UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 14, 1999
Exigent International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 333-5733 59-3379927
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
-----------------------------------------------------
1225 Evans Road
Melbourne, Florida 32904-2314
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
407-952-7550
<PAGE>
This Current Report on Form 8-K/A is filed by Exigent International, Inc. (the
"Company") as an amendment to that certain Current Report on Form 8-K filed by
the Company on December 14, 1999.
Item 2. Acquisition or Disposition of Assets.
On December 14, 1999, the Company filed a Current Report on Form 8-K reporting
that it had consummated its acquisition of GEC North America Corporation. The
required financial statements and pro forma financial information relative to
the acquisition are filed herewith as set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
a. Financial Statements of Business Acquired
The following audited financial statements of GEC North America Corporation
("GEC") as of and for the year ended December 31, 1998 and the nine months ended
October 2, 1999 are provided herein:
(1) Independent Auditor's Report
(2) Balance Sheets as of December 31, 1998 and October 2, 1999
(3) Statements of Income for the year ended December 31, 1998 and the
nine months ended October 2, 1999
(4) Statements of Stockholders' Equity (Deficit) for the year ended
December 31, 1998 and the nine months ended October 2, 1999
(5) Statements of Cash Flows for the year ended December 31, 1998 and
the nine months ended October 2, 1999
(6) Notes to Financial Statements for the year ended December 31,
1998 and the nine months ended October 2, 1999
b. Pro Forma Financial Information
The following unaudited combined pro forma financial statements relative to
the acquisition for the year ended December 31, 1998 and as of and for the nine
months ended September 30, 1999 are provided herein:
(1) Balance Sheet as of September 30, 1999
(2) Statements of Income for the year ended December 31, 1998 and the
nine months ended September 30, 1999
(3) Notes to the unaudited combined pro forma financial statements
for the year ended December 31, 1998 and the nine months ended
September 30, 1999
The following unaudited combined pro forma financial statements give effect to
the acquisition by the Company of all of the outstanding stock of GEC, as if the
acquisition had occurred on January 1 of the period presented. The pro forma
adjustments are based upon estimates, currently available information and
certain assumptions that management deems appropriate. The unaudited combined
pro forma financial data presented herein are not necessarily indicative of the
results that the Company would have obtained had such events occurred at the
beginning of the period, as assumed, or of the future results of the Company.
c. Exhibits
2.1 Agreement for Purchase and Sale of Stock dated as of November 19,
1999 among GEC Acquisition Corporation, Exigent International,
Inc., GEC North America Corporation, Roger A. Gilmartin,
Jacqueline R. Gilmartin, Deborah M. Bowen and Mark W. Brydges.
23.1 Consent of McGladrey & Pullen, LLP
<PAGE>
Item 7(a) - Financial Statements of Business Acquired
Independent Auditor's Report
To the Board of Directors
GEC North America Corporation
Charlotte, North Carolina
We have audited the accompanying balance sheets of GEC North America Corporation
as of October 2, 1999 and December 31, 1998, and the related statements of
income, stockholders' equity (deficit) and cash flows for the nine month period
and year then ended, respectively. These financial statements are the
responsibility of the Company's 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GEC North America Corporation
as of October 2, 1999 and December 31, 1998, and the results of its operations
and its cash flows for the nine months and year then ended, respectively, in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Charlotte, North Carolina
December 7, 1999, except for Note 13,
as to which the date is December 9, 1999
<PAGE>
<TABLE>
<CAPTION>
GEC North America Corporation
Balance sheets
October 2, 1999 and December 31, 1998
ASSETS (Note 4) 1999 1998
- ---------------------------------------------------------------------------------------------------------
Current Assets
<S> <C> <C>
Cash $ 149,207 $ 113,592
Accounts receivable, net of allowance for doubtful accounts
of $75,000 in 1999 (Notes 2 and 9) 709,625 581,115
Work in process 205,354 182,676
Prepaid income taxes (Note 8) 4,579 -
Prepaid expenses - 5,572
------------------------------------
Total current assets 1,068,765 882,955
------------------------------------
Equipment
Computer equipment and software 18,233 17,035
Furniture and fixtures 27,895 19,025
Equipment acquired under capital leases (Note 5) 104,733 104,733
------------------------------------
150,861 140,793
Less accumulated depreciation, including amortization of assets
acquired under capital leases 1999 $87,304, 1998 $70,090 97,960 74,030
------------------------------------
52,901 66,763
Other Assets ------------------------------------
Deferred income taxes (Note 8) 9,000 -
Deposits 9,504 10,250
------------------------------------
18,504 10,250
------------------------------------
$ 1,140,170 $ 959,968
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Current Liabilities
Note payable, stockholder (Note 3) $ 40,640 $ -
Current maturities of capital lease obligations (Note 5) 15,036 22,110
Accounts payable 415,214 466,987
Accrued expenses (Note 7) 151,721 171,184
Income taxes payable (Note 8) - 59,750
Deferred income taxes (Note 8) 79,000 10,500
------------------------------------
Total current liabilities 701,611 730,531
Capital Lease Obligations, less current maturities (Note 5) 2,265 12,479
Deferred Income Taxes (Note 8) - 4,250
------------------------------------
Total liabilities 703,876 747,260
------------------------------------
Commitments (Notes 4, 5 and 6)
Stockholders' Equity (Notes 11 and 13)
Common stock, Class A voting, $.001 par value,
4,000,000 shares authorized;
3,005,000 shares issued and outstanding
1999, 3,000,000 shares issued and outstanding 1998 3,005 3,000
Common stock, Class B nonvoting, $.001 par value, 1,000,000
shares authorized; 3,750 shares issued and outstanding - 1999 4 -
Paid-in capital 15,741 7,000
Retained earnings 417,544 202,708
------------------------------------
436,294 212,708
------------------------------------
$ 1,140,170 $ 959,968
====================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEC North America Corporation
Statements Of Income
Nine Month Period Ended October 2, 1999 and Year Ended December 31, 1998
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consulting revenue (Note 9) $ 4,302,651 $ 4,801,393
---------------------------------------
Costs and expenses:
Direct costs 2,950,531 3,211,327
Selling, general and administrative expenses 1,049,850 1,245,365
---------------------------------------
4,000,381 4,456,692
---------------------------------------
Operating income 302,270 344,701
---------------------------------------
Other income (expense):
Interest income 3,447 14,683
Interest expense (7,898) (3,779)
Miscellaneous income (Note 7) 47,775 -
---------------------------------------
43,324 10,904
---------------------------------------
Income before income taxes 345,594 355,605
Provision for income taxes (Note 8) 130,758 132,533
---------------------------------------
Net income $ 214,836 $ 223,072
=======================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEC North America Corporation
Statements of Stockholders' Equity (DEFICIT)
Nine Month Period Ended October 2, 1999 and Year Ended December 31, 1998
Common Stock
------------------------ Retained
Common Class A Class B Paid-In Earnings
Stock Voting Nonvoting Capital (Deficit) Total
- ------------------------------------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 10,000 $ - $ - $ - $ ( 20,364) $( 10,364)
Net income - - - - 223,072 223,072
Conversion of 25,000 shares of common stock
into 3,000,000 shares of Class A
voting common stock (10,000) 3,000 - 7,000 - -
----------------------------------------- ---------------------------------
Balance, December 31, 1998 - 3,000 - 7,000 202,708 212,708
Net income - - - 214,836 214,836
Issuance of 5,000 shares of Class A voting
common stock for services - 5 - 4,995 - 5,000
Issuance of 3,750 shares of Class B nonvoting
common stock for services - - 4 3,746 - 3,750
----------------------------------------- ---------------------------------
Balance, October 2, 1999 $ - $ 3,005 $ 4 $ 15,741 $ 417,544 $ 436,294
========================================= =================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
GEC North America Corporation
Statements of Cash Flows
Nine Month Period Ended October 2, 1999 and Year Ended December 31, 1998
1999 1998
- ---------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income $214,836 $ 223,072
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,929 29,390
Provision for doubtful accounts 75,000 --
Compensation expense satisfied by issuance of
common stock 2,187 --
Compensation expense satisfied by discharge of
stockholder note receivable -- 54,315
Deferred income taxes 55,250 14,750
(Increase) decrease in:
Accounts receivable (203,510) 39,398
Work in process (22,678) (129,564)
Prepaid expenses 5,572 (5,572)
Prepaid income taxes and receivables (4,579) 1,602
Increase (decrease) in:
Accounts payable (51,773) 122,693
Accrued expenses (12,900) (303,544)
Income taxes payable (59,750) 59,750
----------------------
Net cash provided by operating activities 21,584 106,290
----------------------
Cash Flows From Investing Activities
Purchase of equipment (10,067) (33,365)
Change in deposits 746 ( 1,758)
----------------------
Net cash used in investing activities (9,321) ( 35,123)
----------------------
Cash Flows From Financing Activities
Payments on capital lease obligations (17,288) (26,907)
Proceeds from stockholder note payable 100,000
Payments on stockholder note payable (59,360) (17,000)
----------------------
Net cash provided by (used in) financing in activities 23,352 (43,907)
----------------------
Net increase in cash 35,615 27,260
Cash:
Beginning 113,592 86,332
----------------------
Ending $149,207 $ 113,592
======================
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
GEC North America Corporation
Statements of Cash Flows (Continued)
Nine Month Period Ended October 2, 1999 and Year Ended December 31, 1998
1999 1998
- ---------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
<S> <C> <C>
Interest 7,898 $ 34,574
Income taxes 141,982 70,031
Supplemental Schedule of Noncash Investing and
Financing Activities
Accrued compensation paid by issuance of common stock $ 6,563 $
Capital lease obligations incurred for purchase of equipment -- 30,571
Conversion of common stock -- 10,000
</TABLE>
See Notes to Financial Statements.
<PAGE>
Note 1. Summary of Significant Accounting Policies
Nature of business: GEC North America Corporation (the "Company") is an
information technology firm providing Oracle application consulting and
solutions, with headquarters in Charlotte, North Carolina. The Company provides
services to large and medium-sized clients located throughout the United States
in discrete and process manufacturing, distribution and general business
applications.
Ownership: Prior to May 31, 1998, the Company was a wholly-owned subsidiary of
The Gilmartin Corporation. The Companies entered into a Plan of Merger effective
as of May 31, 1998, under which The Gilmartin Corporation was merged into GEC
North America Corporation. All 25,000 shares of the issued and outstanding
common stock held by The Gilmartin Corporation were converted into 3,000,000
shares of the issued and outstanding Class A voting common stock of GEC North
America Corporation. In conjunction with the merger, GEC North America
Corporation authorized 1,000,000 shares of Class B nonvoting common stock.
A summary of the Company's significant accounting policies follows:
Revenue recognition: The Company recognizes revenue on contracts as time is
expended and costs are incurred in providing the services. All revenues relating
to services performed but unbilled is accrued as revenue and included on the
balance sheet as work in process.
Accounts receivable: An allowance for loss on accounts receivable is provided
based on a review of the accounts along with an analysis of historical losses
and recoveries. Receivables are written off when deemed to be uncollectible.
Equipment: Equipment is stated at cost. Depreciation is computed by accelerated
methods over the estimated useful lives of the assets. The amortization expense
on assets acquired under capital leases is included with depreciation expense on
owned assets.
Estimated useful lives are as follows:
Years
------------
Computer equipment and software 3 - 5
Furniture and fixtures 5 - 7
Equipment acquired under capital leases 3 - 5
Advertising: The Company follows the policy of charging the costs of advertising
to expense as incurred. Advertising expense for the nine month period ended
October 2, 1999 was $42,931 and for the year ended December 31, 1998 was
$26,598.
Use of estimates in preparation of financial statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Note 1. Summary of Significant Accounting Policies (Continued)
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fiscal year: The Company changed its fiscal year during 1999 to a
fifty-two/fifty-three week year. The accounting closing date ends on the
Saturday nearest to the calendar month end.
Note 2. Accounts Receivable and Factoring Agreement
The Company had an agreement with a factor which provided for the sale of trade
accounts receivable. These receivables were sold with recourse. The agreement
was terminated in June 1999.
Under the terms of the agreement, the Company paid a factoring commission which
averaged approximately 1.25% and interest charged at 2% above prime on all funds
advanced by the factor. There were no advances from the factor at December 31,
1998.
Note 3. Stockholder Note
The Company has an unsecured note payable to a stockholder. The note is due
January 2000 and bears interest at 9.75%. The note balance was paid in full
during October 1999.
Note 4. Line of Credit and Pledged Assets
In June 1999, the Company entered into a credit agreement with a bank which
provides for borrowings by the Company of up to $300,000 under a line of credit
that expires May 2, 2000. Advances under the line are allowed up to 50% of
eligible receivables and any borrowed amounts bear interest at prime plus 1%.
Prime at October 2, 1999 was 8.25%. The line is collateralized by substantially
all of the Company's assets and is fully guaranteed by the Company's
shareholders. There was no outstanding balance on the line of credit at October
2, 1999.
The line of credit agreement contains certain restrictive covenants which
require the Company to comply with various financial ratios and maintenance of
tangible net worth as of December 31, 1999.
Note 5. Capital Leases
The Company leases several pieces of office equipment under capital lease
agreements that expire at various times from June 2000 through June 2001.
At October 2, 1999, future minimum lease payments under the capital leases are
due in future years as follows:
Period ending October 2: Amount
- ---------------------- --------------------
2000 $ 15,927
2001 2,347
--------------------
Total minimum lease payments 18,274
Less amount representing interest 973
--------------------
Present value of minimum lease payments 17,301
Less current maturities 15,036
--------------------
Capital lease obligations, less current maturities $ 2,265
====================
Note 6. Operating Leases and Rent Expense
The Company leases office space, office equipment, and vehicles under operating
lease agreements with terms ranging from month-to-month to greater than one
year. The total commitments under these agreements are due in future years as
follows:
Period ending October 2: Amount
- ----------------------- --------------------
2000 $ 60,870
2001 23,505
2002 7,782
--------------------
$ 92,157
====================
Rent expense for the nine month period ended October 2, 1999 was $127,823. Rent
expense for the year ended December 31, 1998 was $132,762.
Note 7. Accrued Expenses
Accrued expenses consist of the following as of October 2, 1999 and December 31,
1998:
1999 1998
------------------------------
Accrued payroll $ 60,272 $ 71,793
Accrued bonuses 74,747 36,375
Accrued stock bonuses - 6,563
Accrued vacation compensation 16,503 8,479
Accrued payroll tax penalties - 47,775
Other accrued expenses 199 199
------------------------------
$ 151,721 $171,184
===============================
Included in accrued expenses at December 31, 1998 was $47,775 of penalties for
failure to remit payroll taxes from 1995 and 1996 in a timely manner. These
penalties were abated during 1999 and this amount has been recognized in other
income for the period ended October 2, 1999.
Note 8. Income Taxes
The components of the provision for income taxes as of October 2, 1999 and
December 31, 1998 are as follows:
Current tax expense: 1999 1998
-------------------------------
Federal $ 69,243 $ 93,044
State 6,265 24,739
------------------------------
75,508 117,783
------------------------------
Deferred tax expense:
Federal 45,500 12,000
State 9,750 2,750
------------------------------
55,250 14,750
------------------------------
$130,758 $132,533
===============================
Income tax expense differs from the amounts computed by applying the statutory
federal income tax rate to income before taxes as a result of the following:
1999 1998
-------------------------------
Computed "expected" tax expense $117,502 $120,906
Increase (decrease) in income taxes
resulting from:
State income tax, net of federal income 16,335 22,275
tax benefit
Nondeductible expense items (4,511) 3,989
Other, net 1,432 (14,637)
-------------------------------
$130,758 $132,533
===============================
Net deferred tax liabilities consist of the following components as of October
2, 1999 and December 31, 1998:
1999 1998
-------------------------------
Deferred tax assets:
Depreciation and amortization $ 9,000 $ -
-------------------------------
Deferred tax liabilities:
Depreciation and amortization - 4,250
Work in process unbilled revenue, net 79,000 10,500
of expenses -------------------------------
79,000 14,750
-------------------------------
$ (70,000) $ (14,750)
===============================
The components giving rise to the net deferred tax liabilities described above
have been classified on the accompanying balance sheet as of October 2, 1999 and
December 31, 1998 as follows:
1999 1998
------------------------------
Noncurrent asset $ 9,000 $ -
Current liabilities (79,000) (10,500)
Noncurrent liabilities - (4,250)
------------------------------
$ (70,000) $(14,750)
==============================
Note 9. Major Customers
Consulting revenues include revenues to the following major customers for the
period ended October 2, 1999 and the year ended December 31, 1998 together with
the receivables due from the customers as of October 2, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------
Amount of Accounts Amount of Accounts
Customer Revenues Receivable Revenues Receivable
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
A $ 1,650,608 $ 190,288 $ - $ -
B 816,009 175,638 - -
C 527,847 160,037 - -
D - - 2,272,491 212,925
E - - 668,773 51,665
F - - 1,007,327 30,971
----------------------------------------------------------------------
$ 2,994,464 $ 525,963 $3,948,591 $295,561
======================================================================
</TABLE>
Because of the nature of the Company's business, the major customers will vary
between years.
Note 10. Bonus Plan
The Company pays discretionary bonuses to their key employees. The amount of
this bonus charged to compensation expense was $74,747 for the nine month period
ended October 2, 1999 and $286,375 for the year ended December 31, 1998.
Note 11. Stock Bonus
The Company has authorized 20,000 shares of Class A voting common stock and
35,000 shares of Class B nonvoting common stock to be granted to certain key
employees. The Company accounts for the fair value of grants in accordance with
the FASB Statement No. 123. The employees earn compensation during the vesting
period determined by the fair market value of the Company's common stock. These
shares are vested at the rate of 25 percent per year, with full vesting in four
years. The Company issued 5,000 shares of Class A voting stock and 3,750 shares
of Class B nonvoting stock to these employees in 1999. The amount of this bonus
charged to compensation expense was $2,187 for the nine month period ended
October 2, 1999 and $6,563 for the year ended December 31, 1998.
Note 12. 401(k) Plan
The Company has a 401(k) retirement plan for the benefit of its employees. The
plan is available to employees that are at least 21 years old and have completed
one year of service, as defined by the plan. Contributions by the Company are
discretionary. No contributions were made for the nine month period ended
October 2, 1999 or the year ended December 31, 1998.
Note 13. Subsequent Event
On December 9, 1999, the Company and the stockholders entered into an agreement
to sell all of the issued and outstanding Class A voting and Class B nonvoting
common stock to Exigent International, Inc.
<PAGE>
Item 7(b) - Pro Forma Financial Information
EXIGENT INTERNATIONAL, INC.
