<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
La-Man Corporation.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.001 par value per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
50354K 3 00
-----------
(CUSIP Number)
Lou A. Papais
3133 North Ad Art Road
Stockton, California 95215
(209) 931-0860
with a copy to:
Marshall S. Harris, P.A.
Broad and Cassel
390 North Orange Avenue, Suite 1100
Orlando, Florida 32801
(407) 839-4200
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
- --------------
February 18, 1998
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b)(3) or (4), check the following box: [_]
/*/The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 50354K 300 Page 2 of 5 Pages
1 NAME OF REPORTING PERSONS
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Lou A. Papais SS# ###-##-####
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e) [_]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
7 SOLE VOTING POWER
NUMBER OF
SHARES 648,000
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING -0-
PERSON
WITH 9 SOLE DISPOSITIVE POWER
648,000
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
648,000
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
14.68%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. 50354K 300 Page 3 of 5 Pages
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to shares of common stock of the Issuer, par
value $.01. The principal executive offices of the Issuer are located at
5029 Edgewater Drive, Orlando, Florida 32810.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This Schedule 13D is being filed on behalf of Lou A. Papais.
(b) Mr. Papais' business address is 3133 North Ad Art Road, Stockton,
California 95215.
(c) Mr. Papais' present principal occupation is as a consultant to Ad
Art Displays, Inc., a wholly owned subsidiary of the Issuer, and
as a member of the Board of Directors of the Issuer. The address
where Mr. Papais conducts his principal occupation is 3133 North
Ad Art Road, Stockton, California 95215.
(d) Mr. Papais has not been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) during the
past five years.
(e) Mr. Papais was not a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction subjecting him to a
judgment, decree or other final order enjoining future violations
of or prohibiting or mandating activities subject to federal or
state securities laws or finding any violation with respect to
such laws during the past five years.
(f) Mr. Papais is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Mr. Papais acquired his shares of the Issuer's common stock in a
forward triangular merger on February 18, 1998 of Electronic Sign
Corporation, a California corporation d/b/a Ad Art with and into Ad Art
Displays, Inc., a Florida corporation f/k/a Displays Acquisitions, Inc. and
a wholly owned subsidiary of the Issuer. As a result of that transaction,
each of the 20 shares of Electronic Sign Corporation beneficially owned by
Mr. Papais was converted into 32,400 shares of the Issuer.
<PAGE>
SCHEDULE 13D
CUSIP No. 50354K 300 Page 4 of 5 Pages
ITEM 4. PURPOSE OF TRANSACTION.
Pursuant to an Agreement and Plan of Merger and Reorganization among
the Issuer, Electronic Sign Corporation and Displays Acquisitions, Inc., a
wholly owned Florida subsidiary of the Issuer, effective February 18, 1998
Electronic Sign Corporation was merged with and into Displays Acquisitions,
Inc. and the name of Displays Acquisitions, Inc. was changed to Ad Art
Displays, Inc. (the "Merger"). Each of the 25 outstanding shares of common
stock of Electronic Sign Corporation was converted into 32,400 newly issued
shares of the Issuer's common stock. In connection with the Merger, the
size of the Board of Directors was increased from 10 to 12 members and Mr.
Papais was appointed as a Director to serve until the next annual meeting
of the Issuer's shareholders and until his successor is elected and
qualified.
ITEM 5. INTEREST AND SECURITIES OF THE ISSUER.
(a) Mr. Papais beneficially owns 648,000 shares of common stock,
representing approximately 14.70% of the issued and outstanding
common stock of the Issuer.
(b) Mr. Papais has sole voting power and sole dispositive power over
all of the shares described in Item 5(a) above.
(c) On February 17, 1998, Mr. Papais as a shareholder of Electronic
Sign Corporation, along with one other shareholder of said
corporation, received a total of 810,000 common shares of the
Issuer in exchange for a total of 25 shares of Electronic Sign
Corporation as a result of the forward triangular merger by and
between Electronic Sign Corporation, Mr. Papais and certain other
shareholders of Electronic Sign Corporation, the Issuer and
Displays Acquisitions, Inc.
(d) No other person is known to have the right to receive or the
power to direct the receipt of dividends from, or the proceeds
from, the sale of such securities of the Issuer.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OF RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Incident to the Merger, Mr. Papais entered into a Consulting Agreement
dated as of February 18, 1998 with the Issuer and Ad Art Displays, Inc.,
which provides for the performance of consulting services by Mr. Papais at
a minimum of three days per work week in exchange for an annual consulting
fee of $100,000, over a period of three years. The Consulting Agreement
also provides that so long as it remains in effect, the Issuer will use its
best efforts to cause Mr. Papais to be elected and to serve as a member of
the Board of Directors of the Issuer.
<PAGE>
SCHEDULE 13D
CUSIP No. 50354K 300 Page 5 of 5 Pages
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 2.1 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION made
and entered into as of February 17, 1998, by and among:
LA-MAN CORPORATION, a Nevada corporation; DISPLAYS
ACQUISITIONS CORP., a Florida corporation and a wholly
owned subsidiary of La-Man; ELECTRONIC SIGN
CORPORATION, a California corporation d/b/a AD ART; and
TERRY J. LONG, DANIEL G. O'LEARY, individually and in
his capacity as Trustee of the DANIEL O'LEARY TRUST
DATED APRIL 18, 1993, BETTY E. PAPAIS, individually and
in her capacity as Trustee of the PAPAIS TRUST DATED
JANUARY 29, 1991, and LOU A. PAPAIS
Exhibit 2.2 CONSULTING AGREEMENT made and entered into as of
February 18, 1998, between and among AD ART DISPLAYS,
INC. and LOU A. PAPAIS.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Date: February 17, 1998. /s/ Lou A. Papais
-----------------------------------
LOU A. PAPAIS
<PAGE>
EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
LA-MAN CORPORATION,
a Nevada corporation;
DISPLAYS ACQUISITIONS CORP.,
a Florida corporation;
ELECTRONIC SIGN CORPORATION,
a California corporation d/b/a AD ART;
TERRY J. LONG;
DANIEL G. O'LEARY, INDIVIDUALLY AND AS
TRUSTEE OF THE DANIEL O'LEARY TRUST
DATED APRIL 18, 1993;
BETTY E. PAPAIS, INDIVIDUALLY AND AS
TRUSTEE OF THE PAPAIS TRUST
DATED JANUARY 29, 1991;
and
LOU A. PAPAIS
DATED AS OF FEBRUARY 17, 1998
================================================================================
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TABLE OF CONTENTS
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SECTION 1. DESCRIPTION OF TRANSACTION.................................... 2
1.1 Merger of the Company into Merger Sub......................... 2
1.2 Effect of the Merger.......................................... 2
1.3 Closing; Effective Time....................................... 2
1.4 Repurchase of Company Common Stock Prior to Merger............ 2
1.5 Conversion of Shares.......................................... 3
1.6 Closing of the Company's Transfer Books....................... 4
1.7 Exchange of Certificates...................................... 4
1.8 Tax Consequences.............................................. 5
1.9 Accounting Treatment.......................................... 6
1.10 Termination of Agreement...................................... 6
1.11 Issuance of Additional Shares of Parent Common Stock.......... 6
1.12 Further Action................................................ 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDER.................................. 7
2.1 Due Organization; No Subsidiaries; Etc........................ 7
2.2 Articles of Incorporation and Bylaws; Records................. 8
2.3 Capitalization, Etc........................................... 8
2.4 Financial Statements.......................................... 9
2.5 Absence of Changes............................................ 9
2.6 Title to Assets............................................... 11
2.7 Bank Accounts; Receivables; Payables.......................... 11
2.8 Real Property; Equipment; Motor Vehicles...................... 12
2.9 Proprietary Assets............................................ 13
2.10 Contracts..................................................... 14
2.11 Liabilities................................................... 16
2.12 Compliance with Legal Requirements............................ 17
2.13 Governmental Authorizations................................... 17
2.14 Tax Matters................................................... 17
2.15 Employee and Labor Matters; Benefit Plans..................... 19
2.16 Environmental Matters......................................... 21
2.17 Insurance..................................................... 22
2.18 Related Party Transactions.................................... 22
2.19 Legal Proceedings; Orders..................................... 22
2.20 Company Warranties............................................ 23
2.21 Authority; Binding Nature of Agreement........................ 23
2.22 Non-Contravention; Consents................................... 23
2.23 Full Disclosure............................................... 24
2.24 Representations and Warranties with Respect to the Subsidiary. 24
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
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SECTION 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE SHAREHOLDER................................ 25
3.1 Requisite Power and Authority................................ 25
3.2 Title to Shares.............................................. 25
3.3 No Violation, Conflict, Etc.................................. 25
3.4 No Consent or Approval....................................... 26
3.5 No Injunctions, Orders, Etc.................................. 26
3.6 Additional Tax Representations and Warranties................ 26
(s) Dissenters' Rights........................................... 29
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB.............................................. 29
4.1 SEC Filings; Financial Statements............................ 29
4.2 Authority; Binding Nature of Agreement....................... 29
4.3 Valid Issuance............................................... 30
SECTION 5. COVENANTS OF THE COMPANY AND THE
SHAREHOLDER................................................. 30
5.1 Conduct of the Company's Business............................ 30
5.2 Necessary Consents and Other Actions......................... 31
5.3 Advice of Changes............................................ 31
5.4 Access to Information........................................ 31
5.5 Confidentiality; Public Announcements........................ 31
5.6 No Solicitation.............................................. 32
5.7 FIRPTA Matters............................................... 32
5.8 Tax Matters.................................................. 32
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES.......................... 32
6.1 Filings and Consents......................................... 32
6.2 Environmental Review......................................... 33
6.3 Capital Advance by Parent.................................... 33
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF
PARENT AND MERGER SUB....................................... 33
7.1 Accuracy of Representations.................................. 33
7.2 Performance of Covenants..................................... 33
7.3 Approval by the Company's Shareholders....................... 33
7.4 Completion of Due Diligence.................................. 34
7.5 Approval of Parent's Directors and Shareholders.............. 34
7.6 Consents..................................................... 34
</TABLE>
ii
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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PAGE
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7.7 Agreements and Documents...................................... 34
7.8 FIRPTA Compliance............................................. 35
7.9 Legal Investment.............................................. 35
7.10 No Restraints................................................. 35
7.11 No Legal Proceedings.......................................... 35
7.12 Employees..................................................... 35
7.13 New Employment and Consulting Agreements...................... 35
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY...................................................... 35
8.1 Accuracy of Representations................................... 35
8.2 Performance of Covenants...................................... 36
8.3 Consents...................................................... 36
8.4 No Restraints................................................. 36
SECTION 9. INDEMNIFICATION, ETC.......................................... 36
9.1 Survival of Representations, Etc.............................. 36
9.2 Indemnification by the Company's Shareholders................. 37
9.3 No Contribution............................................... 37
9.4 Interest...................................................... 37
9.5 Defense of Third Party Claims................................. 38
9.6 Exercise of Remedies by Indemnitees Other Than Parent......... 39
SECTION 10. TERMINATION AND ABANDONMENT................................... 39
10.1 Termination................................................... 39
10.2 Procedure Upon Termination.................................... 39
SECTION 11. AGREEMENT TO VOTE SHARES...................................... 40
11.1 Agreement To Vote Shares...................................... 40
SECTION 12. REGISTRATION RIGHTS........................................... 40
12.1 Piggyback Registration........................................ 40
12.2 Indemnification............................................... 41
12.3 Transferability of Registration Rights........................ 42
12.4 Amendment of Section 12....................................... 42
SECTION 13. MISCELLANEOUS PROVISIONS...................................... 42
13.1 Shareholders' Designated Agent................................ 42
13.2 Further Assurances............................................ 43
13.3 Fees and Expenses............................................. 43
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13.4 Attorneys' Fees............................................... 43
13.5 Notices....................................................... 43
13.6 Time is of the Essence........................................ 44
13.7 Headings...................................................... 44
13.8 Counterparts.................................................. 44
13.9 Governing Law; Venue.......................................... 44
13.10 Successors and Assigns........................................ 45
13.11 Remedies Cumulative; Specific Performance..................... 45
13.12 Waiver........................................................ 45
13.13 Amendments.................................................... 45
13.14 Severability.................................................. 45
13.15 Parties in Interest........................................... 46
13.16 Entire Agreement.............................................. 46
13.17 Construction.................................................. 46
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Ownership of Company Common Stock
Exhibit C - Selling Shareholders
Exhibit D - Form of Share Repurchase Note
Exhibits E-1 and E-2 - Forms of Continuity of Interest Certificates
Exhibit F - Form of Noncompetition Agreement
Exhibit G - Form of Release
Exhibit H - Form of Legal Opinion of Blair M. White, Esq.
Exhibit I - Form of Spousal Consent, Power of Attorney and
Waiver
Exhibit J - List of Certain Employees
Exhibit K - Limitations on Indemnification
Exhibit L - Form of Voting Agreement and Irrevocable Proxy
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of February 17, 1998, by and among: LA-MAN CORPORATION, a
Nevada corporation ("Parent"); DISPLAYS ACQUISITIONS CORP., a Florida
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); ELECTRONIC
SIGN CORPORATION, a California corporation d/b/a AD ART (the "Company"); and
TERRY J. LONG, DANIEL G. O'LEARY, individually and in his capacity as Trustee of
the DANIEL O'LEARY TRUST DATED APRIL 18, 1993, BETTY E. PAPAIS, individually
and in her capacity as Trustee of the PAPAIS TRUST DATED JANUARY 29, 1991, and
LOU A. PAPAIS (individually, "Shareholder" and collectively, "Shareholders").
Certain other capitalized terms used in this Agreement are defined elsewhere in
this Agreement and in Exhibit A.
---------
RECITALS:
A. Parent, Merger Sub and the Company intend to effect a merger of the
Company with and into Merger Sub in accordance with this Agreement, the
California General Corporation Law and the Florida Business Corporation Act (the
"Merger"). Upon consummation of the Merger, the Company will cease to exist.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger
be accounted for as a purchase in accordance with GAAP.
C. The Shareholders own (in the case of Messrs. Long and Papais directly
and in the case of Mr. O'Leary and Ms. Papais, through the O'Leary Trust and the
Papais Trust) a total of 50 shares of common stock, no par value, of the Company
(collectively, the "Company Common Stock"), as reflected on Exhibit B.
---------
D. Each of the Shareholders will personally benefit from the transactions
contemplated by this Agreement and, in consideration thereof, agrees to be bound
the terms of this Agreement.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
<PAGE>
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF THE COMPANY INTO MERGER SUB. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), the Company shall be merged with and into Merger Sub, and the
separate existence of the Company shall cease. Merger Sub will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California General
Corporation Law and the Florida Business Corporation Act.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Parent, 5029 Edgewater Drive, Orlando, Florida 32810 at 2:00 p.m., Eastern
Standard Time, within three (3) business days after the satisfaction or waiver
of all conditions set forth in Sections 7 and 8 (the "Closing Date").
Contemporaneously with the Closing, a properly executed certificate or agreement
of merger conforming to the requirements of the California General Corporation
Law and properly executed articles of merger conforming to the requirements of
the Florida Business Corporation Act shall be filed with each of (a) the
Secretary of State of the State of Florida and (b) the Secretary of State of the
State of California and (c) the office of the county recorder in each county in
the State of California within which any real property owned by the Company is
located. The Merger shall become effective at the time such certificate or
agreement and articles of merger are filed with and accepted by the Secretary of
State of the State of Florida and the Secretary of State of the State of
California (the "Effective Time").
1.4 REPURCHASE OF COMPANY COMMON STOCK PRIOR TO MERGER. On the Closing
Date and immediately prior to the Closing:
(a) The Company shall repurchase a total of 25 shares of Company
Common Stock (the "Repurchasable Shares") from those Shareholders listed on
Exhibit C ("Selling Shareholders"), for total consideration of $3,000,000 (the
- ---------
"Share Repurchase Price"). The number of Repurchasable Shares to be purchased
from each Selling Shareholder, and the portion of the Share Repurchase Price
payable to each such Selling Shareholder, are specified on Exhibit C.
---------
(b) The Selling Shareholders shall tender to the Company all Company
Stock Certificates evidencing the Repurchasable Shares, either endorsed in blank
or accompanied by duly signed stock powers. The Company shall promptly cancel
of record all Repurchasable Shares, and upon such cancellation the Repurchasable
Shares shall be returned to authorized but unissued shares of Company Common
Stock, and shall not be deemed outstanding immediately prior to the Effective
Time.
(c) In payment of the Share Repurchase Price, the Company shall
execute and deliver to each of the Selling Shareholders a promissory note, in
the form attached as Exhibit
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2
<PAGE>
D ("Share Repurchase Note"), in the principal amount equal to the portion of the
- -
Share Repurchase Price payable to such Selling Shareholder.
(d) On the later of (i) the Closing Date, or (ii) in the event Parent
has not consummated the Acquisition Financing, the date of consummation of the
Acquisition Financing (anticipated to be within five (5) business days following
the Closing), Parent shall, directly or through Merger Sub, advance to the
Company immediately available funds in an aggregate amount equal to the
principal amount of each of the Share Repurchase Notes and the Company shall
fully pay and retire each Share Repurchase Note and, upon receipt of such
payment by the Selling Shareholder, each Selling Shareholder shall mark his or
her Share Repurchase Note "cancelled" and surrender such note to the Company.
The Selling Shareholders acknowledge and agree that the payments for the
Repurchasable Shares specified in this Section 1.4 constitute all consideration
payable by the Company, Merger Sub or Parent for such Repurchasable Shares, and
that the Selling Shareholders shall not be entitled to receive, with respect to
such Repurchasable Shares, any other payments, Parent Common Stock (as
hereinafter defined) or other consideration whatsoever as the result of,
incident to or upon consummation of the Merger.
(e) In the event the Acquisition Financing is not consummated by
Parent on or before March 16, 1998, the Company and the Shareholders shall have
the right, upon written notice to Parent, to rescind this Agreement and all
agreements and documents executed and delivered in connection herewith. In the
event Parent receives notice of such rescission, Parent shall as promptly as
practicable assign and transfer to the Shareholders all outstanding shares of
capital stock of the Surviving Corporation, in the same proportions as the
shares of Company Common Stock were held by the Shareholders immediately prior
to the execution and delivery of this Agreement. Between the Effective Time and
the earlier of (i) the consummation of the Acquisition Financing and (ii) March
16, 1998, Parent shall cause the business activities of the Surviving
Corporation to be conducted only in the ordinary course, to the effect that in
the event of any such rescission, the financial condition, results of operations
and legal condition of the Surviving Corporation shall be as substantially
identical as possible to the financial condition, results of operations and
legal condition of the Company as of the Effective Time.
