Transcat Inc S-3, filed Aug 17, 2023
Transcat Inc (TRNS)
As filed with the Securities and Exchange Commission on August 17, 2023
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
___________________
TRANSCAT, INC.
(Exact name of registrant as specified in its charter)
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Ohio |
16-0874418 (I.R.S. Employer Identification Number) |
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Lee D. Rudow
President and Chief Executive Officer
Transcat, Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777
(Name, address, including zip code and telephone number, including area code, of agent for service)
___________________
COPIES TO:
|
James M. Jenkins, Esq. General Counsel and VP of Corporate Development |
Alexander
R. McClean, Esq. Rochester, New York 14604 (585) 232-6500 |
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ☐
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☐
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer ☒ | |||
| Non-accelerated filer | ☐ | Smaller reporting company ☐ | |||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, August 17, 2023
PROSPECTUS
Transcat, Inc.
271,820 Shares of Common Stock Offered by the Selling Shareholders
This prospectus relates to the offer and resale by the selling shareholders identified herein of up to 271,820 shares of our common stock, par value $0.50 per share (“Common Stock”). This prospectus provides you with a general description of the shares of Common Stock. You should carefully read this prospectus and the documents incorporated by reference before buying any of the shares of Common Stock being offered.
We are registering the offer and sale of the shares of the Common Stock owned by the selling shareholders to satisfy registration rights we have granted to the selling shareholders pursuant to a registration rights agreement dated as of August 8, 2023 (the “Registration Rights Agreement”). We have agreed to bear all of the expenses incurred in connection with the registration of the Common Stock covered by this prospectus. The selling shareholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the shares of Common Stock.
The registration of shares of Common Stock hereunder does not mean that the selling shareholders will actually offer or sell the full number of shares being registered pursuant to this prospectus. The selling shareholders may sell the shares of Common Stock registered hereby from time to time. The shares of Common Stock may be offered and sold by the selling shareholders through public or private transactions, at market prices prevailing at the time of sale or at negotiated prices. The selling shareholders may retain underwriters, dealers or agents from time to time. For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution” in this prospectus.
We are not selling any shares of our Common Stock pursuant to this prospectus, and we will not receive any proceeds from any sale by selling shareholders of the shares of Common Stock covered by this prospectus.
Our Common Stock is traded on the Nasdaq Global Market under the symbol “TRNS.” On August 15, 2023, the last reported sale price of our Common Stock on the Nasdaq Global Market was $94.18 per share.
Investing in our Common Stock involves risk. You should carefully read the information included and incorporated by reference into this prospectus for a discussion of the factors you should carefully consider in determining whether to invest in our Common Stock, including the discussion of risks described under “Risk Factors” on page 7 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
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The date of this prospectus is , 2023.
This prospectus relates to the resale by the selling shareholders (the “Selling Shareholders), as defined in the section of this prospectus entitled “Selling Shareholders,” of up to 271,820 shares of our Common Stock.
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”) pursuant to which the Selling Shareholders named herein may, from time to time, offer and sell or otherwise dispose of the shares of Common Stock covered by this prospectus. You should rely only on the information contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement we have authorized for use in connection with this offering. We have not authorized anyone to provide you with additional information or information different from that contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted. The information contained in this prospectus, any applicable prospectus supplement, and the documents incorporated by reference herein and therein, is accurate only as of their respective dates, regardless of the time of delivery of this prospectus, any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since such date.
It is important for you to read and consider all information contained in this prospectus and any prospectus supplement, including the documents incorporated by reference, in making your investment decision. This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled “Where You Can Find More Information.”
This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Please read the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
Unless the context otherwise requires, references in this prospectus to “Transcat,” the “Company,” “we,” “us,” and “our” refer to Transcat, Inc. and its subsidiaries, unless the context clearly indicates otherwise.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimate,” “expect,” “intend,” “designed,” “could,” “may,” “should,” “will,” “would”, “can”, “plan,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this prospectus, any prospectus supplement, and the documents we incorporate by reference, including among others, statements regarding our strategy, future operations, financial objectives, prospects, plans, objectives of management and expected performance levels are forward-looking statements. Factors that might cause such differences include, but are not limited to:
| · | the impact of general economic conditions on our business, including inflation; |
| · | the impact of and our response to widespread public health crises; |
| · | the highly competitive nature of the industries in which we compete and in the nature of our two business segments; |
| · | the concentration of our customers in the life science and other FDA-regulated and industrial manufacturing industries; |
| · | an impairment of goodwill or intangible assets; |
| · | tariffs imposed by the U.S. and other countries and changes in trade relations; |
| · | our ability to successfully complete and integrate business acquisitions; |
| · | cybersecurity risks, including any breach in security of our information systems, the occurrence of a cyber incident or deficiency in cyber security; |
| · | the risk of significant disruptions in our information technology systems; |
| · | our ability to recruit, train and retain quality employees, skilled technicians and senior management; |
| · | fluctuations in our operating results; |
| · | our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers and our ability to charge adequate rates for those services; |
| · | competition in the rental market; |
| · | our ability to adapt and update our technology; |
| · | our reliance on our enterprise resource planning system; |
| · | supply chain delays or disruptions; |
| · | the risks related to current and future indebtedness; |
| · | foreign currency rate fluctuations; |
| · | our ability to adequately enforce and protect our intellectual property; |
| · | adverse weather events, other catastrophes or natural disasters; |
| · | the volatility of our stock price; |
| · | the relatively low trading volume of our Common Stock; |
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| · | changes in tax rates; |
| · | changes in accounting standards, legal requirements and listing standards; and |
| · | legal and regulatory risks related to our international operations. |
We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See “Risk Factors” and also “Risk Factors” in Item IA of Part I of our Annual Report on Form 10-K for the fiscal year ended March 25, 2023, which is incorporated herein by reference, for further information. Except as required by law, we do not undertake, and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
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This summary highlights, and is qualified in its entirety by, the more detailed information included elsewhere or incorporated by reference in this prospectus. This summary does not contain all of the information that may be important to you. You should read and carefully consider the entire prospectus, especially as described in “Risk Factors,” before deciding to invest in the Common Stock.
The Company
We are a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test, measurement and control instrumentation. We are focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.
We offer a variety of services and solutions including permanent and periodic onsite services, mobile calibration services, pickup and delivery and in-house services. As of June 24, 2023, we operated 28 calibration service centers strategically located across the United States, Puerto Rico, Canada, and Ireland. We also serve our customers onsite at their facilities for daily, weekly or longer-term periods. In addition, we have several imbedded customer-site locations that we refer to as “client-based labs,” where we provide calibration services, and in some cases other related services, exclusively for the customer and where we reside and work every day. We also have a fleet of mobile calibration laboratories that can provide service at customer sites which may not have the space or utility capabilities we require to service their equipment.
We also operate as a leading value-added distributor that sells and rents national and proprietary brand instruments to customers globally. Through our website, in-house sales team and printed and digital marketing materials, we offer access to more than 140,000 test, measurement and control instruments, including products from approximately 550 leading brands. Most instruments we sell and rent require calibration service to ensure that they maintain the most precise measurements. By having the capability to calibrate these instruments at the time of sale and at regular post-sale intervals, we can give customers a value-added service that most of our competitors are unable to provide. Calibrating before shipping means the customer can place their instruments into service immediately upon receipt, reducing downtime.
We were incorporated under the laws of the State of Ohio in 1964. Our principal executive office is located at 35 Vantage Point Drive, Rochester, New York 14624, and our telephone number is (585) 352-7777. Our website address is www.transcat.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
The Offering
| Common Stock Offered | All of the 271,820 shares of Common Stock offered by this prospectus are being sold by the Selling Shareholders. |
| Use of Proceeds | We will not receive any proceeds from the sale of shares of Common Stock offered by this prospectus. |
| NASDAQ Global Market Trading Symbol | TRNS |
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We are a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test, measurement and control instrumentation. We are focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include FAA-regulated businesses, including aerospace and defense industrial manufacturing; energy and utilities, including oil and gas and alternative energy; and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.
We conduct our business through two operating segments: service (“Service”) and distribution (“Distribution”). Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services, a majority of which are processed through our proprietary asset management system, CalTrak® and our online customer portal, C3®. Our Service model is flexible, and we cater to our customers’ needs by offering a variety of services and solutions including permanent and periodic onsite services, mobile calibration services, pickup and delivery, and in-house services. As of June 24, 2023, we operated 28 calibration service centers strategically located across the United States, Puerto Rico, Canada, and Ireland. We also serve our customers onsite at their facilities for daily, weekly or longer-term periods. In addition, we have several imbedded customer-site locations that we refer to as “client-based labs,” where we provide calibration services, and in some cases other related services, exclusively for the customer and where we reside and work every day. We also have a fleet of mobile calibration laboratories that can provide service at customer sites which may not have the space or utility capabilities we require to service their equipment. Through our acquisition strategy, we have been focused on building out our Services segment by entering adjacent and complimentary markets.
Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. Through our website, in-house sales team and printed and digital marketing materials, we offer access to more than 140,000 test, measurement and control instruments, including products from approximately 550 leading brands. Most instruments we sell and rent require calibration service to ensure that they maintain the most precise measurements. By having the capability to calibrate these instruments at the time of sale and at regular post-sale intervals, we can give customers a value-added service that most of our competitors are unable to provide. Calibrating before shipping means the customer can place their instruments into service immediately upon receipt, reducing downtime. Other value-added options we offer through our Distribution segment include equipment kitting (which is especially valued in the power generation sector), equipment rentals and used equipment sales.
Our commitment to quality goes beyond the services and products we deliver. Our sales, customer service and support teams provide expert advice, application assistance and technical support to our customers. Since calibration is an intangible service, our customers rely on us to uphold high standards and provide integrity in our people and processes.
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Our Strategy
Our two operating segments are highly complementary in that their offerings are of value to customers within the same industries. Our strategy is to leverage the complementary nature of our operating segments in ways that add value for all customers who select Transcat as their source for test and measurement equipment and/or calibration and laboratory instrument services. We strive to differentiate ourselves within the markets we serve and build barriers to competitive entry by offering a broad range of products and services and by integrating these solutions in a value-added manner to benefit our customers’ operations.
We are committed to capital, people and leadership investments, advancing our “Operational Excellence” initiative. This initiative is resulting in increased productivity and operational efficiency and further differentiation from our competitors as we leverage technology, automation, and process improvements to enhance our effectiveness and our customers’ experiences. We also continued Transcat University’s build-a-tech program. This program attracts fresh talent to the organization and provides training and career advancement opportunities for our existing employees. Our Operational Excellence initiative is a multi-year, ever-evolving program designed to create an infrastructure that supports our strategic goals over a longer timeframe.
Within the Service segment, our strategy is to drive double-digit revenue growth through both organic expansion and acquisitions. We have adopted an integrated sales model to drive sales and capitalize on the cross-selling opportunities between our two segments, especially leveraging our Distribution relationships to develop new Service relationships. We leverage these relationships with our unique value proposition which resonates strongly with customers who rely on accredited calibration services and/or laboratory instrument services to maintain the integrity of their processes and/or meet the demands of regulated business environments. Our customer base values our superior quality programs and requires precise measurement capability in their processes to minimize risk, waste and defects. We execute this strategy by leveraging our quality programs, metrology expertise, geographical footprint, qualified technicians, breadth of capabilities, and tailored service delivery options. Together, this allows us to meet the most rigorous quality demands of our most highly regulated customers while simultaneously being nimble enough to meet their business needs.
We expect to continue to grow our Service business organically by taking market share from other third-party providers and original equipment manufacturers, as well as by targeting the outsourcing of in-house calibration labs as multi-year client-based lab contracts. We believe an important element in taking market share is our ability to expand into new technical capabilities and adjacent service solutions that are in demand by our current and target customer base.
The other component to our Service growth strategy is acquisitions. There are three drivers of our acquisition strategy: geographic expansion, increased capabilities and infrastructure leverage. The majority of our acquisition opportunities have been in the $500 thousand to $10 million annual revenue range, and we are disciplined in our approach to selecting target companies. One focus of our Operational Excellence initiative is to strengthen our acquisition integration process, allowing us to capitalize on acquired sales and cost synergies at a faster pace.
Our Distribution segment strategy is to be the premier distributor and rental source of leading test and measurement equipment while also providing cross-selling opportunities for our Service segment.
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Through our vendor relationships we have access to more than 140,000 products, which we market to our existing and prospective customers both with and without value-added service options that are unique to Transcat. In addition to offering pre-shipment value-added services, we offer our customers the options of renting selected test and measurement equipment or buying used equipment, furthering our ability to answer all of our customers’ test and measurement equipment needs. We continuously evaluate our offerings to add new in-demand vendors or products, or remove less relevant vendors and products. Our equipment rental business continues to be a strong growth segment for us and helps support our Distribution and Service segment growth strategies. Having new, used and rental equipment further differentiates us from our Service segment competitors.
We see these various methods of meeting our Distribution customers’ needs as a way to differentiate ourselves and to diversify this segment’s customer base from its historically niche market. This differentiation and diversification strategy has been deliberately instituted in recent years as a means to mitigate the effect of price-driven competition and to lessen the impact that any particular industry or market will have on the overall performance of this segment.
We believe our combined Service and Distribution segment offerings, experience, technical expertise and integrity create a unique and compelling value proposition for our customers, and we intend to continue to grow our business through organic revenue growth and business acquisitions. We consider the attributes of our Service segment, which include higher gross margins and recurring revenue streams from customers in regulated industries to be more compelling and scalable than our legacy Distribution segment. For this reason, we expect our Service segment to be the primary source of revenue and earnings growth in future fiscal years.
Investing in our Common Stock involves risks. Before making an investment decision, you should carefully consider the specific risks set forth under the caption “Risk Factors” in the applicable prospectus supplement, if any, and under the caption “Risk Factors” in our filings with the SEC, which are incorporated by reference into this prospectus. See “Where You Can Find More Information.”
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings with the SEC are available to the public through the SEC's website at www.sec.gov. Our annual, quarterly and current reports and amendments to those reports, if any, are also available via the internet at our website, www.transcat.com, by following the links to “Investor Relations” and “SEC Filings.” The information on, or accessible through, our internet site, or any other internet site described herein, is not a part of, and is not incorporated or deemed to be incorporated by reference in, this prospectus, and you should not consider it to be a part of this prospectus. We will provide to each person, including any beneficial owner, to whom a prospectus is delivered a copy of any or all of the information that has been incorporated by reference in the prospectus but not delivered with the prospectus. In addition, you may request copies of our filings with the SEC, including the documents listed below under the heading “Incorporation of Certain Information by Reference,” at no cost, by calling us at (585) 352-7777 or by writing to us at: Transcat, Inc., Attn: Corporate Secretary, 35 Vantage Point Drive, Rochester, New York 14624.
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We have filed with the SEC a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), relating to the offering of these securities. The registration statement, including the attached exhibits, contains additional relevant information about us and the Common Stock. This prospectus does not contain all of the information set forth in the registration statement. You may review a copy of the registration statement and the documents incorporated by reference therein through the SEC’s internet web site referred to above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROSPECTUS. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE DOCUMENTS THAT WE HAVE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM OR IN ADDITION TO THE INFORMATION CONTAINED IN THIS DOCUMENT AND INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
The SEC allows us to incorporate by reference into this prospectus certain information we file with it, which means that we can disclose important information by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Because we are incorporating by reference future filings with the SEC, this prospectus is continually updated and those future filings may modify or supersede some of the information included or incorporated in this prospectus. We incorporate by reference all the documents listed below and all documents subsequently filed with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on or after (i) the date of the initial registration statement and prior to effectiveness of the registration statement, and (ii) the date of this prospectus and prior to the completion or termination of the offering under this prospectus; provided, however, that we are not incorporating, in each case, any documents or information deemed to have been furnished and not filed in accordance with SEC rules:
| ● | Our Annual Report on Form 10-K for the fiscal year ended March 25, 2023, filed with the SEC on June 6, 2023, including the information specifically incorporated by reference into the Form 10-K from our definitive proxy statement for the 2023 Annual Meeting of Shareholders filed on July 20, 2023. |
| ● | Our Quarterly Report on Form 10-Q for the quarter ended June 24, 2023, filed with the SEC on August 2, 2023. |
| ● | Our Current Reports on Form 8-K filed with the SEC on March 28, 2023, May 22, 2023 (Film No. 23945380), July 12, 2023, and August 8, 2023. |
| ● | The description of our Common Stock, par value $0.50 per share, contained in Amendment Number 1 to our Registration Statement on Form S-3 (Registration No. 333-42345), filed with the SEC on February 5, 1998, Exhibit 4.1 to our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on June 7, 2019, and any amendment or report filed for the purpose of updating such description. |
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Nothing in this prospectus shall be deemed to incorporate information furnished, but not filed, with the SEC, including pursuant to Item 2.02 or Item 7.01 of Form 8-K and any corresponding information or exhibit furnished under Item 9.01 of Form 8-K.
Information in this prospectus supersedes related information in the documents listed above and information in subsequently filed documents supersedes related information in both this prospectus and the incorporated documents.
To obtain copies of these filings, see “Where You Can Find More Information” in this prospectus.
Introduction
The following section describes the material features and rights of our Common Stock. The summary does not purport to be exhaustive and is qualified in its entirety by reference to our Articles of Incorporation, as amended (the “Articles”) and our Code of Regulations, as amended (the “Code of Regulations”), each of which is filed as an exhibit to the Registration Statement of which this prospectus is a part, and to applicable sections of the Ohio General Corporation Law (the “OGCL”).
General
We are authorized to issue up to 30,000,000 shares of Common Stock. Each share of Common Stock entitles the holder to the same rights, and is the same in all respects, as each other share of Common Stock. Holders of Common Stock are entitled to: (i) one vote per share on all matters requiring a shareholder vote; (ii) a ratable distribution of dividends, if and when, declared by the board of directors (the “Board”); and (iii) in the event of a liquidation, dissolution or winding up of us, to share ratably in all assets remaining available for distribution to them after payment of liabilities. Holders of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. The shares of Common Stock being offered by this prospectus are be fully paid and nonassessable.
Dividends
Our credit agreement, as amended, limits our ability to pay cash dividends to $10.0 million in any fiscal year. We have not declared any cash dividends since our inception and have no current plans to pay any dividends in the foreseeable future.
Transfer Agent & Registrar
The transfer agent and registrar for our Common Stock is Computershare.
Listing
Our Common Stock is listed on the Nasdaq Global Market under the trading symbol “TRNS.”
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Anti-takeover Effects of Certain Provisions in our Articles of Incorporation, Code of Regulations and the OGCL
Articles of Incorporation and Code of Regulations
Some provisions of our Articles and Code of Regulations may be deemed to have an anti-takeover effect and may collectively operate to delay, defer or prevent a tender offer, a proxy contest or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the shares held by our shareholders. These provisions are intended to discourage certain types of coercive takeover practices and inadequate takeover bids. This also encourages persons seeking to acquire control of us to negotiate with us first. As a result, shareholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of our Board or management more difficult. The following discussion is a summary of certain material provisions of our Articles and Code of Regulations, copies of which are filed as exhibits to the Registration Statement of which this prospectus is a part.
Our Articles require the affirmative vote of the holders of at least 75% of the capital stock of the Company entitled to vote in order to authorize: (i) any merger or consolidation of the Company with any other corporation if such transaction would otherwise by law require a vote of the shareholders; (ii) any combination or majority share acquisition with or by any corporation if such transaction would otherwise by law require a vote of the shareholders; or (iii) any lease, sale, exchange, transfer or other disposition of all or substantially all of the assets of the Company to any other person or entity; if, in any such event, such other corporation, person or entity is the beneficial owner of ten percent or more of the outstanding capital stock of the Company entitled to vote thereon. Notwithstanding the forgoing, such restrictions do not apply if the Company’s Board of Directors approves a memorandum of understanding with the other corporation, person or entity prior to the time it becomes the owner of ten percent or more of the outstanding shares of the Company’s capital stock.
Additionally, the affirmative vote of the holders of at least 75% of the capital stock of the Company entitled to vote is required to amend, alter or repeal any of the foregoing provisions of our Articles.
Finally, the Board is divided into three classes, and our Code of Regulations state that the members of each class are elected for a term of three years and only one class of directors is elected annually. Thus, it would take at least two annual elections to replace a majority of our Board.
Ohio General Corporation Law
Certain provisions of the OGCL make a change in control of an Ohio corporation more difficult. Below is a summary of the Ohio anti-takeover statutes.
Ohio Control Share Acquisition Statute
The OGCL provides that certain notice and informational filings, and special shareholder meeting and voting procedures, must occur prior to the acquisition of an issuer’s shares that would entitle the acquirer to exercise or direct the voting power of the issuer in the election of directors within any of the following
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ranges: (i) one-fifth or more but less than one-third of such voting power, (ii) one-third or more but less than a majority of such voting power; or (iii) a majority or more of such voting power.
The Ohio Control Share Acquisition Statute does not apply to a corporation if its articles of incorporation or code of regulations so provide. We have not opted out of the application of the Ohio Control Share Acquisition Statute.
Ohio Merger Moratorium Statute
Chapter 1704 of the OGCL addresses a range of business combinations and other transactions (including mergers, consolidations, asset sales, loans, disproportionate distributions of property and disproportionate issuances or transfers of shares or rights to acquire shares) between an Ohio corporation and an “Interested Shareholder” which is defined as a shareholder who, alone or with others, may exercise or direct the exercise of at least 10% of the voting power of the corporation in the election of directors. The Ohio Merger Moratorium Statute prohibits such transactions between the corporation and an Interested Shareholder for a period of three years after a person becomes an Interested Shareholder, unless, prior to such date, the directors approved either the business combination or other transaction or approved the acquisition that caused the person to become an Interested Shareholder.
After the three-year period, transactions between the corporation and the Interested Shareholder are permitted if:
| ● | the transaction is approved by the holders of shares with at least two-thirds of the voting power of the corporation in the election of directors or the approval of the holders of a majority of the voting shares held by persons other than an Interested Shareholder; or |
| ● | the business combination results in shareholders, other than the Interested Shareholder, receiving the higher of the highest amount paid in the past by the Interested Shareholders for the corporation’s shares or the amount that would be due to the shareholders if the corporation were to dissolve. |
The Ohio Merger Moratorium Statute does not apply to a corporation if its articles of incorporation or code of regulations so provide. We have not opted out of the application of the Ohio Merger Moratorium Statute.
Ohio Anti-Greenmail Statute
Pursuant to the Ohio Anti-Greenmail Statute, a public corporation formed in Ohio may recover profits that a shareholder makes from the sale of the corporation’s securities within 18 months after making a proposal to acquire control or publicly disclosing the possibility of a proposal to acquire control. The corporation may not, however, recover from a person who proves either: (i) that his sole purpose in making the proposal was to succeed in acquiring control of the corporation and there were reasonable grounds to believe that he would acquire control of the corporation; or (ii) that his purpose was not to increase any profit or decrease any loss in the shares. Also, before the corporation may obtain any recovery, the aggregate amount of the profit realized by such person must exceed $250,000. Any shareholder may bring an action on behalf of the corporation if a corporation refuses to bring an action to recover these profits.
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The party bringing such an action may recover his attorneys’ fees if the court having jurisdiction over such action orders recovery of any profits.
The Ohio Anti-Greenmail Statute does not apply to a corporation if its articles of incorporation or code of regulations so provide. We have not opted out of the application of the Ohio Anti-Greenmail Statute.
We will not receive any proceeds from the shares of our Common Stock offered for resale by the Selling Shareholders. We have agreed to bear all of the expenses incurred in connection with the registration of the Common Stock covered by this prospectus and the Selling Shareholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the shares of Common Stock.
On August 8, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Axiom Test Equipment, LLC, a Delaware limited liability company and wholly owned subsidiary of Transcat (“Merger Sub”), Axiom Test Equipment, Inc., a California corporation (“Axiom”), Gary F. Shilts, trustee of the Shilts Family 2008 Trust, dated 5/6/2008 (the “Shilts Trust”), Joshua Shilts (“J. Shilts”), Shannon Johnson, trustee of the Shannon and Gloria Johnson Living Trust (the “Johnson Trust”), Lavon M. Parrish (“Parrish,” and together with the Shilts Trust, J. Shilts, and the Johnson Trust, the “Selling Shareholders”), Gary F. Shilts, Shannon Johnson, and Joshua Shilts, as shareholder representative pursuant to which Axiom merged with and into the Merger Sub. Founded in 2005, Axiom is a rental provider of Electronic Test Equipment to customers across the United States. Axiom has an in-house ISO 17025 lab, which is primarily utilized for internal calibrations and equipment repair services.
The aggregate purchase price under the Merger Agreement was $38 million to be paid in a combination of $28 million in Common Stock and $10 million in cash. Of that amount, 271,820 shares of Common Stock were issued to the Selling Shareholders at closing and 43,583 shares of Common Stock are subject to holdback provisions and will be issued in part after August 8, 2024 and in part after August 8, 2026, subject to satisfaction of the conditions under the Merger Agreement. In connection with the Merger Agreement, we entered into the Registration Rights Agreement with the Selling Shareholders pursuant to which we agreed to register for resale under the Securities Act the shares of Common Stock issued pursuant to the Merger Agreement. Additionally, each of the Selling Shareholders entered into lock-up agreements pursuant to which, subject to certain exceptions, they each agreed not to sell or otherwise dispose of 25% of their shares of Common Stock until the effective date of the registration statement of which this prospectus forms a part, 25% of their shares of Common Stock until 90 days after the effective date of this registration statement of which this prospectus forms a part, and the remaining 50% of their shares of Common Stock until 180 days after the effective date of the registration statement of which this prospectus forms a part, without the prior written consent of the Company.
We have agreed to bear all of the expenses incurred in connection with the registration of the Common Stock covered by this prospectus. The Selling Shareholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the shares of Common Stock.
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This prospectus covers the resale from time to time by the Selling Shareholders identified in the table below of an aggregate of up to 271,820 shares of our Common Stock, subject to any appropriate adjustment as a result of any stock split, stock dividend, or other distribution with respect to, or in an exchange or replacement, or in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event. Other than the transactions contemplated by the Merger Agreement, as described above, the Selling Shareholders and their affiliates have not held a position or office, or had any material relationship, with us within the last three years.
