ACQUISITION AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 17, 2000
BETWEEN
ECS INDUSTRIES, INC.
AND
INCUBUS ACQUISITION, INC.
TABLE OF CONTENTS
ARTICLE 1. The Merger 4
Section 1.1. The Merger 4
Section 1.2. Effective Time 4
Section 1.3. Closing of the Merger 4
Section 1.4. Effects of the Merger 4
Section 1.5. Board of Directors and Officers of ECS 5
Section 1.6. Conversion of Shares 5
Section 1.7. Exchange of Certificates 5
Section 1.8. Taking of Necessary Action; Further Action 6
ARTICLE 2. Representations and Warranties of ECS 6
Section 2.1. Organization and Qualification 6
Section 2.2. Capitalization of ECS 6
Section 2.3.Authority Relative to this Agreement; Recommendation. 7
Section 2.4. SEC Reports; Financial Statements 7
Section 2.5. Information Supplied 7
Section 2.6. Consents and Approvals; No Violations 7
Section 2.7. No Default 7
Section 2.8. No Undisclosed Liabilities; Absence of Changes 8
Section 2.9. Litigation 8
Section 2.10. Compliance with Applicable Law 8
Section 2.11. Employee Benefit Plans; Labor Matters 8
Section 2.12. Environmental Laws and Regulations 9
Section 2.13. Tax Matters 10
Section 2.14. Title To Property 10
Section 2.15. Intellectual Property 10
Section 2.16. Insurance 10
Section 2.17. Vote Required 11
Section 2.18. Tax Treatment 11
Section 2.19. Affiliates 11
Section 2.20. Certain Business Practices 11
Section 2.21. Insider Interests 11
Section 2.22. Opinion of Financial Adviser 11
Section 2.23. Brokers 11
Section 2.24. Disclosure 11
Section 2.25. No Existing Discussion 11
Section 2.26. Material Contracts 11
ARTICLE 3. Representations and Warranties of IAI. 12
Section 3.1. Organization and Qualification 12
Section 3.2. Capitalization of IAI 12
Section 3.3.Authority Relative to this Agreement; Recommendation 13
Section 3.4. SEC Reports; Financial Statements 13
Section 3.5. Information Supplied 14
Section 3.6. Consents and Approvals; No Violations 14
Section 3.7. No Default 14
Section 3.8 No Undisclosed Liabilities; Absence of Changes 14
Section 3.9. Litigation 15
Section 3.10. Compliance with Applicable Law 15
Section 3.11. Employee Benefit Plans; Labor Matters 15
Section 3.12. Environmental Laws and Regulations 16
Section 3.13. Tax Matters 16
Section 3.14. Title to Property 16
Section 3.15. Intellectual Property 17
Section 3.16. Insurance 17
Section 3.17. Vote Required 17
Section 3.18. Tax Treatment 17
Section 3.19. Affiliates 17
Section 3.20. Certain Business Practices 17
Section 3.21. Insider Interests 17
Section 3.22. Opinion of Financial Adviser 17
Section 3.23. Brokers 18
Section 3.24. Disclosure 18
Section 3.25. No Existing Discussions 18
Section 3.26. Material Contracts 18
ARTICLE 4. Covenants 18
Section 4.1. Conduct of Business of ECS 18
Section 4.2. Conduct of Business of IAI 20
Section 4.3. Preparation of 8-K 21
Section 4.4. Other Potential Acquirers 21
Section 4.5. Meetings of Stockholders 21
Section 4.6. NASD OTC:BB Listing 21
Section 4.7. Access to Information 21
Section 4.8. Additional Agreements; Reasonable Efforts. 22
Section 4.9. Indemnification 22
Section 4.10. Notification of Certain Matters 23
ARTICLE 5. Conditions to Consummation of the Merger
Section 5.1. Conditions to each Party's Obligation to Effect the Merger 23
Section 5.2. Conditions to the Obligations of ECS 23
Section 5.3. Conditions to the Obligations of IAI 24
ARTICLE 6. Termination; Amendment; Waiver 24
Section 6.1. Termination 24
Section 6.2. Effect of Termination 25
Section 6.3. Fees and Expenses 25
Section 6.4. Amendment 25
Section 6.5. Extension; Waiver 25
ARTICLE 7. Miscellaneous 25
Section 7.1. Nonsurvival of Representations and Warranties 25
Section 7.2. Entire Agreement; Assignment 25
Section 7.3. Validity 26
Section 7.4. Notices 26
Section 7.5. Governing Law 26
Section 7.6. Descriptive Headings 26
Section 7.7. Parties in Interest 26
Section 7.8. Certain Definitions 26
Section 7.9. Personal Liability 27
Section 7.10. Specific Performance 27
Section 7.11. Counterparts 27
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
February 17, 2000, is between ECS INDUSTRIES, INC., a Delaware corporation
("ECS"), and INCUBUS ACQUISITION, INC., a Nevada corporation ("IAI").
Whereas, the Boards of Directors of ECS and IAI each have, in light of
and subject to the terms and conditions set forth herein, (i) determined that
the Merger (as defined below) is fair to their respective stockholders and in
the best interests of such stockholders and (ii) approved the Merger in
accordance with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, ECS and IAI desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
Now, therefore, in consideration of the promises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, ECS and IAI hereby agree as follows:
ARTICLE I
The Merger
Section 1.1. The Merger. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Nevada (the
"NGCL"), IAI shall be merged with and into ECS (as defined below) (the
''Merger`). Following the Merger, ECS shall continue as the surviving
corporation (the "Successor Corporation"), shall continue to be governed by
the laws of the jurisdiction of its incorporation or organization and the
separate corporate existence of IAI shall cease. Prior to the Effective Time,
the parties hereto shall mutually agree as to the name of the Successor
Corporation; however, initially the Successor Corporation shall be named ECS
INDUSTRIES, INC., an Delaware corporation. The Merger is intended to qualify
as a tax-free reorganization under Section 368 of the Code as relates to the
non-cash exchange of stock referenced herein.
Section 1.2. Effective Time. Subject to the terms and conditions set
forth in this Agreement, a Certificate of Merger (the "Merger Certificate")
shall be duly executed and acknowledged by each of IAI and ECS, and
thereafter the Merger Certificate reflecting the Merger shall be delivered to
the Secretary of State of the State of Nevada for filing pursuant to the NGCL
on the Closing Date (as defined in Section 1.3). The Merger shall become
effective at such time as a properly executed and certified copy of the
Merger Certificate is duly filed by the Secretary of State of the State of
Nevada in accordance with the NGCL or such later time as the parties may
agree upon and set forth in the Merger Certificate (the time at which the
Merger becomes effective shall be referred to herein as the "Effective
Time"). Additionally, upon receipt of a filed copy of the Merger Certificate,
a copy of same shall be filed with the Secretary of State for the State of
Delaware.
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of Sperry Young & Xxxxxxxxxx, 0000 X.
Xxxxxxxx Xx., Xxxxx 000, Xxx Xxxxx, Xxxxxx, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the effects
set forth in the NGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers of IAI shall vest in the Successor Corporation, and all
debts, liabilities and duties of IAI shall become the debts, liabilities and
duties of the Successor Corporation.
Section 1.5. Board of Directors and Officers of ECS. At or prior to the
Effective Time, each of IAI and ECS agrees to take such action as is
necessary (i) to cause the number of directors comprising the full Board of
Directors of ECS to remain the same
Section 1.6. Conversion of Shares. At the Effective Time, each share of
common stock, par value $.001 per share of IAI (individually a "IAI Share"
and collectively, the "IAI Shares") issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action
on the part of IAI, ECS, or the holder thereof, be converted into and shall
become fully paid and nonassessable ECS common shares determined by issuing
one (1) share of ECS common share for every 38,040 shares of IAI.
Section 1.7. Exchange of Certificates.