1.5 CONVERSION OF SHARES.
(a) Subject to the other terms and provisions of this Agreement, at
the Effective Time, by virtue of the Merger and without any further action on
the part of Parent, Merger Sub, the Company or any shareholder of the Company,
each of the 25 shares of Company Common Stock outstanding immediately prior to
the Effective Time shall be converted into the right to receive 32,400 shares of
the common stock, par value $.001 per share, of Parent ("Parent Common Stock")
and such additional shares of Parent Common Stock as may become issuable
pursuant to Section 1.11. The number of shares of Parent Common Stock issuable
pursuant to this Section 1.5(a) shall be ratably adjusted to take into account
any stock dividend, stock split, reverse stock split or other distribution of
securities on outstanding shares of Parent Common Stock effected between the
date of this Agreement and the Closing Date.
(b) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or
3
<PAGE>
other condition under any applicable restricted stock purchase agreement or
other agreement with the Company, then the shares of Parent Common Stock issued
in exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent will
send to the holders of Company Stock Certificates (i) a letter of transmittal in
customary form and containing such provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock.
Upon surrender of a Company Stock Certificate to Parent for exchange, together
with a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor a certificate representing the
number of shares of Parent Common Stock that such holder has the right to
receive pursuant to the provisions of this Section 1, and the Company Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.7, each Company Stock Certificate shall be deemed, from and
after the Effective Time, to represent only the right to receive upon such
surrender a certificate representing shares of Parent Common Stock as
contemplated by this Section 1. If any Company Stock Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a condition
precedent to the payment of any cash and the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and
execute and deliver to Parent an affidavit and indemnity agreement, indemnifying
Parent and the Surviving Corporation against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.7 (at which
time such holder shall be entitled to receive all such dividends and
distributions and such cash payment).
4
<PAGE>
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued.
(d) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) Dissenter's Shares. Notwithstanding Section 1.5(a) of this
Agreement, shares of Company Common Stock issued and outstanding at the
Effective Time which are held by a holder who has not voted in favor of the
Merger and who has demanded payment for such shares in accordance with Chapter
13 of the California General Corporation Law ("Dissenting Company Shares") shall
not be converted into or represent the right to receive Parent Common Stock
payable thereon pursuant to Section 1.4 and shall be entitled only to such
rights of appraisal as are granted by Chapter 13 of the California General
Corporation Law ("Dissenting Provisions"); unless and until such holder fails to
perfect or effectively withdraws or otherwise loses his or her right to
appraisal. If after the Effective Time any such holder fails to perfect or
effectively withdraws or loses his right to appraisal, such shares of Company
Common Stock shall be treated as if they had been converted at the Effective
Time into the right to receive the Parent Common Stock payable thereon pursuant
to Section 1.5. The Company shall give Parent prompt notice upon receipt by the
Company of any written objection to the Merger and such written demands for
payment for shares of Company Common Stock under the Dissenting Provisions, and
the withdrawals of such demands, and any other instruments provided to the
Company pursuant to the Dissenting Provisions (any shareholder duly making such
demand being hereinafter called a "Dissenting Shareholder"). Each Dissenting
Shareholder that becomes entitled, pursuant to the Dissenting Provisions, to
payment for any shares of Company Common Stock held by such Dissenting
Shareholder shall receive payment therefor from Parent (but only after the
amount thereof shall have been agreed upon or at the times and in the amounts
required by the Dissenting Provisions) and all of such Dissenting Shareholder's
shares of Company Common Stock shall be canceled. The Company shall not, except
with the prior written consent of Parent, voluntarily make any payment with
respect to, or settle or offer to settle, any demand for payment by a Dissenting
Shareholder.
1.8 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
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1.9 ACCOUNTING TREATMENT. For accounting purposes, the Merger is intended
to be accounted for as a purchase in accordance with GAAP.
1.10 TERMINATION OF AGREEMENT. In addition to the other termination rights
provided elsewhere in this Agreement, in the event the Designated Parent Stock
Price (as defined below) is less than $3.25 or greater than $6.25, this
Agreement may be terminated by either Parent, or the Company, upon written
notice delivered not less than three (3) business days prior to the Closing
Date. For purposes of this Section 1.11, the "Designated Parent Stock Price"
shall be the weighted average of the closing sale prices of a share of Parent
Common Stock as reported on the Nasdaq SmallCap Market for each of the 20
consecutive trading days ending on the 10th day immediately preceding the
Closing Date.
1.11 ISSUANCE OF ADDITIONAL SHARES OF PARENT COMMON STOCK.
(a) Subject to the provisions of Section 2.4 (b), as additional
consideration in the Merger, on or before October 31, 1999, Parent shall issue
to the Shareholders entitled to receive shares of Parent Common Stock in the
Merger, in proportion to their respective percentage ownership interests in the
shares of Company Common Stock outstanding immediately prior to the Effective
Time, up to an additional 540,000 shares of Parent Common Stock ("Additional
Parent Shares"), as provided in clause (b) below. The number of shares of
Parent Common Stock issuable pursuant to this Section 1.12(a) shall be ratably
adjusted to take into account any stock dividend, stock split, reverse stock
split or other distribution of securities on outstanding shares of Parent Common
Stock effected between the date of this Agreement and the Closing Date.
(b) The issuance of Additional Parent Shares shall be subject to, and
conditioned upon, the attainment by the Surviving Corporation of certain levels
of net income (as defined under GAAP), for the Surviving Corporation's fiscal
year ending June 30, 1999. The number of Additional Parent Shares, if any, to
be issued shall be calculated based on the following net income levels
recognized by the Surviving Corporation for such fiscal year:
<TABLE>
<CAPTION>
1998 Additional
Net Income Parent Shares
---------- -------------
<S> <C>
(1) $1,400,000 49,100
(2) 1,500,000 98,200
(3) 1,600,000 147,300
(4) 1,700,000 196,400
(5) 1,800,000 245,500
(6) 1,900,000 294,600
(7) 2,000,000 343,700
(8) 2,100,000 392,800
(9) 2,200,000 441,900
(10) 2,300,000 491,000
(11) 2,400,000 540,000
</TABLE>
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<PAGE>
(c) In the event the Surviving Corporation recognizes annual net
income in an amount between any of the net income levels specified in clause (b)
above, the number of Additional Parent Shares to be issued pursuant to this
Section 1.12 shall be adjusted on a pro rata basis. In determining annual net
income of the Surviving Corporation for the purposes of this Section 1.11, no
general or administrative corporate expenses of Parent (other than the actual
interest paid by Parent on the portion of the Acquisition Financing utilized to
fund the working capital advance to the Surviving Corporation pursuant to
Section 6.3) shall be charged to or against the Surviving Corporation.
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS
Each of the Company and the Shareholders, jointly and severally, represents
and warrants as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all necessary
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform
its obligations under all Company Contracts.
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the name "Ad Art."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i) the
names of the members of the Company's board of directors and (ii) the names and
titles of the Company's officers. The board of directors of the Company does
not have and has never had any committees.
(e) The Company does not own any controlling interest in any Entity
and the Company has never owned, beneficially or otherwise, any shares or other
securities of, or any
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direct or indirect equity interest in, any Entity, except for E.S.C. of Nevada,
Inc., a wholly owned Nevada subsidiary of the Company (the "Subsidiary"). The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate or articles of incorporation and bylaws, including all amendments
thereto; (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company and the board of directors of the Company. There have been no formal
meetings or other proceedings of the shareholders of the Company and the board
of directors of the Company that are not fully reflected in such minutes or
other records. There has not been any violation of any of the provisions of the
Company's articles of incorporation or bylaws, and the Company has not taken any
action that is inconsistent in any material respect with any resolution adopted
by the Company's shareholders and the Company's board of directors. The books
of account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of 1,000
shares of common stock, no par value, of which 50 shares are issued and
outstanding as of the date of this Agreement. All of the outstanding shares of
Company Common Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. Part 2.3 of the Disclosure Schedule provides an
accurate and complete description of the terms of each repurchase option (other
than as specified in Section 1.4 hereof) which is held by the Company and to
which any of such shares is subject.
(b) Except for this Agreement and as set forth in Part 2.3 of the
Disclosure Schedule, there is no: (i) outstanding subscription, option, call,
warrant or right (whether or not currently exercisable) to acquire from the
Company any shares of the capital stock or other securities of the Company; (ii)
stock option plan, stock issuance plan or other similar plan of the Company;
(iii) outstanding security, instrument or obligation of the Company that is or
may become convertible into or exchangeable for any shares of the capital stock
or other securities of the Company; (iv) Contract under which the Company is or
may become obligated to sell or otherwise issue any shares of its capital stock
or any other securities; or (v) to the Knowledge of the Company and the
Shareholders, condition or circumstance that may give rise to or provide a basis
for the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive from the Company any shares of capital stock or
other securities of the Company.
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<PAGE>
(c) All outstanding shares of Company Common Stock have been issued
and granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
Company Contracts.
(d) Except as set forth in Part 2.3 of the Disclosure Schedule, the
Company has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities of the Company.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the unaudited balance sheet of
the Company as of December 31, 1997, the reviewed but unaudited balance sheet of
the Company as of December 31, 1996, and the related income statements,
statements of shareholders' equity and statements of cash flows for the 12-month
periods then ended (the "Company Financial Statements").
(b) Within sixty (60) days following the Closing Date, the Surviving
Corporation shall deliver to Parent audited balance sheets of the Company as of
December 31, 1997 and December 31, 1996 and related audited income statements,
statements of shareholders' equity and statements of cash flows for the years
then ended (the "Audited Financial Statements"), accompanied by an unqualified
report relative to such audit by a public accounting firm acceptable to Parent.
In the event the Audited Financial Statements reflect annual net income of less
than $500,000, the number of Additional Parent Shares issuable pursuant to
Section 1.12 shall be reduced (in the order such shares become payable pursuant
to clauses (1)-(11) of Section 1.12(b), by .54 shares for each $1.00 of such
shortfall in annual net income.
(c) The Company Financial Statements are, and when delivered the
Audited Financial Statements will be, true and complete in all material respects
and present and will present fairly the financial position of the Company as of
the respective dates thereof and the results of operations and cash flows of the
Company for the periods covered thereby, and have been (or, in the case of the
Audited Financial Statements will be, when delivered) prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
except for normal year-end audit adjustments.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Disclosure
Schedule, since December 31, 1997:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the Knowledge of the Company and the Shareholders, no event
has occurred that will, or could reasonably be expected to, have a Material
Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the Company's assets (whether or
not covered by insurance);
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<PAGE>
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of (i)
any capital stock or other security, (ii) any option or right to acquire any
capital stock or any other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) there has been no amendment to the Company's certificate or
articles of incorporation or bylaws, and the Company has not effected or been a
party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure which, when added
to all other capital expenditures made on behalf of the Company since the
Interim Statement Date, exceeds $50,000;
(h) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)) or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(i) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or leased
or licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for rights or other assets acquired, leased,
licensed or disposed of in the ordinary course of business and consistent with
the Company's past practices;
(j) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to.become subject to any Encumbrance,
except for pledges of assets made in the ordinary course of business and
consistent with the Company's past practices;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(m) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount
10
<PAGE>
of the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, or (iii)
hired any new employee;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(q)" above.
2.6 TITLE TO ASSETS.
(a) Part 2.6 of the Disclosure Schedule identifies all assets that are
material to the business of the Company and owned by it as of December 31, 1997.
None of the assets set forth in Part 2.6 of the Disclosure Schedule has been
disposed of. Except as set forth in Part 2.6 of the Disclosure Schedule, the
Company owns, and has good, valid and marketable title to, all assets purported
to be owned by it, including: (i) all assets reflected in the Company Financial
Statements; (ii) all assets referred to in Parts 2.1, 2.7(b) and 2.9 of the
Disclosure Schedule and all of the Company's rights under the Contracts
identified in Part 2.10 of the Disclosure Schedule; and (iii) all other assets
reflected in the Company's books and records as being owned by the Company.
Except as set forth in Part 2.6 of the Disclosure Schedule, all of said assets
are owned by the Company free and clear of any liens or other Encumbrances,
except for (x) any lien for current taxes not yet due and payable, and (y) minor
liens that have arisen in the ordinary course of business and that do not (in
any case or in the aggregate) materially detract from the value of the assets
subject thereto or materially impair the operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that are
material to the business of the Company and that are being leased or licensed to
the Company.
2.7 BANK ACCOUNTS; RECEIVABLES; PAYABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of February 11, 1998. All existing accounts
receivable of the Company (including
11
<PAGE>
those accounts receivable reflected in the Company Financial Statements that
have not yet been collected and those accounts receivable that have arisen since
February 11, 1998 and have not yet been collected) (i) represent valid
obligations of customers of the Company arising from bona fide transactions
entered into in the ordinary course of business, (ii) are current and will be
collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $150,000 in the aggregate).
(c) The Company has heretofore delivered to Parent an aging schedule
of the Company's accounts payable as of January 24, 1998 ("Accounts Payable
Aging Schedule"), which schedule is and shall be accurate in all material
respects as of the Closing Date except for changes since January 24, 1998,
resulting from the conduct of the Company's business in the ordinary course.
The accounts payable of the Company are, and as of the Closing Date will be,
current and bona fide obligations incurred in the ordinary course of business
payable when due after the Closing Date without penalty or increase in amount,
except for such non-current accounts as will not cause the Company to incur any
penalties or increases in the amounts payable that singularly or in the
aggregate would have a Material Adverse Effect on the Company. Except as
otherwise set forth in Part 2.7(c) of the Disclosure Schedule, no supplier of
goods, products or services to the Company is withholding the fulfillment of any
orders by the Company for goods, products or services or, to the Knowledge of
the Company and the Shareholders, is threatening to withhold fulfillment of any
such orders or to institute any Legal Proceeding against the Company, as the
result of the nonperformance by the Company of any of its obligations to such
supplier.
2.8 REAL PROPERTY; EQUIPMENT; MOTOR VEHICLES.
(a) The Company does not own or lease any real property or any
interest in real property, except as identified in Part 2.8 of the Disclosure
Schedule.
(b) Part 2.8 of the Disclosure Schedule sets forth a correct and
complete list of (i) all real property owned, leased or used by the Company,
together with a description of the principal buildings, improvements and
structures located thereon, (ii) all machinery and equipment owned, leased or
used by the Company, and (iii) all automobiles, trucks or other vehicles owned
by or leased to the Company. The property listed on Part 2.8 of the Disclosure
Schedule is in conformity in all material respects with all applicable Legal
Requirements relating thereto or currently in effect or scheduled to come into
effect, except as to those Legal Requirements the failure of the Company to
conform with which would not have a Material Adverse Effect on the Company.
Except as reflected on Part 2.8 of the Disclosure Schedule, the fixed assets of
the Company are located on real property owned or leased by the Company.
(c) All material items of real property, personal property, equipment
and other tangible assets owned by or leased to the Company are adequate for the
uses to which they are being put, are in good condition and repair (ordinary
wear and tear excepted) and are adequate for the conduct of the Company's
business in the manner in which such business is currently being conducted.
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2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with respect
to each Company Proprietary Asset registered with any Governmental Body or for
which an application has been filed with any Governmental Body, (i) a brief
description of such Proprietary Asset, and (ii) the names of the jurisdictions
covered by the applicable registration or application. Part 2.9(a)(ii) of the
Disclosure Schedule identifies and provides a brief description of all other
Company Proprietary Assets owned by the Company. Part 2.9(a)(iii) of the
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to the Company by any Person (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $500), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company. Except as set forth in Part 2.9(a)(iv) of the
Disclosure Schedule, the Company has good, valid and marketable title to all of
the Company Proprietary Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of
the Disclosure Schedule, free and clear of all liens and other Encumbrances, and
has a valid right to use all Proprietary Assets identified in Part 2.9(a)(iii)
of the Disclosure Schedule. Except as set forth in Part 2.9(a)(v) of the
Disclosure Schedule, the Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(vi) of the Disclosure Schedule, the Company has not developed
jointly with any other Person any Company Proprietary Asset with respect to
which such other Person has any rights.
(b) The Company has taken all measures and precautions reasonably
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as provided in Part 2.9(b) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts with
any Proprietary Asset owned or used by any other Person, including, without
limitation, any former employers of any of the Company's Shareholders. The
Company is not infringing, misappropriating or making any unlawful use of, and
the Company has not at any time infringed, misappropriated or made any unlawful
use of, or received any notice or other communication (in writing or otherwise)
of any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To
the Knowledge of the Company and the Shareholders, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other Person infringes or conflicts with, any Company
Proprietary Asset.
(d) (i) Each Company Proprietary Asset conforms in all material
respects with any specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and (ii) there has not been any
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<PAGE>
claim by any customer or other Person alleging that any Company Proprietary
Asset (including each version thereof that has ever been licensed or otherwise
made available by the Company to any Person) does not conform in all material
respects with any specification, documentation, performance standard,
representation, warranty or statement made or provided by or on behalf of the
Company, and, to the Knowledge of the Company and the Shareholders, there is no
basis for any such claim. There are no obligations of the Company to correct or
repair any programming errors or other defects in the Company Proprietary
Assets, and to the Knowledge of the Company and the Shareholders, there is no
reason for the Company to establish reserves to cover any costs associated with
any obligations of the Company to correct or repair any programming errors or
other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth on
Part 2.9(e) of the Disclosure Schedule, the Company has not (i) licensed any of
the Company Proprietary Assets to any Person on an exclusive basis or (ii)
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies:
(i) all Sign Contracts in effect as of the date of this
Agreement that provide for or contemplate revenues to be received by the Company
after January 1, 1998, listing the respective contract identification numbers,
effective dates and expiration dates of each such Sign Contract, which list is
and shall be accurate in all material respects as of the Closing Date except for
changes since the date of this Agreement resulting from the conduct of the
Company's business in the ordinary course.
