AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of July 9, 1998, by and among THERMOVIEW INDUSTRIES, INC.
("Parent"), a Delaware corporation having its principal office located in
Louisville, Kentucky; THERMOVIEW/AHR MERGER CORP. ("Sub"), a California
corporation having its principal office located in Louisville, Kentucky;
AMERICAN HOME REMODELING ("AHR"), a California corporation, and PACIFIC
EXTERIORS, INCORPORATED ("PEI"), a California corporation (AHR and PEI are
sometimes hereinafter referred to collectively as "Companies" and
individually as "Company"), each having its principal office located in Van
Nuys, California; and the shareholders of Companies identified on SCHEDULE
6.1 hereto (each a "Shareholder" and collectively the "Shareholders").
PREAMBLE
The Boards of Directors of each Company, Sub and Parent are of the
opinion that the transactions described herein are in the best interests of
the parties to this Agreement and their respective shareholders. This
Agreement provides for the acquisition of Companies by Parent pursuant to the
merger of Companies with and into Sub. At the Effective Time of the Merger,
the outstanding shares of the capital stock of Companies shall be converted
into the right to receive shares of the common stock of Parent (except as
provided herein). As a result, shareholders of Companies shall become
shareholders of Parent. Also at the Effective Time of the Merger, Companies
shall cease to exist by operation of law and the business formerly conducted
by Companies shall thereafter be conducted by and in the name of Sub. The
transactions described in this Agreement are subject to receipt of required
regulatory consents and approvals and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties
to this Agreement that the Merger shall qualify as a "reorganization" within
the meaning of Section 368(a), including Section 368(a)(1)(A) and (a)(2)(D),
of the Internal Revenue Code of 1986, as amended (the "Code") for federal
income tax purposes.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the provisions of the Agreement of Merger attached as EXHIBIT A (the
"Agreement of Merger"), at the Effective Time, Companies shall be merged with
and into Sub in accordance with the applicable provisions of the California
General Corporation Law ("CGCL") and with the effect provided in the CGCL
(the "Merger"). Sub shall be the surviving corporation resulting from the
Merger and shall be a wholly-owned subsidiary of Parent and shall continue to
be governed by the laws of the State of California. The Merger shall be
consummated pursuant to the terms of this Agreement and the Agreement of
Merger, which have been approved and adopted by the respective Boards of
Directors of Companies, Sub and Parent, by the Shareholders as the only
shareholders of Companies, and by Parent, as the sole shareholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
hereof. The Closing shall be held at the offices of Xxxxxx Xxxxxx, Esq.,
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective at 11:59 P.M. P.D.T. (the "Effective
Time") on the date of filing of the Agreement of Merger (the "Effective
Date").
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER.
The Articles of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
surviving corporation resulting from the Merger until otherwise amended or
repealed.
2.2 BYLAWS.
The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the surviving corporation resulting from the
Merger until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS.
The directors of Sub in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the directors of the
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surviving corporation resulting from the Merger from and after the Effective
Time in accordance with the Bylaws of such corporation. The officers of Sub
in office immediately prior to the Effective Time, together with such
additional persons as may thereafter be elected, shall serve as the officers
of the surviving corporation resulting from the Merger from and after the
Effective Time in accordance with the Bylaws of such corporation.
2.4 CERTAIN CLOSING DELIVERIES. In connection with the Closing,
each of Parent, Companies and the Shareholders agrees to execute and deliver
to each other party the following:
(a) Sub and each of Xxxxxxxx X. Xxxxx and Xxxx X.
Xxxxxxx shall have executed and delivered to the other an Employment
Agreement, which shall be in the form of EXHIBIT B.
(b) Parent and each of the Shareholders shall have
executed and delivered to the other a Noncompetition Agreement, which shall
be in the form of EXHIBIT C.
(c) Parent and each of the Shareholders shall have
executed and delivered to the other a Registration Rights Agreement, which
shall be in the form of EXHIBIT D.
(d) Parent and each of the Shareholders shall have
executed and delivered to the other an Escrow Agreement, which shall be in
the form of EXHIBIT E.
(e) Parent shall have executed and delivered to
Shareholders' Agent a Promissory Note, which shall be in the form of EXHIBIT
F.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Companies, Sub or the shareholders of any of
the foregoing, the shares of the constituent corporations shall be converted
as follows:
(a) Each share of $.001 par value common stock of
Parent ("Parent Common Stock") and any other class or series of capital stock
of Parent (collectively, "Parent Capital Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of the no par value common stock of
Sub ("Sub Common Stock") issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding from and after the
Effective Time.
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(c) Each share of AHR Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive 4.03362 shares of Parent Common Stock
(the "AHR Firm Exchange Ratio"), (ii) the right (subject to the provisions of
Section 4.3) to receive 3.666915 shares of Parent Common Stock (the "AHR
Escrow Exchange Ratio"), (iii) the right to receive $37.125 and (iv) the
right to receive up to $33.75, represented by the Promissory Note.
(d) Each share of PEI Common Stock, defined in
Section 5.4 below, (excluding shares held by either Company or Parent or any
of its subsidiaries) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for (i) the right to receive .39838 shares of Parent Common Stock
(the "PEI Firm Exchange Ratio"), (ii) the right (subject to the provisions of
Section 4.3) to receive .3622 shares of Parent Common Stock (the "PEI Escrow
Exchange Ratio"), (iii) the right to receive $3.66 and (iv) the right to
receive up to $3.33, represented by the Promissory Note.
3.2 ANTI-DILUTION PROVISIONS. In the event Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the AHR and PEI Firm and
Escrow Exchange Ratios shall be proportionately adjusted.
3.3 SHARES HELD BY COMPANIES OR PARENT. Each of the shares of
Company Common Stock held by either Company or Parent or any of its
subsidiaries shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled
under the applicable provisions of the CGCL.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Parent
Common Stock multiplied by the market value of one share of Parent Common
Stock at the Effective Time. The market value of one share of Parent Common
Stock at the Effective Time shall be the highest bid price of such common
stock as quoted by the National Association of Securities Dealers (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) on the last trading day preceding
the Effective Time. No such holder will be
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entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.6 POST-CLOSING EARN-OUT. The Shareholders shall be entitled to
receive post-closing earn-outs as set forth on SCHEDULE 3.6.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. At the Closing (or as soon as reasonably
practicable thereafter), each holder of shares of Company Common Stock (other
than shares to be canceled pursuant to Section 3.3) issued and outstanding at
the Effective Time shall surrender the certificate or certificates
representing such shares to Parent and shall promptly upon surrender thereof
receive in exchange therefor the consideration provided in Section 3.1,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2. To the extent
required by Section 3.5, each holder of shares of Company Common Stock issued
and outstanding at the Effective Time also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of Parent Common Stock to which such holder may be otherwise
entitled (without interest). Parent shall not be obligated to deliver the
consideration to which any former holder of Company Common Stock is entitled
as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Company Common Stock
for exchange as provided in this Section 4.1. The certificate or
certificates of Company Common Stock so surrendered shall be duly endorsed as
Parent may require.
4.2 RIGHTS OF FORMER SHAREHOLDERS. At the Effective Time, the
stock transfer books of each Company shall be closed as to holders of Company
Common Stock immediately prior to the Effective Time and no transfer of
Company Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions
of Section 4.1, each certificate theretofore representing shares of Company
Common Stock (other than shares to be canceled pursuant to Section 3.3) shall
from and after the Effective Time represent for all purposes only the right
to receive the consideration provided in Sections 3.1 and 3.5 in exchange
therefor, subject, however, to each Company's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective
Time which have been declared or made by either Company in respect of such
shares of Company Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Parent on the Parent Common Stock, the record
date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares of Parent Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Company Common Stock issued and
outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section
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4.1. However, upon surrender of such Company Common Stock certificate, both
the Parent Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered
dividends and cash payments payable hereunder (without interest) shall be
delivered and paid with respect to each share represented by such certificate.
4.3 ESCROW SHARES. At the Closing, an aggregate of 162,974 shares
of Parent Common Stock shall be issued by Parent in the names of the
Shareholders and held by the Escrow Agent pursuant to the terms of the Escrow
Agreement (the "Escrow Shares").