(a) Prior to the Effective Time, ECS shall enter into an agreement with,
and shall deposit with, Sperry Young & Xxxxxxxxxx, or such other agent or
agents as may be satisfactory to ECS and IAI (the "Exchange Agent'), for the
benefit of the holders of IAI Shares, for exchange through the Exchange Agent
in accordance with this Article I: (i) certificates representing the
appropriate number of ECS Shares to be issued to holders of IAI Shares
issuable pursuant to Section 1.6 in exchange for outstanding IAI Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding IAI Shares (the "Certificates") whose shares were converted into
the right to receive ECS Shares pursuant to Section 1.6: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as IAI and ECS may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing ECS Shares. Upon surrender of a Certificate to the
Exchange Agent, together with such letter of transmittal, duly executed, and
any other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefore a certificate representing that
number of whole ECS Shares, which such holder has the right to receive
pursuant to the provisions of this Article I, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of IAI Shares which are not registered in the transfer records of
IAI, a certificate representing the proper number of ECS Shares may be issued
to a transferee if the Certificate representing such IAI Shares is presented
to the Exchange Agent accompanied by all documents required by the Exchange
Agent or ECS to evidence and effect such transfer and by evidence that any
applicable stock transfer or other taxes have been paid. Until surrendered as
contemplated by this Section 1.7, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing ECS Shares as contemplated by
this Section 1.7.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to ECS Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the ECS Shares represented thereby until the holder of record
of such Certificate shall surrender such Certificate.
(d) In the event that any Certificate for IAI Shares or ECS Shares shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange therefore, upon the making of an affidavit of that fact by the
holder thereof such ECS Shares and cash in lieu of fractional ECS Shares, if
any, as may be required pursuant to this Agreement; provided, however, that
ECS or the Exchange Agent, may, in its respective discretion, require the
delivery of a suitable bond, opinion or indemnity.
(e) All ECS Shares issued upon the surrender for exchange of IAI Shares
in accordance with the terms hereof shall be deemed to have been issued in
full satisfaction of all rights pertaining to such IAI Shares. There shall be
no further registration of transfers on the stock transfer books of IAI of
the IAI Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates of IAI are presented to ECS
for any reason, they shall be canceled and exchanged as provided in this
Article I.
(f) No fractional ECS Shares shall be issued in the Merger, but in lieu
thereof each holder of IAI Shares otherwise entitled to a fractional ECS
Share shall, upon surrender of its, his or her Certificate or Certificates,
be entitled to receive an additional share to round up to the nearest round
number of shares.
Section 1.8. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, IAI or ECS reasonably determines that any deeds,
assignments, or instruments or confirmations of transfer are necessary or
desirable to carry out the purposes of this Agreement and to vest ECS with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of IAI, the officers and directors of ECS and IAI are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary or desirable action.
ARTICLE 2
Representations and Warranties of ECS
Except as set forth on the Disclosure Schedule delivered by ECS to IAI
(the "ECS Disclosure Schedule"), ECS hereby represents and warrants to IAI as
follows:
Section 2.1. Organization and Qualification.
(a) ECS is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, has 300 or
more round lot (100 or more shares) stockholders and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not have a Material Adverse Effect (as defined below) on ECS. When used
in connection with ECS, the term "Material Adverse Effect" means any change
or effect (i) that is or is reasonably likely to be materially adverse to the
business, results of operations, condition (financial or otherwise) or
prospects of ECS, other than any change or effect arising out of general
economic conditions unrelated to any business in which ECS is engaged, or
(ii) that may impair the ability of ECS to perform its obligations hereunder
or to consummate the transactions contemplated hereby.
(b) ECS has heretofore delivered to IAI accurate and complete copies of
the Certificate of Incorporation and Bylaws (or similar governing documents),
as currently in effect, of ECS. Except as set forth on Schedule 2.1 of the
ECS Disclosure Schedule, ECS is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on ECS.
Section 2.2. Capitalization of ECS.
(a) The authorized capital stock of ECS consists of: (i) Thirty Million
(30,000,000) Authorized Shares of Common Stock, $0.001 par value, 9,369,808
Common shares are issued and outstanding as of February 9, 2000, and held by
300 or more round lot (100 or more shares) stockholders; (ii) Five Million
(5,000,000) Authorized Shares of Preferred Stock, $0.01 par value, no shares
of Preferred Stock are issued or outstanding as of February 9, 2000. Pursuant
to the Merger Agreement ECS will issue 250 shares of 144 restricted common
stock to the stockholders of IAI. All of the outstanding ECS Shares have
been duly authorized and validly issued, and are fully paid, nonassessable
and free of preemptive rights. Except as set forth herein, as of the date
hereof, there are no outstanding (i) shares of capital stock or other voting
securities of ECS, (ii) securities of ECS convertible into or exchangeable
for shares of capital stock or voting securities of ECS, (iii) options or
other rights to acquire from ECS, except as set forth in 2.2(a) of the
Disclosure Schedule, and, no obligations of ECS to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of ECS, and (iv) equity equivalents, interests in
the ownership or earnings of ECS or other similar rights (collectively, "ECS
Securities"). As of the date hereof, except as set forth on Schedule 2.2(a)
of the ECS Disclosure Schedule there are no outstanding obligations of ECS or
its subsidiaries to repurchase, redeem or otherwise acquire any ECS
Securities or stockholder agreements, voting trusts or other agreements or
understandings to which ECS is a party or by which it is bound relating to
the voting or registration of any shares of capital stock of ECS. For
purposes of this Agreement, ''Lien" means, with respect to any asset
(including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset.
(b) The ECS Shares constitute the only class of equity securities of ECS
registered or required to be registered under the Exchange Act.
(c) ECS does not own directly or indirectly more than fifty percent
(50%) of the outstanding voting securities or interests (including membership
interests) of any entity, other than as specifically disclosed in the
disclosure documents.
Section 2.3. Authority Relative to this Agreement; Recommendation. ECS
has all necessary corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of ECS (the "ECS Board") and no other corporate
proceedings on the part of ECS are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by ECS and constitutes a valid, legal
and binding agreement of ECS, enforceable against ECS in accordance with its
terms.
Section 2.4. SEC Reports; Financial Statements. ECS is not required to
file forms, reports and documents with the SEC.
Section 2.5. Information Supplied. None of the information supplied or
to be supplied by ECS for inclusion or incorporation by reference in
connection with the Merger will at the date presented to stockholder of IAI
and at the times of the meeting or meetings of stockholders of ECS to be held
in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1916, as amended (the ''HSR Act''), the rules of the National Association
of Securities Dealers, Inc. ("NASD"), the filing and recordation of the
Merger Certificate as required by the NGCL, and as set forth on Schedule 2.6
of the ECS Disclosure Schedule no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by ECS of
this Agreement or the consummation by ECS of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not
have a Material Adverse Effect on ECS.
Except as set forth in Section 2.6 of the ECS Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by ECS nor
the consummation by ECS of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of
ECS, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which ECS is a party or by which any of its properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, law, statute,
rule or regulation applicable to ECS or any of its properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults
which would not have a Material Adverse Effect on ECS.
Section 2.7. No Default. Except as set forth in Section 2.7 of the ECS
Disclosure Schedule, ECS is not in breach, default or violation (and no event
has occurred which with notice or the lapse of time or both would constitute
a breach default or violation) of any term, condition or provision of (i) its
Certificate of Incorporation or Bylaws (or similar governing documents), (ii)
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which ECS is now a party or by which any of
its respective properties or assets may be bound or (iii) any order, writ
injunction, decree, law, statute, rule or regulation applicable to ECS or any
of its respective properties or assets, except in the case of (ii) or (iii)
for violations, breaches or defaults that would not have a Material Adverse
Effect on ECS. Except as set forth in Section 2.7 of the ECS Disclosure
Schedule, each note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which ECS is now a party or by
which its respective properties or assets may be bound that is material to
ECS and that has not expired is in full force and effect and is not subject
to any material default thereunder of which ECS is aware by any party
obligated to ECS thereunder.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as
and to the extent disclosed in the December 31, 1999 unaudited financial
statements, none of ECS or its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that would be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of ECS and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on ECS. Except as disclosed by ECS, none of ECS or its
subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which could reasonably be expected to have,
and there have been no events, changes or effects with respect to ECS or its
subsidiaries having or which could reasonably be expected to have, a Material
Adverse Effect on ECS. Except as and to the extent disclosed by ECS there has
not been (i) any material change by ECS in its accounting methods, principles
or practices (other than as required after the date hereof by concurrent
changes in generally accepted accounting principles), (ii) any revaluation by
ECS of any of its assets having a Material Adverse Effect on ECS, including,
without limitation, any write-down of the value of any assets other than in
the ordinary course of business or (iii) any other action or event that would
have required the consent of any other party hereto pursuant to Section 4.2
of this Agreement had such action or event occurred after the date of this
Agreement.