(ii) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent contractor;
(iii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iv) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(v) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
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<PAGE>
(vi) each Company Contract relating to the acquisition, issuance
or transfer of any securities;
(vii) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(viii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(ix) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(x) each Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(xi) each Company Contract constituting or relating to a
Government Contract or Government Bid;
(xii) any other Company Contract that was entered into outside
the ordinary course of business or was inconsistent with the Company's past
practices;
(xiii) any other Company Contract that has a term of more than 60
days and that may not be terminated by the Company (without penalty) within 60
days after the delivery of a termination notice by the Company; and
(xiv) any other Company Contract that contemplates or involves
(A) the payment or delivery of cash or other consideration in an amount or
having a value in excess of $50,000 in the aggregate, or (B) the performance of
services having a value in excess of $50,000 in the aggregate.
(Contracts in the respective categories described in clauses (i) through (xiv)
above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all Material Contracts, including all amendments thereto. Part 2.10(b) of
the Disclosure Schedule provides an accurate description of the terms of each
Material Contract that is not in written form. Each Material Contract is valid
and in full force and effect and is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) (i) the Company has not violated or breached, or committed any
default under, any Material Contract, and, to the Knowledge of the Company and
the Shareholders, no other Person has violated or breached, or committed any
default under, any Material Contract;
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(ii) No event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to accelerate the maturity or performance of any Material Contract, or (D) give
any Person the right to cancel, terminate or modify any Material Contract;
(iii) the Company has not received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any Material Contract; and
(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Material Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) The Contracts between the Company and each of its distributors
require such distributor to enter into agreements with such distributor's end-
users on the same terms and conditions as those entered into between the Company
and its end-users, and, to the Knowledge of the Company and the Shareholders,
each of the Company's distributors has complied with such terms.
(g) The Company is not a party to any Contract which extends the
Company's warranties beyond their standard respective durations or extends any
limitation on the Company's liability.
(h) The Company has delivered to Parent true and complete copies of
the respective forms of sale, leasing and maintenance Sign Contracts used by the
Company in the conduct of its business ("Sign Contract Forms"). Except as
otherwise specified in Part 2.10(h) of the Disclosure Schedule: (i) each of the
Sign Contracts is in form and substance identical or substantially similar to
the applicable Sign Contract Form, except for such Sign Contracts copies of
which have been delivered to Parent and collectively denoted as "Dissimilar Sign
Contracts"; and (ii) each Sign Contract was entered into in the ordinary course
of business.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with GAAP, and whether due
or to become due), except for: (a) liabilities identified as such in the
"liabilities" column of the balance sheets included in the Company Financial
Statements; (b) accounts payable or accrued salaries that have been incurred by
the Company since December 31, 1997 in the ordinary course of business and
consistent with
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the Company's past practices; (c) liabilities under Material Contracts, to the
extent the nature and magnitude of such liabilities can be specifically
ascertained by reference to the text of such Material Contracts; and (d) the
liabilities identified in Part 2.11 of the Disclosure Schedule. All reserves
contained in the Company Financial Statements, including reserves for warranty
liabilities, are adequate for their respective stated purposes.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since its formation been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Disclosure Schedule, the Company has not
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times since its formation has been, in compliance with
all material terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The Company
has not received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. Except for estimated 1997 federal income taxes, all amounts shown
on the Company Returns to be due on or before the Closing Date have been or will
be paid on or before the Closing Date. The Company has delivered to Parent
accurate and complete copies of all Company Returns filed by the Company which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP.
(c) The Company has delivered to Parent accurate and complete copies
of all reports and similar documents (to which the Company has access) relating
to all audits or
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examinations by any Governmental Body of the Company Returns. No extension or
waiver of the limitation period applicable to any of the Company Returns has
been granted (by the Company or any other Person), and no such extension or
waiver has been requested from the Company.
(d) No claim or Proceeding is pending or has been threatened against
or with respect to the Company in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 28OG or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
(f) (i) The Company has used its best efforts to accurately calculate
and pay all sales or excise taxes due as the result of its business operations
and, incident thereto, to reasonably interpret the applicable guidelines of the
relevant Governmental Bodies with respect to the calculation of the amount of
sales or excise taxes due as the result of the Company's operations. However, at
times the applicable Governmental Bodies may modify their interpretations of
their own guidelines or modify the methodologies by which they conduct sales or
excise tax audits. In the event an audit after the Effective Time by any
applicable Governmental Body of either the State of California or the State of
Nevada results in the assessment of a sales or excise tax deficiency against the
Company for the period between May 27, 1995 (the date of commencement of the
Company's operations) and the Effective Time, then to the extent such deficiency
results solely from the use by such Governmental Body of a methodology or
interpretation of the regulations for the determination of such taxes that is
different from the methodology used by the Company or the interpretation of such
regulations by the Company in calculating taxes due, or to the extent such
deficiency is solely the result of a sampling process used by the Governmental
Body that yields different results than determined by the Company, such
deficiency shall not be deemed to be a breach of this Section 2.14 to the extent
such deficiency does not exceed $250,000.
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(ii) The Company and the Shareholders acknowledge and agree that the
provisions of clause (i) above shall not relieve it or them of liability to
Parent or Merger Sub for Damages, if any, pursuant to Article 9 hereof arising
out of or in connection with issues pending before the California State Board of
Equalization relative to Ad Art Signs, Inc. audits 28-671216-010 and 28-671216-
020.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each incentive
compensation, stock option, severance pay, termination pay, hospitalization,
medical, life or other insurance, supplemental unemployment benefits, profit-
sharing, pension or retirement plan, program or agreement (collectively, the
"Plans") sponsored, maintained, contributed to or required to be contributed to
by the Company for the benefit of any employee of the Company ("Employee"),
except for Plans which would not require the Company to make payments or provide
benefits having a value in excess of $25,000 in the aggregate.
(b) Except as specified in Part 2.15(b) of the Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the Knowledge
of the Company and the Shareholders, has not at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of Employees or former Employees (a "Pension
Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(l) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Disclosure Schedule (the "Welfare Plans") and, except as
specified in Part 2.15(c) of the Disclosure Schedule, none of such plans is a
multi-employer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary
plan description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all
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amendments thereto) and accurate and complete copies the most recent financial
statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stoploss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) Except as specified in Part 2.15(e) of the Disclosure Schedule:
(i) the Company is not required to be, and has never been required to be,
treated as a single employer with any other Person under Section 4001(b)(1) of
ERISA or Section 414(b), (c), (m) or (o) of the Code; (ii) the Company has never
been a member of an "affiliated service group" within the meaning of Section
414(m) of the Code; and (iii) the Company has never made a complete or partial
withdrawal from a multi-employer plan, as such term is defined in Section 3(37)
of ERISA, resulting in "withdrawal liability," as such term is defined in
Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401 (a)
of the Code has received a favorable determination from the Internal Revenue
Service, and neither the Company nor any of the Shareholders has Knowledge of
any reason why any such determination letter should be revoked.
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(k) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees,
except as described in Part 2.15(e) of the Disclosure Schedule.
(m) Part 2.15(m) of the Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) The Company has good labor relations, and neither the Company nor
any of the Shareholders has any reason to believe that (i) the consummation of
the Merger or any of the other transactions contemplated by this Agreement will
have a Material Adverse Effect on the Company's labor relations, or (ii) any of
the Company's employees intends to terminate his or her employment with the
Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. The Company has not received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
any Environmental Law and, to the knowledge of the Company and the Shareholders,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. Neither the Company nor,
to the Knowledge of the Company and the Shareholders, any other owner of any
property leased or controlled by the Company has received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens' group, employee or otherwise, that alleges that the Company or such
owner is not in compliance with any Environmental Law. All Governmental
Authorizations currently held by the Company pursuant to Environmental Laws are
identified in Part 2.16 of the Disclosure Schedule. (For purposes of this
Section 2.16: (i) "Environmental Law" means any federal, state, local or foreign
Legal Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the
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manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.)
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete copies of the insurance policies
identified in Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. The Company has not received any notice or other communication
regarding any actual or possible (a) cancellation or invalidation of any
insurance policy, (b) refusal of any coverage or rejection of any claim under
any insurance policy, or (c) material adjustment in the amount of the premiums
payable with respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. (a) No Related Party has, and no Related
Party has at any time had, any direct or indirect interest in any material asset
used in or otherwise relating to the business of the Company; (b) no Related
Party is, or has at any time since January 1, 1996 been, indebted to the
Company; (c) no Related Party has entered into, or has had any direct or
indirect (other than as a shareholder of the Company) financial interest in, any
Material Contract, transaction or business dealing involving the Company; (d) no
Related Party is competing, or has at any time competed, directly or indirectly,
with the Company; and (e) no Related Party has any claim or right against the
Company (other than rights as a shareholder, director or officer of the Company
and rights to receive compensation for services performed as an employee of the
Company). (For purposes of the Section 2.18 each of the following shall be
deemed to be a "Related Party": (i) each of the Shareholders; (ii) each
individual who is, or who has at any time been, an officer of the Company; (iii)
each member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
the Company) in which any one of the individuals referred to in clauses "(i)",
"(ii)" and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise." a material voting, proprietary
or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS; REGULATORY FILINGS.
(a) Except as described in Part 2.19(a) of the Disclosure Schedule:
(i) there is no pending Legal Proceeding, and, to the Knowledge of the Company
and the Shareholders, no Person has threatened to commence any Legal Proceeding,
(aa) that involves the Company or any of the assets owned or used by the Company
or any Person whose liability the Company has retained or assumed, either
contractually or by operation of law, or (bb) that challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement; and (ii), to the Knowledge of the Company and the Shareholders, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to the
commencement of any such Legal Proceeding.
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(b) Part 2.19(b) of the Disclosure Schedule describes each Legal
Proceeding that has been commenced by or has been pending against the Company
since January 1, 1995.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject.
Neither the Company nor any of the Shareholders is subject to any order, writ,
injunction, judgment or decree that relates to the Company's business or to any
of the assets owned or used by the Company. No officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
(d) Part 2.19(d) of the Disclosure Schedule describes all permits and
other authorizations required by Governmental Bodies for the performance by the
Company of its obligations under all Material Contracts and the conduct of its
business in the manner presently conducted ("Material Permits"), except for such
permits or authorizations the absence of which will not have a Material Adverse
Effect on the Company. Except as described in Part 2.19(d) of the Disclosure
Schedule, all Material Permits are in full force and effect and the Company has
not failed to fulfill any material condition required to be fulfilled by the
Company under any such Material Permit prior to the date of this Agreement.
2.20 COMPANY WARRANTIES. The Company has delivered to Parent true,
complete and correct copies of the forms of all presently outstanding warranties
(including product and materials warranties, performance warranties and
warranties as to workmanship) provided to all purchasers and lessees of the
Company's products and other customers of the Company ("Company Warranties").
Except for the Company Warranties, the Company presently has outstanding no
other express or implied guaranties or warranties of product, materials,
performance or workmanship to any users of the Company's products.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the right,
power and authority to enter into and to perform its obligations under this
Agreement; and the execution, delivery and performance by the Company of this
Agreement have been duly authorized by all necessary action on the part of the
Company and its board of directors. This Agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.22 NON-CONTRAVENTION; CONSENTS. Neither the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's certificate or articles of incorporation or
bylaws, or (ii) any resolution adopted by the Company's shareholders or the
Company's board of directors;
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(b) contravene, conflict with or result in a violation of any Legal
Requirement or any order, writ, injunction, judgment or decree to which the
Company, or any of the assets owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Material Contract, or give
any Person the right to (i) declare a default or exercise any remedy under any
such Material Contract, (ii) accelerate the maturity or performance of any such
Material Contract, or (iii) cancel, terminate or modify any such Material
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as otherwise provided in this Agreement, the Company is not and will not
be required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.23 FULL DISCLOSURE. This Agreement (including the Disclosure Schedule)
does not, and the Closing Certificates (as defined in Section 7.5(h) below) will
not, (i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
2.24 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SUBSIDIARY. The
representations and warranties contained in this Article 2 with respect to the
Company shall also apply to the Subsidiary, and shall mean, refer to and include
the Subsidiary, with such limited modifications or exceptions as may be
applicable, e.g., the reference in Section 2.1(a) shall be to the State of
Nevada rather than the State of California, Section 2.3(a) shall be modified to
mean the capitalization of the Subsidiary, and representations and warranties
relating to the ownership of the outstanding securities of the Subsidiary shall
mean, refer to and include the Company rather than the Shareholders.
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SECTION 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SHAREHOLDERS
Each of the Shareholders hereby, jointly and severally, represents,
warrants and covenants as follows (such representations and warranties do not
lessen or obviate the representations and warranties of the Company and the
Shareholders set forth in Section 2 of this Agreement):
3.1 REQUISITE POWER AND AUTHORITY. Each of the Shareholders has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All action on the
Shareholders' part required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon
execution and delivery, this Agreement will be the valid and binding obligation
of the Shareholders, enforceable in accordance with its terms.
3.2 TITLE TO SHARES. Each of the Shareholders is the beneficial and
record owner of the shares of Company Common Stock set forth opposite his or her
name on Exhibit B hereto, and has good and marketable title to such shares of
---------
Company Common Stock, free and clear of any Encumbrances (except as provided in
Section 1.4). Each Shareholder has the legal right to sell and deliver such
shares of Company Common Stock pursuant to this Agreement. The Repurchasable
Shares, and the shares of Company Common Stock exchanged in connection with the
Merger, include all shares of Company Common Stock owned beneficially or of
record by the Shareholders, and the Shareholders own no other securities of the
Company. Except for this Agreement and as set forth in Part 3.2 of the
Disclosure Schedule, the Repurchasable Shares and the shares of Company Common
Stock exchanged in connection with the Merger are not subject to any proxy,
voting trust agreement or other contract, agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of such shares. Except as set forth in Part 3.2 of the
Disclosure Schedule, none of the Shareholders has issued (and is not committed
to issue) any option, warrant or other right to subscribe for or purchase any
capital stock of the Company or securities convertible into or exchangeable for
any capital stock of the Company.
3.3 NO VIOLATION, CONFLICT, ETC. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, by the
Shareholders do not and will not violate, conflict with, result in a breach of,
or constitute a default or result in or permit any acceleration of any
obligation under (i) any law, ordinance or governmental rule or regulation to
which any Shareholder is subject, (ii) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or regulatory official,
body or authority which is applicable to any Shareholder, or (iii) any mortgage,
indenture, agreement, contract, commitment, lease, license, or other instrument
or document, oral or written, to which any Shareholder is a party, or by which
any of the shares of Company Common Stock of any Shareholder may be bound,
except where a waiver with respect hereto has been or will, prior to the
Closing, be obtained or except for such violation, default or conflict that
could not reasonably be expected to materially affect the ability of each
Shareholder to consummate the transactions provided for in this Agreement.
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3.4 NO CONSENT OR APPROVAL. Neither the execution and delivery by the
Shareholders, nor the consummation by the Shareholders of the transactions
contemplated by this Agreement, requires the consent or approval of, or the
giving of advance notice by any of the Shareholders to, or the registration by
any Shareholder with, or the taking of any other action by any Shareholder in
respect of, any federal, state or local governmental authority, and the
execution, delivery and performance of this Agreement by the Shareholders will
not result in the creation of any Encumbrance upon any of the shares of Company
Common Stock owned by any Shareholder.
3.5 NO INJUNCTIONS, ORDERS, ETC. There is no injunction, order or decree
of any court or administrative agency or any action or proceeding pending or, to
the Shareholder's Knowledge, threatened against any Shareholder to restrain or
prohibit the consummation of the transactions contemplated hereby.
3.6 ADDITIONAL TAX REPRESENTATIONS AND WARRANTIES. After consulting with
their counsel and auditors regarding the meaning of and factual support for the
following additional tax representations and warranties to this Agreement, each
of the Shareholders certifies and represents that the following additional tax
representations and warranties are now true and will be true as of the Effective
Time.
(a) The Merger will be consummated pursuant to the material terms of
this Agreement and none of the material terms and conditions therein have been
waived or modified and the Company has no plan or intention to waive or modify
any such material condition.
(b) Pursuant to the Merger, the Company will merge with and into
Merger Sub, and Merger Sub will acquire all of the assets and liabilities of the
Company. Specifically, the assets transferred to Merger Sub pursuant to the
Merger will represent 100% of the fair market value of the net assets and 100%
of the fair market value of the gross assets held by the Company immediately
prior to the Merger. For the purpose of determining the percentage of the
Company's net and gross assets held by Merger Sub immediately following the
Merger, the following assets will be treated as property held by Merger Sub or
the Company, as the case may be, immediately prior but not subsequent to the
Merger: (i) assets disposed of by the Company or Merger Sub (other than assets
transferred from the Company to Merger Sub in the Merger) prior to or subsequent
to the Merger and in contemplation thereof (including without limitation any
asset disposed of by the Company, other than in the ordinary course of business,
pursuant to a plan or intent existing during the period ending on the Effective
Time and beginning with the commencement of negotiations (whether formal or
informal) with Parent regarding the Merger (the "Pre-Merger Period")), (ii)
assets used by the Company or Merger Sub to pay shareholders perfecting
dissenters' rights or other expenses or liabilities incurred in connection with
the Merger and (iii) assets used to make distribution, redemption or other
payments in respect of the Company Common Stock or rights to acquire such stock
(including payments treated as such for tax purposes) that are made in
contemplation of the Merger or that are related thereto.
(c) Other than in the ordinary course of business or pursuant to its
obligations under this Agreement, the Company has made no transfer of any of its
assets (including any
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distribution of assets with respect to, or in redemption of, stock) in
contemplation of the Merger (or any other corporate acquisition) or during the
Pre-Merger Period.
(d) The principal reasons for the Company participating in the Merger
and the assumption of the Company's liabilities by Merger Sub pursuant to the
Merger are bona fide business reasons and purposes unrelated to Taxes.
(e) At the Effective Time, the Company will have no outstanding equity
interests other than the Company Common Stock specified in Section 2.3
(excluding the Repurchasable Shares). At the Effective Time, the Company will
have no outstanding warrants, options, or convertible securities or any other
type of right outstanding pursuant to which any person could acquire shares of
Company Common Stock or any other equity interest in the Company.
