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PLAN OF REORGANIZATION
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AND
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AGREEMENT FOR SHARE EXCHANGE OFFERS
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Dated as of August [27], 1997
by and among
PRECISION AUTO CARE, INC.
a Virginia corporation
(the "Holding Company")
WE JAC CORPORATION MIRACLE INDUSTRIES, INC.
a Delaware corporation an Ohio corporation
("WEJAC") ("Miracle Industries")
LUBE VENTURES, INC. MIRACLE PARTNERS, INC.
a Delaware corporation a Delaware corporation
("Lube Ventures") ("Miracle Partners")
ROCKY MOUNTAIN VENTURES, INC. ROCKY MOUNTAIN VENTURES II, INC.
a Colorado corporation a Colorado corporation
("Rocky Mountain I") ("Rocky Mountain II")
PREMA PROPERTIES, LTD. XXXXXXX CAR WASH, LTD.
an Ohio limited liability company a Colorado limited liability company
("Prema Properties") ("Xxxxxxx Car Wash")
and
THE XXXX XXXXX GROUP, INC.
a Colorado corporation
("KBG")
TABLE OF CONTENTS
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i
SCHEDULES
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Schedule 5.5(j) Sales of Assets Outside of Ordinary Course
Schedule 5.14 Option Property of Prema Property
Schedule 5.15 Option Property of Lube Ventures
Schedule 5.16 Option Property of Miracle Partners
Schedule 13.5 Encumbrances against Software
Schedule 19.1 Debt Level Guarantees
Schedule 22.1 WE JAC Options and Warrants
Schedule 23.1 Debt to be Discharged
EXHIBITS
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Exhibit A Articles of Incorporation
Exhibit B By Laws
Exhibit C Non-Compete Agreements
Exhibit D Tax Opinion
Exhibit E Financial Statements
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PLAN OF REORGANIZATION
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AND
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AGREEMENT FOR SHARE EXCHANGE OFFERS
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THIS PLAN OF REORGANIZATION AND AGREEMENT FOR SHARE EXCHANGE OFFERS
(together with the Schedules and Exhibits hereto, hereinafter referred to as
this "Agreement") is made and entered into as of the 27th day of August, 1997,
by and among PRECISION AUTO CARE, INC., a Virginia corporation (the "Holding
Company"), WE JAC CORPORATION, a Delaware corporation, having its principal
place of business at 000 Xxxxxx Xxxxx, X.X., Xxxxxxxx, Xxxxxxxx ("WE JAC"),
MIRACLE INDUSTRIES, INC., an Ohio corporation having its principal place of
business at 0000 Xxxx Xxxxxx Xxxx, Xxxxxxxxx, Xxxx 00000 ("Miracle Industries"),
LUBE VENTURES, INC., a Delaware corporation having its principal place of
business at 0000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 ("Lube Ventures"),
MIRACLE PARTNERS, INC., a Delaware corporation having its principal place of
business at 0000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000 ("Miracle Partners"),
PREMA PROPERTIES, LTD., an Ohio limited liability company having its principal
place of business at 00 Xxxx 00xx Xxxxxx, Xxxxxxxx, Xxxx 00000 ("Prema
Properties"), ROCKY MOUNTAIN VENTURES, INC., a Colorado corporation having its
principal place of business at 00000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx,
Xxxxxxxx 00000-0000 ("Rocky Mountain I"), ROCKY MOUNTAIN VENTURES II, INC., a
Colorado corporation having its principal place of business at 00000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000-0000 ("Rocky Mountain II"), XXXXXXX
CAR WASH, LTD., a Colorado limited liability company having its principal place
of business at 00000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000-0000
("Xxxxxxx Car Wash"), and THE XXXX XXXXX GROUP, INC., a Colorado corporation
having its principal place of business at 0000 X. Xxxxxxx Xxx #000, Xxxxxx,
Xxxxxxxx 00000 ("KBG").
Certain capitalized terms used herein without definition shall have the
meanings given to such terms in Section 25.10 hereof.
EXPLANATORY STATEMENT:
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1. WE JAC is the holder, directly and indirectly, of all of the issued
and outstanding capital stock of, among other corporations, Precision Tune Auto
Care, Inc., a Virginia corporation, which are engaged in the businesses of (i)
owning and operating retail centers devoted to providing automotive services for
automobiles and light trucks and (ii) franchising a system of operating such
retail centers; and
2. Miracle Industries is engaged in the businesses of (i) owning and
operating a chain of car washes in the central Ohio area and (ii) manufacturing
chemicals for use by operators of car wash businesses, and is the holder of a
90% membership interest in Hydro-Spray and a 50% membership interest in Indy
Ventures; and Hydro-Spray is engaged in the business of manufacturing and
selling equipment designed for use in the car wash business; and Indy Ventures
is engaged in the business of owning and operation a chain of car wash
businesses in the Indianapolis, Indiana area; and
3. Prema Properties is engaged in the business of owning and operating
a chain of car washes, as well as a franchised "Lube Depot" fast lube center, in
the Columbus, Ohio area; and
4. Lube Ventures is engaged in the businesses of (i) manufacturing and
selling modular fast lube center buildings, (ii) owning and operating fast lube
centers and (iii) franchising a system for the operation of fast lube centers;
and
5. Rocky Mountain I, Rocky Mountain II and Xxxxxxx Car Wash are each
engaged in the business of owning and operating car washes in the greater
Denver, Colorado area; and
6. Miracle Partners is engaged in the business of owning and operating
a chain of car washes in the Columbus, Ohio area; and
7. KBG has developed a proprietary computer software system designed to
operate car wash centers; and
8. Each of the parties hereto believes that it would be in their
respective best interests to combine the ownership of their respective
businesses in the manner provided for herein, and, in connection with such
combination, to initiate an initial public offering of a portion of the capital
stock of the Holding Company following such combination;
NOW, THEREFORE, this Agreement witnesseth that, in consideration of the
foregoing premises and the mutual covenants and agreements of the parties
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
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FORMATION OF HOLDING COMPANY
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AND
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REGISTRATION OF A PORTION OF THE SHARES OF THE HOLDING COMPANY
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FOR OFFER AND SALE TO THE PUBLIC
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Section 1.1 Formation of Holding Company.
1.1.1 Form of Holding Company. Each of the parties to this
Agreement hereby confirms and ratifies their authorization and approval of the
formation by WE JAC, on their behalf, of a corporation under the laws of the
Commonwealth of Virginia, known as "Precision Auto Care, Inc." Following the
consummation of the transactions described in Article III hereof, the
corporation so formed by WE JAC shall be the "holding company" for the various
subsidiary corporations and other entities that will arise as a result of the
transactions contemplated hereby, and such corporation shall be referred to
hereinafter as the "Holding Company." WE JAC has capitalized the Holding Company
initially by contributing to the Holding Company the amount of $1000, for which
WE
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JAC has received in exchange 100 shares of the Common Stock, par value $.01 of
the Holding Company, as the nominee of each of the parties hereto. All of the
shares of Common Stock of the Holding Company issued to WE JAC pursuant to its
initial capitalization shall be redeemed by the Holding Company substantially
contemporaneously with, but immediately prior to, the consummation of the
transactions contemplated by the provisions of Article III of this Agreement.
1.1.2 Charter and Bylaws. The Articles of Incorporation of the
Holding Company shall be substantially in the form attached hereto as Exhibit A
and the Bylaws of the Holding Company shall be substantially in the form
attached hereto as Exhibit B. Neither the Articles of Incorporation nor the
Bylaws of the Holding Company shall be amended or modified in any manner prior
to the Closing of the transactions contemplated hereby, except with the prior
written consent of each of the parties to this Agreement.
1.1.3 Initial Officers and Directors. The initial officers of
the Holding Company shall be the following persons, each of whom shall hold the
offices and have the titles indicated opposite their respective names, and shall
serve in such capacities until the first annual meeting of the Board of
Directors of the Holding Company held after the first annual meeting of the
stockholders of the Holding Company, or until his or her earlier death or
resignation, or until such later time as may be specified in a written
Employment Agreement with such person, and until his or her respective successor
shall have been duly elected and qualified:
Name Offices and Titles
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Xxxx X. Xxxxxxxxx Chairman of the Board
Xxxxxxx X. Clineberg Vice Chairman of the Board
Xxxx X. Xxxxxx President and Chief Executive Officer
Xxxxxx Xxxxxxxx Senior Vice President, Secretary & General
Counsel
Xxxxx Xxxxxxxx Senior Vice President, Chief Financial Officer
and Treasurer
Xxxxx X. Xxxxxxx Senior Vice President - Franchise
Development
Xxxxx X. Xxx Senior Vice President - Retail Operations
Xxxxxxx X. Xxxxx Vice President - Precision Auto Wash
Operations
Xxxx X. Xxxxxxxxx Vice President - Communications
Xxxx X. Xxxxx Vice President - Precision Auto Wash
Development
Xxxx Xxxxxxxx Vice President - Precision Auto Care
and
Precision Lube Express Operations
Xxxxx Xxxxxxx Vice President - Controller
Xxxxx Xxxxxxxxx Vice President
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Xxxx X. Xxxxxxxxxx Vice President - Precision Auto Care M&D
Xxxxx Xxxxxx Vice President - Franchise Sales
Notwithstanding anything contained in the Articles of Incorporation or
the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial officer of the Holding Company shall be
removed from any such office prior to the closing of the IPO except with the
prior written approval of each of the parties to this Agreement.
The parties have agreed that the initial Board of Directors of the
Holding Company shall consist of thirteen (13) directors, of which the WE JAC
Group shall have the right to designate seven (7) directors, the Ohio Group
shall have the right to designate five (5) directors and the Rocky Mountain
Group shall have the right to designate one (1) director. Consistent with the
foregoing, the parties agree that the initial directors of the Holding Company
shall be the following persons, each of whom shall be appointed to the Class of
directorship indicated opposite their respective names, and shall serve in such
capacities until the expiration of the term of the Class of directorship to
which he or she has been appointed, as provided in the Articles of Incorporation
of the Holding Company, or until his or her earlier death or resignation, and
until his or her respective successor shall have been duly elected and
qualified:
Name Class of Directors
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Xxxx X. Xxxxxxxxx III (initial 3 year term)
Xxxx X. Xxxxxx I (initial 1 year term)
Xxxxx X. Xxxxxx, Xx. I (initial 1 year term)
Xxxxxxx X. Xxxxx XX (initial 2 year term)
Xxxxxxx X. Xxxxxxxxx III (initial 3 year term)
Xxxxxx Xxxxxxx XX (initial 2 year term)
Xxxxxx Xxxxxx XX (initial 2 year term)
Xxxxx Xxxxxxxxx III (initial 3 year term)
Xxxxxxx X. Xxxxxxx I (initial 1 year term)
Xxxxxx Xxxxxxxx XX (initial 2 year term)
Xxxxxx Xxxxxxx III (initial 3 year term)
C. Xxxxxx Deal I (initial 1 year term)
Xxxxxxx X. Xxxxx III (initial 3 year term)
Notwithstanding anything contained in the Articles of Incorporation or
the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial director of the Holding Company shall be
removed as a director prior to the closing of the IPO except with the prior
written approval of the Participant Group which was entitled to designate such
person as a director of the Holding Company. In the event that a director dies
or resigns prior to the closing of the IPO, the Participant Group which was
entitled to designate such person as a director of the Holding Company shall
have the right to designate his successor.
The parties have further agreed that, initially, there shall be at
least 3 committees of the Board of Directors of the Holding Company; namely, an
Audit Committee, an Executive Committee and a Finance Committee. Although the
members of the Audit Committee and the Executive Committee have yet to be
determined, Xxxxx Xxxxxxxxx, Xxxxxxx X. Xxxxx, Xxxx X. Xxxxxx and Xxxx X.
Xxxxxxxxx shall be the initial members of the Finance Committee. The Finance
Committee shall have all of the powers of the Board of Directors delegated to
the Finance Committee pursuant to the Bylaws of the Holding Company as well as
the power and authority to take the actions contemplated by Section 18.3 of this
Agreement. Notwithstanding anything contained in the Articles of Incorporation
or the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial member of the Finance Committee shall be
removed by the Board of Directors as a member of the Finance Committee prior to
the closing of the IPO except with the prior written approval of the Participant
Group which was entitled to designate such person as a director of the Holding
Company.
Section 1.2 Registration of Shares of the Holding Company.
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1.2.1 Engagement of Securities Counsel. Each of the parties
hereby agrees and consents to, and ratifies, the prior engagement by WE JAC on
behalf of the Holding Company of the law firm of Miles & Stockbridge, a
Professional Corporation, a Maryland professional corporation ("M&S"), to act as
counsel to the Holding Company, and agrees that the legal fees of such legal
counsel and the expenses incurred by them in rendering services for the Holding
Company shall be deemed to be part of the Transaction Expenses. Each of the
parties hereto (other than WE JAC) hereby acknowledges that it or he understands
that (i) M&S has represented WE JAC and its Subsidiaries as its principal
outside legal counsel, (ii) M&S has represented, and will continue to represent,
WE JAC in connection with the negotiations relating to this Agreement and the
preparation of this Agreement, and (iii) M&S also will be representing the
Holding Company in connection with negotiations relating to this Agreement. Each
such party acknowledges that it has been advised by M&S and their respective
legal counsel that there may be potential conflicts of interest as a result of
such dual representation by M&S. WE JAC further acknowledges that it has been
advised by M&S that in the event of a conflict between WE JAC and the Holding
Company, M&S could not ethically favor either WE JAC's or the Holding Company's
interests over the interests of the other, and that M&S' representation of the
Holding Company in connection with these transactions may limit the protections
that normally would be afforded to WE JAC by the attorney/client privilege
doctrine as it relates to communications between WE JAC and M&S relating to
these matters and that M&S may be required to disclose to the other parties to
this Agreement certain otherwise confidential communications between WE JAC and
M&S. The parties to this Agreement also understand and agree that in the event
that any dispute or controversy should arise by and between or by and among any
of the parties to this Agreement (other than disputes between WE JAC and the
Holding Company), M&S will continue to represent WE JAC and its interests in
connection with such dispute or controversy. Nevertheless, despite having been
advised as to these matters, each of the parties hereto, in the interest of
cost-savings and efficiency, consents to the dual representation by M&S of the
Holding Company and WE JAC. M&S may rely on the acknowledgments, agreements and
consents of the parties pursuant to this Section 1.2.1.
1.2.2 Engagement of Underwriters. Each of the parties hereby
agrees and consents to, and ratifies, the prior engagement by WE JAC on behalf
of the Holding Company of the firm of X.X. Xxxxxxx & Sons, Inc. to act as the
lead underwriter for the proposed IPO and the engagement by WE JAC on behalf of
the Holding Company of Xxxxxx Xxxxx Xxxxx, Incorporated to act as co- managing
underwriter for the proposed IPO.
1.2.3 Engagement of Certified Public Accountants. Each of the
parties hereby agrees and consents to, and ratifies, the prior engagement by WE
JAC on behalf of the Holding Company of the accounting firm of Ernst & Young LLP
("Ernst & Young") to act as the certified independent public accountants for the
Holding Company, and agrees that the fees of such accounting firm and the
expenses incurred by Ernst & Young in rendering services for the Holding Company
shall be deemed to be part of the Transaction Expenses.
1.2.4 Preparation of Registration Statement(s).
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(a) Form S-4 Registration Statement; Proxy
Statement. From and after the date hereof, the Holding Company shall (and each
of the parties hereto agrees to devote its or his reasonable best efforts to
cause the Holding Company to) prepare a registration statement or registration
statements (including a joint proxy statement or proxy statements to be included
therein) on Form S-4 for registration with the Commission of each of the shares
of the Common Stock of the Holding Company to be issued by the Holding Company
in connection with the transactions contemplated by Article III hereof, and file
such Form S-4 Registration Statement with the Commission as soon as reasonably
practicable. Each of the parties hereto further agrees to cooperate with the
other parties and the Holding Company in connection with the preparation thereof
and to devote its reasonable best efforts to having the same declared effective
by the Commission.
(b) Form S-1 Registration Statement. From and
after the date hereof, the Holding Company shall (and each of the parties hereto
agrees to devote its or his reasonable best efforts to cause the Holding Company
to) prepare a registration statement (and the prospectus to be included in such
registration statement) on Form S-1 for registration with the Commission for
offer and sale to the public following the Closing on account of the Holding
Company of 2,645,000 shares of the Common Stock of the Holding Company, and up
to 19% of the number of shares to be issued to the Selling Stockholders and the
Selling Members by the Holding Company pursuant to the transactions contemplated
by Article III, and shall file such Form S-1 Registration Statement with the
Commission as soon as reasonably practicable. Each of the parties hereto further
agrees to cooperate with the other parties in the preparation thereof, and to
devote its reasonable best efforts to having such Form S-1 Registration
Statement declared effective by the Commission.
(c) Obligations of the Holding Company. The
Holding Company shall (i) use its reasonable best efforts to prepare and file
with the Commission the registration statements, proxy statements and
prospectuses contemplated hereby, and shall use its reasonable best efforts
thereafter to cause such registration statements to become and remain effective
until the sale or exchange of all of the shares of the Common Stock of the
Holding Company covered thereby; (ii) prepare and file with the Commission such
amendments and supplements to the registration statements and the prospectuses
filed by the Holding Company as may be reasonably necessary to keep such
registration statements effective until the sale or exchange of all of the
shares of the Common Stock of the Holding Company covered thereby; (iii) use its
reasonable best efforts to register or qualify the shares of the Common Stock of
the Holding Company covered by such registration statements under the securities
or blue sky laws of such jurisdictions as may be applicable to the transactions
contemplated by Article III hereof or as may be directed by the underwriter in
the IPO; and (iv) do any and all other acts and things which may be reasonably
necessary or advisable to enable the Holding Company to consummate the issuance,
sale or exchange of the shares of the Common Stock of the Holding Company in
such jurisdictions.
(d) Information to be Provided to the Holding
Company. Each of the Predecessor Companies agrees that, from and after the date
hereof through and including the earlier to occur of the Closing or the
termination of this Agreement, in order to enable the Holding Company to prepare
and file the registration statements contemplated by this Agreement, it shall
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provide to the Holding Company and to the underwriters for the proposed IPO (and
to their respective employees, counsel, accountants and other representatives),
so long as each remains a party to this Agreement, all information concerning
the business, operations, assets, liabilities, properties, indebtedness,
condition, finances or prospects of such Predecessor Company reasonably
available to the management of such Predecessor Company, and such other material
information as may be reasonably necessary to ensure that the information so
requested may be properly evaluated so as not to be misleading. Each of the
Predecessor Companies hereby further represents and warrants to the Holding
Company that all of the information to be provided to the Holding Company or the
underwriters pursuant to the terms of this Section 1.2.4(d) by such Predecessor
Company shall not contain any untrue or misleading statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading.
(e) Effective Date of Registration Statements.
The parties shall use their reasonable best efforts to cause the Holding Company
to file all such registration statements with the Commission on or before August
28, 1997 and to have all such registration statements declared effective by the
Commission, such that the Closing and the IPO may be consummated on or before
November 14, 1997.
ARTICLE II
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TRANSACTION EXPENSES
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Section 2.1 Agreement as to Transaction Expenses. Except as otherwise
provided for herein, all attorneys', brokers', accountants', investment banking
and finders fees and other expenses incurred by each of the Predecessor
Companies prior to the date hereof in connection with the preparation and
negotiation of this Agreement and the transactions contemplated hereby that the
parties have agreed will be Transaction Expenses pursuant to the terms of the
Memorandum of Understanding and which are to be incurred by each of the
Predecessor Companies from and after the date hereof in taking all actions
contemplated by this Agreement to be taken prior to or at the Closing of the
transactions contemplated by this Agreement (other than Income Taxes and other
Taxes imposed upon gross receipts and recordation, transfer, stamp duties,
documentary or notarial fees or Taxes imposed upon or incurred by any of the
parties in connection with the transactions contemplated by this Agreement and
other fees and expenses that the parties have specified herein will not be
considered part of the Transaction Expenses), or otherwise reasonably necessary
to consummate the Closing and the IPO, including those expenses that the parties
have agreed will be Transaction Expenses pursuant to Sections 1.2.1 and 1.2.3 of
this Agreement, except for costs and expenses previously or hereafter incurred
by the Predecessor Companies for meals, travel and lodging of its officers,
agents and representatives and managerial time incurred in connection with or
devoted to the transactions contemplated hereby (collectively, the "Transaction
Expenses"), will be paid for or contributed to by the Contributing Companies as
follows (hereinafter, the "Transaction Expense Shares"): the members of the Ohio
Group will be responsible, jointly and severally, for 32.5% of the aggregate
dollar amount of the Transaction Expenses; the members of the Rocky Mountain
Group will be responsible, jointly and severally, for 8.3% of the aggregate
dollar amount
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of the Transaction Expenses; Miracle Partners will be responsible for 2.9% of
the aggregate dollar amount of the Transaction Expenses; and the members of the
WE JAC Group will be responsible, jointly and severally, for 56.3% of the
aggregate dollar amount of the Transaction Expenses. KBG will not be obligated
to contribute to the Transaction Expenses, unless KBG shall fail to comply with
the provisions of Section 3.2.4(a) of this Agreement or fail to exchange its
Membership Interest in KBG, LLC for shares of the Common Stock of the Holding
Company pursuant to the terms of the KBG Exchange. If KBG shall fail to comply
with the provisions of Section 3.2.4(a) of this Agreement or fail to exchange
its Membership Interest in KBG, LLC for shares of the Common Stock of the
Holding Company pursuant to the terms of the KBG Exchange, KBG shall be liable
to contribute $100,000 toward the Transaction Expenses, as liquidated damages
for its failure to do so, which amount shall be allocated and disbursed to the
Contributing Companies in accordance with their respective Transaction Expense
Shares.
Section 2.2 Accounting for Transaction Expenses. From and after the
date hereof through and including the Closing or the earlier termination of this
Agreement, the Holding Company and each of the Contributing Companies shall
maintain detailed records of all Transaction Expenses incurred by them and shall
account to each other for the Transaction Expenses they have incurred on a
monthly basis.
Section 2.3 Reimbursement of Certain Fees and Expenses. Notwithstanding
the terms of the Memorandum of Understanding, from and after the date hereof
through and including the Closing or the earlier termination of this Agreement,
each of the Contributing Companies and the Holding Company shall pay for all of
the Transaction Expenses that are comprised of fees and expenses of third party
providers of services (including investment bankers, lawyers, accountants,
printers and architectural and environmental consultants) incurred by them
respectively through the Closing Date (the "Professional Expenses") as the same
become due and payable, and, notwithstanding anything contained herein which may
be inconsistent or to the contrary, each of the Contributing Companies shall be
entitled to declare and pay, prior to the Closing Date, a dividend or
distribution in an amount equal to the aggregate dollar amount actually expended
by such Contributing Company for Professional Expenses in connection with the
transactions contemplated hereby (the "Professional Expense Dividend");
provided, however, that each Contributing Company shall only be entitled to
declare such a dividend or distribution and to the extent that, such
Professional Expenses would qualify as Transaction Expenses pursuant to the
terms of this Agreement. If this Agreement shall terminate and the transactions
contemplated hereby shall not be consummated, to the extent that they have not
already done so, each of the Contributing Companies shall, within 10 business
days following the date of such termination, make appropriate contributions to
and reimbursements of each of the other Contributing Companies in respect of all
Transaction Expenses incurred by each such Contributing Company and the Holding
Company through the date of the termination of this Agreement in accordance with
their respective Transaction Expense Shares (it being understood and agreed that
the obligations of each of the Contributing Companies to contribute to and to
reimburse the other Contributing Companies in respect of Transaction Expenses
shall survive the termination of this Agreement). If, however, the Closing of
8
the transactions contemplated hereby shall be consummated, the Holding Company
shall discharge, out of the net cash proceeds received by the Holding Company in
the IPO, all of the Transaction Expenses incurred by the Holding Company and
each of the Contributing Companies which have not been discharged as of the
Closing Date. No interest shall be payable on any declared but unpaid
Professional Expense Dividend.
ARTICLE III
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PLAN OF REORGANIZATION
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AND
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AGREEMENT FOR SHARE EXCHANGE OFFERS
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Section 3.1 Plan of Reorganization of Corporate Predecessor
Companies.
3.1.1 Formation of Merger Subsidiaries. Following the
execution of this Agreement and prior to the Closing Date, the Holding Company
shall form, solely for the purpose of consummating the transactions contemplated
by this Section 3.1, five subsidiary corporations (hereinafter referred to as
the "Merger Subsidiaries") under the laws of the jurisdictions which correspond
to the jurisdiction in which the corporation into which each such Merger
Subsidiary shall merged as hereinafter provided, which shall be known,
respectively, as follows: (i) "WE JAC Acquisition Subsidiary, Inc." (hereinafter
referred to as "WE JAC Acquisition"); (ii) "Miracle Industries Acquisition
Subsidiary, Inc." (hereinafter referred to as "Miracle Industries Acquisition");
(iii) "Lube Ventures Acquisition Subsidiary, Inc." (hereinafter referred to as
"Lube Ventures Acquisition"); (iv) "Rocky Mountain I Acquisition Subsidiary,
Inc." (hereinafter referred to as "Rocky Mountain I Acquisition"); and (v)
"Rocky Mountain II Acquisition Subsidiary, Inc." (hereinafter referred to as
"Rocky Mountain II Acquisition").
3.1.2 Merger of WE JAC Acquisition with and into WE JAC.
(a) WE JAC Merger. Subject to the prior
satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.2, which
have not been waived in writing by WE JAC, and of each of the conditions
precedent set forth in Section 4.10, which have not been waived in writing by
the Holding Company, on the Closing Date, WE JAC Acquisition shall be merged
with and into WE JAC (the "WE JAC Merger"); whereupon, (i) the separate
existence of WE JAC Acquisition shall cease; (ii) WE JAC shall continue in
existence and shall thereafter possess all of the purposes and powers of WE JAC
Acquisition; (iii) WE JAC shall succeed to all of the assets, rights,
properties, licenses, franchises and privileges of WE JAC Acquisition (if any),
which shall be transferred to, vested in and devolved upon WE JAC without
further act or deed, subject to all of the debts and obligations of WE JAC
Acquisition (if any); and (iv) WE JAC shall thereafter be liable and responsible
for all of the liabilities, duties, indebtedness, obligations and
responsibilities of WE JAC Acquisition (if any).
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The Certificate of Incorporation and Bylaws of WE JAC in effect as of the
Effective Time of the WE JAC Merger shall continue to be the Certificate of
Incorporation and Bylaws of WE JAC. In addition, as part of the WE JAC Merger,
each warrant and option to purchase shares of WE JAC Common Stock issued and
outstanding immediately prior to the Effective Time of the WE JAC Merger shall
be converted into a warrant or an option, as the case may be, to purchase the
same number of shares of the Common Stock of the Holding Company on the same
terms as set forth in such warrant or option.
(b) Conversion of Shares. As part of the WE JAC
Merger, each share of the WE JAC Common Stock issued and outstanding immediately
prior to the Effective Time of the WE JAC Merger (other than WE JAC Dissenting
Shares) shall be converted into one share of the Common Stock of the Holding
Company, and all of the authorized but unissued shares of WE JAC, if any, shall
be canceled and retired, all without the need for further act or deed. Each of
the shares of the capital stock of WE JAC Acquisition issued and outstanding at
the Effective Time of the WE JAC Merger shall be converted into one share of the
Common Stock, par value $0.01, of WE JAC, which shall be held of record by the
Holding Company following the WE JAC Merger.
(c) WE JAC Dissenting Shares. Notwithstanding
the foregoing, each of the shareholders of WE JAC shall have the rights provided
to them under Section 262 of the Delaware Corporation Law (the "DCL") as in
effect at the Effective Time of the WE JAC Merger ("WE JAC Dissenter's Rights")
with respect to their shares of WE JAC Common Stock, and, notwithstanding
anything contained herein which may be inconsistent or to the contrary, none of
the shares of WE JAC Common Stock issued and outstanding at the Effective Time
of the WE JAC Merger that are held by any WE JAC shareholder who has the right,
to the extent that such right is available by law, to exercise WE JAC
Dissenter's Rights pursuant thereto shall be converted into shares of the
Holding Company Common Stock pursuant to the WE JAC Merger, unless such
shareholder shall have failed to perfect his or her WE JAC Dissenter's Rights or
shall have withdrawn or lost the same in accordance with the terms of the DCL.
If, however, any WE JAC shareholder shall fail to perfect or shall withdraw or
lose his or her WE JAC Dissenter's Rights with respect to his or her shares of
WE JAC Common Stock, each of his or her shares shall be deemed to have been
converted into shares of the Common Stock of the Holding Company as provided for
herein effective as of the Effective Time of the WE JAC Merger.
(d) WE JAC Merger Filings. The WE JAC Merger
shall be accomplished as follows: WE JAC and WE JAC Acquisition shall each cause
a Certificate of Merger in form suitable for filing with the Delaware Secretary
of State (the "WE JAC Certificate of Merger") to be executed by the appropriate
officers of each of them and filed with the Delaware Secretary of State on the
Closing Date.
(e) Effective Time of the WE JAC Merger. The WE
JAC Merger shall become effective at the time that the WE JAC Certificate of
Merger shall become effective with the Delaware Secretary of State in accordance
with the DCL (the "Effective Time of the WE JAC Merger").
10
(f) Surrender and Exchange of Common Stock of WE
JAC. After the Effective Time of the WE JAC Merger, each holder of shares of WE
JAC Common Stock outstanding as of the Effective Time of the WE JAC Merger
(other than shares held by those holders who have perfected or could perfect WE
JAC Dissenter's Rights) shall surrender to the Exchange Agent all outstanding
certificates theretofore evidencing shares of the Common Stock of WE JAC, and
shall receive in exchange therefor, upon delivery to the Exchange Agent together
with satisfactory and customary delivery requirements, certificates evidencing
the full number of shares of the Common Stock of the Holding Company into which
such shares of the WE JAC Common Stock have been converted pursuant to the WE
JAC Merger, less the number of Indemnity Escrow Shares and Debt Level Escrow
Shares attributable to each such holder, plus a cash payment in lieu of
fractional shares in the amount determined under Section 3.3. Until so
surrendered or exchanged, each outstanding certificate evidencing shares of the
WE JAC Common Stock shall be deemed for all purposes solely as evidencing the
number of shares of the Common Stock of the Holding Company into which such
shares shall have been converted pursuant to the WE JAC Merger; provided,
however, that no dividends or other distributions, if any, declared by the
Holding Company after the Effective Time of the WE JAC Merger in respect of any
shares of the Common Stock of the Holding Company payable to holders of record
after the Effective Time of the WE JAC Merger shall be paid to the holders of
any unsurrendered certificates evidencing shares of WE JAC Common Stock until
such certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The Exchange Agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of WE
JAC Common Stock in the event that such holder shall allege that any certificate
evidencing shares of the WE JAC Common Stock shall have been lost, stolen or
destroyed prior to surrender thereof to the Exchange Agent.
3.1.3 Merger of Lube Ventures Acquisition with and into
Lube Venture.
(a) Lube Ventures Merger. Subject to the prior
satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.3, which
have not been waived in writing by Lube Ventures, and of each of the conditions
precedent set forth in Section 4.10, which have not been waived in writing by
the Holding Company, on the Closing Date, Lube Ventures Acquisition shall be
merged with and into Lube Ventures (the "Lube Ventures Merger"); whereupon, (i)
the separate existence of Lube Ventures Acquisition shall cease; (ii) Lube
Ventures shall continue in existence and shall thereafter possess all of the
purposes and powers of Lube Ventures Acquisition; (iii) Lube Ventures shall
succeed to all of the assets, rights, properties, licenses, franchises and
privileges of Lube Ventures Acquisition (if any), which shall be transferred to,
vested in and devolved upon Lube Ventures without further act or deed, subject
to all of the debts and obligations of Lube Ventures Acquisition (if any); and
(iv) Lube Ventures shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Lube
Ventures Acquisition (if any). The Certificate of
11
Incorporation and Bylaws of Lube Ventures in effect as of the Effective Time of
the Lube Ventures Merger shall continue to be the Certificate of Incorporation
and Bylaws of Lube Ventures.
(b) Conversion of Shares. As part of the Lube
Ventures Merger, each of the 100 shares of the Lube Ventures Common Stock issued
and outstanding immediately prior to the Effective Time of the Lube Ventures
Merger (other than Lube Ventures Dissenting Shares) shall be converted into
1,691.68 shares of the Common Stock of the Holding Company and all of the
authorized but unissued shares of Lube Ventures, if any, shall be canceled and
retired, all without the need for further act or deed. Each of the shares of the
capital stock of Lube Ventures Acquisition issued and outstanding at the
Effective Time of the Lube Ventures Merger shall be converted into one share of
the Common Stock, par value $0.00, of Lube Ventures, all which shall be held of
record by the Holding Company following the Lube Ventures Merger.
(c) Lube Ventures Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Lube Ventures shall
have the rights provided to them under Section 262 of the DCL as in effect at
the Effective Time of the Lube Ventures Merger ("Lube Ventures Dissenter's
Rights") with respect to their shares of Lube Ventures Common Stock, and,
notwithstanding anything contained herein which may be inconsistent or to the
contrary, none of the shares of Lube Ventures Common Stock issued and
outstanding at the Effective Time of the Lube Ventures Merger that are held by a
Lube Ventures shareholder who has the right, to the extent that such right is
available by law, to exercise Lube Ventures Dissenter's Rights pursuant thereto
shall be converted into shares of the Holding Company Common Stock pursuant to
the Lube Ventures Merger, unless such shareholder shall have failed to perfect
his or her Lube Ventures Dissenter's Rights or shall have withdrawn or lost the
same in accordance with the terms of the DCL. If, however, any Lube Ventures
shareholder shall fail to perfect or shall withdraw or lose his or her Lube
Ventures Dissenter's Rights with respect to his or her shares of Lube Ventures
Common Stock, each of his or her shares shall be deemed to have been converted
into shares of the Holding Company Common Stock as provided for herein effective
as of the Effective Time of the Lube Ventures Merger.
(d) Merger Filings. The Lube Ventures Merger
shall be accomplished as follows: Lube Ventures and Lube Ventures Acquisition
shall each cause a Certificate of Merger (the "Lube Ventures Certificate of
Merger") in form suitable for filing with the Delaware Secretary of State to be
executed by its appropriate officers and filed with the Delaware Secretary of
State in accordance with the DCL on the Closing Date.
(e) Effective Time of the Lube Ventures Merger.
The Lube Ventures Merger shall become effective at the time that the Lube
Ventures Certificate of Merger shall become effective with the Delaware
Secretary of State shall become effective in accordance with the DCL (the
"Effective Time of the Lube Ventures Merger").
(f) Surrender and Exchange of Common Stock of
Lube Ventures. After the Effective Time of the Lube Ventures Merger, each
holder of shares of Lube Ventures Common Stock outstanding as of the Effective
Time of the Lube Ventures Merger (other than shares held by
12
those holders who have perfected or could perfect Lube Ventures Dissenter's
Rights) shall surrender to the Exchange Agent all outstanding certificates
theretofore evidencing shares of the Common Stock of Lube Ventures, and shall
receive in exchange therefor, upon delivery to the Exchange Agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Lube Ventures Common Stock have been converted pursuant
to the Lube Ventures Merger, less the number of Indemnity Escrow Shares and Debt
Level Escrow Shares attributable to each such holder, plus a cash payment in
lieu of fractional shares in the amount determined under Section 3.3. Until so
surrendered or exchanged, each outstanding certificate evidencing shares of the
Lube Ventures Common Stock shall be deemed for all purposes solely as evidence
of the number of shares of the Common Stock of the Holding Company into which
such shares shall have been converted pursuant to the Lube Ventures Merger;
provided, however, that no dividends or other distributions, if any, declared by
the Holding Company after the Effective Time of the Lube Ventures Merger in
respect of any shares of the Common Stock of the Holding Company payable to
holders of record after the Effective Time of the Lube Ventures Merger shall be
paid to the holders of any unsurrendered certificates evidencing shares of Lube
Venture Common Stock until such certificates shall have been surrendered to the
Exchange Agent. After the surrender and exchange of such certificates, the
record holders thereof will be entitled to receive any such dividends or
distributions, without interest thereon, to the extent that the same shall have
become payable with respect to the number of shares of the Common Stock of the
Holding Company for which such certificate was exchangeable. The Exchange Agent
shall be authorized to require an indemnification agreement or the posting of a
bond or other financial accommodation satisfactory to the Exchange Agent from
any holder of shares of Lube Ventures Common Stock in the event that such holder
shall allege that any certificate evidencing shares of the Lube Ventures Common
Stock shall have been lost, stolen or destroyed prior to surrender thereof to
the Exchange Agent.
3.1.4 Merger of Miracle Industries Acquisition with and
into Miracle Industries.
(a) Miracle Industries Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.4, which
have not been waived in writing Miracle Industries, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, Miracle Industries
Acquisition shall be merged with and into Miracle Industries (the "Miracle
Industries Merger"); whereupon, (i) the separate existence of Miracle Industries
Acquisition shall cease; (ii) Miracle Industries shall continue in existence and
shall thereafter possess all of the purposes and powers of Miracle Industries
Acquisition; (iii) Miracle Industries shall succeed to all of the assets,
rights, properties, licenses, franchises and privileges of Miracle Industries
Acquisition (if any), which shall be transferred to, vested in and devolved upon
Miracle Industries without further act or deed, subject to all of the debts and
obligations of Miracle Industries Acquisition (if any); and (iv) Miracle
Industries shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Miracle
Industries Acquisition (if any). The Certificate of Incorporation and Bylaws of
Miracle Industries in effect as
13
of the Effective Time of the Miracle Industries Merger shall continue to be the
Certificate of Incorporation and Bylaws of Miracle Industries.
(b) Conversion of Shares. As part of the
Miracle Industries Merger, each of the 34,943 shares of the Miracle Industries
Common Stock issued and outstanding immediately prior to the Effective Time of
the Miracle Industries Merger (other than Miracle Industries Dissenting Shares)
shall be converted into 21.442 shares of the Holding Company Common Stock and
all of the authorized but unissued shares of Miracle Industries, if any, shall
be canceled and retired, all without the need for further act or deed. Each of
the shares of the capital stock of Miracle Industries Acquisition issued and
outstanding at the Effective Time of the Miracle Industries Merger shall be
converted into one share of the Common Stock, par value $0.00, of Miracle
Industries, all which shall be held of record by the Holding Company following
the Miracle Industries Merger.
(c) Miracle Industries Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Miracle Industries
shall have the rights provided to them under Section 1701.84(A) of the Ohio
General Corporation Law (the "OGCL") as in effect at the Effective Time of the
Miracle Industries Merger ("Miracle Industries Dissenter's Rights") with respect
to their shares of Miracle Industries Common Stock, and, notwithstanding
anything contained herein which may be inconsistent or to the contrary, none of
the shares of Miracle Industries Common Stock issued and outstanding at the
Effective Time of the Miracle Industries Merger that are held by a Miracle
Industries shareholder who has the right, to the extent that such right is
available by law, to exercise Miracle Industries Dissenter's Rights pursuant
thereto shall be converted into shares of the Common Stock of the Holding
Company pursuant to the Miracle Industries Merger, unless such shareholder shall
have failed to perfect his or her Miracle Industries Dissenter's Rights or shall
have withdrawn or lost the same in accordance with the terms of the OGCL. If,
however, any Miracle Industries shareholder shall fail to perfect or shall
withdraw or lose his or her Miracle Industries Dissenter's Rights with respect
to his or her shares of Miracle Industries Common Stock, each of his or her
shares shall be deemed to have been converted into shares of the Common Stock of
the Holding Company as provided for herein effective as of the Effective Time of
the Miracle Industries Merger.