The table below: (i) lists the Selling Shareholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of our Common Stock by the Selling Shareholders; (ii) has been prepared based upon information furnished to us by the Selling Shareholders; and (iii) to our knowledge, is accurate as of the date of this prospectus. The Selling Shareholders may sell all, some or none of their securities in this offering. The Selling Shareholders identified in the table below may have sold, transferred or otherwise disposed of some or all of their securities since the date of this prospectus in transactions exempt from or not subject to the registration requirements of the Securities Act. Information concerning the Selling Shareholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly and as required.
| Shares Beneficially Owned Prior to the Offering (1) |
Maximum Number of Shares to be sold in this Offering |
Shares Beneficially Owned After the Offering (1)(2) | ||||||||
| Selling Shareholders | Number | Percentage | Number | Percentage | ||||||
| Gary F. Shilts, trustee of the Shilts Family 2008 Trust, dated 5/6/2008 | 81,084 | 1.02% | 81,084 | — | —% | |||||
| Joshua Shilts | 28,568 | *% | 28,568 | — | —% | |||||
| Shannon Johnson, trustee of the Shannon and Gloria Johnson Living Trust | 81,084 | 1.02% | 81,084 | — | —% | |||||
| Lavon M. Parrish | 81,084 | 1.02% | 81,084 | — | —% | |||||
| TOTAL | 271,820 | 3.41% | 271,820 | — | —% | |||||
| * | Represents less than 1%. |
| (1) | Percentage ownership for the Selling Shareholders is determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations thereunder and is based on 7,970,868 outstanding shares of our Common Stock as of August 8, 2023. |
| (2) | The totals reported in this column assume that (a) all of the securities registered by the registration statement of which this prospectus is a part are sold in this offering; (b) the Selling Shareholders do not (i) sell any of the shares of Common Stock, if any, that have been issued to it other than those covered by this prospectus; and (ii) acquire additional shares of our Common Stock after the date of this prospectus and prior to the completion of this offering. |
The Selling Shareholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of Common Stock or interests in shares of Common Stock received after the date of this prospectus from a Selling Shareholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of Common Stock covered by this prospectus on any stock exchange, market or trading facility on which the
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shares of Common Stock are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The Selling Shareholders may use any one or more of the following methods when disposing of the shares of Common Stock:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share; |
| · | the in-kind distribution of the shares by an investment fund to its limited partners, members or other equity holders; |
| · | a combination of any such methods of sale; and |
| · | any other method permitted by applicable law. |
The Selling Shareholders may sell all, some or none of the shares of Common Stock covered by this prospectus. If sold under the registration statement of which this prospectus forms a part, the shares of Common Stock will be freely tradeable in the hands of persons other than our affiliates that acquire such shares.
The Selling Shareholders may, from time to time, pledge or grant a security interest in some or all of the shares of Common Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as a Selling Shareholder under this prospectus. The Selling Shareholders also may transfer the shares of Common Stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our Common Stock or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions it assumes. To the extent permitted by applicable securities laws, the Selling Shareholders may also sell shares of our Common
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Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares of Common Stock offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the Selling Shareholders from the sale of the Common Stock offered by the Selling Shareholders will be the purchase price of the Common Stock less discounts or commissions, if any. The Selling Shareholders reserve the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of Common Stock to be made directly or through agents. We will not receive any of the proceeds from this offering.
The Selling Shareholders also may resell all or a portion of the shares of Common Stock in open market transactions in reliance upon Rule 144 under the Securities Act, provided that it meets the criteria and conforms to the requirements of that rule.
The Selling Shareholders and any underwriters, broker-dealers or agents that participate in the sale of the Common Stock or interests therein may be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions, concessions or profit it earns on any resale of the shares of Common Stock covered by this prospectus may be underwriting discounts and commissions under the Securities Act. Selling Shareholders who are “underwriters” within the meaning of Section 2(a)(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.
To the extent required, the shares of our Common Stock to be sold, the names of the Selling Shareholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the Common Stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the Common Stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the Selling Shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the Selling Shareholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the Selling Shareholders against certain liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.
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We have agreed with the Selling Shareholders to keep the registration statement of which this prospectus constitutes a part effective until the earliest to occur of (i) February 8, 2026, (ii) a Change of Control, and (iii) such time as all the shares of Common Stock covered by this prospectus have been sold by the Selling Shareholders.
For purposes hereof, a “Change of Control” means an event or series of events (i) as a result of which any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all Common Stock that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 50% or more of the Common Stock entitled to vote for members of the Company’s board of directors on a fully diluted basis (and taking into account all such Common Stock that such person or group has the right to acquire pursuant to any option right); or (ii) that results in the sale of all or substantially all of the assets or businesses of the Company and its consolidated subsidiaries, taken as a whole; provided, however that such event or events shall not constitute a Change of Control if, following the occurrence thereof, shares of Common Stock continue to be listed for trading on any market or exchange of The Nasdaq Stock Market LLC, or any other market or exchange on which the shares of Common Stock covered by this prospectus are listed for trading.
The validity of the securities offered hereby will be passed upon for us by James M. Jenkins, General Counsel and VP of Corporate Development of the Company. As of August 8, 2023, Mr. Jenkins beneficially owned 7,398 shares of the Company’s Common Stock, which represented less than 1.0% of the total outstanding shares of Common Stock of the Company.
The consolidated financial statements of Transcat, Inc. as of March 25, 2023 and March 26, 2022, and for each of the years in the three-year period ended March 25, 2023, have been incorporated by reference herein, in reliance upon the reports of Freed Maxick CPAs, P.C., independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing.
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Transcat, Inc.
271,820 Shares of Common Stock Offered by the Selling Shareholders
Prospectus
, 2023
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of Common Stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses (other than underwriting compensation) to be incurred by us in connection with the issuance and distribution of our securities being registered hereby are:
| Securities and Exchange Commission filing fee | $ | 2,839.09 | ||
| Accounting fees and expenses* | 2,500.00 | |||
| Legal fees and expenses* | 10,000.00 | |||
| Miscellaneous* | 2,500.00 | |||
| Total expenses | $ | 17,839.09 | * |
| * | Indicates an estimate. |
Item 15. Indemnification of Directors and Officers.
We are incorporated under the Ohio General Corporation Law (the “OGCL”). Article VI of our Code of Regulations, as amended, provides that we shall indemnify our directors and officers to the fullest extent authorized by the OGCL. With respect to indemnification of directors and officers, Section 1701.13 of the OGCL provides that a corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, member, manager or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe his conduct was unlawful. Under this provision of the OGCL, the termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct is unlawful.
Furthermore, the OGCL provides that a corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, member, manager, or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that
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no indemnification shall be made in respect of: (i) any claim, issue or matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that, the court of common pleas or the court in which such action or suit was brought determines, upon application, that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses as the court of common pleas or such other court shall deem proper; or (ii) any action or suit in which the only liability asserted against a director is pursuant to OGCL Section 1701.95 (relating to unlawful loans, dividends, and distributions of assets).
In addition, Section 1701.13(E)(5)(a) requires a corporation to pay any expenses, including attorneys’ fees, of a director in defending an action, suit, or proceeding referred to above as they are incurred, in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director in which he agrees to both (i) repay such amount if it is proved by clear and convincing evidence that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation and (ii) reasonably cooperate with the corporation concerning the action, suit, or proceeding. Section 1701.13(E)(7) and (F)(2) further authorizes a corporation to enter into contracts regarding indemnification and to purchase and maintain insurance on behalf of any director, trustee, officer, employee or agent for any liability asserted against him or arising out of his status as such. The Company presently maintains insurance policies that provide coverage for our directors and officers in certain situations where we cannot directly indemnify such directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable.
Item 16. Exhibits.
EXHIBIT INDEX
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| * | Filed herewith. |
Item 17. Undertakings.
| (a) | The undersigned registrant hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
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| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
provided, however, that paragraphs (a)(1)(i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| (i) | each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
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| (b) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (c) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rochester, State of New York, on this 17th day of August 2023.
| TRANSCAT, INC. | ||
| By: | /s/ Lee D. Rudow | |
| Lee D. Rudow | ||
| President and Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Lee D. Rudow and James M. Jenkins, each of them acting individually, as his or her true and lawful attorney-in-fact and agent with full powers of substitution and resubstitution, to act for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments and registration statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and otherwise), and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents the full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Each of the undersigned has executed this power of attorney as of the date indicated.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signatures | Title | Date | ||
| /s/ Lee D. Rudow | Director, President and Chief Executive Officer | August 17, 2023 | ||
| Lee D. Rudow | (Principal Executive Officer) | |||
| /s/ Thomas L. Barbato | Senior
Vice President of Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) |
August 17, 2023 | ||
| Thomas L. Barbato | ||||
| /s/ Scott D. Deverell | Controller and Principal Accounting Officer | August 17, 2023 | ||
| Scott D. Deverell | (Principal Accounting Officer) | |||
| /s/ Gary J. Haseley | Chairman of the Board of Directors | August 17, 2023 | ||
| Gary J. Haseley |
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| Signatures | Title | Date | ||
| Director | ||||
| Craig D. Cairns | ||||
| /s/ Oksana S. Dominach | Director | August 17, 2023 | ||
| Oksana S. Dominach | ||||
| /s/ Charles P. Hadeed | Director | August 17, 2023 | ||
| Charles P. Hadeed | ||||
| /s/ Richard J. Harrison | Director | August 17, 2023 | ||
| Richard J. Harrison | ||||
| /s/ Mbago M. Kaniki | Director | August 17, 2023 | ||
| Mbago M. Kaniki | ||||
| /s/ Cindy Langston | Director | August 17, 2023 | ||
| Cindy Langston | ||||
| /s/ Paul D. Moore | Director | August 17, 2023 | ||
| Paul D. Moore | ||||
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Exhibit 5.1
35 Vantage Point Drive, Rochester NY 14624 • 800-828-1470 • Transcat.com
August 17, 2023
Transcat, Inc.
35 Vantage Point Drive
Rochester, New York 14624
Ladies and Gentlemen:
I am General Counsel, Vice President of Corporate Development and Corporate Secretary of Transcat, Inc., an Ohio corporation (the “Company”), and have acted as counsel to the Company in connection with its filing of a Registration Statement on Form S-3 (the “Registration Statement”) with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”) registering the resale by the selling stockholders of up to 271,820 shares (the “Resale Shares”) of the Company’s common stock, par value $0.50 per share (“Common Stock”).
In connection with the foregoing, I have examined originals or copies of such corporate records of the Company, certificates and other communications of public officials, certificates of officers of the Company and such other documents as I have deemed relevant or necessary for the purpose of rendering the opinion expressed herein. As to questions of fact material to this opinion, I have, to the extent deemed appropriate, relied on certificates and other communications of public officials. I have assumed the genuineness of all signatures on, and the authenticity of, all documents submitted to me as originals, the conformity to authentic original documents of all documents submitted to me as copies thereof, the due authorization, execution and delivery by the parties thereto other than the Company of all documents examined by me, and the legal capacity of each individual who signed any of those documents.
Based upon the foregoing, and subject to the additional qualifications set forth below, I am of the opinion that the Resale Shares were validly issued, fully paid and are non-assessable.
The opinion expressed herein is limited exclusively to the applicable provisions of the Ohio General Corporation Law as currently in effect, and I am expressing no opinion as to the effect of the laws of any other jurisdiction.
This opinion letter has been prepared in accordance with the customary practice of lawyers who regularly give, and lawyers who regularly advise opinion recipients concerning, opinions of the type contained herein.
This opinion letter deals only with the specified legal issues expressly addressed herein, and you should not infer any opinion that is not explicitly addressed herein from any matter stated in this letter.
I consent to the use of this opinion as an exhibit to the Registration Statement. In giving such consent, I do not hereby admit that I am within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations thereunder. This opinion is rendered to you as of the date hereof and I assume no obligation to advise you or any other person hereafter with regard to any change after the date hereof in the circumstances or the law that may bear on the matters set forth herein even though the changes may affect the legal analysis or legal conclusion or other matters in this letter.
| Very truly yours, | |
| /s/ James M. Jenkins | |
| James M. Jenkins | |
| General Counsel, Vice President of Corporate Development and Corporate Secretary |
Exhibit 10.1
AGREEMENT AND PLAN OF MERGER among TRANSCAT, INC., AXIOM TEST EQUIPMENT, LLC, AXIOM TEST EQUIPMENT, INC., GARY
F. SHILTS, Trustee of the Shilts Family JOSHUA SHILTS, SHANNON
JOHNSON, TRUSTEE of the Shannon and LAVON M. PARRISH, GARY F. SHILTS, SHANNON JOHNSON, and JOSHUA SHILTS, as Shareholder Representative
|
Dated August 8, 2023
Table of Contents
| Article I. THE MERGER | 1 | |
| 1.1 | The Merger | 1 |
| 1.2 | Effective Time and Closing | 2 |
| 1.3 | Effect of the Merger | 2 |
| 1.4 | Governing Documents | 2 |
| 1.5 | Merger Consideration and Payment | 2 |
| 1.6 | Effect on Company Stock | 3 |
| 1.7 | Closing Statement; Adjustment. | 4 |
| 1.8 | Payment of Indebtedness and Company Transaction Expenses | 6 |
| 1.9 | Holdback | 7 |
| 1.10 | Tax Consequences. | 7 |
| 1.11 | Taking of Necessary Action; Further Action | 8 |
| 1.12 | Incentive Compensation | 8 |
| Article II. CLOSING | 8 | |
| 2.1 | Closing Date | 8 |
| 2.2 | Closing Deliveries | 8 |
| Article III. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS | 10 | |
| 3.1 | Authority; Execution and Delivery | 10 |
| 3.2 | Organization | 10 |
| 3.3 | No Conflict; Consents | 11 |
| 3.4 | Capitalization; Title to Company Shares | 11 |
| 3.5 | Subsidiaries | 11 |
| 3.6 | Financial Statements; Undisclosed Liabilities | 11 |
| 3.7 | Absence of Certain Changes or Events | 12 |
| 3.8 | Title, Condition and Sufficiency of Assets | 13 |
| 3.9 | Real Property | 13 |
| 3.10 | Accounts Receivable | 14 |
| 3.11 | Intellectual Property | 15 |
| 3.12 | Material Contracts | 16 |
| 3.13 | Litigation | 17 |
| 3.14 | Compliance with Laws; Permits | 17 |
| 3.15 | Environmental Matters | 17 |
| 3.16 | Taxes | 18 |
| 3.17 | Employee Relations. | 20 |
| 3.18 | Employee Benefit Matters. | 21 |
| 3.19 | Transactions with Related Parties | 23 |
| 3.20 | Insurance | 24 |
| 3.21 | Relationship with Significant Customers | 24 |
| 3.22 | Relationship with Significant Suppliers | 25 |
| 3.23 | Anti-Corruption Laws | 25 |
| 3.24 | Privacy Laws | 25 |
| 3.25 | Product and Service Warranties | 25 |
| 3.26 | Banking Relationships | 25 |
| 3.27 | Purchase for Investment | 26 |
| 3.28 | Legend | 26 |
| 3.29 | Registration Rights | 26 |
| 3.30 | Sophisticated Investor | 27 |
| 3.31 | Existing Ownership | 27 |
| 3.32 | No General Solicitation | 27 |
| 3.33 | Reliance on Exemptions | 27 |
| 3.34 | Compliance with Applicable Law | 27 |
| 3.35 | Brokers | 27 |
| Article IV. REPRESENTATIONS AND WARRANTIES OF PARENT | 28 | |
| 4.1 | Organization | 28 |
| 4.2 | Authority | 28 |
| 4.3 | No Conflict | 28 |
| 4.4 | Consents | 28 |
| 4.5 | Litigation | 29 |
| 4.6 | Parent Shares. | 29 |
| 4.7 | Brokers | 29 |
| 4.8 | SEC Documents. | 29 |
| 4.9 | Compliance with Laws. | 31 |
| Article V. COVENANTS | 31 | |
| 5.1 | Confidentiality | 31 |
| 5.2 | Restrictive Covenants | 31 |
| 5.3 | Nondisparagement | 32 |
| 5.4 | Further Assurances | 32 |
| 5.5 | Release | 33 |
| 5.6 | Termination of 401(k) Plan | 33 |
| 5.7 | Spousal Consent | 33 |
| Article VI. Tax Matters | 33 | |
| 6.1 | Tax Indemnification | 33 |
| 6.2 | Straddle Period | 34 |
| 6.3 | Transfer Taxes | 34 |
| 6.4 | Cooperation on Tax Matters | 34 |
| 6.5 | Responsibility for Filing Tax Returns | 35 |
| 6.6 | Refunds and Tax Benefits | 35 |
| 6.7 | Amended Returns and Retroactive Elections | 35 |
| 6.8 | Tax-Sharing Agreements | 35 |
| Article VII. SURVIVAL AND INDEMNIFICATION | 35 | |
| 7.1 | Survival | 35 |
| 7.2 | General Indemnification | 36 |
| 7.3 | Process for Indemnification | 37 |
| 7.4 | Recoupment Against Holdback; Release of Holdback. | 39 |
| (a) | The | 39 |
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| 7.5 | Right of Setoff | 40 |
| 7.6 | Remedies Exclusive | 40 |
| 7.7 | Tax Treatment | 40 |
| Article VIII. MISCELLANEOUS | 41 | |
| 8.1 | Shareholder Representative | 41 |
| 8.2 | Interpretive Provisions | 42 |
| 8.3 | Entire Agreement | 43 |
| 8.4 | Successors and Assigns | 43 |
| 8.5 | Headings | 43 |
| 8.6 | Modification and Waiver | 43 |
| 8.7 | Expenses | 43 |
| 8.8 | Notices | 44 |
| 8.9 | Governing Law | 45 |
| 8.10 | Public Announcements | 45 |
| 8.11 | No Third Party Beneficiaries | 45 |
| 8.12 | Counterparts | 45 |
| 8.13 | Delivery by Facsimile and Email | 45 |
| Article IX. CERTAIN DEFINITIONS | 45 | |
| 9.1 | Defined Terms | 45 |
| 9.2 | Other Definitions | 57 |
Exhibit A Form of Registration Rights Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of August 8, 2023, by and among TRANSCAT, INC., an Ohio corporation (“Parent”), AXIOM TEST EQUIPMENT, LLC, a Delaware limited liability company (“Merger Sub”), AXIOM TEST EQUIPMENT, INC., a California corporation (the “Company”), and GARY F. SHILTS, Trustee of the Shilts Family 2008 Trust, DTD 5/6/2008 (the “Shilts Trust”), JOSHUA SHILTS, an individual, SHANNON JOHNSON, Trustee of the Shannon and Gloria Johnson Living Trust (the “Johnson Trust”), and LAVON M. PARRISH, an individual (together with the Shilts Trust, Joshua Shilts, and the Johnson Trust, each, individually, a “Shareholder” and, collectively, “Shareholders”), GARY F. SHILTS, individually (“G. Shilts”), and SHANNON JOHNSON, individually (“Johnson” and, together with G. Shilts and Shareholders, the “Shareholder Parties”), and JOSHUA SHILTS, solely in his capacity as the representative for Shareholders (the “Shareholder Representative”). Parent, Merger Sub, the Company, each Shareholder Party, and the Shareholder Representative is referred to herein as a “Party” and together as the “Parties”.
RECITALS
A. Shareholders own, in the aggregate, all of the issued and outstanding capital stock of the Company, and Parent owns all of the issued and outstanding membership units of Merger Sub. G. Shilts is a beneficiary of the Shilts Trust, and Johnson is a beneficiary of the Johnson Trust.
B. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware Limited Liability Company Act (the “DLLCA”) and the California General Corporation Law (the “CGCL”) and other applicable Laws, Parent and the Company intend to enter into a business combination transaction by means of a merger of the Company with and into Merger Sub, with Merger Sub being the surviving entity and continuing as a wholly owned subsidiary of Parent (the “Merger”).
C. Each of the Parties intends for the Merger to qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the Code.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
Article I.
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the DLLCA and the CGCL, the Company shall be merged with and into Merger Sub, the separate corporate existence of the Company shall cease and Merger Sub shall continue as the surviving entity in the Merger (the “Surviving Company”).
1.2 Effective Time and Closing. Subject to the conditions of this Agreement, at the Closing, the Parties shall cause the Merger to be consummated by causing a certificate of merger or other applicable documents as may be required under the DLLCA and the CGCL (collectively, the “Certificates of Merger”) to be filed with the Secretary of State of the State of Delaware and the Secretary of State of the State of California. The Merger shall become effective at such time as the Merger Certificates are duly filed with the Secretary of State of the State of Delaware and the Secretary of State of the State of California or at such other time as Parent and the Company shall agree and specify in the Merger Certificates (the “Effective Time”).
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DLLCA, the CGCL and other applicable provisions of Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all outstanding shares of the common stock of the Company (“Company Shares”) shall be canceled and all the property, rights, privileges, powers and franchises of the Company shall vest in Surviving Company, and all debts, liabilities and duties of the Company shall become the debts, liabilities and duties of Surviving Company.
1.4 Governing Documents. At the Effective Time:
(a) the Certificate of Formation of Merger Sub shall remain and become the Certificate of Formation of Surviving Company;
(b) the limited liability company agreement of Merger Sub shall remain and become the limited liability company agreement (the “LLC Agreement”) of the Surviving Company;
(c) the Managers of Merger Sub in office immediately prior to the Effective Time shall be the initial Managers of the Surviving Company and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the LLC Agreement of the Surviving Company or as otherwise provided by Law; and
(d) the officers of Merger Sub in office immediately prior to the Effective Time shall be the initial officers of the Surviving Company and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the LLC Agreement of the Surviving Company or as otherwise provided by Law.
1.5 Merger Consideration and Payment.
(a) Merger Consideration. Upon the terms and subject to the conditions of this Agreement and subject to the adjustments set forth in this Agreement including, without limitation, Section 1.7, at the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof (but subject to Section 1.6(b)), Company Shares issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive, in the aggregate, the following: (a) the Cash Consideration (subject to adjustment as provided in this Agreement including, without limitation, Section 1.7 and Section 1.8, plus (b) the Closing
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Consideration Shares, plus (c) the portion of the Holdback Amount, if any, paid to the Shareholders (by the issuance of Holdback Shares) pursuant to this Agreement (including, without limitation, Section 7.4).
(b) Payments at Closing. Subject to the terms and conditions of this Agreement, in payment of the Merger Consideration, at Closing:
(i) Parent shall pay and deliver to Shareholders, in the aggregate, the Estimated Cash Payment, by wire transfer of immediately available funds to one or more accounts that have been designated in writing by Shareholders.
(ii) Parent shall withhold from the Merger Consideration 43,583 Parent Shares (the “Holdback Shares”), as further described in Section 1.9. The number of Holdback Shares was determined by dividing $3,800,000 (the “Holdback Amount”) by $87.19 (the “Parent Share Value”), rounded to the nearest whole number. The Parent Share Value is the volume weighted (based on the number of Parent Shares traded on each day that the closing price is used in this calculation) average of the closing sale prices of Parent Shares on the Nasdaq Stock Market for the 60 consecutive trading days ending on August 4, 2023 (which is the date that is two trading days prior to the Closing Date).
(iii) Parent shall deliver to the Shareholders, in the aggregate, 271,820 Parent Shares (the “Closing Consideration Shares”). The number of Closing Consideration Shares to be issued to Shareholders was determined by dividing $23,700,000 by the Parent Share Value.
(iv) Parent shall pay, or cause to be paid, on behalf of the Shareholder Parties or the Company, the Estimated Closing Indebtedness, in accordance with Section 1.8.
(v) Parent shall pay, or cause to be paid, on behalf of the Shareholder Parties or the Company, the Estimated Closing Transaction Expenses, in accordance with Section 1.8.
(c) All payments of the Merger Consideration to Shareholders, including payments in respect of the Cash Consideration, Closing Consideration Shares and any portion of the Holdback Amount paid to the Shareholders (by delivery of Holdback Shares), will be allocated among Shareholders in accordance with their respective Allocable Portions, as set forth on Schedule 1.5(c). The Shareholder Parties (i) acknowledge that they have agreed to allocate the Merger Consideration in accordance with the Allocable Portions set forth on Schedule 1.5(c), even though the Allocable Portions are disproportionate to the Shareholders’ respective ownership of Company Shares, and (ii) hereby authorize and direct Parent to pay the Merger Consideration to the Shareholders in accordance with their respective Allocable Portions.
(d) Shareholders acknowledge and agree that Parent shall be entitled to reduce any cash payments to Shareholders by all applicable deductions and tax withholdings in respect of the payments pursuant to this Section 1.5.
1.6 Effect on Company Stock.
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(a) Conversion of Company Common Stock. Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and this Agreement and without any action on the part of Parent, Merger Sub, the Company or the Surviving Company, the Company Shares issued and outstanding immediately prior to the Effective Time will be canceled and the rights pertaining thereto will be automatically converted into each Shareholder’s right to receive his or her Allocable Portion of the Merger Consideration.
(b) Surrender of Company Certificates. Subject to the terms of this Agreement, the Allocable Portion of the Merger Consideration shall be issued and paid to each Shareholder upon surrender of his or her certificates representing the Company Shares (collectively, the “Company Certificates”) or, in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and indemnity, if required) in a form reasonably acceptable to Parent. Company Certificates shall forthwith be cancelled. Until so surrendered, outstanding Company Certificates will be deemed, from and after the Effective Time, to evidence only the right to receive the applicable Merger Consideration pursuant to Section 1.5(a).
(c) Cancellation of Treasury Stock. At the Effective Time, each Company Share owned by the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion or payment in respect thereof.
(d) No Fractional Shares. No fraction of a Parent Share will be issued by virtue of the Merger or the transactions contemplated hereby. Only whole Parent Shares will be delivered to Shareholders. In the event that a Shareholder would receive a fractional Parent Share, Parent will pay the cash value of such fractional share to such Shareholder (as determined based on the Parent Share Value).
(e) Closing of the Company’s Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the records of the Surviving Company of Company Shares that were outstanding immediately prior to the Effective Time.
(f) Waiver of Appraisal Rights. Each Shareholder acknowledges that he has voted or consented, in his capacity as a shareholder of the Company, to approve the Merger. Each Shareholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal and dissenters’ rights and any similar rights (including any notice requirements related thereto) relating to the Merger that such Shareholder or any other Person may have by virtue of, or with respect to, any Company Shares owned by such Shareholder.
