-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UoQszfL0lU+Wx94ywJ604FeWtdHtp50AEN84CxLtnsa3kqgsDiKPj3Rzb6OcU1G7 lwvgeZINAuqoAhD2M0scqA== 0001047469-99-030450.txt : 19990811 0001047469-99-030450.hdr.sgml : 19990811 ACCESSION NUMBER: 0001047469-99-030450 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990809 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASAHI AMERICA INC CENTRAL INDEX KEY: 0000906873 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 042621836 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-02314 FILM NUMBER: 99681666 BUSINESS ADDRESS: STREET 1: 35 GREEN ST CITY: MALDEN STATE: MA ZIP: 02148 BUSINESS PHONE: 3173215409 MAIL ADDRESS: STREET 1: 19 GREEN STREET CITY: MALDEN STATE: MA ZIP: 02148 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) AUGUST 9, 1999 ------------------------ ASAHI/AMERICA, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Massachusetts - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 04-2621836 - -------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 35 Green Street, Malden, Massachusetts 02148-0005 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 781-321-5409 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) TABLE OF CONTENTS FORM 8-K AUGUST 9, 1999
Item Page - ---- ---- Item 2. Acquisition or Disposition of Assets. 1 Item 7. Financial Statements and Exhibits. 1 Signature 2 Exhibits E-1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On August 9, 1999, Asahi/America, Inc. (the "Company") entered into a Merger Agreement (the "Merger Agreement") with Midnight Acquisition Holdings, Inc. ("Holdings"), a wholly-owned subsidiary of Asahi Organic Chemicals Industry Co., Ltd. ("AOC"), the Company's principal supplier of valves. The merger consideration to be paid for all of the outstanding shares of the Company's common stock is $8.25 per share plus an estimated $1.20 to $1.30 per share representing the per share proceeds of the disposition of Quail Piping Products, Inc. ("Quail"), a wholly-owned subsidiary of the Company, net of taxes and certain expenses. Leslie B. Lewis will remain with the Company as President and Chief Executive Officer. The merger is conditioned upon Company stockholder approval and the disposition of Quail. The Merger Agreement also requires that (i) the Company have no debt at the time of the closing, with certain exceptions, (ii) all Quail-related obligations of the Company be terminated pursuant to an agreement in the form attached to the Merger Agreement and (iii) all shares held directly and indirectly by Nichimen Corporation have been purchased by AOC or its subsidiaries. The Company has also executed a Stock Purchase Agreement for the disposition of Quail with Quail Acquisition Corporation, which is majority owned by a management buyout group. The Stock Purchase Agreement is contingent upon the receipt of financing and Quail Acquisition Corporation is in discussions with potential sources for financing. There can be no assurances that financing for the disposition will be obtained or that the disposition and merger will be consummated. As an inducement to Holdings to enter into the Merger Agreement, Leslie B. Lewis, who beneficially owns 27.2% of the shares of the Company, entered into a Stockholder Agreement, dated as of August 9, 1999 (the "Stockholder Agreement"), pursuant to which Mr. Lewis has granted a proxy to vote such shares in favor of the merger. The Stockholder Agreement terminates upon the earlier to occur of (i) the closing date of the merger, (ii) March 31, 2000 or (iii) the date the Merger Agreement is terminated if it is terminated by mutual consent of the parties or resulting from a governmental or court order or decree. The foregoing descriptions of the Merger Agreement, the Stock Purchase Agreement and the Stockholder Agreement contained herein are qualified in their entirety by reference to (a) the Merger Agreement attached hereto as Exhibit 2, including Exhibit C - Stockholder Agreement thereto, and incorporated herein by reference, (b) the Stock Purchase Agreement attached hereto as Exhibit 10.1 and incorporated herein by reference, and (c) the Employment Agreement for Leslie B. Lewis attached hereto as Exhibit 10.2 and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. A. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Not applicable. B. PRO FORMA FINANCIAL INFORMATION. Not applicable. C. EXHIBITS. The following exhibits are filed with this report:
Exhibit No. Title ----------- ----- 2 Agreement and Plan of Merger among Midnight Acquisition Holdings, Inc., Midnight Acquisition Corp. and Asahi/America, Inc. dated August 9, 1999, including Exhibit C - Stockholder Agreement 10.1 Stock Purchase Agreement between Quail Acquisition Corporation and Asahi/America, Inc. dated August 9, 1999 10.2 Employment Agreement of Leslie B. Lewis
-1- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Asahi/America, Inc. Date: August 9, 1999 By: /s/ Kozo Terada -------------------------------------- Kozo Terada Vice President, Treasurer and Chief Financial Officer -2- EXHIBIT INDEX
Exhibit No. Title ----------- ----- 2 Agreement and Plan of Merger among Midnight Acquisition Holdings, Inc., Midnight Acquisition Corp. and Asahi/America, Inc. including Exhibit C - Stockholder Agreement 10.1 Stock Purchase Agreement between Quail Acquisition Corporation and Asahi/America, Inc. dated August 9, 1999 10.2 Employment Agreement of Leslie B. Lewis
EX-2 2 EXHIBIT 2 Exhibit 2 AGREEMENT AND PLAN OF MERGER AMONG MIDNIGHT ACQUISITION HOLDINGS, INC., MIDNIGHT ACQUISITION CORP. AND ASAHI/AMERICA, INC. DATED AS OF AUGUST 9, 1999 TABLE OF CONTENTS
Page ------ ARTICLE I The Merger ...........................................................................2 SECTION 1.01. The Merger ....................................................................2 SECTION 1.02. Closing .......................................................................2 SECTION 1.03. Effective Time.................................................................2 SECTION 1.04. Effects of the Merger..........................................................3 SECTION 1.05. Articles of Organization and By-laws...........................................3 SECTION 1.06. Directors .....................................................................3 SECTION 1.07. Officers ......................................................................3 ARTICLE II Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates....................................3 SECTION 2.01. Effect on Capital Stock........................................................3 SECTION 2.02. Payment for Shares.............................................................5 SECTION 2.03. Options. ......................................................................6 ARTICLE III Representations and Warranties of the Company.......................................8 SECTION 3.01. Organization...................................................................8 SECTION 3.02. Subsidiaries...................................................................8 SECTION 3.03. Capitalization.................................................................9 SECTION 3.04. Authority ....................................................................10 SECTION 3.05. Consents and Approvals; No Violations.........................................10 SECTION 3.06. SEC Reports and Financial Statements..........................................11 SECTION 3.07. Absence of Certain Changes or Events..........................................12 SECTION 3.08. No Undisclosed Liabilities....................................................13 SECTION 3.09. Information Supplied..........................................................13 SECTION 3.10. Benefit Plans.................................................................13 SECTION 3.11. Other Compensation Arrangements...............................................15 SECTION 3.12. Litigation ...................................................................16 SECTION 3.13. Compliance with Applicable Law................................................16 SECTION 3.14. Tax Matters...................................................................17 SECTION 3.15. State Takeover Statutes.......................................................18 SECTION 3.16. Brokers; Fees and Expenses....................................................19 SECTION 3.17. Opinion of Financial Advisor..................................................19 SECTION 3.18. Intellectual Property.........................................................19 SECTION 3.19. Labor Relations and Employment................................................20
SECTION 3.20. Change of Control; Effect of the Disposition..................................21 SECTION 3.21. Environmental Matters.........................................................22 SECTION 3.22. Material Contracts............................................................24 SECTION 3.23. Property. ....................................................................27 SECTION 3.24. Insurance. ...................................................................27 ARTICLE IV Representations and Warranties of Parent and Sub....................................28 SECTION 4.01. Organization..................................................................28 SECTION 4.02. Authority ....................................................................28 SECTION 4.03. Consents and Approvals; No Violations.........................................29 SECTION 4.04. Information Supplied..........................................................29 SECTION 4.05. Interim Operations of Sub.....................................................29 ARTICLE V Covenants ...........................................................................29 SECTION 5.01. Conduct of Business of the Company............................................29 SECTION 5.02. No Solicitation...............................................................33 SECTION 5.03. Other Actions.................................................................35 SECTION 5.04. Notice of Certain Events......................................................35 ARTICLE VI Additional Agreements...............................................................36 SECTION 6.01. Stockholder Approval; Preparation of Proxy Statement..........................36 SECTION 6.02. Access to Information.........................................................37 SECTION 6.03. Reasonable Efforts............................................................37 SECTION 6.04. Fees and Expenses.............................................................38 SECTION 6.05. Indemnification; Insurance....................................................39 SECTION 6.06. Certain Litigation............................................................39 ARTICLE VII Conditions ........................................................................40 SECTION 7.01. Conditions to Each Party's Obligation to Effect the Merger....................40 SECTION 7.02. Conditions to Obligations of Parent and Sub...................................41 SECTION 7.03. Conditions to Obligations of the Company......................................42 ARTICLE VIII Termination, Amendment and Waiver.................................................43 SECTION 8.01. Termination...................................................................43 SECTION 8.02. Effect of Termination.........................................................44 SECTION 8.03. Amendment ....................................................................45 SECTION 8.04. Extension; Waiver.............................................................45
ii ARTICLE IX Miscellaneous ......................................................................45 SECTION 9.01. Nonsurvival of Representations and Warranties.................................45 SECTION 9.02. Notices ......................................................................45 SECTION 9.03. Interpretation................................................................46 SECTION 9.04. Counterparts..................................................................47 SECTION 9.05. Entire Agreement; Third Party Beneficiaries...................................47 SECTION 9.06. Governing Law.................................................................47 SECTION 9.07. Publicity ....................................................................47 SECTION 9.08. Assignment ...................................................................47 SECTION 9.09. Enforcement...................................................................48
Annexes - ------- Annex I - Definitions Exhibits - -------- Exhibit A - Employment Agreement Exhibit B - Disposition Agreement Exhibit C - Stockholder Agreement iii THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 9, 1999, is among MIDNIGHT Acquisition Holdings, Inc., a Delaware Corporation ("Parent"), MIDNIGHT ACQUISITION CORP., a Massachusetts corporation and a subsidiary of Parent ("Sub"), and ASAHI/AMERICA, INC., a Massachusetts corporation (the "Company"). RECITALS WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have each determined that it is advisable and in the best interests of their respective stockholders for Sub to merge with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, pursuant to the Merger, each outstanding share of common stock, no par value, of the Company (the "Company Common Stock," all the outstanding shares of the Company Common Stock being hereinafter collectively referred to as the "Shares") shall be converted into the right to receive the Merger Consideration (as defined below), upon the terms and subject to the conditions set forth herein; WHEREAS, Parent, Sub and the Company are hereby adopting a plan of merger, providing for the merger of Sub with and into the Company, with the Company being the surviving corporation. The Merger will be consummated in accordance with this Agreement upon the filing by the Company and Sub of articles of merger (the "Articles of Merger") with the Secretary of State of the Commonwealth of Massachusetts, such Merger to be consummated as of the Effective Time (as defined below) of the Merger; WHEREAS, upon consummation of the Merger, the separate corporate existence of Sub shall cease and the Company, as the surviving corporation in the Merger (the "Surviving Corporation"), shall continue its corporate existence under the Business Corporation Law of the Commonwealth of Massachusetts (the "MBCL") as provided in this Agreement; WHEREAS, Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; WHEREAS, Parent and Sub have required, as a condition to their willingness to enter into this Agreement, that Leslie B. Lewis (the "Executive") contemporaneously enter into the Employment Agreement (as defined herein) concurrently with the execution and delivery of this Agreement; and WHEREAS, the Board of Directors of the Company (the "Board") has directed that this Agreement be submitted to a vote of the holders of the Shares in accordance with the MBCL, and Parent, as sole shareholder of Sub, has duly approved this Agreement in accordance with the MBCL. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Sub and the Company hereby agree as follows: AGREEMENT ARTICLE I THE MERGER SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the MBCL, Sub shall be merged with and into the Company at the Effective Time (as defined in Section 1.03), whereupon the separate corporate existence of Sub shall cease and the Company shall continue as the Surviving Corporation and shall continue its corporate existence as a subsidiary of Parent and shall continue to be governed by the laws of the Commonwealth of Massachusetts. At the election of Parent, any direct or indirect wholly owned subsidiary (as defined in Section 9.03) of Parent may be substituted for Sub as a constituent corporation in the Merger. In such event, the parties agree to execute an appropriate amendment to this Agreement in order to reflect the foregoing. SECTION 1.02. CLOSING. The closing of the Merger (the "Closing") will take place at 10:00 a.m. (New York City time) on a date to be specified by Parent or Sub, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VII (the "Closing Date"), at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, unless another date, time or place is agreed to in writing by the parties hereto. SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, the parties shall file with the Secretary of State of the Commonwealth of Massachusetts (i) the Articles of Merger executed in accordance with the relevant provisions of the MBCL, and (ii) all other filings or recordings required under the MBCL and the Massachusetts General Laws. The Merger shall become effective at such time as Articles of Merger are duly filed with the Secretary of State of the Commonwealth of Massachusetts, or at such other time not more than thirty days after such filing as Sub and the Company shall agree should be 2 specified in the Articles of Merger (the time the Merger becomes effective being hereinafter referred to as the "Effective Time"). SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 80 of the MBCL. From and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of the Company and Sub, all as provided under Massachusetts law. SECTION 1.05. ARTICLES OF ORGANIZATION AND BY-LAWS. (a) The Articles of Organization of Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Organization of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-Laws of Sub as in effect immediately prior to the Effective Time shall be the By-Laws of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. SECTION 1.06. DIRECTORS. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, and the Company shall procure, prior to and as a condition to the Closing, the resignation of each of its directors effective as of the Closing. SECTION 1.07. OFFICERS. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.01. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Shares or any shares of capital stock of Sub: (a) CAPITAL STOCK OF SUB. Each issued and outstanding share of capital stock of Sub shall be converted into and become 1 fully paid and 3 nonassessable share of Common Stock, par value $.01 per share, of the Surviving Corporation. (b) CANCELLATION OF TREASURY STOCK AND GRANDPARENT AND PARENT OWNED STOCK. Each share of Company Common Stock that is owned by the Company or by any subsidiary of the Company and each Share that is owned by Asahi Organic Chemicals Industry Co., Ltd. ("Grandparent"), Parent, Sub or any other subsidiary of Parent shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 2.01(d), each Share issued and outstanding (other than Shares to be canceled in accordance with Section 2.01(b)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, $8.25, plus an amount equal to the Net Quail Proceeds divided by (i) the number of Shares issued and outstanding (other than Shares to be canceled in accordance with Section 2.01(b)) plus (ii) all Shares into which Options (as defined in Section 2.03(a)) are exercisable at the Effective Time (the "Merger Consideration"). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. For the purposes hereof, "Net Quail Proceeds" shall mean the aggregate amount of consideration received by the Company in the Disposition (as defined in Section 3.02), net of taxes paid or payable by the Company in respect of the Disposition, after taking into account any tax deductions received or receivable by the Company, and net of all expenses paid or payable by the Company or by Quail Piping Products, Inc. ("Quail") on account of any other party in connection with the Disposition or pursuant to Section 8 of the agreement in the form attached hereto as Exhibit B (the "Disposition Agreement"). (d) SHARES OF DISSENTING STOCKHOLDERS. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by a person (a "Dissenting Stockholder") who complies with Sections 86 through 98, inclusive, of the MBCL concerning the right of holders of Company Common Stock to dissent from the Merger and require appraisal of their Shares ("Dissenting Shares") shall not be converted as described in Section 2.01(c) but shall become the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the MBCL. If, after the Effective Time, such Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or otherwise loses his right of appraisal, in any case pursuant to the MBCL, his Shares shall be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration. The Company shall give Parent (i) 4 prompt notice of any demands for appraisal of Shares received by the Company and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. (e) WITHHOLDING TAX. Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Common Stock outstanding immediately prior to the Effective Time such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Common Stock outstanding immediately prior to the Effective Time in respect of which such deduction and withholding was made. SECTION 2.02. PAYMENT FOR SHARES. (a) PAYING AGENT. Prior to the Effective Time, Parent shall designate a bank or trust company located in the United States to act as paying agent in the Merger (the "Paying Agent"), and, at the Effective Time, Parent shall make available to the Paying Agent funds in amounts necessary for the payment of the Merger Consideration, excluding the Net Quail Proceeds, which shall be made available to the Paying Agent by the Surviving Corporation in amounts and at the times necessary, upon surrender of certificates representing Shares as part of the Merger pursuant to Section 2.01 and upon cancellation of any Option as part of the Merger pursuant to Section 2.03 (it being understood that any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent). (b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in a form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate 5 shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 2.01, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.02, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 2.01. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY COMMON STOCK. All cash paid upon the surrender of Certificates in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates. 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 stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article II. (d) TERMINATION OF FUND; NO LIABILITY. At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates, without any interest thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. SECTION 2.03. OPTIONS. 6 (a) OPTION PLANS. Prior to the Effective Time, the Company shall take all actions necessary, including without limitation, obtaining any required consent of each holder of the following options, awards or other rights (each an "Option" and collectively, the "Options"): (i) the Stock Option Agreement dated March 4, 1998 issued to Thomas J. Hammer (the "TJH Option"), (ii) all options, awards or rights under the Midnight Independent Directors' Stock Option Plan (the "Directors Plan"), (iii) all options, awards or rights under the Midnight Employee Stock Purchase Plan (the "Stock Purchase Plan") and (iv) all options, awards or rights under the Midnight 1996 Equity Incentive Plan (the "Equity Plan," and together with the Directors Plan and the Stock Purchase Plan, the "Option Plans," and each an "Option Plan") to terminate each Option Plan without liability to the Company and to cancel each Option as provided in Section 2.03(b) below. (b) CANCELLATION OF OPTIONS. The Company shall cause: (i) all Options outstanding immediately prior to the Effective Time under the Stock Purchase Plan, whether or not then exercisable, to be canceled at the Effective Time and all payroll deductions (the "Payroll Amount") plus accrued interest to be refunded to each such Option holder after such cancellation, plus payment of an amount in cash equal to that amount which is equal to the excess, if any, of the Merger Consideration over the purchase price of the Company Common Stock at the Effective Time (the "Option Price"), multiplied by the amount obtained by dividing the aggregate Payroll Amount of such Option holder at the Effective Time by the Option Price; and (ii) the TJH Option and all Options outstanding immediately prior to the Effective Time under the Equity Plan and the Directors Plan, whether or not then exercisable, to immediately vest and be canceled at the Effective Time, and each holder of an Option under such plan or agreement will be entitled to receive, after the Effective Time from the Surviving Corporation, for each share of Common Stock subject to any such Option, an amount in cash equal to the excess, if any, of the Merger Consideration over the per share exercise price of such Option, without interest (the "Delta Payment"); PROVIDED, that any Options held by Leslie B. Lewis will be canceled but no Delta Payment will be paid on such Options. Parent shall cause the Paying Agent to mail to each holder of an Option under such plan or agreement appropriate instructions and documents to effect the cancellation of such Options and the cash payment thereof. All amounts payable pursuant to this Section 2.03(b)(ii) shall be subject to all applicable withholding taxes and shall be paid as soon as practicable following the Effective Time. (iii) If and to the extent that the TJH Option has not been exercised prior to its cancellation in connection with the Merger, the Company will pay to Thomas J. Hammer the Delta Payment plus the sum of $145,000, prorated to the extent of any prior exercise, and any amount the Company has drawn under any letter of credit described in the Amendment to Agreement between the Company and Mr. Hammer dated March 4, 1998, prorated to the extent of any prior exercise, so as to avoid any duplicate payments to Mr. Hammer. 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the schedule attached to this Agreement setting forth exceptions to the Company's representations and warranties set forth herein (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Sub as set forth below. The Company Disclosure Schedule will be arranged in sections corresponding to sections of this Agreement to be modified by such disclosure schedule. SECTION 3.01. ORGANIZATION. The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a material adverse effect (as defined in Section 9.03) on the Company. The Company and each of its subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Merger. The Company has made available to Parent complete and correct copies of its Articles of Organization and By-laws and the certificates of incorporation and by-laws (or similar organizational documents) of its subsidiaries. SECTION 3.02. SUBSIDIARIES. Section 3.02 of the Company Disclosure Schedule sets forth for each subsidiary of the Company: (i) its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or share capital; (iii) the number of issued and outstanding shares of capital stock or share capital; and (iv) the holder or holders of such shares. All the outstanding shares of capital stock of each such subsidiary, other than director qualifying shares of foreign subsidiaries, are owned by the Company, by another wholly owned subsidiary of the Company or by the Company and another wholly owned subsidiary of the Company, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"), except for immaterial Liens on outstanding shares of capital stock of foreign subsidiaries of the Company, and are duly authorized, validly issued, fully paid and nonassessable. Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture, business, trust or other entity. Notwithstanding the foregoing, prior to or concurrently with the Closing, the Disposition shall have occurred. The Disposition has been authorized by all necessary corporate action on the 8 part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize or consummate the Disposition. SECTION 3.03. CAPITALIZATION. The authorized capital stock of the Company consists of 10,000,000 shares of Company Common Stock and 1,000,000 shares of preferred stock, par value $10.00 per share ("Company Preferred Shares"). At the close of business on July 26, 1999, (i) 3,427,217 shares of Company Common Stock were issued and outstanding, (ii) no shares of Company Common Stock were held by the Company in its treasury and (iii) 401,961 shares of Company Common Stock were reserved for issuance upon exercise of outstanding Options. There are no shares of Company Preferred Shares issued and outstanding. Except as set forth above and except for Shares issued upon the exercise of Options, as of the date of this Agreement, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, and except for obligations to issue shares subject to options outstanding on the date hereof, subject to the approval of the Board of Directors of the Company, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking, including any securities pursuant to which rights to acquire capital stock became exercisable only after a change of control of the Company or any of its subsidiaries or upon the acquisition of a specified amount of the Common Stock or voting powers of the Company or any of its subsidiaries. There are no outstanding contractual obligations (i) of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or (ii) of the Company to vote or to dispose of any shares of the capital stock of any of its subsidiaries other than as contemplated by this Agreement. Since July 26, 1999, no shares of the capital stock of the Company or any of its subsidiaries have been issued other than pursuant to the exercise of Company stock options and warrants already in existence and outstanding on such date, and neither the Company nor any of its subsidiaries has granted any stock options, warrants or other rights to acquire any capital stock of the Company or any of its subsidiaries. There are no securities issued by the Company or agreements, arrangements or other understandings to which the Company is a party giving any person any right to acquire equity securities of the Surviving Corporation at or following the Effective Time and all securities, agreements, 9 arrangements and understandings relating to the right to acquire equity securities of the Company (whether pursuant to the exercise of options, warrants or otherwise) provide that, at and following the Effective Time, such right shall entitle the holder thereof to receive the consideration he would have received in the Merger had he exercised his right immediately before the Effective Time. SECTION 3.04. AUTHORITY. