AGREEMENT OF REORGANIZATION
AMONG
XXXXXX FINANCIAL COMPANY,
a Kansas corporation ("Corporation"),
ADVANCED FINANCIAL, INC.,
a Delaware corporation ("AFI"),
SEQUOIA COMPANY,
XXXXX XXXXXXX, INC.
(as custodian for the benefit of Xxxxxxxx X. Xxxx),
JMO GROUP,
XXXX X. XXXXXX
(trustee of the Xxxx Xxxxxx Grandchildren's Irrevocable Trust),
XXXXX X. XXXXXX,
XXXXX XXXXX
and
XXXXXXXXX XXXXX
(collectively, "Shareholders"),
XXXXXXXX X. XXXX
and
XXXX X. XXXXXX
February 5, 1999
TABLE OF CONTENTS
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Page
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ARTICLE I. REORGANIZATION.....................................................1
--------------------------
1.01 Purchase and Sale of the Shares......................................1
1.02 Purchase Price.......................................................2
1.03 Adjustments to Purchase Price for Shareholders.......................2
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.....................4
----------------------------------------------------------
2.01 Corporate Organization, etc..........................................4
2.02 Capital Stock; Options...............................................4
2.03 Subsidiaries and Affiliates..........................................4
2.04 Authorization, etc...................................................5
2.05 No Violation.........................................................5
2.06 Governmental Authorities.............................................5
2.07 Financial Statements.................................................5
2.08 No Undisclosed Liabilities, Claims, etc..............................5
2.09 Absence of Certain Changes...........................................6
2.10 Contracts............................................................6
2.11 True and Complete Copies.............................................6
2.12 Title and Related Matters............................................7
(a) Real Property......................................................7
(b) Personal Property.................................................10
(c) Machinery, Equipment, Parts, Furniture, Tools, Vehicles
and Other Tangible Assets.........................................10
(d) No Disposition of Assets..........................................10
2.13 Litigation..........................................................10
2.14 Tax Matters.........................................................11
2.15 Government Contracts................................................13
2.16 Compliance with Law.................................................13
2.17 Absence of Certain Business Practices...............................13
2.18 ERISA and Related Employee Benefit Matters..........................14
(a) Welfare Benefit Plans.............................................14
(b) Pension Benefit Plans.............................................14
(c) Compliance with Applicable Law....................................15
(d) Administration of Plans...........................................15
(e) Title IV Plans....................................................15
(f) Other Employee Benefit Plans and Agreements.......................16
(g) Copies of Plans...................................................16
(h) Continuation Coverage Requirements for Health Plans...............16
(i) Valid Obligations.................................................16
(j) COBRA.............................................................16
(k) Health Insurance..................................................17
2.19 Intellectual Property...............................................17
2.20 Customers...........................................................17
2.21 Labor Relations.....................................................18
2.22 Insurance...........................................................18
2.23 Environmental.......................................................18
2.24 Bank Accounts.......................................................20
2.25 Compensation........................................................20
2.26 Commitments.........................................................20
2.27 Other Employee Matters..............................................21
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2.28 WARN................................................................21
2.29 Overtime, Back Wages, Vacation and Minimum Wages....................21
2.30 ADA.................................................................22
2.31 Permits.............................................................22
2.32 Shareholders'Acquisition of AFI's Stock.............................22
2.33 Disclosure..........................................................23
2.34 Survival............................................................23
2.35 Public Announcements................................................23
2.36 Make-up of Shareholder Group........................................23
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF AFI...........................24
---------------------------------------------------
3.01 Corporate Organization, etc.........................................24
3.02 Authorization, etc..................................................24
3.03 No Violation........................................................24
3.04 Governmental Authorities............................................24
3.05 Insurance...........................................................24
3.06 AFI's Plan of Reorganization........................................25
3.07 Unregistered Stock..................................................25
3.08 Capital Stock; Options..............................................25
3.09 Subsidiaries and Affiliates.........................................25
3.10 Financial Statements................................................25
3.11 No Undisclosed Liabilities, Claims, etc.............................25
3.12 Absence of Certain Changes..........................................25
3.13 Litigation..........................................................26
3.14 Tax Matters.........................................................26
3.15 Compliance with Law.................................................28
3.16 Tax Loss Carry Forward..............................................29
3.17 Disclosure..........................................................29
3.18 Survival............................................................29
ARTICLE IV. COVENANTS OF SHAREHOLDER.........................................29
-------------------------------------
4.01 Amendments..........................................................29
4.02 Capital Changes.....................................................29
4.03 Dividends; Bonuses..................................................29
4.04 Capital and Other Expenditures......................................29
4.05 Borrowing...........................................................30
4.06 Other Commitments...................................................30
4.07 Full Access and Disclosure..........................................30
4.08 Consents............................................................30
4.09 Breach of Agreement................................................30
4.10 Fulfillment of Conditions...........................................30
4.11 Regular Course of Business..........................................30
4.12 Conversion of Long-term Debt to Equity..............................31
ARTICLE V. COVENANTS OF AFI..................................................31
----------------------------
5.01 Books and Records...................................................31
5.02 Fulfillment of Conditions...........................................31
5.03 Piggyback Registration Rights.......................................31
ARTICLE VI. COVENANT NOT TO COMPETE..........................................32
------------------------------------
ARTICLE VII. OTHER AGREEMENTS................................................33
------------------------------
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7.01 Consultants, Brokers and Finders....................................33
7.02 Consulting Agreement................................................34
7.03 Taxes...............................................................34
7.04 Anti-dilution.......................................................35
7.05 Future Purchase of Shares...........................................35
ARTICLE VIII. CONDITIONS TO THE OBLIGATIONS OF AFI...........................35
---------------------------------------------------
8.01 Representations and Warranties; Performance.........................35
8.02 Fairness Opinion....................................................36
8.03 Consents and Approvals..............................................36
8.04 Opinion of Counsel to Corporation and/or Shareholder................36
8.05 No Proceeding or Litigation.........................................36
8.06 Review..............................................................36
8.07 Other Agreements....................................................36
8.08 Board of Director Approvals.........................................36
8.09 Stock...............................................................36
8.10 Adverse Change......................................................37
8.11 Computer Leases.....................................................37
8.12 Execution of Escrow Agreement.......................................37
8.13 Termination of Existing Consulting Agreements.......................37
8.14 Resignation of Existing Officers and Directors......................37
8.15 FMIC Line of Credit.................................................37
8.16 Bankruptcy Court Approval...........................................37
8.17 Xxxxx Agreement.....................................................37
8.18 SEC Filings.........................................................38
8.19 FMIC Transaction....................................................38
8.20 Greif Disclosure....................................................38
ARTICLE IX. CONDITIONS TO THE OBLIGATIONS OF SHAREHOLDER.....................38
---------------------------------------------------------
9.01 Representations and Warranties; Performance.........................38
9.02 No Proceeding or Litigation.........................................38
9.03 Payment.............................................................38
9.04 Other Documents.....................................................38
9.05 Other Agreements....................................................38
9.06 Execution of Escrow Agreement.......................................39
9.07 Computer Leases.....................................................39
9.08 Xxxxx Agreement.....................................................39
9.09 SEC Filings.........................................................39
9.10 FMIC Transaction....................................................39
9.11 Greif Disclosure....................................................39
9.12 FMIC Line of Credit.................................................39
ARTICLE X. CLOSING...........................................................39
-------------------
10.01 Closing............................................................39
10.02 Deliveries at Closing..............................................39
10.03 Legal Actions......................................................40
10.04 Specific Performance...............................................40
ARTICLE XI. INDEMNIFICATION..................................................41
----------------------------
11.01 Indemnification by Shareholder.....................................41
11.02 Tender of Defense for Damages......................................42
11.03 Survival of Warranties.............................................42
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ARTICLE XII. MISCELLANEOUS PROVISIONS........................................42
--------------------------------------
12.01 Amendment and Modification.........................................42
12.02 Waiver of Compliance; Consents.....................................42
12.03 Expenses...........................................................43
12.04 Notices............................................................43
12.05 Definitions........................................................44
12.06 Assignment.........................................................44
12.07 Governing Law......................................................44
12.08 Counterparts.......................................................44
12.09 Neutral Interpretation.............................................44
12.10 Headings...........................................................44
12.11 Release of All Claims..............................................44
12.12 Confidentiality....................................................45
12.13 Entire Agreement...................................................45
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AGREEMENT OF REORGANIZATION
---------------------------
THIS AGREEMENT ("Agreement"), dated as of the 5th day of February, 1999, is
made by and among SEQUOIA COMPANY, XXXXX XXXXXXX, INC., custodian for the
benefit of Xxxxxxxx X. Xxxx, JMO GROUP, XXXX X. XXXXXX, Trustee of the Xxxx
Xxxxxx Grandchildren's Irrevocable Trust, XXXXX X. XXXXXX, and XXXXX XXXXX and
XXXXXXXXX XXXXX, husband and wife (collectively and individually the
"Shareholders"), XXXXXX FINANCIAL COMPANY, a Kansas corporation (the
"Corporation"), ADVANCED FINANCIAL, INC., a Delaware corporation ("AFI"),
XXXXXXXX X. XXXX, individually ("Xxxx"), and XXXX X. XXXXXX, individually
("Xxxxxx").
RECITALS
--------
A. Shareholders are the owners of all the issued and outstanding stock of
Corporation; and
B. AFI desires to acquire all the issued and outstanding stock of
Corporation from Shareholders, and Shareholders are willing to sell the same to
AFI in a nontaxable reorganization pursuant to Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended, pursuant to the terms and provisions
hereinafter set forth; and
C. On November 13, 1998, the United States Bankruptcy Court for the
District of Kansas entered an order confirming the First Amended Joint Plan of
Reorganization dated July 29, 1998 of AFI and its wholly-owned subsidiary, AFI
Mortgage, Corp. ("Plan of Reorganization"). No appeal was taken by any party and
the order confirming the Plan of Reorganization is final and non-appealable.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
REORGANIZATION
--------------
1.01 Purchase and Sale of the Shares. At the Closing Date (as hereinafter
defined) and in the manner herein provided, Shareholders shall sell, transfer
and deliver all of the shares of capital stock of Corporation (hereinafter
collectively called the "Shares") to AFI, and AFI shall purchase the Shares from
Shareholders pursuant to a transaction that is intended to qualify as a
nontaxable reorganization pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended. Shareholders acknowledge that AFI has not made
and makes no representation or warranty to Shareholders that Shareholders'
exchange of shares hereunder will actually qualify for a non-taxable treatment
pursuant to Internal Revenue Code of 1986, as amended. Shareholders acknowledge
that they are obtaining their own tax advice from their own representatives and
will not look to AFI with respect to any of that advice, and hereby releases and
agrees to forever hold AFI harmless from any claim, liability, obligation, cost
or expense
1
whatsoever as a result of their desire that this transaction qualify for
non-taxable treatment pursuant to the Internal Revenue Code.
1.02 Purchase Price. Subject to the terms and conditions of this Agreement
and in reliance on the representations and warranties of Shareholders herein
contained, and in consideration of the sale, conveyance, transfer and delivery
of the Shares provided for in this Agreement, AFI agrees to pay to Shareholders
at the Closing an aggregate purchase price (the "Purchase Price") as follows:
(a) AFI will transfer to Shareholders the sum of One Million Five
Hundred Thousand (1,500,000) shares of AFI's common voting stock having a
par value of One One-thousands Cents ($0.001) per share. The Purchase Price
shall be allocated among the Shareholders, on a pro rata basis, based upon
each Shareholder's percentage ownership interests of the Shares as of the
Closing Date, as set forth in Exhibit 2.02. The Purchase Price payable to
------------ Shareholders shall be subject to the terms and provisions
contained within this Agreement. The Purchase Price payable to Shareholders
and the number of shares to be issued to Shareholders may be adjusted as a
result of the terms and provisions contained within Section 1.03 hereafter.
1.03 Adjustments to Purchase Price to Shareholders.
(a) Shareholders hereby agree to place the shares received by them
from the payment of the Purchase Price pursuant to Section 1.02 above, into
escrow, with Xxxxx & Xxxxxxxx, P.A. as the independent escrow agent, to be
held pending compliance with Sections 1.03(b) and 1.03(c) hereafter and
pending the completion of their indemnity obligations in Section 8 hereof.
The parties agree that the escrow shall be accomplished pursuant to the
escrow agreement attached hereto as Exhibit 1.03 and incorporated herein by
this referenced ("Escrow Agreement"), with all expenses of the escrow agent
as a result of its service to be split equally between (a) AFI and (b)
Shareholders.
(b) Shareholders and AFI agree to cause Corporation, at AFI's expense,
by no later than sixty (60) days after the Closing Date, to prepare an
audited balance sheet and income statement of Corporation as of the Closing
Date ("Closing Balance Sheet") to be prepared in accordance with generally
accepted accounting principles by the accounting firm of Xxxxx Xxxxxxxx and
in a manner agreeable to AFI and its accountants. To the extent that the
net book value on said Closing Balance Sheet ("Closing Owner's Equity") is
less than Six Hundred Thousand Dollars ($600,000), but greater than or
equal to Five Hundred Thousand Dollars ($500,000), Shareholders agree that
for each One Dollar ($1) that Closing Owner's Equity is less than Six
Hundred Thousand Dollars ($600,000) they shall disgorge two (2) Shares
("Forfeited Shares").
This adjustment in Purchase Price received as a result of the operation of
Section 1.03(b) shall be accomplished by the surrender of the Forfeited
Shares by Shareholders within thirty (30) days after completion of the
Closing Balance Sheet. In the event that the Closing Owner's Equity does
not result in a whole number, the parties agree that to the extent that the
fractional portion of the Closing Owner's Equity is less than one-half (*),
the Closing
2
Owner's Equity will be rounded down to the next whole number, and if the
fraction is one-half (*) or greater, the Closing Owner's Equity shall be
rounded up to the next whole number. The rights of the parties, pursuant to
the escrow, shall be governed by the Escrow Agreement. Net book value, for
purposes of the calculation of Closing Owner's Equity, shall be
Corporation's total assets, less total liabilities, as of the Closing Date,
with such balance sheet adjusted to reflect the conversion of Corporation's
long-term debt amounting to One Hundred Seventy-five Thousand Dollars
($175,000) to equity as described in Section 4.13 herein, and further
deducting as liabilities any and all expenses required to be paid by
Corporation pursuant to this Agreement (except for the legal fees incurred
by Corporation in connection with this transaction).
(c) In the event that the Closing Owner's Equity is less than Five
Hundred Thousand Dollars ($500,000), Shareholders shall have ten (10)
business days from receipt of the notice of same from AFI in order to
contribute assets to Corporation sufficient to, in the reasonable opinion
of AFI and AFI's accountants, raise the Closing Owner's Equity to at least
Five Hundred Thousand Dollars ($500,000). If Shareholders fail to
contribute said assets within the ten (10) business days provided for
herein, Shareholders hereby agree to disgorge, a number of shares equal to
three (3) shares for each Fifty Cents ($.50) in value that the Closing
Owner's Equity is less than Five Hundred Thousand Dollars ($500,000). This
adjustment in Purchase Price received as a result of the operation of this
Section 1.03(c) shall be accomplished by the surrender of such shares by
Shareholders within thirty (30) days after the written election by AFI of
this option. In the event that the Forfeited Shares result in fractional
shares or after division between Shareholders result in individual
fractional share amounts for any Shareholders, to the extent the fraction
is less than one-half (.5), the fractional shares will be rounded down to
the next whole number, and if one-half (.5) or greater, shall be rounded up
to the next whole number. The disgorgement of shares as a result of the
operation of this subparagraph (c) shall be governed according to the terms
of the Escrow Agreement.