(d) Merger Filings. The Miracle Industries
Merger shall be accomplished as follows: Miracle Industries and Miracle
Industries Acquisition shall each cause Articles of Merger in form suitable for
filing with the Ohio Secretary of State (the "Miracle Industries Articles of
Merger") to be executed by its appropriate officers and filed with the Ohio
Secretary of State in accordance with OGCL on the Closing Date.
(e) Effective Time of the Miracle Industries
Merger. The Miracle Industries Merger shall become effective at the time that
the Miracle Industries Articles of Merger shall become effective with the Ohio
Secretary of State in accordance with the OGCL (the "Effective Time of the
Miracle Industries Merger").
(f) Surrender and Exchange of Common Stock of
Miracle Industries. After the Effective Time of the Miracle Industries Merger,
each holder of shares of Miracle
14
Industries Common Stock outstanding as of the Effective Time of the Miracle
Industries Merger (other than shares held by those holders who have perfected or
could perfect Miracle Industries Dissenter's Rights) shall surrender to the
Exchange Agent all outstanding certificates theretofore evidencing shares of the
Common Stock of Miracle Industries, and shall receive in exchange therefor, upon
delivery to the Exchange Agent satisfactory and customary delivery requirements,
certificates evidencing the greatest whole number of shares of the Common Stock
of the Holding Company into which such shares of the Miracle Industries Common
Stock have been converted pursuant to the Miracle Industries Merger, less the
number of Indemnity Escrow Shares and Debt Level Escrow Shares attributable to
each such holder, plus a cash payment in lieu of fractional shares as determined
pursuant to Section 3.3. Until so surrendered or exchanged, each outstanding
certificate evidencing shares of the Miracle Industries Common Stock shall be
deemed for all purposes solely as evidence of the number of shares of the Common
Stock of the Holding Company into which such shares shall have been converted
pursuant to the Miracle Industries Merger; provided, however, that no dividends
or other distributions, if any, declared by the Holding Company after the
Effective Time of the Miracle Industries Merger in respect of any shares of the
Common Stock of the Holding Company payable to holders of record after the
Effective Time of the Miracle Industries Merger shall be paid to the holders of
any unsurrendered certificates evidencing shares of Miracle Industries Common
Stock until such certificates shall have been surrendered to the Exchange Agent.
After the surrender and exchange of such certificates, the record holders
thereof will be entitled to receive any such dividends or distributions, without
interest thereon, to the extent that the same shall have become payable with
respect to the number of shares of the Common Stock of the Holding Company for
which such certificate was exchangeable. The Exchange Agent shall be authorized
to require an indemnification agreement or the posting of a bond or other
financial accommodation satisfactory to the Exchange Agent from any holder of
shares of Miracle Industries Common Stock in the event that such holder shall
allege that any certificate evidencing shares of the Miracle Partners Common
Stock shall have been lost, stolen or destroyed prior to surrender thereof to
the Exchange Agent.
3.1.5 Merger of Rocky Mountain I Acquisition with and into
Rocky Mountain I.
(a) Rocky Mountain I Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.5, which
have not been waived in writing by Rocky Mountain I, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, immediately following the
consummation of the transactions contemplated by Section 3.2 of this Agreement,
Rocky Mountain I Acquisition shall be merged with and into Rocky Mountain I (the
"Rocky Mountain I Merger"); whereupon, the separate existence of Rocky Mountain
I Acquisition shall cease; (ii) Rocky Mountain I shall continue in existence and
shall thereafter possess all of the purposes and powers of Rocky Mountain I
Acquisition; (iii) Rocky Mountain I shall succeed to all of the assets, rights,
properties, licenses, franchises and privileges of Rocky Mountain I Acquisition
(if any), which shall be transferred to, vested in and devolved upon Rocky
Mountain I without further act or deed, subject to all of the debts and
obligations of Rocky Mountain I Acquisition (if any); and (iv) Rocky Mountain I
shall thereafter
15
be liable and responsible for all of the liabilities, duties, indebtedness,
obligations and responsibilities of Rocky Mountain I Acquisition (if any). The
Articles of Incorporation and Bylaws of Rocky Mountain I in effect as of the
Effective Time of the Rocky Mountain I Merger shall continue to be the Articles
of Incorporation and Bylaws of Rocky Mountain I.
(b) Conversion of Shares. As part of the Rocky
Mountain I Merger, each of the 5,198 shares of the Rocky Mountain I Common Stock
issued and outstanding immediately prior to the Effective Time of the Rocky
Mountain I Merger (other than Rocky Mountain I Dissenting Shares) shall be
converted into 12.355 shares of the Common Stock of the Holding Company and all
of the authorized but unissued shares of Rocky Mountain I, if any, shall be
canceled and retired, all without the need for further act or deed. Each of the
shares of the capital stock of Rocky Mountain I Acquisition issued and
outstanding at the Effective Time of the Rocky Mountain I Merger shall be
converted into one share of the Common Stock, par value $100.00, of Rocky
Mountain I, all which shall be held of record by the Holding Company following
the Rocky Mountain I Merger.
(c) Rocky Mountain I Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Rocky Mountain I
shall have the rights provided to them under Article 113 of the Colorado
Business Corporation Act (the "CBCA") as in effect at the Effective Time of the
Rocky Mountain I Merger ("Rocky Mountain I Dissenter's Rights") with respect to
their shares of Rocky Mountain I Common Stock, and, notwithstanding anything
contained herein which may be inconsistent or to the contrary, none of the
shares of Rocky Mountain I Common Stock issued and outstanding at the Effective
Time of the Rocky Mountain I Merger that are held by any Rocky Mountain I
shareholder who has the right, to the extent that such right is available by
law, to exercise Rocky Mountain I Dissenter's Rights pursuant thereto shall be
converted into shares of the Holding Company Common Stock pursuant to the Rocky
Mountain I Merger, unless such shareholder shall have failed to perfect his or
her Rocky Mountain I Dissenter's Rights or shall have withdrawn or lost the same
in accordance with the terms of the CBCA. If, however, any Rocky Mountain I
shareholder shall fail to perfect or shall withdraw or lose his or her Rocky
Mountain I Dissenter's Rights with respect to his or her shares of Rocky
Mountain I Common Stock, each of his or her shares shall be deemed to have been
converted into shares of the Common Stock of the Holding Company as provided for
herein effective as of the Effective Time of the Rocky Mountain I Merger.
(d) Merger Filings. The Rocky Mountain I Merger
shall be accomplished as follows: Rocky Mountain I and Rocky Mountain I
Acquisition shall each cause Articles of Merger in form suitable for filing with
the Colorado Secretary of State (the "Rocky Mountain I Articles of Merger") to
be executed by its appropriate officers and filed with the Colorado Secretary of
State on the Closing Date.
(e) Effective Time of the Rocky Mountain I
Merger. The Rocky Mountain I Merger shall become effective at the time that the
Rocky Mountain I Articles of Merger shall become effective with the Colorado
Secretary of State in accordance with the CBCA (the "Effective Time of the Rocky
Mountain I Merger").
16
(f) Surrender and Exchange of Common Stock of
Rocky Mountain I. After the Effective Time of the Rocky Mountain I Merger, each
holder of shares of Rocky Mountain I Common Stock outstanding as of the
Effective Time of the Rocky Mountain I Merger shall surrender to the Exchange
Agent (other than those holders who have perfected or could perfect Rocky
Mountain I Dissenter's Rights) all outstanding certificates theretofore
evidencing shares of the Common Stock of Rocky Mountain I, and shall receive in
exchange therefor, upon delivery to the exchange agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Rocky Mountain I Common Stock have been converted
pursuant to the Rocky Mountain I Merger, less the number of Indemnity Escrow
Shares and Debt Level Escrow Shares attributable to each such holder, plus a
cash payment in lieu of fractional shares in the amount determined pursuant to
Section 3.3. Until so surrendered or exchanged, each outstanding certificate
evidencing shares of the Rocky Mountain I Common Stock shall be deemed for all
purposes solely as evidencing the number of shares of the Common Stock of the
Holding Company into which such shares shall have been converted pursuant to the
Rocky Mountain I Merger; provided, however, that no dividends or other
distributions, if any, declared by the Holding Company after the Effective Time
of the Rocky Mountain I Merger in respect of any shares of the Common Stock of
the Holding Company payable to holders of record after the Effective Time of the
Rocky Mountain I Merger shall be paid to the holders of any unsurrendered
certificates evidencing shares of Rocky Mountain I Common Stock until such
certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The Exchange Agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of
Rocky Mountain I Common Stock in the event that such holder shall allege that
any certificate evidencing shares of the Rocky Mountain I Common Stock shall
have been lost, stolen or destroyed prior to surrender thereof to the Exchange
Agent.
3.1.6 Merger of Rocky Mountain II Acquisition with and into
Rocky Mountain II.
(a) Rocky Mountain II Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.6, which
have not been waived in writing by Rocky Mountain II, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, immediately following the
consummation of the transactions contemplated by Section 3.2 of this Agreement,
Rocky Mountain II Acquisition shall be merged with and into Rocky Mountain II
(the "Rocky Mountain II Merger"); whereupon, (i) the separate existence of Rocky
Mountain II Acquisition shall cease; (ii) Rocky Mountain II shall continue in
existence and shall thereafter possess all of the purposes and powers of Rocky
Mountain II Acquisition; (iii) Rocky Mountain II shall succeed to all of the
assets, rights, properties, licenses, franchises and privileges of Rocky
Mountain II Acquisition (if any), which shall be transferred to, vested in and
devolved upon Rocky Mountain II without further act or deed, subject to all of
the
17
debts and obligations of Rocky Mountain II Acquisition (if any); and (iv) Rocky
Mountain II shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Rocky
Mountain II Acquisition (if any). The Articles of Incorporation and Bylaws of
Rocky Mountain II in effect as of the Effective Time of the Rocky Mountain II
Merger shall continue to be the Articles of Incorporation and Bylaws of Rocky
Mountain II.
(b) Conversion of Shares. As part of the Rocky
Mountain II Merger, each of the 14,539 shares of the Rocky Mountain II Common
Stock issued and outstanding immediately prior to the Effective Time of the
Rocky Mountain II Merger (other than Rocky Mountain II Dissenting Shares) shall
be converted into 12.356 of shares of the Holding Company Common Stock, and all
of the authorized but unissued shares of Rocky Mountain II, if any, shall be
canceled and retired, all without the need for further act or deed. Each of the
shares of the capital stock of Rocky Mountain II Acquisition issued and
outstanding at the Effective Time of the Rocky Mountain II Merger shall be
converted into one share of the Common Stock, par value $1.00, of Rocky Mountain
II, all which shall be held of record by the Holding Company following the Rocky
Mountain II Merger.
(c) Rocky Mountain II Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Rocky Mountain II
shall have the rights provided to them under Article 113 of the CBCA as in
effect at the Effective Time of the Rocky Mountain II Merger ("Rocky Mountain II
Dissenter's Rights") with respect to their shares of Rocky Mountain II Common
Stock, and, notwithstanding anything contained herein which may be inconsistent
or to the contrary, none of the shares of Rocky Mountain II Common Stock issued
and outstanding at the Effective Time of the Rocky Mountain II Merger that are
held by any Rocky Mountain II shareholder who has the right, to the extent that
such right is available by law, to exercise Rocky Mountain II Dissenter's Rights
pursuant thereto shall be converted into shares of the Holding Company Common
Stock pursuant to the Rocky Mountain II Merger, unless such shareholder shall
have failed to perfect his or her Rocky Mountain II Dissenter's Rights or shall
have withdrawn or lost the same in accordance with the terms of the CBCA. If,
however, any Rocky Mountain II shareholder shall fail to perfect or shall
withdraw or lose his or her Rocky Mountain II Dissenter's Rights with respect to
his or her shares of Rocky Mountain II Common Stock, each of his or her shares
shall be deemed to have been converted into shares of the Holding Company Common
Stock as provided for herein effective as of the Effective Time of the Rocky
Mountain II Merger.
(d) Merger Filings. The Rocky Mountain II
Merger shall be accomplished as follows: Rocky Mountain II and Rocky Mountain II
Acquisition shall each cause Articles of Merger in form suitable for filing with
the Colorado Secretary of State (the "Rocky Mountain II Articles of Merger") to
be executed by its appropriate officers and filed with the Colorado Secretary of
State on the Closing Date.
(e) Effective Time of the Rocky Mountain II
Merger. The Rocky Mountain II Merger shall become effective at the time that
the Rocky Mountain II Articles of Merger
18
become effective with the Colorado Secretary of State in accordance with the
CBCA (the "Effective Time of the Rocky Mountain II Merger").
(f) Surrender and Exchange of Common Stock of
Rocky Mountain II. After the Effective Time of the Rocky Mountain II Merger,
each holder of shares of Rocky Mountain II Common Stock outstanding as of the
Effective Time of the Rocky Mountain II Merger shall surrender to the Exchange
Agent (other than those holders who have perfected or could perfect Rocky
Mountain II Dissenter's Rights) all outstanding certificates theretofore
evidencing shares of the Common Stock of Rocky Mountain II, and shall receive in
exchange therefor, upon delivery to the exchange agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Rocky Mountain II Common Stock have been converted
pursuant to the Rocky Mountain II Merger, less the number of Indemnity Escrow
Shares and Debt Level Escrow Shares attributable to each such holder, plus a
cash payment in lieu of fractional shares in an amount determined pursuant to
Section 3.3. Until so surrendered or exchanged, each outstanding certificate
evidencing shares of the Rocky Mountain II Common Stock shall be deemed for all
purposes solely as evidencing the number of shares of the Common Stock of the
Holding Company into which such shares shall have been converted pursuant to the
Rocky Mountain II Merger; provided, however, that no dividends or other
distributions, if any, declared by the Holding Company after the Effective Time
of the Rocky Mountain II Merger in respect of any shares of the Common Stock of
the Holding Company payable to holders of record after the Effective Time of the
Rocky Mountain II Merger shall be paid to the holders of any unsurrendered
certificates evidencing shares of Rocky Mountain II Common Stock until such
certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The exchange agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the exchange agent from any holder of shares of
Rocky Mountain II Common Stock in the event that such holder shall allege that
any certificate evidencing shares of the Rocky Mountain II Common Stock shall
have been lost, stolen or destroyed prior to surrender thereof to the Exchange
Agent.
Section 3.2 Exchange Offers.
3.2.1 Miracle Partners Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and the form of Letter of
Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to each of the holders of the issued and outstanding shares of the
capital stock of Miracle Partners which offer shall provide that each of the 500
issued and outstanding shares capital
19
stock of Miracle Partners may be exchanged pursuant to such offer for 188.64
shares of the Common Stock of the Holding Company (the "Miracle Partners
Exchange Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 4.10, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each holder of
shares of the capital stock of Miracle Partners who elects to exchange his or
her shares for shares of the Common Stock of the Holding Company, against the
receipt by the Exchange Agent of all outstanding certificates evidencing shares
of the capital stock of Miracle Partners and other satisfactory and customary
delivery requirements, certificates evidencing the greatest whole number of
shares of the Common Stock of the Holding Company for which such shares may be
exchanged as provided herein, less the number of Indemnity Escrow Shares and
Debt Level Escrow Shares attributable to each such holder, plus a cash payment
in lieu of fractional shares in an amount determined pursuant to Section 3.3.
(c) The terms of the Miracle Partners Exchange
Offer shall provide that the tender by the holder of shares of the capital stock
of Miracle Partners of his or her shares for exchange pursuant to such offer
shall be irrevocable. The Exchange Agent shall be authorized to require an
indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of
the capital stock of Miracle Partners who tenders his or her shares for exchange
in the event that such holder shall allege that any certificate evidencing
shares of Miracle Partners shall have been lost, stolen or destroyed prior to
surrender thereof to the Exchange Agent.
3.2.2 Prema Properties Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and in a form of Letter of
Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to each of the Prema Properties members to exchange an aggregate of
1,488.89 shares of the Common Stock of the Holding Company for each 1%
Percentage Interest in the profits of Prema Properties represented by such
Membership Interest (the "Prema Properties Exchange Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 4.10, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each Prema
Properties Member who elects to exchange his or her Membership Interests for
shares of the Common Stock of the Holding Company pursuant to the Prema
Properties Exchange Offer, against the receipt by the Exchange Agent of an
Assignment of Membership Interest in a form reasonably satisfactory to the Board
of Directors of the Holding Company, duly executed with signatures guaranteed,
and other satisfactory and customary delivery requirements, certificates
evidencing the greatest whole number of shares of the Common Stock of the
Holding Company for which each
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such Membership Interest may be exchanged as provided herein, less the number of
Indemnity Escrow Shares and Debt Level Escrow Shares attributable to each of the
Prema Properties Members who elects to exchange his or her Membership Interests
for shares of the Common Stock of the Holding Company pursuant to the Prema
Properties Exchange Offer, plus cash payment in lieu of fractional shares in the
amount determined pursuant to Section 3.3.
(c) The Prema Properties Exchange Offer shall
further provide that the tender by a Prema Properties Member of his or her
Membership Interest for exchange in accordance with the Prema Properties
Exchange Offer shall be irrevocable.
3.2.3 Xxxxxxx Car Wash Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and a form of Letter of Transmittal
reasonably satisfactory to the Board of Directors of the Holding Company to each
of the Xxxxxxx Car Wash Members to exchange 291.61 shares of the Common Stock of
the Holding Company for each 1% Percentage Interest in the profits of Xxxxxxx
Car Wash represented by such Membership Interest (the "Xxxxxxx Car Wash Exchange
Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 410, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each of the Xxxxxxx
Car Wash Members who elects to exchange his or her Membership Interest for
shares of the Common Stock of the Holding Company, against the receipt by the
Exchange Agent of an Assignment of Membership Interest in a form reasonably
satisfactory to the Board of Directors of the Holding Company, duly executed
with signatures guaranteed, and other satisfactory and customary delivery
requirements, certificates evidencing the greatest whole number of shares of the
Common Stock of the Holding Company for which each such Membership Interest may
be exchanged as provided herein, less the number of Indemnity Escrow Shares and
Debt Level Escrow Shares attributable to each Xxxxxxx Car Wash Member who elects
to exchange his or her Membership Interest for shares of the Common Stock of the
Holding Company, plus a cash payment in lieu of fractional shares in the amount
determined pursuant to Section 3.3.
(c) The Xxxxxxx Car Wash Exchange Offer shall
further provide that the tender by any Xxxxxxx Car Wash Member of his or her
Membership Interest for exchange pursuant to the Xxxxxxx Car Wash Exchange Offer
shall be irrevocable.
3.2.4 KBG Car Wash Exchange Offer.
(a) KBG has formed a limited liability company
under and pursuant to the laws of the State of Maryland known as "KBG, LLC."
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(b) As provided in Section 5.1.2 the Holding
Company shall commence an offer to KBG, in accordance with the terms and
conditions set forth in the Form S-4 Registration Statement and a form of Letter
of Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to exchange an aggregate of 12,411 shares of the Common Stock of the
Holding Company for all of the Membership Interests in KBG, LLC, subject to the
compliance by KBG with the terms of this Agreement (the "KBG Exchange Offer").
The terms of the KBG Exchange Offer shall, among other things, require KBG to
contribute to KBG, LLC prior to the Closing Date, in exchange for all of the
Membership Interests of KBG, LLC, all of the right, title and interest of KBG
and Xxxxx in and to the Proprietary Car Wash Software System, together with any
and all copyrights therein, patents of any portion thereof, pending applications
for patents of any portion thereof, patent rights therein, and pending
applications for registrations of copyrights therein, anywhere in the world, and
all of its rights, title and interest in and to any and all licenses or
privileges granted by KBG with respect thereto, free and clear of any and all
liens, claims, charges, encumbrances, rights, licenses or privileges of any
other party whatsoever, except those approved in writing by the Board of
Directors of the Holding Company or its designee, pursuant to an Assignment of
Intellectual Property Rights in form and content reasonably acceptable to the
Board of Directors of the Holding Company.
(c) Pursuant to the KBG Exchange Offer, and
subject to the prior satisfaction of each of the conditions precedent to the
obligations of the Holding Company set forth in Sections 4.1 and 4.10, which
have not been waived in writing by the Holding Company, at the Closing, the
Holding Company shall issue to KBG, against the receipt by the Exchange Agent of
an Assignment of Membership Interests, duly executed with signatures guaranteed,
covering all of the Membership Interests of KBG, LLC, and other satisfactory and
customary delivery requirements, certificates evidencing the full number of
shares of the Common Stock of the Holding Company for which each such Membership
Interest may be exchanged as provided herein, less the number of Indemnity
Escrow Shares attributable to KBG.
Section 3.3 Fractional Shares. The Holding Company shall not issue any
fractional shares pursuant to any of the Subsidiary Mergers or any of the
Exchange Offers. Rather, in lieu of the issuance of fractional shares, the
Holding Company shall issue to each holder of shares of or a Membership Interest
in a Predecessor Company who otherwise would be entitled to receive fractional
shares pursuant to consummation of any of the Subsidiary Mergers or any of the
Exchange Offers cash in an amount equal to the product obtained by multiplying
such fractional share interest by the price per share at which shares of the
Common Stock shall be offered to the public pursuant to the IPO. No interest
shall be paid by the Holding Company on any cash payment to be made by the
Holding Company in lieu of fractional shares.
ARTICLE IV
----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
------------------------------------------------------
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Section 4.1 Conditions to the Obligations of Each of the Parties. The
obligations of each of the parties to this Agreement to consummate the
transactions contemplated by Article III to be consummated at the Closing and to
perform the other obligations under this Agreement which are to be performed at
and after the Closing are subject to the satisfaction at or prior to the Closing
of each of the conditions precedent set forth in this Section 4.1:
4.1.1 Effective Registration Statements.
(a) Form S-1 Registration Statement. A
registration statement on Form S-1 covering the issuance, offer and sale to the
public by the Holding Company of not more than 2,645,000 shares of the Common
Stock of the Holding Company in the proposed IPO for the account of the Company,
and, subject to the limitations provided for in Section 22.7 of this Agreement,
such number of Combination Shares that the Selling Stockholders and Selling
Members shall have elected in accordance with the terms of this Agreement to
include therein, shall have been filed by the Holding Company with the
Commission in accordance with the Securities Act and declared effective by the
Commission, and be effective as of the Closing Date, and no stop order shall
have been issued and be in effect as of the Closing Date with respect thereto.
(b) Form S-4 Registration Statement; Joint Proxy
Statement. A registration statement on Form S-4 covering the issuance by the
Holding Company of the shares of the Common Stock of the Holding Company to be
issued by the Holding Company pursuant to the transactions contemplated by
Article III of this Agreement shall have been filed by the Holding Company with
the Commission in accordance with the Securities Act and declared effective by
the Commission, and be effective as of the Closing Date, and no stop order shall
have been issued and be in effect as of the Closing Date with respect thereto.
4.1.2 Underwriting Agreement. The Holding Company shall have
entered into an underwriting agreement which shall provide for (i) the issuance
and sale by the Holding Company to the several underwriters who are parties to
the underwriting agreement, on a firm commitment basis, of all of the IPO Shares
(and, subject to the limitations provided for in this Agreement, all of the
Combination Shares that the Selling Stockholders and the Selling Members shall
have elected to include therein in accordance with the terms of this Agreement),
and (ii) the issuance and sale by the Holding Company of the IPO Shares (and
such Combination Shares) at a gross price to the public (before the deduction of
underwriting discounts) of at least $10 per share or such lower price as may be
approved by the Finance Committee or the Board of Directors of the Holding
Company pursuant to Section 18.3, and shall further provide that each of the IPO
Shares and Combination Shares to be offered and sold to the public shall be
deemed to be "stapled" and part of a common pool of shares, such that each
investor in the IPO shall be deemed to have purchased from the underwriters a
proportionate interest in the IPO Shares and the Combination Shares (the
"Underwriting Agreement"). The Underwriting Agreement shall be in full force and
effect as of the Closing Date, each of the conditions precedent to the
obligations of the parties thereunder shall have been satisfied or waived in
writing by the party entitled to the benefit thereof, and the underwriters shall
be ready, willing and able to perform their obligations thereunder, subject only
to the occurrence of the Closing hereunder.
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4.1.3 Compliance with the Terms of this Agreement. Each of the
parties to this Agreement shall have performed or complied with in all material
respects all of the covenants and agreements made by each of them, respectively,
which are to be performed or complied with prior to the Closing Date or at the
Closing pursuant to the terms of this Agreement unless the failure to have so
performed or complied with such covenants and agreements in the aggregate has
not had or is not reasonably likely to have a Material Adverse Effect on the
Predecessor Companies taken as a whole.
4.1.4 Representations and Warranties True. Each of the
representations and warranties made by the parties to this Agreement pursuant to
the terms of this Agreement shall have been true and correct as of the date
hereof and be true and correct in all material respects as of the Closing Date
(except with respect to those representations and warranties made with respect
to a certain date other than the date of this Agreement or the Closing Date,
which representations and warranties need be true and correct only as of such
certain date) unless the falsety or inaccuracy of such representations and
warranties in the aggregate has not had or is not reasonably likely to have
Material Adverse Effect on the Predecessor Companies taken as a whole.
4.1.5 Consents and Approvals Obtained. Each of the parties
shall have obtained, prior to the Closing, all consents, approvals, waivers, and
authorizations from governmental authorities, courts, lenders and other third
parties whose consent, approval, waiver or authorization is necessary or
advisable in order to consummate the transactions contemplated hereby unless the
failure to obtain such consents, approvals, waivers or authorizations in the
aggregate is not reasonably likely to have a Material Adverse Effect on the
Predecessor Companies taken as whole.
4.1.6 No Injunctions or Restraining Orders. There shall be no
injunction, restraining order or decree of any nature whatsoever that is in
effect which restrains or prohibits the consummation of the transactions
contemplated hereby.
4.1.7 Agreements Not to Compete. Each natural person who as of
the Closing Date is the holder of 10% or more of the common stock or membership
interests of a Predecessor Company (other than any such Person who is subject to
another agreement not to compete with the Holding Company) shall have entered
into Agreements Not to Compete with the Holding Company substantially in the
forms attached hereto collectively as Exhibit C and, subject to the occurrence
of the Closing, each such Agreement Not to Compete shall be in full force and
effect as of the Closing Date.
4.1.8 Waivers of Indemnification Rights. Each of the officers
and directors of the Corporate Predecessor Companies who also are Selling
Stockholders and entitled to be indemnified under the terms of the applicable
charter or bylaws of a Corporate Predecessor Company and each of the members of
Prema Properties and of Xxxxxxx Car Wash who also are Selling Members and
entitled to be indemnified under an operating agreement of any Predecessor
Company shall have executed and delivered in favor of the Holding Company and
such Predecessor Company a written waiver of such rights to indemnification from
such Predecessor Company to the extent that the Holding Company may be entitled
to indemnification from each such Person pursuant to the terms of this
Agreement.
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4.1.9 Closing Documentation. Each of the parties to this
Agreement shall have received duplicate originals of all of the documents,
instruments or certificates required by Article XV hereof to be executed and
delivered by the parties to this Agreement at the Closing.
4.1.10 Financial Statements. The Financial Statements of each
of the Predecessor Companies for their respective fiscal years of 1994, 1995,
1996 and 1997 (and any other applicable periods that the Holding Company
reasonably determines it must include in the registration statements that the
Holding Company intends to file with the Commission in the manner contemplated
by this Agreement) shall have been audited (except for unaudited financial
statements that the Holding Company reasonably determines can be included in
such registration statements) and shall comply in all material respects with
GAAP and the accounting requirements of the Securities Act and the Commission,
consistently applied. Each of the Predecessor Companies shall have provided to
the Holding Company consents from Ernst & Young to the inclusion of their audit
reports in all filings to be made by the Holding Company with the Commission,
"comfort letters" and such other assurances from Ernst & Young and its other
independent accountants that may be reasonably requested by the Holding Company
or any underwriter involved in the public offering by the Holding Company of its
common stock or other securities.
4.1.11 Exercise of Dissenter's Rights. The aggregate amount of
cash that will be required to be paid to the former stockholders of the
Corporate Predecessor Companies who validly exercise and perfect "dissenter's
rights" with respect to any applicable Subsidiary Merger under the laws of the
jurisdiction in which any such Corporate Predecessor Company shall be
incorporated (or who have voted against an applicable Subsidiary Merger and have
taken the necessary steps to perfect "dissenter's rights"and are entitled to
perfect "dissenter's rights" after the Closing by taking additional actions in
accordance with applicable law), assuming that each such dissenting stockholder
would be entitled to receive cash in exchange for each dissenting share of a
Corporate Predecessor Company equal to the gross price to the public (before the
deduction of underwriting discounts) of each of the IPO Shares multiplied by the
exchange ratio provided in Article III for each dissenting share shall not
exceed 10% of the amount of the net cash proceeds expected to be realized by the
Holding Company pursuant to the IPO.
4.1.12 Tender of Shares and Interests. The stockholders of
Miracle Partners shall have tendered to the Holding Company for exchange in
accordance with the terms of the Miracle Partners Exchange Offer all of the
issued and outstanding shares of the capital stock of Miracle Partners; the
members of Prema Properties (or other holders of interests in Prema Properties)
shall have tendered to the Holding Company for exchange in accordance with the
terms of the Prema Properties Exchange Offer all of their respective rights,
title and interests in and to Membership Interests in Prema Properties
representing at least 75% of all of the Percentage Interests in Prema
Properties; the members of Xxxxxxx Car Wash (or other holders of interests in
Xxxxxxx Car Wash) shall have tendered to the Holding Company for exchange in
accordance with the terms of the Xxxxxxx Car Wash Exchange Offer all of their
respective rights, title and interests in and to Membership Interests in Xxxxxxx
Car Wash representing at least 95% of all of the Percentage Interests in Xxxxxxx
Car Wash; and KBG shall have tendered to the Holding Company for exchange
25
in accordance with the terms of the KBG Exchange Offer all of its right, title
and interest in and to all of the Membership Interests in KBG, LLC.
4.1.13 Resignations of Officers and Directors of Predecessor
Companies. Each of the officers and directors of each of the Corporate
Predecessor Companies shall have resigned from their respective offices and
directorships, effective as of the Closing; the General Manager of Prema
Properties shall have resigned as General Manager, effective as of the Closing;
and the Manager of Xxxxxxx Car Wash shall have resigned as Manager, effective as
of the Closing.
4.1.14 Environmental Due Diligence. With respect to each of
the properties of the Predecessor Companies, (i) the Holding Company shall have
been satisfied with the environmental condition of such property, (ii) each
Predecessor Company owning any property the environmental condition of which the
Holding Company finds unsatisfactory shall have remediated such unsatisfactory
environmental condition (or adequately provided for such remediation) to the
satisfaction of the Holding Company or (iii) each Predecessor Company owning any
property the environmental condition of which the Holding Company finds
unsatisfactory and the other parties hereto shall have agreed to an appropriate
reduction in the number of Combination Shares to be issued by the Holding
Company to the Selling Stockholders or Selling Members of such Predecessor
Company as contemplated in Section 5.20.
Section 4.2 Additional Conditions to the Obligations of WE JAC. In
addition to the conditions precedent set forth in Section 4.1 above, the
obligations of WE JAC to consummate the transactions contemplated by Article III
to be consummated by WE JAC at the Closing and to perform its other obligations
under this Agreement which are to be performed at and after the Closing by WE
JAC are subject to the satisfaction at or prior to the Closing of each of the
conditions precedent set forth in this Section 4.2:
4.2.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to WE JAC and its shareholders, in substantially the form
attached hereto as Exhibit D.
4.2.2 Fairness Opinion. The Board of Directors of WE JAC shall
have received the written opinion of Xxxxxx, Xxxxx Xxxxx, Incorporated, dated as
of the date that the Form S-4 Registration Statement is declared effective by
the Commission, that the terms of the WE JAC Merger and of this Agreement, as
ultimately negotiated by the parties, is fair, from a financial point of view,
to the shareholders of WE JAC.
4.2.3 Shareholder Approval. The shareholders of WE JAC shall
have approved and authorized the WE JAC Merger in the manner and by the vote
required by its Certificate of Incorporation and Bylaws and the applicable
provisions of the DCL.
Section 4.3 Conditions to the Obligations of Lube Ventures. In addition
to the conditions precedent set forth in Section 4.1 above, the obligations of
Lube Ventures to consummate the transactions contemplated by Article III to be
consummated by Lube Ventures at the Closing and to perform its other obligations
under this Agreement which are to be performed at and after the Closing by Lube
Ventures are subject to the satisfaction at or prior to the Closing of each of
the conditions precedent set forth in this Section 4.3:
4.3.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Lube Ventures and its shareholders, in substantially the form
attached hereto as Exhibit D.
4.3.2 Shareholder Approval. The shareholders of Lube Ventures
shall have approved and authorized the transactions contemplated by this
Agreement in the manner and by the vote required by its Certificate of
Incorporation and Bylaws and the applicable provisions of the DCL.
26
Section 4.4 Additional Conditions to the Obligations of Miracle
Industries. In addition to the conditions precedent set forth in Section 4.1
above, the obligations of Miracle Industries to consummate the transactions
contemplated by Article III to be consummated by Miracle Industries at the
Closing and to perform its other obligations under this Agreement which are to
be performed at and after the Closing by Miracle Industries are subject to the
satisfaction at or prior to the Closing of each of the conditions precedent set
forth in this Section 4.4:
4.4.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Miracle Industries and its shareholders, in substantially
the form attached as Exhibit D.
4.4.2 Shareholder Approval. The shareholders of Miracle
Industries shall have approved and authorized the transactions contemplated by
this Agreement in the manner and by the vote required by its Certificate of
Incorporation and Bylaws and the applicable provisions of the DCL.
Section 4.5 Additional Conditions to the Obligations of Rocky Mountain
I. In addition to the conditions precedent set forth in Section 4.1 above, the
obligations of Rocky Mountain I to consummate the transactions contemplated by
Article III to be consummated by Rocky Mountain I at the Closing and to perform
its other obligations under this Agreement which are to be performed at and
after the Closing by Rocky Mountain I are subject to the satisfaction at or
prior to the Closing of each of the conditions precedent set forth in this
Section 4.5:
4.5.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Rocky Mountain I and its shareholders, in substantially the
form attached as Exhibit D.
4.5.2 Fairness Opinion. The Board of Directors of Rocky
Mountain I shall have received the written opinion of Xxxxx Financial, Inc.,
dated as of the date that the S-4 Registration Statement is declared effective
by the Commission, that the terms of the Rocky Mountain I and of this Agreement,
as ultimately negotiated by the parties, is fair, from a financial point of
view, to the shareholders of Rocky Mountain I.
4.5.3 Shareholder Approval. The shareholders of Rocky Mountain
I shall have approved and authorized the transactions contemplated by this
Agreement in the manner and the vote required by its Articles of Incorporation
and Bylaws and the applicable provisions of the CBCA.
Section 4.6 Additional Conditions to the Obligations of Rocky Mountain
II. In addition to the conditions precedent set forth in Section 4.1 above, the
obligations of Rocky Mountain II to consummate the transactions contemplated by
Article III to be consummated by Rocky Mountain II at the Closing and to perform
its other obligations under this Agreement which are to be performed at and
after the Closing by Rocky Mountain II are subject to the satisfaction at or
prior to the Closing of each of the conditions precedent set forth in this
Section 4.6:
27
4.6.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Rocky Mountain II and its shareholders, in substantially the
form attached as Exhibit D.
4.6.2 Fairness Opinion. The Board of Directors of Rocky
Mountain II shall have received the written opinion of Xxxxx Financial, Inc.,
dated as of the date that the Form S-4 is declared effective by the Commission,
that the terms of the Rocky Mountain I and of this Agreement, as ultimately
negotiated by the parties, is fair, from a financial point of view, to the
shareholders of Rocky Mountain II.
4.6.3 Shareholder Approval. The shareholders of Rocky Mountain
II shall have approved and authorized the transactions contemplated by this
Agreement in the manner and the vote required by its Articles of Incorporation
and Bylaws and the applicable provisions of the CBCA.
Section 4.7 Additional Condition to the Obligations of the Miracle
Partners Stockholders. Notwithstanding the fact that all tenders made by the
holders of capital stock of Miracle Partners in acceptance of the Miracle
Partners Exchange Offer will be irrevocable, subject to the terms of the Miracle
Partners Exchange Offer, the obligation of the holders of shares of the capital
stock of Miracle Partners to consummate the exchange of their shares at the
Closing, and to perform their other obligations under this Agreement which are
to be performed at and after the Closing, also are subject to the satisfaction
at or prior to the Closing of the following condition precedent:
4.7.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Miracle Partners and its shareholders, in substantially the
form attached as Exhibit D.
Section 4.8 Additional Condition to the Obligations of the Xxxxxxx Car
Wash Members. Notwithstanding the fact that all tenders of Membership Interests
in Xxxxxxx Car Wash made by the Xxxxxxx Car Wash Members in acceptance of the
Xxxxxxx Car Wash Exchange Offer will be irrevocable, subject to the terms of the
Xxxxxxx Car Wash Exchange Offer, the obligation of the Xxxxxxx Car Wash Members
to consummate the exchange of their Membership Interests in Xxxxxxx Car Wash at
the Closing, and to perform their other obligations under this Agreement which
are to be performed at and after the Closing, also are subject to the
satisfaction at or prior to the Closing of the each of the following conditions
precedent set forth in this Section 4.8:
4.8.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the Xxxxxxx Car Wash Members, in substantially the form
attached as Exhibit D.
Section 4.9 Additional Conditions to the Obligations of the Prema
Properties Members. Notwithstanding the fact that all tenders of Membership
Interests in Prema Properties made by the Prema Properties Members in acceptance
of the Prema Properties Exchange Offer will be irrevocable, subject to the terms
of the Prema Properties Exchange Offer, the obligation of the Prema Properties
Members to consummate the exchange of their Membership Interests in Prema
Properties at the Closing, and to perform their other obligations under this
Agreement which are to be
28
performed at and after the Closing, also are subject to the satisfaction at or
prior to the Closing of the following condition precedent:
4.9.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the Prema Properties Members, in substantially the form
attached as Exhibit D.
Section 4.10 Additional Condition to the Obligations of the Holding
Company. In addition to the conditions precedent set forth in Section 4.1 above,
the obligations of the Holding Company to consummate the transactions
contemplated by Article III to be consummated by the Holding Company at the
Closing and to cause the Merger Subsidiaries to consummate the Subsidiary
Mergers in accordance with the terms of Article III, and to perform its other
obligations under this Agreement which are to be performed at and after the
Closing by the Holding Company are subject to the satisfaction at or prior to
the Closing of each of the condition precedent set forth in this Section 4.10:
4.10.1 No Material Adverse Effects. None of the Predecessor
Companies shall have suffered any casualty and no event shall have occurred
which has had a Material Adverse Effect on such Predecessor Company or which
would be reasonably likely to have a Material Adverse Effect on such Predecessor
Company following the Closing.
