FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of January 1999
ICTS INTERNATIONAL N.V.
(Translation of registrant's name into English)
Biesbach 225, 1181 JC Amstelveen, The Netherlands
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover
Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange
Act of 1934.
Yes No X
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REPORT ON FORM 6-K
As of January 1, 1999, ICTS International N.V., through its wholly owned
subsidiary I.C.T.S. 1994 (U.S.A.) Inc., acquired 80% of the issued and
outstanding capital stock of Huntleigh USA Corporation ("Huntleigh") and has an
option to acquire the remaining 20% at an agreed upon price formula, the terms
of which are set forth in the Stock Purchase Agreement dated November 5, 1998.
The initial purchase price was $5,000,000 subject to adjustment based upon the
purchase price formula.
For the nine months ended September 30, 1998 Huntleigh had revenues of
$32,874,193 and an unaudited net loss on a pro forma basis of $553,473.
Huntleigh is a provider of aviation services in the United States. Huntleigh
operates in approximately 45 US airports (including substantially all the
aviation international gateways in the USA) with more than 4,000 employees. The
combined company will have revenues exceeding $100 million.
EXHIBITS:
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement dated November 5, 1998 by and among I.C.T.S. 1994
(U.S.A.) Inc., Bill Glassman and Sandy Glassman.
FINANCIAL STATEMENTS:
1. Huntleigh Corporation and Huntleigh USA Corporation Combined Audited
Financial Statements for the Nine Months ended September 30, 1998.
2. Huntleigh Corporation and Huntleigh USA Corporation Combined Financial
Statements For the Twelve Months Ended December 31, 1997.
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<S> <C> <C> <C> <C> <C> <C>
December 3, 1998
To the Board of Directors
Huntleigh Corporation/Huntleigh USA Corporation
St. Louis, Missouri
We have compiled the accompanying combined balance sheet of Huntleigh
Corporation (an S corporation) and Huntleigh USA Corporation (a C
corporation) as of December 31, 1997, and the related statements of
income and retained earnings, and the accompanying supplementary
information which is presented only for supplementary analysis
purposes, for the twelve months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by
the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We
have not audited or reviewed the accompanying financial statements (see
note 1) and, accordingly, do not express an opinion or any other form
of assurance on them.
Management has elected to omit substantially all of the disclosures,
and the statement of cash flow ordinarily included in the financial
statements. If the omitted disclosures and the statement of cash flow
were included in the financial statements, they might influence the
user's conclusions about the Company's financial position, results of
operations, and cash flows. Accordingly, these financial statements are
not designed for those who are not informed about such matters.
Holt and Patterson, Ltd., PC
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Balance Sheet
As of December 31, 1997
ASSETS
1997
CURRENT ASSETS:
Cash $ 582,490
Accounts receivable 8,685,879
(less allowance for doubtful accounts of -0-)
Other receivables 49,573
Prepaid expenses 179,184
Total Current Assets 9,497,126
PROPERTY AND EQUIPMENT:
Property and equipment 1,003,011
Less: Accumulated depreciation and amortization 490,162
Total Property and Equipment (Note 2) 512,849
OTHER ASSETS:
Goodwill, net of amortization (Note 5) 1,809,579
Deferred tax asset 120,645
Deposits 34,375
Total Other Assets 1,964,599
Total Assets $ 11,974,574
======================
See accountant's report See notes to financial
statements.
Page 1
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Balance Sheet
As of December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1997
CURRENT LIABILITIES:
Accounts payable $ 421,768
Accrued expenses 2,451,288
Current portion of long-term debt 419,936
Total Current Liabilities 3,292,992
LONG-TERM LIABILITIES:
Note payable to stockholder 3,581,505
Note payable - Bank 2,520,782
Note payable - Ogden 1,348,482
Current portion of long-term debt (419,936)
Total Long-Term Liabilities 7,030,833
Total Liabilities 10,323,825
STOCKHOLDERS' EQUITY:
Common stock, authorized 30,000 shares, 50,800
par value $10 per share, 80 shares
issued and outstanding
Additional paid-in capital 1,300,200
Treasury stock, 40 shares par value $10 per share (400)
Retained earnings 300,149
Total Stockholders' Equity 1,650,749
Total Liabilities and Equity $ 11,974,574
See accountant's report See notes to
financial statements.
Page 2
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Statement of Income
For the Twelve Months Ended December 31, 1997
1997 %
Revenues $ 38,476,277 100.00%
Cost of revenues (Schedule 1) 35,861,887 93.21%
Gross profit 2,614,390 6.79%
General and administrative expenses 2,309,178 6.00%
Income from operations 305,212 0.79%
Total other income (expense) (391,543) -1.02%
(Schedule 2)
Net income before income taxes (86,331) -0.22%
Provision for income taxes (USA only) (4,998) -0.01%
Net income (loss) $ (91,329) -0.24%
See accountant's report See notes to
financial statements.
Page 3
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Huntleigh Corporation/Huntleigh USA Corporation
Combined Statement of Retained Earnings
For the Twelve Months Ended December 31, 1997
1997
Retained earnings, beginning of period $ 391,478
Net income (loss) (91,329)
Retained earnings, end of period $ 300,149
See accountants' report
See notes to financial statements
Page 4
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Huntleigh Corporation/Huntleigh USA Corporation
Notes to Financial Statements
December 31, 1997
Note 1: Combined Financial Statements
The December 31, 1997 financial statements of Huntleigh USA Corporation
were audited by us. The September 30, 1997 financial statements of
Huntleigh Corporation were also audited by us. However, the December
31, 1997 financial statements of Huntleigh Corporation were simply
analyzed by us to determine reasonableness of the internally prepared
financial statements. It is our opinion that the internally prepared
financial statements of Huntleigh Corporation fairly present the
results of operations for the twelve months ended December 31, 1997.
The December 31, 1997 Huntleigh USA Corporation audited financial
statements and the December 31, 1997 Huntleigh Corporation internally
prepared financial statements were combined by us. All inter-company
transactions were eliminated from the combined financial statements.
Note 2: Restated Financial Statements
The December 31, 1997 financial statements were restated to include the
following adjustments:
HUSA HCORP TOTAL
Additional Workers' Compensation Expense $58,770 $ 34,727 $ 93,497
Additional Workers' Compensation Reserves 43,882 81,495 125,377
State Unemployment Tax Refund (19,295) -0- (19,295)
Deferred Tax Benefit ( 8,290) -0- ( 8,290)
Total Decrease In Income $75,067 $116,222 $191,289
See accountant's report.
Page 5
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SUPPLEMENTARY INFORMATION
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Schedule of Costs of Revenue
For the Twelve Months Ended December 31, 1997
Schedule 1
1997 %
Anti-drug program $ 135,664 0.35%
Bad debt expense 206,728 0.54%
Cleaning allowance 20,406 0.05%
Dosimeter expense 27,874 0.07%
Equipment supplies 48,704 0.13%
Fuel 22,160 0.06%
Insurance expense 300,666 0.78%
Mischecked baggage 9,367 0.02%
Other 869,612 2.26%
Parking 147,410 0.38%
Payroll taxes 3,274,566 8.51%
Rent 152,594 0.40%
Salaries 28,680,618 74.54%
Severance 51,306 0.13%
Telephone 88,075 0.23%
Travel 197,088 0.51%
Uniforms 851,214 2.21%
Workers' compensation insurance expense 652,458 1.70%
Workers' compensation insurance reserve 125,377 0.33%
Total General and Administrative $ 35,861,887 93.21%
See accountant's report
Page 6
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Schedule of Other Income
For the Twelve Months Ended December 31, 1997
Schedule 2
1997 %
Miscellaneous income $ 32,489 0.08%
Wheelchair sales 9,960 0.03%
Interest income 0 0.00%
Interest expense (433,992) -1.13%
Total Other Income $ (391,543) -1.02%
See accountant's report.
Page 7
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December 4, 1998
Board of Directors
HUNTLEIGH CORPORATION and
HUNTLEIGH USA CORPORATION
Saint Louis, Missouri
We have audited the combined balance sheet of HUNTLEIGH CORPORATION (an
S corporation) and HUNTLEIGH USA CORPORATION (a C corporation) as of September
30, 1998, and the related statements of income, retained earnings, and cash flow
for the nine months then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
The supplementary information included in the schedules of cost of
revenues, general and administrative expenses, and other income and expense on
pages 14 through 17 is not a required part of the basic financial statements,
and we did not audit or apply limited procedures to such information and do not
express any assurance on such information.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of HUNTLEIGH
CORPORATION and HUNTLEIGH USA CORPORATION as of September 30, 1998, and the
results of its operations and its cash flows for the nine months then ended in
conformity with generally accepted accounting principles.
Holt and Patterson Ltd., P.C.
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Balance Sheet
As of September 30, 1998
ASSETS
HISTORICAL PRO-FORMA PRO-FORMA
ADJUSTMENT AS ADJUSTED
(Note 12)
CURRENT ASSETS:
Cash $ 43,354 $ 43,354
Accounts receivable (Note 5) 6,702,147 6,702,147
Other receivables 54,393 54,393
Prepaid expenses 236,787 236,787
Total Current Assets 7,036,681 7,036,681
PROPERTY AND EQUIPMENT:
Property and equipment 1,113,443 1,113,443
Less: Accumulated depreciation and amortization 630,843 630,843
Total Property and Equipment (Note 2) 482,600 482,600
OTHER ASSETS:
Deferred tax asset (Note 4) 17,452 17,452
Goodwill, net of amortization (Note 9) 1,731,190 1,731,190
Deposits 21,388 21,388
Total Other Assets 1,770,030 1,770,030
Total Assets $ 9,289,311 $ 9,289,311
See accountants' report
See notes to financial statements
Page 1
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Balance Sheet
As of September 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
HISTORICAL PRO-FORMA PRO-FORMA
ADJUSTMENT AS ADJUSTED
(Note 12)
CURRENT LIABILITIES:
Accounts payable $ 353,815 $ 353,815
Accrued salaries and vacations 1,493,927 1,493,927
Deposits 31,388 31,388
Accrued expenses 206,359 206,359
Reserve for workers compensation expense 476,631 476,631
Deferred tax liability - 272,000 272,000
Notes payable related party (Note 8) - -
Current portion of long-term debt 448,832 448,832
Total Current Liabilities 3,010,952 3,282,952
LONG-TERM LIABILITIES:
Notes payable to stockholder (Note 3) 2,789,521 2,789,521
Notes payable 2,778,546 2,778,546
Current portion of long-term debt (448,832) (448,832)
Deferred tax liability - 785,000 785,000
Total Long-Term Liabilities 5,119,235 5,904,235
Total Liabilities 8,130,187 9,187,187
STOCKHOLDERS' EQUITY:
Common stock, authorized 30,000 shares HC, 50,800 50,800
par value $10 per share, 80 shares issued and
outstanding; authorized 100 shares HUSA,
par value $5 per share, 100 shares issued and
outstanding
Additional paid-in capital 2,349,800 2,349,800
Treasury stock, 40 shares par value $10 per share (400) (400)
Retained earnings (1,241,076) 1,057,000 (2,298,076)
Total Stockholders' Equity 1,159,124 102,124
Total Liabilities and Equity $ 9,289,311 $ 9,289,311
See accountants' report See notes to financial
statements.
Page 2
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Statement of Income
For the Nine Months Ended September 30, 1998
%
Revenues $ 32,874,193 100.00%
Cost of revenues (Schedule 1) 30,497,423 92.77%
Gross profit 2,376,770 7.23%
General and administrative expenses 1,694,193 5.15%
(Schedule 2)
Income from operations 682,577 2.08%
Total other income (expense) (1,605,032) -4.88%
(Schedules 3 & 4)
Income (Loss) Before Income Taxes (922,455) -2.81%
Provision for Income Taxes
Current 98,629 0.30%
Deferred 51,266 0.16%
Total Provision for Income Taxes 149,895 0.46%
Net income (loss) $ (1,072,350) -3.26%
PRO-FORMA INCOME STATEMENT (Note 12):
Income (Loss) Before Income Taxes $ (922,455) -2.81%
Provision for Pro-Forma Income Taxes
Pro-Forma Income Tax (Expense) Benefit 368,982 1.12%
Pro-Forma Net Income (Loss> $ (553,473) -1.68%
See accountants' report
See notes to financial statements
Page 3
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Statement of Retained Earnings
For the Nine Months Ended September 30, 1998
Retained earnings, beginning of period $ 300,149
Net income (loss) (1,072,350)
Prior period adjustment (Note 8) (267,058)
Retained earnings, end of period $ (1,039,257)
Pro-Forma (Note 12):
Historical retained earnings, end of period $ (1,039,257)
Adjustment for termination of Sub S election - deferred taxes (1,277,000)
Pro-forma retained earnings, end of period $ (2,316,257)
See accountants' report
See notes to financial statements
Page 4
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Statement of Cash Flow
For the Nine Months Ended September 30, 1998
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,072,350)
Prior period adjustment (267,058)
Subtotal (1,339,408)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 219,070
Decrease (increase) in accounts receivable 1,978,912
Decrease (increase) in prepaid expenses (57,603)
Decrease (increase) in deferred tax asset 128,246
Decrease (increase) in deposits 12,987
Increase (decrease) in accrued expense (444,802)
Increase (decrease) in accounts payable (67,953)
Total adjustments 1,768,857
Net cash used by operating activities 429,449
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (106,587)
Net cash used in investing activities (106,587)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in additional paid in capital 1,049,600
Proceeds from notes payable 9,966,427
Principal payments on notes payable (11,878,025)
Net cash provided by financing activities (861,998)
NET INCREASE(DECREASE) IN CASH (539,136)
CASH, beginnng of year 582,490
CASH, ending of year $ 43,354
For purposes of the statement of cash flow, the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Supplementary Information: Total interest paid on debt described
in Notes 3 and 8 for the nine months ended September 30, 1998 is
$384,005. Income taxes paid for the same period equal $0.