1.7 Closing Statement; Adjustment.
(a) On the Closing Date, Shareholders shall deliver to Parent a written statement (the “Estimated Closing Statement”) in form and substance reasonably satisfactory to Parent, setting forth Shareholders’ good faith estimate as of the Closing Date of, and the components and calculation of, (i) the Closing Cash (the “Estimated Closing Cash”), (ii) the Closing Working Capital (the “Estimated Closing Working Capital”), (iii) the Closing
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Indebtedness (the “Estimated Closing Indebtedness”), and (iv) the Closing Transaction Expenses (the “Estimated Closing Transaction Expenses”). The Estimated Closing Statement, and the Estimated Closing Cash, Estimated Closing Working Capital, Estimated Closing Indebtedness, and Estimated Closing Transaction Expenses shall be adjusted as necessary on the Closing Date to reflect any adjustments reasonably requested by Parent and satisfactory to Shareholders in their reasonable discretion.
(b) Delivery of Closing Statement. Within 120 days after the Closing Date, Parent shall cause to be prepared and shall deliver to the Shareholder Representative a statement (the “Final Closing Statement”) setting forth in reasonable detail Parent’s calculation of (i) the Closing Cash, (ii) the Closing Working Capital, (iii) the Closing Indebtedness, and (iv) the Closing Transaction Expenses.
(c) Cooperation. Parent, each Shareholder Party and the Shareholder Representative shall, and shall use reasonable efforts to cause its respective Affiliates, agents and representatives to, cooperate and assist in the preparation of the Final Closing Statement and the calculation of the Closing Cash, Closing Working Capital, Closing Indebtedness and Closing Transaction Expenses and in the conduct of the reviews and dispute resolution process referred to in this Section 1.7.
(d) Review Period. During the 30-day period following the Shareholder Representative’s receipt of the Final Closing Statement, the Shareholder Representative shall be permitted to review the working papers of Parent relating to the Final Closing Statement. The Final Closing Statement and the calculation of the Closing Cash, Closing Working Capital, Closing Indebtedness and Closing Transaction Expenses shall become final and binding upon the Parties for purposes of this Section 1.7 on the 30th day following delivery thereof, unless the Shareholder Representative gives written notice of his disagreement with the Final Closing Statement (“Notice of Disagreement”) to Parent prior to such date, which notice, to be valid, must comply in all material respects with this Section 1.7. Any Notice of Disagreement shall (i) specify in reasonable detail the nature of any disagreement so asserted, and include all supporting schedules, analyses, working papers and other documentation, (ii) include only disagreements based on Closing Cash, Closing Working Capital, Closing Indebtedness or Closing Transaction Expenses not being calculated in accordance with this Section 1.7, (iii) specify the line item or items in the calculation of Closing Cash, Closing Working Capital, Closing Indebtedness or Closing Transaction Expenses with which the Shareholder Representative disagrees and the amount of each such line item or items as calculated by the Shareholder Representative, and (iv) include the Shareholder Representative’s calculation of the Closing Cash, Closing Working Capital, Closing Indebtedness or Closing Transaction Expenses, as applicable. The Shareholder Representative and Parent shall be deemed to have agreed with all items and amounts included in the calculation of the Closing Cash, Closing Working Capital, Closing Indebtedness or Closing Transaction Expenses delivered pursuant to Section 1.7(b) except such items that are specifically disputed in the Notice of Disagreement.
(e) Resolution of Disputes. If the Shareholder Representative delivers, in a timely manner, Notice of Disagreement pursuant to Section 1.7, then the Final Closing Statement (as revised in accordance with this Section 1.7(e)), and the resulting calculation of the Closing Cash, Closing Working Capital, Closing Indebtedness and Closing Transaction Expenses
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resulting therefrom, shall become final and binding upon the Parties for purposes of this Section 1.7 on the earlier of (i) the date any and all matters specified in the Notice of Disagreement are finally resolved in writing by the Shareholder Representative and Parent and (ii) the date any and all matters specified in the Notice of Disagreement not resolved by the Shareholder Representative and Parent are finally resolved in writing by the Independent Accountant. The Final Closing Statement shall be revised to the extent necessary to reflect any resolution by the Shareholder Representative and Parent and any final resolution made by the Independent Accountant in accordance with this Section 1.7(e). During the 30-day period following the delivery of a timely Notice of Disagreement or such longer period as the Shareholder Representative and Parent shall mutually agree, the Shareholder Representative and Parent shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement. If, at the end of such 30-day period (or such longer period as mutually agreed by the Shareholder Representative and Parent), the Shareholder Representative and Parent have not so resolved such differences, the Shareholder Representative and Parent shall submit the dispute for resolution to Deloitte (the “Independent Accountant”), for review and resolution of any and all matters which remain in dispute and which were included in the Notice of Disagreement in accordance with this Section 1.7. The determination of the Independent Accountant shall be based solely on the provisions of this Agreement and shall be final and binding upon the Parties. The Parties shall be entitled to have judgment entered upon the determination of the Independent Accountant in any court having jurisdiction over the Party against which such determination is to be enforced. The fees, costs, and expenses of the Independent Accountant shall be borne by Parent and Shareholders in proportion to the manner in which the amount that is subject to dispute is determined in favor of, or adversely to, each Party. Each of Parent and Shareholders shall bear all expenses of its or their own independent accountants incurred in connection with the preparation or review of the Final Closing Statement, any Notice of Disagreement, and participation on the Dispute Resolution Panel.
(f) Merger Consideration Adjustment.
(i) If the Final Cash Payment is greater than the Estimated Cash Payment, then, subject to Section 1.10(a), within five Business Days of the determination of the Final Closing Statement, Parent shall pay to the Shareholder Representative (for further distribution to Shareholders, in accordance with their Allocable Portions) an aggregate amount equal to such excess by wire transfer of immediately available funds to an account or accounts designated in writing by the Shareholder Representative prior to the date when such payment is due.
(ii) If the Final Cash Payment is less than the Estimated Cash Payment, then within five Business Days of the determination of the Final Closing Statement, Shareholders, jointly and severally, shall pay or cause to be paid to Parent an amount equal to such deficiency by wire transfer of immediately available funds to an account or accounts designated in writing by Parent prior to the date when such payment is due.
1.8 Payment of Indebtedness and Company Transaction Expenses. Shareholders shall deliver with the Estimated Closing Statement delivered pursuant to Section 1.7(a): (i) with respect to the Estimated Closing Indebtedness, the name of each Person to which any Estimated Closing Indebtedness is owed and the amount owed to each such Person, and pay-off letters
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(including wire instructions for payment) in form and substance reasonably satisfactory to Parent executed at or prior to the Closing by all such Persons, and (ii) with respect to the Estimated Closing Transaction Expenses, the name of each Person to which any payment of any Estimated Closing Transaction Expenses is owed and the amount owed to each such Person, and copies of each invoice reflecting the Estimated Closing Transaction Expenses (including wire instructions for payment). Shareholders hereby authorize and direct Parent to pay at the Closing, on behalf of Shareholders, the Company (and apply to the payment of the Merger Consideration the amount of), the Estimated Closing Indebtedness and the Estimated Closing Transaction Expenses, in accordance with the payoff statements, invoices and wire instructions so provided by Shareholders. Notwithstanding the foregoing, Parent may, in its sole discretion, elect not to repay on behalf of Shareholders and the Company, at the Closing, any portion of the Closing Indebtedness, in which case such unpaid portion of the Closing Indebtedness shall remain a Liability of the Company, and shall be a part of the Closing Indebtedness for all purposes of this Agreement (including, without limitation, determining the Estimated Cash Payment and Final Cash Payment and for the adjustments provided in Section 1.7). The Parties shall cooperate in arranging for the repayment of the Estimated Closing Indebtedness and Estimated Closing Transaction Expenses at the Closing. Shareholders shall cause the Company to facilitate such repayment and the release, in connection with such repayment, of any Encumbrances securing the Closing Indebtedness.
1.9 Holdback. As security for the obligations of the Shareholder Parties pursuant to this Agreement (including Section 1.7, Article VI, and Article VII), Parent shall withhold the Holdback Amount (through a holdback of the Holdback Shares) from the Merger Consideration, and hold the Holdback Amount and Holdback Shares during the Holdback Period, pursuant to the terms of this Agreement (including, without limitation, Section 7.4). On the Closing Date, Parent shall direct its transfer agent to reserve for issuance a number of Parent Shares equal to the number of Holdback Shares.
1.10 Tax Consequences.
(a) It is intended by the Parties that the Merger shall qualify as a reorganization pursuant to Section 368(a)(1)(A) of the Code, and, notwithstanding anything to the contrary contained herein, if necessary to assure that the Merger will satisfy continuity of interest requirements under applicable federal income tax principles relating to reorganizations under Section 368(a) of the Code, as mutually determined by counsel to Parent and counsel to the Company and Shareholders, the number of Parent Shares that will be delivered to the Shareholders in the Merger shall be increased and the amount of cash that will be paid to the Shareholders in the Merger shall be decreased (as determined based on the Parent Share Value). The Company, Parent, and Merger Sub will each be a party to the plan of reorganization within the meaning of Section 368(b) of the Code and each hereby adopts this Agreement as a “plan of reorganization” within the meaning of Section 1.368-2(g) of the Regulations.
(b) Any amounts deducted and withheld from the consideration otherwise payable pursuant to Section 1.5 of this Agreement to any holder of Company Shares and paid by the withholding party to the applicable Authority, shall be treated for all purposes of this Agreement as having been paid to the holder of Company Shares in respect of which such deduction and withholding was made.
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1.11 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Company with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, the then current officers and directors or managers, as applicable, of Parent and Merger Sub and the officers and directors of the Company shall take all such lawful and necessary action.
1.12 Incentive Compensation. At the Closing, Parent shall grant to each employee of the Company identified on Schedule 1.12 (an “Eligible Employee”) a restricted stock unit award (each, an “RSU Award”) for the number of Parent Shares set forth on Schedule 1.12 for such Eligible Employee. Each RSU Award shall be issued subject to and in accordance with the terms of the Transcat, Inc. 2021 Incentive Plan and shall vest on the first anniversary of the Closing Date, subject to the applicable Eligible Employee remaining an employee of the Surviving Company on such date.
Article II.
CLOSING
2.1 Closing Date. The closing of the transactions contemplated hereby (the “Closing”) shall take place at such place and time as is agreed in writing by Parent and the Company, or via electronic transmittal of documents, on the date of this Agreement (the “Closing Date”). For financial accounting and tax purposes, to the extent permitted by Law, the Closing shall be deemed to have become effective as of 11:59 p.m. on the Closing Date. This Agreement and all other agreements, certificates, documents and instruments furnished in connection with this Agreement or the other agreements, certificates, documents and instruments at the Closing shall be deemed to be delivered simultaneously on the Closing Date and may be delivered by means of an exchange of executed documents by facsimile or an attachment in “pdf” or similar format to an electronic mail message.
2.2 Closing Deliveries.
(a) Deliveries by Parent. At the Closing, Parent shall deliver or cause to be delivered the following to Shareholders or other Persons as specified below:
(i) the amounts (including the Estimated Cash Payment and Closing Consideration Shares) set forth in Section 1.5(b), in accordance therewith;
(ii) the Certificates of Merger, duly executed by Merger Sub, as applicable;
(iii) a Registration Rights Agreement with respect to Parent Shares, in substantially the form attached hereto as Exhibit A (the “Registration Rights Agreement”), duly executed by Parent;
(iv) such other agreements, certificates and documents as may be reasonably requested by the Company to effectuate or evidence the transactions contemplated hereby.
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(b) Deliveries by the Company and Shareholders. At the Closing, the Company and Shareholders shall deliver or cause to be delivered the following to Parent:
(i) the Company Certificates for the Company Shares, as provided in Section 1.6(b);
(ii) the Certificates of Merger, duly executed by the Company;
(iii) the Registration Rights Agreement, duly executed by Shareholders;
(iv) a lock-up agreement, in a form reasonably acceptable to Parent, duly executed by Shareholders, with respect to the Closing Consideration Shares;
(v) a certificate of the Secretary (or equivalent officer) of the Company certifying that attached thereto are true and complete copies of (A) the certificate of incorporation of the Company, and all amendments thereto, as certified by the Secretary of State of California; (B) the by-laws of the Company, and all amendments thereto; and (C) a copy of all resolutions adopted by the board of directors and shareholders of the Company authorizing the execution, delivery and performance of this Agreement and the other Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, including the Merger.
(vi) a certificate of good standing dated not more than 10 days prior to the Closing Date from (A) the Secretary of State of the State of California, attesting to the good standing in California of the Company, and (B) the secretary of state of each other state or jurisdiction attesting to the good standing of the Company, as applicable, in each other state or jurisdiction where the Company is qualified to transact business;
(vii) the Estimated Closing Statement (together with all payoff statements and other documents that Shareholders are required to deliver pursuant to Section 1.8 with respect to the Estimated Closing Indebtedness and the Estimated Closing Transaction Expenses);
(viii) the consents from Authorities or other Persons, if any, set forth on Schedule 3.3 in forms reasonably acceptable to Parent;
(ix) the original stock ledgers and minute books for the Company;
(x) such lien releases or other written evidence reasonably satisfactory to Parent, evidencing the release of all Encumbrances on the assets of the Company that are not Permitted Encumbrances;
(xi) written confirmation of the termination, effective immediately prior to the Closing, of the 401(k) Plan, in accordance with Section 5.6;
(xii) true and complete copies of all resolutions adopted by the trustees of the Shilts Trust and of the Johnson Trust, respectively, authorizing the execution, delivery and performance of this Agreement and the other Ancillary Documents to which the Shilts Trust or
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the Johnson Trust, as applicable, is a party and the consummation of the transactions contemplated hereby and thereby;
(xiii) the Spousal Consents, as contemplated by Section 5.7; and
(xiv) such other agreements, certificates and documents as may be reasonably requested by Parent to effectuate or evidence the transactions contemplated hereby.
Article III.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder Party, jointly and severally, makes the following representations and warranties to Parent:
3.1 Authority; Execution and Delivery. The Company’s execution and delivery of this Agreement and each of the other agreements, certificates, instruments and documents contemplated hereby (collectively, the “Ancillary Agreements”) to which the Company is a party, its compliance with the provisions hereof and thereof and the consummation of all of the transactions contemplated hereby and thereby, have all been duly and validly authorized by all necessary corporate action on the part of the Company. Each Shareholder Party has all necessary power and authority, and the full legal capacity, to enter into and deliver this Agreement and each Ancillary Agreement to which such Shareholder Party is a party, to carry out his or her obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Each of the Shilts Trust and the Johnson Trust is a trust duly established and validly existing under the laws of California. G. Shilts is a trustee of the Shilts Trust, and has the necessary power, authority and capacity, on behalf of the Shilts Trust, to enter into this Agreement and to perform the obligations of the Shilts Trust hereunder. Johnson is a trustee of the Johnson Trust, and has the necessary power, authority and capacity, on behalf of the Johnson Trust, to enter into this Agreement and to perform the obligations of the Johnson Trust hereunder. No proceedings have been instituted or are pending for the termination, dissolution or liquidation of the Shilts Trust or the Johnson Trust. This Agreement and each Ancillary Agreement to which the Company or any Shareholder Party is a party has been duly authorized, executed and delivered by the Company or such Shareholder Party and constitutes a legal, valid and binding obligation of the Company or such Shareholder Party, as applicable, enforceable against the Company or such Shareholder Party in accordance with its terms and conditions, except as enforcement may be limited by General Enforceability Exceptions.
3.2 Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. The Company has all requisite power and authority to carry on the Business. The Company is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions where the nature of the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified can be cured without material expense and will not render any Material Contract of the Company unenforceable. Shareholders have provided to Parent true and complete copies of the Organizational Documents of the Company, all as amended to date.
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3.3 No Conflict; Consents. The execution, delivery and performance by the Company and each Shareholder Party of this Agreement and each Ancillary Agreement to which the Company and each Shareholder Party is a party, and the consummation by the Company and each Shareholder Party of the transactions contemplated hereby and thereby does not and will not, with or without the giving of notice or the lapse of time, or both, (a) violate any provision of any Law to which the Company or any Shareholder Party is subject, (b) violate any provision of the Organizational Documents of the Company or the provisions of the Shilts Trust or the Johnson Trust, or (c) except as set forth on Schedule 3.3, violate or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice, or both, constitute a default) under, or require the consent of any third party under, or result in or permit the termination or amendment of any provision of, or result in or permit the acceleration of the maturity or cancellation of performance of any obligation under, or result in the creation or imposition of any Encumbrance of any nature whatsoever upon any of the assets of the Company or any Shareholder Party or give to others any interests or rights therein under, any Contract or Permit to which the Company or any Shareholder Party is a party or by which the Company or any Shareholder Party may be bound or affected. Except as set forth on Schedule 3.3, no consent, approval, or authorization of, or exemption by, or filing with, any Authority or other Person is required to be obtained or made by the Company or any Shareholder Party in connection with the execution, delivery, and performance by the Company or any Shareholder Party of this Agreement or any Ancillary Agreement to which the Company or any Shareholder Party is a party, or the taking by the Company or any Shareholder Party of any other action contemplated hereby or thereby.
3.4 Capitalization; Title to Company Shares.
(a) The authorized share capital of the Company consists of 100,000 shares of common stock, of which 31,717 shares are issued and outstanding. All of the outstanding Company Shares have been duly authorized, are validly issued, fully paid and non-assessable, and Shareholders are the record and beneficial owner of all Company Shares, as set forth on Schedule 3.4(a), free and clear of all Encumbrances. The Company Shares constitute all of the issued and outstanding shares of the Company.
(b) There are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the equity interests of the Company or obligating Shareholders or the Company to issue or sell any shares of capital stock of, or any other interest in, the Company. The Company does not have any outstanding or authorized any stock appreciation, phantom stock, profit participation or similar rights. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Company Shares.
3.5 Subsidiaries. The Company does not (i) directly or indirectly own any stock of, equity interest in, or other investment in any other corporation, joint venture, partnership, trust or other Person or (ii) have any subsidiaries or any predecessors in interest by merger, liquidation, reorganization, acquisition or similar transaction.
3.6 Financial Statements; Undisclosed Liabilities. The books of account and related records of the Company fairly reflect the Company’s assets, Liabilities and transactions.
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Shareholders have delivered to Parent true and current copies of the following financial statements (the “Financial Statements”): (a) the balance sheets of the Company as of December 31, 2022, December 31, 2021 and December 31, 2020 and the related statements of income and stockholder’s equity for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, and (b) the balance sheet of the Company as of the Interim Balance Sheet Date, and the related statement of income for the three-month period ended on the Interim Balance Sheet Date (the “Interim Financial Statements”). The Financial Statements fairly present the financial position of the Company and the results of their operations and cash flows as of the respective dates and for the respective periods indicated therein and, except as set forth on Schedule 3.6, have been prepared in accordance with GAAP, except further that the Interim Financial Statements are subject to normal year-end adjustments, none of which are expected to be material in amount or nature, and do not include disclosures normally made in footnotes. The Financial Statements have been prepared from and are in accordance with the books and records of the Company. The Company does not have any Liabilities except for (a) Liabilities reflected on or accrued and reserved against in the Interim Balance Sheet, or (b) Liabilities incurred in the Ordinary Course of Business after the Interim Balance Sheet Date (none of which is material or results from, arises out of, or relates to any material breach or violation of, or default under, a Contract or requirement of Law).
3.7 Absence of Certain Changes or Events. Except as set forth on Schedule 3.7, since December 31, 2022, the Company has conducted its business only in the Ordinary Course of Business and there has not been a Material Adverse Effect. Without limiting the foregoing, except as set forth on Schedule 3.7, since December 31, 2022, the Company has not (a) issued, purchased or redeemed any of its equity securities, or granted or issued any option, warrant or other right to purchase or acquire any such equity securities, (b) incurred or discharged any Liabilities, except Liabilities incurred or discharged in the Ordinary Course of Business, (c) encumbered any of its properties or assets, tangible or intangible, except for Encumbrances incurred in the Ordinary Course of Business, (d) (i) granted any increase in the salaries (other than normal increases for employees averaging not in excess of five percent per annum made in the Ordinary Course of Business) or other compensation or benefits payable or to become payable to, or any advance (excluding advances for ordinary business expenses consistent with past practice) or loan to, any officer, director, shareholder, member, partner, employee or independent contractor of the Company, (ii) made any payments to any pension, retirement, profit-sharing, bonus or similar plan except payments in the Ordinary Course of Business made pursuant to the Benefit Plans, (iii) granted or made any other payment of any kind to or on behalf of any officer, director, member, partner, shareholder, employee or independent contractor other than payment of base compensation and reimbursement for reasonable expenses in the Ordinary Course of Business, or (iv) adopted, amended or terminated any employee benefit plan (including any Benefit Plan) or any stay bonus, retention bonus, transaction bonus or change in control bonus plan or arrangement, other than, in any case, amendments required by applicable Law, (e) suffered any change or, to the knowledge of the Shareholder Parties, received any threat of any change in any of its relations with, or any loss or, to the knowledge of the Shareholder Parties, threat of loss of, any of the suppliers, clients, distributors, customers or employees that are material to the Business, including any loss or change which may result from the transactions contemplated by this Agreement, (f) disposed of or failed to keep in effect any rights in, to or for the use of any Permit material to the Business, (g) changed any method of keeping of its books of account or accounting practices, (h) disposed of or failed to keep in effect any rights in, to or
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for the use of any of the Intellectual Property material to the Business, (i) sold, transferred or otherwise disposed of any assets, properties or rights of the Business with a value in excess of $25,000, except inventory sold in the Ordinary Course of Business, (j) entered into any transaction or Contract outside the Ordinary Course of Business or with any partner, shareholder, member, officer, director or other Affiliate of the Company or any Shareholder Party, (k) made or authorized any single capital expenditure in excess of $25,000, or capital expenditures in excess of $50,000 in the aggregate, (l) changed or modified in any manner its existing credit, collection and payment policies, procedures and practices with respect to accounts receivable and accounts payable, respectively, including acceleration of collections of receivables, failure to make or delay in making collections of receivables (whether or not past due), acceleration of payment of payables or failure to pay or delay in payment of payables, (m) incurred any material damage, destruction, theft, loss or business interruption, (n) made any declaration, payment or setting aside for payment of any distribution (whether in equity or property) with respect to any securities or interests of the Company, (o) made (except as consistent with past practice) or revoked any Tax election or settled or compromised any material Liability for Taxes with any Taxing Authority, (p) waived or released any material right or claim of the Company or incurred any modifications, amendments or terminations of any Contracts which are in the aggregate materially adverse to the Company or the Business, or (q) instituted any material change in its conduct of the Business or any material change in its accounting practices or methods of cash management.
3.8 Title, Condition and Sufficiency of Assets.
(a) The Company has good and valid title to, or a valid leasehold interest in, all property and other assets used by it in the operation of its Business, reflected in the Financial Statements or acquired after the Interim Balance Sheet Date, other than properties and assets sold, consumed or otherwise disposed of in the Ordinary Course of Business since the Interim Balance Sheet Date, free and clear of all Encumbrances, except for Permitted Encumbrances. None of the Shareholder Parties owns or uses, or has any rights to own or use, any real or personal property, tangible or intangible, or any other assets, used in the operation of the Business.
(b) The buildings, plants, structures, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company are structurally sound, are in good condition and repair (except for ordinary wear and tear and routine maintenance in the Ordinary Course of Business), are adequate for the purposes for which they are presently used in the conduct of the Business, and comply with all applicable Laws. The buildings, plants, structures, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company currently owned or leased by the Company constitute all of the assets, properties and rights necessary for the operation of the Business by the Company as the Business is currently conducted. Except as otherwise set forth on Schedule 3.8(b), no Person other than the Company owns any assets, properties and rights used in the Business, other than assets owned by third parties and used in the Business pursuant to a Material Contract identified on Schedule 3.12(a).
3.9 Real Property.
(a) The Company does not own, and has never owned, any real property.
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(b) Schedule 3.9(b) sets forth the address of each parcel of real property leased by the Company (collectively, the “Leased Real Property”). All of the Leased Real Property is leased pursuant to valid, binding and enforceable leases listed on Schedule 3.9(b) (the “Real Property Leases”). The Leased Real Property comprises all of the real property used by the Company in the operation of the Business. Except as set forth on Schedule 3.9(b), with respect to each parcel of Leased Real Property, (i) there are no pending or, to the knowledge of the Shareholder Parties, threatened condemnation proceedings or Actions relating to it, (ii) other than the Real Property Leases, there are no other leases, subleases, licenses or concessions, written or oral, granting to any Person the right to use or occupy any portion of the Leased Real Property, (iii) to the knowledge of the Shareholder Parties, the Company’s possession and quiet enjoyment of the Leased Real Property has not been disturbed and there are no disputes with respect to the Real Property Leases; (iv) no other party to such Real Property Lease is an Affiliate of, or otherwise has any economic interest in, the Company, except as set forth on Schedule 3.9(b); (v) the Company has not collaterally assigned or granted any Encumbrance (other than Permitted Encumbrances) in such Real Property Lease or any interest therein; (vi) there are no construction liens or similar Encumbrances with respect to the Leased Real Property; and (vii) no security deposit or portion thereof deposited with respect to such Real Property Lease has been applied in respect of a breach of or default under such Real Property Lease that has not been redeposited in full. The Company does not owe, nor will it owe in the future, any brokerage commissions or finder’s fees with respect to any of the Real Property Leases. Schedule 3.9(b) lists all amendments, modifications, estoppels, subordination, non-disturbance and attornment agreements and any other agreements or understandings related to the Leased Real Property or the Real Property Leases.
(c) Neither the Company nor any Shareholder Party has received written notice of any condemnation, expropriation or other proceeding in eminent domain affecting any parcel of Leased Real Property or any portion thereof or interest therein.
(d) To the knowledge of the Shareholder Parties, the Leased Real Property is in compliance with all applicable building, zoning, subdivision, health and safety, land use and other applicable Laws, and all insurance requirements affecting the Leased Real Property. The Company has not received any written notice of violation of any applicable Law or insurance requirements affecting the Leased Real Property and, to the knowledge of the Shareholder Parties, there is no basis for the issuance of any such notice or the taking of any action for such violation.