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval and adoption of the terms of this Agreement by the holders of a majority of the Shares (the "Company Stockholder Approval")). The only votes of the holders of any class or series of Company capital stock necessary to approve the Merger are the affirmative votes of the holders of a majority of the outstanding shares of Common Stock. The execution, delivery and performance of this Agreement and the consummation by the Company of the Merger and of the other transactions contemplated hereby, including but not limited to the delivery and performance of the Disposition Agreement and the Employment Agreement and the acknowledgment and acceptance of the Executive's execution and performance of the Stockholder Agreement, have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (in each case, other than, with respect to the Merger, the Company Stockholder Approval). This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Parent and Sub, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. SECTION 3.05. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including the filing with the SEC of a proxy statement relating to any required approval by the Company's stockholders of this Agreement (the "Proxy Statement")), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), Chapters 110C, 110D, 110E, and 110F of the Massachusetts General Laws and the laws of other states in which the Company is qualified to do or is doing business, the MBCL (including the filing of the Articles of Merger), state takeover laws and foreign laws, neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Articles of Organization or By-laws of the Company or of the similar organizational documents of 10 any of its subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any Federal, state or local government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational (a "Governmental Entity") (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Merger), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound; PROVIDED, HOWEVER, that certain contracts and agreements set forth in Section 3.05 of the Company Disclosure Schedule, (A) provide for their termination upon a change of control of the Company or (B) contain provisions restricting their assignment pursuant to a merger, or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its subsidiaries or any of their properties or assets, except in the case of clauses (iii) or (iv) for violations, breaches or defaults that would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Merger. SECTION 3.06. SEC REPORTS AND FINANCIAL STATEMENTS. The Company has filed with the SEC, and has heretofore made available to Parent true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it since May 16, 1996, under the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act") (such forms, reports, schedules, statements and other documents, including any financial statements or schedules included therein, are referred to as the "Company SEC Documents"). The Company SEC Documents, at the time filed, (a) did not 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 light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Except to the extent revised or superseded by a subsequently filed Company SEC Document (a copy of which has been made available to Parent on or prior to the date hereof), the Company SEC Documents, considered as a whole as of their date, do not contain an untrue statement of a material fact or omit to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that the foregoing does not cover future events resulting from public announcement of the Merger). The financial statements of the Company included in the Company SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the 11 SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Forms 10-Q and 8-K of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of the Company and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than in respect of the Disposition, since December 31, 1998, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course, and there has not been any material adverse change (as defined in Section 9.03) with respect to the Company or its subsidiaries. Since December 31, 1998, there has not been (i) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock or any redemption, purchase or other acquisition of any of its capital stock, (ii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iii) (v) any granting by the Company or any of its subsidiaries to any officer or director of the Company or any of its subsidiaries of any increase in compensation, (w) any granting by the Company or any of its subsidiaries to any such officer or director of any increase in severance or termination pay, (x) any granting by the Company or any of its subsidiaries to any such officer, director or other key employees of any loans or any increases to outstanding loans, (y) except employment arrangements in the ordinary course of business consistent with past practice with employees other than any executive officer of the Company, and except for the Employment Agreement in the form attached hereto as Exhibit A (the "Employment Agreement") any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such employee or executive officer or director or (z) any increase in or establishment of any bonus, insurance, deferred compensation, pension, retirement, profit-sharing, stock option (including the granting of stock options, stock appreciation rights, performance awards or restricted stock awards or the amendment of any existing stock options, stock appreciation rights, performance awards or restricted stock awards), stock purchase or other employee benefit plan or agreement or arrangement, (iv) any damage, destruction or loss, whether or not covered by insurance, that has or reasonably could be expected to have a material adverse effect on the Company, (v) any material payment to an affiliate of the Company or any of its subsidiaries other than in the ordinary course of business consistent with past practice, (vi) any revaluation by the Company of any of its material assets, (vii) any mortgage, lien, pledge, encumbrance, charge, agreement, claim or restriction placed upon any of the material properties or assets of the Company or any of its subsidiaries, (viii) any material change in accounting methods, principles or practices by the Company, (ix) (A) any licensing or other agreement with regard to the acquisition or disposition of any material Intellectual Property Right (as defined in Section 3.18) or rights thereto other than 12 licenses or other agreements in the ordinary course of business consistent with past practice or (B) any amendment or consent with respect to any licensing agreement filed, or required to be filed, by the Company with the SEC or (x) any capital contributions, loans or other payments to, or on account of, Quail. SECTION 3.08. NO UNDISCLOSED LIABILITIES. Except as and to the extent set forth in the 1998 financial statements of the Company, as of December 31, 1998 (the "1998 Financial Statements") as disclosed in Company SEC Documents, neither the Company nor any of its subsidiaries had any Liabilities (as defined below), that would be required by generally accepted accounting principles to be reflected on a consolidated balance sheet of the Company and its subsidiaries (including the notes thereto). Since December 31, 1998, except as and to the extent set forth in the Company SEC Documents, neither the Company nor any of its subsidiaries has incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, that would have a material adverse effect on the Company. For purposes of this Agreement, "Liabilities" shall mean debts, liabilities, obligations and commitments, whether known or unknown, asserted or unasserted, fixed, absolute or contingent, matured or unmatured, accrued or unaccrued, liquidated or unliquidated, due or to become due, whenever or however arising (including, without limitation, whether arising out of any contract, agreement or understanding, whether written or oral, or tort based on negligence, strict liability or otherwise) and whether or not the same would be required by generally accepted accounting principles to be reflected as a liability in financial statements or disclosed in the notes thereto. SECTION 3.09. INFORMATION SUPPLIED. None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in the Proxy Statement, or related filings, will, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting (as defined in Section 6.01), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, and related filings, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference therein. SECTION 3.10. BENEFIT PLANS. (a) Each "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (a "Pension Plan"), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (a "Welfare Plan") and each other pension, 13 profit-sharing, savings, cash incentive, equity incentive (including, but not limited, to stock options, stock purchases, employee stock ownership, stock awards, restricted stock, phantom stock and stock appreciation rights), severance, fringe benefits, payroll practices and other current and deferred compensation and employee benefit plans, arrangement and practices (whether written or oral, direct or contingent), in each case maintained or contributed to, or required to be maintained or contributed to, by the Company or its subsidiaries for the benefit of any present or former employee, consultant, officer or director (each of the foregoing, including Pension Plans and Welfare Plans, a "Benefit Plan") has been administered in all material respects in accordance with its terms. The Company and its subsidiaries and all the Benefit Plans are in compliance in all material respects with the applicable provisions of ERISA, the Code and all other applicable laws. (b) Section 3.10 to the Company Disclosure Schedule attached hereto sets forth a complete list of each Benefit Plan as well as each employment, consulting, termination, indemnity and severance agreement and any and all other contracts, binding arrangements and understandings (whether written or oral) with employees, consultants, officers and directors of the Company and its subsidiaries. (c) None of the Pension Plans is subject to Title IV of ERISA or Section 412 of the Code and the Company nor any other person or entity that, together with the Company, is treated as a single employer under Section 414 (b), (c), (m) or (o) of the Code (each, including the Company, a "Commonly Controlled Entity"): (i) currently has an obligation to contribute to, or during any time during the last six years had an obligation to contribute to, a Pension Plan subject to Title IV of ERISA or Section 412 of the Code, or (ii) has incurred any liability to the Pension Benefit Guaranty Corporation, which liability has not been fully paid. All contributions and other payments required to be made by the Company to any Pension Plan with respect to any period ending before the Closing Date have been timely made and reserves adequate for such contributions or other payments that have accrued for the period before the Closing Date but which are not required to be made before the Closing Date have been or will be set aside therefor and have been or will be reflected in financial statements. (d) Neither the Company nor any Commonly Controlled Entity is or has ever been required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such withdrawal has resulted or would result in any "withdrawal liability" (within the meaning of Section 4201 of ERISA) or "mass withdrawal liability" within the meaning of PBGC Regulation Section 4219.2 that has not been fully paid. 14 (e) Each Pension Plan (and its related trust) that is intended to be qualified under Sections 401 and 501(a) of the Code has been determined by the IRS to qualify under such sections and nothing has occurred to cause the loss of such qualified status. (f) Each Benefit Plan that is a Welfare Plan may be amended or terminated, upon thirty (30) days notice, at any time after the Effective Time without liability to the Company or its subsidiaries. (g) Except as required by law or under Section 4980B of the Code, the Company does not have any obligation to provide post-retirement health benefits. (h) The Company has heretofore delivered to Parent correct and complete copies of each of the following: (1) all written, and descriptions of all oral, employment, consulting, termination and severance agreements, contracts, arrangements and understandings listed in Section 3.10 of the Company Disclosure Schedule (other than the Employment Agreement); (2) each Benefit Plan and all amendments thereto; the trust instrument and/or insurance contracts, if any, forming a part of such Benefit Plan and all amendments thereto; (3) the three most recent IRS Form 5500 and all schedules and attachments thereto for each Benefit Plan, if required; (4) the most recent determination letter issued by the IRS regarding the qualified status for each Pension Plan; (5) the most recent accountant's report for each Pension Plan, if required; and (6) the most recent summary plan description for each Benefit Plan, if required. SECTION 3.11. OTHER COMPENSATION ARRANGEMENTS. Except (i) as disclosed in the Company SEC Documents, (ii) for the Employment Agreement and (iii) with respect to Quail (not involving any officer or employee of the Company or any other of its subsidiaries), as of the date of this Agreement, neither the Company nor any of its subsidiaries is a party to any oral or written (a) consulting agreement terminable on more than 60 calendar days notice (except for third party agreements for the development of, and assignment to, the Company of Intellectual Property in the ordinary course of 15 business) and involving the payment of more than $100,000 per annum, (b) agreement with any executive officer or other key employee of the Company or any of its subsidiaries (1) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement or (2) providing any term of employment or compensation guarantee extending for a period longer than two years or the payment of more than $100,000 per annum or (c) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. SECTION 3.12. LITIGATION. There is no suit, claim, action, proceeding or investigation pending before any Governmental Entity or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries that could reasonably be expected to have a material adverse effect on the Company. Neither the Company nor any of its subsidiaries is subject to any outstanding order, writ, injunction or decree that could reasonably be expected to have a material adverse effect on the Company. SECTION 3.13. COMPLIANCE WITH APPLICABLE LAW. The Company and its subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals that would not have a material adverse effect on the Company. The Company and its subsidiaries are in compliance with the terms of the Company Permits, except where the failure so to comply would not have a material adverse effect on the Company. Except as disclosed in the Company SEC Documents, to the best knowledge of the Company, the businesses of the Company and its subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations that would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Merger. As of the date of this Agreement, no investigation or review by any Governmental Entity with respect to the Company or any of its subsidiaries is pending or, to the best knowledge of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct any such investigation or review, other than, in each case, those the outcome of which would not be reasonably expected to have a material adverse effect on the Company or prevent or materially delay the consummation of the Merger. 16 SECTION 3.14. TAX MATTERS. (a) The Company and each of its subsidiaries (and any affiliated group of which the Company or any of its subsidiaries is now or has ever been a member) has timely filed all Federal income tax returns and all other material tax returns and reports required to be filed by it. All such returns are complete and correct in all material respects. Each of the Company and its subsidiaries (i) has paid (or the Company has paid on its subsidiaries' behalf) to the appropriate authorities all taxes required to be paid by it (without regard to whether a tax return is required), except taxes for which an adequate reserve has been established on the financial statements contained in the Company SEC Documents or the 1998 Financial Statements, and (ii) has withheld and paid to the appropriate authorities all material withholding taxes required to be withheld by it. The most recent financial statements contained in the Company SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) Except as disclosed in the Company SEC Documents, no Federal income tax return or other material tax return of the Company or any of its subsidiaries is under audit or examination by any taxing authority, and no written or unwritten notice of such an audit or examination has been received by the Company or any of its subsidiaries. Each material deficiency resulting from any audit or examination relating to taxes by any taxing authority has been paid, except for deficiencies being contested in good faith. No material issues relating to taxes were raised in writing by the relevant taxing authority in any completed audit or examination that can reasonably be expected to recur in a later taxable period. The Federal income tax returns of the Company and each of its subsidiaries do not contain any positions that could give rise to a material substantial understatement penalty within the meaning of Section 6662 of the Code. (c) There is no agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes and no power of attorney with respect to any taxes has been executed or filed with any taxing authority. (d) No material liens for taxes exist with respect to any assets or properties of the Company or any of its subsidiaries, except for liens for taxes not yet due. (e) None of the Company or any of its subsidiaries is a party to or is bound by any tax sharing agreement, tax indemnity obligation or similar 17 agreement, arrangement or practice with respect to taxes (including any advance pricing agreement, closing agreement or other agreement relating to taxes with any taxing authority). (f) None of the Company or any of its subsidiaries shall be required to include in a taxable period ending after the Effective Time taxable income attributable to income that accrued in a prior taxable period but was not recognized in any prior taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or comparable provisions of state, local or foreign tax law. (g) Neither the Company nor any of its subsidiaries (i) is a party to a safe harbor lease within the meaning of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982, (ii) is a "consenting corporation" under Section 341(f) of the Code, (iii) has agreed or is obligated to make any payments for services which would not be deductible pursuant to Sections 162(a)(1), 162(m) or 280G of the Code, (iv) has participated in an international boycott as defined in Section 999 of the Code, (v) is required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise, (vi) owns any assets which directly or indirectly secure any debt the interest on which is tax-exempt under Section 103(a) of the Code, or (vii) owns any asset which is tax-exempt use property within the meaning of Section 168(h) of the Code. (h) None of the Company or any of its subsidiaries is a party to any joint venture, partnership or other arrangement or contract which is treated as a partnership for tax purposes, or has elected to be treated as a branch or a partnership pursuant to Treasury Regulation Section 301.7701-3. (i) Each of the Company and its subsidiaries is a United States person within the meaning of Section 7701(a)(30) of the Code. (j) As used in this Agreement, "Taxes" shall include all Federal, state, local and foreign income, property, sales, excise, withholding and other taxes, tariffs or governmental charges of any nature whatsoever. SECTION 3.15. STATE TAKEOVER STATUTES. The Board of Directors of the Company has approved the Merger and this Agreement and such approval is sufficient to render inapplicable to the Merger, this Agreement, the Stockholder Agreement and the transactions contemplated by this Agreement and the Stockholder Agreement, the provisions of Chapters 110C, 110D, 110E and 110F of the Massachusetts General Laws. 18 To the actual knowledge of the Company without investigation, no other state takeover statute or similar statute or regulation applies or purports to apply to the Merger, this Agreement, or any of the transactions contemplated by this Agreement. SECTION 3.16. BROKERS; FEES AND EXPENSES. No broker, investment banker, financial advisor, consultant or other person, other than ING Barings LLC (the "Financial Adviser") and Jeffrey Bloomberg, the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The estimated fees and expenses incurred and to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement (including the fees of the Company's legal counsel, legal counsel for the special committee and the legal counsel for its financial advisor) are set forth in a letter dated July 26, 1999 from the Company to Parent, all of which will have been paid in full immediately prior to the Effective Time. SECTION 3.17. OPINION OF FINANCIAL ADVISOR. The Special Committee has received the opinion of the Financial Adviser, dated August 9, 1999, to the effect that, as of that date, (a) the consideration to be received by the Company pursuant to the Disposition is fair to the Company from a financial point of view and (b) the Merger Consideration to be received by the holders of Shares pursuant to the Merger is fair to such holders from a financial point of view (the "Fairness Opinion"), and a complete and correct signed copy of such opinion will be included in the Proxy Statement, and related filings. SECTION 3.18. INTELLECTUAL PROPERTY. The Company and its subsidiaries have, and after the Disposition, will have, rights to use, whether through ownership, licensing or otherwise, all patents, trademarks, service marks, trade names, copyrights, trade secrets, know-how, invention and other proprietary rights and processes of which the Company is aware that are material to its business as now conducted (collectively the "Company Intellectual Property Rights"). Except for such matters as would not, individually or in the aggregate, have a material adverse effect on the Company, (a) the Company and its subsidiaries have not assigned, hypothecated or otherwise encumbered any of the Company Intellectual Property Rights and (b) none of the licenses included in the Company Intellectual Property Rights purports to grant sole or exclusive licenses to another person, including, without limitation, sole or exclusive licenses limited to specific fields of use. To the best of the Company's knowledge, the patents owned by the Company and its subsidiaries are valid and enforceable and any patent issuing from patent applications of the Company and its subsidiaries will be valid and enforceable, except as such invalidity or unenforceability would not, individually or in the aggregate, have a material adverse effect on the Company. The Company has no knowledge of any infringement by any other person of any of the Company Intellectual Property Rights, and the Company and its subsidiaries have not, to the Company's knowledge, entered into 19 any agreement to indemnify any other party against any charge of infringement of any of the Company Intellectual Property Rights, except for such matters as would not, individually or in the aggregate, have a material adverse effect on the Company. To the best of the Company's knowledge, the Company and its subsidiaries have not and do not violate or infringe any intellectual property right of any other person, and neither the Company nor any of its subsidiaries have received any communication alleging that it violates or infringes the intellectual property right of any other person, except for such matters as would not, individually or in the aggregate, have a material adverse effect on the Company. Except for such matters as would not, individually or in the aggregate, have a material effect on the Company, the Company and its subsidiaries have not been sued for infringing any intellectual property right of another person. None of the Company Intellectual Property Rights or other know-how relating to the business of the Company and its subsidiaries, the value of which to Parent is contingent upon maintenance of the confidentiality thereof, has been disclosed by the Company or any affiliate thereof to any person other than those persons who are bound to hold such information in confidence pursuant to confidentiality agreements or by operation of law. SECTION 3.19. LABOR RELATIONS AND EMPLOYMENT. (a) There is no labor strike, dispute, slowdown, stoppage or lockout actually pending, or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries, and during the past three years there has not been any such action; (ii) no union claims to represent the employees of the Company or any of its subsidiaries; (iii) neither the Company nor any of its subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company or any of its subsidiaries; (iv) none of the employees of the Company or any of its subsidiaries is represented by any labor organization and the Company does not have any knowledge of any current union organizing activities among the employees of the Company or any of its subsidiaries, nor are there representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal; (v) the Company and its subsidiaries are, and have at all times been, in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation; (vi) there is no unfair labor practice charge or complaint against the Company or any of its subsidiaries pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any similar state or foreign agency; (vii) there is no grievance with respect to or relating to the Company or any of its 20 subsidiaries arising out of any collective bargaining agreement or other grievance procedure; (viii) no charges with respect to or relating to the Company or any of its subsidiaries are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (ix) neither the Company nor any of its subsidiaries has received notice of the intent of any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Company or any of its subsidiaries and no such investigation is in progress; and (x) there are no complaints, lawsuits or other proceedings pending or to the knowledge of the Company threatened in any forum by or on behalf of any present or former employee of the Company or any of its subsidiaries alleging breach of any express or implied contract of employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship. (b) To the knowledge of the Company, since the enactment of the Worker Adjustment and Retraining Notification ("WARN") Act, there has not been (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company or any of its subsidiaries; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company or any of its subsidiaries; nor has the Company or any of its subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. To the knowledge of the Company, none of the employees of the Company or any of its subsidiaries has suffered an "employment loss" (as defined in the WARN Act) since three months prior to the date of this Agreement. SECTION 3.20. CHANGE OF CONTROL; EFFECT OF THE DISPOSITION. The transactions contemplated by this Agreement, including, without limitation, the Disposition, will not constitute a "change of control" under, require the consent from or the giving of notice to a third party pursuant to, permit a third party to terminate or accelerate vesting, repayment or repurchase rights, or create any other detriment under the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound. The Disposition will not result in the creation of any Liabilities of the Company or any of its subsidiaries and will result in the release of all outstanding Liabilities of the Company in relation to Quail. 