(d) Notwithstanding anything herein contained to the contrary, if
Shareholders disagree with the Closing Owner's Equity determined by the
accountants retained by AFI, Shareholders shall give written notice of same
to AFI within ten (10) business days of the receipt of such audit. In such
event, Shareholders shall retain accountants at their own expense, and the
accountants retained by Shareholders shall consult with the accountants
retained by AFI. If the two accounting firms can agree on the Closing
Owner's Equity, then the agreed upon determination shall control Closing
Owner's Equity for purposes of the provisions of this Section 1.03. If such
two accounting firms cannot agree of the value of the Closing Owner's
Equity, then the two accounting firms shall mutually select a third
accounting firm that shall resolve any differences. The decision of such
third accounting firm as to the Closing Owner's Equity shall be
determinative on the parties hereto. The expense of the third accounting
firm shall be shared equally by AFI and Shareholders.
(e) In the event that the Closing does not occur by February 19, 1999,
without AFI or Shareholders, respectively, exercising the rights they have
to cancel the Agreement prior to Closing under Articles VIII and IX of the
Agreement, respectively,
3
Shareholders shall be entitled to a penalty for said failure to close equal
to two thousand (2,000) shares of AFI stock for each day after February 19,
1999, that Closing fails to occur ("Penalty Shares"). However, in no event
shall the payment of the Penalty Shares as discussed herein cause, after
all other adjustments provided for in this Section 1.03, the total Shares
received by Shareholders to exceed one million five hundred thousand
(1,500,000) shares. Any Penalty Shares delivered to Shareholders as a
result of this Section 1.03(e) shall be allocated proportionately to
Shareholders based upon their share holdings in Corporation prior to
Closing. In addition, any Penalty Shares received as a result of the
operation of this Section 1.03(e) shall constitute "Shares" subject to the
indemnification provisions of this Agreement and subject to the Escrow
Agreement.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
Shareholders, jointly and severally, and after consultation with Corporation's
officers and directors, both on the date of this Agreement and as of Closing,
represent and warrant to AFI and Corporation as follows:
2.01 Corporate Organization, etc. Corporate Organization, etc. Corporation
is a Subchapter C corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas, with all requisite corporate
power and authority to carry on its business as it is now being conducted and to
own, operate and lease its properties and assets. Corporation is authorized to
do business, and is in good standing, in the State of Missouri. The conduct of
its business and its ownership or use of property do not require Corporation to
be qualified or licensed to do business as a foreign corporation in any state
other than the State of Missouri. Exhibit 2.01 contains complete and correct
copies of Corporation's (i) articles or certificate of incorporation, as amended
to the Closing Date, (ii) bylaws, as amended to the Closing Date, and (iii)
minutes, current through the Closing Date. Corporation has all federal, state,
local and foreign licenses, permits or other approvals required for the
operation of its business as now being conducted.
2.02 Capital Stock; Options. The authorized capital stock of Corporation
and the shares of capital stock issued and outstanding, of all classes, and the
respective holdings of each Seller are as set forth in Exhibit 2.02 and
Corporation has no treasury stock. All issued and outstanding shares of capital
stock are validly issued, fully paid and nonassessable and are owned by
Shareholders, free and clear of all liens, encumbrances or claims. There are no
issued and outstanding options, warrants, rights, securities, contracts,
commitments, understandings, profit sharing or retirement plans, or other
arrangements by which Corporation is bound to issue any additional shares of its
capital stock or options to purchase shares of its capital stock.
2.03 Subsidiaries and Affiliates. Except as set forth in Exhibit 2.03,
Corporation has no subsidiaries, Affiliates or investments in any other entity
or business operation. The term "Affiliates" means, for the purpose of this
Agreement, each shareholder, director, officer and employee of Corporation, the
family members of each Shareholder, Trustees of the Shareholders, and any
director, officer or employee of Corporation, and any corporation, partnership
or other entity in which Corporation, any Shareholder, any family member of a
Shareholder or director or
4
officer of Corporation has any financial interest or is a controlling person, as
that term is used in connection with the federal securities laws.
2.04 Authorization, etc. Both Corporation and Shareholders have full power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby.
2.05 No Violation. Except as set forth in Exhibit 2.05, neither
Corporation, nor Shareholders, are subject to or obligated under any article or
certificate of incorporation, bylaw, Law (as defined in Section 12.05), or any
agreement or instrument, or any license, franchise or permit, which would be
breached or violated by the execution, delivery and performance of this
Agreement by Shareholders or Corporation. Shareholders and Corporation will
comply with all applicable Laws in connection with their or its execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Shareholders and Corporation does not require the consent of
any third party, and neither conflicts with, results in a breach of, or
constitutes a default under any applicable law, judgment, order, injunction,
decree, rule, regulation, or ruling of any court or government to which either
Corporation or Shareholders may be subject, nor does it conflict with,
constitute grounds for termination of, result in a breach of, or constitute a
default under, any agreement, instrument, license or permit to which either
Corporation or Shareholders are now subject.
2.06 Governmental Authorities. Except as set forth on Exhibit 2.06, neither
Shareholders nor Corporation are required to submit any notice, report or other
filing with, and no consent, approval or authorization is required, by any
governmental or regulatory authority in connection with Shareholders' or
Corporation's execution, delivery, consummation or performance of this Agreement
or the consummation of the transactions contemplated hereby.
2.07 Financial Statements. Exhibit 2.07 contains Corporation's statements
of financial position as of December 31, 1998, and statements of income and
retained earnings for the period ending December 31, 1998. All such statements
of financial position and the notes thereto are complete and accurate, contain a
listing of all assets and liabilities of Corporation and fairly present the
financial position of Corporation as of the respective dates thereof, and such
statements of income and retained earnings and the notes thereto fairly present
the results of operations for the periods therein referred to. Other than
accrued income taxes not yet due and payable, all such statements include all
adjustments (all of which were normal recurring adjustments) necessary to fairly
present the financial position, results of operations and changes in financial
position at and for such periods. The statement of financial position and
statement of income and retained earnings as of December 31, 1998, are referred
to collectively as the "Balance Sheet." December 31, 1998, is referred to as the
"Financial Statement Date."
2.08 No Undisclosed Liabilities, Claims, etc. Except for (a) liabilities
fully reflected or reserved against in the Balance Sheet; (b) liabilities
disclosed on Exhibit 2.08; and (c) regular and usual liabilities and obligations
incurred in the ordinary course of business consistent with the Corporation's
past practices, Corporation has no liabilities, obligations or claims (absolute,
accrued, fixed or contingent, matured or unmatured, or otherwise), including
liabilities,
5
obligations or claims which may become known or which arise only after the
Closing and which result from actions, omissions or occurrences of Corporation
prior to the Closing.
2.09 Absence of Certain Changes. Since the Financial Statement Date, except
as set forth on Exhibit 2.09, there has not been (a) any damage, destruction or
loss to physical property, whether covered by insurance or not, adversely
affecting Corporation's properties and business; (b) any declaration, setting
aside or payment of any dividend whether in cash, stock or property with respect
to Corporation's capital stock, or any redemption or other acquisition of such
stock by Corporation; (c) any increase in the compensation payable or to become
payable by Corporation to its directors, officers, key employees, Affiliates or
Shareholders, except as referenced in Section 4.03 hereafter, or any adoption of
or increase in any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such party; (d) any entry into
any commitment or transaction involving borrowing or capital expenditure; (e)
any termination or waiver of any rights of value to the business of Corporation,
except for discounting of credit receivables in the ordinary course of business;
(f) any adoption or amendment of any collective bargaining, bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
or other plan, agreement, trust, fund or arrangement for the benefit of
employees; (g) any agreement or understanding made or entered into to do any of
the foregoing; or (h) any other material change in the business, properties or
financial condition of the Corporation, other than those changes affecting the
collection industry generally and that have occurred in the ordinary course of
business.
2.10 Contracts. Exhibit 2.10 contains a schedule of, and copies of, all
Contracts to which Corporation is a party. The term "Contracts" shall include,
but shall not be limited to, all oral (which shall be summarized in Exhibit
2.10) and written contracts, agreements, agency agreements, loan agreements,
mortgages, indentures, deeds of trust, guarantees, commitments, joint venture
agreements, purchase and/or sale agreements, collective bargaining, union,
consulting and/or employment contracts, leases of real or personal property,
easements, advertising or marketing agreements, expense sharing agreements,
suite or sign rental agreements, distribution or dealer agreements, service
agreements, and license agreements (except there shall not be included
agreements entered into in the ordinary course of business which do not exceed,
in the case of any one agreement, an obligation of $5,000, and in the case of
all agreements, an aggregate obligation of $15,000). Except as set forth on
Exhibit 2.10, Corporation is not in default or alleged to be in default under
any Contract nor is Corporation aware of any default by any other party to any
Contract, and there exists no event, condition or occurrence which, after notice
or lapse of time, or both, would constitute a default under any Contract. Except
as set forth on Exhibit 2.10, all of the Contracts are in full force and effect
and constitute legal, valid and binding obligations of the parties thereto in
accordance with their terms, and will not be changed, modified, breached or
violated by virtue of the sale of the Shares hereunder. No notice to or consent
by any other party is required by virtue of the consummation of the transactions
described in this Agreement.
2.11 True and Complete Copies. Copies of all agreements, contracts and
documents delivered and to be delivered hereunder by Corporation or Shareholders
are and will be true and complete copies of such agreements, contracts and
documents. All written summaries of oral agreements will be true and complete.
6
2.12 Title and Related Matters. Except as set forth in Exhibit 2.12,
Corporation has good and marketable title to all of the properties and assets,
tangible and intangible, reflected in the Balance Sheet or acquired after the
date thereof (except properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with the Corporation's
past practices) free and clear of all mortgages, security interests, liens,
pledges, claims, escrows, options, rights of first refusal, indentures,
easements, licenses, security agreements or other agreements, arrangements,
contracts, commitments, understandings, obligations, charges or encumbrances of
any kind or character, except as reflected on the Balance Sheet. Corporation
owns or leases, directly or indirectly, all of the assets and properties
reflected in the Balance Sheet, and is a party to all licenses and other
agreements, presently used or necessary to carry on the business or operations
of Corporation as presently conducted.
(a) Real Property
(i) Corporation is not a tenant under any lease(s) of real
property used by Corporation except as described on Exhibit 2.10
("Lease(s)"). With respect to the leased real property described on
Exhibit 2.10 and except as set forth on Exhibit 2.12: (A) all such
Leases are in full force and effect and constitute valid and binding
obligations of the respective parties thereto; (B) there have not been
and there currently are not any defaults thereunder by any party
thereto; (C) no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder entitling the lessor to
terminate any such Lease; and (D) the continuation, validity and
effectiveness of all such leases under the current rentals and other
current terms thereof will in no way be affected by the transactions
contemplated by this Agreement or, if any would be affected,
Shareholders shall use all necessary means at their disposal to cause
an appropriate consent to such transactions to be delivered to AFI
prior to the Closing Date at no cost or other adverse consequences to
Corporation ((A) through (D) are hereinafter collectively referred to
as "Lease Restrictions").
(ii) The real property leased by Corporation is of good quality
construction throughout, are in good condition and working order, are
adequate for their intended purposes, and have no structural or other
substantial deficiencies.
7
(iii) With respect to the leased site leases (as hereinafter
defined):
a) Corporation is the sole owner of the lessee's interest in
the Lease dated August 1, 1998 ("Leased Site Lease") from Berman,
DeLeve, Xxxxxx & Xxxxxxx, XX ("Landlord") to Corporation of the
property located at 0000 Xxxxxxxx Xxxxx, 000 Xxxx, Xxxxxx Xxxx,
Xxxxxxxx 00000, and the Leased Site Lease is in full force and
effect without current default by either Corporation or the
Landlord, except as set forth on Exhibit 2.12(a) attached hereto.
b) A true and complete copy of the Leased Site Lease, and
all amendments and other agreements relating thereto, has been
delivered by Corporation to AFI. The Leased Site Lease has not
been and will not be modified subsequent to delivery of full
copies of the same to AFI pursuant hereto. Corporation does not
claim, and knows of no person or entity claiming any right to or
interest in all or any part of the Leased Sites, except the
lessor thereunder.
c) All obligations of the lessor under the Leased Site Lease
with respect to the performance of work or the installation of
equipment or materials required to have been performed at or
prior to the date hereof have been fully observed and performed,
and there are no agreements.
d) Corporation does not have any purchase option or other
interest (other than its leasehold tenancy for a specified term,
as stated in the Leased Site Lease) in the Property covered by
the Leased Site Lease.
e) If required by AFI, Corporation shall cause delivery of a
landlord estoppel letter from each of the lessors in
substantially the form as attached hereto as Exhibit 2.12(b). In
addition, Corporation shall cause delivery of nondisturbance
agreements from any ground lessor or mortgagee of the respective
leased properties, in form acceptable to AFI.
(iv) There is no pending condemnation or similar proceeding
affecting the property which is subject to the Leased Site Lease (the
"Leased Premises" or "Property"), and Corporation has not received any
written notice, and has no knowledge, that any such proceeding is
contemplated.
(v) Shareholders have no knowledge that the continued ownership,
operation, use and occupancy of the Leased Premises violates any
zoning, building, health, flood control, fire or other law, ordinance,
order or regulation or any restrictive covenant. To Shareholders'
knowledge, there are no violations of any federal, state, county or
municipal law, ordinance, order, regulation or requirement, affecting
any portion of the Leased Premises, and no written notice of any such
violation has been issued by any governmental authority.
8
(vi) The Improvements located on the Leased Premises (including
without limitation all mechanical, electric, water, air conditioning
and heating systems and appliances included therein) (1) have been
constructed in a good and workmanlike manner, free from defects in
workmanship and material, are in good working order and condition, and
do not require any repair or replacement other than minor, routine
maintenance and (2) have been constructed and are being occupied,
maintained and operated in compliance with all applicable laws,
regulations, insurance requirements, contracts, leases, permits,
licenses, ordinances, restrictions, building set back lines, zoning
regulations, covenants, reservations and easements, and neither
Corporation nor its stockholders, directors, officers or employees has
received any notice, written or verbal, claiming any violation of any
of the same or requesting or requiring the performance of any repairs,
alterations or other work in order to so comply; all required
certificates of occupancy have been duly issued and remain outstanding
and in effect with regard to the Property.
(vii) No work has been performed or is in progress at the Leased
Premises, and no materials have been furnished to the Leased Premises
or any portion thereof, which might give rise to mechanic's,
materialman's or other liens against the Leased Premises.
(viii)There is sufficient utility service available to the Leased
Premises (including without limitation, gas, electricity, water, sewer
capacity and telephone service) for the operations presently being
conducted thereat.
(ix) There are no adverse parties in possession of the Leased
Premises and no parties in possession thereof except Corporation, and
no party has been granted any license, lease, or other right relating
to the use or possession of the Leased Premises except the
Corporation.
(x) There are no contracts or other obligations outstanding for
the sale, exchange or transfer of the Leased Premises or any portion
thereof or the business operated thereat.
(xi) The condition of the Leased Premises at Closing shall be
such that all deferred repairs and maintenance shall be completed and
all mechanical systems, appliances, plumbing, electrical systems and
heating and air-conditioning systems shall be in good working order.
(xii) There are no actions, suits, claims, proceedings or causes
of action which are pending or have been threatened or asserted
against, or are affecting, Corporation or the Leased Premises or any
part thereof in any court or before any arbitrator, board or
governmental or administrative agency or other person or entity which
might have an adverse effect on the Leased Premises, Improvements,
Personalty or any portion thereof or on AFI's ability to operate the
Leased Premises as an engineering operation from and after the date
hereof.
9
(xiii)The Leased Premises has free, uninterrupted access to and
from one or more publicly dedicated streets, highways or roads.