Section 4.11 Additional Condition to the Obligations of KGB.
Notwithstanding the fact that all tenders of Membership Interests in KBG made by
the KBG Members in acceptance of the KBG Exchange Offer will be irrevocable,
subject to the terms of the KBG Exchange Offer, the obligation of the KBG
Members to consummate the exchange of their Membership Interests in KBG at the
Closing, and to perform their other obligations under this Agreement which are
to be performed at and after the Closing, also are subject to the satisfaction
at or prior to the Closing of the following condition precedent:
4.11.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the KBG Members, in substantially the form attached as
Exhibit D.
ARTICLE V
---------
COVENANTS AND AGREEMENTS RELATING TO PRE-CLOSING PERIOD
-------------------------------------------------------
Section 5.1
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Special Shareholder Meetings/Exchange Officers. The parties
shall cooperate and use their reasonable best efforts to cause the Form S-4
Registration Statement to be filed with, and declared effective by, the
Securities and Exchange Commission as soon as practicable. Each of WE JAC, Lube
Ventures, Miracle Industries, Rocky Mountain I and Rocky Mountain II shall call,
provide notice of, and convene a special meeting of its shareholders for the
purpose of considering and voting upon the approval of the transactions
contemplated by, and the adoption of the terms of, this Agreement (or solicit
the appropriate written consent of their shareholders). Such special meetings
and consent solicitations shall be conducted in accordance with the respective
charters, bylaws and the applicable corporation laws of the jurisdiction in
which each such party is incorporated. Each of Miracle Partners, Prema
Properties, Xxxxxxx Car Wash and KBG shall commence the Exchange Offers
contemplated by this Agreement in accordance with the terms of Section 3.2
hereof. The parties shall cooperate in order to cause their respective special
meetings and consent solicitations and their respective Exchange Offers to be
commenced as soon as practicable and as soon as such meetings and Exchange
Offers may be lawfully called, conducted and commenced, taking into account the
parties' responsibilities under applicable securities laws, including the
responsibility to deliver the Joint Proxy Statement/Prospectus forming a part of
the Form S-4 Registration Statement to each of the parties' respective
stockholders or members. The Boards of Directors of each of the Corporate
Predecessor Companies and the Managing Member of each of the LLC Predecessor
Companies each acknowledge and agree that such Proxy Statement-Prospectus shall
state that each such Board or Managing Member approves of and supports such
transactions and the terms of this Agreement and recommends that its respective
stockholders vote in favor of the same or tender their membership interests, as
the case may be. Furthermore, in the event that a special meeting of
stockholders or shareholders of any such corporation shall be held as provided
for herein, at such special meeting, the Boards of Directors of each of the
Corporate Predecessor Companies actively shall encourage its respective
stockholders or shareholder to vote in favor of the transactions contemplated
hereby and in favor of the terms of this Agreement.
Section 5.2 Corporate Status. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
each of the corporate parties to this Agreement shall take all actions,
corporate or otherwise, reasonably necessary or appropriate to maintain its
respective status as a corporation validly existing and in good standing under
the laws of its the state of its incorporation and to maintain its
qualifications as a foreign corporation in good standing under the laws of each
jurisdiction in which the conduct of its business or the ownership or operation
of its assets and properties requires such qualification. In addition, from and
after the date hereof through and including the Closing or the earlier
termination of this Agreement, Miracle Industries and Lube Ventures shall each
take all actions, corporate or otherwise, as may be reasonably necessary to
maintain its respective election under the Code to be subject to federal income
taxation as a "small business corporation" under Subchapter S of the Code.
Section 5.3 Status of Limited Liability Companies.
5.3.1 Prema Properties. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
Prema Properties shall take all actions
30
reasonably necessary or appropriate to maintain the status of Prema Properties
as a limited liability company validly existing and in good standing under the
laws of the state of its organization and to maintain its qualifications as a
foreign limited liability company in good standing under the laws of each
jurisdiction in which the conduct of its business or the ownership or operation
of its assets and properties requires such qualification. In addition, from and
after the date hereof through and including the Closing Date or the earlier
termination of this Agreement, Prema Properties shall take all actions
reasonably necessary or appropriate to maintain the status of Prema Properties
as a "partnership" for federal income tax purposes.
5.3.2 Xxxxxxx Car Wash. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
Xxxxxxx Car Wash shall take all actions reasonably necessary or appropriate to
maintain the status of Xxxxxxx Car Wash as a limited liability company validly
existing and in good standing under the laws of the state of its organization
and to maintain its qualifications as a foreign limited liability company in
good standing under the laws of each jurisdiction in which the conduct of its
business or the ownership or operation of its assets and properties requires
such qualification. In addition, from and after the date hereof through and
including the Closing Date or the earlier termination of this Agreement, Xxxxxxx
Car Wash shall take all actions reasonably necessary or appropriate to maintain
the status of Xxxxxxx Car Wash as a "partnership" for federal income tax
purposes.
5.3.3 Hydro-Spray and Indy Ventures. From and after the date
hereof through and including the Closing Date or the earlier termination of this
Agreement, Miracle Industries shall take all actions reasonably necessary or
appropriate to maintain the status of each of Hydro-Spray and Indy Ventures as
limited liability companies validly existing and in good standing under the laws
of the state of their respective organization and to maintain their respective
qualifications as foreign limited liability companies in good standing under the
laws of each jurisdiction in which the conduct of their respective businesses or
the ownership or operation of their respective assets and properties requires
such qualification. In addition, from and after the date hereof through and
including the Closing Date or the earlier termination of this Agreement, Miracle
Industries shall take all actions reasonably necessary or appropriate to
maintain the status of each of Hydro-Spray and Indy Ventures as a "partnership"
for federal income tax purposes.
Section 5.4 Access to Information. Except as prohibited or limited by
law or regulation, each of the parties to this Agreement shall, from and after
the date of this Agreement and until the Closing Date or the earlier termination
of this Agreement, provide to each of the other parties, and their respective
employees, counsel, accountants and other representatives, so long as each
remains a party to this Agreement, full and complete access upon reasonable
notice during normal business hours, to all officers, employees, offices,
properties, agreements, records and affairs of such party and its business, and
will provide copies of such information concerning such party and its business
as any other party hereto may reasonably request in connection with the
transactions contemplated by this Agreement.
31
Section 5.5 Conduct of Businesses of Predecessor Companies Pending
Closing. From and after the date hereof through the Closing Date or the earlier
termination of this Agreement, except with the prior written consent of a
majority of the Operating Committee each of the Predecessor Companies shall
conduct their respective businesses in the ordinary course in a manner
consistent with its past practices (it being understood and agreed that (i) the
Constituent Companies of the WE JAC Group shall have the right hereafter to
enter into strategic alliances, joint ventures and other arrangements even
though not consistent with its past practices if the Board of Directors of WE
JAC determines in good faith that to do so would be in the best interests of the
WE JAC Group and would not materially adversely affect the transactions
contemplated hereby. In addition, without limiting the generality of the
foregoing, each of the Predecessor Companies covenants and agreement that, from
and after the date hereof through and including the Closing, it shall abide by
and comply with the following:
(a) No Changes in Accounting Methods. None of
the Predecessor Companies shall adopt any change in any method of accounting or
accounting practice, except as contemplated or required by GAAP or in order to
conform such methods or practices to GAAP;
(b) No Amendments to Corporate or Similar
Documents. None of the Predecessor Companies shall, in the case of
corporations, amend its charter or by-laws, or, in the case of limited liability
companies, amend its articles of organization or operating agreement, and
Miracle Industries shall not agree to any amendment of the Articles of
Organization or Operating Agreements of Hydra-Spray or Indy Ventures;
(c) No New Employees or Employee Benefits.
Except as may be required in accordance with contractual obligations existing on
the date hereof that are contained in written agreements in effect on the date
hereof which have been disclosed in the Disclosure Letter submitted by such
party to the other parties pursuant to this Agreement, none of the Predecessor
Companies shall employ any additional employees otherwise than as may be
necessary in the ordinary course of business, pay to any current or former
Employee any benefit that is not required by any Employee Benefit Plan or
Benefit Arrangement or adopt, amend, or increase any benefits payable under, any
Employee Benefit Plan or Benefits Arrangement, trust, agreement or other
arrangement covering any existing or former Employee (or beneficiary or
dependent);
(d) No Mergers, Etc. None of the Predecessor
Companies shall merge or consolidate with, or agree to merge or consolidate
with, or purchase or agree to purchase all or substantially all of the assets
of, or otherwise acquire, or make any investments in any other business entity
or interest therein or enter into any joint venture or similar arrangement with
any other person, party or business entity except as may be contemplated
specifically by the terms of this Agreement without the prior written consent of
a majority or more of the Operating Committee (it being understood and agreed
that the purchase by Precision Tune from time to time of area subfranchise
32
rights or area development rights from its area subfranchisors or master
licensees shall not be deemed to be a violation of the foregoing covenant);
(e) No Issuance or Redemption of Securities.
Except as may be required in accordance with obligations under options,
warrants, or other contractually enforceable obligations to sell or issue stock
or equity interests or securities convertible into or exchangeable for stock or
equity interests, none of the Predecessor Companies shall authorize for
issuance, issue or sell any additional shares of its capital stock or any
additional equity interests or any securities or obligations convertible into or
exchangeable for shares of its capital stock or equity interests or issue or
grant any option, warrant or other right to purchase any shares of its capital
stock or equity interests or redeem, purchase or otherwise acquire, or propose
or commit to, redeem, purchase or otherwise acquire, any shares of its capital
stock or other equity interests or securities or any securities or obligations
convertible into or exchangeable for shares of its capital stock or equity
interests;
(f) No New Debt or Debt Restructuring. Except
(i) in the ordinary course of business, (ii) to pay Transaction Expenses or pay
a Professional Expense Dividend, (iii) with the prior approval of the Operating
Committee or (iv) in connection with transactions otherwise permitted by this
Section 5.5, none of the Predecessor Companies shall incur or agree to incur any
Debt or restructure any existing Debt, nor shall any of the Predecessor
Companies make any loans, advances or capital contributions to, or investments
in, any Person without the prior written consent of a majority or more of the
Operating Committee.
(g) Payments; Amortization of Debt. From and
after the date hereof, each of the Predecessor Companies shall pay its current
liabilities as they become due and amortize its Debt in the ordinary course of
business in accordance with the contractual agreements evidencing such Debt,
and, except in accordance with contractual obligations existing on the date
hereof that are contained in written agreements in effect on the date hereof
which have been disclosed in the Disclosure Letter submitted by such party to
the other parties pursuant to this Agreement, none of the Predecessor Companies
shall make, or agree to make, except in the ordinary course of business,
consistent with past practices, any payments to any Person on account of Debt or
otherwise without the prior written consent of a majority or more of the
Operating Committee or as may be otherwise permitted by this Agreement (it being
understood and agreed that the purchase by Precision Tune from time to time of
area subfranchise rights or area development rights from its area subfranchisors
or master licensees shall not be deemed to be a violation of the foregoing
covenant);
(h) No New Bids or Proposals. Except as may be
approved in advance by the Board of Directors of the Holding Company, none of
the Predecessor Companies shall make or submit any bid, proposal or commitment
to provide services or to purchase or distribute any products (in response to a
request for proposal or otherwise) otherwise than in the ordinary course of
business consistent with its past practices;
33
(i) No Dividends or Distributions. Except as
provided for in Section 2.3, 5.17 and 5.18 of this Agreement, none of the
Predecessor Companies shall declare or distribute or pay any dividend or make
any other distribution of cash or any other asset to any stockholder,
shareholder or member;
(j) No Sales of Assets Except in Ordinary
Course. Except as provided in Schedule 5.5(j), none of the Predecessor
Companies shall sell or agree to sell any assets, rights or properties otherwise
than in the ordinary course of business, or create, or suffer to exist, any
Encumbrance on any of its assets, rights and properties other than Encumbrances
existing as of the date of this Agreement;
(k) No New Material Contracts Except in Ordinary
Course. Except in the ordinary course of business, none of the Predecessor
Companies shall make any capital expenditures exceeding $10,000 individually or
enter into or become a party to any arrangement or contract of a type that would
require the expenditure of more than $50,000 in any 12 month period or which
would otherwise be required to be disclosed by such party in its Disclosure
Letter without the prior written consent of a majority or more of the Operating
Committee; and
(l) No Changes to Compensation Arrangements.
Except as required by law or contractual obligations existing on the date hereof
that are contained in written agreements in effect on the date hereof which have
been disclosed in the Disclosure Letter submitted by such party to the other
parties pursuant to this Agreement, none of the Predecessor Companies shall (i)
increase in any manner the compensation (other than increases in the ordinary
course of business and consistent with past practice) of, or enter into any new
bonus or incentive agreement or arrangement with, any of its Employees, officers
or directors, (ii) pay or agree to pay any pension, retirement allowance or
similar employee benefit to any Employee, officer, or director, (iii) enter into
any new employment, severance, consulting or other compensation agreement with
any existing Employee, officer, or director; (iv) commit itself to any
additional pension, profit-sharing, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, fund or similar
arrangement or amend or commit itself to amend any of such plans, funds or
similar arrangements in existence on the date hereof.
Section 5.6 Covenants Binding Only Upon KBG. From and after the date
hereof through and including the Closing, KBG hereby covenants and agrees that
it shall not sell, license, transfer, assign, pledge or otherwise create any
Encumbrance upon the Proprietary Car Wash Computer Software except as
contemplated by Section 3.2.4 of this Agreement.
Section 5.7 Consents. From and after the date hereof, each of the
Predecessor Companies shall use their reasonable best efforts to (i) obtain all
consents, waivers and authorizations and make all filings with and give all
notices that may be necessary or reasonably required to consummate the
transactions contemplated hereby, and (ii) cause each of the conditions
precedent to the obligations of each of the other parties to this Agreement to
be satisfied.
34
Section 5.8 Public Statements. From and after the date hereof until the
earlier of the Closing or the termination of this Agreement, none of the
Predecessor Companies shall disclose to any Person other than its shareholders
or members the terms of this Agreement, or release any information concerning
any of the transactions contemplated hereby, that is intended for or is
reasonably likely to result in public dissemination thereof without the prior
written consent of a majority or more of the Operating Committee.
Section 5.9 Update of Disclosure. From and after the date hereof
through and including the earlier of the Closing or the termination of this
Agreement, each of the Predecessor Companies shall promptly notify the other
parties hereto of the occurrence of any material facts or circumstances that
would have required disclosure pursuant to the representations and warranties
made by such parties pursuant to the terms of this Agreement if such facts or
circumstances had been known to them prior to the execution of this Agreement
and of any other matters that would cause any representation or warranty to be
untrue, incorrect or misleading.
Section 5.10 Employee Benefit Contributions. On or prior to the Closing
Date, each of the Predecessor Companies shall make, and shall cause each of its
Affiliates to make, all contributions, and shall pay all premiums, or shall
cause each of its ERISA Affiliates to pay all premiums, with respect to
liabilities arising under any Benefit Arrangement or Employee Benefit Plan
provided to its current or former Employees, with respect to liabilities or
obligations which have accrued on or prior to the Closing Date or which will
accrue following the Closing Date in respect of periods prior to and through the
Closing Date.
Section 5.11 Lock-Up; No Shopping, Solicitations or Competing
Negotiations. Each of the parties to this Agreement hereby agrees that, from and
after the date hereof through and including the Closing or the earlier
termination of this Agreement, none of them shall encourage, solicit, entertain
or hold any negotiations or other discussions with any other Person relating to
the possible acquisition of all or any part of their respective businesses,
whether pursuant to a sale of assets, merger, consolidation, share exchange,
tender offer or otherwise.
Section 5.12 Audits. Promptly upon the execution of this Agreement, if
and to the extent they have not already done so, each of the Predecessor
Companies shall assist Ernst and Young, LLP with audits of their respective
financial statements at such dates and for such periods as the Holding Company
reasonably determines it must include in the registration statements the Holding
Company files with the Commission in the manner contemplated by this Agreement),
and shall make their respective books and records, financial statements,
employees, officers and facilities open to such auditors at reasonable hours
upon reasonable advance notice and to otherwise cooperate, and cause their
respective certified public accountants and other outside auditors to cooperate,
with such auditors in conducting such audits. Each of the Predecessor Companies
also shall provide the Holding Company with any unaudited financial statements
for any periods the Holding Company reasonably determines it must include in the
registration statements the Holding Company files with the Commission in the
manner contemplated by this Agreement. Each of the Predecessor Companies shall
also promptly provide to the Holding Company consents from Ernst & Young LLP
35
to the inclusion of their audit reports in filings with the Commission, "comfort
letters" and such other assurances from Ernst & Young LLP and other independent
accountants of such Predecessor Company that may reasonably be requested by the
Holding Company or any underwriter involved in the public offering of the
Holding Company's securities. All of the financial statements provided to the
Holding Company pursuant to this Section 5.12 shall be prepared in accordance
with GAAP (and Regulation S-X of the Commission) consistently applied.
Section 5.13 Acquisition by Miracle Industries of Minority Interests in
Hydro-Spray. Promptly following the execution and delivery of this Agreement by
each of the parties hereto, Miracle Industries shall form a subsidiary
corporation under the laws of the State of Ohio solely for the purpose of
acquiring the minority membership interests in Hydro-Spray which are held
currently by Xxxxxx Xxxxxx and Xxxx Xxxxxxx, respectively, and shall cause such
subsidiary corporation to acquire such minority membership interests on or prior
to the Closing Date (but prior to the Closing) for an aggregate purchase price,
including debts and obligations, if any, assumed by Miracle Industries or such
subsidiary corporation in such transaction of not more than $300,000. In lieu of
payment of cash to such Hydro-Spray members for their membership interests in
Hydro-Spray, Miracle Industries may acquire such membership interests in
consideration of the issuance to such members of shares of common stock of
Miracle Industries in which case the exchange ratio set forth in Section
3.1.4(b) shall be reduced so that the aggregate number of Combination Shares to
be issued to shareholders of Miracle Industries remains at $749,250. The
acquisition agreement relating to the acquisition of such minority interests
shall be in a form approved by the Holding Company, and, at a minimum, shall
contain representations and warranties and indemnities from the sellers of such
interests which are customary for transactions of this sort and shall impose
covenants upon the sellers of such interests which will obligate them not to
compete with Miracle Industries or any of its presently existing or hereafter
created Affiliates (including the parties to this Agreement) in the business of
manufacturing and selling car wash equipment.
Section 5.14 Option To Purchase Property by Prema Property Members. At
the Closing Prema Properties shall execute and deliver to a partnership to be
comprised of the members of Prema Properties an Option Agreement pursuant to
which such partnership shall have the option to purchase the properties
described in Schedule 5.14 from Prema Properties on the following terms: (i) the
option shall be exercisable during the one year period commencing on the second
anniversary of the Closing Date; (ii) the option purchase price of each such
property shall be the fair market value of such property on the date of exercise
of the option which price shall be paid to Prema Properties in cash at the
closing of the transfer of such property; (iii) the closing on the sale of each
such property shall occur within 90 days of the later of the exercise of the
option or the determination of the purchase price therefor; (iv) all appraisal,
deed preparation, recording costs and transfer and documentary or similar taxes
shall be equally borne by the parties; (iv) all real estate taxes shall be
apportioned as of the date of the closing on the transfer of such property; and
(vii) all other terms of the transfer of such property shall be the customary
terms of transfer of commercial properties in the locale of such property. In
addition, the Option Agreement shall provide that upon the transfer of any such
property pursuant to the Option Agreement, Prema Properties or any assignee that
is an Affiliate of the Holding Company and shall lease such property pursuant to
a Lease Agreement that contains the following terms: (i) the annual rent
throughout the initial and all renewal terms (including rent escalation factors)
shall be the fair rental value of the property; (ii) annual rent shall
36
be paid in monthly installments in advance; (iii) the annual rent shall be
triple net to the landlord; (iv) the Lease Agreement shall be for an initial
term of ten years and the tenant shall have options to renew for two successive
renewal terms of ten years each; and (v) all other terms of the lease of such
property shall be the customary terms of lease of commercial properties in the
locale of such property.
Section 5.15 Option To Purchase Property by Lube Ventures Stockholders.
At the Closing Lube Ventures shall execute and deliver to a partnership to be
comprised of the stockholders of Lube Ventures an Option Agreement pursuant to
which such partnership shall have the option to purchase the properties
described in Schedule 5.15 from Lube Ventures on the following terms: (i) the
option shall be exercisable during the one year period commencing on the second
anniversary of the Closing Date; (ii) the option purchase price of each such
property shall be the fair market value of such property on the date of exercise
of the option which price shall be paid to Lube Ventures in cash at the closing
of the transfer of such property; (iii) the closing on the sale of each such
property shall occur within 90 days of the later of the exercise of the option
or the determination of the purchase price therefor; (iv) all appraisal, deed
preparation, recording costs and transfer and documentary or similar taxes shall
be equally borne by the parties; (iv) all real estate taxes shall be apportioned
as of the date of the closing on the transfer of such property; and (vii) all
other terms of the transfer of such property shall be the customary terms of
transfer of commercial properties in the locale of such property. In addition,
the Option Agreement shall provide that upon the transfer of any such property
pursuant to the Option Agreement, Lube Ventures or any assignee that is an
Affiliate of the Holding Company a shall lease such property pursuant to a Lease
Agreement that contains the following terms: (i) the annual rent throughout the
initial and all renewal terms (including rent escalation factors) shall be the
fair rental value of the property; (ii) annual rent shall be paid in monthly
installments in advance; (iii) the annual rent shall be triple net to the
landlord; (iv) the Lease Agreement shall be for an initial term of ten years and
the tenant shall have options to renew for two successive renewal terms of ten
years each; and (v) all other terms of the lease of such property shall be the
customary terms of lease of commercial properties in the locale of such
property.
Section 5.16 Option To Purchase Property by Miracle Partners
Stockholders. At the Closing Miracle Partners shall execute and deliver to a
partnership to be comprised of the stockholders of Miracle Partners an Option
Agreement pursuant to which such partnership shall have the option to purchase
the properties described in Schedule 5.16 from Miracle Partners on the following
terms: (i) the option shall be exercisable during the one year period commencing
on the second anniversary of the Closing Date; (ii) the option purchase price of
each such property shall be the fair market value of such property on the date
of exercise of the option which price shall be paid to Miracle Partners in cash
at the closing of the transfer of such property; (iii) the closing on the sale
of each such property shall occur within 90 days of the later of the exercise of
the option or the determination of the purchase price therefor; (iv) all
appraisal, deed preparation, recording costs and transfer and documentary or
similar taxes shall be equally borne by the parties; (iv) all real estate taxes
shall be apportioned as of the date of the closing on the transfer of such
property; and (vii) all
37
other terms of the transfer of such property shall be the customary terms of
transfer of commercial properties in the locale of such property. In addition,
the Option Agreement shall provide that upon the transfer of any such property
pursuant to the Option Agreement, Miracle Partners or any assignee that is an
Affiliate of the Holding Company a shall lease such property pursuant to a Lease
Agreement that contains the following terms: (i) the annual rent throughout the
initial and all renewal terms (including rent escalation factors) shall be the
fair rental value of the property; (ii) annual rent shall be paid in monthly
installments in advance; (iii) the annual rent shall be triple net to the
landlord; (iv) the Lease Agreement shall be for an initial term of ten years and
the tenant shall have options to renew for two successive renewal terms of ten
years each; and (v) all other terms of the lease of such property shall be the
customary terms of lease of commercial properties in the locale of such
property.
Section 5.17 Distributions of Unrelated Assets.
5.17.1 Distribution by Rocky Mountain I. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Rocky
Mountain I shall have the right to distribute to the holders of its capital
stock cash received by Rocky Mountain I pursuant to the repayment of the
principal amount (discounted due to early repayment) of the Promissory Note
payable to the order of Rocky Mountain I in the original principal amount of
$195,000 that it received in connection with the sale of its car wash located at
00000 Xxxx Xxxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxx in July 1995.
5.17.2 Distribution by Miracle Partners. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Miracle
Partners shall have the right to distribute to the holders of its capital stock
the real property owned by it and known as Xxx 000, Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxx.
5.17.3 Distribution by Lube Ventures. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Lube Ventures
shall have the right to distribute to the holders of its capital stock the
approximately 5 acres of real property owned by it and known as 0000 Xxxx Xxxxxx
Xxxxxx, Xxxxxxxxx, Xxxx that is not used by Lube Ventures.
5.17.4 Distribution by Miracle Industries. Each of
the parties hereto acknowledges and agrees that, prior to the Closing, Miracle
Industries shall have the right to distribute to the holders of its capital
stock the following parcels of real property owned by it: two houses and a
vacant lot in Crestline, Ohio, a vacant lot in Delaware, Ohio and the Xxxxxxxxx
Xxxxxx, Xxxxxxxx, Xxxx car wash.
5.17.5 Distribution by Prema Properties. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Prema
Properties shall have the right to distribute to the holders of its Membership
Interests the following parcels of real property owned by it: the car wash
located on Main Street in Xxxxxx, Ohio and the shopping center and vacant land
adjacent to the car wash in Bellville, Ohio.
5.17.6 Conditions to Distributions. The parties
agree that each distribution permitted by this Section 5.17 shall be without
cost to the Predecessor Company (or Affiliate of the Predecessor Company) making
such distribution. In addition, with respect to the distributions of real
property contemplated by Section 5.17.2, 5.17.3, 5.17.4 and 5.17.5, each such
distribution shall be made subject to any Debt that is collateralized by such
real property and the distributing Predecessor Company (or Affiliate of a
Predecessor Company) shall be released from any liability (whether absolute or
contingent) with respect to such Debt unless such Debt is included in Schedule
19.1.
Section 5.18 Cash Distributions by Subchapter S Corporations and
Limited Liability Companies. Notwithstanding the provisions of Section 5.5,
Miracle Industries, Lube Ventures, Miracle Partners, Rocky Mountain I, Rocky
Mountain II, Xxxxxxx Car Wash and Prema Properties shall each be permitted to
distribute on or before the Closing Date to each of their respective
stockholders and members cash in an amount reasonably estimated to equal to the
highest combined federal, state and local income tax obligations of any their
respective stockholders or members which have or will arise solely by reason of
being a stockholder or member thereof during the tax period which will end on
the Closing Date (it being understood and agreed that calculation of such
distribution shall not take into account the tax effect, if any, of any the
transactions contemplated by Sections 5.14, 5.15, 5.16 or 5.17 of this
Agreement).
Section 5.19 Negotiations with Respect to Ancillary Agreements and
Documents. Promptly following the execution and delivery of this Agreement, the
Ohio Group and Miracle Partners shall cause the representatives of each of the
Real Estate Partnerships to enter into good faith negotiations with the Holding
Company concerning the form of the Option Agreements and the Lease Agreements
and to thereafter negotiate in good faith with respect to the form of the Option
Agreements and the Lease Agreements to be executed at the Closing shall have
been finalized on or before September 30, 1997. Following the execution and
delivery of this Agreement, the Holding Company and each of the Predecessor
Companies shall enter into good faith negotiations with respect to the forms of
opinions of counsel to be executed and delivered at the Closing, the terms of
the various letters of transmittal to be used by the Holding Company to make the
Exchange Offers
38
and the terms of the various other documents, agreements and instruments to be
executed and delivered by each of the parties pursuant to the terms of this
Agreement, such that the forms of all such documents shall have been finalized
on or before September 30, 1997. Once the forms of each of the documents
referred to in this Section 5.19 shall have been finalized, each of the parties
shall certify their agreement with respect to the terms and forms thereof by
delivering written notice of their acceptance of the terms and forms thereof to
each of the other parties to this Agreement. Upon receipt by the Holding Company
of written notice from each of the Predecessor Companies that the form a
particular document has been accepted by each of them, the form of such document
shall be appended to this Agreement as an Exhibit hereto and shall become a part
of this Agreement without the need for further act or deed by any of the
parties. The failure of any of the parties to satisfy its obligations under this
Section 5.19 shall be deemed to be a material and willful breach of this
Agreement and shall entitle the other parties to exercise the rights and
remedies provided for in Section 21.1.1, in addition to such other rights and
remedies available to them pursuant to the terms of this Agreement.
Section 5.20 Environmental Due Diligence.
5.20.1 Conduct of Due Diligence. From and after the
date hereof, each of the members of the Ohio Group and the Rocky Mountain Group
shall permit representatives of the Holding Company, and of environmental
consulting firms engaged by the Holding Company, to enter upon their respective
properties from time to time at reasonable hours upon reasonable advance notice
in order to evaluate the environmental condition of each such property and the
operations of the businesses of the members of the Ohio Group and the Rocky
Mountain Group thereon, and shall assist the Holding Company and its
representatives in conducting such evaluations.
5.20.2 Results of Due Diligence. As soon as
reasonably practicable following the receipt of the environmental evaluations
referred to in Section 5.20.2, the Holding Company shall determine, in its sole
but reasonable discretion, the acceptability of the environmental condition of
the properties of each of the Predecessor Companies. Following such
determination, the Holding Company shall provide notice to each of the
Predecessor Companies of its determination with respect to the environmental
condition of the properties of such Predecessor Company (it being understood
that the Holding Company shall be entitled to be unsatisfied with the
environmental condition of the properties of any Predecessor Company in the
event that it shall determine that a reasonable purchaser of the business of
such Predecessor Company would determine not to proceed with the purchase
thereof or to reduce the consideration payable to the Selling Stockholders or
Selling Members thereof materially based on the environmental condition of the
properties of such Predecessor Company). If the Holding Company shall be
unsatisfied with the environmental condition of the properties of such
Predecessor Company, the Holding Company and such Predecessor Company shall
enter into good faith negotiations to agree on (i) a manner in which such
Predecessor Company can proceed to remedy, at its sole cost and expense, any
such environmental condition in a manner reasonably satisfactory to the Holding
Company such that each such environmental condition shall be remedied on or
before the Closing Date or that the financial costs of such remediation shall
otherwise be provided for by the Selling Stockholders or Selling Members of such
Predecessor Company or (ii) an appropriate reduction in the number of
Combination Shares to be issued by the Holding Company to the Selling
Stockholders or Selling Members of such Predecessor Company.
Section 5.21 Actions by Affiliates.
5.21.1 Agreements Not to Compete. Each Predecessor
Company shall cause each natural Person who as of the Closing Date is a holder
of 10% or more of the common stock or membership interests of such Predecessor
Company (other than any such Person who is subject to another agreement not to
compete with the Holding Company) to enter into an Agreement Not to Compete with
the Holding Company as contemplated by Section 4.1.7.
5.21.2 Affiliate Agreements. Each Predecessor
Company shall cause each Person who is an "Affiliate" as defined in the
Securities Act of such Predecessor Company to enter into an affiliates agreement
with the Holding Company acknowledging that such Person is subject to the resale
restrictions of Rule 145 promulgated under the Securities Act.
ARTICLE VI
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REPRESENTATIONS AND WARRANTIES OF WE JAC
----------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, WE JAC hereby makes
the following representations and warranties to the other parties to this
Agreement and to the Holding Company:
Section 6.1 Organization and Good Standing.
6.1.1 WE JAC. WE JAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own, operate and lease its properties, and
to conduct its business as it is now being conducted, and is qualified to
transact business as a foreign corporation in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification.
6.1.2 Subsidiaries of WE JAC. Precision Tune is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has full
39
corporate power and authority to own, operate and lease its properties, and to
conduct its business as it is now being conducted, and is qualified to transact
business as a foreign corporation in each jurisdiction in which the operation of
its business or the ownership of its properties requires such qualification.
National 60 Minute Tune is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington, and has full corporate
power and authority to own, operate and lease its properties, and to conduct its
business as it is now being conducted, and is qualified to transact business as
a foreign corporation in each jurisdiction in which the operation of its
business or the ownership of its properties requires such qualification. PTW is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington, and has full corporate power and authority to
own, operate and lease its properties, and to conduct its business as it is now
being conducted, and is qualified to transact business as a foreign corporation
in each jurisdiction in which the operation of its business or the ownership of
its properties requires such qualification.
Section 6.2 Capitalization of WE JAC and Subsidiaries.
6.2.1 Authorized Capital; Outstanding Shares.
(a) The authorized capital stock of WE JAC
consists solely of 2,600,000 shares of a single class of common stock, $0.01
par value, of which 1,333,625 shares have been issued and are outstanding as of
the date of this Agreement. Each of the shares of the capital stock of WE JAC
issued and outstanding as of the date hereof has been duly authorized and
validly issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of WE JAC has been issued in violation of
shareholder preemptive rights. Except as disclosed in the WE JAC Disclosure
Letter, WE JAC has no issued or outstanding equity securities, debt securities
or other instruments which are convertible into or exchangeable for at any time
equity securities of WE JAC.
(b) The authorized capital stock of Precision
Tune consists solely of 1,000 shares of a single class of common stock, $0.01
par value, of which 1,000 shares have been issued and are outstanding as of the
date of this Agreement. Each of the shares of the capital stock of Precision
Tune issued and outstanding as of the date hereof has been duly authorized and
validly issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of Precision Tune has been issued in
violation of shareholder preemptive rights. Precision Tune has no issued or
outstanding equity securities, debt securities or other instruments which are
convertible into or exchangeable for at any time equity securities of Precision
Tune.
(c) The authorized capital stock of National 60
Minute Tune consists solely of 50,000 shares of a single class of common stock,
$1.00 par value, of which 500 shares have been issued and are outstanding as of
the date of this Agreement. Each of the shares of the capital stock of National
60 Minute Tune issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of the
shares of the issued and outstanding capital stock of National 60 Minute Tune
has been issued in violation of
40
shareholder preemptive rights. National 60 Minute Tune has no issued or
outstanding equity securities, debt securities or other instruments which are
convertible into or exchangeable for at any time equity securities of National
60 Minute Tune.
(d) The authorized capital stock of PTW consists
solely of 1,000,000 shares of a single class of common stock, $1.00 par value,
of which 1,000 shares have been issued and are outstanding as of the date of
this Agreement. Each of the shares of the capital stock of PTW issued and
outstanding as of the date hereof has been duly authorized and validly issued
and is fully paid and non-assessable. None of the shares of the issued and
outstanding capital stock of PTW has been issued in violation of shareholder
preemptive rights. PTW has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of PTW.
6.2.2 No Obligations to Issue or Redeem Shares.
(a) Except as disclosed in the WE JAC Disclosure
Letter, WE JAC is not subject to any commitment or obligation which would
require the issuance or sale of shares of its capital stock at any time under
options, subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of WE JAC.
Except as disclosed in the WE JAC Disclosure Letter, WE JAC has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
(b) Precision Tune is not subject to any
commitment or obligation which would require the issuance or sale of shares of
its capital stock at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of Precision Tune. Precision Tune has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
(c) National 60 Minute Tune is not subject to
any commitment or obligation which would require the issuance or sale of shares
of its capital stock at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of National 60 Minute Tune. National 60 Minute
Tune has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
(d) PTW is not subject to any commitment or
obligation which would require the issuance or sale of shares of its capital
stock at any time under options, subscriptions, warrants, rights, calls,
preemptive rights, convertible obligations or any other fixed or contingent
41
obligations or which would provide the holder thereof with the right to acquire
any equity securities of PTW. PTW has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
6.2.3 Ownership of Shares. As of the date hereof the WE JAC
Disclosure Letter contains a true, complete and accurate list of each of the
record and beneficial owners of the shares of the capital stock of WE JAC,
together with the name and address of each such holder. There are no agreements,
pledges, powers of attorney, assignments or similar agreements or arrangements
either (i) restricting the transferability of any of the shares of the capital
stock of WE JAC or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 6.3 Subsidiaries; Investments. Except for Precision Tune, WE
JAC does not own any shares of capital stock or equity securities of, or any
interest in any other entity, and WE JAC has good, valid and marketable title,
free and clear of all Encumbrances, to all shares of capital stock or equity
securities of, or interests in, Precision Tune. Precision Tune owns all of the
issued and outstanding capital stock of National 60 Minute Tune and PTW.
Section 6.4 Execution and Effect of Agreement. WE JAC has the corporate
power to enter into this Agreement and to perform its obligations hereunder and,
subject to the due authorization and approval of its shareholders, to enter into
and consummate the WE JAC Merger. This Agreement has been duly executed and
delivered by WE JAC and constitutes a legal, valid and binding obligation of WE
JAC, fully enforceable against WE JAC in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 6.5 Restrictions. The execution and delivery of this Agreement
by WE JAC, the consummation of the transactions contemplated hereby by WE JAC,
and, subject to the due authorization and approval of its shareholders, the
performance of the obligations of WE JAC hereunder, will not (a) violate any of
the provisions of the charter or by-laws of WE JAC, (b) violate or conflict with
the provisions of any Applicable Laws, (c) result in the creation of any
Encumbrance upon any of the assets, rights or properties of WE JAC, or (d)
except as disclosed in the WE JAC Disclosure Letter, conflict with, violate any
provisions of, result in a breach of or give rise to a right of termination,
modification or cancellation of, constitute a default of, or accelerate the
performance required by, with or without the passage of time or the giving of
notice or both, the terms of any material agreement, indenture, mortgage, deed
of trust, security or pledge agreement, lease, contract, note, bond, license,
permit, authorization or other instrument to which WE JAC or any of its
Subsidiaries is a party or to which any of any of the assets of WE JAC or any of
its Subsidiaries are subject.
42
Section 6.6 Consents. Except as disclosed in the WE JAC Disclosure
Letter and as may be required by any Applicable Laws relating to franchising, no
filing with, or consent, waiver, approval or authorization of, or notice to, any
governmental authority or any third party is required to be made or obtained by
WE JAC or any of its Subsidiaries in connection with the execution and delivery
of this Agreement or any document or instrument contemplated hereby, the
consummation of any of the transactions contemplated hereby or the performance
of any of their respective obligations hereunder or thereunder.
Section 6.7 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of the audited consolidated balance sheets and related
statements of income, cash flows and changes in stockholders' equity of WE JAC
as at June 30, 1995, 1996 and 1997 and for the year periods then- ended
(collectively, the " WE JAC Financial Statements"). All of the WE JAC Financial
Statements have been prepared in accordance with GAAP. All of the WE JAC
Financial Statements have been prepared in a manner consistent with each other
and the books and records of WE JAC and its Subsidiaries, and fairly present in
all material respects the financial condition and results of operations of WE
JAC and its Subsidiaries at the dates and for the periods indicated therein. The
regular books of account of WE JAC and its Subsidiaries fairly and accurately
reflect all material transactions involving WE JAC and its Subsidiaries, are
true, correct and complete and have been prepared in accordance with GAAP and on
a basis consistent with the Financial Statements.
Section 6.8 Debt. The WE JAC Disclosure Letter contains a true,
complete and accurate listing as of the date hereof the original principal
amount of all of the Debt of WE JAC, the remaining principal balance thereof,
the interest rate(s) payable by WE JAC in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the WE JAC Disclosure
Letter, all of the Debt of WE JAC may be prepaid at any time, without premium,
prepayment penalties, termination fees or other fees or charges.