21 SECTION 3.21. ENVIRONMENTAL MATTERS. (a) To the best knowledge of the Company, after due inquiry, the Company and its subsidiaries have been and are in compliance with all applicable Environmental Laws (as this term and the other terms in this section are defined below), except for such violations and defaults as would not, individually or in the aggregate, have a material adverse effect on the Company. (b) To the best knowledge of the Company, after due inquiry, the Company and its subsidiaries possess all required Environmental Permits; all such Environmental Permits are in full force and effect; there are no pending or threatened proceedings to revoke such Environmental Permits and the Company and its subsidiaries are in compliance with all terms and conditions thereof, except for such failures to possess or comply with Environmental Permits as would not, individually or in the aggregate, have a material adverse effect on the Company. (c) Except for matters which would not, individually or in the aggregate, have a material adverse effect on the Company, neither the Company nor any of its subsidiaries has received any notification that the Company or any subsidiary as a result of any of the current or past operations of the Business, or any property currently or formerly owned or leased or used in connection with the Business, is or may be adversely affected by any proceeding, investigation, claim, lawsuit or order by any Governmental Entity or other person relating to whether (i) any Remedial Action is or may be needed to respond to a Release or threat of Release into the environment of Hazardous Substances arising out of or caused by any current or past operations of the Company or any of its subsidiaries, (ii) any Environmental Liabilities and Costs imposed by, under or pursuant to Environmental Laws as in effect on or prior to the date hereof shall be sought, or proceeding commenced, arising from the current or past operations of the Business or (iii) the Company or any subsidiary is or may be a "potentially responsible party" for a Remedial Action, pursuant to any Environmental Law for the costs of investigating or remediating Releases or threatened Releases into the environment of Hazardous Substances, whether or not such Release or threatened Release has occurred or is occurring at properties currently or formerly owned or operated by the Company and its subsidiaries; (d) Except for Environmental Permits, none of the Company or its subsidiaries has entered into any written agreement with any entity or persons including any Governmental Entity by which the Company or any of its subsidiaries has assumed the responsibility, either directly or by acting as a guarantor or surety, to pay for the remediation of any condition arising from or relating to a Release of Hazardous Substances as defined under Environmental 22 Laws as in effect on or prior to the date hereof into the environment in connection with the Business, including for cost recovery by third parties with respect to such Releases or threatened Releases; (e) Except for matters which would not, individually or in the aggregate, have a material adverse effect on the Company, to the best knowledge of the Company, after due inquiry, there has been no Release of Hazardous Substances for which the Company is or may be liable under any Environmental Laws on, under or from any real property currently or previously owned or operated by the Company or in connection with the Company's Business except for authorized discharges complying with applicable Environmental Laws. (f) For purposes hereof: (i) "Business" means the current and former businesses of the Company and its subsidiaries including, but not limited to, businesses or subsidiaries that have been previously sold by the Company, its subsidiaries or any predecessors thereto. (ii) "Environmental Laws" means all Laws relating to the protection of human health or the environment, or to any emission, discharge, generation, processing, storage, holding, abatement, existence, Release, threatened Release or transportation of any chemical or Hazardous Substances, including, but not limited to, (i) CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, property transfer statutes or requirements and (ii) all other requirements pertaining to reporting, licensing, permitting, investigation or remediation of Hazardous Substances in the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances or relating to human health or safety from exposure to Hazardous Substances. (iii) "Environmental Liabilities and Costs" means all damages, natural resource damages, claims, losses, expenses, costs, obligations, and liabilities (collectively, "Losses"), whether direct or indirect, known or unknown, current or potential, past, present or future, imposed by, under or pursuant to Environmental Laws, including, but not limited to, all Losses related to Remedial Actions, and all fees, capital costs, disbursements, penalties, fines and expenses of counsel, experts, contractors, personnel and consultants and the value of any services that might be provided by the Company or any of its subsidiaries in lieu thereof and expenditures necessary to cause any such property or the 23 Company or any subsidiary to be in compliance with requirements of Environmental Laws. (iv) "Environmental Permits" means any federal, state, provincial or local permit, license, registration, consent, order, administrative consent order, certificate, approval or other authorization necessary for the conduct of the Business as currently conducted, and wherever it is currently conducted, under any applicable Environmental Law. (v) "Governmental Entity" means any government or subdivision thereof, domestic, foreign or supranational or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational. (vi) "Hazardous Substances" means any substance that (a) is defined, listed or identified or otherwise regulated under any Environmental Law (including, without limitation, radioactive substances, polycholorinated-biphenyls, petroleum and petroleum derivatives and products) or (b) requires investigation, removal or remediation under applicable Environmental Law. (vii) "Laws" means all (A) constitutions, treaties, statutes, laws (including, but not limited to, the common law), rules, regulations, ordinances or codes of any Governmental Entity, (B) Environmental Permits, and (C) orders, decisions, injunctions, judgments, awards and decrees of any Governmental Entity. (viii) "Release" shall be as defined in CERCLA. (ix) "Remedial Action" means all actions required by any Governmental Entity pursuant to Environmental Law or otherwise taken as necessary to comply with Environmental Law to (i) clean up, remove, treat or in any other way remediate any Hazardous Substances; (ii) prevent the release of Hazardous Substances so that they do not migrate or endanger or threaten to endanger public health or welfare or the environment; or (iii) perform studies, investigations or monitoring in respect of any such matter. SECTION 3.22. MATERIAL CONTRACTS. Neither the Company nor any of its subsidiaries is a party to or bound by any: (a) employment or consulting agreement or contract that has an aggregate future liability in excess of $100,000 annually and is 24 not terminable by the Company or a subsidiary by notice of not more than 60 days for a cost of less than $100,000; (b) employee collective bargaining agreement or other contract with any labor union; (c) covenant of the Company or a subsidiary not to compete; (d) agreement, contract or other arrangement with any current or former officer, director, or any relative thereof, of the Company or any subsidiary (other than employment agreements covered by clause (i) above); (e) lease, sublease or similar agreement involving annual payments in excess of $100,000 with any person (other than the Company or a subsidiary) under which the Company or a subsidiary is a lessor or sublessor of, or makes available for use to any person (other than the Company or a subsidiary), (A) any Company Property (as hereinafter defined) or (B) any portion of any premises otherwise occupied by the Company or a subsidiary; (f) lease or similar agreement with any person (other than the Company or a subsidiary) under which (A) the Company or a subsidiary is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any person or (B) the Company or a subsidiary is a lessor or sublessor of, or makes available for use any person, any tangible personal property owned or leased by the Company or a subsidiary, in any such case which has an aggregate annual future liability or receivable, as the case may be, in excess of $100,000 and is not terminable by the Company or a subsidiary by notice of not more than 60 days for a cost of less than $100,000; (g) (A) continuing contract for the future purchase of materials, supplies or equipment (other than purchase contracts and orders for inventory in the ordinary course of business consistent with past practice) in excess of $100,000 annually, (B) management, service, consulting or other similar type of contract or (C) advertising agreement or arrangement, in any such case which has an aggregate future liability to any person (other than the Company or a subsidiary) in excess of $100,000 and is not terminable by the Company or a subsidiary by notice of not more than 60 days for a cost of less than $100,000; 25 (h) material license, option or other agreement relating in whole or in part to intellectual property (including any license or other agreement under which the Company or a subsidiary is licensee or licensor of any such intellectual property); (i) agreement, contract or other instrument under which the Company or a subsidiary has borrowed any money from, or issued any note, bond, debenture or other evidence of indebtedness to, any person (other than the Company or a subsidiary) or any other note, bond, debenture or other evidence of indebtedness issued to any person (other than the Company or a subsidiary); (j) agreement, contract or other instrument (including so-called take-or-pay or keepwell agreements) under which (A) any person (including the Company or a subsidiary) has directly or indirectly guaranteed Liabilities of the Company or a subsidiary or (B) the Company or a subsidiary has directly or indirectly guaranteed Liabilities of any person (in each case other than endorsements for the purpose of collection in the ordinary course of business); (k) agreement, contract or other instrument under which the Company or a subsidiary has, directly or indirectly, made any advance, loan, extension or credit or capital contribution in excess of $50,000 to, or other investment in any person; (l) mortgage, pledge, security agreement, deed of trust or other instrument granting a lien or other encumbrance upon any Company Property; (m) agreement or instrument providing for indemnification of any person with respect to Liabilities relating to any current or former business of the Company, a subsidiary or any predecessor person exclusive of indemnifications included in other documents listed in the Company Disclosure Schedule or granted to sellers of real property owned or leased by the Company or its affiliates; or (n) any other material agreement, contract, management contract, lease, license, commitment or instrument to which the Company or any subsidiary is a party or by or to which it or any of its assets or business is bound or subject, not covered by any of the categories specified in clauses (i) through (xiii) above. 26 All agreements, contracts, leases, licenses, commitments or instruments of the Company or any subsidiary listed in the Company Disclosure Schedule (collectively, the "Contracts") are valid, binding and in full force and effect and are enforceable by the Company or the relevant subsidiary in accordance with its terms. The Company and the subsidiaries have performed all material obligations required to be performed by them to date under the Contracts and they are not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the knowledge of the Company and its subsidiaries, no other party to any of the Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. SECTION 3.23. PROPERTY. Section 3.23 of the Company Disclosure Schedule accurately identifies all real property, leases and other rights in real property, structures and other buildings of the Company and, with the exception of Quail, its subsidiaries (collectively, the "Company Properties"). All properties and assets of the Company and its subsidiaries, real and personal, material to the conduct of their respective businesses are, except for changes in the ordinary course of business since December 31, 1998, reflected in the balance sheet of the Company dated December 31, 1998 (the "1998 Balance Sheet"), the Company and its subsidiaries (other than Quail) have good and marketable title to their respective real and personal property reflected on the 1998 Balance Sheet or acquired by them since the date of such balance sheet, free and clear of all mortgages, liens, pledges, encumbrances, charges, agreements, claims, restrictions and defects of title (collectively, "Title Liens"), other than Permitted Title Liens (as defined below). All real property, structures and other buildings and material equipment of each of the Company and its subsidiaries (other than Quail) are currently used in the operation of the business, are adequately maintained and are in satisfactory operating condition and repair for the requirements of the business as presently conducted. "Permitted Title Liens" means Title Liens for (i) taxes or other charges or levies of a Governmental Entity which are not due and payable or which are being contested in good faith by appropriate proceedings as described in Section 3.14 of the Company Disclosure Schedule and as to which adequate financial reserves have been established and described in Section 3.14 of the Company Disclosure Schedule; (ii) workmen's, repairmen's or other similar Title Liens (inchoate or otherwise) arising or incurred in the ordinary course of business in respect of obligations which are not overdue; (iii) minor title defects, easements or Title Liens affecting real property, which defects, easements or Liens do not, individually or in the aggregate, materially impair the continued use, occupancy, value or marketability of title of the real property to which they relate, assuming that the property is used on substantially the same basis as such property is currently being used by the Company. SECTION 3.24. INSURANCE. Section 3.24 of the Company Disclosure Schedule accurately identifies each material insurance policy (including policies 27 providing property, casualty, environmental liability, liability, malpractice and workers compensation insurance) and all other material types of insurance maintained by the Company and its subsidiaries, together with carriers and liability limits for each such policy, other than those insurance policies that are maintained separately by and/or for Quail. Each such policy is duly in force and no notice has been received by the Company or any of its subsidiaries from any insurance carrier purporting to cancel or reduce coverage under any such policy. The Company and its subsidiaries (other than Quail) are current in all premiums or other payments due thereunder and no notice has been received by the Company or any of its subsidiaries (other than Quail) from any insurance carrier purporting to increase any such premiums in any material respect. All insurance coverage held for the benefit of the Company or its subsidiaries (other than Quail) is adequate to cover risks customarily insured against by similar companies in their industry. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: SECTION 4.01. ORGANIZATION. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not be reasonably expected to prevent or materially delay the consummation of the Merger. SECTION 4.02. AUTHORITY. Parent and Sub have requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Sub and no other corporate proceedings on the part of Parent and Sub are necessary to authorize this Agreement or to consummate such transactions. No vote of Parent shareholders is required to approve this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and Sub, as the case may be, and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of Parent and Sub enforceable against them in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 28 SECTION 4.03. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act (including the filing with the SEC of the Proxy Statement), the HSR Act, the MBCL, the Massachusetts General Laws, the laws of other states in which Parent is qualified to do or is doing business, state takeover laws and foreign laws, neither the execution, delivery or performance of this Agreement by Parent and Sub nor the consummation by Parent and Sub of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate of incorporation, articles of organization or By-Laws of Parent and Sub, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not be reasonably expected to prevent or materially delay the consummation of the Merger), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent, any of its subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which would not, individually or in the aggregate, be reasonably expected to prevent or materially delay the consummation of the Merger. SECTION 4.04. INFORMATION SUPPLIED. None of the information supplied or to be supplied by Parent or Sub specifically for inclusion or incorporation by reference in the Proxy Statement and related filings, will, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. SECTION 4.05. INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. ARTICLE V COVENANTS SECTION 5.01. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this Agreement, as expressly agreed to in writing by Parent or in 29 connection with the Disposition, or as described in Section 5.01 of the Company Disclosure Schedule, during the period from the date of this Agreement until the Effective Time, the Company will, and will cause each of its subsidiaries to, conduct its operations according to its ordinary and usual course of business and consistent with past practice and use its and their respective commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, advertisers, distributors and others having business dealings with them and to preserve goodwill. Without limiting the generality of the foregoing, and except as (x) otherwise expressly provided in this Agreement, (y) required by law, or (z) set forth in Section 5.01 of the Company Disclosure Schedule, the Company will not, and will cause its subsidiaries not, without the consent of Parent, to: (a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, other than dividends declared prior to the date of this Agreement, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or equity equivalent (other than in connection with the exercise of options outstanding prior to the date hereof in accordance with their current terms); (c) amend its Articles of Organization or By-Laws; (d) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets that in the aggregate have a value in excess of 1% of the Company's assets; (e) except for the Disposition and in the ordinary course of business, sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets that in the aggregate have an excess of 1% of the Company's assets; 30 (f) amend or otherwise modify, or terminate, any material Contract, or enter into any joint venture, lease or management agreement or other material agreement of the Company or any of its subsidiaries (other than the Employment Agreement); (g) except in the ordinary course of business under the Company's existing line of credit (including letters of credit), incur any additional indebtedness (including for this purpose any indebtedness evidenced by notes, debentures, bonds, leases or other similar instruments, or secured by any lien on any property, conditional sale obligations, obligations under any title retention agreement and obligations under letters of credit or similar credit transaction) in a single transaction or a group of related transactions, enter into a guaranty, or engage in any other financing arrangements having a value in excess of 1% of the Company's assets, or make any loans, advances or capital contributions to, or investments in, any other person; (h) alter through merger, liquidation, reorganization, restructuring or in any other fashion its corporate structure or ownership; (i) except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting principles or practices used by it; (j) revalue any of its assets, including, without limitation, writing down the value of its inventory or writing off notes or accounts receivable other than in the ordinary course of business; (k) make any tax election, change any annual tax accounting period, amend any tax return, settle or compromise any income tax liability, enter into any closing agreement, settle any tax claim or assessment, surrender any right to claim a tax refund or fail to make the payments or consent to any extension or waiver of the limitations period applicable to any tax claim or assessment; (l) except in the ordinary course of business, settle or compromise any pending or threatened suit, action or claim with a cost of $100,000 or more; (m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by, the 31 financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (n) increase in any manner the compensation or fringe benefits of any of its directors or officers or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing savings, severance, incentive or other or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than increases in the compensation of employees who are not officers or directors of the Company or any of its subsidiaries made in the ordinary course of business consistent with past practice, or, except to the extent required by law, voluntarily accelerate the vesting of any compensation or benefit, or grant any loans or increases to any outstanding loans to any of the Company's or its subsidiaries, directors or officers; (o) waive, amend or allow to lapse any term or condition of any confidentiality, "standstill," consulting, advisory or employment agreement to which the Company is a party; (p) approve any annual operating budgets for the Company and its subsidiaries; (q) change the Company's dividend policy; (r) enter into any transaction with affiliates; (s) enter into any business other than the business currently engaged in by the Company; (t) pursuant to or within the meaning of any bankruptcy law, (i) commence a voluntary case, (ii) consent to the entry of an order for relief against it in an involuntary case, (iii) consent to the appointment of a custodian of it or for all or substantially all of its property or (iv) make a general assignment for the benefit of its creditors; (u) purchase or lease or enter into a binding agreement to purchase or lease any real property; (v) enter into or amend, modify or terminate any employment, consulting or independent contractor agreement, arrangement or understanding with any officer, director, or any relative thereof, or employee; 32 (w) enter into any development agreement, option relating to new development or any other obligation relating to new development which in the aggregate would have a cost to the Company in excess of 1% of the Company's assets; (x) make any capital contributions, loans or other payments to, or on account of Quail; or (y) take, or agree in writing or otherwise to take, any of the foregoing actions. During the period from the date of this Agreement through the Effective Time, (i) as reasonably requested by Parent so as not to interfere with ongoing operations of the Company, the Company shall confer on a regular basis with one or more representatives of Parent with respect to material operational matters; (ii) the Company shall, within 30 days following each fiscal month, deliver to Parent management prepared unaudited financial statements as to the Company, including an income statement and balance sheet for such month; and (iii) upon obtaining knowledge of any material adverse change to the Company, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation or warranty contained herein, the Company shall promptly notify Parent thereof. The Company shall have the right to update the Company Disclosure Schedule between the date hereof and the Effective Time to reflect actions taken by the Company and its subsidiaries which are permitted to be taken pursuant to this Section 5.01. SECTION 5.02. NO SOLICITATION. (a) The Company and its officers, directors, employees, representatives and agents shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any acquisition or exchange of all or any material portion of the assets of, or any equity interest in, the Company or any of its subsidiaries or any business combination with the Company or any of its subsidiaries (except as contemplated by this Agreement or in connection with the Disposition). The Company agrees that, prior to the Effective Time, it shall not, and shall not authorize or permit any of its subsidiaries or any of its or its subsidiaries' directors, officers, employees, agents or representatives, directly or indirectly, to solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal with respect to any Acquisition Proposal (as defined below), or negotiate, explore or otherwise engage in discussions with 33 any person (other than Parent, its affiliates or their respective directors, officers, employees, agents and representatives) with respect to any Acquisition Proposal or enter into any agreement, arrangement or understanding requiring it to abandon, terminate or fail to consummate the Merger or any other transactions contemplated by this Agreement; PROVIDED; HOWEVER, that the Company may furnish information, pursuant to a customary confidentiality agreement with terms not more favorable to such third party than the Confidentiality Agreement (as defined in Section 6.02), to, and negotiate or otherwise engage in discussions with, any party who delivers a bona fide written proposal for an Acquisition Proposal for which all necessary financing is then in the judgment of the Company's Independent Committee of the Board of Directors reasonably obtainable, if the Company's Independent Committee of the Board of Directors determines in good faith by a vote of a majority of the members of the Independent Committee of the Board of Directors that failing to take such action would create a reasonable possibility of a breach of the fiduciary duties of the Company's Board of Directors (after consultation with its outside legal counsel) and such a proposal is, in the written opinion of the Company's financial advisor, more favorable to the Company's stockholders from a financial point of view than the transactions contemplated by this Agreement as the same has been proposed to be amended by Parent pursuant to Section 5.02(b); PROVIDED, FURTHER, that nothing contained in this Section 5.02 shall prohibit the Company or its Board of Directors from making such disclosure to the Company's stockholders which, in the judgment of the Board of Directors of the Company (after consultation with its outside legal counsel), may be required under applicable law. (b) From and after the execution of this Agreement, the Company shall promptly advise Parent in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations or proposals relating to an Acquisition Proposal, identify the offeror and furnish to the Parent a copy of any such proposal or inquiry, if it is in writing, relating to an Acquisition Proposal. The Company shall promptly advise Parent of any material development relating to such proposal, including the results of any discussions or negotiations with respect thereto. Notwithstanding anything in this Agreement to the contrary, prior to the approval of an Acquisition Proposal by the Company's Board of Directors Board in accordance with Section 8.01(d), Company shall give Parent sufficient notice of the material terms and conditions of any such Acquisition Proposal and negotiate in good faith with Parent for a period of not less than five business days after receipt of a written proposal or a written summary of any oral proposal to make such adjustments in the terms and conditions of this Agreement as would enable the Company to proceed with the transactions contemplated herein. (c) For purposes hereof: "Acquisition Proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect 34 acquisition or purchase of 15% or more of any class of equity securities of the Company or any of its subsidiaries, any tender offer or exchange offer that if consummated would result in any person beneficially owning 15% or more of any class of equity securities of the Company or any of its subsidiaries, any merger, consolidation, business combination, sale of substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by this Agreement and the Disposition, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Merger or which would reasonably be expected to dilute materially the benefits to Parent of the transactions contemplated hereby. SECTION 5.03. OTHER ACTIONS. The Company shall not, and shall not permit any of its subsidiaries to, take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality becoming untrue or (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect (subject to the Company's right to take actions specifically permitted by Section 5.02). SECTION 5.04. NOTICE OF CERTAIN EVENTS. The Company and Parent shall promptly notify each other of: (a) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Government Entity in connection with the transactions contemplated by this Agreement; (c) any action, suits, claims, investigations or proceedings commenced or, to the actual knowledge of the executive officers of the notifying party, threatened against, relating to or involving or otherwise affecting such party or any of its subsidiaries; (d) an administrative or other order or notification relating to any material violation or claimed violation of law; (e) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date; and 35 (f) any material failure of any party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 5.04 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.01. STOCKHOLDER APPROVAL; PREPARATION OF PROXY STATEMENT. (a) The Company shall call, give notice of, convene and hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose of obtaining the Company Stockholder Approval as soon as practicable following the execution of this Agreement. The Company will, through its Board of Directors, recommend to its stockholders that the Company Stockholder Approval be given. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 6.01(a) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any Acquisition Proposal or (ii) the withdrawal or modification by the Board of Directors of the Company of its approval or recommendation of this Agreement or the Merger, except upon a termination of this Agreement pursuant to Section 8.01(d). (b) The Company shall as soon as practicable following the execution of this Agreement, prepare and file a preliminary Proxy Statement with the SEC and will use its best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff and will make any additional filings as may be required by law. The Company will notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement, or any additional filings, or for additional information, and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement and any additional filings, or the Merger. If at any time prior to the Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The 36 Company will not mail or file any Proxy Statement, or make any additional filings, or any amendment or supplement thereto, to which Parent reasonably objects unless, upon consultation with counsel, the Company determines such document is required as a matter of law. (c) Grandparent and Parent agree to cause all Shares owned by Grandparent, Parent or any subsidiary of Grandparent or Parent to be voted in favor of the Company Stockholder Approval. SECTION 6.02. ACCESS TO INFORMATION. From the date hereof until the Effective Time, the Company shall give Parent and Sub, their counsel, financial advisors, auditors and other authorized representatives full access to the offices, properties, books and record of the Company and its subsidiaries during normal business hours, will furnish to Parent and Sub, their counsel, financial advisors, financial institutions auditors and other authorized representatives such financial and operating data and other information as such may be reasonably requested and will instruct the employees of the Company and its subsidiaries, their counsel and financial advisors to cooperate with Parent and Sub in their investigation of the Business; PROVIDED, that no investigation pursuant to this Section 6.02 shall affect any representation or warranty given by the Company to Parent and Sub hereunder; and PROVIDED, FURTHER, that any information provided to Parent and/or Sub pursuant to this Section 6.02 shall be subject to the confidentiality agreement, dated as of May 19, 1999 (the "Confidentiality Agreement"), the terms of which shall continue to apply, except as otherwise agreed by the Company, unless and until the Effective Time and notwithstanding termination of this Agreement and provided further that any requests shall not interfere with ongoing operations of the Company and its subsidiaries. SECTION 6.03. REASONABLE EFFORTS. Each of the Company, Parent and Sub agree to use its reasonable efforts to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to the Merger (which actions shall include furnishing all information required under the HSR Act and in connection with approvals of or filings with any other Governmental Entity) and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their subsidiaries in connection with the Merger. Each of the Company, Parent and Sub will, and will cause its subsidiaries to, use its reasonable efforts to take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party required to be obtained or made by Parent, Sub, the Company or any of their subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement, except that no party need waive any substantial rights or agree to any substantial limitation on its operations or to dispose of any assets. 37 SECTION 6.04. FEES AND EXPENSES. (a) In addition to any other amounts which may be payable or become payable pursuant to any other paragraph of this Section 6.04, in the event that this Agreement is terminated (i) by Parent (A) if there occurs a material breach by the Company of any term, covenant, representation or warranty contained in this Agreement, (B) pursuant to Section 8.01(e) or (C) pursuant to Section 8.01(g) or (ii) by the Company pursuant to Section 8.01(d) of this Agreement, the Company shall promptly reimburse the Parent or Sub, as the case may be, for all out-of-pocket expenses and fees (including, without limitation, fees and expenses payable to all Governmental Entities, banks, investment banking firms and other financial institutions, and their respective agents and counsel, and all fees and expenses of counsel, accountants, financial printers, proxy solicitors, exchange agents, experts and consultants to Parent and its affiliates), actually incurred, whether incurred prior to, on or after the date hereof, in connection with the Merger and the consummation of all transactions contemplated by this Agreement (the "Fees") up to a maximum amount of $300,000. Except as otherwise specifically provided for herein, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. (b) If this Agreement is terminated by the Company if there occurs a material breach by Grandparent, Parent or Sub of any term, condition, covenant, representation or warranty contained in this Agreement, Parent shall promptly reimburse the Company for all Fees, up to a maximum amount of $300,000. (c) In the event that this Agreement is terminated pursuant to Section 8.01(d) or (e), then, in addition to the amounts paid pursuant to Section 6.04(b), the Company shall promptly pay Parent a termination fee of $600,000 (the "Termination Fee"). (d) The prevailing party in any legal action undertaken to enforce this Agreement or any provision hereof shall be entitled to recover from the other party the costs and expenses (including attorneys' and expert witness fees and expenses) incurred in connection with such action. (e) Parent and the Company shall cooperate in the preparation, execution and filing of all returns, applications or other documents regarding any real property transfer, stamp, recording, documentary or other taxes and any other fees and similar taxes which become payable in connection with the Merger 38 (collectively, "TRANSFER TAXES"). The Company will pay all of the Transfer Taxes, except that Parent will pay all fees related to the HSR Act. SECTION 6.05. INDEMNIFICATION; INSURANCE. (a) Parent and Sub agree that all rights to indemnification for acts or omissions occurring prior to and concurrently with the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of the Company and its subsidiaries as provided in their respective articles of organization or by-laws (or similar organizational documents) or existing indemnification contracts (all of which have been disclosed in Section 3.10 of the Company Disclosure Schedule) shall survive the Merger and shall continue in full force and effect in accordance with their terms, and the Surviving Corporation's Articles of Organization and By-laws shall reflect such protections. (b) For six years from the Effective Time, Parent shall cause the Surviving Corporation to maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been heretofore delivered to Parent); PROVIDED, HOWEVER, that in no event shall Parent be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by the Company for such insurance (which the Company represents is currently not more than $50,000); and, PROVIDED, FURTHER, that if the annual premiums of such insurance coverage exceed such amount, Parent shall be obligated only to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (c) This Section 6.05 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. SECTION 6.06. CERTAIN LITIGATION. The Company agrees that it will not settle any litigation commenced after the date hereof against the Company or any of its officers or directors by any stockholder of the Company relating to the Merger or this Agreement, without the prior written consent of Parent. In addition, the Company will not voluntarily cooperate with any third party which may hereafter seek to restrain or prohibit or otherwise oppose the Merger and will cooperate with Parent and Sub to resist any such effort to restrain or prohibit or otherwise oppose the Merger, unless the Board of Directors of the Company determines in good faith, after consultation with and receipt of a written opinion to such effect from its outside counsel, that failing so to cooperate with 39 such third party or cooperating with Parent or Sub, as the case may be, would constitute a breach of the director's fiduciary duties under applicable law. ARTICLE VII CONDITIONS SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) COMPANY STOCKHOLDER APPROVAL. The Company Stockholder Approval shall have been obtained. (b) HSR ACT. Any waiting period applicable to this Agreement and the transactions contemplated hereby under the HSR Act shall have expired or early termination thereof shall have been granted, without limitation, restriction or condition of any kind. (c) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other Governmental Entity or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; PROVIDED, HOWEVER, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered. (d) DISPOSITION OF QUAIL. The Disposition of Quail shall have occurred pursuant to the terms of an agreement in the form attached hereto as Exhibit B hereto, with no waivers, amendments or modifications of the terms thereof other than as consented to in writing by Parent. All items stated therein to be to the agreement, approval or satisfaction of the Company shall also be to the prior written agreement, approval or satisfaction of Parent. The Company shall have obtained a fairness opinion with respect to the consideration being paid for the sale of Quail. Following the Disposition, the Company shall have no Liabilities, other than as specified in the Disposition Agreement, related to Quail or its Disposition other than the payment of Taxes in connection with the receipt of the purchase price therefor. (e) REQUIRED CONSENTS. (i) All consents and approvals required as set forth in Section 3.05 of the Company Disclosure Schedule shall have been 40 made or obtained, without limitation, restriction or condition and (ii) all other consents and approvals shall have been made or obtained, without limitation, restriction or condition that has or would have a material adverse effect on the Company (or any effect on Parent and Sub), except for such authorizations the failure of which does not and would not, individually or in the aggregate, have a material adverse effect on the Company (or any material adverse effect on Parent and Sub). SECTION 7.02. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The respective obligations of Parent and Sub to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or prior to the Effective Time of each of the following additional conditions, any or all of which may be waived in whole or part by Parent to the extent permitted by applicable law: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement, to the extent qualified by materiality or material adverse effect, shall have been true and, to the extent not qualified by materiality or material adverse effect, shall have been true in all material respects, in each case when made and on and as of the Effective Time as though made on and as of the Effective Time (except for representations and warranties made as of a specified date, which need be true, or true in all material respects, as the case may be, only as of the specified date) and Parent and Sub shall have received a certificate of the Company to that effect signed by a duly authorized officer thereof. (b) PERFORMANCE. The Company shall have performed or complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Effective Time. (c) OTHER AUTHORIZATIONS. All authorizations (other than those specified in Section 7.01(b) and 7.01(e) hereof) required in connection with the execution and delivery of this Agreement and the performance of the obligations hereunder shall have been made or obtained, without any limitation, restriction or condition that has or would have a material adverse effect on the Company (or any effect on Parent and Sub), except for such authorizations the failure of which to have been made or obtained does not and would not, individually or in the aggregate, have a material adverse effect on the Company (or any material adverse effect on Parent and Sub). (d) INTERCOMPANY ACCOUNTS. All intercompany accounts between the Company and Quail shall have been settled as nearly as possible as can be determined at the Closing Date on an accrual basis in accordance with generally accepted accounting principles (except that adjustments for the month in 41 which the Closing Date occurs shall be made on a cash basis) and an accounting satisfactory to Parent, shall have been made thereof except that $1 million worth in loans outstanding from the Company to Quail at the Effective Time shall be converted into a loan with the following terms, subject to documentation reasonably satisfactory to Parent (the "Quail Loan"): (i) the repayment of the Quail Loan shall be guaranteed by Executive and secured, with recourse solely to, the $1 million payment to the Executive under Section 3 of the Employment Agreement, (ii) the Quail Loan will be payable in 36 equal monthly installments of principal, with simple annual interest thereon at the "prime rate," as announced from time to time by Citibank, N.A., with the first such installment of principal and interest payable on the last business day of the first full month following the Effective Time and thereafter on the last business day of each of the next 35 months following such date, and (iii) the Quail Loan shall be subordinated to payment obligations of Quail to its senior lenders providing financing for the Disposition in form and substance satisfactory to Parent. Quail shall have paid the Company as part of the above intercompany account settlement $145,000 on account of the Thomas J. Hammer Option payment referred to in Section 2.03(b)(iii). (e) COMPANY DEBT. As at the Effective Time, the Company and its subsidiaries (other than Quail) will have no "indebtedness" other than (i) the loans outstanding under the financing provided by the Massachusetts Industrial Finance Authority, (ii) trade debt incurred and outstanding in the ordinary course of business, (iii) any indebtedness to Citizens Bank for borrowing incurred to pay trade debts in the ordinary course of business or expenses in connection with the transactions contemplated herein, (iv) the Quail Loan and (v) any capital leases existing as of the date hereof. For the purposes of this paragraph "indebtedness" shall mean and include (1) all obligations of such entity for borrowed money, (2) all obligations of such entity evidenced by bonds, debentures, notes or other similar instruments, (3) all obligations of such entity to pay the deferred purchase price of property, except accounts payable arising in the ordinary course of business, (4) all obligations of such entity as lessee under capital leases, (5) all indebtedness of others secured by a lien on any asset of such entity, whether or not such indebtedness is assumed by such entity, and (6) all indebtedness of others guaranteed by such entity. (f) EMPLOYMENT AGREEMENT. The Employment Agreement entered into by the Company and Executive, as provided in Section 3.07, shall not have been modified or amended in any manner since its execution and shall be in full force and effect as of the Effective Time. SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or prior to the Effective Time of each of the 42 following conditions, any or all of which may be waived in whole or in part by the Company to the extent permitted by applicable law: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent and Merger Sub contained in this Agreement, to the extent qualified by materiality shall be true and, to the extent not qualified by materiality shall be true in all material respects, in each case when made and on and as of the Effective Time as though made on and as of the Effective Time (except for representations and warranties made as of a specified date, which need be true, or true in all material respects, as the case may be, only as of the specified date) and the Company shall have received a certificate of Parent and Sub to that effect signed by a duly authorized officer thereof. (b) PERFORMANCE. Parent and Sub shall have performed or complied with all agreements and conditions contained herein required to be performed or complied with by them prior to or at the Effective Time. (c) PURCHASE OF NICHIMEN SHARES. Parent shall have purchased, and Nichimen Corporation ("NMC") and Nichimen America Inc. ("NAI") shall have sold to Parent, all Shares held by NMC, NAI or any of their subsidiaries, and the Company shall have received a certificate of Parent to that effect signed by a duly authorized officer thereof. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01. TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the terms of this Agreement by the stockholders of the Company: (a) by mutual written consent of Parent and the Company, by action of their respective Boards of Directors; (b) by Parent or the Company if the Merger shall not have been consummated on or before December 31, 1999; PROVIDED, HOWEVER, that neither Parent nor the Company may terminate this Agreement pursuant to this Section 8.01(b) if such party shall have materially breached this Agreement; (c) by Parent or the Company if any court of competent jurisdiction or other Governmental Entity has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and 43 nonappealable; PROVIDED, HOWEVER, that the party seeking to terminate this Agreement shall have used its reasonable best efforts to remove or lift such order, decree, ruling or other action; (d) by the Company if, following compliance with the Company of its obligations under Section 5.02, (i) the Company's Board of Directors approves an Acquisition Proposal, for which all necessary financing is then in the judgment of the Company Board reasonably obtainable, on terms which a majority of the members of the Company's Independent Committee of the Board of Directors has determined in good faith after consultation with its outside legal counsel to the effect that failing to take such action would create a reasonable possibility of a breach of the fiduciary duties of the Company's Board of Directors, and (ii) such Acquisition Proposal is, in the written opinion of the Company's financial advisor, more favorable from a financial point of view to the Company's stockholders than the transactions contemplated by this Agreement (as the same may have been proposed to be amended by Parent as provided in Section 5.02(b)); PROVIDED; HOWEVER; that the termination described in this Section 8.01(d) shall not be effective unless and until the Company shall have paid to Parent all of the fees and expenses described in Section 6.04(b) including, without limitation, the Termination Fee; (e) by Parent, if the Company Board shall have (i) failed to recommend to the stockholders of the Company that they approve and adopt this Agreement (the "Stockholder Acceptance"), (ii) withdrawn or modified its approval or recommendation of this Agreement or the Merger, (iii) approved or recommended an Acquisition Proposal or (iv) resolved to effect any of the foregoing; (f) by either Parent or the Company, if the Company Stockholder Approval shall not have been obtained at a Stockholders Meeting including any adjournments thereof; or (g) by Parent if the Stockholder Agreement (the "Stockholder Agreement") in the form attached hereto as Exhibit C, shall not have been executed and delivered by Leslie B. Lewis, individually and as trustee of a certain voting trust described therein, to Parent on August 9, 1999. SECTION 8.02. EFFECT OF TERMINATION. In the event of a termination of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub or the Company or their respective officers or directors, except with respect to the Confidentiality Agreement, 44 Section 6.04, this Section 8.02 and Article IX; PROVIDED, HOWEVER, that nothing herein shall relieve any party for liability for any breach hereof. SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after obtaining the Company Stockholder Approval, but, after any such approval, no amendment shall be made which by law requires further approval by such shareholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 8.04. EXTENSION; WAIVER. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (iii) waive compliance with any of the terms of this Agreement or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder or otherwise shall not constitute a waiver of those rights. ARTICLE IX MISCELLANEOUS SECTION 9.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties in this Agreement or in any instrument delivered pursuant hereto shall terminate at the Effective Time. SECTION 9.02. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed), sent by overnight courier (providing proof of delivery) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 45 (a) if to Grandparent, Parent or Sub: c/o Asahi Organic Chemicals Industry Co., Ltd. 15-9 Uchikanda 2-chome, Chiyoda-ku, Tokyo 101-0047, Japan Attention: Ichiro Murao Telecopy No.:03-3254-3473 with a copy to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: David M. Wilf, Esq. Telecopy No.: (212) 541-5369 and (b) if to the Company: Asahi/America, Inc. 19 Green Street, Malden, MA 02148 Attention: President Telecopy No.: (781) 321-8467 with a copy to: Gadsby & Hannah LLP 225 Franklin Street Boston, MA 02110-2811 Attention: Burton Winnick, Esq. Telecopy No.: (617) 345-7050 SECTION 9.03. INTERPRETATION. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. As used in this Agreement, the term "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at 46 least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. As used in this Agreement, "material adverse change" or "material adverse effect" means, when used in connection with the Company, any change or effect (or any development that, insofar as can reasonably be foreseen, is likely to result in any change or effect) that, individually or in the aggregate with any such other changes or effects, is materially adverse to the business, financial condition, prospects or results of operations of the Company and its subsidiaries taken as a whole. Notwithstanding the foregoing, a material adverse change or material adverse effect shall not include any material adverse change or material adverse effect caused by any change resulting from the announcement of the Merger. SECTION 9.04. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 9.05. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 6.05, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. SECTION 9.06. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts without regard to any applicable conflicts of law. SECTION 9.07. PUBLICITY. Except as otherwise required by law or the rules of the Nasdaq National Market, for so long as this Agreement is in effect, neither the Company nor Parent shall, or shall permit any of its subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. SECTION 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 47 SECTION 9.09. ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Massachusetts or in a Massachusetts state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit to the personal jurisdiction of any Federal court located in the Commonwealth of Massachusetts or any Massachusetts state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the Commonwealth of Massachusetts or a Massachusetts state court and (iv) waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby. [Text continued on next page] 48 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. MIDNIGHT ACQUISITION HOLDINGS, INC. By: /s/ Ichiro Murao -------------------------- Name: Ichiro Murao Title: President MIDNIGHT ACQUISITION CORP. By: /s/ Ichiro Murao -------------------------- Name: Ichiro Murao Title: President ASAHI/AMERICA, INC. By: /s/ Leslie B. Lewis -------------------------- Name: Leslie B. Lewis Title: President The undersigned hereby consents to the provisions of Section 2.01(b) of the Agreement and agrees to the obligations of the undersigned stated in Section 6.01 of the Agreement. The undersigned irrevocably, unconditionally and absolutely guarantees to the Company primarily and not merely as a surety that Parent and Sub will duly and punctually pay or perform, all of their obligations and liabilities arising pursuant to the terms of this Agreement and such other agreements as may be entered into by Parent or Sub in connection with this Agreement. The undersigned hereby waives to the fullest extent permitted by law all defenses based on the granting of any time or other indulgence, or the variation, renewal or release of or neglect to enforce any right or remedy against or with respect to Parent and Sub. The undersigned further agrees to be bound by the terms of Sections 9.06, 9.08 and 9.09 of this Agreement in the same manner as the parties to this Agreement. ASAHI ORGANIC CHEMICALS INDUSTRY CO., LTD. By: /s/ Haruro Tabata -------------------------- Name: Haruro Tabata Title: Chairman & CEO 49 ANNEX I DEFINITIONS "1998 Balance Sheet", 27 "Environmental Liabilities and "1998 Financial Statements", 13 Costs", 23 "Acquisition Proposal", 34 "Environmental Permits", 24 "Agreement", 1 "Equity Plan", 7 "Articles of Merger", 1 "ERISA", 14 "Benefit Plan", 14 "Exchange Act", 10 "Board", 1 "Executive", 1 "Business", 23 "Fairness Opinion", 19 "Certificates", 5 "Fees", 38 "Closing Date", 2 "Financial Adviser", 19 "Closing", 2 "Governmental Entity", 11, 24 "Code", 5 "Grandparent", 4 "Commonly Controlled Entity", "Hazardous Substances", 24 14 "HSR Act", 10 "Company Common Stock", 1 "Indemnified Parties", 39 "Company Disclosure Schedule", "Laws", 24 8 "Liabilities", 13 "Company Intellectual Property "Liens", 8 Rights", 19 "Losses", 23 "Company Permits", 16 "MBCL", 1 "Company Preferred Shares", 9 "Merger Consideration", 4 "Company Properties", 27 "Merger", 1 "Company SEC Documents", 11 "NAI", 43 "Company Stockholder "Net Quail Proceeds", 4 Approval", 10 "NMC", 43 "Company", 1 "Option Plan", 7 "Confidentiality Agreement", 37 "Option Plans", 7 "Contracts", 26 "Option", 7 "Directors Plan", 7 "Options", 7 "Disposition Agreement", 4 "Parent", 1 "Dissenting Shares", 4 "Paying Agent", 5 "Dissenting Stockholder", 4 "Pension Plan", 14 "Effective Time", 2 "Permitted Title Liens", 27 "Employment Agreement", 12 "Proxy Statement", 10 "Environmental Laws", 23 "Quail Loan", 42
"Quail", 4 "Release", 24 "Remedial Action",24 "Securities Act", 11 "Shares", 1 "Stock Purchase Plan", 7 "Stockholder Acceptance", 44 "Stockholder Agreement", 44 "Stockholders Meeting", 36 "Sub", 1 "Surviving Corporation", 1 "Taxes", 18 "Termination Fee", 38 "Title Liens", 27 "Transfer Taxes", 39 "WARN", 21 "Welfare Plan", 14 ii Exhibit C to Merger Agreement THIS STOCKHOLDER AGREEMENT (this "Agreement"), dated as of August 9, 1999, is among Midnight Acquisition Holdings, Inc., a Delaware corporation ("Parent"), and Leslie B. Lewis, as trustee (the "Trustee") of the voting trust (the "Voting Trust") created under that certain Voting Trust Agreement dated as of January 11, 1993 (the "Voting Trust Agreement") and individually (the "Stockholder"). RECITALS WHEREAS, Parent, through a subsidiary ("Sub"), intends to enter into a business combination (the "Merger") with Asahi/America, Inc. (the "Company") pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of August 9, 1999; and WHEREAS, the Stockholder and the Trustee have agreed to vote all shares of Common Stock of the Company beneficially owned by them in favor of the Merger and Parent, the Trustee and the Stockholder desire to memorialize certain other agreements, all as set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: AGREEMENT 1. CERTAIN DEFINITIONS. For purposes of this Agreement: "Acquisition Proposal" shall mean any inquiry, proposal or offer from any Person relating to any direct or indirect acquisition or purchase of 15% or more of any class of equity securities of the Company or any of its subsidiaries, any tender offer or exchange offer that if consummated would result in any Person beneficially owning 15% or more of any class of equity securities of the Company or any of its subsidiaries, any merger, consolidation, business combination, sale of substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by the Merger Agreement, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Merger or which would reasonably be expected to dilute materially the benefits to Parent of the transactions contemplated hereby. "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. "Closing Date" shall mean the date set forth in the Merger Agreement as the closing date for the Merger. "Common Stock" shall mean at any time the Common Stock, no par value, of the Company. "Existing Shares" shall mean the shares of Common Stock Beneficially Owned by the Stockholder or the Trustee on the date hereof. "Permitted Transfer" means a sale, transfer, assignment or other disposition to a Permitted Transferee. "Permitted Transferee" means any person who is (A) the spouse or former spouse of, or any lineal descendent of, or any spouse of such lineal descendant of, or the grandparent, parent, brother or sister of, or spouse of such brother or sister of, either of the Stockholder or of a Permitted Transferee; (B) upon the death of the Stockholder or any Permitted Transferee of the Stockholder, the executors of the estate of the Stockholder or such Permitted Transferee, and any of the Stockholder's or such Permitted Transferee's heirs, testamentary trustees, devisees, or legatees; (C) any trust for the benefit of the Stockholder or one or more Permitted Transferees; (D) upon the disability of either of the Stockholder or any Permitted Transferee, any guardian or conservator of the Stockholder or such Permitted Transferee; PROVIDED, HOWEVER, that in each case such transferee assumes and agrees to perform and becomes a party to this Agreement, agrees not to make an Acquisition Proposal, and agrees not to dissent in the Merger, all on terms reasonably acceptable to Parent. For purposes of this Agreement, when a Permitted Transferee has acquired Shares in accordance herewith, such person shall be deemed a "Stockholder" hereunder. "Person" shall mean an individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or other entity. "Shares" shall mean the Existing Shares and any right to acquire shares of Common Stock owned on the date hereof and any shares of Common Stock or rights to acquire shares of Common Stock acquired by the Stockholder or the Trustee in any capacity after the date hereof and prior to the termination of this Agreement. "Shares" shall include (i) shares of Common Stock acquired upon the exercise of options, warrants or other rights to acquire shares; (ii) shares of Common Stock acquired upon the conversion or exchange of 4 convertible or exchangeable securities; (iii) shares of Common Stock acquired by means of purchase, dividend, distribution, gift, bequest, inheritance or as a successor in interest in any capacity or otherwise; and (iv) rights to acquire shares of Common Stock, vested or not, presently exercisable or not, including, but not limited to, options and warrants. In the event of a stock dividend or distribution, or any change in the Common Stock by reason of any stock dividend, split-up, recapitalization, reclassification, combination, exchange of shares or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed, reclassified or exchanged and appropriate adjustments shall be made to the terms and provisions of this Agreement. "Shares" shall also include voting trust certificates issued in respect of any Shares. 