EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
BETWEEN
NUCLEUS, INC.
AND
INNOVATIVE TECHNOLOGY SOLUTIONS, INC.
JUNE 30, 1999
TABLE OF CONTENTS
PAGE
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1. Definitions............................................................... 1
2. Basic Transaction......................................................... 4
(a) The Merger......................................................... 4
(b) The Closing........................................................ 4
(c) Actions at the Closing............................................. 4
(d) Effect of Merger................................................... 4
(e) Procedure for Payment.............................................. 5
(f) Closing of Transfer Records........................................ 5
3. Representations and Warranties of the Target and the Target Stockholders.. 6
(a) Organization, Qualification, and Corporate Power................... 6
(b) Capitalization..................................................... 6
(c) Authorization of Transaction....................................... 6
(d) Noncontravention................................................... 6
(e) Financial Statements............................................... 6
(f) Events Subsequent to Most Recent Fiscal Quarter End................ 7
(g) Undisclosed Liabilities............................................ 7
(h) Brokers' Fees...................................................... 7
(i) Continuity of Business Enterprise.................................. 7
(j) Interests in Subsidiaries of the Target............................ 7
(k) Absence of Certain Changes......................................... 7
(l) Litigation; Liabilities............................................ 7
(m) Compliance with Law................................................ 8
(n) Taxes.............................................................. 8
(o) Material Contracts................................................. 9
(p) Assets of the Target............................................... 9
(q) Affiliate Transactions............................................. 9
(r) Clients and Suppliers..............................................10
(s) Books and Records..................................................10
(t) Accounts Receivable................................................10
(u) Real Property......................................................11
(v) Personal Property Leases...........................................11
(w) Intellectual Property..............................................11
(x) Employee Plans.....................................................12
(y) Labor and Employee Matters.........................................13
(z) Insurance..........................................................13
(aa) Transactions with Related Parties..................................14
(bb) Full Disclosure....................................................14
4. Representations and Warranties of the Buyer...............................14
(a) Organization, Qualification and Corporate Power....................14
(b) Capitalization.....................................................14
(c) Authorization of Transaction.......................................15
(d) Noncontravention...................................................15
(e) Filings with the SEC...............................................15
(f) Financial Statements...............................................15
(g) Events Subsequent to Most Recent Fiscal Year End...................15
(h) Undisclosed Liabilities............................................15
(i) Brokers' Fees......................................................16
(j) Disclosure.........................................................16
(k) Full Disclosure....................................................16
5. Covenants.................................................................16
(a) General............................................................16
(b) Notices and Consents...............................................16
(c) Regulatory Matters and Approvals...................................16
(d) Operation of Target Business.......................................16
(e) Full Access........................................................17
(f) Notice of Developments.............................................17
(g) Target Exclusivity.................................................18
(h) Tax Consequences...................................................18
(i) Taxes..............................................................18
(j) Compliance with the Securities Act.................................20
(k) Current Report on Form 8-K.........................................20
(l) Continuity of Business Enterprise..................................20
(m) Restricted Securities..............................................20
(n) Legends............................................................20
(o) Options............................................................20
6. Conditions to Obligation to Close.........................................20
(a) Conditions to Obligation of the Buyer..............................20
(b) Conditions to Obligation of the Target.............................21
7. Survival of Representations, Warranties and Covenants.....................22
8. Termination...............................................................24
(a) Termination of Agreement...........................................24
(b) Effect of Termination..............................................25
9. Miscellaneous.............................................................25
(a) Press Releases and Public Announcements............................25
(b) No Third Party Beneficiaries.......................................25
(c) Entire Agreement...................................................25
(d) Succession and Assignment..........................................25
(e) Counterparts.......................................................25
(f) Headings...........................................................25
(g) Notices............................................................25
(h) Governing Law; Dispute Resolution..................................26
(i) Attorneys' Fees and Costs..........................................27
(j) Amendments and Waivers.............................................27
(k) Severability.......................................................27
(l) Expenses...........................................................27
(m) Construction.......................................................27
(n) Incorporation of Exhibits and Schedules............................27
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of June 30, 1999, by and between Nucleus, Inc., a
Nevada corporation (the "Buyer"), and Innovative Technology Solutions, Inc., a
Washington corporation (the "Target"), Xxxxx Xxxxxx, Xxxxx Xxxxxx and Xxxx X.
Xxxxxxx (collectively, the "Target Stockholders"). The Buyer, the Target and the
Target Stockholders are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization (the "Transaction") pursuant to Section
368(a)(i)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Target Stockholders will receive a combination of capital stock in the Buyer and
cash in exchange for their capital stock in the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Additional Documents" has the meaning set forth in Section 7(b) below.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns
beneficially.
"Buyer Common Share" means any share of the Common Stock, $.001 par value
per share, of the Buyer.
"Buyer Indemnified Parties" has the meaning set forth in Section 7(b)
below.
"Buyer Notice" has the meaning set forth in Section 5(i)(5) below.
"Buyer Preferred Share" means any share of Preferred Stock of the Buyer.
"Buyer Warrant" means any warrant to purchase a Buyer-owned Share.
"Code" means the Internal Revenue Code of 1986, as amended.
"Controlled Entities" has the meaning set forth in Section 4(y)(i) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in Section 2(d)(iv) below.
"Defense Notice" has the meaning set forth in Section 7(e) below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share which any Target Stockholder who
or which has exercised his or her appraisal rights under the Washington General
Corporation Law holds of record.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Employee Plans" has the meaning set forth in Section 4(y) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Agent" has the meaning set forth in Section 2(e) below.
"Financial Statements" has the meaning set forth in Section 3(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Entity" means a court, administrative agency or commission or
other governmental authority or instrumentality, whether domestic or foreign.
"Illinois Certificate of Merger" has the meaning set forth in Section 2(c)
below.
"Illinois General Corporation Law" means the Business Corporation Act of
1983 of the State of Illinois, as amended.
"Income Taxes" means any and all federal, state, local, or foreign Taxes
imposed on net income.
"Indemnification Period" has the meaning set forth in Section 7(a) below.
"Indemnified Party" has the meaning set forth in Section 7(d) below.
"Indemnifying Party" has the meaning set forth in Section 7(d) below.
"Indemnity Notice" has the meaning set forth in Section 7(f)(e)(v) below.
"IRS" means the Internal Revenue Service.
"Labor Agreement" has the meaning set forth in Section 3(z) below.
"Losses" has the meaning set forth in Section 7(b) below.
"Material Adverse Effect" has the meaning set forth in Section 3(a) below.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" has the meaning set forth in Section 2(d) below.
"Most Recent Fiscal Quarter End" has the meaning set forth in Section 4(f)
below.
"Multiemployer Plan" has the meaning set forth in Section 4(y)(vii) below.
"Nevada Certificate of Merger" has the meaning set forth in Section 2(c)
below.
"Nevada General Corporation Law" means the General Corporation Law of the
State of Nevada as amended.
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"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Participants" shall mean collectively, Xxxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxx
Xxxxxx and Xxxxx Xxxxx.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Personnel Documents" has the meaning set forth in Section 4(y)(i) below.
"Plan" has the meaning set forth in Section 5(o) below.
"Proceeding Notice" has the meaning set forth in Section 5(i)(5) below.
"Promissory Note" has the meaning set forth in Section 2(e) below.
"Public Report" has the meaning set forth in Section 4(e) below.
"Reserves" has the meaning set forth in Section 3(u) below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Agreement" has the meaning set forth in Section 2(e)(i) below.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Contracts" has the meaning set forth in Section 3(o) below.
"Target Share" means any share of the Common Stock, no par value per share,
of the Target.
"Target Stockholder" means Xxxxx Xxxxxx, Xxxxx Xxxxxx and Xxxx X. Xxxxxxx.
"Tax" has the meaning set forth in Section 3(n) below.
"Tax Return" has the meaning set forth in Section 3(n) below.
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"Third Party Claim" has the meaning set forth in Section 7(e)(i) below.
"Transaction" has the meaning set forth in the first recital of this
Agreement.
"Washington Certificate of Merger" has the meaning set forth in Section
2(c) below.
"Washington General Corporation Law" means the Washington Business
Corporation Act as amended.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxxx Price
Xxxxxxx & Kammholz in Chicago, Illinois commencing at 9:00 a.m. local time on
July 8, 1999 or such other date as the Parties may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall be no later than
July 31, 1999.
