996), which finds in favor of enforcing contractual provisions that limit liability of the seller, and AES Corp. v. The Dow Chemical Company, 325 F.3d 174 (3d Cir. 2003), which is more buyer-friendly. A recent case in the seller-friendly Second Circuit that nevertheless finds in favor of the buyer is Merrill Lynch & Co. v. Allegheny Energy Inc., 2003 WL 22795650, S.D.N.Y., Nov. 25, 2003. The question of whether the buyer can retain a right of action under Rule 10b-5 has become even more interesting as a result of the lengthening of the applicable statute of limitations (one of the Enron-related reforms enacted by Congress). See also footnote 49 below.
 
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE ACQUISITION SUBSIDIARY
The Purchaser and the Acquisition Subsidiary hereby represent and warrant to the Company and the Representatives as follows:
Section 5.1. Organization.
Each of the Purchaser and the Acquisition Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted.
Section 5.2. Authorization.
Each of the Purchaser and the Acquisition Subsidiary has full corporate power and authority to execute and deliver this Agreement and to perform their respective obligations under this Agreement and to consummate the Merger and the other transactions provided for herein. The execution and delivery of this Agreement by the Purchaser and the Acquisition Subsidiary and the performance by the Purchaser and the Acquisition Subsidiary of their respective obligations hereunder and the consummation of the Merger and the other transactions provided for herein have been duly and validly authorized by all necessary corporate action on the part of the Purchaser and the Acquisition Subsidiary. The Board of Directors of the Purchaser and the Acquisition Subsidiary each has approved, and the Purchaser, as the sole shareholder of the Acquisition Subsidiary, has approved, the execution, delivery and performance of this Agreement and the consummation of the Merger and the other transactions provided for herein. This Agreement has been duly executed and delivered by the Purchaser and the Acquisition Subsidiary and constitutes the valid and binding agreement of the Purchaser and the Acquisition Subsidiary, enforceable against each of them in accordance with its terms.
Section 5.3. No Violations.
The execution, delivery and performance of this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement and the fulfillment of and compliance with the terms and conditions of this Agreement do not and will not, violate or conflict with (i) any terms or provisions of the Certificate of Incorporation or Bylaws or other organizational instrument of the Purchaser or the Acquisition Subsidiary or (ii) any judgment, decree, order, statute, rule or regulation applicable to the Purchaser, the Acquisition Subsidiary or any of their respective assets, except for such violations which would not have in the aggregate a material adverse affect on the ability of the Purchaser or the Acquisition Subsidiary to consummate the Merger and other transactions contemplated by this Agreement. Except for the filing of the Certificate of Merger as required by the DGCL, no consent, approval, order or authorization of, or registration, declaration or filing with, any government agency or public or regulatory unit, agency, body or authority with respect to the Purchaser, the Acquisition Subsidiary or any other subsidiary of the Purchaser is required in connection with the execution, delivery or performance of this Agreement by the Purchaser and the Acquisition Subsidiary or the consummation of the transactions contemplated by this Agreement by the Purchaser and the Acquisition Subsidiary.
ARTICLE 6. CERTAIN COVENANTS AND AGREEMENTS
Section 6.1. Conduct of Business by the Company.
From the date hereof to the Effective Time, the Company will, and will cause each Subsidiary to, except as required in connection with the Merger and the other transactions contemplated by this Agreement, and except as otherwise set forth in this Agreement, disclosed in the Exhibits or Schedules hereto, or consented to in writing by the Purchaser:
(a) Carry on its businesses in the ordinary and regular course, consistent with past practice and in substantially the same manner as heretofore conducted;
(b) Not amend its Certificate of Incorporation or Bylaws;
(c) Not issue, sell or grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of, any of the capital stock of the Company or any of the Subsidiaries or rights or obligations convertible into or exchangeable for any shares of the capital stock of the Company or any of the Subsidiaries or make any changes (by split-up, combination, reorganization or otherwise) in the capital structure of the Company or any of the Subsidiaries;
(d) Not declare, pay or set aside for payment any dividend or other distribution in respect of the capital stock of the Company and not redeem, purchase or otherwise acquire any shares of the capital stock or other securities of the Company or any of the Subsidiaries or rights or obligations convertible into or exchangeable for any shares of the capital stock or other securities of the Company or any of the Subsidiaries or obligations convertible into such, or any options, warrants or other rights to purchase or subscribe to any of the foregoing;
(e) Not acquire or enter into an agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity;
(f) Not engage in any transaction with any officer, director or shareholder of the Company, or any of the Subsidiaries, or any person with whom any such shareholder, officer or director has any direct or indirect relation by blood, marriage or adoption, or any entity in which any of such persons owns any beneficial interest (other than a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than 1% of the stock of which is beneficially owned by all such persons) except for the continuation of the matters listed on Schedule 4.21 in accordance with their terms;
(g) Use its best efforts n25 to preserve intact the corporate existence, goodwill and business organization of the Company and the Subsidiaries, to keep the officers and employees of the Company and the Subsidiaries available to the Purchaser and to preserve the relationships of the Company and the Subsidiaries with suppliers, customers and others having business relations with any of them;
(h) Not (i) create, incur or assume any long-term debt (including obligations in respect of capital leases which individually involve annual payments in excess of $ 25,000 or $ 50,000 in the aggregate) or, except in the ordinary course of business under existing lines of credit, create, incur or assume any short-term debt for borrowed money, (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, (iii) make any loans or advances to any other person, or (iv) make any capital contributions to, or investments in, any person; n26
(i) Not enter into, modify or extend in any manner the terms of any employment, severance or similar agreements with officers and directors nor grant any increase in the compensation of officers, directors or employees, whether now or hereafter payable (except for compensation increases in the ordinary course of business and consistent with past practice with respect to employees other than executive officers and directors), including any such increase pursuant to any option, bonus, stock purchase, pension, profit-sharing, deferred compensation, retirement or other plan, arrangement, contract or commitment;
(j) Perform in all material respects all of its obligations under all Material Contracts (except those being contested in good faith) and not enter into, assume or amend any contract or commitment that would be a Material Contract, other than a Material Contract entered into in the ordinary course of business and consistent with past practice and involving payments aggregating no more than $    ;
(k) Use its best efforts n27 to maintain in full force and effect and in the same amounts policies of insurance comparable in amount and scope of coverage to that now maintained by the Company and not amend or cancel any policies of insurance now maintained by the Company;
(1) Not permit a change in its methods of maintaining its books, accounts or business records or, except as required by generally accepted accounting principles (in which event prior notice shall be given to the Purchaser), change any of its accounting principles or the methods by which such principles are applied for tax or financial reporting purposes;
(m) Not make any material election with respect to taxes or consent to any waiver or extension of time to assess or collect any material taxes;
(n) Prepare and file all federal, state, local and foreign returns for taxes and other tax reports, filings and amendments thereto required to be filed by it, on a timely basis and in a manner consistent with past practice;
(o) Not waive any rights under any Material Contract or under any confidentiality, nonsolicitation or noncompetition agreement or any agreement with any party relating to the sale or possible sale of the Company; and
(p) Unless and until this Agreement shall have been terminated by the parties hereto in accordance with Section 9.1 hereof, the Company will not (and will use reasonable efforts to cause the Subsidiaries and the Company's affiliates, officers, directors and employees and any investment banker, attorney, accountant or other agent retained by the Company or any of the Subsidiaries or affiliates not to): (i) initiate or solicit, directly or indirectly, any Acquisition Proposal; (ii) initiate, directly or indirectly, any contact with any person in an effort to or with a view towards soliciting any Acquisition Proposal; (iii) furnish information concerning the Company's business, properties or assets to any corporation, partnership, person or other entity or group (other than Purchaser, Acquisition Subsidiary or any affiliate, associate, agent or representative of Purchaser or Acquisition Subsidiary) under any circumstances that could reasonably be expected to relate to an actual or potential Acquisition Proposal; or (iv) negotiate or enter into discussions, directly or indirectly, with any entity or group with respect to any actual or potential Acquisition Proposal. n28 In the event that the Company shall receive or become aware of any Acquisition Proposal subsequent to the date hereof, the Company shall promptly inform the Purchaser as to any such matter and the details thereof and shall convey to the Purchaser a copy of any letter, proposal or other document in which any such Acquisition Proposal is expressed.