See accountants' report See
notes to financial statements.
Page 5
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
Note 1: Summary of Significant Accounting Policies
Business operations
Huntleigh Corporation and Huntleigh USA Corporation provide skycap
and security screening services to various airlines in airports
throughout the United States.
Accounting method
The accrual method of accounting is utilized recognizing income when
earned and expense when incurred. For income tax purposes, Huntleigh
Corporation reports under the cash basis of accounting and Huntleigh
USA Corporation reports under the accrual basis of accounting.
Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts equal to the
estimated returns, allowances, and collection losses that will be
incurred in collection of all receivables. The estimated returns,
allowances, and collection losses are based on a review of the
current status of existing receivables.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results inevitably will
differ from those estimates, and such differences may be material to
the financial statements.
Concentrations of credit risk
The Company provides skycap and security screening services to
various airlines in the United States. Financial instruments which
potentially subject the Company to concentrations of credit risk are
primarily accounts receivable. The customer base is comprised of
passenger airline companies. Although the Companies' exposure to
credit risk associated with non payment by the airlines is affected
by conditions or occurrences within the airline industry,
approximately 91% of the total accounts receivable were 60 days old
or less, as of September 30, 1998.
Goodwill
Excess of purchase price over net assets of business acquired
("goodwill") is amortized using the straight line method over 40 and
15 years.
See Accountants' Report.
Page 6
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 2: Property and Equipment Depreciation:
Property and equipment are stated at cost. Depreciation is provided
on the straight-line and accelerated methods over the estimated
useful lives of the assets as follows:
Equipment 5-7 Years
Furniture and fixtures 5-7 Years
Automobiles 5 Years
Leasehold Improvements 39 Years
Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred.
Property and equipment are summarized by major classification as
follows:
1998
Equipment $ 877,685
Furniture and Fixtures 130,702
Automobiles 73,293
Leasehold Improvements 31,763
1,113,443
Less: Accumulated Depreciation 630,843
$ 482,600
Depreciation expense for the period ending September 30, 1998 is
$141,114.
Note 3: Notes Payable:
Ogden
Additional service locations and contracts were purchased from a
competitor on April 1, 1997 for $1,750,000. The seller agreed to
finance the purchase price with a non interest-bearing note calling
for fourteen quarterly payments at $125,000 each. The last payment is
due October 1, 2000.
See Accountants' Report.
Page 7
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 3: Notes Payable: (continued)
The non-interest bearing $1,750,000 loan was discounted to reflect
the applicable federal interest rate of 6.71%. Therefore, the actual
loan amount, discounted for interest, at April 1, 1997 was
$1,548,202. The balance remaining on this loan at September 30, 1998
is $928,546. Principal payments to be made on the loan during the
next twelve months total $448,832.
LaSalle-Revolving Line of Credit
The Corporation entered into a loan agreement with LaSalle National
Bank on December 22, 1997. The maximum amount of outstanding
indebtedness at any time during the term of this agreement is
$10,000,000. Interest accrues monthly at the lower of LIBOR plus 2.5%
or prime rate. The loan matures on May 15, 2001. As of September 30,
1998, the outstanding balance on this loan was $4,639,521 of which
$2,789,521was loaned directly to the stockholder who in turn, loaned
$2,789,521 back to the Corporation. Collateral on this note includes
equipment, accounts receivable, contracts, and intangibles.
Issued letters of credit total $880,568. The available line of credit
is reduced by this amount.
The Company is in violation of loan covenants a) and b) below. The Company is in compliance with loan
covenant c) below.
a) Borrower will, on a consolidated basis, maintain net worth in an amount equal
to $2,000,000.
b) Borrower will, on a consolidated basis, maintain a ratio of total liabilities to net worth of < 5 times.
c) Borrower will, on a consolidated basis, maintain a fixed charge coverage ratio not less than 1.1 to 1.0.
Interest expense incurred on the loans for the periods ended
September 30, 1998 is $394,737. By letter dated December 7, 1998, the
creditor waives its right to demand repayment.
See Accountants' Report.
Page 8
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 4: Income Taxes:
The stockholder of Huntleigh Corporation has elected to be treated as
an "S" corporation under the provisions of the Internal Revenue Code
which provide that in lieu of corporate income taxes, the stockholder
is taxed on the Company's taxable income. Therefore, Huntleigh
Corporation will typically have no provision or liability for federal
and state income taxes.
For the fiscal year beginning January 1, 1992, Huntleigh USA
Corporation elected to be a C Corporation. Therefore, all income tax
liabilities are to be paid by the Corporation.
Huntleigh USA Corporation income taxes were calculated on the cash
basis of accounting through 1995. As of 1996, the Company began
calculating income taxes on the accrual basis of accounting in
accordance with Internal Revenue Code section 481(a). The increase in
taxable income due to this change equals $1,391,315. This amount may
be taken into taxable income over three years. Therefore, the section
481(a) adjustment will increase taxable income over book income as
follows:
1996 $ 463,772
1997 463,772
1998 463,771
Total $1,391,315
The difference in the method of accounting between the financial
statements and tax return causes a temporary difference for which a
deferred tax asset has been recognized. The deferred tax asset
represents the decrease in taxes payable in future years as a result
of net operating loss carryforwards, workers' compensation reserves,
and a capital loss carryforward as follows:
See Accountants' Report.
Page 9
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 4: Income Taxes: (continue)
Workers'
Compensation Section 481(a)
Reserves Capital Loss Remaining Total
1995 $ 43,809 $ -0- $ -0- $ 43,809
1996 -0- -0- -0- -0-
1997 43,882 36,587 -0- 80,469
1998 30,198 -0- (115,943) ( 85,745)
Total $117,889 $ 36,587 $(115,943) $ 38,533
Note 5: Accounts Receivable:
Trade accounts receivable balance as of September 30, 1998 is as
follows:
1998
Accounts receivable $ 6,712,538
Allowance for doubtful accounts (10,391)
$ 6,702,147
See Accountants' Report.
Page 10
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 6: Operating Lease
Huntleigh Corporation entered into a lease on May 1, 1997 for the rental of
a building to be used as
office space. The landlords are shareholders Bill and Sandy Glassman. The lease extends for seven years and
expires on April 30, 2004.
As of September 30, 1998, the future minimum lease payments required
until expiration of the lease are as follows:
9/30/99 $60,000
9/30/00 $60,000
9/30/01 $60,000
9/30/02 $60,000
9/30/03 $60,000
9/30/04 $60,000
Total $335,000
Total office rent expense under this lease agreement for the years
ended September 30, 1998 is $60,000.
Note 7: Income Tax Return Examination:
In July, 1998, the Internal Revenue Service finalized examinations of
the Companies' payroll tax returns for the quarters ending December
31, 1993 through December 31, 1996. Additional payroll taxes in the
amount of $197,850 were charged in regard to this audit. All amounts
have been paid and no further liabilities exist concerning these
audits. A prior period adjustment was made for $197,850.
The Internal Revenue Service also finalized a federal income tax
return examination of Huntleigh Corporation for the year ended
September 30, 1994.
No changes were made as a result of this audit.
See Accountants' Report.
Page 11
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 8: Prior Period Adjustment:
Prior period adjustments were made for the following items:
Additional Workers Compensation Expense $ 72,101
Additional Workers Compensation Reserves 43,809
Additional payroll tax expense as a result of an
Internal Revenue Service audit-See note 7 197,850
Subtotal 313,760
Income Tax Benefit (46,702)
Total Prior Period Adjustments $267,058
Note 9: Intangible Assets:
The original goodwill upon the purchase of Huntleigh Corporation
totaled $680,000. This amount is being amortized over forty years. As
of September 30, 1998 the net amount was $549,666.
Additional locations were purchased on April 1, 1997 generating
goodwill for both companies in the amount of $1,312,802. This amount
is being amortized over 180 months. As of September 30, 1998, the net
amount was $1,181,522. Amortization expense on goodwill for the
period ended September 30, 1998 is $78,390.
The organizational costs incurred for the original purchase of
Huntleigh Corporation totaled $14,722. These costs were amortized
over 60 months. At September 30, 1998, these costs had been fully
amortized.
Note 10: Additional Paid-In Capital:
In September, 1998, the stockholder received a bonus of $1,200,000,
netting to $1,049,600. The shareholder contributed $1,049,600 as
additional paid-in capital on the same day.
See Accountants' Report.
Page 12
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HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1998
(Continued)
Note 11: Subsequent Event:
On November 16, 1998, the Companies announced that ICTS International
N.V. would be purchasing eighty percent of the outstanding stock of
Huntleigh USA Corporation in a transaction to be completed on or near
January 1, 1999. Immediately prior to the acquisition, Huntleigh
Corporation will become a wholly owned subsidiary of Huntleigh USA
Corporation in a tax-free stock exchange.
The ICTS transaction is subject to satisfactory completion of further due
diligence. ICTS is a leading provider of advanced aviation security
services operating primarily in Europe.
Note 12: Pro-Forma Adjustment:
The pro-forma adjustment reflects deferred income taxes as if Huntleigh
Corporation, an S corporation, were a C corporation. The pro-forma income
statement adjustment relects an income tax benefit as if both companies
were a C corporation.
See Accountants' Report.
Page 13
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Schedule of Cost of Revenues
For the Nine Months Ended September 30, 1998
Schedule 1
1998 %
Advertising and promotion $ 149,931 0.46%
Anti-drug program 86,090 0.26%
Claims 81,463 0.25%
Delivery service 615 0.00%
Depreciation expense 48,559 0.15%
Disability insurance 18,150 0.06%
Donations 675 0.00%
Dosimeter expense 16,924 0.05%
Dues and subscriptions (308) 0.00%
Employee awards 35,560 0.11%
Equipment repairs and maintenance 43,826 0.13%
Equipment supplies 39,418 0.12%
Food 46,095 0.14%
Insurance expense 256,758 0.78%
Lease expense 64,423 0.20%
Miscellaneous expense 12,394 0.04%
Mischecked bags 7,929 0.02%
Moving expense 2,146 0.01%
Parking 140,292 0.43%
Payroll taxes 2,885,899 8.78%
Professional services 81,345 0.25%
Rent 152,525 0.46%
Salaries 24,691,867 75.11%
Severance 39,856 0.12%
Supplies 77,507 0.24%
Taxes, licenses, and permits 58,578 0.18%
Telephone 93,029 0.28%
Training 242,704 0.74%
Travel 193,038 0.59%
Uniforms 444,198 1.35%
Workers compensation insurance 380,311 1.16%
Workers compensation insurance reserve 105,626 0.32%
Total Cost of Revenues $ 30,497,423 92.77%
<PAGE>
HUNTLEIGH CORPORATION/HUNTLEIGH USA CORPORATION
Combined Schedule of General and Administrative Expenses
For the Nine Months Ended September 30, 1998
Schedule 2
%
Advertising and promotion $ 127 0.00%
Anti-drug program 1,062 0.00%
Auto expense 2,343 0.01%
Bad debt expense 140,649 0.43%
Bank analysis and maintenance fee 66,473 0.20%
Delivery service 28,390 0.09%
Depreciation expense 92,555 0.28%
Director's fees 36,000 0.11%
Donations 1,250 0.00%
Dues and subscriptions 7,559 0.02%
Employee awards 44,340 0.13%
Entertainment 4,080 0.01%
Equipment lease 7,483 0.02%
Equipment supplies (12,100) -0.04%
Food 6,192 0.02%
Insurance expense 17,152 0.05%
Keyman life and disability insurance 5,625 0.02%
Miscellaneous expense 2,243 0.01%
Moving expense - 0.00%
Officers' salary 132,605 0.40%
Parking 45 0.00%
Payroll processing 23,459 0.07%
Payroll taxes 76,789 0.23%
Professional services 206,898 0.63%
Reimbursement from related entity - 0.00%
Rent 46,782 0.14%
Repairs and maintenance 21,576 0.07%
Salaries 543,146 1.65%
Supplies 52,067 0.16%
Taxes, licenses, and permits 1,144 0.00%
Telephone 52,053 0.16%
Training 5,073 0.02%
Travel 21,416 0.07%
Uniforms 354 0.00%
Workers compensation insurance 59,362 0.18%
Total General and Administrative Expense $ 1,694,193 5.15%
<PAGE>
Combined Schedule of Other Income
For the Nine Months Ended September 30, 1998
Schedule 3
1998 %
Miscellaneous income $ 31,847 0.10%
Wheelchair sales 5,935 0.02%
Interest income 10,691 0.03%
Life insurance refund 27,620 0.08%
Total Other Income $ 76,094 0.23%
<PAGE>
Combined Schedule of Other Expenses
For the Nine Months Ended September 30, 1998
Schedule 4 %
Amortization of goodwill $ 78,390 0.24%
Interest expense-stockholder 188,928 0.57%
Interest expense-other 205,809 0.63%
Officer bonus 1,200,000 3.65%
Penalties 7,998 0.02%
Total Other Expense $ 1,681,126 5.11%
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ICTS INTERNATIONAL N.V.