(f) The total fair market value of all consideration other than Parent
Common Stock received by the Company's Shareholders in the Merger (including,
without limitation, the cash to be paid to the Selling Shareholders for the
Repurchasable Shares as provided in Section 1.4) will be less than 50% of the
aggregate fair market value of all Company Common Stock outstanding immediately
prior to the Merger.
(g) The liabilities of the Company have been incurred by the Company
in the ordinary course of its business.
(h) The fair market value of the Company's assets will, at the
Effective Time, exceed the aggregate liabilities of the Company plus the amount
of liabilities, if any, to which such assets are subject.
(i) The Company is not and will not be at the Effective Time an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code.
(j) The Company is not and will not be at the Effective Time under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(k) Neither the Company nor any of the Shareholders has Knowledge of,
or believes that there exists, any plan or intention on the part of the
Shareholders (a "Plan") to engage in a sale, exchange, transfer, distribution
(including, without limitation, a distribution by a corporation to its
shareholders), pledge, disposition or any other transaction which results in a
reduction in the risk of ownership or a direct or indirect disposition (a
"Sale") of shares of Parent Common Stock received in the Merger that would
reduce the Shareholders' ownership of Parent Common Stock to a number of shares
having a value as of the Effective Time of less than 50% of the aggregate fair
market value, immediately prior to the Merger, of all outstanding shares of
Company Common Stock. For purposes of this Section 3.6(k), shares of Company
Common Stock (i) with respect to which Shareholders receive consideration in the
Merger other than Parent Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights and cash received
pursuant to Section 1.4) and/or (ii) with respect to which
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a Sale occurs prior to and in contemplation of the Merger, shall be considered
shares of outstanding Company Common Stock exchanged for Parent Common Stock in
the Merger and then disposed of pursuant to a Plan.
(l) Except with respect to (i) the Repurchasable Shares and (ii)
payments of cash to Shareholders who perfect dissenters' rights, 100% of the
outstanding Company Common Stock will be exchanged solely for Parent Common
Stock. Thus, except as set forth in the preceding sentence, the Company intends
that no consideration be paid or received (directly or indirectly, actually or
constructively) for Company Common Stock other than Parent Common Stock.
(m) The fair market value of the Merger consideration received by each
of the Shareholders (including without limitation the Share Repurchase Price)
will be approximately equal to the fair market value of the Company Common Stock
surrendered in exchange therefor and the aggregate consideration received by the
Shareholders in exchange for their shares of Company Common Stock will be
approximately equal to the fair market value of all of the Repurchasable Shares
and the outstanding shares of the Company Common Stock immediately prior to the
Merger.
(n) Each of Merger Sub, Parent, the Company and the Shareholders will
pay separately its or their own expenses relating to the Merger.
(o) There is no intercorporate indebtedness existing between Parent
and the Company or between Merger Sub and the Company that was issued, acquired,
or will be settled at a discount as a result of the Merger, and Parent will
assume no liabilities of the Company or any Company's Shareholders in connection
with the Merger.
(p) The terms of this Agreement are the product of arm's length
negotiations.
(q) None of the compensation received by any shareholder-employees of
the Company will be separate consideration for, or allocable to, any of their
shares of Company Common Stock; none of the shares of Parent Common Stock
received by any shareholder-employees of the Company will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any shareholder employees of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
(r) With respect to each instance, if any, in which shares of Company
Common Stock have been purchased by a stockholder of Parent (a "Parent
Stockholder") during the Pre-Merger Period (a "Stock Purchase"): (i) to the
Knowledge of the Company, (A) the Stock Purchase was made by such Parent
Stockholder on its own behalf, rather than as a representative, or for the
benefit, of Parent, (B) the Stock Purchase was entered into solely to satisfy
the separate interests of such Parent Stockholder and the seller, and (C) the
purchase price paid by such Parent Stockholder pursuant to the Stock Purchase
was the product of arm's length negotiations; and (ii) the Stock Purchase was
not a formal or informal condition to consummation of the Merger.
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(S) DISSENTERS' RIGHTS. Each of the Shareholders acknowledges that he
or she has been furnished a copy of, and has read and understands the provisions
of, Chapter 13 of the California General Corporation Law providing shareholders
of California corporations rights, subject to certain conditions, to dissent
from a transaction such as the Merger, to have their shares appraised pursuant
to such statutes, and to receive payment of such appraised value.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant as
follows:
4.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of its annual report on Form 10-KSB for the year
ended June 30, 1997, its quarterly report on Form 10-QSB for the quarter ended
September 30, 1997 and proxy statement on Schedule 14A for the annual meeting of
stockholders held on October 30, 1997, as filed by Parent with the SEC, and
prior to the Closing will deliver to the Company an accurate and complete copy
(excluding copies of exhibits) of its quarterly report on Form 10-QSB for the
quarter ended December 31, 1997 (the "Parent SEC Documents"). As of the time it
was or will be filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) each of
the Parent SEC Documents complied or will comply in all material respects with
the applicable requirements of the Securities Act or the Exchange Act, as the
case may be.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied (or, when filed, will comply) as to form in all
material respects with the published rules and regulations of the SEC applicable
thereto; (ii) were or will be prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-QSB of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end audit adjustments which will not, individually or in the aggregate, be
material in magnitude; and (iii) fairly present or will fairly present the
consolidated financial position of Parent and its subsidiaries as of the
respective dates thereof and the consolidated results of operations of Parent
and its subsidiaries for the periods covered thereby.
4.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Parent and Merger Sub
of this Agreement (including the contemplated issuance of Parent Common Stock in
the Merger in accordance with this Agreement) have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's stockholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against them in accordance with its terms,
subject to (i)
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laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.3 VALID ISSUANCE. Subject to Section 1.4(c), the Parent Common Stock to
be issued in the Merger will, when issued in accordance with the provisions of
this Agreement, be validly issued, fully paid and nonassessable.
SECTION 5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 CONDUCT OF THE COMPANY'S BUSINESS. From and after the date hereof and
prior to the Closing, the Company will conduct, and the Shareholders will cause
the Company to conduct, its business and affairs only in the ordinary course,
consistent in all material respects with prior practice. Without limiting the
generality of the foregoing, prior to the Closing, the Company will not, and the
Shareholders will cause the Company not to, without Parent's prior written
approval or except as expressly provided for in this Agreement:
(a) change its certificate or articles of incorporation or bylaws or
merge or consolidate or obligate itself to do so with or into any other entity;
(b) enter into any contract, agreement, commitment or other
understanding or arrangement of a type which would have to be set forth in Part
2.10(a) of the Disclosure Schedule hereof; or
(c) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the Company Financial
Statements (or the notes thereto), provided that in no event shall the Company
repay any long-term indebtedness except to the extent required by the terms
thereof; or
(d) declare or pay any dividend or distribution on any of its shares
of capital stock; or
(e) perform, take any action or incur or permit to exist any acts,
transactions, events or occurrences of the type described in clauses (c) through
(q) of Section 2.5 hereto which would have been inconsistent with the
representations and warranties set forth in Section 2.5 had the same occurred
after the close of the Unaudited Interim Balance Sheet and prior to the date
hereof.
The Company and the Shareholders agree to use their best efforts consistent
with past practice and policies to preserve intact the Company's present
business organizations, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time.
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5.2 NECESSARY CONSENTS AND OTHER ACTIONS. Prior to the Closing, the
Company will use its reasonable best efforts to obtain such written consents and
take such other actions as may be necessary or appropriate to allow the
consummation of the transactions contemplated hereby and to allow the Company to
carry on its business after the Closing.
5.3 ADVICE OF CHANGES. Prior to the Closing, the Company will notify
Parent in writing promptly after learning of (a) any event subsequent to the
date of this Agreement which would render any representation or warranty of the
Company or any of the Shareholders contained in this Agreement, if made on or as
of the date of such event or the Closing Date, untrue or inaccurate in any
material respect or would cause the Company to fail to comply with its
obligations hereunder in any material respect, (b) any notice of default
received by the Company or any of the Shareholders under any material instrument
or material agreement to which any of them is a party or by which any of them is
bound, which default would, if not remedied, have a Material Adverse Effect on
the Company, or (c) any actions, suits, proceedings or investigations by or
before any court, board or governmental agency, initiated by or against it or
known by it to be threatened against the Company or any of the Shareholders.
The Company agrees to discuss with Parent in advance any major reductions in its
work force.
5.4 ACCESS TO INFORMATION. The Company will give Parent and Merger Sub
and their financing sources, together with their attorneys, accountants and
other representatives, during normal business hours reasonable access to the
Company's personnel and to its properties, documents, contracts, books and
records, and will furnish Parent and Merger Sub with copies of such documents
and with such information with respect to its affairs as Parent and Merger Sub
and their financing sources may from time to time reasonably request.
5.5 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.
(a) The Company, its Board of Directors and the Shareholders will hold
in confidence all discussions and negotiations with Parent relating to the
acquisition of the assets or any equity interest in the Company by Parent except
for disclosure of such discussions and negotiations to its employees, legal
counsel, accountants and other advisors necessary in connection with such
acquisition and except for such disclosure as may be necessary pursuant to
applicable securities laws or as may be required of, or advisable for, the
Company's officers and directors to make in the exercise of their fiduciary
duties, as advised by the Company's counsel. In addition, from the date of this
Agreement until the Closing Date, the Company, the Shareholders and their
respective representatives will hold in confidence and not use any information
obtained from Parent that is not publicly available except for disclosures of
such information to sources of financing necessary in connection with this
Agreement, which disclosures shall only be made subject to a reasonable form of
confidentiality agreement customary in the industry. In the event that this
Agreement is terminated, all information obtained by the Company, the
Shareholders and their respective Representatives from Parent that is not
publicly available will be returned to Parent and will continue to be kept in
confidence and not used by the Company, the Shareholders and their respective
Representatives; and all information obtained by Parent and Merger Sub and their
respective Representatives from the Company, and the Shareholders that is not
publicly available will be returned to Company and
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the Shareholders, respectively, and will continue to be kept in confidence and
not used by Parent and Merger Sub and their respective Representatives.
(b) (i) None of the Company or the Shareholders shall (and the
Company shall not permit any of its Representatives to) issue any press release
or make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement, without
Parent's prior written consent, and (ii) Parent will use reasonable efforts to
consult with the Company prior to issuing any press release or making any public
statement regarding the Merger.
5.6 NO SOLICITATION. The Company undertakes and agrees that until the
Termination Date (as defined in Section 10.1 below), the Company shall not, and
shall cause its respective officers, representatives, agents, employees and
shareholders not to, directly or indirectly, solicit, encourage, entertain,
negotiate or conduct discussions regarding any transaction which entails the
sale of all or substantially all of its assets, any merger or consolidation of
the Company with any person other than Parent, the sale or other transfer of any
of the Company's outstanding capital stock to any person other than Parent or
the issuance and sale of any authorized but unissued shares of capital stock or
securities convertible into such shares to any third party. In the event the
Company receives, directly or indirectly, or learns that any of its shareholders
has received, from any third party any offer to enter into any such prohibited
transaction, then the Company shall promptly communicate to Parent in writing
the material terms of such offer and the identity of the third party making the
offer.
5.7 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
5.8 TAX MATTERS. Each of the Company and the Shareholders shall execute
and deliver to Parent at the Closing a Continuity of Interest Certificate in the
form of Exhibit E-1 or E-2, as applicable (the "Continuity of Interest
------------------
Certificate").
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 FILINGS AND CONSENTS. From and after the date hereof and prior to the
Closing, each party to this Agreement (a) shall make all filings (if any) and
give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request) promptly deliver to Parent a copy of each such filing made,
each such notice given and each such Consent obtained by the Company.
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6.2 ENVIRONMENTAL REVIEW. Parent shall have the right to conduct any and
all inspections, investigations, tests and studies (including, without
limitation, investigations with regard to zoning, conditional use permits,
building codes and other environmental regulations, architectural inspections,
engineering tests, economic feasibility studies, availability of water, soils,
seismic and geologic reports and environmental testing) with respect to the
property owned by the Company, including without limitation the property
utilized as its corporate headquarters and manufacturing facility at 3133 North
Ad Art Road, Stockton, California (the "Stockton Property"). Parent and its
agents, contractors and subcontractors shall have the right to enter upon such
properties at reasonable times during ordinary business hours to make any and
all inspections and tests as may be necessary or desirable in their sole
judgment and discretion. Parent and Merger Sub shall indemnify and hold the
Company harmless from any and all damage arising out of or as a result of the
negligence of Parent and its agents, contractors and/or subcontractors in
connection with such entry and/or activities upon such properties, except
liability which results from the release of pre-existing toxic or hazardous
materials on or about such properties resulting from normal environmental
testing procedures. The parties acknowledge that Parent intends to commence a
Phase I environmental review of the Stockton Property prior to Closing and that
such review may not be completed by Closing. The cost of such review shall be
at the exclusive expense of Parent.
6.3 CAPITAL ADVANCE BY PARENT. As soon as reasonably practicable
following the consummation of the Acquisition Financing, Parent shall advance to
the Surviving Corporation the approximate sum of $1,000,000 from the proceeds of
the Acquisition Financing for working capital.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company and the Shareholders in this Agreement and in
each of the other agreements and instruments delivered to Parent in connection
with the transactions contemplated by this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate in
all material respects as of the Closing as if made at the Closing (without
giving effect to any update to the Disclosure Schedule).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company and the Shareholders are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all material
respects.
7.3 APPROVAL BY THE COMPANY'S SHAREHOLDERS. This Agreement and all
transactions contemplated hereby shall have been duly approved by the
affirmative vote of holders of 100% of the shares of Company Common Stock
(including the Repurchasable Shares) entitled to vote with respect thereto.
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7.4 COMPLETION OF DUE DILIGENCE. Parent shall have completed, to its
satisfaction in its sole and absolute discretion, its due diligence examination
of the capitalization, business, properties, financial condition, operations and
obligations of the Company.
7.5 APPROVAL OF PARENT'S DIRECTORS AND SHAREHOLDERS. This Agreement and
all transactions contemplated hereby shall have been duly approved by the Board
of Directors of Parent and, if the Closing Date occurs on or after February 23,
1998, the shareholders of Parent.
7.6 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement, including
without limitation any required consents from Parent's lending institutions,
shall have been obtained and shall be in full force and effect.
7.7 AGREEMENTS AND DOCUMENTS. Parent and Merger Sub shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Noncompetition Agreements, in the form of Exhibit F, executed by
---------
each of the Shareholders;
(b) a Release, in the form of Exhibit G, executed by each of the
---------
Shareholders;
(c) a Shareholder Investment Certification, satisfactory in form and
content to Parent, executed by each of the Shareholders receiving Parent Common
Stock in the Merger;
(d) dated as of a date not more than five days prior to the Closing
Date and satisfactory in form and content to Parent, executed by OB-1
Associates; Western Financial Savings, Bank; Masco Properties; Carson
Enterprises, a limited partnership; and Ad Art, Inc. and any other lessor under
any real property lease to which the Company is a party as tenant or subtenant.
(e) the legal opinion of Blair M. White, Esq., counsel to the Company
and the Shareholders and dated as of the Closing Date, in the form of Exhibit H;
---------
(f) a certificate executed by each of the Shareholders to the effect
that each of the representations and warranties set forth in Sections 2 and 3 is
accurate in all respects as of the Closing Date as if made on the Closing Date
and that the conditions set forth in Sections 7.1, 7.2, 7.3 and 7.4 have been
duly satisfied (the "Closing Certificates");
(g) written resignations of all directors of the Company, effective as
of the Effective Time;
(h) a Continuity of Interest Certificate, executed by each of the
Shareholders; and
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(i) a Spousal Consent, Power of Attorney and Waiver, in the form of
Exhibit I, executed by each of the spouses (if any) of Terry J. Long, Daniel G.
- ---------
O'Leary, and Lou A. Papais.
7.8 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.8(b).
7.9 LEGAL INVESTMENT. On the Closing Date, the issuance of the shares of
Parent Common Stock to the Shareholders shall be legally permitted by all laws
and regulations to which the Shareholders, the Company, Merger Sub and Parent
are subject.
7.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.11 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Merger Sub of any material right pertaining to its ownership of
the Company Common Stock following the Merger.
7.12 EMPLOYEES. All of the individuals identified on Exhibit J shall have
---------
agreed to remain employees of the Company or shall not have ceased to be
employed by, or expressed an intention to terminate their employment with, the
Company.
7.13 NEW EMPLOYMENT AND CONSULTING AGREEMENTS. The Company shall have
entered into employment agreements or new employment agreements with Terry J.
Long and Rex Williams, and a consulting agreement with Lou A. Papais,
terminating all prior and other employment or consulting agreements with such
parties and their Affiliates, on such financial and other terms as approved by
Parent.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the Merger
and otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall be
accurate in all material respects as of the Closing as if made at the Closing.
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8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
8.3 CONSENTS. All Consents required for the consummation by the Company
and the Shareholders of all transactions contemplated by this Agreement,
including without limitation any required Consents from the Company's lending
institutions, shall have been obtained and shall be in full force and effect.
8.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company and the
Shareholders (including the representations and warranties set forth in Sections
2 and 3 hereof and the representations and warranties set forth in the Closing
Certificates) shall survive the Closing and shall expire 30 months following the
Closing Date (except for Sections 2.1, 2.3, 2.6, 2.8(a), 2.14, 2.15, 2.16,
2.19(c) and 3.2, each of which shall survive until the expiration of its
respective statute of limitations); provided, however, that if, at any time
prior to the expiration of the applicable survival period, any Indemnitee
(acting in good faith) delivers to the Shareholders a written notice alleging
the existence of an inaccuracy in or a breach of any of the representations and
warranties made by the Company or any of the Shareholders (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 9.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive the applicable survival period until such time as such claim is
fully and finally resolved. The representations and warranties made by Parent
and Merger Sub in Article 4 shall expire 30 months following the Closing Date.
(b) The representations, warranties, covenants and obligations of the
Company and the Shareholders, and the rights and remedies that may be exercised
by the Indemnitees, shall not be limited or otherwise affected by or as a result
of any information furnished to, or any investigation made by or Knowledge of,
any of the Indemnitees or any of their Representatives. Notwithstanding the
foregoing, in the event Parent has knowledge, as the result of written
information furnished to Parent by the Company or any of the Shareholders, of a
material fact required to be disclosed on any part of the Disclosure Schedule
that is not so disclosed, such material fact shall be deemed to be disclosed on
the applicable part of the Disclosure Schedule for purposes of this Agreement.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule
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shall be deemed to be a representation and warranty made by the Company and the
Shareholders in this Agreement.