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANIES
Companies hereby represent and warrant to Parent as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Each Company is qualified to do business as a foreign
corporation and is in good standing in the states set forth on SCHEDULE 5.1.
The nature of the business of Companies does not require Companies to be
licensed or qualified in any other jurisdiction. Each Company has made
available to Parent complete and correct copies of the Articles of
Incorporation and By-laws of such Company as currently in effect.
5.2 CORPORATE POWER AND AUTHORITY. Each Company has the corporate
power and authority to own and hold its properties and to carry on its
business as now conducted. Each Company (a) has the corporate power and
authority to execute, deliver and perform this Agreement and the Exhibits and
to deliver the Schedules hereto and the other documents and instruments
contemplated hereby (collectively this Agreement, the Exhibits and Schedules
hereto, and the other documents and instruments contemplated hereby shall
constitute the "Documents") and to consummate the transactions contemplated
hereby and thereby and (b) has taken all necessary corporate and shareholder
action to authorize and approve the execution, delivery and performance of
this Agreement and the other Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by each Company
and constitute valid and binding obligations of such Company, enforceable
against such Company in accordance with their terms.
5.3 FOREIGN PERSON. Neither Company is a foreign person as that
term is defined in Section 1445(f)(3) of the Code and applicable regulations.
5.4 CAPITALIZATION. Authorized capital of the Companies is as
follows: (a) AHR has authorized capital consisting of 100,000 shares of
common stock, with no par value per share, of which 40,000 shares are issued
and outstanding and no shares are held as treasury stock (the "AHR Common
Stock"); and (b) PEI has authorized capital consisting of 100,000 shares of
common stock, with no par value per share, of which 45,000 shares are issued
and outstanding
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and no shares are held as treasury stock (the "PEI Common Stock"), and (the
AHR Common Stock and the PEI Common Stock are sometimes hereinafter referred
to collectively as the "Company Common Stock"). All of the outstanding
shares of each Company have been duly authorized and validly issued and are
fully paid and nonassessable. None of the outstanding shares of either
Company has been issued in violation of any preemptive right. There are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for
the purchase, issuance or sale of any shares of capital stock of either
Company, other than as contemplated by this Agreement.
5.5 SUBSIDIARIES AND INVESTMENTS. Neither Company has any
subsidiaries nor owns, directly or indirectly, any capital stock or other
equity or ownership or proprietary interest in any other corporation,
partnership, association, trust, joint venture or other entity.
5.6 BOOKS AND RECORDS. The minute books of each Company, which
have been and will be made available to Parent and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Board of Directors of each Company set forth
in such minute books. Neither Company has any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of either Company.
5.7 FINANCIAL STATEMENTS. AHR has previously furnished to Parent,
and attached hereto as SCHEDULE 5.7 are, the balance sheets of AHR as at
December 31, 1997 and 1996, the related statement of profits and losses for
the fiscal year ended December 31, 1997 and 1996 and the balance sheet (the
"AHR Balance Sheet") of AHR as at June 15, 1998 (the "Balance Sheet Date")
and the related statement of profits and losses for the five and one-half
(5 1/2) months then ended. PEI has previously furnished to Parent, and
attached hereto as SCHEDULE 5.7 are, the balance sheet of PEI (the "PEI
Balance Sheet") as at the Balance Sheet Date and the related statement of
profits and losses for the five and one-half (5 1/2) months then ended. All
such financial statements (the "Financial Statements") are true, complete and
correct and were prepared from the books and records of each Company. Such
books and records are true, complete and correct in all material respects,
accurately reflect all transactions of the business of each Company, and have
been made available to Parent for examination. The Financial Statements
fairly present the financial position of each Company as of the dates
thereof. Since the Balance Sheet Date, (i) there has been no change in the
assets, liabilities or financial condition of either Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business consistent with past practice and which have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of either Company has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against. Each Company has disclosed to
Parent all material facts relating to the preparation of the Financial
Statements.
5.8 Employment and Labor Matters.
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(a) SCHEDULE 5.8 lists all employees and officers of
each Company on the date hereof, along with the amount of the current annual
salaries and total compensation paid or due for services to each employee or
officer for the most recent fiscal year end and the year to date, and a full
and complete description of any commitments to such employees and officers
with respect to compensation payable thereafter. To the best knowledge of
each Company, no key employee or group of employees has any plans to
terminate employment with either Company.
(b) Neither Company is a party to or bound by any
collective bargaining agreement with any labor organization, group or
association covering any of its employees, and neither Company has any
knowledge of any attempt to organize either Company's employees by any
Person, unit or group seeking to act as their bargaining agent. There are no
pending or threatened charges (by employees, their representatives or
governmental authorities) of unfair labor practices or of employment
discrimination or of any other wrongful action with respect to any aspect of
employment of any person employed or formerly employed by either Company. No
union representation election relating to employees of either Company has
been scheduled by any governmental agency or authority, no organizational
effort is being made with respect to any of such employees, and there is no
investigation of either Company's employment policies or practices by any
governmental agency or authority pending or threatened. Neither Company is
currently, or has it been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of either
Company. Neither Company has experienced any material work stoppages, and to
the best knowledge of each Company, no work stoppage is planned.
5.9 REAL PROPERTY. Neither Company owns any real property.
5.10 POWERS OF ATTORNEY; ABSENCE OF LIMITATIONS ON COMPETITION;
GUARANTEES.
Except as set forth in SCHEDULE 5.10, (i) no power of attorney or
similar authorization given by either Company presently is in effect or
outstanding; (ii) no contract or agreement to which either Company is a party
or is bound or to which either Company's properties or assets are subject
limits the freedom of such Company to compete in any line of business or with
any Person; and (iii) neither Company is a party to or bound by any guarantee
of any debt or obligation of any other Person.
5.11 SIGNIFICANT SUPPLIERS. Set forth on SCHEDULE 5.11 is a true
and correct list of each Company's largest suppliers for the most recent
twelve (12) month period ending December 31, 1997 and for the five and
one-half (5 1/2) month period ending June 15, 1998, together with the amount
attributable to such suppliers expressed in dollars and as a percentage of
total supplies purchased. None of the suppliers identified on SCHEDULE 5.11
has terminated, materially reduced or threatened to terminate or materially
reduce its supplies to each Company during the period covered by such
schedule.
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5.12 GOVERNMENTAL APPROVALS. Except as set forth on SCHEDULE 5.12,
no registration or filing with, or consent or approval of or other action by,
any Federal, state or other governmental agency or instrumentality is or will
be necessary for the valid execution, delivery and performance by each
Company of this Agreement.
5.13 VALIDITY, ETC. Except as set forth on SCHEDULE 5.13, neither
the execution and delivery of this Agreement or the other Documents, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by either Company will (i) violate,
conflict with or result in any breach of any trust agreement, Articles of
Incorporation, bylaw, judgment, decree, order, statute or regulation
applicable to either Company, (ii) violate, conflict with or result in a
breach, default or termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date of any of
the obligations of either Company or increase or otherwise affect the
obligations of either Company under any law, rule, regulation or any
judgment, decree, order, governmental permit, license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation related to either Company or to
such Company's ability to consummate the transactions contemplated hereby or
thereby, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to Parent, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to either Company.
5.14 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS.
During the period from the Balance Sheet Date to and including the
date of this Agreement, except as set forth on SCHEDULE 5.14, neither Company
has (i) borrowed or agreed to borrow any material amount of funds or incurred
any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), or guaranteed or agreed to guarantee any
obligations of others, (ii) canceled any indebtedness owing to it or any
claims that it might have possessed, waived any material rights of
substantial value or sold, leased, encumbered, transferred or otherwise
disposed of, or agreed to sell, lease, encumber, or otherwise dispose of its
assets or permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any
kind, (iii) made any capital expenditure or commitment therefor, (iv)
declared or paid any dividend or made any distribution on any shares of its
capital stock, or redeemed, purchased or otherwise acquired any shares of its
capital stock or any option, warrant or other right to purchase or acquire
any such shares, (v) increased its indebtedness for borrowed money, or made
any loan to any Person, (vi) written off as uncollectible any notes or
accounts receivable, except write-offs in the ordinary course of business
charged to applicable reserves, (vii) made any material change in any method
of accounting or auditing practice, (viii) otherwise conducted its business
or entered into any transaction, except in the usual and ordinary manner, or
(ix) agreed, whether or not in writing, to do any of the foregoing.