(Registrant)
Date: January 11, 1999 By
Lior Zouker, President
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, dated as of the 5th day of November, 1998
(this "Agreement"), by and between I.C.T.S. 1994 (USA) Inc., a New York
corporation, having an address at 1 Rockefeller Plaza, Suite 2412, New York, New
York 10020 (hereinafter referred to as the "Purchaser") and the individuals
whose names and addresses appear on Exhibit A hereto (hereinafter referred to,
collectively, as the "Sellers").
WITNESSETH
Whereas, the Sellers own all of the issued and outstanding shares of
Huntleigh USA Corporation a Missouri corporation ("HLUSA"), having its principal
place of business at 10332 Old Olive Street Road, St. Louis, MO 63141, and at or
prior to the Closing Date (as hereinafter defined) shall make a capital
contribution of all of the issued and outstanding capital stock of Huntleigh
Corporation, a Missouri corporation having its principal place of business at
10332 Old Olive Street Road, St. Louis, MO 63141 ("HC") to HLUSA (the
"Contribution") in exchange for 100 shares of the common stock of HLUSA so that
HC shall become a wholly owned subsidiary of HLUSA at the time of Closing
hereunder, unless the context otherwise requires the term the "Company"
including HLUSA and HC.
The Sellers are the owners, in the aggregate, of 100 shares of the
common stock, $1.00 par value per share, of HLUSA constituting all of the issued
and outstanding common stock of the Company (the "Company Common Stock") and are
the owners, in the aggregate, of 800 shares of common stock, $1.00 par value per
share of HC and, after the Contribution, will be the owners, in the aggregate,
of 200 shares of the Common Stock of HLUSA.
The Purchaser desires to acquire from the Sellers, and the Sellers
desire to sell and transfer to the Purchaser, the Company Common Stock, upon the
terms and conditions hereinafter set forth.
To accomplish such purposes and in consideration of the premises and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1. Sale and Transfer of Stock. Upon the terms and subject to the conditions of
this Agreement, the Sellers hereby agree to sell, assign, convey, transfer and
deliver on the Closing Date (as hereinafter defined) to the Purchaser 160
shares, of the Company Common Stock, representing 80% of the Company's issued
and outstanding common stock (the "Purchased Shares"), in consideration of the
payment by the Purchaser of the Purchase Price (as hereinafter
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defined) for Purchased Shares. On the Closing Date, the Sellers shall convey to
the Purchaser the Purchased Shares, free and clear of all liens, claims,
encumbrances, charges, restrictions or rights of others.
1.2. Purchase Price. The full and complete purchase price (the "Purchase
Price"), for the Purchased Shares shall be $6,420,000 less the "Purchase Price
Adjustment" (as hereinafter defined); provided however the Purchase Price shall
in no event exceed $5,000,000 and therefore the Purchase Price Adjustment shall
be no less than $1,420,000. At the Closing, it will be assumed that the Purchase
Price Adjustment will finally be computed as $1,420,000, and therefore that the
Purchase Price will be $5,000,000, and $4,500,000 of such assumed Purchase Price
shall be payable by a wire transfer of immediately available funds to be paid by
the Purchaser at the Closing (as hereinafter defined) to the Sellers in the
amounts set forth next to their respective names on Exhibit A and the balance of
the assumed Purchase Price, i.e. $500,000 (the "Escrow Amount") shall be held in
escrow pursuant to a certain Escrow Agreement, in the form attached hereto as
Exhibit B, for a period of six (6) months for the purpose of protecting
Purchaser with respect to potential claims, actions, liens, suits or such other
demands arising from any representation or covenant of sellers hereunder.
1.2.1 The "Purchase Price Adjustment" shall be:
(a) the amount by which the net worth of the Company as
of December 31, 1998 as shown on the "Closing Balance Sheet" (as
hereinafter defined) is less than $1,950,000 (the "Net Worth
Adjustment"), and for this purpose (i) the amount of "Deferred
Income Tax" shown on the Closing Balance Sheet shall not be
deducted in making such calculation, or, if deducted, it shall be
added back to such calculation and (ii) the amount of the
"Reserve for Worker's Compensation" shall be deemed to be
$274,812 no matter what such Reserve is on the Closing Balance
Sheet; plus
(b) the "Present Value of the Deferred Income Tax" (as hereinafter defined);
provided, however, as set forth above, the Purchase Price Adjustment shall in no
event be less than $1,420,000 and therefore if the above calculation results in
an amount less than $1,420,000, the Purchase Price Adjustment shall be deemed to
be $1,420,000.
1.2.2 The Deferred Income Tax shown on the Closing Balance Sheet is
expected to result from the fact that the Company will be
required to recognize income for income tax purposes as a result
of its change in accounting method from a cash basis to an
accrual basis. The "Present Value of the Deferred Income Tax"
shall equal the present value of the Deferred Income Tax,
computed on the assumption that such Deferred Income Tax will be
payable over 4 calendar years, in equal instalments at the end of
each such calendar year, discounted using an 8% discount rate.
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<PAGE>
1.2.3 For the purposes of illustration, if the Purchase Price
Adjustment were calculated using the Balance Sheet included in
the Interim Financial Statements, the Purchase Price Adjustment
would be $1,464,287 computed as follows:
(a) The net worth on such balance sheet, without
deducting the Deferred Income Tax and using $274,812 as the
Reserve for Worker's Compensation, was $1,360,943 resulting in a
reduction of the Purchase Price by $589,057 (the "Net Worth
Adjustment"), the difference between $1,950,000 and $1,360,943.
(b) The Deferred Income Tax on such balance sheet was
$1,057,000 and the Present Value of such Deferred Income Tax
computed as described above, would be $875,230.
(c) As a result, the Purchase Price Adjustment under such
assumptions would be $589,057 plus $875,230 or $1,464,287 and the
Purchase Price would be $4,955,713.
1.2.4. As promptly as possible after the preparation of the Closing
Balance Sheet, the accountants preparing the Closing Balance Sheet, with review
by the Purchaser's accountant, shall compute the Purchase Price Adjustment and
deliver such computation to both the Purchaser and the Sellers. Either Sellers
or Purchasers shall have the right to contest the amount of the Purchase Price
Adjustment by notice hereunder to the other party within 10 days of the delivery
of such computation, in which event the Purchase Price Adjustment shall be
determined by arbitration in accordance with Section 13.7 hereof.
1.2.5. Within 5 days following either (a) the delivery of the
computation of the Purchase Price Adjustment or (b) the Purchase Price
Adjustment is finally determined by arbitration as set forth above: (a) if the
Purchase Price Adjustment is equal to $1,420,000, no adjustments will be made
between the parties because the amount paid at Closing was based on the
assumption that the Purchase Price Adjustment would be $1,420,000; or (b) if the
Purchase Price Adjustment is more than $1,420,000, the amount by which it
exceeds $1,420,000 shall be paid to Purchaser from the Escrow Amount.
1.3. Definition of EBIT. For purposes of this Agreement, "EBIT" shall mean the
sum of (a) net income (or net loss), (b) interest expense and (c) tax expense,
in each case determined in accordance with GAAP (as defined herein). EBIT will
not be affected by the amortization of the Purchase Price.
1.4. Purchase of Balance of the Company Common Stock. The balance of the Company
Common Stock representing 40 shares of the issued and outstanding common stock
(the "Balance Shares") of the Company shall be acquired as follows:
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<PAGE>
1.4.1. The Sellers shall have the right to require Purchaser to purchase
the Balance Shares ("Sellers' Option") at any time within 90 days, by
giving Purchaser 10 days written notice, of the earlier to occur of (a)
March 31, 2002; (b) the termination of Bill Glassman's Employment
Agreement (as defined herein) pursuant to its terms and conditions (the
"Exercise Period"); or (c) a merger or sale of I.C.T.S. 1994 (U.S.A.)
Inc. (as hereinafter defined) in which event Purchaser will provide
Sellers 30 days advance notice of such event.
1.4.2. In the event that Sellers' Option is not exercised, Purchaser
shall have the right to purchase the Balance Shares at any time within
90 days after the expiration of the Exercise Period.
1.4.3 The purchase price for the Balance Shares shall be equal to (a)
twenty percent (20%) of six point eight (6.8) times the earnings of the
Company before interest and taxes (EBIT) for the year ended December 31,
2001 or the last four published calendar quarters ("LFQ") prior to the
date of termination of the employment agreement of Bill Glassman or sale
of I.C.T.S. 1994 (U.S.A.) Inc. (as hereinafter defined) minus (b)
$200,000 (the "Balance Purchase Price"). EBIT shall be determined by the
Company's auditors in accordance with GAAP (as defined herein), whose
determination of EBIT shall be binding and conclusive subject to clear
error in the calculations.
1.4.4. Payment of up to $1,500,000 of the purchase price for the Balance
Shares shall be made within ninety (90) days after the calculation of
EBIT (the "Initial Payment Date") with interest accruing at a rate of
eight percent (8%) per annum ninety (90) days after the end of the
fiscal period used to calculate the Balance Purchase Price, and the
remaining balance, if any, shall be payable over a three year period in
equal quarterly installments from the Initial Payment Date with accrued
interest at a rate of eight percent (8%) per annum. At the option of the
Sellers, the purchase price may be paid in cash or in shares of common
stock or a combination thereof of Purchaser's publicly traded parent
company, ICTS International N.V. ("ICTS") valued at $9.50 per share,
such price to be subject to customary dilution protection including, but
not limited to, the benefits derived from a transaction referred to in
Section 1.4.1.(c). Upon such an event, Sellers shall represent and
warrant that such purchase of shares of common stock of Purchaser shall
be for the purpose of investment and not with a view to, or for offer or
sale in connection with any distribution thereof in violation of the
United States federal securities laws. The Sellers and ICTS shall enter
into a Registration Rights Agreement in the form attached hereto as
Exhibit C.
1.4.5. The Balance Shares shall be held in escrow, pursuant to a certain
Escrow Agreement substantially in the form attached hereto as Exhibit D,
to protect against any sale, pledge, lien orencumbrance. Sellers shall
retain all rights as to the voting of the Balance Shares and shall for
all corporate purposes be treated as owners thereof.
1.5. Preparation of 2001 or LFQ Financial Statements. The Company shall promptly
cause the preparation of audited financial statements of the Company for the
year ended December 31,2001 or the LFQ (collectively the "2001 Financial
Statement"). The 2001 Financial Statements shall
4
<PAGE>
be audited by the independent certified public accountants of the Company and
shall be accompanied by their certification with respect to the scope or results
of their audit or otherwise, and the 2001 Financial Statements will be, prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with prior practice and in conformity with Regulation S-X promulgated
by the Securities and Exchange Commission (collectively herein referred to as
"GAAP") and shall present fairly the financial condition, assets, liabilities
and results of operations of the Company.
1.6. Expenses. Whether or not the transactions contemplated by this Agreement
shall be consummated, each party hereto shall pay its or his own expenses
(including, without limitation, attorneys' and accountants' fees and
disbursements) incident to this Agreement and the transactions contemplated
hereby. 1.7. Brokerage. The Sellers jointly and severally, on one hand, and the
Purchaser, on the other hand, represent and warrant to each other that no
broker, finder, agent or intermediary of any kind brought about the transactions
contemplated by this Agreement. However, if any broker fees are incurred each
part shall pay its own obligations thereunder.
ARTICLE II
CLOSING
2.1. Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place within ten (10) days after the
delivery of the Interim Financial Statements (as defined herein) at 10:00 A.M.
on such date, but no earlier than January 1, 1999 (the "Closing Date") or at
such other time on such other date as the Sellers and the Purchaser may mutually
agree upon in writing.