(e) The current use and occupancy of the Leased Real Property and the operation of the Business of the Company as currently conducted thereon do not violate in any respect any easement, covenant, condition, restriction or similar provision in any instrument of record or, to the knowledge of the Shareholder Parties, other unrecorded agreement affecting such Leased Real Property.
3.10 Accounts Receivable.
(a) All of the Company’s accounts and notes receivable reflected on the Interim Balance Sheet and the accounts and notes receivable arising after the Interim Balance Sheet Date (collectively, the “Accounts Receivable”) represent amounts receivable for products
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actually delivered or services actually provided (or, in the case of non-trade accounts or notes represent amounts receivable in respect of other bona-fide business transactions), have arisen in the Ordinary Course of Business and have been or will be billed and are generally due within 30 days after such billing. Except as set forth on Schedule 3.10(a), all of the Accounts Receivable are and will be fully collectible within 30 days after billing, net of the reserves shown on the Interim Balance Sheet (or in the books of the Company, as applicable, if such Accounts Receivable were created after the Interim Balance Sheet Date). To the knowledge of the Shareholder Parties, there is no contest, claim, or right of set-off under any Contract with any obligor of a material Account Receivable relating to the amount or validity of such Account Receivable.
(b) Except as set forth on Schedule 3.10(b), since December 31, 2019, there have not been any write-offs as uncollectible of the Company’s accounts receivable except for write-offs in the Ordinary Course of Business and not in excess of $10,000 in the aggregate.
3.11 Intellectual Property.
(a) Schedule 3.11(a)(i) contains a true and complete listing of all the material items of Intellectual Property owned by the Company and other material intangible assets and properties owned by the Company, including, without limitation, each patent and registration which has been issued to the Company, and each pending application or application for registration made by the Company, with respect to the Intellectual Property of the Company (collectively, the “Material Owned Intellectual Property”). Schedule 3.11(a)(ii) contains a true and complete listing of all material items of Intellectual Property and other material intangible assets and properties owned by third parties which the Company has a right to use pursuant to a license, sublicense, agreement or permission (the “Licensed Intellectual Property”), other than any shrink-wrap, click-wrap or similar licenses provided in connection with off-the-shelf or pre-loaded software or online services. The Material Owned Intellectual Property and the Licensed Intellectual Property constitute all material Intellectual Property and other intangible assets and properties used in connection with the conduct of the Business by the Company
(b) Except as set forth on Schedule 3.11(b), each item of Intellectual Property owned by the Company, including the Material Owned Intellectual Property, is valid and in full force and effect and is owned by the Company free and clear of all Encumbrances and other claims, including any claims of joint ownership or inventorship. All issuance, renewal, maintenance and other payments that are or have become due as of the date hereof with respect to the Material Owned Intellectual Property have been timely paid by or on behalf of the Company.
(c) Except as set forth on Schedule 3.11(c): (a) the Company owns or possesses adequate licenses or other valid rights to use all Intellectual Property used by it in the conduct of the Business, (b) the conduct of the Business of the Company does not infringe, misappropriate, dilute or conflict with, and has not conflicted with any Intellectual Property of any other Person, (c) neither the Company nor any Shareholder Party has received any notices alleging that the conduct of the Business, including the marketing, sale and distribution of the products and services of the Business, infringes, dilutes, misappropriates or otherwise violates any Person’s Intellectual Property, (d) no current or former employee of the Company and no
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other Person owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part, and including any rights to royalties or other compensation, in any of Intellectual Property owned or purported to be owned by the Company, (e) there is no agreement or other contractual restriction affecting the use by the Company of any of the Intellectual Property owned or purported to be owned by the Company, and (f) Shareholders do not have any knowledge of any present infringement, dilution, misappropriation or other violation of any of the Intellectual Property owned or purported to be owned by the Company by any Person, and the Company has not asserted or threatened any claim or objection against any Person for any such infringement or misappropriation.
(d) Except as set forth on Schedule 3.11(d), the information technology systems owned, leased, licensed or otherwise used in the conduct of the Business, including all computer software, hardware, firmware, process automation systems and telecommunications systems used by the Company in the Business (the “IT Systems”) perform reliably and in material conformance with the documentation and specifications for such systems. The Company has taken commercially reasonable steps to ensure that the IT Systems do not contain any viruses, “worms,” disabling or malicious code, or other anomalies that would materially impair the functionality of the IT Systems. The Company has taken commercially reasonable steps to provide for the backup, archival and recovery of the critical business data of the Company. The Company has taken commercially reasonable measures to maintain the confidentiality and value of all of its trade secrets.
3.12 Material Contracts.
(a) Schedule 3.12(a) contains a complete and accurate list of all Material Contracts (classified (i) through (xv), as applicable, based on the definition of Material Contracts). As used in this Agreement, “Material Contracts” means all Contracts of the following types to which the Company is a party or by which the Company or any of its properties or assets is bound: (i) any real property leases; (ii) any labor or employment-related agreements; (iii) any joint venture and limited partnership agreements; (iv) mortgages, indentures, loan or credit agreements, security agreements and other agreements and instruments relating to the borrowing of money or extension of credit; (v) agreements for the sale of goods or products or performance of services by or with any vendor or customer (or any group of related vendors or customers); (vi) lease agreements for machinery and equipment, motor vehicles, or furniture and office equipment or other personal property by or with any vendor (or any group of related vendors); (vii) agreements restricting in any manner the right of the Company to compete with any other Person, or restricting the right of the Company to sell to or purchase from any other Person; (viii) agreements between the Company and any of its Affiliates; (ix) guaranties, performance, bid or completion bonds, surety and appeal bonds, return of money bonds, and surety or indemnification agreements; (x) custom bonds and standby letters of credit; (xi) any license agreement or other agreements to which the Company is a party regarding any Intellectual Property of others; (xii) other agreements, contracts and commitments which (A) cannot be terminated by the Company on notice of 30 days or less or (B) require payment by the Company of $5,000 or more upon termination; (xiii) powers of attorney; (xiv) any agreements or arrangements with any employees, sales representatives, consultants, independent contractors, agents or other representatives of the Company (including sales commission agreements or arrangements); and (xv) each other agreement or contract to which the Company is a party or by
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which the Company or their respective assets are otherwise bound which is material to its Business, operation, financial condition or prospects.
(b) Each Material Contract is valid, binding and enforceable against the Company and the other parties thereto in accordance with its terms and is in full force and effect, except as enforcement may be limited by General Enforceability Exceptions. The Company and, to the knowledge of the Shareholder Parties, each of the other parties thereto, have performed all obligations required to be performed by them under, and are not in default under, any of such Contracts and no event has occurred which, with notice or lapse of time, or both, would constitute such a default. The Company has not received any written claim from any other party to any Contract that the Company has breached any obligations to be performed by it thereunder, or is otherwise in default or delinquent in performance thereunder. Shareholders have furnished to Parent a true and complete copy of each Material Contract required to be disclosed on Schedule 3.12(a).
3.13 Litigation. Except as set forth on Schedule 3.13, there is no, and during the last five years there has not been any, dispute, claim, action, suit, proceeding, review, arbitration, audit or investigation (collectively, “Action”) before any Authority pending or, to the knowledge of the Shareholder Parties, threatened against the Company or any of its properties or assets or (to the extent the Company may have an obligation to provide indemnification or may otherwise become liable) any of its shareholders, members, officers, directors or employees. The Company is not a party to or bound by any outstanding Governmental Order with respect to or affecting the properties, assets, personnel or Business of the Company. Shareholders have provided Parent with a list setting forth a general description of settlements occurring since January 1, 2019 regarding actual or threatened Action binding on the Company.
3.14 Compliance with Laws; Permits. The Company is, and for the past five years has been, in compliance with all applicable Laws. Set forth on Schedule 3.14 are all governmental or other industry permits, registrations, certificates, certifications, exemptions, licenses, franchises, consents, approvals and authorizations (“Permits”) necessary for the conduct of the Business of the Company as presently conducted, each of which the Company validly possesses and is in full force and effect. No notice, citation, summons or order has been issued, no complaint has been filed and served, no penalty has been assessed and notice thereof given, and no investigation or review is pending or, to the knowledge of the Shareholder Parties, threatened with respect to the Company, by any Authority with respect to any alleged (a) violation in any material respect by the Company of any Law, or (b) failure by the Company to have, or comply with, any Permit required in connection with the conduct of its Business.
3.15 Environmental Matters. The Company is conducting, and for the past five years has conducted, its operations and the Business, and has occupied and operated the Leased Real Property in compliance with all Environmental Laws. The Company holds and is in compliance with all Permits required under Environmental Laws for its operation and the conduct of its Business, and all such Permits are in full force and effect. There is no Action relating to or arising under Environmental Laws that is pending or, to the knowledge of the Shareholder Parties, threatened against or affecting the Company or any real property currently or, to the knowledge of the Shareholder Parties, formerly owned, operated or leased by the Company. The Company has not received any written or other notice of, or entered into or assumed by Contract
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or operation of laws or otherwise, any obligation, Liability, order, settlement, judgment, injunction or decree relating to or arising under Environmental Laws, and, to the knowledge of the Shareholder Parties, no facts, circumstances or conditions exist with respect to the Company or any property currently or formerly owned, operated or leased by the Company or any property to or at which the Company transported or arranged for the disposal or treatment of Hazardous Materials that would reasonably be expected to result in the Company incurring Environmental Liabilities. No authorization, notification, recording, filing, consent, waiting period, remediation, or approval is required under any Environmental Laws in order to consummate the transaction contemplated hereby.
3.16 Taxes.
(a) Except as set forth on Schedule 3.16(a), (i) the Company and each Shareholder Party has timely filed or caused to be filed with the appropriate federal, state, local and foreign governmental entity or other authority (individually or collectively, “Taxing Authority”) all Tax Returns required to be filed with respect to the Company, and the Company has timely paid or remitted in full or caused to be paid or remitted in full all Taxes required to be paid with respect to the Company (whether or not shown due on any Tax Return); (ii) all Tax Returns are true, correct and complete; and (iii) there are no liens for Taxes upon the Company or their respective assets, except liens for current Taxes not yet due and payable. Neither the Company nor any Shareholder Party has granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Taxes with respect to the Company. Shareholders have disclosed on their Tax Returns all positions taken therein with respect to the Company that could give rise to a substantial understatement of Tax within the meaning of Section 6662 of the Code.
(b) There is no Action now pending against the Company or any Shareholder Party, in respect of any Tax with respect to the Company, and no notification of an intention to examine, request for information related to Tax matters or notice of deficiency or proposed adjustment for any amount of Tax has been received by the Company or any Shareholder Party. No Taxing Authority with which the Company or any Shareholder Party does not file Tax Returns has claimed that the Company or any Shareholder Party is or may be subject to taxation by that Taxing Authority with respect to the Company. The Company has not commenced activities in any jurisdiction that will result in an initial filing of any Tax Return with respect to Taxes imposed by a Taxing Authority that the Company had not previously been required to file in the immediately preceding taxable period.
(c) The Company has withheld and paid to the proper Taxing Authority all Taxes that it was required to withhold and pay, and has properly completed and timely filed all information returns or reports, including IRS Forms 1099 and W-2, that are required to be filed and has accurately reported all information required to be included on such returns or reports. All Taxes associated with taxable fringe benefits, that the Company is (or was) required by Law to withhold or collect in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, member or other third party have been duly withheld or collected, and have been timely paid over to the proper Taxing Authority to the extent due and payable.
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(d) There is no Tax sharing or allocation agreement, arrangement or Contract with any Person pursuant to which the Company would have liability for Taxes of another Person following the Closing. The Company (i) has not been a member of an affiliated group under Section 1504(a) of the Code or any similar group defined under a similar provision of state, local, or non-U.S. law, or (ii) does not have any liability for Taxes of another Person under Section 1.1502-6 of the Treasury Regulations (or any similar provision or state, local, or non-U.S. law), as a transferee or successor, by contract, or otherwise.
(e) Neither the Company nor any Shareholder Party is or has been a party to any “listed transaction,” as defined in Section 6707A(e)(2) of the Code and Section 1.6011-4(b)(2) of the Treasury Regulations.
(f) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A) change in method of accounting for a taxable period (or portion thereof) ending on or prior to the Closing Date; (B) “closing agreement,” as described in Code Section 7121 (or any corresponding provision of state, local, or non-U.S. income Tax law); (C) intercompany transaction, as defined in Section 1.1502-13 of the Treasury Regulations, or any excess loss account, as defined in Section 1.1502-19 of the Treasury Regulations, (or any corresponding provision of state, local or non-U.S. income Tax law); (D) installment sale or open transaction made on or prior to the Closing Date; (E) prepaid amount received on or prior to the Closing Date; or (F) election under Code Section 108(i).
(g) The Company has collected all sales tax in the ordinary course of business and remitted such sales tax amount to the applicable Authority, or has collected sales tax exemption certificates from all entities from which the Company does not collect sales tax.
(h) The Company has not distributed the stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or Code Section 361.
(i) The Company has never (i) had a permanent establishment in any country other than the country under the Law of which it is organized, as defined in any applicable treaty or convention between such country and the jurisdiction of the entity’s incorporation or formation or (ii) engaged in activities in any jurisdiction other than the jurisdiction under the Law of which it is organized that would subject it to taxation by such jurisdiction.
(j) Neither the Company nor any Shareholder Party has entered into any closing agreement or requested any private letter ruling, technical advice memoranda or similar agreements or rulings relating to Taxes or Tax items with any Taxing Authority with respect to the Company.
(k) Neither the Company nor any Shareholder Party is a “foreign person” as that term is used in Treasury Regulation Section 1.1445-2.
(l) Neither the Company nor any Shareholder Party has received, directly or indirectly, any Tax credits, grants, subsidies, loan guarantees, or other forms of preferential treatment or assistance from any Authority with respect to the Company. The consummation of
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the transaction contemplated by this Agreement will not result in the loss of any Tax holiday, Tax abatement or similar Tax benefit.
3.17 Employee Relations.
(a) Schedule 3.17(a) sets forth a true and complete list setting forth the name, position, job location, salary or wage rate, commission status, date of hire, full- or part-time status, active or leave status and “exempt” or “non-exempt” status, for each employee or individual service provider of the Company as of the date hereof (including any individual absent due to short-term disability, family or medical leave, military leave or other approved absence). Except as set forth on Schedule 3.17(a), the Company is not party to any management, employment, consulting or other agreements or understandings with any individual providing for employment for a defined period of time or on an other than “at-will” basis or for termination or severance benefits.
(b) The Company is not: (i) a party to or otherwise bound by any collective bargaining or other type of union agreement, (ii) a party to, involved in or, to the knowledge of the Shareholder Parties, threatened by, any material labor dispute or material unfair labor practice charge, or (iii) currently negotiating any collective bargaining agreement, and the Company has not experienced any work stoppage during the last three years. To the knowledge of the Shareholder Parties, no organizational effort is presently being made or is currently threatened by or on behalf of any labor union with respect to any group of employees of the Company.
(c) The Company is, and for the past five years has been, in compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, unemployment insurance, worker’s compensation, equal employment opportunity, employment discrimination and immigration control. Except as disclosed on Schedule 3.17(c), there are no outstanding claims against the Company or the Benefit Plans (other than routine claims for benefits under such plans), whether under Law, regulation, Contract, policy or otherwise, asserted by or on behalf of any present or former employee or job applicant of the Company on account of or for (i) overtime pay, other than overtime pay for work done in the current payroll period, (ii) wages or salary for a period other than the current payroll period, (iii) any amount of vacation pay (including paid time off) or pay in lieu of vacation time off (including paid time off), other than vacation time off or pay (including paid time off) in lieu thereof earned in or in respect of the current fiscal year, (iv) any amount of severance pay or similar benefits, (v) unemployment insurance benefits, (vi) workers’ compensation or disability benefits, (vii) any violation of any Law relating to employment terminations, layoffs, or discipline, (viii) any violation of any Law relating to employee “whistleblower” or “right-to-know” rights and protections, (ix) any violation of any Law relating to the employment obligations of federal contractors or subcontractors, (x) any violation of any Law relating to minimum wages or maximum hours of work, or (xi) unfair labor practices, and none of Shareholders is aware of any such claims which have not been asserted. No Person (including any Authority) has asserted or, to the knowledge of the Shareholder Parties, threatened any claims against the Company or any of its predecessors under or arising out of any regulation relating to equal opportunity employment, discrimination, harassment, or occupational safety in employment or employment practices.
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(d) The Company has properly classified all employees, leased employees, consultants, independent contractors and all other Persons providing services to the Company for all purposes (including, without limitation, for all Tax purposes and for purposes related to eligibility to participate in or accrue a benefit under the Benefit Plans), and has withheld and paid all applicable Taxes and made all appropriate filings in connection with services provided by such Persons to the Company. The Company has properly classified all employees as “exempt” or “non-exempt” under the Fair Labor Standards Act and similar state or local Law.
(e) The Company has not conducted any mass layoffs or plant closings as defined by the Worker Adjustment and Retraining Notification Act of 1988, as amended, or any similar foreign, state or local Law.
3.18 Employee Benefit Matters.
(a) Schedule 3.18(a) lists all “employee benefit plans,” as defined in Section 3(3) of ERISA and all other retirement, pension, profit sharing, stock bonus, stock, restricted stock, stock option, stock purchase, equity-based, profits interest, phantom equity, employment, service, retainer, compensation, consulting, change in control, welfare, health (including medical, dental and vision), life, disability, group insurance, savings, deferred compensation, bonus or incentive compensation, paid time off, severance, salary continuation, retention, indemnification and fringe benefit and perquisite (including but not limited to benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, and tuition reimbursement) agreements, arrangements, plans, programs, Contracts, policies, or practices maintained, contributed to, or required to be contributed to by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer, director, member, partner or independent contractor of the Company or with respect to which the Company or any ERISA Affiliate may have any Liability, whether contingent or otherwise (the “Benefit Plans”). In the case of each “employee welfare benefit plan” as defined in Section 3(1) of ERISA, Schedule 3.18(a) discloses whether such plan is (i) unfunded, (ii) funded through a “welfare benefit fund,” as such term is defined in Code Section 419(e), or other funding mechanism or (iii) insured.
(b) As applicable, with respect to each Benefit Plan, Shareholders have delivered or made available to Parent true and complete copies of (i) all plan documents (including all amendments and modifications thereof) and in the case of an unwritten Benefit Plan, a written description thereof, (ii) the current summary plan description and each summary of material modifications thereto, (iii) the most recent IRS determination, advisory or opinion letter, (iv) all funding and administrative arrangement documents, including trust agreements, insurance contracts, custodial agreements, investment manager agreements and service agreements, (v) for the three most recent years, the filed Form 5500 for each Benefit Plan required to file Form 5500; and (vi) all communications, records, notices and filings received from or sent to the IRS, Department of Labor or Pension Benefit Guaranty Corporation within the past five years.
(c) The Company and each ERISA Affiliate are in compliance with the provisions of ERISA, the Code and all other Laws applicable to the Benefit Plans (including all applicable aspects of the Patient Protection and Affordable Care Act, as amended, and the Health Insurance Portability and Accountability Act of 1996, as amended). Each Benefit Plan has been
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maintained, operated and administered in compliance with its terms and any related documents or agreements and the applicable provisions of ERISA, the Code and all other Laws. Neither the Company nor any ERISA Affiliate has incurred and none could reasonably be expected to incur an employer shared responsibility penalty under Section 4980H of the Code. The Company and each ERISA Affiliate have timely and accurately satisfied their reporting obligations under Sections 6055 and 6056 of the Code.
(d) No Benefit Plan provides for or continues medical or health benefits, or life insurance or other welfare benefits (through insurance or otherwise) for any Person or any dependent or beneficiary of any Person beyond termination of service or retirement other than coverage mandated by Law, and neither the Company nor any ERISA Affiliate has made a written or oral promise, or any communication that could reasonably be expected to promise, to any Person to provide any such benefits.
(e) No Benefit Plan is (or at any time has been), and neither the Company nor any ERISA Affiliate (i) has ever contributed to, or been required to contribute to, or has any liability (contingent or otherwise) under or with respect to, and no current or former employees of the Company or any ERISA Affiliate currently participate or ever have participated in (with respect to their employment with the Company or an ERISA Affiliate) any employee benefit plan that is (i) subject to Part 3, Subtitle B of Title I of ERISA, Title IV of ERISA or Code Section 412, (ii) a “multiemployer plan” (as defined in Section 3(37) of ERISA), (iii) a “multiple employer plan” as described in Section 413€ of the Code, (iv) a “voluntary employees’ beneficiary association” (as defined in Section 501(e)(9) of the Code), or (v) a “multiple employer welfare arrangement” (as defined in Section 3(40)(A) of ERISA).
(f) All Benefit Plans which are “employee pension benefit plans” within the meaning of Section 3(2) of ERISA and which are intended to meet the qualification requirements of Code Section 401(a) now meet, and at all times since their inception have met, the requirements for such qualification, and the related trusts are now, and at all times since their inception have been, exempt from taxation under Code Section 501(a). Each Benefit Plan that is intended to be qualified under Code Section 401(a) has received a favorable determination letter (or an opinion or advisory letter on which it is entitled to rely) from the IRS that such Benefit Plan is qualified under Code Section 401(a). No event has occurred that will or could give rise to the revocation of any applicable determination letter or the loss of the right to rely on any applicable opinion or advisory letter, or the disqualification or loss of tax-exempt status of any such Benefit Plan or trust under Code Sections 401(a) or 501(a).
(g) All contributions (including all employer contributions and employee salary reduction contributions) and premium payments which are or have been due have been paid to or with respect to each Benefit Plan within the time required by Law. All required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements, or accruals for all periods ending prior to or as of the Closing Date shall have been made or properly accrued on the Interim Balance Sheet or will be properly accrued on the books and records of the Company and each ERISA Affiliate as of the Closing Date. None of the Benefit Plans has any unfunded Liabilities which are not reflected on the Interim Balance Sheet. Neither the Company nor any ERISA Affiliate has any assets subject to (or expected to be subject to) a lien for unpaid contributions to any Benefit Plan.
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(h) The Company’s execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any Benefit Plan or related agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting (other than vesting required due to the termination of tax-qualified retirement plans, which shall not require an additional contribution to such plans), distribution, increase in benefits, or other obligation to fund benefits with respect to any Person or (ii) result in the triggering or imposition or any restrictions or limitations on the right of the Company or any ERISA Affiliate to amend or terminate any Benefit Plan (or result in any adverse consequence for so doing). The execution of this Agreement, and performance of the transactions contemplated hereby, will not (either alone or upon the occurrence of any additional or subsequent events) result in any payment or benefit that will or may be made by the Company that may be characterized as “excess parachute payment,” within the meaning of Section 280G(b)(1) of the Code. The Company does not have any Liability or obligation to make a payment that is not or will not be deductible under Code Section 280G. No Person is entitled to receive any additional payment (including any tax gross-up or other payment) as a result of the imposition of the excise taxes required by Code Section 4999.
(i) There are no pending or, to the knowledge of the Shareholder Parties, threatened Actions by or on behalf of any Benefit Plan, any employee or beneficiary covered under any Benefit Plan, any Authority with respect to a Benefit Plan, or otherwise involving any Benefit Plan (other than routine claims for benefits). No Benefit Plan is under audit or investigation by any Authority and, to the knowledge of the Shareholder Parties, no such audit or investigation is threatened.
(j) Each of the Benefit Plans can be terminated at any time in the sole discretion of the plan sponsor, without any additional contribution to such Benefit Plan or the payment of any additional compensation or amount or acceleration of any benefits (other than accelerated vesting with respect to tax-qualified retirement plans, which shall not require any additional contribution to be made). Nothing prohibits the prompt distribution of all amounts under any Benefit Plan subject to Section 401(a), 403(a) or 403(b) of the Code, provided that such Benefit Plan is terminated by the plan sponsor prior to Closing.
(k) Each Benefit Plan that constitutes a “non-qualified deferred compensation plan” within the meaning of Code Section 409A, complies (and has at all relevant times complied) in both form and operation with the requirements of Code Section 409A so that no amount paid pursuant to any such Benefit Plan is or will be subject to tax under Code Section 409A; and neither the Company nor any ERISA Affiliate is or has been required to report any Taxes due as a result of a failure of a Benefit Plan to comply with Code Section 409A. With respect to each Benefit Plan, neither the Company nor any ERISA Affiliate has any indemnity obligation for any Taxes or interest imposed or accelerated under Code Section 409A.
3.19 Transactions with Related Parties. Except as described on Schedule 3.19, since January 1, 2019, no member, stockholder, officer, manager or director of the Company, nor any Affiliate of the Company or of any such Person, has or had:
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(a) any contractual or other claims, express or implied, of any kind whatsoever against the Company;
(b) any interest in any property or assets used by the Company;
(c) any direct or indirect ownership or other interest in any competitor of the Company; or
(d) engaged in any other material transaction with the Company (other than employment relationships at the salaries disclosed in the Schedules to this Agreement).
Except as described on Schedule 3.19, no stockholder, officer or director of the Company, nor any Affiliate of such Person, has outstanding any loan, guarantee or other obligation of borrowed money made to or from the Company.
3.20 Insurance.
(a) The Company maintains, with financially sound and reputable insurers, insurance with respect to its properties and Business against loss or damages of the kinds customarily insured against by companies of established reputation engaged in the same or similar businesses as the Company, as applicable, in such amounts that are commercially reasonable and customarily carried under similar circumstances by such other companies.
(b) Schedule 3.20(b)(i) contains a complete and correct list of all policies and Contracts for insurance (including coverage amounts and expiration dates) of which the Company is the owner, insured or beneficiary, or covering the Company’s properties or assets. All such policies are outstanding and in full force and effect. The Company is not in default with respect to any provision contained in any such policy, nor has the Company failed to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy. Except as set forth on Schedule 3.20(b)(ii): (i) all of such coverages are provided on a “claims made” (as opposed to “occurrence”) basis; (ii) there are no outstanding claims under such policies; (iii) there are no premiums or claims due under such policies which remain unpaid; (iv) no notice of cancellation or non-renewal with respect to, or disallowance (other than reservation of rights by the insurer) of any material claim under, any such policy has been received; and (v) the Company has not been refused any insurance, nor have any of its coverages been limited by any insurance carrier to which it has applied for insurance or with which has carried insurance.