UNAUDITED COMBINED PRO FORMA BALANCE SHEETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical Exigent
-------------------------- Pro Forma Pro Forma
EXIGENT GEC Adjustments Combined
-------------- ---------- ----------------------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 673,198 $ 149,207 $ (550,000) $ 272,405
Accounts receivable, pledged 1,971,540 709,625 (226,620) 2,454,545
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 5,584,254 205,354 - 5,789,608
Prepaid expenses 17,462 - - 17,462
Deferred income taxes 595,000 9,000 - 604,000
Income taxes receivable 843,938 4,579 - 848,517
----------- ---------- ------------ -----------
TOTAL CURRENT ASSETS 9,685,392 1,077,765 (776,620) 9,986,537
----------- ---------- ------------ -----------
NET PROPERTY AND EQUIPMENT 1,661,116 52,901 - 1,714,017
----------- ---------- ------------ -----------
OTHER ASSETS
Software development costs, net of
accumulated amortization 4,836,691 - 4,836,691
Goodwill - - 2,804,205 2,804,205
Deposits 79,412 9,504 88,916
Cash surrender value of life insurance 17,028 - 17,028
----------- ---------- ------------ -----------
TOTAL OTHER ASSETS 4,933,131 9,504 2,804,205 7,746,840
----------- ---------- ----------- -----------
TOTAL ASSETS $16,279,639 $1,140,170 $ 2,027,585 $19,447,394
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited combined pro forma financial statements.
<PAGE>
EXIGENT INTERNATIONAL, INC.
UNAUDITED COMBINED PRO FORMA BALANCE SHEETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical Exigent
---------------------------- Pro Forma Pro Forma
EXIGENT GEC Adjustments Combined
-------------- ---------- -------------------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit $ 811,734 $ - $1,463,879 $ 2,275,613
Accounts payable 251,796 415,214 667,010
Accrued expenses 2,874,362 151,721 3,026,083
Billings in excess of costs and estimated
earnings on uncompleted contracts 789,424 - 789,424
Income taxes payable 225,658 - 225,658
Current portion of subordinated notes - - 250,000 250,000
Current portion, long-term debt 245,786 55,676 - 301,462
----------- ---------- ---------- -----------
TOTAL CURRENT LIABILITIES 5,198,760 622,611 1,713,879 7,535,250
----------- ---------- ---------- -----------
LONG-TERM LIABILITIES
Subordinated notes - - 750,000 750,000
Long-term debt, less current portion 331,627 2,265 - 333,892
Deferred income taxes 1,355,000 79,000 - 1,434,000
Other liabilities ----------- ---------- ---------- ----------
TOTAL LONG-TERM LIABILITIES 1,686,627 81,265 750,000 2,517,892
----------- ---------- ---------- -----------
TOTAL LIABILITIES 6,885,387 703,876 2,463,879 10,053,142
----------- ---------- ---------- -----------
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value
5,000,000 shares authorized, 68,841 and 609,882
issued and outstanding at September 30, 1999 and
December 31, 1998,at $2.50 per share
liquidation/dissolution preference 688 688
Common Shares, $.01 par value, 40,000,000
shares authorized, 4,817,788 and 4,130,103
issued and outstanding at September 30, 1999 and
December 31, 1998, respectively 48,179 3,009 (3,009) 48,179
Paid in capital 2,427,189 15,741 (15,741) 2,427,189
Retained earnings 6,918,196 417,544 (417,544) 6,918,196
----------- ---------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,394,252 436,294 (436,294) 9,394,252
----------- ----------- ----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $16,279,639 $ 1,140,170 $ 2,027,585 $19,447,394
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited combined pro forma financial statements.
<PAGE>
EXIGENT INTERNATIONAL, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Historical Exigent
---------------------------- Pro Forma Pro Forma
EXIGENT GEC Adjustments Combined
--------------- ---------- --------------------------
<S> <C> <C> <C> <C>
REVENUES $ 27,411,683 $4,302,651 $ 31,714,334
COST OF SALES 20,188,462 2,950,531 23,138,993
------------ ---------- -----------
GROSS PROFIT 7,223,221 1,352,120 - 8,575,341
GENERAL AND ADMINISTRATIVE EXPENSES 6,439,644 1,049,850 210,315 (1) 7,699,809
RESEARCH AND DEVELOPMENT COSTS 189,368 - 189,368
------------ ---------- ---------- -----------
OPERATING INCOME 594,209 302,270 (210,315) 686,164
------------ ---------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest income 20,196 3,447 23,643
Interest expense (37,178) (7,898) (45,076)
Loss on disposal of fixed assets (6,620) - (6,620)
Other, net 12,407 47,775 60,182
------------ ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (11,195) 43,324 - 32,129
------------ ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 583,014 345,594 (210,315) 718,293
INCOME TAX EXPENSE 233,206 130,758 363,964
------------ ----------- ----------- -----------
NET INCOME $ 349,808 $ 214,836 $ (210,315) $ 354,329
============ =========== =========== ============
EARNINGS PER SHARE - BASIC $ 0.08 $ 0.08
============ =========== =========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 4,378,687 0 0 4,378,687
============ =========== =========== ============
EARNINGS PER SHARE - DILUTED $ 0.06 $ 0.06
============ =========== =========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
DILUTED 5,525,734 0 0 5,525,734
============ =========== =========== =============
See accompanying notes to unaudited combined pro forma financial statements.
</TABLE>
<PAGE>
EXIGENT INTERNATIONAL, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical Exigent
---------------------------- Pro Forma Pro Forma
EXIGENT GEC Adjustments Combined
--------------- ---------- --------------------------
<S> <C> <C> <C> <C>
REVENUES $ 34,121,431 $ 4,801,393 $ - $38,922,824
COST OF SALES 24,592,647 3,211,327 - 27,803,974
------------ ----------- ----------- ------------
GROSS PROFIT 9,528,784 1,590,066 - 11,118,850
GENERAL AND ADMINISTRATIVE EXPENSES 8,289,899 1,245,365 280,420 (1) 9,815,684
RESEARCH AND DEVELOPMENT COSTS 182,872 - - 182,872
------------ ----------- ----------- ------------
OPERATING INCOME (LOSS) 1,056,013 344,701 (280,420) 1,120,294
------------ ----------- ----------- ------------
OTHER INCOME (EXPENSE)
Interest income 47,827 14,683 - 62,510
Interest expense (179,808) (3,779) - (183,587)
Gain (loss) on disposal of fixed assets 3,292 - - 3,292
Other, net (6,173) - - (6,173)
------------ ----------- ----------- ------------
TOTAL OTHER INCOME (EXPENSE) (134,862) 10,904 - (123,958)
------------ ----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 921,151 355,605 (280,420) 996,336
INCOME TAX EXPENSE 301,846 132,533 - 434,379
------------ ----------- ----------- ------------
NET INCOME (LOSS) $ 619,305 $ 223,072 $ (280,420) $ 561,957
============ =========== =========== ============
EARNINGS (LOSS) PER SHARE - BASIC $ 0.15 $ 0.14
============ =========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,034,039 0 0 4,034,039
============ =========== =========== ============
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.12 $ 0.11
============ =========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 5,157,531 0 0 5,157,531
============ =========== =========== ============
See accompanying notes to unaudited combined pro forma financial statements.
</TABLE>
<PAGE>
Note 1 - Pro Forma Financial Information
On December 9, 1999 Exigent International, Inc. ("Exigent") acquired all of the
outstanding shares of common stock of GEC North America Corporation ("GEC"), a
privately held corporation providing Oracle(R) Application consulting and
solutions to large and medium-sized clients in discrete and process
manufacturing, distribution and general business applications.
The unaudited combined pro forma financial statements give effect to the
acquisition by Exigent of all of the outstanding stock of GEC. This acquisition
was accounted for using the purchase method of accounting. These statements are
based on the historical financial statements of Exigent and GEC and assumptions
set forth below and in the notes to the unaudited combined pro forma financial
statements. The unaudited combined pro forma financial statements give effect to
the GEC acquisition as if it had occurred on January 1 of the period presented.
The pro forma adjustments are based upon estimates, currently available
information and certain assumptions that management deems appropriate. In
management's opinion, the estimates regarding allocation of the purchase price
of GEC are not expected to differ materially from those represented in the
combined pro forma statements and notes below. The unaudited combined pro forma
financial data presented herein are not necessarily indicative of the results
that Exigent would have obtained had such events occurred at the beginning of
the period, as assumed, or of the future results of Exigent. The unaudited
combined pro forma financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this Form
8-K/A, together with the audited financial statements and the notes thereto
included in the Exigent Form 10-K for the period ended December 31, 1998 and the
unaudited financial statements and the notes thereto included in the Exigent
Form 10-Q for the period ended September 30, 1999.
Note 2 - Historical
The unaudited combined pro forma statements of income for the year ended
December 31, 1998 include the historical results of both Exigent and GEC. The
unaudited combined pro forma statement of income for the nine months ended
September 30, 1999 include the results of Exigent and GEC.
Note 3 - Pro Forma Adjustments
The combined pro forma statements of income have been adjusted to reflect the
following pro forma adjustments:
1. The pro forma combined statements of income for the year ended December 31,
1998 and the nine months ended September 30, 1999 include increases of $280,420
and $210,315, respectively, in general and administrative expenses to reflect
the amortization of goodwill recognized in connection with the acquisition over
the estimated useful life.
Note 4 - Background
On December 9, 1999, Exigent completed the acquisition of GEC by exchanging
$3,270,000 of cash and subordinated promissory notes for all of the voting and
non-voting shares of GEC common stock. The acquisition of the assets and
liabilities was accounted for using the purchase method of accounting whereby
the consideration paid of $3,270,000 is being allocated based on the fair values
of the assets and liabilities acquired with the excess consideration over the
fair value of tangible assets recorded as intangible assets. In addition, at the
closing date two shareholders of GEC purchased certain accounts receivable
totaling $226,620 from GEC and reimbursed GEC for previously paid expenses in
the amount of $29,501. These transactions were performed pursuant to the stock
purchase and sale agreement.
Total consideration for the acquisition is as follows:
Cash Paid $ 2,013,879
Promissory note 1,000,000
Liabilities assumed 703,876
------------------
Total purchase price $ 3,717,755
==================
The purchase price was allocated to the assets acquired based on their fair
market values as follows:
Cash and cash equivalents $ 149,207
Accounts receivable 483,005
Other current assets 218,933
Property, plant and equipment 52,901
Other tangible assets 9,504
------------------
Total tangible assets acquired 913,550
Goodwill 2,804,205
------------------
Total assets acquired $ 3,717,755
==================
The total purchase price paid in excess of the GEC tangible assets is allocated
entirely to Goodwill and will be amortized over a ten-year period.
<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.
Exigent International, Inc.
Dated:
December 30, 1999 By: /s/ B.R. Smedley
----------------------------------------
B.R."Bernie" Smedley, Chief Executive Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
2.1 Agreement for Purchase and Sale of Stock dated as of November 19,
1999 among GEC Acquisition Corporation, Exigent International,
Inc., GEC North America Corporation, Roger A. Gilmartin,
Jacqueline R. Gilmartin, Deborah M. Bowen and Mark W. Brydges.
23.1 Consent of McGladrey & Pullen, LLP
AGREEMENT FOR PURCHASE AND SALE OF STOCK
among
GEC ACQUISITION CORPORATION,
EXIGENT INTERNATIONAL, INC.,
GEC NORTH AMERICA CORPORATION,
ROGER A. GILMARTIN,
JACQUELINE R. GILMARTIN,
DEBORAH M. BOWEN
and
MARK W. BRYDGES
Dated as of November 19, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
FORM OF TRANSACTION............................................................1
Section 1.1 Purchase and Sale.............................................1
Section 1.2 Closing.......................................................3
ARTICLE II
DELIVERY OF STOCK AND EMPLOYMENT AGREEMENTS....................................4
Section 2.1 Closing Procedure.............................................4
Section 2.2 Closing of Transfer Books.....................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJORITY SHAREHOLDERS....5
Section 3.1 Organization and Good Standing................................5
Section 3.2 Articles of Incorporation and Bylaws..........................5
Section 3.3 Capitalization................................................6
Section 3.4 Company Subsidiaries..........................................7
Section 3.5 Corporate Authority...........................................8
Section 3.6 Compliance with Applicable Law................................8
Section 3.7 Non-Contravention.............................................9
Section 3.8 Consents......................................................9
Section 3.9 Absence of Certain Changes or Events..........................9
Section 3.10 Actions and Proceedings......................................10
Section 3.11 Financial Statements.........................................10
Section 3.12 No Undisclosed Liabilities...................................10
Section 3.13 Contracts and Commitments....................................10
Section 3.14 Taxes........................................................12
Section 3.15 Title to Assets..............................................14
Section 3.16 Accounts.....................................................14
Section 3.17 Leases and Other Arrangements................................14
Section 3.18 Foreign Corrupt Practices Act................................15
Section 3.19 Antiboycott..................................................15
Section 3.20 Export Licensing and Customs.................................15
Section 3.21 Employee Payments and Benefits...............................15
Section 3.22 Compensation.................................................16
Section 3.23 Embargoes....................................................16
Section 3.24 Intellectual Property........................................16
Section 3.25 Employee Benefit Plans; ERISA................................17
Section 3.26 Environmental Matters........................................20
Section 3.27 Labor Matters................................................22
Section 3.28 Employees....................................................23
Section 3.29 Suppliers....................................................23
Section 3.30 Customers....................................................24
Section 3.31 Accounts Receivable and Contracts Receivable; Prepaids.......24
Section 3.32 Inventory....................................................24
Section 3.33 Professional Fees............................................25
Section 3.34 Affiliate Transactions.......................................25
Section 3.35 Takeover Laws................................................25
Section 3.36 Brokers......................................................25
Section 3.37 Disclosure...................................................25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION.................................26
Section 4.1 Organization and Good Standing...............................26
Section 4.2 Corporate Authority..........................................26
Section 4.3 Government Approvals; Required Consents......................27
Section 4.4 Non-contravention............................................27
Section 4.5 Brokers......................................................27
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................27
Section 5.1 Authority....................................................27
Section 5.2 Non-Contravention............................................28
Section 5.3 Government Approvals; Required Consents......................28
Section 5.4 Title to Shares of Company Stock.............................28
Section 5.5 Performance under Employment Agreements......................28
Section 6.6 Disclosure...................................................28
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING...........................................28
Section 6.1 Conduct of Business by the Company Pending Closing...........28
Section 6.2 Effect of Failure to Comply..................................30
ARTICLE VII
ADDITIONAL AGREEMENTS AND COVENANTS...........................................31
Section 7.1 Access and Information.......................................31
Section 7.2 No Solicitation..............................................31
Section 7.3 Reasonable Best Efforts......................................31
Section 7.4 Public Disclosure; Confidentiality...........................32
Section 7.5 Expenses.....................................................33
Section 7.6 Supplemental Disclosure......................................34
Section 7.7 Disclosure Statements........................................34
Section 7.8 Employee Bonus...............................................34
Section 7.9 Automobile Leases............................................35
Section 7.10 Officer Releases and Employee Offers of Employment...........35
Section 7.11 Release from Stock Grant Program.............................35
Section 7.12 Line of Credit...............................................36
Section 7.13 Disputed Contract Amount.....................................37
Section 7.14 Lien Search..................................................37
Section 7.15 Supplemental Financial Statement.............................37
Section 7.16 Stockholders'Equity..........................................37
Section 7.17 Shareholder Loan.............................................37
Section 7.18 Company Checks...............................................37
Section 7.19 Option Plans.................................................37
Section 7.20 Insurance....................................................37
Section 7.21 Audit of Company's Financial Statements......................37
Section 7.22 Effect of Failure to Comply..................................38
ARTICLE VIII
CONDITIONS TO CONSUMMATION....................................................38
Section 8.1 Conditions to Each Party's Obligation to Effect
Transactions..............................................38
Section 8.2 Conditions to Obligation of Acquisition......................38
Section 8.3 Conditions to Obligation of the Shareholders.................40
Section 8.4 Conditions Among Shareholders................................40
ARTICLE IX
POST-CLOSING OBLIGATIONS......................................................41
Section 9.1 Profit Sharing Plan..........................................41
Section 9.2 Short Year Tax Return........................................41
Section 9.3 Post-Closing Audit...........................................42
ARTICLE X
RESTRICTIVE COVENANTS.........................................................42
Section 10.1 General.....................................................42
Section 10.2 Protectable Interests.......................................42
Section 10.3 Covenant Not To Compete.....................................43
Section 10.4 Solicitation of Customers...................................44
Section 10.5 Solicitation of Employees...................................44
Section 10.6 Confidential Information....................................44
Section 10.7 Severability................................................45
Section 10.8 Cost of Litigation..........................................45
Section 10.9 Third Party Beneficiary.....................................45
Section 10.10 Enforcement.................................................45
Section 10.11 Assignment..................................................45
ARTICLE XI
TERMINATION...................................................................46
Section 11.1 Termination.................................................46
Section 11.2 Effect of Termination.......................................46
ARTICLE XII
SURVIVAL AND INDEMNIFICATION..................................................46
Section 12.1 Survival....................................................46
Section 12.2 Obligation of Shareholders to Indemnify....................47
Section 12.3 Remedies Non-Exclusive......................................48
Section 12.4 Procedure for Indemnification...............................49
Section 12.5 Promissory Note.............................................50
ARTICLE XIII
GENERAL PROVISIONS............................................................50
Section 13.1 Amendment and Modification..................................50
Section 13.2 Waiver......................................................50
Section 13.3 Notices.....................................................51
Section 13.4 Descriptive Headings; Interpretation........................52
Section 13.5 Entire Agreement; Assignment................................53
Section 13.6 Governing Law...............................................53
Section 13.7 Enforcement.................................................53
Section 13.8 Submission to Jurisdiction..................................53
Section 13.9 Severability................................................54
Section 13.10 Knowledge...................................................54
Section 13.11 Counterparts................................................54
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
AGREEMENT FOR PURCHASE AND SALE OF STOCK, dated as of November 19, 1999
(this "Agreement"), by and among GEC ACQUISITION CORPORATION, a corporation
organized under laws of the State of Nevada ("Acquisition"), EXIGENT
INTERNATIONAL, INC., a corporation organized under the laws of the State of
Delaware ("Parent"), GEC NORTH AMERICA CORPORATION, a Nevada corporation (the
"Company"), and ROGER A. GILMARTIN, JACQUELINE R. GILMARTIN, DEBORAH M. BOWEN
and MARK W. BRYDGES who are shareholders of the Company (collectively referred
to as the "Shareholders"). Roger A. Gilmartin and Jacqueline R. Gilmartin shall
collectively be referred to as the "Majority Shareholders". Deborah M. Bowen and
Mark W. Brydges may sometimes collectively be referred to as the "Minority
Shareholders".
WHEREAS, the board of directors of Acquisition has approved the acquisition
of the issued and outstanding capital stock of the Company owned by the
Shareholders;
WHEREAS, Parent which owns one hundred percent (100%) of the issued and
outstanding capital stock of Acquisition has approved the transaction
contemplated by this Agreement;
WHEREAS, the board of directors of the Company has recommended to the
Shareholders the consummation of the transactions contemplated by this
Agreement; and
WHEREAS, the Shareholders have agreed to enter into and consummate this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
FORM OF TRANSACTION
SECTION 1.1 PURCHASE AND SALE.