2.2. Place of Closing. The Closing shall take place at the offices of McLaughlin
& Stern LLP., 260 Madison Avenue, 18th Floor. New York, New York 10016, or at
such other place as the Sellers and the Purchaser may mutually agree upon in
writing.
2.3. Certain Transactions to be Effected at or Prior to Closing. Subject in each
case to the terms and conditions contained in this Agreement, the following
steps shall be taken concurrently at the Closing, except as otherwise expressly
stated:
2.3.1. The Sellers shall deliver, or cause to be delivered, to the
Purchaser:
2.3.1.(i). Certificates representing the Purchased Shares, duly
endorsed in blank, or accompanied by stock powers duly executed
in blank, with signatures guaranteed by a commercial bank, and
bearing all necessary stock transfer tax stamps affixed thereto
or accompanied by funds sufficient to purchase such tax stamps.
5
<PAGE>
2.3.1.(ii). Letters of resignation executed by such of the
current directors and officers of the Company as shall be
requested by the Purchaser, providing for their resignations from
their respective positions as directors and/or officers of the
Company, each of which shall provide that it will be effective on
the Closing Date.
2.3.1.(iii). All corporate minute and stock transfer books, bank
books, financial and bank records, bookkeeping and accounting
records, copies of all Federal, State and local Tax returns and
amendments thereto and all other books and records of Company,
certified by the Sellers to be true, correct and complete as of
the Closing Date. All such corporate books and documents shall be
made available to Purchaser within ten days of the execution of
the Agreement contemplated herein.
2.3.1.(iv). An opinion of The Stolar Partnership, counsel for the
Sellers, dated the Closing Date, in form and substance
satisfactory to counsel for the Purchaser, to the effect set
forth in the form of opinion annexed hereto as Exhibit 2.3.1(iv).
2.3.1.(v). A copy of the certificate of incorporation of Company,
certified by the Secretary of State of the State of Missouri as
of a date not more than ten (10) days prior o the Closing Date.
2.3.1.(vi). A copy of the By-laws of Company, certified by the
Sellers and by a duly authorized officer of the Company to be
true, correct and complete as of the Closing Date.
2.3.1.(vii). Certificates of good standing for Company issued as
of a date not more than ten (10) days prior to the Closing Date
by the Secretary of State of the State of Missouri and of each
State or other jurisdiction in which Company is qualified to do
business as a foreign corporation.
2.3.1.(viii). The compliance certificate required pursuant to Section 6.3.
hereof.
2.3.1.(ix). A certificate from each of the lenders to the
Company, certifying the outstanding balance of all obligations of
Company to such lender, including, without limitation, accrued
and unpaid interest, if any.
2.3.1.(x). Such other documents as shall reasonably be requested
by the Purchaser in order effectively to carry out the
transactions contemplated by this Agreement, duly executed by the
Sellers where appropriate.
2.3.2. The Purchaser shall deliver, or cause to be delivered, to the
Sellers the following:
2.3.2.(i). Wire transfer of the Purchase Price.
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<PAGE>
2.3.2.(ii). Corporate resolutions duly adopted by the Board of
Directors of the Purchaser, authorizing the execution, delivery
and performance of this Agreement, and all related certificates
executed and delivered in connection with the transactions
contemplated by this Agreement, duly certified by the Secretary
or an Assistant Secretary of the Purchaser, and an incumbency
certificate, certifying the names and true signatures of the
officers of the Purchaser authorized to execute and deliver this
Agreement.
2.3.2.(iii). Such other documents as shall reasonably be
requested by the Sellers in order to carry out the transactions
contemplated by this Agreement, duly executed by the Purchaser
where appropriate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
As an inducement to the Purchaser to enter into this Agreement, the
Sellers jointly and severally represent and warrant to the Purchaser and
acknowledge and confirm that the Purchaser is relying upon such representations
and warranties in connection with the execution and delivery of this Agreement
and the purchase by the Purchaser of the 80% of the Company Common Stock,
notwithstanding any investigation made by it or otherwise on its behalf, that:
3.1. Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Missouri
and is duly qualified as a foreign corporation to do business, and is in good
standing, in each State where the character of its properties owned or held
under lease or the nature of its activities makes such qualification necessary,
other than those jurisdictions where the failure to so qualify would not have a
materially adverse impact on the Company. A true, correct and complete schedule
of all such States appears on Exhibit 3.1. The Company has full power and
authority to own, lease and operate its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted. The
Sellers have full power and authority to enter into this Agreement, consummate
the transactions contemplated hereby and perform their obligations hereunder.
3.2. Capitalization. The entire authorized capital stock of the Company consists
of 30,000 shares of common stock, $1.00 par value per share, of which 100 shares
are issued and outstanding. The Company Common Stock has been duly authorized
and is validly issued, fully paid and non-assessable, with no liability
attaching to the ownership thereof. There are no authorized, outstanding or
existing (i) voting trusts or other agreements or understandings with respect to
the voting of Company Common Stock or securities convertible into or
exchangeable for Company's Common Stock; (ii) options, warrants or other rights
(including, without limitation, preemptive rights) to purchase or subscribe for
any of Company's Common Stock, any
7
<PAGE>
authorized but unissued shares of Company Common Stock or any securities
convertible into or exchangeable for Company's Common Stock; (iii) agreements of
any kind relating to the issuance of any of the Company's Common Stock, any such
convertible or exchangeable securities or any such options, warrants or rights;
or (iv) agreements of any kind which may obligate the Company to issue or
purchase any of its securities. None of the Company Common Stock has been issued
in violation of any preemptive or other rights of stockholders.
3.3. Corporate Documentation. The Sellers will deliver to the Purchaser, within
seven (7) days after the signing of this Agreement, copies of the Certificate of
Incorporation and By-laws of the Company, including all amendments thereto, all
of which will be true, complete and correct as of the date of delivery. The
Sellers will cause the Company to make available for inspection by the Purchaser
or its counsel, within ten (10) days of the execution of this Agreement, the
corporate minute and stock books of the Company.
3.4. Title to Company Common Stock, Consents and Binding Effect. Except as set
forth in Exhibit 3.4, the Sellers are now, and will at the Closing be, the sole
record and beneficial owners of the Company Common Stock, free and clear of any
and all liens, mortgages, pledges, conditional sale agreements, security
interests, restrictions, claims, options, encumbrances or rights of third
parties of every kind and nature (individually, a "Lien" and, collectively,
"Liens"), and not subject to any options, proxies, contracts, calls or other
commitment. The Sellers now have the right to enter into this Agreement, and
will at the Closing have the full right, power and authority to sell, transfer,
assign and deliver to the Purchaser the Company Common Stock, and the sale,
transfer, assignment and delivery of the Company Common Stock under this
Agreement, will transfer to the Purchaser full and legal title to the Company
Common Stock free and clear of all Liens. This Agreement is a legal, valid and
binding agreement of the Sellers, enforceable against the Sellers in accordance
with its terms. Neither the execution and delivery of this Agreement, nor the
sale, transfer, assignment and delivery of the Company Common Stock under this
Agreement nor the performance of any other obligation of the Sellers under this
Agreement, will conflict with, result in the breach of, constitute a default
under or result in the creation of any Lien upon the Company Common Stock or
upon the Company or any of its assets under the terms of the Certificate of
Incorporation or By-laws of Company, any Material Contract (as hereinafter
defined), any restriction or other instrument or agreement to which the Sellers
or the Company is a party or by which the Sellers or the Company or any of its
assets may be bound or affected, or any statute, ordinance, judgment, order,
decree, regulation or rule of any court or governmental body affecting or
relating to the Sellers, the Company or any of its assets or its business.
Except as set forth in Exhibit 3.4, no consent of, waiver from or notice to any
other party is required in order to maintain in full force and effect for the
benefit of the Purchaser all Material Contracts and the approvals,
authorizations, consents, licenses, orders, permits, Intangible Rights (as
hereinafter defined) and other rights of the Company existing and in effect
immediately prior to the Closing.
3.5. Subsidiaries. Except as set forth in Exhibit 3.5, the Company has no
subsidiaries and the Company does not directly or indirectly own, of record or
beneficially, any direct or indirect
8
<PAGE>
equity or other interest or any right (contingent or otherwise) in any
corporation, partnership, joint venture or other business association or entity.
3.6. Minute Books and Stock Transfer Books. The minute books of the Company are
true, correct, complete and current in all respects and contain records of all
actions taken by its stockholders, Board of Directors and all committees of the
Board of Directors, and all signatures contained therein are the true signatures
of the persons whose signatures they purport to be. The stock transfer books of
the Company are true, correct, complete and current in all respects. Exhibit 3.6
sets forth a true, correct and complete list of the names and titles of all
officers and directors of the Company.
3.7. No Distribution on Capital Stock. Since December 31, 1997, the Company has
not purchased or redeemed, or paid or set aside for payment any dividends or
other distributions in respect of, any shares of its common stock, any
securities convertible into or exchangeable for shares of its common stock or
any options, warrants or other rights to purchase or subscribe to any thereof.
3.8. Financial Statements. The Company has maintained its books of account in
accordance with GAAP consistently applied and in the ordinary manner on a
consistent basis and such books and records are correct and complete in all
respects and fairly and accurately reflect the income, expenses, assets and
liabilities of Company.
3.8.1. The Sellers shall deliver to Purchaser the audited financial
statements of HLUSA for the year ended December 31, 1997 and HC for the
year ended September 30, 1997 (the "1997 Financial Statements")
simultaneously with the audited financial statements for the period
ended September 30, 1998 of HLUSA and HC ("the Interim Financial
Statements"). The 1997 Financial Statements, the Interim Financial
Statements and the 2001 Financial Statements to be furnished by Company
pursuant to Section 1 will be prepared in accordance with GAAP applied
on a consistent basis, will be correct and complete in all material
respects and will present fairly the financial position of Company as of
the dates of such statements and the results of operations and changes
in financial position for the periods covered by such statements. Such
financial statements will not reflect any unusual, nonrecurring or
special items, except to the extent specifically identified as such in
the 1997 Financial Statements and reflect fairly all of the obligations
of the Company. The Company has no liabilities, direct or indirect,
accrued, absolute, contingent or otherwise, other than those set forth
or reserved against in the 1997 Financial Statements, or incurred since
the date of the 1997 Financial Statements in the ordinary course of
business and set forth in Exhibit 3.8. The allowances and accruals
(including, without limitation, allowances for product and service
warranties and for uncollectible accounts receivable), if any, reflected
in the 1997 Financial Statements, the Interim Financial Statements and
the 2001 Financial Statements will be adequate, appropriate and
reasonable. The 2001 Financial Statements will not reflect any changes
in the financial condition, results of operations, business, prospects,
assets, or liabilities of the Company from those reflected on the 1997
Financial Statements, except for any such changes in the ordinary
course, none of which, individually or in the aggregate, shall be
materially
9
<PAGE>
adverse. The Purchaser's accountant shall have the opportunity to review and
have access to the auditors workpapers.
3.8.2. As promptly as practicable, but in any event within 90 days
following the Closing Date, the Purchaser and Seller shall cause to be
prepared an audited balance sheet (including the related notes) of the
Company, on a consolidated basis, as of the Closing Date (the "Closing
Balance Sheets"), together with a report thereon from an independent
certified public accountant, stating that the December 31, 1998 Closing
Balance Sheet fairly represents the financial position of the Company at
the Closing Date in conformity with GAAP, applied in a basis consistent
with the past practice of the Company and reflecting a current and/or
deferred tax liability for the breaking of the S Corporation election.
The Closing Balance Sheets to be furnished by the Company pursuant to
this section will be prepared in accordance with GAAP, will be correct
and complete in all respects and will present fairly the financial
position of Company as of the date of such statement. Such financial
statement does not and will not reflect any unusual, nonrecurring or
special items, except to the extent specifically identified as such in
the Closing Balance Sheets and reflect fairly all of the obligations of
the Company. The Company will have no liabilities, direct or indirect,
accrued, absolute, contingent or otherwise, other than those set forth
or reserved against in the Closing Balance Sheets. The allowances and
accruals (including, without limitation, allowances for product and
service warranties and for uncollectible accounts receivable), if any,
reflected in the Closing Balance Sheets will be adequate, appropriate
and reasonable. The Purchaser's accountant shall have the opportunity to
review and have access to the auditor's workpapers.