(c) Actions at the Closing. At the Closing, (i) the Target will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6(a) below, (ii) the Buyer will deliver to the Target the
various certificates, instruments, and documents referred to in Section 6(b)
below, (iii) the Buyer and the Target will file with the Secretary of State of
the State of Nevada a Certificate of Merger in a form customarily accepted by
the Secretary of State of the State of Nevada (the "Nevada Certificate of
Merger"), (iv) the Buyer and the Target will file with the Secretary of State of
the State of Washington, a Certificate of Merger in a form customarily accepted
by the Secretary of State of the State of Washington (the "Washington
Certificate of Merger"), (v) the Buyer will deliver to the Exchange Agent in the
manner provided below in this Section 2(e) certificates evidencing the Buyer
Common Shares issued in the Merger, and (vi) the Target Stockholders will
deliver certificates evidencing the Target Shares together with appropriate
stock powers.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
and Articles of Merger with the Secretary of State of the State of
Washington and the Secretary of State of the State of Nevada or such later
time as specified in the Certificate of Merger and Articles of Merger. The
Merger shall have the effect set forth in the Nevada General Corporation
Law and the Washington General Corporation Law. The Surviving Corporation
may, at any time after the Effective Time, take any action (including
executing and delivering any document) in the name and on behalf of either
the Buyer or the Target in order to carry out and effectuate the
transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of the Buyer in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Conversion of Target Shares. At and as of the Effective
Time, (A) all of the Target Shares (other than any Dissenting Share or
Buyer-owned Share) issued and outstanding immediately prior to the
Effective Time shall be canceled, retired and converted into the right to
receive 1,000,000 Buyer Common Shares (the ratio of 1,000,000 Buyer Common
Shares to all of the Target Shares is referred to herein as the "Conversion
Ratio") and $1,000,000 in cash (the "Merger Consideration")(B) each
Dissenting Share shall be canceled, retired and converted into the right to
receive payment from the Surviving Corporation with respect
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thereto in accordance with the provisions of the Washington General
Corporation Law, and (C) each Buyer-owned Share shall be canceled;
provided, however, that the Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split, or other change in the number of Target Shares outstanding. No
Target Share shall be deemed to be outstanding or to have any rights other
than those set forth above in this Section 2(d)(iv) after the Effective
Time.
(v) Buyer Common Shares. Each Buyer Common Share issued and
outstanding at and as of the Effective Time shall remain issued and
outstanding.
(vi) Buyer Warrants. Each Buyer Warrant outstanding at and as of
the Effective Time shall remain outstanding and in full force and effect.
(e) Procedure for Payment.
(i) The Merger Consideration shall be payable to the Target
Stockholders in accordance with the provisions of the form of the secured
promissory note (the "Promissory Note") attached hereto as Exhibit
2(e)(i)(a) and the form of Pledge and Security Agreement ("Security
Agreement") attached hereto as Exhibit 2(e)(i)(b). The Merger Consideration
shall be allocated among the Target Stockholders in proportion to their
respective holdings of Target Shares as set forth on the Disclosure
Schedule.
(ii) Immediately after the Effective Time, (A) the Buyer will
furnish to Illinois Stock Transfer Company of Chicago, Illinois (the
"Exchange Agent") stock certificates (issued in the name of the Exchange
Agent or its nominee) representing that number of Buyer Common Shares equal
to the product of (I) the Conversion Ratio times (II) the number of
outstanding Target Shares (other than any Dissenting Shares and Buyer-owned
Shares) and (B) the Buyer shall cause the Exchange Agent to mail a letter
of transmittal (with instructions for its use) to each record holder of
outstanding Target Shares for the holder to use in surrendering the
certificates which represented his or its Target Shares in exchange for a
certificate representing the number of Buyer Common Shares to which he or
it is entitled.
(iii) The Buyer shall not pay any dividend or make any
distribution on Buyer Common Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Target Shares until the
holder surrenders for exchange his or its certificates which represented
Target Shares. The Buyer instead shall pay the dividend or make the
distribution to the Exchange Agent in trust for the benefit of the holder
pending surrender and exchange. The Buyer may cause the Exchange Agent to
invest any cash the Exchange Agent receives from the Buyer as a dividend or
distribution in one or more of the investments permitted of banks and
transfer companies; provided, however, that the terms and conditions of the
investments shall be such as to permit the Exchange Agent to make prompt
payments of cash to the holders of outstanding Target Shares as necessary.
The Buyer may cause the Exchange Agent to pay over to the Buyer any net
earnings with respect to the investments, and the Buyer shall replace
promptly any cash which the Exchange Agent loses through investments. In no
event, however, will any holder of outstanding Target Shares be entitled to
any interest or earnings on the dividend or distribution pending receipt.
(iv) The Buyer may cause the Exchange Agent to return any Buyer
Common Shares and dividends and distributions thereon remaining unclaimed
180 days after the Effective Time, and thereafter each remaining record
holder of outstanding Target Shares shall be entitled to look to the Buyer
(subject to abandoned property, escheat, and other similar laws) as a
general creditor thereof with respect to the Buyer Common Shares and
dividends and distributions thereon to which he or it is entitled upon
surrender of his or her certificates.
(v) The Buyer shall pay all charges and expenses of the Exchange
Agent.
(f) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Target Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
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3. Representations and Warranties of the Target and the Target
Stockholders. Each of the Target and the Target Stockholders represents and
warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and shall be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. Each of the
Target and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Target and its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required except where the lack of such qualification would not
have a material adverse effect on the financial condition of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement ("Material Adverse Effect"). Each of
the Target and its Subsidiaries has full corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 50,000 common shares, 625 of which are issued and outstanding. All
of the issued and outstanding Target Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Target.
(c) Authorization of Transaction. Each of the Target and the Target
Stockholders has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform their respective
obligations hereunder. This Agreement constitutes the valid and legally binding
obligations of the Target and the Target Stockholders, enforceable in accordance
with its terms and conditions.
(d) Noncontravention. To the knowledge of the Target and Target
Stockholders, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which any of the Target and its Subsidiaries is subject or any
provision of the charter or bylaws of any of the Target and its Subsidiaries or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which any of the Target and its
Subsidiaries is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets) except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect. Other than in connection with
the provisions of the Washington General Corporation Law, the Illinois General
Corporation Law, the Nevada General Corporation Law, the Securities Exchange
Act, the Securities Act, and the state securities laws, none of the Target and
its Subsidiaries needs to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material Adverse Effect.
(e) Financial Statements. The Financial Statements of the Target for
the fiscal quarter ended March 31, 1999, and for the fiscal year ended
December 31, 1998, (collectively, the "Financial Statements") have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, and present fairly the financial condition of the Target and
its Subsidiaries as of the indicated dates and the results of operations of the
Target and its Subsidiaries for the indicated periods; provided, however, that
the interim statements are subject to normal year-end adjustments.
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(f) Events Subsequent to Most Recent Fiscal Quarter End. Since March
31, 1999, there has not been any material adverse change in the financial
condition of the Target and its Subsidiaries taken as a whole.
(g) Undisclosed Liabilities. None of the Target and its Subsidiaries
has any liability (whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of March 31, 1999, (rather than in any notes thereto) and
(ii) liabilities which have arisen after March 31, 1999, in the Ordinary Course
of Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(h) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(i) Continuity of Business Enterprise. The Target operates at least
one significant historic business line, or owns at least a significant portion
of its historic business assets, in each case within the meaning of Reg. Section
1.368-1(d).
(j) Interests in Subsidiaries of the Target. Neither the Target nor
any of its Subsidiaries owns directly or indirectly any interest or investment
in the equity or debt for borrowed money of any Person or has any obligation or
made any commitment to acquire any such interest or make any such investment.
(k) Absence of Certain Changes. Except as disclosed in the Target's
audited financial statements for the years ended December 31, 1997 and 1998,
(a) the Target and each of its Subsidiaries has conducted its business in all
material respects in the ordinary course of its business consistent with past
practice and there has not been any change in the financial condition, business,
results of operations or prospects of the Target and its Subsidiaries, or any
development or combination of developments that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect, and (b) since the end of the Target's fiscal year last ended until the
date hereof, there has not been (i) any declaration, setting aside or payment of
any dividend or other distribution in respect of the capital stock of the
Target; (ii) any change by the Target to its accounting policies, practices or
methods; (iii) any amendment or change to the terms of any indebtedness material
to the Target and its Subsidiaries taken as a whole; (iv) other than in the
Ordinary Course of Business, any incurrence or cancellation of any claim,
obligation, commitment, or indebtedness material to the Target and its
Subsidiaries taken as a whole; (v) other than in the Ordinary Course of
Business, any transfer, lease, license, sale, mortgage, pledge, encumbrance or
other disposition of assets or properties material to the Target and its
Subsidiaries taken as a whole; (vi) any damage, destruction or other casualty
loss with respect to any asset or property owned, leased or otherwise used by
the Target or its Subsidiaries material to the Target and its Subsidiaries taken
as a whole, whether or not covered by insurance; (vii) other than in the
Ordinary Course of Business or except as required by applicable law or pursuant
to a contractual obligation in effect as of the date of this Agreement, (A) any
execution, adoption or amendment of any agreement or arrangement relating to
compensation, bonus, severance or change of control payments or benefits or any
Employee Plan or Labor Agreement or (B) any grant of any stock options or other
equity related award; or (viii) any agreement or commitment entered into with
respect to any of the foregoing.