n25 Sellers may want to add language to make clear that commercially unreasonable efforts are not required.
n26 Sellers may ask for additional "ordinary course" exceptions. To evaluate any such request, the Purchaser has to understand how the items in question arise in the ordinary course of the Company's business.
n27 Same as paragraph (g).
n28 Sellers may request a "fiduciary out," which would permit the Company's board of directors to engage in the prohibited activities if failure to do so would (or could) constitute a breach of the board's fiduciary duties. Such an exception is often granted with respect to clauses (iii) and (iv). Note that Purchaser is seeking a similar "no-shop" restriction on Suggins and Frickert as individuals under the agreement referred to in paragraph 9 on page 6 of the text preceding this contract.
A much more significant issue is raised if the Sellers insist on a fiduciary out that not only allows the actions described in clauses (iii) and (iv), but also permits the board to terminate the Agreement in order to accept a higher bid that was not solicited in violation of clause (i). See the Postscript on Omnicare preceding this contract. If Purchaser is required to concede the point, it will certainly want to get the benefits of a break-up fee as a (modest) deterrent to a higher bid as well as a "consolation prize" if the bid succeeds. These arrangements carry with them a host of technical issues that often consume a lot of lawyers' time.
Negotiations over no-shop clauses, fiduciary outs and break-up fees are more significant and more common in the context of an acquisition of a public company, where such provisions may be subject to stringent judicial review. This issue was examined in the context of stock-for-stock mergers in three 1999 Delaware cases. See Phelps Dodge Corporation v. Cyprus Amax Minerals Company, Civil Action No. 17398 (Del. Ch. Sept. 27, 1999); ACE Limited v. Capital Re Corporation, 747 A.2d 95 (Del. Ch. 1999); Crawford v. Cincinnati Bell, Inc., Civil Action No. 17334 (Del. Ch. Oct. 27, 1999). The Omincare decision goes significantly further than these cases in requiring a fiduciary out.
Even where there is a controlling shareholder (or group of shareholders) whose commitment to a transaction makes a higher bid effectively impossible, issues of fiduciary duty to minority shareholders remain, and these can be complex. See McMullin v. Beran, 765 A.2d 910 (Del. 2000).
 
Section 6.2. Inspection and Access to Information.
(a) Between the date of this Agreement and the Effective Time, the Company will, and will cause each of the Subsidiaries to, provide the Purchaser and its accountants, counsel and other authorized representatives full access, during reasonable business hours and under reasonable circumstances to any and all of its premises, properties, contracts, commitments, books, records and other information and will cause its respective officers to furnish to the Purchaser and its authorized representatives any and all financial, technical and operating data and other information pertaining to its business, as the Purchaser shall from time to time reasonably request.
(b) Information obtained by the Purchaser or the Acquisition Subsidiary or any of their representatives pursuant to this Agreement shall be subject to the provisions of the Confidentiality Agreement, which agreement remains in full force and effect except to the extent it would expressly prohibit the Purchaser or the Acquisition Subsidiary from taking any of the actions contemplated by this Agreement.
Section 6.3. Reasonable Efforts; Further Assurances; Cooperation.
Subject to the other provisions of this Agreement, the parties hereto shall each use their reasonable best efforts to perform their obligations herein and to take, or cause to be taken or do, or cause to be done, all things necessary, proper or advisable under applicable law to obtain all regulatory approvals and satisfy all conditions to the obligations of the parties under this Agreement and to cause the Merger and the other transactions contemplated herein to be carried out promptly in accordance with the terms hereof and shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken as a part of their respective obligations under this Agreement, including without limitation:
(a) The Company shall cooperate with Purchaser in preparing and disseminating to the holders of Company Stock (other than the Representatives) as soon as practicable after the date of this Agreement appropriate disclosure materials concerning this Agreement, the Merger and the other agreements and transactions contemplated hereby, including (i) the notice required by Section 228 of the DGCL in relation to the approval of this Agreement by the shareholders of the Company by written consent and (ii) the notice required by the first sentence of Section 262(d)(2) of the DGCL.
(b) The Company and the Purchaser shall take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to obtain any required approval of any federal, state or local governmental agency or regulatory body with jurisdiction over the transactions contemplated by this Agreement. n29 The Company and the Purchaser shall exercise reasonable best efforts to procure all consents required from third parties in order for the Company and the Purchaser to effect the transactions contemplated hereunder.
(c) In the event any claim, action, suit, investigation or other proceeding by any governmental body or other person is commenced which questions the validity or legality of the Merger or any of the other transactions contemplated hereby or seeks damages in connection therewith, the parties agree to cooperate and use all reasonable efforts to defend against such claim, action, suit, investigation or other proceeding and, if an injunction or other order is issued in any such action, suit or other proceeding, to use all reasonable efforts to have such injunction or other order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated by this Agreement.
(d) Each party shall give prompt written notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure would cause any representation or warranty of the Company or the Purchaser, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Effective Time or that will result in the failure to satisfy any of the conditions specified in Article 7 and (ii) any failure of the Company or the Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder.

n29 This is essentially a fail-safe provision. Counsel for the Purchaser is assuming that, because of the size of the transaction, no governmental approvals will be required. See footnote 10.
 
Notwithstanding the foregoing, nothing in this Agreement shall require the Purchaser to agree to hold separate or to divest any of the businesses, product lines or assets of the Purchaser or the Company or any of their respective subsidiaries or affiliates or to agree to any restriction on the Purchaser's ability to exercise its rights as sole shareholder of the Company after the Effective Time. n30

n30 This limitation addresses the Purchaser's concern (somewhat remote in light of the previous footnote) that, in order to obtain antitrust clearance for the Merger, the Purchaser might be required to divest some portion of its or the Company's assets. Sellers may argue that this is a risk that the Purchaser should take and, at a minimum, the Purchaser should agree to any curative divestiture that is smaller than some negotiated threshold.
 
Section 6.4. Public Announcements.
The timing and content of all announcements regarding any aspect of this Agreement or the Merger to the financial community, government agencies, employees or the general public shall be mutually agreed upon in advance by the Company and the Purchaser; provided that nothing herein shall prevent any party from complying with applicable law or regulation or the rules of any national securities exchange.
Section 6.5. Indemnification and Insurance.
(a) The Purchaser and the Surviving Corporation covenant and agree that the Surviving Corporation shall be a Delaware corporation pursuant to the DGCL and that the Surviving Corporation shall remain a Delaware corporation for a period of at least four (4) years from and after the Effective Time. The Purchaser and the Surviving Corporation further covenant and agree that until four (4) years from the Effective Time, the Certificate of Incorporation and Bylaws of the Surviving Corporation shall not be amended to reduce or limit the rights of indemnity afforded to the present and former directors and executive officers of the Company currently set forth in the Certificate of Incorporation and Bylaws of the Acquisition Subsidiary, n31 or the ability of the Surviving Corporation to indemnify them, nor to hinder, delay or make more difficult the exercise of such rights of indemnity or the ability to indemnify.

n31 Sellers will want assurance that the indemnification provisions of the Acquisition Subsidiary are no less favorable than those of the Company.
 