(xiv) All ad valorem taxes, occupancy taxes, sales taxes, use
taxes, employment, withholding and unemployment taxes and all other
taxes, excises and assessment, and all of the bills, costs, expenses
and other liabilities whatsoever required to be paid by the
Corporation under the Leased Site Lease or to its operation or
maintenance (including without limitation, all obligations for
salaries, wages, earned vacation pay, inventory and supplies,
services, maintenance and repair, signed rental, telephone rental,
other equipment rental, if any, utilities, and all other expenses
related to the maintenance or operation of the Leased Premises)
accrued or assessable through December 31, 1998; and in the case of
any such taxes, excises and other assessments, all returns for periods
through December 31, 1998, have been properly filed.
(b) Personal Property. Corporation has good and marketable title to
all the personal property and assets, tangible or intangible, shown on the
Balance Sheet and listed on Exhibit 2.12, except to the extent sold or
disposed of in transactions entered into in the ordinary course of business
consistent with the Corporation's past practices since the Financial
Statement Date. None of such assets are subject to any (i) contracts of
sale or lease, except contracts for the sale of inventory in the ordinary
and regular course of business; or (ii) security interests, encumbrances,
liens or charges of any kind or character, except as set forth in Exhibit
2.12.
(c) Machinery, Equipment, Parts, Furniture, Tools, Vehicles and Other
Tangible Assets. All machinery, equipment, parts, furniture, tools,
vehicles and other tangible assets shall be in good operating condition,
ordinary wear and tear excepted, on the Closing Date.
(d) No Disposition of Assets. There has not been since the Financial
Statement Date any sale, lease or any other disposition or distribution by
Corporation of any of its assets or properties and any other assets now or
hereafter owned by it, except transactions in the ordinary and regular
course of business consistent with past practices or as otherwise consented
to by AFI. In addition, there will be no sale, lease or other disposition
of any of its assets or properties and any other assets now or hereafter
owned by it, between the date of this Agreement and Closing, except for
transactions in the ordinary course of business.
2.13 Litigation. Except as set forth in Exhibit 2.13, there is no suit,
action, investigation or proceeding pending or, to the knowledge of
Shareholders, threatened against Shareholders or Corporation which, if adversely
determined, would adversely affect the business, prospects, operations,
earnings, properties or the condition, financial or otherwise, of Corporation
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Corporation having, or which, insofar as can be reasonably
foreseen, in the future may have, any such effect.
10
2.14 Tax Matters. The term "Taxes" means all net income, capital gains,
gross income, gross receipts, sales, use, transfer, ad valorem, franchise,
profits, license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees or assessments, or other governmental
charges of any kind whatsoever, together with any interest, fines and any
penalties, additions to tax or additional amounts incurred or accrued under
applicable Laws or assessed, charged or imposed by any governmental authority,
domestic or foreign, provided that any interest, penalties, additions to tax or
additional amounts that relate to Taxes for any taxable period (including any
portion of any taxable period ending on or before the Closing Date) shall be
deemed to be Taxes for such period, regardless of when such items are incurred,
accrued, assessed or imposed. For the purposes of this Section 2.14 and Section
7.04, Corporation shall be deemed to include any predecessor of Corporation or
any person or entity from which Corporation incurs a liability for Taxes as a
result of any transferee liability, except as stated in Exhibit 2.14.1:
(a) Corporation has duly and timely filed (and prior to the Closing
Date will duly and timely file) true, correct and complete tax returns,
reports or estimates, all prepared in accordance with applicable Laws, for
all years and periods (and portions thereof) and for all jurisdictions
(whether federal, state, local or foreign) in which any such returns,
reports or estimates were due. All Taxes shown as due and payable on such
returns, reports and estimates have been paid, and there is no current
liability for any Taxes due and payable in connection with any such
returns. There are no unpaid assessments for additional Taxes for any
period nor is there any basis therefor. Attached hereto as Exhibit 2.14.2
are copies of the 1994, 1995 and 1996 federal, state and foreign tax
returns filed by Corporation.
(b) Corporation is not, and never has been, a member of any
consolidated, combined or unitary group for federal, state, local or
foreign tax purposes except as set forth in Exhibit 2.14.1. Corporation is
not a party to any joint venture, partnership or other arrangement that
could be treated as a partnership for federal income tax purposes.
(c) Corporation has (i) withheld all required amounts from its
employees, agents, contractors and nonresidents and remitted such amounts
to the proper agencies; (ii) paid all employer contributions and premiums
and (iii) filed all federal, state, local and foreign returns and reports
with respect to employee income tax withholding, and social security and
unemployment taxes and premiums, all in compliance with the withholding tax
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
as in effect for the applicable year or any prior provision thereof and
other applicable Laws.
(d) No deficiencies or reassessments for any Taxes have been
proposed, asserted or assessed against Corporation by any federal, state,
local or foreign taxing authority. Exhibit 2.14.1 describes the status
of any federal, state, local or foreign tax audits or other
administrative proceedings, discussions or court proceedings that are
presently pending with regard to any Taxes or tax returns of
Corporation (including a description of all issues raised by the taxing
authorities in connection with any such
11
audits or proceedings), and no additional issues are being asserted against
Corporation in connection with any existing audits or proceedings.
(e) Corporation has not executed or filed any agreement or other
document extending the period for assessment, reassessment or collection of
any Taxes, and no power of attorney granted by Corporation with respect to
any Taxes is currently in force.
(f) Corporation has not entered into any closing or other agreement
with any taxing authority which affects any taxable year of Corporation
ending after the Closing Date. Corporation is not a party to any tax
sharing agreement or similar arrangement for the sharing of tax liabilities
or benefits.
(g) Corporation has not agreed to and is not required to make any
adjustment by reason of a change in accounting methods that affects any
taxable year ending after the Closing Date. The Internal Revenue Service
("IRS") has not proposed to Corporation any such adjustment or change in
accounting methods that affects any taxable year ending after the Closing
Date. Corporation has no application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
its business or operations and that affects any taxable year ending after
the Closing Date.
(h) Corporation has not consented to the application of Code Section
341(f).
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Corporation that, individually or
collectively, could give rise to the payment by Corporation of any amount
that would not be deductible by reason of Code Section 280G.
(j) No asset of Corporation is tax exempt use property under Code
Section 168(h). No portion of the cost of any asset of Corporation has been
financed directly or indirectly from the proceeds of any tax exempt "State
or local government bond" or any other obligation described in Code Section
103(a).
(k) None of the assets of Corporation is property that Corporation is
required to treat as being owned by any other person pursuant to the safe
harbor lease provision of former Code Section 168(f)(8).
(l) Corporation does not have and has not had a permanent
establishment in any foreign country and does not and has not engaged in a
trade or business in any foreign country. Neither Shareholders nor
Corporation are foreign persons within the meaning of Code Section 1445.
(m) Corporation will not be liable for any federal, state, local,
foreign and other sales, use, documentary, recording, stamp, transfer or
similar Taxes applicable to, imposed upon or arising out of the transfer of
the Shares to AFI and the transactions contemplated by this Agreement.
12
2.15 Government Contracts. Except as set forth in Exhibit 2.15, no Contract
or other aspect of the business of Corporation is subject to the Federal
Procurement Regulations or other regulations of any governmental agency.
Corporation has not bid on or been awarded any "small business set aside
contract," any other "set aside contract" or other order or contract requiring
small business or other special status at any time. None of Corporation's
expected sales or orders will be lost, and Corporation's customer relations will
not be damaged, as a result of AFI's continuing the operations of Corporation as
an entity that does not qualify as a small business.
2.16 Compliance with Law.
(a) Corporation has not previously failed and is not currently failing
to comply with any applicable Laws relating to the business of Corporation
or the operation of its assets where such failure or failures would
individually or in the aggregate have an adverse effect on the financial
condition, business, operations or prospects of Corporation. In particular,
but without limiting the generality of the foregoing,Corporation is in
compliance with all applicable Laws relating to anti-competitive practices,
price fixing, health and safety, environmental, employment and
discrimination matters. There are no proceedings of record and no
proceedings are pending or threatened, nor has Corporation or either Seller
received any written notice regarding, or is otherwise aware of, any
violation of any Law, including, without limitation, any requirement of
OSHA or any pollution or environmental control agency (including air and
water).
(b) Exhibit 2.16 contains copies of all reports of inspections by
representatives of any federal, state or local governmental entity or
agency of the business and properties of Corporation through the date
hereof under OSHA and under all other applicable health, safety or
environmental Laws. The deficiencies, if any, noted on such reports or any
deficiencies noted by such inspections through the Closing Date shall be
corrected by the Closing Date. Neither Corporation nor Shareholders know or
have reason to know of any other safety, health, environmental,
anti-competitive or discrimination problems relating to the financial
condition, business, assets, operations, prospects, earnings or employment
practices of Corporation.
2.17 Absence of Certain Business Practices. Shareholders, nor any person or
entity related to or affiliated with Shareholders, any officer, employee or
agent of Corporation or Shareholders, nor any other person or entity acting on
behalf of or associated with Corporation or Shareholders, nor any other entity
directly or indirectly owned or controlled by Corporation or Shareholders,
acting alone or together, has: (a) received, directly or indirectly, any
rebates, payments, commissions, promotional allowances or any other economic
benefit, regardless of its nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other entity or individual
with whom Corporation has done business directly or indirectly; or (b) directly
or indirectly, given or agreed to give any gift or similar benefit to any
customer, supplier, trading company, shipping company, governmental employee or
other person or entity who is or may be in a position to help or hinder the
business of Corporation (or assist Corporation in connection with any actual or
proposed transaction); which might subject
13
Corporation to any damage or penalty in any civil, criminal or governmental
litigation or proceeding.
2.18 ERISA and Related Employee Benefit Matters.
(a) Welfare Benefit Plans. Exhibit 2.18.1 lists and includes a copy
of each "employee welfare benefit plan" (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA"))
maintained by Corporation or to which Corporation contributes or is
required to contribute, including any multi-employer plan ("Welfare Benefit
Plan") and sets forth as of the most recent valuation date (i) the amount
of any liability of Corporation for payments due with respect to any
Welfare Benefit Plan, (ii) the amount of any payment made and to be made,
stated separately, by Corporation with respect to any Welfare Benefit Plan
for the plan year during which the Closing is to occur, and (iii) with
respect to any Welfare Benefit Plan to which Section 505 of the Code
applies, a statement of assets and liabilities for such Welfare Benefit
Plan as of the most recent valuation date. Without limiting the foregoing,
Exhibit 2.18.1 discloses any obligations of Corporation to provide retiree
health benefits to current or former employees of Corporation.
Corporation neither maintains nor participates in any "multiple employer
welfare plans" (within the meaning of Section 3(40) of ERISA) which are
not a Welfare Benefit Plan. Any Welfare Benefit Plans previously
maintained or administered by Corporation have been closed out and
terminated in accordance with appropriate federal and state law and no
continuing liability exists to Corporation as a result of the maintenance,
administration, closeout and termination of said plans.
(b) Pension Benefit Plans. Exhibit 2.18.2 lists and includes a copy
of each "employee pension benefit plan" (within the meaning of Section 3(2)
of ERISA) maintained by Corporation or to which Corporation contributes or
is required to contribute, including any multi-employer plan ("Pension
Benefit Plan"). All costs of the Pension Benefit Plans have been provided
for on the basis of consistent methods and, if applicable, in accordance
with sound actuarial assumptions and practices that are acceptable under
ERISA. With respect to each Pension Benefit Plan that is subject to Title
I, Part 3 of ERISA (concerning "funding"), Exhibit 2.18.2 sets forth as
of the valuation date (i) the unfunded liability for all accrued benefits,
(ii) the funding method, (iii) the actuarially computed value of vested
benefits, (iv) the fair market value of the assets held for funding
purposes, (v) the amount and plan year of any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA (arising for any
reason whatever) that exists with respect to any plan year, and (vi) the
amount of any contribution by Corporation paid and to be paid, stated
separately, for the plan year during which the Closing is to occur. With
respect to each Pension Benefit Plan that is not subject to Title I, Part 3
of ERISA, Exhibit 2.18.2 sets forth as of the valuation date (i) the amount
of any liability of Corporation for any contributions due with respect to
such Pension Benefit Plan and (ii) the amount of any contribution paid and
to be paid, stated separately, by Corporation with respect to such Pension
Benefit Plan for the plan year during which the Closing is to occur. Any
Pension Benefit Plans previously maintained or administered by Corporation
have been closed out and terminated in accordance with
14
appropriate federal and state law and no continuing liability exists to
Corporation as a result of the maintenance, administration, closeout and
termination of said plans.
(c) Compliance with Applicable Law. Each of the Pension Benefit
Plans, Welfare Benefit Plans any related trust agreements, annuity
contracts, and other funding instruments, comply with the provisions of
ERISA and the Code and all other statutes, orders, governmental rules and
regulations applicable to such Welfare Benefit Plans and Pension Benefit
Plans. Corporation has performed all of its obligations currently required
to have been performed under all Welfare Benefit Plans and Pension Benefit
Plans. There are no actions, suits or claims (other than routine claims
for benefits) pending or threatened against or with respect to any Welfare
Benefit Plans, Pension Benefit Plans or the assets of or party in interest
with respect to such plans, and no facts exist that could give rise to any
actions, suits or claims (other than routine claims for benefits) against
such plans or the assets of or party in interest with respect to such
plans. Each Pension Benefit Plan is qualified in form and operation under
Section 401(a) of the Code, the Internal Revenue Service has issued a
favorable determination letter with respect to each Pension Benefit Plan,
and no event has occurred that will or could give rise to a
disqualification of any Pension Benefit Plan under Code section 401(a). No
event has occurred that will or could subject any Welfare Benefit Plan or
Pension Benefit Plan to tax under Section 511 of the Code.
(d) Administration of Plans. Each Welfare Benefit Plan and each
Pension Benefit Plan has been administered to date in compliance with the
requirements of ERISA and the Code. No plan fiduciary of any Welfare
Benefit Plan or Pension Benefit Plan has engaged in (i) any transaction in
violation of Section 406(a) or (b) of ERISA, or (ii) any "prohibited
transaction" (within the meaning of Section 408 of ERISA or Section
4975(c)(1) of the Code) for which no exemption exists under Section 408 of
ERISA or Section 4975(d) of the Code.
(e) Title IV Plans. With respect to each Pension Benefit Plan which
is subject to the provisions of Title IV of ERISA in which Corporation (for
purposes of this subsection "Seller" shall include each trade or business,
whether or not incorporated, which is a member of a group of which
Corporation is a member and which is under common control within the
meaning of Section 414 of the Code and the regulations thereunder)
participates or has participated, (i) Corporation has not withdrawn from
such Pension Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a) (2) of ERISA), (ii) Corporation
has not completely or partially withdrawn from a Pension Benefit Plan that
is a multi-employer plan, and the liability to which Corporation would
become subject under ERISA if Corporation were to withdraw completely from
all multi-employer plans in which it currently participates is not in
excess of Ten Thousand Dollars ($10,000) as of the most recent valuation
date applicable thereto, (iii) Corporation has not filed a notice of intent
to terminate any such Pension Benefit Plan or adopted any amendment to
treat such Pension Benefit Plan as terminated, (iv) the Pension Benefit
Guaranty Corporation has not instituted proceedings to terminate any such
Pension Benefit Plan, (v) no other event or condition has occurred that
might constitute grounds under Section 4042 of ERISA for the termination
of, or the
15
appointment of a Trustee to administer, any such Pension Benefit Plan, (vi)
all required premium payments to the Pension Benefit Guaranty Corporation
have been paid when due, and (vii) no "reportable event" (as described in
Section 4043 of ERISA and the regulations thereunder) has occurred with
respect to said Pension Benefit Plan.