9.2 INDEMNIFICATION BY THE COMPANY'S SHAREHOLDERS.
(a) From and after the Effective Time (but subject to Section 9.1(a)
and clause (b) below), the Company's Shareholders shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which directly or indirectly arise from or as a
result of, or are directly or indirectly connected with: (i) any breach of any
representation or warranty set forth in Sections 2 or 3 or in the Closing
Certificates; (ii) any breach of any covenant or obligation of the Company on
any Shareholder (including the covenants set forth in Sections 5 or 6); or (iii)
any Legal Proceeding relating to any breach of the type referred to in clause
"(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 9).
(b) The Shareholders shall not be obligated to compensate and
reimburse the Indemnitees for Damages under this Section 9.2 unless and until
the aggregate amount of Damages exceeds $375,000.00. The indemnification
obligations of each of the Shareholders under this Section 9.2 shall be ratable
on the basis of the percentages set forth opposite such Shareholder's name on
Exhibit K, and each Shareholder shall not be obligated to compensate and
- ---------
reimburse the Indemnitees for Damages under this Section 9.2 in excess of the
amounts set forth opposite such Shareholder's name on Exhibit K.
---------
(c) The Shareholders acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation by the Company or the
Shareholders then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages as
a result of and in connection with such inaccuracy or breach.
9.3 NO CONTRIBUTION. Each of the Shareholders waives, and acknowledges
and agrees that none of them shall have or shall exercise or assert (or attempt
to exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability for which he or she may become
subject under or in connection with this Agreement or the Closing Certificates.
9.4 INTEREST. In the event that any of the Shareholders is required to
hold harmless, indemnify, compensate or reimburse any Indemnitee pursuant to
this Section 9 with respect to any Damages, the Shareholder shall also be liable
to such Indemnitee for interest on the amount of such Damages (for the period
commencing as of the date on which one of the Shareholders first received notice
of a claim for recovery by such Indemnitee and ending on the date on which
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the liability of the Shareholders to such Indemnitee is fully satisfied, at a
floating rate equal to the rate of interest publicly announced by SouthTrust,
N.A., Orlando, Florida, from time to time as its prime, base or reference rate.
9.5 DEFENSE OF THIRD PARTY CLAIMS. The following procedures shall be
applicable with respect to indemnification for third party claims arising in
connection with any provision of this Section 9:
(a) Promptly after receipt by an Indemnitee of written notice of the
assertion or the commencement of any claim, liability or obligation by a third
party, whether by legal process or otherwise (a "Claim"), with respect to any
matter referred to in this Section 9, the Indemnitee shall give written notice
thereof (the "Notice") to the person from whom indemnification is sought
pursuant hereto (an "Indemnitor") and shall thereafter keep the Indemnitor
reasonably informed with respect thereto, provided that failure of the
Indemnitee to give the Indemnitor prompt notice as provided herein shall not
relieve the Indemnitor of its obligations hereunder unless such failure alone
and not in conjunction with other factors results in (i) a default judgment,
(ii) the expiration of the time to answer a complaint, or (iii) the inability of
the Indemnitee to adequately defend against such Claim. In case any such Claim
is brought against any Indemnitee, the Indemnitor shall be entitled to assume
the defense thereof, by written notice of its intention to the Indemnitee within
30 days after receipt of the Notice, with counsel reasonably satisfactory to the
Indemnitee, with such expenses of counsel to be borne equally by the Indemnitor
and the Indemnitee. Notwithstanding the assumption by the Indemnitor of the
defense of any Claim as provided in this Section 9.5, the Indemnitee shall be
permitted to join in the defense of such claim and to employ counsel at its own
expense.
(b) If the Indemnitor shall fail to notify the Indemnitee of its
desire to assume the defense of any such Claim within the prescribed period of
time, or shall notify the Indemnitee that it will not assume the defense of any
such Claim, then the Indemnitee shall assume the defense of any such Claim, in
which event it may do so in such manner as it may deem appropriate. The
Indemnitor shall be permitted to join in the defense of such Claim and to employ
counsel at its own expense.
(c) No Indemnitee shall make any settlement of any Claim which would
give rise to liability on the part of an Indemnitor hereunder without the
written consent of the indemnitor, which consent shall not be unreasonably
withheld. If a firm written offer is made to settle a Claim and the Indemnitor
desires to accept such settlement offer, but the Indemnitee elects not to
consent thereto, then the Indemnitee may continue to contest or defend such
Claim; provided, however, that the total maximum liability of the Indemnitor to
indemnify or otherwise reimburse the Indemnitee in accordance with this
Agreement with respect to such Claim shall be limited to and shall not exceed
the amount of the settlement offer rejected by the Indemnitee, plus reasonable
out-of-pocket costs and expenses (including attorneys' fees) to the date of
notice that the Indemnitor desires to accept such settlement offer.
(d) Amounts payable by an Indemnitor to an Indemnitee under this
Section 9 shall be payable by the Indemnitor as incurred by the Indemnitee.
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9.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Parent (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
SECTION 10. TERMINATION AND ABANDONMENT
10.1 TERMINATION. This Agreement may be terminated and the transactions
herein contemplated may be abandoned at any time prior to the Effective Time
notwithstanding approval thereof by the shareholders of the Company and Merger
Sub (and, in the event that such termination occurs pursuant to Section 10.1(a),
(b), (c), (d) or (e) below, the date on which such termination occurs shall be
referred to as the "Termination Date"):
(a) by written notice pursuant to Section 1.11; or
(b) by mutual written consent of the Company, Merger Sub and Parent;
or
(c) by Parent, if there shall have been a violation or breach by the
Company of any of the Shareholders of any material agreement, representation or
warranty contained in this Agreement which has rendered the satisfaction of any
condition to the obligations of Parent and Merger Sub impossible and such
violation or breach has not been waived by Parent; or
(d) by the Company, if there shall have been a violation or breach by
Merger Sub or Parent of any material agreement, representation or warranty
contained in this Agreement which has rendered the satisfaction of any condition
to the obligations of the Company impossible and such violation or breach has
not been waived by the Company; or
(e) by Parent, Merger Sub or the Company, if the Effective Time shall
not have occurred on or before February 20, 1998.
10.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment pursuant to this Section 10, written notice thereof shall forthwith
be given to each party, and this Agreement shall terminate and be abandoned
without further action by the Company, Parent or Merger Sub. If this Agreement
is terminated as provided herein:
(a) each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
the same;
(b) all information received by any party hereto with respect to the
business of any other party or its subsidiaries (other than information which is
a matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any governmental authority) shall not at any time be used for
the advantage of, or disclosed to third parties by, such party for any reason
whatsoever; and
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(c) no party hereto shall have any liability or further obligation to
any other party to this Agreement, except as stated in this Section 10.2, and
except for such legal and equitable rights and remedies which any party may have
by reason of any breach or violation by any other party of any representation or
warranty or any covenant or agreement made hereunder or pursuant hereto.
SECTION 11. AGREEMENT TO VOTE SHARES
11.1 AGREEMENT TO VOTE SHARES. In consideration of Parent, the Company and
Merger Sub taking further actions necessary to effect the Merger, each of the
Shareholders agrees to vote, intending to be bound hereby, all of his or her
shares of Company Common Stock, pursuant to the terms and conditions of the
Voting Agreement and Irrevocable Proxy in the form of Exhibit L, in favor of the
---------
Merger on terms substantially as set forth in this Agreement as modified in any
manner that may be necessary to preserve the essential features of the
transaction. Each Shareholder shall execute and deliver the Voting Agreement
and Irrevocable Proxy in the form of Exhibit L on even date with this Agreement.
---------
In addition, each of such parties further agrees to take all such other actions
and to execute such documents as may be reasonably necessary to effect the
Merger and the transactions contemplated herein, including without limitation,
execution of any documents or certificates that may be reasonably required to
preserve desired tax and accounting treatment and to ensure compliance with
applicable federal and state securities laws. Each of such parties understands
that in reliance on the foregoing agreements, Parent, the Company and Merger Sub
have executed this Agreement and will proceed to take other actions that will
involve considerable expense to such companies.
SECTION 12. REGISTRATION RIGHTS
12.1 PIGGYBACK REGISTRATION.
(a) Until the first anniversary of the Closing Date, Parent shall
notify all recipients (each, a "Holder") of the Parent Common Stock hereunder
(the "Registrable Securities") in writing at least 15 days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of Parent (including, but not limited to, registration
statements relating to secondary offerings of securities of Parent, but
excluding registration statements relating to employee benefit plans or with
respect to corporate reorganizations or other transactions under Rule 145 of the
Securities Act) and will afford each such Holder an opportunity to include in
such registration statement ALL or part of the Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by it shall, within ten (10)
days after the above-described notice from Parent, so notify Parent in writing.
If a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter FILED by Parent, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by Parent with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(B) UNDERWRITING. If the registration statement under which Parent
gives notice under Section 12.1(a) is for an underwritten public offering,
Parent shall so advise the
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Holders of Registrable Securities. In such event, the right of any such Holder
to be included in a registration pursuant to this Section 12.1 shall be
conditioned upon such Holder's participation in the underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
and selling shareholder documents in customary form with the underwriter or
underwriters selected for such underwriting by Parent. Notwithstanding any
other provision of this Section 12.1, if the underwriter determines in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to Parent; second, to those holders of Parent
registration rights existing prior to the date of this Agreement, to the extent
priority over any subsequent holders of registration rights is expressly
provided for in such pre-existing rights, otherwise pro rata with the Holders;
third, to the Holders on a pro rata basis based on the total Registrable
Securities held by the Holders; and fourth, to any shareholder of Parent (other
than a Holder) on a pro rata basis. No such reduction shall reduce the
securities being offered by Parent for its own account to be included in the
registration and underwriting. If the underwriter so determines in good faith,
any or all of the Registrable Securities may be excluded from any underwriting
in accordance with this Section 12.1(b).
(C) RIGHT TO TERMINATE REGISTRATION. Parent shall have the right to
terminate or withdraw any registration initiated by it under this Section 12.1
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
(D) EXPENSES. Parent shall bear all expenses incurred pursuant to
this Section 12.1 in connection with the preparation and filing with the SEC of
the registration statement and any amendments and supplements thereto and the
prospectuses therewith. All underwriting discounts and selling commissions
incurred in connection with such registration shall be borne by the holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered.
12.2 INDEMNIFICATION.
(a) In connection with any registration statement in which a holder of
Parent Common Stock with rights under this Section 12 is participating, each
such holder will furnish to Parent in writing such information and affidavits as
Parent reasonably requests for use in connection with such registration
statement or prospectus and, to the extent permitted by law, will indemnify
Parent, its directors and officers and each Person who controls Parent (within
the meaning of the Securities Act) against all Damages resulting from any untrue
or alleged untrue statement of material fact contained in such registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such holder
for inclusion in such registration statement; provided that the obligation to
indemnify will be several, not joint and several, among such holders and the
liability of each such holder will be in proportion to and limited to the net
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amount received by such holder from the sale of Parent Common Stock with rights
under this Section 12, pursuant to such registration statement.
(b) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any consent to the
entry of any judgment or any settlement made by the indemnified party without
its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(c) The indemnification provided for under this Section 12 will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities and the Merger.
Parent also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event Parent's
indemnification is unavailable for any reason.
12.3 TRANSFERABILITY OF REGISTRATION RIGHTS. The rights under this Section
12 are not transferable except in connection with (a) a transfer by will or
intestacy and (b) estate planning transfers consisting of gifts to the spouse or
issue of the transferee and transfers to trusts for the benefit of the spouse or
issue of the transferee.
12.4 AMENDMENT OF SECTION 12. Notwithstanding anything to the contrary
contained in this Agreement, the provisions of this Section 12 may be amended by
Parent at any time with the consent of the Holders of a majority of the shares
of Parent Common Stock subject (or to be subject) to the provisions of this
Section 12.
SECTION 13. MISCELLANEOUS PROVISIONS
13.1 SHAREHOLDERS' DESIGNATED AGENT. The Shareholders hereby irrevocably
appoint LOU A. PAPAIS as their agent for purposes of Section 9 (the
"Shareholders" Designated Agent"), and LOU A. PAPAIS hereby accepts his
appointment as the Shareholders' Designated Agent. Parent shall be entitled to
deal exclusively with the Shareholders' Designated Agent on all matters relating
to Section 9, and, in connection with the matters contemplated by this
Agreement, shall be entitled to rely conclusively (without further evidence of
any kind whatsoever) on any document executed or purported to be executed on
behalf of any of the Company's Shareholders by the Shareholders' Designated
Agent, and on any other action taken or purported to be taken on behalf of any
of the Company's Shareholders by the Shareholders' Designated Agent, as fully
binding upon such shareholder. If the Shareholders' Designated
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Agent shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Company's Shareholders, then the Company's
Shareholders shall, within ten days after such death or disability, appoint a
successor agent and, promptly thereafter, shall notify Parent of the identity of
such successor. Any such successor shall become the "Shareholders' Designated
Agent" for purposes of Section 9 and this Section 13.1. If for any reason there
is no Shareholders' Designated Agent at any time, all references herein to the
Shareholders' Designated Agent shall be deemed to refer to the Company's
Shareholders.
13.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
13.3 FEES AND EXPENSES. The Company shall bear and pay all fees, costs and
expenses (including legal fees and accounting fees) that have been incurred or
that are incurred by the Company in connection with the transactions
contemplated by this Agreement, including all fees, costs and expenses incurred
by such parties in connection with or by virtue of (a) the negotiation,
preparation and review of this Agreement (including the Disclosure Schedule) and
all agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions contemplated by
this Agreement, (b) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any Consent required to be
obtained by the Company in connection with any of such transactions, and (c) the
consummation of the Merger.
13.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
13.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
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if to Parent: La-Man Corporation
5029 Edgewater Drive
Orlando, Florida 32810
Attn: J. William Brandner, President
Facsimile: (407) 521-8767
with a copy to: Broad and Cassel
390 N. Orange Avenue, Suite 1100
Orlando, Florida 32801
Attn: Marshall S. Harris, P.A.
Facsimile: (407) 425-8377
if to the Company: Electronic Sign Corporation
d/b/a Ad Art
3133 North Ad Art Road
Stockton, California 95215
Attn: Terry J. Long, President
Facsimile: (209) 931-5706
if to the Shareholders: Lou A. Papais
3133 North Ad Art Road
Stockton, California 95215
Facsimile: (209) 931-5706
with a copy to: Blair M. White
Attorney at Law
46 Forest Meadows Drive
Murphys, CA 95247
Facsimile: (209) 728-2049
Any notice sent by facsimile shall also be sent by first class mail or express
delivery service.
13.6 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
13.7 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
13.9 GOVERNING LAW; VENUE. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
Florida, without giving effect to principles of conflicts of laws. Venue for
any action to enforce any rights or obligations
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under this Agreement shall be, and the parties hereto submit to the jurisdiction
of, any federal or state court of competent jurisdiction sitting in the Eastern
District of California.
13.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent and its successors and assigns (if any);
and Merger Sub and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; the Company's Shareholders (to the extent
set forth in Section 1.4); Parent; Merger Sub; the other Indemnitees (subject to
Section 9.6); and the respective successors and assigns (if any) of the
foregoing. Parent may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 9), in whole or in
part, to any other Person without obtaining the consent or approval of any other
party hereto or of any other Person.
13.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
13.12 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
13.13 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
13.14 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is
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determined to be invalid, unlawful, void or unenforceable, shall not be impaired
or otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
13.15 PARTIES IN INTEREST. Except for the provisions of Sections 1.4 and
12, none of the provisions of this Agreement is intended to provide any rights
or remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
13.16 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Non-Disclosure and No-
Shop Agreement executed on behalf of Parent and the Company with respect to the
Merger shall not be superseded by this Agreement and shall remain in effect in
accordance with its terms until the earlier of (a) the Effective Time, or (b)
the date on which such Mutual Non-Disclosure Agreement is terminated in
accordance with its terms.
13.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
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The parties hereto have caused this Agreement to be executed and delivered
as of the date first written above.
LA-MAN CORPORATION,
a Nevada corporation
By: /s/ J. William Brandner
-----------------------------------------------
J. William Brandner, President and Chief
Executive Officer
DISPLAYS ACQUISITIONS CORP.,
a Florida corporation
By: /s/ J. William Brandner
-----------------------------------------------
J. William Brandner, President
ELECTRONIC SIGN CORPORATION
D/B/A AD ART, a California corporation
By: /s/ Terry J. Long
-----------------------------------------------
Terry J. Long, President
/s/ Terry J. Long
--------------------------------------------------
TERRY J. LONG, INDIVIDUALLY
/s/ Daniel G. O'Leary
--------------------------------------------------
DANIEL G. O'LEARY, INDIVIDUALLY AND AS
TRUSTEE OF THE DANIEL O'LEARY TRUST DATED
APRIL 18, 1993
/s/ Betty E. Papais
--------------------------------------------------
BETTY E. PAPAIS, INDIVIDUALLY AND AS TRUSTEE
OF THE PAPAIS TRUST DATED JANUARY 29, 1991
/s/ Lou A. Papais
--------------------------------------------------
LOU A. PAPAIS
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
---------
ACQUISITION FINANCING. "Acquisition Financing" shall mean the issuance and
sale by Parent of convertible debentures, Parent Common Stock, and warrants to
purchase Parent Common Stock intended to yield gross proceeds of approximately
$4,700,000 to Parent, part of which proceeds will be used by Parent to advance
to the Company funds to retire all of the Share Repurchase Notes and to provide
the Company with approximately $1,000,000 in working capital.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a material
portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than common stock issued to
employees of the Company, upon exercise of Company Options or otherwise, in
routine transactions in accordance with the Company's past practices), (ii) any
option, call, warrant or right (whether or not immediately exercisable) to
acquire any capital stock or other equity security of the Company (other than
stock options granted to employees of the Company in routine transactions in
accordance with the Company's past practices), or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for any
capital stock or other equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
---------
Schedule), as it may be amended from time to time.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
A-1
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CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Company
and the Shareholders.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GAAP. "GAAP" shall mean generally accepted accounting principles.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or higher-
tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor or subcontractor otherwise has or may acquire any right or
interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any
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Governmental Body or pursuant to any Legal Requirement; or (b) right under any
Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any domestic or foreign:
(a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or quasi-
governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that none of the Shareholders shall be deemed to be "Indemnitees."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably diligent and comprehensive investigation concerning the truth or
existence of such fact or other matter.