Section 2.9. Litigation. Except as set forth in Schedule 2.9 of the ECS
Disclosure Schedule there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of ECS, threatened against ECS or
any of its subsidiaries or any of their respective properties or assets
before any Governmental Entity which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on ECS or could
reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as disclosed by ECS, none
of ECS or its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen in the
future, could reasonably be expected to have a Material Adverse Effect on ECS
or could reasonably be expected to prevent or delay the consummation of the
transactions contemplated hereby.
Section 2.10. Compliance with Applicable Law. Except as disclosed by
ECS, ECS and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for
the lawful conduct of their respective businesses (the "ECS Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders
and approvals which would not have a Material Adverse Effect on ECS. Except
as disclosed by ECS, ECS and its subsidiaries are in compliance with the
terms of the ECS Permits, except where the failure so to comply would not
have a Material Adverse Effect on ECS. Except as disclosed by ECS, the
businesses of ECS and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 2.10 with respect to
Environmental Laws and except for violations or possible violations which do
not, and, insofar as reasonably can be foreseen, in the future will not, have
a Material Adverse Effect on ECS. Except as disclosed by ECS no investigation
or review by any Governmental Entity with respect to ECS or its subsidiaries
is pending or, to the knowledge of ECS, threatened, nor, to the knowledge of
ECS, has any Governmental Entity indicated an intention to conduct the same,
other than, in each case, those which ECS reasonably believes will not have a
Material Adverse Effect on ECS.
Section 2.11. Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Section 2.11(a) of the ECS Disclosure
Schedule with respect to each employee benefit plan, program, policy,
arrangement and contract (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained or contributed to at
any time by ECS or any entity required to be aggregated with ECS pursuant to
Section 414 of the Code (each, a "ECS Employee Plan"), no event has occurred
and to the knowledge of ECS, no condition or set of circumstances exists in
connection with which ECS could reasonably be expected to be subject to any
liability which would have a Material Adverse Effect on ECS.
(b) (i) No ECS Employee Plan is or has been subject to Title IV of ERISA
or Section 412 of the Code; and (ii) each ECS Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable Internal
Revenue Service determination letter, and nothing has occurred which could
reasonably be expected to adversely affect such determination.
(c) Section 2.11(c) of the ECS Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
ECS Stock Options, together with the number of ECS Shares which are subject
to such option, the date of grant of such option, the extent to which such
option is vested (or will become vested as a result of the Merger), the
option price of such option (to the extent determined as of the date hereof),
whether such option is a nonqualified stock option or is intended to qualify
as an incentive stock option within the meaning of Section 422(b) of the
Code, and the expiration date of such option. Section 2.11(c) of the ECS
Disclosure Schedule also sets forth the total number of such incentive stock
options and such nonqualified options. ECS has furnished IAI with complete
copies of the plans pursuant to which the ECS Stock Options were issued.
Other than the automatic vesting of ECS Stock Options that may occur without
any action on the part of ECS or its officers or directors, ECS has not taken
any action that would result in any ECS Stock Options that are unvested
becoming vested in connection with or as a result of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(d) ECS has made available to IAI (i) a description of the terms of
employment and compensation arrangements of all officers of ECS and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating ECS to make annual cash payments
in an amount exceeding $60,000; (iii) a schedule listing all officers of ECS
who have executed a non-competition agreement with ECS and a copy of each
such agreement currently in effect; (iv) copies (or descriptions) of all
severance agreements, programs and policies of ECS with or relating to its
employees, except programs and policies required to be maintained by law; and
(v) copies of all plans, programs, agreements and other arrangements of ECS
with or relating to its employees which contain change in control provisions
all of which are set forth in Section 2.11(d) of the ECS Disclosure Schedule.
(e) There shall be no payment, accrual of additional benefits,
acceleration of payments, or vesting in any benefit under any ECS Employee
Plan or any agreement or arrangement disclosed under this Section 2.11 solely
by reason of entering into or in connection with the transactions
contemplated by this Agreement.
(f) There are no controversies pending or, to the knowledge of ECS,
threatened, between ECS and any of their employees, which controversies have
or could reasonably be expected to have a Material Adverse Effect on ECS.
Neither ECS nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by ECS or any of its subsidiaries (and neither ECS nor any of its
subsidiaries has any outstanding material liability with respect to any
terminated collective bargaining agreement or labor union contract), nor does
ECS know of any activities or proceedings of any labor union to organize any
of its or employees. ECS has no knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof, by or with respect to any of its
employees.
Section 2.12. Environmental Laws and Regulations.
(a) Except as disclosed by ECS, (i) ECS is in material compliance with
all applicable federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliance that would not have a Material Adverse Effect on
ECS, which compliance includes, but is not limited to, the possession by ECS
of all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) ECS has not received written notice of, or, to the knowledge of
ECS, is the subject of, any action, cause of action, claim, investigation,
demand or notice by any person or entity alleging liability under or
non-compliance with any Environmental Law (an ''Environmental Claim") that
could reasonably be expected to have a Material Adverse Effect on ECS; and
(iii) to the knowledge of ECS, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by ECS, there are no Environmental
Claims which could reasonably be expected to have a Material Adverse Effect
on ECS that are pending or, to the knowledge of ECS, threatened against ECS
or, to the knowledge of ECS, against any person or entity whose liability for
any Environmental Claim ECS has or may have retained or assumed either
contractually or by operation of law.
Section 2.13. Tax Matters.
(a) Except as set forth in Section 2.13 of the ECS Disclosure Schedule:
(i) ECS has filed or has had filed on its behalf in a timely manner (within
any applicable extension periods) with the appropriate Governmental Entity
all income and other material Tax Returns (as defined herein) with respect to
Taxes (as defined herein) of ECS and all Tax Returns were in all material
respects true, complete and correct; (ii) all material Taxes with respect to
ECS have been paid in full or have been provided for in accordance with GAAP
on ECS's most recent balance sheet which is part of the ECS SEC Documents.
(iii) there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state, local or foreign
income or other material Tax Returns required to be filed by or with respect
to ECS; (iv) to the knowledge of ECS none of the Tax Returns of or with
respect to ECS is currently being audited or examined by any Governmental
Entity; and (v) no deficiency for any income or other material Taxes has been
assessed with respect to ECS which has not been abated or paid in full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return"
shall mean any report, return, documents declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Taxes.
Section 2.14. Title to Property. ECS has good and defensible title to
all of its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby
or which, individually or in the aggregate, would not have a Material Adverse
Effect on ECS; and, to ECS's knowledge, all leases pursuant to which ECS
leases from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of ECS, under any of such leases, any existing material default or
event of default (or event which with notice of lapse of time, or both, would
constitute a default and in respect of which ECS has not taken adequate steps
to prevent such a default from occurring) except where the lack of such good
standing, validity and effectiveness, or the existence of such default or
event, would not have a Material Adverse Effect on ECS.
Section 2.15. Intellectual Property.
(a) ECS owns, or possesses adequate licenses or other valid rights to
use, all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets and applications therefore that are
material to its business as currently conducted (the "ECS Intellectual
Property Rights").
(b) The validity of the ECS Intellectual Property Rights and the title
thereto of ECS is not being questioned in any litigation to which ECS is a
party.