(l) Litigation; Liabilities.
(i) Except as disclosed in the Target's audited financial
statements for the years ended December 31, 1997 and 1998 up to the date
hereof, there are no civil, criminal or administrative actions, suits or
claims, proceedings (including condemnation proceedings), hearings or
investigations pending or, to the knowledge of the Target or any Target
Stockholder, threatened against, or otherwise adversely affecting the
Target or any of its Subsidiaries or any of their respective assets or
properties.
(ii) Neither the Target nor any of its Subsidiaries is subject to
any cease and desist or other order, judgment, injunction or decree issued
by, or is a party to any written agreement, consent agreement or memorandum
of understanding with, or is a party to any commitment letter or similar
undertaking to, or is
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subject to any order or directive by, or has adopted any board resolutions
at the request of, any Governmental Entity, that materially restricts the
conduct of its business (whether the type of business, the location thereof
or otherwise), nor to the knowledge of the Target or any Target
Stockholder, has any Governmental Entity proposed issuing or requesting any
of the foregoing.
(iii) Neither the Target nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise), except (i)
liabilities described in the Target's audited financial statements for the
years ended December 31, 1997 and 1998 or (ii) liabilities incurred since
the end of the Target's most recently completed fiscal year in the Ordinary
Course of Business consistent.
(m) Compliance with Law. To the knowledge of the Target and the
Target Stockholders, the business of the Target and each of its Subsidiaries is
being conducted in accordance in all material respects with all applicable
statutes of law, ordinances, regulations, judgments, orders or decrees of any
Governmental Entity, and not in violation in any material respect of any
permits, franchises, licenses, authorizations or consents granted by any
Governmental Entity, and the Target and each of its Subsidiaries has obtained
all material permits, franchises, licenses, authorizations or consents necessary
for the conduct of its business.
(n) Taxes.
(i) All Tax Returns required to be filed by the Target or its
Subsidiaries on or prior to the Effective Time or with respect to taxable
periods ending on or prior to the Effective Time have been or will be
prepared in good faith and timely filed with the appropriate Governmental
Entity on or prior to the Effective Time or by the due date thereof
including extensions.
(ii) All Taxes that are required to be paid have been or will be
fully paid (except with respect to matters contested in good faith set
forth in the Disclosure Schedule) on or as of March 31, 1999, are
adequately reflected as a liability on the Target's or its Subsidiaries'
Books and Records (without taking into account any deferred Tax
liabilities), and all Taxes required to be collected or withheld from third
parties have been collected or withheld.
(iii) The Target and each of its Subsidiaries have not waived any
statute of limitations with respect to federal income Taxes or agreed to
any extension of time with respect to federal income or material state Tax
assessment or deficiency.
(iv) As of the date hereof, there are not pending or, to the
knowledge of the Target or any Target Stockholder, threatened any audits,
examinations, investigations, or other proceedings in respect of Taxes or
Tax matters that (i) were raised by any Taxing authority in a written
communication to the Target or any Subsidiary and (ii) would, if determined
adversely to the Target, individually or in the aggregate, reasonably be
expected to be material to the Target and its Subsidiaries taken as a whole
after taking into account any reserves for Taxes set forth on the Target's
audited financial statements for the years ended December 31, 1997 and
1998.
(v) The Target has made available to Buyer true and correct
copies of the United States federal income and all material state income or
franchise Tax Returns filed by the Target and its Subsidiaries for each of
its fiscal years ended on or about December 31, 1996, 1997, and 1998.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, license, premium,
environmental (including Taxes under Section 59A of the Code), capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other Taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the
8
term "Tax Return" includes all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(o) Material Contracts. Set forth in the Disclosure Schedule is a
complete and accurate list of all of the following contracts (written or oral),
plans, arrangements, undertakings, commitments or agreements ("Target
Contracts") to which the Target or any of its Subsidiaries is a party or by
which any of them is bound as of the date of this Agreement:
(i) each service, distribution, supply, inventory purchase,
franchise, license, sales, agency, or advertising contract involving annual
expenditures or liabilities in excess of $30,000 which is not cancelable
(without material penalty, cost, or other liability) within one year;
(ii) each promissory note, loan, agreement, indenture, evidence
of indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $30,000;
(iii) each lease under which either the Target or any of its
Subsidiaries is the lessee or real property requiring lease payments in
excess of $30,000 annually;
(iv) each contract between the Target and/or any of its
Subsidiaries, on the one hand, and any of their respective customers, on
the other, relating to fuel supply and/or services, cargo operations, fixed
base operations and government contract services;
(v) each joint venture, limited liability company or partnership
agreement (A) pursuant to which any third party is entitled to develop any
property and/or facility on behalf of Target or any of its Subsidiaries
material to the Target and its Subsidiaries taken as a whole or (B)
establishing an entity through which the Target holds a direct or indirect
interest in any asset with a purchase price in excess of $1 million;
(vi) each contract or agreement (written or oral) between any
Target Stockholder, on the one hand, and the Target or any of its
Subsidiaries, on the other;
(vii) any contract that would constitute a "material contract"
(as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);
and
(viii) all arrangements between the Target and/or any of its
Subsidiaries, on the one hand, and any of their respective customers, on
the other, which arrangements prohibit, restrict, or which, upon the
happening of an event, would prohibit or restrict the Target or any of its
Affiliates from doing business with any particular Person or type of
Person.
True and complete copies of the written Target Contracts, as amended to date,
that are identified in the Disclosure Schedule, have been delivered to Buyer.
To the knowledge of the Target or any Target Stockholder, each Target
Contract is a valid and binding obligation of the Target, each Subsidiary of the
Target which is a party thereto and each other party thereto, and is in full
force and effect, and the Target and its Subsidiaries have performed and
complied, in all material respects, with all of the obligations required to be
performed or complied with by them under each Target Contract.
(p) Assets of the Target. The Target and its Subsidiaries have good
and marketable title or a valid right to use all of the real properties that are
necessary, and all of the personal assets and properties that are necessary, for
the conduct of the business of the Target or any of its Subsidiaries, as
currently conducted, free and clear of all liens, claims, pledges, security
interests and other rights of third parties (other than those that do not
materially interfere with or detract from the present use of the asset subject
thereto or affected thereby).
(q) Affiliate Transactions. Except as set forth in the Target's
audited financial statements for the years ended December 31, 1997 and 1998, but
prior to the date hereof, there are no transactions, agreements,
9
arrangements or understandings between the Target or any of its Subsidiaries, on
the one hand, and any Affiliate of the Target (other than wholly-owned
Subsidiaries of the Target) or other Persons, on the other hand.
(r) Clients and Suppliers.
(i) Neither the Target, any of its Subsidiaries, nor any other
Person on behalf of the Target or any of its Subsidiaries is a party to, or
is obligated under, any contract or other arrangement (oral or written)
relating to the payment of any brokerage fees, finder's fees, or
commissions or other similar compensation in connection with or relating to
business between the Target and/or any of its Subsidiaries, on the one
hand, and any of their respective customers, on the other.
(ii) As of the date of this Agreement, to the knowledge of the
Target or any Target Stockholder and its Subsidiaries, no material customer
of the Target or any of its Subsidiaries, as of the date hereof, has
indicated that there is a material possibility that such customer will
cease dealing with the Target or any of its Subsidiaries.
(iii) As of the date of this Agreement, to the knowledge of the
Target or any Target Stockholder, since the end of the Target's fiscal year
last ended, no material customer of the Target or any of its Subsidiaries
has requested, and neither the Target nor any of its Subsidiaries has
granted, any amendment or change to the terms of payment by such customer,
in respect of any obligation or indebtedness to the Target or any of its
Subsidiaries, other than in the Ordinary Course of Business.
(iv) As of the date of this Agreement, to the knowledge of the
Target or any Target Stockholder, no material customer of the Target or any
of its Subsidiaries is insolvent or will be unable to pay its debts or
obligations as they become due and payable.
(v) No material client or supplier of the Target has threatened
within the last 12 months to cancel or otherwise terminate or intends to
cancel or otherwise terminate, the relationship of such Person or entity
with the Target or any of its Subsidiaries.
(vi) No such Person or entity has during the last 12 months
decreased materially or threatened in writing to decrease or limit
materially or intends to modify materially its relationship with the Target
or any of its Subsidiaries or intends to decrease or limit materially its
services or supplies to the Target or any of its Subsidiaries or its usage
or purchase of services or products of the Target or any of its
Subsidiaries.
(vii) To the knowledge of the Target or any Target Stockholder,
the acquisition of the Merger will not materially and adversely affect the
relationship of the Target's or any of its Subsidiaries' business with any
material suppler or client.
