Exhibit 2(i)
Agreement and Plan of Merger
among
Enviro-Clean of America, Inc.,
Cleaning Ideas Corp.,
Cleaning Ideas, Inc. and Subsidiaries
and the Shareholders of Cleaning Ideas, Inc.
dated as of
August 1, 1999
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of August 1, 1999
among Enviro-Clean of America, Inc., a Nevada corporation ("Acquiror"), Cleaning
Ideas Corp., a Nevada corporation which is a wholly owned subsidiary of Acquiror
("Acquiror's Subsidiary"), Cleaning Ideas, Inc., a Texas corporation ("Cleaning
Ideas") and Sanivac, Inc. ("Sanivac"), a Texas corporation d/b/a Xxxxx
Manufacturing and a wholly owned subsidiary of Cleaning Ideas (Cleaning Ideas
and Sanivac are sometimes collectively referred to herein as the "Company"), and
the Shareholders of the Company set forth on the signature page hereto (the
"Shareholders").
In consideration of the mutual agreements contained herein, intending to be
legally bound hereby, the parties hereto agree as follows:
WHEREAS, Acquiror, Cleaning Ideas and the Shareholders deem it advisable
that, subject to the terms and conditions set forth in this Agreement, Cleaning
Ideas be merged into Acquiror's Subsidiary (the "Merger") pursuant to the plan
of merger set forth herein and the applicable provisions of the laws of the
States of Nevada and Texas;
WHEREAS, the Boards of Directors of Acquiror and Cleaning Ideas have
determined that it is in the best interests of their respective companies and
their respective stockholders to consummate the business combination transaction
provided for herein in which Cleaning Ideas will, subject to the terms and
conditions set forth herein, merge with and into Acquiror's subsidiary;
WHEREAS, the Merger intended to constitute a plan of reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, and intending to be legally bound, the parties
hereto do hereby agree as follows:
ARTICLE 1
THE MERGER
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1.01 The Merger. Subject to and in accordance with the provisions of this
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Agreement, the General Corporation Law of Nevada (the "Nevada GCL") and the
Business Corporation Act of the state of Texas (the "Texas BCA"), at the
Effective Time (as defined in Section 1.04) Cleaning Ideas shall be merged into
Acquiror's Subsidiary, which shall be the surviving corporation organized under
the Nevada GCL (the "Surviving Corporation"). After the Effective Time, the
Surviving Corporation shall continue its corporate existence as a Nevada
corporation. At the Effective Time,
the separate corporate existence of Cleaning Ideas and Sanivac shall cease.
1.02 Effect of the Merger. (a) The Articles of Incorporation of
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Acquiror's Subsidiary in effect at the Effective Time of the Merger shall be the
Articles of Incorporation of the Surviving Corporation until such time as they
are altered, amended or repealed in accordance with the provisions thereof and
of applicable law.
(b) The By-Laws of Acquiror's Subsidiary in effect at the Effective Time
of the Merger shall be the By-Laws of the Surviving Corporation until such time
as they are altered, amended or repealed in accordance with the provisions
thereof and of applicable law.
(c) The directors of the Surviving Corporation immediately after the
Effective Time shall be the directors of Acquiror's Subsidiary immediately prior
to the Effective Time, plus Xxxxxxx X. Xxxxx and each of whom shall serve as
directors of the Surviving Corporation until such time as their terms expire and
their successors are duly elected and qualified.
(d) The officers of the Surviving Corporation immediately after the
Effective Time shall be Xxxxxxx Xxxxxx, Chairman and the officers of Cleaning
Ideas immediately prior to the Effective Time, each of whom shall serve at the
pleasure of the directors of the Surviving Corporation.
1.03 Further Assurances. If at any time after the Effective Time the
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Surviving Corporation shall determine that any further deeds, assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of Cleaning Ideas acquired or to be
acquired by reason of, or as a result of, the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, Cleaning Ideas and its proper officers and
directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such deeds, assignments
and assurances in law and to do all acts necessary or desirable to vest, perfect
or confirm title to and possession of such property or rights in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of Cleaning Ideas or otherwise to take any and all such action.
1.04 Effective Time. The Merger shall become effective (the "Effective
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Time") upon the later to occur of (i) the filing of Articles of Merger with the
Secretary of State of the State of Nevada in accordance with Section 92A.200 of
the Nevada GCL; and (ii) the filing of Articles of Merger by Cleaning Ideas in
accordance with Article 5.04 of the Texas BCA. The Articles of Merger shall be
delivered to the Secretary of State of the State of Nevada and the Secretary of
State of the State of Texas for filing simultaneously with the Closing referred
to in Section 1.07 of this Agreement.
1.05 Conversion of Securities. At Effective Time each share of Acquiror's
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Subsidiary Common Stock, par value $.01 per share (the "Acquiror's Subsidiary
Common"), issued and outstanding immediately prior to the Effective Time, shall,
by virtue of the Merger and without any
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action on the part of the holder thereof, remain unchanged.
(a) Each share of Common Stock, $.01 par value per share, and each share
of Preferred Stock, also $.01 par value per share, of Cleaning Ideas (the
"Company Stock") issued and outstanding immediately prior to the Effective Time,
shall cease to exist and be cancelled.
1.06. Consideration. Subject to the terms and conditions of this
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Agreement, in reliance on the representations, warranties and agreements of the
Shareholders and the Company contained herein, and in consideration of the
assignment, transfer and delivery of the Company Stock for cancellation in
connection with the Merger, Acquiror or Acquiror's Subsidiary will deliver to
the Shareholders at Closing:
(a) The sum of Five Hundred Thousand Dollars ($500,000) in cash, company
check or verified wire transfer, $391,656.40 of which shall be paid to the
holders of Cleaning Ideas Common Stock, and $108,343.60 of which (representing
the redemption value of the Cleaning Ideas Preferred Stock) shall be paid to the
holders of Cleaning Ideas Preferred Stock;
(b) Three Hundred and Twenty Thousand (320,000) shares of Acquiror's
Series D Preferred Stock, par value $.001 per share, having such terms as are
set forth in the Certificate of Designation attached as Exhibit A to this
Agreement (the "Preferred Stock"). The Preferred Stock shall be subject to the
Registration Rights Agreement in the form attached hereto as Exhibit B.
(c) A secured promissory note in the amount of Nine Hundred Thousand
Dollars ($900,000) maturing two years from the Closing Date with interest at
the prime rate of Chase Manhattan Bank as published on the Business Day
immediately preceding the Closing Date (the "Secured Note"). Under the Secured
Note, Acquiror or Acquiror's Subsidiary will make quarterly principal payments
of $112,500 to the Shareholders and will pay interest on the Secured Note,
quarterly in arrears. The form of Secured Note is attached hereto as Exhibit C.