(f) Other Employee Benefit Plans and Agreements. Exhibit 2.18.3 lists
and includes a copy of each profit sharing, deferred compensation, bonus,
stock option, stock purchase, pension, retainer, consulting, retirement,
welfare or other incentive plan or agreement, fringe benefit program or
employment agreement not terminable on thirty (30) days or less written
notice, and any other employee benefit plan, agreement, arrangement, or
commitment not previously listed on the Exhibits to this Section that is
maintained by Corporation or to which Corporation contributes or is
required to contribute. Exhibit 2.18.3 also contains a complete list of all
employees of Corporation and the amount of vacation weeks accrued to each
such employee.
(g) Copies of Plans. Exhibit 2.18.4 includes, to the extent not
included in Exhibits 2.18.1 through 2.18.3, true and complete copies of:
each Welfare Benefit Plan; each Pension Benefit Plan, related trust
agreements, annuity contracts and other funding instruments; each plan,
agreement, arrangement, and commitment referred to in subsection (f) of
this Section; favorable determination letters; annual reports (Form 5500
series) required to be filed with any governmental agency for each Welfare
Benefit Plan and each Pension Benefit Plan for all plan years, including,
without limitation, all schedules thereto and all financial statements with
attached opinions of independent accountants; current summary plan
descriptions for all Welfare Benefit Plans and Pension Benefit Plans; and
actuarial reports as of the last valuation date for each Pension Benefit
Plan that is subject to Title IV of ERISA.
(h) Continuation Coverage Requirements for Health Plans. All group
health plans of Corporation (including any plans of affiliates of
Corporation that must be taken into account under Section 4980B of the
Code) have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and Title
I, Part 6 of ERISA to the extent such requirements are applicable.
(i) Valid Obligations. All Welfare Benefit Plans, Pension Benefit
Plans, related trust agreements, annuity contracts or other funding
instruments, and all plans, agreements, arrangements and commitments
referred to in subsection (f) of this Section are legal, valid and binding
and in full force and effect, and there are no defaults thereunder. Except
as specified in Exhibit 2.18.5, none of the rights of Corporation
thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement, and all of the rights of Corporation
thereunder will be enforceable by AFI at and after the Closing without the
consent or agreement of any other party other than consents and agreements
specifically listed in Exhibit 2.18.5.
(j) COBRA. As of the Closing Date, Corporation has no employees who
are receiving COBRA continuation coverage or who may yet timely elect such
coverage, regardless of whether the COBRA qualifying event accrues prior
to, on or after the
16
Closing Date. Corporation has complied in all material respects with The
Family and Medical Leave Act of 1993 ("FMLA"). Corporation has no employees
who are, or will be, on FMLA leave as of the Closing Date.
(k) Health Insurance. Corporation does not provide, and is not
obligated to provide, benefits, including, but not limited to, death,
health, medical or hospitalization benefits (whether or not insured), with
respect to current or former employees, their dependents or beneficiaries
beyond their retirement or other termination of employment other than (i)
coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any "employee pension benefit plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Corporation, or (iv) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
2.19 Intellectual Property. Corporation has good and marketable title to,
and Exhibit 2.19 contains a detailed listing of, each copyright, trademark,
trade name, service xxxx, trade dress, patent, franchise, trade secret, product
designation, formula, process, know-how, right of publicity, design and other
similar rights (collectively "Intellectual Property Rights") used in, or
necessary for, the operation of its business as currently conducted. Except as
otherwise set forth on Exhibit 2.19, all of said Intellectual Property Rights
are free and clear of all royalty obligations, security interests, liens and
encumbrances. Corporation has the exclusive right to use all Intellectual
Property Rights used in, or necessary for, the operation of its business as
currently conducted. Corporation has taken all action necessary to protect
against and defend against, and neither Shareholders have any knowledge of, any
conflicting use of any such Intellectual Property Rights. Corporation does not
have nor does Corporation utilize any Intellectual Property Rights except those
which are set forth in Exhibit 2.19. Except as set forth in Exhibit 2.19,
Corporation is not a party in any capacity to any franchise, license, royalty or
other agreement respecting or restricting any Intellectual Property Rights, and
the Intellectual Property Rights used by Corporation in the conduct of
Corporation's business do not conflict with the Intellectual Property Rights of
any third party. No product made, sold or distributed by Corporation, or service
provided by Corporation, violates any license or infringes any Intellectual
Property Rights of any third party, and there are no pending claims or demands
by any third party to the contrary.
2.20 Customers.
(a) Set forth on Exhibit 2.20(a) hereto ("Customer List") is a list
of the names and addresses of any person or entity who purchased services
from Corporation to date.
(b) Set forth in Exhibit 2.20(b) attached hereto ("Customer
Pricing") is a current list of Corporation's actual prices and/or fees,
with any applicable discounts, rebates, allowances, or other similar
rights.
(c) Shareholders have not received actual notice from any of
Corporation's customers who represent in excess of five percent (5%) of the
sales volume of
17
Corporation that any of such customers will, for any reason, cease to do
business with Corporation after the Closing.
2.21 Labor Relations. Except as set forth in Exhibit 2.21, there have
been no strikes, work stoppages or any demands for collective bargaining by
any union or labor organization; there is no collective bargaining
relationship between Corporation and any union; there is no dispute or
controversy with any union or other organization of Corporation's employees
and there are no arbitration proceedings pending or threatened involving a
dispute or controversy. Corporation is in full compliance with all Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours including, without limitation, the Fair
Labor Standards Act, the Family and Medical Leave Act of 1993, the
Americans with Disabilities Act of 1990, the Veterans Reemployment Rights
Act, the Equal Employment Opportunities Act as amended by the Civil Rights
Act of 1991, the Occupational Safety and Health Act, the Employee
Retirement Income Security Act, the Immigration Reform and Control Act of
1986, the Age Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964, the Older Workers Benefit Protective Act, and all other
Laws, each as amended to date, relating to employer/employee rights and
obligations. To the best of Shareholders' knowledge, Corporation currently
has satisfactory relationships with its employees.
2.22 Insurance. Exhibit 2.22 lists and includes copies of all
certificates of coverage regarding all of Corporation's existing insurance
policies, the premiums therefor and the coverage of each policy.
Corporation has maintained and, through the Closing Date, will maintain one
or more liability insurance policies, with an aggregate coverage limit of
at least One Million Dollars ($1,000,000) ("Liability Insurance"). To the
best of their knowledge, the insurance in force is of a sufficient level to
adequately compensate Corporation for any liabilities, obligations and
claims that Corporation may incur related to errors and omissions by
liabilities of Corporation, Shareholders, Corporation's shareholders,
officers and employees prior to the Closing Date and up to a policy limit
of at least One Million Dollars ($1,000,000).
2.23 Environmental.
(a) For purposes of this Section:
(i) "Hazardous Materials" means any hazardous, infectious or
toxic substance, chemical, pollutant, contaminant, emission or waste
which is or becomes regulated by any local, state, federal or foreign
authority. Hazardous Materials include, without limitation, anything
which is: (i) defined as a "pollutant" pursuant to 33 U.S.C. ss.
1362(6); (ii) defined as a "hazardous waste" pursuant to 42 U.S.C. ss.
6921; (iii) defined as a "regulated substance" pursuant to 42 U.S.C.
ss. 6991; (iv) defined as a "hazardous substance" pursuant to 42
U.S.C. ss. 9601(14); (v) defined as a "pollutant or contaminant"
pursuant to 42 U.S.C. ss. 9601(33); (vi) petroleum; (vii) asbestos;
and (viii) polychlorinated biphenyl.
(ii) "Environmental Laws and Regulations" means all limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations,
18
schedules and timetables contained in any Laws relating to pollution,
nuisance, or the environment including, without limitation, (i) the
Federal Clean Air Act, 42 U.S.C. xx.xx. 7401 et seq.; (ii) the
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. xx.xx. 9601 et seq.; (iii) the Federal Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. xx.xx. 1101 et seq.; (iv)
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
xx.xx. 136 et seq.; (v) the Federal Water Pollution Control Act, 33
U.S.C. xx.xx. 1251 et seq.; (vi) the Solid Waste Disposal Act, 42
U.S.C. xx.xx. 6901 et seq.; (vii) the Toxic Substances Control Act, 15
U.S.C. xx.xx. 2601 et seq.; (viii) Laws relating in whole or part to
emissions, discharges, releases, or threatened releases of any
Hazardous Material; and (ix) Laws relating in whole or part to the
manufacture, processing, distribution, use, coverage, disposal,
transportation, storage or handling of any Hazardous Material.
(b) The operations and activities of Corporation comply, and have in
the past complied, in all respects, with all Environmental Laws and
Regulations. There are no pending or currently proposed changes to any
Environmental Laws and Regulations which, when implemented or effective,
may affect the operations of Corporation.
(c) Corporation has obtained and is and has been in full compliance
with all requirements, permits, licenses and other authorizations which are
required with respect to Corporation's operations, as well as the
transactions contemplated hereby under all Environmental Laws and
Regulations. Exhibit 2.23(a) lists each such permit, license or other
authorization. There are no other such permits, licenses or other
authorizations which are required by any Environmental Laws and Regulations
after the Closing.
(d) There is no civil, criminal, administrative or other action,
suit, demand, claim, hearing, notice of violation, proceeding,
investigation, notice or demand pending, received, or, to the best
knowledge of Corporation, threatened against Corporation relating in any
way to any Environmental Laws and Regulations.
(e) Corporation has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters which: (i) are
not in compliance with all Environmental Laws and Regulations; (ii) may
give rise to any statutory, common law, or other legal liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation or investigation based on or relating to
Hazardous Materials including, without limitation, such matters relating to
any property owned, leased or utilized by Corporation at any time; (iii)
arise from inventory of or waste from Hazardous Materials; or (iv) arise
from any off-site disposal, release or threatened release of Hazardous
Materials.
(f) No asbestos, polychlorinated biphenyls, lead-based paints, or
radon are on any real property or in any building now or previously owned,
operated, leased or utilized by Corporation.
19
(g) Corporation has not received any notice or indication from any
governmental agency or private or public entity advising it that it is or
may be responsible for any investigation or response costs with respect to
a release, threatened release or cleanup of chemicals or materials produced
by or resulting from any business, commercial or industrial activities,
operations or processes, including, without limitation, any Hazardous
Materials. Corporation is not aware of any facts which might give rise to
such notices.
(h) No underground tanks, piping or subsurface structures of any type
exist or have existed on any real property now or previously owned,
operated, leased or utilized by Corporation except as disclosed on Exhibit
2.23(b).
(i) Exhibit 2.23(d) contains complete copies of all environmental
investigations, assessments, audits, studies, tests and related materials
in possession of Corporation, or known to Corporation to exist, which
relate to the current or prior operations of Corporation or any real
property now or previously owned, operated, leased or utilized by
Corporation.
2.24 Bank Accounts. As of the Closing, Exhibit 2.24 will list of all bank
accounts, lock boxes, safe deposit boxes and post office boxes maintained in the
name of or controlled by Corporation and the names of the persons having access
thereto.
2.25 Compensation. Exhibit 2.25 lists the current job title and total
remuneration (including, without limitation, salary, commissions and bonuses)
for each of the Shareholders and for each officer, director, employee or
consultant of Corporation who is expected to receive total remuneration from the
Corporation in excess of Ten Thousand Dollars ($10,000) during the current
fiscal year. Except as disclosed on Exhibit 2.25, Corporation has not since the
Financial Statement Date and will not prior to the Closing Date increase or
commit to increase the base compensation, bonus or the rate (or any other
component) of total compensation payable or to become payable by Corporation to
any employee (including any director or officer), whether such person is listed
on Exhibit 2.25 or not, and, except as set forth herein, no extraordinary
compensation, commission, or bonus will be paid by Corporation.
2.26 Commitments.
-----------
(a) Except as set forth in Exhibit 2.26 hereto or as otherwise set
------------
forth in this Agreement, Shareholders have not entered into, nor are
Corporation's Assets or Business bound by, whether or not in writing, any
agreement or instrument, or any charter or other restriction, or any
judgment, order, writ, injunction, decree, rule or regulation that could or
does materially and adversely affect the Corporation's Assets or business
("Commitment"), except as otherwise set forth in this Agreement and on the
Balance Sheet.
(b) Except as disclosed in the applicable Exhibit hereto, neither
Shareholders nor Corporation have received actual notice of any plan or
intention of any other party to any Commitment to exercise any right to
cancel or terminate any Commitment or
20
agreement, and neither Shareholders nor Corporation know of any fact that
would justify the exercise of such right.
(c) Except for the Contracts set forth on Exhibit 2.10, there are no
------------
written or oral contractual Commitments, contracts, or agreements to which
Corporation is a party, which shall be binding upon Corporation on or after
the Closing.
2.27 Other Employee Matters. Set forth in Exhibit 2.27 hereto are the
------------------------ -------------
following:
(a) A description of the termination or severance pay policy of
Corporation.
(b) A complete and accurate list of all holiday and vacation pay and
other benefits accrued as of the date hereof, in respect of employees of
Corporation.
(c) A description of the workers compensation loss experience of
Corporation as of the date hereof.
Except as set forth on Exhibit 2.27 hereto, no employment manual or written
-------------
employment policy and/or procedures have been provided to or for
employees, and no written or verbal employment, consultant or independent
contractor agreement exists to which Corporation may be bound.
Shareholders have delivered to AFI accurate and complete copies of all
such employment agreements, consulting agreements, confidentiality
agreements and all other agreements, plans and other instruments to which
Corporation is a party and under which its employees or consultants are
entitled to receive benefits of any nature. To Shareholders' actual
knowledge, Corporation is in compliance with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours and is not engaged in, nor has it
committed, any discriminatory employment practice or unfair labor practice
as defined in the National Labor Relations Act of 1947, as amended. There
is no employment discrimination claim, either pending or threatened,
against Corporation, and there is no unfair labor practice claim against
Corporation before the National Labor Relations Board.
2.28 WARN. Corporation has never effected any "plant closing" or "mass
----
layoff" within the meaning of the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq. as amended ("WARN").
-- ---
2.29 Overtime, Back Wages, Vacation and Minimum Wages. No present or former
------------------------------------------------
employee of Corporation has, or will as of the Closing Date have, any claim
against Corporation (whether under federal, state or local law, any employment
agreement, or otherwise) on account of or for (a) overtime pay, other than
overtime pay for the then current payroll period, (b) wages or salary for any
period other than the current payroll period, (c) vacation, time off or pay in
lieu of vacation or time off, other than that earned in respect of the current
fiscal year or accrued on Corporation's books and records, or (d) any violation
of any statute, ordinance or regulation relating to minimum wages or maximum
hours of work. All amounts required to be withheld by Corporation from its
employees have been properly withheld and will be timely deposited and all
contributions required to be paid by Corporation in respect of its employees
have been paid in
21
accordance with the applicable provisions of federal, state and local laws
regarding income tax withholding and social security, workers compensation,
unemployment compensation or similar taxes or contributions.
2.30 ADA. Corporation has received no notice from any individual, entity or
---
federal, state, local governmental agency or official notifying it that
Corporation or any property or asset of Corporation is in violation of, or in
noncompliance with, the Americans with Disabilities Act (the "ADA"). Corporation
has not received any notice of a claim or potential claim under the Civil Rights
Act of 1991 for any violation of the ADA.