3.9. Undisclosed Liabilities; Absence of Certain Changes. The Company does not
now have, and as of the Closing Date it will not have, indebtedness, liabilities
or obligations of any nature, whether absolute, accrued, contingent or
otherwise, including, but not limited to, liability for Taxes (as hereinafter
defined), whether due or to become due, in respect of or measured by its income
or gross receipts for any period prior to the Closing Date, as the case may be,
or arising out of any transactions entered into, or any state of facts existing,
prior to the Closing Date and also including employee requisites such as
accumulated vacation time, health and medical benefits, promised bonus money,
sales commissions, or other compensation benefits, other than, indebtedness,
liabilities or obligations that are reflected in the 1997 Financial Statements
and in the actual amounts as so reflected (except for changes in the ordinary
course). All of the outstanding obligations so reflected or set forth will
remain payable in accordance with their respective original maturities and will
not be accelerated, except as set forth in Exhibit 3.9, all such accelerated
obligations will be satisfied in full at the Closing, and none of the terms of
such obligations will be adversely affected in any manner as a result of the
transactions contemplated by this Agreement.
Since December 31, 1997, except as set forth in Exhibit 3.9, there has
been no:
3.9.1. Adverse change in the assets, properties, liabilities, condition,
financial or otherwise, or prospects of the Company;
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3.9.2. Event, either occurring or threatened, which is likely to
adversely to affect the assets, business or the financial
condition or prospects of the Company;
3.9.3. Substantial expenditure or commitment by the Company for
the acquisition of assets of any kind other than non--capital
assets in the ordinary course of business;
3.9.4. Sale or other disposition of any asset owned or used by
the Company (whether or not capitalized or expensed for tax or
financial statement purposes), except in the ordinary course of
business;
3.9.5. Damage, destruction or loss adversely affecting the property or business
of the Company;
3.9.6. Addition of any new officer or management employee of the
Company, across-the-board increase in the rate or rates of salary
or compensation of the employees or agents employed by the
Company or any specific increase in the salary or compensation of
any employee or agent employed by the Company, or any grant or
award of any bonus or other incentive compensation.
3.9.7. Cancellation or notice of cancellation or surrender of, or
any material change or change in coverage under, any policy of
insurance (which has not been cured by payment of premium,
procurement of an equivalent policy or otherwise) of the Company;
3.9.8. Dividend declared, paid or set aside for payment, or other
distribution in respect of the Company's common stock, or any
disposition of the Company's common stock, or of any option,
warrant or right to acquire any of the Company's common stock, or
any acquisition or retirement for consideration of any of the
Company's common stock or any declaration with respect thereto;
3.9.9. Contract or commitment, except in the ordinary course of business, and
except for this Agreement;
3.9.10. Acquisition, whether by merger or otherwise, by the
Company of any shares, assets or business of any person, firm or
corporation, or any commitment relating thereto;
3.9.11. Borrowing of any funds by the Company;
3.9.12. Loan or advance made by the Company to any party;
3.9.13. Guarantee by the Company of any liability of another person, firm,
corporation or other entity;
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3.9.14. Lien on or with respect to any of the assets of the Company;
3.9.15. Waiver of any right of material value or cancellation of
any indebtedness due to the Company which may have an adverse
effect on the business of the Company;
3.9.16. Any write--down of the value of any inventory or
write--off as uncollectible of any notes, trade accounts or other
receivables belonging to the Company; or
3.9.17. Any other transaction entered into by the Company not in
the ordinary course of business.
3.10. Title to, and Condition of, Assets. The Company has good (of record and in
fact) and marketable title to the assets so owned by it, free and clear of all
Lien, except as set forth in
Exhibit 3.10. To the best knowledge of Seller following diligent inquiry, all of
such assets, and all assets leased by the Company, are in good operating
condition and repair, subject to ordinary wear and tear, are suitable for the
purposes for which they are presently being used, and constitute all the assets
necessary to operate the business of the Company as presently conducted and
proposed to be conducted. The business of the Company is not adversely affected
by any restrictions imposed by any zoning, anti--pollution, including, without
limitation, noise pollution, health or other laws, ordinances or regulations.
There is no proceeding or governmental action, including, without limitation,
any condemnation proceeding, pending or threatened, applicable to any of the
assets of the Company. Exhibit 3.10. sets forth a true, correct and complete
list and summary description of all real property, interests in real property
and tangible personal property (including, but not limited to, vessels,
machinery, equipment, office equipment, vehicles, inventory and supplies) owned
or leased by the Company, indicating whether such property is owned or leased by
the Company or otherwise used in connection with the business of the Company,
and, in the case of leased property, the commencement date, expiration date and
annual rental of the lease.
3.11. Leases. The principal leases, if any, for all assets, real and personal,
leased by the Company are valid and in full force and effect and the Company is
up to date in its lease payments and is otherwise in compliance with all of its
obligations thereunder and to Sellers best knowledge following diligent inquiry,
no default or event of default, or event which, with the giving of notice or
passage of time or both, would constitute a default or event of default, by any
party under any of such leases has occurred and is continuing. None of such
leases is terminable as a result of the transactions contemplated by this
Agreement. Within ten (10) days following the signing of this Agreement, the
Sellers shall furnish to the Purchaser true, correct and complete copies of all
such leases, certified by the Sellers and a duly authorized officer of the
Company to be true, correct and complete as of the date thereof. Exhibit 3.10
contains a schedule of all such leases, identifying the property leased, the
starting date and term of each lease, the payment periods and amounts payable
thereunder and any exceptions thereto.
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3.12. No Condemnation or Expropriation. To the best knowledge of the Sellers
following diligent inquiry, neither the whole nor any portion of the leaseholds
or any other assets of the Company is subject to any governmental decree or
order to be sold or is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor has any
such condemnation, expropriation or taking been proposed.
3.13. Plant and Equipment. To the best knowledge of the Sellers following
diligent inquiry the plants, structures an equipment of the Company are
structurally sound with no defects and are in good operating condition and
repair and are adequate for the uses to which they are being put; and none of
such plants, structures or equipment are in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not material in
nature or cost. Except as set forth in Exhibit 3.13, the Company has not
received notification that it is in violation of any applicable building,
zoning, anti--pollution, health or other law, ordinance or regulation in respect
of its plants or structures or their operations and no such violation exists.
3.14. Inventory and Receivables. The Company owns its notes or loans receivable
and accounts receivable, free and clear of all Liens, except as set forth in
Exhibit 3.14. The accounts receivable of the Company arose from the sale of
services in the ordinary course of business and are good and collectible and are
reflected in the Interim Financial Statements set forth in Section 3.8.1 and are
not subject to any counter--claim or set--off or discount, and all of such
accounts receivable, after giving effect to the Company Reserves, will be
collectible in the ordinary course of business and each of the Company Reserves
will have been established in accordance with GAAP applied on a consistent
basis. The Company does not have any material amount of inventory.
3.15. Insurance. Exhibit 3.15 contains a true, correct and complete list of all
policies of fire and casualty, property, marine, product and other liability,
worker's compensation and other forms of insurance maintained by the Company,
including, without limitation, insurance on the life of any director or officer
of the Company. Such policies are sufficient for compliance with all
requirements of law and agreements by which the Company is bound and to which
its assets are subject, and provide adequate insurance coverage for the
properties and operations of the Company in such amounts and against such risks
and losses as are reasonable for the business and properties of the Company.
Within ten (10) days after the signing of this Agreement, the Company shall
deliver to the Purchaser copies of all such policies of insurance, including
insurance providing benefits for employees, in effect on the date hereof,
certified by a duly authorized officer of the Company to be true, correct and
complete as of the date thereof. Except for amounts deductible under policies of
insurance and described in Exhibit 3.15, the Company is not subject to liability
as a self--insurer of its business and properties. Except as set forth in
Exhibit 3.15, there are no claims pending or threatened under any of such
policies and there are no disputes between the Company and any of the
underwriters of said policies. All premiums due and payable under such policies
have been paid, subject to no readjustment of any nature whatsoever, except as
set forth in Exhibit 3.15, and all such policies are in full force and effect in
accordance with their respective terms. All such insurance coverage maintained
by the Company in connection with its business and properties prior to the
Closing Date will be continued in effect through the Closing Date. All premiums
paid for all such insurance coverage are at ordinary rates.
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3.16. Litigation and Compliance. To the best knowledge of the Sellers following
diligent inquiry, except as set forth in Exhibit 3.16, there are no actions,
suits, claims, inquiries, arbitration, proceedings and governmental or
administrative investigations pending or threatened against any of the Sellers
or against the Company or its assets which are not fully covered by existing
insurance policies of the Company. To the best knowledge of the Sellers, the
Company has complied with and is not in default or violation of, in any respect,
any law, ordinance, requirement, regulation, policy, guideline, decree or order,
including, without limitation, Title VII of the Civil Rights Act of 1964, the
Occupational Safety and Health Act of 1970 (or any state or local equivalent)
the Merchant Marine Act and Federal, State and local environmental protection,
zoning and land use laws, rules or regulations applicable to the Sellers, the
Company, the Company Common Stock or any of the assets or the business of the
Company. The Sellers and the Company have not received, since January 1, 1998,
any notice of any claimed default or violation with respect to any such law,
ordinance, requirement, regulation, policy, guideline, decree or order, and any
exceptions thereto shall be set forth in Exhibit 3.16. The Sellers and the
Company are not subject to any judgment, order or decree entered in any lawsuit
or proceeding which has or may have a material adverse effect upon any of the
Sellers, the Company Common Stock or the Company or its condition (financial or
otherwise). The Sellers and the Company have duly filed all reports and returns
required to be filed by them with governmental authorities.
Exhibit 3.16 contains a list of the government permits and licenses, and other
governmental consents, including, without limitation, food, health, permits and
registrations which the Company has obtained in connection with its operations,
and no others are required. All such permits, licenses, registrations and
consents are in full force and effect and in good standing, the continued
validity thereof will not be adversely affected by this Agreement or the
consummation of the transactions contemplated hereby, except as set forth in
Exhibit 3.16. and the Company has not received any notice of any claim of
revocation and has no knowledge of any event which might give rise to such a
claim.
3.17. Tax Matters. The Company has paid, all Federal, State, municipal and local
income, profits, gross receipts, franchise, sales, use, occupancy, property,
excise, withholding, unemployment, FICA, worker's compensation, social security
and other taxes, fees and assessments, including interest and penalties or other
payments, whether similar or dissimilar to the foregoing (herein referred to as
"Taxes") required to be paid by the Company for each and every tax period of the
Company, including, without limitation, the tax period ending on, and as of, the
Closing Date (and, if the period from the end of the last tax period ended prior
to the Closing Date and the Closing Date is not a full tax period of Company,
the 1998 Financial Statements will provide for the accrual of all estimated tax
obligations of the Company to, and including, the Closing Date) and the Company
is not in default in payment of any Taxes, and has duly filed all Tax reports
and returns required in connection therewith to be filed by it. The Company has
not received any notice of any Tax deficiency outstanding, proposed or assessed
nor has the Company executed any waiver of any statute of limitations on the
assessment or collection of any Taxes. There are no Tax liens upon, pending
against or threatened against Company or any of its properties. All Tax
deficiencies, if any, asserted as a result of examinations by the Internal
Revenue Service, the State of Missouri or any other State or local taxing
authority have been paid or finally settled and no issue has been raised in any
such examination which, by application of
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similar principles, reasonably could be expected to result in a proposed
deficiency for the current period or any other past or future period. Exhibit
3.17 contains a schedule of the filing dates of all tax returns and reports of
the Company. There are no pending examinations or audits by the Internal Revenue
Service or any State or local taxing authority of any Tax returns or filings by
the Company. Within ten (10) days following the signing of this Agreement, the
Sellers shall deliver to the Purchaser copies of all Federal, State and local
income tax returns and amendments filed by the Company since January 1, 1997,
certified by the Chief Financial Officer of the Company to be true, correct and
complete as of the date hereof.
3.18. Customers and Suppliers. Exhibit 3.18 sets forth a true, correct and
complete list of the ten largest customers and suppliers of the Company in terms
of billings and purchases during the period from January 1, 1998 to September
30, 1998. The Sellers are unaware of any loss or threatened loss of any key
customer, supplier, or account of the Company. There is no customer or supplier,
except as set forth in Exhibit 3.18, that accounts for more than five (5%)
percent of the purchases or sales, as the case may be, of the Company. To the
best knowledge of the Sellers following diligent inquiry, all contracts and
relationships of customers and suppliers are in good standing except as set
forth in Exhibit 3.18.
3.19. Intellectual Property. The Company owns or possesses the right to use the
patents, service names, trade secrets, trademarks, service marks, trade names,
brands, copyrights, licenses and other proprietary intellectual property rights
and applications therefor (collectively "Intellectual Property") listed in
Exhibit 3.19 and the Intellectual Property so listed are all that are required
for the business of Company. There are no assignments, licenses or sublicenses
with respect to the Intellectual Property, other than those listed on Exhibit
3.19 and identified as such. There are no pending or, to the best knowledge of
the Sellers following diligent inquiry, threatened claims by any person to the
use of the Intellectual Property, and, to the best knowledge of the Sellers
following diligent inquiry, the Intellectual Property do not infringe on the
rights of any person and no valid basis exists for any such claim.