(s) Books and Records. The books and records of the Target (the
"Books and Records") are accurate and complete and have been maintained in the
Target's usual, regular and ordinary manner, in accordance with GAAP (but only
with respect to the financial records that constitute a part of the Books and
Records), and all transactions of the Target are properly reflected therein. All
Books and Records are (and at the Closing will be) located at the Target's
principal place of business.
(t) Accounts Receivable. To the knowledge of the Target and Target
Stockholders, all outstanding accounts receivable reflected on the Financial
Statements (i) have arisen in bona fide transactions, (ii) are valid claims
against account debtors for goods or services delivered or rendered, subject to
no defenses, offsets or counterclaims, except as reserved against on the
applicable Financial Statements in accordance with GAAP (the "Reserves"), and
(iii) are collectible in the Ordinary Course of Business. All receivables arose
(and will have arisen prior to the Closing Date) in the Ordinary Course of
Business and none of the obligors of such receivables has refused or given
notice that it refuses to pay the full amount thereof. No receivables are
subject to prior assignment, claim or other lien. The Target has no liability
for any refunds, allowances, returns or discounts in respect of services
provided
10
by it or for its account except to the extent of the reserves and liabilities
therefor reflected on the applicable Financial Statements in accordance with
GAAP and except as otherwise incurred in the Ordinary Course of Business. Where
receivables arose out of secured transactions, all financing statements and
other instruments required to be filed or recorded to perfect the title or
security interest of the Target or any of its Subsidiaries have been properly
filed and recorded. To the knowledge of Target or any Target Stockholder, after
the Closing Date, Buyer will not have any obligation (whether in bankruptcy or
insolvency proceedings or otherwise) to repay any receivables collected by the
Target prior to the Closing Date or any receivables reflected on the Financial
Statements which the Surviving Corporation collects after the Closing Date.
(u) Real Property. The Target owns no real property. The Disclosure
Schedule sets forth a true and complete list of all real property leased or
subleased by the Target (the "Leased Real Property"), including identification
of the lease or sublease, street address and list of contracts, agreements,
leases, subleases, options and commitments, oral or written, affecting such real
estate or any interest therein to which the Target is a party or by which any of
its interests in real property is bound (the "Real Property Leases"). The Target
is in peaceable possession of the Leased Real Property and has performed in all
material respects all obligations required to be performed by it under any other
Real Property Leases. Neither the Real Property Leases nor the leasehold
interest of the Target with respect to the Leased Real Property is subject to
any liens which have arisen out of any action or omission taken by the Target;
and, to the knowledge of Target or any Target Stockholder, none of such Leased
Real Property is subject to any easements, rights of way, licenses, grants,
building or use restrictions, exceptions, reservations, limitations or other
impediments which materially and adversely affect the value to the Target of the
leasehold interest therein or which materially interfere with or impair the
present and continued use thereof in the usual and normal conduct of the
Target's business as presently conducted.
(v) Personal Property Leases. Set forth in the Disclosure Schedule
is a true and complete list of all personal property leases to which the Target
is party (the "Personal Property Leases"). The Target is not in default with
respect to any Personal Property Lease, an no event has occurred which
constitutes, or with due notice or lapse of time or both may constitute, a
default by the Target under any such Personal Property Lease. The Disclosure
Schedule sets forth all of the accrued and unpaid obligations and other
liabilities of the Target on or with respect to any of such Personal Property
Leases through the date hereof.
(w) Intellectual Property. To the knowledge of the Target and Target
Stockholders, the Disclosure Schedule contains a true and complete list of all
(i) patents, trademarks, service marks, trade names, technology, know-how,
processes, computer software programs and applications and copyrights used in
the Target's business (the "Intellectual Property") and (ii) written licenses
and other agreements which the Target is a party and pursuant to which the
Target is authorized to use any Intellectual Property. The Disclosure Schedule
includes a summary description of each item of Intellectual Property and
specifies, where applicable, the date granted or applied for, the expiration
date and the correct status thereof and applicable royalty and term thereof. To
the knowledge of the Target and Target Stockholders, each item of Intellectual
Property is valid and in good standing, is not subject to any liens, is not
currently being challenged or infringed, is not involved in any pending or
threatened administrative or judicial proceeding, and does not conflict with any
rights of any other person or entity; neither the Target nor Buyer will be in
violation of any material license or agreement listed in the Disclosure Schedule
as a result of the execution, delivery, or performance of the Target's
obligations under this Agreement; the Target is not in default or in violation
with respect to any of the Intellectual Property or the terms or conditions by
which such Intellectual Property was acquired or obtained, and in no event has
occurred which constitutes, or with due notice or lapse of time or both would
constitute, a default by the Target under or a violation of any item of
Intellectual Property; none of the products or operations of the Target in the
conduct of its business involves any infringement of any proprietary right of
any other person or entity; and the Target does not have any knowledge or any
reason to know of any fact which could give rise to a claim of infringement by
any person or entity relating to the ownership, licensing or use of the
Intellectual Property by the Target.
11
(x) Employee Plans.
(i) Identification. Set forth in the Disclosure Schedule is a
true and complete list and summary description of all bonus, pension, stock
option, stock purchase, benefit, welfare, profit sharing, retirement,
disability, vacation, severance, hospitalization, insurance, incentive,
deferred compensation and other similar fringe or employee benefit plans,
funds, programs or arrangements, and all employment contracts or executive
compensation agreements, written or oral, in each of the foregoing cases
which cover, are maintained for the benefit of, or relate to any or all
employees of the Target or any member of its controlled group (the
"Controlled Entities") as described in Sections 414(b), (c), (m), and (o)
of the Code (the "Employee Plans"). Set forth in the Disclosure Schedule is
a true and complete list of all manuals, brochures or publications or
similar documents of the Target and each Controlled Entity regarding office
administration, personnel matters and hiring, evaluating, supervision,
training, termination and promotion of employees of the Target or any
Controlled Entity, including, but not limited, to the Target's or any
Controlled Entity's affirmative action plan, if any, and all communications
to employees concerning such matters (the "Personnel Documents").
(ii) Documentation. With respect to each Employee Plan, the
Target has made available to Buyer true and complete copies, if applicable,
of (A) the current plan document, (B) the most recent determination letters
received from the IRS, (C) the most recent application for determination
filed with the IRS, (D) the latest actuarial valuations, (E) the latest
financial statements, (F) the latest Form 5500 Annual Report and Schedule A
and Schedule B thereto, (G) all current related trust agreements, insurance
contracts or other funding arrangements which implement any of such
Employee Plans, and (H) the current summary plan description and any
summaries of material modifications thereto communicated to employees. The
Target has no stock options or stock appreciation rights issued under any
Employee Plan. With respect to each Personnel Document, the Target has
furnished to Buyer true and complete copies of all the documents listed in
the Disclosure Schedule.
(iii) Code and ERISA. Each of the Employee Plans and, with respect
to each Employee Plan, the Target and each Controlled Entity is in material
compliance, in form and operation, with the requirements provided by any
and all statutes, orders or governmental rules or regulations currently in
effect, including, but not limited to, ERISA and the Code, and applicable
to such Employee Plans. Each Employee Plan and its related trust intended
to qualify under Section 401(a) and Section 501(a) of the Code is so
qualified and has previously been determined by the IRS to so qualify and
nothing has occurred to cause the loss of such qualification. All required
reports and descriptions of the Employee Plans have been timely filed and
distributed. Any notices required by ERISA or the Code or any other state
or federal law or any ruling or regulation of any state or federal
administrative agency with respect to the Employee Plans have been
appropriately given.
(iv) Contributions and Accrual. With respect to the Employee
Plans, all applicable contributions for all periods ending prior to Closing
have been made in full or will be accrued on the Financial Statements.
Subject only to normal retrospective adjustments in the ordinary course,
all insurance premiums have been paid in full with regard to such Employee
Plan for policy years or other applicable policy periods ending on or
before Closing. No accumulated funding deficiency within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred with
respect to any Employee Plan, whether or not waived.
(v) No Defined Benefit Plans. Neither the Target nor any
Controlled Entity currently sponsors or has ever sponsored an employee
pension benefit plan subject to Title IV of ERISA.
(vi) Termination of Benefits. Neither the Target nor any
Controlled Entity maintains, contributes to, or has any liability (fixed,
contingent or otherwise) for medical, health, life or other welfare
benefits for present or future terminated employees (other than any welfare
benefits provided in compliance with the Consolidated Omnibus Budget
Reconciliation Act of 1985 or other similar law). The Target and each
Controlled Entity are in material compliance with Section 4980B of the Code
(or Section 162 of the Code, as in effect prior to the effective date of
Section 4980B of the Code).
12
(vii) Withdrawal Liability. None of the Employee Plans is a
multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 414(f) of the Code (a "Multiemployer Plan"). Neither the Target nor
any Controlled Entity has incurred or expects to incur any withdrawal
liability (either as a contributing employer or as part of a controlled
group which includes a contributing employer) to any Multiemployer Plan in
connection with any complete or partial withdrawal from such plan occurring
on or before the Closing.