2. VOTING AGREEMENT. (a) The Stockholder and the Trustee, subject to the terms of this Agreement, hereby irrevocably grant to, and appoint, Parent and any other Person designated by Parent from time to time, the Stockholder's and the Trustee's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Stockholder, to vote the Stockholder's and the Trustee's Shares, or grant a consent or approval in respect of such Shares, at any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, (i) in favor of (A) the Merger, (B) the Merger Agreement and (C) the transactions contemplated by the Merger Agreement, including, but not limited to, the sale of any subsidiary of the Company in accordance therewith and the amendments to the Articles of Organization of the Company contemplated thereby and (ii) against (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its subsidiaries (except as contemplated by the Merger Agreement); (B) any sale, lease or transfer by the Company of a material amount of assets (including stock) of the Company or any of its subsidiaries, or a reorganization, restructuring, recapitalization, special dividend, dissolution or liquidation of the Company or any of its subsidiaries (except as contemplated by the Merger Agreement); and (C)(1) any change in a majority of the persons who constitute the board of directors of the Company or any of its subsidiaries; (2) any change in the present capitalization of the Company or any of its subsidiaries including any proposal to issue an equity interest (or rights thereto) in the Company or any of its subsidiaries (except as contemplated by the Merger Agreement); (3) any amendment of the Company or any of its subsidiaries' charters or by-laws; (4) any other change in the Company or any of its subsidiaries' corporate structure or business (except as contemplated in the Merger Agreement); and (5) any other action which, in the case of each of the matters referred to in clauses (C)(1), (2), (3) or (4), is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or adversely affect the 5 Merger and the transactions contemplated by this Agreement and the Merger Agreement. (b) The Stockholder and the Trustee represent that any proxies previously given in respect of the Stockholder's or the Trustee's Shares are not irrevocable, and that any such proxies are hereby revoked. (c) The Stockholder and the Trustee hereby affirm that the irrevocable proxy set forth in this Section 2 is given to secure the performance of the duties of the Stockholder and the Trustee under this Agreement. The Stockholder and the Trustee hereby further affirm that such irrevocable proxy is coupled with an interest and may under no circumstances be revoked, except in connection with the termination of this Agreement pursuant to Section 7 hereof. The Stockholder and the Trustee hereby ratify and confirm all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 41 of Chapter 156B of the Massachusetts General Laws. (d) The Stockholder and the Trustee agree that neither of them shall enter into any agreement or understanding with any Person the effect of which would be inconsistent with or violative of the provisions and agreements contained herein, including in this Section 2. Further, the Stockholder and the Trustee agree that they will, if the Board of Directors of the Company fails or refuses to submit the Merger to the Company stockholders or if the Board of Directors withdraws its approval of the Merger, vote all Shares held of record or Beneficially Owned by them to (i) call or cause to be called a special meeting of stockholders of the Company (or effect a written consent) to remove the directors of the Company who have so failed or refused or voted in favor of such withdrawal, or to increase the size of the Board of Directors and elect a majority of new directors who will submit the Merger to the stockholders of the Company for a vote or reinstate such approval, and (ii) use their reasonable efforts to vote such Shares to effect such removal and replacement, or increase and election, and the submission of the Merger to the stockholders of the Company; and (iii), at any time if so requested by Parent, vote such Shares to approve all or any actions incident to the Merger or the other matters referred to in this Section 2 by stockholder written consent. 3. OTHER COVENANTS OF THE STOCKHOLDER AND THE TRUSTEE. (a) RESTRICTION ON TRANSFER; PROXIES AND NON-INTERFERENCE. From the date hereof through the Closing Date or the earlier termination of this Agreement in accordance with its terms, and except for (i) Permitted Transfers as expressly permitted herein and (ii) enforcement of the pledge pursuant to the Consumer Pledge and Security Agreement dated April 16, 1998, as amended to date, in favor of 6 Boston Private Bank & Trust Company, the Stockholder and the Trustee agree that they shall not directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to, or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of (collectively, "transfer"), and shall, to the extent permitted by law, take all steps necessary to prevent the transfer of, any or all of the Shares or any interest therein except in connection with the transactions contemplated by the Merger Agreement except for the transfer of certain voting trust certificates held by persons other than the Stockholder and his immediate family; (ii) grant any proxies or powers of attorney with respect to the Shares, deposit the Shares into a voting trust or enter into a voting agreement, arrangement or understanding with respect to the Shares (except pursuant to the Voting Trust Agreement); or (iii) take any action (A) that would make any representation or warranty of the Stockholder or the Trustee contained herein untrue or incorrect or would result in a breach by the Stockholder or the Trustee of their obligations under this Agreement or (B) to terminate the Voting Trust. (b) NO SOLICITATION. Subject to Section 3(f), from the date hereof until the Closing Date, or the earlier termination of this Agreement in accordance with Section 7 hereof, the Stockholder and the Trustee agree that they shall not, and shall not permit any of their respective representatives, agents or affiliates (including, without limitation, any investment banker, attorney or accountant retained by the Stockholder or the Trustee), directly or indirectly, to enter into, solicit, initiate or continue any discussions or negotiations with, or provide any information to, or otherwise cooperate in any other way with, any Person or group, other than Parent and its affiliates, concerning any offer or proposal which constitutes or is reasonably likely to lead to an Acquisition Proposal. The Stockholder and the Trustee agree that they will immediately notify Parent orally and in writing if any discussions or negotiations are sought to be initiated, any inquiry or proposal is made, or any information is requested with respect to any Acquisition Proposal or which could lead to an Acquisition Proposal, and immediately notify Parent of all material terms of any proposal which they may receive in respect of any such Acquisition Proposal, including the identity of the prospective purchaser or soliciting party if known, and thereafter shall inform Parent on a timely, ongoing basis of the status and content of any 7 discussions or negotiations with such a third party, including immediately reporting any material changes to the terms and conditions thereof. (c) RELIANCE. The Stockholder and the Trustee understand and acknowledge that Parent entered into the Merger Agreement in reliance upon their execution and delivery of this Agreement. (d) FURTHER ASSURANCES. From time to time, at Parent's request and without further consideration, the Stockholder and the Trustee agree that they shall execute and deliver such additional documents and take all such further reasonable and lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the purposes of this Agreement. (e) STOCKHOLDER TERMINATION FEE. In the event that any Acquisition Proposal is consummated, then Stockholder shall pay to Parent as soon as practicable, but in no event later than two business days after receipt of the consideration paid to the Stockholder in connection with such Acquisition Proposal an amount (the "Stockholder Termination Fee") equal to the product of (x) the number of Shares Beneficially Owned by the Stockholder (for himself or for the benefit of another Person), multiplied by (y) the excess of the per share value of consideration paid or payable in consequence of consummation of the Acquisition Proposal (with the value of any non-cash consideration being determined by agreement of Parent and the Stockholder or, failing such agreement within 10 business days of consummation of such Acquisition Proposal, as provided below) over the Merger Consideration (as defined in the Merger Agreement). In the case of options on Shares, to the extent the same are canceled for a payment in cash (the "Option Payment"), the amount due hereunder shall be the amount by which the Option Payment exceeds the product of (a) the number of Shares underlying such options and (b) the Merger Consideration (as defined in the Merger Agreement). In the event that the consideration paid or payable in consequence of consummation of the Acquisition Proposal: (i) consists solely of cash, then the Stockholder Termination Fee shall be payable solely in cash, or (ii) consists of cash and other non-cash property, or solely non-cash property, then the Stockholder Termination Fee shall be payable in cash and such non-cash property in the same proportion as the cash bears to the value of the non-cash property issued or issuable in consequence of consummation of the Acquisition Proposal (as such value is determined herein). If Parent and the Stockholder, as the case may be, fail to agree promptly on the value of such non-cash consideration, then the parties shall appoint an independent investment banking firm reasonably acceptable to Parent and the Stockholder to act as arbitrator (the "Arbitrator"). Upon the selection of the Arbitrator, Parent on the one hand and the Stockholder, on the other hand, shall 8 deliver to the Arbitrator and to each other their last and final offer concurrently in writing (the "Certified Offers"). The Certified Offers shall list one amount which the submitting party asserts is the appropriate valuation of such non-cash consideration as of the date of submittal. The Arbitrator's sole role shall be to select which one of the two Certified Offers most closely approximates the valuation the Arbitrator would have determined for such non-cash consideration, taking into account current market valuations of any publicly traded securities which constitute such non-cash consideration. The Arbitrator shall notify the parties of such determination. The determination of the Arbitrator shall be binding on the parties. All costs and expenses of the Arbitrator shall be borne by the parties whose Certified Offer is not selected. The Stockholder acknowledges that the agreements contained in this Section 3(e) are an integral part of the transactions contemplated by this Agreement and the Merger. Accordingly, if the Stockholder shall fail to pay when due any amounts which shall become due under Section 3(e) hereof, the Stockholder shall in addition hereto pay to Parent all costs and expenses (including fees and disbursements of counsel) incurred in collecting such overdue amounts, together with interest on such overdue amounts from the date such payment was required to be made until the date such payment is received at a rate per annum equal to the Prime Rate as announced from time to time by Citibank, N.A. as its "prime rate," "reference rate," "base rate" or other similar rate. Any payment required to be made pursuant to this Section 3(e) shall be made when due by wire transfer of immediately available funds to an account designated by Parent. The parties agree and acknowledge that in the event that any Acquisition Proposal is consummated, it would be impracticable and extremely difficult to ascertain with certainty the amount of damages to Parent. Therefore, the parties agree that payment of the Stockholder Termination Fee pursuant to this Section 3(e) shall represent full liquidated damages hereunder in the event that any Acquisition Proposal is consummated. The parties agree that no party shall be liable for special, indirect, incidental or consequential damages of any nature arising from this Agreement. (f) FIDUCIARY DUTY OF DIRECTORS. Parent agrees and acknowledges that the Stockholder is a director of the Company, and, in such capacity, has fiduciary duties to the stockholders of Company. Nothing in this Agreement (including, without limitation, Section 3(b)) shall be deemed to limit or affect the obligation of the Stockholder, as a director of the Company, to take any and all action as may be necessary in the exercise of his fiduciary duty to the stockholders of the Company. 9 4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER AND THE TRUSTEE. The Stockholder and the Trustee, jointly and severally, hereby represent and warrant to Parent as follows: (a) OWNERSHIP OF SHARES. The Stockholder and the Trustee are the record and/or Beneficial Owner of the Existing Shares set forth besides their names on Exhibit A hereto. On the date hereof, the Existing Shares as set forth on Exhibit A constitute all of the Shares owned of record or Beneficially Owned by the Stockholder and the Trustee, respectively. With respect to the number of shares set forth opposite the Stockholder's and the Trustee's name on Exhibit A hereto, and with the exceptions noted thereon, if any, the Stockholder or the Trustee has sole voting power and sole power to issue instructions with respect to the matters set forth in Sections 2 and 3 hereof and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Existing Shares with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement, and in the case of the Stockholder, sole power of disposition, sole power of conversion, sole power to demand appraisal rights with respect to all of the Existing Shares with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. The Initial Beneficiary (as defined in the Voting Trust Agreement) no longer has the power to direct voting of Shares or to terminate the Voting Trust. (b) DUE AUTHORIZATION. The Stockholder and the Trustee have all requisite capacity, power and authority to execute and deliver this Agreement and perform their respective obligations hereunder. This Agreement has been duly and validly executed and delivered by the Stockholder and the Trustee and constitutes a valid and binding agreement enforceable against the Stockholder and the Trustee in accordance with its terms except to the extent (i) such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) NO CONFLICTS. Except for filings, authorizations, consents and approvals contemplated by the Merger Agreement and necessary for the consummation of the transactions contemplated hereby and thereby, (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by the Stockholder or the Trustee and the consummation by the Stockholder and the Trustee of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by the Stockholder or the Trustee, the consummation by the Stockholder or the Trustee of the transactions contemplated hereby or compliance by the Stockholder or the Trustee with any of the provisions hereof shall 10 (A) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Stockholder or the Trustee is a party or by which the Stockholder, the Trustee or any of their respective properties or assets may be bound, or (B) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to the Stockholder, the Trustee or any of their respective properties or assets. (d) NO ENCUMBRANCES. Except as set forth on Exhibit A or as otherwise permitted herein, the Shares and the certificates representing such Shares are now, and at all times during the term hereof, will be, held by the Stockholder or the Trustee, or by a nominee, custodian or trust for the benefit of the Stockholder or the Trustee, as the case may be, free and clear of all liens, claims, security interests, proxies, voting trusts (except for the Voting Trust Agreement) or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such arising hereunder. (e) FINDER'S FEES. No broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Stockholder or the Trustee. 5. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and warrants to the Stockholder and the Trustee as follows: (a) ORGANIZATION. Parent is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and has all requisite corporate power or other power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution and delivery by Parent of this Agreement and the performance by Parent of its obligations hereunder have been duly and validly authorized by its Board of Directors and, except as contemplated in the Merger Agreement, no other corporate proceedings on the part of Parent are necessary to authorize the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. (b) AGREEMENT. This Agreement has been duly and validly executed and delivered by Parent and constitutes a valid and binding agreement of Parent enforceable against Parent in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the 11 remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. (c) NO CONFLICTS. Except for filings, authorizations, consents, and approvals contemplated by the Merger Agreement and necessary for the consummation of the transactions contemplated hereby and thereby, (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby, and (ii) none of the execution and delivery of this Agreement by Parent, the consummation by Parent of the transaction contemplated hereby or compliance by Parent with any of the provisions hereof shall (A) conflict with or result in any breach of the charter or bylaws of Parent, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third-party right of termination, cancellation, material modifications or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent is a party or by which Parent of its properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, statute, rule or regulation applicable to Parent or its respective properties or assets. 6. LEGEND. (a) The Stockholder and the Trustee agree with, and covenant to, Parent that the Stockholder and the Trustee shall not request that the Company register the transfer (by book-entry or otherwise) of any certificate or uncertificated interest representing any of the Shares, unless such transfer is in compliance with this Agreement. (b) The Stockholder and the Trustee agree that they shall promptly after the date hereof surrender to Parent all certificates representing the Shares held by the Stockholder or the Trustee, and Parent shall place the following legend on such certificates, which legend, except as otherwise expressly provided in this Agreement, shall remain on such certificates until the termination of this Agreement: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT, DATED AS OF AUGUST 9, 1999 AMONG CERTAIN STOCKHOLDERS AND MIDNIGHT ACQUISITION HOLDINGS, INC. THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER OR ENCUMBRANCE AND 12 VOTING. A COPY OF THE AGREEMENT IS AVAILABLE AT THE PRINCIPAL OFFICE OF THE COMPANY." 7. TERMINATION. This Agreement shall terminate upon the earlier to occur of (i) the Closing Date, (ii) March 31, 2000 or (iii) the date the Merger Agreement is terminated if the Merger Agreement is terminated pursuant to Section 8.01(a) or (c) of the Merger Agreement; PROVIDED, HOWEVER, that if the Merger Agreement is terminated pursuant to Section 8.01(c) of the Merger Agreement, such order, decree, ruling or other action shall not have resulted from any action taken by the Stockholder. The parties hereto agree that the provisions of Section 3(e) (but only to the extent an Acquisition Proposal is made, proposed, communicated, disclosed or consummated prior to termination hereunder) and Section 8 shall survive any termination of this Agreement, and no such termination shall relieve any party of liability for a breach hereof prior to termination. 8. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS. The parties recognize that successful consummation of the transactions contemplated by this Agreement may be dependent upon confidentiality with respect to the matters referred to herein. In this connection, pending public disclosure thereof, each of the parties hereto severally and not jointly agrees not to disclose or discuss such matters with anyone not a party to this Agreement (other than its counsel, advisors, corporate parents and affiliates) without the prior written consent of the other parties hereto, except for filings required pursuant to the Exchange Act and the rules and regulations thereunder or disclosures its counsel advises are necessary in order to fulfill its obligations imposed by law or the requirements of any securities exchange. At all times during the term of this Agreement, the parties hereto will consult with each other before issuing or making any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated hereby and will use good faith efforts to agree on the text of public reports, statements or releases. 9. GENERAL PROVISIONS. (a) EXPENSES. Whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except as otherwise specifically noted herein or in the Merger Agreement. (b) NOTICES. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: 13 (i) if to Parent, to: Midnight Acquisition Holdings, Inc. c/o Asahi Organic Chemicals Industry Co., Ltd 15-9 Uchikanda 2-chome Chiyoda-ku, Tokyo 101-0047 Japan Telephone: 03-3256-2451 Telecopy: 03-3254-3473 with copies to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 Attention: David M. Wilf, Esq. Telephone: (212) 408-5100 Telecopy: (212) 541-5369 (ii) if to the Stockholder or the Trustee, to the respective addresses set forth on Exhibit A. (c) INTERPRETATION. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". This Agreement shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and vice versa, unless otherwise specified. (d) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. (e) ASSIGNMENT. Except in connection with Permitted Transfers, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (whether by operation of law or otherwise) by the Stockholder or the Trustee without the consent of Parent. Subject to the preceding 14 sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. (f) GOVERNING LAW. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the Commonwealth of Massachusetts (without reference to the choice of law provisions), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. (g) SEVERABILITY. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby. Upon any such holding that any provision of this Agreement is null, void or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent authority, such party shall incur no liability or obligation unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment. (h) INJUNCTIVE RELIEF. Subject to the last paragraph of Section 3(e), the parties acknowledge that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person or entity will be irreparably damaged and will not have an adequate remedy at law. Any such Person or entity shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties shall raise the defense that there is an adequate remedy at law. (i) ATTORNEYS' FEES. If any party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation reasonable 15 attorneys' fees, incurred in connection with such action, including any appeal of such action. (j) CUMULATIVE REMEDIES. All rights and remedies of either party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. (k) COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when executed and delivered by each of the parties. (l) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the parties hereto. (m) BINDING AGREEMENT. The Stockholder and the Trustee agree that this Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any Person or entity to which legal or Beneficial Ownership of such shares shall pass, whether by operation of law or otherwise, including, without limitation, the Stockholder's heirs, distributees, guardians, administrators, executors, legal representatives, or successors or other transferees (for value or otherwise) and any other successors in interest. Notwithstanding any transfer of Shares the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (n) CAPACITY. For purposes of this Agreement and the representations, covenants and promises contained herein, the Stockholder is acting solely in his capacity as stockholder (of record or beneficial) of, and not as a director, officer, employee, representative or agent of, the Company and as trustee under the Voting Trust Agreement. (o) CONSENT AND JURISDICTION. Each party irrevocably and unconditionally agrees and consents that any suit, action or other legal proceeding arising out of or related to this Agreement shall be brought and heard in the Commonwealth of Massachusetts and each party irrevocably consents to personal jurisdiction in any and all tribunals in said State. 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Midnight Acquisition Holdings, Inc. By: /s/ Ichiro Murao ------------------------------------ Name: Ichiro Murao Title: President /s/ Leslie B. Lewis --------------------------------------- Leslie B. Lewis, individually /s/ Leslie B. Lewis --------------------------------------- Leslie B. Lewis, Trustee 17 EX-10.1 3 EXHIBIT 10-1 EXHIBIT 10.1 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT between QUAIL ACQUISITION CORPORATION and ASAHI/AMERICA, INC. August 9, 1999 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT ("Agreement") is made as of the 9th day of August, 1999, by and between Quail Acquisition Corporation, a Massachusetts corporation ("Buyer"), and Asahi/America, Inc., a Massachusetts corporation ("Asahi"). The definitions set forth in Schedule I hereto are incorporated herein by reference for all purposes of the Agreement. WHEREAS, Asahi owns one hundred (100) shares of common stock, at no par value per share (the "Shares"), of Quail Piping Products, Inc. a Massachusetts corporation ("Quail"), being all of the issued and outstanding shares of capital stock of Quail; and WHEREAS, Asahi desires to sell, and Buyer desires to purchase, all of the Shares. NOW, THEREFORE, in consideration of these premises, the agreements, representations, warranties and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. PURCHASE AND SALE OF SHARES. 1.1 SALE OF SHARES. Asahi agrees to sell and deliver to Buyer, and Buyer agrees to purchase and accept from Asahi, free and clear of all liens, options and other encumbrances, on the terms and subject to the conditions set forth in this Agreement, and for the Purchase Price described in Section 1.2 hereof, the Shares. 1.2 PURCHASE PRICE. There shall be paid to Asahi on the Closing Date, the purchase price of Four Million Five Hundred Thousand ($4,500,000.00) (the "Purchase Price") by wire transfer, certified or bank cashier's check or other immediately available funds. 1.3 DELIVERY OF SHARES. Against payment of the Purchase Price, Asahi shall deliver to Buyer the certificates representing the Shares duly endorsed for transfer to Buyer or accompanied by an instrument to effect such transfer duly executed by Asahi. Section 2. CLOSING. Consummation of the transactions contemplated hereby ("Closing") shall occur at the offices of Chadbourne & Parke, LLP, commencing at 10:00 a.m. local time on the Merger Closing Date upon satisfaction or waiver of all conditions to the obligations of the parties hereto to consummate the transactions contemplated hereby (the "Closing Date"). Section 3. REPRESENTATIONS AND WARRANTIES. 3.1 REPRESENTATIONS AND WARRANTIES CONCERNING QUAIL AND ASAHI. Asahi represents and warrants, upon which representations and warranties Buyer is relying, as follows: (a) EXISTENCE AND GOOD STANDING. Asahi and Quail are corporations duly organized, validly existing and in good standing under the laws of Massachusetts. Quail has the power to own or hold under lease the rights, properties and assets it purports to own or hold under lease and to carry on its business as now being conducted except where the failure to do so would not result in a Material Adverse Effect. (b) CAPITAL STOCK. The authorized capital stock of Quail consists solely of 200,000 shares of Common Stock, no par value, of which one hundred (100) shares are issued and outstanding. Asahi owns one hundred percent (100%) of the issued and outstanding capital stock of Quail. There are no existing options, warrants, rights, calls or commitments of any character relating to the capital stock of Quail, and there are no outstanding securities or other instruments convertible into or exchangeable for shares of capital stock of Quail and no commitments to issue such securities or instruments. All outstanding Shares were issued in compliance with all applicable federal and state securities laws and all such Shares are duly authorized, validly issued, fully paid and non-assessable and, at the Closing, will be free and clear of all liens, encumbrances, security interests, equities, options, claims, charges and restrictions and have not been sold, assigned, transferred, pledged, hypothecated, optioned or otherwise encumbered. (c) OWNERSHIP OF SHARES AND DELIVERY OF VALID TITLE. Asahi owns of record and beneficially the Shares, and Asahi has, and at the Closing will have, and upon delivery will pass to Buyer, good and marketable title to the Shares, free and clear of all liens, options and other encumbrances. (d) AUTHORIZATION. All consents, authorizations, orders and approvals necessary for the sale and delivery of the Shares to be sold by Asahi hereunder, have been obtained, and Asahi has, and as of the Closing will have, full right, power, authority and capacity to sell, assign, transfer and deliver the Shares pursuant to this Agreement. (e) EXECUTION AND DELIVERY. Except as set forth on Schedule 3.1(e), all consents, approvals, authorizations and orders necessary for the execution and delivery by Asahi of this Agreement have been obtained, and Asahi has full right, power, authority and capacity to enter into and perform fully under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate actions on the part of Asahi, this Agreement has been duly executed and delivered by Asahi and constitutes a legal, valid and binding obligation of Asahi enforceable against it in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. 