3.21 Relationship with Significant Customers. The Company has not received any written or oral communication or notice from any Significant Customer stating that, or otherwise has any reason the believe that, any Significant Customer (a) has ceased, or will cease, to use the products or services of the Company, (b) has substantially reduced, or will substantially reduce, the use of such products or services at any time, or (c) will otherwise materially and adversely modify its business relationship with the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise). “Significant Customer” means, with respect to the Company, the top 10 customers of the Company, as applicable, by dollar volume of sales, for the 4-month period ended on April 30, 2023 and the fiscal year ended December 31, 2022, as set forth on Schedule 3.21.
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3.22 Relationship with Significant Suppliers. The Company has not received any written or oral communication or notice from any Significant Supplier stating that, or otherwise has any reason to believe that, any Significant Supplier, (a) will stop, materially decrease the rate of, or materially and adversely change the terms (whether related to payment, price or otherwise) with respect to, supplying materials, products or services to the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise) or (b) will otherwise materially and adversely modify its business relationship with the Company. “Significant Supplier” means, with respect to the Company, the top 10 suppliers to the Company, as applicable, by dollar volume of purchase, for the 4-month period ended on April 30, 2023 and for the fiscal year ended December 31, 2022, as set forth on Schedule 3.22.
3.23 Anti-Corruption Laws. Without limiting the generality of Section 3.14, since January 1, 2019, none of Shareholders, the Company or, to the knowledge of the Shareholder Parties, anyone acting on the Company’s behalf has: (i) violated, or engaged in any activity, practice or conduct which would violate, any Anti-Corruption Law; (ii) used corporate funds or assets for any unlawful contribution, gift, entertainment or other unlawful expense, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment; or (iii) directly, or indirectly through its agents, representatives or any other person authorized to act on its behalf, offered, promised, paid, given, or authorized the payment or giving of money or anything else of value; in each case, to any Government Official or Person while knowing or having reason to believe that some portion or all of the payment or thing of value will be offered, promised, or given, directly or indirectly, to a Government Official or another Person; for the purpose of (x) influencing any act or decision of such Government Official or such Person in his, her or its official capacity, including a decision to do or omit to do any act in violation of his, her or its lawful duties or proper performance of functions, (y) inducing such Government Official or such person or entity to use his, her or its influence or position with any Governmental Authority or other person or entity to influence any act or decision, or (z) in order to obtain or retain business for, direct business to, or secure an improper advantage for, the Company.
3.24 Privacy Laws. Without limiting the generality of Section 3.14, the Company has complied in all respects with all applicable Privacy Laws. There are no restrictions on the collection, use, disclosure and retention of Personal Information by the Company except as provided by Privacy Laws. There are no Actions, whether statutory or otherwise, pending, ongoing, or to the knowledge of the Shareholder Parties, threatened with respect to the collection, use, disclosure or retention of Personal Information by the Company. No decision, judgment, order or award, whether statutory or otherwise is pending or has been made and no notice has been received pursuant to any Privacy Laws requiring the Company to take or refrain from taking any action with respect to Personal Information.
3.25 Product and Service Warranties. Except as set forth on Schedule 3.25 and except for warranties under applicable Law (if any), (a) there are no warranties, express or implied, written or oral, with respect to the products and services of the Company, and (b) there are no pending or, to the knowledge of the Shareholder Parties, threatened claims with respect to any such warranties.
3.26 Banking Relationships. Schedule 3.26 sets forth (a) a list of each account, lock box or safe deposit box of the Company (including any necessary identifying information), and
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(b) the name of each Person authorized to draw thereon or to have access thereto and the name of each Person or entity, if any, holding powers of attorney with respect thereto or any other powers of attorney.
3.27 Purchase for Investment. Each Shareholder Party acknowledges that the Parent Shares that may be issued pursuant to this Agreement are “restricted securities” and have not been registered under the Securities Act or under any state securities laws. With respect to any Parent Shares delivered to Shareholders pursuant to this Agreement, each Shareholder (a) is acquiring the Parent Shares pursuant to an exemption from registration under the Securities Act for his own account solely for investment with no present intention or plan to distribute any of the Parent Shares to any Person nor with a view to or for sale in connection with any distribution thereof, in each case in violation of the Securities Act; (b) will not sell or otherwise dispose of any of the Parent Shares, except in compliance with Rule 144 promulgated under the Securities Act (the “Rule”); (c) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act); and (d) is not a registered broker-dealer registered under Section 15(a) of the Exchange Act, or a member of FINRA or an entity engaged in the business of being a broker-dealer. Neither the Shareholder Parties nor any of their respective Affiliates are affiliated with any broker-dealer registered under Section 15(a) of the Exchange Act, or a member of FINRA or an entity engaged in the business of being a broker-dealer.
3.28 Legend. Each Shareholder Party acknowledges that all certificates, including book-entry representations of certificates, or other instruments representing Parent Shares issued hereunder will bear legends substantially to the following effect (in addition to any legend required under applicable federal, state, local or non-United States law):
“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. ANY ATTEMPT TO TRANSFER, SELL, OFFER TO SELL, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS INSTRUMENT IN VIOLATION OF THESE RESTRICTIONS SHALL BE VOID.”
3.29 Registration Rights. Each Shareholder Party acknowledges and understands that, except as provided in the Registration Rights Agreement, Parent is under no obligation to register the Parent Shares for public sale in the future, that any sales made publicly under the Rule must be made in accordance with the procedures of that Rule, and that any other resale of the Parent Shares may require compliance with some other exemption from registration under the Securities Act. Each Shareholder Party further acknowledges that if an exemption from registration under the Securities Act is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Parent Shares, and requirements relating to Parent which are outside of such Shareholder’s control, and which Parent is under no obligation and may not be able to satisfy.
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3.30 Sophisticated Investor. Each Shareholder Party is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares representing an investment decision like that involved in the issuance of the Parent Shares, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to evaluate the merits and risks of acquiring the Parent Shares, and can bear the economic risk and complete loss of its investment in the Parent Shares.
3.31 Existing Ownership. No Shareholder legally or beneficially owns or controls, directly or indirectly, any shares, convertible debt or any securities convertible into or exercisable or exchangeable for, or any rights, warrants or options to acquire, any shares or convertible debt in Parent, or has any agreement, understanding or arrangement to acquire any of the foregoing, except with respect to Parent Shares as to be issued to Shareholders pursuant to the transactions contemplated herein.
3.32 No General Solicitation. The Shareholder Parties did not learn of the transactions contemplated by this Agreement, including the issuance of the Parent Shares, as a result of any general solicitation or general advertising.
3.33 Reliance on Exemptions. Each Shareholder Party understands that the Parent Shares are offered and sold to Shareholders in reliance on specific exemptions from the registration requirements of U.S. federal and state securities laws and that Parent is relying in part upon the truth and accuracy of, and each Shareholder Party’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Shareholder set forth in this Agreement in order to determine the availability of such exemptions and the eligibility of Shareholders to acquire the Parent Shares.
3.34 Compliance with Applicable Law. If any Shareholder Party is not a United States person (as defined by Section 7701(a)(30) of the Code), such Shareholder Party hereby represents that he has satisfied himself as to the full observance of the laws of its jurisdiction in connection with the issuance of the Parent Shares and the transactions contemplated by this Agreement, including (i) the legal requirements within his jurisdiction for the issuance of the Parent Shares, (ii) any foreign exchange restrictions applicable to such issuance, (iii) any governmental or other consents that may need to be obtained, and (iv) the income Tax and other Tax consequences, if any, that may be relevant to the issuance, holding, sale, or transfer of the Parent Shares. The issuance of Parent Shares to Shareholders and Shareholders’ continued beneficial ownership of the Parent Shares will not violate any applicable securities or other laws of any Shareholder Party’s jurisdiction.
3.35 Brokers. Except as set forth on Schedule 3.35, neither the Company nor any Shareholder Party has retained, nor is the Company or any Shareholder Party obligated for any commission, fee or expense to, any broker, finder or investment banking firm to act on their behalf in connection with the transactions contemplated by this Agreement or the Ancillary Agreements and, to the knowledge of the Shareholder Parties, no other Person is entitled to receive any brokerage commission, finder’s fee or other similar compensation in connection with the transactions contemplated by this Agreement and the Ancillary Agreements.
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Article IV.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent makes the following representations and warranties to the Shareholder Parties:
4.1 Organization. Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio, and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver, and perform this Agreement and each Ancillary Agreement to which it is a party, and to consummate the transactions contemplated hereby and thereby. Merger Sub is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite power and authority to carry on its business as it is now being conducted, and to execute, deliver, and perform this Agreement and each Ancillary Agreement to which it is a party, and to consummate the transactions contemplated hereby and thereby.
4.2 Authority. The execution, delivery, and performance by Parent and Merger Sub of this Agreement and each Ancillary Agreement to which Parent or Merger Sub is a party, and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement and each Ancillary Agreement to which Parent or Merger Sub is a party has been duly and validly executed and delivered by Parent or Merger Sub and constitutes the valid and binding obligation of Parent or Merger Sub, enforceable against Parent or Merger Sub in accordance with their respective terms, except as enforcement may be limited by General Enforceability Exceptions.
4.3 No Conflict. The execution, delivery, and performance by Parent and Merger Sub of this Agreement and each Ancillary Agreement to which Parent or Merger Sub is a party, and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby, does not and will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of Law to which Parent or Merger Sub is subject, (ii) violate any provision of the certificate of incorporation, bylaws, or other governance documents of Parent or Merger Sub, or (iii) violate or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice, or both, constitute a default) under, or require the consent of any third party under, or result in or permit the termination or amendment of any provision of, or result in or permit the acceleration of the maturity or cancellation of performance of any obligation under, or result in the creation or imposition of any Encumbrance of any nature whatsoever upon any assets or property or give to others any interests or rights therein under any indenture, deed of trust, mortgage, loan or credit agreement, license, Permit, Contract, lease, or other agreement, instrument or commitment to which Parent or Merger Sub is a party or by which either may be bound or affected; except, in each case, for violations, breaches, defaults, required consents, terminations, accelerations, Encumbrances or rights that in the aggregate would not materially hinder or impair the ability of Parent or Merger Sub to perform its obligations hereunder or the consummation of the transactions contemplated hereby.
4.4 Consents. No consent, approval, or authorization of, or exemption by, or filing with, any Authority is required to be obtained or made by Parent or Merger Sub in connection with the execution, delivery and performance by Parent or Merger Sub of this Agreement or any
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Ancillary Agreement to which Parent or Merger Sub is a party or the taking by Parent or Merger Sub of any other action contemplated hereby or thereby.
4.5 Litigation. There is no Action pending or, to the knowledge of Parent, threatened (a) against Parent or Merger Sub which, if adversely determined, would have a material adverse effect on the assets, business or financial condition of Parent or Merger Sub or (b) which seeks to prohibit, restrict or delay consummation of the transactions contemplated by this Agreement. There is no Governmental Order outstanding or, to the knowledge of Parent, threatened (i) against Parent or Merger Sub or their respective assets or business, or (ii) which seeks to prohibit, restrict or delay consummation of the transactions contemplated by this Agreement.
4.6 Parent Shares.
(a) The authorized capital stock of Parent as of Closing consists of 30,000,000 shares of common stock, of which 7,643,099 shares were issued and outstanding as of July 28, 2023.
(b) The Parent Shares that may be issued pursuant to this Agreement have been duly authorized and, upon issuance pursuant to this Agreement, will be validly issued, fully paid and non-assessable, will be issued in compliance with all applicable federal and state securities laws, and will be issued free of any preemptive rights, liens or restrictions other than those imposed pursuant to the Securities Act.
4.7 Brokers. Parent and Merger Sub have not retained, nor are Parent and Merger Sub obligated for any commission, fee or expense to, any broker, finder or investment banking firm to act on its behalf in connection with the transactions contemplated by this Agreement or the Ancillary Agreements and, to the knowledge of Parent, no other Person is entitled to receive any brokerage commission, finder’s fee or other similar compensation in connection with the transactions contemplated by this Agreement and the Ancillary Agreements.
4.8 SEC Documents.
(a) Parent has filed or furnished, as applicable, on a timely basis, all required reports, schedules, forms, certifications, and proxy and other statements with the SEC (collectively and together with all documents filed on a voluntary basis on Form 8-K, and in each case, including all exhibits and schedules thereto and documents incorporated by reference therein, as have been supplemented, modified or amended since the time of filing, the “SEC Documents”) since the beginning of Parent’s last completed fiscal year. Since the beginning of Parent’s last completed fiscal year, each of the SEC Documents, at the time of its filing or being furnished, complied in all material respects with the applicable requirements of the Exchange Act, the Securities Act, and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and any rules and regulations promulgated thereunder applicable to the SEC Documents. As of their respective dates (or, if amended prior to the date hereof, as of the date of such amendment), the SEC Documents filed or furnished since the beginning of Parent’s last completed fiscal year did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading
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(b) The audited balance sheet of Parent dated March 25, 2023 contained in the SEC Documents is hereinafter referred to as the “Parent Balance Sheet.” Parent does not have any liabilities other than liabilities that: (i) are reflected or reserved against in the Parent Balance Sheet (including the notes thereto); (ii) were incurred since the date of the Parent Balance Sheet in the ordinary course of Parent’s business consistent with past practice; (iii) are incurred in connection with the transactions contemplated by this Agreement; or (iv) would not reasonably be expected to be material to the Parent Balance Sheet, individually or in the aggregate.
(c) The financial statements of Parent (including any related notes and schedules thereto) contained in the SEC Documents filed since the beginning of the last completed fiscal year (the “Parent Financial Statements”) have been prepared in accordance with GAAP applied on a consistent basis (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by GAAP). The Parent Financial Statements accurately reflect the books and records of Parent and its subsidiaries and present fairly in all material respects the consolidated financial position, results of operations and cash flows of Parent and its subsidiaries at and for the respective periods indicated (subject, in the case of the unaudited financial statements included in the Parent Financial Statements, to normal year-end adjustments and any other adjustments described therein and as may be permitted by GAAP).
(d) Parent maintains a system of “internal controls over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) as required by Rules 13a-15 or 15d-15 of the Exchange Act that is sufficient to provide reasonable assurance (i) regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, (ii) that receipts and expenditures of Parent are being made only in accordance with authorizations of management and Parent’s board of directors, and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Parent’s assets that could have a materially adverse effect on Parent’s financial statements. Parent maintains disclosure controls and procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Such disclosure controls and procedures are designed and maintained to ensure that information relating to Parent, including its consolidated subsidiaries, required to be disclosed in Parent’s reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules of the SEC, and that all such material information is accumulated and communicated to the Parent’s principal executive officer and its principal financial officer by others employed by Parent to allow timely decisions regarding required disclosure under the Exchange Act and to make the certifications required under the Exchange Act with respect to such reports. Parent has disclosed to its auditors and the audit committee of its Board of Directors (A) any “significant deficiency” or “material weaknesses” (as such terms are defined in Rule 1-02(a)(4) of Regulation S-X) in the system of internal control over financial reporting which are reasonably likely to adversely affect in any material respect its ability to timely record, process, summarize and report financial information, and (B) any fraud, whether or not material, that involves management or other employees of Parent and its subsidiaries who have a significant role in its internal control over financial reporting.
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(e) As of the date of the Agreement, Parent is in compliance in all material respects with the listing and corporate governance rules and regulations of The Nasdaq Stock Market LLC applicable to Parent.
4.9 Compliance with Laws. Parent and its subsidiaries are, and during the past three years have been, in compliance in all material respects with all Laws to the extent applicable to Parent or any of its subsidiaries or by which any material property or asset of Parent or any of its subsidiaries is bound, and, to the knowledge of Parent, as of the date hereof are not under investigation by any Governmental Authority with respect to any actual or alleged material violation of any applicable Laws nor has any Governmental Authority indicated to Parent in writing an intention to conduct any such investigation.
Article V.
COVENANTS
5.1 Confidentiality. Each Shareholder Party shall keep confidential and not disclose to any other Person or use for his own benefit or the benefit of any other Person any confidential or proprietary information, technology, know-how, trade secrets (including all results of research and development), product formulas, industrial designs, franchises, inventions or other intellectual property regarding Parent, the Company, the Surviving Company or any of their respective businesses and operations including, without limitation, any such information regarding the Business (“Confidential Information”) in his possession or control. The obligations of each Shareholder Party under this Section 5.1 shall not apply to Confidential Information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section; or (ii) is required to be disclosed by Law; provided, however, that, in any such case, the applicable Shareholder shall notify Parent as early as reasonably practicable prior to disclosure to allow Parent to take appropriate measures to preserve the confidentiality of such Confidential Information.
5.2 Restrictive Covenants.
(a) During the period beginning on the Closing Date and ending on the fifth anniversary of the Closing Date (the “Restricted Period”), each Shareholder Party covenants and agrees not to, and shall cause its respective Affiliates not to, directly or indirectly and anywhere in the Restricted Territory, conduct, manage, operate, engage in, or have an ownership interest in any business or enterprise engaged in (i) the Business, or (ii) any activities that are otherwise similar to, or competitive with, the Business. Notwithstanding the provisions of this Section 5.2(a), the beneficial ownership of less than five percent of the shares of stock or other equity interests of any corporation or other entity having a class of equity securities actively traded on a national securities exchange or over-the-counter market and not formed for the purpose of circumventing this Agreement shall not be deemed to violate the provisions of this Section 5.2(a). Notwithstanding anything in this Agreement to the contrary, solely with respect to Joshua Shilts, “Restricted Period” shall mean the period beginning on the Closing Date and ending on the second anniversary of the Closing Date.
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(b) During the Restricted Period, each Shareholder Party covenants and agrees not to, and shall cause its respective Affiliates not to, directly or indirectly, call-on, solicit or induce, or attempt to solicit or induce, any Person which is or was a past, present or prospective customer or other business relation of the Company as of the Closing Date for the provision of products or services related to the Business or in any other manner that would otherwise interfere with business relationships between Parent and such customers and other business relations.
(c) During the Restricted Period, each Shareholder Party covenants and agrees not to, and shall cause its respective Affiliates not to, directly or indirectly, call-on, solicit or induce, or attempt to solicit or induce, any Person who was employed or engaged as an independent contractor by the Company on or at any time before the Closing Date, to leave the employ or engagement of the Company, the Surviving Company or their Affiliates (including Parent) for any reason whatsoever, nor shall any Shareholder Party offer or provide employment (whether such employment is for a Shareholder or any other Person), either on a full-time basis or part-time or consulting basis, to any such Person.
(d) The Shareholder Parties acknowledge and agree that the provisions of this Section 5.2 are reasonable and necessary to protect the legitimate business interests of Parent and its acquisition of the Company. None of the Shareholder Parties shall contest that Parent’s remedies at law for any breach or threat of breach by any Shareholder Party or any of their respective Affiliates of the provisions of this Section 5.2 may be inadequate, and that Parent shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 5.2 and to enforce specifically such terms and provisions, in addition to any other remedy to which Parent may be entitled at law or equity. The restrictive covenants contained in this Section 5.2 are covenants independent of any other provision of this Agreement or any other agreement between the Parties hereunder and the existence of any claim which any Shareholder Party may allege against Parent under any other provision of the Agreement or any other agreement will not prevent the enforcement of these covenants.
(e) If any of the provisions contained in this Section 5.2 shall for any reason be held to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limiting and reducing it, so as to be valid and enforceable to the extent compatible with the applicable Law or the determination by a court of competent jurisdiction.
5.3 Nondisparagement. Each Party agrees that it shall not, and shall cause each of its Affiliates not to, at any time, in any written or oral communications with the press or other media, any customer, client, stakeholder, investor or supplier of the other Party, or its Affiliate, or any other Person, criticize, ridicule, or make or encourage any other Person to make any statement that disparages, is derogatory of, or is negative toward the personal or business reputation, conduct or practices of the other Party, any of its Affiliates, or any of their then current or former respective officers, directors, employees, representatives, agents or attorneys.
5.4 Further Assurances. From time to time after the Closing, Parent shall, at the request of the Shareholder Representative, execute and deliver any further instruments or documents and take all such further action as the Shareholder Representative may reasonably request in order to evidence the consummation of the transactions contemplated hereby. From time to time after the Closing, each Shareholder Party shall, at the request of Parent, execute and
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deliver any further instruments or documents and take all such further action as Parent may reasonably request in order to evidence the consummation of the transactions contemplated hereby.
5.5 Release. Effective as of the Closing, each of the Shareholder Parties, on behalf of himself or itself, and his or its respective Affiliates and their respective past, present or future predecessors or successors (each, a “Releasing Party”), hereby irrevocably waives, releases, remises, and forever discharges the Company, Parent, Merger Sub, the Surviving Company, and their respective Affiliates and their respective past, present or future shareholders, partners, members and representatives and each of their respective successors from any and all actions, promises, agreements, rights to payment, rights to any equitable remedy, rights to any equitable subordination, demands, debts, Liabilities, express or implied contractual obligations, obligations of payment or performance, rights of offset or recoupment, accounts, Losses or expenses (including, without limitation, attorneys’ fees and other professional fees and expenses), whether known or unknown, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or contingent, direct or derivative, which such Releasing Party or any of its Affiliates may have against such party as of the date hereof (collectively, the “Claims”), other than claims arising under this Agreement or the other Ancillary Agreements. Each Shareholder Party understands that the released Claims include not only Claims presently known to it, but also include all unknown or unanticipated Claims, rights, demands, actions, obligations, liabilities, and causes of action of every kind and character that would otherwise come within the scope of the released Claims as described above. Each Shareholder Party understands that he may hereafter discover facts different from what it now believes to be true, which if known, could have materially affected this release, but it nevertheless waives any Claims or rights based on different or additional facts.
5.6 Termination of 401(k) Plan. Effective immediately prior to the Closing, the Company has terminated the Axiom Test Equipment Inc. 401(K) Profit Sharing Plan & Trust (the “401(k) Plan”), subject to and in accordance with the terms of the 401(k) Plan.
5.7 Spousal Consent. Any Shareholder Party who resides in a community property state and is married on the date of this Agreement shall cause such individual’s spouse to execute and deliver to the Company a spousal consent in a form reasonably acceptable to Parent (a “Spousal Consent”).
Article VI.
Tax Matters
6.1 Tax Indemnification. The Shareholder Parties, jointly and severally, shall indemnify, defend and hold harmless the Surviving Company and Parent from and against the entirety of any Losses the Surviving Company or Parent may suffer resulting from, arising out of, relating to, in the nature of or caused by each and all of the following: (a) any and all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date, and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (the “Pre-Closing Tax Period”), (b) any and all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing
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Date, including pursuant to Section 1.1502-6 of the Treasury Regulations or any analogous or similar state, local or foreign law or regulation, (c) any and all Taxes of any Person (other than the Company) imposed on the Company as a transferee or successor, by contract or pursuant to any law, rule or regulation, which Taxes relate to an event or transaction occurring before Closing, and (d) any and all Taxes of the Company, the Surviving Company or Parent arising or resulting from the payment of the Merger Consideration to the Shareholders in accordance with the Allocable Portions agreed upon by the Shareholders, rather than the Shareholders’ pro rata ownership of Company Shares; provided, however, that in the case of clauses (a), (b) and (c) above, the Shareholder Parties shall be liable only to the extent that such Taxes are in excess of the amount, if any, taken into account in determining the adjustments set forth in Section 1.7.
6.2 Straddle Period. In the case of any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured by income or receipts of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time), and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.
6.3 Transfer Taxes. Each of the Shareholder Parties (collectively, on a joint and several basis), on the one hand, and Parent, on the other hand, shall be responsible for and pay 50% of all sales taxes, transfer taxes, stamp taxes, conveyance taxes, intangible taxes, documentary recording taxes, license and registration fees, recording fees and any similar taxes or fees incurred in connection with the consummation of the transactions contemplated by this Agreement (the “Transfer Taxes”). Parent shall file all necessary Tax Returns and other documentation with respect to Transfer Taxes (except to the extent such Tax Returns are required by law to be filed by the Shareholder Parties), and the Shareholder Parties shall cooperate with Parent in the filing of any such Tax Returns, including promptly supplying any information in its possession that is reasonably necessary to complete such Tax Returns. Parent and the Shareholder Parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangement designed to minimize any applicable Transfer Taxes.
6.4 Cooperation on Tax Matters. Parent and the Shareholder Parties agree to furnish or cause to be furnished to each other, upon request, as promptly as is practicable, such information and assistance relating to the Company (including without limitation access to books and records) as is reasonably necessary for the filing of all Tax Returns, the making of any election relating to Taxes, the preparation for any audit by any Taxing Authority, and the prosecution or defense of any claim, suit or proceeding relating to any Tax. Parent and the Shareholder Parties shall retain all books and records with respect to Taxes (including income related Taxes) for any period up to and including the Closing Date, pertaining to the Company, for at least seven years following the Closing Date. At the end of such period, each Party shall provide the others with at least 30 days prior written notice before destroying such books and records, during which period the Party receiving such notice can elect to take possession, at its own expense, of such books and records. Parent and the Shareholder Parties further agree, upon
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request, to use their best efforts to obtain any certificate or other document from any Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). Parent and the Shareholder Parties further agree, upon request, to provide the other with all information that either may be required to report pursuant to Code §6043, or Code §6043A, or Treasury Regulations promulgated thereunder.
6.5 Responsibility for Filing Tax Returns. Parent shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date. Parent shall permit the Shareholder Representative to review and comment on each such Tax Return relating to a Straddle Period or any period prior to Closing described in the preceding sentence prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by the Shareholder Representative.
6.6 Refunds and Tax Benefits. Any Income Tax refunds that are received by Parent or the Surviving Company, and any amounts credited against Income Tax to which Parent or the Surviving Company becomes entitled, that relate to income Tax periods or portions thereof ending on or before the Closing Date shall be for the account of Shareholders, and Parent shall pay over to the Shareholder Representative (for further distribution to Shareholders in accordance with their Allocable Portions) any such refund or the amount of any such credit (net of any Income Taxes of Parent or the Surviving Company attributable to such refund or credit) within 30 days after receipt or entitlement thereto; provided, however, Parent shall not be required to pay over to Shareholders any such refund or the amount of any such credit up to the amount of any Tax asset taken into account in determining the adjustments set forth in Section 1.7.