Acquiror and the Shareholders are entering into a Pledge and Security
Agreement of even date herewith (the "Pledge Agreement") regarding the
collateral for the secured Note. Pursuant to the Pledge Agreement, in the event
that Acquiror or Acquiror's Subsidiary fails to make any scheduled payment of
interest or principal on the Secured Note (after the expiration of any
applicable cure periods), the Shareholders shall, in their sole discretion, have
the right to purchase all of the outstanding capital stock or all of the assets
of Acquiror's Subsidiary for (i) an amount equal to the value of the principal
balance of the Secured Note, plus (ii) delivery for cancellation of all shares
of Preferred Stock and all shares of Common Stock that have been received by the
Shareholders upon conversion of the Preferred Stock.
(d) Acquiror shall assume indebtedness of the Company aggregating Four
Hundred Thousand Dollars ($400,000), as set forth in Schedule 1.02 (d) of this
Agreement, and shall, at the Closing, satisfy each of the obligations set forth
on such Schedule 1.02(d) through the indicated wire transfers.
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(e) Resale of Acquiror's Common Stock. If Acquiror shall file with the
Securities and Exchange Commission an applicable shelf registration statement
that will permit any selling shareholders to resell any securities of Acquiror,
Acquiror shall include in such registration statement, the shares of Common
Stock reserved for issuance under the Preferred Stock (the "Underlying Shares")
commencing upon the termination of the Lock Up Agreement of even date herewith
between Acquiror and the Shareholders and continuing until the later of (i) such
time as the Shareholders have sold all such shares of Acquiror's Common Stock or
(ii) three years from the date of this Agreement.
(f) At the Closing the Acquiror's Subsidiary shall deliver to the
Shareholders the consideration set forth in Section 1.02 above. Simultaneously
with the delivery of the consideration set forth in Section 1.02 by the
Acquiror's Subsidiary, the Shareholders shall deliver to the Acquiror Subsidiary
the certificates representing the Company Stock, together with stock powers duly
endorsed for transfer so that such shares of Company Stock can be cancelled in
connection with the Merger.
1.07. Escrow of Company Shares; Creation of Security Interest; Pledge
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and Security Agreement.
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(a) Acquiror and Acquiror's Subsidiary hereby grant to the Shareholders a
first priority security interest in the common stock of the Acquiror's
Subsidiary (the "Acquiror Subsidiary Stock"), and pledge such Acquiror
Subsidiary Stock to and for the benefit of the Shareholders, to secure the
obligations of Acquiror and Acquiror's Subsidiary pursuant to Section 1.06(c) of
this Agreement (the "Secured Obligations"). Acquiror, Acquiror's Subsidiary,
the Company and the Shareholders covenant and agree to enter into a pledge and
security agreement to provide for the rights of all parties relative to the
security interest created hereby, the treatment of the Acquiror Subsidiary
Stock and providing for the release of the Acquiror Subsidiary Stock to
Acquiror or Acquiror's Subsidiary upon satisfaction of the Secured Obligations
(the "Pledge and Security Agreement"). The Company and the Shareholders agree
that execution and delivery of the Security and Pledge Agreement shall be a
condition precedent to the Merger, the release of the funds in 1.06(a) and the
issuance and delivery of the Preferred Stock.
1.08. Closing. The Closing of the transactions contemplated by this
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Agreement will take place at the offices of Akin, Gump, Strauss, Xxxxx & Xxxx,
LLP, counsel to the Company and Shareholders, at 000 Xxxxxxx, Xxxxx 0000, Xxx
Xxxxxxx, Xxxxx 00000, at 10:00 a.m. on August 6, 1999 except that any party
hereto may, by giving two days' written notice to all other parties hereto,
defer the Closing to a date not later than August 31, 1999 in order that such
party may satisfy any of the conditions required to be satisfied at or prior to
the Closing. Upon consent of all parties, the Closing may be conducted through
exchange of all relevant documents by mail or other courier.
(a) At the Closing, the Shareholders and the Company will deliver to
Acquiror or Acquiror's Subsidiary all other previously undelivered documents
required to be delivered by the Shareholders or the Company or any of its
officers or directors at or prior to the closing in connection with the
transactions contemplated by this Agreement.
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(b) At the Closing, there will be delivered to the Shareholders and the
Company by Acquiror or Acquiror's Subsidiary, all previously undelivered
documents required to be delivered by Acquiror or Acquiror's Subsidiary to the
Shareholders or the Company at or prior to the Closing.
1.09. Further Assurances. After the Closing, the Shareholders and the
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Company shall from time to time, at the request of Acquiror or Acquiror's
Subsidiary and without further cost or expense to Acquiror, execute and deliver
such other instruments of conveyance and transfer and take such other actions as
Acquiror or Acquiror's Subsidiary may reasonably request, in order to more
effectively consummate the transactions contemplated hereby.
ARTICLE II
RELATED MATTERS
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2.01. Confidentiality. Each party hereto will hold and will cause its
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consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all documents and information concerning
the other party furnished it by such other party or its representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
the party to which it was furnished, (ii) in the public domain through no fault
of such party, or (iii) later lawfully acquired from other sources by the party
to which it was furnished), and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such information shall not be used to the
detriment of, or in relation to any investment in, the other party and all such
documents (including copies thereof) shall be returned to the other party
immediately upon the written request of such other party. Each party shall be
deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
2.02. Definitions. For all purposes of this Agreement, except as otherwise
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expressly provided or unless the context otherwise requires:
"Acquiror" means Enviro-Clean of American, Inc., a corporation formed under
the laws of Nevada.
"Acquiror's Subsidiary" means Cleaning Ideas Corp., a corporation formed
under the laws of Nevada.
"Balance Sheet" means the unaudited consolidated balance sheet of the
Company as of July 31, 1999, referred to in Section 3.06 of this Agreement.
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"Business Day" means any day other than a Saturday, Sunday or date that
banks are required or authorized to close in the states of New York or Texas.
"Closing" means the closing referred to in Section 1.08 of this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Cleaning Ideas, Inc., a corporation formed under the laws
of Texas and its wholly owned subsidiary Sanivac, Inc. d/b/a Xxxxx
Manufacturing, a corporation formed under the laws of Texas.
"Disclosure Schedule" means the document delivered by the Shareholders and
the Company to the Acquiror simultaneously with the execution hereof containing
the information required to be included therein pursuant to this Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Shareholder" means the Shareholders of the Company whose names are set
forth on the signature page hereto, who, in the aggregate, own beneficially and
of record all issued and outstanding capital stock of the Company.
Certain terms used in this Agreement are defined in the section used. The
plural of any defined term shall have a meaning correlative to such defined
term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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OF THE COMPANY AND SHAREHOLDERS
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Except as otherwise set forth in the Disclosure Schedule, the Company and
the Shareholders hereby represent, covenant and warrant to Acquiror as follows:
3.01. Corporate Organization; Etc. Both Cleaning Ideas and Sanivac are
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corporations duly organized, validly existing and in good standing under the
laws of the State of Texas and each has
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full corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns and is duly qualified
or licensed to do business in the jurisdiction of Texas, which is the only
jurisdiction in which qualification or licensing is required The copies of the
Certificate of Incorporation and By-Laws of Cleaning Ideas and Sanivac
heretofore delivered to Acquiror are complete and correct copies of such
instruments as are currently in effect.