2 (f) NO CONFLICTS. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not: (i) result in any breach of, or constitute a default under, the Corporate Documents of Asahi; (ii) upon fulfillment of conditions set forth in Section 5.3 result in a breach of or constitute a default under any instrument, agreement or obligation to which Asahi is a party or by which Asahi or any of its properties is bound; (iii) require the consent, approval, order or authorization of, or registration, declaration or filing with any governmental or quasi-governmental authority or board, or any other Person in connection with the execution and delivery of this Agreement by Asahi or the consummation of the transactions contemplated hereunder; or (iv) violate any existing statute, arbitration award, order, writ, judgment, injunction or decree of any court, administrative agency or governmental or quasi-governmental body having jurisdiction over Asahi or any of its properties. (g) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf of Quail or Asahi is, or will be, entitled to any commission or broker's or finder's fees from Buyer in connection with any of the transactions contemplated herein. 3.2 DISCLAIMER OF ASAHI WARRANTIES. (a) Except as expressly set forth in Section 3.1, Asahi makes no representation or warranty whatsoever, express or implied, relating to the assets or business of Quail, including without limitation, any representation or warranty as to the future sales or profitability of the business of Quail. (b) Under no circumstances shall Asahi be liable for any breach of a representation or warranty or for any indemnity hereunder if such breach or indemnification obligation is based on items, facts, circumstances, actions, inactions or matters known by Leslie B. Lewis, T.J. Hammer or John E. Lawrence, it being agreed that (i) such individuals are collectively responsible for and have operated or supervised the operation of the business of Asahi and/or Quail; (ii) such individuals have in-depth knowledge of the business of Quail and its assets and liabilities; (iii) such individuals have ownership interests in the Buyer; (iv) the Buyer has had access to the knowledge of such individuals; and (v) Asahi's knowledge of the business of Quail is dependent upon the knowledge of such individuals. For purposes hereof, "known" shall include actual knowledge and items which should have been known. 3.3 REPRESENTATIONS AND WARRANTIES CONCERNING BUYER. Buyer represents and warrants, upon which representations and warranties Asahi is relying, as follows: 3 (a) EXISTENCE AND GOOD STANDING. Buyer is a corporation duly organized, validly existing and in good standing under the laws of The Commonwealth of Massachusetts. Buyer has the power to own or hold under lease the rights, properties and assets it purports to own or hold under lease and to carry on its business as now being conducted. (b) DUE AUTHORIZATION. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate actions on the part of Buyer; and this Agreement has been duly executed and delivered by Buyer, constitutes the valid, legally binding obligation of Buyer and is enforceable in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. (c) FINANCING AND NET WORTH. Buyer has obtained in good faith: (a) a bona fide commitment letter from Management Shareholders, and (b) a letter of interest from Gemini Investors, LLC providing for debt and equity financing sufficient to pay the Purchase Price. Such letters are attached hereto as EXHIBIT A. To the best of Buyer's knowledge, no facts or circumstances exist as of the date of this Agreement that would be reasonably likely to result in the failure to complete such financing upon the terms set forth in such letters. After giving effect to the transactions contemplated by this Agreement, Quail will have assets in excess of its liabilities of not less than $4,000,000. (d) NO CONFLICTS. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not: (i) result in any breach of, or constitute a default under, the Corporate Documents of Buyer; (ii) result in a breach of or constitute a default under any instrument, agreement or obligation as to which Buyer is a party or by which Buyer or any of its properties is bound; (iii) require the consent, approval, order or authorization of, or registration, declaration or filing with any governmental or quasi-governmental authority or board, or any other Person in connection with the execution and delivery of this Agreement by Buyer or the consummation of the transactions contemplated hereunder; or (iv) violate any existing statute, arbitration award, order, writ, judgment, injunction or decree of any court, administrative agency or governmental or quasi-governmental body having jurisdiction over Buyer or any of its properties. (e) BROKER'S AND FINDER'S FEES. No agent, broker, person or firm acting on behalf of Buyer is, or will be, entitled to any commission or broker's or finder's fees from Asahi in connection with any of the transactions contemplated herein. 4 Section 4. CONDITIONS TO BUYER'S OBLIGATIONS TO CLOSE. The obligations of Buyer hereunder shall be subject to the fulfillment on or prior to the Closing of the following conditions: 4.1 CLERK'S CERTIFICATE. There shall have been delivered to Buyer a certificate of the corporate Clerk of Asahi dated the Closing Date certifying as to true copies of all corporate action taken by the stockholders and directors of Asahi relative to this Agreement, the Articles of Organization (certified by the Secretary of State as of a recent date), and the Bylaws of Asahi as amended to date, and the names, true signatures and incumbency of the officers of Asahi authorized to execute this Agreement and the other documents executed or to be executed in connection herewith. 4.2 MERGER. The Merger shall concurrently have become effective. 4.3 NO LEGAL ACTION. No injunction or other restraining order issued by a court of competent jurisdiction that in Buyer's judgment prohibits the consummation of any of the transactions contemplated hereby shall be in effect (each party agreeing to use its best efforts in good faith to have any such injunction or other order lifted), and no governmental action or proceeding shall have been commenced or threatened in writing seeking any injunction or other restraining order that seeks to prohibit, restrain, invalidate or set aside consummation of any of the transactions contemplated hereby. 4.4 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Asahi contained in this Agreement shall be true and correct in all material respects at and as of the Closing. 4.5 FINANCING. Buyer shall have received the cash proceeds of the financing described in the letters attached hereto as EXHIBIT A and additional equity financing in an aggregate amount of up to $940,000. 4.6 PERFORMANCE OF COVENANTS. Asahi shall have performed in all material respects all of its covenants set forth herein that are required to be performed at or prior to the Closing Date. 4.7 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there shall not have been any material adverse change in the financial condition, business, operations, prospects or properties of Quail. 4.8 RESIGNATION OF OFFICERS AND DIRECTORS. Buyer shall have received the written resignations of each Officer and Director of Quail. 4.9 RELEASE OF GUARANTEES. All guarantees, negative pledges, severance agreements, reimbursement agreements and all other obligations and liabilities, of Asahi with respect to Quail obligations ("Asahi Guarantees"), shall have been terminated or 5 released to the satisfaction of Asahi in its sole discretion including without limitation, those referred to on Schedule 3.05 of the Merger Agreement. Quail shall have been removed from the Citizens Loan Agreement. The foregoing notwithstanding, subject to Section 3.2(b), Asahi shall remain liable for all tax obligations of Quail relative to the fiscal year of Quail in which the transaction closes, up to and including the Closing Date. All intercompany accounts by and between Quail and Asahi shall have been settled. 4.10 QUAIL LOAN. All intercompany accounts between Asahi and Quail shall have been settled except that $1,000,000 in loans outstanding from Asahi to Quail shall be converted into a loan payable, guaranteed, secured and subordinated as provided in Section 7.02(d) of the Merger Agreement. 4.11 GENERAL. All instruments, filings and legal and other proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Buyer and its counsel, and it shall have received copies of all documents, including records of corporate proceedings, and certificates which it may have requested in connection therewith, such documents where appropriate to be certified by proper corporate or governmental authorities. Section 5. CONDITIONS TO ASAHI'S OBLIGATIONS TO CLOSE. The obligations of Asahi hereunder shall be subject to the fulfillment on or prior to the Closing of the following conditions: 5.1 SECRETARY'S CERTIFICATES. Buyer shall have delivered to Asahi a certificate of its Secretary dated the Closing Date certifying as to true copies of all corporate action taken by it relative to this Agreement, charter documents (certified by the Secretary as of a recent date), the Bylaws of Buyer and the names, true signatures and incumbency of the officers of Buyer authorized to execute this Agreement and the other documents executed or to be executed in connection herewith. 5.2 MERGER. The Merger shall concurrently have become effective. 5.3 RELEASE OF GUARANTEES. All guarantees, negative pledges, severance agreements, reimbursement agreements and all other obligations and liabilities, of Asahi with respect to Quail obligations ("Asahi Guarantees"), shall have been terminated or released to the satisfaction of Asahi in its sole discretion including without limitation, those referred to on Schedule 3.05 of the Merger Agreement. Quail shall have been removed from the Citizens Loan Agreement. The foregoing notwithstanding, Asahi shall remain liable for all tax obligations of Quail relative to the fiscal year of Quail in which the transaction closes, up to and including the Closing Date. All intercompany accounts by and between Quail and Asahi shall have been settled. 5.4 QUAIL LOAN. All intercompany accounts between Asahi and Quail shall have been settled except that an intercompany loan in the aggregate amount of $1,000,000 6 outstanding from Asahi to Quail shall be converted into a loan payable of Quail, guaranteed, secured and subordinated as provided in Section 7.02(d) of the Merger Agreement. 5.5 NO LEGAL ACTION. No injunction or other restraining order issued by a court of competent jurisdiction that in Asahi's judgment prohibits the consummation of any of the transactions contemplated hereby shall be in effect (each party agreeing to use its best efforts in good faith to have any such injunction or other order lifted), and no governmental action or proceeding shall have been commenced or threatened in writing seeking any injunction or other restraining order that seeks to prohibit, restrain, invalidate or set aside consummation of any of the transactions contemplated hereby. 5.6 PERFORMANCE OF COVENANTS. Buyer shall have performed in all material respects all of its covenants set forth herein that are required to be performed at or prior to the Closing Date. 5.7 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date, except as contemplated or permitted by this Agreement. 5.8 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there shall not have been any material adverse change in the financial condition, business, operations, prospects or properties of Quail. 5.9 GENERAL. All instruments, filings and legal and other proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Asahi, and Asahi shall have received copies of all documents, including records of corporate proceedings, and certificates which it may have requested in connection therewith, such documents where appropriate to be certified by proper corporate or governmental authorities. Section 6. INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS; POST CLOSING OBLIGATIONS. 6.1 INDEMNITY OF BUYER. (a) Asahi shall indemnify, defend and hold harmless Buyer against and in respect of any and all losses, costs, liabilities, actual damages, claims, causes of action, litigation, judgments, suits, proceedings, costs, disbursements, expenses, including but not limited to interest, penalties and reasonable attorneys' fees, but excluding consequential damages (collectively, "Losses"), incurred or suffered by Buyer which arise from, are based upon or relate to, (i) any breach by Asahi of any representation or warranty contained in the Agreement, or (ii) the failure by Asahi to perform any covenant or agreement required by this Agreement or any schedule, certificate, exhibit or other instrument furnished or to be furnished by it pursuant to this Agreement. 7 (b) The preceding paragraph notwithstanding, there shall be no entitlement to indemnification under Section 6.1(a)(i) unless the amount of indemnification to which Buyer would be entitled in respect of a Loss or the aggregate amount of all Losses described in Section 6.1(a)(i) shall exceed $30,000. If the aggregate amount of all Losses shall exceed $30,000, Buyer shall be entitled to indemnification for the entire amount thereof, not just for the portion in excess of $30,000; provided, however, that Buyer shall not be entitled to any amounts in excess of the Purchase Price. 6.2 INDEMNITY OF ASAHI. (a) Buyer shall indemnify, defend and hold harmless Asahi against and in respect of any and all Losses incurred or suffered by Asahi which arise from, are based upon or relate to, (i) any breach by Buyer of any representation or warranty contained in the Agreement (ii) the failure by Buyer to perform any covenants or agreement required by this Agreement or any schedule, certificate, exhibit or other instrument furnished or to be furnished by them pursuant to this Agreement or (iii) any obligation or liability of or relating to Quail, its officers, directors or employees other than as specified herein to be undertaken by Asahi, provided, however, that any liability of any officer or director of Quail prior to the Closing which is covered under any Directors and Officers insurance policy of Asahi shall be, to the extent of such policy limit thereunder, covered under such policy. (b) The preceding paragraph notwithstanding, there shall be no entitlement to indemnification unless the amount of indemnification under Section 6.2(a)(i) to which Asahi would be entitled in respect of a Loss or the aggregate amount of all Losses described in Section 6.2(a)(i) shall exceed $30,000. If the aggregate amount of all Losses shall exceed $30,000, Asahi shall be entitled to indemnification for the entire amount thereof, not just for the portion in excess of $30,000; provided, however, that Asahi shall not be entitled to any amounts in excess of the Purchase Price. 6.3 PROCEDURE IN RESPECT OF THIRD PARTY CLAIMS. In the event any third party claim is asserted against any party with a right to be indemnified hereunder ("Indemnified Party") that may give rise to a claim against Asahi or Buyer ("Indemnifying Party") for indemnification under this Section 6, the Indemnified Party shall, promptly after notice of such claim, advise the Indemnifying Party in writing that such claim is an Indemnity Claim. The failure to give prompt notice shall not affect the rights of the Indemnified Party to indemnity hereunder except to the extent that such failure either shall have materially prejudiced the Indemnifying Party in the defense of such claim or shall have increased the amount of the obligation of the Indemnifying Party, and then only to such extent. The Indemnifying Party receiving such notice shall, within thirty (30) days of receipt of such notice, (a) deny in writing the claim, (b) pay the amount of the claim if a monetary amount is involved, or (c) if a claim of a third party is involved, have the right to assume the defense of such claim. The Indemnifying Party shall have the exclusive right to conduct and control, through counsel of its own choosing, the defense of any such claim or any action arising therefrom, PROVIDED, that in conducting the defense of any such claim or action, the Indemnifying Party shall, and shall cause its counsel to, consult with the Indemnified Party and counsel, if any, selected by it, and shall keep such counsel, if any, and the Indemnified 8 Party fully advised of the progress thereof. If the Indemnifying Party fails or refuses to assume the conduct and control of the defense of any such claim or action, then the Indemnified Party shall conduct and control such defense; PROVIDED, HOWEVER, that in so conducting the defense of any such claim or action, the Indemnified Party shall, and shall cause its counsel to, consult with the Indemnifying Party and counsel, if any, selected by it, and shall keep such counsel, if any, and the Indemnifying Party fully advised of the progress thereof. No settlement of any claim for which indemnification is sought hereunder shall be made without either (x) the prior written consent of both the Indemnifying Party and the Indemnified Party, which consent shall not be unreasonably withheld or delayed, or (y) the release of the Indemnified Party from all liability relating to such claim, in form and substance reasonable satisfactory to the Indemnified Party and its counsel. 6.4 RECOURSE FOR INDEMNITY CLAIMS. If either party is entitled to indemnification for any Indemnity Claims, such party shall be entitled to immediate payment from the other party. 6.5 INTEREST AND COSTS OF COLLECTION. If any amount shall be owing to Buyer or Asahi pursuant to this Section 6 and if any such amount or any portion thereof is not paid when duly claimed by the party entitled thereto, then upon a final determination that such amount or any portion thereof is in fact owing, the party owing such amount or any portion thereof agrees (x) to pay interest thereon at a rate equal to the prime lending rate quoted by The Wall Street Journal as the "Prime Rate" from the date claimed to the date paid and (y) to pay the costs and expenses of collection, including reasonable counsel's fees. 6.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties, covenants and agreements of Asahi and Buyer made in this Agreement or in any exhibit, statement, schedule, certificate, instrument or any document delivered pursuant hereto, shall survive the Closing for a period of one (1) year from the Closing Date. Notwithstanding anything to the contrary contained in the first sentence of this Section 6.6, the representations and warranties contained in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(d) and 3.2(a) shall survive the Closing for a period of three (3) years. 6.7 POST-CLOSING OBLIGATIONS. After the Closing Date, where there is a legitimate purpose in connection with defending a claim for which Asahi is or may be required to indemnify Buyer, Buyer shall provide Asahi with copies of information or documentation, upon prior reasonable written request specifying the need therefor; PROVIDED, HOWEVER, that the foregoing right shall not be exercisable in such a manner as to interfere unreasonably with the normal operations and business of Buyer. 9 6.8 POST CLOSING ACCOUNTING AND ADJUSTMENTS. Within thirty (30) days following the Closing Date, Quail and Asahi shall share all pertinent information and agree upon the intercompany account between them as of the Closing Date determined on an accrual basis in accordance with generally accepted accounting principles consistently applied and Quail or Asahi, as the case may be, shall remit to the other such amount as is necessary to bring such account to zero (exclusive of the Quail Loan). In the event that the parties cannot agree upon the settlement of the account within such thirty (30) day period, the dispute shall be fully and finally settled by an independent accounting firm mutually acceptable to the parties. Section 7. TAX MATTERS 7.1 PREPARATION AND FILING OF TAX RETURNS. Asahi will prepare and timely file or will cause to be prepared and timely filed all appropriate Federal, state, local and foreign tax returns in respect of Quail and its assets or activities that (a) are required to be filed on or before the Closing Date or (b) are required to be filed after the Closing Date and (i) include Quail, on the one hand, and Asahi or any of its affiliates (other than Quail), on the other hand or (ii) are with respect to Income Taxes or other taxes and are required to be filed on a separate tax return basis for any tax period ending on or before the Closing Date. Buyer will prepare or cause to be prepared and will timely file or cause to be timely filed all other tax returns required of Buyer and its affiliates (including Quail), or in respect of their assets or activities. Any such tax returns that include periods ending on or before the Closing Date or that include the activities of Quail prior to the Closing Date will, insofar as they relate to Quail, be on a basis consistent with the last previous such tax returns filed in respect of Quail, unless Asahi or Buyer, as the case may be, concludes that there is no reasonable basis for such position, and no position shall be taken on any such tax return that would have a material adverse effect on Quail for taxable periods ending after the Closing Date. Neither Buyer nor Quail will file any amended tax returns for any periods for or in respect of Quail with respect to which Buyer is not obligated to prepare or cause to be prepared the original such tax returns pursuant to this Section 7.1 without the prior written consent of Asahi which shall not be unreasonably withheld and which will be granted if the amended tax return position is reasonable. 7.2 PAYMENT OF TAXES. From and after the Closing Date Asahi will pay or cause to be paid all Taxes shown as due with respect to tax returns which Asahi is obligated to prepare and file or cause to be prepared and filed pursuant to Section 7.1 and Buyer will pay or cause to be paid all Taxes shown as due with respect to tax returns which Buyer is obligated to prepare and file or cause to be prepared and filed pursuant to Section 7.1. 7.3 TAX SHARING AGREEMENTS. On the Closing Date, all Tax sharing agreements and arrangements between (a) Quail, on the one side and (b) Asahi or any of its affiliates (other than Quail), on the other side, will be terminated and have no further effect for any taxable year or period (whether a past, present or future year or period), and no additional payments will be made thereunder on or after the Closing Date in respect of a redetermination of Tax liabilities or otherwise. 10 7.4 CARRYFORWARDS AND CARRYBACKS. Buyer will cause Quail to elect, where permitted by law, to carry forward any net operating loss, net capital loss, charitable contribution or other item arising after the Closing Date that could, in the absence of such an election, be carried back to a taxable period of Quail ending on or before the Closing Date. Buyer, on its own behalf and on behalf of its affiliates, hereby waives any right to use or apply any net operating loss, net capital loss, charitable contribution or other item of Quail for any Tax year ending on any date following the Closing Date to any period of Quail ending on or before the Closing Date. 7.5 REFUNDS. Asahi will be entitled to retain, or receive immediate payment from Buyer or any of its affiliates (including Quail) of any refund or credit arising with respect to Quail (including, refunds and credits arising by reason of amended tax returns filed after the Closing Date or otherwise) relating to Taxes with respect to any Tax period ending on or before the Closing Date. Buyer and Quail will be entitled to retain, or receive immediate payment from Asahi of, any refund or credit with respect to Taxes with respect to any taxable period beginning after the Closing Date relating to Quail. Buyer and Asahi will equitably apportion any refund or credit with respect to Taxes with respect to any taxable period that includes (but does not end on) the Closing Date (a "Straddle Period"). Any outside costs and expenses incurred in connection with any refund or credit shall be apportioned equitably between the parties. 7.6 TAX COOPERATION. From and after the Closing Date, each of Buyer and Asahi will provide the other party with such information and records and make such of its representatives available as may reasonably be requested by such other party in connection with the preparation of any tax return or any audit or other proceeding that relates to Quail. Buyer will prepare or cause Quail to prepare, on or before June 30, 2000 or as otherwise agreed, in a manner consistent with past practice, the Tax work paper preparation package or packages necessary to enable Asahi to prepare tax returns Asahi is obligated to prepare or cause to be prepared. 7.7 TAX INDEMNIFICATION. (a) Asahi will indemnify, defend and hold the Buyer and its affiliates harmless from and against (i) all liability for income Taxes of Quail for (A) any taxable period that ends on the Closing Date (B) the portion of any Straddle Period ending on the Closing Date and (C) to the extent that the Closing Date does not occur during 1999, all liability for income Taxes of Quail for 1999, and (ii) all liability (as a result of Treasury Regulation Section 1.1502-6(a) or comparable provisions of state or foreign law) for Taxes of Asahi or any other person (other than Quail) which is or has ever been affiliated with Quail, or with whom Quail otherwise joins or has ever joined (or is or has ever been required to join) in filing any consolidated, combined or unitary tax return, prior to the Closing. Notwithstanding the foregoing, Asahi will not indemnify, defend or hold harmless Buyer or any of its affiliates (including Quail) from any liability for Taxes attributable to any action taken after the Closing by Buyer, any of its affiliates (including Quail), or any transferee of Buyer or any of its affiliates (other than any such action expressly required or otherwise expressly contemplated by this Agreement) (a "BUYER TAX ACT"). 11 (b) Buyer will indemnify, defend and hold Asahi and its affiliates harmless from and against (i) except to the extent Asahi is otherwise required to indemnify Buyer for such Tax pursuant to Section 7.7(a), all liability for Taxes of Quail for any taxable period, (ii) all liability for Taxes attributable to a Buyer Tax Act and (iii) all liability for Taxes attributable to an election by Buyer under Section 338 of the Code with respect to the purchase of the Quail. (c) The obligations of each party to indemnify, defend and hold harmless the other party and other persons, pursuant to Sections 7.7(a) and 7.7(b), will terminate upon the expiration of all applicable statutes of limitations (giving effect to any extensions thereof), PROVIDED, HOWEVER, that such obligations to indemnify, defend and hold harmless will not terminate with respect to any individual item as to which an indemnified party shall have, before the expiration of the applicable period, previously made a claim by delivering a notice (stating in reasonable detail the basis of such claim) to the applicable indemnifying party. (d) In the case of any Straddle Period: (i) the periodic Taxes of Quail that are not based on income or receipts (E.G., property Taxes) for the portion of any Straddle Period ending on the Closing Date shall be computed based on the ratio of the number of days in such portion of the Straddle Period and the number of days in the entire taxable period; (ii) Taxes of Quail for the portion of any Straddle Period ending on the Closing Date (the "PRE-CLOSING TAX PERIOD") (other than Taxes described in Section 7.7(d)(i) will be computed as if such taxable period ended as of the close of business on the Closing Date[, and, in the case of any Taxes of Quail attributable to the ownership by Quail of any equity interest in any partnership or other "flowthrough" entity as if a taxable period of such partnership or other "flowthrough" entity ended as of the close of business on the Closing Date]; and (iii) Taxes of Quail for which a consolidated, combined or joint Tax Return is filed will be computed in accordance with the principles of Treasury Regulation Section 1.1502-76 as if separate returns had been filed for Quail for such Pre-Closing Tax Period and all prior taxable periods. (e) Any indemnity payment required to be made pursuant to this Section 7.7 will be paid within 30 days after the indemnified party makes written demand upon the indemnifying party, but in no case earlier than five business days prior to the date on which the relevant Taxes are required to be paid (or would be required to be paid if no such Taxes are due) to the relevant taxing authority (including estimated Tax payments). 7.8 TIMING ADJUSTMENTS. In the event that a final determination (which shall include the execution of a Form 870-AD or successor form) results in a timing difference (E.G., an acceleration of income or delay of deductions) that would increase Asahi's liability for Taxes pursuant to this Agreement or results in a timing difference (E.G., an acceleration of deductions or delay of income) that would increase Buyer's liability for Taxes pursuant to 12 this Agreement, Buyer or Asahi, as the case may be, will promptly make payments to Asahi or Buyer as and when Buyer or Asahi, as the case may be, actually realizes any Tax benefits as a result of such timing difference (or under such other method for determining the present value of any such anticipated Tax benefits as agreed to by the parties). In determining the amount of any such Tax benefit, Buyer or Asahi, as the case may be, will be deemed to be subject to the applicable Federal, state and local Income Taxes at the maximum statutory rate then in effect. 