6.7 Amended Returns and Retroactive Elections. Parent shall not, and shall not cause or permit the Surviving Company to, (i) amend any Tax Returns filed with respect to any tax year ending on or before the Closing Date or (ii) make any Tax election that has retroactive effect to any such year, in each such case without the prior written consent of the Shareholder Representative, such consent not to be unreasonably withheld.
6.8 Tax-Sharing Agreements. All tax-sharing agreements or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.
Article VII.
SURVIVAL AND INDEMNIFICATION
7.1 Survival. The covenants and agreements in this Agreement or in any Ancillary Agreement shall survive the Closing. The representations and warranties under this Agreement or in any Ancillary Agreement shall survive until the first anniversary of the Closing Date; provided, however, that (i) the following representations and warranties (collectively, the “Fundamental Representations”): (i) Section 3.1 (Authority), Section 3.2 (Organization), Section 3.4 (Capitalization; Title to Company Units), Section 3.8(a) (Title to Assets), Section 3.16 (Taxes), Section 3.35 (Brokers); and (ii) Section 4.1 (Organization), Section 4.2 (Authority), Section 4.6 (Parent Shares), and Section 4.7 (Brokers) shall survive the Closing for the full
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period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days; and (ii) the representations and warranties set forth in Section 3.15 (Environmental Matters) and Section 3.18 (Employee Benefit Matters) shall survive the Closing until the third anniversary of the Closing Date. No action or claim for Losses resulting from any misrepresentation or breach of warranty shall be brought or made after the expiration of the survival period applicable to such representation or warranty (as provided in this Section), except that such time limitation shall not apply to claims which have been asserted and which are the subject of a written notice from the Shareholder Representative or the Shareholder Parties to Parent or from Parent to the Shareholder Representative or the Shareholder Parties, as may be applicable, prior to the expiration of such survival period.
7.2 General Indemnification.
(a) The Shareholder Parties, jointly and severally, shall indemnify, defend and hold harmless Parent and its directors, officers, Affiliates, employees, agents and representatives (collectively, the “Parent Indemnified Parties”), from and against all Losses that are incurred or suffered by any of them in connection with or resulting from any of the following:
(i) any breach of, or inaccuracy in, any representation or warranty made by any Shareholder Party in this Agreement;
(ii) any breach of any covenant made by any Shareholder Party in this Agreement;
(iii) any Closing Indebtedness, to the extent not included in the adjustments provided for in Section 1.7;
(iv) any Transaction Expense, to the extent not included in the adjustments provided for in Section 1.7;
(v) the determination of the Allocation Portions of the Merger Consideration payable to Shareholder, and the payment of the Merger Consideration in accordance with such Allocable Portions;
(vi) any matter identified on Schedule 3.13; or
(vii) the enforcement by any Parent Indemnified Party of its indemnification rights under this Agreement.
(b) Parent shall indemnify, defend and hold harmless the Shareholder Parties and their respective directors, officers, Affiliates, employees, agents and representatives (collectively, the “Shareholder Indemnified Parties”) from and against all Losses that are incurred or suffered by any of them in connection with or resulting from any of the following:
(i) any breach of, or inaccuracy in, any representation or warranty made by Parent in this Agreement;
(ii) any breach of any covenant made by Parent in this Agreement; or
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(iii) the enforcement by the Shareholder Indemnified Parties of their indemnification rights under this Agreement.
(c) Subject to the provisions of Section 7.2(d), (i) the Shareholder Parties shall have no obligation to indemnify Parent Indemnified Parties for any Losses pursuant to claims for breaches of, or inaccuracies in, representations and warranties (other than Fundamental Representations) under Section 7.2(a)(i) unless and until the total amount of Losses incurred by Parent Indemnified Parties with respect to such breaches of, or inaccuracies in, representations and warranties exceeds $100,000 (the “Threshold”), in which case the Shareholder Parties shall be liable for all such Losses, including Losses below the Threshold; (ii) Parent shall have no obligation to indemnify Shareholder Indemnified Parties for any Losses pursuant to claims for breaches of, or inaccuracies in, representations and warranties (other than Fundamental Representations) under Section 7.2(b)(i) unless and until the total amount of Losses incurred by Shareholder Indemnified Parties with respect to such breaches of, or inaccuracies in, representations and warranties exceeds the Threshold, in which case Parent shall be liable for all such Losses, including Losses below the Threshold. Subject to the provisions of Section 7.2(d), the maximum aggregate obligation of (i) the Shareholder Parties for Losses pursuant to claims for breaches of, or inaccuracies in, representations and warranties (other than Fundamental Representations) under Section 7.2(a)(i), and (ii) Parent for Losses pursuant to claims for breaches of, or inaccuracies in, representations and warranties (other than Fundamental Representations) under Section 7.2(b)(i), shall not exceed $1,250,000 (the “Cap”).
(d) In no event shall the Threshold or the Cap, or the limitations set forth in Section 7.2(c), apply to Losses suffered or incurred by any Indemnified Party as a result of, or arising out of, (i) the matters set forth in Sections 7.2(a)(ii) through 7.2(a)(vii), Sections 7.2(b)(ii) or 7.2(b)(iii), or Section 6.1; (ii) a breach of, or inaccuracy in, any Fundamental Representation; or (iii) any fraud or intentional misrepresentation by a Party
(e) The representations and warranties in this Agreement and the Ancillary Agreements shall not be affected or diminished by, and no right of indemnification hereunder shall be limited by reason of any investigation or audit conducted before or after the Closing or the knowledge of any Party of any breach of a representation, warranty, covenant or agreement by the other Party at any time, or the decision of any Party to complete the Closing.
7.3 Process for Indemnification.
(a) A Party entitled to indemnification hereunder shall herein be referred to as an “Indemnified Party.” A Party obligated to indemnify an Indemnified Party hereunder shall herein be referred to as an “Indemnifying Party.” As soon as is reasonable after an Indemnified Party either (i) receives notice of any claim or the commencement of any Action by any third party which such Indemnified Party reasonably believes may give rise to a claim for indemnification from an Indemnifying Party hereunder (a “Third Party Claim”) or (ii) sustains any Loss not involving a Third Party Claim or action which such Indemnified Party reasonably believes may give rise to a claim for indemnification from an Indemnifying Party hereunder, such Indemnified Party shall, if a claim in respect thereof is to be made against an Indemnifying Party under this Article VII, notify such Indemnifying Party in writing of such claim, action or Loss, as the case may be; provided, however, that failure to notify Indemnifying Party shall not
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relieve Indemnifying Party of its indemnity obligation, except to the extent Indemnifying Party is actually prejudiced in its defense of the Action by such failure. Any such notification must be in writing and must state in reasonable detail the nature and basis of the claim, Action or Loss, to the extent known. Except as provided in this Section 7.3, the Indemnifying Party shall have the right using counsel reasonably acceptable to the Indemnified Party, to contest, defend, litigate or settle any such Third Party Claim which involves (and continues to involve) solely monetary damages; provided that the Indemnifying Party shall have notified the Indemnified Party in writing of its intention to do so within 15 days of the Indemnified Party having given notice of the Third Party Claim to the Indemnifying Party; provided, further, that (1) the Indemnifying Party expressly agrees in such notice to the Indemnified Party that, as between the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be solely obligated to fully satisfy and discharge the Third Party Claim subject to the limitations with respect to indemnification included in this Agreement; (2) if reasonably requested to do so by the Indemnified Party, the Indemnifying Party shall have made reasonably adequate provision to ensure the Indemnified Party of the financial ability of the Indemnifying Party to satisfy the full amount of any adverse monetary judgment that may result from such Third Party Claim; (3) assumption by the Indemnifying Party of such Third Party Claim would not reasonably be expected to cause a material adverse effect on the Indemnified Party’s business; and (4) the Indemnifying Party shall diligently contest the Third Party Claim (the conditions set forth in clauses (1), (2), (3) and (4) being collectively referred to as the “Litigation Conditions”). The Indemnified Party shall have the right to participate in, and to be represented by counsel (at its own expense) in any such contest, defense, litigation or settlement conducted by the Indemnifying Party; provided, that the Indemnified Party shall be entitled to reimbursement therefor if the Indemnifying Party shall lose its right to contest, defend, litigate and settle the Third Party Claim or if representation of the Indemnifying Party and the Indemnified Party by the same counsel would, in the reasonable opinion of such counsel, constitute a conflict of interest under applicable standards of professional conduct. The Indemnifying Party shall not be entitled, and shall lose its right, to contest, defend, litigate and settle the Third Party Claim if the Indemnified Party shall give written notice to the Indemnifying Party of any objection thereto based upon the Litigation Conditions.
(b) The Indemnifying Party, if it shall have assumed the defense of any Third Party Claim as provided in this Agreement, shall not consent to a settlement of, or the entry of any judgment arising from, any such Third Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, enter into any compromise or settlement which commits the Indemnified Party to take, or to forbear to take, any action or which does not provide for a complete release by such third party of the Indemnified Party. The Indemnified Party shall have the sole and exclusive right to settle any Third Party Claim, on such terms and conditions as it deems reasonably appropriate, to the extent such Third Party Claim involves equitable or other non-monetary relief. All expenses (including attorneys’ fees) incurred by the Indemnifying Party in connection with the foregoing shall be paid by the Indemnifying Party. No failure by an Indemnifying Party to acknowledge in writing its indemnification obligations under this Article VII shall relieve it of such obligations to the extent such obligations exist.
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(c) If an Indemnified Party is entitled to indemnification against a Third Party Claim, and the Indemnifying Party fails to accept a tender of, or assume the defense of, a Third Party Claim pursuant to this Section 7.3, the Indemnifying Party shall not be entitled, and shall lose its right, to contest, defend, litigate and settle such a Third Party Claim, and the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to the Indemnifying Party. If, pursuant to this Section 7.3, the Indemnified Party so contests, defends, litigates or settles a Third Party Claim for which it is entitled to indemnification hereunder, the Indemnified Party shall be reimbursed on a monthly basis by the Indemnifying Party for the reasonable attorneys’ fees and other expenses of contesting, defending, litigating and/or settling the Third Party Claim which are incurred from time to time.
7.4 Recoupment Against Holdback; Release of Holdback.
(a) The Parties agree that Parent shall set off against the Holdback Amount, by reducing the number of Holdback Shares payable to Shareholders, any amount necessary to satisfy (a) a Shareholder Party’s indemnification obligations with respect to any Claim for Losses required to be paid by the Shareholder Parties pursuant to this Article VII; (b) the Shareholder Parties’ indemnification obligations pursuant to Article VI; and (c) any obligation of the Shareholder Parties to pay any amounts that may become due to Parent pursuant to Section 1.7 with respect to the reductions to the Merger Consideration, which right may be exercised at any time after such payments become due.
(b) When Parent becomes entitled to any payment from the Holdback Amount pursuant to this Agreement, Parent shall notify the Shareholder Representative of the amount due to Parent that will be set off against the Holdback Amount (and the corresponding reduction in the number of Holdback Shares otherwise due to Shareholders).
(c) Within 10 days after the First Holdback Release Date, Parent shall cause its transfer agent to deliver to Shareholders the aggregate number of Holdback Shares determined by dividing (i) the amount (such amount, the “First Release Amount”) equal to (A) $2,300,000, less (B) any amounts set off against the Holdback Amount pursuant to this Agreement, including this Section 7.4, on or before the First Release Date, less (C) any amounts that Parent is permitted to continue to hold for Unresolved Claims pursuant to Section 7.4(e), by (ii) the Parent Share Value.
(d) Within 10 days of the expiration of the Holdback Period, Parent shall cause its transfer agent to deliver to Shareholders the aggregate number of Holdback Shares determined by dividing (i) the amount equal to (A) the Holdback Amount, less (B) the First Release Amount, less (B) any amounts set off against the Holdback Amount pursuant to this Agreement, including this Section 7.4, less (C) any amounts that Parent is permitted to continue to hold for Unresolved Claims pursuant to Section 7.4(e), by (ii) the Parent Share Value.
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(e) Notwithstanding the foregoing, if, at the First Holdback Release Date or the expiration of the Holdback Period, as applicable, there is one or more pending Claims by a Parent Indemnified Party against the Shareholder Parties for indemnification pursuant to Article VI or Article VII, but there has not been a final resolution of such Claim (each, an “Unresolved Claim”), then Parent may withhold from the Holdback Amount to be released pursuant to Section 7.4(c) or Section 7.4(d), as applicable, and continue to hold, a portion of the Holdback Amount equal to the amount that Parent reasonably deems necessary to fully satisfy the Unresolved Claim (the “Unresolved Claim Amount”), up to the full remaining Holdback Amount, and the corresponding Holdback Shares (as determined by dividing the Unresolved Claim Amount by the Parent Share Value), until such time as there is a final resolution of such Unresolved Claim (at which time Parent shall deliver (or cause its transfer agent to deliver) to Shareholders any remaining portion of the Unresolved Claim Amount, by delivery of Holdback Shares, to which Shareholders are entitled pursuant to this Agreement (after satisfaction of any amounts due with respect to such Unresolved Claim). For purposes of satisfying any claims by Parent against the Holdback Amount and the Holdback Shares, the Holdback Shares shall be deemed to have a value equal to the Parent Share Value, notwithstanding the then current trading price of the Parent Shares.
(f) For the avoidance of doubt and notwithstanding anything to the contrary in this Section 7.4 or elsewhere in this Agreement (but without otherwise limiting Parent’s right to indemnification hereunder), the Parties agree that, after the First Holdback Release Date, the remaining Holdback Amount (net of the First Release Amount) that Parent is entitled to hold back for the duration of the Holdback Period shall only be used for purposes of satisfying (i) claims related to sales and use tax in states other than California, and (ii) any Unresolved Claims existing as of the First Release Date.
7.5 Right of Setoff. Without limiting any other remedies available at law or in equity, Parent shall have the right to set off against any payments due and owing from Parent or its Affiliates to any Shareholder Party to the extent Parent has suffered a Loss and has made a claim for indemnity against such Shareholder Party under this Article VII or has made a claim for indemnification under Article VI; provided, however, Parent shall not have the right to set off against any payments due to any Shareholder Party pursuant to an employment, consulting or other independent contractor agreement between such Shareholder Party and Parent, the Surviving Company or any of their Affiliates.
7.6 Remedies Exclusive. The remedies provided in this Article VII shall be the sole and exclusive remedies of any Indemnified Party related to any and all Losses incurred because of or resulting from or arising out of this Agreement and any Ancillary Agreements; provided, however, that nothing contained in this Article VII shall be deemed to limit or restrict in any manner (a) any rights or remedies which any Indemnified Party has, or might have, at law or in equity based on fraud or intentional misrepresentation, or (b) any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled.
7.7 Tax Treatment. Any indemnification payments under this Article VII shall be treated for Tax purposes as adjustments to the Merger Consideration to the extent permitted by applicable Law.
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Article VIII.
MISCELLANEOUS
8.1 Shareholder Representative.
(a) The Shareholder Parties hereby collectively and irrevocably constitute and appoint the Shareholder Representative as their exclusive agent and attorney-in-fact, with full power and authority, in the name of and for and to act on behalf of all the Shareholder Parties or in the name of the Shareholder Representative (i) to take any and all actions on behalf of the Shareholder Parties with respect to the transactions contemplated by this Agreement, as the Shareholder Parties could take if acting individually including settlement, compromise and resolution, with respect to all matters arising under this Agreement for which the Shareholder Representative has been provided with authority, responsibility, management or control in this Agreement, in all such cases as the Shareholder Representative may deem desirable or necessary, (ii) to give and receive all notices, consents, wire transfer payment instructions for the Shareholder Parties, certificates, agreements, waivers, releases, elections, accountings, reports and other communications in connection with the foregoing, (iii) to assert any claim, action, proceeding or investigation against Parent, and (iv) to refrain from enforcing any right of the Shareholder Parties or any of them or the Shareholder Representative arising out of or under or in any manner related to this Agreement or the transactions contemplated hereby. The Shareholder Representative is also authorized (x) to execute and deliver all amendments to this Agreement as the Shareholder Representative deems necessary, advisable or appropriate in connection with any of the foregoing matters and (y) to execute and deliver such other miscellaneous certificates and incidental documents required of any Shareholder Party after the Closing; and all such amendments, agreements certificate and documents shall be fully binding on the Shareholder Parties in all respects and for all purposes.
(b) The foregoing appointment shall be an agency coupled with an interest, and all authority conferred hereby is irrevocable and is not subject to termination by any Shareholder Party, or by operation of law, whether by death, incapacity or the occurrence of any other event.
(c) Joshua Shilts hereby accepts his appointment as the Shareholder Representative on behalf of all the Shareholder Parties pursuant to this Agreement.
(d) If any death, incapacity or other such event with respect to any Shareholder should occur, any action taken, or to be taken, by the Shareholder Representative shall be as valid as if such death, incapacity or other event had not occurred, regardless of whether or not the Shareholder Representative or Parent shall have received notice of such death, incapacity or other event.
(e) Any communication, notice, consent, certificate, agreement, waiver, election, accounting, report or any other matter delivered to the Shareholder Representative in accordance with the provisions of this Agreement shall be deemed delivered to all the Shareholder Parties. Every Party to this Agreement and any other interested Person may rely on any communications, notices, consents, certificates, agreements, waivers, elections, accountings, reports and any other matter sent by the Shareholder Representative as if same had been sent by
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all the Shareholder Parties. The Shareholder Parties hereby waive any and all claims against Parent based upon the actual or alleged lack of authorization of the Shareholder Representative with respect to any action taken by Parent in reliance on the authority of the Shareholder Representative.
(f) If the Shareholder Representative resigns or shall be unable to serve as the Shareholder Representative, then a successor Shareholder Representative shall be selected by the Shareholder Parties who held at least a majority of all Company Shares immediately prior to the Closing, and the Shareholder Parties shall deliver written notice of such appointment to Parent.
(g) To the extent the Shareholder Representative has authority to act on such matter pursuant to this Agreement, Parent and its Affiliates (including, after the Closing, the Surviving Company) are entitled to deal exclusively with the Shareholder Representative on all matters relating to this Agreement, and the other Ancillary Agreements and the transactions contemplated hereby. Any action taken or not taken or decisions, communications or writings made, given or executed by the Shareholder Representative, for or on behalf of any Shareholder Party, shall be deemed an action taken or not taken or decisions, communications or writings made, given or executed by such Shareholder Party. Parent and its Affiliates (including, after the Closing, the Surviving Company) shall be entitled to disregard any decisions, communications or writings made, given or executed by any Shareholder in connection with this Agreement and any other agreement or document contemplated hereby and the transactions contemplated by this Agreement unless the same is made, given or executed by the Shareholder Representative. Notwithstanding anything to the contrary set forth herein, from and after the Closing, none of Parent, the Surviving Company or any of their respective Affiliates, shall be liable for any liability to any Person, including any Shareholder, for any action taken or not taken by the Shareholder Representative or for any act or omission taken or not taken in reliance upon the actions taken or not taken or decisions, communications or writings made, given or executed by the Shareholder Representative, including any failure of the Shareholder Representative (so long as such failure is not the result of any act or failure to act of Parent) to distribute (or cause to be distributed) or subdivide (or cause to be subdivided) in the correct amounts any payments made to the Shareholder Representative by Parent or its Subsidiaries (including, after the Closing, the Surviving Company) for distribution to any Shareholder, among Shareholders or any other Person; it being understood that once Parent or its Affiliates (including, after the Closing, the Surviving Company) has made a payment to be made pursuant to this Agreement or any other Ancillary Agreement, in accordance with the terms of the relevant agreement, to the Shareholder Representative for distribution to any Shareholder, among Shareholders or to such other Person, such payment shall constitute a complete discharge of the relevant payment obligation of Parent or such Affiliate.
8.2 Interpretive Provisions.
(a) Whenever used in this Agreement, (i) “including” (or any variation thereof) means including without limitation and (ii) any reference to gender shall include all genders. The term “or” has the inclusive meaning represented by the phrase “and/or.” Reference to a particular Person includes such Person’s successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable agreement. Reference to a particular agreement (including this Agreement), document or instrument means such agreement,
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document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof. The terms “dollars” and “$” mean United States Dollars. Unless Business Days are specified, all references to “days” hereunder shall mean calendar days. The Exhibits and Schedules identified in this Agreement are incorporated into this Agreement by reference and made a part hereof.
(b) The Parties acknowledge and agree that (i) each Party and its counsel have reviewed the terms and provisions of this Agreement and have contributed to its drafting, (ii) the normal rule of construction, to the effect that any ambiguities are resolved against the drafting Party, shall not be employed in the interpretation of it, and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.
8.3 Entire Agreement. This Agreement (including the Schedules and the exhibits attached hereto) together with the Ancillary Agreements constitute the sole understanding and agreement of the Parties with respect to the subject matter hereof. The Parties agree and acknowledge that as of the Closing Date, the mutual non-disclosure agreement, dated June 17, 2022, is terminated.
8.4 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties; provided however, that this Agreement may not be assigned by any Shareholder Party without the prior written consent of Parent or be assigned by Parent without the prior written consent of the Shareholder Representative, except that (i) Parent may, at its election and provided it remains liable for its obligations hereunder, assign this Agreement to any Affiliate of Parent, and (ii) Parent or any such assignee may make a collateral assignment of its rights (but not its obligations) under this Agreement to any lender providing financing to Parent in connection with the Closing.
8.5 Headings. The headings of the Articles, Sections, and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.
8.6 Modification and Waiver. No amendment, modification, or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the Parties, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the Party that is entitled to the benefits of such waived terms or provisions. No single waiver of any of the provisions of this Agreement shall be deemed to or shall constitute, absent an express statement otherwise, a continuous waiver of such provision or a waiver of any other provision hereof (whether or not similar). No delay on the part of any Party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof.
8.7 Expenses. Except as otherwise expressly provided herein, each of the Parties shall bear the expenses incurred by that Party incident to this Agreement and the transactions contemplated hereby, including all fees and disbursements of counsel and accountants retained by such Party, whether or not the transactions contemplated hereby shall be consummated.
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8.8 Notices. Any notice, request, instruction, or other document to be given hereunder by any Party to any other Party shall be in writing and shall be given by delivery in person, by electronic mail, by overnight courier or by registered or certified mail, postage prepaid (and shall be deemed given when delivered if delivered by hand, when delivered if delivered by electronic mail, one Business Day after deposited with an overnight courier service if delivered by overnight courier and three days after mailing if mailed), as follows:
to Shareholder Parties (or, as applicable, with respect to the Shareholder Representative):
Gary F. Shilts (individually or on behalf of Shilts Trust)
[**]
Email: [**]
Joshua Shilts (individually or as the Shareholder Representative)
[**]
Email: [**]
Shannon Johnson (individually or on behalf of Johnson Trust)
[**]
Email: [**]
Lavon M. Parrish
[**]
Email: [**]
with a copy to:
The Watkins Firm, APC
9915 Mira Mesa Blvd., Suite 130
San Diego, CA 92131
Attn: Chris Popov, Esq.
Email: cpopov2@gmail.com
to Parent to:
Transcat, Inc.
35 Vantage Point Drive
Rochester, New York 14624
Attn : James M. Jenkins, Chief Legal and Corporate Development Officer
Email : jim.jenkins@transcat.com
with a copy to:
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Harter Secrest & Emery LLP
50 Fountain Plaza, Suite
Buffalo, New York 14202
Attention: Phillip A. Delmont
Email: pdelmont@hselaw.com
or at such other address for a Party as shall be specified by like notice.
8.9 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within that jurisdiction.
8.10 Public Announcements. None of the Shareholder Parties or Parent shall make any public statements, including any press releases, with respect to this Agreement and the transactions contemplated hereby without the prior written consent of the other Parties (which consent shall not be unreasonably withheld) except as may be required by Law. If a public statement is required to be made by Law, the Parties shall consult with each other in advance as to the contents and timing thereof.
8.11 No Third Party Beneficiaries. This Agreement is intended and agreed to be solely for the benefit of the Parties and their permitted successors and assigns, and no other Party shall be entitled to rely on this Agreement or accrue any benefit, claim, or right of any kind whatsoever pursuant to, under, by, or through this Agreement.
8.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.
8.13 Delivery by Facsimile and Email. This Agreement and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or by electronic mail, shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No Party shall raise the use of a facsimile machine or electronic mail to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or electronic mail as a defense to the formation or enforceability of this Agreement and each such Party forever waives any such defense.
Article IX.
CERTAIN DEFINITIONS
9.1 Defined Terms. The following terms shall have the following meanings:
“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.
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“Allocable Portion” means, with respect to each Shareholder, the percentage of the Merger Consideration allocated to such Shareholder, as agreed upon by the Shareholders and set forth on Schedule 1.5(c).
“Ancillary Agreement” means any agreement, exhibit, schedule, statement, document or certificate executed or delivered in accordance with, in connection with or required by this Agreement, and any other agreement or certificate specifically identified as an Ancillary Agreement for purposes of this Agreement.
“Anti-Corruption Laws” means the US Foreign Corrupt Practices Act and any other applicable anti-corruption Laws.
“Authority” means the United States of America or any other nation, any state or other political subdivision thereof, or any entity, agency, court or authority (foreign, federal, state or local) exercising executive, legislative, judicial, regulatory or administrative functions of government or any arbitrator or mediator.
“Business” means the Company’s business of selling and renting test equipment and providing commercial instrument repair, calibration and certification services for test equipment.
“Business Day” means any day other than a day on which banks in New York, New York are required or authorized to be closed.
“Cash Consideration” means $10,000,000.
“Cash on Hand” means all cash and cash equivalents of the Company, calculated as of immediately prior to the Closing, determined in accordance with GAAP and subject to the next sentence (which, for the avoidance of doubt, may be a negative number). For the avoidance of doubt, Cash on Hand shall be calculated (i) net of (A) all issued but uncleared checks and drafts, ACH transactions and other wire transfers issued by the Company to the extent such checks, drafts, ACH transactions or other wire transfers have not yet cleared and are not included as current Liabilities in the calculation of Closing Working Capital as finally determined pursuant to Section 1.7, (B) any cash and cash equivalents of the Company that is distributed or otherwise paid to Shareholders prior to the Effective Time and (C) investment securities (including equity securities and certificates of deposit); and (ii) shall include all checks, ACH transactions and other wire transfers and drafts deposited or received by the Company and available for deposit for the account of the Company, and to the extent not included as current assets in the calculation of Closing Working Capital as finally determined pursuant to Section 1.7.