(c) Except as set forth in Section 2.15(c) of the ECS Disclosure
Schedule, the conduct of the business of ECS as now conducted does not, to
ECS's knowledge, infringe any valid patents, trademarks, trade names, service
marks or copyrights of others. The consummation of the transactions completed
hereby will not result in the loss or impairment of any ECS Intellectual
Property Rights.
(d) ECS has taken steps it believes appropriate to protect and maintain
its trade secrets as such, except in cases where ECS has elected to rely on
patent or copyright protection in lieu of trade secret protection.
Section 2.16. Insurance. ECS currently maintains general liability and
other business insurance.
Section 2.17. Vote Required. Approval of this Agreement and Plan of
Merger by the Stockholders of ECS is not required pursuant to current
Delaware law.
Section 2.18. Tax Treatment. Neither ECS nor, to the knowledge of ECS,
any of its affiliates has taken or agreed to take action that would prevent
the Merger from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code.
Section 2.19. Affiliates. Except for the directors and executive
officers of ECS, each of whom is listed in Section 2.19 of the ECS Disclosure
Schedule, there are no persons who, to the knowledge of ECS, may be deemed to
be affiliates of ECS under Rule 1-02(b) of Regulation S-X of the SEC (the
"ECS Affiliates").
Section 2.20. Certain Business Practices. None of ECS or any directors,
officers, agents or employees of ECS has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended (the "FCPA"), or (iii) made any other unlawful payment.
Section 2.21. Insider Interests. Except as set forth in Section 2.21 of
the ECS Disclosure Schedule, neither any officer or director of ECS has any
interest in any material property, real or personal, including without
limitation, any computer software or ECS Intellectual Property Rights, used
in or pertaining to the business of ECS, expect for the ordinary rights of a
stockholder or employee stock optionholder.
Section 2.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the ECS Board a written opinion to the effect that,
as of such date, the exchange ratio contemplated by the Merger is fair to the
holders of ECS Shares.
Section 2.23. Brokers. No broker, finder or investment banker (other
than the ECS Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to IAI) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of ECS.
Section 2.24. Disclosure. No representation or warranty of ECS in this
Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to IAI pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or
will contain any untrue statement of a material fact or, at the date thereof,
omits or will omit to state a material fact necessary to make any statement
herein or therein, in light of the circumstances under which such statement
is or will be made, not misleading.
Section 2.25. No Existing Discussions. As of the date hereof, ECS is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in
Section 4.4).
Section 2.26. Material Contracts.
(a) ECS has delivered or otherwise made available to IAI true, correct
and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which ECS is a
party affecting the obligations of any party thereunder) to which ECS is a
party or by which any of its properties or assets are bound that are,
material to the business, properties or assets of ECS taken as a whole,
including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or
assets of ECS taken as a whole, all: (i) employment, product design or
development, personal services, consulting, non-competition, severance,
golden parachute or indemnification contracts (including, without limitation,
any contract to which ECS is a party involving employees of ECS); (ii)
licensing, publishing, merchandising or distribution agreements; (iii)
contracts granting rights of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets or stock or otherwise entered
into since December 31, 1999; (vi) contracts or agreements with any
Governmental Entity. and (vii) all commitments and agreements to enter into
any of the foregoing (collectively, together with any such contracts entered
into in accordance with Section 4.1 hereof, the "ECS Contracts"). ECS is not
a party to or bound by any severance, golden parachute or other agreement
with any employee or consultant pursuant to which such person would be
entitled to receive any additional compensation or an accelerated payment of
compensation as a result of the consummation of the transactions contemplated
hereby.
(b) Each of the ECS Contracts is valid and enforceable in accordance
with its terms, and there is no default under any ECS Contract so listed
either by ECS or, to the knowledge of ECS, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by ECS or, to the knowledge of
ECS, any other party, in any such case in which such default or event could
reasonably be expected to have a Material Adverse Effect on ECS.
(c) No party to any such ECS Contract has given notice to ECS of or made
a claim against ECS with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on ECS.
ARTICLE 3
Representations and Warranties of IAI
Except as set forth on the Disclosure Schedule delivered by IAI to ECS
(the "IAI Disclosure Schedule"), IAI hereby represents and warrants to ECS as
follows:
Section 3.1. Organization and Qualification.
(a) Each of IAI and its subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse Effect (as
defined below) on IAI. When used in connection with IAI, the term "Material
Adverse Effect'' means any change or effect (i) that is or is reasonably
likely to be materially adverse to the business, results of operations,
condition (financial or otherwise) or prospects of IAI and its subsidiaries,
taken as a whole, other than any change or effect arising out of general
economic conditions unrelated to any businesses in which IAI and its
subsidiaries are engaged, or (ii) that may impair the ability of IAI to
consummate the transactions contemplated hereby.
(b) IAI has heretofore delivered to ECS accurate and complete copies of
the Certificate of Incorporation and Bylaws (or similar governing documents),
as currently in effect, of IAI. Each of IAI and its subsidiaries is duly
qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect on IAI.
Section 3.2. Capitalization of IAI.
(a) As of February 17, 2000, the authorized capital stock of IAI
consists of; (i) Ninety Million (90,000,000) IAI common Shares, $.001 par
value, of which 9,510,000 common Shares are issued and outstanding, and (ii)
Ten Million (10,000,000) IAI preferred shares, $.001 par value, and no
preferred shares are issued and outstanding. All of the outstanding IAI
Shares have been duly authorized and validly issued, and are fully paid,
nonassessable and free of preemptive rights.
(b) Except as set forth in Section 3.2(b) of the IAI Disclosure
Schedule, IAI is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of its subsidiaries.
(c) Except as set forth in Section 3.2(c) of the IAI Disclosure
Schedule, between December 31, 1999 and the date hereof, no shares of IAI's
capital stock have been issued and no IAI Stock options have been granted. On
February 16, 2000 490,000 IAI shares were canceled Except as set forth in
Section 3.2(a) above, as of the date hereof, there are no outstanding (i)
shares of capital stock or other voting securities of IAI, (ii) securities of
IAI or its subsidiaries convertible into or exchangeable for shares of
capital stock or voting securities of IAI, (iii) options or other rights to
acquire from IAI or its subsidiaries, or obligations of IAI or its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
IAI, or (iv) equity equivalents, interests in the ownership or earnings of
IAI or its subsidiaries or other similar rights (collectively, "IAI
Securities"). As of the date hereof, there are no outstanding obligations of
IAI or any of its subsidiaries to repurchase, redeem or otherwise acquire any
IAI Securities. There are no stockholder agreements, voting trusts or other
agreements or understandings to which IAI is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of IAI.
(d) Except as set forth in Section 3.2(d) of the IAI Disclosure
Schedule, there are no securities of IAI convertible into or exchangeable
for, no options or other rights to acquire from IAI, and no other contract,
understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any capital
stock or other ownership interests in, or any other securities of, any
subsidiary of IAI.
(e) The IAI Shares constitute the only class of equity securities of IAI
or its subsidiaries.
(f) Except as set forth in Section 3.2(f) of the IAI Disclosure
Schedule, IAI does not own directly or indirectly more than fifty percent
(50%) of the outstanding voting securities or interests (including membership
interests) of any entity.
Section 3.3. Authority Relative to this Agreement; Recommendation.
(a) IAI has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of IAI (the "IAI Board"), and no other corporate
proceedings on the part of IAI are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby, except, as referred to in
Section 3.17, the approval and adoption of this Agreement by the holders of
at least a majority of the then outstanding IAI Shares. This Agreement has
been duly and validly executed and delivered by IAI and constitutes a valid,
legal and binding agreement of IAI, enforceable against IAI in accordance
with its terms.
(b) The IAI Board has resolved to recommend that the stockholders of IAI
approve and adopt this Agreement.
Section 3.4. SEC Reports; Financial Statements.