7.9 TAX CONTESTS. (a) If a claim is made by any taxing authority which, if successful, might result in an indemnity payment pursuant to Section 7.7, the indemnified party will promptly notify the indemnifying party of such claim (a "TAX CLAIM"); PROVIDED, HOWEVER, that the failure to give such notice will not affect the indemnification provided hereunder except to the extent the indemnifying party has actually been prejudiced as a result of such failure. (b) With respect to any Tax Claim relating to a taxable period ending on or before the Closing Date or to any other taxable period in which Quail joined in filing any consolidated, combined or unitary tax return, Asahi will control all proceedings and may make all decisions taken in connection with such Tax Claim (including selection of counsel) and, without limiting the foregoing, may in its sole discretion pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect thereto, and may, in its sole discretion, either pay the Tax claimed and sue for a refund where applicable law permits such refund suits or contest the Tax Claim in any permissible manner, provided however, that neither Asahi nor any of its appointed representatives shall, without the prior written consent of Buyer, which consent shall not be unreasonably withheld, enter into any settlement of any contest or otherwise compromise any issue that affects or may affect the tax liability of Quail for any taxable year or other taxable period or portion thereof ending after the Closing Date. Except as provided in the first sentence of this Section 7.9(b), Buyer and its duly appointed representatives will control all proceedings and make all decisions taken in connection with such Tax Claim (including selection of counsel) and without limiting the foregoing, may in its sole discretion pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect thereto, and may, in its sole discretion either pay the Tax Claim and sue for a refund where applicable law permits such refund suits or contest the Tax Claim in any permissible manner with respect to any taxable year or other taxable period in which Quail did not join in filing any consolidated tax return ending after the Closing Date. Asahi will keep Buyer informed in respect of all material aspects of such Tax Claims. (c) Except as otherwise provided in Section 7.9(b), Asahi and Buyer will jointly control and participate in all proceedings taken in connection with any Tax Claim relating to Taxes of Quail for any Straddle Period. Neither Asahi nor Buyer will settle any such Tax Claim without the prior written consent of the other (not to be unreasonably withheld). (d) Each of Buyer, Quail and their respective affiliates, on the one hand, and Asahi and its respective affiliates, on the other, will cooperate in contesting any Tax Claim, which cooperation will include the retention and (upon request) the provision to the 13 requesting party of records and information which are reasonably relevant to such Tax Claim, and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim. 7.10 TAX DEFINITIONS. For purposes of this Agreement, (a) "Tax" or "Taxes" means all taxes, charges, duties, fees, levies or other assessments, including income, excise, property, sales, value added, profits, license, withholding, payroll, employment, net worth, capital gains, transfer, stamp, social security, environmental, occupation and franchise taxes, imposed by any governmental entity, and including any interest, penalties and additions attributable thereto; (b) "Buyer Tax Act" shall have the meaning ascribed in Section 7.7(a) of this Agreement; (c) "Pre-Closing Tax Period" shall have the meaning ascribed in Section 7.7(d)(ii) of this Agreement; (d) "Straddle Period" shall have the meaning ascribed in Section 7.5 of this Agreement; and (e) "Tax Claim" shall have the meaning ascribed in Section 7.9(a) of this Agreement. Section 8. EXPENSES AND LIABILITIES. Each party hereto will pay its own expenses, and Asahi shall pay the expenses of Quail, in connection with the negotiation, documentation and closing of this Agreement and the transactions contemplated hereby, including the fees and disbursements of its respective counsel; provided, however, that in the event this Agreement is terminated pursuant to Section 9(d), then Asahi shall promptly pay Buyer a termination fee of $125,000 (the "Termination Fee") and provided further, that Asahi shall pay no Quail expenses unless such expenses have been submitted to it for payment at the Closing. Buyer shall pay and shall indemnify Asahi and Quail for any and all transfer taxes arising from the purchase and sale of the Shares pursuant hereto. This Agreement operates as a full release, effective as of the Closing hereunder, of all obligations and liabilities of Asahi with respect to Quail, other than those obligations and liabilities expressly set forth herein. Section 9. TERMINATION. This Agreement may be terminated at any time prior to the Closing, whether before or after approval of the terms of this Agreement by the stockholders of Asahi: (a) by mutual written consent of Buyer and Asahi, by action of their respective Boards of Directors; (b) by Buyer or Asahi if the Closing shall not have been consummated on or before December 31, 1999; provided, however, that neither Buyer nor Asahi may terminate this Agreement pursuant to this Section 9(b) if such party shall have materially breached this Agreement. (c) by Buyer or Asahi if any court of competent jurisdiction or other governmental authority has issued an order, decree or ruling, or taken any other action restraining, enjoining or otherwise prohibiting the Closing and such order, decree, ruling or 14 other action shall have become final and non-appealable; provided, however, that the party seeking to terminate this Agreement shall have used its reasonable best efforts to remove or lift such order, decree, ruling or other action; (d) by Asahi if (i) Asahi's Board of Directors approves an Acquisition Proposal (as defined in the Merger Agreement (but with respect to Quail, not Asahi)), for which all financing is then, in the judgment of the Asahi Board of Directors, reasonably obtainable, on terms which a majority of the members of Asahi's Committee of Independent Directors has determined in good faith after consultation with outside legal counsel that failure to take such action would create a reasonable possibility of a breach of the fiduciary duties of Asahi's Board of Directors, and (ii) such Acquisition Proposal is, in the written opinion of Asahi's financial advisor, more favorable from a financial point of view to Asahi's stockholders than the transactions contemplated by this Agreement; provided, however; that the termination described in this Section 9(d) shall not be effective unless and until Asahi shall have paid to Buyer the Termination Fee; or (e) by either Asahi or Buyer if the required approval of Asahi's stockholders of the Merger described herein shall not have been obtained at a duly held stockholders' meeting, including any adjournments thereof. Section 10. DISPUTE RESOLUTION. 10.1 MEDIATION. Except as otherwise expressly provided herein, in the event of any dispute, controversy or claim between Buyer and Asahi arising under this Agreement (a "Dispute"), Buyer and Asahi agree (i) to negotiate in good faith so as to use their best efforts for a period of thirty (30) days to settle any Dispute between them harmoniously and without mediation or arbitration, and (ii) in the event such Dispute is not settled within such thirty (30) day period, to retain a professional mediator who shall be afforded sixty (60) days to resolve any Dispute by mediation in Boston, Massachusetts, and whose fees shall be borne equally by the Parties. Failing such harmonious resolution, the Parties expressly agree to comply with the arbitration procedure set forth in Section 10.2 hereof. 10.2 ARBITRATION. (a) Except as otherwise expressly provided herein, any Dispute which is not resolved in accordance with Section 10.1 hereof shall, except as provided in Section 10.3 hereof, be settled by an arbitrator by arbitration in Boston, Massachusetts, in accordance with the Rules for Commercial Arbitration of the American Arbitration Association (the "Rules") as amended from time to time and as modified by this Agreement. The arbitrator shall apply Massachusetts law. (b) The arbitrator shall be selected by the mediator referred to in Section 10.1. The arbitrator shall possess substantive legal experience in the principal issues in Dispute. Within thirty (30) days after the designation of the arbitrator, the Parties shall meet with the arbitrator, at which time the Parties shall be required to set forth in writing all disputed issues and a proposed ruling on each such issue. After the appointment of the arbitrator, the 15 Parties shall have the right to take such depositions and to obtain discovery regarding the subject matter of the arbitration as would be available to them under the Rules, and the arbitrator shall have the power and authority to enforce the Parties' respective discovery obligations in accordance with the provisions of the Rules; PROVIDED, HOWEVER, that depositions shall not be taken unless leave to do so is first granted by the arbitrator. (c) Except as may otherwise be agreed in writing by the Disputing Parties or as ordered by the arbitrator upon substantial justification (such as to allow reasonable discovery as provided herein), the hearings of the Dispute shall be held and concluded within one hundred twenty (120) days of submission of the Dispute to arbitration. The arbitrator shall render their final award within thirty (30) days following conclusion of the hearing. The arbitrator shall state the factual and legal basis for the award. The decision of the arbitrator shall be final and binding except as provided in the Federal Arbitration Act, 9 U.S.C. ss. 1, ET SEQ., and except for errors of law based on findings of fact. Final judgment may be entered upon such an award in any court of competent jurisdiction, but entry of such judgment shall not be required to make such award effective. 10.3 INJUNCTIVE RELIEF. (a) Nothing in this Section 10 shall limit any right that the Parties may otherwise have to seek to obtain preliminary injunctive relief in order to preserve the status quo pending the disposition of any mediation process or arbitration proceeding. (b) For purposes of injunctive relief only, each of the Parties hereby consents to the exclusive jurisdiction of the United States District Court for the District of Massachusetts and any court of general jurisdiction in and for Boston, Massachusetts (and of the appropriate appellate courts therefrom) and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue in any such court or that any such proceeding which is brought in any such court has been brought in an inconvenient forum. Subject to applicable Law, process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Nothing herein shall affect the right of any party to serve legal process in any other manner permitted by law or at equity. 10.4 LEGAL FEES. The prevailing party in any legal action brought by one party against the other arising out of this Agreement shall be entitled, in addition to any other rights and remedies available to it at law or in equity, to reimbursement for its costs and expenses (including court costs and reasonable fees for attorneys and expert witnesses) incurred with respect to any such action. The term "prevailing party" for the purposes of this Section shall include a defendant who has by motion, judgment, verdict or dismissal by the court, successfully defended against any claim that has been asserted against it. Section 11. NOTICES. Any notices or other communications required or permitted hereunder shall be in writing, and such notice shall be given by delivery in hand; by fax (with evidence of 16 transmission); by certified mail, postage prepaid, return receipt requested; or by private courier requesting evidence of receipt as part of its service, addressed as follows: If to Buyer: Quail Acquisition Corporation 35 Green Street Malden, MA 02148 Attention: Leslie B. Lewis Fax: 781-324-3407 with a copy to: Francis J. Feeney, Jr., Esq. Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Fax: 617-951-1295 If to Asahi: Asahi/America, Inc. 35 Green Street Malden, MA 02148 Attention: Kozo Terada Fax: 781-321-4421 with a copy to: Burton Winnick, Esq. Gadsby & Hannah LLP 225 Franklin Street Boston, MA 02110 Fax: 617-345-7050 or to such other address or fax number as may be designated in writing by any party from time to time in accordance herewith, and any notice shall be deemed delivered upon the earliest to occur of delivery by hand, when so faxed, when so placed in the mails or when delivered to such delivery service as aforesaid. Notice shall be effective if delivered in the manner provided above even if the party listed to receive a copy of the notice does not receive it. Section 12. MISCELLANEOUS. 12.1 AMENDMENTS. This Agreement covers the entire understanding of the parties hereto, superseding all prior agreements or understandings relating to any of the subject matters hereof, and no modification or amendment of its terms and conditions, including this Section 12.1, shall be effective unless in writing and signed by the parties or their respective duly authorized agents. 12.2 SUCCESSORS AND ASSIGNS. This Agreement inures to the benefit of, and is binding upon, the successors, permitted assigns, distributees and personal representatives of the parties hereto. 17 12.3 HEADINGS. This Agreement shall not be interpreted by reference to any of the titles or headings to the sections or paragraphs of this Agreement, which have been inserted for convenience purposes only and are not deemed a part hereof. 12.4 GENDER AND NUMBER. This Agreement shall be construed by the actual gender and/or number of the person, persons, entity and/or entities referenced herein, regardless of the gender and/or number used in such reference. 12.5 SEVERABILITY. This Agreement shall be fully enforceable and effective as to the parties hereto as to its remaining provisions in the event any provision is held to be invalid, illegal or unenforceable. 12.6 GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed therein, without giving effect to any principle of conflict-of-laws that would require the application of the laws of any other jurisdiction. 12.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement shall become effective at such time as counterparts thereof have been executed and delivered by the parties and it shall not be a condition to its effectiveness that each of the parties has executed the same counterpart. 12.8 ENTIRE AGREEMENT. This Agreement supersedes any and all oral or written agreements heretofore made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof. No provision of this Agreement may be waived, modified or amended except by a writing executed by all parties hereto. 12.9 CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The word "including" shall mean including without limitation. # # # [remainder of page intentionally blank] 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on their behalf by their duly authorized officers under seal, as of the day and year first above written. BUYER: QUAIL ACQUISITION CORPORATION By: /s/ Leslie B. Lewis -------------------------------- Name: Leslie B. Lewis Title: ASAHI: ASAHI/AMERICA, INC. By: /s/ Kozo Terada -------------------------------- Name: Kozo Terada Title: Treasurer and CFO 19 SCHEDULE I "AFFILIATE" means any person, entity or group controlling, controlled by or under common control with, the specified person or entity, and "control" of a person or entity (including, with correlative meaning, the terms "controlled by" and "under common control with") means (a) the beneficial ownership of 10% or more of the voting securities of such person or entity, (b) the status of being a director, officer, executor, trustee or other fiduciary of such person or entity, or (c) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise. "CORPORATE DOCUMENTS" means a corporation's Charter, Certificate of Incorporation, Articles of Incorporation or Articles of Organization, as the case may be, and bylaws, and any and all amendments thereto. "LAWS" means all applicable laws, rules, regulations, codes, injunctions, judgments, orders, decrees, rulings, interpretations, constitutions, ordinances, common law, or treaties, of any federal, state, local municipal and foreign, international, or multinational government or administration and related agencies. "MANAGEMENT SHAREHOLDERS" means T.J. Hammer, John E. Lawrence, Leslie B. Lewis and others who agree to subscribe for equity from Buyer. "MATERIAL" means the existence of a fact or condition which results in a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means with respect to any Person (including, without limitation, Quail), any materially adverse effect on such Person's business, assets, liabilities, condition (financial or otherwise), or results of operations which has a determinable cost in excess of Ten Thousand Dollars ($10,000)). "MERGER" means the merger of Midnight Acquisition Corp. with and into Asahi in accordance with the terms of that certain Agreement and Plan of Merger dated August 9, 1999 among Midnight Acquisition Holdings, Inc., Midnight Acquisition Corp. and Asahi. "MERGER AGREEMENT" means that certain Agreement and Plan of Merger dated August 9, 1999 among Midnight Acquisition Holdings, Inc., Midnight Acquisition Corp. and Asahi. "MERGER CLOSING DATE" means the date of closing of the Merger. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability corporation, limited liability partnership, institution, entity, party, or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 2 EX-10.2 4 EXHIBIT 10-2 Exhibit 10.2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 9, 1999, by and between ASAHI/AMERICA, INC., a Massachusetts corporation (the "Company"), and LESLIE B. LEWIS, an individual (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently Chairman, Chief Executive Officer and President of the Company; WHEREAS, pursuant to the Agreement and Plan of Merger among Midnight Acquisition Holdings, Inc., Midnight Acquisition Corp. and Midnight dated as of the date hereof (the "Merger Agreement"), Midnight Acquisition Corp. will merge with and into the Company with the Company being the surviving entity (the "Merger"). Pursuant to the Merger, each outstanding share of common stock, no par value, of the Company (the "Company Common Stock") shall be converted into the right to receive the Merger Consideration (as defined in the Merger Agreement); WHEREAS, the Company desires to retain the Executive as Chief Executive Officer and President of the Company as of the Effective Time (as defined in the Merger Agreement), on the terms and conditions set forth below in this Agreement; WHEREAS, the Executive is willing to provide his services as an employee of the Company for the inducements and on the terms and conditions set forth below in this Agreement; and WHEREAS, the parties hereto desire to replace the existing Employment Agreement dated as of January 1, 1996, as amended (the "Prior Agreement"), among the parties to this Agreement, effective as of the Effective Time. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, with effect at the Effective Time, the parties hereto agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions of this Agreement, the Company employs the Executive and the Executive accepts employment with the Company in the capacity hereinafter set forth. (a) TERM OF EMPLOYMENT. The initial term of Executive's employment by the Company under this Agreement shall commence as of the Effective Time and shall continue until the third anniversary of the Effective Time (the "Initial Termination Date"), unless terminated earlier pursuant to Section 3. The term shall automatically be extended for an additional one (1) year period commencing on the Initial Termination Date and each anniversary thereof until 3 notice of non-extension is given by either party to the other at least forty-five (45) days prior to the Initial Termination Date or subsequent anniversary of the Initial Termination Date, as applicable. The last day on which the Executive is employed under this Agreement should either party terminate this Agreement as hereinafter provided or should the employment term not be renewed is hereinafter called the "Employment Termination Date." The term of employment of the Executive under this Agreement, including any annual extensions, is referred to in this Agreement as the "Employment Period." (b) DUTIES. The Executive shall be employed as Chief Executive Officer and President of the Company. In that capacity, he shall be responsible, subject to the direction and control of the Board of Directors of the Company or its designee (the "Board"), for the supervision and control of the operation, finances, personnel and management of the Company, including, without implication of limitation, (i) the selection, hiring and firing of all personnel of the Company, (ii) the operation, control and selection of the Company's facilities, including the selection and purchase of equipment, fixtures, inventory and parts, and the implementation of all modifications, alterations and renovations of the Company's facilities and equipment, and (iii) the selection of all products and services offered for sale by the Company and the implementation of such sales, including responsibility for advertising and marketing of products and directing the Company's sales force. The Executive shall also promote the business objectives of the Company and its subsidiaries and affiliates ("Affiliates"), except that the Executive shall not promote the business objectives of any Affiliate (with the exception of Quail Piping Products, Inc. ("Quail")) where such objectives are inconsistent with the business objectives of the Company or where such promotion would violate the Executive's fiduciary duties to the Company. At all times during the Employment Period, except for illness and permitted vacation periods, during the Executive's employment with the Company, the Executive shall: (i) devote his full time and attention during normal business hours to the business and best interests of the Company; and (ii) discharge such executive and administrative duties as may be assigned to him by the Board as are reasonably consistent with the Executive's title and office and report to and obey the lawful directions of the Board, provided that such instructions do not violate or cause a violation of law and do not constitute a breach of the directors' fiduciary duties to the Company. The foregoing shall not be construed to prohibit the Executive from: (i) serving as a director of any corporation which is not a competitor of the Company, provided that such service by the Executive does not materially interfere with the performance by the Executive of his duties hereunder and the Executive has obtained the prior consent of the Company, which consent shall not be unreasonably withheld; or (ii) engaging in civic, educational, religious, charitable or other community or non-profit activities that do not impair the Executive's ability to fulfill the Executive's duties and responsibilities under this Agreement. It is agreed that, subject to Section 3(b), the Executive serving as Chairman and Member of the Board of Directors of Quail during the Employment Period will not be a violation of this 4 Agreement provided that (i) he does not perform management functions for Quail, (ii) he performs no duties other than chairing and attending board meetings, and (iii) his title, position and/or responsibilities as such Chairman and Member do not impair his ability to perform his duties under this Agreement. 2. COMPENSATION. Until the termination of the Executive's employment hereunder, in consideration for the services of the Executive hereunder, the Company shall compensate the Executive as follows: (a) BASE COMPENSATION. During the Employment Period, the Company will pay to the Executive a base salary at the annual rate of Three Hundred Thirty Thousand Dollars ($330,000), payable semi-monthly or in such other manner as the Executive and the Company may mutually agree (the "Base Salary"). The Base Salary may be increased from time to time at the sole discretion of the Board. The Board shall annually review the Executive's job performance and shall annually consider increasing the Executive's Base Salary. Without limiting the Board's discretion concerning increases to the Executive's Base Salary, the Board shall consider the Company's past practice with respect to executive salary increases in making salary increase decisions. Nothing herein shall be construed as guaranteeing the Executive the right to receive any such salary increases. (b) BONUS. The Executive shall also be eligible to receive a bonus payable on or prior to the 120th day following the end of each calendar year during which this Agreement is in effect or, notwithstanding the foregoing, with respect to any portion of the bonus which may be in dispute and which has been challenged by institution of the dispute mechanism set forth in paragraph 2(d) below, ten (10) days after the rendering of a determination pursuant to paragraph 2(d) below. The bonus which shall be payable to the Executive for the fiscal year ended December 31, 1999 ("Fiscal 1999") shall be determined by computing an amount equal to (i) 10% multiplied by (ii) the amount of net valve sales of the Company in Fiscal 1999 in excess of $18,650,000. For example, if the net valve sales for Fiscal 1999 is $19,650,000, the bonus would be $100,000 (10% x 1,000,000), subject to adjustment in accordance with the next paragraph. In addition, the 1999 Bonus shall be adjusted according to the selling, general and administrative costs ("SG&A") incurred by the Company in 1999, as follows: (i) 1% of any increase of SG&A over $10,800,000 (1998 actual) shall be deducted from the 1999 Bonus; or (ii) 1% of any decrease of SG&A under $10,800,000 shall be added to the 1999 Bonus. For example, if there is an increase in SG&A of $100,000 over $10,800,000, the bonus described in the above example would be reduced by $1,000. It is agreed that the SG&A shall not include any of the costs incurred by the Company in connection with the transaction described In the recitals to this Agreement and in connection with this Agreement, including without limitation, any and all attorneys' fees incurred by the Company in connection therewith. 5 The bonus payable for the two-year period remaining in the initial term of this Employment Agreement shall be determined through good faith negotiations between the Executive and the Company at the end of Fiscal 1999. The bonus amount for any employment term following the Initial Termination Date shall be negotiated in good faith between the Executive and the Company at the time the employment term is extended. (c) OTHER BENEFITS. During the Executive's employment with the Company, the Executive shall be entitled to the following benefits at the cost of the Company, except as otherwise provided in (ii) below: (i) five (5) weeks vacation time per calendar year, accruing on January 1 of each year during his employment with the Company, with unused vacation, at the election of the Executive, to be paid in cash or carried forward to the next year; (ii) participation in all employee life, medical and dental insurance, retirement and profit sharing plans and other benefit programs now or hereafter maintained by the Company for senior executives of the Company according to the terms of those plans as amended from time to time by the Company; PROVIDED, HOWEVER, that the Executive will in no event be entitled to benefits in amounts or of the type less or worse than those which he was entitled to receive from the Company as of December 1, 1992; (iii) use of an automobile, the lease or finance costs of which shall not exceed $1,000 per month; (iv) payment for or reimbursement for all reasonable and properly documented expenses incurred or paid by him in connection with the performance of his duties hereunder; (v) payment for or reimbursement for all reasonable and properly documented expenses incurred or paid by him for financial planning, income tax preparation and estate planning services; PROVIDED, HOWEVER, such amount under this clause shall in no event annually exceed $10,000; and (vi) participation in a term life insurance program with a face amount of at least ten (10) times the Executive's then current Base Salary, provided that the Executive shall be entitled to name the beneficiary of that policy. (d) All determinations of the bonus amount under Section 2(b) and elsewhere in this Agreement shall be made in good faith by the Board, subject to the provisions herein, in accordance with generally accepted accounting principles consistently applied and subject to normal year-end adjustments within ninety (90) days of the end of the Company's fiscal year. 6 (e) (i) The Company shall maintain the existing key man insurance, Variable Universal Life Policy with Jefferson Pilot Financial formerly Chubb Life Insurance Company of America, Policy No. 6700345 (the "Policy"), on the life of Executive in the amount of $5,000,000, with the cash surrender value thereof to be payable to the Company, for the period ending on December 31, 2005. If the Executive is employed with the Company as of January 1, 2006 (whether or not he remains employed after that date) (a) any cash surrender value of such policies in excess of the aggregate of the premiums paid for the period through December 31, 2005 (the "Excess Value") will be used by the Company to fund a retirement plan for the Executive, and (b) the beneficiary of the Policy shall be changed to the beneficiary or beneficiaries designated by the Executive. Failing such designation, the proceeds shall be payable to the estate of the Executive. In such event, the Policy shall not be terminated and the Company shall pay any further premiums due (if any) to insure the Policy remains in effect. (ii) The Company shall be prohibited from terminating, canceling or amending the existing Policy, making loans against the Policy or making any withdrawal of the cash surrender values at any time. (iii) If the Executive leaves the employ of the Company at any time with Good Reason (as said term is defined in Article 3(c) herein) or due to a Change of Control (as said term is defined in Article 3(e)(i) herein), the Company shall continue to pay the premiums under the Policy for the remainder of the ten (10) year premium period. During such period, the beneficiary designation shall be changed so that the company receives the benefits to the extent of premiums paid and the Executive shall designate the beneficiaries for the balance of the insurance proceeds. Failing such designation the proceeds shall be payable to the estate of the Executive. At the end of the ten (10) year premium period, the Policy shall not be terminated and the Executive, at his option, may pay any further premiums due (if any) to insure the Policy remains in effect. (iv) In the event that before January 1, 2006, the Executive voluntarily resigns his position with the Company (except for events which constitute resignation for Good Reason or Change of Control) or is no longer employed due to the expiration of the Agreement, the Executive shall have the option, but not the obligation, to continue to pay any further premiums due (if any) to insure the Policy remains in effect. In such instance, the Policy shall not be terminated and (a) any cash surrender value of such policies in excess of the aggregate of the premiums paid for the period through the date of resignation or employment expiration (the "Excess Value") will be used by the Company to fund a retirement plan for the Executive, and (b) the beneficiary of the Policy shall be changed to the beneficiary or beneficiaries designated by the Executive. Failing such designation, the proceeds shall be payable to the estate of the Executive. 