5.15 CERTAIN PRACTICES. Neither Company, none of its respective
directors or officers, or to the best knowledge of either Company, any of such
Company's employees has, directly or
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indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended; established or maintained any unlawful or unrecorded
fund of corporate monies or other assets; made any false or fictitious entry
on the books or records of either Company or any subsidiary; made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment; given
any favor or gift which is not deductible for federal income tax purposes; or
made any bribe, kickback, or other payment of a similar or comparable nature,
whether lawful or not, to any person or entity, private or public, regardless
of form, whether in money, business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
5.16 COMPLIANCE WITH LAW; LICENSES AND PERMITS.
Except as set forth on SCHEDULE 5.16, each Company has complied in all
material respects with all laws, ordinances, legal requirements, rules,
regulations and orders applicable to it, its operations, properties, assets,
products and services. Except as set forth on SCHEDULE 5.16, there is no
existing law, rule, regulation or order, and neither Company is aware of any
proposed law, rule, regulation or order, whether Federal, state or local,
which would prohibit or materially restrict Sub from, or otherwise materially
adversely affect Sub in, conducting the business of both Companies in the
manner heretofore conducted by such Company in any jurisdiction in which such
business is now conducted. Each Company possesses all franchises, permits,
licenses, certificates and consents required from any governmental or
regulatory authority in order for each Company to carry on its business as
currently conducted and to own and operate its properties and assets as now
owned and operated and all of such licenses and permits are set forth on
SCHEDULE 5.16.
5.17 EMPLOYEE BENEFITS.
(a) Set forth on SCHEDULE 5.17 is a list of all
pension, profit sharing, retirement, deferred compensation, stock purchase,
stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical insurance, life insurance, fringe benefit, welfare
and other employee benefit plans, programs or arrangements pursuant to which
each Company or its ERISA Affiliates provides (directly or indirectly,
individually or jointly through others) benefits or compensation to or on
behalf of employees or independent contractors or former employees or former
independent contractors of each Company or its ERISA Affiliates, whether
formal or informal, whether or not written ("Employee Plan"). On request by
Parent, each Company shall furnish a copy of each Employee Plan and a copy of
any related materials. Companies will maintain the benefits listed on
SCHEDULE 5.17 in full force and effect through the Effective Date. Except as
set forth on SCHEDULE 5.17, Parent shall not have any obligation or liability
of any kind or nature for any compensation or benefits of any kind or nature
to the employees or consultants of either Company for services rendered prior
to the Effective Date.
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(b) Each Employee Plan covering any present or former
employee of either Company which is subject to the continuation health
coverage requirements of Section 4980B of the Code or Section 601 of ERISA or
any applicable state law has complied with all such requirements for
continuation coverage.
(c) There are no actions, suits or claims pending
(other than routine claims for benefits) or threatened against or with
respect to any Employee Plan or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or
funding vehicle, if any) has been administered and maintained in accordance
with its terms and with applicable law. Except as set forth on SCHEDULE
5.17(d), each Employee Plan which is intended to be qualified under Section
401 of the Code and each amendment to such plan is subject to a favorable
determination letter from the Internal Revenue Service ("IRS") and each such
plan has at all times been maintained, by its terms and in operation, in
accordance with Section 401 of the Code. The assets of each Employee Plan
which is not funded through the general assets of either Company are at least
equal to the liabilities under such Employee Plan, and all assets of each
Employee Plan are shown on the books and records of such Employee Plan at
fair market value. No Employee Plan has unfunded liabilities that as of the
Effective Time are not accurately and fully reflected on either Company's
Balance Sheet.
(e) Neither Company nor any of its respective ERISA
Affiliates is or has been a participant in, or is or has been obligated to
maintain or to make contributions to, a multi-employer plan (within the
meaning of ERISA Section 3(37) and ERISA Section 4001(a)(3)) or an Employee
Plan which is subject to Title IV of ERISA. Neither Company nor any of its
respective ERISA Affiliates has sponsored, contributed to or been obligated
under Title I or IV of ERISA to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Neither Company is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits to or on behalf of any persons whatsoever (except the
benefits pursuant to the continuation health coverage requirements under
Section 4980B of the Code, ERISA Section 601, or applicable state law).
(f) Neither Company nor any of its respective ERISA
Affiliates is subject to and, to the best knowledge of each Company, no facts
exist which could subject either Company or any of its respective ERISA
Affiliates to, any liability whatsoever which is directly or indirectly
related to any Employee Plan, including, but not limited to, liability for
benefit payments or related claims, any liability for any tax or related
penalty under the Code, or liability for any damages or penalties arising
under Title I or Title IV of ERISA. No reportable event under Section 4043
of ERISA has occurred or, to the best knowledge of each Company, will occur
with respect to such Employee Plan.
(g) Termination of or withdrawal from any Employee
Plan immediately after the Effective Time would not subject Parent to any
liability, tax or penalty whatsoever.
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(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under the Employee Plan, including any obligation to make any
payment which would not be deductible as an excess golden parachute payment
under Section 280G of the Code.
(i) All contributions to or under each Employee Plan
and all expenses of each Employee Plan are fully deductible for income tax
purposes for the taxable year for which such contributions are made or such
expenses are paid. All contributions to or under each Employee Plan have
been made when due under the terms of such Employee Plan in accordance with
applicable law.
(j) For purposes of this Section 5.17, the term
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the term "ERISA Affiliate" shall mean each trade or business
(whether or not incorporated) which together with either Company is treated
as a single employer under Section 414(b), (c), (m), (o) or (t) of the Code.
5.18 FIXED ASSETS. SCHEDULE 5.18 contains a true and complete list
of all of each Company's fixed assets with a net book value of greater than
$1,000.00, whether owned or leased. Except as shown on SCHEDULE 5.18, each
Company has good and marketable title to all of its fixed assets, free and
clear of all claims, liens, mortgages, charges and encumbrances except as
disclosed in the Balance Sheet. All of each Company's fixed assets, whether
owned or leased, are adequate and usable for the purposes for which they are
currently used, are in good operating condition and repair and have been
properly maintained.
5.19 INSURANCE. Each Company is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as
set forth on the attached SCHEDULE 5.19. SCHEDULE 5.19 lists the insurance
coverage carried by each Company, which insurance will remain in full force
and effect with respect to all events occurring prior to the Effective Date.
Except as set forth on SCHEDULE 5.19, neither Company (i) has failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion, (ii) has received notice of cancellation or non-renewal of
any such policy or binder, (iii) is aware of any threatened or proposed
cancellation or non-renewal of any such policy or binder, (iv) has received
notice of any insurance premium which will be materially increased in the
future, and (v) is aware of any insurance premium which will be materially
increased in the future. There are no outstanding claims under any such
policy which have gone unpaid for more than 45 days, or as to which the
insurer has disclaimed liability.
5.20 ACCOUNTS RECEIVABLE; SHAREHOLDER NOTES. The accounts
receivable and other debts due or recorded in the respective records and
books of account of each Company as being due to each Company as of the
Effective Date, all of which are set forth on SCHEDULE 5.20, arose in the
ordinary course of business of each Company, are not subject to any
counterclaim or set-off and are fully collectible within 120 days after the
Effective Date without resort to litigation and without offset or
counterclaim. As of the Closing Date, all notes payable to Shareholders by
either Company have been paid in full.