(a) IAI has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since December 31, 1999, each
of which has complied in all material respects with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act (and the rules and regulations promulgated
thereunder, respectively), each as in effect on the dates such forms, reports
and documents were filed. IAI has heretofore delivered or promptly will
deliver prior to the Effective Date to IAI, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits), (i) its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999, (ii) all
definitive proxy statements relating to IAI's meetings of stockholders
(whether annual or special) held since December 31, 1999, if any, and (iii)
all other reports or registration statements filed by IAI with the SEC since
December 31, 1999 (all of the foregoing, collectively, the "IAI SEC
Reports"). None of such IAI SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference
therein, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited financial statements of IAI included in the IAI SEC Reports fairly
present, in conformity with generally accepted accounting principles applied
on a consistent basis (except as may be indicated in the notes thereto), the
financial position of IAI as of the dates thereof and its results of
operations and changes in financial position for the periods then ended. All
material agreements, contracts and other documents required to be filed as
exhibits to any of the IAI SEC Reports have been so filed.
(b) IAI has heretofore made available or promptly will make available to
ECS a complete and correct copy of any amendments or modifications which are
required to be filed with the SEC but have not yet been filed with the SEC,
to agreements, documents or other instruments which previously had been filed
by IAI with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied or
to be supplied by IAI for inclusion or incorporation by reference to the 8-K
will, at the time the 8-K is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 3.6. Consents and Approvals; No Violations. Except as set forth
in Section 3.6 of the IAI Disclosure Schedule, and for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD, and the
filing and recordation of the Merger Certificate as required by the NGCL, no
filing with or notice to, and no permit, authorization, consent or approval
of, any Governmental Entity is necessary for the execution and delivery by
IAI of this Agreement or the consummation by IAI of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on IAI.
Neither the execution, delivery and performance of this Agreement by IAI
nor the consummation by IAI of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of
IAI or any of IAI's subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which IAI or any of IAI's subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to IAI or any of IAI's subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which would not have a Material
Adverse Effect on IAI.
Section 3.7. No Default. None of IAI or any of its subsidiaries is in
breach, default or violation (and no event has occurred which with notice or
the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or
Bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which IAI or any of its subsidiaries is now a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to IAI, its subsidiaries or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or
defaults that would not have a Material Adverse Effect on IAI. Each note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which IAI or any of its subsidiaries is now a
party or by which any of them or any of their respective properties or assets
may be bound that is material to IAI and its subsidiaries taken as a whole
and that has not expired is in full force and effect and is not subject to
any material default thereunder of which IAI is aware by any party obligated
to IAI or any subsidiary thereunder.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as
set forth in Section 2.8 of the IAI Disclosure Schedule and except as and to
the extent publicly disclosed by IAI in the IAI SEC Reports, as of December
31, 1999, IAI does not have any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by
generally accepted accounting principles to be reflected on a balance sheet
of IAI (including the notes thereto) or which would have a Material Adverse
Effect on IAI. Except as publicly disclosed by IAI, since December 31, 1999,
IAI has not incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, which could reasonably be expected to have, and
there have been no events, changes or effects with respect to IAI having or
which reasonably could be expected to have, a Material Adverse Effect on IAI.
Except as and to the extent publicly disclosed by IAI in the IAI SEC Reports
and except as set forth in Section 2.8 of the IAI Disclosure Schedule, since
December 31, 1999, there has not been (i) any material change by IAI in its
accounting methods, principles or practices (other than as required after the
date hereof by concurrent changes in generally accepted accounting
principles), (ii) any revaluation by IAI of any of its assets having a
Material Adverse Effect on IAI, including, without limitation, any write-down
of the value of any assets other than in the ordinary course of business or
(iii) any other action or event that would have required the consent of any
other party hereto pursuant to Section 4.1 of this Agreement had such action
or event occurred after the date of this Agreement.
Section 3.9. Litigation. Except as publicly disclosed by IAI in the IAI
SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of IAI, threatened against IAI or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on IAI or could reasonably be
expected to prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by IAI in the
IAI SEC Reports, IAI is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen in the
future, could reasonably be expected to have a Material Adverse Effect on IAI
or could reasonably be expected to prevent or delay the consummation of the
transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly
disclosed by IAI in the IAI SEC Reports, IAI holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the `'IAI
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which would not have a Material Adverse
Effect on IAI. Except as publicly disclosed by IAI in the IAI SEC Reports,
IAI is in compliance with the terms of the IAI Permits, except where the
failure so to comply would not have a Material Adverse Effect on IAI. Except
as publicly disclosed by IAI in the IAI SEC Reports, the business of IAI is
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 2.10 with respect to Environmental Laws (as defined in Section 2.12
below) and except for violations or possible violations which do not, and,
insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on IAI. Except as publicly disclosed by IAI in the
IAI SEC Reports, no investigation or review by any Governmental Entity with
respect to IAI is pending or, to the knowledge of IAI, threatened, nor, to
the knowledge of IAI, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which IAI reasonably
believes will not have a Material Adverse Effect on IAI.
Section 3.11. Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program, policy,
arrangement and contract (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of ERISA), maintained or
contributed to at any time by IAI, any of its subsidiaries or any entity
required to be aggregated with IAI or any of its subsidiaries pursuant to
Section 414 of the Code (each, a "IAI Employee Plan"), no event has occurred
and, to the knowledge of IAI, no condition or set of circumstances exists in
connection with which IAI or any of its subsidiaries could reasonably be
expected to be subject to any liability which would have a Material Adverse
Effect on IAI.
(b) (i) No IAI Employee Plan is or has been subject to Title IV of ERISA
or Section 412 of the Code; and (ii) each IAI Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable Internal
Revenue Service determination letter, and nothing has occurred which could
reasonably be expected to adversely affect such determination.
(c) Section 3.11(c) of the IAI Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
IAI Stock Options, together with the number of IAI Shares which are subject
to such option, the date of grant of such option, the extent to which such
option is vested (or will become vested as a result of the Merger), the
option price of such option (to the extent determined as of the date hereof),
whether such option is a nonqualified stock option or is intended to qualify
as an incentive stock option within the meaning of Section 422(b) of the
Code, and the expiration date of such option. Section 3.11(c) of the IAI
Disclosure Schedule also sets forth the total number of such incentive stock
options and such nonqualified options. IAI has furnished ECS with complete
copies of the plans pursuant to which the IAI Stock Options were issued.
Other than the automatic vesting of IAI Stock Options that may occur without
any action on the part of IAI or its officers or directors, IAI has not taken
any action that would result in any IAI Stock Options that are unvested
becoming vested in connection with or as a result of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(d) IAI has made available to ECS (i) a description of the terms of
employment and compensation arrangements of all officers of IAI and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating IAI to make annual cash payments
in an amount exceeding $60,000; (iii) a schedule listing all officers of IAI
who have executed a non-competition agreement with IAI and a copy of each
such agreement currently in effect; (iv) copies (or descriptions) of all
severance agreements, programs and policies of IAI with or relating to its
employees, except programs and policies required to be maintained by law; and
(v) copies of all plans, programs, agreements and other arrangements of the
IAI with or relating to its employees which contain change in control
provisions.
(e) Except as disclosed in Section 3.11(e) of the IAI Disclosure
Schedule there shall be no payment, accrual of additional benefits,
acceleration of payments, or vesting in any benefit under any IAI Employee
Plan or any agreement or arrangement disclosed under this Section 3.11 solely
by reason of entering into or in connection with the transactions
contemplated by this Agreement.
(f) There are no controversies pending or, to the knowledge of IAI
threatened, between IAI or any of its subsidiaries and any of their
respective employees, which controversies have or could reasonably be
expected to have a Material Adverse Effect on IAI. Neither IAI nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by IAI or any of its
subsidiaries (and neither IAI nor any of its subsidiaries has any outstanding
material liability with respect to any terminated collective bargaining
agreement or labor union contract), nor does IAI know of any activities or
proceedings of any labor union to organize any of its or any of its
subsidiaries' employees. IAI has no knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof by or with respect to any of its or any
of its subsidiaries' employees.
Section 3.12. Environmental Laws and Regulations.