(viii) Employee Plan Grievances. With respect to each Employee
Plan, (A) no non-exempt prohibited transactions as defined in Section 406
of ERISA or Section 4975 of the Code have occurred, (B) no action, suit,
grievance, arbitration or other manner of litigation, or claim with respect
to the assets thereof (other than routine claims for benefits made in the
ordinary course of plan administration for which plan administrative review
procedures have not been exhausted) is pending, threatened or imminent
against or with respect to any of the Employee Plans, the Target, any
Controlled Entity or any fiduciary, as such term is defined in Section
3(21) of ERISA ("Fiduciary"), of any Employee Plan, including but not
limited to any action, suit, grievance, arbitration or other manner of
litigation or claim regarding conduct which allegedly interferes with the
attainment of rights under any Employee Plan, and (C) none of the Target,
the Controlled Entities or the Fiduciaries has any knowledge of any facts
which would reasonably be expected to give rise to any such actions, suits,
grievances, arbitration or other manner of litigation, or claims with
respect to each Employee Plan.
(y) Labor and Employee Matters.
(i) Labor Agreements. The Target is not a party to any
collective bargaining agreement or any other agreement with any labor
organization applicable to employees of or persons or entities providing
services to the Target (a "Labor Agreement"). No unfair labor practice
charges or complaints are pending or threatened against the Target before
the National Labor Relations Board, no similar claims are pending or
threatened before any similar foreign agency and or current union
representation questions involving employees of or persons or entities
providing services to the Target are outstanding. To the Target's
knowledge, no activity or proceeding of any labor organization (or
representative thereof) to organize any unorganized employees of or persons
or entities providing services to the Target, and no strike, slowdown, work
stoppage, lockout or other collective labor action by or with respect to
any employees of or persons or entities providing services to the Target is
in progress, is pending or has been threatened.
(ii) Labor/Employment Controversies. No present or former
employee of the Target has a pending claim or charge which has been
asserted or, to the knowledge of the Target and Target Stockholders,
threatened against the Target (whether under any foreign, federal, state or
common law, government agency, private arbitral body or otherwise) for (A)
overtime pay, other than overtime pay for the current period; (B) wages,
salaries, profit sharing or claims for stock or equity ownership or
benefits including, without limitation, stock options, warrants or phantom
stock plans (excluding wages, salaries or profit sharing for the current
payroll period); (C) any violation of any statute, ordinance, contract or
regulation relating to minimum wages or maximum hours of work; (D)
discrimination against employees on any basis; (E) unlawful or wrongful
employment or termination practices; (F) unlawful retirement, termination
or labor relations practices, breach of contract or other claim arising
under a Labor Agreement or individual contract; (G) any violation of
occupational safety or health standards; or (H) any other oral or written
contractual or other dispute of any nature.
(iii) Employee Matters. There are no agreements, arrangements or
understandings that would restrict the ability of the Target to terminate
the employment of any or all of the Target's employees at any time without
penalty or liability.
(z) Insurance. The Target owns insurance sufficient for compliance
with all requirements of law and all agreements to which the Target is a party
and which provides for insurance coverage for the Target which is consistent
with that of other companies with similar assets and operations and engaged in
similar businesses. All of such
13
insurance coverage is described on the Disclosure Schedule. The Target has not
received any notice of cancellation or non-renewal of any such policy. The
Target has not received any notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or that any
insurance coverage listed in the Disclosure Schedule will not be available to
the Target in the future on substantially the same terms as now in effect. The
Target has delivered to Buyer true and complete copies of the most recent
reports prepared by any property and casualty insurer with respect to the
Target.
(aa) Transactions with Related Parties. For purposes of this
Agreement, the term "Related Party" shall mean (i) any past or present director,
officer, executive or management level employee, owner or Affiliate of the
Target, or (ii) spouse of any such director, officer, executive or management
level employee, owner or Affiliate (such persons in (i) or (ii) referred to
herein as a "Related Party" or collectively as the "Related Parties"). Since the
incorporation of the Target, no Related Party has been a director or officer of,
or has had any direct or indirect interest in, any person or entity which during
such period has been a supplier or client of products or services or sales agent
of the Target or otherwise done business with the Target, or has competed with
or been engaged in any business similar to the Target's business. No Related
Party owns, directly or indirectly, in whole or in part, any tangible or
intangible property that the Target uses in the conduct of its business. No
Related Party owes any money or other amounts to, nor is any Related Party owned
any money or other amounts by the Target other than salaries owned by the Target
as described in the following sentence. All indebtedness for borrowed funds of
the Target to any Related Party is set forth on the Financial Statements and
since December 31, 1998 the Target has not directly or indirectly (i) created,
incurred, assumed or guaranteed any indebtedness for borrowed funds or otherwise
to or for any Related Party, or (ii) made any loans, payments or transfers of
its assets to any Related Party other than for salaries paid for services
actually performed in amounts in keeping with past practice and in the Ordinary
Course of Business and not in violation of any other provision of this
Agreement.
(bb) Full Disclosure. No representation or warranty of the Target or
any Target Stockholder contained in this Agreement, any Additional Documents,
the Disclosure Schedule, or any instrument, certificate, agreement or other
writing delivered by or on behalf the Target pursuant to this Agreement or any
Additional Document or in connection with the transactions contemplated herein
or therein contains any untrue or incomplete statement of a material fact or
omits (or will omit) to state a material fact necessary to make the statements
contained herein and therein not misleading. To the knowledge of Target or any
Target Stockholder, there is no fact which adversely affects, or in the future
may adversely affect, the business, assets, properties, liabilities, affairs,
results of operations, condition (financial or otherwise), cash flows or
prospects of Target which has not been or is not disclosed in this Agreement,
any Additional Document, the Disclosure Schedule or in the other instruments,
certificates, agreements or writings furnished to Buyer by or on behalf of the
Target pursuant to this Agreement or any Additional Document or in connection
with the transactions contemplated herein.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target and Target Stockholders that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule. The
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Section 4.
(a) Organization, Qualification and Corporate Power. Each of the
Buyer and its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Buyer and its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required except where the lack of such qualification would not
have a Material Adverse Effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Each of the Buyer and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Buyer
consists of (i) 900,000,000 Buyer Common Shares, of which 9,077,271 Buyer Common
Shares are issued and outstanding, and no Buyer Common
14
Shares are held in treasury, (ii) 8,000,000 Buyer Preferred Shares, none of
which Buyer Preferred Shares are issued or outstanding, and (iii) 367,050 Buyer
Warrants. All of the Buyer Common Shares to be issued to the Target Stockholders
in the Merger have been duly authorized and, upon consummation of the Merger,
will be validly issued, fully paid, and nonassessable. There are no other
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Buyer to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Buyer.
(c) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
the Buyer cannot consummate the Merger unless and until it receives the
Requisite Buyer Stockholder Approval. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions.
(d) Noncontravention. To the knowledge of the Buyer, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Buyer
is subject or any provision of the charter or bylaws of the Buyer or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a Material Adverse
Effect. Other than in connection with the provisions of the Washington General
Corporation Law, the Nevada General Corporation Law, the Securities Exchange
Act, the Securities Act, and the state securities laws, the Buyer does not need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
(e) Filings with the SEC. The Buyer has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Public Reports"). Each of the Public Reports has
complied with the Securities Act and the Securities Exchange Act in all material
respects. None of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Buyer has
delivered to the Target a correct and complete copy of each Public Report
(together with all exhibits and schedules thereto and as amended to date).
(f) Financial Statements. The Buyer has filed Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1999 (the "Most Recent Fiscal
Quarter End"), December 31, 1998, and September 30, 1998, and an Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (the "Most Recent
Fiscal Year End"). The financial statements included in or incorporated by
reference into these Public Reports (including the related notes and schedules)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, and present fairly the financial
condition of the Buyer and its Subsidiaries as of the indicated dates and the
results of operations of the Buyer and its Subsidiaries for the indicated
periods; provided, however, that the interim statements are subject to normal
year-end adjustments.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
financial condition of the Buyer and its Subsidiaries taken as a whole.
(h) Undisclosed Liabilities. None of the Buyer and its Subsidiaries
has any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability for
taxes, except for
15
(i) liabilities set forth on the face of the balance sheet dated as of the Most
Recent Fiscal Year End (rather than in any notes thereto) and (ii) liabilities
which have arisen after the Most Recent Fiscal Year End in the Ordinary Course
of Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(i) Brokers' Fees. The Buyer does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of the
Target and its Subsidiaries could become liable or obligated.
(j) Disclosure. The Buyer's filing on Form 8-K with the U.S.
Securities and Exchange Commission ("SEC") will comply with the Securities Act
and the Securities Exchange Act in all material respects. The Form 8-K will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided, however,
that the Buyer makes no representation or warranty with respect to any
information that the Target will supply specifically for use in the Form 8-K.