3.20. Fringe Benefits, Compensation and ERISA. Exhibit 3.20 sets forth a list of
the salaried employees of the Company with annual salaries in excess of $50,000
and the annual salary and all other benefits which each of such employees
currently receives. Except as set forth in Exhibit 3.20., there are no awards
under any bonus or other incentive compensation plan which have not been paid in
full. Any bonus or incentive compensation plan is terminable at any time,
without any cost, liability or obligation to the Company or any officer,
director or employee of the Company, in the discretion of the Board of Directors
of the Company. The Company has no pension plans, deferred compensation plans,
other "employee benefit plans" (including, any "multi--employer plans") and
employee agreements relating to the employees of the Company or to which the
Company is a party, except as set forth in Exhibit 3.20. For the purposes of
this Section 3.20, the terms "employee benefit plans" and "multi--employer
plans" shall have the meanings assigned to them in the Employee Retirement
Income Security Act of 1974, as amended from time to time ("ERISA"). The Company
does not maintain or contribute to any "employee welfare benefit plans", as such
term is defined in Section 3(1) of ERISA nor does the Company maintain any
nonqualified retirement and deferred compensation arrangements with any of its
employees, except as set forth in Exhibit 3.20.
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3.21. Material Contracts. Within seven (7) days following the signing of this
Agreement, the Sellers will furnish the Purchaser (or make available at Sellers
office) copies of all Material Contracts listed in Exhibit 3.21, certified by
the Sellers to be true, correct and complete as of the date thereof, and the
Company is not a party to any presently existing Material Contract not so
listed. For the purpose of this Agreement, a Material Contract means any
contract, agreement, undertaking or commitment with or to any person or entity
whatsoever other than a contract which may be terminated on not more than thirty
(30) days notice and without liability to the Company of more than $5,000,
including, without limitation, any arrangement for personal services to be
rendered to the Company or for the purchase, sale or lease of real or personal
property; or any mortgage, security agreement, conditional sales agreement,
instrument of indebtedness, guarantee, franchise, license, permit, order,
consent, power of attorney, agency or collective bargaining agreement. All of
the Material Contracts are valid and in full force and effect and all the
Material Contracts will continue to be valid and in full force and effect upon
completion of the transactions contemplated by this Agreement without any
modifications. There are no existing or, to the best knowledge of the Sellers
following diligent inquiry, claimed defaults by any part thereunder and no
event, act or omission has occurred which (with or without notice, lapse of time
or the happening or occurrence of any other event) would result in a default
under any Material Contract. The Company has performed in all respects all the
obligations required to be performed by it under the Material Contracts. To the
best knowledge of the Sellers, following diligent inquiry, none of the Material
Contracts is in excess of the normal, ordinary and usual requirements of the
Company's business or at any excessive term or price, and none of the Material
Contracts can reasonably be expected to result in any loss to the Company.
3.22. Labor Matters. The Company is in compliance with all Federal, State and
local laws affecting employment and employment practices, including terms and
conditions of employment, wages and hours, and is not engaged in any unfair
labor practice. There are no complaints against the Company pending or, to the
best knowledge of the Sellers following diligent inquiry, threatened with
respect to employees of the Company before the National Labor Relations Board.
There are no labor strikes, slowdowns or stoppages pending or, to the best
knowledge of the Sellers following diligent inquiry, threatened with respect to
employees of the Company or with respect to employees of any key supplier of the
Company, except as set forth in Exhibit 3.22. No representation questions with
respect to the employees of the Company exist. Except as set forth in Exhibit
3.22, there are no grievances asserted which might have an adverse effect upon
the Company, its business or its assets, nor are there pending any arbitration
proceedings arising out of or under any collective bargaining agreements. Except
as set forth in Exhibit 3.22, the Company has not experienced any labor strikes,
slowdowns or work stoppages since January 1, 1997. Exhibit 3.22 sets forth a
true, correct and complete list of all collective bargaining agreements relating
to any employees of the Company and, within ten (10) days following the signing
of this Agreement, the Sellers shall furnish to the purchaser copies of all such
agreements, certified by the Sellers and a duly authorized officer of the
Company to be true, correct and complete as of the date thereof. Exhibit 3.22
contains a true, correct and complete list of all pending and, to the best
knowledge of the Sellers following diligent inquiry, threatened worker's
compensation claims against the Company, and all of such claims are adequately
covered by insurance subject to applicable deductibles.
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3.23. Contracts with Affiliates. Except as set forth in Exhibit 3.23, none of
the Material Contracts or any other transaction to which the Company has been a
party during the past three (3) years (i) involves as a party any of the Sellers
or an officer, director, employee or shareholder or any relative, beneficiary,
spouse or Affiliate of the Company. For purposes of this Agreement, an
"Affiliate," with respect to any specified person, shall mean any other person
that directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such specified person of the
Company; or (ii) requires or required or is or was contingent upon the payment
by or on behalf of the Company of commissions or compensation to any person not
a party to such agreement, document or instrument. Exhibit 3.23 includes a
complete and accurate list of all payments, other than salaries, made since
January 1, 1998 or proposed or required to be made, by the Company to its
Affiliates.
3.24. Bank Accounts. Exhibit 3.24 sets forth a true, correct and complete list
of the names and locations of all banks in which the Company has an account or
safe deposit box, the names of all persons authorized to draw on each such
account and having access to each such box and the amounts or value of such
accounts or the contents of such boxes as of October 30, 1998.
3.25. Certain Payments. The Company has not made any illegal contribution to a
candidate for public office, political party, committee, governmental employee
or an employee of a customer or supplier. All business transactions of the
Company are properly recorded in the books and records of the Company used for
accounting and tax purposes.
3.26. Required Approvals. Except as set forth in Exhibit 3.26, no consent of,
waiver from, or notice to any party is required in order to execute, deliver or
perform this Agreement or to consummate the transactions contemplated hereby or
thereby.
3.27. Adverse Developments. Neither the Sellers nor the Company are aware of any
matter or event, occurring or threatened, which threatens to disrupt, prevent or
materially impair the conduct of the business of the Company.
3.28. Product Liability. Except as set forth in Exhibit 3.28, there is, and has
been, no action, suit, inquiry, proceeding or investigation by or before any
court or governmental or other regulatory or administrative agency or commission
pending or, to the best knowledge of the Sellers following diligent inquiry,
threatened against or involving the Company since, January 1, 1998, relating to
any product sold by the Company and alleged to have been defective, nor do the
Sellers have any knowledge of any facts constituting a valid basis for any such
action, proceeding or investigation.
3.29. Accuracy of Information. All representations, warranties and
certifications contained in this Agreement or in any document, exhibit, schedule
or certificate furnished or to be furnished pursuant hereto or in connection
herewith and all other information with respect to the Sellers and the Company
and its assets, liabilities, operations, financial condition, business or
prospects that have been or shall be supplied to the Purchaser by the Sellers or
the Company or on their or its behalf, are true, correct and complete in all
material respects and do not contain any statement which is false or misleading
with respect to a material fact, and do not omit to state a material fact
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necessary in order to make the statements herein and therein not false or
misleading. The Sellers have disclosed to the Purchaser all facts material to
the assets, liabilities, operations, financial condition, business and prospects
of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Sellers that:
4.1. Due Organization and Authority. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the New York,
and has full corporate power and authority to own its property, enter into this
Agreement, consummate the transactions contemplated hereby and perform its
obligations hereunder.
4.2. Agreement Authorized; Binding and Enforceable. The execution, delivery and
performance of this Agreement and the other documents and instruments to be
executed by the Purchaser in connection with the transactions contemplated by
this agreement (together, the "Other Documents") by the Purchaser, and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly authorized by all required corporate action on the part of the Purchaser.
This Agreement and the Other Documents are valid, legal and binding obligations
of the Purchaser, enforceable against the Purchaser in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights and by equitable principles of general application which may
limit the availability of certain equitable remedies (such as specific
performance).
4.3. No Conflict. The execution, delivery and performance of this Agreement do
not conflict with, or constitute a breach of, or a default under, the
Certificate of Incorporation or By--Laws of the Purchaser or any contract,
indenture, instrument, order, judgment, decree or regulation by which it is
bound or by which its assets may be affected.
4.4. Accuracy of Information. All representations, warranties and certifications
contained in this Agreement or in any document, exhibit, schedule or certificate
furnished or to be furnished pursuant hereto or in connection herewith and all
other information with respect to the Purchaser and its assets, liabilities and
financial condition that have been or shall be supplied to the Sellers by the
Purchaser, or on its behalf, are true, correct and complete and do not contain
any statement which is false or misleading with respect to a material fact, and
do not omit to state a material fact necessary to make the statements herein and
therein not false or misleading. The Purchaser has disclosed to the Sellers all
facts material to the assets, liabilities and financial condition of the
Purchaser.
4.5. Investment Purpose. The Purchaser is acquiring the Company Common Stock
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with any distribution thereof in violation of the United
States federal securities laws.
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4.6 Financial Information. Simultaneously herewith, the Purchaser will deliver
to the Sellers the audited financial statements for the year ended December 31,
1997 of ICTS (the "ICTS 1997 Financial Statements") and will deliver the
unaudited financial statements for the period ended September 30, 1998 of ICTS
("the ICTS Interim Financial Statements"). The ICTS 1997 Financial Statements
have been prepared and the ICTS Interim Financial Statements are to be furnished
by Purchaser pursuant to and in accordance with GAAP applied on a consistent
basis, are or will be correct and complete in all material respects and present
or will present fairly the financial position of Purchaser as of the dates of
such statements and the results of operations and changes in financial position
for the periods covered by such statements. Such financial statements do not and
will not reflect any unusual, nonrecurring or special items, except to the
extent specifically identified as such in the ICTS 1997 Financial Statements and
reflect fairly all of the obligations of the Purchaser. The Purchaser has no
liabilities, direct or indirect, accrued, absolute, contingent or otherwise,
other than those set forth or reserved against in the ICTS 1997 Financial
Statements, or incurred since the date of the ICTS 1997 Financial Statements in
the ordinary course of business and set forth in Exhibit 4.6. The allowances and
accruals (including, without limitation, allowances for product and service
warranties and for uncollectible accounts receivable), if any, reflected in the
ICTS 1997 Financial Statements and the ICTS Interim Financial Statements are
adequate, appropriate and reasonable.
4.7 Compliance with the Securities and Exchange Commission. All of Purchaser's
filings with the Securities and Exchange Commission comply in all material
respects with all applicable securities laws, and the rules and regulations of
the Securities and Exchange Commission thereunder, and do not 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.
ARTICLE V
PRE-CLOSING COVENANTS OF SELLERS
The Sellers hereby covenant and agree with the Purchaser that from and
after the signing of this Agreement to and including the Closing Date the
Sellers, and the Company have done or have refrained from doing, and shall, or
shall cause the Company to, do or refrain from doing, the following actions
(none of which shall be taken without the prior approval of Purchaser, which
approval will not be unreasonably withheld):
5.1. Full Access. The Purchaser and its authorized representatives shall have
full access during normal business hours to all properties, assets, books,
records, contracts and documents of the Company and the Sellers shall furnish or
cause to be furnished to the Purchaser and its authorized representatives all
information with respect to the assets, liabilities, business, customers,
suppliers and creditors of the Company that the Purchaser may reasonably
request. The Purchaser and its authorized representatives shall also be entitled
from time to time to consult and communicate with the independent accountants of
the Company as well as with lenders and lessors to, and suppliers and customers
of, the Company. The Sellers hereby agree, within ten (10) days following the
signing of this Agreement, to provide the Purchaser with a written authorization
to the
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independent accountants of the Company, authorizing such accountants to discuss
with the Purchaser's representatives all matters relating to the financial
condition of the Company.
5.2. Carry on in Ordinary Course.
5.2.1. The Company shall carry on its business diligently and
substantially in the same manner as heretofore conducted and shall not
institute any unusual or novel methods of manufacture, purchase, sale,
lease, management, accounting or operation.
5.2.2. Except in the ordinary course of business, the Company shall not
increase or decrease the rates of pay of its employees or increase or
decrease the fixed compensation payable or to become payable to any
officer, employee or agent, or change any contract or commitment or
increase or decrease the benefits or compensation of any such officers,
employees or agents; and the Company shall not pay or agree to pay any
bonus or commission to any officer, employee or agent, nor make any
awards under any incentive or compensation plan or program.
5.2.3. Except in the ordinary course of business, the Company shall not
sell or dispose of any capital assets having a book value in the
aggregate for all such capital assets in excess of $5,000.
5.2.4. Except in the ordinary course of business, the Company shall not
make any capital expenditures for any single item or for all items in
the aggregate having a cost in excess of $5,000 or enter into a lease of
capital or other equipment providing for rentals aggregating more than
$5,000 per annum for all such leases.