3.02. Capitalization of the Company. As of the date of this Agreement, the
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authorized capital stock of Cleaning Ideas consists of One Million (1,000,000)
shares of common stock, $0.01 par value per share, of Cleaning Ideas of which
One Hundred and Two Thousand (102,000) shares are issued and outstanding and no
shares are held in the treasury of Cleaning Ideas and 1,000,000 shares of
Preferred Stock, par value $0.01, of which 270,859 shares are issued and
outstanding and 146,410 shares are held as treasury stock. Sanivac is authorized
to issue One Million (1,000,000) shares of common stock ($0.01) par value, of
which 100,000 shares are issued and outstanding and no shares are held in the
treasury of Sanivac. All issued and outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable and are owned
beneficially and of record by the Shareholders, free and clear of any lien,
charge, encumbrance, option or purchase right, whatsoever.
As of the date of this Agreement, there are no (i) securities convertible
into or exchangeable for the Company capital stock; (ii) options, warrants or
other rights to purchase or subscribe to capital stock of the Company or
securities convertible into or exchangeable for capital stock of the Company; or
(iii) contracts, commitments, agreements, understandings or arrangements of any
kind oral or written relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.
3.03. No Affiliates. Other than the ownership of Sanivac by Cleaning
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Ideas, the Company does not own, directly or indirectly, any capital stock or
other equity securities of any corporation, partnership trust, joint venture or
other entity nor have any direct or indirect equity or ownership interest in any
business.
3.04. Authorization, Etc. The Shareholders have full legal competence and
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the Company has full corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby. The Board of Directors
and Shareholders of the Company have taken all action required by law, the
Company's Certificate of Incorporation, the Company By-Laws or otherwise to be
taken by them to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of the Shareholders and the Company enforceable in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditor's rights, (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought, and (iii) enforceability of certain
sections of this Agreement may be subject to limitations of public policy under
Federal and State securities laws.
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3.05. No Violation. Neither the execution and delivery of this Agreement
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nor the consummation of the transactions contemplated hereby will violate any
provision of the Certificate of Incorporation or By-Laws of the Company or
violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation pursuant to, or
result in the creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of the Company under, any agreement or
commitment to which the Company or any Shareholder is a party or by which the
Company or any Shareholder is bound, or to which the property of the Company is
subject, or violates any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
3.06. Financial Statements; No Undisclosed Liabilities. Attached hereto as
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Schedule 3.06 are unaudited balance sheets and statements of income for the
Company as of and for the fiscal years ended September 30, 1997 and 1998 and as
of and for the ten months ended July 31, 1999. Said financial statements have
been prepared in accordance with the Company's ordinary accounting practices
applied on a consistent basis throughout the periods covered thereby and present
fairly the financial condition of the Company as of such dates and the results
of operations of the Company for such periods.
The Company has no liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which were not fully reflected or reserved
against in the financial statements, except for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since the date thereof which do not, in the aggregate, exceed $50,000, and the
reserves for liabilities and contingencies reflected in the financial statements
are adequate, appropriate and reasonable.
3.07. Accounts Receivable. All accounts receivable of the Company, whether
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reflected in the Balance Sheet or otherwise, represent sales actually made in
the ordinary course of business and have been recorded in accordance with the
Company's accounting principles and practices, consistently applied as to all
periods.
3.08. Inventory. All inventory of the Company, whether reflected in the
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Balance Sheet or otherwise, consists of a quality and quality usable and salable
in the ordinary houe of business, except for items of obsolete materials and
materials of below-standard quality, all of which have been written down in the
Balance Sheet to realizable market value or for which adequate reserves have
been provided therein. The quantities of all inventory of the Company are
reasonable and warranted in the current circumstances of its business.
3.09. Interim Operations. Since the date of the Balance Sheet, the
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business of the Company has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Balance Sheet, there have
not been any material adverse change in the financial condition, assets or
results of operations of the Company. Since such date such assets have not been
affected in any way as a result of flood, fire, explosion or other casualty
(whether or not covered by
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insurance).
3.10. Title to Properties; Encumbrances. The Company owns all the
---------------------------------
properties and assets which it purports to own (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the Balance Sheet, and all the properties and assets
purchased by the Company since the date of the Balance Sheet. All properties
and assets reflected in the Balance Sheet are free and clear of all title
defects or objections, liens, claims, charges, security interests or other
encumbrances of any material nature , including, without limitation leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest retention arrangements, and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations or limitations of any material nature
except, with respect to all such properties and assets, (a) liens shown on the
Balance Sheet as securing specified liabilities or obligations and liens
incurred in connection with the purchase of property and/or assets, if such
purchase was effected after the date of the Balance Sheet, with respect to which
no default exists; (b) minor imperfections of title, if any, none of which are
substantial in amount, materially detract from the value or impair the use of
the property subject thereto, or impair the operations of the Company ; and (c)
liens for current taxes not yet due and payable. The rights, properties and
other assets presently owned, leased or licensed by the Company and described
elsewhere in this Agreement include all rights, properties and other assets
necessary to permit the Company to conduct its business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
3.11. Legal Compliance. To the Company's and Shareholders' knowledge, the
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Company has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), except where the failure to comply would not have a material adverse
effect upon the financial condition of the Company taken as a whole.
3.12. Plant and Equipment. The Company has not received notification that
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it is in violation of any applicable building, zoning, anti-pollution, health or
other law, ordinance or regulation in respect of its plants or structures or
their operations and no such violation to the Company's and Shareholders'
knowledge exists.
3.13. Leases. Section 3.13 of the Disclosure Schedule contains an accurate
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and complete description of the terms of all leases pursuant to which the
Company leases real or personal property. All such leases are valid, binding and
enforceable in accordance with their terms, and are in full force and effect;
there are no existing defaults by the Company; no event of default has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default thereunder; and all
lessors under such leases have consented (where such consent is necessary) to
the consummation of the transactions contemplated by this Agreement without
requiring modification in the rights or obligations of the lessee under such
leases. Executed counterpart copies of all consents referred to in the preceding
sentence will be delivered to Acquiror prior to or at the Closing. The Company
and Shareholders have not received any written or oral notice to the effect that
any leases will not be renewed or would only be renewed at a substantially
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higher rent than otherwise provided in such lease.
3.14. Bank Accounts. Section 3.14 of the Disclosure Schedule sets forth
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the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature. At the Closing, the Company will
deliver to Acquiror copies of all records, including all signature or
authorization cards, pertaining to such bank accounts.