(a) Except as disclosed by IAI, (i) each of IAI and its subsidiaries is
in material compliance with all Environmental Laws, except for non-compliance
that would not have a Material Adverse Effect on IAI, which compliance
includes, but is not limited to, the possession by IAI and its subsidiaries
of all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) none of IAI or its subsidiaries has received written notice of,
or, to the knowledge of IAI, is the subject of, any Environmental Claim that
could reasonably be expected to have a Material Adverse Effect on IAI; and
(iii) to the knowledge of IAI, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as disclosed by IAI, there are no Environmental Claims which
could reasonably be expected to have a Material Adverse Effect on IAI that
are pending or, to the knowledge of IAI, threatened against IAI or any of its
subsidiaries or, to the knowledge of IAI, against any person or entity whose
liability for any Environmental Claim IAI or its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
Section 3.13. Tax Matters. Except as set forth in Section 3.13 of the
IAI Disclosure Schedule: (i) IAI and each of its subsidiaries has filed or
has had filed on its behalf in a timely manner (within any applicable
extension periods) with the appropriate Governmental Entity all income and
other material Tax Returns with respect to Taxes of IAI and each of its
subsidiaries and all Tax Returns were in all material respects true, complete
and correct; (ii) all material Taxes with respect to IAI and each of its
subsidiaries have been paid in full or have been provided for in accordance
with GAAP on IAI's most recent balance sheet which is part of the IAI SEC
Documents; (iii) there are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to IAI or its subsidiaries; (iv) to the knowledge of IAI none of the
Tax Returns of or with respect to IAI or any of its subsidiaries is currently
being audited or examined by any Governmental Entity; and (v) no deficiency
for any income or other material Taxes has been assessed with respect to IAI
or any of its subsidiaries which has not been abated or paid in full.
Section 3.14. Title to Property. IAI and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which, individually or in the aggregate,
would not have a Material Adverse Effect on IAI; and, to IAI's knowledge, all
leases pursuant to which IAI or any of its subsidiaries lease from others
real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
IAI, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which IAI or such subsidiary
has not taken adequate steps to prevent such a default from occurring) except
where the lack of such good standing, validity and effectiveness, or the
existence of such default or event of default would not have a Material
Adverse Effect on IAI.
Section 3.15. Intellectual Property.
(a) Each of IAI and its subsidiaries owns, or possesses adequate
licenses or other valid rights to use, all existing United States and foreign
patents, trademarks, trade names, services marks, copyrights, trade secrets,
and applications therefore that are material to its business as currently
conducted (the "IAI Intellectual Property Rights").
(b) Except as set forth in Section 3.15(b) of the IAI Disclosure
Schedule the validity of the IAI Intellectual Property Rights and the title
thereto of IAI or any subsidiary, as the case may be, is not being questioned
in any litigation to which IAI or any subsidiary is a party.
(c) The conduct of the business of IAI and its subsidiaries as now
conducted does not, to IAI's knowledge, infringe any valid patents,
trademarks, tradenames, service marks or copyrights of others. The
consummation of the transactions contemplated hereby will not result in the
loss or impairment of any IAI Intellectual Property Rights.
(d) Each of IAI and its subsidiaries has taken steps it believes
appropriate to protect and maintain its trade secrets as such, except in
cases where IAI has elected to rely on patent or copyright protection in lieu
of trade secret protection.
Section 3.16. Insurance. IAI currently does not maintain general
liability and other business insurance.
Section 3.17. Vote Required. The affirmative vote of the holders of at
least a majority of the outstanding IAI Shares is the only vote of the
holders of any class or series of IAI's capital stock necessary to approve
and adopt this Agreement and the Merger.
Section 3.18. Tax Treatment. Neither IAI nor, to the knowledge of IAI,
any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 3.19. Affiliates. Except for the directors and executive
officers of IAI, each of whom is listed in Section 3.19 of the IAI Disclosure
Schedule, there are no persons who, to the knowledge of IAI, may be deemed to
be affiliates of IAI under Rule 1-02(b) of Regulation S-X of the SEC (the
"IAI Affiliates").
Section 3.20. Certain Business Practices. None of IAI, any of its
subsidiaries or any directors, officers, agents or employees of IAI or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or
violated any provision of the FCPA, or (iii) made any other unlawful payment.
Section 3.21. Insider Interests. Except as set forth in Section 3.21 of
the IAI Disclosure Schedule, no officer or director of IAI has any interest
in any material property, real or personal, including without limitation, any
computer software or IAI Intellectual Property Rights, used in or pertaining
to the business of IAI or any subsidiary, except for the ordinary rights of a
stockholder or employee stock optionholder.
Section 3.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the IAI Board a written opinion to the effect that,
as of such date, the exchange ratio contemplated by the Merger is fair to the
holders of IAI Shares.
Section 3.23. Brokers. No broker, finder or investment banker (other
than the IAI Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to ECS) is entitled to any brokerage, finders or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of IAI.
Section 3.24. Disclosure. No representation or warranty of IAI in this
Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to ECS pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or
will contain any untrue statement of a material fact or, at the date thereof,
omits or will omit to state a material fact necessary to make any statement
herein or therein, in light of the circumstances under which such statement
is or will be made, not misleading.
Section 3.25. No Existing Discussions. As of the date hereof, IAI is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in
Section 5.4).
Section 3.26. Material Contracts.
(a) IAI has delivered or otherwise made available to ECS true, correct
and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which IAI is a
party affecting the obligations of any party thereunder) to which IAI or any
of its subsidiaries is a party or by which any of their properties or assets
are bound that are, material to the business, properties or assets of IAI and
its subsidiaries taken as a whole, including, without limitation, to the
extent any of the following are, individually or in the aggregate, material
to the business, properties or assets of IAI and its subsidiaries taken as a
whole, all: (i) employment, product design or development, personal services,
consulting, non-competition, severance, golden parachute or indemnification
contracts (including, without limitation, any contract to which IAI is a
party involving employees of IAI); (ii) licensing, publishing, merchandising
or distribution agreements; (iii) contracts granting rights of first refusal
or first negotiation; (iv) partnership or joint venture agreements; (v)
agreements for the acquisition, sale or lease of material properties or
assets or stock or otherwise. (vi) contracts or agreements with any
Governmental Entity; and (vii) all commitments and agreements to enter into
any of the foregoing (collectively, together with any such contracts entered
into in accordance with Section 5.2 hereof, the 'IAI Contracts"). Neither IAI
nor any of its subsidiaries is a party to or bound by any severance, golden
parachute or other agreement with any employee or consultant pursuant to
which such person would be entitled to receive any additional compensation or
an accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby.
(b) Each of the IAI Contracts is valid and enforceable in accordance
with its terms, and there is no default under any IAI Contract so listed
either by IAI or, to the knowledge of IAI, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by IAI or, to the knowledge of
IAI, any other party, in any such case in which such default or event could
reasonably be expected to have a Material Adverse Effect on IAI.
(c) No party to any such IAI Contract has given notice to IAI of or made
a claim against IAI with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on IAI.
ARTICLE 4
Covenants
Section 4.1. Conduct of Business of ECS. Except as contemplated by this
Agreement or as described in Section 4.1 of the ECS Disclosure Schedule,
during the period from the date hereof to the Effective Time, ECS will
conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.1 of the
ECS Disclosure Schedule, prior to the Effective Time, ECS will not, without
the prior written consent of IAI:
(a) amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) amend the terms of any stock of any class or any other securities
(except bank loans) or equity equivalents.
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect
of its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of ECS (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person.