(b) The Surviving Corporation and the Purchaser agree that the Surviving Corporation will at all times exercise the powers granted to it by its Certificate of Incorporation, its Bylaws, and by applicable law to indemnify to the fullest extent possible directors and executive officers of the Company prior to the Effective Time against claims made against them arising from their service in such capacity.
(c) Should any claim or claims be made against any former director or executive officer of the Company, arising from his services as such, within four (4) years of the Effective Time, the provisions of this Section 6.5 respecting the Certificate of Incorporation and the Bylaws of the Surviving Corporation shall continue in effect with respect to such claim or claims until the final disposition of all such claims.
(d) The Purchaser and the Surviving Corporation shall use reasonable efforts to cause to be maintained in effect, for not less than two (2) years from the Effective Time, the current policies of the directors' and executive officers' liability insurance insuring the directors and executive officers of the Company immediately prior to the Effective Time and any former directors and executive officers maintained by the Company (provided that the Surviving Corporation may substitute therefor policies of insurance providing substantially the same coverage and containing terms and conditions which are at least as favorable to the insureds in respect of limits, retentions and coverages so long as no lapse in coverage occurs as a result of such substitution) with respect to all matters, including the transactions contemplated hereby, occurring prior to, and including, the Effective Time; provided, however, that, the Surviving Corporation shall not be required to maintain such directors' and executive officers' liability insurance to the extent that such insurance can not be obtained at an annual cost equal to or less than $     (the "Current Premium"); provided, further, that to the extent such directors' and executive officers' liability coverage is not available at an annual cost less than or equal to the Current Premium, then the Surviving Corporation shall exercise reasonable efforts to cause to be obtained and maintained such directors' and executive officers' liability insurance coverage approximating the coverage contemplated by this Section 6.5(d) as can be purchased for an annual cost of the Current Premium. The obligation to use reasonable efforts to maintain insurance, subject to the limitations with respect thereto contained herein, includes the obligation to purchase all available extended reporting periods with respect to preexisting insurance should reasonable efforts not result in the procurement of insurance meeting the above-described conditions. n32

n32 Sellers may want the two-year period of insurance coverage to be longer, perhaps as long as six years, which is the typical statute of limitations. Sellers may also be unhappy with the cap on the premium. Because the indemnification of the Surviving Corporation is only as good as the Surviving Corporation's creditworthiness, which can be manipulated by the Purchaser, Sellers may be reluctant to put much faith in 6.5(b). One avenue of compromise is to have the Purchaser guarantee the Surviving Corporation's indemnity obligation.
 
Section 6.6. Employee Plans and Employment Matters.
(a) From and after the Effective Time, the Purchaser and the Surviving Corporation covenant and agree to honor in accordance with their terms all existing employment, severance, consulting or other compensation agreements or arrangements or benefit contracts between the Company or any of the Subsidiaries and any officer, director, or employee of the Company or any of the Subsidiaries disclosed in Schedules 4.13 and 4.14 hereto which are in effect at the Effective Time and all benefits or other amounts earned or accrued through the Effective Time and thereafter under all employee benefit plans of the Company and any of the Subsidiaries disclosed in Schedules 4.13 and 4.14 hereto which are in effect at the Effective Time.
(b) If any employee of the Company or any of the Subsidiaries becomes a participant in any qualified plan, group health plan, severance pay plan or disability income plan of the Surviving Corporation, such employee shall be given credit under such plan for all service prior to the Effective Time with the Company and the Subsidiaries, or any predecessor employer (to the extent such credit was given by the Company), for purposes of eligibility and vesting for all purposes for which such service is either taken into account or recognized.
Section 6.7. Deposit of Escrow Funds.
At the Effective Time, the Escrow Agreement shall be executed by the parties thereto, and the Purchaser shall deposit with the Escrow Agent, by wire transfer of same day funds, an aggregate amount in cash equal to the product of (i) $     and (ii) the number of shares of Company Stock that are converted at the Effective Time into the Merger Consideration. In the event that shares of Company Stock are converted into the Merger Consideration after the Effective Time pursuant to Section 3.3, the Purchaser shall deposit with the Escrow Agent additional funds in an amount equal to the product of (i) $     and (ii) the number of shares so converted. The Escrow Funds (as such term is defined in the Escrow Agreement) shall remain deposited with the Escrow Agent and shall be subject to and payable in accordance with the terms of the Escrow Agreement and this Agreement.
ARTICLE 7. CONDITIONS
Section 7.1. Conditions to Each Party's Obligations.
The respective obligations of each party to effect the Merger shall be subject to the condition that at the Effective Time (i) this Agreement shall have been adopted by the holders of a majority of the outstanding Company Stock, acting at a meeting or by written consent in lieu of a meeting, (ii) there shall be no effective injunction, writ or preliminary restraining order or any order of any nature issued by a court or governmental agency of competent jurisdiction to the effect that the Merger may not be consummated as herein provided, (iii) no proceeding or lawsuit shall have been commenced for the purpose of obtaining any such injunction, writ or preliminary restraining order or seeking to collect any material damages alleged to arise from the Merger or this Agreement and (iv) no written notice shall have been received from any governmental or regulatory agency indicating an intent to restrain, prevent, materially delay or restructure the transactions contemplated by the Agreement. n33

n33 Sellers should object that this condition allows the Purchaser to abandon the transaction if a frivolous lawsuit is commenced.
 
Section 7.2. Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions:
(a) Representations and Warranties.
The representations and warranties of the Purchaser and the Acquisition Subsidiary set forth in Article 5 shall be true and correct as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except to the extent expressly made as of an earlier date, in which case as of such date).
(b) Performance of Obligations by the Purchaser.
The Purchaser and the Acquisition Subsidiary each shall have performed in all material respects all covenants and agreements required to be performed by them under this Agreement on or prior to the Effective Time.
(c) Authorization of Merger.
All corporate action necessary by the Purchaser and the Acquisition Subsidiary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken.
(d) Consents.
All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body (domestic or foreign) required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filing of the Certificate of Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a Material Adverse Effect following the Effective Time.
(e) Certificate.
The Purchaser shall furnish the Company with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 7.2(a), (b) and (c).
(f) Consulting Agreements.
The Purchaser and the Company shall have executed and delivered the Consulting, Noncompetition and Nonsolicitation Agreements with Ellwood P. Suggins and Maude X. Frickert attached hereto as Exhibit 7.2(f) (the "Consulting Agreements") and Mr. Suggins and Ms. Frickert shall each have received $     from the Company in consideration for their covenants and agreements set forth in such Consulting Agreements.
(g) Escrow Agreement.
The Escrow Agreement shall have been executed and delivered by the Purchaser.
Section 7.3. Conditions to Obligations of the Purchaser.
The obligations of the Purchaser to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions:
(a) Representations and Warranties.
The representations and warranties of the Company set forth in Article 4 shall be true and correct n34 as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except to the extent expressly made as of an earlier date, in which case as of such date).
(b) Performance of Obligations of the Company.
The Company shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement on or prior to the Effective Time.
(c) Opinion of the Company's Counsel.
The Purchaser shall have received an opinion of Martin & Lewis, dated the Closing Date, substantially in the form attached hereto as Exhibit 7.3(c).
(d) Authorization of Merger.
All corporate action necessary by the Company to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken.
(e) Consents.
All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body (domestic or foreign) required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filing of the Certificate of Merger and any other documents required to be filed after the Effective Time, except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a Material Adverse Effect on the business of the Purchaser or any of its affiliates or on the business of the Company and the Subsidiaries taken as a whole, following the Effective Time. All consents required from third parties that are listed on Schedule 4.3 shall have been obtained. n35
(f) Certificate.
The Company shall furnish the Purchaser with a certificate of its appropriate officers as to compliance with the conditions set forth in Sections 7.3(a), (b) and (d).
(g) Resignation of Directors.
The Purchaser shall have received the resignation of all directors of the Company and each Subsidiary or such directors shall have otherwise been removed in accordance with applicable law.
(h) Maximum Dissenting Shares.
The period of time in which shareholders of the Company may perfect appraisal rights with respect to the Merger shall have expired, and Dissenting Shares shall constitute not more than 2% of the Company Stock outstanding immediately prior to the Effective Time. n36
(i) Escrow Agreement.
The Escrow Agreement shall have been executed and delivered by the parties thereto.
(j) Consulting Agreements.
The Consulting Agreements shall have been executed and delivered by the parties thereto. Prior to the Effective Time, the Company shall have paid in cash all amounts due to Mr. Suggins and Ms. Frickert under the Consulting Agreements, and shall have withheld all taxes which should properly be withheld from such payments. The Company agrees to provide the Purchaser at the Closing with evidence satisfactory to the Purchaser that it has satisfied its obligations under the Consulting Agreements. n37
(k) Tax Certification.
The Company shall have issued to the Purchaser a statement, dated not more than 30 days prior to the Closing Date, meeting the requirements of Treasury Regulation §§ 1.897-2(h) and 1.1445-2(c)(3). n38