Section 6.9 Guarantees. The WE JAC Disclosure Letter contains a
complete list of all Guarantees provided by WE JAC or any of its Subsidiaries
for the benefit of any other party and of all Guarantees provided by any other
party for the benefit of WE JAC or any of its Subsidiaries or any party doing
business with WE JAC or any of its Subsidiaries.
Section 6.10 No Undisclosed Liabilities. Neither WE JAC nor any of its
Subsidiaries have any material liabilities or obligations of any nature
whatsoever (whether known or unknown, due or to become due, absolute, accrued,
contingent or otherwise, and whether or not determined or determinable), except
for (i) liabilities or obligations set forth in the WE JAC Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the WE JAC Financial
Statements or disclosed in the notes thereto, (iii) liabilities or obligations
of a type reflected on the June 30, 1997 balance sheet and incurred in the
ordinary course of business and consistent with past practices since June 30,
1997, or (iv) liabilities or obligations arising under the terms of the Material
Contracts of WE JAC. Except
43
as otherwise contemplated or permitted by this Agreement, no dividends declared
on any capital stock of WE JAC are unpaid.
Section 6.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of WE JAC, threatened, by or before any court, any
Governmental Authority or arbitrator, against WE JAC or any of its Subsidiaries
that reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the WE JAC Disclosure
Letter, there is no material suit, claim, action at law or in equity, proceeding
or governmental investigation or audit pending, or to the knowledge of
management of WE JAC, threatened, by or before any arbitrator, court, or other
Governmental Authority, against WE JAC or any of its Subsidiaries or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of WE JAC or any of its Subsidiaries, nor, to the knowledge of
management of WE JAC, is there any basis for the assertion of any of the
foregoing. Except as disclosed in the WE JAC Disclosure Letter, there are no
judgments, orders, injunctions, decrees, stipulations or awards rendered by any
court, Governmental Authority or arbitrator currently binding or effective
against WE JAC or any of its Subsidiaries or any of their respective former or
present Employees, agents, properties or assets.
Section 6.12 Properties; Absence of Encumbrances. The WE JAC Disclosure
Letter sets forth a complete list of all real property owned by or leased to WE
JAC or any of its Subsidiaries, and, with respect to all properties leased by WE
JAC, a description of the term of such lease and the monthly rental thereunder.
Neither WE JAC nor any of its Subsidiaries is in default (and will not be in
default with the passage of time or the receipt of notice or both) and has not
received notice of default, under any lease of real property. All real property
leased to WE JAC or any of its Subsidiaries is available for immediate use in
the operation of its business and for the purpose for which such property
currently is being utilized. Subject in the case of leased property to the terms
and conditions of the respective leases, WE JAC or one or more of its
Subsidiaries has full legal and practical access to all such real property.
Section 6.13 Intellectual Property. The WE JAC Disclosure Letter sets
forth a complete list of (i) all Intellectual Property owned, used or licensed
by WE JAC or any of its Subsidiaries, together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by WE JAC or any of its Subsidiaries. WE JAC and its
Subsidiaries own their respective Intellectual Property free and clear of any
and all Encumbrances, or, in the case of licensed Intellectual Property, has
valid, binding and enforceable rights to use such Intellectual Property. WE JAC
and each of its Subsidiaries has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the WE JAC Disclosure Letter,
neither WE JAC nor any of its Subsidiaries (i) has received any notice or claim
to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, or (ii) has made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
44
Section 6.14 Material Contracts.
6.14.1 List of Material Contracts. The WE JAC Disclosure
Letter sets forth as of the date hereof a list of all material written, and a
description of all oral, commitments, agreements or contracts to which WE JAC or
any of its Subsidiaries is a party or by which WE JAC or any Subsidiary is
obligated, other than agreements pursuant to which Precision Tune or National 60
Minute Tune has granted any franchise or similar rights with respect to the
Precision Tune System or any license or similar rights with respect to any of
the Precision Tune Marks, including, but not limited to, all commitments,
agreements or contracts embodying or evidencing the following transactions or
arrangements: (i) agreements for the employment of, or independent contractor
arrangements with, any officer or other individual employee of WE JAC or any of
its Subsidiaries; (ii) any consulting agreement, agency agreement and any other
service agreement that will continue in force after the Closing Date with
respect to the employment or retention by WE JAC or any of its Subsidiaries of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by WE JAC or any of its Subsidiaries after the date hereof of more
than $25,000 or which has been entered into by WE JAC or any of its Subsidiaries
otherwise than in the ordinary course of business; (iv) agreements between WE
JAC or any of its Subsidiaries and suppliers to WE JAC or any of its
Subsidiaries pursuant to which either WE JAC or any of its Subsidiaries is
obligated to purchase or to sell or distribute the products of any other party
other than current purchase orders entered into in the ordinary course of
business consistent with past practices; (v) any contract containing covenants
limiting the freedom of WE JAC or any of its Subsidiaries or any officer,
director, or employee of WE JAC or any of its Subsidiaries to engage in any line
or type of business or with any person in any geographic area; (vi) any
commitment or arrangement by WE JAC or any of its Subsidiaries to participate in
a strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by WE
JAC or any of its Subsidiaries for capital expenditures involving more than
$25,000 individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of WE
XXX xxxxx to be material to the business of WE JAC or any of its Subsidiaries.
6.14.2 No Breaches or Defaults. Except as disclosed in the WE
JAC Disclosure Letter, WE JAC and each of its Subsidiaries is in full compliance
with each, and is not in default under any, Material Contract to which it is a
party, and no event has occurred that, with notice or lapse of time or both,
would constitute such a default thereunder. Neither WE JAC nor any of its
Subsidiaries has waived any rights under or with respect to any of the Material
Contracts to which it is a party. The management of WE JAC has no knowledge, has
not received any notice to the effect, that any party with whom WE JAC or any of
its Subsidiaries has contractual arrangements under the Material Contracts, is
in default under any such contractual arrangements or that any event has
occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts constitutes a legal, valid
and binding obligation of each of the parties thereto and is enforceable against
each of the parties thereto in accordance with its respective terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization,
45
fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
6.14.3 Franchise Agreements. The WE JAC Disclosure Letter
contains a complete list as of the date hereof of (i) all of the current
franchisees of Precision Tune to whom Precision Tune has granted any franchise
or similar rights with respect to the Precision Tune System or any license or
similar rights with respect to any of the Precision Tune Marks and (ii) all area
development, area franchise, area subfranchisor, master license or similar
agreements that cover the development or franchising of Precision Tune
franchises within any area or country or the delegation of duties by Precision
Tune with respect to its obligations as a franchisor or otherwise (collectively,
the "Precision Tune Franchise Agreements"). Each of the Precision Tune Franchise
Agreements is a legal, valid and binding obligation of Precision Tune and is
enforceable against Precision Tune in accordance with its respective terms.
Precision Tune is in full compliance with the terms of each of the Precision
Tune Franchise Agreements and no event has occurred that, with or without notice
or lapse of time or both, constitutes or will constitute a default by Precision
Tune thereunder or a breach by Precision Tune thereof. Except as disclosed in
the WE JAC Disclosure Letter, Precision Tune has not waived any rights under or
with respect to any of the Precision Tune Franchise Agreements. Except as
disclosed in the WE JAC Disclosure Letter, to the knowledge of management of WE
JAC, as of the date hereof none of the franchisees or licensees that are parties
to any of the Precision Tune Franchise Agreements is in default thereunder and
no event has occurred that, with or without notice or lapse of time or both,
constitutes or will constitute a default thereunder or a breach thereof by such
franchisees or licensees.
Section 6.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The WE JAC
Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which WE JAC or any of its
Subsidiaries or ERISA Affiliates is a party or to which WE JAC or any of its
Subsidiaries or ERISA Affiliates is obligated to contribute. None of the
Employee Benefit Plans to which WE JAC or any ERISA Affiliate of WE JAC is a
party, which WE JAC or any ERISA Affiliate of WE JAC sponsors or maintains or to
which WE JAC or any ERISA Affiliate of WE JAC contributes is subject to the
requirements of Section 302 of ERISA or Section 412 of the Code.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the WE JAC Disclosure Letter, each Employee Benefit Plan
and Benefit Arrangement to which WE JAC or any of its Subsidiaries or ERISA
Affiliates is a party or to which WE JAC or any of its Subsidiaries or ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the WE JAC Disclosure
Letter, with respect to any Employee Benefit Plan that is intended to qualify
under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely
46
adopted and nothing has occurred subsequent to the date of such determination
letter that could adversely affect the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which WE JAC or any of its Subsidiaries
or ERISA Affiliates is a party or to which WE JAC or any of its Subsidiaries or
ERISA Affiliates is obligated to contribute, under ERISA or the Code, for all
periods of time prior to the date hereof and that are attributable to Employees
of WE JAC and its Subsidiaries or ERISA Affiliates have been paid or otherwise
adequately accrued for or reserved against in the WE JAC Financial Statements,
as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the WE JAC Disclosure Letter, neither WE JAC nor any of its
Subsidiaries is liable for any arrearage of wages, any accrued or vested
vacation pay or any tax or penalty for failure to comply with any Applicable Law
relating to employment or labor above the level accrued for or reserved against
on the June 30, 1997 balance sheet included in the WE JAC Financial Statements,
and there is no controversy pending, threatened or in prospect between WE JAC or
any of its Subsidiaries and any of their respective Employees nor is the
management of WE JAC aware of any basis for any such controversy. There is no
unfair labor practice charge or complaint currently pending against WE JAC or
any of its Subsidiaries with respect to or relating to any of their respective
Employees before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against WE JAC or any of its Subsidiaries before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of WE JAC, no Employee Benefit Plan or Benefit
Arrangement is under audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the WE JAC Disclosure Letter, all current employees of WE JAC or any of its
Subsidiaries may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the WE JAC Disclosure
Letter, neither the execution, delivery or performance of this Agreement nor the
consummation of the Closing will (i) increase any benefits otherwise payable
under any Employee Benefit Plan or Benefit Arrangement, (ii) result in the
acceleration of the time of payment or vesting of any such benefits, or (iii)
give rise to an obligation with respect to the payment of any severance pay. No
"parachute payment" (within the meaning of Section 280G of the Code), "change in
control" or severance payment has been made or will be required to be made by WE
JAC or any ERISA Affiliate of WE JAC to any Employee in connection with the
execution, delivery or performance of this Agreement or as a result of the
consummation of the Closing.
47
(f) Compliance with Laws on Employment
Practices. WE JAC and each of its Subsidiaries has complied in all material
respects with all Applicable laws relating to employment and employment
practices, terms and conditions of employment, wages and hours, and to the
knowledge of the management of WE JAC, is not engaged in any unfair labor
practice with respect to any of the current employees of WE JAC or any of its
Subsidiaries; and to the knowledge of WE JAC, none of the persons performing
services for WE JAC or any of its Subsidiaries or ERISA Affiliates have been
improperly classified as independent contractors or as being exempt from payment
of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the WE JAC Disclosure Letter, none of the employees of WE JAC or
any of its Subsidiaries are subject to any collective bargaining agreement nor
is WE JAC or any of its Subsidiaries required under any agreement to recognize
or bargain with any labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither WE JAC nor
any of its Subsidiaries or ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
WE JAC or any of its Subsidiaries or ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of WE JAC ended June 30, 1997.
(j) No Unfunded Liabilities. Neither WE JAC nor
any ERISA Affiliate of WE JAC has any current or projected liability for any
unfunded post-retirement medical or life insurance benefits in connection with
any Employee of WE JAC or ERISA Affiliate of WE JAC.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by WE JAC or any ERISA
Affiliate of WE JAC, which could subject any such Employee Benefit Plan, WE JAC,
any ERISA Affiliate of WE JAC, or the Holding Company directly or indirectly
(through an indemnification agreement or otherwise), to any liability for or as
a result of a breach of fiduciary duty, a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code, or a civil penalty
under Section 502 of ERISA or a Tax under Section 4971 of the Code. Neither WE
JAC nor any of its ERISA Affiliates have incurred a "withdrawal" or "partial
withdrawal," as defined in Sections 4203 and 4205 of ERISA, from, or failed to
timely make contributions to any Multiemployer Plan which has resulted in any
unpaid liability of WE JAC or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the WE JAC Disclosure Letter, none of the Employee Benefit Plans
that are "employee welfare benefit plans" as defined in ERISA Section 3(1)
provides for continuing benefits or coverage for any participant or beneficiary
of a participant after such participant's termination of employment, except to
the extent required by law; provided that any disclosure regarding this clause
(i) shall set forth (A)
48
the number of individuals currently receiving such continuing benefits or
coverage, (B) the limit on liability with respect to such coverage, (C) the
terms and conditions of such coverage, and (D) the maximum number of current
employees or independent contractors who could become eligible for such
continuing benefits or coverage; (ii) there has been no violation of Code
Section 4980B or ERISA Sections 601-609 with respect to any such plan that could
result in any material liability; (iii) no such plans are "multiple employer
welfare arrangements" within the meaning of ERISA Section 3(40); (iv) with
respect to any such plans that are self-insured, no claims have been made
pursuant to any such plan that have not yet been paid (other than claims which
have not yet been paid but are in the normal course of processing) and no
individual has incurred injury, sickness or other medical condition with respect
to which claims may be made pursuant to any such plan where the liability to the
employer could in the aggregate with respect to each such individual exceed
$50,000 per year; (v) neither WE JAC nor any of its ERISA Affiliates maintains
or has any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither WE JAC nor any of its ERISA
Affiliates maintains a nonconforming group health plan as defined at Section
5000(c) of the Code.
Section 6.16 Tax Matters.
(a) Tax Returns and Payment of Taxes. WE JAC
and each of its Subsidiaries has timely filed or will timely file all federal,
state, local, and other Tax Returns required to be filed by it under Applicable
Laws, including estimated Tax returns and reports and consolidated federal
Income Tax Returns and state, local or foreign Income Tax Returns filed on a
consolidated or combined basis, and WE JAC and each of its Subsidiaries has paid
all required Income Taxes and other Taxes (including any additions to taxes,
penalties and interest related thereto) due and payable on or before the date
hereof (and will duly and timely pay all such amounts required to be paid
between the date hereof and the Closing Date). Each of WE JAC and its
Subsidiaries has paid, withheld, or will pay any and all Taxes in respect of the
conduct of its business or the ownership of its property and in respect of any
transaction for all periods (or portions thereof) through the close of business
on the Closing Date. WE JAC and each of its Subsidiaries have collected all
sales, use and value added Taxes required to be collected, and has remitted, or
will remit on a timely basis, such amounts to the appropriate Government
Authorities and have furnished properly completed exemption certificates for all
exempt transactions.
(b) Tax Reserves. The amount of the liability
of WE JAC and of each of its Subsidiaries for unpaid Taxes for all periods
ending on or before the date of this Agreement does not, in the aggregate,
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as of the date of this Agreement, and the amount of
the liability of WE JAC and of each of its Subsidiaries for unpaid Taxes for all
periods ending on or before the Closing Date will not, in the aggregate, exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals shall be reflected on the consolidated balance
sheet of WE JAC and its Subsidiaries as of the Closing Date.
49
(c) Audits; No Deficiencies Asserted. Except as
set forth in the WE JAC Disclosure Letter, none of the Tax Returns of WE JAC or
of any of its Subsidiaries have ever been audited by any Tax Authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally), and all deficiencies asserted against WE JAC or any of
its Subsidiaries as a result of IRS examinations have been paid or finally
settled and no issue has been raised by any IRS examination that, by application
of the same principles, is likely to result in a proposed deficiency for any
other period not so examined. Except as set forth in the WE JAC Disclosure
Letter, no material deficiencies with respect to Taxes, additions to Tax,
interest, or penalties have been proposed or asserted against and communicated
to WE JAC or any of its Subsidiaries, except those that have been paid in full
and for those matters that would not result in liability being imposed against
WE JAC or any of its Subsidiaries.
(d) No Waivers of Limitations. Except as set
forth in the WE JAC Disclosure Letter, there are no agreements, waivers of
statutes of limitations, or other arrangements providing for extensions of time
in respect of the assessment or collection of any unpaid Tax against WE JAC or
any of its Subsidiaries. WE JAC and each of its Subsidiaries have disclosed on
its federal Income Tax Returns all positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code.
(e) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of WE JAC or of any of is Subsidiaries
with respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that WE JAC or one or more of its Subsidiaries are contesting in good
faith through appropriate proceedings and for which appropriate reserves have
been established on the WE JAC Financial Statements.
(f) Special Tax Elections or Benefits. Neither
WE JAC nor any of is Subsidiaries is a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code. No election or consent under Section
341(f) of the Code has been made or shall be made on or prior to the Closing
Date by or on behalf of any of WE JAC or any of its Subsidiaries.
(g) Disqualified Leasebacks. Neither WE JAC nor
any of its Subsidiaries is a party to a "disqualified leaseback or long-term
agreement" described in Section 467(b)(4) of the Code.
(h) Deferrals of Income. No income or gain of
WE JAC or any of its Subsidiaries has been deferred pursuant to Treasury
Regulation ss. 1.1502-13 or 1.1502-14, or Temporary Treasury Regulation ss.
1.1502-13T or 1.1502-14T.
(i) Tax Sharing and Similar Agreements. Except
as disclosed in the WE JAC Disclosure Letter, neither WE JAC nor any of its
Subsidiaries is a party to or bound by any Tax sharing, Tax indemnity or Tax
allocation agreement or other similar arrangement with any Person other than a
Constituent Company of the WE JAC Group.
50
(j) No Non-Deductible Compensation Payments.
Neither WE JAC nor any of its Subsidiaries has made any payments, and are not
obligated to make any payments, that would not be deductible under Section 280G
of the Code or is a party to any agreement that under certain circumstances
could obligate it to make any such payments.
Section 6.17 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
WE JAC or any of its Subsidiaries and any other real property presently or
formerly owned by, used by or leased to or by WE JAC or any of its Subsidiaries
(collectively, the "WE JAC Property"), the existing and prior uses of such WE
JAC Property and all operations of the businesses of WE JAC and of each of its
Subsidiaries comply and have at all times complied with all Environmental Laws
and neither WE JAC nor any of its Subsidiaries is in violation or has violated,
in connection with the ownership, use, maintenance or operation of such property
or the conduct of its business, any Environmental Law.
(b) WE JAC and each of its Subsidiaries have all necessary
permits, registrations, approvals and licenses required by any Governmental
Authority or Environmental Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such WE JAC Property or into the environment surrounding such WE JAC Property of
any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such WE JAC Property. No asbestos-containing materials, underground
improvements (including, but not limited to the treatment or storage tanks,
sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are or have ever been located on such WE JAC Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of WE JAC (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii).the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
(f) Neither WE JAC nor any of its Subsidiaries has ever had
the capacity to exercise control/manage and has never exercised control or
management over any matter relating to its franchisees' manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
Hazardous Material.
51
Section 6.18 Compliance With Laws. WE JAC and each of its Subsidiaries
has at all times conducted its business in material compliance with all (and has
not received any notice of any claimed violation of any) Applicable Laws.
Precision Tune has complied in all material respects with all of the rules and
regulations of the Federal Trade Commission of the United States relating to the
offer and sale of franchises.
Section 6.19 Licenses and Permits. WE JAC and each of its Subsidiaries
possess all licenses, permits, and other governmental consents, certificates,
approvals, or other authorizations (the "Permits") necessary for the operation
of their respective businesses. WE JAC and each of its Subsidiaries has complied
with the terms and conditions of all Permits in all material respects and all
such Permits are in full force and effect, and there has occurred no event nor
is any event, action, investigation or proceeding pending or, to the knowledge
of management of WE JAC, threatened, which could cause or permit revocation or
suspension of or otherwise adversely affect the maintenance of any Permits. The
transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 6.20 Insurance. WE JAC and each of its Subsidiaries has
regularly maintained all policies of commercial liability, products liability,
fire, casualty, worker's compensation, life and other forms of insurance on an
"occurrence" rather than a "claims made" basis in amounts and types required by
law and generally carried by reasonably prudent, similarly situated businesses.
Neither WE JAC nor any of its Subsidiaries is in default with respect to any
provision contained in any insurance policy, nor has WE JAC or any of its
Subsidiaries failed to give any notice or present any claim thereunder in due
and timely fashion and no cancellation, non-renewal, reduction of coverage or
arrearage in premiums has been threatened or occurred with respect to any
policy, nor is the management of WE JAC aware of any grounds therefor.
Section 6.21 Extraordinary Transactions. Except as disclosed in the WE
JAC Disclosure Letter or as otherwise permitted by this Agreement, since June
30, 1997, neither WE JAC nor any of its Subsidiaries has (i) mortgaged, pledged
or subjected to any Encumbrance any of its assets; (ii) canceled or compromised
any claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, franchisee, customer or creditor; (vi) suffered any
material destruction, loss or damage to any of its assets; (vii) made any
management decisions involving any material change in its policies with regard
to pricing, sales, purchasing or other business, financial, accounting
(including reserves and the amounts thereof) or tax policies or practices;
(viii) declared, set aside or paid any dividends on or made any distributions in
respect of any outstanding shares of capital stock or made any other
distributions or payments to any of the shareholders of WE JAC; (ix) submitted
any bid, proposal, quote or commitment to any party in response to a request for
proposal or otherwise; (x) engaged in any merger or consolidation with, or
agreed to merge or consolidate with, or purchased or agreed to purchase, all or
substantially all of the assets of, or otherwise acquire, any other party; (xi)
entered into any strategic alliance, partnership, joint venture or similar
arrangement with any other party; (xii) incurred or agreed to
52
incur any Debt or prepaid or made any prepayments in respect of Debt; (xiii)
issued or agreed to issue to any party, any shares of stock or other securities;
(xiv) redeemed, purchased or agreed to redeem or purchase any of its outstanding
shares of capital stock or other securities; (xv) increased the rate of
compensation payable or to become payable to any of its officers, directors,
employees or agents over the rate being paid to them as of June 30, 1997 or
agreed to do so otherwise than in accordance with contractual agreements with
such parties; (xvi) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses; or (xvii) charged off any
bad debts or increased its bad debt reserve except in the manner consistent with
its past practices.
Section 6.22 Title to Assets. Except as described in the WE JAC
Disclosure Letter, WE JAC and each of its Subsidiaries has good and marketable
title to its assets and properties, free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of all Encumbrances.
Section 6.23 Corporate Records. The minute books of WE JAC and each of
its Subsidiaries accurately reflect all minutes of proceedings of and actions
taken by the directors of WE JAC and its Subsidiaries, respectively, and each
committee of the Board of Directors of WE JAC or any of its Subsidiaries and all
records of meetings of and actions taken by the stockholders of WE JAC, that are
required by applicable laws to be recorded in or reflected in the corporate
records thereof.
Section 6.24 Broker and Finder Fees. WE JAC has not engaged any broker
or finder in connection with the transactions contemplated by this Agreement,
and no action by any of the foregoing will cause or support any claim to be
asserted against the Holding Company, WE JAC or any of its Subsidiaries by any
broker, finder or intermediary in connection with such transaction.
Section 6.25 Adequate Disclosure. No representation or warranty made by
WE JAC pursuant to this Agreement, or any statement contained in any Exhibit or
Schedule to this Agreement, or any certificate or document furnished or to be
furnished by WE JAC or any of its Subsidiaries pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 6.26 No Adverse Change or Conditions. Except as set forth in
the WE JAC Disclosure Letter, and except as expressly contemplated or permitted
by this Agreement, since June 30, 1997, WE JAC and each of its Subsidiaries has
conducted its business in the ordinary course and consistent with past practice,
and neither WE JAC nor any of its Subsidiaries has suffered any change that has
had a Material Adverse Effect on WE JAC and its Subsidiaries, taken as a whole.
There are no conditions, facts, developments or circumstances of an unusual or
special nature that reasonably could be expected to have a Material Adverse
Effect upon WE JAC and its Subsidiaries, taken as a whole, that have not been
disclosed in writing by WE JAC pursuant to the WE JAC Disclosure Letter.
53
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF LUBE VENTURE
----------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Lube Ventures hereby
makes the following representations and warranties to the other parties to this
Agreement and to the Holding Company:
Section 7.1 Organization and Good Standing. Lube Ventures is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 7.2 Capitalization of Lube Ventures. The authorized capital
stock of Lube Ventures consists solely of 3,000 shares of a single class of
common stock, $-0- par value, of which 100 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the capital
stock of Lube Ventures issued and outstanding as of the date hereof has been
duly authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of Lube Ventures has been
issued in violation of shareholder preemptive rights. Lube Ventures has no
issued or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time into equity
securities of Lube Ventures. Lube Ventures is not subject to any commitment or
obligation which would require the issuance or sale of shares of its capital
stock at any time under options, subscriptions, warrants, rights, calls,
preemptive rights, convertible obligations or any other fixed or contingent
obligations or which would provide the holder thereof with the right to acquire
any equity securities of Lube Ventures. Lube Ventures has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
Section 7.3 Ownership of Shares. The Lube Ventures Disclosure Letter
contains a true, complete and accurate list of all of the record and beneficial
owners of the shares of the capital stock of Lube Ventures, together the name
and address of each such holder. Except as disclosed in the Lube Ventures
Disclosure Letter, there are no existing agreements, pledges, powers of
attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Lube Ventures or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 7.4 Subsidiaries; Investments. Lube Ventures does not own any
shares of capital stock or equity securities of, or any interest in any other
Person or entity.
54
Section 7.5 Execution and Effect of Agreement Lube Ventures has the
corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Lube Ventures Merger. This
Agreement has been duly executed and delivered by Lube Ventures and constitutes
a legal, valid and binding obligation of Lube Ventures, fully enforceable
against Lube Ventures in accordance with its terms; except as enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 7.6 Restrictions. The execution and delivery of this Agreement
by Lube Ventures, the consummation of the transactions contemplated hereby by
Lube Ventures, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Lube Ventures hereunder will
not (a) violate any of the provisions of the charter or by-laws of Lube
Ventures, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Lube Ventures, or (d) except as disclosed in the Lube Ventures
Disclosure Letter, conflict with, violate any provisions of, result in a breach
of or give rise to a right of termination, modification or cancellation of,
constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Lube Ventures is a party or to which any of any of the
assets of Lube Venture are subject.
Section 7.7 Consents. Except as disclosed in the Lube Ventures
Disclosure Letter and as may be required by Applicable Laws relating to
franchising, no filing with, or consent, waiver, approval or authorization of,
or notice to, any governmental authority or any third party is required to be
made or obtained by Lube Ventures in connection with the execution and delivery
of this Agreement or any document or instrument contemplated hereby, the
consummation of any of the transactions contemplated hereby or the performance
of any of their respective obligations hereunder or thereunder.
Section 7.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of [the audited financial statements of Lube Ventures as at
December 31, 1994, 1995 and 1996, and for the year periods then ended and the
unaudited financial statements of Lube Venturess as at June 30, 1997 and for the
six month period then ended (collectively, the " Lube Ventures Financial
Statements"). All of the Lube Ventures Financial Statements have been prepared
in accordance with GAAP. All of the Lube Ventures Financial Statements have been
prepared in a manner consistent with each other and the books and records of
Lube Ventures, and fairly present in all material respects the financial
condition and results of operations of Lube Ventures at the dates and for the
periods indicated therein. The regular books of account of Lube Ventures fairly
and accurately reflect all material transactions involving Lube Ventures, are
true, correct and complete and have been prepared in accordance with GAAP and on
a basis consistent with the Financial Statements. All of the accounts receivable
of Lube Ventures reflected on the Lube Ventures Financial Statements arose from
55
bona fide, arms-length transactions in the ordinary course of business for
services performed or goods sold by Lube Ventures, and are not subject to any
counterclaim, deduction, right of set off, set off or recoupment, and will be
collectible in the ordinary course of business in the aggregate face amounts
thereof, subject to the reserves therefore set forth on the Lube Ventures
Financial Statements. All inventories reflected on the books and records of Lube
Venture and on the Lube Ventures Financial Statements are of a quality and
quantity which are good and marketable, and are saleable in the ordinary course
of business which shall result in Lube Ventures realizing gross profits on such
sales consistent with the gross profits of Lube Ventures reflected in the Lube
Venture Financial Statements. The costs of all inventories reflected thereon
have been valued in accordance with GAAP.
Section 7.9 Debt. The Lube Ventures Disclosure Letter contains a true,
complete and accurate listing of the original principal amount of all of the
Debt of Lube Ventures, the remaining principal balance thereof, the interest
rate(s) payable by Lube Ventures in respect thereof, if any, and the date(s) of
maturity thereof. Except as disclosed in the Lube Ventures Disclosure Letter,
all of the Debt of Lube Ventures may be prepaid at any time, without premium,
prepayment penalties, termination fees or other fees or charges.
Section 7.10 Guarantees. The Lube Ventures Disclosure Letter contains a
complete list of all Guarantees provided by Lube Ventures for the benefit of any
other party and of all Guarantees provided by any other party for the benefit of
Lube Ventures or any party doing business with Lube Ventures.
Section 7.11 No Undisclosed Liabilities. Lube Ventures does not have
any material liabilities or obligations of any nature whatsoever (whether known
or unknown, due or to become due, absolute, accrued, contingent or otherwise,
and whether or not determined or determinable), except for (i) liabilities or
obligations set forth in the Lube Ventures Disclosure Letter, (ii) liabilities
or obligations to the extent expressly reflected on or reserved against in the
June 30, 1997 balance sheet included among the Lube Ventures Financial
Statements or disclosed in the notes thereto, (iii) liabilities or obligations
of a type reflected on the June 30, 1997 balance sheet and incurred in the
ordinary course of business and consistent with past practices since June 30,
1997, or (iv) liabilities or obligations arising under the terms of the Material
Contracts of Lube Ventures. Except as otherwise contemplated or permitted by
this Agreement no dividends have been declared on any capital stock of Lube
Ventures which are unpaid.
Section 7.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Lube Ventures, threatened, by or before any
court, any Governmental Authority or arbitrator, against Lube Ventures that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Lube Ventures
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Lube Ventures, threatened, by or before any arbitrator, court,
or other Governmental Authority, against Lube Ventures or involving any of the
former or present employees, agents, businesses, properties, rights or assets of
Lube Venture, nor, to the knowledge
56
of management of Lube Ventures, is there any basis for the assertion of any of
the foregoing. Except as disclosed in the Lube Ventures Disclosure Letter, there
are no judgments, orders, injunctions, decrees, stipulations or awards rendered
by any court, Governmental Authority or arbitrator against Lube Ventures or any
of their respective former or present Employees, agents, properties or assets.
Section 7.13 Properties; Absence of Encumbrances. The Lube Ventures
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Lube Ventures, and, with respect to all properties leased by Lube
Venture, a description of the term of such lease and the monthly rental
thereunder. Lube Ventures is not in default (and will not be in default with the
passage of time or the receipt of notice or both) and has not received notice of
default, under any lease of real property. All real property leased to Lube
Venture is available for immediate use in the operation of its business and for
the purpose for which such property currently is being utilized. Subject in the
case of leased property to the terms and conditions of the respective leases,
Lube Ventures has full legal and practical access to all such real property.
Section 7.14 Intellectual Property. The Lube Ventures Disclosure Letter
sets forth a complete list of (i) any and all Intellectual Property owned, used
or licensed by Lube Ventures, together with the identity of the owner thereof,
and (ii) all license agreements pursuant to which any Intellectual Property is
licensed to or by Lube Ventures. Lube Ventures owns its Intellectual Property
free and clear of any and all Encumbrances, or, in the case of licensed
Intellectual Property, has valid, binding and enforceable rights to use such
Intellectual Property. Lube Ventures has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the Lube Ventures Disclosure
Letter, Lube Ventures (i) has not received any notice or claim to the effect
that the use of any Intellectual Property infringes upon, conflicts with or
misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable, and (ii) has not made any claim that any
party has violated or infringed upon its rights with respect to any Intellectual
Property.
Section 7.15 Material Contracts.
(a) List of Material Contracts. The Lube
Venture Disclosure Letter sets forth a list of all written, and a description of
all oral, commitments, agreements or contracts to which Lube Ventures is a party
or by which Lube Ventures is obligated, including, but not limited to, all
commitments, agreements or contracts embodying or evidencing the following
transactions or arrangements: (i) agreements for the employment of, or
independent contractor arrangements with, any officer or other individual
Employee of Lube Ventures; (ii) any consulting agreement, agency agreement and
any other service agreement that will continue in force after the Closing Date
with respect to the employment or retention by Lube Ventures of consultants,
agents, legal counsel, accountants or anyone else who is not an Employee; (iii)
any single contract, purchase order or commitment providing for expenditures by
Lube Ventures after the date hereof of more than $25,000 or which has been
entered into by Lube Ventures otherwise than in the ordinary course of business;
(iv) agreements between Lube Ventures and suppliers to Lube Ventures pursuant to
which Lube Ventures is obligated to purchase or to sell or distribute the
products of any other party other
57
than current purchase orders entered into in the ordinary course of business
consistent with past practices; (v) any contract containing covenants limiting
the freedom of Lube Ventures or any officer, director, or employee of Lube
Venture to engage in any line or type of business or with any person in any
geographic area; (vi) any commitment or arrangement by Lube Ventures to
participate in a strategic alliance, partnership, joint venture, limited
liability company or other cooperative undertaking with any other Person; (vii)
any commitments by Lube Ventures for capital expenditures involving more than
$25,000 individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Lube
Venture deems to be material to the business of Lube Ventures.
(b) No Breaches or Defaults. Except as
disclosed in the Lube Ventures Disclosure Letter, Lube Ventures and is in full
compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Neither Lube Ventures
nor any of Subsidiaries has waived any rights under or with respect to any of
the Material Contracts to which it is a party. The management of Lube Ventures
has no knowledge, or received any notice to the effect, that any party with whom
Lube Ventures has contractual arrangements under the Material Contracts, is in
default under any such contractual arrangements or that any event has occurred
that, with notice or lapse of time or both, would constitute such a default
thereunder. Each of the Material Contracts constitutes a legal, valid and
binding obligation of each the parties thereto and is enforceable against each
of the parties thereto in accordance with its respective terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
(c) Franchise Agreements. The Lube Ventures
Disclosure Letter contains a complete list of all of the current franchisees of
Lube Ventures to whom Lube Ventures has granted to any franchise or similar
rights with respect to the Lube Depot System (collectively, the "Lube Depot
Franchise Agreements"). Each of the Lube Depot Franchise Agreements is a legal,
valid and binding obligation of Lube Ventures and is enforceable against Lube
Ventures in accordance with its respective terms. Lube Ventures is in full
compliance with the terms of each of the Lube Depot Franchise Agreements and no
event has occurred that, with or without notice or lapse of time or both,
constitutes or will constitute a default by Lube Ventures thereunder or a breach
by Lube Ventures thereof. Except as disclosed in the Lube Ventures Disclosure
Letter, Lube Ventures has not waived any rights under or with respect to any of
the Lube Depot Franchise Agreements. Except as disclosed in the Lube Ventures
Disclosure Letter, to the knowledge of management of Lube Ventures, none of the
franchisees or licensees that are parties to any of the Lube Depot Franchise
Agreements is in default thereunder and no event has occurred that, with or
without notice or lapse of time or both, constitutes or will constitute a
default thereunder or a breach thereof by such franchisees or licensees.
Section 7.16 Employee Benefits and Employment Matters.
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(a) Plans and Arrangements. The Lube Ventures
Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which Lube Ventures or any of its
ERISA Affiliates is a party or to which Lube Ventures or any of its ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Lube Ventures or any ERISA Affiliate of Lube Ventures is a party, which
Lube Venture or any ERISA Affiliate of Lube Ventures sponsors or maintains or to
which Lube Ventures or any ERISA Affiliate of Lube Ventures contributes is
subject to the requirements of Section 302 of ERISA or Section 412 of the Code
and no liability under Title IV of ERISA (whether to the PBGC or otherwise) has
been incurred by Lube Ventures or any of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Lube Ventures Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Lube Ventures or any of its ERISA
Affiliates is a party or to which Lube Ventures or any of its ERISA Affiliates
is obligated to contribute has been operated or maintained in compliance in all
material respects with all Applicable Laws, including, without limitation, ERISA
and the Code, and has been maintained in material compliance with its terms and
in material compliance with the terms of any applicable collective bargaining
agreement. Except as disclosed in the Lube Ventures Disclosure Letter, with
respect to any Employee Benefit Plan that is intended to qualify under Section
401 of the Code, a favorable determination letter as to qualification under
Section 401 of the Code that considered the Tax Reform Act of 1986 has been
issued and any amendments required for continued qualification under Section 401
of the Code have been timely adopted and nothing has occurred subsequent to the
date of such determination letter that could adversely affect the qualified
status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Lube Ventures or any of its ERISA
Affiliates is a party or to which Lube Ventures or any of its ERISA Affiliates
is obligated to contribute, under ERISA or the Code, for all periods of time
prior to the date hereof and that are attributable to Employees of Lube Ventures
have been paid or otherwise adequately accrued against in the Lube Ventures
Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Lube Ventures Disclosure Letter, Lube Ventures is not liable
for any arrearage of wages, any accrued or vested vacation pay or any tax or
penalty for failure to comply with any Applicable Law relating to employment or
labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Lube Ventures Financial Statements, and there is
no controversy pending, threatened or in prospect between Lube Ventures and any
of their respective Employees nor is there any basis for any such controversy.
There is no unfair labor practice charge or complaint currently pending against
Lube Ventures with respect to or relating to any of their respective Employees
before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against Lube Ventures before the Equal Employment Opportunity Commission
or any state or local agency having responsibility for the prevention of
unlawful employment practices. There are no actions, suits or claims pending,
including proceedings before the IRS, the DOL or the PBGC, with respect to any
Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary
thereof, other than benefit claims arising in the normal course of operation of
such Employee Benefit Plans or Benefit Arrangements, and, to the knowledge of
the management of Lube Ventures, no Employee Benefit Plan or Benefit Arrangement
is under audit or investigation by any Governmental Authority.
59
(e) Severance Obligations. Except as disclosed
in the Lube Ventures Disclosure Letter, all current employees of Lube Ventures
may be terminated at will, without notice and without incurring any severance or
other liability or obligation to the employee in connection with the
termination. Except to the extent provided by the terms of the Employee Benefit
Plans and Benefit Arrangements disclosed in the Lube Ventures Disclosure Letter,
neither the execution, delivery or performance of this Agreement nor the
consummation of the Closing will (i) increase any benefits otherwise payable
under any Employee Benefit Plan or Benefit Arrangement, (ii) result in the
acceleration of the time of payment or vesting of any such benefits, or (iii)
give rise to an obligation with respect to the payment of any severance pay. No
"parachute payment" (within the meaning of Section 280G of the Code), "change in
control" or severance payment has been made or will be required to be made by
Lube Ventures or any ERISA Affiliate of Lube Ventures to any of its Employees in
connection with the execution, delivery or performance of this Agreement or as a
result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Lube Ventures has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Lube Ventures, is not engaged in any unfair labor practice with
respect to any of the current employees of Lube Ventures; and to the best
knowledge of Lube Ventures, none of the persons performing services for Lube
Venture or any of its ERISA Affiliates has been improperly classified as
independent contractors or as exempt from payment of wages or overtime .
(g) Collective Bargaining Agreements. Except as
disclosed in the Lube Ventures Disclosure Letter), none of the employees of Lube
Venture are subject to any collective bargaining agreement nor is Lube Ventures
required under any agreement to recognize or bargain with any labor organization
or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Lube
Venture nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Lube Ventures or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Lube Ventures ended December
31, 1996.