2.31 Permits. Set forth in Exhibit 2.31 attached hereto is a list of all
------- ------------
permits, licenses and approvals from federal, state, county, local and foreign
governmental and regulatory bodies (collectively, "Permits") held, utilized or
applied for by Corporation, including, without limitation, all state licenses
required to be issued in those states in which Corporation does business, and
the Permits are valid and in full force and effect. Except as set forth on
Exhibit 2.31, no other or additional licenses, permits or approvals are required
------------
of or from any governmental authority or agency in connection with the conduct
of the Business which, if not obtained, could materially and adversely affect
the Corporation's business or the Assets. Corporation and the Corporation's
business have complied and are in compliance, in all material respects, with the
terms and conditions of the Permits and no violation of any of the Permits or
the laws or rules governing the issuance or continued validity thereof has
occurred. Neither Shareholders nor Corporation have received any claim or
notice, and Shareholders have no actual knowledge indicating, that Corporation
or the Corporation's business is not in compliance with the terms of any such
Permits and with all requirements, standards and procedures of the federal,
state, county, local and foreign governmental regulatory bodies which issued
them. Corporation is in compliance with all federal, state, county and local
laws, ordinances, codes, regulations, orders, requirements, standards and
procedures, including but not limited to any and all laws, regulations and
ordinances relating to or regulating human health and the environment, which are
applicable to Corporation or the business.
2.32 Shareholders' Acquisition of AFI's Stock. Shareholders separately
-----------------------------------------
represent and warrant to AFI the following with respect to AFI's stock to be
transferred to them in accordance with this Agreement:
(a) The AFI stock to be transferred to them is being acquired by
Shareholders for investment purposes and not with a view to distribution or
resale. Shareholders shall not sell, transfer, assign, pledge, hypothecate
or otherwise dispose of any of the shares of AFI stock or any interest
therein unless the AFI stock is registered under the 1933 Act, and any
applicable securities laws of any state or jurisdiction or unless the AFI
stock is the subject of an opinion of counsel, which opinion and counsel
are reasonably acceptable to AFI, that such registration is not required.
The stock certificates evidencing the AFI stock will bear legends setting
forth the restrictions on transfers stated immediately above, and
stop-transfer instructions will be delivered by AFI to AFI's stock transfer
agent (Interwest Transfer) reflecting such restrictions.
22
(b) Attached hereto as Exhibit 2.32(b) is an Information Statement
---------------
and copy of the AFI Plan of Reorganization and Disclosure Statement dated
July 29, 1998, and confirmation order from the Bankruptcy Court relating to
said Plan that provides Shareholders with information about AFI and its
business. Shareholders have reviewed the Information Statement, Plan of
Reorganization and Disclosure Statement, and have had ample opportunity to
discuss AFI's business, management and financial affairs with directors,
officers and management of AFI, have had an opportunity to review the Plan
of Reorganization and Disclosure Statement, and have been given complete
access and the opportunity to review AFI's books and records, operations
and facilities and are fully aware of the risks associated with receiving
AFI's stock.
(c) Shareholders have such knowledge and experience in financial and
business matters as to permit them to make an informal investment decision
concerning the receipt of AFI's stock and any risk incumbent thereto.
(d) Shareholders will not, for a period of three (3) years after
Closing, acquire any further shares of stock of AFI if the acquisition of
those shares will, (i) in the reasonable opinion of competent tax counsel
for AFI, cause a "change of control" of AFI as determined under Section 382
of the Internal Revenue Code of 1986, as amended, including the regulations
as promulgated thereunder, or under the comparable provision of any future
internal revenue law; or (ii) have the effect of reducing the number of
shares which FMIC could acquire under its option without such FMIC
acquisition causing a "change of control."
2.33 Disclosure. No representation or warranty made by Shareholders in this
----------
Agreement or in any agreement, instrument, document, certificate, statement or
letter furnished to AFI, by or on behalf of Shareholders in connection with any
of the transactions contemplated by this Agreement contains any untrue statement
of fact or omits to state a fact necessary in order to make the statements
herein or therein not misleading in light of the circumstances in which they are
made.
2.34 Survival. The representations and warranties made by Shareholders
--------
under this Agreement are being made for the sole purpose of assuring AFI of the
peaceful possession of the stock and operation of Corporation, free of claims
made by third-party creditors, taxing authorities and others who may have a
claim against Shareholders or Corporation, or of Shareholders' ability to
complete this transaction according to terms and conditions set forth herein,
other than as set forth on the Balance Sheet. Each of the representations,
warranties and covenants made in this Agreement by Shareholders shall survive
this Closing Date and shall inure to the benefit of and be enforceable by AFI.
2.35 Public Announcements. Neither Shareholders nor Corporation shall issue
--------------------
or cause the publication of any press release or any other announcement with
respect to the transactions contemplated by this Agreement without the prior
written consent of AFI.
2.36 Make-up of Shareholder Group. The JMO Group represents and warrants
-----------------------------
that the Shareholders of the JMO Group involve either individuals who are
shareholders of
23
Corporation in their individual capacities or minor children under the age of
18. The Xxxx Xxxxxx Grandchildren's Irrevocable Trust represents and warrants
that, except for Xxxxxx Xxxxxx, the beneficiaries of the Xxxx Xxxxxx
Grandchildren's Irrevocable Trust are all minor children under the age of 18.
The Xxxx Xxxxxx Grandchildren's Irrevocable Trust and JMO Group acknowledge that
AFI is relying upon these representations and warranties in not requiring the
other Shareholders of the JMO Group and the beneficiaries of the Xxxx Xxxxxx
Grandchildren's Irrevocable Trust to become parties to and bound by the
provisions of Article VI regarding noncompetition. The Xxxx Xxxxxx
Grandchildren's Irrevocable Trust covenants to Corporation and AFI that none of
the beneficiaries of the Xxxx Xxxxxx Grandchildren's Irrevocable Trust will
compete, pursuant to the terms and conditions of Article VI hereof, with
Corporation or AFI during the noncompetition period set forth in Article VI. The
JMO Group covenants to Corporation and AFI that none of the Shareholders of the
JMO Group will compete, pursuant to the terms and conditions of Article VI
hereof, with Corporation or AFI during the noncompetition period set forth in
Article VI.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF AFI
-------------------------------------
AFI hereby represents and warrants to Shareholders, as follows:
3.01 Corporate Organization, etc. AFI is a corporation duly organized,
-----------------------------
validly existing and in good standing under the laws of the State of Delaware.
3.02 Authorization, etc. Upon Bankruptcy Court approval, AFI has full
-------------------
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. As of the Closing, the Board of Directors of
AFI will have duly authorized the execution and delivery of this Agreement and
the transactions contemplated hereby, and no other corporate proceedings on its
part are necessary to authorize this Agreement and the transactions contemplated
hereby.
3.03 No Violation. AFI is not subject to or obligated under any certificate
------------
of incorporation, bylaw, Law, or any agreement or instrument, or any license,
franchise or permit, which would be breached or violated by its execution,
delivery or performance of this Agreement. AFI will comply with all Laws in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.04 Governmental Authorities. Except as set forth on Exhibit 3.04, and
------------------------- ------------
except for Bankruptcy Court approval, AFI is not required to submit any notice,
report or other filing with and no consent, approval or authorization is
required by any governmental or regulatory authority in connection with AFI's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
3.05 Insurance. AFI will have at Closing insurance policies that will
---------
provide general liability insurance coverage for any liabilities, obligations
and claims it may incur after Closing up to policy limits of at least One
Million Dollars ($1,000,000.00).
24
3.06 AFI's Plan of Reorganization. AFI's Plan of Reorganization has been
-----------------------------
confirmed by appropriate Bankruptcy Court order.
3.07 Unregistered Stock. The AFI stock to be issued to Shareholders has not
------------------
been registered under the Securities Act of 1933 or registered or qualified
under state laws. Except as set forth in Section 5.03 hereafter, AFI has no
obligation to register such stock.
3.08 Capital Stock; Options. All issued and outstanding shares of capital
-------------
stock are validly issued, fully paid and nonassessable. Except for the option of
First Mortgage Investment Company ("FMIC") to purchase up to three million
(3,000,000) shares of stock of AFI at an option price of Fifty Cents ($.50) per
share ("FMIC Option"), there are no issued and outstanding options, warrants,
rights, securities, contracts, commitments, understandings, profit sharing or
retirement plans, or other arrangements by which AFI is bound to issue any
additional shares of its capital stock or options to purchase shares of its
capital stock, except as set forth on Exhibit 3.08.
------------
3.09 Subsidiaries and Affiliates. Except as set forth in Exhibit 3.09, AFI
--------------------------- ------------
has no subsidiaries, Affiliates or investments in any other entity or business
operation. The term "Affiliates" means, for the purpose of this Agreement, each
shareholder, director, officer and employee of AFI, and any director, officer or
employee of AFI, and any corporation, partnership or other entity in which AFI
or officer of AFI has any financial interest or is a controlling person, as that
term is used in connection with the federal securities laws.
3.10 Financial Statements. Exhibit 3.10 contains AFI's statements of
financial position as of December 31, 1998, and statements of income and
retained earnings for the period ending December 31, 1998. All such statements
of financial position and the notes thereto are complete and accurate, contain a
listing of all assets and liabilities of AFI and fairly present the financial
position of AFI as of the respective dates thereof, and such statements of
income and retained earnings and the notes thereto fairly present the results of
operations for the periods therein referred to. Other than accrued income taxes
not yet due and payable, all such statements include all adjustments (all of
which were normal recurring adjustments) necessary to fairly present the
financial position, results of operations and changes in financial position at
and for such periods. The statement of financial position and statement of
income and retained earnings as of December 31, 1998, are referred to
collectively as the "AFI Balance Sheet." December 31, 1998, is referred to as
the "Financial Statement Date."
3.11 No Undisclosed Liabilities, Claims, etc. Except for (a) liabilities
fully reflected or reserved against in the AFI Balance Sheet; (b) liabilities
disclosed on Exhibit 3.11; and (c) regular and usual liabilities and obligations
incurred in the ordinary course of business consistent with the AFI's past
practices, AFI has no liabilities, obligations or claims (absolute, accrued,
fixed or contingent, matured or unmatured, or otherwise), including liabilities,
obligations or claims which may become known or which arise only after the
Closing and which result from actions, omissions or occurrences of AFI prior to
the Closing.
3.12 Absence of Certain Changes. Since the Financial Statement Date, except
as set forth on Exhibit 3.12, there has not been (a) any damage, destruction or
loss to physical property,
25
whether covered by insurance or not, adversely affecting AFI's properties and
business; (b) any declaration, setting aside or payment of any dividend whether
in cash, stock or property with respect to AFI's capital stock, or any
redemption or other acquisition of such stock by AFI; (c) any increase in the
compensation payable or to become payable by AFI to its directors, officers, key
employees, Affiliates, or any adoption of or increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for or
with any such party; (d) any entry into any commitment or transaction involving
borrowing or capital expenditure; (e) any termination or wavier of any rights of
value to the business of AFI, except as set forth and accomplished in connection
with the Plan of Reorganization; (f) any adoption or amendment of any collective
bargaining, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, or other plan, agreement, trust, fund or
arrangement for the benefit of employees; (g) any agreement or understanding
made or entered into to do any of the foregoing; or (h) any other material
change in the business, properties or financial condition of the AFI, other than
those changes affecting the industries in which AFI does business generally and
that have occurred in the ordinary course of business.
3.13 Litigation. Except as set forth in Exhibit 3.13, there is no suit,
action, investigation or proceeding pending or, to the knowledge of AFI which,
if adversely determined, would adversely affect the business, prospects,
operations, earnings, properties or the condition, financial or otherwise, of
AFI nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against AFI having, or which, insofar as can be reasonably foreseen,
in the future may have, any such effect.
3.14 Tax Matters. The term "Taxes" means all net income, capital gains,
gross income, gross receipts, sales, use, transfer, ad valorem, franchise,
profits, license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees or assessments, or other governmental
charges of any kind whatsoever, together with any interest, fines and any
penalties, additions to tax or additional amounts incurred or accrued under
applicable Laws or assessed, charged or imposed by any governmental authority,
domestic or foreign, provided that any interest, penalties, additions to tax or
additional amounts that relate to Taxes for any taxable period (including any
portion of any taxable period ending on or before the Closing Date) shall be
deemed to be Taxes for such period, regardless of when such items are incurred,
accrued, assessed or imposed. For the purposes of this Section 3.14, AFI shall
be deemed to include any predecessor of AFI or any person or entity from which
AFI incurs a liability for Taxes as a result of any transferee liability, except
as stated in Exhibit 3.14.1:
(a) Except for fiscal years end 1997 and 1998, AFI has duly and
timely filed (and prior to the Closing Date will duly and timely file)
true, correct and complete tax returns, reports or estimates, all
prepared in accordance with applicable Laws, for all years and periods
(and portions thereof) and for all jurisdictions (whether federal, state,
local or foreign) in which any such returns, reports or estimates were due.
All Taxes shown as due and payable on such returns, reports and estimates
have been paid, and there is no current liability for any Taxes due and
payable in connection with any such returns. There are no unpaid
assessments for additional Taxes for any period nor is there
26
any basis therefor. Attached hereto as Exhibit 3.14.2 are copies of all
federal, state and foreign tax returns filed by AFI.
(b) AFI is a member of a consolidated, combined or unitary group for
federal, state, local or foreign tax purposes. AFI is not a party to any
joint venture, partnership or other arrangement that could be treated as a
partnership for federal income tax purposes.
(c) AFI has (i) withheld all required amounts from its employees,
agents, contractors and nonresidents and remitted such amounts to the
proper agencies; (ii) paid all employer contributions and premiums and
(iii) filed all federal, state, local and foreign returns and reports with
respect to employee income tax withholding, and social security and
unemployment taxes and premiums, all in compliance with the withholding tax
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
as in effect for the applicable year or any prior provision thereof and
other applicable Laws.
(d) No deficiencies or reassessments for any Taxes have been
proposed, asserted or assessed against AFI by any federal, state, local or
foreign taxing authority. Exhibit 3.14.1 describes the status of any
federal, state, local or foreign tax audits or other administrative
proceedings, discussions or court proceedings that are presently pending
with regard to any Taxes or tax returns of AFI (including a description
of all issues raised by the taxing authorities in connection with any such
audits or proceedings), and no additional issues are being asserted against
AFI in connection with any existing audits or proceedings.
(e) AFI has not executed or filed any agreement or other document
extending the period for assessment, reassessment or collection of any
Taxes, and no power of attorney granted by AFI with respect to any Taxes is
currently in force.
(f) AFI has not entered into any closing or other agreement with any
taxing authority which affects any taxable year of AFI ending after the
Closing Date. AFI is not a party to any tax sharing agreement or similar
arrangement for the sharing of tax liabilities or benefits.
(g) AFI has not agreed to and is not required to make any adjustment
by reason of a change in accounting methods that affects any taxable year
ending after the Closing Date. The Internal Revenue Service ("IRS") has not
proposed to AFI any such adjustment or change in accounting methods that
affects any taxable year ending after the Closing Date. AFI has no
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to its business or operations and
that affects any taxable year ending after the Closing Date.
(h) AFI has not consented to the application of Code Section 341(f).
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of AFI that, individually or collectively,
could give rise to
27
the payment by AFI of any amount that would not be deductible by reason of
Code Section 280G.
(j) No asset of AFI is tax exempt use property under Code Section
168(h). No portion of the cost of any asset of AFI has been financed
directly or indirectly from the proceeds of any tax exempt "State or local
government bond" or any other obligation described in Code Section 103(a).
(k) None of the assets of AFI is property that AFI is required to
treat as being owned by any other person pursuant to the safe harbor lease
provision of former Code Section 168(f)(8).
(l) AFI does not have and has not had a permanent establishment in any
foreign country and does not and has not engaged in a trade or business in
any foreign country. AFI is not a foreign person within the meaning of Code
Section 1445.
(m) AFI will not be liable for any federal, state, local, foreign and
other sales, use, documentary, recording, stamp, transfer or similar Taxes
applicable to, imposed upon or arising out of the transfer of the Shares to
AFI and the transactions contemplated by this Agreement.