n34 Sellers may ask that the words "in all material respects" be added here.
n35 This Schedule will list the lease referred to in paragraph 9 of page 4 of the introductory text.
n36 Sellers may argue that the deal should not be jeopardized by a couple of disgruntled employees who might, if this provision is included, dissent for the purpose of trying to defeat the transaction. On the other hand, Purchaser doesn't want the risk that an appraisal requires a substantially higher price to be paid to a significant number of dissenters.
Is there a serious risk that an appraisal would yield a substantially higher price than a purchase price negotiated at arm's length? For the answer given by one influential court, see The Union Illinois 1995 Inv. Ltd. P'ship v. Union Fin. Group, Ltd., 847 A.2d 340 (Del. Ch. 2003).
n37 These agreements will include a release by the executive of the Company, so that the Purchaser will know that it is starting with a clean slate in its dealings with Suggins and Frickert.
n38 This provision relates to foreign ownership of U.S. real property.
 
ARTICLE 8. CLOSING
The consummation of the transactions contemplated by this Agreement are herein referred to as the "Closing." The Closing shall occur on the date which is five business days after each of the conditions set forth in Article 7 shall have been satisfied or waived, at the offices of [Purchaser's counsel], New York, New York, or at such other time and place as the Company and the Purchaser shall agree.
ARTICLE 9. INDEMNIFICATION
Section 9.1. Indemnification.
(a) Subject to the other provisions of this Agreement, from and after the Closing, each of the shareholders of the Company whose shares of Company Stock are converted into the Merger Consideration (the "Indemnifying Parties") shall indemnify and hold harmless, severally and not jointly, in accordance with their proportionate interests in the Company immediately prior to the Effective Time, Purchaser and its subsidiaries and affiliates (including the Surviving Corporation), each of their respective officers, directors, employees, agents and representatives, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Indemnified Parties"), from, against and in respect of any and all claims, liabilities, obligations, losses, costs, expenses, penalties, fines and damages whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and attorneys' fees and expenses) arising out of or relating to any breach of any representation, warranty or covenant (in each case without regard to any qualification as to materiality or Material Adverse Effect) of the Company contained in this Agreement or in any certificate delivered pursuant to this Agreement. n39

n39 Sellers may object to the breadth of this language on the theory that it may reach far beyond ordinary contract damages. For example, a seller often wants to clarify that there is no liability for "consequential" damages, including lost profits. From one point of view, though, a future stream of profits is exactly what the buyer of a business is paying for.
 
(b) No Indemnified Party shall be entitled to make any claim for indemnification with respect to the breach of any particular representation, warranty or covenant after the Expiration Date; provided, however, that if prior to the close of business on the Expiration Date, the Representatives shall have been notified of a claim for indemnity hereunder and such claim shall not have been finally resolved or disposed of at such date, any representation, warranty or covenant that is the basis for such claim shall continue to survive with respect to such claim and shall remain a basis for indemnity with respect to such claim until such claim is finally resolved or disposed of.
Section 9.2. Indemnification Procedure.
(a) Promptly after receipt by an Indemnified Party of notice by a third party of any complaint or the commencement of any action or proceeding with respect to which indemnification is being sought hereunder, such Indemnified Party will notify the Representatives of such complaint or of the commencement of such action or proceeding; provided, however, that failure so to notify the Representatives will relieve the Indemnifying Parties from any liability which the Indemnifying Parties may have hereunder with respect to such claim if, but only if, and only to the extent that, such failure to notify the Representatives results in loss or damage to any Indemnifying Party or the forfeiture by the Indemnifying Parties of substantial rights or defenses otherwise available to the Indemnifying Parties with respect to such claim. If the Indemnifying Parties are so requested by such Indemnified Party, the Indemnifying Parties, acting through the Representatives for all purposes of this Article 9, will assume the defense of such action or proceeding, including (i) the employment of counsel reasonably satisfactory to the Indemnified Party and (ii) the payment of the fees and disbursements of such counsel. n40 In the event, however, that such Indemnified Party determines to assume the defense or if the Indemnifying Parties fail to assume the defense of the action or proceeding or to employ counsel reasonably satisfactory to such Indemnified Party, in either case in a timely manner, then such Indemnified Party may employ counsel to represent or defend it in any such action or proceeding and the Indemnifying Parties will pay the fees and disbursements of such counsel; provided, however, that the Indemnifying Parties will not be required to pay the fees and disbursements of more than one counsel for all Indemnified Parties in any jurisdiction in any single action or proceeding. In any action or proceeding with respect to which indemnification is being sought hereunder, the Indemnified Parties or the Indemnifying Parties, whichever are not assuming the defense of such action, as the case may be, will have the right to participate in such litigation and to retain its own counsel at such party's own expense. The Indemnified Parties or the Indemnifying Parties, as the case may be, shall at all times use reasonable efforts to keep the Indemnifying Parties or the Indemnified Parties, as the case may be, reasonably apprised of the status of the defense of any claim the defense of which they are maintaining.

n40 Sellers may want the right to assume the defense, regardless of whether Purchaser makes the request, because Sellers will be responsible for paying under the indemnity.
 
(b) No Indemnified Party may settle or compromise any claim with respect to which indemnification is being sought hereunder without the prior written consent of a Representative; provided, however, that if an Indemnified Party requests such consent of a Representative with respect to a bona fide offer of settlement or compromise which includes an unconditional release of the Indemnifying Parties from all liability arising out of such claim with respect to claims against the Indemnified Party and such consent is not granted within 15 days of such request the provisions of Section 9.3(b) hereof shall no longer apply with respect to such claim. No Indemnifying Party may, without the prior written consent of the Representatives, settle or compromise or consent to the entry of any judgment in any claim with respect to which indemnification is being sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Indemnified Party from all liability arising out of such claim and does not contain any equitable order, judgment or term which in any material manner affects, restrains or interferes with the business of the Company, any of the Subsidiaries, any of the Indemnified Parties or any of their respective affiliates. n41

n41 Sellers may request language clarifying that they have authority to settle a claim as long as it meets the requirements of this sentence.
 