(j) No Unfunded Liabilities. Neither Lube
Venture nor any ERISA Affiliate of Lube Ventures has any current or projected
liability for any unfunded post-retirement medical or life insurance benefits in
connection with any Employee of Lube Ventures or ERISA Affiliate of Lube
Ventures.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or
60
contributed to by Lube Ventures or any ERISA Affiliate of Lube Ventures, which
could subject any such Employee Benefit Plan, Lube Ventures, any ERISA Affiliate
of Lube Ventures, or the Holding Company directly or indirectly (through an
indemnification agreement or otherwise), to any liability for or as a result of
a breach of fiduciary duty, a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, or a civil penalty under
Section 502 of ERISA or a Tax under Section 4971 of the Code. Neither Lube
Venture nor any of its ERISA Affiliates have incurred a "withdrawal" or "partial
withdrawal," as defined in Sections 4203 and 4205 of ERISA, from, or failed to
timely make contributions, to any Multiemployer Plan which has resulted in any
unpaid liability of Lube Ventures or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Lube Ventures Disclosure Letter, none of the Employee Benefit
Plans that are "employee welfare benefit plans" as defined in ERISA Section 3(1)
provides for continuing benefits or coverage for any participant or beneficiary
of a participant after such participant's termination of employment, except to
the extent required by law; provided that any disclosure regarding this clause
(i) shall set forth (A) the number of individuals currently receiving such
continuing benefits or coverage, (B) the limit on liability with respect to such
coverage, (C) the terms and conditions of such coverage, and (D) the maximum
number of current employees or independent contractors who could become eligible
for such continuing benefits or coverage; (ii) there has been no violation of
Code Section 4980B or ERISA Sections 601-609 with respect to any such plan that
could result in any material liability; (iii) no such plans are "multiple
employer welfare arrangements" within the meaning of ERISA Section 3(40); (iv)
with respect to any such plans that are self-insured, no claims have been made
pursuant to any such plan that have not yet been paid (other than claims which
have not yet been paid but are in the normal course of processing) and no
individual has incurred injury, sickness or other medical condition with respect
to which claims may be made pursuant to any such plan where the liability to the
employer could in the aggregate with respect to each such individual exceed
$50,000 per year; (v) Neither Lube Ventures nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any "voluntary employees'
beneficiary association" within the meaning of Code Section 501(c)(9) or other
welfare benefit fund as defined at Section 419(e) of the Code (such disclosure
to include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Lube Ventures nor any of its
ERISA Affiliates maintains a nonconforming group health plan as defined at
Section 5000(c) of the Code.
Section 7.17 Tax Matters.
(a) Affiliated Groups. Lube Ventures is not a
member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
(b) Tax Returns and Payment of Taxes. Lube
Venture has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws with respect
to all periods prior to the date hereof, including estimated Tax Returns and
reports, and has paid all required Income Taxes and other Taxes (including any
additions to taxes, penalties and interest related thereto) due and payable on
or before the date hereof. Lube
61
Ventures has paid, withheld, or accrued, or will accrue, on the Lube Ventures
Financial Statements in accordance with GAAP any and all Income Taxes and other
Taxes in respect of the conduct of its business or the ownership of its property
and in respect of any transactions for all periods (or portions thereof) through
the close of business on the Closing Date. Lube Ventures has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Lube Ventures has collected all sales, use and value added Taxes required
to be collected, and has remitted, or will remit on a timely basis, such amounts
to the appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Lube Ventures's
liability for unpaid Taxes for all periods ending on or before the date of this
Agreement does not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) as of the date of
this Agreement, and the amount of Lube Ventures 's liability for unpaid Taxes
for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Lube Ventures as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Lube Ventures have never been audited by any Tax
Authority, nor is any such audit in process, pending or threatened (either in
writing or verbally, formally or informally). Except as disclosed in the Lube
Venture Disclosure Letter, no deficiencies have been asserted (or are expected
to be asserted) against Lube Ventures as a result of IRS (or state or local Tax
Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Lube Ventures Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Lube Ventures. Lube Ventures has disclosed on its federal Income
Tax Returns all positions taken therein that could, if not so disclosed, give
rise to a substantial understatement penalty within the meaning of Section 6662
of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Lube Ventures with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that Lube
Venture is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established on the Lube Ventures Financial
Statements.
(g) Tax Elections and Special Tax Status. Lube
Venture is not a party to any safe harbor lease within the meaning of Section
168(f)(8) of the Code. No election or consent under Section 341(f) of the Code
has been made or shall be made on or prior to the Closing Date by
62
or on behalf of Lube Ventures. Lube Ventures is a "small business corporation"
which has elected to be subject to federal income taxation under Subchapter S of
the Code and has had such status for purposes of federal income taxation and
state income taxation in all states in which its income is subject to taxation
at all times since its formation.
(h) Disqualified Leasebacks. Lube Ventures is
not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Lube Ventures has been deferred pursuant to Treasury Regulation ss. 1.1502-13 or
1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Lube
Venture is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Lube Ventures has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 7.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Lube Ventures and any other real property presently or formerly owned by, used
by or leased to or by Lube Ventures (collectively, the "Lube Ventures
Property"), the existing and prior uses of such Lube Ventures Property and all
operations of the businesses of Lube Ventures comply and have at all times
complied with all Environmental Laws and Lube Ventures is not in violation of
nor has it violated, in connection with the ownership, use, maintenance or
operation of such property or the conduct of its business, any Environmental
Law.
(b) Lube Ventures has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Lube Ventures Property of
any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Lube Ventures Property. No asbestos-containing materials, underground
improvements (including, but not limited to the treatment or storage tanks,
sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or
63
other equipment which contain dielectric fluid containing PCBs at levels in
excess of fifty parts per million (50 PPM) are or have ever been located on such
Lube Ventures Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Lube Ventures (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii).the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
(f) Lube Ventures has never had the capacity to exercise
control/manage and has never exercised control or management over any matter
relating to its franchisees' manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous Material.
Section 7.19 Compliance With Laws. Lube Ventures has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws, and has registered each
of the franchises granted under the Lube Depot Franchise Agreements with each
jurisdiction in which the sale of such franchises requires such registration.
Lube Ventures has complied in all material respects with all of the rules and
regulations of the Federal Trade Commission of the United States relating to the
offer and sale of franchises.
Section 7.20 Licenses and Permits. Lube Ventures possess all licenses,
permits, and other governmental consents, certificates, approvals, or other
authorizations (the "Permits") necessary for the operation of the business of
Lube Ventures. Lube Ventures has complied with the terms and conditions of all
Permits in all material respects and all such Permits are in full force and
effect, and there has occurred no event nor is any event, action, investigation
or proceeding pending or, to the knowledge of management of Lube Ventures,
threatened, which could cause or permit revocation or suspension of or otherwise
adversely affect the maintenance of any Permits. The transactions contemplated
by this Agreement will not lead to the revocation, cancellation, termination or
suspension of any Permits.
Section 7.21 Insurance. Lube Ventures has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Lube Ventures is not in
default under any provision contained in any insurance policy maintained by Lube
Venture currently, nor has Lube Ventures failed to give any notice or present
any claim thereunder in due and timely fashion and no cancellation, non-renewal,
reduction of coverage or arrearage in premiums has been threatened or occurred
with respect to any policy, nor is the management of Lube Ventures aware of any
grounds therefor.
64
Section 7.22 Extraordinary Transactions. Except as disclosed in the
Lube Ventures Disclosure Letter or otherwise permitted by this Agreement, since
June 30, 1997, Lube Ventures has not (i) mortgaged, pledged or subjected to any
Encumbrance any of its assets; (ii) canceled or compromised any claim of or
debts owed to it; (iii) sold, licensed, leased, exchanged or transferred any of
its assets except in the ordinary course of business; (iv) entered into any
material transaction other than in the ordinary course of business; (v)
experienced any material change in the relationship or course of dealing with
any supplier, franchisee, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1997 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
Section 7.23 Title to Assets. Except as described in the Lube Ventures
Disclosure Letter, Lube Ventures has good and marketable title to its assets and
properties, free and clear of restrictions on or conditions to transfer or
assignment, and free and clear of all Encumbrances.
Section 7.24 Corporate Records. The minute books of Lube Ventures
accurately reflect all minutes of proceedings of and actions taken by the
directors of Lube Ventures, and by each committee of the Board of Directors of
Lube Ventures and all records of meetings of and actions taken by the
stockholders of Lube Ventures, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 7.25 Broker and Finder Fees. Lube Ventures has not engaged any
broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Lube Ventures by any broker,
finder or intermediary in connection with such transaction.
Section 7.26 Adequate Disclosure. No representation or warranty made by
Lube Ventures pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this
65
Agreement, or any certificate or document furnished or to be furnished by Lube
Venture pursuant to the terms of this Agreement in connection with the
transactions contemplated hereby, contains any untrue or misleading statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
Section 7.27 No Adverse Change or Conditions. Except as set forth in
the Lube Ventures Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Lube Ventures has conducted
its business in the ordinary course and consistent with past practice, and
neither Lube Ventures has not suffered any change that has had a Material
Adverse Effect on Lube Ventures. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Lube Ventures that have not been
disclosed in writing by Lube Ventures pursuant to the Lube Ventures Disclosure
Letter.
ARTICLE VIII
------------
REPRESENTATIONS AND WARRANTIES OF MIRACLE INDUSTRIES
----------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Miracle Industries
hereby makes the following representations and warranties to the other parties
to this Agreement:
Section 8.1 Organization and Good Standing.
8.1.1 Miracle Industries. Miracle Industries is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power and authority to own, operate
and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
8.1.2 Hydro-Spray. Hydro-Spray is a limited liability company
duly organized, validly existing and in good standing under the laws of the
[State of Iowa], and has full corporate power and authority to own, operate and
lease its properties, and to conduct its business as it is now being conducted,
and is qualified to transact business as a foreign limited liability company in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
8.1.3 Indy Ventures. Indy Ventures is a limited liability
company duly organized, validly existing and in good standing under the laws of
the [State of Indiana], and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign limited liability
company in each
66
jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 8.2 Capitalization of Miracle Industries.
8.2.1 Authorized Capital Stock; Outstanding Shares. The
authorized capital stock of Miracle Industries consists solely of 100,000 shares
of a single class of common stock, $-0- par value, of which 34,943 shares have
been issued and are outstanding as of the date of this Agreement. Each of the
shares of the capital stock of Miracle Industries issued and outstanding as of
the date hereof has been duly authorized and validly issued and is fully paid
and non-assessable. None of the shares of the issued and outstanding capital
stock of Miracle Industries has been issued in violation of shareholder
preemptive rights. Miracle Industries has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Miracle Industries.
8.2.2 No Obligations to Issue or Redeem Shares.
(a) Miracle Industries is not subject to any
commitment or obligation which would require the issuance or sale by Miracle
Industries of shares of its capital stock at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Miracle
Industries. Miracle Industries has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
(b) Hydro-Spray is not subject to any commitment
or obligation which would require the issuance or sale by Hydro-Spray of any
equity interest at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of Hydro-Spray. Hydro-Spray has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
(c) Indy Ventures is not subject to any
commitment or obligation which would require the issuance or sale by Indy
Ventures of any equity interest at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Hydro-Spray. Hydro-Spray has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
Section 8.3 Ownership of Shares. The Miracle Industries Disclosure
Letter contains a true, complete and accurate list of all of the record and
beneficial owners of the shares of the capital
67
stock of Miracle Industries, together the name and address of each such holder.
Except as disclosed in the Miracle Industries Disclosure Letter, there are no
existing agreements, pledges, powers of attorney, assignments or similar
agreements or arrangements either (i) restricting the transferability of any of
the shares of the capital stock of Miracle Industries or (ii) which reasonably
could be expected to prohibit or delay the consummation of the transactions
contemplated hereby.
Section 8.4 Subsidiaries; Investments. Miracle Industries owns a 90%
Membership Interest in Hydro-Spray and a 50% Membership Interest in Indy
Ventures. Xxxxxx Xxxxxx and Xxxx Xxxxxxx each own 5% Membership Interests in
Hydro-Spray. Xxxxxx X. Xxxxxxxx and Xxxxx Xxxxxx each own 25% Membership
Interests in Indy Ventures. Except for the foregoing Persons, no other Person
owns any legal or beneficial Membership Interest in either Hydro-Spray or Indy
Ventures. Miracle Industries has good, valid and marketable title, free and
clear of all Encumbrances, to its Membership Interests in Hydro-Spray and Indy
Ventures. Except for its interests in Hydro-Spray and Indy Ventures, Miracle
Industries does not own any shares of capital stock or equity securities of, or
any interest in any other Person or entity. There are no agreements, pledges,
powers of attorney, assignments or similar agreement or arrangements either (i)
restricting the transferability of the membership interests of Miracle
Industries in Hydro-Spray or Indy Ventures or (ii) relating to the membership
interests of Miracle Industries in Hydro-Spray or Indy Ventures which reasonably
could be expected to prohibit or delay any of the transactions contemplated
hereby.
Section 8.5 Execution and Effect of Agreement Miracle Industries has
the corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Miracle Industries Merger.
Subject only to the approval of its Board of Directors, this Agreement has been
duly executed and delivered by Miracle Industries and constitutes a legal, valid
and binding obligation of Miracle Industries, fully enforceable against Miracle
Industries in accordance with its terms; except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 8.6 Restrictions. The execution and delivery of this Agreement
by Miracle Industries, the consummation of the transactions contemplated hereby
by Miracle Industries, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Miracle Industries hereunder
will not (a) violate any of the provisions of the charter or by-laws of Miracle
Industries, or the operating agreement of Hydro-Spray or Indy Ventures,
respectively, (b) violate or conflict with the provisions of any Applicable
Laws, (c) result in the creation of any Encumbrance upon any of the assets,
rights or properties of Miracle Industries or Hydro-Spray or Indy Ventures, or
(d) except as disclosed in the Miracle Industries Disclosure Letter, conflict
with, violate any provisions of, result in a breach of or give rise to a right
of termination, modification or cancellation of, constitute a default of, or
accelerate the performance required by, with or without the passage of time or
the giving of notice or both, the terms of any material agreement, indenture,
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mortgage, deed of trust, security or pledge agreement, lease, contract, note,
bond, license, permit, authorization or other instrument to which Miracle
Industries or Hydro-Spray or Indy Ventures is a party or to which any of any of
the assets of Miracle Industries or Hydro-Spray or Indy Ventures are subject.
Section 8.7 Consents. Except as disclosed in the Miracle Industries
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Miracle Industries or Hydro-Spray or Indy Venture in
connection with the execution and delivery of this Agreement or any document or
instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 8.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of (i) the audited consolidated balance sheets and related
statements of income, cash flows and changes in stockholders' equity of Miracle
Industries and its Subsidiaries as at December 31, 1994, 1995 and 1996 and for
the year periods then ended and the unaudited financial statements of such
entities as at June 30, 1997 and for the six month period then ended, and (ii)
the unaudited balance sheets and related statements of income, cash flows and
changes in members' equity of each of Hydro-Spray and Indy Ventures as at
December 31, 1994, 1995 and 1996 and for the year periods then-ended to the
extent applicable (collectively, the "Miracle Industries Financial Statements").
All of the Miracle Industries Financial Statements have been prepared in
accordance with GAAP in a manner consistent with each other and the books and
records of Miracle Industries and its Subsidiaries, and fairly present in all
material respects the financial condition and results of operations of Miracle
Industries and its Subsidiaries at the dates and for the periods indicated
therein. The regular books of account of Miracle Industries and its Subsidiaries
fairly and accurately reflect all material transactions involving Miracle
Industries and its Subsidiaries, are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements. All of the accounts receivable of Hydro-Spray reflected on the books
and records of Hydro-Spray arose from bona fide, arms-length transactions in the
ordinary course of business, goods sold by Hydro-Spray and are not subject to
any counterclaim, deduction, right of set off, set off or recoupment, and will
be collectible in the ordinary course of business in the aggregate face amounts
thereof subject to the reserves set forth on the Miracle Industries Financial
Statements. All of the inventories reflected on the books and records of
Hydro-Spray are of a quality and quantity which are good and marketable, and are
saleable in the ordinary course of business at prices which will result in
Hydro-Spray realizing gross profits on such sales consistent with the gross
profits of Hydro-Spray reflected in the Miracle Industries Financial Statements.
The cost of all inventories reflected on the books and records of Hydro-Spray
have been valued in accordance with GAAP.
Section 8.9 Debt. The Miracle Industries Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Miracle Industries, Hydro-Spray and Indy Ventures, the remaining
principal balance thereof, the interest rate(s) payable in respect thereof, if
any, and the date(s) of maturity thereof. Except as disclosed in the Miracle
Industries
69
Disclosure Letter, all of the Debt of each of Miracle Industries, Hydro-Spray
and Indy Ventures may be prepaid at any time, without premium, prepayment
penalties, termination fees or other fees or charges.
Section 8.10 Guarantees. The Miracle Industries Disclosure Letter
contains a complete list of all Guarantees provided by Miracle Industries or
Hydro-Spray or Indy Ventures for the benefit of any other party and of all
Guarantees provided by any other party for the benefit of Miracle Industries or
Hydro-Spray or Indy Ventures or any party doing business with Miracle Industries
or Hydro-Spray or Indy Ventures.
Section 8.11 No Undisclosed Liabilities. Neither Miracle Industries nor
Hydro-Spray or Indy Ventures has any material liabilities or obligations of any
nature whatsoever (whether known or unknown, due or to become due, absolute,
accrued, contingent or otherwise, and whether or not determined or
determinable), except for (i) liabilities or obligations set forth in the
Miracle Industries Disclosure Letter, (ii) liabilities or obligations to the
extent expressly reflected on or reserved against in the June 30, 1997 balance
sheet included among the Miracle Industries Financial Statements or disclosed in
the notes thereto, (iii) liabilities or obligations of a type reflected on the
June 30, 1997 balance sheet and incurred in the ordinary course of business and
consistent with past practices since June 30, 1997, or (iv) liabilities or
obligations arising under the terms of the Material Contracts of Miracle
Industries. Except as otherwise contemplated or permitted by this Agreement no
dividends have been declared on any capital stock of Miracle Industries which
are unpaid.
Section 8.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Miracle Industries, threatened, by or before any
court, any Governmental Authority or arbitrator, against Miracle Industries or
Hydro-Spray or Indy Ventures that reasonably could be expected to prevent the
consummation of any of the transactions contemplated hereby. Except as disclosed
in the Miracle Industries Disclosure Letter, there is no material suit, claim,
action at law or in equity, proceeding or governmental investigation or audit
pending, or to the knowledge of management of Miracle Industries, threatened, by
or before any arbitrator, court, or other Governmental Authority, against
Miracle Industries or Hydro-Spray or Indy Ventures or involving any of the
former or present employees, agents, businesses, properties, rights or assets of
Miracle Industries or Hydro-Spray or Indy Ventures , nor, to the knowledge of
management of Miracle Industries, is there any basis for the assertion of any of
the foregoing. Except as disclosed in the Miracle Industries Disclosure Letter,
there are no judgments, orders, injunctions, decrees, stipulations or awards
rendered by any court, Governmental Authority or arbitrator against Miracle
Industries or Hydro-Spray or Indy Ventures or any of their respective former or
present Employees, agents, properties or assets.
Section 8.13 Properties; Absence of Encumbrances. The Miracle
Industries Disclosure Letter sets forth a complete list of all real property
owned by or leased to Miracle Industries , and, with respect to all properties
leased by Miracle Industries, a description of the term of such lease and the
monthly rental thereunder. Neither Miracle Industries or Hydro-Spray or Indy
Ventures nor (any
70
of its other Subsidiaries) is in default (and will not be in default with the
passage of time or the receipt of notice or both) and has not received notice of
default, under any lease of real property. All real property leased to Miracle
Industries or Hydro-Spray or Indy Ventures is available for immediate use in the
operation of its business and for the purpose for which such property currently
is being utilized. Subject in the case of leased property to the terms and
conditions of the respective leases, Miracle Industries or Hydro-Spray or Indy
Ventures has full legal and practical access to all such real property.
Section 8.14 Intellectual Property. The Miracle Industries Disclosure
Letter sets forth a complete list of (i) Intellectual Property owned, used or
licensed by Miracle Industries or Hydro-Spray or Indy Ventures, together with
the identity of the owner thereof, and (ii) all license agreements pursuant to
which any Intellectual Property is licensed to or by Miracle Industries or
Hydro-Spray or Indy Ventures. Miracle Industries and each of Hydro-Spray and
Indy Ventures own their respective Intellectual Property free and clear of any
and all Encumbrances, or, in the case of licensed Intellectual Property, has
valid, binding and enforceable rights to use such Intellectual Property. Miracle
Industries and each of Hydro-Spray and Indy Ventures have each duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the
Miracle Industries Disclosure Letter, neither Miracle Industries nor Hydro-Spray
or Indy Ventures (i) has received any notice or claim to the effect that the use
of any Intellectual Property infringes upon, conflicts with or misappropriates
the rights of any other party or that any of the Intellectual Property is not
valid or enforceable, or (ii) has made any claim that any party has violated or
infringed upon its rights with respect to any Intellectual Property.
Section 8.15 Material Contracts.
(a) List of Material Contracts. The Miracle
Industries Disclosure Letter sets forth a list of all written, and a description
of all oral, commitments, agreements or contracts to which Miracle Industries or
Hydro-Spray or Indy Ventures is a party or by which Miracle Industries or
Hydro-Spray or Indy Ventures is obligated, including, but not limited to, all
commitments, agreements or contracts embodying or evidencing the following
transactions or arrangements: (i) agreements for the employment of, or
independent contractor arrangements with, any officer or other individual
employee of Miracle Industries or Hydro-Spray or Indy Ventures; (ii) any
consulting agreement, agency agreement and any other service agreement that will
continue in force after the Closing Date with respect to the employment or
retention by Miracle Industries or Hydro-Spray or Indy Ventures of consultants,
agents, legal counsel, accountants or anyone else who is not an Employee; (iii)
any single contract, purchase order or commitment providing for expenditures by
Miracle Industries or Hydro-Spray or Indy Ventures after the date hereof of more
than $25,000 or which has been entered into by Miracle Industries or Hydro-Spray
or Indy Ventures otherwise than in the ordinary course of business; (iv)
agreements between Miracle Industries or Hydro-Spray or Indy Ventures and
suppliers to Miracle Industries or Hydro-Spray or Indy Ventures pursuant to
which either Miracle Industries or Hydro-Spray or Indy Ventures is obligated to
purchase or to sell or distribute the products of any other party other than
current purchase orders entered into in the
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ordinary course of business consistent with past practices; (v) any contract
containing covenants limiting the freedom of Miracle Industries or Hydro-Spray
or Indy Ventures or any officer, director, or employee of Miracle Industries or
Hydro-Spray or Indy Ventures to engage in any line or type of business or with
any person in any geographic area; (vi) any commitment or arrangement by Miracle
Industries or Hydro-Spray or Indy Ventures to participate in a strategic
alliance, partnership, joint venture, limited liability company or other
cooperative undertaking with any other Person; (vii) any commitments by Miracle
Industries or Hydro-Spray or Indy Ventures for capital expenditures involving
more than $25,000 individually or $50,000 in the aggregate; and (viii) any other
contract, commitment, agreement, understanding or arrangement that the
management of Miracle Industries deems to be material to the business of Miracle
Industries or Hydro-Spray or Indy Ventures.
(b) No Breaches or Defaults. Except as
disclosed in the Miracle Industries Disclosure Letter, Miracle Industries and
each of Hydro-Spray and Indy Ventures is in full compliance with each, and is
not in default under any, Material Contract to which it is a party, and no event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Neither Miracle Industries nor Hydro-Spray or Indy Ventures
has waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Miracle Industries has no knowledge, or
received any notice to the effect, that any party with whom Miracle Industries
or Hydro-Spray or Indy Ventures has contractual arrangements under the Material
Contracts, is in default under any such contractual arrangements or that any
event has occurred that, with notice or lapse of time or both, would constitute
such a default thereunder. Each of the Material Contracts constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 8.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Miracle
Industries Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is a party or to
which Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Miracle Industries, Hydro- Spray, Indy Ventures or any of their ERISA
Affiliates is a party, which Miracle Industries, Hydro- Spray, Indy Ventures or
any of their ERISA Affiliates sponsors or maintains or to which Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
contributes is subject to the requirements of Section 302 of ERISA or Section
412 of the Code and no liability under Title IV of ERISA (whether to the PBGC or
otherwise) has been incurred by Miracle Industries, Hydro-Spray, Indy Ventures
or any of their ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Miracle Industries Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Miracle Industries, Hydro-Spray,
Indy Ventures or any of their ERISA Affiliates is a party or to which Miracle
Industries,
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Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is obligated to
contribute has been operated or maintained in compliance in all material
respects with all Applicable Laws, including, without limitation, ERISA and the
Code, and has been maintained in material compliance with its terms and in
material compliance with the terms of any applicable collective bargaining
agreement. Except as disclosed in the Miracle Industries Disclosure Letter, with
respect to any Employee Benefit Plan that is intended to qualify under Section
401 of the Code, a favorable determination letter as to qualification under
Section 401 of the Code that considered the Tax Reform Act of 1986 has been
issued and any amendments required for continued qualification under Section 401
of the Code have been timely adopted and nothing has occurred subsequent to the
date of such determination letter that could adversely affect the qualified
status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Miracle Industries, Hydro-Spray,
Indy Ventures or any of their ERISA Affiliates is a party or to which Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is
obligated to contribute, under ERISA or the Code, for all periods of time prior
to the date hereof and that are attributable to Employees of Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates have been paid or
otherwise adequately accrued against in the Miracle Industries Financial
Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Miracle Industries Disclosure Letter, neither Miracle
Industries nor Hydro-Spray or Indy Ventures is liable for any arrearage of
wages, any accrued or vested vacation pay or any tax or penalty for failure to
comply with any Applicable Law relating to employment or labor above the level
accrued for or reserved against on the June 30, 1997 balance sheet included in
the Miracle Industries Financial Statements, and there is no controversy
pending, threatened or in prospect between Miracle Industries or Hydro-Spray or
Indy Ventures and any of their respective Employees nor is there any basis for
any such controversy. There is no unfair labor practice charge or complaint
currently pending against Miracle Industries or Hydro-Spray or Indy Ventures
with respect to or relating to any of their respective Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Miracle
Industries or Hydro-Spray or Indy Ventures before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of Miracle Industries, no Employee Benefit Plan or
Benefit Arrangement is under audit or investigation by any Governmental
Authority.
(e) Severance Obligations. Except as disclosed
in the Miracle Industries Disclosure Letter, all current employees of Miracle
Industries and of each of Hydro-Spray and Indy Ventures may be terminated at
will, without notice and without incurring any severance or other liability or
obligation to the employee in connection with the termination. Except to the
extent provided by the terms of the Employee Benefit Plans and Benefit
Arrangements disclosed in the Miracle Industries Disclosure Letter, neither the
execution, delivery or performance of this
73
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Miracle Industries or any ERISA Affiliate of Miracle
Industries to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Miracle Industries and each of Hydro-Spray and Indy Ventures has
complied in all material respects with all Applicable laws relating to
employment and employment practices, terms and conditions of employment, wages
and hours, and to the knowledge of the management of Miracle Industries, is not
engaged in any unfair labor practice with respect to any of the current
employees of Miracle Industries or Hydro-Spray or Indy Ventures and to the best
knowledge of Miracle Industries, none of the persons performing services for
Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
have been improperly classified as independent contractors or as exempt from
payment of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Miracle Industries Disclosure Letter), none of the employees of
Miracle Industries or Hydro-Spray or Indy Ventures are subject to any collective
bargaining agreement nor is Miracle Industries or Hydro-Spray or Indy Ventures
required under any agreement to recognize or bargain with any labor organization
or union on behalf of its employees.
(h) No Multi-Employer Plans. Nether Miracle
Industries nor Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates
has contributed to, or had the obligation to contribute to, any Multiemployer
Plan within the five-year period ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
relating to, or change in employee participation or coverage under, any Employee
Benefit Plan or Benefit Arrangement that would increase materially the expense
of maintaining such Employee Benefit Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year of Miracle
Industries ended December 31, 1996.
(j) No Unfunded Liabilities. Neither Miracle
Industries nor Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates
have any current or projected liability for any unfunded post-retirement medical
or life insurance benefits in connection with any Employee of Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates, which could subject
any such Employee Benefit Plan, Miracle Industries, Hydro-Spray, Indy Ventures
or any of their ERISA Affiliates, or the Holding Company directly or indirectly
(through an indemnification agreement or
74
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Miracle Industries nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Miracle Industries Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Miracle Industries nor
Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates maintains or has
any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Miracle Industries nor
Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates maintains a
nonconforming group health plan as defined at Section 5000(c) of the Code.
Section 8.17 Tax Matters.
(a) Tax Returns and Payment of Taxes. Miracle
Industries and each of Hydro-Spray and Indy Ventures has timely filed or will
timely file all federal, state, local, and other Tax Returns required to be
filed by it under Applicable Laws, including estimated Tax returns and reports
and consolidated federal Income Tax Returns and state, local or foreign Income
Tax Returns filed on a consolidated or combined basis, and Miracle Industries
and each of Hydro-Spray and Indy Ventures has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof (and will duly and timely
pay all such amounts required to be paid between the date hereof and the Closing
Date). Each of Miracle Industries and Hydro-Spray and Indy Ventures has paid,
withheld, or will pay any and all Taxes in respect of the conduct of its
business or the ownership of its property and in respect of any transaction for
all periods (or portions thereof) through the close of business on the Closing
75
Date. Each of Miracle Industries, Hydro-Spray and Indy Ventures has (i) withheld
and paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding requirements,
including the maintenance of required records with respect thereto, in
connection with amounts paid or owing to any Employee, creditor, independent
contractor or other third party, and (ii) collected all sales, use and value
added Taxes required to be collected, and has remitted, or will remit on a
timely basis, such amounts to the appropriate Government Authorities and have
furnished properly completed exemption certificates for all exempt transactions.
(b) Tax Reserves. The amount of the liability,
if any, of Miracle Industries and of Hydro-Spray and Indy Ventures,
respectively, for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) set forth
on the Miracle Industries Financial Statements as of the date of this Agreement,
and the amount of their respective liabilities Group 's liability for unpaid
Taxes for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the consolidated balance sheet of Miracle Industries as of the Closing Date.
(c) Audits; No Deficiencies Asserted. Except as
set forth in the Miracle Industries Disclosure Letter, none of the Tax Returns
of Miracle Industries or of Hydro-Spray or Indy Ventures have ever been audited
by any Tax Authority, nor is any such audit in process, pending or threatened
(either in writing or verbally, formally or informally), and all deficiencies
asserted against Miracle Industries or Hydro-Spray or Indy Ventures or the
Affiliated Groups as a result of IRS examinations have been paid or finally
settled and no issue has been raised by any IRS examination that, by application
of the same principles, is likely to result in a proposed deficiency for any
other period not so examined. Except as set forth in the Miracle Industries
Disclosure, no material deficiencies with respect to Taxes, additions to Tax,
interest, or penalties have been proposed or asserted against and communicated
to the Affiliated Groups, any member of the Affiliated Groups, Miracle
Industries or Hydro-Spray or Indy Ventures, except those that have been paid in
full and for those matters that would not result in liability being imposed
against Miracle Industries or Hydro-Spray or Indy Ventures.
(d) No Waivers of Limitations. Except as set
forth in the Miracle Industries Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid Tax
against the Affiliated Groups or any member of the Affiliated Groups or Miracle
Industries or Hydro-Spray or Indy Ventures. Miracle Industries has disclosed on
its federal Income Tax Returns all positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code.
(e) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Miracle Industries or of either
Hydro-Spray or Indy Ventures with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that such party is contesting in good
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faith through appropriate proceedings and for which appropriate reserves have
been established on the Miracle Industries Financial Statements.
(f) Tax Elections and Special Tax Status.
Neither Miracle Industries nor Hydro-Spray nor Indy Ventures is a party to any
safe harbor lease within the meaning of Section 168(f)(8) of the Code. No
election or consent under Section 341(f) of the Code has been made or shall be
made on or prior to the Closing Date by or on behalf of Miracle Industries nor
Hydro-Spray nor Indy Ventures.
(g) Special Tax Elections or Benefits. No
election or consent under Section 341(f) of the Code has been made or shall be
made on or prior to the Closing Date by or on behalf of any of Miracle
Industries or Hydro-Spray or Indy Ventures. No property of Miracle Industries or
Hydro-Spray or Indy Ventures is subject to a tax benefit transfer lease subject
to the provisions of former Section 168(f)(8) of the Internal Revenue Code of
1954. Miracle Industries is a "small business corporation" which has elected to
be subject to federal income taxation under subchapter S of the Code and has
such status for purposes of federal income taxation and state income taxation in
all states in which its respective income is subject to taxation or has been
subject to taxation at all times since its formation. Each of Hydro-Spray and
Indy Ventures is a "partnership" for purposes of federal income taxation and
state income taxation in all states in which its respective income is subject to
taxation and has had the status of a "partnership" for purposes of federal
income taxation and state income taxation in all states in which its respective
income is subject to taxation or has been subject to taxation at all times since
its formation.
(h) Disqualified Leasebacks. Neither Miracle
Industries nor Hydro-Spray or Indy Ventures is a party to a "disqualified
leaseback or long-term agreement" described in Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Miracle Industries or Hydro-Spray or Indy Ventures has been deferred pursuant to
Treasury Regulation ss. 1.1502-13 or 1.1502-14, or Temporary Treasury Regulation
ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Agreements. Except
as disclosed in the Miracle Industries Disclosure Letter, neither Miracle
Industries nor Hydro-Spray or Indy Ventures is a party to or bound by any Tax
sharing, Tax indemnity or Tax allocation agreement or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Neither Miracle Industries nor Hydro-Spray or Indy Ventures has made any
payments, nor is obligated to make any payments, that would not be deductible
under Section 280G of the Code, or a party to any agreement that under certain
circumstances could obligate it to make any payments.
Section 8.18 Environmental Matters
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(a) The facilities presently or formerly occupied or used by
each of Miracle Industries, Hydro-Spray or Indy Ventures and any other real
property presently or formerly owned by, used by or leased to or by Miracle
Industries, Hydro-Spray or Indy Ventures (collectively, the "Miracle Industries
Property"), the existing and prior uses of such Property and all operations of
the businesses of Miracle Industries, Hydro-Spray or Indy Ventures comply and
have at all times complied with all Environmental Laws and neither Miracle
Industries, Hydro-Spray nor Indy Ventures is in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Each of Miracle Industries, Hydro-Spray and Indy Ventures
has all necessary permits, registrations, approvals and licenses required by any
Governmental Authority or Environmental Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Miracle Industries
Property of any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Miracle Industries Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Miracle Industries Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Miracle Industries, Hydro-Spray or Indy Ventures (or
any predecessor in interest) in connection with (i) any actual or alleged
failure to comply with any requirement of any Environmental Law; (ii) the
ownership, use, maintenance or operation of the Property by any person; (iii)
the alleged violation of any Environmental Law; or (iv) the suspected presence
of any Hazardous Material thereon.
Section 8.19 Compliance With Laws. Miracle Industries and each of
Hydro-Spray and Indy Ventures has at all times conducted its business in
material compliance with all (and has not received any notice of any claimed
violation of any) Applicable Laws.
Section 8.20 Licenses and Permits. Miracle Industries and each of
Hydro-Spray and Indy Ventures possess all licenses, permits, and other
governmental consents, certificates, approvals, or other authorizations (the
"Permits") necessary for the operation of their respective businesses. Miracle
Industries and each of Hydro-Spray and Indy Ventures has complied with the terms
and conditions of all Permits in all material respects and all such Permits are
in full force and effect, and there has occurred no event nor is any event,
action, investigation or proceeding pending or, to the
78
knowledge of management of Miracle Industries, threatened, which could cause or
permit revocation or suspension of or otherwise adversely affect the maintenance
of any Permits. The transactions contemplated by this Agreement will not lead to
the revocation, cancellation, termination or suspension of any Permits.
Section 8.21 Insurance. Miracle Industries and each of Hydro-Spray and
Indy Ventures has regularly maintained all policies of commercial liability,
products liability, fire, casualty, worker's compensation, life and other forms
of insurance on an "occurrence" rather than a "claims made" basis in amounts and
types required by law and generally carried by reasonably prudent, similarly
situated businesses. Neither Miracle Industries nor Hydro-Spray or Indy Ventures
is in default with respect to any provision contained in any insurance policy,
nor has Miracle Industries or Hydro-Spray or Indy Ventures failed to give any
notice or present any claim thereunder in due and timely fashion and no
cancellation, non-renewal, reduction of coverage or arrearage in premiums has
been threatened or occurred with respect to any policy, nor is the management of
Miracle Industries aware of any grounds therefor.
Section 8.22 Extraordinary Transactions. Except as disclosed in the
Miracle Industries Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, neither Miracle Industries nor Hydro-Spray or Indy Ventures
has (i) mortgaged, pledged or subjected to any Encumbrance any of its assets;
(ii) canceled or compromised any claim of or debts owed to it; (iii) sold,
licensed, leased, exchanged or transferred any of its assets except in the
ordinary course of business; (iv) entered into any material transaction other
than in the ordinary course of business; (v) experienced any material change in
the relationship or course of dealing with any supplier, customer or creditor;
(vi) suffered any material destruction, loss or damage to any of its assets;
(vii) made any management decisions involving any material change in its
policies with regard to pricing, sales, purchasing or other business, financial,
accounting (including reserves and the amounts thereof) or tax policies or
practices; (viii) declared, set aside or paid any dividends on or made any
distributions in respect of any outstanding shares of capital stock or made any
other distributions or payments to any of the Selling Stockholders; (ix)
submitted any bid, proposal, quote or commitment to any party in response to a
request for proposal or otherwise; (x) engaged in any merger or consolidation
with, or agreed to merge or consolidate with, or purchased or agreed to
purchase, all or substantially all of the assets of, or otherwise acquire, any
other party; (xi) entered into any strategic alliance, partnership, joint
venture or similar arrangement with any other party; (xii) incurred or agreed to
incur any Debt or prepaid or made any prepayments in respect of Debt; (xiii)
issued or agreed to issue to any party, any shares of stock or other securities;
(xiv) redeemed, purchased or agreed to redeem or purchase any of its outstanding
shares of capital stock or other securities; (xv) increased the rate of
compensation payable or to become payable to any of its officers, directors,
employees or agents over the rate being paid to them as of June 30, 1996 or
agreed to do so otherwise than in accordance with contractual agreements with
such parties; (xvi) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses; or (xvii) charged off any
bad debts or increased its bad debt reserve except in the manner consistent with
its past practices.
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Section 8.23 Title to Assets. Except as described in the Miracle
Industries Disclosure Letter, Miracle Industries and each of Hydro-Spray and
Indy Ventures has good and marketable title to its respective assets and
properties, free and clear of restrictions on or conditions to transfer or
assignment, and free and clear of all Encumbrances.