The Company shall be deemed to have "Knowledge" of a particular fact or other
matter if any Representative of the Company has Knowledge of such fact or other
matter. The Shareholders shall be deemed to have "Knowledge" of a particular
fact or other matter if any Shareholder has Knowledge of such fact or other
matter or if any Representative of the Company has Knowledge of such fact or
other matter.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any domestic or foreign
action, suit, litigation, arbitration, proceeding (including any civil,
criminal, administrative, investigative or appellate proceeding), hearing,
inquiry, audit, examination or investigation commenced, brought, conducted or
heard by or before, or otherwise involving, any court or other Governmental Body
or any arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any domestic or foreign
federal, state, local, municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on a Person if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set
A-3
<PAGE>
forth in the Agreement or in the Closing Certificates but for the presence of
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse impact or effect on such Person's business, assets, liabilities,
operations, financial condition or prospects, or the ability of such person to
perform any obligations under or contemplated by this Agreement.
"O'LEARY TRUST" shall mean the Daniel O'Leary Trust dated April 18, 1993.
"PAPAIS TRUST" shall mean the Papais Trust Agreement dated January 29,
1991.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SHAREHOLDERS. "Shareholders" shall mean the holders of Company Common
Stock set forth on Exhibit B, being all of the Company's shareholders.
---------
SIGN CONTRACTS. "Sign Contracts" shall mean Contracts entered into by the
Company for the sale, leasing or maintenance of signs, electronic display
message centers, billboards and other outdoor advertising or display structures
of any nature.
TAX. "Tax" shall mean any domestic or foreign tax (including any income
tax, franchise tax, capital gains tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any domestic or foreign return
(including any information return), report, statement, declaration, estimate,
schedule, notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
A-4
<PAGE>
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
A-5
<PAGE>
EXHIBIT B
OWNERSHIP OF COMPANY COMMON STOCK
<TABLE>
<CAPTION>
NAME AND NO. OF SHARES OF
ADDRESS OF SHAREHOLDER COMPANY COMMON STOCK
- ---------------------- --------------------
<S> <C>
Terry J. Long 10
6024 Shelter Bay Avenue
Mill Valley, CA 94941
Daniel G. O'Leary, as Trustee 10
of the DANIEL O'LEARY
TRUST DATED APRIL 18, 1993
2314 Bonniebrook Drive
Stockton, CA 95007
Betty E. Papais, as Trustee 10
of the PAPAIS TRUST
DATED JANUARY 29, 1991
6964 N. Pershing
Stockton, CA 95207
Lou A. Papais 20
P.O. Box 1545
Murphys, CA 95247
</TABLE>
B-1
<PAGE>
EXHIBIT C
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NAME OF NO. OF
SELLING SHAREHOLDERS REPURCHASED SHARES REPURCHASE PRICE
- -------------------- ------------------ ----------------
<S> <C> <C>
Terry J. Long 5 $ 600,000
Daniel G. O'Leary, 10 $1,200,000
as Trustee of the
DANIEL O'LEARY
TRUST DATED
APRIL 18, 1993
Betty E. Papais, 10 $1,200,000
as Trustee of the
PAPAIS TRUST DATED
JANUARY 29, 1991
</TABLE>
C-1
<PAGE>
EXHIBIT D
FORM OF SHARE REPURCHASE NOTE
$___________________ February ___, 1998
Orlando, Florida
ELECTRONIC SIGN CORPORATION, a California corporation, d/b/a Ad Art
("Maker"), promises to pay to the order of ____________________ ("Payee"), on or
before March 16, 1998 the principal sum of
________________________________________ DOLLARS ($_______________), with
interest thereon from February 27, 1998 at an annual rate of EIGHT PERCENT (8%).
Payment shall be made in lawful money of the United States at
_______________________________, California, or at such other place as Payee
shall have designated by written notice to Maker.
Maker reserves the right to prepay the entire principal balance of the
indebtedness evidenced by this Note plus interest accrued to the date of such
prepayment, at any time hereafter without premium or penalty.
The occurrence of any of the following shall constitute a default by Maker
hereunder:
(a) If Maker shall default in the payment of principal or interest on
this Note, or any other notes or obligations of Maker to Payee, when and as
the same become due and payable and such default is not remedied within
five (5) days following the occurrence of such default; or
(b) If Maker shall commit an act of bankruptcy within the meaning of
the Federal Bankruptcy Act, or any bankruptcy, receivership, insolvency,
reorganization, dissolution, liquidation or other similar proceedings shall
be instituted by or against Maker or all or any part of Maker's property
under the Federal Bankruptcy Act or other similar law of the United States
or of any state or other competent jurisdiction.
Except as otherwise specified herein, Maker hereby waives presentment,
demand, dishonor, notice of dishonor, protest and notice of protest, and any and
all other requirements necessary to hold Maker liable hereunder.
Maker hereby further agrees to pay all costs of collection, including
reasonable attorney's fees and all costs of levy or appellate proceedings or
review, or both, upon the occurrence of any default hereunder or upon the
failure of Maker to pay any principal or interest hereunder as and when the same
becomes due and payable.
This Note is subject to the terms and provisions of a certain Agreement and
Plan of Merger and Reorganization dated as of February 17, 1998, among other
parties, Maker and Payee and, therefore, is non-negotiable.
D-1
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be duly
executed by its duly authorized President, on and as of the date above stated.
ELECTRONIC SIGN CORPORATION,
d/b/a Ad Art
By:_________________________________________
Terry J. Long, President
D-2
<PAGE>
EXHIBIT E-1
FORM OF CONTINUITY OF INTEREST CERTIFICATE
The undersigned shareholder ("Shareholder") is aware that, pursuant to that
certain Agreement and Plan of Merger and Reorganization dated as of February 17,
1998 (the "Merger Agreement") among LA-MAN CORPORATION, a Nevada corporation
("Parent"); DISPLAYS ACQUISITIONS CORP., a Florida corporation and a wholly
owned subsidiary of Parent ("Merger Sub"); ELECTRONIC SIGN CORPORATION, a
California corporation d/b/a AD ART (the "Company"); and TERRY J. LONG, DANIEL
O'LEARY, individually and in his capacity as Trustee of the DANIEL O'LEARY TRUST
DATED APRIL 18, 1993, BETTY E. PAPAIS, individually and in her capacity as
Trustee of the PAPAIS TRUST AGREEMENT DATED JANUARY 29, 1991, and LOU A. PAPAIS
(individually, "Shareholder" and collectively, "Shareholders"), it is
contemplated that the Company will merge into Merger Sub (the contemplated
merger of the Company into Merger Sub being referred to in this Certificate as
the "Merger"). As a result of the Merger, it is contemplated that the Company's
shareholders will receive certain shares of common stock, par value $0.001 per
share, of Parent ("Parent Common Stock") in exchange for their shares of common
stock, no par value, of the Company ("Company Common Stock"), and that the
Company will disappear.
1. Shareholder represents, warrants and certifies to Parent, Merger Sub
and the Company as follows:
(a) Shareholder currently is the owner of ___________ shares of
Company Common Stock (the "Shares"), and did not acquire any of the Shares in
contemplation of the Merger.
(b) Shareholder has not engaged in a Sale (as defined below) of any
shares of Company Common Stock in contemplation of the Merger.
(c) Shareholder has no plan or intention to engage in a sale,
exchange, transfer, distribution, redemption or reduction in any way of
Shareholder's risk of ownership (by short sale or otherwise), or other
disposition, directly or indirectly (such actions being collectively referred to
herein as a "Sale") of any of the shares of Parent Common Stock to be received
by Shareholder in the Merger.
(d) Shareholder will not exercise dissenters' rights in connection
with the Merger.
(e) Except to the extent written notification to the contrary is
received by Parent and the Company from Shareholder prior to the consummation of
the Merger, the representations, warranties and certifications contained herein
shall be accurate at all times from the date hereof through the date on which
the Merger is consummated.
E-1-1
<PAGE>
(f) Shareholder has consulted with such legal counsel and financial
advisors as Shareholder has deemed appropriate in connection with the execution
of this Certificate.
2. Shareholder understands that Parent, Merger Sub, the Company, and the
Company's shareholders, as well as legal counsel to Parent, Merger Sub and the
Company will be relying on (a) the accuracy of the representations, warranties
and certifications contained herein.
Shareholder has executed this Certificate on February _____, 1998.
____________________________________________
Name: ______________________________________
E-1-2
<PAGE>
EXHIBIT E-2
FORM OF CONTINUITY OF INTEREST CERTIFICATE
The undersigned shareholder ("Shareholder") is aware that, pursuant to that
certain Agreement and Plan of Merger and Reorganization dated as of February 17,
1998 (the "Merger Agreement") among LA-MAN CORPORATION, a Nevada corporation
("Parent"); DISPLAYS ACQUISITIONS CORP., a Florida corporation and a wholly
owned subsidiary of Parent ("Merger Sub"); ELECTRONIC SIGN CORPORATION, a
California corporation d/b/a AD ART (the "Company"); and TERRY J. LONG, DANIEL
O'LEARY, individually and in his capacity as Trustee of the DANIEL O'LEARY TRUST
DATED APRIL 18, 1993, BETTY E. PAPAIS, individually and in her capacity as
Trustee of the PAPAIS TRUST AGREEMENT DATED JANUARY 29, 1991 and LOU A. PAPAIS
(individually, "Shareholder" and collectively, "Shareholders"), it is
contemplated that the Company will merge into Merger Sub (the contemplated
merger of the Company into Merger Sub being referred to in this Certificate as
the "Merger"). As a result of the Merger, it is contemplated that the Company's
shareholders will receive certain shares of common stock, par value $0.001 per
share, of Parent ("Parent Common Stock") in exchange for their shares of common
stock, no par value, of the Company (collectively, "Company Common Stock"), and
that the Company will disappear.
1. Shareholder represents, warrants and certifies to Parent, Merger Sub
and the Company as follows:
(a) Shareholder currently is the owner of ___________ shares of
Company Common Stock (the "Shares"), and did not acquire any of the Shares in
contemplation of the Merger.
(b) Except for the sale of certain shares of Common Stock by the
Shareholder to the Company prior to the Merger in accordance with Section 1.4 of
the Merger Agreement, Shareholder has not engaged in a Sale (as defined below)
of any shares of Company Common Stock in contemplation of the Merger.
(c) Except as set forth in Section l(b) above, Shareholder has no plan
or intention to engage in a sale, exchange, transfer, distribution, redemption
or reduction in any way of Shareholder's risk of ownership (by short sale or
otherwise), or other disposition, directly or indirectly (such actions being
collectively referred to herein as a "Sale") of any of the shares of Parent
Common Stock to be received by Shareholder in the Merger.
(d) Shareholder will not exercise dissenters' rights in connection
with the Merger.
(e) Except to the extent written notification to the contrary is
received by Parent and the Company from Shareholder prior to the consummation of
the Merger, the representations, warranties and certifications contained herein
shall be accurate at all times from the date hereof through the date on which
the Merger is consummated.
E-2-1
<PAGE>
(f) Shareholder has consulted with such legal counsel and financial
advisors as Shareholder has deemed appropriate in connection with the execution
of this Certificate.
2. Shareholder understands that Parent, Merger Sub, the Company, and the
Company's shareholders, as well as legal counsel to Parent, Merger Sub and the
Company will be relying on (a) the accuracy of the representations, warranties
and certifications contained herein.
Shareholder has executed this Certificate on February _____, 1998.
____________________________________________
Name: ______________________________________
E-2-2
<PAGE>
EXHIBIT F
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into
as of the 17th day of February, 1998 (the "Effective Date"), by and between LA-
MAN CORPORATION, a Nevada corporation ("La-Man"), DISPLAYS ACQUISITIONS CORP., a
Florida corporation ("Acquisitions Corp."), and _____________________
("Shareholder").
RECITALS
A. Shareholder is a key shareholder of Electronic Sign Corporation, a
California corporation d/b/a Ad Art ("Ad Art"). La-Man, Acquisitions Corp. and
Ad Art have entered into an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") dated as of February 17, 1998, providing for the acquisition
(the "Acquisition") by La-Man of Ad Art pursuant to a merger of Acquisitions
Corp. and Ad Art (the "Merger"). Immediately following the Merger, the business
of Ad Art will be conducted by La-Man through Acquisitions Corp. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Merger Agreement. Shareholder will receive substantial benefits as
a result of the Merger and, in connection therewith, Shareholder has agreed not
to compete with any of Acquisitions Corp., Ad Art or La-Man in the manner and to
the extent herein set forth. Shareholder is entering into this Agreement as an
inducement to La-Man and Acquisitions Corp. to consummate the Merger, with all
of the attendant financial benefits to Shareholder as a shareholder of Ad Art.
B. The Merger Agreement provides that, as a condition precedent to
consummating the transactions contemplated by the Merger Agreement, Shareholder
execute and deliver this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contemplated and intending to be legally bound hereby, Acquisitions Corp., La-
Man and Shareholder agree as follows:
1. ACKNOWLEDGEMENTS BY SHAREHOLDER. Shareholder acknowledges that by
virtue
of his or her position with Ad Art he or she has developed considerable
expertise in the business operations of Ad Art and has had access to extensive
confidential information with respect to Ad Art. Shareholder recognizes that
Acquisitions Corp. and La-Man would be irreparably damaged, and their
substantial investment in Ad Art materially impaired, if Shareholder were to
enter into an activity competing with Ad Art's business in violation of the
terms of this Agreement or if Shareholder were to disclose or make unauthorized
use of any confidential information concerning the business of Ad Art.
Accordingly, Shareholder expressly acknowledges that he or she is voluntarily
entering into this Agreement and that the terms and conditions of this Agreement
are fair and reasonable to Shareholder in all respects.
F-1
<PAGE>
2. RESTRICTED PERIOD. This Agreement shall expire on the third (3rd)
anniversary of the Effective Date ("Expiration Date"); provided, however, that
if the Shareholder is involuntarily terminated as an employee of La-Man or
Acquisitions Corp., as applicable, prior to the Expiration Date, this Agreement
shall expire on the date (the "Termination Date") that is the earlier of (i) the
Expiration Date or (ii) the second (2nd) anniversary of the date on which such
involuntary termination of the Shareholder occurs. The period of time that
elapses from the Effective Date until earlier of (x) the Expiration Date or (y)
the Termination Date shall be referred to herein as the "Restricted Period."
3. NON-COMPETITION. During the Restricted Period, Shareholder shall not,
directly
or indirectly,without the prior written consent of La-Man, (i) own, manage,
operate, join, control, finance participate in the ownership, management,
operation, control or financing of, or be connected as an officer, director,
employee, partner, principal, agent, representative, consultant, licensor,
licensee or otherwise with, any business or enterprise engaged in any business
which is competitive with the business of Ad Art and Acquisitions Corp., within
each of the geographical units which are listed in Appendix A hereto (the
----------
"Territory"), or (ii) engage in any other manner, within the Territory, in any
business which is competitive with the business of Ad Art and Acquisitions Corp.
For the purposes of this Section 3, the "business of Ad Art and Acquisitions
Corp." shall be defined as set forth in Appendix B hereto. Notwithstanding the
----------
above, Shareholder shall not be deemed to be engaged directly or indirectly in
any business in contravention of subparagraphs (i) or (ii) above, if Shareholder
participates in any such business solely as a passive investor holding up to 1%
of the equity securities of a company or partnership, which securities are
publicly traded, or Shareholder is employed by a business or enterprise that is
engaged primarily in a business other than the business of any of Acquisitions
Corp., Ad Art or La-Man and Shareholder does not apply his or her expertise at
such business or enterprise to that part of such business or enterprise that is
or could be competitive with the business of any of Acquisitions Corp., Ad Art
or La-Man.
4. NON-INTERFERENCE. Shareholder further agrees that during the
Restricted Period, he or she will not, without the prior written consent of La-
Man, (i) interfere with the business of Ad Art, La-Man or Acquisitions Corp., by
soliciting, attempting to solicit, inducing, or otherwise causing any employee
or consultant of Ad Art, La-Man or Acquisitions Corp. to terminate his or her
employment as such in order to become an employee, consultant or independent
contractor to or for any competitor of Ad Art, La-Man or Acquisitions Corp. or
to or for any company with which Shareholder is associated in any way; or (ii)
induce or attempt to induce any customers, suppliers, distributors, resellers,
or independent contractors of Ad Art to terminate their relationships with, or
to take any action that would be disadvantageous to the business of, Ad Art.
5. INDEPENDENCE OF OBLIGATIONS. The covenants of Shareholder set forth
in this Agreement shall be construed as independent of any other agreement or
arrangement between Shareholder, on the one hand, and Acquisitions Corp., Ad Art
or La-Man or any of their subsidiaries, on the other hand, and the existence of
any claim or cause of action by Shareholder against Acquisitions Corp., Ad Art
or La-Man or any of their subsidiaries shall not constitute a defense to the
enforcement of such covenants against Shareholder.
F-2
<PAGE>
6. REMEDIES. Shareholder expressly acknowledges that damages alone will
not be an adequate remedy for any breach by Shareholder of the covenants set
forth in Sections 3 and 4 hereof and that the other parties hereto, in addition
to any other remedies which they may have, shall be entitled, as a matter of
right, to injunctive relief, including, without limitation, specific
performance, in any court of competent jurisdiction with respect to any actual
or threatened breach by Shareholder of any of said covenants.
7. SEVERABILITY.
(a) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be excessively broad as to duration, activity or
subject, it shall be deemed to extend only over the maximum duration, activity
and subject as to which such provision shall be valid and enforceable under
applicable law. In the event that any provision of this Agreement, or the
application of any such provision to any Person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to Persons or
circumstances other than those as to which it is determined to be invalid,
unlawful, void or unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent permitted by
law.
(b) The parties intend that the covenant contained in Section 3 above
shall be construed as a series of separate covenants, one for each geographical
unit specified. Except for geographical coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in Section 3 above.