(c) In the event that an Indemnified Party shall claim a right to payment pursuant to this Agreement, Purchaser shall send written notice of such claim to the Representatives. Such notice shall specify the basis for such claim. As promptly as possible after Purchaser has given such notice, Purchaser and the Representatives shall determine the merits of such claim (by mutual agreement, arbitration, litigation or otherwise) and, upon final determination of the merits of such claim, Purchaser shall deliver to the Escrow Agent (as such term is defined in the Escrow Agreement), in accordance with the terms of the Escrow Agreement, a Determination Notice (as such term is defined in the Escrow Agreement).
Section 9.3. Indemnification Limits.
(a) The Indemnified Parties shall not be entitled to any indemnification under this Agreement for the breach of any representation or warranty unless and until the claim or claims by the Indemnified Parties for any and all claims, liabilities, obligations, losses, costs, expenses, penalties, fines and damages to be indemnified by the Indemnifying Parties pursuant to this Agreement for breaches of representations and warranties exceed an aggregate of $    , but shall, subject to the limitations contained in sub-paragraph (b) of this Section 9.3, thereafter be entitled to indemnification for the full amount of any such claim or claims, including the first $     of such claim or claims. n42

n42 Note that this "basket" provision only relates to representations and warranties, and not to covenants. In addition, the Purchaser intends for both blanks to be filled in with the same amount, so that the basket does not provide a true "deductible."
 
(b) Except as otherwise provided in Section 9.2(b) hereof with respect to the Representatives' failure to consent to a bona fide offer of settlement or compromise, the Indemnified Parties' recourse against the Indemnifying Parties for any amounts due under Section 9.1 shall be limited to the collection of any amounts held in the Escrow Account (as such term is defined in the Escrow Agreement) in accordance with the terms of the Escrow Agreement. n43

n43 Reaching agreement on this amount (i.e., how the blank in Section 3 of the Escrow Agreement is to be filled in) is one of the critical points of the negotiation. The result is generally determined by horse-trading rather than logic. For an empirical survey of results that challenges the idea that there is any "standard practice" on this issue, see S. Glover, "Indemnification Provisions: Standard Practice Revisited," The M&A Lawyer, March 2002, at 1. More recent statistics can be found in First Annual Private Target M&A Deal Points Study, a project of the Mergers & Acquisitions Market Trends Subcommittee of the Committee on Negotiated Acquisitions of the American Bar Association Section of Business Law (March 2006).
If buyer's counsel had simply omitted all of Article 9 from this draft, it would not mean that the buyer would not have any remedy if one or more of the representations turn out to be false. Buyer would have an ordinary action for breach of contract. Given that Article 9 is included, does buyer still have an action for breach of contract? If so, would the limits on liability given in Section 9.3 apply to that action? Sellers' counsel will want to clarify these points to make sure that there is no end-run around the limitations, probably by insisting on a provision that specifies that the indemnification provided by Article 9 be the exclusive remedy for any claim Purchaser makes against Sellers relating to the transaction. This will be contested by Purchaser, particularly in the case of a claim for fraud. A 2006 case that sharply illustrates how these circumstances can develop is ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006).
 
ARTICLE 10. TERMINATION
Section 10.1. Termination and Abandonment.
This Agreement may be terminated at any time prior to Effective Time:
(a) by mutual agreement of the Boards of Directors of the Company, the Purchaser and the Acquisition Subsidiary;
(b) by the Company, if the conditions set forth in Sections 7.1 and 7.2 hereof shall not have been complied with or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by the Purchaser or the Acquisition Subsidiary on or before [90 days from signing] (the "Termination Date");
(c) by the Purchaser, if the conditions set forth in Sections 7.1 and 7.3 hereof shall not have been complied with or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by the Company on or before the Termination Date; n44
(d) by the Purchaser, if the condition set forth in clause (i) of Section 7.1 hereof shall not have been satisfied within two business days following the execution of this Agreement; or
(e) by the Company or the Purchaser if the Merger shall not have occurred by the close of business on the Termination Date; provided, however, that no party may terminate this Agreement pursuant to clause (b), (c) or (d) if the failure of any condition in Section 7.1, 7.2 or 7.3 to be satisfied or the failure of the Closing to occur on or before the Termination Date results from the breach by such party of any covenant or obligation of such party contained in this Agreement.

n44 The consequences of termination are usually worse for the seller than the buyer. As a result, the seller may suggest various mechanisms for keeping the contract in force and requiring the buyer to complete the purchase, despite the failure of certain conditions. For example, the seller may suggest some special indemnification arrangement in case a representation or warranty turns out to be incorrect. In a few situations, something like this might be workable, but more often the buyer should resist.
 
Section 10.2. Specific Performance and Other Remedies.
The parties hereto each acknowledge that the rights of each party to consummate the transactions contemplated hereby are special, unique and of extraordinary character, and that, in the event that any party violates or fails or refuses to perform any covenant or agreement made by it herein, the non-breaching party may be without an adequate remedy at law. The parties each agree, therefore, that in the event that either party violates or fails or refuses to perform any covenant or agreement made by such party herein, the non-breaching party or parties may, subject to the terms of this Agreement and in addition to any remedies at law for damages or other relief, institute and prosecute an action in any court of competent jurisdiction to enforce specific performance of such covenant or agreement or seek any other equitable relief.
Section 10.3. Effect of Termination.
In the event of termination of this Agreement pursuant to this Article 10, this Agreement shall forthwith become void and there shall be no liability on the part of any party or its respective officers, directors or shareholders, except for obligations under this Section 10.3, Section 6.2(b) and Section 10.4, which shall survive the termination. Notwithstanding the foregoing, nothing contained herein shall relieve any party from liability for any breach of any covenant or agreement in this Agreement.
Section 10.4. Expenses.
Each of the Purchaser, Acquisition Subsidiary and the Company shall pay its own respective costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of its own respective financial advisors, accountants and counsel; provided, however, that if the Closing does not occur as a direct result of a material breach by the Company of a representation, warranty, covenant or agreement of the Company set forth herein, then the Company shall be obligated to reimburse the Purchaser for all out-of-pocket costs and expenses up to, but not exceeding, $ 1,000,000 incurred by the Purchaser or any of its affiliates in connection with this Agreement or the transactions contemplated hereby. n45

n45 Sellers may object to the reimbursement or insist that it be mutual.
 
ARTICLE 11. MISCELLANEOUS PROVISIONS
Section 11.1. Notices.
All notices, communications and deliveries hereunder shall be made in writing signed by the party making the same, shall specify the Section hereunder pursuant to which it is given or being made, and shall be deemed given or made on the date delivered if delivered in person or on the third (3rd) business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid) as follows:

To the Purchaser or the Acquisition Subsidiary:
 
with a copy to:

To the Company:
 
with a copy to:

To the Representatives:   
 
with a copy to:
   
or to such other representative or at such other address of a party as such party hereto may furnish to the other parties in writing.
Section 11.2. Exhibits and Schedules to this Agreement.
All Exhibits and Schedules hereto, or documents expressly incorporated into this Agreement, are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full in this Agreement.
Section 11.3. Time of the Essence; Computation of Time.
Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date banks in New York, New York are closed, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day.
Section 11.4. Assignment; Successors in Interest.
No assignment or transfer by the Purchaser, the Acquisition Subsidiary or the Company of their respective rights and obligations hereunder prior to the Closing shall be made except with the prior written consent of the other parties hereto. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns, and any reference to a party hereto shall also be a reference to a permitted successor or assign.
Section 11.5. Investigations; Survival of Representations and Warranties.
The representations and warranties of any party, and the right to indemnification for the breach of any such representations and warranties, shall not be affected by any investigation conducted or knowledge obtained by any other party, regardless of when such investigation was conducted or such knowledge was obtained. n46 The representations and warranties of the Company set forth in Article 4 and the representations and warranties of the Purchaser and the Acquisition Subsidiary set forth in Article 5 shall survive the Closing and shall remain effective until the close of business on the date that is three years n47 following the Closing, or if such day does not fall on a Business Day, on the Business Day immediately following such date (the "Expiration Date"). The Purchaser's and the Acquisition Subsidiary's rights against the Company or any shareholder of the Company for any breach of a representation shall be subject to, and limited by, Article 9 of this Agreement and the terms and conditions of the Escrow Agreement. The covenants and agreements of the parties set forth in Article 6 and to be performed following the Effective Time shall survive the Effective Time and remain in full force and effect until performed or waived by the appropriate parties hereto.

n46 Sellers usually take issue with this provision. Often, the seller wants the buyer to waive the ability to seek damages for any breach that the buyer is aware of prior to signing, or even prior to closing. Sometimes the parties simply agree to give each other notice of any breach that is discovered prior to closing.
A case that is very instructive on this point is CBS Inc. v. Ziff Davis Publishing Co., 75 N.Y.2d 496, 553 N.E.2d 997, 554 N.Y.S.2d 449 (1990). For more recent treatments that follows CBS, see Southern Broadcast Group, LLC v. Gem Broadcasting, Inc., 145 F.Supp.2d 1316 (M.D.Fla. 2001) and Schwan-Stabilo Cosmetics Gmbh & Co. v. PacificLink Int'l Corp., 401 F.3d 28 (2d Cir. 2005).
n47 Seller wants as short a survival period as possible. Three years is longer than what is usually agreed, but certain representations (such as taxes) often survive for the applicable statute of limitations, which is usually more than three years.
 
Section 11.6. Number; Gender.
Whenever the context so requires, the singular shall include the plural and the plural shall include the singular, and the gender of any pronoun shall include the other genders.
Section 11.7. Captions.
The titles, captions and table of contents contained in this Agreement are inserted herein only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. Unless otherwise specified to the contrary, all references to Articles and Sections are references to Articles and Sections of this Agreement and all references to Exhibits and Schedules are references to Exhibits and Schedules to this Agreement.
Section 11.8. Controlling Law; Integration; Amendment; Waiver.
This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without reference to Delaware's choice of law rules. This Agreement supersedes all negotiations, agreements and understandings among the parties with respect to the subject matter hereof and this Agreement, the Escrow Agreement, the Consulting Agreements and the agreements dated the date hereof between Purchaser and each of the Representatives n48 constitute the entire agreement among the parties hereto; provided, however, that nothing herein shall affect the validity or enforceability of the Confidentiality Agreement.

n48 These are the individual lock-up agreements described in paragraph 9 on page 4 of the introductory text. The form of the agreements appears after the form of escrow agreement.
 
This Agreement may be amended by the parties hereto by or pursuant to action taken by their respective Boards of Directors at any time, but no amendment or modification shall be made that reduces the amount or changes the form of the consideration to be paid to the shareholders of the Company or that in any way materially adversely affects the rights of such shareholders without the further approval of such shareholders. Without limiting the foregoing, this Agreement may not be amended, modified or supplemented except by written agreement of the parties hereto.
Section 11.9. Severability.
Any provision hereof which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by law, the parties hereto waive any provision of law which renders any such provision prohibited or unenforceable in any respect.
Section 11.10. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms hereof to produce or account for more than one of such counterparts.
Section 11.11. No Third-Party Beneficiaries.
Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person, firm or corporation other than the parties hereto, and their successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, or result in such person, firm or corporation being deemed a third-party beneficiary of this Agreement, except that the provisions of Section 6.6 may be enforced by any individual who is entitled to indemnification or insurance coverage thereunder.
Section 11.12. Jurisdiction and Forum.
(a) By the execution and delivery of this Agreement, the Representatives (i) irrevocably designate and appoint each of The Corporation Trust Company ("CTCD") at The Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware, and The Corporation Trust Company ("CTCH") at 2 Main Street, in the City of Hometown, State of Anystate as their authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Agreement that may be instituted in any state or federal court in the State of Delaware or the State of Homestate, (ii) submit to the personal jurisdiction of any such court in any such suit or proceeding, and agree that service of process upon either CTCD or CTCH shall be deemed in every respect effective service of process upon the Representatives in any such suit or proceeding. The Representatives further agree to take any and all action reasonably requested by Purchaser, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of each of CTCD and CTCH in full force and effect so long as this Agreement shall be in effect. The foregoing shall not limit the rights of any party to serve process in any other manner permitted by law.
(b) To the extent that any Representative has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, each Representative hereby irrevocably waives such immunity in respect of its obligations with respect to this Agreement.
(c) The parties hereto agree that an appropriate forum and venue for any disputes between any of the parties hereto arising out of this Agreement shall be any state or federal court in the State of Delaware. n49 The foregoing shall not limit the rights of any party to obtain execution of judgment in any other jurisdiction. The parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment.

n49 Purchaser's counsel has selected Delaware because caselaw in the Third Circuit gives buyers an advantage with respect to the issue discussed in footnote 24 above. A useful summary of the differences among jurisdictions can be found in R. Quaintance, Jr., "Division of Opinion in the Colonies-'Non Reliance Clauses,'" The M&A Lawyer, September 2003.
 
(d) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION, CLAIM, SUIT, LITIGATION OR OTHER PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the date first above written.
SPECTRODYNE INC.
By:   
Name:
Title:
UE ACQUISITION CORP.
By:   
Name:
Title:
UNIVERSAL EXPORT CORPORATION
By:   
Name:
Title:
   