Section 8.24 Corporate Records. The minute books of Miracle Industries
accurately reflect all minutes of proceedings of and actions taken by the
directors of Miracle Industries and each committee of the Board of Directors of
Miracle Industries, and all records of meetings of and actions taken by the
stockholders of Miracle Industries, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 8.25 Broker and Finder Fees. Miracle Industries has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by Miracle Industries will cause or support any claim
to be asserted against the Holding Company, Miracle Industries or any of its
Subsidiaries by any broker, finder or intermediary in connection with such
transaction.
Section 8.26 Adequate Disclosure. No representation or warranty made by
Miracle Industries pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this Agreement, or any certificate or document furnished
or to be furnished by Miracle Industries or any of its Subsidiaries pursuant to
the terms of this Agreement in connection with the transactions contemplated
hereby, contains any untrue or misleading statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein not misleading.
Section 8.27 No Adverse Change or Conditions. Except as set forth in
the Miracle Industries Disclosure Letter, and except as expressly permitted or
contemplated by this Agreement, since June 30, 1997, Miracle Industries and each
of Hydro-Spray and Indy Ventures has conducted its business in the ordinary
course and consistent with past practice, and neither Miracle Industries nor
Hydro-Spray or Indy Ventures has suffered any change that has had a Material
Adverse Effect. There are no conditions, facts, developments or circumstances of
an unusual or special nature that reasonably could be expected to have a
Material Adverse Effect upon Miracle Industries or Hydro-Spray or Indy Ventures
that have not been disclosed in writing by Miracle Industries pursuant to the
Miracle Industries Disclosure Letter.
ARTICLE IX
----------
REPRESENTATIONS AND WARRANTIES OF ROCKY MOUNTAIN I
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Rocky Mountain I
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company:
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Section 9.1 Organization and Good Standing. Rocky Mountain I is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 9.2 Capitalization of Rocky Mountain I. The authorized capital
stock of Rocky Mountain I consists solely of 6,000 shares of a single class of
common stock, $100.00 par value, of which 5,197.5 shares have been issued and
are outstanding as of the date of this Agreement. Each of the shares of the
capital stock of Rocky Mountain I issued and outstanding as of the date hereof
has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital stock
of Rocky Mountain I has been issued in violation of shareholder preemptive
rights. Rocky Mountain I has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of Rocky Mountain I. Rocky Mountain I is not
subject to any commitment or obligation which would require the issuance or sale
of shares of its capital stock at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Rocky Mountain I. Rocky Mountain I
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
Section 9.3 Ownership of Shares. The Rocky Mountain I Disclosure Letter
contains a true, complete and accurate list of each of the record and beneficial
owners of the shares of the capital stock of Rocky Mountain I, together with the
name and address of each such holder. There are no agreements, pledges, powers
of attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Rocky Mountain I or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 9.4 Subsidiaries; Investments. Rocky Mountain I does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 9.5 Execution and Effect of Agreement Rocky Mountain I has the
corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Rocky Mountain I Merger. Subject
only to the approval of its Board of Directors, this Agreement has been duly
executed and delivered by Rocky Mountain I and constitutes a legal, valid and
binding obligation of Rocky Mountain I, fully enforceable against Rocky Mountain
I in accordance with its terms; except as enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
81
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 9.6 Restrictions. The execution and delivery of this Agreement
by Rocky Mountain I, the consummation of the transactions contemplated hereby by
Rocky Mountain I, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Rocky Mountain I hereunder
will not (a) violate any of the provisions of the charter or by-laws of Rocky
Mountain I, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Rocky Mountain I, or (d) except as disclosed in the Rocky Mountain
I Disclosure Letter, conflict with, violate any provisions of, result in a
breach of or give rise to a right of termination, modification or cancellation
of, constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Rocky Mountain I is a party or to which any of any of the
assets of Rocky Mountain I are subject.
Section 9.7 Consents. Except as disclosed in the Rocky Mountain I
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any Governmental Authority or any third party is required to
be made or obtained by Rocky Mountain I in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of any of their respective obligations hereunder or thereunder.
Section 9.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Rocky Mountain I as at
December 31, 1994, 1995 and 1996 and for the year periods then-ended and the
unaudited financial statements of Rocky Mountain I as at June 30, 1997 and for
the six month period then ended (collectively, the " Rocky Mountain I Financial
Statements"). All of the Rocky Mountain I Financial Statements have been
prepared in accordance with an accrual method of accounting consistently
applied, in a manner consistent with each other and the books and records of
Rocky Mountain I, and fairly present in all material respects the financial
condition and results of operations of Rocky Mountain I at the dates and for the
periods indicated therein. The regular books of account of Rocky Mountain I
fairly and accurately reflect all material transactions involving Rocky Mountain
I, are true, correct and complete and have been prepared in accordance with an
actual method of accounting, consistently applied, and on a basis consistent
with the Financial Statements.
Section 9.9 Debt. The Rocky Mountain I Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the outstanding Debt of Rocky Mountain I, the remaining principal balance
thereof, the interest rate(s) payable by Rocky Mountain I in respect thereof, if
any, and the date(s) of maturity thereof. Except as disclosed in the Rocky
Mountain I
82
Disclosure Letter, all of the Debt of Rocky Mountain I may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 9.10 Guarantees. The Rocky Mountain I Disclosure Letter
contains a complete list of all Guarantees provided by Rocky Mountain I for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Rocky Mountain I or any party doing business with Rocky Mountain
I.
Section 9.11 No Undisclosed Liabilities. Rocky Mountain I does not have
any material liabilities or obligations of any nature whatsoever (whether known
or unknown, due or to become due, absolute, accrued, contingent or otherwise,
and whether or not determined or determinable), except for (i) liabilities or
obligations set forth in the Rocky Mountain I Disclosure Letter, (ii)
liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Rocky Mountain I
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Rocky Mountain I. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Rocky Mountain I which are unpaid.
Section 9.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Rocky Mountain I, threatened, by or before any
court, any Governmental Authority or arbitrator, against Rocky Mountain I that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Rocky Mountain I
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Rocky Mountain I, threatened, by or before any arbitrator,
court, or other Governmental Authority, against Rocky Mountain I or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of Rocky Mountain I , nor, to the knowledge of management of Rocky
Mountain I, is there any basis for the assertion of any of the foregoing. Except
as disclosed in the Rocky Mountain I Disclosure Letter, there are no judgments,
orders, injunctions, decrees, stipulations or awards rendered by any court,
Governmental Authority or arbitrator against Rocky Mountain I or any of their
respective former or present Employees, agents, properties or assets.
Section 9.13 Properties; Absence of Encumbrances. The Rocky Mountain I
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Rocky Mountain I , and, with respect to all properties leased by Rocky
Mountain I, a description of the term of such lease and the monthly rental
thereunder. Rocky Mountain I is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Rocky Mountain I is available for immediate use in the operation of its business
and for the purpose for which such property currently is being
83
utilized. Subject in the case of leased property to the terms and conditions of
the respective leases, Rocky Mountain I has full legal and practical access to
all such real property.
Section 9.14 Intellectual Property. The Rocky Mountain I Disclosure
Letter sets forth a complete list of (i) all Intellectual Property owned, used
or licensed by Rocky Mountain I , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Rocky Mountain I. Rocky Mountain I owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Rocky Mountain I has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the Rocky
Mountain I Disclosure Letter, Rocky Mountain I (i) has not received any notice
or claim to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, and (ii) has not made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
Section 9.15 Material Contracts.
(a) List of Material Contracts. The Rocky
Mountain I Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Rocky
Mountain I is a party or by which Rocky Mountain I is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Rocky Mountain I; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Rocky Mountain I of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Rocky Mountain I after the date hereof of more than $25,000 or
which has been entered into by Rocky Mountain I otherwise than in the ordinary
course of business; (iv) agreements between Rocky Mountain I and suppliers to
Rocky Mountain I pursuant to which Rocky Mountain I is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Rocky Mountain I or any officer, director, or employee of Rocky Mountain I to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Rocky Mountain I to participate in a
strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Rocky Mountain I for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Rocky
Mountain I deems to be material to the business of Rocky Mountain I.
84
(b) No Breaches or Defaults. Except as
disclosed in the Rocky Mountain I Disclosure Letter, Rocky Mountain I is in full
compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Rocky Mountain I has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Rocky Mountain I has no knowledge, or
received any notice to the effect, that any party with whom Rocky Mountain I has
contractual arrangements under the Material Contracts, is in default under any
such contractual arrangements or that any event has occurred that, with notice
or lapse of time or both, would constitute such a default thereunder. Each of
the Material Contracts to which Rocky Mountain I is a party constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 9.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Rocky Mountain
I Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which Rocky Mountain I or any of
its ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain I is a party,
which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain I sponsors or
maintains or to which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain
I contributes is subject to the requirements of Section 302 of ERISA or Section
412 of the Code and no liability under Title IV of ERISA (whether to the PBGC or
otherwise) has been incurred by Rocky Mountain I or any of its ERISA
Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Rocky Mountain I Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Rocky Mountain I or any of its
ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Rocky Mountain I
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Rocky Mountain I of any of its
ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
85
Rocky Mountain I have been paid or otherwise adequately accrued against in the
Rocky Mountain I Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Rocky Mountain I Disclosure Letter, Rocky Mountain I is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Rocky Mountain I Financial Statements, and there
is no controversy pending, threatened or in prospect between Rocky Mountain I
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against Rocky
Mountain I with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Rocky
Mountain I before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in the normal course of operation of such Employee
Benefit Plans or Benefit Arrangements, and, to the knowledge of the management
of Rocky Mountain I, no Employee Benefit Plan or Benefit Arrangement is under
audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Rocky Mountain I Disclosure Letter, all current employees of Rocky
Mountain I may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Rocky Mountain I
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Rocky Mountain I or any ERISA Affiliate of Rocky Mountain
I to any Employee in connection with the execution, delivery or performance of
this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Rocky Mountain I has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Rocky Mountain I, is not engaged in any unfair labor practice with
respect to any of the current employees of Rocky Mountain I and to the best
knowledge of Rocky Mountain I, none of the persons performing services for Rocky
Mountain I or any of its ERISA Affiliates have been improperly classified as
independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Rocky Mountain I Disclosure Letter), none of the employees of
Rocky Mountain I are subject to any
86
collective bargaining agreement nor is Rocky Mountain I required under any
agreement to recognize or bargain with any labor organization or union on behalf
of its employees.
(h) No Multi-Employer Plans. Neither Rocky
Mountain I nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Rocky Mountain I or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Rocky Mountain I ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Rocky
Mountain I nor any ERISA Affiliate of Rocky Mountain I has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Rocky Mountain I or ERISA Affiliate
of Rocky Mountain I.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Rocky Mountain I or any
ERISA Affiliate of Rocky Mountain I, which could subject any such Employee
Benefit Plan, Rocky Mountain I, any ERISA Affiliate of Rocky Mountain I, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Rocky Mountain I nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Rocky
Mountain I or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Rocky Mountain I Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant
87
to any such plan that have not yet been paid (other than claims which have not
yet been paid but are in the normal course of processing) and no individual has
incurred injury, sickness or other medical condition with respect to which
claims may be made pursuant to any such plan where the liability to the employer
could in the aggregate with respect to each such individual exceed $50,000 per
year; (v) neither Rocky Mountain I nor any of its ERISA Affiliates maintains or
has any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Rocky Mountain I nor any of its
ERISA Affiliates maintains a nonconforming group health plan as defined at
Section 5000(c) of the Code.
Section 9.17 Tax Matters.
(a) Affiliated Groups. Rocky Mountain I is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1504(a) of the Code.
(b) Tax Returns and Payment of Taxes. Rocky
Mountain I has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Rocky Mountain I has
paid, withheld, or accrued, or will accrue, on the Rocky Mountain I Financial
Statements in accordance with an accrual method of accounting consistently
applied any and all Income Taxes and other Taxes in respect of the conduct of
its business or the ownership of its property and in respect of any transactions
for all periods (or portions thereof) through the close of business on the
Closing Date. Rocky Mountain I has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including the maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
Employee, creditor, independent contractor or other third party. Rocky Mountain
I has collected all sales, use and value added Taxes required to be collected,
and has remitted, or will remit on a timely basis, such amounts to the
appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Rocky Mountain
I's liability for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Rocky Mountain I's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Rocky Mountain I as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Rocky Mountain I have never been audited by any Tax
Authority, nor is any such audit in
88
process, pending or threatened (either in writing or verbally, formally or
informally). Except as disclosed in the Rocky Mountain I Disclosure Letter, no
deficiencies have been asserted (or are expected to be asserted) against Rocky
Mountain I as a result of IRS (or state or local Tax Authority) examinations and
no issue has been raised by any IRS (or state or local Tax Authority)
examination that, by application of the same principles, might result in a
proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Rocky Mountain I Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Rocky Mountain I . Rocky Mountain I has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Rocky Mountain I with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Rocky Mountain I is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Rocky Mountain I
Financial Statements.
(g) Tax Elections and Special Tax Status. Rocky
Mountain I is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. No election or consent under Section 341(f) of
the Code has been made or shall be made on or prior to the Closing Date by or on
behalf of Rocky Mountain I. Rocky Mountain I is a "small business corporation"
which has elected to be subject to federal income taxation under subchapter S of
the Code and has such status for purposes of federal income taxation and state
income taxation in all states in which its respective income is subject to
taxation or has been subject to taxation at all times since its formation.
(h) Disqualified Leasebacks. Rocky Mountain I
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Rocky Mountain I has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Rocky
Mountain II is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Rocky Mountain I has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
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Section 9.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Rocky Mountain I and any other real property presently or formerly owned by,
used by or leased to or by Rocky Mountain I (collectively, the "Rocky Mountain I
Property"), the existing and prior uses of such Property and all operations of
the businesses of Rocky Mountain I comply and have at all times complied with
all Environmental Laws and Rocky Mountain I is not in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Rocky Mountain I has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) Except as disclosed in the Rocky Mountain I Disclosure
Letter, there has been no spill, discharge, leak, emission, injection, disposal,
escape, dumping or release of any kind on, beneath or above such Property or
into the environment surrounding such Rocky Mountain I Property of any Hazardous
Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Rocky Mountain I Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Rocky Mountain I Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Rocky Mountain I (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 9.19 Compliance With Laws. Rocky Mountain I has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 9.20 Licenses and Permits. Rocky Mountain I possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Rocky Mountain I. Rocky Mountain I has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding
90
pending or, to the knowledge of management of Rocky Mountain I, threatened,
which could cause or permit revocation or suspension of or otherwise adversely
affect the maintenance of any Permits. The transactions contemplated by this
Agreement will not lead to the revocation, cancellation, termination or
suspension of any Permits.
Section 9.21 Insurance. Rocky Mountain I has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Rocky Mountain I is not in
default under any provision contained in any insurance policy maintained by
Rocky Mountain I currently, nor has Rocky Mountain I failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Rocky Mountain
I aware of any grounds therefor.
Section 9.22 Extraordinary Transactions. Except as disclosed in the
Rocky Mountain I Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Rocky Mountain I has not (I) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
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Section 9.23 Title to Assets. Except as described in the Rocky Mountain
I Disclosure Letter, Rocky Mountain I has good and marketable title to its
assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 9.24 Corporate Records. The minute books of Rocky Mountain I
accurately reflect all minutes of proceedings of and actions taken by the
directors of Rocky Mountain I, and by each committee of the Board of Directors
of Rocky Mountain I, and all records of meetings of and actions taken by the
stockholders of Rocky Mountain I, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 9.25 Broker and Finder Fees. Rocky Mountain I has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Rocky Mountain I by any broker,
finder or intermediary in connection with such transaction.
Section 9.26 Adequate Disclosure. No representation or warranty made by
Rocky Mountain I pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this Agreement, or any certificate or document furnished
or to be furnished by Rocky Mountain I pursuant to the terms of this Agreement
in connection with the transactions contemplated hereby, contains any untrue or
misleading statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not misleading.
Section 9.27 No Adverse Change or Conditions. Except as set forth in
the Rocky Mountain I Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Rocky Mountain I and has
conducted its business in the ordinary course and consistent with past practice,
and Rocky Mountain I has not suffered any change that has had a Material Adverse
Effect on Rocky Mountain I. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Rocky Mountain I that have not been
disclosed in writing by Rocky Mountain I pursuant to the Rocky Mountain I
Disclosure Letter.
ARTICLE X
---------
REPRESENTATIONS AND WARRANTIES OF ROCKY MOUNTAIN II
---------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Rocky Mountain II
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company.
Section 10.1 Organization and Good Standing. Rocky Mountain II is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, has full corporate power and authority to own, operate
and lease its properties, and to conduct its business
92
as it is now being conducted, and is qualified to transact business as a foreign
corporation in each jurisdiction in which the operation of its business or the
ownership of its properties requires such qualification.
Section 10.2 Capitalization of Rocky Mountain II. The authorized
capital stock of Rocky Mountain II consists solely of 500,000 shares of a single
class of common stock, $1.00 par value, of which 14,538.88 shares have been
issued and are outstanding as of the date of this Agreement. Each of the shares
of the capital stock of Rocky Mountain II issued and outstanding as of the date
hereof has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital stock
of Rocky Mountain II has been issued in violation of shareholder preemptive
rights. Rocky Mountain II has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of Rocky Mountain II. Rocky Mountain II is
not subject to any commitment or obligation which would require the issuance or
sale of shares of its capital stock at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Rocky Mountain II except as
provided in the Disclosure Letter dated of even date with this Agreement
submitted by Rocky Mountain II to each of the parties. Rocky Mountain II has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
Section 10.3 Ownership of Shares. The Rocky Mountain II Disclosure
Letter contains a true, complete and accurate list of each of the record and
beneficial owners of the shares of the capital stock of Rocky Mountain II,
together with the name and address of each such holder. There are no agreements,
pledges, powers of attorney, assignments or similar agreements or arrangements
either (I) restricting the transferability of any of the shares of the capital
stock of Rocky Mountain II or (ii) which reasonably could be expected to
prohibit or delay the consummation of the transactions contemplated hereby.
Section 10.4 Subsidiaries; Investments. Rocky Mountain II does not
own any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 10.5 Execution and Effect of Agreement Rocky Mountain II has
the corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Rocky Mountain II Merger. Subject
only to the approval of its Board of Directors, this Agreement has been duly
executed and delivered by Rocky Mountain II and constitutes a legal, valid and
binding obligation of Rocky Mountain II, fully enforceable against Rocky
Mountain II in accordance with its terms; except as enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
93
Section 10.6 Restrictions. The execution and delivery of this Agreement
by Rocky Mountain II, the consummation of the transactions contemplated hereby
by Rocky Mountain II, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Rocky Mountain II hereunder
will not (a) violate any of the provisions of the charter or by-laws of Rocky
Mountain II, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Rocky Mountain II, or (d) except as disclosed in the Rocky
Mountain II Disclosure Letter, conflict with, violate any provisions of, result
in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which Rocky Mountain II is a party or to which any of any of
the assets of Rocky Mountain II are subject.
Section 10.7 Consents. Except as disclosed in the Rocky Mountain II
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Rocky Mountain II in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of any of their respective obligations hereunder or thereunder.
Section 10.8 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Rocky Mountain II as
at December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Rocky Mountain II as at June 30, 1997 and for
the six month period then ended (collectively, the " Rocky Mountain II Financial
Statements"). All of the Rocky Mountain II Financial Statements have been
prepared in accordance with an accrual method of accounting, consistently
applied, in a manner consistent with each other and the books and records of
Rocky Mountain II, and fairly present in all material respects the financial
condition and results of operations of Rocky Mountain II at the dates and for
the periods indicated therein. The regular books of account of Rocky Mountain II
fairly and accurately reflect all material transactions involving Rocky Mountain
II , are true, correct and complete and have been prepared in accordance with an
accrual method of accounting, consistently applied, and on a basis consistent
with the Financial Statements.
Section 10.9 Debt. The Rocky Mountain II Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the outstanding Debt of Rocky Mountain II, the remaining principal balance
thereof, the interest rate(s) payable by Rocky Mountain II in respect thereof,
if any, and the date(s) of maturity thereof. Except as disclosed in the Rocky
Mountain II Disclosure Letter, all of the Debt of Rocky Mountain II may be
prepaid at any time, without premium, prepayment penalties, termination fees or
other fees or charges.
94
Section 10.10 Guarantees. The Rocky Mountain II Disclosure Letter
contains a complete list of all Guarantees provided by Rocky Mountain II for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Rocky Mountain II or any party doing business with Rocky Mountain
II.
Section 10.11 No Undisclosed Liabilities. Rocky Mountain II does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (I)
liabilities or obligations set forth in the Rocky Mountain II Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Rocky Mountain II
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Rocky Mountain II. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Rocky Mountain II which are unpaid.
Section 10.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Rocky Mountain II, threatened, by or before any
court, any Governmental Authority or arbitrator, against Rocky Mountain II that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Rocky Mountain II
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Rocky Mountain II, threatened, by or before any arbitrator,
court, or other Governmental Authority, against Rocky Mountain II or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of Rocky Mountain II , nor, to the knowledge of management of Rocky
Mountain II, is there any basis for the assertion of any of the foregoing.
Except as disclosed in the Rocky Mountain II Disclosure Letter, there are no
judgments, orders, injunctions, decrees, stipulations or awards rendered by any
court, Governmental Authority or arbitrator against Rocky Mountain II or any of
their respective former or present Employees, agents, properties or assets.
Section 10.13 Properties; Absence of Encumbrances. The Rocky Mountain
II Disclosure Letter sets forth a complete list of all real property owned by or
leased to Rocky Mountain II , and, with respect to all properties leased by
Rocky Mountain II, a description of the term of such lease and the monthly
rental thereunder. Rocky Mountain II is not in default (and will not be in
default with the passage of time or the receipt of notice or both) and has not
received notice of default, under any lease of real property. All real property
leased to Rocky Mountain II is available for immediate use in the operation of
its business and for the purpose for which such property currently is being
utilized. Subject in the case of leased property to the terms and conditions of
the respective leases, Rocky Mountain II has full legal and practical access to
all such real property.
95
Section 10.14 Intellectual Property. The Rocky Mountain II
Disclosure Letter sets forth a complete list of (I) all Intellectual Property
owned, used or licensed by Rocky Mountain II , together with the identity of the
owner thereof, and (ii) all license agreements pursuant to which any
Intellectual Property is licensed to or by Rocky Mountain II. Rocky Mountain II
owns its Intellectual Property free and clear of any and all Encumbrances, or,
in the case of licensed Intellectual Property, has valid, binding and
enforceable rights to use such Intellectual Property. Rocky Mountain II has duly
and timely filed all renewals, continuations and other filings necessary to
maintain its Intellectual Property or registrations thereof. Except as disclosed
in the Rocky Mountain II Disclosure Letter, Rocky Mountain II (I) has not
received any notice or claim to the effect that the use of any Intellectual
Property infringes upon, conflicts with or misappropriates the rights of any
other party or that any of the Intellectual Property is not valid or
enforceable, and (ii) has not made any claim that any party has violated or
infringed upon its rights with respect to any Intellectual Property.
Section 10.15 Material Contracts.
(a) List of Material Contracts. The Rocky
Mountain II Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Rocky
Mountain II is a party or by which Rocky Mountain II is obligated, including,
but not limited to, all commitments, agreements or contracts embodying or
evidencing the following transactions or arrangements: (i) agreements for the
employment of, or independent contractor arrangements with, any officer or other
individual employee of Rocky Mountain II; (ii) any consulting agreement, agency
agreement and any other service agreement that will continue in force after the
Closing Date with respect to the employment or retention by Rocky Mountain II of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Rocky Mountain II after the date hereof of more than $25,000 or
which has been entered into by Rocky Mountain II otherwise than in the ordinary
course of business; (iv) agreements between Rocky Mountain II and suppliers to
Rocky Mountain II pursuant to which Rocky Mountain II is obligated to purchase
or to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Rocky Mountain II or any officer, director, or employee of Rocky Mountain II to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Rocky Mountain II to participate in
a strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Rocky Mountain II for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Rocky
Mountain II deems to be material to the business of Rocky Mountain II .
(b) No Breaches or Defaults. Except as
disclosed in the Rocky Mountain II Disclosure Letter, Rocky Mountain II and is
in full compliance with each, and is not in default under any, Material Contract
to which it is a party, and no event has occurred that, with notice or
96
lapse of time or both, would constitute such a default thereunder. Rocky
Mountain II has not waived any rights under or with respect to any of the
Material Contracts to which it is a party. The management of Rocky Mountain II
has no knowledge, or received any notice to the effect, that any party with whom
Rocky Mountain II has contractual arrangements under its Material Contracts, is
in default under any such contractual arrangements or that any event has
occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which Rocky Mountain II is
a party constitutes a legal, valid and binding obligation of each the parties
thereto and is enforceable against each of the parties thereto in accordance
with its respective terms; except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 10.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Rocky Mountain
II Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Rocky Mountain II
or any of its ERISA Affiliates is a party or to which Rocky Mountain II or any
of its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Rocky Mountain II or any ERISA Affiliate of Rocky Mountain II is
a party, which Rocky Mountain II or any ERISA Affiliate of Rocky Mountain II
sponsors or maintains or to which Rocky Mountain II or any ERISA Affiliate of
Rocky Mountain II contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Rocky Mountain II or any
of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Rocky Mountain II Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Rocky Mountain II or any of its
ERISA Affiliates is a party or to which Rocky Mountain II or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Rocky Mountain II
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Rocky Mountain II or any of its
ERISA Affiliates is a party or to which Rocky Mountain II or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of Rocky
Mountain II have been paid or otherwise adequately accrued against in the Rocky
Mountain II Financial Statements, as the case may be.
97
(d) Arrearages and Employment Disputes. Except
as disclosed in the Rocky Mountain II Disclosure Letter, Rocky Mountain II is
not liable for any arrearage of wages, any accrued or vested vacation pay or any
tax or penalty for failure to comply with any Applicable Law relating to
employment or labor above the level accrued for or reserved against on the June
30, 1997 balance sheet included in the Rocky Mountain II Financial Statements,
and there is no controversy pending, threatened or in prospect between Rocky
Mountain II and any of its Employees nor is there any basis for any such
controversy. There is no unfair labor practice charge or complaint currently
pending against Rocky Mountain II with respect to or relating to any of its
Employees before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against Rocky Mountain II before the Equal Employment Opportunity
Commission or any state or local agency having responsibility for the prevention
of unlawful employment practices. There are no actions, suits or claims pending,
including proceedings before the IRS, the DOL or the PBGC, with respect to any
Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary
thereof, other than benefit claims arising in the normal course of operation of
such Employee Benefit Plans or Benefit Arrangements, and, to the knowledge of
the management of Rocky Mountain II, no Employee Benefit Plan or Benefit
Arrangement is under audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Rocky Mountain II Disclosure Letter, all current employees of Rocky
Mountain II may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Rocky Mountain II
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (I) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Rocky Mountain II or any ERISA Affiliate of Rocky
Mountain II to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Rocky Mountain II has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Rocky Mountain II, is not engaged in any unfair labor practice
with respect to any of the current employees of Rocky Mountain II and to the
best knowledge of Rocky Mountain II, none of the persons performing services for
Rocky Mountain II or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Rocky Mountain II Disclosure Letter), none of the employees of
Rocky Mountain II are subject to any collective bargaining agreement nor is
Rocky Mountain II required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
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(h) No Multi-Employer Plans. Neither Rocky
Mountain II nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Rocky Mountain II or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Rocky Mountain II ended June
30, 1996.
(j) No Unfunded Liabilities. Neither Rocky
Mountain II nor any ERISA Affiliate of Rocky Mountain II has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Rocky Mountain II or ERISA Affiliate
of Rocky Mountain II.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Rocky Mountain II or any
ERISA Affiliate of Rocky Mountain II, which could subject any such Employee
Benefit Plan, Rocky Mountain II, any ERISA Affiliate of Rocky Mountain II, or
the Holding Company directly or indirectly (through an indemnification agreement
or otherwise), to any liability for or as a result of a breach of fiduciary
duty, a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax
under Section 4971 of the Code. Neither Rocky Mountain II nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Rocky
Mountain II or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Rocky Mountain II Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (I) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability
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to the employer could in the aggregate with respect to each such individual
exceed $50,000 per year; (v) neither Rocky Mountain II nor any of its ERISA
Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other welfare benefit fund as defined at Section 419(e) of the Code (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Rocky Mountain
II nor any of its Affiliates maintains a nonconforming group health plan as
defined at Section 5000(c) of the Code.
Section 10.17 Tax Matters.
(a) Affiliated Groups. Rocky Mountain II is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1504(a) of the Code.
(b) Tax Returns and Payment of Taxes. Rocky
Mountain II has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Rocky Mountain II has
paid, withheld, or accrued, or will accrue, on the Rocky Mountain II Financial
Statements in accordance with an accrual method of accounting consistently
applied any and all Income Taxes and other Taxes in respect of the conduct of
its business or the ownership of its property and in respect of any transactions
for all periods (or portions thereof) through the close of business on the
Closing Date. Rocky Mountain II has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including the maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
Employee, creditor, independent contractor or other third party. Rocky Mountain
II has collected all sales, use and value added Taxes required to be collected,
and has remitted, or will remit on a timely basis, such amounts to the
appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Rocky Mountain
II's liability for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Rocky Mountain II 's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Rocky Mountain II as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Rocky Mountain II have never been audited by any
Tax Authority, nor is any such audit in process, pending or threatened (either
in writing or verbally, formally or informally). Except as disclosed in the
Rocky Mountain II Disclosure Letter, no deficiencies have been asserted (or are
expected to be asserted) against Rocky Mountain II as a result of IRS (or state
or local Tax
100
Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Rocky Mountain II Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Rocky Mountain II . Rocky Mountain II has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Rocky Mountain II with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Rocky Mountain II is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established on the Rocky Mountain
II Financial Statements.
(g) Tax Elections and Special Tax Status. Rocky
Mountain II is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. No election or consent under Section 341(f) of
the Code has been made or shall be made on or prior to the Closing Date by or on
behalf of Rocky Mountain II. Rocky Mountain II is a "small business corporation"
which has elected to be subject to federal income taxation under subchapter S of
the Code and has such status for purposes of federal income taxation and state
income taxation in all states in which its respective income is subject to
taxation or has been subject to taxation at all times since its formation.
(h) Disqualified Leasebacks. Rocky Mountain II
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Rocky Mountain II has been deferred pursuant to Treasury Regulation ss.
1.1502-13 or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or
1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Rocky
Mountain II is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Rocky Mountain I has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 10.18 Environmental Matters.
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(a) The facilities presently or formerly occupied or used by
Rocky Mountain II and any other real property presently or formerly owned by,
used by or leased to or by Rocky Mountain II (collectively, the "Rocky Mountain
II Property"), the existing and prior uses of such Property and all operations
of the businesses of Rocky Mountain II comply and have at all times complied
with all Environmental Laws and Rocky Mountain II is not in violation of nor has
it violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Rocky Mountain II has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) Except as disclosed in the Rocky Mountain II Disclosure
Letter, there has been no spill, discharge, leak, emission, injection, disposal,
escape, dumping or release of any kind on, beneath or above such Property or
into the environment surrounding such Rocky Mountain II Property of any
Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Rocky Mountain II Ventures Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Rocky Mountain II Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Rocky Mountain II (or any predecessor in interest)
in connection with (I) any actual or alleged failure to comply with any
requirement of any Environmental Law; (ii) the ownership, use, maintenance or
operation of the Property by any person; (iii) the alleged violation of any
Environmental Law; or (iv) the suspected presence of any Hazardous Material
thereon.
Section 10.19 Compliance With Laws. Rocky Mountain II has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 10.20 Licenses and Permits. Rocky Mountain II possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Rocky Mountain II. Rocky Mountain II has complied with the terms and
conditions of all Permits in all material respects and all such Permits are in
full force and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of management of Rocky
Mountain II, threatened, which could cause or permit revocation or suspension of
or otherwise adversely affect the maintenance of any Permits.
102
The transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 10.21 Insurance. Rocky Mountain II has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Rocky Mountain II is not
in default under any provision contained in any insurance policy maintained by
Rocky Mountain II currently, nor has Rocky Mountain II failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Rocky Mountain
II aware of any grounds therefor.
Section 10.22 Extraordinary Transactions. Except as disclosed in the
Rocky Mountain II Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Rocky Mountain II has not (i) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
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Section 10.23 Title to Assets. Except as described in the Rocky
Mountain II Disclosure Letter, Rocky Mountain II has good and marketable title
to its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 10.24 Corporate Records. The minute books of Rocky Mountain II
accurately reflect all minutes of proceedings of and actions taken by the
directors of Rocky Mountain II, and by each committee of the Board of Directors
of Rocky Mountain II, and all records of meetings of and actions taken by the
stockholders of Rocky Mountain II, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 10.25 Broker and Finder Fees. Rocky Mountain II has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Rocky Mountain II by any broker,
finder or intermediary in connection with such transaction.
Section 10.26 Adequate Disclosure. No representation or warranty made
by Rocky Mountain II pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Rocky Mountain II pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 10.27 No Adverse Change or Conditions. Except as set forth in
the Rocky Mountain II Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Rocky Mountain II has
conducted its business in the ordinary course and consistent with past practice,
and Rocky Mountain II has not suffered any change that has had a Material
Adverse Effect on Rocky Mountain II . There are no conditions, facts,
developments or circumstances of an unusual or special nature that reasonably
could be expected to have a Material Adverse Effect upon Rocky Mountain II that
have not been disclosed in writing by Rocky Mountain II pursuant to the Rocky
Mountain II Disclosure Letter.
ARTICLE XI
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REPRESENTATIONS AND WARRANTIES OF PREMA PROPERTIES
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Prema Properties
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company:
Section 11.1 Organization and Good Standing. Prema Properties is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Ohio, and has full corporate power and authority
to own, operate and lease its properties, and to conduct
104
its business as it is now being conducted, and is qualified to transact business
as a foreign limited liability company in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification.
Section 11.2 Capitalization of Prema Properties. The Prema Properties
Members hold, in the aggregate, all of the membership or equity interests in
Prema Properties. Prema Properties has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Prema Properties. Prema
Properties is not subject to any commitment or obligation which would require
the issuance or sale of any equity interest at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Prema
Properties. Prema Properties has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no agreements, pledges, powers of attorney, consents,
assignments or other similar agreements or arrangements either (I) restricting
the transferability of the Membership Interests of Prema Properties or (ii)
relating to the Membership Interests of Prema Properties which reasonably may be
likely to prevent or delay the consummation of the transactions contemplated
hereby.
Section 11.3 Subsidiaries; Investments. Prema Properties does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 11.4 Execution and Effect of Agreement Prema Properties has the
power to enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by Prema Properties and
constitutes a legal, valid and binding obligation of Prema Properties, fully
enforceable against Prema Properties and each of the Prema Properties Members in
accordance with its terms; except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 11.5 Restrictions. The execution and delivery of this Agreement
by Prema Properties, the consummation of the transactions contemplated hereby by
Prema Properties and the Prema Properties Members, and the performance of their
respective obligations hereunder will not (a) violate any of the provisions of
the operating agreement or articles of organization of Prema Properties, (b)
violate or conflict with the provisions of any Applicable Laws, (c) result in
the creation of any Encumbrance upon any of the assets, rights or properties of
Prema Properties, or (d) except as disclosed in the Prema Properties Disclosure
Letter, conflict with, violate any provisions of, result in a breach of or give
rise to a right of termination, modification or cancellation of, constitute a
default of, or accelerate the performance required by, with or without the
passage of time or the giving of notice or both, the terms of any material
agreement, indenture, mortgage, deed of trust, security or pledge agreement,
lease, contract, note, bond, license, permit, authorization or other
105
instrument to which Prema Properties or any of the Prema Properties Members is a
party or to which Prema Properties or any of the Prema Properties Members or any
of their respective assets or properties are subject.
Section 11.6 Consents. Except as disclosed in the Prema Properties
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Prema Properties or the Prema Properties Members in
connection with the execution and delivery of this Agreement or any document or
instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 11.7 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in Member equity of Prema Properties as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Prema Properties as at June 30, 1997 and for
the six month period then ended (collectively, the " Prema Properties Financial
Statements"). All of the Prema Properties Financial Statements have been
prepared in accordance with GAAP in a manner consistent with each other and the
books and records of Prema Properties, and fairly present in all material
respects the financial condition and results of operations of Prema Properties
at the dates and for the periods indicated therein. The regular books of account
of Prema Properties fairly and accurately reflect all material transactions
involving Prema Properties , are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements.
Section 11.8 Debt. The Prema Properties Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Prema Properties, the remaining principal balance thereof, the
interest rate(s) payable by Prema Properties in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Prema Properties
Disclosure Letter, all of the Debt of Prema Properties may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 11.9 Guarantees. The Prema Properties Disclosure Letter
contains a complete list of all Guarantees provided by Prema Properties for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Prema Properties or any party doing business with Prema
Properties.
Section 11.10 No Undisclosed Liabilities. Prema Properties does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (I)
liabilities or obligations set forth in the Prema Properties Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Prema Properties
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and
106
incurred in the ordinary course of business and consistent with past practices
since June 30, 1997, or (iv) liabilities or obligations arising under the terms
of the Material Contracts of Prema Properties. Except as otherwise contemplated
or permitted by this Agreement no dividends or distributions have been declared
on any Membership Interests of Prema Properties which are unpaid.
Section 11.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the Prema Properties Members, threatened, by or before any court,
any Governmental Authority or arbitrator, against Prema Properties or any of the
Prema Properties Members that reasonably could be expected to prevent or delay
the consummation of any of the transactions contemplated hereby. Except as
disclosed in the Prema Properties Disclosure Letter, there is no material suit,
claim, action at law or in equity, proceeding or governmental investigation or
audit pending, or to the knowledge of Prema Properties Members, threatened, by
or before any arbitrator, court, or other Governmental Authority, against Prema
Properties or involving any of the former or present employees, agents,
businesses, properties, rights or assets of Prema Properties , nor, to the
knowledge of Prema Properties Members, is there any basis for the assertion of
any of the foregoing. Except as disclosed in the Prema Properties Disclosure
Letter, there are no judgments, orders, injunctions, decrees, stipulations or
awards rendered by any court, Governmental Authority or arbitrator against Prema
Properties or any of their respective former or present Employees, agents,
properties or assets.
Section 11.12 Properties; Absence of Encumbrances. The Prema Properties
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Prema Properties , and, with respect to all properties leased by Prema
Properties, a description of the term of such lease and the monthly rental
thereunder. Prema Properties is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Prema Properties is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Prema Properties has full legal and practical access to all such real
property.
Section 11.13 Intellectual Property. The Prema Properties Disclosure
Letter sets forth a complete list of (I) all Intellectual Property owned, used
or licensed by Prema Properties , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Prema Properties. Prema Properties owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Prema Properties has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the Prema
Properties Disclosure Letter, Prema Properties (I) has not received any notice
or claim to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, and (ii) has not made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
107
Section 11.14 Material Contracts.
(a) List of Material Contracts. The Prema
Properties Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Prema
Properties is a party or by which Prema Properties is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (I) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Prema Properties ; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Prema Properties of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Prema Properties after the date hereof of more than $25,000 or
which has been entered into by Prema Properties otherwise than in the ordinary
course of business; (iv) agreements between Prema Properties and suppliers to
Prema Properties pursuant to which Prema Properties is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Prema Properties or any officer, director, or employee of Prema Properties to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Prema Properties to participate in a
strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Prema Properties for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the Prema Properties
Members deems to be material to the business of Prema Properties.