If, in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this Agreement, then the unenforceable
covenant shall be deemed eliminated from these provisions for the purpose of
those proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
8. NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail,- by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
If to La-Man or
Acquisitions Corp.: La-Man Corporation
5029 Edgewater Drive
Orlando, Florida 32810
Attn: J. William Brandner, President
Facsimile: (407) 521-8767
F-3
<PAGE>
with a copy to: Broad and Cassel
390 N. Orange Avenue, Suite 1100
Orlando, Florida 32801
Attn: Marshall S. Harris, P.A.
Facsimile: (407) 425-8377
If to Shareholder: the address set forth below Shareholder's
name on the signature page hereto
9. WAIVER.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10. ASSIGNMENT. This Agreement shall be assignable by any or all of La-
Man, Acquisitions Corp. or Ad Art to any of its or their assignees or successors
and each of such assignees or successors is hereby expressly authorized to
enforce this Agreement. This Agreement is not assignable or delegable by
Shareholder.
11. AMENDMENT. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
12. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein
set forth the entire understanding of the parties hereto relating to the subject
matter hereof and thereof and supersede all prior agreements and understandings
among or between any of the parties relating to the subject matter hereof and
thereof, provided, however, that the nondisclosure and no-shop agreement
executed on behalf of Parent and the Company with respect to the Merger shall
not be superseded by this Agreement and shall remain in effect in accordance
with its terms until the earlier of (a) the Effective Time, or (b) the date on
which such nondisclosure and no-shop agreement is terminated in accordance with
its terms.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of La-Man, Acquisitions Corp. and Ad Art and their respective assignees
and successors, and Shareholder and Shareholder's heirs and personal
representatives.
F-4
<PAGE>
14. GOVERNING LAW. This Agreement shall be construed in accordance, and
governed
in all respects by, the internal laws of the State of Florida as applied to
contracts entered into between Florida residents that are to be performed
entirely within the State of Florida (without giving effect to principles of
conflicts of laws).
15. SIGNATURE. This Agreement will be deemed to have been executed for
all purposes when the subscriber signs and dates the omnibus signature page.
16. CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof,shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
17. ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
F-5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
SHAREHOLDER
_____________________________________________
Name: _______________________________________
Address: ____________________________________
_____________________________________________
LA-MAN CORPORATION
By: _________________________________________
J. William Brandner, President
DISPLAYS ACQUISITIONS CORP.
By: _________________________________________
J. William Brandner, President
F-6
<PAGE>
APPENDIX A
----------
TERRITORY
Worldwide
F-7
<PAGE>
APPENDIX B
----------
BUSINESS
The manufacturing, selling, leasing or servicing of signs, electronic
message display centers, billboards and other outdoor advertising or display
structures of any nature.
F-8
<PAGE>
EXHIBIT G
GENERAL RELEASE
THIS GENERAL RELEASE ("General Release") is made and entered into as of the
17th day of February, 1998, by __________________________________ ("Releasor")
to and in favor of, and for the benefit of, ELECTRONIC SIGN CORPORATION, a
California corporation d/b/a AD ART ("Ad Art"), LA-MAN CORPORATION, a Nevada
corporation ("La-Man"), DISPLAYS ACQUISITIONS CORP., a Florida corporation
("Acquisitions Corp."), and the other Releasees (as defined in Section 2).
RECITALS
A. Contemporaneously with the execution and delivery of this General
Release, Releasor is exchanging his or her shares of the capital stock of Ad Art
for either cash or cash and shares of capital stock of La-Man pursuant to an
Agreement and Plan of Merger and Reorganization dated as of the 17th day of
February, 1998 (the "Merger Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Merger Agreement.
B. Ad Art and La-Man have required, as a condition precedent to
consummating the transactions contemplated by the Merger Agreement, that
Releasor execute and deliver this General Release.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties agree as follows:
1. RELEASE. Releasor, for himself or herself and for each of Releasor's
Associated Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees from, and hereby irrevocably, unconditionally and completely waives
and relinquishes, each of the Released Claims (as defined in Section 2).
2. DEFINITIONS.
(a) The term "Associated Parties," when used herein with respect to
Releasor, shall mean and include: (i) Releasor's predecessors, successors,
executors, administrators, personal representatives heirs and estate; (ii)
Releasor's past, present and future assigns, agents and representatives; (iii)
each entity that Releasor has the power to bind (by such Releasor's acts or
signature) or over which Releasor directly or indirectly exercises control; and
(iv) each entity of which Releasor owns, directly or indirectly, at least 50% of
the outstanding equity, beneficial, proprietary, ownership or voting interests.
G-1
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(b) The term "Releasee" shall mean and include: (i) Ad Art; (ii) La-
Man; (iii)Acquisitions Corp.; (iv) each affiliate of La-Man, Ad Art and
Acquisitions Corp.; and (v) the successors and past, present and future
assignees, directors, officers, employees, agents, attorneys and representatives
of the respective entities identified or otherwise referred to in clauses (i)
through (iv) of this sentence, other than the Releasor.
(c) The term "Claims" shall mean and include all past, present and
future disputes, claims, controversies, demands, rights, obligations,
liabilities, actions and causes of action of every kind and nature, including,
without limitation,: (i) any unknown, unsuspected or undisclosed claim; (ii) any
claim or right that may be asserted or exercised by Releasor in Releasor's
capacity as a stockholder, director, officer or employee of Ad Art or in any
other capacity; and (iii) any claim, right or cause of action based upon any
breach of any express, implied, oral or written contract or agreement.
(d) The term "Released Claims" shall mean and include each and every
Claim that (i) Releasor or any Associated Party of Releasor may have had in the
past, may now have or may have in the future against any of the Releasees, and
(ii) has arisen or arises directly or indirectly out of, or relates directly or
indirectly to, any circumstance, agreement, activity, action, omission, event or
matter occurring or existing on or prior to the date of this General Release
(excluding only Releasor's rights, if any, under the Merger Agreement).
3. REPRESENTATIONS AND WARRANTIES. Releasor represents and warrants
that:
(a) Releasor has not assigned, transferred, conveyed or otherwise
disposed of any Claim against any of the Releasees, or any direct or indirect
interest in any such Claim, in whole or in part;
(b) to the best of Releasor's knowledge, no other person or entity has
any interest in any of the Released Claims;
(c) no Associated Party of Releasor has or had any Claim against any
of the
Releasees;
(d) no Associated Party of Releasor will in the future have any Claim
against any Releasee that arises directly or indirectly from or relates directly
or indirectly to any circumstance,agreement, activity, action, omission, event
or matter occurring or existing on or before the date of this General Release;
(e) this General Release has been duly and validly executed and
delivered by Releasor;
(f) this General Release is a valid and binding obligation of Releasor
and Releasor's Associated Parties, and is enforceable against Releasor and each
of Releasor's Associated Parties in accordance with its terms;
G-2
<PAGE>
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to the best of the knowledge of
Releasor, threatened against Releasor or any of Releasor's Associated Parties
that challenges or would challenge the execution and delivery of this General
Release or the taking of any of the actions required to be taken by Releasor
under this General Release;
(h) neither the execution and delivery of this General Release nor the
performance hereof will (i) result in any violation or breach of any agreement
or other instrument to which Releasor or any of Releasor's Associated Parties is
a party or by which Releasor or any of Releasor's Associated Parties is bound,
or (ii) result in a violation or any law, rule, regulation, treaty, ruling,
directive, order, arbitration award, judgment or decree to which Releasor or any
of Releasor's Associated Parties is subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by Releasor or any of Releasor's Associated
Parties in connection with the execution and delivery of this General Release or
the performance hereof.
4. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any Releasee, Releasor shall indemnify and hold
harmless each Releasee against and from any loss, damage, injury, harm,
detriment, lost opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee, charge or expense (including
attorneys' fees) that is directly or indirectly suffered or incurred at any time
by Releasee, or to which Releasee otherwise becomes subject at any time, and
that arises directly or indirectly out of or by virtue of, or relates directly
or indirectly to, (a) any failure on the part of Releasor to observe, perform or
abide by, or any other breach of, any restriction, covenant, obligation,
representation, warranty or other provision contained herein, or (b) the
assertion or purported assertion of any of the Released Claims by Releasor or
any of Releasor's Associated Parties.
5. MISCELLANEOUS.
(a) Entire Agreement. This General Release and the other agreements
----------------
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the nondisclosure
and no-shop agreement executed on behalf of La-Man and Ad Art with respect to
the Merger shall not be superseded by this General Release and shall remain in
effect in accordance with its terms until the earlier of (a) the Effective Time,
or (b) the date on which such nondisclosure and no-shop agreement is terminated
in accordance with its terms.
(b) Severability. In the event that any provision of this General
------------
Release, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this General Release, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired
G-3
<PAGE>
or otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
(c) Governing Law. This General Release shall be construed in
-------------
accordance with, and governed in all respects by, the laws of the State of
Florida (without giving effect to principles of conflicts of laws).
(d) Further Assurances. Releasor shall execute and cause to be
------------------
delivered to each Releasee such instruments and other documents, and shall take
such other actions, as such Releasee may reasonably request for the purpose of
carrying out or evidencing any of the actions contemplated by this General
Release.
(e) Attorneys' Fees. If any action or proceeding relating to this
---------------
General Release or the enforcement of any provision of this General Release is
brought by Releasor or any Releasee, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
(f) Construction.
------------
(i) For purposes of this General Release, whenever the context
requires the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(ii) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this General Release.
(iii) As used in this General Release, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(iv) Except as otherwise indicated, all references in this
General Release to "Sections" and "Exhibits" are intended to refer to Sections
of this General Release and Exhibits to this General Release.
(g) Signature. THIS GENERAL RELEASE WILL BE DEEMED TO HAVE BEEN
---------
EXECUTED FOR ALL PURPOSES WHEN THE RELEASOR SIGNS AND DATES THE OMNIBUS
SIGNATURE PAGE.
(h) Amendments. This General Release may not be amended, modified,
----------
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
(i) Notices. Any notice or other communication required or permitted
-------
to be delivered to any party under this General Release shall be in writing and
shall be deemed
G-4
<PAGE>
properly delivered, given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile) to the address or
facsimile telephone number set forth beneath the name of such party below (or to
such other address or facsimile telephone number as such party shall have
specified in a written notice given to the other parties hereto):
If to La-Man: La-Man Corporation
5029 Edgewater Drive
Orlando, Florida 32810
Attn: J. William Brandner, President
Facsimile: (407) 521-8767
with a copy to: Broad and Cassel
390 N. Orange Avenue, Suite 1100
Orlando, Florida 32801
Attn: Marshall S. Harris, P.A.
Facsimile: (407) 425-8377
If to Ad Art: Electronic Sign Corporation
d/b/a Ad Art
3133 North Ad Art Road
Stockton, California 95215
Attn: Terry J. Long, President
Facsimile: (209) 931-5706
(j) Headings. The headings contained in this General Release are for
--------
convenience of reference only, shall not be deemed to be a part of this General
Release and shall not be referred to in connection with the construction or
interpretation of this General Release.
(k) Waiver.
------
(i) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this General Release, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
General Release, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such: power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(ii) No Person shall be deemed to have waived any claim arising
out of this General Release, or any power, right, privilege or remedy under this
General Release, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
G-5
<PAGE>
IN WITNESS WHEREOF, Releasor has caused this General Release to be executed
as of the date first above written.
RELEASOR
____________________________________________
Name: ______________________________________
G-6
<PAGE>
EXHIBIT H
SUBSTANTIVE PROVISIONS OF OPINION OF BLAIR M. WHITE, ESQ.
[Capitalized terms used and not defined herein have the
respective meanings assigned to them in the Agreement and Plan of
Merger and Reorganization (the "Reorganization Agreement")]
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all necessary
power and authority to own, lease and operate its properties and to carry on its
business as now conducted, and is not required to qualify as a foreign
corporation to do business in any jurisdiction in the United States, except
_______________________. The Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has all necessary power and authority to own, lease and operate its properties
and to carry on its business as now conducted and is not required to qualify as
a foreign corporation to do business in any jurisdiction in the United States.
2. The authorized capital stock of the Company consists of 1,000 shares
of common stock, no par value, of which 50 shares (including the Repurchasable
Shares) have been duly authorized and validly issued, are nonassessable and
fully paid There are no preemptive rights or options, warrants, conversion
privileges or other rights (or agreements for any such rights) outstanding to
purchase or otherwise obtain from the Company any of the Company's securities.
All outstanding shares of the Company's common stock (including the
Repurchasable Shares) have been issued in compliance with all applicable
securities laws. The authorized capital stock of the Subsidiary consists of
__________ shares of common stock, $____ par value per share, of which ________
shares have been duly authorized and validly issued, are nonassessable and fully
paid, and all of which are owned by the Company.
3. All corporate action, including approval by the Company's Board of
Directors and its shareholders, required to be taken on the part of the Company
to authorize the Company to execute deliver and perform its obligations under
the Reorganization Agreement and the Agreement of Merger and to consummate the
Merger has been duly and validly taken.
4. Each of the Reorganization Agreement, the Certificate Agreement of
Merger (to be filed with the Secretary of State of the State of California) and
the Articles of Merger (to be filed with the Secretary of State of the State of
Florida) has been duly authorized, executed and delivered by the Company and is
a valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
5. Each of the Reorganization Agreement, the Voting Agreement and
Irrevocable Proxy and the Release has been duly executed and delivered by the
Shareholders and is a valid
H-1
<PAGE>
and binding obligation of the Shareholders enforceable against each of the
Shareholders in accordance with its respective terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
6. The Non-Competition Agreement has been executed and delivered by each
of the Shareholders and is a valid and binding obligation of such Shareholder
enforceable against such Shareholder in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
7. The execution and delivery by the Company of the Reorganization
Agreement, the Certificate or Agreement of Merger (to be filed with the
Secretary of State of the State of California) and the Articles of Merger (to be
filed with the Secretary of State of the State of Florida), and the performance
by the Company of its obligations respectively set forth therein (including the
consummation of the Merger) do not violate any provisions of the Company's or
the Subsidiary's certificate of incorporation or bylaws, each as amended to
date, and do not constitute a material default under the provisions of any
material agreement known to us to which the Company or the Subsidiary is a party
or by which it is bound, and do not violate or contravene (a) any governmental
statutes, rule or regulation applicable to the Company or the Subsidiary or (b)
any order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company or the Subsidiary and, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
8. The execution and delivery of the Reorganization Agreement, the Voting
Agreement and Irrevocable Proxy, the Release and the Non-Competition Agreement
by each of the Shareholders and the performance by each of the Shareholders of
their obligations respectively set forth therein (including the consummation of
the Merger) do not constitute a material default under the provisions of any
material agreement known to us to which any Shareholder is a party or by which
he or she is bound, and do not violate or contravene (a) any governmental
statutes, rule or regulation applicable to the Company or the Subsidiary or such
Shareholder or (b) any order, writ, judgment, injunction, decree, determination
or award which has been entered against any Shareholder, the violation or
contravention of which would materially and adversely affect any Shareholder or
his or her assets or financial condition.
9. There is no action, proceeding or investigation pending or overtly
threatened against the Company or the Subsidiary before any court or
administrative agency that questions the validity of the Reorganization
Agreement, the Certificate or Agreement of Merger (to be filed with the
Secretary of State of the State of California), or the Articles of Merger (to be
filed with the Secretary of State of the State of Florida), or that might have,
either individually or in the aggregate, a Material Adverse Effect on the
Company or any of the Shareholders.
H-2
<PAGE>
EXHIBIT I
SPOUSAL CONSENT, POWER OF ATTORNEY AND WAIVER OF
_____________________________________________
I, __________________________________________, the spouse of
______________________________________, hereby consent to all terms and
provisions of that certain Agreement and Plan of Merger and Reorganization dated
as of February 17, 1998 (the "Agreement"), by and among LA-MAN CORPORATION, a
Nevada corporation ("La-Man"), DISPLAYS ACQUISITIONS CORP., a Florida
corporation, ELECTRONIC SIGN CORPORATION, a California corporation d/b/a Ad Art
("Ad Art"), TERRY J. LONG, DANIEL G. O'LEARY individually and as Trustee of the
Daniel O'Leary Trust dated April 18, 1993, BETTY E. PAPAIS individually and as
Trustee of the Papais Trust Agreement dated January 29, 1991, and LOU A. PAPAIS;
and to the extent of any interest which I have or hereafter acquire in Ad Art,
whether as community property or otherwise, La-Man and its affiliates may (i)
deal with my spouse as if he or she were, both of record and beneficially, the
sole and separate property owner of any and all interests in Ad Art which are
held severally in his or her or my name or jointly in our names, (ii) pay all
dividends and other distributions or payments from or on account of said
interests to him or her alone; and (iii) consider him or her as the only person
entitled to represent or vote our interests in Ad Art.
I hereby constitute and appoint my spouse as my true and lawful attorney in
his or her name and in my place, name and stead to (a) negotiate, make, execute,
consent to, approve, swear to, acknowledge, record and/or file any and all
contracts, documents and other instruments of every kind and nature whatsoever
which affect or may affect, directly or indirectly, any interest of mine in Ad
Art, and (b) take or refrain from taking any and all other actions of every kind
and nature whatsoever which affect or may affect, directly or indirectly, any
interest of mine in Ad Art. The foregoing power of attorney shall survive my
death or incapacity and bind my personal and legal representatives, successors
and assigns and is coupled with an interest, thereby making the grant thereof to
my spouse irrevocable. Any contract, document or other instrument executed
through the exercise or purported exercise of the foregoing power of attorney
shall be conclusively presumed to be validly executed as far as any third person
is concerned and may be relied upon as having been executed in accordance with
said Agreements and applicable law.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INSTRUMENT TO THE CONTRARY,
HOWEVER, THIS INSTRUMENT SHALL NOT TRANSMUTE IN ANY WAY THE COMMUNITY PROPERTY
INTERESTS OF MY SPOUSE AND/OR OF MY OWN IN AD ART INTO THE SOLE AND SEPARATE
PROPERTY OF EITHER MY SPOUSE OR ME, AND THIS INSTRUMENT SHALL NOT TRANSMUTE IN
ANY WAY THE SEPARATE PROPERTY INTERESTS OF MY SPOUSE AND/OR ME IN AD ART INTO
COMMUNITY PROPERTY.