“Closing Cash” means the amount of Cash on Hand as of immediately prior to the Closing.
“Closing Indebtedness” means the amount of Indebtedness of the Company outstanding as of immediately prior to the Closing (without giving effect to the transactions contemplated herein), as determined in accordance with GAAP.
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“Closing Transaction Expenses” means, to the extent not paid by the Shareholder Parties, the Company or otherwise prior to the Closing Date, the amount of Transaction Expenses accrued or outstanding as of immediately prior to the Closing (without giving effect to the transactions contemplated herein), as determined in accordance with GAAP.
“Closing Working Capital” means the value, as of the Closing, of the current assets of the Company, less the aggregate amount of current Liabilities of the Company all as determined in accordance with GAAP, subject to Schedule 3.6, and in accordance with the terms and conditions of, and subject to the adjustments described in, Section 1.7.
“Code” means the Internal Revenue Code of 1986, as amended.
“Contract” means any written or oral contract, lease, license, loan or credit agreement, bond, debenture, note, mortgage, indenture, supply agreement, sale or purchase order, or any other binding agreement, commitment, arrangement or understanding.
“control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise.
“Encumbrances” means all liens, charges, mortgages, pledges, security interests or other encumbrances of any kind.
“Environmental Laws” means all foreign, federal, state and local laws, rules, regulations, ordinances, codes, common law, judgments, orders, consent agreements, legally-binding requirements, work practices, standards and norms relating to (i) the protection of the environment (including air, surface and subsurface water, drinking water supplies, surface and subsurface land, the interior of any building or building component, soil and natural resources) or human health (including without limitation occupational health and safety) or (ii) Hazardous Substances.
“Environmental Liabilities” shall mean, with respect to any Person, all Liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred, based upon, related to, or arising under or pursuant to any Environmental Laws, or which relates to any environmental, health or safety condition.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any Person, trade or business (whether or not incorporated) that is a member of a “controlled group of corporations” with, or is under “common control” with, or is a member of the same “affiliated service group” with the Company, as defined in Section 414 of the Code, or is otherwise required to be aggregated with the Company under Section 414(o) of the Code.
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“Estimated Cash Payment” means an amount equal to the total of (a) the Cash Consideration, plus (b) the Estimated Closing Cash, minus (c) the amount, if any, by which Estimated Closing Working Capital is less than Target Working Capital Floor, plus (d) the amount, if any, by which Estimated Closing Working Capital is greater than Target Working Capital Ceiling, minus (e) the Estimated Closing Indebtedness, minus (f) the Estimated Closing Transaction Expenses.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
“Final Closing Cash” means the Closing Cash set forth in the Final Closing Statement, as finally determined pursuant to Section 1.7.
“Final Cash Payment” means an amount equal to the total of (a) the Cash Consideration, plus (b) the Closing Cash, minus (c) the amount, if any, by which Final Closing Working Capital is less than Target Working Capital Floor, plus (d) the amount, if any, by which Final Closing Working Capital is greater than Target Working Capital Ceiling, minus (e) the Final Closing Indebtedness, minus (f) the Final Closing Transaction Expenses.
“Final Closing Indebtedness” means the Closing Indebtedness set forth in the Final Closing Statement, as finally determined pursuant to Section 1.7.
“Final Closing Transaction Expenses” means the Closing Transaction Expenses set forth in the Final Closing Statement, as finally determined pursuant to Section 1.7.
“Final Closing Working Capital” means the Closing Working Capital set forth in the Final Closing Statement, as finally determined pursuant to Section 1.7.
“FINRA” means the Financial Industry Regulatory Authority.
“First Holdback Release Date” means August 8, 2024.
“GAAP” means United States generally accepted accounting principles consistently applied throughout the relevant periods.
“General Enforceability Exceptions” means general principles of equity and by bankruptcy, insolvency or similar Laws and general equitable principles affecting the rights of creditors generally.
“Government Official” means (i) any director, officer, employee, agent or representative (including anyone elected, nominated, or appointed to be an officer, employee, or representative) of any Authority, or anyone otherwise acting in an official capacity on behalf of an Authority; (ii) any candidate for public or political office; (iii) any royal or ruling family member; or (iv) any agent or representative of any of those Persons listed in subcategories (i) through (iii).
“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, ruling, determination or award entered by or with any Authority.
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“Hazardous Substances” means any and all hazardous or toxic substances, materials, and wastes, solid wastes, industrial wastes, pollutants, contaminants, polychlorinated biphenyls, asbestos, volatile and semi-volatile organic compounds, oil, petroleum products and fractions thereof, radioactive materials and wastes, and any and all other chemicals, substances, materials and wastes regulated under Environmental Law.
“Holdback Period” means the period beginning on the Closing Date and ending on the third anniversary of the Closing Date.
“Indebtedness” means all principal, interest, premiums, penalties or other Liabilities related to (a) all indebtedness for borrowed money, (b) all obligations (contingent or otherwise) for the deferred purchase price of property or services (other than trade accounts payable in the Ordinary Course of Business) (including notes payable to the sellers of such property or services), (c) all other obligations evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired, (e) all obligations as lessee or lessees under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, under acceptance, letter of credit or similar facilities, (g) all obligations owing pursuant to factoring agreements for accounts receivable, (h) all obligations in respect of unfunded pensions, (i) all obligations of the type referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by the Company, or in effect guaranteed directly or indirectly by the Company through an agreement (1) to pay or purchase such obligations or to advance or supply funds for the payment or purchase of such obligations, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such obligations or to assure the holder of such obligations against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss; provided, that such Indebtedness referred under this clause (i) is of the type that would be reflected as debt on a balance sheet prepared in accordance with GAAP, (j) all Indebtedness of the type referred to in clauses (a) through (i) above secured by (or for which the holder of such obligations has an existing right, contingent or otherwise, to be secured by) any lien on property (including accounts and Contract rights) owned by the Company (including the Owned Real Property), even though such Person has not assumed, become liable for or guaranteed the payment of such Indebtedness, (k) all Liabilities of, under or in connection with any accrued bonuses and deferred compensation bonuses (including all related Taxes, including the employers share of any payroll Taxes attributable to such amounts and any amounts payable pursuant to Section 280G of the Code (or any corresponding provision of Law) or to offset or gross-up any Person for any excise Taxes, income Taxes or other Taxes related to such amounts), (l) any unfunded capital expenditures committed to by the Company, and (m) all accrued but unpaid interest (or interest equivalent) to the date of determination, and all prepayment premiums or penalties payable upon repayment of any items of Indebtedness of the type referred to in clauses (a) through (i) above.
“Interim Financial Statement” has the meaning set forth in Section 3.6.
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“Intellectual Property” means all of the following in any jurisdiction throughout the world: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trade-marks, service marks, trade dress, logos, slogans, trade names, corporate names, internet domain names, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including source code, executable code, data, databases, and related documentation), (g) all material advertising and promotional materials, (h) all industrial designs and integrated circuit topography rights, (i) all other proprietary rights, and (j) all copies and tangible embodiments thereof (in whatever form or medium).
“Interim Balance Sheet” means the balance sheet of the Company as of the Interim Balance Sheet Date, as set forth in the Financial Statements.
“Interim Balance Sheet Date” means March 31, 2023.
“IRS” means the Internal Revenue Service.
“knowledge”, “to the knowledge” or “known” and words of similar import means the actual or constructive knowledge of a natural person or, with respect to a Person that is not a natural person, the actual or constructive knowledge of the officers of such Person, in each case after due inquiry.
“Laws” means any federal, state or local law (including, without limitation, principles of common law), statute, ordinance, regulation, Permit, certificate, judgment, order, award or other legally enforceable determination, decision or requirement of any Authority.
“Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.
“Losses” means any and all losses, Liabilities, damages, penalties, obligations, awards, fines, deficiencies, demands, interest, claims (including third party claims whether or not meritorious), costs and expenses whatsoever (including reasonable attorneys’, consultants’ and other professional fees and disbursements of every kind, nature and description) resulting from, arising out of or incident to any matter for which indemnification is provided under this Agreement.
“Material Adverse Effect” means any circumstance or event which, individually or in the aggregate with any other circumstance or event, is or could be reasonably expected to
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be material and adverse to the business, properties, operations, condition (financial or otherwise), or results of operations of the Company, taken as a whole. For purposes of this definition of Material Adverse Effect, the effect of any matter as to any past period shall be determined based on its actual effect, and its effect as to any future period shall be determined based on the effect that such matter is reasonably likely to have.
“Ordinary Course of Business” means, with respect to the Company, the ordinary course of business consistent with the Company’s past custom and practice (including with respect to quantity and frequency).
“Organizational Documents” means, for any entity, its constituent or organizational documents, including, in the case of a corporation, its articles or certificates of incorporation and its bylaws.
“Parent Shares” means shares of Parent’s common stock.
“Permitted Encumbrances” means (i) statutory liens for Taxes not yet due and payable or the validity or amount of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the Interim Financial Statements in accordance with GAAP; (ii) mechanics’, carriers’, workers’, repairers’ and other similar liens arising or incurred in the Ordinary Course of Business and securing sums that are not yet due and payable or the validity or amount of which is being contested in good faith by appropriate proceedings, and for which adequate reserves have been established on the Interim Financial Statements in accordance with GAAP and do not otherwise constitute a breach of or an event of default under any Lease.
“Person” means an individual, corporation, partnership, association, limited liability company, trust, unincorporated organization, or other entity.
“Personal Information” means the type of information regulated and/or subject to Privacy Laws and collected, used, disclosed or retained by the Company including information regarding the Company’s clients, customers, suppliers, employees, agents, dependent and independent contractors including an individual’s name, address, age, gender, identification or social insurance number, income, family status, citizenship, employment, assets, liabilities, source of funds, payment records, credit information, personal and professional references and health and/or medical records.
“Privacy Laws” means all applicable, federal, state or municipal laws governing the collection, use, disclosure and/or retention of Personal Information.
“Restricted Territory” means North America.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the United States Securities Act of 1933, as amended.
“Target Closing Working Capital Ceiling” means $1,500,000.
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“Target Closing Working Capital Floor” means $1,300,000.
“Tax” means (i) any federal, state, local or non-U.S. income, gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, property taxes (real or personal), including unpaid property taxes, premium, windfall profits, environmental assessments, alternative or add-on minimum, custom duties, capital stock, profits, social security (or similar), unemployment, disability, estimated, or any other tax of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, whether disputed or not, and (ii) any obligation to indemnify or otherwise assume or succeed to any Liability described in clause (i) hereof of any other Person whether by Contract or under common law doctrine of de facto merger and successor liability or otherwise.
“Tax Return” means any return, report, information return or other document (including any related or supporting information or any amended return) filed or required to be filed with any Taxing Authority in connection with the determination, assessment, or collection of any Tax paid or payable by or with respect to the Company or the administration of any laws, regulations, or administrative requirements relating to any such Tax.
“Transaction Expenses” means (without duplication), (i) the collective amount payable by the Company, or Liabilities of the Company that were incurred by the Company or the Shareholder Parties to, outside legal counsel, accountants, advisors, brokers and other Persons in connection with the transactions contemplated by this Agreement or otherwise arising by consummation of the transactions contemplated hereby, including 100% of the costs and expenses of obtaining any third party consents (including customer consents), 100% of the filing fees incurred by the Company in connection with any filing by the Company with an Authority, and 100% of the fees and expenses payable to the Person identified on Schedule 3.35, and (ii) all Liabilities of the Company under or in connection with any severance arrangements, stay bonuses, incentive bonuses, transaction bonuses, termination and change of control arrangements, and similar obligations that are triggered in whole or in part by the consummation of the transactions contemplated by this Agreement (including all related Taxes, including the employer’s share of any payroll Taxes attributable to such amounts and any amounts payable pursuant to Section 280G of the Code (or any corresponding provision of Law) or to offset or gross-up any Person for any excise Taxes, income Taxes or other Taxes related to the foregoing items).
9.2 Other Definitions. Each of the following terms is defined in the Section set forth opposite such term:
| “401(k) Plan” | 5.6 |
| “Accounts Receivable” | 3.10(a) |
| “Action” | 3.13 |
| “Ancillary Agreements” | 3.1 |
| “Agreement” | Preamble |
| “Benefit Plans” | 3.18(a) |
| “Certificates of Merger” | 1.2 |
| “CGCL” | Recitals |
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| “Closing” | 2.1 |
| “Closing Consideration Shares” | 1.5(b)(iii) |
| “Closing Date” | 2.1 |
| “Confidential Information” | 5.1 |
| “Company” | Preamble |
| “Company Certificates” | 1.6(b) |
| “Company Shares” | 1.3 |
| “Confidential Information” | 5.1 |
| “DLLCA” | Recitals |
| “Effective Time” | 2.1 |
| “Eligible Employee” | 1.12 |
| “Estimated Closing Indebtedness” | 1.7(a) |
| “Estimated Closing Statement” | 1.7(a) |
| “Estimated Closing Transaction Expenses” | 1.7(a) |
| “Estimated Closing Working Capital” | 1.7(a) |
| “Financial Statements” | 3.6 |
| “Final Closing Statement” | 1.7(b) |
| “Fundamental Representations” | 7.1 |
| “Holdback Amount” | 1.5(b)(ii) |
| “Holdback Shares” | 1.5(b)(ii) |
| “Indemnified Party” | 7.3(a) |
| “Indemnifying Party” | 7.3(a) |
| “Independent Accountant” | 1.7(e) |
| “Intellectual Property” | 3.12(a) |
| “Interim Financial Statements” | 3.6 |
| “IT Systems” | 3.11(d) |
| “Johnson” | Preamble |
| “Johnson Trust” | Preamble |
| “G. Shilts” | Preamble |
| “Leased Real Property” | 3.9(b) |
| “Licensed Intellectual Property” | 3.11(a) |
| “Litigation Conditions” | 7.3(a) |
| “LLC Agreement” | 1.4(b) |
| “Material Contracts” | 3.12(a) |
| “Material Owned Intellectual Property” | 3.11(a) |
| “Merger” | Recitals |
| “Merger Consideration” | 1.5(a) |
| “Merger Sub” | Preamble |
| “Notice of Disagreement” | 1.7(d) |
| “Parent” | Recitals |
| “Parent Balance Sheet” | 4.8(b) |
| “Parent Financial Statements” | 4.8(c) |
| “Parent Indemnified Parties” | 7.2(a) |
| “Parent Share Value” | 1.5(b)(ii) |
53
| “Party” | Preamble |
| “Parties” | Preamble |
| “Permits” | 3.14 |
| “Pre-Closing Tax Period” | 6.1 |
| “Real Property Leases” | 3.9(b) |
| “Releasing Party” | 5.5 |
| “Registration Rights Agreement” | 2.2(a)(iii) |
| “Restricted Period” | 5.2(a) |
| “RSU Award” | 1.12 |
| “Rule” | 3.27 |
| “SEC” | 4.5 |
| “SEC Documents” | 4.8(a) |
| “Shareholder” | Preamble |
| “Shareholder Indemnified Parties” | 7.2(b) |
| “Shareholder Parties” | Preamble |
| “Shareholder Representative” | Preamble |
| “Shareholders” | Preamble |
| “Shilts Trust” | Preamble |
| “Significant Customer” | 3.21 |
| “Significant Supplier” | 3.22 |
| “Straddle Period” | 6.2 |
| “Surviving Company” | 1.1 |
| “Taxing Authority” | 3.16(a) |
| “Third Party Claim” | 7.3(a) |
| “Threshold” | 7.2(c) |
| “Transfer Taxes” | 6.3 |
| “Unresolved Claim” | 7.4(e) |
| “Unresolved Claim Amount” | 7.4(e) |
[Signature page follows.]
54
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf as of the date first above written.
| PARENT: | ||
| TRANSCAT, INC. | ||
| By: | /s/ James M. Jenkins | |
| Name: | James M. Jenkins | |
| Title: | Chief Legal and Corporate Development Officer | |
| MERGER SUB: | ||
| AXIOM TEST EQUIPMENT, LLC | ||
| By: | /s/ James M. Jenkins | |
| Name: | James M. Jenkins | |
| Title: | Manager | |
[signature page to Agreement and Plan of Merger]
| COMPANY: | ||
| AXIOM TEST EQUIPMENT, INC. | ||
| By: | /s/ Joshua Shilts | |
| Name: | Joshua Shilts | |
| Title: | President | |
| SHAREHOLDER PARTIES: | ||
| Shilts Family 2008 Trust, DTD 5/6/2008 | ||
| By: | /s/ Gary F. Shilts | |
| Gary F. Shilts, Trustee | ||
| /s/ Joshua Shilts | ||
| Joshua Shilts, an individual | ||
| Shannon and Gloria Johnson Living Trust | ||
| By: | /s/ Shannon Johnson | |
| Shannon Johnson, Trustee | ||
| /s/ Lavon M. Parrish | ||
| Lavon M. Parrish, an individual | ||
| /s/ Gary F. Shilts | ||
| Gary F. Shilts, an individual | ||
| /s/ Shannon Johnson | ||
| Shannon Johnson, an individual | ||
| SHAREHOLDER REPRESENTATIVE: | ||
| /s/ Joshua Shilts | ||
| Joshua Shilts | ||
[signature page to Agreement and Plan of Merger]
Exhibit A
Registration Rights Agreement
Exhibit 10.2
TRANSCAT, INC.
REGISTRATION RIGHTS AGREEMENT
THIS Registration Rights Agreement (this “Agreement”) is made as of August 8, 2023 (the “Effective Date”), by and among TRANSCAT, INC., an Ohio corporation (the “Company”), and GARY F. SHILTS, Trustee of the Shilts Family 2008 Trust, DTD 5/6/2008, JOSHUA SHILTS, an individual, SHANNON JOHNSON, Trustee of the Shannon and Gloria Johnson Living Trust, and LAVON M. PARRISH, an individual (each, individually, a “Holder” and, collectively, the “Holders”).
RECITALS
A. Pursuant to an Agreement and Plan of Merger, dated as of the Effective Date, by and among the Company, Axiom Test Equipment, LLC, a Delaware limited liability company, Axiom Test Equipment, Inc., a California corporation, the Holders and certain other individuals (the “Merger Agreement”), the Company has issued and delivered to each Holder the number of shares of Common Stock (as defined below) as is set forth opposite such Holder’s name on Schedule A hereto (collectively, the “Initial Shares”).
B. Pursuant to the Merger Agreement, the Company may issue and deliver to Holders some or all of the shares of Common Stock (collectively, the “Holdback Shares”) that the Company is withholding from the Merger Consideration pursuant to the Merger Agreement.
C. In connection with the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby, including the issuance of the Initial Shares to the Holders, the Company has agreed to grant certain registration rights as set forth in this Agreement.
Now, Therefore, in consideration of the mutual promises and covenants herein contained, and other consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
Article
I
Definitions
1.1 Definitions. Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in the Merger Agreement. As used in this Agreement, the following terms shall have the meanings set forth below:
(a) “Additional Shares” means any shares of Common Stock issued to the Holders pursuant to a stock split, stock dividend or other distribution with respect to, or in exchange or in replacement of, the Initial Shares or the Holdback Shares, or in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event.
(b) “Agreement” has the meaning set forth in the Preamble.
(c) “Business Day” means any day, excluding Saturday, Sunday and any day which is a legal holiday in the City of New York or is a day on which banking institutions located in the City of New York are authorized or required by law or other governmental action to close.
(d) “Change of Control” means an event or series of events (i) as a result of which any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all Common Stock that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 50% or more of the Common Stock entitled to vote for members of the Company’s Board of Directors on a fully diluted basis (and taking into account all such Common Stock that such person or group has the right to acquire pursuant to any option right); or (ii) that results in the sale of all or substantially all of the assets or businesses of the Company and its consolidated subsidiaries, taken as a whole; provided, however that such event or events shall not constitute a Change of Control if, following the occurrence thereof, shares of Common Stock continue to be listed for trading on a Trading Market.
(e) “Common Stock” means shares of the common stock of the Company, par value $0.50 per share.
(f) “Company” has the meaning set forth in the Preamble.
(g) “Company Indemnified Party” has the meaning set forth in Section 2.4(b).
(h) “Effectiveness Deadline” means the Shelf Effectiveness Deadline and the Subsequent Shelf Effectiveness Deadline.
(i) “End of Suspension Notice” has the meaning set forth in Section 2.2(c).
(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
(k) “Holder” has the meaning set forth in the Preamble.
(l) “Holder Indemnified Parties” has the meaning set forth in Section 2.4(a).
(m) “Indemnified Party” has the meaning set forth in Section 2.4(c).
(n) “Losses” has the meaning set forth in Section 2.4(a).
(o) “Person” means any person, individual, corporation, limited liability company, partnership, trust or other nongovernmental entity or any governmental agency, court, authority or other body (whether foreign, federal, state, local or otherwise).
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(p) “Prospectus” means the prospectus or prospectuses (whether preliminary or final) included in any Registration Statement and relating to Registrable Shares, as amended or supplemented and including all material incorporated by reference in such prospectus or prospectuses.
(q) “register,” “registered” and “registration” refer to a registration effected by filing with the SEC a registration statement in compliance with the Securities Act, and the declaration or ordering by the SEC of the effectiveness of such registration statement.
(r) “Registrable Shares” means (i) the Initial Shares, (ii) the Holdback Shares, if and when delivered to Holder pursuant to the Merger Agreement, and (iii) any Additional Shares; provided, however, that Initial Shares, Holdback Shares, or Additional Shares shall cease to be treated as Registrable Shares on the earliest to occur of (A) the date such securities have been disposed of pursuant to an effective registration statement, (B) the date on which such securities are sold pursuant to Rule 144, and (C) the date on which the Holder thereof is able to dispose of its Registrable Shares in compliance with Rule 144 (or any successor rule).
(s) “Registration Expenses” means any and all expenses incident to the Company’s performance of or compliance with this Agreement, including without limitation: (i) all SEC and other registration and filing fees, (ii) all fees and expenses associated with filings to be made with, or the listing of any Registrable Shares on, any securities exchange or over-the-counter trading market on which the Registrable Shares are to be listed or quoted, (iii) all fees and expenses with respect to filings required to be made with an exchange or any securities industry self-regulatory body, (iv) all fees and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel for the Company in connection therewith), (v) all transfer agent’s and registrar’s fees, (vi) all fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company, (vii) securities acts liability insurance, if the Company so desires, (viii) all internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (ix) the expense of any annual audit, and (x) the fees and expenses of any Person, including special experts, retained by the Company. For the avoidance of doubt, “Registration Expenses” shall not include underwriting discounts or commissions attributable to the sale of the Registrable Shares or (except as otherwise set forth in this Agreement) any legal fees and expenses of counsel to the Holders.
(t) “Registration Statement” means any registration statement of the Company under the Securities Act which covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, all amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all documents incorporated by reference in such Registration Statement.
(u) “Rule 144” means Rule 144 under the Securities Act.
(v) “SEC” means the U.S. Securities and Exchange Commission.
(w) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
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(x) “Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(b).
(y) “Shelf Registration” has the meaning set forth in Section 2.1(a).
(z) “Shelf Registration Statement” has the meaning set forth in Section 2.1(a).
(aa) “Subsequent Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(b).
(bb) “Subsequent Shelf Registration Statement” has the meaning set forth in Section 2.1(b).
(cc) “Suspension Event” has the meaning set forth in Section 2.2(b).
(dd) “Suspension Notice” has the meaning set forth in Section 2.2(c).
(ee) “Termination Date” has the meaning set forth in Section 2.1(b).
(ff) “Trading Day” means a day on which the Common Stock is traded on a Trading Market or, if the Common Stock is not traded on a Trading Market, then on the principal securities exchange or securities market on which the Common Stock is then traded.
(gg) “Trading Market” means any market or exchange of The Nasdaq Stock Market LLC, or any other market or exchange on which the Registrable Shares are listed for trading.
Article
II
Registration Rights
2.1 Shelf Registration.
(a) Filing. Within 30 days following the Effective Date (and, with respect to any Holdback Shares, within 30 days following the date of release of such Holdback Shares to Holder pursuant to the Merger Agreement (each, a “Holdback Release Date”)), the Company shall file with the SEC a Registration Statement on Form S-3 (unless the Company is ineligible to register for resale the Registrable Shares on Form S-3, in which case such registration shall be on another appropriate form) or the then appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “Shelf Registration Statement”) pursuant to which all of the applicable Registrable Shares shall be included (on the initial filing or by supplement or amendment thereto) to enable the public resale of such Registrable Shares on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “Shelf Registration”). If permitted under the Securities Act, such Shelf Registration Statement shall be an “automatic shelf registration statement” as defined in Rule 405 under the Securities Act.
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(b) Effectiveness. The Company shall use its reasonable best efforts to (i) cause any Shelf Registration Statement filed pursuant to Section 2.1(a) to be declared effective by the SEC as soon as reasonably practicable, and in any event by the date that is the earlier of (A) 120 days following the Effective Date (or, with respect to any Shelf Registration Statement filed for any Holdback Shares, within 120 days following the applicable Holdback Release Date)) and (B) five Trading Days after the date the Company receives written notification from the SEC that the applicable Shelf Registration will not be reviewed or will not be subject to further review (the “Shelf Effectiveness Deadline”) and (ii) maintain the effectiveness of such Shelf Registration Statement, including by filing any necessary post-effective amendments and Prospectus supplements and by filing one or more replacement or renewal Shelf Registration Statements (each, a “Subsequent Shelf Registration Statement”) upon the expiration of such Shelf Registration Statement, as required by Rule 415 under the Securities Act, continuously until the earliest to occur of (1) the 30-month anniversary of the Effective Date (or, with respect to any Shelf Registration Statement filed for any Holdback Shares, the 30-month anniversary of the applicable Holdback Release Date), (2) a Change of Control, and (3) such time as there are no Registrable Shares remaining (the “Termination Date”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to (i) cause such Subsequent Shelf Registration Statement to be declared effective by the SEC as soon as reasonably practicable after such filing, but in any event by the date that is 50 days after such Subsequent Shelf Registration Statement is filed (the “Subsequent Shelf Effectiveness Deadline”), and (ii) keep such Subsequent Shelf Registration Statement (or another Subsequent Shelf Registration Statement) continuously effective until the Termination Date. Any Subsequent Shelf Registration Statement shall be a Shelf Registration Statement.