3.15. Taxes. The Company has duly filed all tax reports and returns
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required to be filed by it and has duly paid all taxes and other charges due or
claimed to be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales or payrolls of any of them); the reserves for taxes
reflected in the Balance Sheet are adequate; and there are no tax liens upon any
property or assets of the Company except liens for current taxes not yet due.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal income tax return for any period. Copies of
all income tax returns for the Company in respect of all years not barred by the
statute of limitations have heretofore been delivered by the Company to Acquiror
and all such returns are listed in Section 3.15(b) of the Disclosure Schedule.
The Company has not, with regard to any assets or property held, acquired or to
be acquired by any of them, filed a consent to the application of Section
341(f)(2) of the Code.
3.16. Contracts and Commitments. The Company and Shareholders represent
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that:
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of the Company continue for
a period of more than twelve (12) months or are in excess of the normal,
ordinary and usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than twelve
(12) months or will result in any loss to the Company upon completion or
performance thereof, after allowance for direct distribution expenses nor
are there any outstanding contracts, bids or sales or service proposals
quoting prices which will not result in a normal profit;
(d) The Company has no outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by it on notice of not
longer than 30 days and without liability, penalty or premium;
(e) The Company has no employment agreement, or any other agreement
that contains any severance, or termination liabilities or obligations;
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(f) The Company has no collective bargaining or union contracts or
agreements;
(g) To the knowledge of the Company and Shareholders, the Company is
not in default, nor is there any basis for any valid claim of default,
under any contract made or obligation owed by it;
(h) The Company has no employees other than the Shareholders to whom
it is paying compensation at the annual rate of more than $75,000 for
services rendered;
(i) The Company is not restricted by agreement from carrying on its
business anywhere in the world;
(j) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or
otherwise), as guarantor, surety, co-signer, endorser, comaker, indemnitor
or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity.
3.17. Agreements in Full Force and Effect. All contracts, agreements,
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plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof have been heretofore
made available to Acquiror.
3.18. Insurance. Section 3.18 of the Disclosure Schedule contains an
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accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the
Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the Closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. To the knowledge of the Company and
Shareholders, such policies are sufficient for compliance with all requirements
of law and of all agreements to which the Company is a party; are valid,
outstanding and enforceable policies; will remain in full force and effect
through the respective dates set forth in Section 3.18(a) of the Disclosure
Schedule without the payment of additional premiums; and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. The Company has not been refused any insurance with respect
to its assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last twelve months.
3.19. Labor Difficulties. (a) To the Company's and Shareholder's
------------------
knowledge, the Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice which would
have a material adverse effect on the Company; (b) there is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any analogous state body; (c) there is no labor strike,
dispute, slowdown or stoppage actually pending or threatened against or
affecting the Company; (d) no representation question exists respecting the
employees of the Company; (e) no grievance nor any arbitration proceeding
11
arising out of or under collective bargaining agreements is pending and no claim
therefor exists; (f) no collective bargaining agreement which is binding on the
Company restricts it from relocating or closing any of their operations; and (g)
the Company has not experienced any work stoppage or other labor difficulty in
the past twenty-four months.
3.20. Fringe Benefit Plans. The Company has no bonus, deferred
---------------------
compensation, pension, profit-sharing, retirement, stock purchase, stock option
or any other fringe benefit plan, arrangement or practice, whether formal or
informal other than as set forth in Section 3.20 of the Disclosure Schedule. The
Company has no commitments, whether formal or informal and whether legally
binding or not, to create any such plan or arrangement.
3.21. Litigation. There is no action, suit, inquiry, proceeding or
----------
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the Company's and
Shareholder's knowledge, threatened against or involving the Company , or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by the Company or the Shareholders pursuant to this Agreement or in
connection with the transactions contemplated hereby. The Company is not
subject to any judgment, order or decree entered in any lawsuit or proceeding
which would have a material adverse effect on its business practices or on its
ability to acquire any property or conduct its business in any area.
3.22. No Condemnation or Expropriation. Neither the whole nor any portion
--------------------------------
of the leaseholds or any other assets of the Company is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor has any such condemnation, expropriation or taking been proposed.
3.23. Consents and Approvals of Governmental Authorities. To the Company's
--------------------------------------------------
and Shareholder's knowledge, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
3.24. Consents. No consent of any person is necessary to the consummation
--------
of the transactions contemplated hereby, including, without limitation, consents
from parties to loans, contracts, leases or other agreements and consents from
governmental agencies, whether federal, state or local.
3.25. Compliance with Law. To the Company's and Shareholder's knowledge,
-------------------
the operations of the Company have been conducted in compliance with all
applicable laws, regulations and other requirements of all national governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company, including, without
limitation, all such laws, regulations and requirements relating to antitrust,
consumer protection, currency exchange, equal opportunity, health, occupational
safety, pension, securities and trading-with-the-enemy matters, the violation of
which would have a material adverse effect. The
12
Company has not received any notification of any asserted present or past
failure by the Company to comply with such laws, rules or regulations.
3.26. Environmental Protection. To the Company's and Shareholder's
------------------------
knowledge, the Company has obtained all permits, licenses and other
authorizations which are required under federal, state and local laws relating
to pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes.
To the Company's and Shareholder's knowledge, the Company is in material
compliance with all terms and conditions of the required permits, licenses and
authorizations, and is also in material compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. The Company and Shareholders are not aware
of, nor has the Company or any Shareholder received notice of, any past, present
or future events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance, 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 manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste.
3.27. Compliance with ERISA. To the Company's and Shareholder's knowledge,
---------------------
at the Closing the Company will have no liabilities under ERISA.
3.28. Brokers and Finders. Neither the Shareholders, the Company nor any
-------------------
of its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
3.29. Absence of Questionable Payments. To the Company's and Shareholder's
--------------------------------
knowledge, neither the Company nor any director, officer, agent, employee or
other person acting on behalf of the Company, has used any corporate or other
funds for unlawful contributions, payments, gifts, or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others or established or maintained any unlawful or unrecorded funds in
violation of Section 30A of the Securities Exchange Act. To the Company's and
Shareholder's knowledge, the Company nor any current director, officer, agent,
employee or other person acting on behalf of the Company has accepted or
received any unlawful contributions, payments, gifts, or expenditures.
3.30. Personnel. Section 3.30 of the Disclosure Schedule sets forth a
---------
true and complete list of:
13
(a) the names and current salaries of all directors and elected and
appointed officers of each of the Company, the number of shares of the Company
Stock owned beneficially or of record, or both, by each such person and the
family relationships, if any, among such persons;
(b) the wage rates for non-salaried and nonexecutive salaried employees
of the Company by classification, and all labor union contracts if any; and
(c) all group insurance programs in effect for employees of the Company.
The Company is not in default with respect to any of its obligations referred to
in the preceding sentence.
3.31. Insider Interests. No officer or director of the Company has any
-----------------
material interest in any property, real or personal, tangible or intangible,
including without limitation, inventions, patents, trademarks or trade names,
used in or pertaining to the business of the Company or any Company Subsidiary.