(iii) make any loans, advances or capital contributions to, or investments
in, any other person; (iv) pledge or otherwise encumber shares of capital
stock of ECS; or (v) mortgage or pledge any of its material assets, or create
or suffer to exist any material Lien thereupon (other than tax Liens for
taxes not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent ECS from (i) entering into employment
agreements or severance agreements with employees in the ordinary course of
business and consistent with past practice or (ii) increasing annual
compensation and/or providing for or amending bonus arrangements for
employees for fiscal 1999 in the ordinary course of year-end compensation
reviews consistent with past practice and paying bonuses to employees for
fiscal 1999 in amounts previously disclosed to IAI (to the extent that such
compensation increases and new or amended bonus arrangements do not result in
a material increase in benefits or compensation expense to ECS);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary
course of business);
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement other than in the ordinary course of business consistent with
past practice which would be material to ECS; (iii) authorize any new capital
expenditure or expenditures which, individually is in excess of $1,000 or, in
the aggregate, are in excess of $5,000; provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) make any tax election or settle or compromise any income tax
liability material to ECS;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
ECS;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or in the
ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(m) or any action which would make
any of the representations or warranties of contained in this Agreement
untrue or incorrect.
Section 4.2. Conduct of Business of IAI. Except as contemplated by this
Agreement or as described in Section 4.2 of the IAI Disclosure Schedule
during the period from the date hereof to the Effective Time, IAI will
conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.2 of the
IAI Disclosure Schedule, prior to the Effective Time, IAI will not, without
the prior written consent of:
(a) amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities (except bank loans) or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect
of its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger
consolidation, restructuring, recapitalization or other reorganization of IAI
(other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business. (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person;
(iii) make any loans, advances or capital contributions to or investments in,
any other person; (iv) pledge or otherwise encumber shares of capital stock
of IAI or its subsidiaries; or (v) mortgage or pledge any of its material
assets, or create or suffer to exist any material Lien thereupon (other than
tax Liens for taxes not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent IAI or its subsidiaries from (i) entering
into employment agreements or severance agreements with employees in the
ordinary course of business and consistent with past practice or (ii)
increasing annual compensation and/or providing for or amending bonus
arrangements for employees for fiscal 1999 in the ordinary course of yearend
compensation reviews consistent with past practice and paying bonuses to
employees for fiscal 1999 in amounts previously disclosed to (to the extent
that such compensation increases and new or amended bonus arrangements do not
result in a material increase in benefits or compensation expense to IAI);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions other than in the ordinary
course of business;
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory of writing-off notes
or accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement other than in the ordinary course of business consistent with
past practice which would be material to IAI; (iii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $1,000 or,
in the aggregate, are in excess of $5,000: provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) make any tax election or settle or compromise any income tax
liability material to IAI and its subsidiaries taken as a whole;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
IAI;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or except in
the ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(m) or any action which would make
any of the representations or warranties of the IAI contained in this
Agreement untrue or incorrect.
Section 4.3. Preparation of 8-K. IAI and ECS shall promptly prepare
and file with the SEC an 8-K disclosing this merger.
Section 4.4. Other Potential Acquirers.
(a) IAI, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore
with respect to any Third Party Acquisition.
Section 4.5. Meetings of Stockholders. IAI shall take all action
necessary, in accordance with the respective General Corporation Law of its
respective state, and its respective certificate of incorporation and bylaws,
to duly call, give notice of, convene and hold a meeting of its stockholders
as promptly as practicable, to consider and vote upon the adoption and
approval of this Agreement and the transactions contemplated hereby. The
stockholder votes required for the adoption and approval of the transactions
contemplated by this Agreement. IAI will, through its Boards of Directors,
recommend to their respective stockholders approval of such matters
Section 4.6. NASD OTC:BB Listing. The parties shall use all reasonable
efforts to cause the ECS Shares, subject to Rule 144, to be traded on the
Over-The-Counter Bulletin Board (OTC:BB).
Section 4.7. Access to Information.
(a) Between the date hereof and the Effective Time, ECS will give IAI
and its authorized representatives, and IAI will give ECS and its authorized
representatives, reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of itself and
its subsidiaries, will permit the other party to make such inspections as
such party may reasonably require and will cause its officers and those of
its subsidiaries to furnish the other party with such financial and operating
data and other information with respect to the business and properties of
itself and its subsidiaries as the other party may from time to time
reasonably request.
(b) Between the date hereof and the Effective Time, ECS shall furnish to
IAI, and IAI will furnish to ECS, within 25 business days after the end of
each quarter, quarterly statements prepared by such party in conformity with
its past practices) as of the last day of the period then ended.
(c) Each of the parties hereto will hold and will cause its consultants
and advisers to hold in confidence all documents and information furnished to
it in connection with the transactions contemplated by this Agreement.
Section 4.8. Additional Agreements, Reasonable Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in the preparation and filing of the 8-K, any filings that
may be required under the HSR Act, and any amendments to any thereof; (ii)
obtaining consents of all third parties and Governmental Entities necessary,
proper or advisable for the consummation of the transactions contemplated by
this Agreement; (iii) contesting any legal proceeding relating to the Merger
and (iv) the execution of any additional instruments necessary to consummate
the transactions contemplated hereby. Subject to the terms and conditions of
this Agreement, IAI and ECS agree to use all reasonable efforts to cause the
Effective Time to occur as soon as practicable after the stockholder votes
with respect to the Merger. In case at any time after the Effective Time any
further action is necessary to carry out the purposes of this Agreement, the
proper officers and directors of each party hereto shall take all such
necessary action.
Section 4.9. Indemnification.
(a) To the extent, if any, not provided by an existing right under one
of the parties' directors and officers liability insurance policies, from and
after the Effective Time, ECS shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
''Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement
arising out of actions or omissions occurring at or prior to the Effective
Time and whether asserted or claimed prior to, at or after the Effective
Time) that are in whole or in part (i) based on, or arising out of the fact
that such person is or was a director, officer or employee of such party or a
subsidiary of such party or (ii) based on, arising out of or pertaining to
the transactions contemplated by this Agreement. In the event of any such
loss expense, claim, damage or liability (whether or not arising before the
Effective Time), (i) ECS shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to ECS, promptly after statements therefore are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to
the extent not prohibited by the NGCL or its certificate of incorporation or
bylaws, (ii) ECS will cooperate in the defense of any such matter and (iii)
any determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under the NGCL and
ECS's certificate of incorporation or bylaws shall be made by independent
counsel mutually acceptable to ECS and the Indemnified Party; provided,
however, that ECS shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm with respect to
each related matter except to the extent there is, in the opinion of counsel
to an Indemnified Party, under applicable standards of professional conduct,
c conflict on any significant issue between positions of any two or more
Indemnified Parties.
(b) In the event ECS or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to
any person, then and in either such case, proper provision shall be made so
that the successors and assigns of ECS shall assume the obligations set forth
in this Section 4.9.
(c) To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of ECS and IAI and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided
in ECS's and IAI's certificate of incorporation or bylaws, in effect on the
date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time.
(d) The provisions of this Section 4.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 4.10. Notification of Certain Matters. The parties hereto shall
give prompt notice to the other parties, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time, (ii) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, (iii) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default,
received by such party or any of its subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any contract or
agreement material to the financial condition, properties, businesses or
results of operations of such party and its subsidiaries taken as a whole to
which such party or any of its subsidiaries is a party or is subject, (iv)
any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement, or (v) any material adverse
change in their respective financial condition, properties, businesses,
results of operations or prospects taken as a whole, other than changes
resulting from general economic conditions; provided, however, that the
delivery of any notice pursuant to this Section 4.10 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
ARTICLE 5
Conditions to Consummation of the Merger
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the stockholders of IAI;
(b) this Agreement shall have been approved and adopted by the Board of
Directors of ECS and IAI;
(c) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(d) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, and any other governmental or regulatory notices
or approvals required with respect to the transactions contemplated hereby
shall have been either filed or received; and
Section 5.2. Conditions to the Obligations of ECS. The obligation of ECS
to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of IAI contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof would not have a Material Adverse Effect
on IAI) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing IAI
shall have delivered to ECS a certificate to that effect;
(b) each of the covenants and obligations of IAI to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and at the Closing IAI shall have delivered to ECS a certificate to that
effect;
(d) IAI shall have obtained the consent or approval of each person whose
consent or approval shall be required in order to permit the Merger as
relates to any obligation, right or interest of IAI under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, in the reasonable opinion of ECS, individually or in the aggregate, have
a Material Adverse Effect on IAI;
(e) there shall have been no events, changes or effects with respect to
IAI or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on IAI; and
Section 5.3. Conditions to the Obligations of IAI. The respective
obligations of IAI to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) the representations of ECS contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof would not have a Material Adverse Effect
on ECS) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing ECS
shall have delivered to IAI a certificate to that effect;
(b) each of the covenants and obligations of ECS to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and at the Closing ECS shall have delivered to IAI a certificate to that
effect;
(c) there shall have been no events, changes or effects with respect to
ECS having or which could reasonably be expected to have a Material Adverse
Effect on ECS.