2.2 Provisions Relating to Registration.
(a) If and whenever the Company is required to effect the registration of any Registrable Shares pursuant to this Agreement, the Company shall use its reasonable best efforts to effect and facilitate the registration of such Registrable Shares as promptly as is practicable and, pursuant thereto, the Company shall as expeditiously as possible and as applicable:
(i) prepare and file with the SEC a Registration Statement with respect to such Registrable Shares, make all required filings required in connection therewith and (if the Registration Statement is not automatically effective upon filing) use its reasonable best efforts to cause such Registration Statement to become effective as promptly as practicable;
(ii) furnish to each Holder participating in the registration, without charge, such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits thereto and all documents incorporated by reference therein) and such other documents as such Holder may reasonably request, including in order to facilitate the disposition of the Registrable Shares owned by such Holder;
(iii) notwithstanding any other provisions of this Agreement to the contrary, cause (A) any Registration Statement (as of the effective date of the Registration Statement), any amendment thereof (as of the effective date thereof) or supplement
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thereto (as of its date), (1) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the SEC and (2) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (B) any related Prospectus, preliminary Prospectus and any amendment thereof or supplement thereto (as of its date), (1) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the SEC, and (2) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, the Company shall have no such obligations or liabilities with respect to any written information pertaining to a Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; provided further, that each Holder of Registrable Shares, upon receipt of any notice from the Company of any event of the kind described in this Section 2.2(a)(iii), shall immediately discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus as contemplated by this Section 2.2(a)(iii);
(iv) as promptly as practicable, notify the Holders: (A) when the Registration Statement, any pre-effective amendment thereto, the Prospectus or any Prospectus supplement or any post-effective amendment thereto has been filed with the SEC and when the Registration Statement or any post-effective amendment thereto has become effective, and (B) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceedings for that purpose and of any other action, event or failure to act that would cause the Registration Statement not to remain effective;
(v) in the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, any order suspending or preventing the use of any related Prospectus or any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction, use its reasonable best efforts to promptly obtain the withdrawal or lifting of any such order or suspension, and each Holder of Registrable Shares, upon receipt of any notice from the Company of any event of the kind described in this Section 2.2(a)(v), shall immediately discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus, if applicable;
(vi) not file or make any amendment to any Registration Statement with respect to any Registrable Shares, or any amendment of or supplement to the Prospectus used in connection therewith, that refers to any Holder covered thereby by name or otherwise identifies such Holder as the holder of any securities of the Company without the consent of such Holder (which consent shall not be unreasonably withheld, conditioned or delayed), unless and to the extent such disclosure is required by law;
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provided, that (A) each Holder shall furnish to the Company in writing such information regarding itself and the distribution proposed by it as the Company may reasonably request for use in connection with a Registration Statement or Prospectus and (B) each Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished to the Company by such Holder or of the occurrence of any event that would cause the Prospectus included in such Registration Statement to contain an untrue statement of a material fact regarding such Holder or the distribution of such Registrable Shares or to omit to state any material fact regarding such Holder or the distribution of such Registrable Shares required to be stated therein or necessary to make the statements made therein not misleading in light of the circumstances under which they were made and to furnish to the Company, as promptly as practicable, any additional information required to correct and update the information previously furnished by such Holder such that such Prospectus shall not contain any untrue statement of a material fact regarding such Holder or the distribution of such Registrable Shares or omit to state a material fact regarding such Holder or the distribution of such Registrable Shares necessary to make the statements therein not misleading in light of the circumstances under which they were made;
(vii) cause such Registrable Shares to be listed on each securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on any securities exchange, use its reasonable best efforts to cause such Registrable Shares to be listed on a national securities exchange selected by the Company after consultation with the Holders participating in such registration;
(viii) provide a transfer agent and registrar (which may be the same Person) for all such Registrable Shares not later than the effective date of such Registration Statement and, within a reasonable time prior to any proposed sale of Registrable Shares pursuant to a Registration Statement, provide the transfer agent if reasonably required by the transfer agent, an opinion of counsel as to the effectiveness of the Registration Statement, together with any other authorizations, certificates and directions required by the transfer agent which authorize and direct the transfer agent to issue such Registrable Shares without legend upon sale by the Holder of such Registrable Shares under the Registration Statement, subject to the provisions of Section 3.1;
(ix) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its shareholders, as soon as reasonably practicable, if required, an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act or any successor rule thereto) covering the period of at least 12 months beginning with the first day of the Company’s first full fiscal quarter after the effective date of the applicable Registration Statement, which requirement shall be deemed satisfied if the Company timely files complete and accurate information on Forms 10-K, 10-Q and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act or any successor rule thereto;
(x) (A) furnish to each Holder all legal opinions of outside counsel to the Company required to be included in the Registration Statement, which provision shall be
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satisfied by filing with the SEC any such opinion as an exhibit to the Registration Statement, and (B) obtain all consents of independent public accountants required to be included in the Registration Statement;
(xi) cooperate with the Holders of the Registrable Shares to facilitate the timely preparation and delivery of certificates representing the Registrable Shares to be sold pursuant to such Registration Statement free of any restrictive legends and representing such number of shares of Common Stock and registered in such names as the Holders of the Registrable Shares may reasonably request a reasonable period of time prior to sales of Registrable Shares pursuant to such Registration Statement; provided, that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System; and
(xii) otherwise use its reasonable best efforts to take or cause to be taken all other actions necessary or reasonably advisable to effect the registration of such Registrable Shares contemplated by this Agreement.
(b) As promptly as practicable after becoming aware of such event, the Company shall notify the Holders of the happening of any event (a “Suspension Event”), of which the Company has knowledge, as a result of which the Prospectus included in a Registration Statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and as promptly as practicable, the Company shall prepare and file with the SEC a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to the Holders as the Holders may reasonably request so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made; provided, however, that, for not more than 60 consecutive days (or a total of not more than 120 Trading Days in any 12-month period), the Company may delay or suspend the filing, effectiveness or use of a Registration Statement or Prospectus, to the extent permitted by and in a manner not in violation of applicable securities laws, if the board of directors of the Company determines in good faith, based on the advice of counsel, that (i) proceeding with the filing, effectiveness or use of such Registration Statement or Prospectus would reasonably be expected to require the Company to disclose any information the disclosure of which would have a material adverse effect on the Company and that the Company would not otherwise be required to disclose at such time or (ii) the registration or offering proposed to be delayed or suspended would reasonably be expected to, if not delayed or suspended, have a material adverse effect on any pending negotiation or plan of the Company to effect a merger, acquisition, disposition, financing, reorganization, recapitalization or similar transaction, in each case that, if consummated, would be material to the Company.
(c) Upon a Suspension Event, the Company shall promptly give written notice (a “Suspension Notice”) to the Holders to suspend sales of the affected Registrable Shares, and such notice shall state that such suspension shall continue only for so long as the Suspension
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Event or its effect is continuing and the Company is pursuing with reasonable diligence the completion of the matter giving rise to the Suspension Event or otherwise taking all reasonable steps to terminate suspension of the effectiveness or use of the Registration Statement. In no event shall the Company, without the prior written consent of the Holders, disclose to the Holders any of the facts or circumstances giving rise to the Suspension Event. The Holders may resume effecting sales of the Registrable Shares under the Registration Statement (or such filings), following further notice to such effect (an “End of Suspension Notice”) from the Company. The Holders shall not effect any sales of the Registrable Shares pursuant to the Registration Statement (or such filings), at any time after they have received a Suspension Notice and prior to receipt of an End of Suspension Notice. This End of Suspension Notice shall be given by the Company to the Holders in the manner described above promptly following the conclusion of any Suspension Event and its effect. For the avoidance of doubt, a Suspension Notice shall not affect or otherwise limit sales of affected Registrable Shares under Rule 144 or otherwise outside of the Registration Statement.
(d) Notwithstanding any provision herein to the contrary, if the Company gives a Suspension Notice pursuant to Section 2.2(c) with respect to any Registration Statement, the Company shall extend the period during which the Registration Statement shall be maintained effective under this Agreement by the number of days during the period from the date of the giving of the Suspension Notice to and including the date when the Holders shall have received the End of Suspension Notice and copies of the supplemented or amended Prospectus necessary to resume sales.
(e) Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required to include Registrable Shares in any Registration Statement unless the Holder owning the Registrable Shares to be registered on the Registration Statement, following reasonable advance written request by the Company, furnishes to the Company, at least ten Business Days prior to the scheduled filing date of the Registration Statement, an executed shareholder questionnaire in the form attached hereto as Exhibit A.
2.3 Registration Expenses.
(a) The Company shall bear all Registration Expenses.
(b) The obligation of the Company to bear and pay the Registration Expenses shall apply irrespective of whether a registration becomes effective or is withdrawn or suspended; provided, that the Registration Expenses for any Registration Statement withdrawn solely at the request of one or more Holder(s) (unless withdrawn following commencement of a Suspension Event) shall be borne by such Holder(s).
2.4 Indemnification.
(a) The Company shall, to the fullest extent permitted by law, indemnify and hold harmless each Holder (collectively, the “Holder Indemnified Parties”) from and against any losses, claims, damages, liabilities or expenses, joint or several, or any actions in respect thereof (collectively, “Losses”) to which each Holder Indemnified Party may become subject under the Securities Act, the Exchange Act, any state blue sky securities laws, insofar as such
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Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in or incorporated by reference in any Registration Statement or in any amendment thereof, in each case at the time such became effective under the Securities Act, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to any action or inaction required of the Company in connection with any registration of securities; provided, however, that the Company shall not be liable in any such case to the extent that such Losses arise out of or is based upon (A) any untrue statement or omission made or incorporated by reference in any such Registration Statement, any Prospectus or in any amendment thereof or supplement thereto in reliance upon and in conformity with written information pertaining to a Holder and furnished to the Company by or on behalf of such Holder or such Holder Indemnified Party specifically for inclusion therein or (B) the failure of such Holder to comply with the covenants and agreements contained in this Agreement respecting sales of Registrable Shares; provided further that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus that is corrected or remedied in all respects in the amended prospectus on file with the SEC at the time any Registration Statement becomes effective or in an amended prospectus filed with the SEC pursuant to Rule 424(b) which meets the requirements of Section 10(a) of the Securities Act (each, a “Final Prospectus”), such indemnity shall not inure to the benefit of any such Holder if a copy of a Final Prospectus furnished by the Company to the Holder for delivery was not furnished to the Person asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act and a Final Prospectus would have cured the defect giving rise to such Losses.
(b) In connection with any registration in which a Holder of Registrable Shares is participating, each such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus, including the information requested in the Form of Selling Shareholder Questionnaire attached hereto as Exhibit A (the “Selling Shareholder Questionnaire”), and shall, severally and not jointly, to the fullest extent permitted by law, indemnify and hold harmless the Company, its directors and officers, employees and agents (a “Company Indemnified Party”) from and against any Losses to which a Company Indemnified Party may become subject under the Securities Act, the Exchange Act, any state blue sky securities laws, any equivalent non-U.S. securities laws or otherwise, insofar as such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or in any amendment thereof, in each case at the time such became effective under the Securities Act, or in any Prospectus or in any amendment thereof or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, in the light of the circumstances under which they were made) not misleading, but in each of clauses (i) and (ii), only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information in the Selling Shareholder Questionnaire pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein.
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(c) Promptly after receipt by a Holder Indemnified Party or a Company Indemnified Party (each, an “Indemnified Party”) of notice of the commencement of any action or proceeding (including a governmental investigation), such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 2.4, notify the indemnifying party of the commencement thereof; provided, that the omission to so notify the indemnifying party will not relieve the indemnifying party from liability under Sections 2.4(a) or 2.4(b) unless and to the extent it did not otherwise learn of such action and the indemnifying party has been materially prejudiced by such failure. In case any such action is brought against any Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof at the indemnifying party’s expense, with counsel reasonably satisfactory to such Indemnified Party (who shall not, except with the consent of the Indemnified Party, be counsel to the indemnifying party); provided, that any Indemnified Party shall continue to be entitled to participate in the defense of such claim or action, with counsel of its own choice, but the indemnifying party shall not be obligated to reimburse such Indemnified Party for any fees, costs and expenses subsequently incurred by the Indemnified Party in connection with such defense unless (i) the indemnifying party has agreed in writing to pay such fees, costs and expenses, (ii) the indemnifying party has failed to assume the defense of such claim or action within a reasonable time after receipt of notice of such claim or action, (iii) having assumed the defense of such claim or action, the indemnifying party fails to employ counsel reasonably acceptable to the Indemnified Party or to pursue the defense of such claim or action in a reasonably vigorous manner, (iv) the use of counsel chosen by the indemnifying party to represent the Indemnified Party would present such counsel with a conflict of interest or (v) the Indemnified Party has reasonably concluded that there may be one or more legal or equitable defenses available to it and/or any other Indemnified Party which are different from or additional to those available to the indemnifying party. In no event shall the indemnifying party be liable for the fees and expenses of more than one counsel (together with appropriate local counsel) at any time for any Indemnified Party in connection with any one action or separate but substantially similar or related actions arising in the same jurisdiction out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), effect any settlement of any pending or threatened action in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party unless such settlement (i) includes an unconditional release of such Indemnified Party from all liability on any claims that are the subject matter of such action, in form and substance reasonably satisfactory to such Indemnified Party, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.
(d) If the indemnification provided for in this Section 2.4 is unavailable or insufficient to hold harmless an Indemnified Party under Sections 2.4(a) or 2.4(b), then each indemnifying party shall contribute to the amount paid or payable by such Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in Sections 2.4(a) or 2.4(b) in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the Indemnified Party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or
| 11 |
liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or a Holder or Holder Indemnified Party, as the case may be, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contributions were determined by pro rata allocation (even if a Holder was treated as one Person for such purpose) or any other method of allocation that does not take account of the equitable considerations referred to above. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e) The agreements contained in this Section 2.4 shall survive the sale of the Registrable Shares pursuant to the Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any Indemnified Party.
Article
III
Transfer Restrictions
3.1 Transfer Restrictions. Each Holder acknowledges and agrees that the following legend shall be imprinted on any certificate or book-entry security entitlement evidencing any of the Registrable Shares to the extent that at the time of issuance such Registrable Shares are not covered by an effective Registration Statement:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
This legend shall be removed by the Company from any certificate or book-entry security entitlement evidencing the Registrable Shares upon delivery by the holder thereof to the Company of a written request to that effect if at the time of such written request (a) a registration statement under the Securities Act is at that time in effect with respect to the legended security,
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or (b) the legended security can be transferred in a transaction in compliance with Rule 144, and, in the case of (b), upon the request and in the reasonable discretion of the Company’s transfer agent, the Holder of such Registrable Shares executes and delivers a representation letter that includes customary representations regarding the holding requirements and whether such Holder is an “affiliate” for purposes of Rule 144. The Company represents and warrants to the Holders that the Company is not currently a shell company (as defined in Rule 405 promulgated under the Securities Act).
3.2 Rule 144 Compliance. With a view to making available to the Holders of Registrable Shares the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration until such date on which the Holders no longer hold any Registrable Shares, the Company shall:
(a) make and keep public information available, as those terms are understood and defined in Rule 144;
(b) use reasonable best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder of Registrable Shares, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act.
Article
IV
Miscellaneous.
4.1 Remedies; Specific Performance. In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach shall be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or injunctive relief for which a remedy at law would be adequate is hereby waived.
4.2 No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
4.3 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
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4.4 Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or e-mail as follows:
If to the Company:
Transcat, Inc.
35 Vantage Point Drive
Rochester, New York 14624
Attn: James M. Jenkins, General Counsel/VP
of Corporate Development
Email : jim.jenkins@transcat.com
With a copy (which shall not constitute notice) to:
Harter Secrest & Emery LLP
50 Fountain Plaza, Suite 1000
Buffalo, New York 14202
Attention: Phillip A. Delmont
Email: pdelmont@hselaw.com
Fax No.: (716) 853-1617
If to a Holder:
Gary F. Shilts
[**]
Email: [**]
Joshua Shilts
[**]
Email: [**]
Shannon Johnson
[**]
Email: [**]
Lavon M. Parrish
[**]
Email: [**]
With a copy (which shall not constitute notice) to:
The Watkins Firm, APC
9915 Mira Mesa Blvd., Suite 130
San Diego, CA 92131
Attn: Chris Popov, Esq.
Email: cpopov2@gmail.com
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Notices or communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received, notices or communications sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient) and notices or communications sent by e-mail shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement) (except that, if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient).
4.5 Headings. Section headings herein are included for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
4.6 Counterparts. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.
4.7 Governing Law; Disputes.
(a) Governing Law. This Agreement and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the law of the State of New York.
(b) Jurisdiction. Each party hereto hereby irremovably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or tort or otherwise, against such other party in any way relating to this Agreement or the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in Monroe County, and of the United States District Court of the Western District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable Law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Waiver of Venue. Each party hereto irrevocably waives to the fullest extent permitted by law any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement and hereby further irrevocably waives to the fullest extent permitted by law any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. A
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final judgment (in respect of which time for all appeals has elapsed) in any such suit, action or proceeding shall be conclusive and may be enforced in any court to the jurisdiction of which such party is or may be subject, by suit upon judgment.
(d) Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.7.
(e) Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 4.4.
4.8 Successors and Assigns. This Agreement and the rights and obligations evidenced hereby shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. No Holder may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company.
4.9 Amendments. No provision of this Agreement may be amended, waived or modified other than by an instrument in writing signed by the Company and the Holders.
4.10 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
4.11 Termination. This Agreement shall terminate with respect to any Holder upon such time as such Holder ceases to hold or beneficially own any remaining Registrable Shares or upon the dissolution, liquidation or winding up of the Company or a Change of Control; provided that Section 2.3, Section 2.4 of this Agreement and this Article IV shall survive such termination.
4.12 Third Party Beneficiaries. This Agreement is intended for the sole benefit of the parties hereto and their respective permitted successors and assigns and transferees, and is not for the benefit of, nor may any provision hereof be enforced by, any other person; provided, however, that the parties hereto hereby acknowledge that the Persons set forth in Section 2.4 shall be express third-party beneficiaries of the obligations of the parties hereto set forth in Section 2.4.
[signature page follows]
| 16 |
IN WITNESS WHEREOF, the parties hereto have duly executed this Registration Rights Agreement as of the date first written above.
| COMPANY: | |||
| Transcat, Inc. | |||
| By: | /s/ James M. Jenkins | ||
| Name: | James M. Jenkins | ||
| Title: | Chief Legal and Corporate Development Officer | ||
[Signature Page to Registration Rights Agreement]
IN WITNESS WHEREOF, the parties hereto have duly executed this Registration Rights Agreement as of the date first written above.
| HOLDERS: | ||
| Shilts Family 2008 Trust, DTD 5/6/2008 | ||
| By: | /s/ Gary F. Shilts | |
| Gary F. Shilts, Trustee | ||
| /s/ Joshua Shilts | |
| Joshua Shilts, an individual | |
| Shannon and Gloria Johnson Living Trust |
| By: | /s/ Shannon Johnson | |
| Shannon Johnson, Trustee |
| /s/ Lavon M. Parrish | |
| Lavon M. Parrish, an individual |
[Signature Page to Registration Rights Agreement]
Schedule A
| Holder | Initial Shares |
| Shilts Family 2008 Trust, DTD 5/6/2008 | 81,084 |
| Joshua Shilts | 28,568 |
| Shannon and Gloria Johnson Living Trust | 81,084 |
| Lavon M. Parrish | 81,084 |
| TOTAL: | 271,820 |
| Schedule A |
Exhibit 10.3
LOCK-UP AGREEMENT
Transcat, Inc.
35 Vantage Point Drive
Rochester, New York 14624
Re: Agreement and Plan of Merger
Ladies and Gentlemen:
The undersigned (“Holder”), as a recipient of shares of common stock, par value $0.50 per share (the “Common Stock”), or rights to acquire Common Stock, of Transcat, Inc. (“Parent”) pursuant to that certain Agreement and Plan of Merger, dated as of August 8, 2023, by and among Parent, Axiom Test Equipment, LLC, Axiom Test Equipment, Inc. (the “Company”), the Company’s shareholders, and certain other individuals (the “Merger Agreement”), understands that Parent has an interest in maintaining market confidence in Parent and supporting the price of the Common Stock, and that Parent may seek to conduct an offering of Common Stock with an underwriter (the “Underwriter”) pursuant to an underwriting agreement (the “Underwriting Agreement”) to be entered into among the Underwriter and Parent, pursuant to a registration statement filed or to be filed with the U.S. Securities and Exchange Commission (the “SEC”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth for them in the Merger Agreement.
In consideration of Parent’s agreement to enter into the Merger Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, Holder hereby agrees, for the benefit of Parent and the Underwriter that, without the prior written consent of Parent, Holder will not, during the period specified in the following paragraph (the “Lock-Up Period”), directly or indirectly, unless otherwise provided herein, (a) offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, encumber, assign, borrow or otherwise dispose of (each a “Transfer”) any Closing Consideration Shares (as defined below) or otherwise publicly disclose the intention to do so, or (b) establish or increase any “put equivalent position” or liquidate or decrease any “call equivalent position” with respect to any Closing Consideration Share (in each case within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”)) with respect to any Closing Consideration Share or otherwise enter into any swap, derivative or other transaction or arrangement that Transfers to another, in whole or in part, any economic consequence of ownership of a Closing Consideration Share, whether or not such transaction is to be settled by the delivery of Closing Consideration Shares, other securities, cash or other consideration, or otherwise publicly disclose the intention to do so. As used herein, the term “Closing Consideration Share” means each of the _____ shares of Common Stock issued to Holder as Closing Consideration Shares pursuant to the Merger Agreement.
The Lock-Up Period will commence on the date of this Lock-up Agreement and continue until the date that is 180 days after the Registration Effective Date. As used herein, “Registration Effective Date” means the date on which the Shelf Registration Statement (as defined in the Registration Rights Agreement) that Parent files with the SEC for the Closing Consideration Shares pursuant to the Registration Rights Agreement is declared effective by the SEC.
Notwithstanding the foregoing, the Closing Consideration Shares shall be released from the restrictions set forth in this Lock-Up Agreement as follows:
(a) on the Registration Effective Date, _____ Closing Consideration Shares will be released from the restrictions set forth in this Lock-Up Agreement;
(b) on the date that is 90 days after the Registration Effective Date, _____ Closing Consideration Shares will be released from the restrictions set forth in this Lock-Up Agreement; and
(c) on the expiration of the Lock-Up Period, the remaining _____ Closing Consideration Shares will be released from the restrictions set forth in this Lock-Up Agreement.
In addition, Holder further agrees that, except for the registration statement to be filed pursuant to the Registration Rights Agreement, during the Lock-Up Period Holder will not, without the prior written consent of Parent: (a) file or participate in the filing with the SEC of any registration statement or circulate or participate in the circulation of any preliminary or final prospectus or other disclosure document, in each case with respect to any proposed offering or sale of a Closing Consideration Share, or (b) exercise any rights Holder may have to require registration with the SEC of any proposed offering or sale of a Closing Consideration Share.
In furtherance of Holder’s obligations hereunder, Holder hereby authorizes Parent during the Lock-Up Period to cause any transfer agent for the Closing Consideration Shares to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to, Closing Consideration Shares for which Holder is the record owner and the transfer of which would be a violation of this Lock-Up Agreement and, in the case of Closing Consideration Shares for which Holder is the beneficial but not the record owner, agrees that during the Lock-Up Period it will cause the record owner to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to, such Closing Consideration Shares to the extent such transfer would be a violation of this Lock-Up Agreement.
Notwithstanding the foregoing, Holder may transfer Holder’s Closing Consideration Shares:
| (i) | as a bona fide gift or gifts, |
| (ii) | to any trust, partnership, limited liability company or other legal entity commonly used for estate planning purposes which is established for the direct or indirect benefit of Holder or a member of members of the immediate family of Holder, |
| (iii) | if Holder is a corporation, partnership, limited liability company, trust or other business entity (1) to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of Holder, (2) to limited partners, limited liability company members or stockholders of Holder, or (3) in connection with a sale, merger or transfer of all or substantially all of the assets of Holder or any other change of control of Holder, not undertaken for the purpose of avoiding the restrictions imposed by this Lock-Up Agreement, |
| (iv) | if Holder is a trust, to the beneficiary of such trust, |
| (v) | by testate or intestate succession, |
| (vi) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, or |
2
| (vii) | pursuant to the Underwriting Agreement; |
provided, in the case of clauses (i)-(vi), that (A) such transfer shall not involve a disposition for value, (B) the transferee agrees in writing with Parent to be bound by the terms of this Lock-Up Agreement, and (C) such transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made.
For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
The undersigned hereby represents and warrants that Holder has full power and authority to enter into this Lock-Up Agreement and that this Lock-Up Agreement has been duly authorized (if Holder is not a natural person) and constitutes the legal, valid and binding obligation of Holder, enforceable in accordance with its terms. Upon request, Holder will execute any additional documents necessary in connection with the enforcement hereof. Any obligations of Holder shall be binding upon the successors and assigns of Holder from the date of this Lock-Up Agreement.
[signature page follows]
3
This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof. Delivery of a signed copy of this Lock-Up Agreement by facsimile or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
| Very truly yours, | |||
| Date: | August 8, 2023 | Signature: | |
| Name (printed): | |||
| Title (if applicable): | |||
| Entity (if applicable): | |||
[signature page to Lock-Up Agreement]
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement (No. 333-______) on Form S-3 and related Prospectus of Transcat, Inc. of our report dated June 6, 2023, relating to the consolidated financial statements and the effectiveness of internal controls over financial reporting of Transcat, Inc. appearing in the Annual Report on Form 10-K of Transcat, Inc. for the year ended March 25, 2023.
We also consent to the reference to our firm under the caption “Experts”.
/s/ Freed Maxick CPAs, P.C.
Rochester, New York
August 17, 2023