Ellwood P. Suggins
   
Maude X. Frickert
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of [Closing Date], by and among ELLWOOD P. SUGGINS and MAUDE X. FRICKERT, each as a representative (together, the "Representatives") of the persons listed on Exhibit A hereto (collectively, the "Indemnifying Parties"), UNIVERSAL EXPORT CORPORATION, a Delaware corporation ("Purchaser"), and FIRST INTERNATIONAL BANK, as escrow agent (the "Escrow Agent").
WITNESSETH
WHEREAS, Spectrodyne Inc., a Delaware corporation (the "Company"), Purchaser, UE Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Purchaser ("Acquisition Corp."), and the Representatives (in their capacity as representatives of the shareholders of the Company) have entered into an Agreement and Plan of Merger dated as of April 1,     (the "Merger Agreement") pursuant to which Acquisition Corp. will be merged with and into the Company; and
NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
2. Appointment of Escrow Agent. The Representatives and Purchaser hereby appoint the Escrow Agent to act as escrow agent hereunder and the Escrow Agent hereby accepts such appointment for the purpose of receiving and disbursing the Escrow Funds in accordance with the terms and conditions set forth herein.
3. Deposit of Escrow Funds. At the Effective Time, Purchaser will deliver to the Escrow Agent, by wire transfer of same day funds, for deposit in an escrow account (the "Escrow Account"), the sum of $     (such sum, the "Escrow Funds"). Additional deposits shall be made by Purchaser to the Escrow Account as required by Section 6.8 of the Merger Agreement.
4. Investment of Escrow Funds. Promptly after the deposit of the Escrow Funds pursuant to paragraph 3 hereof and until such time as all payments of principal and interest are made pursuant to paragraph 5 hereof, the Escrow Agent shall invest the Escrow Funds in and continue to invest the Escrow Funds in such Cash Equivalents (as such term is defined below) as it may from time to time be instructed by either Representative. For the purposes of this Agreement, "Cash Equivalents" shall mean (i) securities with maturities of one year or less from the date of determination, issued or fully guaranteed or insured by the United States government or any agency thereof, (ii) commercial paper of an issuer rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, (iii) certificates of deposit, Eurodollar time deposits, overnight bank deposits, bankers' acceptances and repurchase agreements of any commercial bank organized under the laws of the United States of America or any State thereof and which issues commercial paper rated as described in the preceding clause (ii) having maturities of one year or less from the date of determination, and (iv) repurchase agreements with any financial institution having combined capital and surplus and retained earnings as of its last report of condition of at least $ 500,000,000 when subject to an executed master repurchase agreement and which are fully collateralized by obligations described in clause (i) above and which have a final maturity of 90 days or less from the date of purchase thereof.
5. Escrow Payments. In the event that an Indemnified Party shall claim a right to payment pursuant to Article 9 of the Merger Agreement, Purchaser shall send written notice of such claim to the Escrow Agent and the Representatives. Such notice shall specify the basis for such claim in accordance with the provisions of Article 9 of the Merger Agreement. As promptly as possible after Purchaser has given such notice, Purchaser and the Representatives shall establish the merits of such claim (by mutual agreement, arbitration, litigation or otherwise) and, upon final determination of the merits of such claim, Purchaser shall notify the Escrow Agent (either by means of a certified copy of the judgment, a certified copy of the arbitration decision or a written instrument executed by Purchaser and either of the Representatives) of the terms of such determination (the "Determination Notice"). Within five (5) days of the receipt of a Determination Notice, the Escrow Agent shall pay to Purchaser on behalf of the Indemnified Party or Parties specified in such Determination Notice a sum of money equal to the amount, if any, specified in such Determination Notice to be paid out of the Escrow Account.
6. Termination. On the Expiration Date (as such term is defined below) the Escrow Agent shall, unless it shall have received a notice of claim pursuant to paragraph 5 hereof with respect to which it shall not have received a Determination Notice, or if it shall have received one or more Determination Notices and shall not have made the payments required thereby, pay all amounts remaining in the Escrow Account to the Representatives for distribution to the Indemnifying Parties in accordance with their interests in such amounts. For purposes of this Agreement, the term "Expiration Date" shall mean the date that is three years after the Closing Date (or if such date does not fall on a Business Day, on the Business Day immediately following such date). For purposes of this Agreement, the term "Business Day" shall mean any day other than a Saturday or a Sunday or a day on which commercial banks in New York are required or authorized by law or executive order to remain closed.
7. Taxation of Income on Escrow Funds. Purchaser agrees that it shall include the income on the Escrow Funds in its gross income for the taxable year of Purchaser in which such income is accrued (the "Taxable Year"), without regard to whether such income is paid to Purchaser in such Taxable Year pursuant to Section 5. The parties also agree that the Escrow Agent shall pay to Purchaser no later than the 15th day of the third month after the close of the Taxable Year an amount (the "Tax Distribution Amount") equal to x where: (i) x = A x B; (ii) A = the aggregate amount of net taxable income on the Escrow Funds for the Taxable Year; and (iii) B = the combined highest marginal corporate federal and state income tax rate in effect for the Taxable Year. Not later than the first day of the third month after the close of each Taxable Year, Purchaser and either of the Representatives shall deliver a joint notice to the Escrow Agent specifying, for purposes of this Section 7, the Tax Distribution Amount for such Taxable Year.
8. Exculpation and Indemnification of Escrow Agent. It is understood and agreed that the Escrow Agent shall:
(a) be under no duty to accept information from any person other than a Representative and Purchaser and then only to the extent and in the manner provided in this Agreement;
(b) be protected in acting upon any written notice, opinion, request, certificate, approval, consent or other document believed by it to be genuine and to be signed by the proper party or parties;
(c) be deemed conclusively to have given and delivered any notice required to be given or delivered hereunder if the same is in writing, and (i) mailed, by registered or certified mail, postage prepaid, or (ii) hand delivered:
 
addressed to the Representatives at:   
with a copy to:

and addressed to Purchaser at:   
with a copy to:   
 
or, in each case, to such other address as any party hereto may specify by notice in writing given in the manner described above in this subparagraph (c);
(d) be indemnified and held harmless jointly and severally by the other parties hereto against any claim made against it by reason of its acting or failing to act in connection with any of the transactions contemplated hereby and against any loss, liability or expense, including the expense of defending itself against any claim of liability it may sustain in carrying out the terms of this Agreement, except such claims as are occasioned by its bad faith, gross negligence, willful misconduct, fraud or any other breach of fiduciary duty; provided, however, that promptly after the receipt by the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof is to be made against any of the other parties hereto, notify each other party thereof in writing; and provided, further, that the indemnitors hereunder shall be entitled, jointly or severally and at their own expense, to participate in and/or assume the defense of any such action, suit or proceeding;
(e) have no liability or duty to inquire into the terms and conditions of any agreements to which the Escrow Agent is not a party, its duties under this Agreement being understood to be purely ministerial in nature;
(f) be permitted to consult with counsel of its choice and shall not be liable for any action taken, suffered or omitted by it in good faith in accordance with the written advice of such counsel; provided, however, that nothing contained in this subparagraph (f), nor any action taken by the Escrow Agent, or of any counsel, shall relieve the Escrow Agent from liability for any claims which are occasioned by its bad faith, gross negligence, willful misconduct, fraud or any other breach of fiduciary duty, all as provided in subparagraph (d) above;
(g) not be bound by any modification, amendment, termination, cancellation, rescission or supersession of this Agreement, unless the same shall be in writing and signed by the parties hereto;
(h) if and to the extent it is uncertain as to its duties and rights hereunder, be entitled to refrain from taking any action other than to keep all property held by it in escrow until it shall be directed otherwise in writing by either Representative and Purchaser, in accordance with this Agreement, or by a final judgment of a court of competent jurisdiction;
(i) have no liability for any act or omission done pursuant to the instructions contained or expressly provided for herein, or written instructions given by either Representative and Purchaser pursuant hereto;
(j) have the right, at any time, to resign hereunder by giving written notice of its resignation to either Representative and Purchaser, at their addresses set forth above, at least 30 business days prior to the date specified for such resignation to take effect; in which case, upon the effective date of such resignation:
(i) all cash and other payments and all other property then held by the Escrow Agent hereunder shall be delivered by it to such person as may be designated in writing by either Representative and Purchaser, whereupon the Escrow Agent's obligations hereunder shall cease and terminate;
(ii) if no such person has been designated by such date, the Escrow Agent's sole responsibility thereafter shall be to keep all property then held by it and to deliver the same to a person designated in writing by either Representative and Purchaser, or, if no such person shall have been so designated, in accordance with the directions of a final order or judgment of a court of competent jurisdiction, and the provisions of subparagraphs (f), (j) and (k) of this paragraph 8 shall remain in effect;
(k) be reimbursed upon its request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provisions of this Agreement, except any such expenses, disbursements or advances as may be attributable to its gross negligence, willful misconduct, bad faith, fraud or other breach of fiduciary duty. All reimbursements pursuant to this paragraph 8(k) shall be made one-half by the Indemnifying Parties and one-half by Purchaser; and
(1) The Escrow Agent's fees shall be $ 2,000 per annum, and shall be paid one-half by the Indemnifying Parties (by deduction from the Escrow Funds) and one-half by Purchaser.
9. Representations and Warranties of the Representatives. Each Representative hereby represents and warrants to each other party hereto that:
(a) this Agreement has been duly authorized, executed and delivered by such Representative and is the legal, valid and binding agreement of such Representative, enforceable against such Representative in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law); and
(b) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of, or be an event that is or, with the passage of time will result in, a violation of, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under or pursuant to any mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which such Representative is a party or by which it or any of its assets are bound.
10. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to each other party hereto that:
(a) this Agreement has been duly authorized, executed and delivered by Purchaser, and is the legal, valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law); and
(b) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of, or be an event that is or, with the passage of time will result in, a violation of, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under or pursuant to any mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which Purchaser is a party or by which it or any of its assets is bound.
11. Representations and Warranties of the Escrow Agent. The Escrow Agent hereby represents and warrants to each other party hereto that:
(a) this Agreement has been duly authorized, executed and delivered by Purchaser, and is the legal, valid and binding agreement of the Escrow Agent, enforceable against the Escrow Agent in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law); and
(b) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of, or be an event that is or, with the passage of time will result in, a violation of, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under or pursuant to any mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which the Escrow Agent is a party or by which it or any of its assets is bound.
12. Notices. All requests, notices or other communications hereunder shall be in writing, shall be deemed to have been given if delivered by hand in a sealed envelope, or when mailed if by registered or certified mail, return receipt requested, postage prepaid (i) to the address of the Representatives and Purchaser, set forth in paragraph 8(c), or (ii) to the address of the Escrow Agent as follows:
First International Bank