3.15 Compliance with Law.
(a) AFI has not previously failed and is not currently failing to
comply with any applicable Laws relating to the business of AFI or the
operation of its assets where such failure or failures would individually
or in the aggregate have an adverse effect on the financial condition,
business, operations or prospects of AFI. In particular, but without
limiting the generality of the foregoing, AFI is in compliance with all
applicable Laws relating to anti-competitive practices, price fixing,
health and safety, environmental, employment and discrimination matters.
There are no proceedings of record and no proceedings are pending or
threatened, nor has AFI or either Seller received any written notice
regarding, or is otherwise aware of, any violation of any Law, including,
without limitation, any requirement of OSHA or any pollution or
environmental control agency (including air and water).
(b) Exhibit 3.16 contains copies of all reports of inspections by
representatives of any federal, state or local governmental entity or
agency of the business and properties of AFI through the date hereof under
OSHA and under all other applicable health, safety or environmental Laws.
The deficiencies, if any, noted on such reports or any deficiencies noted
by such inspections through the Closing Date shall be corrected by the
Closing Date. AFI does not know or have reason to know of any other safety,
health, environmental, anti-competitive or discrimination problems relating
to the financial condition, business, assets, operations, prospects,
earnings or employment practices of AFI.
28
3.16 Tax Loss Carry Forward. AFI believes that it is more likely than not
that the presently-existing tax loss carry forward present in AFI will not be
adversely impacted by this transaction.
3.17 Disclosure. No representation or warranty made by AFI in this
Agreement or in any agreement, instrument, document, certificate, statement or
letter furnished in connection with any of the transactions contemplated by this
Agreement contains any untrue statement of fact or omits to state a fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made.
3.18 Survival. The representations and warranties made by AFI under this
Agreement are being made for the sole purpose of assuring Shareholders of the
peaceful possession of the AFI stock. Each of the representations, warranties
and covenants made in this Agreement by AFI shall survive for a period of two
(2) years after the Closing Date and shall inure to the benefit of and be
enforceable by Shareholders; provided, however, that with respect to the
representations, warranties and covenants made in Section 3.14, such
representations, warranties and covenants shall survive for a period equal to
the applicable statute of limitations period for the particular tax involved.
ARTICLE IV
COVENANTS OF SHAREHOLDER
------------------------
Except as otherwise consented to or approved by AFI in writing, until the
Closing, Shareholders, jointly and severally, covenant and agree (and will cause
Corporation to act or refrain from acting where required hereinafter) as
follows:
4.01 Amendments. Except as required for the transactions contemplated in
this Agreement, no change or amendment shall be made in Corporation's articles
or certificate of incorporation or bylaws. Corporation will not merge into or
consolidate with any other corporation or person, or change the character of its
business.
4.02 Capital Changes. Corporation will not issue or sell any shares of its
capital stock of any class or issue or sell any securities convertible into, or
options, warrants to purchase or rights to subscribe to, any shares of its
capital stock of any class.
4.03 Dividends; Bonuses. Corporation will not declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock, nor
shall Corporation, directly or indirectly, redeem, purchase or otherwise acquire
any shares of its capital stock. Corporation will not pay, set aside, accrue,
agree to or become liable in any manner for any bonus, of any nature or type,
(i) to Shareholders or any Affiliates, except for payment to Sequoia of up to
Forty-eight Thousand Six Hundred Dollars ($48,600) as Corporation has previously
advised AFI, or (ii) to any employee or officer of Corporation except in the
ordinary course of business.
4.04 Capital and Other Expenditures. Corporation will not make any capital
expenditures, or commitments with respect thereto, except in the ordinary course
of business. Corporation will not prepay any debt or obligation in excess of One
Hundred Dollars ($100)
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(except for prepaying trade accounts payable in the normal course of business to
take advantage of cash discounts).
4.05 Borrowing. Corporation will not incur, assume or guarantee any
indebtedness or capital leases other than in the ordinary course of business.
Corporation will not create or permit to become effective any mortgage, pledge,
lien, encumbrance or charge of any kind upon its assets other than in the
ordinary course of business.
4.06 Other Commitments. Except in the ordinary course of business
consistent with the Corporation's past practices, Corporation will not enter
into any transaction, make any commitment or incur any obligation.
4.07 Full Access and Disclosure.
(a) Corporation shall afford to AFI and its counsel, accountants and
other authorized representatives access during business hours to
Corporation's offices, plants, properties, books and records in order that
AFI may have full opportunity to make such reasonable investigations as it
shall desire to make of the affairs of Corporation and Corporation will
cause its officers and employees to furnish such additional financial and
operating data and other information as AFI shall from time to time
reasonably request.
(b) From time to time prior to the Closing Date, Corporation will
promptly supplement or amend in writing information previously delivered to
AFI with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or disclosed.
4.08 Consents. Corporation will use all necessary means at its disposal to
obtain on or prior to the Closing Date all consents necessary to the
consummation of the transactions contemplated hereby.
4.09 Breach of Agreement. Neither Shareholders nor Corporation will take
any action which, if taken prior to the Closing Date, would constitute a breach
of this Agreement.
4.10 Fulfillment of Conditions. Corporation and Shareholders will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the obligations of AFI contained in
this Agreement and will not take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
4.11 Regular Course of Business. Corporation will operate its business in
the ordinary course, diligently and in good faith, consistent with Corporation's
past management practices; will maintain (except for expiration due to lapse of
time) all leases and contracts described herein in effect without change except
as expressly provided herein; will comply with the provisions of all Laws,
applicable to the conduct of its business; will not engage in any significant or
unusual transaction; will not sell any assets or acquire any new assets, except
in the ordinary and usual course of business; will not cancel, release, waive or
compromise any debt, except for discounting of credit receivables in the
ordinary course of business, claim or right in
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its favor having a value in excess of Five Thousand Dollars ($5,000) other than
in connection with returns for credit or replacement in the ordinary course of
business; will maintain insurance coverage up to the Closing Date in amounts
adequate to protect and insure Corporation against perils which good business
practice demands be insured against or which are normally insured against by
other industry members similarly situated.
4.12 Conversion of Long-term Debt to Equity. Shareholders shall contribute
to Corporation prior to Closing, the long-term debt that Shareholders
collectively hold from Corporation in the amount of at least One Hundred
Seventy-five Thousand Dollars ($175,000).
ARTICLE V
COVENANTS OF AFI
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AFI hereby covenants and agrees with Shareholders that:
5.01 Books and Records. AFI shall preserve and keep Corporation's books and
records delivered hereunder for a period of five (5) years from the date hereof
and shall, during such period, make such books and records available to officers
and directors of Corporation for any reasonable purpose.
5.02 Fulfillment of Conditions. AFI will take all commercially reasonable
steps necessary or desirable and proceed diligently and in good faith to satisfy
each condition to the obligations of AFI contained in this Agreement and will
not take or fail to take any action that could reasonably be expected to result
in the nonfulfillment of any such condition.
5.03 Piggyback Registration Rights. If AFI proposes to file a registration
statement under the Securities Act of 1933, other than a registration statement
providing for the registration of stock to be issued upon the exercise of
warrants issued in connection with the Plan of Reorganization (a "Registration
Statement") at any time within two (2) years after the Closing Date with respect
to an offering of common stock (other than a Registration Statement on Form S-8
or Form S-4) it will promptly give notice thereof to the Shareholders within
twenty (20) days prior to the filing of such Registration Statement and such
notice will offer the Shareholders the opportunity to register such number of
Shares as the Shareholders may request. AFI will use its best efforts to cause
the managing underwriter of such offering to permit the requesting Shareholders
to include the Shares in such offering on the same terms and conditions as the
other common stock being offered thereby. The number of Shares to be included in
such offering may be reduced as the managing underwriter deems appropriate;
provided however, that if shares of common stock are included in the offering,
any such reduction in the number of Shares of any Shareholder will be reduced
pro rata with any reduction in the number shares of common stock sought to be
included in the registration by all other holders participating in the offering.
The selection of the underwriters for any such offering shall be in the sole
discretion of AFI. AFI will pay all reasonable expenses associated with the
registration and sale of the Shares, including, without limitation, expenses for
accounting, printing, registration and distribution fees and expenses, except
that the Shareholders shall pay the expenses of their own legal counsel and all
commissions and underwriting discounts payable with respect to the Shares. If
any of the Shares are included in any registration pursuant to this section,
each Shareholder shall take such action
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and furnish AFI with such information regarding and relating to the distribution
of the Shares as AFI may from time to time reasonably request and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement, including, without limitation, the following: (i)
enter into an appropriate underwriting agreement containing terms and provisions
then customary in agreements of that nature; (ii) enter into such customary
agreements, powers of attorney and related documents at such time and on such
terms and conditions as may then be customarily required in connection with such
offering; and (iii) distribute the Shares only in accordance with and in the
manner of distribution contemplated by the applicable Registration Statement and
prospectus.
ARTICLE VI
COVENANT NOT TO COMPETE
In consideration of AFI's agreement to transfer the Purchase Price set forth in
Section 1.02 of this Agreement and payment of the consideration set forth
therein at Closing, Shareholders, Xxxx, and Xxxxxx hereby agree that for a
period of three (3) years from the date thereof, they will not directly or
indirectly, either by themselves or through others, or as individuals, partners,
employees, agents, officers, stockholders, directors, trustees, beneficiaries,
security holders, creditors, consultants or otherwise;
(a) Solicit business from, divert business from, or attempt to convert
to other methods of using the same or similar products and services as
provided by AFI or Corporation, any client, account or location of AFI or
Corporation, of which Shareholders had any contact or as a result of or
during their employment by Corporation and/or AFI;
(b) Perform services on behalf of any debt collection or similar
business, or any business involving debt collection within a 000-xxxx
xxxxxx xx xxx xxxxxxx Xxxxxx Xxxx xxxxxxxxxxxx xxxx; or
(c) Solicit from employment or employ any employee of Corporation
and/or AFI.
Shareholders have carefully read and considered the provisions of this
paragraph, and having done so, agree that the restrictions set forth in this
paragraph (including, but not limited to, the time period restriction) are fair
and reasonable, and are reasonably required for the protection of the interests
of AFI, its officers, directors and other employees. Shareholders represent that
their experience, age, capabilities, current health and assets are such that
this Agreement does not deprive them from earning a livelihood or profits in the
unrestricted business activities which remain open to them or from otherwise
adequately and appropriately supporting themselves. In the event that,
notwithstanding the foregoing, any of the provisions of this paragraph shall be
held to be invalid or unenforceable, the remaining provisions thereof shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that any
provision of the provisions of this paragraph relating to time period and/or
areas of restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period or areas such court deems reasonable and
enforceable, said time period and/or areas of restriction shall be deemed to
become and thereafter be the maximum time period
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and/or areas which such court deems reasonable and enforceable. Shareholders
agree that damages alone will be inadequate protection for AFI in the event of a
breach or a threatened breach or violation of any of the provisions of this
Agreement, and that AFI shall, in addition thereto, be entitled to an injunction
restraining such breach or violation by Shareholders of any provision of this
Agreement, and, such injunctive remedy shall not be in limitation of, but in
addition to, any other remedies authorized by law for the breach or threatened
breach of this Agreement, including the recovery of monetary damages and
reasonable attorneys' fees. Shareholders and AFI expressly waive the posting of
any bond or surety required prior to the issuance of an injunction hereunder.
However, in the event that the court refuses to honor the waiver of the bond
hereunder, Shareholders and AFI hereby expressly agree to a bond to be posted in
this matter of One Hundred Dollars ($100). Nothing in this Agreement shall be
construed to prohibit AFI from also pursuing any other remedy, the parties
having agreed that all remedies are cumulative. Shareholders also recognize and
covenant and agree that all records, materials and information, including, but
not limited to, customer/clients lists, client business cards, pricing lists,
bid lists, documents, records, notebooks, tapes, printed materials, notes,
computer software, programs, disks, supplies and forms (collectively "Company
Records"), relating to the stock purchased by AFI hereunder and Corporation's
business and customers, are confidential, trade secrets and shall remain the
exclusive property of AFI. Shareholders further agree that they will not at any
time remove from Corporation's offices, duplicate or divulge any information
regarding the Company Records. At the end of any employment of Shareholders with
AFI or Corporation, Shareholders agree to return any Company Records in their
possession to AFI or AFI's office. If Shareholder is not an employee of AFI or
Corporation, Shareholders agree to return any Company records in their
possession at Closing to AFI or AFI's office. Shareholders agree that AFI shall
have the right to seek specific performance requiring Shareholders to return any
Company Records in their possession at any time after Closing. Xxxx and Xxxxxx,
respectively, hereby acknowledge that the shares of AFI common stock to be
distributed to Piper, Jaffray, Inc., as custodian for the benefit of Xxxxxxxx X.
Xxxx, and Xxxx X. Xxxxxx, as trustee of the Xxxx Xxxxxx Grandchildren's
Irrevocable Trust, respectively, are sufficient consideration to them,
respectively, to bind them, individually, to the provisions of this Article VI,
and hereby agree that, in addition to the other remedies to which AFI is
entitled as a result of a breach by said individuals of Article VI, the damages
that occur as a result of said breach by them, respectively, will subject Piper,
Jaffray, Inc., as custodian for the benefit of Xxxxxxxx X. Xxxx, and Xxxx X.
Xxxxxx, as trustee of the Xxxx Xxxxxx Grandchildren's Irrevocable Trust,
respectively, to the indemnity set forth in Article XI of this Agreement and to
the Escrow Agreement that secures that indemnity.
ARTICLE VII
OTHER AGREEMENTS
7.01 Consultants, Brokers and Finders. Shareholders and AFI represent and
warrant to one another that, other than Xxx Xxxxx, the existence of which will
be disclosed in the Bankruptcy Court approval process, they have not retained
any consultant, broker or finder in connection with the transactions
contemplated by this Agreement. AFI hereby agrees to indemnify, defend and hold
Shareholders and their affiliates harmless from and against any and all claims,
liabilities or expenses for any brokerage fees, commissions or finders fees due
to any consultant, broker or finder retained by AFI. Shareholders shall jointly
and severally indemnify,
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defend and hold AFI and its officers, directors, employees and affiliates,
harmless from and against any and all claims, liabilities or expenses for any
brokerage fees, commissions or finders fees due to any consultant, broker or
finder retained by Shareholders or Corporation.
7.02 Consulting Agreement. Prior to Closing, Company and Sequoia Company
will enter into a Consulting Agreement, substantially in the form of Exhibit
7.02, and Sequoia Company and Xxx X. Grief will enter into a Designated Employee
Agreement substantially in the form of Exhibit 7.03.
7.03 Taxes.
(a) Shareholders shall cause Corporation to prepare and file all tax
returns and reports of Corporation due on or prior to the Closing Date,
which returns and reports shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such returns and reports
and in a manner consistent with Corporation's prior practice with respect
to the treatment of specific items on the returns or reports; provided,
however, that if the treatment of any item on any such return or report has
not been provided by prior practice, Shareholders shall cause Corporation
to report such items in a manner that would result in the least amount of
tax liability to Corporation and AFI for periods ending after the Closing
Date. AFI shall cause Corporation to prepare and file all tax returns and
reports of Corporation due after the Closing Date, which returns and
reports, to the extent they relate to taxable periods beginning prior to,
but including the Closing Date, shall be prepared and filed timely and on a
basis consistent with existing procedures for preparing such returns and in
a manner consistent with Corporation's prior practice with respect to the
treatment of specific items on the returns and reports, unless such
treatment does not have sufficient legal support to avoid the imposition of
penalties.