(a) Upon the terms and subject to the conditions contained in this
Agreement, at the Effective Time (as hereinafter defined), Acquisition shall
purchase from the Shareholders all of the issued and outstanding shares of the
voting common stock, Class "A" stock, authorized by the articles of
incorporation of the Company, par value one tenth of one cent ($0.001), ("Voting
Stock") and all of the issued and outstanding shares of the nonvoting common
stock, Class "B" stock, authorized by the articles of incorporation of the
Company, par value one tenth of one cent ($0.001), ("Nonvoting Stock")
(collectively referred to as "Company Stock"). In consideration for the
conveyance, transfer and delivery of the Company Stock by the Shareholders to
Acquisition at Closing (as hereinafter defined), Acquisition shall pay to the
Shareholders the amounts described below (the "Purchase Price"). At the
Effective Time, Roger A. Gilmartin, Deborah M. Bowen and Mark W. Brydges shall
also become employees of Acquisition pursuant to employment agreements
hereinafter described.
(b) At Closing, Acquisition shall deliver to the Shareholders cash or
instruments conveying immediately available funds to the Shareholders in the
amount of two million two hundred seventy thousand dollars ($2,270,000.00).
(c) (i) At Closing, Acquisition shall deliver to the Majority
Shareholders a negotiable, subordinated promissory note payable by Acquisition
to the Shareholders in the principal amount of one million dollars
($1,000,000.00) (the "Promissory Note") which bears interest at the rate of
eight percent (8%) per annum, has a term of four (4) years, and requires the
payment of sixteen (16) equal quarterly installment payments of principal and
interest beginning on the date which is three (3) months after the Closing Date.
Payments under the Promissory Note shall be subject to offset to secure the
obligations of the Majority Shareholders as described in Section 12.5.
(ii) The Promissory Note shall be subordinated to any senior
indebtedness of Acquisition and/or Parent which means:
(1) the principal, premium, if any, interest and all other
amounts owed in respect of all Acquisition's and/or Parent's
(A) indebtedness for money borrowed, and
(B) indebtedness evidenced by securities, debentures,
bonds or other similar instruments,
(2) all of Acquisition's and/or Parent's capital lease
obligations,
(3) all obligations issued or assumed by Acquisition and/or
Parent as the deferred purchase price of property, all of Acquisition's and/or
Parent's conditional sale obligations and all of Acquisition's and/or Parent's
obligations under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business and excluding any deferred
payment obligation issued by Acquisition and/or Parent for the acquisition of
capital stock, partnership interests or any other form of equity ownership
interest of an entity or the acquisition of the operating assets of an entity),
(4) all of Acquisition's and/or Parent's obligations for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction,
(5) all obligations of the type referred to in clauses (1)
through (4) above of other persons for the payment of which Acquisition and/or
Parent is responsible or liable as obligor, guarantor or otherwise, and
(6) all obligations of the type referred to in clauses (1)
through (5) above of other persons secured by any lien on any of Acquisition's
and/or Parent's properties or assets (whether or not such obligation is assumed
by Acquisition and/or Parent, except for any indebtedness between or among
Acquisition and its Affiliates (as hereinafter defined).
(iii) The form of the Promissory Note shall be substantially in
the form attached hereto as Schedule 1.1(c)(iii) which is incorporated herein by
reference.
(d) At Closing, Parent shall issue its guaranty of the Promissory Note
to the Majority Shareholders (the "Guaranty") in the form attached hereto as
Schedule 1.1(d) which is incorporated herein by reference. The Guaranty shall be
subordinated in the same manner as the Promissory Note is subordinated to any
senior indebtedness of Acquisition and/or Parent as described in subsection
1.1(c)(ii) above.
(e) The Purchase Price shall be allocated among the Shareholders and
apportioned to Voting Stock and Nonvoting Stock in accordance with Table 1.2(e)
below.
Table 1.2(e)
Shareholder/Share Class Cash Promissory Note
- ------------------------------- ----------------------- ------------------------
Roger A. Gilmartin $962,500.00 $500,000.00
Voting Stock
Jacqueline R. Gilmartin $962,500.00 $500,000.00
Voting Stock
Deborah M. Bowen $140,000.00 $0.00
Voting Stock
Mark W. Brydges $205,000.00 $0.00
Nonvoting Stock
SECTION 1.2 CLOSING.
(a) Subject to the terms and conditions of this Agreement, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of Wishart, Norris, Henninger & Pittman, P.A., 6832
Morrison Boulevard, Charlotte, North Carolina 28211 on the second business day
after which all of the conditions set forth in Article VIII are satisfied or
waived or on such other date and such other time and place as Acquisition and
the Company shall agree (the date on which the Closing actually occurs being
referred to herein as the "Closing Date"), but in no event later than November
30, 1999, except as provided in subsections 1.2(c) and 1.2(d). The Effective
Time shall be the close of business on the Closing Date.
(b) Notwithstanding the provisions of subsection 1.2(a) above, if any
of the conditions set forth in Section 8.1 have not been satisfied on or before
the second business day prior to the Closing Date, Acquisition, the Company and
the Shareholders jointly may waive said conditions and proceed to Closing or
extend the Closing Date by mutual agreement.
(c) Notwithstanding the provisions of subsection 1.2(a) above, if on
the second business day prior to the Closing Date, any of the conditions set
forth in Section 8.2, except subsection 8.2(e), has not been satisfied or waived
by the Company and the Shareholders, Acquisition shall have the right in its
sole and absolute discretion to extend the Closing Date on written notice to the
Company and the Shareholders to the earlier of the second business day after all
such conditions have been satisfied or waived, or December 17, 1999.
(d) Notwithstanding the provisions of subsection 1.2(a) above, if on
the second business day prior to the Closing Date, any of the conditions set
forth in Section 8.3 has not been satisfied or waived by the Company and the
Shareholders, the Company and the Majority Shareholders (acting jointly) shall
have the right in their sole and absolute discretion to extend the Closing Date
on written notice to Acquisition and to each other Shareholder to the earlier of
the second business day after all such conditions have been satisfied or waived,
or December 17, 1999.
ARTICLE II
DELIVERY OF STOCK AND EMPLOYMENT AGREEMENTS
SECTION 2.1 CLOSING PROCEDURE.
(a) At Closing, each Shareholder shall deliver to Acquisition
certificates representing the shares of the Company Stock owned by such
Shareholder endorsed in the name of Acquisition or accompanied by an irrevocable
stock power or other instrument sufficient to transfer ownership of the Company
Stock to Acquisition, free and clear of Liens (as hereinafter defined).
(b) At Closing, the Shareholders shall deliver to Acquisition all
other documents, instruments, opinions, assignments and other deliveries
required by other provisions of this Agreement.
(c) At Closing, the Shareholders shall deliver to Acquisition the
corporate minute book of the Company, stock transfer ledger of the Company and
the minutes of each meeting of the Company's Shareholders and its board of
directors, each resolution enacted by the Company's board of directors and
Shareholders or written consents in lieu of resolutions as permitted by the
Company's articles of incorporation, bylaws or the law of the state of its
incorporation, the corporate seal of the Company, and all books and records
pertaining to the Company.
(d) At or prior to Closing, each of Roger A. Gilmartin, Deborah M.
Bowen and Mark W. Brydges ("Employee Shareholders") shall have executed and
delivered to Acquisition the employment agreements attached hereto as Schedules
2.1(d)-1, 2.1(d)-2 and 2.1(d)-3, respectively.
(e) At Closing, Acquisition shall have executed the employment
agreements described in subsection 2.1(d) above provided each of such employment
agreements shall have been executed by the respective Employee Shareholder. Upon
execution of such employment agreements by Acquisition under the condition
described in this subsection 2.1(e), Parent shall guaranty the obligations of
Acquisition by executing such employment agreements as the guarantor described
thereon.
(f) At Closing, Acquisition shall deliver to the Shareholders the
Purchase Price.
(g) At Closing, Parent shall deliver to the Majority Shareholders the
Guaranty.
SECTION 2.2 CLOSING OF TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Stock shall thereafter be made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJORITY SHAREHOLDERS
Except as set forth in the Company disclosure schedule attached hereto and
incorporated herein by reference (the "Company Disclosure Schedule") (the
section numbers of which are numbered to correspond to the section numbers of
this Agreement to which they refer), the Company and each of the Majority
Shareholders, jointly and severally, represent and warrant to Acquisition and
Parent as follows:
SECTION 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has the corporate power and authority to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary.
SECTION 3.2 ARTICLES OF INCORPORATION AND BYLAWS. True, correct and
complete copies of the articles of incorporation and bylaws or equivalent
organizational documents, each as amended to date, of the Company and each of
its Subsidiaries have been made available to Acquisition. The articles of
incorporation, bylaws and other organizational documents of the Company are in
full force and effect. The Company is not in violation of any material provision
of its articles of incorporation, bylaws or other organizational documents. Any
merger, consolidation, share exchange or other reorganization (collectively
"Reorganization") involving the Company was effectuated in accordance with
Applicable Law (as hereinafter defined) and the surviving corporation in any
Reorganization succeeded to all of the ownership interests of the properties,
assets and businesses of each other entity in the Reorganization.
SECTION 3.3 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of the Company
consists of four million (4,000,000) shares of Voting Stock, par value one tenth
of one cent ($0.001) per share, and one million (1,000,000) shares of Nonvoting
Stock, par value one tenth of one cent ($0.001) per share. As of the date
hereof:
(i) three million five thousand (3,005,000) shares of Voting
Stock are issued and outstanding as follows:
Roger A. Gilmartin one million five hundred thousand
(1,500,000) shares
Jacqueline R. Gilmartin one million five hundred thousand
(1,500,000) shares
Deborah M. Bowen five thousand (5,000) shares
(ii) three thousand seven hundred fifty (3,750) shares of
Nonvoting Stock are issued and outstanding as follows:
Mark W. Brydges three thousand seven hundred fifty
(3,750) shares
(iii) all of the issued and outstanding shares of Company Stock
are validly issued, fully paid, nonassessable and free of restrictions on
transfer and preemptive rights;
(iv) no (0) shares of Voting Stock and no (0) shares of Nonvoting
Stock are held in the treasury of the Company; and
(v) unvested stock bonuses to acquire fifteen thousand (15,000)
shares of Voting Stock and thirty one thousand two hundred fifty (31,250) shares
of Nonvoting Stock are outstanding, and no unvested stock bonuses of Voting
Stock and no unvested stock bonuses of Nonvoting Stock remain reserved for
issuance under option plans of the Company.
(b) Except as described in this Section 3.3 and as contemplated by
this Agreement:
(i) as of the Effective Time, no shares of capital stock or other
equity securities of the Company shall be authorized, issued or outstanding, or
reserved for issuance, and there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which the Company or any of its Subsidiaries is a party relating to
the issued or unissued capital stock or other equity interests of the Company or
any of its Subsidiaries, requiring the Company to grant, issue or sell any
shares of the capital stock or other equity interests of the Company or any of
its Subsidiaries by sale, lease, license or otherwise;
(ii) the Company and its Subsidiaries have no obligations,
contingent or otherwise, to repurchase, redeem or otherwise acquire any shares
of the capital stock or other equity interests of the Company or its
Subsidiaries;
(iii) neither the Company nor any of its Subsidiaries directly or
indirectly, own, or has not agreed to purchase or otherwise acquire, the capital
stock or other equity interests of, or any interest convertible into or
exchangeable or exercisable for such capital stock or such equity interests, of
any corporation, partnership, joint venture or other entity which would be
material in value to the Company; and
(iv) there are no voting trusts, proxies or other agreements or
understandings to which the Company or any of its Subsidiaries is a party or, to
the best knowledge of the Company, is bound with respect to the voting of any
shares of capital stock or other equity interests of the Company or any of its
Subsidiaries.
SECTION 3.4 COMPANY SUBSIDIARIES. Schedule 3.4 of the Company Disclosure
Schedule sets forth a list of each Company Subsidiary; its authorized, issued
and outstanding capital stock or other equity interests; the percentage of such
capital stock or other equity interests owned by the Company or any Company
Subsidiary, and the identity of such owner; the capital stock reserved for
future issuance pursuant to outstanding options or other agreements; and the
identity of all parties to any such option or other agreement. Each Subsidiary
of the Company is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Each Subsidiary of the Company has all requisite corporate power
and authority to carry on its business as it is now being conducted. Each
Subsidiary of the Company is duly qualified as a foreign corporation or
organization authorized to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary. All of the
outstanding shares of capital stock or other ownership interests in each of the
Company's Subsidiaries have been validly issued, and are fully paid,
nonassessable and are owned by the Company or another Subsidiary of the Company
free and clear of all pledges, claims, options, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, ALiens"), and
are not subject to preemptive rights created by statute, such Subsidiary's
articles of incorporation or bylaws or equivalent organizational documents or
any agreement to which such Subsidiary is a party. As used in this Agreement, a
ASubsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its board of directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests) and of which is owned directly or indirectly by such person.
SECTION 3.5 CORPORATE AUTHORITY.
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement, and to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby,
have been duly authorized by its board of directors and the Shareholders and, no
other corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company and is enforceable against the Company in accordance
with its terms except that:
(i) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally; and
(ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defense, and to the
discretion of the court before which any proceeding therefor may be brought.
(b) Prior to execution and delivery of this Agreement, the board of
directors of the Company at a meeting duly called and held or acting by
unanimous written consent in lieu of meeting pursuant to laws of the place of
incorporation of the Company has approved this Agreement and the other
transactions contemplated hereby.
(c) Prior to execution and delivery of this Agreement, the
Shareholders of the Company at a meeting duly called and held or acting by
written consent in lieu of meeting pursuant to laws of the place of
incorporation of the Company have approved this Agreement and the other
transactions contemplated hereby.
SECTION 3.6 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Schedule
3.6 of the Company Disclosure Schedule, each of the Company and its Subsidiaries
(i) holds, and is in compliance with the terms of, all permits, licenses,
exemptions, orders and approvals of all Governmental Entities (as hereinafter
defined) necessary for the conduct of their respective businesses ("Company
Permits"), (ii) with respect to the Company Permits, no action or proceeding is
pending or, to the best knowledge of Company, threatened, (iii) the business of
the Company and its Subsidiaries is being conducted in compliance with all
applicable laws, ordinances, regulations, judgments, decrees or orders
("Applicable Law") of any federal, state, local, foreign or multinational
legislature, court, arbitral tribunal, administrative agency or commission or
other governmental or regulatory authority or administrative agency or
commission (a "Governmental Entity"), and (iv) no investigation or review by any
Governmental Entity with respect to the Company or its Subsidiaries is pending
or, to the best knowledge of the Company, threatened.
SECTION 3.7 NON-CONTRAVENTION. Except as set forth in Schedule 3.8 of the
Company Disclosure Schedule, the execution and delivery by the Company of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, (i) result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to the loss of a material benefit under any loan, guarantee of indebtedness
or credit agreement, note, bond, mortgage, indenture, lease, agreement,
contract, commitment, instrument, permit, concession, franchise, right or
license (any of the foregoing, a "Contract") applicable to the Company or any of
its Subsidiaries, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries, (ii) conflict
with or result in any violation of any provision of the articles of
incorporation or bylaws or other equivalent organizational document, in each
case as amended, of the Company or any of its Subsidiaries, or (iii) subject to
the governmental filings discussed in Section 3.8, conflict with or violate any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets.
SECTION 3.8 CONSENTS. Except as set forth in Schedule 3.8 of the Company
Disclosure Schedule, no notice to or filing with, and no authorization, consent
or approval of, any person or entity is necessary to the consummation of the
transactions contemplated hereby or to Acquisition's conduct of the historic
business of the Company after Closing, including, without limitation, consents
from parties to loans, contracts, leases or other agreements and consents from
governmental agencies, whether federal, state or local. Copies of each of the
consents included in Schedule 3.8 have been heretofore delivered by the Company
to Acquisition and such copies are true and complete and include all amendments,
supplements and modifications thereto.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1998,
the Company and each of its Subsidiaries has conducted its businesses and
operations in the ordinary and usual course consistent with past practice and
there has not occurred (i) any event, condition or occurrence having or that
would reasonably be expected to have, individually or in the aggregate, a
materially adverse effect, individually or in the aggregate, on the business,
financial condition or results of operations of the Company or its Subsidiaries;
(ii) any damage, destruction or loss (whether or not covered by insurance)
having or which would reasonably be expected to have, individually or in the
aggregate, a materially adverse effect, individually or in the aggregate, or the
business, financial condition or results of operations of the Company or its
Subsidiaries; (iii) any declaration, setting aside or payment of any dividend or
distribution of any kind by the Company on any class of its capital stock;
and/or (iv) any event during the period from December 31, 1998 through the date
of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Section 6.1
hereof.
SECTION 3.10 ACTIONS AND PROCEEDINGS. Except as set forth on Schedule 3.10
of the Company Disclosure Schedule, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against the Company or
any of its Subsidiaries, any of their properties, assets or business, or, to the
knowledge of the Company, any of the Company's or its Subsidiaries' current or
former directors or officers or any other person whom the Company or any of its
Subsidiaries has agreed to indemnify. There are no actions, suits or legal,
administrative, regulatory or arbitration proceedings pending or, to the best
knowledge of the Company and the Majority Shareholders, threatened against the
Company or any of its Subsidiaries, any of their properties, assets or business,
or any of the Company's or its Subsidiaries' current or former directors or
officers or any other person whom the Company or any of its Subsidiaries has
agreed to indemnify.
SECTION 3.11 FINANCIAL STATEMENTS. Attached as Schedule 3.11 of the Company
Disclosure Schedule is a true and complete copy of the Company's Balance Sheet
as of December 31, 1996, December 31, 1997, December 31, 1998 and October 30,
1999 and the related Statements of Operations, Cash Flows and Shareholders'
Equity and Financial Statement notes for the reporting period then ended (the
"Financial Statements"). Except as set forth in Schedule 3.11, the Financial
Statements and the Supplemental Financial Statement described in Section 7.16
(a) are in accordance with the Company's books and records and present fairly,
as of their respective dates, the Company's financial condition and the results
of its operations for the period covered, (b) have been prepared in accordance
with generally accepted accounting principles consistently applied, and (c)
contain adequate reserves for all liabilities, losses and costs in excess of
expected receipts and for all discounts, credits or refunds with respect to
services or products already rendered or sold.
SECTION 3.12 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise), whether
due or to become due and whether fixed or contingent, except (a) liabilities
fully reflected or reserved against in the October 30, 1999 Financial Statement,
(b) liabilities that have arisen in the ordinary course of business since
October 30, 1999, and (c) liabilities and obligations identified in Schedule
3.12 or otherwise identified in this Agreement or any of the schedules or
exhibits hereto.