3.32. Products Liability. To the Company's and Shareholder's knowledge,
------------------
there is no action, suit, inquiry, proceeding or investigation by or before any
court or governmental or other regulatory or administrative agency or commission
pending or threatened against or involving the Company relating to any product
alleged to have been manufactured or sold by the Company and alleged to have
been defective, or improperly designed or manufactured, nor is there any valid
basis for any such action, proceeding or investigation.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
------------------------------------------
AGREEMENTS OF THE SHAREHOLDERS
------------------------------
Each of the Shareholders hereby represents and warrants to, and covenants
and agrees with, the Acquiror, as of the date of the Closing, that:
4.01. Investment. (a) Such Shareholder has received such information
----------
relating to the business and affairs of the Acquiror which such Shareholder has
requested, and all additional information which such Shareholder has considered
necessary to verify the accuracy of the information so received. Such
Shareholder has had the opportunity to ask questions of and receive answers from
the Acquiror concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, such Shareholder
is familiar with the operations, business plans and financial condition of the
Acquiror.
(b) Such Shareholder understands that the Acquiror proposes to issue and
deliver to such Shareholder, shares of Preferred Stock (and, upon conversion of
any shares of Preferred Stock, Underlying Shares of Common Stock) pursuant to
this Agreement without registration under the
14
Securities Act or the laws of any state in reliance upon various exemptions from
registration contained in such laws and regulations; that for purposes of
determining the availability of the applicable exemptions from registration the
Acquiror will rely upon the representations, warranties, covenants and
agreements contained herein. Such Shareholder is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
(c) Such Shareholder understands that, under existing rules of the
Securities and Exchange Commission, such Shareholder may be unable to sell his
shares of Preferred Stock and/or Underlying Shares except to the extent that
such shares of Preferred Stock or Underlying Shares may be sold (A) pursuant to
an effective registration statement covering such shares pursuant to the
Securities Act or (B) in a bona fide private placement to a purchaser who shall
be subject to the same restrictions on any resale or (C) subject to the
restrictions contained in Rule 144 under the Securities Act ("Rule 144"). Such
Shareholder understands that the Acquiror is only under a limited obligation to
effect a registration of the Shareholder's shares of Preferred Stock under the
Securities Act in the event Acquiror effects such a registration statement in
respect of other securities of Acquiror.
(d) Such Shareholder is familiar with the provisions of Rule 144 and the
limitations upon the availability and applicability of such Rule.
(e) Such Shareholder is a sophisticated investor familiar with the type
of risks inherent in the acquisition of restricted securities such as the shares
of Preferred Stock and/or Underlying Shares and his financial position is such
that he can afford to retain his shares of Preferred Stock and/or Underlying
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(f) Such Shareholder is acquiring his shares of Preferred Stock and/or
Underlying Shares for his account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
ACQUIROR AND ACQUIROR'S SUBSIDIARY
----------------------------------
Acquiror and Acquiror's Subsidiary, jointly and severally, represent and
warrant to the Company as follows:
5.01. Corporate Organization; Etc. Acquiror and Acquiror's Subsidiary
---------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the State of Nevada. All the issued and outstanding shares of capital
stock of Acquiror's Subsidiary have been duly authorized by all necessary
corporation action and are validly issued, fully paid and nonassessable and are
15
owned by Acquiror. When issued and delivered to the Shareholders in conformance
with the terms and conditions of this Agreement and the Certificate of
Designation, the Preferred Stock shall be validly issued, fully paid and non-
assessable.
5.02. Authorization; Etc. Acquiror and Acquiror's Subsidiary have full
-------------------
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Boards of Directors of Acquiror and
Acquiror's Subsidiary have taken all action required by law, their respective
Certificates of Incorporation and By-Laws or otherwise to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of Acquiror and
Acquiror's Subsidiary enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.03. No Violation. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate any provisions of the respective Certificate of Incorporation or By-Laws
of Acquiror or Acquiror's Subsidiary, or violate, or be in conflict with, or
constitute a default under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, any agreement or commitment to which Acquiror or
Acquiror's Subsidiary is a party or by which Acquiror or Acquiror's Subsidiary
is bound, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
ARTICLE VI
COVENANTS OF THE SHAREHOLDERS AND THE COMPANY
---------------------------------------------
The Shareholders and the Company hereby covenant and agree with Acquiror:
6.01. Full Access. The Shareholders shall cause the Company to, and
-----------
the Company shall, afford to Acquiror, its counsel, accountants and other
representatives full access to the plants, offices, warehouses, properties,
books and records of the Company in order that Acquiror may have full
opportunity to make such investigations as it shall desire to make of the
affairs of the Company; and the Company will cause its officers and accountants
to furnish such additional financial and operating data and other information as
Acquiror shall from time to time request; provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the businesses of the Company.
6.02. Consents of Company Lenders, Etc. The Shareholders shall cause
--------------------------------
the Company to, and the Company shall, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents necessary, as
reasonably requested by counsel to the Acquiror for the consummation of the
transactions contemplated hereby and will provide to Acquiror copies of each
16
such consent promptly after it is obtained.
6.03. Supplements to Disclosure Schedule. From time to time prior to
----------------------------------
the Closing, the Company will promptly supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedule. No supplement or amendment of the
Disclosure Schedule made pursuant to this section shall be deemed to cure any
breach of any representation of or warranty made in this Agreement unless
Acquiror specifically agrees thereto in writing.
6.04. Other Transactions. Neither the Company nor its Board of
------------------
Directors shall enter into any discussions concerning, or approve or recommend
to the holders of any shares of its capital stock, any merger, consolidation,
disposition of all or substantially all of its business, properties or assets
(other than pursuant to this Agreement), any tender offer, acquisition or other
business combination, or proposal therefor, or furnish or cause to be furnished
any information concerning the business, properties or assets of the Company to
any party in connection with any tender offer or other transaction involving the
acquisition of the Company or all or any substantial part of its assets by any
person other than Acquiror or Acquiror's Subsidiary.
6.05. Covenant to Satisfy Conditions. The Shareholders and the Company
------------------------------
will use their best efforts to ensure that the conditions set forth in Articles
VII and VIII hereof are satisfied, insofar as such matters are within the
control of any of them.
6.06. Certificates. At the Closing the Company will furnish Acquiror
------------
with such certificates of its officers and others to evidence compliance with
the covenants set forth in this Article VI as may be reasonably requested by
Acquiror.
6.07. Resignation of Directors. Immediately prior to the Closing, each
------------------------
member of the Board of Directors of the Company so requested by Acquiror shall
have delivered to Acquiror a written resignation from such Board of Directors
effective as of the Closing Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE
------------------------------------
SHAREHOLDERS AND THE COMPANY
----------------------------
Each and every obligation of the Shareholders and the Company under this
Agreement to be performed on or before the Closing shall be subject to the
reasonable satisfaction, on or before the Closing, of each of the following
conditions, unless waived in writing by the Shareholders and the Company:
7.01. Representations and Warranties True. The representations and
-----------------------------------
warranties of Acquiror
17
and Acquiror's Subsidiary contained herein shall be in all material respects
true and accurate as of the date when made and at and as of the Closing as
though such representations and warranties were made at and as of such date,
except for changes expressly permitted or contemplated by the terms of this
Agreement.