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5.21 OUTSTANDING CONTRACTS. SCHEDULE 5.21 sets forth a description
of all existing contracts, agreements, leases, commitments, licenses and
franchises, which involve obligations or commitments by each Company of
$10,000 or more and are not cancelable by such Company without penalty within
30 days (collectively "Contracts"), whether written or oral, relating to such
Company. Each Company has delivered or made available to Parent true, correct
and complete copies of all of the Contracts specified on SCHEDULE 5.21 which
are in writing, and such schedule sets forth a complete description of all
Contracts which are not in writing. All of the Contracts are in full force
and effect and enforceable in accordance with their terms, except to the
extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 5.21, each Company and, to the
best knowledge of each Company, each other party thereto has materially
performed all the obligations required to be performed by it, has received no
notice of default and is not in default (with due notice or lapse of time or
both) under any of the Contracts. Neither Company has any present
expectation or intention of not fully performing all its obligations under
each of the Contracts, and neither Company has any knowledge of any breach or
anticipated breach by the other party to any of the Contracts to which such
Company is a party. Except as set forth on SCHEDULE 5.21, none of the
Contracts has been terminated; no notice has been given by any party thereto
of any alleged default by any party thereunder; and neither Company is aware
of any intention or right of any party to declare another party to any of the
Contracts to be in default. Except as set forth on SCHEDULE 5.21, there
exists no actual or, to the best knowledge of either Company, threatened
termination, cancellation or limitation of the business relationship of such
Company by any party to any of the Contracts.
5.22 OUTSTANDING LEASES. SCHEDULE 5.22 sets forth a description of
each agreement by which each Company leases each parcel of real property (the
"Leased Parcels") used in connection with the business (collectively, the
"Leases"). Each Company has delivered or made available to Parent true,
correct and complete copies of all of the Leases specified on SCHEDULE 5.22.
All rents due under the Leases have been paid. All of the Leases are in full
force and effect and enforceable in accordance with their terms, except to
the extent that the enforceability thereof may be subject to or affected by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws relating to or affecting the rights of creditors
generally. Except as set forth on SCHEDULE 5.22, each Company and, to the
best knowledge of each Company, each other party thereto has performed all
the obligations required to be performed by it, has received no notice of
default and is not in default (with due notice or lapse of time or both)
under any of the Leases. Neither Company has any present expectation or
intention of not fully performing all its obligations under each of the
Leases, and neither Company has any knowledge of any breach or anticipated
breach by the other party to any of the Leases. Except as set forth on
SCHEDULE 5.22, none of the Leases has been terminated; no notice has been
given by any party thereto of any alleged default by any party thereunder;
and neither Company is aware of any intention or right of any party to
declare another party to any of the Leases to be in default. There exists no
actual or, to the best knowledge of each Company, threatened termination,
cancellation or limitation of the business relationship of such Company with
any party to any of the Leases.
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5.23 INTELLECTUAL PROPERTIES. SCHEDULE 5.23 contains an accurate
and complete list of all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service xxxx registrations and
applications and copyright registrations and applications, trade secrets or
other confidential proprietary information owned or used by each Company in
the operation of the business (collectively the "Intellectual Property").
Except as set forth on SCHEDULE 5.23 and except for commercial software
licensed for use on personal computers, each Company owns the entire right,
title and interest in and to the Intellectual Property, trade secrets and
technology used in the operation of its business and each item constituting
part of the Intellectual Property and trade secrets and technology which is
owned by each Company has been, to the extent indicated in SCHEDULE 5.23,
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark office or such other government entities,
domestic or foreign, as are indicated in SCHEDULE 5.23 and such
registrations, filings and issuances remain in full force and effect. There
have been and are no pending or, to the best knowledge of each Company,
threatened proceedings or litigation or other adverse claims affecting or
with respect to the Intellectual Property. There is, to the best knowledge
of each Company, no reasonable basis upon which a claim may be asserted
against either Company for infringement of any domestic or foreign letters
patent, patents, patent applications, patent licenses and know-how licenses,
trade names, trademark registrations and applications, common law trademarks,
service marks, service xxxx registrations or applications, copyrights,
copyright registrations or applications, trade secrets or other confidential
proprietary information. To the best knowledge of each Company, no Person is
infringing the Intellectual Property.
5.24 PROPRIETARY INFORMATION OF THIRD PARTIES.
Except as disclosed on SCHEDULE 5.24, no third party has claimed or,
to the best knowledge of either Company, has reason to claim that any Person
employed by or consulting with either Company ("Related Person") has (i)
violated or may be violating any of the terms or conditions of such person's
employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing
any trade secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from either Company
which suggests that such a claim might be contemplated. Except as disclosed
on SCHEDULE 5.24, to the best knowledge of each Company, no Related Person
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and no Related Person has
violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any service of
either Company, and neither Company has any reason to believe there will be
any such employment or violation.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
5.25, to the best knowledge of each Company, no director, officer or
shareholder of either Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which
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any such person, or any member of the family of any such person, has a
beneficial interest greater than 5% or is an officer, director, trustee,
partner or holder of any equity interest greater than 5% (an "Affiliate"), is
a party to any transaction with either Company, including any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payments or involving other obligations to any such person or firm.
5.26 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as and to the extent of the amounts
specifically reflected or reserved against in the Balance Sheet, or except as
set forth on SCHEDULE 5.26, neither Company has any liabilities or
obligations of any nature whatsoever due or to become due, accrued, absolute,
contingent or otherwise, except for liabilities and obligations incurred
since the date thereof in the ordinary course of business and consistent with
past practice. Neither Company knows of, and has any reason to know of, any
basis for the assertion against such Company of any liability or obligation
not fully reflected or reserved against in the Balance Sheet.
(b) Neither Company is bound by any agreement, or
subject to any charter or other corporate restriction or any legal
requirement, which has, or in the future can reasonably be expected to have,
a material adverse effect on the business or prospects of such Company.
5.27 TAXES. AHR has timely filed a valid election to be treated as
an S corporation in accordance with the provisions of Section 1361 of the
Code, effective for its tax year ended December 31, 1992; PEI has timely
filed a valid election to be treated as an S corporation in accordance with
the provisions of Section 1361 of the Code, effective for its tax year ended
on the Effective Date; and each Company has qualified and shall continue to
qualify as an S corporation for all years and periods thereafter until the
Effective Time. SCHEDULE 5.27 lists all the states and localities with
respect to which each Company is required to file any corporate, income
and/or franchise tax returns and sets forth whether each Company is treated
as the equivalent of an S corporation by or with respect to each such state
and/or locality. Neither Company has engaged in any activity which would
disqualify its treatment as an S corporation for those tax purposes. Except
as set forth on SCHEDULE 5.27, all federal, state, local and foreign tax
returns and tax reports required to be filed by each Company on or before
the date hereof have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required
to be filed and all amounts shown as owing thereon have been paid. All taxes
(including, without limitation, income, accumulated earnings, property,
sales, use, franchise, excise, license, value added, fuel, employees' income
withholding and social security taxes) which have become due or payable or
are required to be collected by each Company or are otherwise attributable to
any periods ending on or before the Effective Date and all interest and
penalties thereon, whether disputed or not, have been paid or will be paid in
full or adequately reflected on the Balance Sheet or each Company's books and
records in accordance with generally accepted accounting principles on or
prior to the Effective Time. Except as set forth on SCHEDULE 5.27, all
deposits required by law to be made by each Company with respect to
employees' withholding taxes have been duly made, and as of the Effective
Time all such
15
deposits due will have been made. Each Company has delivered to Parent true
and complete copies of all of such Company's federal and state income tax
returns for the fiscal periods ended December 31, 1997, 1996 and 1995 and all
reports and results of income tax audits, if any, related thereto. Except as
set forth on SCHEDULE 5.27, no examination of any tax return of either
Company is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any such
tax return.
5.28 LITIGATION. Except as set forth on SCHEDULE 5.28, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the best
knowledge of each Company, threatened against or affecting either Company
(whether or not such Company is a party or prospective party thereto), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding pending
relating to either Company or (iii) governmental inquiry pending or
threatened against or involving either Company, and there is no basis for any
of the foregoing. Neither Company has received any opinion or memorandum or
legal advice from legal counsel to the effect that such Company is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to the business, prospects, financial condition, operations,
property or affairs of such Company. There are no outstanding orders, writs,
judgments, injunctions or decrees served upon either Company by any court,
governmental agency or arbitration tribunal against such Company. There are
no facts or circumstances which may result in institution of any action,
suit, claim or legal, administrative or arbitration proceeding or
investigation against, involving or affecting either Company or the
transactions contemplated hereby. Neither Company is in default with respect
to any order, writ, injunction or decree known to or served upon it from any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as disclosed on SCHEDULE 5.28, there is no action or suit by either
Company pending or threatened against others.