SECTION 3.13 CONTRACTS AND COMMITMENTS. Set forth in Schedule 3.12 of the
Company Disclosure Schedule hereto is an accurate and complete description of
all the following contracts, agreements and other arrangements, and any
amendments, supplements or modifications thereto, to which the Company is a
party or by which it is bound, and which have not been fully performed:
(a) All contracts, agreements or commitments in respect of (i) the
sale of products or services, or for the purchase of raw materials, equipment,
supplies, other products or utilities and (ii) services of any subcontractor or
any other independent contractor, other than contracts, agreements or
commitments that involve payments or receipts by the Company of less than ten
thousand dollars ($10,000.00) in any single case and are terminable by the
Company or are to be performed fully within three (3) months from the date
hereof;
(b) All outstanding contracts with officers, employees, agents,
consultants, advisors, salespersons, sales representatives, distributors or
dealers, and all collective bargaining agreements;
(c) All stock option, profit-sharing, pension, retirement, thrift,
401(k), bonus, deferred compensation, severance pay, welfare, medical, dental,
disability, life or other employee benefit plans, agreements, arrangements or
commitments, whether or not legally binding;
(d) Any agreement whereby the Company is restricted from carrying on
its business in any respect or in any location;
(e) Any debt obligation for the deferred purchase price of goods or
services or for borrowed money, including as guarantor, surety, endorser,
co-maker or indemnitor, or agreements to acquire any such debt obligation of
others;
(f) Any mortgage, deed of trust, security agreement or other
instrument creating any lien against any properties or assets utilized in the
business of the Company;
(g) Any contract or arrangement not in the ordinary course of
business, including, without limitation, any preferential rights to purchase any
of the assets utilized in the business of the Company, any limitations on the
freedom of the Company to engage in business of any kind in any geographical
area, or any continuing arrangements for future purchase of materials, supplies
or equipment;
(h) Any agreements, contracts or commitments for the provision of
goods or services (including all proposals, bids and matters included in the
Company's backlog, whether or not cancelable) of a value in excess of twenty
thousand dollars ($20,000.00) in any single case;
(i) Any agreements, contracts or commitments with any agents,
consultants or independent or general contractors, or any power of attorney or
similar authorization outstanding;
(j) Any contract or arrangement with a Shareholder or members of his
family, or entities controlled by him (each of which contracts and arrangements
is hereby represented to have been negotiated at arm's length and on terms that
are fair to the Company); and
(k) All contracts, agreements or commitments other than those of the
types covered by paragraphs (a) through (j) inclusive that either (i) involve
payments or receipts by the Company of more than ten thousand dollars
($10,000.00) in any single case, are not terminable by the Company, and are not
to be fully performed within three (3) months from the date hereof or (ii)
otherwise materially affect the condition (financial or other) or prospects of
the Company.
To the best knowledge of the Company and the Majority Shareholders all
the contracts, agreements and other arrangements, as amended, described in
Schedule 3.13 are valid, binding and enforceable and in full force and effect,
and there are no (i) notices of violation or (ii) existing defaults (or events
that, with notice or lapse of time or both, would constitute defaults) on the
part of the Company or, to the best knowledge of the Company and the Majority
Shareholders, on the part of any other party thereto, which default would have a
material adverse affect on the Company's operations, properties, assets or
financial condition, and the Company and the Majority Shareholders have not
received notice of any such default, nor does the Company or the Majority
Shareholders know of any facts or circumstances that would reasonably indicate
the Company will be or may be in default under any such contract, agreement or
other arrangement. Copies of all the contracts, agreements and other
arrangements described in Schedule 3.13 have been heretofore delivered by the
Company to Acquisition and such copies are true and complete and include all
amendments, supplements and modifications thereto. Except as set forth in
Schedule 3.13, the Company is not a party to any contract for the provisions of
goods or services under which the cost to complete (estimated in good faith)
exceeds the amount remaining to be billed by more than ten thousand dollars
($10,000.00). All of the Company's prior contracts, projects and installations
have been performed in a professional and workmanlike manner in accordance with
prevailing standards of skill and care and in full compliance with all
prevailing laws, rules, ordinances, governmental regulations or orders of any
governmental authority and/or jurisdiction applicable to such contracts,
projects and installations, and there has been no negligence or other basis for
claim based on such performance.
SECTION 3.14 TAXES.
(a) The Company and each of its Subsidiaries has timely filed, or been
included in, all material federal, state, local and foreign income, franchise,
sales and other Tax Returns (as hereinafter defined) required to be filed by or
with respect to the Company or any of its Subsidiaries;
(b) as of the time of filing, all such Tax Returns were true, correct
and complete, in all material respects, and correctly reflected in all material
respects the facts regarding the income, business, assets, operations,
activities and status of the Company and its Subsidiaries and any other material
information required to be shown therein;
(c) the Company and its Subsidiaries have timely paid to the
appropriate taxing authority, or have made provision for, all material Taxes
shown as due on such Tax Returns with respect to the Company and any of its
Subsidiaries;
(d) the unpaid Taxes of the Company and its Subsidiaries (i) do not,
as of the date hereof, materially exceed the reserves for Taxes (other than
reserves for deferred Taxes) reflected on the books and records of the Company
and its Subsidiaries and (ii) will not materially exceed that reserve as
adjusted for operations and transactions through the Effective Time in
accordance with GAAP and the past custom and practice of the Company and its
Subsidiaries;
(e) neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file or send any Tax Return, which Tax Return
has not since been filed or sent;
(f) except as set forth on Schedule 3.14 of the Company Disclosure
Schedule, no material deficiency for Taxes has been proposed, asserted or
assessed against the Company or any of its Subsidiaries (or any member of any
affiliated or combined group of which the Company or any of its Subsidiaries is
or has been a member for which either the Company or any of its Subsidiaries
could be liable) other than those Taxes being contested in good faith by
appropriate proceedings and set forth in the Company Disclosure Schedule (which
shall set forth the nature of the proceeding, the type of return, the
deficiencies proposed, asserted or assessed and the amount thereof, and the
taxable year in question);
(g) to the knowledge of the Company, no material issue has been raised
during the past five (5) years by any federal, state, local or foreign taxing
authority which, if raised with regard to any other period not so examined,
could reasonably be expected to result in a proposed material deficiency for any
other period not so examined;
(h) neither the Company nor any of its Subsidiaries has granted any
extension or waiver of the limitation period applicable to any Tax claims other
than those being contested in good faith by appropriate proceedings;
(i) neither the Company nor any of its Subsidiaries is subject to
liability for Taxes of any person (other than the Company or its Subsidiaries)
including, without limitation, liability arising from the application of U.S.
Treasury Regulation section 1.1502-6 or any analogous provision of state, local
or foreign law;
(j) neither the Company nor any of its Subsidiaries is or has been a
party to any tax sharing agreement with any corporation which is not currently a
member of the affiliated group of which the Company is currently a member;
(k) neither the Company nor any of its Subsidiaries is a party to any
agreement, Contract or arrangement that could result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended ("Code");
(l) there are no Liens for Taxes on any assets of the Company or of
any of its Subsidiaries (other than statutory liens for current Taxes not yet
due);
(m) the Company and its Subsidiaries have withheld and paid (and until
the Effective Time will withhold and pay) all income, social security,
unemployment and all other material payroll Taxes required (including, without
limitation, pursuant to Sections 1441 and 1442 of the Code or similar provisions
under foreign law) to be withheld and paid in connection with amounts paid to
any employee, independent contractor, creditor, shareholder or other third
party; and
(n) neither the Company nor any of its Subsidiaries has participated
in, or cooperated with, an international boycott within the meaning of Section
999 of the Code. Neither the Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code.
As used in this Agreement, the term "Tax" (or "Taxes") means, with
respect to any person, (i) all taxes, charges, fees, levies, duties, imposts or
other assessments, including, without limitation, net income, gross income,
gross receipts, excise, property, sales, use, ad valorem, profits, franchise,
capital stock, registration, transfer, gains, license, payroll, withholding
requirement of another person's income or property, employment, excise,
severance, stamp, occupation, disability, premium, value-added, windfall
profits, social security (or similar), custom duty or other tax, governmental
fee, alternative or add-on minimum, estimated or other like assessment or charge
of any kind whatsoever, together with any interest, or penalties or additions
thereto imposed, or required to be withheld, by a taxing authority of the United
States, or any state, local or foreign government or subdivision or agency
thereof, and (ii) any liability of such person for the payment of any amount of
the type described in clause (i) as a result of such person's being a member of
an affiliated or combined group. As used in this Agreement, the term "Tax
Return" means any return, declaration, statement, report, schedule, certificate,
form, information return, or any other document (including any related or
supporting information) required to be supplied to, or filed with, a taxing
authority (foreign or domestic) in connection with Taxes.
SECTION 3.15 TITLE TO ASSETS. Except as set forth in Schedule 3.15 of the
Company Disclosure Schedule, the Company has good, valid and marketable title to
all of its assets and properties, including all the assets reflected on the
Financial Statement dated October 30, 1999, free and clear of all title defects
or objections, mortgages, judgments, pledges, liens, claims, charges, security
interests (UCC or otherwise), or other encumbrances of any nature whatsoever,
including, without limitation, leases, chattel mortgages, conditional sales
contracts, collateral security arrangements, and other title or interest
retention arrangements. Schedule 3.15 includes a list of all tangible personal
property owned by the Company.
SECTION 3.16 ACCOUNTS. Schedule 3.16 of the Company Disclosure Schedule
contains a schedule setting forth and describing (i) all bank accounts owned or
maintained by the Company and all authorized signatories with respect thereto;
and (ii) safety deposit boxes maintained by the Company and all persons having
access with respect thereto.
SECTION 3.17 LEASES AND OTHER ARRANGEMENTS. Set forth in Schedule 3.17 of
the Company Disclosure Schedule is a true and complete list of all leases and
other rental, use or service arrangements pursuant to which the Company rents,
leases or subleases real or personal property. All such leases and rental or
other arrangements are valid, binding and enforceable in accordance with their
terms, and are in full force and effect. There are no existing defaults by any
party thereunder and no event or condition has occurred or presently exists
that, with notice or lapse of time or both, would constitute a default
thereunder. All amounts now due and payable under each of such leases and
arrangements, whether as rent or otherwise, have been paid in full and the
Company and each other party to such leases have complied with all other
commitments and obligations required to be performed or observed thereunder.
Copies of all the leases and other arrangements set forth in Schedule 3.17 have
heretofore been made available to Acquisition.
SECTION 3.18 FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor
controlled Affiliates of the Company, nor employees representing the Company or
such controlled Affiliates, has within the past three (3) years knowingly
offered or made payments, or offered or provided other inducements, to officials
of any government with the intent to influence the governmental actions of those
officials in a way that would violate U.S. federal or state laws against corrupt
payments or inaccurate record keeping relating to such payments.
SECTION 3.19 ANTIBOYCOTT. Neither the Company nor any controlled Affiliate
of the Company has, within the past three (3) years, taken any actions that
would violate U.S. laws and regulations against cooperation with unsanctioned
foreign boycotts, including 15 C.F.R. 769, and 26 U.S.C. 999. The Company and
its controlled Affiliates are in compliance with all U.S. laws and regulations
that require the reporting of requests to cooperate with unsanctioned foreign
boycotts.
SECTION 3.20 EXPORT LICENSING AND CUSTOMS. The Company and all controlled
Affiliates of the Company are in compliance with all U.S. laws and regulations
regarding the licensing of exports, and with all U.S. laws and regulations
regarding import duties, country-of-origin marking, and other customs
requirements.
SECTION 3.21 EMPLOYEE PAYMENTS AND BENEFITS.
(a) All payments due from the Company on account of employee health
and welfare insurance in respect of years and periods (and portions hereof)
ended on or prior to the Closing Date were paid prior to the Closing Date or
were accrued and are payable within thirty (30) days after the Closing Date. All
severance payments which are or were due under the terms of any agreement, oral
or written, in respect of years and periods (and portions hereof) ended on or
prior to the Closing Date shall have been paid prior to the Closing Date or were
accrued and are payable within thirty (30) days after the Closing Date. Schedule
3.21(a) of the Company Disclosure Schedule contains any payments described in
this subsection 3.21(a) which have been accrued but shall remain unpaid as of
the Effective Time.
(b) Schedule 3.21(b) of the Company Disclosure Schedule describes any
accrued vacation payments owed to each employee by number of hours accrued and
rate of pay of each such employee.
SECTION 3.22 COMPENSATION.
(a) The rate of compensation, including salaries and bonuses, which
was payable by the Company as of October 30, 1999 to any director, officer,
consultant or any employee whose total compensation was in excess of eighty
thousand dollars ($80,000.00) is set forth in the Company Disclosure Schedule.
(b) As of October 30, 1999, there has not been, and pending the
Closing there shall not be, any increase in the compensation payable or to
become payable by the Company to any of its directors, officers, agents,
consultants, or any of its employees; or any welfare, pension, retirement or
similar payment or arrangement made or agreed to by the Company for the benefit
of any director, officer, agent, consultant or employee.
(c) Schedule 3.22 of the Company Disclosure Schedule sets forth any
accrued bonuses which remain unpaid and any agreements or arrangements pursuant
to which any bonus, percentage compensation, service award or other like benefit
may be paid. Pending the Closing there shall not be granted bonuses, percentage
compensation, service award or other like benefits to any director, officer,
agent, consultant or employees of the Company or any agreements made or agreed
to on behalf of the Company which would obligate the Company to pay any bonus,
percentage compensation, service award or other like benefit for the benefit of
any director, officer, agent, consultant or employee. At the Effective Time, all
such bonuses, percentage compensation, service award or other like benefits
shall have been paid and discharged in full.
SECTION 3.23 EMBARGOES. The Company and all controlled Affiliates of the
Company are in compliance with U.S. laws and regulations regarding U.S.
embargoes of Cuba, Iran, Iraq, Libya and North Korea. The Company further
represents and warrants that neither the Company nor any controlled Affiliate of
the Company owns, in whole or in part, or manages, operates, uses or benefits
from property in Cuba that was nationalized by the Cuban Government after
January 1, 1959.
SECTION 3.24 INTELLECTUAL PROPERTY. A correct and complete schedule setting
forth all patents, federal, state, or common law trademarks or service marks,
trade name or brand name registrations and copyright registrations, and all
pending applications and applications to be filed, if any, therefor, owned by
the Company, is contained in the Company Disclosure Schedule. No licenses,
sublicenses, covenants or agreements have been granted or entered into by the
Company in respect of any of such patents, trademarks, service marks, trade
names, brand names, copyrights, applications or licenses. The Company owns the
entire right, title and interest in and to any and all trademarks, service
marks, patents, and copyrights listed in the Company Disclosure Schedule. Each
item listed in the Company Disclosure Schedule with respect to this Section 3.24
is free and clear of all Liens and encumbrances of every nature, is not
currently being challenged in any way, has not lapsed or expired, and is not
involved in any pending or threatened interference proceedings. No other
patents, trademarks, service marks, trade names, brand names, copyrights,
licenses or applications are necessary for the conduct of the business of the
Company, as presently operated. To the best knowledge of the Company and the
Majority Shareholders, the operations of the Company, the manufacture, use and
sale by them of their products, the use by it of its machinery, equipment and
processes, the use of its products by its customers for the purpose for which
sold, and the use of their patents, trademarks, service marks, trade names,
brand names, inventions, applications, licenses and advertising, technical or
other literature, do not involve infringement; nor has the Company or the
Majority Shareholders been advised of any claim of infringement by the Company
of any proprietary right, patent, trademark, service mark, trade name or
copyright of others. All trade secrets owned or used by the Company is owned by
such entity free of any adverse claims, rights or encumbrances; and the Company
has used reasonable efforts to protect its rights to continued secrecy thereof.
None of the employees, officers or directors of the Company owns directly
or indirectly, in whole or in part, any invention, patent, proprietary right,
trademark, service mark, trade name, brand name or copyright or application for
either of the foregoing:
(a) which the Company is presently using; or
(b) the use of which is necessary for the business of the Company as
presently conducted.
SECTION 3.25 EMPLOYEE BENEFIT PLANS; ERISA.
(a) The only welfare benefit plans (as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), employee pension
benefit plans (as defined in Section 3(2) of ERISA), bonus, stock purchase,
stock ownership, stock option, deferred compensation, incentive or other
compensation plan or arrangement, and other employee fringe benefit plans
presently maintained by, or contributed to by the Company for the benefit of any
current or former employee, director or independent contractor of the Company,
or any dependent, family member or beneficiary of such an employee, director or
independent contractor of the Company, are those listed on the Company
Disclosure Schedule (the "Benefit Plans"). For purposes of this Section 3.25,
"Company" means the Company and any ERISA Affiliate of the Company. For purposes
of this Agreement, "ERISA Affiliate" means any entity aggregated with the
Company at any time under Section 414 of the Code.
(b) The Benefit Plans including, in the case of an informal or
unwritten Benefit Plan, a written summary thereof, have been or will be made
available to Acquisition for review, including, but not limited to, correct and
complete copies of (i) all trust agreements or other funding arrangements for
such Benefit Plans and all amendments thereto, (ii) with respect to any such
Benefit Plans or amendments, all determination letters, rulings, opinion
letters, information letters, advisory opinions issued by the Internal Revenue
Service or the Department of Labor, and voluntary filings or summaries of other
corrective actions described in Revenue Procedure 98-22; and (iii) any written
communication by the Company or any agent or representative of the Company or
any Benefit Plan to any Company employee or any participant in or beneficiary of
such Benefit Plan regarding the Benefit Plan.
(c) The Company and each of the Benefit Plans are in compliance with
the applicable provisions of ERISA, those provisions of the Code applicable to
the Benefit Plans, each Benefit Plan's governing documents, and any oral or
written representations regarding the Benefit Plan which was made by the Company
or any representative of the Company to any employee, participant or beneficiary
of any Benefit Plan or to a representative or agent of any such employee,
participant or beneficiary, and all other laws, restrictions, rulings, etc.
applicable to such Benefit Plans.
(d) All contributions to, and payments from, the Benefit Plans which
may have been required to be made in accordance with the Benefit Plans and, when
applicable, Section 302 of ERISA or Section 412 of the Code, have been timely
made.
(e) There are (i) no pending investigations by any Governmental Entity
involving the Benefit Plans, (ii) no termination proceedings involving the
Benefit Plans, (iii) no threatened or pending claims (except for claims for
benefits payable in the normal operation of the Benefit Plans), suits or
proceedings against any Benefit Plan or asserting any rights or claims to
benefits under any Benefit Plan which could give rise to any material liability
to the Company or any other party, and (iv) no facts which could give rise to
any material liability to the Company or any other party in the event of such
investigation, claim, suit or proceeding.
(f) Neither the Benefit Plans, the Company, any employee of the
Company nor any trusts created thereunder or any trustee, administrator or other
fiduciary or party in interest thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section 406
of ERISA) which could subject the Company to the tax or penalty on prohibited
transactions imposed by such Section 4975 or the sanctions imposed under Title I
of ERISA.
(g) Neither the Company nor its ERISA Affiliate has at anytime
sponsored, contributed to or been obligated under Title I or Title IV of ERISA
to contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).