7.02. Performance. Acquiror and Acquiror's Subsidiary shall have
------------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing.
7.03. No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
7.04 Consents Obtained. All consents from third parties and
-----------------
government agencies require to consummate the transactions contemplated hereby
shall have been ordained.
7.05 No Injunction. On the Closing Date there shall be no effective
-------------
pending or threatened injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them not consummated as so
provided or imposing any conditions on the consummation of the transaction
contemplated hereby which the Acquiror deems unacceptable in its sole
discretion.
7.06 Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Acquiror shall not have suffered any adverse change (whether
or not such change is referred to or described in any supplement to the
Disclosure Schedule) in its business, prospects, financial condition, working
capital, assets, liabilities (absolute, accrued, contingent or otherwise),
reserves or operations.
7.07 Opinion of the Acquiror's Counsel. The Company shall have
---------------------------------
received an opinion of Xxxxxxxxxx, Xxxx & Xxxx, LLP, counsel to Acquiror, dated
as of the Closing Date, in form and substance satisfactory to the Company.
7.08. Certificates. Acquiror and Acquiror's Subsidiary shall have
------------
furnished the Company with such certificates of their officers and others to
evidence compliance with the conditions set forth in this Article VII as may be
reasonably requested by the Company.
7.09 Personal Guarantees. All personal guarantees issued by the
-------------------
Shareholders in favor of creditors of the Company shall have been released to
the reasonable satisfaction of the shareholders.
18
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUIROR
-------------------------------------
AND ACQUIROR'S SUBSIDIARY
-------------------------
Each and every obligation of Acquiror and Acquiror's Subsidiary under this
Agreement to be performed on or before the Closing shall be subject to the
satisfaction, on or before the Closing, of each of the following conditions,
unless waived in writing by Acquiror:
8.01. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Article III hereof, the Disclosure Schedule and in all
certificates and other documents delivered and to be delivered by the
Shareholders and the Company to Acquiror or Acquiror's Subsidiary or their
representatives pursuant hereto or in connection with the transactions
contemplated hereby shall be true, complete and accurate as of the date when
made and at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement.
8.02. Performance. The Shareholders and the Company shall have
-----------
performed and complied with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing, to the satisfaction of Acquiror's Counsel.
8.03. Investigations; Etc. No investigation of the Company, nor the
-------------------
Disclosure Schedule or any supplement thereto nor any other document delivered
to Acquiror as contemplated by this Agreement, shall have revealed any facts or
circumstances which, in the sole and exclusive judgment of Acquiror, reflect in
a material adverse way on the financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, business, operations or
prospects of the Company.
8.04. Consents Obtained. All consents from third parties and
-----------------
government agencies required to consummate the transactions contemplated hereby
shall have been obtained
8.05. No Government Proceeding or Litigation. No suit, action,
--------------------------------------
investigation, inquiry or other proceeding-by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened against the Company or any Shareholder which questions the validity
or legality of any of the transactions contemplated by this Agreement.
8.06. No Injunction. On the Closing Date there shall be no effective
-------------
pending or threatened injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transaction
contemplated hereby which the Acquiror deems unacceptable in its sole
discretion.
8.07. Material Change. From the date of the Balance Sheet to the
---------------
Closing Date, the Company shall not have suffered any adverse change (whether or
not such change is referred to or
19
described in any supplement to the Disclosure Schedule) in its business,
prospects, financial condition, working capital, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves or operations.
8.08. Payment of Notes Payable. On the Closing Date, there shall not
------------------------
be any balances owed on any notes payable to which the Company is obligated and
Company shall provide Acquiror with proof of satisfaction of payment of the
outstanding liabilities referred to herein.
8.09. Employment Contracts. At or prior to the Closing Date,
--------------------
Acquiror's Subsidiary, Xxxxxxx Xxxxx and Xxxxxxx Xxxxx shall have entered into
contracts satisfactory to Acquiror providing for their employment by Acquiror
and/or the Company commencing upon the Closing.
ARTICLE IX
CONDUCT OF THE COMPANY'S BUSINESS
---------------------------------
PENDING THE CLOSING
-------------------
Pending the Closing, and except as otherwise expressly consented to or
approved by Acquiror in writing:
9.01. Regular Course of Business. The Company and Shareholders
--------------------------
covenant and agree that they will carry on the Company's business diligently and
substantially in the same manner as heretofore conducted, and the Company shall
not institute any new methods of manufacture, purchase, sale, lease, management,
accounting or operation or engage in any transaction or activity, enter into any
agreement or make any commitment, except in the ordinary course of business and
consistent with past practice.
9.02. Amendments. No change or amendment shall be made in the
----------
Certificate of Incorporation or By-Laws of the Company.
9.03. Capital Changes; Dividends or Redemptions. Neither the
-----------------------------------------
Shareholders nor the Company will issue or sell any shares of the Company's
capital stock or other securities, acquire directly or indirectly, by redemption
or otherwise, any such capital stock, reclassify or split-up any such capital
stock, declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or grant or enter
into any options, warrants, calls or commitments of any kind with respect
thereto.
9.04. Subsidiaries. The Company will not organize any subsidiary,
------------
acquire any capital stock or other equity securities of any corporation or
acquire any equity or ownership interest in any business.
20
9.05. Organization. The Company shall use its best efforts to preserve
------------
its corporate existence and business organization intact, to keep available to
Acquiror its officers and key employees, and to preserve for Acquiror its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
9.06. Certain Changes. The Company and the Shareholders agree that the
---------------
Company will not:
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), except obligations and liabilities
incurred in the ordinary course of business and consistent with past practice;
(b) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities or obligations reflected or reserved against in the
Balance Sheet or specifically set forth in Section 8.08 or incurred in the
ordinary course of business and consistent with past practice since the date of
the Balance Sheet;
(c) Prepay any obligation having a fixed maturity of more than 90
days from the date such obligation was issued or incurred;
(d) Permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien or
encumbrance;
(e) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable except for immaterial write-downs
and write-offs in the ordinary course of business and consistent with past
practice;
(f) Cancel any debts or waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(g) Dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name or copyright, or dispose of or disclose to any
person any trade secret, formula, process or know-how not theretofore a matter
of public knowledge;
(h) Grant any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee;
(i) Make any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant or equipment or make aggregate capital
expenditures and commitments in excess of $10,000 (on a consolidated basis) for
additions to property, plant or equipment;
21
(j) Pay, loan or advance any amount to, or sell transfer or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or Associate of any of its officers
or directors, except for directors' fees and compensation to officers at rates
not exceeding the rates of compensation paid during the fiscal year ended;
(k) Change any of the banking or safe deposit arrangements described
in Section 3.14 of the Disclosure Schedule;
(1) Grant or extend any power of attorney or act as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity; or
(m) The Company and its Shareholders shall not fail to cooperate
fully with Acquiror, do all things reasonably necessary to assist Acquiror and
use its reasonable best efforts at its own expense to obtain all consents and
approvals necessary for the transfer of the stock, including the furnishing of
all financial and other information reasonably required by the party whose
consent or approval is being sought.