Any notice given in accordance with the terms hereof to either Representative shall, for the purposes hereof, be deemed to have been given to the other Representative and to each Indemnifying Party.
13. Miscellaneous. Nothing in this Agreement is intended to or shall confer upon anyone other than the parties hereto any legal or equitable right, remedy or claim. This Agreement shall be governed by, and its provisions construed in accordance with, the laws of the State of Delaware applicable to contracts made and to be wholly performed within such state and may be modified only in writing signed by each of the parties hereto. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. Paragraph headings contained in this Agreement are solely for convenience of reference and shall not affect the meaning or interpretation of any term or provision hereof.
14. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
[Signatures omitted]
AGREEMENT
AGREEMENT, dated as of April 1,     by and between UNIVERSAL EXPORT CORPORATION, a Delaware corporation ("Purchaser"), and the undersigned shareholders ("Sellers") of Spectrodyne, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company, Purchaser, UE Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Purchaser ("Acquisition Corp.") and the Sellers, as representatives of the shareholders of the Company, propose to enter into an Agreement and Plan of Merger of even date herewith (the "Merger Agreement"), which provides, among other things, upon the terms and subject to the conditions thereof, for a merger of Acquisition Corp. with and into the Company (the "Merger") in which, among other things, each outstanding share of Common Stock, par value $ 1.00 per share, of the Company ("Shares") would be converted into $     in cash (the "Merger Price");
WHEREAS, each Seller is the owner of     Shares (the "Seller's Shares");
WHEREAS, as a condition to its willingness to enter into the Merger Agreement, Purchaser has requested that each Seller agree, and each Seller has agreed, severally and not jointly, to accept certain restrictions with respect to the Shares owned by such Seller;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
1. Payment to Purchaser. In the event that (i) the Merger Agreement terminates without the Merger being completed and (ii) within one year following the date of such termination, all or any portion of a Seller's Shares are acquired (an "Acquisition") for a per share consideration in excess of the Merger Price, such Seller shall pay to Purchaser an amount in cash equal to the product of such excess and the number of Shares so acquired. If the consideration paid in any such Acquisition is other than cash, such consideration will be valued at its fair market value. For purposes of this paragraph, the consideration paid on any such Acquisition shall be deemed to include the amount of any cash dividends and the fair market value of any noncash dividends declared with respect to the Shares after the date of this Agreement and having a record date on or prior to the date of such Acquisition.
2. Representations and Warranties of Sellers. Each Seller hereby represents and warrants to Purchaser, severally and not jointly, as follows:
(a) Such Seller is the sole record and beneficial owner of such Seller's Shares, has good and marketable title to such Seller's Shares, and has all necessary power and authority to enter into this Agreement. None of such Seller's Shares are subject to any proxy, voting trust or other agreement or arrangement with respect to the voting of such Seller's Shares.
(b) This Agreement is the legal, valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms.
(c) The execution of this Agreement by such Seller does not, and the performance by such Seller of the obligations of such Seller hereunder will not, constitute a violation of, conflict with or result in a default under any contract, commitment, agreement, understanding, arrangement or restriction of any kind to which such Seller is a party or by which such Seller is bound or any judgment, decree or order applicable to such Seller.
(d) Neither the execution and delivery of this Agreement, nor the performance by such Seller of such Seller's obligations hereunder will violate any provision of law applicable to such Seller.
(e) No investment banker, broker or finder is entitled to a commission or fee in respect of this Agreement based upon any arrangement or agreement made by or on behalf of such Seller.
3. Covenants of Sellers. So long as the Merger Agreement remains in effect, and for a period of six months after any termination of the Merger Agreement, each Seller hereby covenants and agrees with Purchaser, severally and not jointly, as follows:
(a) Such Seller will not, without the prior written consent of Purchaser, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any Shares, (ii) sell, assign, transfer or otherwise dispose of any Shares, or (iii) enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer or other disposition of any Shares.
(b) Such Seller shall not, directly or indirectly, solicit (including by way of furnishing information) any inquiries or the making of any proposal by any person or entity (other than Purchaser) which constitutes, or may reasonably be expected to lead to, any sale of the Shares, including by means of a business combination involving the Company, and shall not vote (or give written consent with respect to) any of such Seller's Shares in favor of any such business combination. If such Seller receives an inquiry or proposal with respect to the sale of Shares, then such Seller shall promptly inform Purchaser of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Such Seller will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing.
Notwithstanding anything in this Section 3 to the contrary, the covenants and agreements set forth herein shall not be deemed to prevent any Seller from taking any action, subject to the applicable provisions of the Merger Agreement, while acting in his or her capacity as director or officer of the Company and other than with respect to this Agreement, to the extent that the Board of Directors of the Company shall conclude in good faith on the basis of advice from outside counsel to the Company that such action is necessary or appropriate in order for the Company's Board of Directors to satisfy its fiduciary duty under applicable law.
4. Remedies. The parties hereto agree that if for any reason Purchaser or either Seller shall have failed to perform its obligations under this Agreement, then any party hereto seeking to enforce this Agreement against such non-performing party shall be entitled to specific performance and injunctive and other equitable relief, and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. This provision is without prejudice to any other rights that either party hereto may have against the other party hereto for any failure to perform its obligations under this Agreement.
5. Miscellaneous.
(a) Assignment. This Agreement shall not be assignable by the parties hereto, except that Purchaser may assign its rights under this Agreement to Acquisition Corp. or any other direct or indirect wholly owned subsidiary or affiliate of Purchaser. This Agreement shall be binding upon each Seller and each Seller's heirs, successors and assigns by will or by the laws of descent.
(b) Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto.
(c) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties as follows (or at such other address for a party as shall be specified by like notice):

(i) If to Purchaser:   
with a copy to:

(ii) If to Seller:   
with a copy to:
   
(d) Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effects, by the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof.
(e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement.
(f) Effect of Headings. The headings contained herein are for convenience of reference only and shall not affect the meaning or interpretation hereof.
IN WITNESS WHEREOF, Purchaser and Sellers have caused this Agreement to be signed as of the date first above written.
UNIVERSAL EXPORT CORPORATION
By:    
Name:
Title:
   
Ellwood P. Suggins
   
Maude X. Frickert