7 (v) The Company agrees to cooperate with the Executive in replacing the Policy with another insurance and/or another unfunded deferred compensation arrangement which is mutually agreeable to the Company and the Executive which is tax advantageous to the Executive, provided that the amount of such new policy, if any, shall not exceed $5,000,000. Under no circumstances shall the Company be required to establish a funded retirement plan. 3. TERMINATION. The Executive's employment hereunder shall commence on the Effective Time and continue until the expiration of the Employment Period, except that the employment of the Executive hereunder shall terminate earlier: (a) DEATH OR DISABILITY. Upon the death of the Executive during the Employment Period or, at the option of the Company, in the event of the Executive's disability, upon thirty (30) days' written notice from the Company. The Executive shall be deemed disabled if an independent medical doctor (selected by mutual agreement of the Executive and the Company) after consultation with the Executive's physician and examination of the Executive certifies that the Executive has for 180 consecutive days or for a non-consecutive period of 180 days during any twelve (12) month period been mentally or physically disabled in a manner which renders him unable to perform his responsibilities under this Agreement. (b) FOR CAUSE. For "Cause" immediately upon written notice by the Board to the Executive, specifying in detail the basis for such Cause. For purposes of this Agreement, "Cause" shall mean: (i) a breach of any material provision of this Agreement, including without implication of limitation any breach of Sections 1(b) and/or 4(a) through (d) hereof which breach, if curable, is not cured within thirty (30) days after written notice thereof, specifying the particulars of such breach, is given to the Executive by the Board; provided, however, with regard to any alleged breach under Section 1(b), the determination by the Board shall be made in its sole discretion exercised in good faith; (ii) one or more acts of dishonesty or fraud by the Executive during the Employment Period in the performance of his duties on behalf of the Company; (iii) any plea of NOLO CONTENDERE, guilty plea or any conviction of the Executive of any felony or any other crime which conviction has, or is reasonably likely to have, a material adverse effect on the Company or its business or reputation; (iv) any material act or omission by the Executive during the Employment Period involving willful malfeasance or gross negligence in the performance of his duties hereunder which breach, if curable, is not cured 8 within thirty (30) days after written notice thereof, specifying the particulars of such breach, is given to the Executive by the Board; (v) the repeated failure of the Executive to follow the reasonable instructions of the Board, which instructions shall have been on at least one occasion set forth in a resolution or a written communication of the Board delivered to the Executive; PROVIDED, HOWEVER, that compliance with such instructions would not violate or cause a violation of law, would not constitute a breach of fiduciary duty to the Company and would not otherwise be inconsistent with this Agreement; or (vi) the inability of the Executive as a result of continued alcohol or drug use to carry out the responsibilities of his office. (c) RESIGNATION; TERMINATION WITHOUT CAUSE. Upon ninety (90) days' written notice by either the Company or the Executive to the other party hereto, except that the Executive may terminate his employment with Good Reason upon thirty (30) days' written notice to the Company. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the events or conditions described in subparagraphs (i) through (iv) hereof without the Executive's express written consent: (i) a material adverse change in the Executive's status, title, position, scope of authority or responsibilities (including reporting responsibilities); the assignment to the Executive of any duties or responsibilities which are materially inconsistent with such status, title, position, authorities or responsibilities; or any removal of the Executive from or failure to reappoint or reelect him to any of such positions, except in connection with the termination of his employment for Cause, as a result of his death or disability or by the Executive other than for Good Reason; (ii) the relocation of the Company's principal executive offices to a location outside a 30-mile radius of 120 Cabot Street, Chestnut Hill, Massachusetts, or the Company's requiring Executive to be based at any place other than the Company's principal executive offices, except for reasonably required travel on the Company's business which is not substantially greater than such travel requirements prior to the date hereof; or (iii) any material breach by the Company of any provision of this Agreement, including without implication of limitation a reduction by the Company in the Executive's compensation or a material adverse change in the level of benefits as set forth in Section 2 hereof. The Executive shall provide the Company with reasonable notice and an opportunity to cure any of the events listed in Section 3(c) which would constitute Good Reason for his resignation and shall not be entitled to compensation pursuant to this Section 3(c) unless the 9 Company fails to cure within a reasonable period, but in no event shall such period exceed thirty (30) days following the occurrence of the event(s) at issue. (d) RIGHTS AND REMEDIES ON TERMINATION. (i) If the Executive's employment hereunder is terminated pursuant to Section 3(a) as a result of the Executive's death or disability, on or prior to the Initial Termination Date, then the Executive (or his estate) shall be entitled to receive Death or Disability Pay consisting of the continuation of the Executive's Base Salary in effect at the time of such termination for a period (the "Severance Period") beginning on the date the Executive terminates employment and ending on the latest of (1) the last day of the 24th month following such termination date or (2) the Initial Termination Date less any payments received by the Executive under any applicable disability policy maintained by the Company, and a lump sum amount equal to the bonus payable to the Executive for the last year prior to the termination, which bonus shall be paid no later than thirty (30) days after the date such amount has been determined. (ii) If the Executive's employment hereunder is terminated on or prior to the Initial Termination Date: (1) by the Company pursuant to Section 3(c) or (2) by the Executive for Good Reason pursuant to Section 3(c), then the Executive shall be entitled to receive Severance Pay consisting of the continuation of the Executive's Base Salary for the Severance Period defined in (i) above and a lump sum amount equal to the bonus payable to the Executive for the last year prior to the termination, which bonus shall be paid no later than thirty (30) days after the date such amount has been determined. In addition, the Company shall provide the Executive with a reasonable office and secretarial services throughout the Severance Period. (iii) In addition to the amounts due to Executive pursuant to paragraph 3(d)(ii) of this Agreement, if the Executive's employment is terminated (A) by the Company pursuant to Section 3(c) effective on or after the second anniversary of the Effective Time and before the Initial Termination Date, (B) on or after the Initial Termination Date by either party for any reason other than by the Company for Cause, or (C) upon expiration of the initial term without renewal, then the Company shall pay the Executive $1,000,000 (the "Non-Compete Consideration"). If the Executive's employment is terminated in the circumstances provided in Section 3(d)(iii)(A) or (C), then the Non-Compete Consideration shall be paid to the Executive within seven calendar days of such termination. On or before the 45th day prior to the Initial Termination Date, the Executive and the Company shall discuss and agree, if at all possible, on the manner of payment and any investment of the Non-Compete Consideration in the event that the Non-Compete Consideration is not paid to the Executive prior to the Initial Termination Date. The Company agrees to cooperate with the Executive in structuring the timing and/or manner of payment of the Non-Compete 10 Consideration in a way which is tax advantageous to the Executive, provided there is no additional cost to the Company. If required to do so, the Company shall withhold any taxes from the disbursement of the Non-Compete Consideration. In no event will the Non-Compete Consideration be payable in the event the Executive's employment is terminated by the Company for Cause. (iv) In the event of a termination of the Executive's employment entitling the Executive to rights pursuant to Section 3(d)(i), (ii) or (iii) above, the Executive and/or any members of his family insured through the Company (the "Insured Parties") shall have the option to continue their medical and dental insurance coverage pursuant to the law known as "COBRA", PROVIDED, HOWEVER, that the Company shall continue to pay on the Insured Parties' behalf the same portion of their medical and dental insurance premiums that it paid during the Employment Period if they elect to continue coverage pursuant to COBRA during the period that such COBRA otherwise applies. Any share of premium payments to be paid by the Insured Parties shall be deducted from the Death or Disability Pay, the Severance Pay or the Non-Compete Consideration as if the Executive remained actively employed. Notwithstanding the foregoing, in the event that the Executive receives any equivalent medical and/or dental coverage from any other source, then the Company shall no longer be obligated to provide such coverage. (v) Except as otherwise set forth in this Section 3(d) or 3(e) below, the Executive shall not be entitled to any severance or other compensation after the termination of his employment with the Company other than payment of his Base Salary through the date of termination, payment for then accrued but unused vacation pay as calculated pursuant to Section 2(c)(i), provision of other benefits pursuant to Section 2(c)(ii) and (iii) through the date of termination, any expense reimbursements under Section 2(c)(iv) and (v) for expenses incurred prior to termination, and the option to continue the life insurance coverage provided pursuant to Section 2(c)(vi) at his own expense after the termination of his employment with the Company. (e) TERMINATION PURSUANT TO A CHANGE OF CONTROL. If there is a Change of Control, as defined in Section 3(e)(i) below, during the Executive's employment with the Company, the provisions of this Section 3(e) shall apply and shall continue to apply throughout the remainder of the Employment Period. If, within one (1) year following a Change of Control, the Executive's employment is terminated by the Company without Cause (pursuant to Section 3(c) above), or if the Executive resigns his employment for Good Reason following the occurrence of any of the events listed in Section 3(c) above, in lieu of any payments under Section 3(d) above, the Company shall pay to the Executive (or the Executive's estate, if applicable) a lump sum amount equal to 2.99 times the Executive's "base amount" 11 within the meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). (i) "Change of Control" shall mean the occurrence of one or more of the following events: (1) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than Asahi Organic Chemicals Industry Co., Ltd. (formerly known as Asahi Yukizai Kogyo Co., Ltd.) ("AOC") becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company), directly or indirectly, of securities of the Company, or any successor to the Company through merger, consolidation, amalgamation or the sale of substantially all of the assets of the Company, representing fifty percent (50%) or more of the combined voting power of the Company's or any such successor to the Company's then outstanding securities; or (2) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (other than to a company beneficially owned more than 50% by AOC) is consummated. (ii) It is the intention of the Executive and of the Company that no payments by the Company to or for the benefit of the Executive under this Agreement shall be nondeductible to the Company by reason of the operation of Section 280G of the Code relating to parachute payments or any like statutory or regulatory provision. Accordingly, and notwithstanding any other provision of this Agreement or any such agreement or plan, if by reason of the operation of said Section 280G or any like statutory or regulatory provision, any such payments exceed the amount which can be deducted by the Company, such payments shall be reduced to the maximum amount which can be deducted by the Company. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Executive, such excess payments shall be refunded to the Company with interest thereon at the applicable Federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payments shall be nondeductible to the Company by reason of the operation of said Section 280G or any like statutory or regulatory provision. To the extent that there is more than one method of reducing the payments to bring them within the limitations of said Section 280G or any like statutory or regulatory provision, the Executive shall determine which method shall be followed, provided that if the Executive fails to make such determination within forty-five (45) days after 12 the Company has given notice of the need for such reduction, the Company may determine the method of such reduction in its sole discretion. 4. COVENANTS OF THE EXECUTIVE. (a) NON-SOLICITATION OF CUSTOMERS OR EMPLOYEES OF THE COMPANY. During the Employment Period and at all times thereafter, except in connection with a dispute arising under this Agreement or the terms and conditions of the Executive's employment, the Executive will not disparage the Company or any of its Affiliates. During the Non-Solicitation Period (as defined below), the Executive shall not, and shall use his best efforts to cause each other business or entity with which he is or shall become associated in any capacity not, directly or indirectly to employ any person (other than the Executive's son, Robert Lewis, and his secretary, Marjorie Martinetti) who at any time during the Executive's final two years of employment with the Company was employed in any capacity by the Company or any of its Affiliates. During the Non-Solicitation Period, the Executive shall not, and shall use his best efforts to cause each other business or entity with which he is or shall become associated in any capacity not, (i) directly or indirectly to solicit for employment any person (other than the Executive's son, Robert Lewis, and his secretary, Marjorie Martinetti) who at any time during the Executive's final two years of employment with the Company was employed in any capacity by the Company or any of its Affiliates (with the exception of Quail); (ii) to directly or indirectly solicit any person or entity who at any time during the Executive's final two years of employment with the Company was a customer of the Company or its Affiliates (with the exception of Quail) in respect of the products or services supplied by the Company or its Affiliates (with the exception of Quail); or (iii) directly or intentionally indirectly interfere or seek to interfere with the continuance of supplies to the Company or its Affiliates (or with the terms relating to such supplies) from any persons or entities who have been supplying materials or services to the Company during the Executive's final two years of employment with the Company. For purposes of this Agreement, the term "Non-Solicitation Period" shall mean the period of time during which the Executive is actively employed by the Company and (i) with respect to termination of the Executive's employment hereunder for "Cause" pursuant to Section 3(b) or by the Executive pursuant to Section 3(c) other than for Good Reason, a period beginning on the date of the termination and ending six (6) months following the expiration of the Employment Period in effect at the time of the termination; or (ii) with respect to termination on or prior to the Initial Termination Date, as a result of the Executive's disability pursuant to Section 3(a), by the Company without Cause pursuant to Section 3(c) or by the Executive for Good Reason pursuant to Section 3(c), the period during which the Executive receives Disability Pay or Severance Pay pursuant to Section 3(d) hereof. (b) CONFIDENTIALITY. Without the specific prior written consent of the Company, the Executive shall not, directly or indirectly, at any time after the date hereof, use or divulge to any person, any confidential information concerning the 13 business, affairs, customers or clients of the Company or any of its Affiliates, including, without limitation, customer lists, names and addresses, sales targets and statistics, market share statistics, surveys and reports, insofar as the same have come to the Executive's knowledge during his employment with the Company, all of which information is confidential and proprietary to the Company and shall remain the sole and exclusive property of the Company. Notwithstanding the foregoing, the Executive shall have the right to use the generic knowledge and expertise acquired by him during his employment with the Company so as to enable him to be otherwise gainfully employed within the Company's industry, subject to the non-competition agreement set forth in (d) below. The Company also expressly agrees that the Executive may disclose information as may be required by law or to comply with legal process. (c) INTELLECTUAL PROPERTY. The Executive shall as soon as practicable disclose to the Company all ideas, inventions and business plans developed by the Executive during his employment with the Company which relate directly or indirectly to the business or then currently anticipated business of the Company or its Affiliates, including, without limitation, any process, operation, product or improvement ("Intellectual Property"). The Executive agrees that such Intellectual Property will be the property of the Company and that the Executive shall, without further payment to the Executive at the Company's request and cost, do whatever is reasonably necessary for the Company to secure the rights thereto by patent, copyright or otherwise for the Company. (d) NON-COMPETE. The Executive acknowledges and recognizes the highly competitive nature of the Company's business and, in consideration of the payment by the Company to the Executive of amounts that may hereafter be paid to the Executive pursuant to Sections 3(d)(ii) or (iii) hereof, the Executive agrees that (1) during any period in which Disability Pay or Severance Pay is paid and (2) if the Executive receives the Non-Compete Consideration pursuant to Section 3(d) of this Agreement, for a period of five years, the Executive will not engage, directly or indirectly, in the "Covered Business" (as hereinafter defined) in any state of the United States of America in which the Company is conducting business or proposes to conduct business as of the date on which the Executive's employment with the Company is terminated and any states contiguous therewith (these areas are hereinafter collectively referred to as the "Covered Area"). For purposes of this Agreement, (i) "Covered Business" shall mean the provision of the products and services supplied by the Company or any of its Affiliates (excluding any products or services provided by Quail as of the Effective Time); and (ii) the phrase "engage, directly or indirectly" shall mean engaging directly or having an interest, directly or indirectly, as owner, partner, shareholder, independent contractor, capital investor, lender, person who renders consultation services or advice or otherwise (other than as the holder of less than 5% of the outstanding stock of a publicly-traded corporation), either alone or in association with others, in the operation of any aspect of any type of business or enterprise engaged in any aspect of the Covered Business. The Executive shall be deemed engaged in business in the Covered Area if his place 14 of business is located in the Covered Area or if he or his business solicits customers located anywhere in, or delivers products anywhere in, the Covered Area. 5. REPRESENTATION AND WARRANTIES. (a) THE COMPANY. The Company hereby represents and warrants to the Executive as follows: (i) the Company is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (ii) this Agreement has been duly authorized, executed and delivered by the Company; and (iii) the execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby will not violate any agreement to which the Company is a party or any provision of its Articles of Organization or By-Laws. (b) THE EXECUTIVE. The Executive hereby represents and warrants to the Company as follows: (i) the Executive has full legal capacity to enter into this Agreement; (ii) this Agreement has been duly executed and delivered by the Executive; (iii) the execution and delivery of this Agreement by the Executive, the performance by the Executive of his obligations hereunder and the consummation by the Executive of the transactions contemplated hereby will not violate any agreement to which he is a party; and (iv) the Executive has made such investigations of the business and properties of the Company as he deems necessary or appropriate before entering into this Agreement. 6. SUCCESSORS: ASSIGNMENT. (a) THE COMPANY. Except as herein provided, the Company may not assign any of its rights or obligations under this Agreement without the written consent of the Executive; PROVIDED, HOWEVER, that the Company may assign this Agreement without such consent if assigned to the acquiring party as part of a transfer by the Company of all or substantially all of its assets and the acquiring party consents in writing to be bound by this Agreement. A change in control of the Company or merger of the Company with and into any other corporation (whether or not the Company shall be the surviving entity) shall not be deemed an assignment of this Agreement. 15 (b) THE EXECUTIVE. Neither this Agreement, nor any right, obligation or interest hereunder, may be assigned by the Executive, his beneficiaries, or his legal representatives. 7. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand, or three business days after being mailed by first-class certified mail, postage prepaid and return receipt requested, addressed as follows: If to the Company: Asahi/America, Inc. 35 Green Street Malden, Massachusetts 02148 Attention: President with copies to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: David M. Wilf, Esq. and Testa, Hurwitz & Thibeault LLP High Street Tower Boston, Massachusetts 02110 Attention: F. George Davitt, Esq. If to the Executive: Leslie B. Lewis 120 Cabot Street Chestnut Hill, Massachusetts 02167 with a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, Massachusetts 02110 Attention: David S. Rosenthal, Esq. 8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts without giving effect to the conflicts of law principles thereof. 16 9. EXPENSES. All costs and expenses (including attorneys' fees) incurred by the Company and the Executive in connection with the negotiation and preparation of this Agreement shall be paid by the Company. 10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and their affiliates relating to the subject matter hereof and supersedes all prior agreements, representations, warranties and understandings, written or oral with respect thereto including, without limitation, the Prior Agreement. The Executive acknowledges that (i) he has no right to payments that may arise on account of the transactions contemplated by the Merger Agreement other than on account of his stock in the Company and has no other rights pursuant to the Prior Agreement, (ii) "Good Reason" does not exist based upon the transactions contemplated in the Merger Agreement and (iii) any accrued but unpaid salaries, accrued vacation days and unreimbursed expenses (as described in Section 2(c)) shall carry over from the Prior Agreement. 11. SEVERABILITY. (a) GENERALLY. If any term or provision of this Agreement or the application thereof to any person, property or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. (b) DURATION AND SCOPE OF CERTAIN COVENANTS. Without limiting Section 11(a) hereof, if any court or arbitrator determines that any of the covenants contained in Section 4 hereof, or any part of such covenants, are unenforceable because of the duration or geographic scope of such provision, such court or arbitrator shall have the power to and is hereby requested to modify the duration or scope of such provisions as the case may be to the extent necessary to make such provision enforceable, and in its modified form, such provision shall then be enforceable. 12. ARBITRATION. In the event of any dispute arising out of or relating to this Agreement or in the case of breach hereof, the parties shall try in the first instance to arrive at an amicable settlement, within sixty (60) days after notice thereof has been given in writing by the complaining party. Should this fail, the dispute or breach shall be referred to and finally settled by arbitration which shall be held in Boston, Massachusetts and conducted in the English language in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"); PROVIDED, HOWEVER, that disputes with regard to the determination of any bonus amount hereunder shall be resolved in accordance with the procedures set forth in Section 2(d) hereof. The AAA shall select three arbitrators (or in the event of a monetary dispute involving less than $25,000, one arbitrator) to arbitrate the disputed matter. The arbitration decision shall be binding and final and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Each side shall bear the cost of its respective attorneys' fees associated with the foregoing procedures. 17 13. REMEDIES: EQUITABLE RELIEF. The Executive acknowledges and agrees that the covenants and obligations of the Executive contained in Section 4 hereof relate to special, unique and extraordinary matters and are reasonable and necessary to protect the legitimate interests of the Company and its Affiliates and that a breach of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies at law are not available. The Executive therefore consents to injunctive relief, a restraining order, an order of specific performance or any other equitable relief (together, "Equitable Relief") with respect to any of its obligations under Section 4. As to such obligations, any order for Equitable Relief shall be in lieu of damages except for damages accrued up to the date of compliance with the order. The Executive hereby waives any claim or defense therein that the Company has an adequate remedy at law or that money damages would provide an adequate remedy. It shall, however, be the election of the Company as to whether or not to seek Equitable Relief. An order for Equitable Relief shall be among the remedies which can be granted pursuant to an arbitration instituted under Section 12 hereof and enforced by any court of competent jurisdiction. Additionally, solely for the purpose of provisional relief pending a determination on the merits pursuant to the arbitration process provided for in Section 12 hereof, the Company may seek from an appropriate court Equitable Relief. 14. AMENDMENTS, MISCELLANEOUS, ETC. Neither this Agreement, nor any term hereof, may be amended, modified, waived, discharged or terminated except by an instrument in writing signed by the party against which such change, waiver, discharge or termination is sought to be enforced. The Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references to Sections shall be to Sections of this Agreement. 15. EFFECTIVENESS. This Agreement shall be effective only as of the Effective Time, and prior to such time, this Agreement shall have no force or effect. 18 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement under seal as of the date first written above. ASAHI/AMERICA, INC. By: /s/ Kozo Terada ---------------------------------- Name: Kozo Terada Title: VP, CFO, Treasurer /s/ Leslie B. Lewis -------------------------------------- LESLIE B. LEWIS 19 -----END PRIVACY-ENHANCED MESSAGE-----