(n) Agree, whether in writing or otherwise, to do any of the
foregoing.
9.07. Contracts. No contract or commitment will be entered into, and
---------
no purchase of raw material or supplies and no sale of assets will be made, by
or on behalf of the Company except (i) normal contracts or commitments for the
purchase of, and normal purchases of, raw materials or supplies, made in the
ordinary course of business and consistent with past practice, (ii) normal
contracts or commitments for the sale of, and normal sales of, inventory in the
ordinary course of business and consistent with past practice, and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
and consistent with past practice not in excess of $50,000 in the aggregate.
9.08. Insurance; Property. The Company shall adequately insure all
-------------------
property, real, personal and mixed, owned or leased by the Company against all
ordinary and insurable risks; and all such property shall be used, operated,
maintained and repaired in a careful and reasonably efficient manner.
9.09. No Default. The Company shall not do any act or omit to do any
----------
act, or permit any act or omission to act, which will cause a breach of any
material contract or commitment of the Company or which would cause the breach
of any warranty made hereunder.
9.10. Compliance With Laws. The Company shall duly comply with all laws
--------------------
applicable to it and its properties, operations, business and employees.
ARTICLE X
22
TAX MATTERS
-----------
10.01 Tax Definitions. The following terms, as used in this Article X,
---------------
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations) or (ii) the payment of Tax by the Company
or Shareholders, whichever are responsible for payment of such Tax under
applicable law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that such responsible party determines that no action should
be taken to recoup such payment and the other party agrees.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
on or before the close of business on the Closing Date.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts (including gross receipts tax in respect of any franchise
operation), royalty, sales, use, ad valorem, value added, transfer, franchise,
profits, license, withholding on amounts paid to or by the Company, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other governmental fee,
assessment or charge of any kind whatsoever, together with any interest,
penalty, addition to tax or additional amount imposed by any governmental
authority (a "Taxing Authority") responsible for the imposition of any such tax
(domestic or foreign).
10.02 Covenants.
---------
(a) Without the prior written consent of Acquiror and Acquiror's
Subsidiary, and as it relates to the Pre-Closing Tax Period, Shareholders shall
not cause the Company to make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
amended Return, enter into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment or
take or omit to take any other action, if any such action or omission would have
the effect of increasing the Tax liability of the Company or Acquiror or
Acquiror's Subsidiary.
Without the prior written consent of Shareholders, and as it relates to the
Pre-Closing Tax Period, Acquiror and Acquiror's Subsidiary shall not cause the
Company to make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax accounting, file any amended Return,
enter into any closing agreement, settle any Tax claim or assessment,
23
surrender any right to claim a Tax refund, consent to any extension or waiver of
the limitations period applicable to any Tax claim or assessment or take or omit
to take any other action, if any such action or omission would have the effect
of increasing the Tax liability of the Shareholders.
(b) All Returns not required to be filed on or before the date hereof
(including any applicable extensions) will be filed when due in accordance with
all applicable laws. The parties agree that any final Return relating to the
Pre-Closing Tax Period shall be timely filed by the Shareholders.
10.03 Cooperation on Tax Matters.
---------------------------
(a) Acquiror, Acquiror's Subsidiary and Shareholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the preparation and filing of any Tax return, statement, report
or form (including any report required pursuant to Section 6043 of the Code and
all Treasury Regulations promulgated thereunder), any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding.
Acquiror and Acquiror's Subsidiary and Shareholders shall cause the Company to:
(i) to retain all books and records with respect to Tax matters pertinent to the
Company relating to any Pre-Closing Tax Period, and to abide by all record
retention requirements of any Taxing Authority or any record retention
agreements entered into with any Taxing Authority, and (ii) to give Shareholders
reasonable written notice prior to destroying or discarding any such books and
records and, if Shareholders so requests, Acquiror and Acquiror's Subsidiary
shall allow Shareholders to take possession of such books and records.
(b) Acquiror and Acquiror's Subsidiary and Shareholders further
agree, upon request, to use all reasonable efforts to obtain any certificate or
other document from any governmental authority or any other person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
10.04 Tax Representations.
-------------------
(a) Acquiror represents and warrants to the Shareholders as follows
.
(i) Prior to the Merger, Acquiror owns all of the capital stock
of Acquiror's Subsidiary. Acquiror has no current plan or intention to cause
Acquiror's Subsidiary to issue additional shares of its stock that would result
in Acquiror owning less than all of the capital stock of Acquiror's Subsidiary
after the Merger.
(ii) Acquiror has no plan or intention, following the Merger,
directly or indirectly, to reacquire any of the Acquiror Preferred Stock (or
Common Stock acquired upon conversion thereof) issued in the Merger. An
acquisition of Acquiror Preferred Stock (or Common Stock acquired upon
conversion thereof) by a person acting as an intermediary for Acquiror, or a
person related to Acquiror (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) will be treated as made by Acquiror or the related person,
respectively. Any reference to Acquiror includes a
24
reference to any successor or predecessor or such corporation to the extent
provided in Treasury Regulation Section 1.368-1(e)(5).
(iii) Acquiror and Acquiror's Subsidiary intend to continue at
least one significant historic business line of Company, or use at least a
significant portion of the Company's historic business assets in a business, in
each case within the meaning of Treasury Regulation Section 1.368-1(d), except
that Acquiror's Subsidiary may transfer the Company's historic business assets
(i) to a corporation that is a member of Acquiror's "qualified group," within
the meaning of Treasury Regulation Section 1.368-1(d)(4)(ii), or (ii) to a
partnership if (A) one or more members of Acquiror's "qualified group" have
active and substantial management functions as a partner with respect to the
Company's historic business or (B) members of Acquiror's "qualified group" in
the aggregate own an interest in the partnership representing a significant
interest in the Shareholders' historic business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d)(4)(iii).
(iv) Unless specifically set forth herein to the contrary,
Acquiror and Acquiror's Subsidiary will each pay their respective expenses, if
any, incurred in connection with this Merger.
(v) Neither Acquiror nor Acquiror's Subsidiary is an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(vi) Neither Acquiror nor Acquiror's Subsidiary will take any
position on any federal, state or local income or franchise tax return, or take
any other tax reporting position, that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Section 368 of the Code, unless
otherwise required by a Final Determination or by applicable state or local
income or franchise tax law.