(b) AFI, Corporation and Shareholders shall provide each other with
such assistance as may reasonably be requested by the others in connection
with the preparation of any return or report of Taxes, any audit or other
examination by any taxing authority, or any judicial or administrative
proceedings relating to liabilities for Taxes. AFI, Corporation and
Shareholders will retain for the full period of any statute of limitations
and provide the others with any records or information which may be
relevant to such preparation, audit, examination, proceeding or
determination.
(c) If in connection with any examination, investigation, audit or
other proceeding in respect of any tax return covering the operations of
Corporation on or before the Closing Date, any governmental body or
authority issues to Corporation a written notice of deficiency, a notice of
reassessment, a proposed adjustment, an assertion of claim or demand
concerning the taxable period covered by such return, AFI or Corporation
shall notify Shareholders of its receipt of such communication from the
governmental body or authority within thirty (30) business days after
receiving such notice of deficiency, reassessment, adjustment or assertion
of claim or demand. Except as provided below, Shareholders shall, at
Shareholders' expense, have the nonexclusive right to participate in the
contest of any such assessment, proposal, claim, reassessment, demand or
other proceedings in connection with any tax return covering taxable
periods
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of Corporation ending on or before the Closing Date. AFI and Corporation
will not be obligated to settle or resolve any issue related to Taxes for
such a period, which, if so settled or resolved, could have an effect on
Corporation or AFI for periods after the Closing Date, unless Shareholders
agree in writing with AFI and Corporation, in terms reasonably satisfactory
to AFI and Corporation, to indemnify AFI and Corporation from any cost,
damage, loss or expense relating to such settlement or resolution.
Notwithstanding anything in this Agreement to the contrary, if any
examination, investigation, audit or other proceeding relates to a tax
return for a period that begins before and ends after the Closing Date, AFI
and Corporation shall solely participate in, control and resolve such
examination, investigation, audit or other proceeding, provided that AFI
shall communicate with Shareholders regarding the status of such
examination, investigation, audit or proceeding.
7.04 Anti-dilution. AFI agrees, for a period of three (3) years after
Closing, that it will not issue any voting common stock of AFI for less than
Fifty Cents ($.50) per share in consideration received by AFI, absent the
written agreement of Shareholders. Shareholders agree, however, that the Fifty
Cents ($.50) per share requirement set forth herein shall be reduced
proportionately upon the occurrence of a stock split or stock dividend of AFI
common stock.
7.05 Future Purchase of Shares. Shareholders, Xxxx and Xxxxxx will not, for
a period of three (3) years after Closing, acquire any further shares of stock
of AFI if the acquisition of those shares will, (i) in the reasonable opinion of
competent tax counsel for AFI, cause a "change of control" of AFI as determined
under Section 382 of the Internal Revenue Code of 1986, as amended, including
the regulations as promulgated thereunder, or under the comparable provision of
any future internal revenue law; or (ii) have the effect of reducing the number
of shares which FMIC could acquire under its option without such FMIC
acquisition causing a "change of control." Shareholders, Xxxx, and Xxxxxx hereby
acknowledge and agree that they shall have personal liability for a violation of
this Section 7.05, which liability shall not be limited by any provisions of
Article XI of this Agreement or limited to the shares of stock placed in escrow
by Shareholders, pursuant to the Escrow Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF AFI
Each and every obligation of AFI under this Agreement shall be subject to the
satisfaction, on or before the Closing Date, of each of the following conditions
unless waived in writing by AFI:
8.01 Representations and Warranties; Performance. The representations and
warranties made by Shareholders herein shall be true and correct on the date of
this Agreement and on the Closing Date with the same effect as though made on
such date; Shareholders shall have performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to the Closing Date; and Shareholders shall have delivered to
AFI a certificate, dated the Closing Date, in the form designated as Exhibit
8.01 hereto, certifying to such matters and the other conditions contained in
this Article VIII.
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8.02 Fairness Opinion. AFI shall have received a fairness opinion from a
party and in form and substance reasonably agreeable to AFI, representing that
Corporation has, as of the Closing Date, a fair market value, on an ongoing
basis, of at least Seven Hundred Fifty Thousand Dollars ($750,000).
8.03 Consents and Approvals. All consents from and filings with third
parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause an adverse effect on Corporation's
financial condition or business shall have been obtained and delivered to AFI,
including but not limited to:
(a) consents by Corporation's landlords.
(b) consent by Corporation's equipment lessor(s).
(c) consents by any of Corporation's lenders.
(d) Bankruptcy Court approval, in AFI's sole discretion.
8.04 Opinion of Counsel to Corporation and/or Shareholder. AFI shall have
received an opinion of counsel to Corporation and/or Shareholders, dated the
Closing Date, in a form satisfactory to AFI and Shareholders' Counsel.
8.05 No Proceeding or Litigation. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced or threatened against Corporation, Shareholders or AFI
or any of their respective principals, officers or directors seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the validity or legality of any of such transactions or seeking damages in
connection with any of such transactions.
8.06 Review. A full due diligence review of Corporation's business shall be
completed by AFI, its legal counsel, its outside consultants, or others
appointed by AFI. AFI shall be satisfied in its sole and absolute discretion
with the results of AFI's due diligence review of Corporation and its business
operations, prospects and assets. AFI shall bear the costs of this review.
8.07 Other Agreements. The Agreements described in Article VII shall have
been entered into and delivered.
8.08 Board of Director Approvals. The Board of Directors of AFI shall have
approved this Agreement, the transactions contemplated hereby and the Closing.
8.09 Stock. Shareholders shall have delivered duly executed stock powers
and duly issued stock certificates representing the Shares which assign and
transfer the Shares to AFI.
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8.10 Adverse Change. There shall have been no material adverse change to
the assets, liabilities, and business of Corporation.
8.11 Computer Leases. AFI shall have entered into a certain indemnity
agreement with Xxx Xxxxx on the computer leases utilized by Corporation at
Closing.
8.12 Execution of Escrow Agreement. Shareholders and AFI shall
have entered into the Escrow Agreement.
8.13 Termination of Existing Consulting Agreements. The existing consulting
agreements between Corporation and Xxx X. Xxxxx and Xxx X. Xxxxx shall have been
terminated by the parties thereto, with no further obligation of Corporation to
either as a result thereof.
8.14 Resignation of Existing Officers and Directors. The existing officers
and directors of Corporation shall have resigned effective as of Closing.
8.15 FMIC Line of Credit. AFI and FMIC shall have entered into an
agreement in which FMIC agrees to provide to AFI, as of Closing, a Eight Hundred
Seventy-five Thousand Dollar ($875,000) line of credit upon which AFI can draw
down for any reason whatsoever. The line of credit shall remain in existence for
a term of five (5) years and shall accrue interest at the rate of seven percent
(7%) per annum fixed during the term of the line of credit, with interest paid
quarterly by AFI to FMIC, and any principal borrowed on said line of credit due
and payable five (5) years from the date of Closing. Said agreement shall
provide that AFI shall draw down at Closing Two Hundred Fifty Thousand Dollars
($250,000) on said line of credit, with an additional One Hundred Thousand
Dollars ($100,000) drawn down every thirty (30) days after Closing until the
full Eight Hundred Seventy-five Thousand Dollar ($875,000) line of credit has
been extended by FMIC to AFI. In addition, said agreement shall contain the
covenant of AFI that it shall not, for a period of five (5) years from the
Closing Date, repay said line of credit from revenues earned from the normal
operations of AFI, nor will it, within two (2) years after the Closing Date,
repay the line of credit through the borrowing of funds by AFI.
8.16 Bankruptcy Court Approval. AFI shall have (a) received a limited
notice order from the Bankruptcy Court in form and content agreeable to AFI, in
its sole discretion, and, pursuant to said order, provided notice of the pending
transaction to the creditors described in said order, with copies of the
operative documents, including, but not limited to, the Consulting Agreement and
Designated Employee Agreement; and (b) either no objection shall have been
received to the proposed transaction and the Court has approved the transaction
for completion by AFI or, if objections are received, after appropriate hearing
with the Bankruptcy Court, an order is obtained from the Bankruptcy Court
allowing AFI to complete the transaction.
8.17 Xxxxx Agreement. AFI, Corporation and Shareholders shall have entered
into an agreement with Xxx Xxxxx, setting forth the compensation to be received
by Xxx Xxxxx for his participation in this transaction, which said agreement
shall be disclosed to the Bankruptcy Court in the approval process.
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8.18 SEC Filings. All delinquent 10-KSB and 10-QSB filings shall be filed
with and accepted by the SEC.
8.19 FMIC Transaction. A closing shall have occurred under the Acquisition
Agreement between AFI and FMIC dated November 13, 1998.
8.20 Greif Disclosure. Xxx X. Xxxxx will have disclosed, in writing, his
participation in this transaction and relationship to Sequoia to the appropriate
authorities governing and regulating his conduct, the contents of which shall be
approved by AFI and its counsel.
In the event that any of these conditions have not occurred prior to Closing,
AFI may, at its sole and absolute discretion, terminate this Agreement through
notice to the other parties hereto.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF SHAREHOLDERS
Each and every obligation of Shareholders under this Agreement shall be subject
to the satisfaction, on or before the Closing Date, of each of the following
conditions unless waived in writing by Shareholder:
9.01 Representations and Warranties; Performance. The representations and
warranties made by AFI herein shall be true and correct on the date of this
Agreement and on the Closing Date with the same effect as though made on such
date; AFI shall have performed and complied with all agreements, covenants and
conditions required by this Agreement to be performed and complied with by it
prior to the Closing Date; AFI shall have delivered to Shareholders a
certificate of its Chief Operating Officer, dated the Closing Date, certifying
to the fulfillment of the conditions set forth herein, in the form designated as
Exhibit 9.01 and the other conditions contained in this Article IX.
9.02 No Proceeding or Litigation. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced, or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced, or threatened, against Corporation, Shareholders, AFI
or any of their respective principals, officers or directors, seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the validity or legality of any of such transactions or seeking damages in
connection with any of such transactions.
9.03 Payment. The transfer of AFI's stock to Shareholders, as described in
Section 1.02, shall have been made.
9.04 Other Documents. AFI will furnish Shareholders with such other
documents and certificates to evidence compliance with the conditions set forth
in this Article as may be reasonably requested by Shareholders.
9.05 Other Agreements9.05Other Agreements. The agreements described in
Article VII shall have been entered into and delivered.
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9.06 Execution of Escrow Agreement. Shareholders and AFI shall have entered
into the Escrow Agreement.
9.07 Computer Leases. AFI shall have entered into a certain indemnity
agreement with Xxx Xxxxx on the computer leases utilized by Corporation at
Closing.
9.08 Xxxxx Agreement. AFI, Corporation and Shareholders shall have entered
into an agreement with Xxx Xxxxx, setting forth the compensation to be received
by Xxx Xxxxx for his participation in this transaction, which said agreement
shall be disclosed to the Bankruptcy Court in the approval process.
9.09 SEC Filings. All delinquent 10-KSB and 10-QSB filings shall be filed
with and accepted by the SEC.
9.10 FMIC Transaction. A closing shall have occurred under the Acquisition
Agreement between AFI and FMIC dated November 13, 1998.
9.11 Greif Disclosure. Xxx X. Xxxxx will have disclosed, in writing, his
participation in this transaction and relationship to Sequoia to the appropriate
authorities governing and regulating his conduct, the contents of which shall be
approved by AFI and its counsel.
9.12 FMIC Line of Credit . AFI and FMIC shall have entered into an
agreement in which FMIC agrees to provide to AFI, as of Closing, a Eight Hundred
Seventy-five Thousand Dollar ($875,000) line of credit upon which AFI can draw
down for any reason whatsoever. The line of credit shall remain in existence for
a term of five (5) years and shall accrue interest at the rate of seven percent
(7%) per annum fixed during the term of the line of credit, with interest paid
quarterly by AFI to FMIC, and any principal borrowed on said line of credit due
and payable five (5) years from the date of Closing. Said agreement shall
provide that AFI shall draw down at Closing Two Hundred Fifty Thousand Dollars
($250,000) on said line of credit, with an additional One Hundred Thousand
Dollars ($100,000) drawn down every thirty (30) days after Closing until the
full Eight Hundred Seventy-five Thousand Dollar ($875,000) line of credit has
been extended by FMIC to AFI. In addition, said agreement shall contain the
covenant of AFI that it shall not, for a period of five (5) years from the
Closing Date, repay said line of credit from revenues earned from the normal
operations of AFI, nor will it, within two (2) years after the Closing Date,
repay the line of credit through the borrowing of funds by AFI.
In the event that any of these conditions have not occurred prior to Closing,
Shareholders may, at their sole and absolute discretion, terminate this
Agreement through notice to the other parties hereto.
ARTICLE X
CLOSING
10.01 Closing. The closing of this transaction (the "Closing") shall be
held on or before February 19, 1999, or on such other date (the "Closing Date")
mutually agreed upon at such place or places as AFI shall designate.
10.02 Deliveries at Closing.
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(a) At the Closing, Shareholders shall transfer and assign to AFI all
of the Shares by delivering certificates representing each of the Shares,
duly endorsed for transfer to AFI, and the other agreements, certifications
and other documents required to be executed and delivered hereunder at the
Closing shall be duly and validly executed and delivered.
(b) From time to time after the Closing, at AFI's request and without
further consideration from AFI, Shareholders shall execute and deliver such
other instruments of conveyance and transfer and take such other action as
AFI reasonably may require to convey, transfer to and vest in AFI and to
put AFI in possession of the Shares to be sold, conveyed, transferred and
delivered hereunder.
10.03 Legal Actions. If, prior to the Closing Date, any action or
proceeding shall have been instituted by any third party before any court or
governmental agency to restrain or prohibit this Agreement or the consummation
of the transactions contemplated herein, the Closing shall be adjourned at the
option of any party hereto for a period of up to one hundred twenty (120) days.
If, at the end of such 120-day period, the action or proceeding shall not have
been favorably resolved, either party may, by written notice thereof to the
other, terminate their respective obligations hereunder.
10.04 Specific Performance. The parties agree that if any party hereto is
obligated to, but nevertheless does not, consummate this transaction, then any
other party, in addition to all other rights or remedies, shall be entitled to
the remedy of specific performance mandating that the other party or parties
consummate this transaction. In an action for specific performance by any party
against any other party, the other party shall not plead adequacy of damages at
law.
40
ARTICLE XI
INDEMNIFICATION
11.01 Indemnification by Shareholder. Shareholders, jointly and severally
(except for subparagraph (i) below, for which the Xxxx Xxxxxx Grandchildren's
Irrevocable Trust shall be solely liable, and subparagraph (j) below, for which
the JMO Group shall be solely liable), indemnify AFI and each of its
shareholders, officers, directors, subsidiaries, agents, employees and attorneys
against any loss, damage, or expense (including, but not limited to, reasonable
attorneys' fees) ("Damages"), incurred or sustained by AFI or any of its
shareholders, officers, directors, or subsidiaries, agents, employees and
attorneys (a) as a result of any breach of any term, provision, covenant or
agreement contained in this Agreement by Shareholder and/or Corporation; (b) as
a result of any inaccuracy in any of the representations or warranties made by
Shareholders and/or Corporation in Article II of this Agreement; (c) as a result
of any inaccuracy or misrepresentation in any certificate or other document or
instrument delivered by Shareholders and/or Corporation in accordance with any
provision of this Agreement; (d) arising out of any violation or claimed
violation of any environmental laws and regulations associated with the Leased
Premises and occurring (although the claim may be later asserted) prior to
Closing; (e) any taxes of Corporation, for taxable periods ending on or before
the Closing Date, not included in the Closing Balance Sheet, including, but not
limited to, taxes as a result from audits by any taxing authority of
Corporation's taxes for taxable periods ending prior to the Closing Date and any
expenses incurred by AFI and/or Corporation in connection with said audits; (f)
as a result of the existence of any liabilities or obligations of Corporation
not included on the Closing Balance Sheet of Corporation attached hereto; (g) as
a result of the operation of Corporation prior to Closing; (h) as a result of
ownership of Shares prior to Closing. The obligations of Shareholders as set
forth in Section 11.01(b) shall be subject to and limited by the following: (i)
as a result of the violation by the Xxxx Xxxxxx Grandchildren's Irrevocable
Trust of its representations, warranties and covenants contained in Section 2.36
herein; or (j) as a result of the violation by the JMO Group of its
representations, warranties and covenants contained in Section 2.36 herein:
(i) AFI shall give written notice to Shareholders stating
specifically the basis for the claim for Damages, the amount thereof
and shall tender defense thereof to Shareholders as provided in
Section 11.02; and
(ii) The parties hereto agree that Shareholders' indemnity
hereunder shall not go into effect until at least Five Thousand
Dollars ($5,000) in aggregate damages have occurred during the period
of indemnity hereunder.