5.29 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Each Company and all Leased Parcels are
in compliance with all applicable laws, rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities with respect to all
environmental statutes, rules and regulations. Except as set forth on
SCHEDULE 5.29, neither Company has received notice of, nor does either Company
have knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans of such
Company or such Company's predecessors, either collectively, individually or
severally, which may interfere with or prevent continued compliance with, or
which may give rise to any common law or legal liability or otherwise form the
basis of any claim, action, suit, proceeding, hearing, or investigation, based
on or related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge, release
or threatened release into the environment, of any Substance. As used in this
Section 5.29, the term "Substance" or "Substances" shall mean any pollutant,
contaminant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted federal, state or local statute or
any regulation that has been promulgated pursuant thereto. No part of any of
the Leased
16
Parcels has been listed or proposed for listing on the National Priorities
List established by the United States Environmental Protection Agency, or any
corresponding list by any state or local authorities.
(b) ENVIRONMENTAL SUBSTANCE LIABILITY. No event has
occurred or condition exists or operating practice is being employed that
could give rise to liability on the part of either Company, either at the
present time or in the future, for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest, expenses and
costs of responses, including any such liability on account of the right of
any governmental or private entity or person, and including closure expenses,
costs of assessment, containment, removal, or response (other than monitoring
or transportation or disposal of materials required to be transported or
disposed of in the ordinary course of business consistent with past practice)
arising under any rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or
in connection with, or alleged to be as a result of or in connection with,
the following (collectively the "Hazardous Activities"):
(i) the handling, storage, use, transportation
or disposal of any Substances in or near or from the Leased Parcels;
(ii) the handling, storage, use, transportation
or disposal of any Substances by either Company or their predecessors which
Substances were a product, by-product or otherwise resulted from the
operations conducted by or on behalf of either Company or their predecessors;
(iii) any intentional or unintentional emission,
discharge or release of any Substances in or near or from facilities into or
upon the air, surface water, ground water or land or any disposal, handling,
manufacturing, processing, distribution, use, treatment, or transport of such
Substances in or near or from facilities by or on behalf of either Company or
their predecessors; or
(iv) the presence of any toxic or hazardous
building materials (including but not limited to friable asbestos or similar
substances) in any facilities of either Company, including but not limited to
the inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) ENVIRONMENTAL PERMITS. Each Company has obtained
and holds all registrations, permits, licenses, and approvals issued by or on
behalf of any federal, state or local governmental body or agency if any
("Environmental Permits") that are required in connection with the operation
by such Company of the Leased Parcels, the discharge or emission of
Substances by such Company from the Leased Parcels or the generation,
treatment, storage, transportation, or disposal of any such Substances by
such Company. Such Environmental Permits, which are described on SCHEDULE
5.29, are currently effective and sufficient for the operation of the Leased
Parcels and the business of each Company as currently conducted and intended
to be conducted. Each Company is in compliance with all terms and conditions
of the Environmental Permits, and is also in compliance with all other
limitations, restrictions,
17
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables contained in those laws or provisions or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder and applicable to each
Company.
(d) DELIVERIES. Each Company has delivered to Parent
true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by either Company pertaining to
Substances or Hazardous Activities in, on, or under the Leased Parcels or
concerning compliance by either Company or any other Person for whose conduct
they are or may be held responsible, with environmental statutes, rules and
regulations.
5.30 INVENTORY. Neither Company has any inventory.
5.31 YEAR-2000 COMPLIANCE.
(a) SCHEDULE 5.31 contains a true and complete list
of all Systems (as hereinafter defined), and each System is Year-2000
Compliant (as hereinafter defined) to the extent indicated on SCHEDULE 5.31.
(b) As used throughout this Agreement, the following
definitions shall have the following meanings:
(1) "External Systems" shall mean all
services which are provided to either Company by third parties and which are
dependent on information technology, including, but not limited to, any
external payroll, accounting, or tax filing services or any checking,
savings, or other financial services.
(2) "Internal Systems" shall mean all
technology products and systems generally operated or controlled in-house by
either Company, or its employees, agents, or independent contractors
including, but not limited to, computers, computer networks, telephone
systems, voicemail systems, intercom systems, pager systems, and software
applications.
(3) "Licensed Systems" shall mean all
products and systems developed by or for either Company which are licensed,
sold, distributed, or otherwise transferred by either Company to third
parties.
(4) "System" or "Systems" shall mean
any, all, or any combination of any Internal System, External System, or
Licensed System.
(5) "Year-2000 Compliant" shall mean,
with respect to each System, that such System is designed to be used before,
during, and after the calendar year 2000 A.D. and will accurately accept date
input and process, store, and output date data and date-related data,
including, without limitation, calculating, comparing, sorting, and
sequencing such
18
data and calculating leap years before, during, and after the calendar year
2000 A.D. without any manual intervention.
5.32 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of either Company in connection with this Agreement and the
transactions contemplated hereby are true, complete and correct. Neither
this Agreement, nor any of the other Documents contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
made by either Company herein or therein, in light of the circumstances in
which made, not misleading. There is no fact known to either Company which
materially and adversely affects the business, prospects or financial
condition of such Company or its properties or assets, which has not been set
forth in the Documents.
5.33 TAX AND REGULATORY MATTERS. Neither Company nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders represents and warrants to Parent as follows:
6.1 OWNERSHIP OF SHARES. Each Shareholder individually represents
and warrants as to himself (a) that such Shareholder owns the shares of
Company Common Stock listed opposite such Shareholder's name on SCHEDULE 6.1
hereto, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or limitations of every kind
("Claims"), and (b) that the delivery to Parent of the Common Stock pursuant
to the provisions of this Agreement will transfer to Parent valid title
thereto, free and clear of all Claims.
6.2 AUTHORITY AND APPROVAL; NO BREACH BY AGREEMENT. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder has full legal power, capacity and authority to execute, deliver
and perform this Agreement and the other Documents and to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
Documents have been duly and validly executed and delivered by such
Shareholder and constitute valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their terms. No
notice to, filing with, or consent of, any public body or authority or other
Person is necessary for the consummation by such Shareholder of the
transactions contemplated in this Agreement. Execution of this Agreement by
such Shareholder shall constitute such Shareholder's written consent to
approval of this Agreement and Plan of
19
Merger in such Shareholder's capacity as a holder of shares of Company Common
Stock, and such Shareholder hereby waives receipt of any further notice of
the Merger, including notice of the availability of dissenters' rights.
6.3 PURCHASE FOR INVESTMENT; RESTRICTED SECURITIES. Each
Shareholder individually represents and warrants as to himself (a) that such
Shareholder is acquiring shares of Parent Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares
of Parent Common Stock so acquired; (b) that such Shareholder has no present
plan or intention to sell, exchange or otherwise dispose of any of the shares
of Parent Common Stock received in the Merger; and (c) such Shareholder
acknowledges that (i) the shares of Parent Common Stock are not and will not
be registered under the Securities Act of 1933, as amended (the "1933 Act"),
and (ii) that Parent does not file periodic reports with the Securities and
Exchange Commission pursuant to the requirements of Section 12 or 15(d) of
the Securities Exchange Act of 1934, as amended.
6.4 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
6.4, no agent, broker, person or firm acting on behalf of the Shareholders or
either Company is, or will be, entitled to any commission or broker's or
finder's fees from the Shareholders or either Company, or from any person
controlling, controlled by or under common control with the Shareholders or
either Company, in connection with any of the transactions contemplated
herein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Companies and the
Shareholders as follows:
7.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, duly
qualified to transact business as a foreign corporation in each jurisdiction
in which the failure to so qualify would have a material adverse impact on
Parent's ability to perform its obligations under this Agreement.
7.2 CORPORATE POWER AND AUTHORITY. Parent has the corporate power
and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of the Documents
contemplated hereby and the consummation of the transactions contemplated
hereby and thereby have been duly authorized and approved by all necessary
corporate action of Parent. The Documents to be executed and delivered by
Parent have been duly executed and delivered by, and constitute the legal,
valid and binding obligations of Parent enforceable against Parent in
accordance with their terms.