(h) On or after September 26, 1980, neither the Company nor its ERISA
Affiliate has had an "obligation to contribute" (as defined in ERISA Section
4212) to a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and
3(37)(A)) or has incurred a "complete or partial withdrawal" (as defined in
ERISA Sections 4203 and 4205).
(i) The Company has complied with the notice and continuation coverage
requirements of Section 4980B of the Code and the regulations thereunder with
respect to each Benefit Plan that is, or was during any taxable year of the
Company for which the statute of limitations on the assessment of federal income
taxes remains open, by consent or otherwise, a "group health plan" within the
meaning of Section 5000(b)(1) of the Code. The Company has not incurred any
excise taxes or other taxes or penalties with respect to its group health plans.
(j) The Company has not incurred and is not reasonably likely to incur
any liability that is or could reasonably be expected to become a liability of
the Company with respect to any plan or arrangement that would be included
within the definition of "Benefit Plan" hereunder but for the fact that such
plan or arrangement was discontinued or terminated before the date of this
Agreement.
(k) No payment which is or may be made by the Company, or from any
Benefit Plan, to any employee, former employee, director or agent of the Company
under the terms of any Benefit Plan, either alone or in conjunction with any
other payment, will or could be characterized as an excess parachute payment
under Section 280G of the Code.
(l) The Company has not incurred any liability to provide death or
medical benefits with respect to any current or former employee of the Company
beyond retirement or other termination of employment other than as required by
Section 4890B of the Code.
(m) All annual returns and reports, audited or unaudited financial
statements, actuarial reports, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and complete,
have been timely filed with the Internal Revenue Service and timely delivered to
participants and there has been no material changes in the information set forth
therein. No material oral or written representation or communication with
respect to any aspect of the Benefit Plans has been made to employees of the
Company that is not in accordance with the written terms of such plans.
(n) Except as set forth on the Company Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (i) entitle any current or
former employee or director of the Company to severance pay, unemployment
compensation or any payment contingent upon a change in control or ownership of
the Company, (ii) increase or enhance any benefits payable under any Benefit
Plan or (iii) accelerate the time of payment or vesting, or increase the amount,
of any compensation due to any such employee or former employee or director.
(o) Except for the individuals listed on the Company Disclosure
Schedule, the Company has not, during the past two (2) years, employed or
received services from any temporary, contingent or contract worker, or any
independent contractor, for a period of more than thirty (30) calendar days
during any twelve (12) month period. As to the individuals listed on the Company
Disclosure Schedule, the Company has made available to Acquisition all
agreements with such individuals and/or the agencies through which such
individuals are employed. No such individual is eligible to participate in any
Benefit Plan.
(p) Each participant in or beneficiary of any Benefit Plan is a common
law employee of the particular ERISA Affiliate which sponsors or maintains such
Benefit Plan, or is entitled to such participation or benefit by virtue of his
or her relationship (e.g., as a dependent or spouse) with a common law employee
of such ERISA Affiliate.
(q) Other than as specifically approved by Acquisition, neither the
Company nor any representative of the Company has made or will make oral,
written or other representations to any employee of the Company or to any other
person or entity regarding the benefits, compensation or other terms or
conditions of employment which will be provided by Acquisition. Whether or not a
particular individual will or will not be hired by the Company after the Closing
constitutes a term or condition of employment.
SECTION 3.26 ENVIRONMENTAL MATTERS.
(a) Definitions
(i) "Cleanup" means all actions required to: (1) cleanup, remove,
treat or remediate Hazardous Materials in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Materials so that they do not migrate, endanger
or threaten to endanger public health or welfare of the indoor or outdoor
environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of Hazardous
Materials in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or Release into the indoor
or outdoor environment, of any Hazardous Materials at any location, whether or
not owned or operated by the Company or any of its Subsidiaries or Acquisition
or any of its Subsidiaries, as applicable, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials, and all laws relating to
endangered or threatened species of fish, wildlife and plants and the management
or use of natural resources.
(iv) "Hazardous Materials" means "hazardous substance" (as
defined by the Comprehensive Environmental Response, Compensation, and Liability
Act, as amended), "hazardous waste" (as defined by the Resource Conservation and
Recovery Act, as amended), pesticides, petroleum, crude oil or any fraction
thereof, radioactive material, and any pollutant, oil, contaminant, hazardous,
extremely hazardous, dangerous or toxic chemical, material, waste or any other
substance within the meaning of any Environmental Law or which could pose a
hazard to the environment or the health and safety of any person.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater or property.
(b) Representations and Warranties
(i) The Company and its Subsidiaries are in compliance in all
material respects with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by the Company and its
Subsidiaries of all permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof). Neither the Company nor any of its Subsidiaries has received any
communication (written or oral), whether from a Governmental Entity, citizens
group, employee or otherwise, that alleges that the Company or any of its
Subsidiaries is not in such compliance, and there are no past or present (or to
the knowledge of the Company and the Majority Shareholders, future) actions,
activities, circumstances conditions, events or incidents that may prevent or
interfere with such compliance in the future. All Permits and other governmental
authorizations currently held by the Company and its Subsidiaries pursuant to
applicable Environmental Laws are identified in Schedule 3.26 of the Company
Disclosure Schedule.
(ii) No transfers of permits or other governmental authorizations
under Environmental Laws, and no additional permits or other governmental
authorizations under Environmental Laws, will be required to permit the Company
to conduct its business in full compliance with all applicable Environmental
Laws immediately following the Effective Time, as conducted by the Company and
its Subsidiaries immediately prior to the Effective Time. To the extent that
such transfers or additional permits and other governmental authorizations are
required, the Company and its Subsidiaries agree to cooperate with Acquisition
to effect such transfers and obtain such permits and other governmental
authorizations prior to the Effective Time, to the extent practicable and to the
extent that such permits and governmental authorizations may be obtained or
transferred pursuant to Applicable Law or regulation prior to the Effective
Time.
(iii) There is no Environmental Claim pending or, to the
knowledge of the Company and of the Majority Shareholders, threatened against
the Company or any of its Subsidiaries or, to the knowledge of the Company and
the Majority Shareholders, against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries have or may have
retained or assumed either contractually or by operation of law.
(iv) To the best knowledge of the Company and the Majority
Shareholders, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge, presence or disposal of any Hazardous Material which could
form the basis of any Environmental Claim against the Company or any of its
Subsidiaries, or to the knowledge of the Company and the Majority Shareholders,
against any person or entity whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
(v) The Company and its Subsidiaries have not, and to the
knowledge of the Company and the Majority Shareholders, no other person has
placed, stored, deposited, discharged, buried, dumped or disposed of Hazardous
Materials or any other wastes produced by, or resulting from, any business,
commercial or industrial activities, operations or processes, on, beneath or
adjacent to any property currently or formerly owned, operated or leased by the
Company or any of its Subsidiaries, except for inventories of such substances to
be used, and wastes generated therefrom, in the ordinary course of business of
the Company and its Subsidiaries (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable Environmental Laws and
in a manner such that there has been no Release of any such substances into the
indoor or outdoor environment).
(vi) The Company has delivered or otherwise made available for
inspection to Acquisition true, correct and complete copies and results of any
reports, studies, analyses, tests or monitoring possessed or initiated by the
Company or any of its Subsidiaries pertaining to Hazardous Materials in, on,
beneath or adjacent to any property currently or formerly owned, operated or
leased by the Company or any of its Subsidiaries, or regarding the Company's or
any of its Subsidiaries' compliance with applicable Environmental Laws.
(vii) Without in any way limiting the generality of the
foregoing, any properties currently owned, operated or leased by the Company and
its Subsidiaries do not, to the knowledge of the Company and the Majority
Shareholders, contain any: underground storage tanks; asbestos; polychlorinated
biphenyls ("PCBs"); underground injection wells; radioactive materials; or
septic tanks or waste disposal pits in which process wastewater or any Hazardous
Materials have been discharged or disposed.
SECTION 3.27 LABOR MATTERS. To the best knowledge of the Company and the
Majority Shareholders, except as described in Schedule 3.27 of the Company
Disclosure Schedule:
(a) The Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and is not engaged in any unfair labor practice.
(b) There is no unfair labor practice complaint against the Company
pending or, to the best knowledge of the Company and the Majority Shareholders,
threatened before the National Labor Relations Board.
(c) There is no labor strike, dispute, slowdown, or stoppage actually
pending or, to management's best knowledge, threatened against or affecting the
Company.
(d) The Company does not have a collective bargaining agreement with
any union respecting any of its employees, and no union representation question
exists respecting the Company's employees.
(e) No grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor exists.
(f) No agreement that is binding on the Company restricts it from
relocating or closing any of its operations.
(g) There is no pending claim against the Company alleging
discrimination against employees or former employees based on race, creed,
color, gender, sexual preference, medical condition or disability, nor has there
been any such claim in the past three (3) years.
(h) The Company's relations with its employees are, on the whole,
harmonious, and neither the Company nor the Majority Shareholders are aware of
any reason or circumstance that would cause a material portion of such
employees, or any key employee of the Company, not to continue in the employ of
Acquisition as contemplated hereunder.
(i) The Company has fewer than one hundred (100) employees, is not an
"employer" within the definition under 29 U.S.C. 2101 (a)(1), and is not subject
to the notice and other requirements of the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. 2101, et seq.
SECTION 3.28 EMPLOYEES. Set forth in Schedule 3.28 of the Company
Disclosure Schedule is an accurate and complete list of the names, titles, dates
of hire and current rates of pay of all the Company's employees as of October
30, 1999. The Company will give Acquisition full access to the personnel files
of the employees listed in Schedule 3.28.
SECTION 3.29 SUPPLIERS. Set forth in Schedule 3.29 of the Company
Disclosure Schedule is a list of (a) the ten (10) largest suppliers to the
Company in terms of purchases during the ten (10) month period ended October 30,
1999; and (b) a statement showing the approximate total purchases from each
supplier listed pursuant to the foregoing during the relevant period. The
Company is satisfied with its relationships with all of its suppliers and has no
reason to believe that its supply of any item or raw material will be
interrupted or terminated in the foreseeable future or, if terminated, that such
supply cannot be replaced at reasonable cost within a reasonable period of time.
Neither the Company nor the Majority Shareholders are aware of any threats or
other specific facts giving it reason to believe that the consummation of the
transaction contemplated by this Agreement will adversely affect the Company's
current business relationship with any of its suppliers.
SECTION 3.30 CUSTOMERS. Set forth in Schedule 3.30 of the Company
Disclosure Schedule is a list of (a) the ten (10) largest customers of the
Company in terms of sales during the ten (10) month period ended October 30,
1999; and (b) a statement showing the approximate total sales to each customer
listed pursuant to the foregoing during the relevant period. Neither the Company
nor the Majority Shareholders are aware of any threats or other specific facts
giving it reason to believe that the consummation of the transaction
contemplated by this Agreement will in and of itself adversely affect the
Company's business relationship with any of its customers. Copies of all
correspondence or other documents relating to complaints received by the Company
during the two (2) years preceding the Closing Date from any of its customers,
whether or not resolved, and any other pending customer complaints have
heretofore been furnished to Acquisition by the Company has no obligation to
accept any returns from or make any allowance to any customers by reason of
alleged over shipments or defective supplies or services or to accept any
returns of merchandise in the hands of customers under an understanding that the
merchandise would be returnable, except for returns of merchandise in the
ordinary course of business that are immediately replaced by or exchanged for
substitute merchandise. The Company does not have any discount, credit, refund
or trade-out agreement (including, but not limited to, special purchase terms,
advertising allowances, corporate or volume rebates or returns), whether oral or
written, with any customer. The Company does not have any liability to any of
its existing or prior customers based on breach of contract or errors or defects
in work performed or goods or materials supplied by the Company.
SECTION 3.31 ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE; PREPAIDS. The
accounts receivable and contracts receivable of the Company reflected on the
Supplemental Financial Statement represent or will represent sales actually made
and earned in the ordinary course of business. All such accounts receivable and
contracts receivable have been collected or are collectible when due in the
ordinary course of business net of any reserve therefor shown on the
Supplemental Financial Statement. Such accounts receivable and contracts
receivable are not subject to conditions as to payment, or to offsets,
counterclaims or defenses of any kind or to allowances, returns or credits. All
items shown as deposits or prepaid amounts on the Supplemental Financial
Statement represent or will represent actual prepayments or deposits for which
Acquisition will receive actual value of an equivalent amount in the ordinary
course of business.
SECTION 3.32 INVENTORY. The inventory reflected on the Supplemental
Financial Statement has been or will be based on quantities determined by
physical counts or measurements taken on the date thereof, and is valued at the
lower of cost (determined on a first-in, first-out basis) or market. All
inventory of the Company at Closing will consist of a quality and quantity
usable and salable in the ordinary course of business. The quantities of all
inventory of the Company at Closing will be reasonable in the present
circumstances of its business. No items included in the inventory reflected on
the Supplemental Financial Statement were or will be the property of any person
other than the Company, except for sales made in the ordinary course of
business, as to which sales either the buyer has made full payment or the
buyer's liability to make payment is reflected on the Company's books and
records. No items included in the inventory reflected on the Supplemental
Financial Statement have been or will be pledged as collateral or are held or
will be held by the Company on consignment from others.
SECTION 3.33 PROFESSIONAL FEES. The Company has not paid or has not agreed
to pay any attorneys' fees, accounting fees or other professional fees or costs
(the "Professional Fees"), nor shall the Company pay any of Professional Fees,
incurred in connection with the process of marketing the Company for sale in
1999 as well as the consummation of the transactions contemplated by this
Agreement in excess of one hundred thousand dollars ($100,000.00). The
Shareholders have paid or made arrangements for the payment of Professional Fees
in excess of one hundred thousand dollars ($100,000.00) from their separate
funds.
SECTION 3.34 AFFILIATE TRANSACTIONS. Except as disclosed on Schedule 3.34
of the Company Disclosure Schedule, or as contemplated by the transactions
contemplated hereby, there are no material Contracts or other transactions
between the Company or any of its Subsidiaries, on the one hand, and any (i)
officer or director of the Company or any of its Subsidiaries, (ii) record or
beneficial owner of five percent (5%) or more of the voting securities of the
Company or (iii) affiliate (as such term is defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended, of any such officer,
director or beneficial owner, on the other hand.
SECTION 3.35 TAKEOVER LAWS. The Shareholders shall not avail themselves of
any "dissenter's rights", "fair price," "business combination," "control share
acquisition" or similar statute which would apply to the transactions
contemplated by this Agreement.
SECTION 3.36 BROKERS. Except for First Commercial Group, 400 West Market
Street, Greensboro, North Carolina 27401, no broker, finder or financial advisor
retained by the Company or any of the Shareholders is entitled to any brokerage,
finder's or other fee or commission from the Company in connection with the
transactions contemplated by this Agreement. The Shareholders have paid or made
arrangements for the payment of any and all brokerage, finder's or other such
fee or commission incurred by the Company or the Shareholders from their
separate funds.
SECTION 3.37 DISCLOSURE. No representations or warranties by the Company in
this Agreement and no statement contained in any schedule, document,
certificate, or other written statement furnished or to be furnished by the
Company or any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby are inaccurate, incorrect
or incomplete in any material respect, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Except as set forth in the disclosure schedule of Acquisition attached
hereto (the "Acquisition Disclosure Schedule") (each section of which qualifies
to the correspondingly numbered representation and warranty), Parent and
Acquisition, jointly and severally, represent and warrant to the Company and the
Shareholders as follows:
SECTION 4.1 ORGANIZATION AND GOOD STANDING.
(a) Acquisition is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and has the corporate
power and authority to carry on its business as it is now being conducted.
Acquisition is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary.
(b) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has the corporate
power and authority to carry on its business as it is now being conducted.
Parent is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary.
SECTION 4.2 CORPORATE AUTHORITY.
(a) Acquisition has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Acquisition
and the consummation by Acquisition of the transactions contemplated hereby have
been duly authorized by its board of directors and the board of directors of
Parent and no other corporate action on the part of Acquisition is necessary to
authorize the execution and delivery by Acquisition of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Acquisition and constitutes a valid and
binding agreement of Acquisition and is enforceable against Acquisition in
accordance with its terms, except that (i) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defense, and to the
discretion of the court before which any proceeding therefor may be brought.
(b) Parent has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby have been duly
authorized by its board of directors and no other corporate action on the part
of Parent is necessary to authorize the execution and delivery by Parent of this
Agreement and the consummation by it of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding agreement of Parent and is enforceable against Parent in
accordance with its terms, except that (i) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defense, and to the
discretion of the court before which any proceeding therefor may be brought.
SECTION 4.3 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to Acquisition or Parent in connection
with the execution and delivery of this Agreement by Acquisition or Parent or is
necessary for the consummation of the transactions contemplated hereby.
SECTION 4.4 NON-CONTRAVENTION. The execution and delivery by Acquisition
and Parent of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under any
Contract applicable to Acquisition or Parent or any of their Affiliates, or
result in the creation of any Lien upon any of the properties or assets of
Acquisition or Parent or any of their Affiliates, (ii) conflict with or result
in any violation of any provision of the articles of incorporation or bylaws or
other equivalent organizational document, in each case as amended, of
Acquisition or Parent or any of their Affiliates, (iii) conflict with or violate
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquisition or Parent or any of their Affiliates or any of their
respective properties or assets (except for any national or supranational
Antitrust Laws as to which no representation or warranty is being made).
SECTION 4.5 BROKERS. No broker, finder or financial adviser is entitled to
any brokerage, finder's or other fee or commission from Acquisition or Parent in
connection with the transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, severally and not jointly, represent and warrant to
Acquisition and Parent as follows:
SECTION 5.1 AUTHORITY. This Agreement has been duly executed and delivered
by each Shareholder and constitutes a valid and binding agreement of such
Shareholder and is enforceable against each Shareholder in accordance with its
terms, except that (i) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defense, and to the discretion of
the court before which any proceeding therefor may be brought.
SECTION 5.2 NON-CONTRAVENTION. The execution and delivery by each
Shareholder of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under any
Contract applicable to such Shareholder, or result in the creation of any Lien
upon any of the properties or assets of such Shareholder, or (ii) conflict with
or violate any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to such Shareholder or any of its respective properties or
assets as to which no representation or warranty is being made.
SECTION 5.3 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to each Shareholder in connection with the
execution and delivery of this Agreement by such Shareholder or is necessary for
the consummation of the transactions contemplated hereby.
SECTION 5.4 TITLE TO SHARES OF COMPANY STOCK. Each Shareholder has good and
valid title to its shares of Company Stock. None of such shares of Company Stock
are subject to any Liens.
SECTION 5.5 PERFORMANCE UNDER EMPLOYMENT AGREEMENTS. No medical condition
exists which shall prevent any of the Employee Shareholders from performing the
obligations contained in the employment agreements described in subsection
2.1(d).