(iii) AFI hereby agrees that, except as set forth in Section
1.03(c) herein and in Section 7.05 herein, Shareholders' indemnity
pursuant to this Agreement shall be nonrecourse to Shareholders
personally and corporately. Except for Shareholders' obligation under
Section 1.03(c) and except for violations of Section 7.05 hereunder,
AFI agrees that its only remedy in connection with Shareholders'
indemnity hereunder shall be to accept a forfeiture of Shareholders'
shares pursuant to the terms and conditions of the Escrow Agreement
attached hereto.
41
(iv) The parties agree that the indemnity under Section 11.01,
with respect to all items which can cause "damages" to occur
thereunder, shall be limited to those items that are discovered and
for which AFI provides notice to Shareholders of its claim for
damages, which notification occurs within two (2) years of the date of
Closing hereunder. However, notwithstanding the foregoing, with
respect to the indemnity that arises out of subparagraph 11.01(e), the
indemnity shall continue for a period equal to the applicable statute
of limitations period for the particular tax involved.
11.02 Tender of Defense for Damages. Promptly upon receipt by AFI of a
notice of a claim by a third party which may give rise to a claim for Damages,
AFI shall give written notice thereof to Shareholders. No failure or delay of
AFI in the performance of the foregoing shall relieve, reduce or otherwise
affect Shareholders' obligations and liability to indemnify AFI pursuant to this
Agreement, except to the extent that such failure or delay shall have adversely
affected Shareholders' ability to defend against such claim for Damages.
Shareholders may, at their sole expense, undertake the defense against such
claim and may contest or settle such claim on such terms, at such time and in
such manner as Shareholders, in their sole discretion, shall elect and AFI shall
execute such documents and take such steps as may be reasonably necessary in the
opinion of counsel for Shareholders to enable Shareholders to conduct the
defense of such claim for Damages. If Shareholders fail or refuse to defend any
claim for Damages, Shareholders may nevertheless, at their own expense,
participate in the defense of such claim by AFI and in any and all settlement
negotiations relating thereto. In any and all events, Shareholders shall have
such access to the records and files of AFI relating to any claim for Damages as
may be reasonably necessary to effectively defend or participate in the defense
thereof.
11.03 Survival of Warranties. The respective representations and warranties
of Shareholders and AFI contained herein or in any certificates or other
documents delivered prior to or at the Closing are true, accurate and correct
and shall not be deemed waived or otherwise affected by any investigation made
by any party hereto or the occurrence of the Closing. Each and every such
representation and warranty shall survive the Closing Date, and all claims for
Damages based on intentional or fraudulent actions, misrepresentations or
breaches shall never expire.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented only by written agreement of
Shareholders, Corporation and AFI.
12.02 Waiver of Compliance; Consents. Any failure of Shareholders on the
one hand, or AFI on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by AFI or by
Shareholders, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in
42
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 12.02.
12.03 Expenses. Each party will pay its own legal, accounting and other
expenses incurred by such party or on its behalf in connection with this
Agreement and the transactions contemplated herein. If Corporation shall at any
time pay any expenses incurred in connection with this Agreement or any part
thereof or any of the proceedings and transactions contemplated hereunder
including, without limitation, any legal, accounting, printing, filing or other
costs. Such costs shall be deducted from and reduce the "Closing Owner's Equity"
defined herein and, as such, may affect the Shares to be received and/or
retained by Shareholders, pursuant to Section 1.03 hereof.
12.04 Notices. Any notice, request, consent or communication (collectively
a "Notice") under this Agreement shall be effective only if it is in writing and
(i) personally delivered, (ii) sent by certified or registered mail, return
receipt requested, postage prepaid, (iii) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (iv) telexed or
telecopied, with receipt confirmed, addressed as follows:
If to Shareholders and/or Corporation:
Xxxxxx Financial Company
Xxxx Xxxxxx Xxx 0000
Xxxxxxx Xxxxxxx, Xxxxxx 00000
With copy to:
Xxxxxx X. Xxxxx, Esq.
Xxxxx & Xxxxx, Chartered
11000 King, Xxxxx 000
Xxxx Xxxxxx Xxx 00000
Xxxxxxxx Xxxx, Xxxxxx 00000
If to AFI to:
Advanced Financial, Inc.
1900 Commerce Tower
000 Xxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Attn: President
With copy to:
Xxxxxx X. Xxxxxxx, Esq.
Polsinelli, White, Xxxxxxxx & Shalton
Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) five (5) days after the date
when deposited with the United States mail properly addressed, (iii) when
43
receipt of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, or (iv) when receipt of the telex or telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
12.05 Definitions. For the purpose of this Agreement, "Laws" shall include,
without limitation, all foreign, federal, state and local laws, statutes, rules,
regulations, codes, ordinances, plans, orders, judicial decrees, writs,
injunctions, notices, decisions or demand letters issued, entered or promulgated
pursuant to any foreign, federal, state or local law. For the purpose of this
Agreement, "generally accepted accounting principles" shall mean such
principles, applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
which are applicable in the circumstances as of the date in question, and the
requirement that such principles be applied on a "consistent basis" means that
accounting principles observed in the current period are comparable in all
material respects to those applied in the preceding periods, except as change is
permitted or required under or pursuant to such accounting principles.
12.06 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by either party
without the prior written consent of the other party.
12.07 Governing Law. This Agreement shall be governed by the laws of the
state of Missouri as to all matters including, but not limited to, matters of
validity, construction, effect, performance and remedies.
12.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.09 Neutral Interpretation. This Agreement constitutes the product of the
negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
12.10 Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.11 Release of All Claims. As additional consideration for the Purchase
Price paid to Shareholders by AFI hereunder, the receipt and sufficiency of
which is hereby acknowledged, Shareholders hereby release and forever discharge
AFI, Corporation, their respective shareholder, partners, directors, officers,
employees and agents, and their heirs, executors, administrators, successors and
assigns, from any and all obligations, rights, duties, claims, causes of action,
damages, liabilities and demands whatsoever under, arising out of, or in any way
connected with or related to the respective relationships as a shareholder,
director, officer, employee or agent of
44
Corporation. This release shall be binding on Shareholders, their respective
heirs, administrators, executors, successors and assigns, and shall survive the
Closing under this Agreement.
12.12 Confidentiality. The parties hereto agree that the information on AFI
and Corporation presented to one another shall remain confidential and shall not
be disclosed by any parties, except to their attorneys, accountants, the
Bankruptcy Court, and the appropriate officials of the Securities and Exchange
Commission. In the event that a Closing does not occur hereunder, the parties
agree to return all confidential information obtained in connection with this
transaction to the party from whom it was received, and neither party shall be
permitted to use, in its own behalf or on behalf of any third party, any
confidential information which it obtained from the other party hereto.
12.13 Entire Agreement. This Agreement, which term as used throughout
includes the Exhibits hereto, embodies the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, representations, warranties, covenants or
undertakings other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first hereinabove set forth.
AFI:
ADVANCED FINANCIAL, INC.,
a Delaware corporation
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-----------------------------------
SHAREHOLDERS:
SEQUOIA COMPANY
By:
----------------------------------------
Xxx X. Xxxxx, President
45
XXXXX XXXXXXX, INC.,
custodian for the benefit of Xxxxxxxx X. Xxxx
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
JMO GROUP
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
XXXX XXXXXX GRANDCHILDREN'S IRREVOCABLE TRUST
By:
----------------------------------------
Xxxx X. Xxxxxx, Trustee
-------------------------------------------------
Xxxxx X. Xxxxxx
-------------------------------------------------
Xxxxx Xxxxx
-------------------------------------------------
Xxxxxxxxx Xxxxx
CORPORATION:
XXXXXX FINANCIAL COMPANY,
a Kansas corporation
By:
---------------------------------------------
Printed Name:
-----------------------------------
Title:
-----------------------------------
46
XXXX:
--------------------------------------------------
Xxxxxxxx X. Xxxx
XXXXXX:
--------------------------------------------------
Xxxx X. Xxxxxx
47
SCHEDULE OF EXHIBITS TO
AGREEMENT FOR REORGANIZATION
Exhibits Title
-------- -----
Exhibit 1.03 Escrow Agreement
Exhibit 2.01 Certificate or Articles of Incorporation,
Bylaws and Minutes of the of Corporation
Exhibit 2.02 Schedule of Authorized, Issued and
Outstanding Capital Stock of Corporation
Exhibit 2.03 Schedule of Subsidiaries and Affiliates
Exhibit 2.05 Restrictions on Ability to Perform
Exhibit 2.06 Required Governmental Approvals
Exhibit 2.07 Financial Statements
Exhibit 2.08 Liabilities
Exhibit 2.09 Certain Changes
Exhibit 2.10 Schedule of Contracts
Exhibit 2.12 Title and Related Matters
Exhibit 2.12(a) Leased Site Lease
Exhibit 2.12(b) Landlord Estoppel Letter
Exhibit 2.13 Legal Proceedings and Judgments
Exhibit 2.14.1 Certain Tax Matters
Exhibit 2.14.2 Tax Returns
Exhibit 2.15 Government Contracts
Exhibit 2.16 Copies of Reports and Inspections
Exhibit 2.18.1 Welfare Benefit Plans; Retiree Health Benefits
Exhibit 2.18.2 Pension Benefit Plans
Exhibit 2.18.3 Other Benefit Plans Including Vacations
Exhibit 2.18.4 Other Plan Documents
Exhibit 2.18.5 Consents and Agreements
Exhibit 2.19 Schedule of Intellectual Property Rights
Exhibit 2.20(a) Customer List
Exhibit 2.20(b) Customer Fees
Exhibit 2.20(c) Work in Process
Exhibit 2.21 Labor Relations
Exhibit 2.22 Schedule of Insurance
Exhibit 2.23(a) Environmental Matters
Exhibit 2.23(b) Underground Tanks, Piping and Subsurface
Structures
Exhibit 2.23(d) Environmental Investigations
Exhibit 2.24 Bank Accounts
Exhibit 2.25 Compensation Schedule
Exhibit 2.26 Commitments
Exhibit 2.27 Other Employee Matters
Exhibit 2.31 Permits
Exhibit 2.32(b) Information Statement; AFI July 29, 1998 Plan
of Reorganization and Disclosure Statement
Exhibit 3.04 Required Notice
Exhibit 3.08 Capital Stock Options
Exhibit 3.09 Subsidiaries and Affiliates
2
Exhibit 3.10 AFI's Financial Statements
Exhibit 3.11 AFI's Liabilities
Exhibit 3.12 Certain Changes (AFI)
Exhibit 3.13 Litigation
Exhibit 3.14.1 AFI's Tax Matters
Exhibit 3.14.2 AFI's Tax Returns
Exhibit 3.16 Copies of Reports and Inspections (AFI)
Exhibit 7.02 Consulting Agreement
Exhibit 7.03 Designated Employee Agreement
Exhibit 8.01 Certificate of Fulfillment of Conditions by
Shareholders
Exhibit 9.01 Certificate of Fulfillment of Conditions by
AFI
3
Exhibit 1.03
Escrow Agreement
Exhibit 2.01
Certificate or Articles of Incorporation, Bylaws and Minutes of
the Corporation
Exhibit 2.02
Schedule of Authorized, Issued and Outstanding
Capital Stock of Corporation
Certificate Date No. of Shares Holder
Exhibit 2.03
Schedule of Subsidiaries and Affiliates
Exhibit 2.05
Restrictions on Ability to Perform
Exhibit 2.06
Required Governmental Approvals
Exhibit 2.07
Financial Statements
Exhibit 2.08
Liabilities
Exhibit 2.09
Certain Changes
Exhibit 2.10
Schedule of Contracts
Exhibit 2.12
Title and Related Matters
Exhibit 2.12(a)
Leased Site Lease
Exhibit 2.12(b)
Landlord Estoppel Letter
Exhibit 2.13
Legal Proceedings and Judgments
Exhibit 2.14.1
Certain Tax Matters
Exhibit 2.14.2
Tax Returns
Exhibit 2.15
Government Contracts
Exhibit 2.16
Copies of Reports and Inspections
Exhibit 2.18.1
Welfare Benefit Plans; Retiree Health Benefits
Exhibit 2.18.2
Pension Benefit Plans
Exhibit 2.18.3
Other Benefit Plans Including Vacations
Exhibit 2.18.4
Other Plan Documents
Exhibit 2.18.5
Consents and Agreements
Exhibit 2.19
Schedule of Intellectual Property Rights
Exhibit 2.20(a)
Customer List
Exhibit 2.20(b)
Customer Fees
Exhibit 2.20(c)
Work in Process
Exhibit 2.21
Labor Relations
Exhibit 2.22
Schedule of Insurance
Exhibit 2.23(a)
Environmental Matters
Exhibit 2.23(b)
Underground Tanks, Piping and Subsurface Structures
Exhibit 2.23(d)
Environmental Investigations
Exhibit 2.24
Bank Accounts
Exhibit 2.25
Compensation Schedule
Exhibit 2.26
Commitments
Exhibit 2.27
Other Employee Matters
Exhibit 2.31
Permits
Exhibit 2.32(b)
Information Statement; AFI July 29, 1998 Plan of Reorganization
and Disclosure Statement
Exhibit 3.04
Required Notice
File 8-K of AFI within fourteen (14) days after Closing of transaction.
File prior to Closing by AFI, the 1997 10-KSB, June 30, 1997 10-QSB, September
30, 1997 10-QSB, December 31, 1997 10-QSB, March 31, 1998 10-KSB, June 30, 1998
10-QSB, September 30, 1998 10-QSB, December 31, 1998 10-QSB.
Exhibit 3.08
Capital Stock Options
a) 900,000 warrants to existing creditors of AFI at an execution price of
$1.25 per share, pursuant to the Bankruptcy Plan.
b) Xxxxxxx X. Xxxxxx is to receive an option to acquire 149,999 shares of AFI
common stock at $.25 per share, pursuant to the Bankruptcy Plan.
Exhibit 3.09
Subsidiaries and Affiliates
AFI Mortgage Corp., a Nebraska corporation
Exhibit 3.10
AFI's Financial Statements
Exhibit 3.11
AFI's Liabilities
None
Exhibit 3.12
Certain Changes (AFI)
All transactions discussed within AFI and AFI Mortgage Corp.Bankruptcy Plans.
Exhibit 3.13
Litigation
Any and all suits filed prior to filing of the bankruptcy of AFI or AFI Mortgage
Corp.
Exhibit 3.14.1
AFI Tax Matters
None
Exhibit 3.14.2
AFI Tax Returns
Exhibit 3.16
Copies of Reports and Inspections (AFI)
None
Exhibit 7.02
Consulting Agreement
Exhibit 7.03
Designated Employee Agreement
Exhibit 8.01
Certificate of Fulfillment of Conditions by Shareholders
Exhibit 9.01
Certificate of Fulfillment of Conditions by AFI