7.3 VALIDITY, ETC. Neither the execution and delivery by Parent of
this Agreement and the other Documents, the consummation by Parent of the
transactions contemplated hereby or thereby, nor the performance by Parent of
this Agreement and such other agreements in compliance with the terms and
conditions hereof and thereof will (i) violate, conflict with or
20
result in any breach of any trust agreement, articles of incorporation,
bylaw, judgment, decree, order, statute or regulation applicable to Parent,
(ii) violate, conflict with or result in a breach of or default (or give rise
to any right of termination, cancellation or acceleration) under any law,
rule or regulation or any judgment, decree, order, governmental permit,
license or order or any of the terms, conditions or provisions of any
mortgage, indenture, note, license, agreement or other instrument to which
Parent is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Parent.
7.4 CAPITAL STOCK. The authorized capital stock of Parent consists
of (a) 100,000,000 shares of Parent Common Stock, of which 12,762,957 shares
were issued and outstanding as of May 30, 1998 and (b) 50,000,000 shares of
$.001 par value preferred stock, of which no shares were issued and
outstanding as of May 30, 1998. All of the issued and outstanding shares of
Parent Capital Stock are, and all of the shares of Parent Common Stock to be
issued in exchange for shares of Company Common Stock upon consummation of
the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable.
None of the outstanding shares of Parent Capital Stock has been, and none of
the shares of Parent Common Stock to be issued in exchange for shares of
Company Common Stock upon consummation of the Merger will be, issued in
violation of any preemptive rights of the current or past shareholders of
Parent.
7.5 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California as a
wholly owned subsidiary of Parent. The authorized capital stock of Sub
consists of 1,000 shares of Sub Common Stock, all of which is validly issued
and outstanding, fully paid and nonassessable and is owned by Parent free and
clear of any Claims. Sub (a) has the corporate power and authority to
execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby and (b) has taken
all necessary corporate and shareholder action to authorize and approve the
execution, delivery and performance of this Agreement and the other Documents
and the consummation of the transactions contemplated hereby and thereby.
This Agreement and the other Documents have been duly and validly executed
and delivered by Sub and constitute valid and binding obligations of Sub,
enforceable against Sub in accordance with their terms.
7.6 TAX AND REGULATORY MATTERS. Neither Parent nor any Affiliate
thereof has any knowledge of any fact or circumstance that is reasonably
likely to (i) prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (ii) materially impede or delay
receipt of any consents of any federal, state, county, local or other
governmental or regulatory agencies having jurisdiction over the parties or
result in the imposition of a condition or restriction of the type referred
to in the last sentence of Section 9.1(a).
7.7 DISCLOSURE STATEMENT. Parent's Disclosure Statement, dated
June 25, 1998, which has been previously delivered to the Shareholders is
true, complete and correct in all material respects.
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7.8 DISCLOSURE. All Documents delivered or to be delivered by or
on behalf of Parent in connection with this Agreement and the transactions
contemplated hereby are true, complete and correct. Neither this Agreement,
nor any of the other Documents contains any untrue statement of a material
fact or omits a material fact necessary to make the statements made by Parent
herein or therein, in light of the circumstances in which made, not
misleading. There is no fact known to Parent which may have a material
adverse effect on Parent's ability to pay its obligations under this
Agreement, which has not been set forth in the Documents.
7.9 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE
7.9, no agent, broker, person or firm acting on behalf of Parent is, or will
be, entitled to any commission or broker's or finder's fees from Parent, or
from any person controlling, controlled by or under common control with
Parent, in connection with any of the transactions contemplated herein.
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ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, each Company shall and Parent shall cause Sub
to execute and file the Agreement of Merger with the California Secretary of
State in connection with the Closing.
8.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each party hereto agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper, or advisable under
applicable laws to consummate and make effective, as soon as reasonably
practicable after the date of this Agreement, the transactions contemplated
by this Agreement, including using its reasonable efforts to lift or rescind
any order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to
in Article 9; provided, that nothing herein shall preclude either party
hereto from exercising its rights under this Agreement. Each party hereto
shall use its reasonable efforts to obtain all consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.3 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each party hereto
shall keep the other party advised of all material developments relevant to
its business and to consummation of the Merger and shall permit the other
party to make or cause to be made such investigation of the business and
properties of it and of its financial and legal conditions as the other party
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a party shall
affect the representations and warranties of the other party.
(b) Each party hereto shall, and shall cause its
advisers and agents to, maintain the confidentiality of all confidential
information furnished to it by the other party concerning its and its
subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. For purposes hereof, the term
"confidential information" does not include any information which at the time
of disclosure to the receiving party was or thereafter became publicly
available or a matter of public knowledge, without a breach of this Agreement
by the receiving party, or was disclosed by the receiving party pursuant to a
requirement of law, or in response to a court order, subpoena or governmental
authority.
8.4 PRESS RELEASES. Prior to the Effective Time, each Company and
Parent shall consult with each other as to the form and substance of any
press release or other public disclosure materially related to this Agreement
or any other transaction contemplated hereby; provided, that nothing in this
Section 8.4 shall be deemed to prohibit any party from making any
23
disclosure which its counsel deems necessary or advisable in order to satisfy
such party's disclosure obligations imposed by law.
8.5 NO SOLICITATION. Except with respect to this Agreement and the
transactions contemplated hereby, neither Company, nor any Shareholder, shall
solicit or enter into discussions with any third party (a) to purchase any
shares of capital stock of either Company or an option or warrant to purchase
shares of such capital stock or any securities convertible into such capital
stock, (b) to make an offer of any kind for any shares of such capital stock,
(c) purchase all or a substantial portion of the assets of either Company or
(d) to merge, consolidate, engage in a share exchange or otherwise combine
with either Company.
8.6 SHAREHOLDER RELEASES. Each Shareholder hereby releases and
forever discharges each Company and its officers, directors, employees and
insurers, and their respective successors and assigns, and each of them
(hereinafter individually and collectively, the "Releasees") of and from any
and all claims, demands, debts, accounts, covenants, agreements, obligations,
costs, expenses, actions or causes of action of every nature, character or
description, now accrued or which may hereafter accrue, without limitation of
law, equity or otherwise, based in whole or in part on any facts, conduct,
activities, transactions, events or occurrences known or unknown, which have
or allegedly have existed, occurred, happened, arisen or transpired from the
beginning of time to the Effective Time; excluding, however, (i) claims
arising under this Agreement and the transactions contemplated hereby, and
(ii) compensation and other employee benefits accrued but not yet payable as
reflected on the books and records of each Company (the "Released Claims").
Each Shareholder represents and warrants that no Released Claim released
herein has been assigned, expressly, impliedly, or by operation of law, and
that all Released Claims of such Shareholder released herein are owned by
such Shareholder, who has the sole authority to release them. Each
Shareholder agrees that such holder shall forever refrain and forebear from
commencing, instituting or prosecuting any lawsuit action or proceeding,
judicial, administrative, or otherwise, or otherwise attempting to collect or
enforce any Released Claims which are released and discharged herein.
8.7 ACCOUNTING AND TAX TREATMENT. Each party undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify for treatment as
a "reorganization" within the meaning of Section 368(a), including Section
368(a)(1)(A) and (a)(2)(D), of the Code for federal income tax purposes, and
each party covenants and agrees that each representation made by such party
in the certificates executed by or on behalf of such party and attached to
the tax opinion of Xxxxxx & Xxxxxxxx referred to in Section 9.1(c) is true
and correct. Notwithstanding the foregoing, no party shall have any liability
to any other party in the event the Merger ultimately is determined not to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code as a result of a breach of any covenant or representation in such
certificates by the Shareholders.
8.8 CHARTER PROVISIONS. Each Company shall take all necessary
action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do
not and will not result in the grant of any rights to any Person under the
Articles of Incorporation, Bylaws or other governing instruments of each
24
Company or restrict or impair the ability of Parent or any of its
subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of each Company that may be directly or indirectly
acquired or controlled by them.