(b) No Breaches or Defaults. Except as
disclosed in the Prema Properties Disclosure Letter, Prema Properties and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Prema Properties has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The Prema Properties Members have no knowledge, and have
not received any notice to the effect, that any party with whom Prema Properties
has contractual arrangements under the Material Contracts to which it is a
party, is in default under any such contractual arrangements or that any event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which it is a party
constitutes a legal, valid and binding obligation of each the parties thereto
and is enforceable against each of the parties thereto in accordance with its
respective terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity.
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Section 11.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Prema
Properties Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Prema Properties is
a party or to which Prema Properties is obligated to contribute. None of the
Employee Benefit Plans to which Prema Properties or any ERISA Affiliate of Prema
Properties is a party, which Prema Properties or any ERISA Affiliate of Prema
Properties sponsors or maintains or to which Prema Properties or any ERISA
Affiliate of Prema Properties contributes is subject to the requirements of
Section 302 of ERISA or Section 412 of the Code.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Prema Properties Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Prema Properties is a party or to
which Prema Properties is obligated to contribute has been operated or
maintained in compliance in all material respects with all Applicable Laws,
including, without limitation, ERISA and the Code, and has been maintained in
material compliance with its terms. Except as disclosed in the Prema Properties
Disclosure Letter, with respect to any Plan that is intended to qualify under
Section 401 of the Code, a favorable determination letter as to qualification
under Section 401 of the Code has been issued and any amendments required for
continued qualification under Section 401 of the Code have been timely adopted
and nothing has occurred subsequent to the date of such determination letter
that could adversely affect the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Prema Properties is a party or to
which Prema Properties is obligated to contribute, under ERISA or the Code, for
all periods of time prior to the date hereof and that are attributable to
Employees of Prema Properties have been paid or otherwise adequately accrued
against in the Prema Properties Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Prema Properties Disclosure Letter, Prema Properties is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Prema Properties Financial Statements, and there
is no controversy pending, threatened or in prospect between Prema Properties
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against Prema
Properties with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Prema
Properties before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in
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the normal course of operation of such Employee Benefit Plans or Benefit
Arrangements, and, to the knowledge of the management of Prema Properties, no
Employee Benefit Plan or Benefit Arrangement is under audit or investigation by
any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Prema Properties Disclosure Letter, all current employees of Prema
Properties may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Prema Properties
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Prema Properties or any ERISA Affiliate of Prema
Properties to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Prema Properties has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the Prema
Properties Members, is not engaged in any unfair labor practice with respect to
any of the current employees of Prema Properties.
(g) Collective Bargaining Agreements. Except as
disclosed in the Prema Properties Disclosure Letter, none of the employees of
Prema Properties are subject to any collective bargaining agreement nor is
Prema Properties required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Prema Properties
has not contributed to, nor had the obligation to contribute to, any
Multiemployer Plan within the five-year period ending on the date of this
Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Prema Properties relating to, or change in employee participation or coverage
under, any Employee Benefit Plan or Benefit Arrangement that would increase
materially the expense of maintaining such Employee Benefit Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for the
fiscal year of Prema Properties ended December 31, 1996.
(j) No Unfunded Liabilities. Prema Properties
nor any ERISA Affiliate of Prema Properties has any current or projected
liability for any unfunded post-retirement medical
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or life insurance benefits in connection with any Employee of Prema Properties
or ERISA Affiliate of Prema Properties.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Prema Properties or any
ERISA Affiliate of Prema Properties, which could subject any such Employee
Benefit Plan, Prema Properties, any ERISA Affiliate of Prema Properties, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Prema Properties nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of any of the
Companies.
(l) Welfare Benefit Plans. (I) Except as
disclosed in the Prema Properties Disclosure Letter, none of the Employee
Benefit Plans that are "welfare benefit plans" as defined in ERISA contributions
to Section 3(1) provides for continuing benefits or coverage for any participant
or beneficiary of a participant after such participant's termination of
employment, except to the extent required by law; provided that any disclosure
regarding this clause (i) shall set forth (A) the number of individuals
currently receiving such continuing benefits or coverage, (B) the limit on
liability with respect to such coverage, (C) the terms and conditions of such
coverage, and (D) the maximum number of current employees or independent
contractors who could become eligible for such continuing benefits or coverage;
(ii) there has been no violation of Code Section 4980B or ERISA Sections 601-609
with respect to any such Plan that could result in any material liability; (iii)
no such Plans are "multiple employer welfare arrangements" within the meaning of
ERISA Section 3(40); (iv) with respect to any such Plans that are self-insured,
no claims have been made pursuant to any such Plan that have not yet been paid
(other than claims which have not yet been paid but are in the normal course of
processing) and no individual has incurred injury, sickness or other medical
condition with respect to which claims may be made pursuant to any such plan
where the liability to the employer could in the aggregate with respect to each
such individual exceed $50,000 per year; (v) Prema Properties does not maintain
and does not have any obligation to contribute to any "voluntary employees'
beneficiary association" within the meaning of Code Section 501(c)(9) or other
funding arrangement for the provision of welfare benefits (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; and (vii) no amounts are required in connection with
any such Plan to be included in income under Code Section 105(h) (under official
regulations thereof to date);.
Section 11.17 Tax Matters.
(a) Affiliated Groups. Prema Properties is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
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(b) Tax Returns and Payment of Taxes. Prema
Properties has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Prema Properties has
paid, withheld, or accrued, or will accrue, on the Prema Properties Financial
Statements in accordance with GAAP any and all Income Taxes and other Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Prema Properties has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Prema Properties has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions
(c) Tax Reserves. The amount of Prema
Properties's liability for unpaid Taxes for all periods ending on or before the
date of this Agreement does not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes) as
of the date of this Agreement, and the amount of Prema Properties 's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Prema Properties as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Prema Properties have never been audited by any
Tax Authority, nor is any such audit in process, pending or threatened (either
in writing or verbally, formally or informally). Except as disclosed in the
Prema Properties Disclosure Letter, no deficiencies have been asserted (or are
expected to be asserted) against Prema Properties as a result of IRS (or state
or local Tax Authority) examinations and no issue has been raised by any IRS (or
state or local Tax Authority) examination that, by application of the same
principles, might result in a proposed deficiency for any other period not so
examined.
(e) No Waivers of Limitations. Except as
disclosed in the Prema Properties Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Prema Properties. Prema Properties has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Prema Properties with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Prema Properties is contesting in good faith through appropriate
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proceedings and for which appropriate reserves have been established on the
Prema Properties Financial Statements.
(g) Tax Elections and Special Tax Status. Prema
Properties is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Prema Properties is a "partnership" for purposes
of federal income taxation and state income taxation in all states in which its
income is subject to taxation and has had the status of a "partnership" for
purposes of federal income taxation and state income taxation in all states in
which its income is subject to taxation or has been subject to taxation at all
times since its formation.
(h) Disqualified Leasebacks. Prema Properties
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Prema Properties has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Prema
Properties is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Prema Properties has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 11.18 Environmental Matters.
(a) The facilities presently or formerly
occupied or used by Prema Properties and any other real property presently or
formerly owned by, used by or leased to or by Prema Properties (collectively,
the "Prema Properties Property"), the existing and prior uses of such Prema
Properties Property and all operations of the businesses of Prema Properties
comply and have at all times complied with all Environmental Laws and Prema
Properties is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such property or the conduct of its
business, any Environmental Law.
(b) Prema Properties has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) There has been no spill, discharge, leak,
emission, injection, disposal, escape, dumping or release of any kind on,
beneath or above such Prema Properties Property or into the environment
surrounding such Prema Properties Property of any Hazardous Materials.
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(d) There has been no past, and there is no
current or anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Prema Properties Property. No asbestos-containing materials,
underground improvements (including, but not limited to treatment or storage
tanks, sumps, or hydraulic tanks or water, gas or oil xxxxx) or polychlorinated
biphenyls (PCBs) transformers, capacitors, ballasts, or other equipment which
contain dielectric fluid containing PCBs at levels in excess of fifty parts per
million (50 PPM) are or have ever been located on such Prema Properties
Property.
(e) There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Prema Properties (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 11.19 Compliance With Laws. Prema Properties has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 11.20 Licenses and Permits. Prema Properties possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Prema Properties. Prema Properties has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of Prema Properties
Members, threatened, which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any Permits. The transactions
contemplated by this Agreement will not lead to the revocation, cancellation,
termina tion or suspension of any Permits.
Section 11.21 Insurance. Prema Properties has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Prema Properties is not in
default under any provision contained in any insurance policy maintained by
Prema Properties currently, nor has Prema Properties failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the Prema Properties Members
aware of any grounds therefor.
Section 11.22 Extraordinary Transactions. Except as disclosed in the
Prema Properties Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Prema Properties
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has not (i) mortgaged, pledged or subjected to any Encumbrance any of its
assets; (ii) canceled or compromised any claim of or debts owed to it; (iii)
sold, licensed, leased, exchanged or transferred any of its assets except in the
ordinary course of business; (iv) entered into any material transaction other
than in the ordinary course of business; (v) experienced any material change in
the relationship or course of dealing with any supplier, customer or creditor;
(vi) suffered any material destruction, loss or damage to any of its assets;
(vii) made any management decisions involving any material change in its
policies with regard to pricing, sales, purchasing or other business, financial,
accounting (including reserves and the amounts thereof) or tax policies or
practices; (viii) declared, set aside or paid any dividends on or made any
distributions in respect of any outstanding shares of capital stock or made any
other distributions or payments to any of its shareholders; (ix) submitted any
bid, proposal, quote or commitment to any party in response to a request for
proposal or otherwise; (x) engaged in any merger or consolidation with, or
agreed to merge or consolidate with, or purchased or agreed to purchase, all or
substantially all of the assets of, or otherwise acquire, any other party; (xi)
entered into any strategic alliance, partnership, joint venture or similar
arrangement with any other party; (xii) incurred or agreed to incur any Debt or
prepaid or made any prepayments in respect of Debt; (xiii) issued or agreed to
issue to any party, any shares of stock or other securities; (xiv) redeemed,
purchased or agreed to redeem or purchase any of its outstanding shares of
capital stock or other securities; (xv) increased the rate of compensation
payable or to become payable to any of its officers, directors, employees or
agents over the rate being paid to them as of June 30, 1996 or agreed to do so
otherwise than in accordance with contractual agreements with such parties;
(xvi) made or agreed to make any charitable contributions or incurred or agreed
to incur any non-business expenses; or (xvii) charged off any bad debts or
increased its bad debt reserve except in the manner consistent with its past
practices.
Section 11.23 Title to Assets. Except as described in the Prema
Properties Disclosure Letter, Prema Properties has good and marketable title to
its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 11.24 Corporate Records. The books and records of Prema
Properties accurately reflect all minutes of proceedings of and actions taken by
the members of Prema Properties.
Section 11.25 Broker and Finder Fees. Prema Properties has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Prema Properties by any broker,
finder or intermediary in connection with such transaction.
Section 11.26 Adequate Disclosure. No representation or warranty made
by Prema Properties pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Prema Properties pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
115
Section 11.27 No Adverse Change or Conditions. Except as set forth in
the Prema Properties Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Prema Properties has conducted
its business in the ordinary course and consistent with past practice, and Prema
Properties has not suffered any change that has had a Material Adverse Effect on
Prema Properties. There are no conditions, facts, developments or circumstances
of an unusual or special nature that reasonably could be expected to have a
Material Adverse Effect upon the financial condition, business or prospects of
Prema Properties that have not been disclosed in writing by Prema Properties
pursuant to the Prema Properties Disclosure Letter.
ARTICLE XII
-----------
REPRESENTATIONS AND WARRANTIES OF XXXXXXX CAR WASH
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Xxxxxxx Car Wash
hereby makes the following representations and warranties to the other parties
to this Agreement and the Holding Company:
Section 12.1 Organization and Good Standing. Xxxxxxx Car Wash is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Colorado, and has full corporate power and
authority to own, operate and lease its properties, and to conduct its business
as it is now being conducted, and is qualified to transact business as a foreign
limited liability company in each jurisdiction in which the operation of its
business or the ownership of its properties requires such qualification.
Section 12.2 Capitalization of Xxxxxxx Car Wash. The Xxxxxxx Car Wash
Members hold, in the aggregate, all of the membership or equity interests in
Xxxxxxx Car Wash. Xxxxxxx Car Wash has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Xxxxxxx Car Wash. Xxxxxxx
Car Wash is not subject to any commitment or obligation which would require the
issuance or sale of any equity interest at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Xxxxxxx
Car Wash. Xxxxxxx Car Wash has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no agreements, pledges, powers of attorney, consents,
assignments or other similar agreements or arrangements either (I) restricting
the transferability of the Membership interests of Xxxxxxx Car Wash or (ii)
relating to the Xxxxxxx Car Wash Membership Interests which reasonably may be
likely to prevent or delay the consummation of the transactions contemplated
hereby.
Section 12.3 Subsidiaries; Investments. Xxxxxxx Car Wash does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
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Section 12.4 Execution and Effect of Agreement. Xxxxxxx Car Wash has
the power to enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by Xxxxxxx Car Wash and
constitutes a legal, valid and binding obligation of Xxxxxxx Car Wash, fully
enforceable against Xxxxxxx Car Wash in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 12.5 Restrictions. The execution and delivery of this Agreement
by Xxxxxxx Car Wash, the consummation of the transactions contemplated hereby by
Xxxxxxx Car Wash and by each of the Xxxxxxx Car Wash Members, and the
performance of their respective obligations hereunder will not (a) violate any
of the provisions of the operating agreement or articles of organization of
Xxxxxxx Car Wash, (b) violate or conflict with the provisions of any Applicable
Laws, (c) result in the creation of any Encumbrance upon any of the assets,
rights or properties of Xxxxxxx Car Wash, or (d) except as disclosed in the
Xxxxxxx Car Wash Disclosure Letter, conflict with, violate any provisions of,
result in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which Xxxxxxx Car Wash or any of the Xxxxxxx Car Wash
Members is a party or to which Xxxxxxx Car Wash or any of the Xxxxxxx Car Wash
Members or any of their respective assets or properties are subject.
Section 12.6 Consents. Except as disclosed in the Xxxxxxx Car Wash
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Xxxxxxx Car Wash or any of the Xxxxxxx Car Wash Members
in connection with the execution and delivery of this Agreement or any document
or instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 12.7 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in member equity of Xxxxxxx Car Wash as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Xxxxxxx Car Wash as at June 30, 1997 and for
the six month period then ended (collectively, the " Xxxxxxx Car Wash Financial
Statements"). All of the Xxxxxxx Car Wash Financial Statements have been
prepared in accordance with an accrual method of accounting, consistently
applied, in a manner consistent with each other and the books and records of
Xxxxxxx Car Wash, and fairly present in all material respects the financial
condition and results of operations of Xxxxxxx Car Wash at the dates and for the
periods indicated therein. The regular books of account of Xxxxxxx Car Wash
fairly and accurately reflect all material transactions involving Xxxxxxx Car
Wash, are true, correct and complete and have been
117
prepared in accordance with an accrual method of accounting, consistently
applied, and on a basis consistent with the Financial Statements.
Section 12.8 Debt. The Xxxxxxx Car Wash Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Xxxxxxx Car Wash, the remaining principal balance thereof, the
interest rate(s) payable by Xxxxxxx Car Wash in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Xxxxxxx Car Wash
Disclosure Letter, all of the Debt of Xxxxxxx Car Wash may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 12.9 Guarantees. The Xxxxxxx Car Wash Disclosure Letter
contains a complete list of all Guarantees provided by Xxxxxxx Car Wash for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Xxxxxxx Car Wash or any party doing business with Xxxxxxx Car
Wash.
Section 12.10 No Undisclosed Liabilities. Xxxxxxx Car Wash does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (i)
liabilities or obligations set forth in the Xxxxxxx Car Wash Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Xxxxxxx Car Wash
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Xxxxxxx Car Wash. Except as otherwise contemplated or
permitted by this Agreement, no dividends or distributions have been declared on
any Membership Interests of Xxxxxxx Car Wash which are unpaid.
Section 12.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the Xxxxxxx Car Wash Members, threatened, by or before any court,
any Governmental Authority or arbitrator, against Xxxxxxx Car Wash or any of the
Xxxxxxx Car Wash Members that reasonably could be expected to prevent or delay
the consummation of any of the transactions contemplated hereby. Except as
disclosed in the Xxxxxxx Car Wash Disclosure Letter, there is no material suit,
claim, action at law or in equity, proceeding or governmental investigation or
audit pending, or to the knowledge of Xxxxxxx Car Wash Members, threatened, by
or before any arbitrator, court, or other Governmental Authority, against
Xxxxxxx Car Wash or involving any of former or present employees, agents,
businesses, properties, rights or assets of Xxxxxxx Car Wash , nor, to the
knowledge of Xxxxxxx Car Wash Members, is there any basis for the assertion of
any of the foregoing. Except as disclosed in the Xxxxxxx Car Wash Disclosure
Letter, there are no judgments, orders, injunctions, decrees, stipulations or
awards rendered by any court, Governmental Authority or arbitrator against
Xxxxxxx Car Wash or any of their respective former or present Employees, agents,
properties or assets.
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Section 12.12 Properties; Absence of Encumbrances. The Xxxxxxx Car Wash
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Xxxxxxx Car Wash , and, with respect to all properties leased by
Xxxxxxx Car Wash, a description of the term of such lease and the monthly rental
thereunder. Xxxxxxx Car Wash is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Xxxxxxx Car Wash is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Xxxxxxx Car Wash has full legal and practical access to all such real
property.
Section 12.13 Intellectual Property. The Xxxxxxx Car Wash Disclosure
Letter sets forth a complete list of all Intellectual Property owned, used or
licensed by Xxxxxxx Car Wash , together with the identity of the owner thereof,
and (ii) all license agreements pursuant to which any Intellectual Property is
licensed to or by Xxxxxxx Car Wash. Xxxxxxx Car Wash owns its Intellectual
Property free and clear of any and all Encumbrances, or, in the case of licensed
Intellectual Property, has valid, binding and enforceable rights to use such
Intellectual Property. Xxxxxxx Car Wash has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the Xxxxxxx Car Wash Disclosure
Letter, Xxxxxxx Car Wash (I) has not received any notice or claim to the effect
that the use of any Intellectual Property infringes upon, conflicts with or
misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable, and (ii) has not made any claim that any
party has violated or infringed upon its rights with respect to any Intellectual
Property.
Section 12.14 Material Contracts.
(a) List of Material Contracts. The Xxxxxxx Car
Wash Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Xxxxxxx
Car Wash is a party or by which Xxxxxxx Car Wash is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Xxxxxxx Car Wash; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Xxxxxxx Car Wash of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Xxxxxxx Car Wash after the date hereof of more than $25,000 or
which has been entered into by Xxxxxxx Car Wash otherwise than in the ordinary
course of business; (iv) agreements between Xxxxxxx Car Wash and suppliers to
Xxxxxxx Car Wash pursuant to which Xxxxxxx Car Wash is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Xxxxxxx Car Wash or any officer, director, or employee of Xxxxxxx Car Wash to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Xxxxxxx Car Wash to participate in a
strategic alliance, partnership,
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joint venture, limited liability company or other cooperative undertaking with
any other Person; (vii) any commitments by Xxxxxxx Car Wash for capital
expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (viii) any other contract, commitment, agreement, understanding
or arrangement that the Xxxxxxx Car Wash Members deems to be material to the
business of Xxxxxxx Car Wash.
(b) No Breaches or Defaults. Except as
disclosed in the Xxxxxxx Car Wash Disclosure Letter, Xxxxxxx Car Wash and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Xxxxxxx Car Wash has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The Xxxxxxx Car Wash Members have no knowledge, and have
not received any notice to the effect, that any party with whom Xxxxxxx Car Wash
has contractual arrangements under the Material Contracts to which it is a
party, is in default under any such contractual arrangements or that any event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which it is a party
constitutes a legal, valid and binding obligation of each the parties thereto
and is enforceable against each of the parties thereto in accordance with its
respective terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity.
Section 12.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Xxxxxxx Car
Wash Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Xxxxxxx Car Wash or
any of its ERISA Affiliates is a party or to which Xxxxxxx Car Wash or any of
its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Xxxxxxx Car Wash or any ERISA Affiliate of Xxxxxxx Car Wash is a
party, which Xxxxxxx Car Wash or any ERISA Affiliate of Xxxxxxx Car Wash
sponsors or maintains or to which Xxxxxxx Car Wash or any ERISA Affiliate of
Xxxxxxx Car Wash contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Xxxxxxx Car Wash or any
of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Xxxxxxx Car Wash Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Xxxxxxx Car Wash is a party or to
which Xxxxxxx Car Wash is obligated to contribute has been operated or
maintained in compliance in all material respects with all Applicable Laws,
including, without limitation, ERISA and the Code, and has been maintained in
material compliance with its terms and in material compliance with the terms of
any applicable collective bargaining agreement. Except as disclosed in the
Xxxxxxx Car Wash Disclosure Letter, with respect to any Employee Benefit Plan
that is intended to qualify under Section 401 of the Code, a favorable
determination letter as to qualification under Section 401 of the Code that
considered the Tax Reform Act of 1986 has been issued and any amendments
required for continued qualification under Section 401 of the Code have been
timely adopted and nothing has occurred subsequent to the date of such
determination letter that could adversely affect the qualified status of any
such Plan.
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(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Xxxxxxx Car Wash or any of its
ERISA Affiliates is a party or to which Xxxxxxx Car Wash or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
Xxxxxxx Car Wash have been paid or otherwise adequately accrued against in the
Xxxxxxx Car Wash Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Xxxxxxx Car Wash Disclosure Letter, Xxxxxxx Car Wash is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Xxxxxxx Car Wash Financial Statements, and there
is no controversy pending, threatened or in prospect between Xxxxxxx Car Wash
and any of their respective Employees nor is there any basis for any such
controversy. There is no unfair labor practice charge or complaint currently
pending against Xxxxxxx Car Wash with respect to or relating to any of their
respective Employees before the National Labor Relations Board or any other
agency having jurisdiction over such matters and no charges or complaints are
currently pending against Xxxxxxx Car Wash before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of Xxxxxxx Car Wash, no Employee Benefit Plan or
Benefit Arrangement is under audit or investigation by any Governmental
Authority.
(e) Severance Obligations. Except as disclosed
in the Xxxxxxx Car Wash Disclosure Letter, all current employees of Xxxxxxx Car
Wash may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Xxxxxxx Car Wash
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Xxxxxxx Car Wash or any ERISA Affiliate of Xxxxxxx Car
Wash to any Employee in connection with the execution, delivery or performance
of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Xxxxxxx Car Wash has complied in all material respects with all
Applicable Laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge
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of the Xxxxxxx Car Wash Members, is not engaged in any unfair labor practice
with respect to any of the current employees of Xxxxxxx Car Wash; and to the
best knowledge of Xxxxxxx Car Wash, none of the persons performing services for
Xxxxxxx Car Wash or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from payment of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Xxxxxxx Car Wash Disclosure Letter), none of the employees of
Xxxxxxx Car Wash are subject to any collective bargaining agreement nor is
Xxxxxxx Car Wash required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Xxxxxxx
Car Wash nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Xxxxxxx Car Wash or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Xxxxxxx Car Wash ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Xxxxxxx
Car Wash nor any ERISA Affiliate of Xxxxxxx Car Wash has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Xxxxxxx Car Wash or ERISA Affiliate
of Xxxxxxx Car Wash.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Xxxxxxx Car Wash or any
ERISA Affiliate of Xxxxxxx Car Wash, which could subject any such Employee
Benefit Plan, Xxxxxxx Car Wash, any ERISA Affiliate of Xxxxxxx Car Wash, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Xxxxxxx Car Wash nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of any of the
Companies.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Xxxxxxx Car Wash Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the
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maximum number of current employees or independent contractors who could become
eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Xxxxxxx Car Wash nor any of its
ERISA Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other welfare benefit fund as defined at Section 419(e) of the Code (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such Plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Xxxxxxx Car
Wash nor any of its ERISA Affiliates maintains a nonconforming group health plan
as defined at Section 5000(c) of the Code.
Section 12.17 Tax Matters.
(a) Affiliated Groups. Xxxxxxx Car Wash is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
(b) Tax Returns and Payment of Taxes. Xxxxxxx
Car Wash has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Taxes (including
any additions to taxes, penalties and interest related thereto) due and payable
on or before the date hereof. Xxxxxxx Car Wash has paid, withheld, or accrued,
or will accrue, on the Xxxxxxx Car Wash Financial Statements in accordance with
an accrual method of accounting, consistently applied, any and all Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Xxxxxxx Car Wash has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Xxxxxxx Car Wash has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions
(c) Tax Reserves. The amount of Xxxxxxx Car
Wash's liability for unpaid Taxes for all periods ending on or before the date
of this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Xxxxxxx Car Wash's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount
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of the current liability accruals for Taxes (excluding reserves for deferred
Taxes) as such accruals shall be reflected on the balance sheet of Xxxxxxx Car
Wash as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. Except as disclosed in the Xxxxxxx Car Wash Disclosure Letter, the Tax
Returns of Xxxxxxx Car Wash have never been audited by any Tax Authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally). Except as disclosed in the Xxxxxxx Car Wash Disclosure
Letter, no deficiencies have been asserted (or are expected to be asserted)
against Xxxxxxx Car Wash as a result of IRS (or state or local Tax Authority)
examinations and no issue has been raised by any IRS (or state or local Tax
Authority) examination that, by application of the same principles, might result
in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Xxxxxxx Car Wash Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrange ments providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Xxxxxxx Car Wash. Xxxxxxx Car Wash has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Xxxxxxx Car Wash with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Xxxxxxx Car Wash is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Xxxxxxx Car Wash
Financial Statements.
(g) Tax Elections and Special Tax Status.
Xxxxxxx Car Wash is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Xxxxxxx Car Wash is a "partnership" for purposes
of federal income taxation and state income taxation in all states in which its
income is subject to taxation and has had the status of a "partnership" for
purposes of federal income taxation and state income taxation in all states in
which its income is subject to taxation or has been subject to taxation at all
times since its formation.
(h) Disqualified Leasebacks. Xxxxxxx Car Wash
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Xxxxxxx Car Wash has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements.
Xxxxxxx Car Wash is not a party to or bound by any Tax sharing, Tax indemnity,
Tax allocation or other similar arrangement.
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(k) No Non-Deductible Compensation Payments.
Xxxxxxx Car Wash has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 12.18 Environmental Matters.
(a) The facilities presently or formerly
occupied or used by Xxxxxxx Car Wash and any other real property presently or
formerly owned by, used by or leased to or by Xxxxxxx Car Wash (collectively,
the "Xxxxxxx Car Wash Property"), the existing and prior uses of such Xxxxxxx
Car Wash Property and all operations of the businesses of Xxxxxxx Car Wash
comply and have at all times complied with all Environmental Laws and Xxxxxxx
Car Wash is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such property or the conduct of its
business, any Environmental Law.
(b) Xxxxxxx Car Wash has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) Except as disclosed in the Xxxxxxx Car Wash
Disclosure letter, there has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Xxxxxxx Car Wash Property or into the environment surrounding such Xxxxxxx
Car Wash Property of any Hazardous Materials.
(d) There has been no past, and there is no
current or anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Xxxxxxx Car Wash Property. No asbestos-containing materials,
underground improvements (including, but not limited to treatment or storage
tanks, sumps, or hydraulic tanks or water, gas or oil xxxxx) or polychlorinated
biphenyls (PCBs) transformers, capacitors, ballasts, or other equipment which
contain dielectric fluid containing PCBs at levels in excess of fifty parts per
million (50 PPM) are or have ever been located on such Xxxxxxx Car Wash
Property.
(e) There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Xxxxxxx Car Wash (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 12.19 Compliance With Laws. Xxxxxxx Car Wash has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
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Section 12.20 Licenses and Permits. Xxxxxxx Car Wash possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Xxxxxxx Car Wash. Xxxxxxx Car Wash has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of Xxxxxxx Car Wash
Members, threatened, which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any Permits. The transactions
contemplated by this Agreement will not lead to the revocation, cancellation,
termination or suspension of any Permits.
Section 12.21 Insurance. Xxxxxxx Car Wash has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Xxxxxxx Car Wash is not in
default under any provision contained in any insurance policy maintained by
Xxxxxxx Car Wash currently, nor has Xxxxxxx Car Wash failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the Xxxxxxx Car Wash Members
aware of any grounds therefor.
Section 12.22 Extraordinary Transactions. Except as disclosed in the
Xxxxxxx Car Wash Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Xxxxxxx Car Wash has not (i) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties;
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(xvi) made or agreed to make any charitable contributions or incurred or agreed
to incur any non-business expenses; or (xvii) charged off any bad debts or
increased its bad debt reserve except in the manner consistent with its past
practices.
Section 12.23 Title to Assets. Except as described in the Xxxxxxx Car
Wash Disclosure Letter, Xxxxxxx Car Wash has good and marketable title to its
assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 12.24 Corporate Records. The books and records of Xxxxxxx Car
Wash accurately reflect all minutes of proceedings of and actions taken by the
members of Xxxxxxx Car Wash.
Section 12.25 Broker and Finder Fees. Xxxxxxx Car Wash has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Xxxxxxx Car Wash by any broker,
finder or intermediary in connection with such transaction.
Section 12.26 Adequate Disclosure. No representation or warranty made
by Xxxxxxx Car Wash pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Xxxxxxx Car Wash pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 12.27 No Adverse Change or Conditions. Except as set forth in
the Xxxxxxx Car Wash Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Xxxxxxx Car Wash has conducted
its business in the ordinary course and consistent with past practice, and
Xxxxxxx Car Wash has not suffered any change that has had a Material Adverse
Effect on Xxxxxxx Car Wash. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Xxxxxxx Car Wash that have not been
disclosed in writing by Xxxxxxx Car Wash pursuant to the Xxxxxxx Car Wash
Disclosure Letter.
ARTICLE XIII
------------
REPRESENTATIONS AND WARRANTIES OF KBG
-------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, KBG hereby
makes the following representations and warranties to the other parties to this
Agreement:
Section 13.1 Organization and Good Standing. KBG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now
127
being conducted, and is qualified to transact business as a foreign corporation
in each jurisdiction in which the operation of its business or the ownership of
its properties requires such qualification.
Section 13.2 Execution and Effect of Agreement. KBG has the corporate
power to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by KBG of this Agreement, the consummation by KBG of the
transactions contemplated hereby, and the performance by KBG of its obligations
hereunder, have been duly and effectively authorized by all necessary corporate
action on the part of KBG. This Agreement has been duly executed and delivered
by KBG and constitutes a legal, valid and binding obligation of KBG, fully
enforceable against KBG in accordance with its terms; except as enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 13.3 Restrictions. The execution and delivery of this Agreement
by KBG, the consummation of the transactions contemplated hereby by KBG, and,
subject to the due authorization and approval of its shareholders, the
performance of the obligations of KBG hereunder will not (a) violate any of the
provisions of the charter or by-laws of KBG, (b) violate or conflict with the
provisions of any Applicable Laws, (c) result in the creation of any Encumbrance
upon any of the assets, rights or properties of KBG, or (d) except as disclosed
in the KBG Disclosure Letter, conflict with, violate any provisions of, result
in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which KBG is a party or to which any of any of the assets of
KBG are subject.
Section 13.4 Consents. No filing with, or consent, waiver, approval or
authorization of, or notice to, any governmental authority or any third party is
required to be made or obtained by KBG in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of its obligations hereunder or thereunder which have not been
obtained by KBG.
Section 13.5 Ownership of Proprietary Car Wash Computer System. KBG is
the sole and exclusive owner of all of the copyright interests in, patents of,
and patent rights in, the Propriety Car Wash Computer Software and has the sole
and exclusive right to sell, assign and transfer the Proprietary Computer
Software and the intellectual property rights embodied therein to the Holding
Company. Except as disclosed on Schedule 13.5 to this Agreement, KBG has not
sold, transferred, assigned, conveyed, licensed or otherwise encumbered the
Proprietary Car Wash Computer Software or any of the intellectual property
rights embodied therein and has not granted any right, license or privilege with
respect thereto to any other Person. The Proprietary Car Wash Computer Software
does not infringe upon, conflict with or misappropriate the rights of any other
Person and KBG has not received any claim or notice from any other Person
whether oral or written, which states, in
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essence, that the use thereof infringes upon or misappropriates the rights of
any Person. KBG has not made any claim which states, in essence, that any Person
has violated or infringed upon or misappropriated its rights in the Proprietary
Car Wash Computer Software, and, to the knowledge of the management of KBG, no
person is infringing upon, misappropriating, engaging in any unauthorized use
thereof.
Section 13.6 Broker and Finder Fees. KBG has not engaged any broker or
finder in connection with the transactions contemplated by this Agreement, and
no action by any of the foregoing will cause or support any claim to be asserted
against the Holding Company or KBG by any broker, finder or intermediary in
connection with such transaction.
Section 13.7 Adequate Disclosure. No representation or warranty made by
KBG pursuant to this Agreement, or any statement contained in any Exhibit or
Schedule to this Agreement, or any certificate or document furnished or to be
furnished by KBG pursuant to the terms of this Agreement in connection with the
transactions contemplated hereby, contains any untrue or misleading statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
ARTICLE XIV
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REPRESENTATIONS AND WARRANTIES OF MIRACLE PARTNERS
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Miracle Partners
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company
Section 14.1 Organization and Good Standing. Miracle Partners is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has full corporate power and authority to own, operate
and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 14.2 Capitalization of Miracle Partners. The authorized capital
stock of Miracle Partners consists solely of 500 shares of a single class of
common stock, $-0- par value, of which 500 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the capital
stock of Miracle Partners issued and outstanding as of the date hereof has been
duly authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of Miracle Partners has
been issued in violation of shareholder preemptive rights. Miracle Partners has
no issued or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time into equity
securities of Miracle Partners. Miracle Partners is not subject to any
commitment or obligation which would
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require the issuance or sale of shares of its capital stock at any time under
options, subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Miracle
Partners. Miracle Partners has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
Section 14.3 Ownership of Shares. All of the issued and outstanding
shares of the capital stock of Miracle Partners are held of record and
beneficially by C. Xxxxxx Deal. There are no agreements, pledges, powers of
attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Miracle Partners or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 14.4 Subsidiaries; Investments. Miracle Partners does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 14.5 Execution and Effect of Agreement. Miracle Partners has
the corporate power to enter into this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Miracle
Partners and constitutes a legal, valid and binding obligation of Miracle
Partners, fully enforceable against Miracle Partners in accordance with its
terms; except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 14.6 Restrictions. The execution and delivery of this Agreement
by Miracle Partners, the consummation of the transactions contemplated hereby by
Miracle Partners, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Miracle Partners hereunder
will not (a) violate any of the provisions of the charter or by-laws of Miracle
Partners, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Miracle Partners, or (d) except as disclosed in the Miracle
Partners Disclosure Letter, conflict with, violate any provisions of, result in
a breach of or give rise to a right of termination, modification or cancellation
of, constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Miracle Partners is a party or to which any of any of the
assets of Miracle Partners are subject.
Section 14.7 Consents. Except as disclosed in the Miracle Partners
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Miracle Partners in connection with the
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execution and delivery of this Agreement or any document or instrument
contemplated hereby, the consummation of any of the transactions contemplated
hereby or the performance of any of their respective obligations hereunder or
thereunder.
Section 14.8 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Miracle Partners as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
financial statements of Miracle Partners as at June 30, 1997 and for the six
month period then ended (collectively, the " Miracle Partners Financial
Statements"). All of the Miracle Partners Financial Statements have been
prepared in accordance with GAAP in a manner consistent with each other and the
books and records of Miracle Partners, and fairly present in all material
respects the financial condition and results of operations of Miracle Partners
at the dates and for the periods indicated therein. The regular books of account
of Miracle Partners fairly and accurately reflect all material transactions
involving Miracle Partners , are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements.
Section 14.9 Debt. The Miracle Partners Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Miracle Partners, the remaining principal balance thereof, the
interest rate(s) payable by Miracle Partners in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Miracle Partners
Disclosure Letter, all of the Debt of Miracle Partners may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 14.10 Guarantees. The Miracle Partners Disclosure Letter
contains a complete list of all Guarantees provided by Miracle Partners for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Miracle Partners or any party doing business with Miracle
Partners.
Section 14.11 No Undisclosed Liabilities. Miracle Partners does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (i)
liabilities or obligations set forth in the Miracle Partners Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Miracle Partners
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Miracle Partners. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Miracle Partners which are unpaid.
Section 14.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Miracle
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Partners, threatened, by or before any court, any Governmental Authority or
arbitrator, against Miracle Partners that reasonably could be expected to
prevent the consummation of any of the trans actions contemplated hereby. Except
as disclosed in the Miracle Partners Disclosure Letter, there is no material
suit, claim, action at law or in equity, proceeding or governmental
investigation or audit pending, or to the knowledge of management of Miracle
Partners, threatened, by or before any arbitrator, court, or other Governmental
Authority, against Miracle Partners or involving any of the former or present
employees, agents, businesses, properties, rights or assets of Miracle Partners
, nor, to the knowledge of management of Miracle Partners, is there any basis
for the assertion of any of the foregoing. Except as disclosed in the Miracle
Partners Disclosure Letter, there are no judgments, orders, injunctions,
decrees, stipulations or awards rendered by any court, Governmental Authority or
arbitrator against Miracle Partners or any of their respective former or present
Employees, agents, properties or assets.
Section 14.13 Properties; Absence of Encumbrances. The Miracle Partners
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Miracle Partners , and, with respect to all properties leased by
Miracle Partners, a description of the term of such lease and the monthly rental
thereunder. Miracle Partners is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Miracle Partners is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Miracle Partners has full legal and practical access to all such real
property.
Section 14.14 Intellectual Property. The Miracle Partners Disclosure
Letter sets forth a complete list of (I) all Intellectual Property owned, used
or licensed by Miracle Partners , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Miracle Partners. Miracle Partners owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Miracle Partners has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the
Miracle Partners Disclosure Letter, Miracle Partners (I) has not received any
notice or claim to the effect that the use of any Intellectual Property
infringes upon, conflicts with or misappropriates the rights of any other party
or that any of the Intellectual Property is not valid or enforceable, and (ii)
has not made any claim that any party has violated or infringed upon its rights
with respect to any Intellectual Property.
Section 14.15 Material Contracts.
(a) List of Material Contracts. The Miracle
Partners Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Miracle
Partners is a party or by which Miracle Partners is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor
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arrangements with, any officer or other individual employee of Miracle Partners;
(ii) any consulting agreement, agency agreement and any other service agreement
that will continue in force after the Closing Date with respect to the
employment or retention by Miracle Partners of consultants, agents, legal
counsel, accountants or anyone else who is not an Employee; (iii) any single
contract, purchase order or commitment providing for expenditures by Miracle
Partners after the date hereof of more than $25,000 or which has been entered
into by Miracle Partners otherwise than in the ordinary course of business; (iv)
agreements between Miracle Partners and suppliers to Miracle Partners pursuant
to which Miracle Partners is obligated to purchase or to sell or distribute the
products of any other party other than current purchase orders entered into in
the ordinary course of business consistent with past practices; (v) any contract
containing covenants limiting the freedom of Miracle Partners or any officer,
director, or employee of Miracle Partners to engage in any line or type of
business or with any person in any geographic area; (vi) any commitment or
arrangement by Miracle Partners to participate in a strategic alliance,
partnership, joint venture, limited liability company or other cooperative
undertaking with any other Person; (vii) any commitments by Miracle Partners for
capital expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (viii) any other contract, commitment, agreement, understanding
or arrangement that the management of Miracle Partners deems to be material to
the business of Miracle Partners.