(vii) Acquiror has no plan or intention to liquidate Acquiror's
Subsidiary; to merge Acquiror's Subsidiary with or into another corporation; to
sell or otherwise dispose of the capital stock of Acquiror's Subsidiary except
for transfers of stock described in Treasury Regulation Section 1.368-2(k)(2);
or to cause Acquiror's Subsidiary to sell or otherwise dispose of any of the
assets acquired from the Company, except for dispositions in the ordinary course
of business or transfers described in Treasury Regulation Section 1.368-2(k)(2).
(b) The Shareholders represent and warrant to Acquiror and Acquiror's
Subsidiary:
The Acquiror's Subsidiary will acquire at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of the
fair market value of the gross assets held by the Company immediately prior to
the Merger. For the purposes of this representation, amounts paid by the
Company to dissenters, amounts paid by the Company to Shareholders who receive
cash or other property, the Company's assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular normal
dividends) made by the Company immediately preceding the transfer, will be
included as assets of the Company held immediately prior to the Merger.
25
ARTICLE XI
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION
-------------------------------
11.01. Investigations; Survival of Warranties. Each and every such
--------------------------------------
representation and warranty of the Company and/or Shareholders shall expire with
and be terminated and extinguished by the Closing or the termination of this
Agreement in any manner set forth herein, and thereafter, neither the
Shareholders or the Company nor any officer, director or principal thereof shall
be subject to any liability whatsoever with respect to any such representations
and warranties. This Section 11.01 shall have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
Closing.
11.02. Dispute Resolution. The parties shall attempt amicably to
-------------------
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to final binding arbitration, which shall be conducted by a
single arbitrator (the "Arbitrator") in San Antonio, Texas, pursuant to the
commercial rules of the American Arbitration Association (the "Rules").
In the event that the parties cannot agree as to the Arbitrator to be
named, each party to the Controversy shall appoint one arbitrator and those two
arbitrators shall select the Arbitrator.
11.03. Procedure. If any party shall desire relief of any nature
---------
whatsoever from any other party as a result of any Controversy, such party will
initiate such arbitration proceedings within a reasonable time, but in no event
more than one (1) year after the facts underlying said Controversy first arise
or become known to the party seeking relief (whichever is later). The failure
of such party to institute such proceedings within said period shall be deemed a
full waiver of any claim for such relief. Arbitrator may award the prevailing
party its costs for the arbitration proceeding, including its reasonable
attorneys' fees and costs. The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable or judicial proceedings between them, and that no appeal or
judicial review of the award or decision of the Arbitrator shall be taken, but
that such award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is sought.
ARTICLE XII
TERMINATION AND ABANDONMENT
---------------------------
12.01. Methods of Termination. The transactions contemplated herein may
----------------------
be terminated and/or abandoned at any time but not later than the Closing:
26
(a) By mutual consent of the respective Boards of Directors of
Acquiror and the Company; or
(b) By the Board of Directors of Acquiror on or after August 31,
1999, or such later date as may be established pursuant to Section 1.08 hereof,
if any of the conditions provided for in Article VIII of this Agreement shall
not have been met or waived in writing by Acquiror prior to such date.
12.02. Procedure Upon Termination. In the event of termination and
--------------------------
abandonment by the Board of Directors of Acquiror pursuant to Section 12.01
hereof, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by Acquiror or the Company. If the
transactions contemplated by this Agreement are terminated and/or abandoned as
provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries shall be treated
in accordance with Section 2.01 hereof; and
(c) No party hereto shall have any liability or further obligation to
any other party to this Agreement except as stated in subparagraphs (a) and (b)
of this Section 12.02, (provided, however, that if such termination and/or
abandonment is a result of the failure of any condition set forth in Article
VIII hereof, then Acquiror shall be entitled to recover from the Company all
out-of-pocket costs which Acquiror has incurred (including reasonable attorney's
fees and expenses).
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
13.01. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented by written agreement of the
Shareholders and the respective Boards of Directors of the Company and Acquiror
or by their respective officers authorized by such Boards of Directors at any
time prior to the Closing with respect to any of the terms contained herein.
13.02. Waiver of Compliance. Any failure of the Shareholders or the
--------------------
Company, on the one hand, or Acquiror, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the President of Acquiror or the Company, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
27
13.03. Expenses; Transfer Taxes, Etc. Except as otherwise provided in
-----------------------------
Section 12.02 hereof, whether or not the transaction contemplated by this
Agreement shall be consummated, the Shareholders and the Company agree that all
fees and expenses incurred by them in connection with this Agreement shall be
borne by them and Acquiror agrees that all fees and expenses incurred by it in
connection with this Agreement shall be borne by it, including, without
limitation as to the Company or Acquiror, all fees of counsel, actuaries and
accountants.
13.04. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to the Shareholders or the Company, to:
Mr. Xxxxxxx Xxxxx
c/o Cleaning Ideas, Inc.
0000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
and
Mr. Xxxxxxx Xxxxx
0 Xxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
(with a copy to:)
Xxxx Xxxxxxxxxx, Esq.
Akin, Xxxx, Xxxxxxx, Xxxxx & Xxxx, XXX.,
0000 Nations Bank Plaza
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other person or address as the Company shall furnish to Acquiror in
writing.
(b) If to Acquiror, to:
00
Xxxxxx-Xxxxx xx Xxxxxxx, Inc.
000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
(with a copy to:)
Xxxxxxxxxx, Xxxx & Xxxx, LLP
00 Xxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other person or address as Acquiror shall furnish to the Company in
writing.
13.05. Assignment. This Agreement and all of the provisions hereof shall
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law and except that Acquiror may assign its rights, but
not its obligations, under this Agreement to any subsidiary of Acquiror.
13.06. Publicity. Neither the Company nor Acquiror shall make or issue,
---------
or cause to be made or issued, any announcement or written statement concerning
this Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior consent of the other party. This provision
shall not apply, however, to any announcement or written statement required to
be made by law or the regulations of any federal or state governmental agency or
any stock exchange, except that the party required to make such announcement
shall, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
13.07. Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas without regard to its conflicts of law doctrine.
13.08. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.09. Headings. The headings of the Sections and Articles of this
--------
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or
29
interpretation of this Agreement.
13.10. Entire Agreement. This Agreement, including the Exhibits hereto,
----------------
the Disclosure Schedule and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
13.11. Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
13.12. Severability. Should any provision of this Agreement be held
------------
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
ENVIRO-CLEAN OF AMERICA, INC.
By:________________________________________
Xxxxxxx Xxxxxx
President
CLEANING IDEAS CORP.
By:________________________________________
Xxxxxxx Xxxxxx
Chairman
CLEANING IDEAS, INC.
By:________________________________________ __________________________________
President Secretary
SANIVAC, INC.
By:________________________________________ __________________________________
President Secretary
THE SHAREHOLDERS
___________________________________________ __________________________________
Xxxxxxx Xxxxx, Xxxxxxx Xxxxx,
as Shareholder as Shareholder
___________________________________________
Xxxxxxx Xxxxx,