8.9 CERTAIN TAX RETURNS OF EACH COMPANY. For income tax purposes,
(i) the status of each Company as an "S Corporation" shall continue until the
Effective Time of the Merger, (ii) each Company's final S corporation tax
year will end at the Effective Time. The Shareholders shall cause to be
prepared and filed all income tax returns of each Company (including IRS Form
1120S and Schedule K-1(1120S) and similar state tax returns) for the tax year
ending at the Effective Time, as well as for the tax year ended December 31,
1997 (if not filed before the Effective Time). Parent and each Company (and
not the Shareholders) shall be responsible for the preparation and filing of
all income tax returns and the payment of all income taxes of each Company
for its tax year beginning on the day on which the Effective Time occurs and
all subsequent periods.
8.10 WORKING CAPITAL. The Companies shall have net current assets
at the closing sufficient to provide working capital for their on-going
businesses. For purposes of this Agreement, "net current assets" shall mean
current assets in excess of current liabilities.
8.11 LANDLORD CONSENTS. The Shareholders shall, on or before the
expiration of thirty (30) days after the Effective Time, cause the Company to
obtain from its landlords (to the extent required under the pertinent
premises lease) written consent to the assignment of said leases to the
Parent which assignment is deemed to have resulted from the transactions
contemplated by this Agreement.
8.12 AUDITED FINANCIAL STATEMENTS. The Shareholders shall furnish
to Parent, as soon as practical and at Shareholders' expense (up to a maximum
amount of $29,333), audited financial statements of each Company for the
three (3) fiscal years ending December, 1997, 1996 and 1995, as prepared by
an accounting firm selected by Parent.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both parties:
(a) CONSENTS AND APPROVALS. Each party shall have
obtained any and all consents required for consummation of the Merger or for
the preventing of any default under any contract or permit of such party
which, if not obtained or made, is reasonably likely to have, individually or
in the aggregate, a material adverse effect on such party. No consent so
obtained which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of Parent
25
would so materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment,
have entered into this Agreement.
(b) LEGAL PROCEEDINGS. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(c) TAX MATTERS. Each party shall have received a
written opinion of counsel from Xxxxxx & Xxxxxxxx, in form reasonably
satisfactory to such parties (the "Tax Opinion"), to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, (ii) the exchange in the Merger of Company Common Stock for
Parent Common Stock will not give rise to gain or loss to the shareholders of
either Company with respect to such exchange (except with respect to any cash
received), and (iii) none of Companies, Sub or Parent will recognize gain or
loss as a consequence of the Merger (except for amounts resulting from any
required change in accounting methods). In rendering such Tax Opinion, such
counsel shall be entitled to rely upon representations of officers of each
Company, the Shareholders and Parent reasonably satisfactory in form and
substance to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of Parent
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Company and the Shareholders herein
contained shall be true in all material respects as stated herein, both when
made and with the same effect as though made again as of the Effective Time
except to the extent of changes permitted by this Agreement. Each Company
and the Shareholders shall have performed all obligations and complied with
all covenants required by this Agreement to be performed or complied with by
each Company and the Shareholders prior to the Effective Time.
(b) CERTIFICATES. Each Company and the Shareholders
shall have delivered to Parent (i) a certificate, dated as of the Effective
Time and signed on each Company's behalf by its president and secretary and
signed by each Shareholder, to the effect that the conditions set forth in
Section 9.1 as relates to each Company and the Shareholders and in Section
9.2(a) have been satisfied, and (ii) certified copies of resolutions duly
adopted by each Company's Board of Directors and shareholders evidencing the
taking of all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Parent and its counsel
shall request.
(c) TAX CLEARANCE. Each Company shall have delivered to
Parent a certificate of satisfaction from the California Franchise Tax Board
stating that all taxes imposed
26
by the California Bank and Corporation Tax Law have been paid or secured in a
form acceptable to Parent and the California Secretary of State in accordance
with Section 1103 of the CGCL.
9.3 CONDITIONS TO OBLIGATIONS OF EACH COMPANY AND SHAREHOLDERS.
The obligations of each Company and the Shareholders to perform this
Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by each Company:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Parent herein contained shall be true in
all material respects as stated herein, both when made and with the same
effect as though made again as of the Effective Time except to the extent of
changes permitted by the terms of this Agreement. Parent shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Parent prior to the Effective
Time.
(b) CERTIFICATES. Parent shall have delivered to
each Company and the Shareholders (i) a certificate, dated as of the
Effective Time and signed on its behalf by its president and secretary, to
the effect that the conditions set forth in Section 9.1 as relates to Parent
and in Section 9.3(a) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Parent's Board of Directors and Sub's Board of
Directors and sole shareholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all
in such reasonable detail as each Company and its counsel shall request.
ARTICLE 10
INDEMNIFICATION
10.1 SURVIVAL. Except as set forth on SCHEDULE 3.6 hereto, all
representations and warranties in this Agreement and the other Documents
shall survive the Merger and any investigation at any time made by or on
behalf of any party for a period of two years and all such representations
and warranties shall expire on the second anniversary of the Effective Date,
except that (a) claims, if any, asserted in writing prior to such second
anniversary identified as a claim for indemnification pursuant to this
Article 10 shall survive until finally resolved and satisfied in full; (b)
any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. The representations and
warranties shall not be affected or otherwise diminished by any investigation
at any time by or on behalf of the party for whose benefit such
representations and warranties were made.
10.2 INDEMNIFICATION BY EACH COMPANY AND SHAREHOLDERS. Subject to the
terms herein, each Company and the Shareholders shall jointly and severally
indemnify, defend, and hold Parent and the respective officers, directors, and
employees of Parent, and their successors
27
and assigns (the "Shareholders' Indemnitees") harmless from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including reasonable
attorneys' fees (the "Damages"), arising out of or in any manner incident,
relating or attributable to:
(a) Any inaccuracy in any representation or breach of
any warranty of either Company or the Shareholders contained in this
Agreement;
(b) Any failure by either Company or the Shareholders
to perform or observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or observed by it under this
Agreement;
(c) Reliance by Parent on any books or records of
either Company or written information furnished to Parent pursuant to this
Agreement by or on behalf of such Company or the Shareholders in the event
that such books and records or written information are false or otherwise
materially inaccurate; or
(d) Liabilities or obligations of, or claims against,
either Company or Parent (whether absolute, accrued, contingent or otherwise)
relating to, or arising out of, the operation of the business prior to the
Effective Time or facts and circumstances relating specifically to the
business, the Leased Parcels, or either Company existing at or prior to the
Effective Time, including but not limited to matters set forth on SCHEDULE
5.28, whether or not such liabilities, obligations or claims were known on
such date, excluding only liabilities set forth in the Balance Sheet and
liabilities and obligations incurred since the date thereof in the ordinary
course of business and consistent with past practice.
Provided, however, the Shareholders' Indemnitees shall not be entitled
to indemnification or offset hereunder until Damages in total exceed $10,000
and then only to the extent of aggregate Damages in excess of $10,000;
PROVIDED FURTHER, HOWEVER, such deductible shall not apply to any Damages
arising from a breach of Sections 5.27, 5.28, 6.1, or 6.2, respectively.
10.3 NOTICE TO SHAREHOLDERS, ETC. If any of the matters as to which
the Shareholders' Indemnitees are entitled to receive indemnification under
Section 10.2 should entail litigation with or claims asserted by parties
other than either Company, Shareholders' Agent shall be given fifteen (15)
days notice thereof and shall have the right, at the Shareholders' expense,
to control such claim or litigation upon fifteen (15) days notice to Parent
of his election to do so. To the extent requested by Shareholders' Agent,
Parent, at its expense, shall cooperate with and assist Shareholders' Agent,
in connection with such claim or litigation. Parent shall have the right to
appoint, at its expense, single counsel to consult with and remain advised by
the Shareholders in connection with such claim or litigation. Shareholders'
Agent shall have final authority to determine all matters in connection with
such claim or litigation; PROVIDED, HOWEVER, that Shareholders' Agent shall
not settle any third party claim without the consent of Parent, which shall
not be unreasonably denied or delayed.