ARTICLE 6
Termination; Amendment; Waiver
Section 6.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval and adoption of this Agreement by ECS's or IAI's
stockholders:
(a) by mutual written consent of ECS and IAI;
(b) by IAI or ECS if (i) any court of competent jurisdiction in the
United States or other United States Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action is or shall have become nonappealable or (ii) the Merger has
not been consummated by February 28, 2000; provided, however, that no party
may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have
been the reason that the Effective Time shall not have occurred on or before
said date;
(c) by ECS if (i) there shall have been a breach of any representation
or warranty on the part of IAI set forth in this Agreement, or if any
representation or warranty of IAI shall have become untrue, in either case
such that the conditions set forth in Section 5.2(a) would be incapable of
being satisfied by February 28, 2000 (or as otherwise extended), (ii) there
shall have been a breach by IAI of any of their respective covenants or
agreements hereunder having a Material Adverse Effect on IAI or materially
adversely affecting (or materially delaying) the consummation of the Merger,
and IAI, as the case may be, has not cured such breach within 20 business
days after notice by ECS thereof, provided that ECS has not breached any of
its obligations hereunder, (iii) ECS shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders; or (iv) ECS shall have convened a meeting
of its Board of Directors to vote upon the Merger and shall have failed to
obtain the requisite vote;
(d) by IAI if (i) there shall have been a breach of any representation
or warranty on the part of ECS set forth in this Agreement, or if any
representation or warranty of ECS shall have become untrue, in either case
such that the conditions set forth in Section 5.3(a) would be incapable of
being satisfied by February 28, 2000 (or as otherwise extended), (ii) there
shall have been a breach by ECS of its covenants or agreements hereunder
having a Material Adverse Effect on ECS or materially adversely affecting (or
materially delaying) the consummation of the Merger, and ECS, as the case may
be, has not cured such breach within twenty business days after notice by IAI
thereof, provided that IAI has not breached any of its obligations hereunder,
(iii) the ECS Board shall have recommended to ECS's stockholders a Superior
Proposal, (iv) the ECS Board shall have withdrawn, modified or changed its
approval or recommendation of this Agreement or the Merger, or hold a
stockholders' meeting to vote upon the Merger, or shall have adopted any
resolution to effect any of the foregoing, (v) IAI shall have convened a
meeting of its stockholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its stockholders.
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part
of any party hereto or its affiliates, directors, officers or stockholders,
other than the provisions of this Section 6.2 and Sections 4.7(c) and 6.3
hereof. Nothing contained in this Section 6.2 shall relieve any party from
liability for any breach of this Agreement.
Section 6.3. Fees and Expenses. Except as specifically provided in this
Section 6.3, each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action taken by
ECS and IAI at any time before or after approval of the Merger by the
stockholders of ECS and IAI (if required by applicable law) but, after any
such approval, no amendment shall be made which requires the approval of such
stockholders under applicable law without such approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE 7
Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings both written and oral, between the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise.
Section 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested), to each other party as follows:
If to IAI:
Incubus Acquisition, Inc.
0000 Xxxx Xxxxxxxx Xx. Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
with a copy to:
Xxxxxx X. Xxxxxxxxxx
Xxxxxx Xxxxx & Xxxxxxxxxx
0000 Xxxx Xxxxxxxx Xx. Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
(000) 000-0000
(000) 000-0000
if to ECS:
Xxxxx Xxxxxx
President
ECS Industries, Inc.
0000 Xxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, without regard
to the principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.9 and 4.11, nothing
in this Agreement, express or implied, is intended to or shall confer upon
any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means (except as otherwise provided in Sections 2.19 and
3.19 a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "knowledge'' or "known'' means, with respect to any matter in
question, if an executive officer of ECS or IAI or its subsidiaries, as the
case may be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of ECS, IAI or any other person,
means any corporation, partnership, limited liability company, association,
trust, unincorporated association or other legal entity of which ECS, IAI or
any such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or
more of the capital stock, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of
such corporation or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of ECS, IAI or any officer, director,
employee, agent, representative or investor of any party hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of
specific performance of its obligations hereunder; provided, however, that,
if a party hereto is entitled to receive any payment or reimbursement of
expenses pursuant to Sections 6.3(a), (b) or (c), it shall not be entitled to
specific performance to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
In Witness Whereof, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
ECS INDUSTRIES, INC.
By:/s/ Xxxxx Xxxxxx
Name: Xxxxx Xxxxxx
Title: President
INCUBUS ACQUISITION, INC.
By:/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx Xxxxxxx
Title: President
ECS DISCLOSURE SCHEDULE
Schedule 2.1 Organization See Amended Articles/Bylaws
Schedule 2.2(a) Options, Stock Preference Rights Not Applicable
Schedule 2.6 Consents & Approvals None Provided
Schedule 2.7 No Default Not Applicable
Schedule 2.8 No Undisclosed Liability None Exist
Schedule 2.9 Litigation None Exist
Schedule 2.10 Compliance with Applicable Law None
Schedule 2.11 Employee Benefit Plans None Provided
Schedule 2.12 Environmental Laws and Regs Not Applicable
Schedule 2.13 Tax Matters None Exist
Schedule 2.14 Title to Property None Exist
Schedule 2.15 Intellectual Property Extensive List provided
Incubus
Schedule 2.16 Insurance None Exist
Schedule 2.17 Vote Required None Required
Schedule 2.18 Tax Treatment Not Applicable
Schedule 2.19 Affiliates Xxxxx Xxxxxx
Xxxxxxx XxXxxxx
KHAT Holdings LLC
Corporate Financial Enterprises, Inc.
American Equiries, LLC
Schedule 2.20 Certain Business Practices None Exist
Schedule 2.21 Insider Interest See 2.19
Schedule 2.22 Opinion of Financial Adviser Waived - None Exist
Schedule 2.23 Broker None Exist
Schedule 4.1 Conduct of Business None Provided
IAI DISCLOSURE SCHEDULE
Schedule 3.2(b) Subsidiary Stock None Exist
Schedule 3.2(c) Capital Stock Rights None Exist other than as in
Articles
Schedule 3.2(d) Securities conversions None Exist
Schedule 3.2 (f) Subsidiaries None Exist
Schedule 3.6 Consents & Approvals Provided
Schedule 3.7 No Default Not Applicable
Schedule 3.8 No Undisclosed Liability None Exist
Schedule 3.9 Litigation None Exist
Schedule 3.10 Compliance with Applicable Law Not Applicable - full
disclosed in 10KSB
Schedule 3.11 Employee Benefit Plans Section 3.11( c)No Options Exist
Section 3.11(e) No Agreements Exist
Schedule 3.12 Environmental Laws and Regs Not Applicable
Schedule 3.13 Tax Matters None Exist
Schedule 3.14 Title to Property None Exist
Schedule 3.15(b) Intellectual Property None Exist
Schedule 3.16 Insurance None Exist
Schedule 3.17 Vote Required See Shareholder Meeting
Certificate
Schedule 3.18 Tax Treatment Not Applicable
Schedule 3.19 Affiliates Xxxx Xxxxxxx
Schedule 3.20 Certain Business Practices None Exist
Schedule 3.21 Insider Interest None Exist
Schedule 3.22 Opinion of Financial Adviser Waived - None Exist
Schedule 3.23 Broker None Exist
Schedule 4.2 Conduct of Business See Amended & Restated Articles