(b) No Breaches or Defaults. Except as
disclosed in the Miracle Partners Disclosure Letter, Miracle Partners and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Miracle Partners has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Miracle Partners has no knowledge, or
received any notice to the effect, that any party with whom Miracle Partners has
contractual arrangements under its Material Contracts, is in default under any
such contractual arrangements or that any event has occurred that, with notice
or lapse of time or both, would constitute such a default thereunder. Each of
the Material Contracts to which Miracle Partners is a party constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 14.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Miracle
Partners Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Miracle Partners or
any of its ERISA Affiliates is a party or to which Miracle Partners or any of
its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Miracle Partners or any ERISA Affiliate of Miracle Partners is a
party, which Miracle Partners or any ERISA Affiliate of Miracle Partners
sponsors or maintains or to which Miracle Partners or any ERISA Affiliate of
Miracle Partners contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Miracle Partners or any
of its ERISA Affiliates.
133
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Miracle Partners Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Miracle Partners or any of its
ERISA Affiliates is a party or to which Miracle Partners or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Miracle Partners
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Miracle Partners or any of its
ERISA Affiliates is a party or to which Miracle Partners or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
Miracle Partners or any of its ERISA Affiliates have been paid or otherwise
adequately accrued against in the Miracle Partners Financial Statements, as the
case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Miracle Partners Disclosure Letter, Miracle Partners is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Miracle Partners Financial Statements, and there
is no controversy pending, threatened or in prospect between Miracle Partners
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against
Miracle Partners with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Miracle
Partners before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in the normal course of operation of such Employee
Benefit Plans or Benefit Arrangements, and, to the knowledge of the management
of Miracle Partners, no Employee Benefit Plan or Benefit Arrangement is under
audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Miracle Partners Disclosure Letter, all current employees of Miracle
Partners may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Miracle Partners
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will
134
(i) increase any benefits otherwise payable under any Employee Benefit Plan or
Benefit Arrangement, (ii) result in the acceleration of the time of payment or
vesting of any such benefits, or (iii) give rise to an obligation with respect
to the payment of any severance pay. No "parachute payment" (within the meaning
of Section 280G of the Code), "change in control" or severance payment has been
made or will be required to be made by Miracle Partners or any ERISA Affiliate
of Miracle Partners to any Employee in connection with the execution, delivery
or performance of this Agreement or as a result of the consummation of the
Closing.
(f) Compliance with Laws on Employment
Practices. Miracle Partners has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Miracle Partners, is not engaged in any unfair labor practice with
respect to any of the current employees of Miracle Partners; and to the best
knowledge of Miracle Partners, none of the persons performing services for
Miracle Partners or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Miracle Partners Disclosure Letter, none of the employees of
Miracle Partners are subject to any collective bargaining agreement nor is
Miracle Partners required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Miracle
Partners nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Miracle Partners or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Miracle Partners ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Miracle
Partners nor any ERISA Affiliate of Miracle Partners has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Miracle Partners or ERISA Affiliate
of Miracle Partners.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Miracle Partners or any
ERISA Affiliate of Miracle Partners, which could subject any such Employee
Benefit Plan, Miracle Partners, any ERISA Affiliate of Miracle Partners, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Miracle Partners nor any of its ERISA
Affiliates
135
have incurred a "withdrawal" or "partial withdrawal," as defined in Sections
4203 and 4205 of ERISA, from, or failed to timely make contributions to any
Multiemployer Plan which has resulted in any unpaid liability of Miracle
Partners or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Miracle Partners Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (I) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Miracle Partners nor any of its
ERISA Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other funding arrangement for the provision of welfare benefits (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Miracle
Partners nor any of its ERISA Affiliates maintains a nonconforming group health
plan as defined at Section 5000(c) of the Code.
Section 14.17 Tax Matters.
(a) Affiliated Groups. Miracle Partners is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1454(a) of the Code.
(b) Tax Returns and Payment of Taxes. Miracle
Partners has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Miracle Partners has
paid, withheld, or accrued, or will accrue, on the Miracle Partners Financial
Statements in accordance with GAAP any and all Income Taxes and other Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Miracle Partners has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with
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amounts paid or owing to any Employee, creditor, independent contractor or other
third party. Miracle Partners has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Miracle
Partners's liability for unpaid Taxes for all periods ending on or before the
date of this Agreement does not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes) as
of the date of this Agreement, and the amount of Miracle Partners 's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Miracle Partners as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Miracle Partners have never been audited by any Tax
Authority, nor is any such audit in process, pending or threatened (either in
writing or verbally, formally or informally). Except as disclosed in the Miracle
Partners Disclosure Letter, no deficiencies have been asserted (or are expected
to be asserted) against Miracle Partners as a result of IRS (or state or local
Tax Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Miracle Partners Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Miracle Partners. Miracle Partners has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Miracle Partners with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Miracle Partners is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Miracle Partners
Financial Statements.
(g) Tax Elections and Special Tax Status.
Miracle Partners is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Miracle Partners is a "small business
corporation" which has elected to be subject to federal income taxation under
subchapter S of the Code and has such status for purposes of federal income
taxation and state income taxation in all states in which its respective income
is subject to taxation or has been subject to taxation at all times since its
formation.
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(h) Disqualified Leasebacks. Miracle Partners
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Miracle Partners has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements.
Miracle Partners is not a party to or bound by any Tax sharing, Tax indemnity,
Tax allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Miracle Partners has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 14.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Miracle Partners and any other real property presently or formerly owned by,
used by or leased to or by Miracle Partners (collectively, the "Miracle Partners
Property"), the existing and prior uses of such Property and all operations of
the businesses of Miracle Partners comply and have at all times complied with
all Environmental Laws and Miracle Partners is not in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Miracle Partners has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Miracle Partners Property
of any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Miracle Partners Ventures Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil xxxxx) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Miracle Partners Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Miracle Partners (or any predecessor in interest)
138
in connection with (i) any actual or alleged failure to comply with any
requirement of any Environmental Law; (ii) the ownership, use, maintenance or
operation of the Property by any person; (iii) the alleged violation of any
Environmental Law; or (iv) the suspected presence of any Hazardous Material
thereon.
Section 14.19 Compliance With Laws. Miracle Partners has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 14.20 Licenses and Permits. Miracle Partners possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Miracle Partners. Miracle Partners has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of management of
Miracle Partners, threatened, which could cause or permit revocation or
suspension of or otherwise adversely affect the maintenance of any Permits. The
transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 14.21 Insurance. Miracle Partners has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Miracle Partners is not in
default under any provision contained in any insurance policy maintained by
Miracle Partners currently, nor has Miracle Partners failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Miracle
Partners aware of any grounds therefor.
Section 14.22 Extraordinary Transactions. Except as disclosed in the
Miracle Partners Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Miracle Partners has not (I) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with,
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or purchased or agreed to purchase, all or substantially all of the assets of,
or otherwise acquire, any other party; (xi) entered into any strategic alliance,
partnership, joint venture or similar arrangement with any other party; (xii)
incurred or agreed to incur any Debt or prepaid or made any prepayments in
respect of Debt; (xiii) issued or agreed to issue to any party, any shares of
stock or other securities; (xiv) redeemed, purchased or agreed to redeem or
purchase any of its outstanding shares of capital stock or other securities;
(xv) increased the rate of compensation payable or to become payable to any of
its officers, directors, employees or agents over the rate being paid to them as
of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
Section 14.23 Title to Assets. Except as described in the Miracle
Partners Disclosure Letter, Miracle Partners has good and marketable title to
its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 14.24 Corporate Records. The minute books of Miracle Partners
accurately reflect all minutes of proceedings of and actions taken by the
directors of Miracle Partners, and by each committee of the Board of Directors
of Miracle Partners, and all records of meetings of and actions taken by the
stockholders of Miracle Partners, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 14.25 Broker and Finder Fees. Miracle Partners has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Miracle Partners by any broker,
finder or intermediary in connection with such transaction.
Section 14.26 Adequate Disclosure. No representation or warranty made
by Miracle Partners pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Miracle Partners pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 14.27 No Adverse Change or Conditions. Except as set forth in
the Miracle Partners Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Miracle Partners has conducted
its business in the ordinary course and consistent with past practice, and
Miracle Partners has not suffered any change that has had a Material Adverse
Effect on Miracle Partners . There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Miracle Partners that have not been
disclosed in writing by Miracle Partners pursuant to the Miracle Partners
Disclosure Letter.
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ARTICLE XV
----------
REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY
-----------------------------------------------------
To induce each of the Predecessor Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Holding
Company represents and warrants to each of the Predecessor Companies as follows:
Section 15.1 Organization and Good Standing. The Holding Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia. The Holding Company has the requisite corporate power
to own and hold its properties, to conduct its business as it is now being
conducted, to enter into, execute and deliver this Agreement, to issue, sell and
deliver the shares of Common Stock of the Holding Company to be issued in the
proposed IPO and pursuant to the transactions contemplated by Article III of
this Agreement.
Section 15.2 Execution and Effect of Agreement. The execution and
delivery by the Holding Company of this Agreement, the performance by the
Holding Company of its obligations hereunder, other than the issuance, sale and
delivery of the shares of Common Stock of the Holding Company to be issued in
the proposed IPO have been duly authorized by all necessary corporate action on
the part of the Holding Company. This Agreement has been duly executed and
delivered by the Holding Company and constitutes the legal, valid and binding
obligation of the Holding Company, enforceable against the Holding Company in
accordance with its terms, except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights including fraudulent conveyance laws and the
exercise of judicial discretion in accordance with general principles of equity.
Section 15.3 Authorized Capital Stock. The authorized capital stock of
the Holding Company consists of 20,000,000 shares, of which (i) 19,000,000 are
classified as shares of Common Stock, $.01 par value per share, and (ii)
1,000,000 are classified as shares of Preferred Stock, $1.00 par value per
share. As of the date hereof, none of the shares of the Common Stock of the
Holding Company have been issued by the Holding Company [other than
organizational shares subject to cancellation]. Except as contemplated by this
Agreement and for options which may be issued to officers, directors, employees
and agents of the Holding Company and its subsidiaries pursuant to stock option
plans or arrangements or other equity incentive, bonus or similar plans or
arrangements which are expected to be approved by the Board of Directors of the
Holding Company to purchase or subscribe for not more than 250,000 shares of the
Common Stock of the Holding Company in the aggregate (the "Management Option
Shares"), as of the date hereof, the Holding Company is under no obligation to
issue any of its shares of Common Stock or other equity securities pursuant to
subscriptions, warrants, options, convertible securities or other rights
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Holding Company. As of the date hereof, except for the Management Option
Shares and shares to be issued
141
pursuant to this Agreement, no shares of Common Stock or other capital stock of
the Holding Company are reserved for possible future issuance. The Holding
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. There are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Holding Company (whether or not the Holding Company is a
party thereto). The shares of Common Stock of the Holding Company to be issued
in the proposed IPO and pursuant to the transactions contemplated by Article III
of this Agreement, when issued in accordance with the terms of this Agreement
and the terms of the Underwriting Agreement, will be validly issued, fully paid
and nonassessable and will be free and clear of all Encumbrances imposed by or
through the Holding Company (other than restrictions imposed by Federal and
state securities laws). Neither the issuance of the shares of Common Stock of
the Holding Company in the IPO nor the issuance of shares of the Holding Company
pursuant to the transactions contemplated by Article III of this Agreement will
be subject to any preemptive or similar right of the stockholders of the Holding
Company. The holders of shares of the Common Stock of the Holding Company
following the issuance thereof in the IPO and pursuant to the transactions
contemplated by Article III of this Agreement will not be subject to personal
liability for the debts and obligations of the Holding Company solely by reason
of being the holders thereof.
Section 15.4 Subsidiaries; Investments. As of the date hereof, the
Holding Company has no Subsidiaries, and does not own of record or beneficially,
directly or indirectly, (I) any shares of capital stock or securities
convertible into capital stock of any other corporation or (ii) any interest in
any partnership, joint venture, limited liability company or other non-corporate
business enterprise, and does not control, directly or indirectly, any other
Person or entity.
Section 15.5 No Restrictions. The execution and delivery of this
Agreement by the Holding Company, the consummation by the Holding Company of the
transactions contemplated hereby and the performance of the obligations of the
Holding Company hereunder do not and will not (a) violate any of the provisions
of the Certificate of Incorporation or By-Laws of the Holding Company, (b)
violate or conflict with the provisions of the Virginia General Corporation Law
or any award, judgment or decree of any court or any agency, authority, bureau,
commission, department or other government instrumentality applicable to the
Holding Company or (c) conflict with, violate the provisions of, result in a
breach of, give rise to a right of termination, modification or cancellation of,
constitute a default under, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
agreement, indenture, mortgage, deed of trust, lease, agreement, note, bond,
license, permit, authorization or other instrument to which the Holding Company
is a party or to which the Holding Company is bound or subject.
Section 15.6 Litigation. There is no action, suit, claim, proceeding,
investigation or audit pending or, to the best of the Holding Company's
knowledge, threatened against or affecting the Holding Company, at law or in
equity, before or by any Governmental Authority.
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Section 15.7 Loans. The Holding Company has no outstanding loans or
advances to any Person and is not obligated to make any such loans or advances.
Except as set forth in this Agreement, the Holding Company has not incurred any
obligation or liability to any Person for borrowed money.
Section 15.8 Consents. No registration or filing with, notice to,
consent or approval of, or other action by, any Governmental Authority or any
other party is or will be necessary for the valid execution and delivery by the
Holding Company of this Agreement or the performance of its obligations
hereunder, including the issuance, sale and delivery of the Common Stock in the
proposed IPO or pursuant to the transactions contemplated by Article III of this
Agreement, other than (i) filings and registrations required pursuant to Federal
and state securities laws (all of which filings are expected to be made by or on
behalf of the Holding Company prior to the Closing) in connection with the
issuance and sale of the Common Stock of the Holding Company and the
registration of the Common Stock of the Holding Company with the Commission in
connection with the IPO and the transactions contemplated by Article III of this
Agreement, and (ii) as required by Applicable Laws relating to franchising.
Section 15.9 Adequate Disclosure. No representation or warranty made by
the Holding Company in this Agreement contains any untrue or misleading
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading. There is no fact that the
Holding Company has not disclosed to the Predecessor Companies and the Prema
Properties Members or the Xxxxxxx Car Wash Members of which the Holding Company
is aware that materially and adversely affects or could reasonably be expected
to affect materially and adversely the business, financial condition,
operations, property or affairs of the Holding Company.
Section 15.10 Business of the Holding Company. The Holding Company was
incorporated under the laws of the Commonwealth of Virginia on April 17, 1997.
Except for the rights, obligations and liabilities of the Holding Company
arising under this Agreement and its initial capitalization, and except for the
rights and obligations of the Holding Company arising out of the engagements of
legal counsel, underwriters and the certified public accountants referred to in
Article II of this Agreement, as of the date of this Agreement, the Holding
Company has no assets or liabilities or obligations, whether mature or
unmatured, due or to become due, fixed or contingent.
ARTICLE XVI
-----------
CLOSING
-------
Section 16.1 Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Miles & Stockbridge, a
Professional Corporation, located at 00 Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx,
beginning at 10:00 a.m., Eastern Standard Time, on the date of closing of the
IPO.
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Section 16.2 Documents to be Delivered by the Holding Company. At the
Closing, the Holding Company shall deliver, or shall cause to be delivered, to
each of the parties to this Agreement the following:
(a) A Certificate of the Secretary or an
Assistant Secretary of the Holding Company, dated the Closing Date, certifying
that attached thereto are true and complete copies of (I) the resolutions of the
Board of Directors of the Holding Company and each of the Merger Subsidiaries,
which authorize (I) the consummation of the transactions contemplated hereby by
the Holding Company and each of the Merger Subsidiaries, and certifying that
such resolutions have not been amended or rescinded and are in full force and
effect; and the charter and by-laws of the Holding Company as in effect as of
the date of such certification, and certifying the identity and incumbency of
the officers and directors of the Holding Company;
(b) A good standing certificate and certified
charter documents, dated as of a date reasonably close to the Closing Date, of
the Holding Company and each of the Merger Subsidiaries;
(c) An opinion letter from counsel to the
Holding Company in form and content reasonably satisfactory to each of the
Predecessor Companies and their counsel;
(d) A certificate of a duly authorized officer
of the Holding Company dated as of the Closing Date, certifying that (I) the
Holding Company has performed or complied with in all material respects all the
covenants and agreements made by the Holding Company herein which are to be
performed or complied with prior to the Closing Date or at the Closing pursuant
to the terms of this Agreement, and (ii) each of the representations and
warranties made by the Holding Company pursuant to the terms of this Agreement
are true and correct in all material respects as of the Closing Date (except
with respect to those representations and warranties made with respect to a
certain date other than the date of this Agreement or the Closing Date which
representations and warranties need be true and correct only as of such certain
date);
(e) The tax opinions of Ernst & Young referred
to in Article III of this Agreement; and
(f) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.3 Documents to be Delivered by the Corporate Predecessor
Companies. At the Closing, each of the Corporate Predecessor Companies shall
execute and deliver, or cause to be delivered to the Holding Company and each of
the other parties to this Agreement the following:
(a) A certificate of the Secretary or an
Assistant Secretary of such Predecessor Company, dated the Closing Date,
certifying that attached thereto are true and complete copies of (I) the
resolutions of the Board of Directors and stockholders of such Corporate
144
Predecessor Company which authorize (a) the execution and delivery of this
Agreement and (b) the consummation of the transactions contemplated hereby, and
certifying that such resolutions have not been amended or rescinded and are in
full force and effect; and (ii) the charter and by-laws of such Corporate
Predecessor Company as in effect as of the date of such certification; and
certifying the identity and incumbency of the officers of such Corporate
Predecessor Company;
(b) A good standing certificate and certified
charter documents, dated as of a date reasonably close to the Closing Date, of
such Corporate Predecessor Company;
(c) An opinion letter of legal counsel to such
Corporate Predecessor Company addressed to the Holding Company in form and
content reasonably satisfactory to the Holding Company and its counsel;
(d) A certificate of a duly authorized officer
of such Corporate Predecessor Company, dated as of the Closing Date, certifying
that (i) such Corporate Predecessor Company has performed or complied with in
all material respects all of the covenants and agreements made by such Corporate
Predecessor Company herein which are to be performed or complied with prior to
the Closing Date or at the Closing pursuant to the terms of this Agreement, and
(ii) each of the representations and warranties made by such Corporate
Predecessor Company pursuant to the terms of this Agreement are true and correct
in all material respects as of the Closing Date (except with respect to those
representations and warranties made with respect to a certain date other than
the date of this Agreement or the Closing Date, which representations and
warranties need be true and correct only as of such certain date); and
(e) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.4 Deliveries by the Prema Properties and Xxxxxxx Car Wash.
At the Closing, each of Prema Properties and Xxxxxxx Car Wash shall execute and
deliver to the Holding Company and the other parties to this Agreement the
following:
(a) A certificate of its duly authorized
manager, dated as of the Closing Date, certifying that (i) attached thereto as
an exhibit is a true, correct and complete copy of the Articles of Organization
and operating agreement of such limited liability company; (ii) such limited
liability company has performed or complied with in all material respects all of
the covenants and agreements made by such company herein which are to be
performed or complied with prior to the Closing Date or at the Closing pursuant
to the terms of this Agreement, and (iii) each of the representations and
warranties made by such limited liability company pursuant to the terms of this
Agreement are true and correct in all material respects as of the Closing Date
(except with respect to those representations and warranties made with respect
to a certain date other than the date of this Agreement or the Closing Date,
which representations and warranties need be true and correct only as of such
certain date);
145
(b) An opinion letter of legal counsel to Prema
Properties and Xxxxxxx Car Wash, respectively, addressed to the Holding Company,
in form and content reasonably satisfactory to the Holding Company and its
counsel; and
(c) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.5 Closing Deliveries of KBG. At the Closing, KBG shall
execute and deliver to the Holding Company the following:
(a) a certified copy of an Assignment of
Intellectual Property Rights with respect to the Proprietary Car Wash Software
System between KBG, as assignor, and KBG, LLC, as assignee, duly executed with
signatures guaranteed, together with a complete copy, in electronic form, of the
Source Code and the object code for the Proprietary Car Wash Software System;
(b) a certificate, dated as of the Closing Date,
certifying that (I) such KBG has performed or complied with in all material
respects all of the covenants and agreements made by such company herein which
are to be performed or complied with prior to the Closing Date or at the Closing
pursuant to the terms of this Agreement, and (ii) each of the representations
and warranties made by KBG pursuant to the terms of this Agreement are true and
correct in all material respects as of the Closing Date (except with respect to
those representations and warranties made with respect to a certain date other
than the date of this Agreement or the Closing Date, which representations and
warranties need be true and correct only as of such certain date);
(c) an opinion letter of legal counsel to KBG,
addressed to the Holding Company, in form and content reasonably satisfactory to
the Holding Company and its counsel; and
(d) such other documents, instruments,
certificates or agreements as may be reasonably necessary to consummate the
transaction contemplated by this Agreement.
ARTICLE XVII
------------
WITHDRAWAL AND EXCLUSION
------------------------
FROM PARTICIPATION IN THE TRANSACTION
-------------------------------------
Section 17.1 Withdrawal from Transaction. Notwithstanding anything
contained herein which may be inconsistent or to the contrary, each Predecessor
Company shall have the right, upon written notice delivered to the Holding
Company and to each of the other Participant Groups in which such Predecessor
Company is not a Constituent Company, to withdraw from further participation in
the transactions contemplated by this Agreement, without liability to the other
parties to this Agreement (except as hereinafter provided with respect to
Transaction Expenses and in Section 21.1.1), if, and only if:
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(a) a Material Adverse Effect shall have
occurred after the date of this Agreement with respect to any Material
Participant (other than such Predecessor Company); or
(b) each of the conditions precedent to the
obligations of the Predecessor Company shall not have been or fulfilled or
waived in writing by such Predecessor Company on or before November 14, 1997.
(c) the Closing shall not have occurred before
the close of business on November 14, 1997.
Section 17.2 Effect of Withdrawal. Upon the withdrawal of a Predecessor
Company, such Predecessor Company shall no longer be obligated to consummate the
any of the transactions contemplated hereby and this Agreement shall be
terminated, unless the remaining Predecessor Companies elect within 5 business
days of their receipt of notice of withdrawal (or deemed withdrawal in the case
of the failure of a Corporate Predecessor Company to obtain Board approval) from
another Predecessor Company proceed with the transactions contemplated hereby
notwithstanding the withdrawal of a Predecessor Company; provided, however, that
no such withdrawal shall operate to relieve any withdrawing Predecessor Company
from its obligation to contribute its proportionate share of its Participant
Group's Transaction Expense Share to the Transaction Expenses which have been
incurred through the date of the withdrawal of such Predecessor Company. For
purposes hereof, a party shall be considered to have withdrawn from
participation on the date on which notice of such withdrawal shall have been
received by the Holding Company.
Section 17.3 Exclusion from Transaction.
17.3.1 Right to Exclude Parties. Notwithstanding
anything contained herein which may be inconsistent or to the contrary, upon the
affirmative vote of 2/3 or more of the entire Board of Directors of the Holding
Company, the Holding Company shall have the right to exclude Xxxxxxx Car Wash
and\or Rocky Mountain I (an "Excluded Participant") from further participation
in the transactions contemplated hereby if, and only if, the Excluded
Participant shall suffer a Material Adverse Effect after the date of this
Agreement and prior to the Closing Date.
17.3.2 Effect of Exclusion. Upon the exclusion of
an Excluded Participant pursuant to the foregoing provisions, the Excluded
Participant shall thereafter be released from further liability to the other
parties to this Agreement, except (i) as provided in Section 21.1 and (ii) that
the Excluded Participant shall, nevertheless, remain liable for its agreed upon
contribution to Rocky Mountain Group's Transaction Expense Share with respect to
Transaction Expenses which have been incurred through the date of the exclusion
of the Excluded Participant from further participation in the transactions
contemplated hereby.
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ARTICLE XVIII
-------------
TERMINATION OF AGREEMENT
------------------------
Section 18.1 Agreement of Termination. This Agreement may be terminated
and the transactions contemplated hereby abandoned at any time prior to the
Closing Date by the written consent and agreement of each of the parties to this
Agreement.
Section 18.2 Events of Automatic Termination. Notwithstanding anything
contained herein to the contrary, this Agreement shall terminate, and the
transactions contemplated hereby shall be deemed to have been abandoned, if the
Closing shall not occur before the close of business on November 17, 1997,
unless the remaining parties to this Agreement shall agree on or before such
date to extend the term of this Agreement.
Section 18.3 Termination by the Holding Company. If the lead
underwriter engaged by the Holding Company to underwrite the IPO shall at any
time prior to the Closing advise the Board of Directors of the Holding Company
that the per share offering price in the IPO for the Holding Company Common
Stock reasonably can be expected to be less than $10.00, the Board of Directors
of the Holding Company shall promptly convene a meeting of the Finance Committee
of the Board of Directors to consider the advisability of consummating the IPO
and the other transactions contemplated by this Agreement. If the Finance
Committee shall determine that it is not advisable to proceed with the IPO and
the other transactions contemplated by this Agreement, then the Finance
Committee shall so notify the full Board of Directors of the Holding Company and
the Holding Company shall then terminate this Agreement by delivering written
notice to that effect to each of the parties to this Agreement. The
determination of the Finance Committee with respect to this matter shall be made
by a majority vote of all of the members of the Finance Committee. If the
Finance Committee shall become deadlocked as to its determination with respect
to the advisability of continuing with the transactions contemplated hereby, the
Finance Committee shall so notify the full Board of Directors of the Holding
Company, which shall then promptly convene a special meeting of the full Board
of Directors for purposes of considering such matter. If the full Board of
Directors determines at such meeting that it is not advisable to proceed with
the IPO and the other transactions contemplated by this Agreement, then the
Holding Company shall then terminate this Agreement, effective immediately upon
delivery of written notice to that effect delivered to each of the parties to
this Agreement.
Section 18.4 Effects of Termination of Agreement. In the event that
this Agreement shall terminate pursuant to the foregoing provisions of this
Article, this Agreement shall become null and void and of no further force and
effect, and thereafter, none of the parties hereto shall have any further
obligation or liability hereunder, except that each of the Contributing
Companies shall, nevertheless, remain liable for their respective agreed upon
contribution to their proportionate share of their Participant Group's
Transaction Expense Share with respect to all Transaction Expenses which have
been incurred through the date of the termination of this Agreement and the
provision of Section 23.3 hereof relating to confidentiality shall remain
binding upon the parties hereto for a period of 5 years following the date of
the termination of this Agreement.
ARTICLE XIX
-----------
DEBT LEVEL GUARANTEES AND RELATED ESCROW ARRANGEMENT
----------------------------------------------------
Section 19.1 Debt Level Guarantees of the Contributing Companies. The
allocation of the
148
number and related value of the shares to be issued by the Holding Company to
the Selling Stockholders and the Selling Members of each of the Contributing
Companies pursuant to the transactions contemplated by Article III of this
Agreement were determined by the parties based upon agreed upon projected
"enterprise values" of each of the Contributing Companies as of the projected
Closing Date, assuming that the aggregate Debt level of each of the Contributing
Companies would not exceed a specified level as of such date. Therefore, each of
the Contributing Companies hereby represents and warrants and covenants and
guarantees to the Holding Company, that its aggregate Debt will not exceed the
amount set forth in Schedule 19.1 opposite the name of such Contributing Company
under the heading entitled "Guaranteed Closing Date Debt Level" (the "Guaranteed
Closing Date Debt Level"); provided, however, that, if, and to the extent that
the incurrence by such Contributing Company of any indebtedness or other
obligations is permitted in accordance with the provisions of Section 5.5 (f) of
this Agreement, no portion of the amount of such indebtedness or other
obligation shall be considered to be part of the Debt of Contributing Company,
whether or not required by GAAP to be reflected as such on the balance sheet of
such Contributing Company as of the Closing Date.
Section 19.2 Definition of Debt. For purposes of this Agreement, "Debt"
shall mean without duplication (in each case whether such obligation is with
full or limited recourse), (i) any and all obligations of a Contributing Company
for borrowed money, (ii) any and all obligations of a Contributing Company in
respect of the deferred purchase price for any real or personal property or
services, (iii) any and all obligations a Contributing Company in respect of any
capital lease, (iv) any and all amounts in respect of which a Contributing
Company may be liable, contingently or otherwise, under any guarantees of Debt
of another Person, and (v) any other items required to be reported as short-term
or long-term debt on the balance sheets of a Contributing Company in accordance
with GAAP.
Section 19.3 Escrow of Shares. At the Closing, the Holding Company
shall deposit with the Escrow Agent, on behalf of, and solely as an
accommodation to, the Selling Stockholders and Selling Members of each of the
Contributing Companies, stock certificates evidencing 10% of the aggregate
number of shares of the Common Stock of the Holding Company that each such
Selling Stockholder or Selling Member would otherwise be entitled to receive at
the Closing pursuant to the transactions contemplated by Article III of this
Agreement (the "Debt Level Escrow Shares") in order to secure to the Holding
Company the guarantee of the Debt level made by each Contributing Company
pursuant to Section 19.1 of this Agreement. The Escrow Agent shall hold and
administer such certificates and the Debt Level Escrow Shares in accordance with
the terms of an Escrow Agreement in form and content satisfactory to the parties
(the "Escrow Agreement"). Notwithstanding the deposit by the Holding Company of
the Debt Level Escrow Shares at the Closing, each of the Debt Level Escrow
Shares shall be considered to have been issued by the Holding Company at the
Closing to the Person who otherwise would have been entitled to receive the same
and shall be reported by the parties as having been so issued.
Section 19.4 Determination of Closing Date Debt Level. Promptly
following the Closing Date, the Holding Company shall review the books and
records of each of the Contributing
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Companies, and prepare (i) a balance sheet, in accordance with GAAP,
consistently applied, of each of the Contributing Companies as at the Closing
Date and (ii) a statement of the aggregate Debt of each of the Contributing
Companies as at the Closing Date as shown on each such balance sheet (the
"Closing Date Debt Level"), but with the adjustments thereto contemplated by
Section 19.2 of this Agreement, all of which shall be delivered to each
designated Representative of the Selling Stockholders and the Selling Members of
each Contributing Company not later than 45 days following the Closing Date.
Section 19.5 Dispute Resolution. If the former stockholders or former
members of any Contributing Company shall dispute the amount of the Closing Date
Debt Level of such Contributing Company set forth on the statement of the
Closing Date Debt Level described in Section 19.4, the Representative of any
such group of Selling Stockholders or Selling Members shall so notify the
Holding Company in writing of their objections within 15 days after delivery to
them of such statement and shall describe, in reasonable detail, the reasons for
their objections and their proposed calculation of the Closing Date Debt Level
of such Contributing Company. If the Representative of an applicable group of
Selling Stockholders or Selling Members of a Contributing Company fails to
deliver a notice of objection to the Holding Company within such 15-day period,
the amount of the Closing Date Debt Level of such Contributing Company set forth
in the statement thereof described in Section 19.4 shall be deemed to have been
accepted by such Selling Stockholders or Selling Members. If, however, the
Representative of an applicable group of Selling Stockholders or Selling Members
of a Contributing Company delivers a notice of objection to the Holding Company
within such 15-day period, the Holding Company and such Representative shall
endeavor in good faith to resolve any disputed items within 10 business days
after the date of the Holding Company's receipt of the applicable notice of
objection. In the event that the Holding Company and the Representative shall be
unable to resolve any items in dispute relating to the statement of the Closing
Date Debt Level described in Section 19.4, the Holding Company and such
Representative shall engage Ernst & Young to resolve all items remaining in
dispute, and the determination of Ernst & Young in respect of such items shall
be conclusive and binding on the parties. Ernst & Young shall be instructed by
the Holding Company and such Representative to prepare and deliver to the
Holding Company and to such Representative, after resolving any items in
dispute, a balance sheet of the applicable Contributing Company as of the
Closing Date reflecting its resolution of all issues in dispute and a statement
of the Closing Date Debt Level shown thereon. The Closing Date Debt Level of
each Contributing Company, as finally determined (whether by failure of the
Representative of the former stockholders or members thereof to deliver a notice
of objection to the Holding Company, by the agreement of the parties or by the
final determination of Ernst & Young), shall be deemed to be, and shall be
referred to herein, as the "Final Closing Date Debt Level" of such Contributing
Company.
Section 19.6 Set-Off Against Debt Level Escrow Shares. If the Final
Closing Date Debt Level of any Contributing Company shall be more than the
Guaranteed Closing Date Debt Level of such Contributing Company, the Holding
Company shall have the right to set-off only against the Debt Level Escrow
Shares so deposited with the Escrow Agent on behalf of the Selling Stockholders
or Selling Members of such Contributing Company Debt Level Escrow Shares having
a value equal
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to the full amount of the difference between the Guaranteed Closing Date Debt
Level of such Contributing Company and the Final Closing Date Debt Level of such
Contributing Company, and the Escrow Agent shall be instructed by the Holding
Company to disburse to the Holding Company share certificates evidencing such
number of Debt Level Escrow Shares and to disburse the remaining balance of such
Debt Level Escrow Shares, if any, to the applicable group of Selling
Stockholders or Selling Members. If, on the other hand, the Final Closing Date
Debt Level of the Contributing Company shall be equal to or less than the
Guaranteed Debt Level of such Contributing Company, the Escrow Agent shall be
instructed to disburse to the Selling Stockholders or Selling Members of such
Contributing Company share certificates evidencing the full number of Debt Level
Escrow Shares so deposited on behalf of such former stockholders or members.
Section 19.7 Term of the Escrow. The Escrow Agent shall hold all of the
Debt Level Escrow Shares in escrow in accordance with the terms of this
Agreement and of the Escrow Agreement for a period of 60 days following the
Closing Date, and shall not disburse any of the Debt Level Escrow Shares from
escrow prior to the date which is 60 days after the Closing Date. On the date
which is 60 days after the Closing Date, the Escrow Agent shall deliver to each
of the Selling Stockholders and Selling Members, stock certificates evidencing
his or her prorata portion of the aggregate number of shares of the Debt Level
Escrow Shares then on deposit with the Escrow Agent; provided, however, that if
the Final Net Debt Level of any Contributing Company shall not have been
determined as of such date due to an unresolved dispute as to the Closing Date
Debt Level of such Contributing Company, the Holding Company shall have the
right to set-off on such date against the Debt Level Escrow Shares attributable
to the former stockholders or members of such Contributing Company Debt Level
Escrow Shares having a value equal to the undisputed amount of the difference
between the Guaranteed Closing Date Debt Level and the Closing Date Net Level
shown on the statement thereof described in Section 19.4 or prepared by Ernst &
Young, as the case may be, if any, and Debt Level Escrow Shares having a value
equal to the disputed amount of the difference between the Guaranteed Closing
Date Net Debt Level and the Closing Date Net Debt Level shown on the statement
thereof described in Section 19.4 or prepared by Ernst & Young, as the case may
be shall remain on deposit with the Escrow Agent until the Final Closing Date
Debt Level of such Contributing Company shall have been determined, and then
disbursed either to the Holding Company or to the applicable group of Selling
Stockholders or Selling Members, as appropriate.
Section 19.8 Expenses Relating to Determination of Closing Date Debt
Level. The Holding Company shall bear all of the costs and expenses incurred by
it in reviewing the books and records of the Contributing Companies and
preparing the statements of Closing Date Net Debt Level described in Section
19.4. Each of the Selling Stockholders and Selling Members shall each bear, and
be responsible for, the costs and expenses incurred by each of them (including
the fees and expenses of their respective accounting firms) in connection with
their review of such statements of Closing Date Net Debt Level. If Ernst & Young
is engaged with respect to a dispute between the Holding Company and the
Representative(s) of any Selling Stockholders or Selling Members over the actual
amount of the Closing Date Net Debt Level of a Contributing Company, and the
amount of the Final Closing Date Net Debt Level as determined by Ernst & Young
is greater than or equal
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to the Holding Company's initial statement of the Closing Date Net Debt Level,
the fees and expenses of Ernst & Young shall be paid solely by the former
stockholders or members of the Contributing Company; if Ernst & Young is
engaged, and the amount of the Final Net Debt Level as determined by the
Independent Accountants is less than the Holding Company's initial statement of
the Closing Date Net Debt Level, the fees and expenses of Ernst & Young shall be
paid solely by the Holding Company.
Section 19.9 Value of Escrow Shares. For purposes of determining the
actual amount of Debt Level Escrow Shares against which the Holding Company
shall be entitled to exercise its right of set-off under this Article XIX, each
of the Debt Level Escrow Shares shall be valued at the price per share at which
the shares of the Common Stock of the Holding Company shall be offered to the
public in the IPO. Except with respect to Debt Level Escrow Shares as to which
the Holding Company shall have exercised its right to set off, all of the Debt
Level Escrow Share shall nevertheless be deemed to be owned by the Selling
Shareholders and Selling Members that otherwise would have been entitled to
receive such shares at the closing of the transactions contemplated by Article
III of this Agreement, and, subject to the provisions of Article III of this
Agreement, shall be entitled to vote the same and to receive all dividends
declared thereon; provided, however, that, notwithstanding the foregoing, all
shares issuable pursuant to any stock dividend or stock split declared by the
Holding Company with respect to the shares of the Common Stock of the Holding
Company which are applicable to any of the Debt Level Escrow Shares shall also
be deposited with the Escrow Agent and remain subject to the provisions of this
Article.
ARTICLE XX
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INDEMNIFICATION ESCROW ARRANGEMENTS
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Section 20.1 Escrow of Indemnity Escrow Shares. At the Closing, the
Holding Company shall deposit with the Escrow Agent, on behalf of, and solely as
an accommodation to, each of the Selling Shareholders and Selling Members and
KBG, stock certificates evidencing 10% of the aggregate number of shares of the
Holding Company Common Stock that each of the Selling Shareholders and Selling
Members and KBG, respectively, would each otherwise be entitled to receive at
the Closing pursuant to the transactions contemplated by Article III of this
Agreement (collectively, the "Indemnity Escrow Shares"). The Escrow Agent shall
hold and administer such certificates and the Indemnity Escrow Shares in
accordance with the terms of the Escrow Agreement. Notwithstanding the deposit
by the Holding Company of the Indemnity Escrow Shares at the Closing, each of
the Indemnity Escrow Shares shall be considered to have been issued by the
Holding Company at the Closing to the Person who otherwise would have been
entitled to receive the same and shall be reported by the parties as having been
so issued.
Section 20.2 Purpose of Escrow; Indemnification. From and after the
Closing, each group of Selling Shareholders and each group of Selling Members
and KBG shall each, severally and not jointly, and not jointly and severally
with each other, indemnify and hold harmless the Holding Company in respect of
all Holding Company Indemnified Claims and Losses arising out or, relating
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