SECTION 5.6 DISCLOSURE. No representations and statements of each
Shareholder contained in this Agreement and no statement contained in any
schedule, document, certificate, or other written statement furnished or to be
furnished by the Shareholders or any of their respective representatives
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby are inaccurate, incorrect or incomplete in any material
respect, contain or will contain any untrue statement of a material fact or omit
or will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING CLOSING. Prior to
the Effective Time, unless Acquisition shall otherwise agree in writing or as
otherwise expressly contemplated by this Agreement, including, without
limitation, Article III hereof, or as set forth in Schedule 6.1 of the Company
Disclosure Schedule, the Company shall conduct, and cause each of its
Subsidiaries to conduct, its business only in the ordinary and usual course and
the Company shall use, and cause each of its Subsidiaries to use, its reasonable
best efforts to preserve intact the present business organization, keep
available the services of its present officers and key employees, and preserve
their existing business relationships. Without limiting the generality of the
foregoing, unless Acquisition shall otherwise agree in writing or as otherwise
expressly contemplated by this Agreement, including, without limitation, Article
III hereof, or as set forth in Schedule 6.1 of the Company Disclosure Schedule,
prior to the Effective Time the Company shall not, nor shall it permit any of
its Subsidiaries to:
(a) (i) amend its Articles of Incorporation, as amended, bylaws or
other organizational documents, (ii) split, combine or reclassify any shares of
its outstanding capital stock, (iii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property, or (iv) directly or
indirectly redeem or otherwise acquire any shares of its capital stock or shares
of the capital stock of any of its Subsidiaries;
(b) authorize for issuance, issue (except upon the exercise of
outstanding stock options granted in accordance with the terms of existing stock
option plans) or sell or agree to issue or sell any shares of, or rights to
acquire or convertible into any shares of, its capital stock or shares of the
capital stock of any of its Subsidiaries (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise);
(c) (i) merge, combine or consolidate with another entity, (ii)
acquire or purchase an equity interest in or a substantial portion of the assets
of another corporation, partnership or other business organization or otherwise
acquire any assets outside the ordinary course of business and consistent with
past practice or otherwise enter into any material Contract, commitment or
transaction outside the ordinary course of business and consistent with past
practice or (iii) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its material assets outside the ordinary course of
business and consistent with past practice;
(d) (i) incur, assume or prepay any material indebtedness or any other
material liabilities (other than trade payables), (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other than a
Subsidiary of the Company, or (iii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to any
Subsidiary of the Company;
(e) pay, satisfy, discharge or settle any material claim, liabilities
or obligations (absolute, accrued, contingent or otherwise) other than pursuant
to the mandatory terms of any Company Contract in effect on the date hereof;
(f) modify or amend, or waive any benefit of, any non-competition
agreement to which the Company or any of its Subsidiaries is a party;
(g) authorize or make capital expenditures in excess of five thousand
dollars ($5,000.00) individually, or in excess of fifteen thousand dollars
($15,000.00) in the aggregate, other than as set forth in the Company Disclosure
Schedule;
(h) permit any insurance policy naming the Company or any Subsidiary
of the Company as a beneficiary or a loss payee to be canceled or terminated
other than in the ordinary course of business;
(i) (i) adopt, enter into, terminate or amend in any material respect
(except as may be required by Applicable Law) any plan for the current or future
benefit or welfare of any director or officer, (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director, officer
or employee or (iii) take any action to fund or in any other way secure, or to
accelerate or otherwise remove restrictions with respect to, the payment of
compensation or benefits under any employee plan, agreement, Contract,
arrangement or other Company Plan other than in the ordinary course of business;
(j) fail to preserve and protect the Company Intellectual Property
Rights;
(k) make any material change in its accounting or tax policies or
procedures, except as required by law or to comply with GAAP;
(l) fail to preserve intact its business and keep available the
services of present employees, in each case in accordance with past practice, it
being understood that termination of employees with poor performance ratings
shall not constitute a violation of this covenant;
(m) change the compensation or fringe benefits of any officer,
director, employee or consultant, except for ordinary merit increases for
employees based on periodic reviews in accordance with past practices, or enter
into or modify any plan or any employment, severance or other agreement with any
officer, director, employee or consultant of the Company or its Subsidiaries; or
(n) enter into any Contract with respect to any of the foregoing.
SECTION 6.2 EFFECT OF FAILURE TO COMPLY. The failure of the Company to
fulfill each condition and perform each of the covenants and agreements
contained in Section 6.1 shall constitute a breach of this Agreement by the
Company and each of the Majority Shareholders, but shall not constitute a breach
of this Agreement by any other Shareholder.
ARTICLE VII
ADDITIONAL AGREEMENTS AND COVENANTS
SECTION 7.1 ACCESS AND INFORMATION. The Company shall (and shall cause its
Subsidiaries and its respective officers, directors, employees, auditors and
agents to) afford to Acquisition, Parent and to their officers, employees,
financial advisors, legal counsel, accountants, consultants and other
representatives (except to the extent not permitted under Applicable Law as
advised by counsel) reasonable access during normal business hours throughout
the period prior to the Effective Time to all of its books and records and its
properties, plants, software, technology, technology rights and personnel and
the Company's current customers, prospects and, upon prior notice to the
Company, third parties which may claim a proprietary right to the Company's
property (including telephone interviews and site visits).
SECTION 7.2 NO SOLICITATION. From the date hereof until the Effective Time,
the Company and each of the Shareholders agrees that neither it, any of its
respective Subsidiaries or Affiliates, nor any of the respective directors,
officers, employees, agents or representatives of the foregoing, will, directly
or indirectly, (i) solicit or initiate (including by way of furnishing or
disclosing non-public information) any inquiries or the making of any proposal
with respect to any merger, consolidation or other business combination
involving the Company or any Subsidiary of the Company or the acquisition of all
or any significant part of the assets or capital stock of the Company or any
Subsidiary of the Company (an "Purchase Transaction") or (ii) negotiate, explore
or otherwise engage in discussions with any person (other than Acquisition,
Parent and their representatives) with respect to any Purchase Transaction, or
which may reasonably be expected to lead to a proposal for an Purchase
Transaction or enter into any agreement, arrangement or understanding with
respect to any such Purchase Transaction or which would require it to abandon,
terminate or fail to consummate any transaction contemplated by this Agreement.
SECTION 7.3 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions herein provided and applicable
legal requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to assist and cooperate
with the other parties hereto in doing, as promptly as practicable, all things
necessary, proper or advisable under Applicable Law and regulations to ensure
that the conditions set forth in Article VIII are satisfied and to consummate
and make effective the transactions contemplated by this Agreement.
(b) Each of the parties will use its reasonable best efforts to obtain
as promptly as practicable all consents, waivers, approvals, authorizations or
permits of, or registration or filing with or notification to (any of the
foregoing being a "Consent"), of any Governmental Entity or any other person
required in connection with, and waivers of any violations, defaults or breaches
that may be caused by, the consummation of the transactions contemplated by this
Agreement.
(c) Each party hereto shall promptly inform the other of any material
communication from the United States Federal Trade Commission, the United States
Department of Justice, the United States Department of Commerce, or any other
Governmental Entity regarding any of the transactions contemplated by this
Agreement. If any party or any Affiliate thereof receives a request for
additional information or documentary material from any such government or
authority with respect to the transactions contemplated by this Agreement, then
such party will cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request.
SECTION 7.4 PUBLIC DISCLOSURE; CONFIDENTIALITY.
(a) Acquisition or Parent may issue a public announcement of the
execution of this Agreement and the transactions contemplated hereby, either
with the consent of the Company and the Shareholders, or without such consent if
such an announcement is, in the opinion of Acquisition's counsel, required by or
advisable under Applicable Law, rule or regulation, in which case, Acquisition
shall give the Company notice of and an opportunity to review and comment on the
proposed announcement. None of the remaining parties will make a public
disclosure or publicity release pertaining to the existence of this Agreement or
the subject matter hereof without notifying, consulting with and obtaining the
consent of Acquisition thereto; provided, however, that notwithstanding the
foregoing, each party shall be permitted to make such disclosure to the public
or to government authorities as its counsel shall deem necessary to maintain
compliance with and prevent violation of applicable federal or state laws,
subject to review and comments by the other party. In addition, the Company and
Acquisition or Parent may make limited disclosures relative to the existence of
this Agreement in order to accomplish the due diligence provided for in this
Agreement.
(b) Until the Effective Time (or the earlier termination of this
Agreement), Acquisition and Parent will, and will cause their employees and
agents to hold in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law, all the Company Confidential Information (as hereinafter defined) and
will not disclose the same to any person. If this Agreement is terminated,
Acquisition and Parent will promptly return to the Company all documents
received by Acquisition and Parent containing the Company Confidential
Information. "The Company Confidential Information" means all information of any
kind concerning the Company, wherever obtained, except information:
(i) ascertainable or obtained from public or published
information,
(ii) received from a third party not known to Acquisition or
Parent to be under an obligation to the Company to keep such information
confidential,
(iii) which is or becomes known to the public (other than through
a breach of this Agreement),
(iv) which Acquisition or Parent can demonstrate was in its
possession prior to disclosure thereof to Acquisition or Parent in connection
with this Agreement, or
(v) which Acquisition or Parent can demonstrate was independently
developed by it.
(c) Until the Effective Time (or the earlier termination of this
Agreement) the Company will, and will cause its employees and agents to hold in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
Acquisition Confidential Information (as hereinafter defined) and will not
disclose the same to any person. If this Agreement is terminated, the Company
will promptly return to Acquisition all documents received by the Company
containing Acquisition Confidential Information. "Acquisition Confidential
Information" means all information of any kind concerning Acquisition or Parent,
wherever obtained, except information:
(i) ascertainable or obtained from public or published
information,
(ii) received from a third party not known to the Company to be
under an obligation to Acquisition to keep such information confidential,
(iii) which is or becomes known to the public (other than through
a breach of this Agreement),
(iv) which the Company can demonstrate was in its possession
prior to disclosure thereof to the Company in connection with this Agreement, or
(v) which the Company can demonstrate was independently developed
by it.
(d) Until the Effective Time (or the earlier termination of this
Agreement) each Shareholder will, and, to the extent applicable, will cause its
employees and agents to hold in strict confidence, unless compelled to disclose
by judicial or administrative process or, in the opinion of its counsel, by
other requirements of law, all Acquisition Confidential Information and will not
disclose the same to any person. If this Agreement is terminated, each
Shareholder will promptly return to Acquisition all documents received by said
Shareholder containing Acquisition Confidential Information.
SECTION 7.5 EXPENSES.
(a) Each party hereto shall bear its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby.
(b) If the transactions contemplated by this Agreement are not
consummated, the Company and each Shareholder shall each pay all of its costs
and expenses (including attorneys' fees and other legal costs and expenses and
accountants' fees and other accounting costs and expenses) in connection with
this Agreement and the transactions contemplated hereby, and Acquisition and
Parent shall pay all of their costs and expenses (including attorneys' fees and
other legal costs and expenses and accountants' fees and other accounting costs
and expenses) in connection with this Agreement and the transactions
contemplated hereby.
(c) Notwithstanding anything contained herein to the contrary, the
cumulative amount of Professional Fees which the Company has paid or must pay in
connection with the process of marketing the Company for sale in 1999 as well as
the consummation of the transactions contemplated by this Agreement shall not
exceed one hundred thousand dollars ($100,000.00) and any amount incurred in
excess of such amount shall be payable by the Shareholders from their separate
funds.
SECTION 7.6 SUPPLEMENTAL DISCLOSURE. The Company shall give prompt notice
to Acquisition, and Acquisition shall give prompt notice to the Company, of (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (ii) any failure of the Company or Acquisition, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 7.6 shall not have any effect
for the purpose of determining the satisfaction of the conditions set forth in
Article VIII of this Agreement or otherwise limit or affect the remedies
available hereunder to any party.
SECTION 7.7 DISCLOSURE STATEMENTS. Prior to the Closing, the Company
promptly will supplement or amend the Company Disclosure Schedule delivered
pursuant hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Schedule or which is necessary to correct any
information in such Schedule which has been rendered materially inaccurate
thereby. No supplement or amendment to the Company Disclosure Schedule shall
affect the conditions to Acquisition's obligation to consummate the transactions
contemplated by this Agreement.
SECTION 7.8 EMPLOYEE BONUS. Prior to the Effective Time, the Company shall
have paid in full or otherwise discharged its obligation to pay any bonus,
percentage compensation, service award or other like benefit which had been
granted or agreed to by the Company and earned prior to the Effective Time,
whether or not the date upon which payment is required occurs prior to the
Effective Time. The amount of such bonus, percentage compensation, service award
or other like benefit shall not exceed eighty-three thousand fifty-two dollars
($83,052.00) and the name of each person and the amount payable to such person
is set forth on Schedule 7.8 of the Company Disclosure Schedule. The Company
shall terminate any and all plans, programs or arrangements for a bonus,
percentage compensation, service award or like benefit prior to the Effective
Time.
SECTION 7.9 AUTOMOBILE LEASES. Prior to the Effective Time, the Majority
Shareholders shall have been assigned lease agreements between the Company and
(a) Charlotte Import Cars, Inc., dated November 12, 1997 for the use
of a 1998 Volvo; and
(b) Charlotte Import Cars, Inc., dated August 30, 1998 for the use of
a 1999 Volvo;
and shall have obtained releases of the Company in form and substance
satisfactory to Acquisition, from any and all obligations under said lease
agreements. In addition, prior to the Effective Time, the Company shall have
terminated or assigned to the Majority Shareholder policies of insurance entered
into by the Company pursuant to said lease agreements. The Majority Shareholders
shall have obtained equivalent insurance coverage in their names for the
vehicles covered by said lease agreements if the Company's policies of insurance
have been terminated.
SECTION 7.10 OFFICER RELEASES AND EMPLOYEE OFFERS OF EMPLOYMENT.
(a) Prior to the Effective Time, the Company shall have obtained from
each of the Company's officers a general release of any and all claims the
officers may have against the Company arising out of their employment with the
Company, except for unused vacation time. The foregoing sentence shall not apply
to any claim for workers' compensation or unemployment benefits. Any
consideration, cost or expense incurred with respect to obtaining, negotiating
or preparing of documents evidencing the general release shall be borne by the
Majority Shareholders. Such general release shall be in a form acceptable to
Acquisition.
(b) Prior to the Effective Time, each employee of the Company employed
as of the date of this Agreement shall have accepted an offer of employment from
Acquisition on substantially the same terms as such employee was employed by the
Company prior to the Effective Time.
SECTION 7.11 RELEASE FROM STOCK GRANT PROGRAM. Prior to the Effective Time,
the Company shall have obtained from David N. Westbrook and Brian A. Cooper a
general release of any and all claims each of them may have against the Company
or the Majority Shareholders with respect to any program, promise, agreement,
plan or arrangement pursuant to which each may have been entitled, at any time
prior to or after the Effective Time, to receive any shares of Company Stock or
other equity interests of the Company or any options, warrants, agreements,
arrangements, commitments or other rights to receive any shares of Company Stock
or other equity interests of the Company. Any consideration, cost or expense
incurred with respect to obtaining, negotiating or preparing of the document
evidencing such release shall be borne by the Majority Shareholders. The form of
the general release described in this Section 7.11 shall be acceptable to
Acquisition.
SECTION 7.12 LINE OF CREDIT. Prior to the Effective Time, the Company shall
have terminated its line of credit dated June 11, 1999 with Branch Banking &
Trust Company, 6869 Fairview Road, Charlotte, North Carolina 28210-3384, and
shall have satisfied any promissory notes or other indebtedness issued
thereunder and shall have obtained a termination and release of any security
interest issued by the Company to Branch Banking & Trust Company to secure the
obligations of the Company under said line of credit in a form acceptable to
Acquisition.
SECTION 7.13 DISPUTED CONTRACT AMOUNT.
(a) Prior to the Effective Time, the Company shall have assigned to
the Majority Shareholders any proceeds of payment the Company may receive
pursuant to that certain subcontract agreement entered into between the Company
and Ernst & Young, LLP, a Delaware limited liability partnership dated on or
about December 15, 1998 and the Company shall have received in cash or
immediately available funds the sum of two hundred twenty six thousand six
hundred nineteen and 86/100 ($226,619.86) in consideration of such assignment,
less any amount actually paid by Ernst & Young, LLP, in respect of said
subcontract agreement prior to the Effective Time. The form of any such
assignment shall be acceptable to Acquisition. The Majority Shareholders shall
prosecute for its own account, but in the name of the Company, the mediation and
arbitration of the dispute between the Company and Ernst & Young, LLP, Case
Number 31 174 0011999, before the American Arbitration Association, 2200 Century
Parkway, Suite 300, Atlanta, Georgia 30345; provided, however, the Majority
Shareholders shall indemnify Acquisition and its Affiliates for all costs, loss,
damage and expense (including actual attorneys' fees, expert witness fees,
accountants' fees and cost of arbitration or court costs) incurred with respect
to said mediation and arbitration and any judicial proceedings initiated to
enforce any award of a mediator or arbitrator. Acquisition may offset the
Promissory Note in accordance with Section 12.5 for any such loss, cost, damage
or expense incurred by the Majority Shareholders in connection with the
prosecution of said mediation and arbitration. Prior to the Effective Time, any
claims for the costs of said mediation and arbitration, court costs and fees of
attorneys, accountants, expert witnesses, mediators or arbitrators incurred by
the Company with respect to said mediation and arbitration shall have been paid
and discharged in full.
(b) For so long as the Majority Shareholders are actively contesting
said mediation and arbitration or any judicial proceeding resulting therefrom,
Acquisition shall, and shall cause the Company, to cooperate with the Majority
Shareholders in the prosecution of said mediation and arbitration or judicial
proceeding make available their personnel and provide such testimony and access
to their books and records as shall be necessary in connection within said
prosecution, all of the sole cost and expense of the Majority Shareholders.
(c) In the event Acquisition or the Company collects or receives after
the Closing Date any amounts in respect of the subcontract agreement described
in subsection 7.13(a) above, Acquisition shall, without demand, pay over or
cause the Company to pay over, to the Majority Shareholders said amounts.
SECTION 7.14 LIEN SEARCH. At least ten (10) days prior to the Closing Date,
Acquisition shall have received from the Company a lien search disclosing the
absence of Liens on the assets of the Company, except as disclosed on Schedule
7.15 of the Company Disclosure Schedule, as recorded in the offices of each
state and each political subdivision thereof in which the Company has business
operations and in which recording is required by Applicable Law.
SECTION 7.15 SUPPLEMENTAL FINANCIAL STATEMENT. The Company shall present to
Acquisition not later than thirty (30) days after the Closing Date a financial
statement, in the same form as described in Section 3.11, for the period which
ends on the Closing Date ("Supplemental Financial Statement"). The
representations and warranties contained in Section 3.11 shall apply to the
Supplemental Financial Statement.
SECTION 7.16 STOCKHOLDERS' EQUITY. The amount of the stockholders' equity
of the Company shall not be less than four hundred twenty-five thousand dollars
($425,000.00) as shown on the Supplemental Financial Statement. The calculation
of the stockholders' equity of the Company on the Supplemental Financial
Statement shall be performed in the same manner as the calculations of such
amount on the Financial Statements.