None of the information that the Buyer will supply specifically for use in the
Form 8-K will contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading.
(k) Full Disclosure. No representation or warranty of Buyer contained
in this Agreement or any Additional Document, or in any instrument, certificate,
agreement or other writing delivered by Buyer pursuant to this Agreement or any
Additional Document or in connection with the transactions contemplated herein
or therein contains any untrue statement of a material fact or omits to
Document, or in any instrument, certificate, agreement or other writing by Buyer
pursuant to this Agreement or any Additional Document or in connection with the
transactions contemplated herein or therein contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties shall use its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. The Target shall give any notices (and will
cause each of its Subsidiaries to give any notices) to third parties, and shall
use its best efforts to obtain (and shall cause each of its Subsidiaries to use
its reasonable best efforts to obtain) any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in Section
3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties shall (and
the Target shall cause each of its Subsidiaries to) give any notices to, make
any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(d) and Section 4(d) above. Without
limiting the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State
Securities Laws. The Buyer shall prepare and file with the SEC a Current
Report on Form 8-K under the Securities Exchange Act relating to the
transaction. The Buyer shall make any further filings (including amendments
and supplements) in connection therewith that may be necessary, proper, or
advisable. The Target shall provide the Buyer, with whatever information
and assistance in connection with the foregoing filings that the Buyer
reasonably may request.
(d) Operation of Target Business. The Target shall not (and shall not
cause or permit any of its Subsidiaries to) engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing:
16
(i) none of the Target and its Subsidiaries shall authorize or
effect any change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries shall grant any
options, warrants, or other rights to purchase or obtain any of its capital
stock or issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants, and other
rights currently outstanding);
(iii) none of the Target and its Subsidiaries shall declare, set
aside, or pay any dividend or distribution with respect to its capital
stock (whether in cash or in kind), or redeem, repurchase, or otherwise
acquire any of its capital stock;
(iv) none of the Target and its Subsidiaries shall issue any
note, bond, or other debt security or create, incur, assume, or guarantee
any indebtedness for borrowed money or capitalized lease obligation outside
the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries shall impose any
Security Interest upon any of its assets outside the Ordinary Course of
Business;
(vi) none of the Target and its Subsidiaries shall make any
capital investment in, make any loan to, or acquire the securities or
assets of any other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries shall make any
change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries shall commit to
any of the foregoing.
(e) Full Access.
(i) Buyer Access. The Target shall (and shall cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Target and its Subsidiaries, to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to each of the Target and its
Subsidiaries. The Buyer will treat and hold as such any Confidential
Information it receives from any of the Target and its Subsidiaries in the
course of the reviews contemplated by this Section 5(e), shall not use any
of the Confidential Information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever, agrees to
return to the Target all tangible embodiments (and all copies) thereof
which are in its possession.
(ii) Target and Target Stockholder Access. The Buyer shall (and
shall cause each of its Subsidiaries to) permit representatives of the
Target and Target Stockholders to have full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations
of the Buyer and its Subsidiaries, to all premises, properties, personnel,
books, records (including tax records), contracts, and documents of or
pertaining to each of the Buyer and its Subsidiaries. The Target and Target
Stockholders will treat and hold as such any Confidential Information it
receives from any of the Buyer and its Subsidiaries in the course of the
reviews contemplated by this Section 5(e), shall not use any of the
Confidential Information except in connection with this Agreement, and, if
this Agreement is terminated for any reason whatsoever, agrees to return to
the Buyer all tangible embodiments (and all copies) thereof which are in
its possession.
(f) Notice of Developments. Each Party shall give prompt written notice
to the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(i), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
17
(g) Target Exclusivity. The Target shall not (and shall not cause or
permit any of its Subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of all or substantially all of the capital stock or assets of any of the Target
and its Subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that the Target, its
Subsidiaries, and their directors and officers will remain free to furnish any
information with respect to any effort or attempt by any Person to do or seek
any of the foregoing to the extent their fiduciary duties may require. The
Target shall notify the Buyer immediately in writing if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) Tax Consequences. As stated in the recital to this Agreement, it
is intent of the parties that the Transaction contemplated under this Agreement
is intended to be a "reorganization" within the meaning of Section 368(a)(i)(A)
of the Code, and no party shall take any position inconsistent with this
interpretation. However, except for any damages which may be caused by the
breach of a representation, warranty, or covenant set forth herein by a party
hereto, neither such party nor its counsel shall have any obligation, of
indemnification or otherwise, in the event it is determined that the tax
consequences differ from those intended.
(i) Taxes. The Parties covenant with each other regarding Taxes as
follows:
(1) Immediately prior to the Closing, the Target shall declare
or make a cash distribution to the Target Stockholders consistent with
the past practices of the Target, in an amount equal to the Target
Stockholders best estimate of their respective liability for Income
Taxes attributable to their ownership of the Target Shares for the
taxable period ending at the close of business on the day before the
Closing Date; provided that the aggregate amount of distributions to
the Target Stockholders under this Section 5(i) shall not exceed an
amount sufficient to meet the Target Stockholders tax obligations as
noted above at the highest applicable rate to satisfy all federal and
state Tax obligations of the Target Stockholders. To the extent such
dividend is declared but not paid prior to Closing, the Buyer shall
cause the Surviving Corporation to make such payment within thirty
(30) days of the Effective Date.
(2) The Parties agree as follows with respect to the
consequences of the Transaction on the S corporation status of the
Target for federal Income Tax purposes:
(i) The Transaction will result in the termination of the
Target's status as an S corporation for federal Income Tax
purposes as of the Closing.
(ii) The Target's current taxable year will constitute an "S
termination year" within the meaning of Section 1362(e)(4) of the
Code.
(iii) The Target will experience a "Short S year", within the
meaning of Section 1362(e)(1)(A) of the Code, for that portion of
its S termination year beginning on the first day of its current
taxable year and ending on the close of business on the day before
Closing.
(3) The Target Stockholders shall be jointly and severally
liable only for any and all Taxes imposed pursuant to applicable law
(1) on the Target Stockholders and attributable to the Target
Stockholders ownership of the Target Shares for the S corporation
taxable period ending at the close of business on the day before the
Closing Date, and (2) on or with respect to the Target through the
close of business on the Closing Date. The Buyer shall be liable for
any and all state and local, sales, use, transfer, documentary or
similar Taxes arising from the Transaction and imposed on the Buyer or
any of its Affiliates or with respect to any post Closing tax period
on the Surviving Corporation.
(4) The Target Stockholders shall cause to be prepared and filed
all Tax Returns for the Target for all periods ending on or prior to
the Closing Date, including the Short S year. The Target Stockholders
shall permit the Buyer to review and comment on each such Tax Return
prior to filing. The Buyer shall cause to be prepared and filed all Tax
Returns of the Target, other than
18
those Tax Returns that are the responsibility of the Target
Stockholders under this Section 5(i), for taxable periods beginning
prior to but ending after the Closing Date. The Target Stockholders
are responsible for the portion of the Taxes which relate to the
portion of such S corporation taxable period ending on the Closing
Date.
(5) In the event the Buyer or the Target or any of their
Affiliates receives notice or any of their Affiliates receives notice
of any examination, claim, adjustment, or other proceeding (a
"Proceeding Notice") with respect to the liability for Taxes for which
the Target Stockholders are or may be liable under this Section 5(i),
the Buyer shall notify the Target Stockholders in writing thereof (the
"Buyer Notice") no later than the earlier of (i) thirty (30) days after
the receipt by the Buyer of the Proceeding Notice, or (ii) ten (10)
days prior to the deadline for responding to the Proceeding Notice. As
to any such Taxes for which the Target Stockholders are liable under
this Section 5(i), the Target Stockholders shall be entitled at their
sole expense to control the contest of such examination, claim,
adjustment, or other proceeding, provided that: (a) the Target
Stockholders notify the Buyer in writing that they desire to do so no
later than the earlier of (i) thirty (30) days after receipt of the
Buyer Notice, or (ii) five (5) days prior to the deadline for
responding to the Proceeding Notice, and (b) the Target Stockholders
may not, without the consent of the Buyer, agree to any settlement that
could result in an increase in the amount of Taxes for which the Buyer
is liable under this Section 5(i) (including any current or potential
increase due to an adjustment of any tax attributes of the Target). The
Parties shall cooperate with each other, and will consult with each
other, in the negotiation and settlement of any proceeding described in
this Section 5(i). With respect to any examination, claim, adjustment,
or other proceeding with respect to Taxes for any period for which the
Buyer is solely liable under this Section 5(i), the Buyer shall control
the contest of such examination, claim, adjustment, or other
proceeding, provided that the Buyer may not, without the prior written
consent of the Target Stockholders, agree to any settlement that could
result in an increase in the amount of Taxes for which the Target
Stockholders are liable under this Section 5(i).