10.4 INDEMNIFICATION BY PARENT. Parent shall indemnify, defend, and
hold the Shareholders and their heirs, executors and legal representatives
("Parent's Indemnitees")
28
harmless from, against and with respect to any Damages, arising out of or in
any manner incident, relating or attributable to:
(a) Any inaccuracy in any representation or breach of
warranty of Parent contained in this Agreement;
(b) Any failure by Parent to perform or observe, or
to have performed or observed, in full, any covenant, agreement or condition
to be performed or observed by it under any of the Documents;
(c) Reliance by the Shareholders on any books or
records of Parent or reliance by the Shareholders on any written information
furnished to the Shareholders or either Company pursuant to this Agreement by
or on behalf of Parent in the event that such books and records or written
information are false or otherwise materially inaccurate; and
(d) The operation of each Company subsequent to the
Effective Time.
Provided, however, Parent's Indemnitees shall not be entitled to
indemnification hereunder until Damages in total exceed $10,000 and then only
to the extent of aggregate damages in excess of $10,000.
10.5 NOTICE TO PARENT, ETC. If any of the matters as to which
Parent's Indemnitees are entitled to receive indemnification under Section
10.4 should entail litigation with or claims asserted by parties other than
Parent, Parent shall be given fifteen (15) days notice thereof and shall have
the right, at its expense, to control such claim or litigation upon fifteen
(15) days notice to the Shareholders' Agent of its election to do so. To the
extent requested by Parent, Shareholders' Agent, at the expense of the
Shareholders, shall cooperate with and assist Parent, in connection with such
claim or litigation. Shareholders' Agent shall have the right to appoint, at
their expense, single counsel to consult with and remain advised by Parent in
connection with such claim or litigation. Parent shall have final authority
to determine all matters in connection with such claim or litigation;
PROVIDED, HOWEVER, that Parent shall not settle any third party claim without
the consent of Shareholders' Agent, which shall not be unreasonably denied or
delayed.
10.6 SURVIVAL OF INDEMNIFICATION. Except as set forth on SCHEDULE
3.6 hereto, the obligations to indemnify and hold harmless pursuant to this
Article 10 shall survive the Effective Time of the Merger, for a period of
two years, notwithstanding any investigation at any time made by or on behalf
of any party, except that (a) claims, if any, asserted in writing prior to
such second anniversary identified as a claim for indemnification pursuant to
this Article 10 shall survive until finally resolved and satisfied in full;
(b) any Year-2000 Indemnification Obligations (as hereinafter defined) shall
survive until February 1, 2003 and until finally resolved and satisfied in
full if asserted on or prior to February 1, 2003; and (c) tax or
environmental claims arising from a breach of Section 5.27 or Section 5.29,
respectively, shall survive for the full period of the applicable statute of
limitations, and until finally resolved and satisfied in full if asserted on
or prior to the expiration of any such period. As used in this Article 10,
the term "Year-2000 Indemnification Obligations" shall mean each Company's
and Shareholders' obligation to indemnify, defend, and hold the Shareholders'
Indemnitees harmless from, against
29
and with respect to any Damages arising out of or in any manner incident,
relating or attributable to (i) any claim or allegation that any Licensed
System is not Year-2000 Compliant and (ii) any claim arising from a breach of
Section 5.31.
10.7 OFFSET. The Shareholders acknowledge and agree that Parent
shall be entitled to offset any indemnity claim under Section 10.2 against
any payment due to the Shareholders under Section 3.6 hereunder. Parent
shall deliver to each Shareholder written notice not less than fifteen (15)
days prior to exercising its right of offset pursuant to this Section 10.7,
which notice shall set forth in reasonable detail Parent's basis for
exercising its right of offset and the amount of the proposed offset. If
within fifteen (15) days of receiving Parent's notice of its intent to
exercise its right of offset either Shareholder delivers to Parent written
notice setting forth such Shareholder's objection to Parent's exercise of its
right of offset, then Parent shall place into an interest-bearing escrow
account the amount of the proposed offset, which amount, along with all
accrued interest, shall be distributed to the Parent or the Shareholders or
both, as appropriate, upon resolution of such dispute or upon the written
consent of Parent and such Shareholder's. Neither the exercise of nor the
failure to give a notice of a Claim shall constitute an election of remedies
nor limit Indemnitee in any manner in the enforcement of any other remedies
that may be available to it.
ARTICLE 11
MISCELLANEOUS
11.1 KNOWLEDGE OF EACH COMPANY. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to
the best knowledge of each Company, each Company confirms that it has made
due and diligent inquiry of its President and other officers as to the
matters that are the subject of such representation and warranty.
11.2 KNOWLEDGE OF PARENT. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
of knowledge of Parent, Parent confirms that it has made due and diligent
inquiry of its President as to the matters that are the subject of such
representations and warranties.
11.3 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
11.4 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by telecopy or
facsimile transmission, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to Parent:
30
ThermoView Industries, Inc.
0000 Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, President
Fax No: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxxx
000 X. Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Coffee, Esq.
Fax No: (000) 000-0000
If to Companies:
American Home Remodeling
00000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxxx X. ("Xxxx") Xxxxx
Fax No: (000) 000-0000
31
If to Shareholders:
Xxxxxxxx X. Xxxxx
00000 Xxxxxx Xxxx., Xxxxx 000
Xxxxxxx Xxxxxxxxx, XX 00000
Fax No:
----------------------
and
Xxxx X. Xxxxxxx
00000 Xxxxxxxx Xx.
Xxxxxxxxxx, XX 00000
Fax No:
----------------------
With a copy to:
Xxxxxx Xxxxxx, Esq.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Fax No: (000) 000-0000
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above, (ii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if sent by
registered or certified mail, on the fifth business day following the day
such mailing is sent. The address of any party herein may be changed at any
time by written notice to the parties.
11.5 ENTIRE AGREEMENT. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.6 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by
all parties hereto.
11.7 ASSIGNMENT/BINDING EFFECT. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the
prior written consent of the other parties. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
32
11.8 PARTIES IN INTEREST. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
11.9 GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed
by the internal laws of the State of California without giving effect to the
conflict of law principles thereof.
11.10 ARBITRATION. Any dispute or difference between the parties
hereto arising out of or relating to this Agreement shall be finally settled
by arbitration in accordance with the Commercial Rules of the American
Arbitration Association by a panel of three qualified arbitrators.
Shareholders' Agent, on the one hand, and Parent, on the other, shall each
choose an arbitrator and the third shall be chosen by the two so chosen. If
either Shareholders' Agent or Parent fails to choose an arbitrator within 30
days after notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within 30 days after their appointment, the
American Arbitration Association shall, upon the request of any party to the
dispute or difference, appoint the arbitrator or arbitrators to constitute or
complete the panel as the case may be. Arbitration proceedings hereunder may
be initiated by either Shareholders' Agent, on the one hand, or Parent, on
the other, making a written request to the American Arbitration Association,
together with any appropriate filing fee, at the office of the American
Arbitration Association in Los Angeles, California. All arbitration
proceedings shall be held in Los Angeles, California. Any order or
determination of the arbitral tribunal shall be final and binding upon the
parties to the arbitration and may be entered in any court having
jurisdiction.
11.11 SEVERABILITY. In the event that any arbitral tribunal of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such arbitral
tribunal shall determine any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
11.12 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) the rule of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of
this Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the
preparation of this Agreement.
11.13 HEADINGS AND CAPTIONS. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
33
11.14 RELIANCE. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall
have the right to rely fully upon the representations and warranties of the
other party expressly contained herein.
11.15 EXPENSES. Each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) incurred in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
11.16 GENDER. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or entity or the context may require.
11.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Parent, Sub, AHR and PEI have each caused its duly
authorized officer to execute this Agreement and the Shareholders have
executed this Agreement as of the date first above written.
THERMOVIEW INDUSTRIES, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx, President
THERMOVIEW/AHR MERGER CORP.
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx, President
34
AMERICAN HOME REMODELING
By: /s/ Xxxxxxxx X. Xxxxx
-----------------------------
Xxxxxxxx X. Xxxxx, President
PACIFIC EXTERIORS, INCORPORATED
By: /s/ Xxxxxxxx X. Xxxxx
---------------------------------
Xxxxxxxx X. Xxxxx, Vice President
SHAREHOLDERS:
/s/ Xxxxxxxx X. Xxxxx
---------------------------------
Xxxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxxx
---------------------------------
Xxxx X. Xxxxxxx
35