5.2.5. Except as is necessary, in the opinion of the Sellers and the
Purchaser, to maintain the business and assets of the Company, the
Company shall not enter into any contract or commitment or engage in any
transaction or create any indebtedness other than those incurred in the
usual and ordinary course of its business.
5.2.6. The Company will not declare or pay any dividend or make any
distribution, directly or indirectly, with respect to its capital stock.
The Company will not, directly or indirectly, redeem, purchase, sell or
otherwise acquire or dispose of its own stock or other securities or any
option or warrant to purchase its own stock or other securities.
5.2.7. The Company will not amend its Certificate of Incorporation or
By-laws, make any change in its authorized capital stock, make any stock
split or reclassification in respect of its outstanding shares of
capital stock, issue, sell, exchange, deliver or otherwise dispose of
any shares of its capital stock or other securities (including evidences
of indebtedness), including, without limitation, any securities
convertible into or exchangeable for, with or without consideration,
such capital stock, or issue, grant or make any options, warrants,
calls, rights, commitments or other agreements of any kind obligating it
to issue, transfer, sell or deliver any shares of its capital stock, any
evidences of indebtedness or any of its other securities.
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5.2.8. The Company will not make any distributions, loans, advances or
extensions of credit to any person or entity, including, without
limitation, any Affiliate, except for actions in the ordinary course of
business and for borrowings under the Company's existing line of credit
with La Salle National Bank.
5.2.9. The Company will not (a) except as set forth in Exhibit 5.2.9,
pay, discharge or satisfy any liability, Lien or obligation other than
in the ordinary course of business; (b) cause, permit or suffer any of
its assets to be subjected to any Lien; (c) except in the ordinary
course of business or as a result of normal year end adjustments, write
down the value of any inventory or write off as uncollectible any notes
or accounts receivable; (d) cancel or waive any claims or rights of
substantial value; (e) except in the ordinary course of business,
transfer, sell, lease, distribute or otherwise dispose of any of its
assets or properties; (f) transfer, license, dispose of or permit to
lapse any Intangible Right or any rights thereto, or disclose to any
person any technology, trade secret, know--how, design, formula or
process not theretofore a matter of public knowledge; (g) enter into any
Material Contract or similar transaction, or amend or terminate a
Material Contract, which may be detrimental to its business, operations
or assets; (h) except in the ordinary course of business, cancel or
compromise any debt or claim or settle or discharge any balance sheet
receivable for less than the stated amount; (i) cancel, reduce the
limits of, or reduce the coverage of, any insurance carried by it; (j)
terminate, discontinue, close or dispose of any facility or business
operation; (k) guarantee any obligation of a third party; (1) except in
the ordinary course of business, change an account or signatory thereto,
make any change in persons having access to any safe deposit box or open
or maintain any bank account or safe deposit box not listed on Exhibit
3.24 (and any such actions taken in the ordinary course of business
shall be set forth in an amended Exhibit 3.24.) (m) enter into or
negotiate any merger or consolidation with, or any sale of its assets
to, any entity, or agree to or make any material change in the character
of its business; or (n) incur any obligation to do any of the foregoing.
5.2.10. All tangible property of the Company will be used, maintained
and repaired in the usual and ordinary course and the Company will
maintain insurance upon all of its assets and properties and with
respect to the conduct of its business in amounts and covering such
risks substantially the same as that in effect on the date hereof.
5.2.11. The Company will preserve its business organization intact, keep
available to the Purchaser its employees, and preserve for the Purchaser
its present relationships with its suppliers and others with which it
has business relations.
5.2.12. The Company will not do any act, or omit to do any act, which
will cause a breach of any of its material commitments or obligations.
The Company will comply with all laws, rules and regulations applicable
to it and to the conduct of its business and will fully perform all of
its obligations under all Material Contracts.
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5.2.13. The Company will maintain its books, accounts and records in the
usual, regular and ordinary manner, on a basis consistent with prior
practices.
ARTICLE VI
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
All obligations of the Purchaser under this Agreement are subject to the
fulfillment of each of the following conditions, unless otherwise waived, prior
to or at the Closing:
6.1. Representations and Warranties. All of the representations, warranties and
certifications of the Sellers contained in this Agreement or in any document,
exhibit, schedule or certificate furnished pursuant hereto or in connection
herewith shall be true, correct and complete in all material respects on the
Closing Date as though all such representations, warranties and certifications
were made and given on and as of the Closing Date.
6.2. Performance by the Sellers. The Sellers shall have performed and complied
with all covenants, agreements and conditions required to be performed or
complied with by them pursuant to this Agreement prior to or at the Closing.
Within ten (10) days (but not before December 25, 1998) of Sellers' delivery to
Purchaser of the Interim Financial Statements, Purchaser will notify Sellers
whether or not all of the conditions precedent set forth in Article VI have
either been complied with or waived.
6.3. Compliance Certificate. The Purchaser shall have received a compliance
certificate, in form and substance reasonably satisfactory to the Purchaser and
duly executed by the Sellers with respect to the matters set forth in Sections
6.1. and 6.2.
6.4. No Restraint on Transactions. There shall be no effective injunction,
judgment, decree, restraining order or order of any nature issued against the
Sellers or the Purchaser by a court or government agency of competent
jurisdiction which shall direct that this Agreement or any of the transactions
contemplated by this Agreement not be consummated as herein provided.
6.5. Conduct of Business. The business of Company shall have been conducted
between January 1, 1998 and the Closing Date in the ordinary course.
6.6. Due Diligence Examination. The Purchaser and its representatives shall have
completed and shall be reasonably satisfied with the results of a due diligence
examination of the Company, including, without limitation, an examination of all
documents required to be furnished by or on behalf of the Sellers on or after
the date hereof and an examination of the contents of all Exhibits hereto.
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6.7. No Material Adverse Change. Since the date of the 1997 Financial
Statements, there shall not have been any material adverse change in the
financial condition, results of operations, business, prospects, assets or
liabilities of Company from that reflected in the 1997 Financial Statements.
6.8. Third Party Consents. The Purchaser shall have received consents, estoppels
and authorizations, in form and substance reasonably satisfactory to the
Purchaser, from all parties, including, without limitation, any existing lenders
and lessors to and other creditors of the Company and its Affiliates, whose
consent or authorization is required in order for the transactions contemplated
by this Agreement to be consummated.
6.9. Payment of Certain Amounts. All loans and advances to, or other
indebtedness of, any Affiliate as of the Closing Date shall have been paid in
full to the Company.
6.10. Employment Arrangements. The Company shall have entered into acceptable
employment arrangements with Bill Glassman and Sandy Glassman as Chief Executive
Officer and Director of Human Resources, respectively (collectively referred to
as the "Employment Agreement"). The Employment Agreement shall have a
termination date of June 30, 2002 and shall provide for annual compensation for
$130,000 for Bill Glassman and $87,000 for Sandy Glassman.
6.11. Expiration of Applicable Waiting Periods. The waiting period or periods
applicable to the purchase and sale of the Company Common Stock, if any, under
the Hart Scott Rodino Anti--Trust Improvement Act and any rules or orders of the
Federal Trade Commission shall have expired or been terminated.
6.12. Execution of Escrow Agreements. Immediately prior to the Closing, the
Sellers and Purchaser shall enter into two Escrow Agreements in substantially
the forms attached hereto as Exhibits B and C, and in accordance with their
terms thereof.
6.13. Legal Matters. All legal matters in connection with the transactions
contemplated by this Agreement shall have been completed to the reasonable
satisfaction of McLaughlin & Stern LLP, counsel to the Purchaser.
ARTICLE VII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
All obligations of the Sellers under this Agreement are subject to the
fulfillment of each of the following conditions, unless otherwise waived prior
to or at the Closing:
7.1. Representations and Warranties. All of the representations and warranties
of the Purchaser contained in this Agreement or in any document, exhibit,
schedule or certificate furnished
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pursuant hereto or in connection herewith shall be true, correct and complete in
all respects on the Closing Date, as though all such representations and
warranties were made and given on and as of the Closing Date.
7.2. Performance by the Purchaser. The Purchaser shall have performed and
complied with all covenants, agreements and conditions required to be performed
or complied with by the Purchaser pursuant to this Agreement prior to or at the
Closing.
7.3. Compliance Certificate. The Sellers shall have received a compliance
certificate, in form and substance reasonably satisfactory to the Sellers and
duly executed by a duly authorized officer of the Purchaser, with respect to the
matters set forth in Sections 7.1. and 7.2. hereof.
7.4. No Restraint on Transactions. There shall be no effective injunction,
judgment, decree, restraining order or order of any nature issued against the
Sellers or the Purchaser by a court or government agency of competent
jurisdiction which shall direct that this Agreement or any of the transactions
contemplated by this Agreement not be consummated as herein provided.
7.5. Conduct of Business. The Business of Purchaser shall have been conducted
between the date of the ICTS Financial Statements and the Closing Date in the
ordinary course.
7.6. Third Party Consents. The Sellers shall have received consents, estoppels
and authorizations, in form and substance reasonably satisfactory to the
Sellers, from all parties, including, without limitation, any existing lenders
and lessors to and other creditors of the Company and its Affiliates whose
consent, estoppel or authorization is required in order for the transactions
contemplated by this Agreement to be consummated or whose consent, estoppel or
authorization is deemed appropriate by the Sellers.
7.7. Expiration of Applicable Waiting Periods. The waiting period or periods
applicable to the purchase and sale of the Company Common Stock, if any, under
the Hart Scott Rodino Anti--Trust Improvement Act and any rules or orders of the
Federal Trade Commission shall have expired or been terminated.
7.8. Employment Arrangements. The Company shall have entered into acceptable
employment arrangements with Bill Glassman and Sandy Glassman as Chief Executive
Officer and Director of Human Resources, respectively (collectively referred to
as the "Employment Agreement"). The Employment Agreement shall have a
termination date of June 30, 2002 and shall provide for annual compensation for
$130,000 for Bill Glassman and $87,000 for Sandy Glassman.
7.9. Execution of Escrow Agreements. Immediately prior to the Closing, the
Sellers and Purchaser shall enter into two Escrow Agreements in substantially
the forms attached hereto as Exhibits B and C, and in accordance with their
terms thereof.
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7.10. Legal Matters. All legal matters in connection with the transactions
contemplated by this Agreement shall have been completed to the satisfaction of
The Stolar Partnership, counsel to the Sellers.
7.11. Bank Guarantees. The parties hereto shall use their best efforts to remove
all shareholder guarantees on bank loans with LaSalle Bank and with insurance
companies on surety bonds. To the extent such shareholder guarantees are
required they will be provided in relationship to the shareholders' ownership of
the Company.
ARTICLE VIII
POST-CLOSING COVENANTS OF SELLERS
8.1. Non-Disclosure. From and after the Closing, the Sellers shall not disclose
or furnish to any other person, firm or corporation, except to the extent
required by law or by order of any court or governmental agency or to the extent
such disclosure is reasonably necessary to conduct the business of the Company,
(a) any information relating to any process, technique or procedure used by the
Company; or (b) any information relating to the operations or financial status
of the Company, including, without limitation, all financial data and sources of
financing, which is not specifically a matter of public record; or (c) any
information of a confidential nature obtained as a result of any prior, present
or future relationship with the Company, which is not specifically a matter of
public record; or (d) any trade secrets of the Company; or (e) the name, address
or other information relating to any customer or supplier of the Company.
8.2. Non-Competition. Bill Glassman, one of the Sellers, agrees that for a
period of two (2) years following the termination of his employment with the
Company, pursuant to the terms and conditions of a certain employment agreement
between Mr. Glassman and the Company, dated as of the date hereof, he will not
in any manner, directly or indirectly, (a) be employed by, engaged in or
participate in the ownership, management, operation or control of, or act in any
advisory or other capacity for, any Competing Entity which conducts its business
within the Territory (as the terms Competing Entity and Territory are
hereinafter defined); provided, however, that notwithstanding the foregoing,
such Seller may make solely passive investments in any Competing Entity, the
common stock of which Competing Entity is "publicly held" and of which all of
the Sellers in the aggregate shall not own or control, directly or indirectly,
securities which constitute more than one (1%) percent of the voting rights or
equity ownership of such entity; or (b) solicit or divert any business or any
customer from the Company or assist any person, firm or corporation in doing so
or attempting to do so; or (c) cause or seek to cause any person, firm or
corporation to refrain from dealing or doing business with the Company or assist
any person, firm or corporation in doing so; or (d) solicit or divert any
employee from the Company or assist any person, firm or corporation in doing so.
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8.3. Breach of Provisions. In the event that Bill Glassman shall breach any of
the provisions of Section 8.1. or Section 8.2., or in the event that any such
breach is threatened by Mr. Glassman, in addition to and without limiting or
waiving any other remedies available to the Purchaser at law or in equity, the
Purchaser shall be entitled to immediate injunctive relief in any court,
domestic or foreign, having the capacity to grant such relief, to restrain any
such breach or threatened breach and to enforce the provisions of Section 8.1.
and Section 8.2. Mr. Glassman acknowledges and agrees that there is no adequate
remedy at law for any such breach or threatened breach and, in the event that
any proceeding is brought seeking injunctive relief, Mr. Glassman shall not use
as a defense thereto that there is an adequate remedy at law.