(6) The Parties will provide, or cause to be provided, to the
other Parties copies of all correspondence received from any Tax
authority by such Party in connection with the liability of the Target
or the Target Stockholders for Taxes for any period for which such
other Party is or may be liable under this Section 5(i). The Parties
will provide each other with such cooperation and information as they
may reasonably request of each other in preparing or filing any return,
amended return, or claim for refund, in determining a liability or a
right of refund, or in conducting or responding to any audit or other
proceeding, in respect of Taxes imposed on the Target or the Target
Stockholders. The Parties will (i) preserve and retain all returns,
schedules, work papers, and all material records or other documents
relating to any such returns, claims, audits, or other proceedings
until the expiration of the statutory period of limitations (including
extensions) of the taxable periods to which such documents relate and
until the final determination of any payments that may be required with
respect to such periods under this Agreement, (ii) shall make such
documents available at the then current administrative headquarters of
such party to the other party or any Affiliate thereof, and their
respective officers, employees, and agents, upon reasonable notice and
at reasonable times, it being understood that such representatives
shall be entitled to make copies of any such Books and Records relating
to the Target as they shall deem necessary, and (iii) to give the other
parties reasonable written notice prior to transferring, destroying or
discarding any such documents and, if another party so requests, shall
allow that party to take possession of such documents. The Parties
further agree to permit representatives of the other party or any
Affiliate thereof to meet with employees of such party on a mutually
convenient basis in order to enable such representatives to obtain
additional information and explanations of any documents provided
pursuant to this Section 5(i). The Parties shall make available to the
representatives of the other party or any Affiliate thereof sufficient
work space and facilities to perform the activities described in the
two preceding sentences. Any information obtained pursuant to this
Section 5(i) shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for
refund or in conducting any audit or other proceeding. Each party
shall provide the cooperation and information required by this Section
5(i) at its own expense.
19
(j) Compliance with the Securities Act. Target shall use its
commercially reasonable efforts to cause each person who receives Buyer Common
Shares in the Merger to deliver to the Buyer on or prior to the Effective Time a
written agreement to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of Buyer Common Stock issued in the Merger,
except in each case pursuant to an effective registration statement or in
compliance with Rule 145 under the Securities Act, as amended from time to time,
or in a transaction which in the opinion of legal counsel satisfactory to Buyer
is exempt from the registration requirements of the Securities Act, and in a
manner necessary to assure the accounting treatment of the Merger as a "pooling
of interests."
(k) Current Report on Form 8-K. Buyer will use its commercially
reasonable efforts to file a Current Report on Form 8-K containing financial
results of the combined operations of the Target and Buyer covering a period of
at least 30 days following the Effective Date with the SEC within 45 days after
the last day of the first full month following the Effective Date; provided,
however, that Buyer may delay the filing of the Form 8-K for a reasonable period
of time if it determines, in good faith, that the filing would require
disclosure of information not otherwise than required to be disclosed and that
such disclosure would adversely affect any material business situation,
transaction or negotiation then proposed, contemplated or being engaged in by
Buyer.
(l) Continuity of Business Enterprise. The Buyer will continue at
least one significant historic business line of the Target, or use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Reg. Section 1.368-1(d).
(m) Restricted Securities. Target understands and acknowledges that
the Buyer Common Shares to be issued to the Target in the Merger may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Buyer Common Shares or an
available exemption from registration under the Securities Act, the Buyer Common
Shares must be held indefinitely. The Buyer Common Shares may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met.
(n) Legends. To the extent applicable, each certificate or other
document evidencing any of the Buyer Common Shares to be issued to the Target
Stockholders in the Merger shall be endorsed with the legend set forth below:
The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or under the securities
laws of any state or other jurisdiction and may not be sold,
transferred, assigned, pledged or hypothecated unless and until
registered under such Act and such other applicable laws, or
unless the Buyer has received an opinion of counsel or other
evidence, at the Target's expense, satisfactory to the Buyer and
its counsel, that such registration is not required.
(o) Options. The Buyer hereby acknowledges its intent to adopt a
stock option plan (the "Plan") as soon as reasonably practicable following the
Effective Time in order to provide the Participants with an inducement to
acquire a further proprietary interest in the Buyer and an added incentive to
advance the interests of the Buyer by possessing an option to purchase Buyer
Common Shares pursuant to and in accordance with the Plan. The Buyer hereby
agrees that upon the adoption of the Plan, the Buyer shall grant each of the
Participants the right, privilege, and option to purchase an aggregate of 12,500
Buyer Common Shares at an exercise purchase price per share equal to the fair
market value of the Buyer Common Shares on the Closing Date, pursuant to and
subject to the provisions of the Plan.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
20
(ii) the Target shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former
Subsidiaries of the Target, or (D) affect adversely the right of any of the
former Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Target shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in Section
6(a)(i)-(iii) is satisfied in all respects;
(v) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Buyer;
(vi) the Buyer shall have completed a satisfactory due diligence
investigation of the Target, acceptable to Buyer at its sole discretion;
and
(vii) the Target shall have furnished audited financial statements
prepared in accordance with GAAP to the Buyer as required by the Act.
Additionally, the Target shall furnish its most recent fiscal quarter
financial statements prepared in accordance with GAAP to the Buyer.
The Buyer may waive any condition specified in this Section 6 if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Buyer Stockholder Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(iii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former
Subsidiaries of the Target, or (D) affect adversely the right of any of the
former Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
21
(v) the Buyer shall have delivered to the Target a certificate
to the effect that each of the conditions specified above in Section
6(b)(i)-(iv) is satisfied in all respects; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target.
The Target may waive any condition specified in this Section 6(b) if it executes
a writing so stating at or prior to the Closing.
7. Survival of Representations, Warranties and Covenants.
(a) The respective representations, warranties and covenants of each
of the Parties to this Agreement, including all statements contained in the
Disclosure Schedule delivered pursuant hereto, shall be deemed to be material
and to have been relied upon by the Parties hereto and shall survive the
Closing, and the consummation of the transactions contemplated hereby,
regardless of any investigation made by or on behalf of, or disclosure to, any
Party to whom such representations, warranties or covenants have been made. No
Party or other person or entity entitled to indemnification under this Section 7
shall commence any suit or proceeding alleging a third party claim due to a
breach of any representation or warranty in Sections 3 or 4 of this Agreement
after the period ending on the third anniversary of the Closing Date, subject to
extension as provided below, except insofar as (i) any Party or other person or
entity entitled to indemnification under this Section 7 shall have asserted in
writing a specific Third Party Claim prior to the expiration of such period, in
which event the representations and warranties shall continue in effect and
remain a basis for indemnity with respect to each such asserted Third Party
Claim until such Claim is finally resolved (pursuant to a non-appealable order
by a court of competent jurisdiction or agreement of the Parties (said period
ending on the third anniversary of the Closing date as extended hereby being
called the "Indemnification Period"), or (ii) any Third Party Claim relating to
any intentional or fraudulent misrepresentations or Sections 3(m), 3(n), 3(y)
and 3(cc), it being agreed that the representations and warranties of those
Sections and any representations and warranties which constituted intentional or
fraudulent misrepresentations when made shall continue indefinitely beyond the
end of the Indemnification Period (regardless of whether the facts giving rise
to such claim are also the subject of any expired representation and warranty).
(b) Surviving Corporation. The Target Stockholders, acting jointly
and severally, shall indemnify hold harmless the Buyer and the Surviving
Corporation and their respective officers, directors, stockholders, agents,
successors and assigns (collectively, "Buyer Indemnified Parties"), from and
against and in respect of any and all demands, claims, causes of action,
administrative orders and notices, losses, costs, fines, liabilities, penalties,
damages and expenses (including, without limitation, reasonable legal,
paralegal, accounting and consultant fees and other expenses incurred in the
investigation and defense of claims and actions) (hereinafter collectively
called "Losses") resulting from, in connection with or arising out of:
(i) any incorrect representation or warranty made by the Target
or any Target Stockholder in this Agreement or in any Exhibits, Schedules
or other instruments ("Additional Documents") delivered by the Target or
any Target Stockholder in connection herewith or therewith;
(ii) the failure of the Target or any Target Stockholder to
comply with, or the breach by the Target or any Target Stockholder of, any
of the covenants of this Agreement or any Additional Document;
(iii) any claim, action, suit or proceeding arising from or
related to the presence, generation, emission, storage, treatment,
transport or disposal of any Hazardous Substance from, to, at, in, on or
under any facility owned or used by the Target on or before the Closing
Date and liabilities arising from violations of Environmental Laws but only
to the extent that the Target is liable for such claims, actions, suits or
proceedings notwithstanding the consummation of the transactions
contemplated by this Agreement;
(iv) the conduct of the Target's business prior to the Closing
Date; and
22
(v) any claim, action, suit or proceeding relating to any of the
foregoing.