SECTION 7.17 SHAREHOLDER LOAN. The promissory notes payable by the Company
to Roger A. Gilmartin dated January 22, 1999 and February 8, 1999 each in the
original principal amount of fifty thousand dollars ($50,000.00), shall have
been satisfied in full prior to the Effective Time and the Company shall have
received evidence of the satisfaction from Roger A. Gilmartin in a form
acceptable to Acquisition.
SECTION 7.18 COMPANY CHECKS. Pending Closing, the Company shall not permit
any person other than a Shareholder to sign any checks or drafts drawn on any
account of the Company.
SECTION 7.19 OPTION PLANS. Prior to the Effective Time, the Company shall
have terminated any plan, program, agreement or arrangement, oral or written,
pursuant to which any shares of the Company Stock or other securities of the
Company or any options, warrants or other rights to acquire shares of Company
Stock or other securities may be issued, sold or granted to any person.
SECTION 7.20 INSURANCE. Prior to the Effective Time, the Company shall have
terminated any plan, program, agreement or arrangement, oral or written,
pursuant to which the Company has provided to any employee any benefit in the
form of a life insurance benefit.
SECTION 7.21 AUDIT OF COMPANY'S FINANCIAL STATEMENTS. Prior to the
Effective Time, Company shall use its best efforts to complete an audit of its
financial statements as needed to enable Parent to comply with its SEC reporting
and registration obligations. Company shall use its best efforts to facilitate
Company's accountants entering into an agreement with Parent to the effect that
such accountants shall permit the use of Company's audited financial statements,
with appropriate audit opinions and consents, in connection with satisfying
Parent's disclosure obligations under federal and state securities laws.
SECTION 7.22 EFFECT OF FAILURE TO COMPLY. The failure of the Company to
fulfill each condition and perform each of the covenants and agreements
contained in this Article VII shall constitute a breach of this Agreement by the
Company and each of the Majority Shareholders, but shall not constitute a breach
of this Agreement by any other Shareholder.
ARTICLE VIII
CONDITIONS TO CONSUMMATION
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT TRANSACTIONS.
The respective obligations of each party to effect the transactions contemplated
by this Agreement shall be subject to the satisfaction or waiver at or prior to
the Closing Date of the following conditions:
(a) APPROVALS. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity which the failure to obtain, make or occur
would have the effect of making the transactions contemplated hereby illegal or
would have a material adverse effect on Acquisition or the Company, assuming
such transactions had taken place, shall have been obtained, shall have been
made or shall have occurred.
(b) NO INJUNCTION. No Governmental Entity having jurisdiction over the
Company or Acquisition, any of their respective Subsidiaries, or any Shareholder
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the transactions contemplated herein illegal or otherwise prohibiting
consummation of the transactions contemplated herein.
(c) LITIGATION. There shall not have been instituted or be pending any
suit, action or proceeding by any Governmental Entity as a result of this
Agreement or any of the transactions contemplated hereby which questions the
validity or legality of the transactions contemplated by this Agreement.
SECTION 8.2 CONDITIONS TO OBLIGATION OF ACQUISITION. The obligation of
Acquisition to effect the transactions contemplated herein shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by Acquisition:
(a) Representations and Warranties. The representations and warranties
of the Company and the Majority Shareholders shall be true and correct, and the
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the date hereof, and,
except to the extent such representations and warranties speak as of an earlier
date, as of the Effective Time as though made at and as of the Effective Time,
and Acquisition shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect and a certificate from each of the Majority Shareholders
to such effect.
(b) Performance of Obligations of the Company and the Shareholders.
The Company and the Shareholders shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and Acquisition shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect and by an authorized officer, if
a corporation, of each of the Shareholders to such effect.
(c) Opinion of Company Counsel. Acquisition shall have received an
opinion of Wishart, Norris, Henninger & Pittman, P.A., counsel to the Company
and the Majority Shareholders dated as of the Effective Time, in substantially
the form described on Schedule 8.2(c) attached hereto and incorporated herein by
this reference. As part of the said opinion, Acquisition agrees to pay the cost
of a supporting opinion letter from Florida counsel which is required by
Acquisition.
(d) Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had, or would reasonably be
expected to have, a material adverse effect individually or in the aggregate, on
the business, financial condition or results of operations of the Company or its
Subsidiaries, and Acquisition shall have received a certificate signed on behalf
of the Company by the chief executive officer or the chief financial officer of
the Company to such effect.
(e) Delivery of Consents. The Company shall have delivered to
Acquisition the written consent or approval of each person listed in the Company
Disclosure Schedule whose consent or approval is required in connection with
this Agreement.
(f) Due Diligence of Oracle. Acquisition shall have completed a due
diligence review of the Service Provider Agreement between the Company and
Oracle Corporation ("Oracle") dated October 26, 1999, and shall have determined
in its sole and absolute discretion that (i) there exists no default on the part
of the Company or Oracle under such agreement nor does there exist any condition
which (including the execution of this Agreement or the consummation of the
transactions contemplated hereby) would constitute a default by the Company or
Oracle or create of right of termination for cause of such agreement on the part
of Oracle, (ii) there is a substantial likelihood that Oracle will not exercise
its right to terminate such agreement without cause prior to the end of its
stated term, and (iii) there is substantial likelihood that Oracle will enter
into a successor to such agreement with Acquisition.
(g) Customer Contact. Acquisition shall have completed interviews of
the Company's past and present clients and customers and entities which have
been delivered written proposals by the Company and the results of such
interviews are satisfactory to Acquisition in its sole discretion. Acquisition
shall coordinate the scheduling of such interviews with the Company.
(h) Contract Labor Sources. Acquisition shall have completed its
review of each person or entity with which the Company has an agreement or
arrangement pursuant to which the Company is furnished with the services of
leased employees or any other form of contract labor and the results thereof are
satisfactory to Acquisition in its sole discretion. Acquisition shall coordinate
the scheduling of contracts with such person or entity with the Company.
SECTION 8.3 CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS. The obligation of
the Shareholders to effect the transactions contemplated by this Agreement shall
be subject to the satisfaction at or prior to the Effective Time of the
following additional conditions, unless waived in writing by the Company:
(a) Representations and Warranties. The representations and warranties
of Acquisition and Parent shall be true and correct in all material respects, in
each case as of the date hereof, and, except to the extent such representations
and warranties speak as of an earlier date, as of the Effective Time as though
made on and as of the Effective Time, and the Company shall have received
certificates signed on behalf of Acquisition and Parent by the chief executive
officer or the chief financial officer of each to such effect.
(b) Performance of Obligations of Acquisition and Parent. Acquisition
and Parent shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Effective Time, and the Company shall have received a certificate signed on
behalf of Acquisition and Parent by the chief executive officer or the chief
financial officer of each to such effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had, or would reasonably be
expected to have, a material adverse effect individually or in the aggregate, on
the business, financial condition or results of operations of Acquisition or
Parent, and Company shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect.
SECTION 8.4 CONDITIONS AMONG SHAREHOLDERS. The obligation of Deborah M.
Bowen and Mark W. Brydges to effect the transactions contemplated by this
Agreement shall be subject to the performance of each covenant and agreement and
the fulfillment of each condition required of the Majority Shareholders under
this Agreement. Provided, however, in the event Acquisition waives the
fulfillment of any condition or the breach of this Agreement by the Majority
Shareholders, such waiver shall constitute a waiver of this Section 8.4 by
Deborah M. Bowen and Mark W. Brydges. The obligation of the Majority
Shareholders to effect the transactions contemplated by this Agreement are not
subject to the performance of any covenant or agreement or the fulfillment of
any condition by either of Deborah M. Bowen or Mark W. Brydges.
ARTICLE IX
POST-CLOSING OBLIGATIONS
SECTION 9.1 PROFIT SHARING PLAN.
(a) At Closing, the Company shall provide Acquisition a copy of a
resolution of its board of directors terminating the Company's 401(k) profit
sharing plan (the "Plan"). Prior to the Effective Time, the Company shall take
all necessary steps to terminate the Plan including, but not limited to:
(i) establishment of a termination date for the Plan;
(ii) restatement of the Plan to comply with changes in the tax
laws made by SBJPA, USERRA, GATT and TRA >97;
(iii) service of a notice of significant reduction in benefits
that meets the requirements of section 204 of ERISA to all participants in the
Plan. This notice shall be given to all parties required to receive such notice
at least fifteen (15) days prior to the termination date; and
(iv) requisition of a favorable determination letter upon
termination by filing Form 5310, and all required attachments thereto, with the
Internal Revenue Service.
(b) Notwithstanding the fact that Acquisition shall become the sole
shareholder of the Company after the Effective Time, the responsibility for the
administration of the final distribution of assets from the Plan shall be the
responsibility of the Majority Shareholders. Any and all responsibility for the
correction of operational defects that may or may not affect the qualified
status of the Plan shall be the responsibility of the Majority Shareholders.
After the Effective Time, Acquisition shall cause the Company to file any and
all reports that are required to be filed with the United States Department of
Labor and the Internal Revenue Service with respect to the Plan based on the
books and records of the Company existing prior to the Effective Time.
Acquisition's responsibilities with respect to the preceding sentence shall not
impose upon it any responsibilities of sponsorship of the Plan. The Majority
Shareholders shall indemnify, save and hold harmless Acquisition with respect to
any loss, cost, damage, assessment or expense (including reasonable attorneys'
fees and court costs), incurred with respect to the establishment,
administration and termination of the Plan.
SECTION 9.2 SHORT YEAR TAX RETURN. In the event any Tax Return shall be due
for a period which is less than the entire taxable year of the Company in which
the Closing occurs as a result of the liquidation of the Company by Acquisition
in a transaction described in Section 332 of the Code, any reorganization
described in Section 368(a)(1) of the Code in which the Company is not the
surviving entity, the addition of the Company as members of the affiliated group
of corporations which includes Acquisition and any other reason requiring that a
Tax Return be filed for such period, the Majority Shareholders shall cause such
Tax Return to be filed not later than its due date and shall bear the cost and
expense of the preparation of the Tax Return. Any tax due with such Tax Return
shall be subject to provisions of Article XII. Acquisition shall cause the
Company to make available to the Majority Shareholders access to the Company's
books and records as shall be necessary for the preparation of the Tax Return
and shall cooperate with the Majority Shareholders in the preparation of the Tax
Return.
SECTION 9.3 POST-CLOSING AUDIT. After the Closing Date, Parent shall cause
audited financial statements of the Company for its periods ending December 31,
1998 and September 30, 1999 to be prepared by Parent's independent certified
public accountant in order that the transactions contemplated by this Agreement
may be reported by Parent in accordance with rules and regulations of the United
States Securities and Exchange Commission. The cost of the preparation of such
financial statements shall be borne by Parent or Acquisition. After the Closing
Date, the Shareholders shall cooperate with Parent, Acquisition and the Company
in the preparation of such financial statements.
ARTICLE X
RESTRICTIVE COVENANTS
SECTION 10.1 GENERAL. The Shareholders agree to the restrictive covenants
contained in this Article X in partial consideration for the purchase by
Acquisition of the shares of the Company Stock owned by the Shareholders.
SECTION 10.2 PROTECTABLE INTERESTS.
(a) The Shareholders acknowledge and agree that the transactions
contemplated by this Agreement will cause the transfer to Acquisition the
historic business of the Company as a going concern. In acquiring the Company as
a going concern, Acquisition will acquire the goodwill established by the
Company including the goodwill associated with trade names and product
reputations.
(b) After the Effective Time, Acquisition intends to continue
substantial relationships developed by the Company and the Shareholders with
specific customers.
(c) The Shareholders acknowledge and agree that, after the Effective
Time, Acquisition shall transfer the assets of the historic business of the
Company to itself in a liquidation of the Company, a reorganization of the
Company described in Section 368(a)(1) of the Code or another form of transfer.
(d) The Shareholders know certain trade secrets of the Company as
defined in Section 688.002(4), Fla. Stat., and valuable confidential business
information that does not qualify as a trade secret in the operation of the
Company's business.
(e) The Shareholders further acknowledge and agree that the provisions
of this Article X are intended and shall be within the scope of Section 542.335,
Fla. Stat., and shall be in addition to any restrictive covenants contained in
any employment agreements between the Shareholders and Acquisition.
(f) The Shareholders acknowledge and agree that the Purchase Price was
agreed to by Acquisition in reliance upon the Shareholders agreeing to and
abiding by the provisions of this Article X.
(g) The Shareholders acknowledge and agree that the market for the
business of the Company is world-wide and that prohibiting the Shareholders from
competing with Acquisition or the Company is necessary to protect the investment
made by Acquisition in Company Stock.
SECTION 10.3 COVENANT NOT TO COMPETE.
(a) The Majority Shareholders covenant and agree that for a period of
seven (7) years following the Effective Time, each of them shall not, either
alone or with a combination of others, undertake any Business Activity (as
hereinafter defined) competitive with any part of the business of Acquisition or
the Company which is being acquired pursuant to this Agreement, in the
continental United States, nor accept any employment or other commitment or
otherwise engage in any activity that will require the Majority Shareholders to
reveal or use any Confidential Information (as hereinafter defined) acquired
prior to the Effective Time in the business of the Company, nor directly or
indirectly, own, operate, manage, join, control, participate, in the ownership,
management, operation and/or control of, or be paid or employed by or otherwise
become associated with and provide assistance to as an employee, agent, advisor,
independent contractor, officer, director, shareholder, owner or otherwise any
Business Activity, which is directly, or indirectly, in competition with the
business of Acquisition or the Company.
(b) The Minority Shareholders covenant and agree that for a period of
three (3) years following the Effective Time, each of them shall not, either
alone or with a combination of others, undertake any Business Activity
competitive with any part of the business of Acquisition or the Company which is
being acquired pursuant to this Agreement, in the continental United States, nor
accept any employment or other commitment or otherwise engage in any activity
that will require the Minority Shareholders to reveal or use any Confidential
Information acquired prior to the Effective Time in the business of the Company,
nor directly or indirectly, own, operate, manage, join, control, participate, in
the ownership, management, operation and/or control of, or be paid or employed
by or otherwise become associated with and provide assistance to as an employee,
agent, advisor, independent contractor, officer, director, shareholder, owner or
otherwise any Business Activity, which is directly, or indirectly, in
competition with the business of Acquisition or the Company.
(c) "Business Activity" shall mean consultation and implementation of
Oracle Application Modules for clients utilizing Enterprise Resource Planning
(ERP).
SECTION 10.4 SOLICITATION OF CUSTOMERS.
(a) For a period of seven (7) years following the Effective Time, the
Majority Shareholders shall not for themselves, or on behalf of any other
person, persons, firm, partnership, corporation, or company, call upon any
former customer of the Company or any prospective customer of the Company, or
any customer of Acquisition or the Company for the purpose of soliciting,
selling, renting, or other business promotion, products and/or services similar
to products and services sold by Acquisition or the Company, nor will the
Majority Shareholders in any way, directly or indirectly, induce, or attempt to
induce any customer to sever or otherwise alter this relationship with
Acquisition or the Company for the seven (7) year term following the Effective
Time.
(b) For a period of three (3) years following the Effective Time, the
Minority Shareholders shall not for themselves, or on behalf of any other
person, persons, firm, partnership, corporation, or company, call upon any
former customer of the Company or any prospective customer of the Company, or
any customer of Acquisition or the Company for the purpose of soliciting,
selling, renting, or other business promotion, products and/or services similar
to products and services sold by Acquisition or the Company, nor will the
Minority Shareholders in any way, directly or indirectly, induce, or attempt to
induce any customer to sever or otherwise alter this relationship with
Acquisition or the Company for the three (3) year term following the Effective
Time.
SECTION 10.5 SOLICITATION OF EMPLOYEES.
(a) For a period of seven (7) years following the Effective Time, the
Majority Shareholders shall not for any reason, hire or retain the services of
any agents or employees of Acquisition or its Subsidiaries or the Company for
any purpose, or induce or attempt to induce any agent, employee, or
representative of Acquisition or its Subsidiaries or the Company to sever or
otherwise alter their relationship with Acquisition or its Subsidiaries or the
Company.
(b) For a period of three (3) years following the Effective Time, the
Minority Shareholders shall not for any reason, hire or retain the services of
any agents or employees of Acquisition or its Subsidiaries or the Company for
any purpose, or induce or attempt to induce any agent, employee, or
representative of Acquisition or its Subsidiaries or the Company to sever or
otherwise alter their relationship with Acquisition or its Subsidiaries or the
Company.
SECTION 10.6 CONFIDENTIAL INFORMATION. The Shareholders shall not within a
period of ten (10) years after the Effective Time publish, disclose or authorize
anyone else to publish or disclose any Confidential Information to the public,
directly or indirectly, nor to use the same in any way, or allow others to use
such Confidential Information, except as expressly authorized by Acquisition in
writing. The term "Confidential Information" shall mean all materials and
information related to or associated with the Company's properties, assets and
businesses, including information relating to customer lists, price lists, cost
of goods and services and maintenance, and trade secrets as defined in Section
688.002(4), Fla. Stat.
SECTION 10.7 SEVERABILITY. Each of the covenants contained in Section 10.3,
Section 10.4, Section 10.5 and Section 10.6 is a separate, distinct and
severable obligation. In the event any of such covenants should be held invalid
or unenforceable by a court of competent jurisdiction, the others shall not be
affected thereby. The provisions of this Article X shall be applicable and
enforceable regardless of any claim made by the Shareholders with respect to the
inducement, making or breach of this Agreement or of any document or instrument
(including the Promissory Note and Guaranty) furnished by Acquisition or Parent
to the Company or the Shareholders pursuant to this Agreement.
SECTION 10.8 COST OF LITIGATION. The Shareholders covenant and agree that,
if any of the Shareholders shall violate any of the covenants and agreements
provided for in this Article X, Acquisition and/or the Company shall suffer
irreparable injury and shall be entitled to obtain preliminary and permanent
injunctive relief prohibiting such practice in addition to any damages which may
be suffered, together with reasonable attorneys fees and court costs (including
at the appellate levels), in connection with any such litigation.
SECTION 10.9 THIRD PARTY BENEFICIARY. Parent and the Company are expressly
identified as beneficiaries of the restrictive covenants contained in this
Article X and the restrictive covenants contained herein were intended
especially for the benefit of Parent and the Company. Parent and/or the Company
may bring an action to enforce the provisions of this Article X in its own right
and in its own name without the necessity of joining Acquisition as a party
thereto.
SECTION 10.10 ENFORCEMENT. If, in any judicial proceedings a court shall
refuse to enforce any of the separate covenants set forth in this Article X,
then such unenforceable covenant shall be amended to relate to such lesser
period or geographical area, or if deemed appropriate by such court, deemed
eliminated from this Article X to the extent necessary to permit the remaining
separate covenants to be enforced. The obligations of each Shareholder contained
in this Article X shall be extended by the length of time during which such
Shareholder shall have been in breach of such obligations and during which time
Acquisition is required to seek compliance by judicial proceeding.