8.4. Definitions. For purposes of this Article VIII, (a) the term "Competing
Entity" shall mean any entity which presently or hereafter during the
restriction period referred to in Section 8.2, engages in any business activity
in which the Company is engaged in at the Closing; and (b) the term "Territory"
shall mean any geographic area in which the Company conducts business during the
restriction period referred to in Section 8.2.
8.5. Reasonable Restrictions. The parties acknowledge that the foregoing
restrictions, the duration and the territorial scope thereof as set forth in
this Article VIII, are, under all of the circumstances, reasonable and necessary
for the protection of the Company and its business. If any provision of this
Article VIII is determined to be too broad so as to be unenforceable, such
provision shall be deemed to have been modified to be only so broad as is
enforceable.
8.6. Selection of the Board of Directors. Subsequent to the Closing and to the
extent that the Employment Agreement is in effect, the Board of Directors of the
Company shall consist of four (4) members, three (3) of whom shall be designated
by the Purchaser and one (1) of whom shall be designated by the Sellers.
ARTICLE IX
POST-CLOSING COVENANTS OF PURCHASER
9.1. Management. Subsequent to the Closing, the Purchaser shall maintain the
existing management structure of the Company in place. All acquisitions and/or
any new business to be made a part of the Company, or mergers with or into the
Company, shall require 100% consent of the Board of Directors of the Company.
Exhibit 9.1 sets forth all inter-company charges between Purchaser and the
Company, which would affect EBIT. Any transactions involving Affiliates and/or
insiders shall require 100% approval of the Board of Directors of the Company.
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ARTICLE X
INDEMNIFICATION BY THE SELLERS
10.1. Indemnification. The Sellers jointly and severally agree to indemnify and
hold the Purchaser harmless from and against any and all loss, damage,
liability, cost and expense (including, without limitation, reasonable attorneys
fees and disbursements), directly or indirectly incurred or suffered by, or
asserted against, the Purchaser as a result of or arising out of or in
connection with any of the events (hereinafter referred to as "Indemnity
Events") described in Section 10.2. below; provided, however, that the Purchaser
shall be entitled to indemnification hereunder only to the extent the aggregate
of all losses, damages, liabilities, costs and expenses, directly or indirectly
incurred or suffered by, or asserted against, the Purchaser as a result of or
arising out of or in connection with any Indemnity Events exceeds $100,000;
except for claims of workers' compensation unless they exceed $250,000 in the
aggregate. The total claims shall not exceed the Purchase Price for the
Purchased Shares.
10.2. Indemnity Events. For the purposes of this Agreement, the term "Indemnity
Event" means any of the following:
10.2.1. Breach of Representation or Warranty. Any loss, damage,
liability, cost, expense or exposure resulting from any
misrepresentation, omission, breach of warranty, nonfulfillment, breach
or violation of any covenant, condition, obligation or agreement on the
part of any of the Sellers under this Agreement, or any certificate to
be furnished pursuant hereto or in connection herewith;
10.2.2. Liability Claims; Worker's Compensation Claims; Group Insurance
Claims. Any loss, damage, liability, cost, expense or exposure arising
out of or resulting from (a) personal injury or death or damage to
property or any related liability either to employees of the Company or
to third parties arising from events occurring or conditions existing
prior to the Closing, and (b) any worker's compensation claims or
proceedings, discrimination claims or proceedings, benefits (insurance
or otherwise) or severance or other liabilities or obligations arising
from events occurring or conditions existing prior to the Closing Date
to employees of the Company or to former employees of the Company, in
excess of the reserves reflected in the Interim Financial Statements.
10.3. Defense and Settlement of Claims. If any claim, demand, liability, suit,
action or proceeding on account of an Indemnity Event shall be asserted or
instituted against any of the Purchaser or the Company, the Purchaser shall
permit the Sellers to defend the same at the
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Sellers' expense and to effect settlement or compromise thereof, provided that
the Purchaser shall have the right to participate in such defense with counsel
of its own choosing at its expense and to approve in advance such settlement or
compromise, and provided further that if the Sellers fail to advise the
Purchaser as to what action (i.e., negotiate a settlement or defend) the Sellers
will take with respect to any such matter at least ten (10) days prior to the
date when any such action is required to be taken, then the Purchaser may take
whatever action it deems advisable at the expense of the Sellers.
ARTICLE XI
INDEMNIFICATION BY PURCHASER
11.1. Indemnification. The Purchaser agrees to indemnify and hold the Sellers
harmless from and against any and all loss, damage, liability, cost and expense
(including, without limitation, reasonable attorneys fees and disbursements),
directly or indirectly incurred or suffered by, or asserted against, the Sellers
as a result of any material misrepresentation, omission, breach of warranty,
nonfulfillment, breach or violation of any covenant, condition, obligation or
agreement on the part of the Purchaser under this Agreement, or any certificate
to be furnished pursuant hereto or in connection herewith; and all actions,
suits, proceedings, demands, assessments, judgments, costs and expenses incident
to the foregoing.
11.2. Defense and Settlement of Claims. If any claim, demand, liability, suit,
action or proceeding on account of any matter giving rise to a claim of
indemnity under Section 11.1 shall be asserted or instituted against the
Sellers, the Sellers shall permit the Purchaser to defend the same at the
Purchaser's expense and to effect settlement or compromise, thereof, provided
that prior to assuming any such defense or effecting any such settlement or
compromise, the Purchaser shall have provided security satisfactory to the
Sellers with respect to such claim, demand, liability, suit, action or
proceeding and that the Sellers shall have the right to participate in such
defense with counsel of their own choosing at their own expense and to approve
in advance such settlement or compromise, and provided further that if the
Purchaser fails to advise the Sellers as to what action (i.e., negotiate a
settlement or defense) the Purchaser will take with respect to any such matter
at least ten (10) days prior to the date when any such action is required to be
taken, then the Sellers may take whatever action they deem advisable at the
expense of the Purchaser.
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ARTICLE XII
TERMINATION AND WAIVER
12.1. Termination. This Agreement may be terminated at any time prior to the
Closing:
12.1.1. by the Purchaser or Seller if, between the date hereof and the
time scheduled for the Closing, an event or condition occurs that has
resulted in or that may be expected to result in a Material Adverse
Effect (as defined herein) or an inability to satisfy any condition to
Closing set forth in Articles II, III and V herein; or
12.1.2. by the Sellers or the Purchaser if the Closing shall not have
occurred by February 28, 1999; provided, however, that the right to
terminate this Agreement under this Article XII shall not be available
to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur on or prior to such date; or
12.1.3. by either the Purchaser or the Sellers in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or
12.1.4. by the mutual written consent of the parties hereto.
12.2. Definitions.
12.2.1. For purposes of this Article XII, a "Material Adverse Effect"
shall mean any circumstance, change in, or effect on the business of the
Company or the Purchaser that, individually or in the aggregate with any
other circumstances, changes in, or effects the business of the Company
or the Purchaser or: (a) is, or could be, materially adverse to the
business, operations, assets or Liabilities (as defined below), employee
relationships, customer or supplier relationships, prospects, results of
operations or the condition (financial or otherwise) of the Company or
the Purchaser or (b) could adversely affect the ability of Purchaser or
the Company to operate or conduct their business in the manner in which
it is currently operated or conducted.
12.2.2. For purposes of this Section 12.2., "Liabilities" means any and
all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or
undeterminable, including without limitation, those arising under any
law, action or governmental order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
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12.3. Effect of Termination. In the event of termination of this Agreement as
provided in Article XII, this Agreement shall forthwith become void and there
shall be no liability on the part of either party hereto except (a) as set forth
in Article XIII and (b) that nothing herein shall relieve either party from
liability for any breach of this Agreement.
12.4. Waiver. The Purchaser may (a) extend the time for the performance of any
of the obligations or other acts of the Sellers hereunder, (b) waive any
inaccuracies in the representations and warranties of the Sellers contained
herein or in any document delivered by the Sellers pursuant hereto or (c) waive
compliance with any of the agreements or conditions of the Sellers contained
herein. The Sellers may (a) extend the time for the performance of any of the
obligations or other acts of the Purchaser hereunder, waive any inaccuracies in
the representations and warranties of the Purchaser contained herein or in any
document delivered by the Purchaser pursuant hereto or (c) waive compliance with
any of the agreements or conditions of the Purchaser contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party to be bound thereby. Any waiver of any term or condition
shall not be construed as a waiver of any subsequent breach or a subsequent
waiver of the same term or condition. or a waiver of any other term or
condition, of this Agreement. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of any of such rights.
ARTICLE XIII
MISCELLANEOUS
13.1. Survival of Representations and Warranties. All covenants, agreements,
statements, certifications, indemnifications, representations and warranties
made by the Sellers or the Purchaser in this Agreement or in any document,
exhibit, schedule or certificate furnished pursuant hereto or in connection
herewith, shall survive the Closing, irrespective of any investigation made by
or on behalf of any party, (a) with respect to the representations and
warranties of the Sellers contained in Section 3.17, for a period of 31/2 years
and (b) in all other instances for a period of 18 months. Any claim made in
writing prior to the expiration of the applicable period and the rights of
indemnity with respect thereto shall survive such expiration until resolved or
judicially determined.
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13.2. Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been given when received, if delivered in person, or three (3) business
days following the mailing thereof, if mailed by certified first class mail,
postage prepaid, return receipt requested, as follows:
If to the Sellers, to:
Bill Glassman
c/o Huntleigh Corporation
10332 Old Olive Street Road
St. Louis, MO.63141
with a copy to:
Jeffrey H. Pass, Esq.
The Stolar Partnership
911 Washington Avenue
St. Louis, MO 63101
if to the Purchaser, to:
ICTS USA [1994], Inc.
1 Rockefeller Plaza
suite 2412
New York, New York 10020
Attention: Boaz Harel
with a copy to:
McLaughlin & Stern, LLP.
260 Madison Avenue
New York, New York 10016
Attention: David W. Sass, Esq.
or at such other address or addresses as any party may have advised in the
manner provided in this Section 12.2.
13.3. Complete Agreement. This Agreement, together with its exhibits and
schedules, sets forth the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, contracts, promises,
representations, warranties, statements, arrangements and understandings, if
any, among the parties hereto or their representatives. No waiver, modification
or amendment of any provision, term or condition hereof shall be valid unless in
writing and
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signed by the party to be charged therewith and any such waiver, modification or
amendment shall be valid only to the extent therein set forth.
13.4. Further Assurances. Each of the parties hereto shall, from time to time
after the Closing, upon the request of the other party hereto and at the expense
of such requesting party, duly execute, acknowledge and deliver or cause to be
duly executed, acknowledged and delivered, all such further instruments and
documents reasonably required to further effectuate the intents and purposes of
this Agreement.
13.5. Confidentiality. The parties hereto agree that they will maintain in
strict confidence all confidential information disclosed to one another, except
that, subsequent to the Closing, the Purchaser shall not be so obligated
hereunder with respect to any information with respect to the Company. Such
confidential information will be disseminated only to those officers, employees
and agents of the Purchaser and the Sellers whose duties justify a "need to
know" and then only for the purpose of evaluation of the assets, liabilities and
business of one another in furtherance of the transactions contemplated in this
Agreement. Notwithstanding the foregoing, the Purchaser may disclose any such
confidential information to its financial sources, but only on a confidential
basis. Any disclosures deemed required shall as a prerequisite require a
confidentiality agreement by the person to whom disclosure is intended. 13.6.
Public Announcements. The timing and text of announcements or statements
pertaining to the subject matter of this Agreement or the transactions
contemplated herein made either publicly or to the employees of the Company
shall be mutually agreed to by the parties hereto.
13.7. Arbitration. In the event the Purchaser and Sellers are unable to resolve
any of their differences with respect to the validity, construction, performance
and effect of this Agreement, within 10 business days after a notice of dispute
has been given, the dispute shall be submitted to binding arbitration with a
single arbitrator in Chicago, Illinois, pursuant to the Rules of and by the
American Arbitration Association. Each party shall bear its own costs, expenses
and fees, including, without limitation, attorney's fees, and experts' fees with
respect to any such arbitration. Judgment upon any resulting arbitration award
may be entered in any court of competent jurisdiction.
13.8. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
13.9. Separability. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
32
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provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13.10. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
13.11. Captions. The captions appearing in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope and intent of this Agreement or any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
(Sellers)
ICTS USA [1994], Inc.
(Purchaser) __________________
BILL GLASSMAN
By:________________________
Name: Boaz Harel _______________________
Title: President SANDY GLASSMAN
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