(c) Buyer shall indemnify and hold harmless the Target and the Target
Stockholders from and against and in respect of any and all Losses resulting
from, in connection with or arising out of:
(i) any incorrect representation or warranty made by Buyer in
this Agreement or in any Additional Document delivered by Buyer in
connection herewith or therewith;
(ii) the failure of Buyer to comply with, or the breach by Buyer
of, any of the covenants of this Agreement or any Additional Document;
(iii) the conduct of the Surviving Corporation's business on and
after the Closing Date; and
(iv) any claim, action, suit or proceeding relating to any of
the foregoing.
(d) Subject to the provisions of Section 7(e), a Party or Parties
against whom a claim for indemnification has been asserted (individually and
collectively "Indemnifying Party") shall have the right, at its own expense, to
participate in the defense of any action or proceeding brought by a third party
which resulted in said claim for indemnification, and if said right is
exercised, the party or parties entitled to indemnification (individually and
collectively "Indemnified Party") and the Indemnifying Party shall cooperate in
the defense of said action or proceeding.
(e) Indemnification Procedure for Third Party Claims Against
Indemnified Parties.
(i) In the event that subsequent to the Closing Date any
Indemnified Party asserts a claim for indemnification under this Section 7,
on account of or in connection with any claim or the commencement of any
action or proceeding against such Indemnified Party by any person or entity
who is not a party to this Agreement (including any Governmental Authority)
(a "Third Party Claim"), the Indemnified Party shall promptly give written
notice thereof together with a statement of any available information
regarding such claim (the "Notice of Claim") to the Indemnifying Party. The
Indemnifying Party shall have the right, upon written notice to the
Indemnified Party (the "Defense Notice") within 15 days of its receipt from
the Indemnified Party of the Notice of Claim, to conduct at its expense the
defense against such Claim in its own name, or, if necessary, in the name
of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to approve the defense counsel representing the
Indemnifying Party in such defense, which approval shall not be
unreasonably withheld or delayed, and in the event the Indemnifying Party
and the Indemnified Party cannot agree upon such counsel within 10 days
after the Defense Notice is provided, then the Indemnifying Party shall
propose an alternate defense counsel, which shall be subject again to the
Indemnified Party's approval, which approval shall not be unreasonably
withheld or delayed.
(ii) In the event that the Indemnifying Party shall fail to give
the Defense Notice within the time and as prescribed by Section 7(e)(i), or
if the Indemnifying Party does not have the right to defend such Third
Party Claim pursuant to Section 7(e), then in either such event the
Indemnified Party shall have the right to conduct such defense in good
faith with counsel reasonably acceptable to the Indemnifying Party, but the
Indemnified Party (or any insurance carrier defending such Third Party
Claim on the Indemnified Party's behalf) shall be prohibited from
compromising or settling the claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed.
(iii) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of such Third
Party Claim in accordance with Section 7(e), the Indemnified Party will
cooperate with and make available to the Indemnifying Party such assistance
and materials as it may reasonably request, all at the expense of the
Indemnifying Party. Regardless of which party defends such Third Party
Claim, the other party shall have the right at its expense to participate
in the defense assisted by counsel of its own choosing. Without the prior
written consent of the Indemnified Party, the Indemnifying Party (and
23
any insurance carrier defending such Third Party Claim on the Indemnified
Party's behalf) will not enter into any settlement of any Third Party Claim
if pursuant to or as a result of such settlement, such settlement would
lead to liability or create any financial or other obligation on the part
of the Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party
Claim, which offer the Indemnifying Party is permitted to settle under this
Section 7(e), and the Indemnifying Party desires to accept and agree to
such offer, the Indemnifying Party will give written notice to the
Indemnified Party to that effect. If the Indemnified Party objects to such
firm offer within 10 days after its receipt of such notice, the Indemnified
Party may continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will not exceed the amount of such settlement offer, plus costs
and expenses paid or incurred by the Indemnified Party up to the point such
notice had been delivered. Failure at any time of the Indemnifying Party to
diligently defend a Third Party Claim as required herein shall entitle the
Indemnified Party to assume the defense and settlement of said Third Party
Claim as if the Indemnifying Party had never elected to do so as provided
in this Section 7. Failure by an Indemnified Party to provide notice on a
timely basis of a Third Party Claim shall not relieve the Indemnifying
Party of its obligations hereunder, except that the foregoing shall not
constitute a waiver by the Indemnifying Party of any claim for direct
damages caused by such delay.
(iv) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall be
conclusively deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder, subject
to the Indemnifying Party's right to appeal an appealable judgment or
order.
(v) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder which does not involve a Third
Party Claim, the Indemnified Party shall promptly transmit to the
Indemnifying Party, a written notice (the "Indemnity Notice") describing in
detail the nature of the claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying Party
does not notify the Indemnified Party within 45 days from its receipt of
the Indemnity Notice that the Indemnifying Party disputes such claim, the
claim specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder.
(vi) With respect to any indemnification obligations of Target
and Target Stockholders that: (A) arise out of the breach of the Target and
Target Stockholders' representations and warranties made in Section 3 (and
including those made pursuant to the Certificate delivered in accordance
with Section 6(iv) insofar as such Certificate relates to such
representations and warranties) and (B) do not involve the satisfaction of
a liability of Target and Target Stockholders to a third party, Target and
Target Stockholders shall be obligated to satisfy such indemnification
obligations to Buyer only to the extent that each Third Party Claim be at
least $5,000, and the aggregate amount of all indemnification obligations
of Target and Target Stockholders exceed $50,000 (which sum shall be a
one-time deductible against such obligations). The maximum liability of
Target and Target Stockholders shall be the value of the consideration
exchanged as of the Closing Date.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Target at any time prior to the Effective Time (A) in the
event the Target has breached any representation, warranty, or covenant
contained in this Agreement, the Buyer has notified the Target of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1999, by reason of the failure of any condition
precedent under Section 6(a)
24
hereof (unless the failure results primarily from the Buyer breaching any
representation, warranty, or covenant contained in this Agreement); or
(iii) the Target may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Effective Time (A) in the
event the Buyer has breached any representation, warranty, or covenant
contained in this Agreement, the Target has notified the Buyer of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1999, by reason of the failure of any condition
precedent under Section 6(b) hereof (unless the failure results primarily
from the Target breaching any representation, warranty, or covenant
contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5(e) above shall survive any
such termination.
9. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Section 7 above concerning indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyer: Nucleus, Inc.
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx
Telecopier No.: (000) 000-0000
25
Copy to: Vedder, Price, Xxxxxxx & Kammholz
000 Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxx, Esq.
Telecopier No.: (000) 000-0000
If to the Target: Innovative Technology Solutions, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx, president
Telecopier: (000) 000-0000
If to the Target Xxxxx Xxxxxx
Stockholders: 0000 XX Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxxx X. Xxxxxx
0000 X. Xxxxxxxx
Xxxxxxx, XX 00000
Xxxx X. Xxxxxxx
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Copy to: Invicta Law Group PLLC
0000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn.: Xxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law; Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the domestic laws of the State of
Illinois without giving effect to any choice or conflict of law provision or
rule (whether of the State of Illinois or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Illinois. The parties shall conduct friendly negotiations (including mediation)
to resolve any dispute. Failing resolution, disputes will be finally resolved by
arbitration in Seattle, Washington pursuant to the Commercial rules of the
American Arbitration Association, by one arbitrator appointed in accordance with
such rules. The parties agree that any arbitral award and any matter requiring
injunctive or other provisional relief may be instituted and enforced in any
court having jurisdiction.
(i) Attorneys' Fees and Costs. If it shall be necessary for any party
to this Agreement to employ an attorney to enforce their rights pursuant to this
Agreement regarding default of another party or the construction or legal effect
of the terms of this Agreement, the prevailing party shall be reimbursed by the
non-prevailing party, all reasonable attorney fees and expenses, including any
attorney fees or expenses on appeal or resulting from a bankruptcy.
26
Such right to attorney fees and costs includes reimbursement of any costs and
fees incurred by the prevailing party as payment or retainer for arbitration
services.
(j) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval shall be subject
to the restrictions contained in the Washington General Corporation Law and in
the Nevada General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties shall bear its own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
(m) Construction. The Parties 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. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
[SIGNATURE PAGE FOLLOWS]
27
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
NUCLEUS, INC.
By: /s/ Xxxx X. Xxxxxxx
---------------------------------
Xxxx X. Xxxxxxx
Title: President
INNOVATIVE TECHNOLOGY SOLUTIONS, INC.
By: /s/ Xxxxx X. Xxxxxx
---------------------------------
Xxxxx X. Xxxxxx
Title: President
/s/ Xxxxx Xxxxxx
--------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxxx
--------------------------------------
Xxxx X. Xxxxxxx
28