SECTION 10.11 ASSIGNMENT. The restrictive covenants contained in this
Article X may be enforced by any permitted assignee or successor of Acquisition
or the Company, including a successor by operation of law.
ARTICLE XI
TERMINATION
SECTION 11.1 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time:
(a) by mutual written consent of Acquisition and the Majority
Shareholders;
(b) by either Acquisition or all of the Shareholders, if the Closing
shall not have occurred on or before November 30, 1999 unless, in the case of
any such termination pursuant to this Section 11.1(b), the failure of Closing to
occur shall have been caused by the action or failure to act of the party
seeking to terminate this Agreement, which action or failure to act constitutes
a breach of such party's obligations under this Agreement;
(c) by either Acquisition or the Majority Shareholders, if any
permanent injunction, order, decree or ruling by any Governmental Entity of
competent jurisdiction preventing the consummation of the transactions
contemplated by this Agreement shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 11.1(c) shall have used reasonable best efforts to remove such
injunction or overturn such action;
(d) by Acquisition, if there has been a breach of any of the
representations or warranties, covenants or agreements of the Company or any of
the Shareholders set forth in this Agreement; and
(e) by the Shareholders, if there has been a breach of any of the
representations or warranties, covenants or agreements of Acquisition set forth
in this Agreement.
SECTION 11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to this Article XI, the provisions of the last sentence of
Section 7.4 and Section 7.5 shall survive any termination of this Agreement;
provided, however, that no party shall be relieved from liability for any breach
of this Agreement.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
SECTION 12.1 SURVIVAL. Notwithstanding any right of any party to fully
investigate the affairs of the other party and notwithstanding any knowledge of
facts determined or determinable by such party pursuant to such investigation or
right of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party to
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and the
Closing hereunder, subject to the limitations set forth in subsection 12.2(c)
and subsection 12.2(d).
SECTION 12.2 OBLIGATION OF SHAREHOLDERS TO INDEMNIFY. The Majority
Shareholders, jointly and severally, agree from and after the Closing to
indemnify, defend and hold Acquisition and its respective employees, officers,
directors and other Affiliates harmless from and against the Indemnifiable
Damages (as defined below).
(a) For purposes of this Agreement, "Indemnifiable Damages" means,
without duplication, the aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including, without limitation, related counsel and
paralegal fees and expenses of investigation) incurred or suffered by
Acquisition, on a pre-tax consolidated basis, to the extent (i) resulting from
or arising out of any failure by each Shareholder or the Company to fulfill,
satisfy and discharge any of its obligations or breach any representation or
warranty (without regard to any "material" or "material adverse effect" or
knowledge qualifications) made by the Company or each Shareholder in or pursuant
to this Agreement, (ii) resulting from or arising out of any breach of the
covenants or agreements made by the Company or each Shareholder in this
Agreement, (iii) resulting from any claim or demand of the nature described in
subsection 12.2(b), (iv) resulting from any claim or demand of the nature
described in Section 7.13 ("Section 7.13 Claim"); (v) any claim, demand, action
or proceeding for a broker's or finder's fee incurred or allegedly incurred by
the Company or any Shareholder on behalf of the Company, Acquisition or any
Shareholder in connection with this Agreement, whether or not such claim,
demand, action or proceeding constitutes a breach of any covenant, warranty or
representation under this Agreement ("Broker Claim"); (vi) resulting from the
operation or termination of the Plans or any other retirement or benefit plan
ever maintained by the Company ("Plan Claim"), whether or not such claim,
demand, action or proceeding constitutes a breach of any covenant, warranty or
representation under this Agreement; or (vii) resulting from the failure of the
Shareholders to convey good and valid title to one hundred percent (100%) of the
issued and outstanding shares of Company Stock, free of Liens or any other
claim, including any defect in the instrument of transfer of shares to
Acquisition ("Ownership Claim"). For purposes of this Agreement, "Affiliate"
means as to any person, any other person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, such person. The
Company shall be an Affiliate of Acquisition after the Effective Time. The term
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as applied to any person, means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or other ownership interest, by Contract or otherwise.
(b) Indemnifiable Damages shall include any claim or demand by the
Internal Revenue Service or a state taxing authority for the payment of any
Taxes and penalties, interest and other additions to Taxes occurring after the
Effective Time ("Tax Claim") for any Tax event occurring prior to the Effective
Time. The Majority Shareholders' obligation under this subsection 12.2(b) shall
apply whether or not any representation or warranty made by the Company or the
Majority Shareholders in Section 3.14 or any other part of this Agreement has
been breached and without regard to whether the Majority Shareholders, had any
knowledge, actual or constructive, of the existence, potential or grounds for
any Tax Claim.
(c) Each of the representations and warranties made by the Company and
each Shareholder in this Agreement or pursuant hereto shall survive for a period
of three (3) years after the Closing Date, notwithstanding any investigation at
any time made by or on behalf of Acquisition and upon expiration of such three
(3) year period, such representations and warranties shall expire except with
respect to any Indemnifiable Damages arising out of a claim for statutory or
common law fraud (a "Fraud Claim"), Tax Claim, Section 7.13 Claim, Broker Claim,
Plan Claim or an Ownership Claim. No claim other than a Fraud Claim, Tax Claim,
Broker Claim, Plan Claim or an Ownership Claim for the recovery of Indemnifiable
Damages may be asserted by Acquisition against the Majority Shareholders after
such representations and warranties shall thus expire; provided, however, that
claims for Indemnifiable Damages first asserted within the applicable period
shall not thereafter be barred. Notwithstanding any knowledge of facts
determined or determinable by Acquisition by investigation, Acquisition shall
have the right to fully rely on the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement of the parties contained in this Agreement is
independent of each other representation, warranty, covenant and agreement.
(d) The obligation of the Majority Shareholders to indemnify
Acquisition and its Subsidiaries shall be limited to the cumulative amount of
Indemnifiable Damages which exceeds ten thousand dollars ($10,000.00), except
that Indemnifiable Damages relating to any Fraud Claim, Tax Claim, Section 7.13
Claim, Broker Claim, Plan Claim or Ownership Claim shall be payable without
regard to the foregoing limitation.
(e) The obligation of the Majority Shareholders to indemnify
Acquisition and its Subsidiaries shall further be limited to the cumulative
amount of Indemnifiable Damages of seven hundred fifty thousand dollars
($750,000.00) ("Indemnity Limit") in excess of the amount described in
subsection 12.2(d), except that the Indemnity Limit shall be increased to an
amount which equals the Purchase Price to the extent a Fraud Claim, Tax Claim,
Broker Claim, Plan Claim and/or an Ownership Claim, either separately or in
conjunction with any other claim for Indemnifiable Damages, causes the
cumulative amount of Indemnifiable Damages to exceed seven hundred fifty
thousand dollars ($750,000.00).
SECTION 12.3 REMEDIES NON-EXCLUSIVE. The remedies provided herein with
respect to claims for Indemnifiable Damages shall not be exclusive. Acquisition
shall not be precluded from asserting any other right, or seeking any other
remedies against the Shareholders arising out of or related to a claim for
Indemnifiable Damages.
SECTION 12.4 PROCEDURE FOR INDEMNIFICATION. When Acquisition shall be
entitled to assert a claim for indemnification pursuant to Section 12.2, the
provisions of this Section 12.4 shall govern the procedure for indemnification.
(a) Acquisition, when entitled to assert a claim for indemnification
under this Agreement, shall give prompt written notice to the Majority
Shareholders of any claim or event known to it which does or may give rise to a
claim for indemnification hereunder by Acquisition against the Majority
Shareholders; provided that the failure of Acquisition to give notice as
provided in this Section 12.4 shall not relieve Acquisition of the Majority
Shareholders' obligations under this Article XII. In the case of any claim for
indemnification hereunder arising out of a claim, action, suit or proceeding
brought by any person who is not a party to this Agreement (a "Third-Party
Claim"), Acquisition shall also give the Majority Shareholders copies of any
written claims, process or legal pleadings with respect to such Third-Party
Claim promptly after such documents are received by Acquisition.
(b) The Majority Shareholders may elect to compromise or defend, at
the Majority Shareholders' own expense and by the Majority Shareholders' own
counsel, any Third-Party Claim. If the Majority Shareholders elect to compromise
or defend a Third-Party Claim, they shall, within thirty (30) days of its
receipt of the notice provided pursuant to subsection 12.4(a) hereof (or sooner,
if the nature of such Third-Party Claim so requires), notify Acquisition of
their intent to do so, and Acquisition shall reasonably cooperate in the
compromise of, or defense against, such Third-Party Claim. The Majority
Shareholders shall pay Acquisition's actual out-of-pocket expenses incurred in
connection with such cooperation. After notice from the Majority Shareholders to
Acquisition of their election to assume the defense of a Third-Party Claim, the
Majority Shareholders shall not be liable to Acquisition under this Article XII
for any legal expenses subsequently incurred by Acquisition in connection with
the defense thereof; provided that Acquisition shall have the right to employ
counsel of its choice to represent Acquisition if, in Acquisition's reasonable
judgment, a conflict of interest between Acquisition and the Majority
Shareholders exists in respect of such Third-Party Claim, and in that event the
reasonable fees and expenses of such separate counsel shall be paid by the
Majority Shareholders. If the Majority Shareholders elect not to compromise or
defend against a Third-Party Claim, or fail to notify Acquisition of their
election as provided in this Section 12.4, Acquisition may pay, compromise or
defend such Third-Party Claim on behalf of and for the account and risk of the
Majority Shareholders. The Majority Shareholders shall not consent to entry of
any judgment or enter into any settlement without the written consent of
Acquisition (which consent shall not be unreasonably withheld), unless such
judgment or settlement provides solely for money damages or other money payments
for which Acquisition is entitled to indemnification hereunder and includes as
an unconditional term thereof the giving by the claimant or plaintiff to
Acquisition of a release from all liability in respect of such Third-Party
Claim.
(c) If there is a reasonable likelihood that a Third-Party Claim may
have a material adverse effect on Acquisition, other than as a result of money
damages or other money payments for which Acquisition is entitled to
indemnification hereunder, Acquisition will have the right, after consultation
with the Majority Shareholders and at the cost and expense of the Majority
Shareholders, to defend such Third-Party Claim.
(d) If the amount of any Indemnifiable Damages shall, at any time
subsequent to payment pursuant to this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by Acquisition to the
Majority Shareholders.
SECTION 12.5 PROMISSORY NOTE. The Promissory Note shall provide that if the
Majority Shareholders elect not to compromise or defend a Third-Party Claim or
fail to notify Acquisition of its election as provided in Section 12.4, or if
any claim which is not a Third-Party Claim is not settled, compromised, or
otherwise disposed of by the Majority Shareholders within thirty (30) days after
receipt of notice thereof by Acquisition, Acquisition shall be entitled to
offset against the Promissory Note any amount Acquisition paid or will have paid
in order to settle, compromise or dispose of any such claim. Prior to asserting
its right of offset, Acquisition shall provide the Majority Shareholders with
fifteen (15) days prior written notice of its intent to offset during which
period the Majority Shareholders may object in writing to the offset. During the
remainder of said fifteen (15) days period after receipt of the Majority
Shareholders' objection, Acquisition and the Majority Shareholders shall confer
in good faith to resolve the objection. If the objection has not been resolved
within said fifteen (15) day period, Acquisition shall be entitled to exercise
its right of offset; provided, however, the Majority Shareholders shall be
entitled to commence an action in a court of competent jurisdiction to obtain a
determination of the validity of the offset by Acquisition. In any such
litigation, the prevailing party shall be entitled to recover reasonable
attorneys fees and court costs in addition to the other judicial relief
obtained. Acquisition shall first exercise its right of offset against the
Promissory Note to satisfy any claim of indemnification under this Article XII
prior to seeking other remedies against the Majority Shareholders.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1 AMENDMENT AND MODIFICATION. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Acquisition, the
Shareholders and the Company with respect to any of the terms contained herein.
SECTION 13.2 WAIVER. At any time prior to the Effective Time, Acquisition,
on the one hand, and the Company and the Majority Shareholders, on the other
hand, may (i) extend the time for the performance of any of the obligations or
other acts of the other, (ii) waive any inaccuracies in the representations and
warranties of the other contained herein or in any documents delivered pursuant
hereto, and (iii) waive compliance by the other with any of the agreements or
conditions contained herein which may legally be waived. Any such extension or
waiver shall be valid only if set forth in an instrument in writing specifically
referring to this Agreement and signed on behalf of such party.
SECTION 13.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one (1) day after delivery to a courier
for next-day delivery.
(a) If to Acquisition, to:
GEC Acquisition Corporation
1225 Evans Road
Melbourne, Florida 32904
Attention: Stuart P. Dawley, General Counsel
Telecopier: (407)952-7555
with copies to:
O'Brien, Riemenschneider, Kancilia & Lemonidis, P.A.
1686 West Hibiscus Boulevard
Melbourne, Florida 32901
Attention: John R. Kancilia, Esq.
Telecopier: (407)728-0002
(b) If to Parent, to:
Exigent International, Inc.
1225 Evans Road
Melbourne, Florida 32904
Attention: Stuart P. Dawley, General Counsel
Telecopier: (407)952-7555
with copies to:
O'Brien, Riemenschneider, Kancilia & Lemonidis, P.A.
1686 West Hibiscus Boulevard
Melbourne, Florida 32901
Attention: John R. Kancilia, Esq.
Telecopier: (407)728-0002
(c) If to the Company, to:
GEC North America Corporation
6100 Fairview Road, Suite 1100
Charlotte, North Carolina 28210
Attention: Roger A. Gilmartin
Telecopier: (704)556-7916
with a copy to:
Wishart, Norris, Henninger & Pittman, P.A.
6832 Morrison Boulevard
Charlotte, North Carolina 28211
Attention: Robert B. Norris, Esq.
Telecopier: (704)364-0569
(d) If to Roger A. Gilmartin:
Roger A. Gilmartin
3408 Stonier Court
Charlotte, North Carolina 28226
(e) If to Jacqueline R. Gilmartin:
Jacqueline R. Gilmartin
3408 Stonier Court
Charlotte, North Carolina 28226
(f) If to Deborah M. Bowen:
Deborah M. Bowen
101 Castles Gate Drive
Mooresville, North Carolina 28117
(g) If to Mark W. Brydges:
Mark W. Brydges
8802 Tree Haven Drive
Charlotte, North Carolina 28270
SECTION 13.4 DESCRIPTIVE HEADINGS; INTERPRETATION. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Exhibits or Articles mean a Section, Exhibit or Article
of this Agreement unless otherwise indicated. References to this Agreement shall
be deemed to include the Exhibits hereto and the Company Disclosure Schedule,
unless the context otherwise requires. The term "person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, a
Governmental Entity or an unincorporated organization.
SECTION 13.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Exhibits and the Company Disclosure Schedule) constitutes the entire Agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof. This Agreement is not intended to confer upon any person not a party
hereto any rights or remedies hereunder. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 13.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without giving
effect to the provisions thereof relating to conflicts of law.
SECTION 13.7 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Florida or in Florida state court, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 13.8 SUBMISSION TO JURISDICTION. Each of the parties hereto:
(a) consents to submit itself to the personal jurisdiction of any
federal or state court sitting in Brevard County, Florida in the event any
dispute arises out of this Agreement;
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court; and
(c) agrees that it will not bring any action relating to this
Agreement in any court other than a federal or state court sitting in Brevard
County, Florida.
Each of the parties hereto hereby irrevocably waives any objection
that it may have or hereafter have to the laying of venue of any such action or
proceeding arising out of or based on this Agreement in any federal or state
court sitting in Brevard County, Florida and each hereby further irrevocably
waives any claim that any such action or proceeding in any such court has been
brought in an inconvenient forum.
SECTION 13.9 SEVERABILITY. In case any one (1) or more of the provisions
contained in this Agreement, or any portion thereof, should be invalid, illegal
or unenforceable in any respect against a party hereto, the validity, legality
and enforceability of the remaining provisions, or portions thereof, contained
herein shall not in any way be affected or impaired thereby and such invalidity,
illegality or unenforceability shall only apply as to such party in the specific
jurisdiction where such judgment shall be made.
Section 13.10 Knowledge.
(a) (i) The phrase "to the knowledge" of a natural person shall mean
that the person does not have a current recollection of any fact or circumstance
contradicting the statement.
(ii) The phrase "to the best knowledge" of a natural person shall
include the level of knowledge described by the phrase "to the knowledge" and
additionally mean the knowledge of facts contained in written materials in the
possession of such person and the knowledge which could have been obtained by an
investigation reasonable in light of the transactions contemplated by this
Agreement.
(b) (i) The phrase "to the knowledge" used with respect to a
corporation, partnership, limited liability company or other person or entity
which is not a natural person ("Entity") shall mean the level of knowledge
described in subsection 13.10(a)(i) above of each the Company's officers and
directors and each partner, shareholder, member or other type of owner and
information contained in the books, records, files and written materials of the
Entity.
(ii) The phrase "to the best knowledge" used with respect to the
Entity shall mean the level of knowledge described in subsection 13.10(b)(i)
above, the level of knowledge of each officer, director and owner described in
subsection 13.10(a)(2) above and the knowledge which could be obtained by an
investigation reasonable in light of the transactions contemplated by this
Agreement.
(c) In the event a statement is qualified as to a level of knowledge
of multiple persons the use of either conjunction "and" or "or" shall be deemed
to mean knowledge which as few as one (1) of such multiple persons possesses.
SECTION 13.11 COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one (1) and the same agreement.
[Signature page to follow.]
IN WITNESS WHEREFORE, each of Acquisition, the Company and the Shareholders
has caused this Agreement to be executed on its behalf by its officers thereunto
duly authorized, all as of the date first above written.
GEC ACQUISITION CORPORATION
By: /s/ B.R. Smedley
-----------------------------------------
Name: B.R. Smedley
Title: Chairman and Chief Executive Officer
EXIGENT INTERNATIONAL, INC.
By: /s/ B.R. Smedley
-----------------------------------------
Name: B.R. Smedley
Title: Chairman and Chief Executive Officer
GEC NORTH AMERICA CORPORATION
By: /s/ Roger A. Gilmartin
-----------------------------------------
Name: Roger A. Gilmartin
Title: President
/s/ Roger A. Gilmartin
-----------------------------------------
ROGER A. GILMARTIN
/s/ Jacqueline R. Gilmartin
-----------------------------------------
JACQUELINE R. GILMARTIN
/s/ Deborah M. Bowen
-----------------------------------------
DEBORAH M. BOWEN
/s/ Mark W. Brydges
-----------------------------------------
MARK W. BRYDGES
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference into Form 8-K, as amended,
of Exigent International Inc. of our report dated December 7, 1999, except for
Note 13, as to which the date is December 9, 1999, relating to the balance
sheets of GEC North America Corporation as of December 31, 1998 and October 2,
1999 and the related statements of income, stockholders' equity (deficit) and
cash flows for the year and nine months then ended, respectively.
McGladrey & Pullen, LLP
Charlotte, North Carolina
December 29, 1999