By:__________________________________
Date:________________________________
I-1
<PAGE>
EXHIBIT J
LIST OF CERTAIN EMPLOYEES
J-1
<PAGE>
EXHIBIT K
LIMITATIONS ON INDEMNIFICATION
<TABLE>
<CAPTION>
======================================================================================
RATABLE
SHAREHOLDER PERCENTAGE OF INDEMNIFICATION
LIABILITY LIMIT
- --------------------------------------------------------------------------------------
<S> <C> <C>
Terry J. Long 20.00% $ 1,288,500/1/
- --------------------------------------------------------------------------------------
Daniel O'Leary, individually and as Trustee of 18.625% $ 1,200,000
the DANIEL O'LEARY TRUST DATED
APRIL 18, 1993
- --------------------------------------------------------------------------------------
Betty E. Papais, individually and as Trustee of 18.625% $ 1,200,000
the PAPAIS TRUST AGREEMENT DATED
JANUARY 29, 1991
- --------------------------------------------------------------------------------------
Lou A. Papais 42.75% $ 2,754,000/1/
======================================================================================
</TABLE>
/1/Such amount to be increased by the number of Additional Parent Shares, if
any, issued to such Shareholder pursuant to Section 1.12 multiplied by the
Designated Parent Stock Price calculated as provided in Section 1.11, except
with respect to the date of issuance of such Additional Parent Shares, rather
than the Closing Date.
K-1
<PAGE>
EXHIBIT L
FORM OF VOTING AGREEMENT
AND IRREVOCABLE PROXY
THIS AGREEMENT is made and entered into as of February 17, 1998 by and
between LA-MAN CORPORATION, a Nevada corporation ("La-Man"), and the undersigned
shareholder of Electronic Sign Corporation, a California corporation d/b/a Ad
Art ("Shareholder")
RECITALS
A. La-Man, the Merger Sub and the Company propose to enter into an
Agreement and Plan of Merger and Reorganization (the "Merger Agreement") of even
date herewith (capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed thereto in the Merger Agreement), which
provides, among other things, upon the terms and subject to the conditions
thereof, that La-Man will acquire all shares of the common stock, no par value,
of the Company (collectively, "Common Stock") outstanding immediately prior to
the Effective Time;
B. As a condition to its willingness to enter into the Merger Agreement,
La-Man requires that Shareholder agree, and Shareholder has agreed, to vote all
of his or her shares of Company Common Stock in favor of the Merger pursuant to
the Merger Agreement (the "Transaction") and to grant an irrevocable proxy with
respect to the Transaction; and
C. Exhibit A attached hereto sets forth as of the date of this Agreement
---------
the number and type of issued and outstanding shares of Common Stock of the
Company owned by Shareholder (all of such shares being hereinafter referred to
as the "Company Shares").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. REVOCATION OF PROXIES; AGREEMENT TO VOTE; GRANT OF PROXY. Shareholder
hereby revokes any and all previous proxies with respect to the Company Shares
owned by Shareholder. Shareholder agrees to attend, in person or by proxy, any
meeting of the shareholders of the Company called pursuant to the Merger
Agreement to vote upon approval and adoption of the Merger Agreement and the
Transaction, and to vote upon approval and adoption of the Merger Agreement and
the Transaction, and to vote such Company Shares owned by Shareholder and any
voting securities of Company hereafter issued in exchange therefor or in respect
thereof for approval and adoption of the Merger Agreement and the Transaction in
favor of any other matters that are intended to facilitate and implement the
Transaction and that are contemplated by the Merger Agreement, submitted for
approval by the written consent or the vote of the shareholders of the Company
at any meeting, or at any adjournment or adjournments thereof, pursuant to the
Merger Agreement. Notwithstanding the foregoing, effective upon the execution
and delivery of this Agreement, Shareholder appoints
L-1
<PAGE>
J. WILLIAM BRANDNER and TODD D. THRASHER, and each of them, with full power of
substitution in each, as proxies, solely (a) to vote Shareholder's Company
Shares at any meeting of shareholders of the Company or any adjournment or
adjournments thereof, or (b) to give a consent with respect to such
Shareholder's Company.Shares, in each case in favor of approval and adoption of
the Merger Agreement and the Transaction and any other matters that are intended
to facilitate and implement the Transaction and that are contemplated by the
Merger Agreement. Notwithstanding anything to the contrary contained herein,
this proxy shall not extend to matters other than those specifically enumerated
in subsections (a) and (b) above. THIS PROXY SHALL BE DEEMED IRREVOCABLE AND
COUPLED WITH AN INTEREST. This proxy shall be effective until the earliest to
occur of (i) consummation of the Transaction, (ii) termination of the Merger
Agreement in accordance with its terms, and (iii) a determination by the
Shareholder on or after six months following the date of the Merger Agreement to
terminate this proxy.
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder hereby
represents and warrants to La-Man as follows:
(a) Shareholder has all necessary power and authority to enter into
this Agreement. None of the Company Shares owned by Shareholder is subject to
any other proxy, voting trust or other agreement or arrangement with respect to
the voting of Shareholder's Company Shares.
(b) This Agreement is the legal, valid and binding agreement of
Shareholder, enforceable against Shareholder in accordance with its terms.
(c) The execution of this Agreement by Shareholder does not, and the
performance by Shareholder of the obligations of Shareholder hereunder will not,
constitute a material violation of, conflict with or result in a default under
any contract, commitment, agreement, understanding, arrangement or restriction
of any kind to which Shareholder is a party or by which Shareholder is bound or
any judgment, decree or order to which Shareholder is subject.
(d) Neither the execution and delivery of this Agreement, nor the
performance by Shareholder of Shareholder's obligations hereunder, will (i)
assuming satisfaction of the requirements set forth in clause (ii) below,
violate any provision of law known by Shareholder to be applicable to
Shareholder; or (ii) except for the requirements, if any, of federal and state
securities laws, require any consent or approval of, or filing with or notice
to, any public body or authority under any provision of law known by Shareholder
to be applicable to Shareholder.
3. COVENANT OF SHAREHOLDER. So long as this proxy remains in effect,
Shareholder hereby covenants and agrees with La-Man that, except pursuant to the
terms of this Agreement, Shareholder, will not, without the prior written
consent of La-Man, directly or indirectly, grant any proxy or enter into any
voting trust or other agreement or arrangement with respect to the voting of any
Company Shares owned by the Shareholder.
L-2
<PAGE>
4. REMEDIES. The parties hereto agree that if for any reason Shareholder
shall have failed to perform his or her obligations under this Agreement, then
La-Man shall be entitled to specific performance and injunctive and other
equitable relief, and the parties hereto further agree to waive any requirement
for the securing or posting of any bond in connection with the obtaining of any
such injunctive or other equitable relief. This provision is without prejudice
to any other rights that La-Man may have against Shareholder for any failure to
perform its obligations under this Agreement.
5. MISCELLANEOUS.
(a) Assignment. This Agreement shall not be assignable by the parties
----------
hereto. This Agreement shall be binding upon Shareholder and Shareholder's
heirs, successors and assigns by will or by the laws of descent.
(b) Amendments. This Agreement may not be amended, modified, altered
----------
or supplemented, other than by means of a written instrument duly executed and
delivered on behalf of all the parties hereto.
(c) Notices. Any notice or other communication required or permitted
-------
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
(i) If to La-Man:
La-Man Corporation
5029 Edgewater Drive
Orlando, Florida 32810
Attn: J. William Brandner, President
Facsimile: (407) 521-8767
with a copy to:
Broad and Cassel
390 N. Orange Avenue, Suite 1100
Orlando, Florida 32801
Attn: Marshall S. Harris, P.A.
Facsimile: (407) 425-8377
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<PAGE>
(ii) If to Ad Art:
Electronic Sign Corporation
d/b/a Ad Art
3133 North Ad Art Road
Stockton, California 95215
Attn: Terry J. Long, President
Facsimile: (209) 931-5706
(iii) If to the Shareholder, at the address set forth on the
signature page hereof.
(d) Confidentiality. Shareholder shall keep confidential, and shall
---------------
not use or disclose to any other Person, any non-public document or other non-
public information in such Person's possession that relates to the business of
the Company or La-Man.
(e) Time of the Essence. Time is of the essence of this Agreement.
-------------------
(f) Headings. The underlined headings contained in this Agreement are
--------
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
(g) Governing Law. This Agreement shall be construed in accordance
-------------
with, and governed in all respects by, the laws of the State of Florida (without
giving effect to the principles of conflicts of laws).
(h) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement.
(i) Definitions. Capitalized terms used herein and not defined herein
-----------
shall have the meanings assigned to such terms in the Merger Agreement.
(j) Waiver.
------
(i) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(ii) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written
L-4
<PAGE>
instrument duly executed and delivered on behalf of such Person; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
(k) Severability. In the event that any provision of this Agreement,
------------
or the application of such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
(l) Construction.
------------
(i) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(ii) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(iii) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(iv) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
(m) Further Assurances. Each party hereto shall execute and cause to
------------------
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
for the purpose of carrying out or evidencing any of the transactions
contemplated by this Agreement.
(n) Attorney's Fees. If any action or proceeding relating to this
---------------
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
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<PAGE>
IN WITNESS WHEREOF, La-Man and Shareholder have signed this Agreement as of
the date first above written.
LA-MAN CORPORATION
______________________________________
J. William Brandner, President
SHAREHOLDER
______________________________________
Name:_________________________________
Address:______________________________
______________________________________
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<PAGE>
EXHIBIT A
---------
__________ shares of Common Stock
L-7
<PAGE>
EXHIBIT 2.2
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made and entered into as of
February 18, 1998, between and among AD ART DISPLAYS, INC., a Florida
corporation (the "Company"), and LOU A. PAPAIS ("Consultant").
RECITALS:
---------
The Employee presently serves as a consultant to Company, a wholly-owned
subsidiary of La-Man Corporation ("Parent");
The Company desires that the Consultant continue to serve in a consulting
capacity to the Company, and the Consultant desires to continue to serve in such
capacity, pursuant to this agreement;
NOW, THEREFORE, the Company and the Consultant, in consideration of the
mutual covenants herein contained and intending to be legally bound hereby,
agree as follows:
1. DEFINITIONS. In addition to other terms defined herein, for purposes of
this Agreement, the following terms shall have the meanings specified in this
Section unless the context clearly requires otherwise:
1.01 "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
1.02 "CAUSE" shall mean: (a) the repeated failure of the Consultant to
observe or perform any of the material terms or provisions of this Agreement,
which failure continues after written notice to the Consultant and remains
uncured for a period of 10 days following such written notice, except that there
shall be no cure period with respect to any violation of Section 7 or Section 8
hereof; (b) misappropriation of funds, or willful dishonesty towards, fraud
upon, or willful misconduct of a material nature to the injury of, the Company
or its Affiliates; (c) commission of a felony or other crime involving moral
turpitude; or (d) habitual insobriety or abuse of controlled substances.
1.03 "CONSULTING FEE" shall mean the consulting fee specified in Section 5.
1.04 "NOTICE OF TERMINATION" means a written notice which (a) indicates the
specific termination provision in this Agreement relied upon, (b) briefly
summarizes the facts and
<PAGE>
1.04 "NOTICE OF TERMINATION" means a written notice which (a) indicates the
specific termination provision in this Agreement relied upon, (b) briefly
summarizes the facts and circumstances deemed to provide a basis for termination
of this Agreement under the provision so indicated and (c) specifies the
Termination Date. The Termination Date so specified shall be (i) a date not less
than 60 days from the delivery of such Notice of Termination to the Consultant
(in the case of termination by the Company other than for Cause), (ii) a date
not more than 30 days after the delivery of such Notice of Termination to the
Company (in the case of termination by the Consultant) or (iii) the date of
receipt of such Notice of Termination by the Consultant (in the case of
termination by the Company for Cause).
1.05 "PERSON" shall mean any individual, firm, corporation, partnership or
other entity.
1.06 "TERMINATION DATE" shall mean the date required to be specified in the
Notice of Termination, or the last day of the Consulting Term (as hereinafter
defined).
2. CONSULTING TERM.
2.01 CONSULTING TERM. The consulting term under this Agreement shall
---------------
commence as of the date hereof (the "Effective Date"), and shall continue until
February 18, 2001 (the "Consulting Term").
2.02 TERMINATION. The Consulting Term may be terminated only in accordance
-----------
with Section 10 hereof.
3. DUTIES AND RESPONSIBILITIES. Unless modified by mutual written consent, the
Consultant shall perform such services and discharge such duties and
responsibilities as may be prescribed from time to time by the Board of
Directors of the Company (the "Board") or such other persons as may be
designated by the Board; provided, however, that the services performed by, and
the duties and responsibilities of, the Consultant shall be consistent with
those usually associated with the position of consultant. The Consultant shall
serve in the capacities, titles and positions with respect to the Company, and
perform all duties and accept all responsibilities incidental to any such
capacities, titles and positions, as the Board may reasonably direct in
conformity with the foregoing sentence.
4. EXTENT OF SERVICE. The Consultant shall devote a minimum of three (3) days
per week to the business of the Company. The Consultant shall not be precluded
from engaging in any other business or activity, whether or not for profit,
provided that such other business or activity does not interfere with the
performance by the Consultant of his obligations under this Agreement. As soon
as practicable following the Effective Date and for so long as this Agreement
remains in effect, Parent shall use its reasonable best efforts to cause
Consultant to be nominated and elected to the Board of Directors of Parent.
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<PAGE>
5. CONSULTING FEE. For all the services to be performed by the Consultant
hereunder, the Company shall pay the Consultant an annual Consulting Fee of
$100,000. Such Annual Consulting Fee shall be payable in equal monthly
installments.
6. BUSINESS EXPENSES; OTHER BENEFITS.
6.01 COMPANY AUTO. At Consultant's option, the Company will supply the
------------
Consultant with a leased Lincoln Town Car or equivalent vehicle, or a $600 per
month auto expense allowance.
6.01 BUSINESS EXPENSES. The Company will reimburse the Consultant for
-----------------
Company auto operating expenses and for all other ordinary, necessary and
reasonable out-of-pocket business expenses incurred by Consultant in connection
with his performance of services hereunder in accordance with the Company's
expense approval procedures in effect from time to time.
6.02 OTHER BENEFITS. The Company will provide the Consultant with such
--------------
individual and dependant group medical insurance coverage as is or may in the
future be provided by the Company to its consultants in accordance with the
Company's policies.
7. CONFIDENTIAL INFORMATION. The Consultant acknowledges that, by reason of
his service to the Company, he will have access to confidential information of
the Company and its Affiliates, including, without limitation, information and
knowledge pertaining to products, developments, improvements, methods of
operation, sales and profit figures, customer and client lists and relationships
between the Company and its Affiliates and their agents, customers, clients,
suppliers and others who have business dealings with them (collectively,
"Confidential Information"). The Consultant acknowledges that such Confidential
Information is a valuable and unique asset of the Company and its Affiliates
and, in consideration of the benefits specified in this Agreement, covenants
that, both during and after the Termination Date, he will not use any
Confidential Information or disclose any Confidential Information to any Person
(except as his duties as an employee of the Company or any Affiliate may
require) without the prior written authorization of the Board. The obligation
of confidentiality imposed by this Section shall not apply to information which
becomes generally known in the industry through no act of the Consultant in
breach of this Agreement or to information which the Consultant is legally
compelled to disclose pursuant to subpoena, civil investigative demand or
similar process (in such event, the Consultant promptly shall provide the
Company with written notice thereof in order to allow the Company to seek a
protective order or other appropriate remedy).
8. NON-COMPETITION. The Consultant acknowledges that he will have access to
specialized knowledge and experience in the business of the Company and its
Affiliates and that if his knowledge, experience, reputation or contacts are
used by or on behalf of the Consultant to compete with the Company or its
Affiliates or to solicit employees or agents away from the Company or its
Affiliates, serious harm to the Company and its Affiliates may result. In
consideration of the benefits specified in this Agreement, the Consultant agrees
that during the
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<PAGE>
Consulting Term and for a period of three (3) years after the Termination Date,
subject to the performance by the Company of its obligations under Section 10
hereof (whether prior to, or as the result of, expiration of the Consulting
Term), the Consultant shall not, unless acting pursuant hereto or with the prior
written consent of the Board, directly or indirectly, render any services of a
business, commercial, or professional nature to any Person, whether for
compensation or otherwise, within the United States or elsewhere in competition
with the Company or its Affiliates or which is in conflict with the Company's or
its Affiliates' interests, or solicit for employment or in any other fashion
hire any of the employees or agents of the Company or its Affiliates or, with
respect to the three-year period referred to above, any person who was an
employee or agent of the Company or its Affiliates at any time within six months
prior to the termination of consultancy hereunder; provided, however, that this
provision shall terminate in the event this Agreement is terminated by the
Company in violation of Section 10 hereof. For the purpose of this Section 8,
the phrases "in competition with" and "in conflict with" shall not be deemed to
apply to any Person whose activities do not involve similar lines of business
now or hereafter undertaken by the Company or any Affiliate. In the event that
the provisions of this Section should ever be adjudicated to exceed the time,
geographic, service or product limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, service or product limitations permitted by
applicable law.
9. EQUITABLE RELIEF. The Consultant acknowledges that the restrictions
contained in Sections 7 and 8 hereof are, in view of the nature of the business
of the Company and its Affiliates, reasonable and necessary to protect the
legitimate interests of the Company, and that any violation of any provisions of
those Sections will result in irreparable injury to the Company. The Consultant
also acknowledges that the Company shall be entitled to temporary and permanent
injunctive relief, without the necessity of proving actual damages, and to an
equitable accounting of all earnings, profits and other benefits arising from
any such violation, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. In the event of
any such violation, the Company shall be entitled to commence an action for
temporary and permanent injunctive relief and other equitable relief in any
court of competent jurisdiction and Consultant further irrevocably submits to
the jurisdiction of any California court or Federal court sitting in the Eastern
District of California over any suit, action or proceeding arising out of or
relating to this Section 9. The Consultant hereby waives, to the fullest extent
permitted by law, any objection that he may now or hereafter have to such
jurisdiction or to the venue of any such suit, action or proceeding brought in
such a court and any claim that such suit, action or proceeding has been brought
in any inconvenient forum. Effective service of process may be made upon the
Consultant by mail under the notice provisions contained in Section 13 hereof.
10. TERMINATION.
10.01 TERMINATION WITHOUT CAUSE. The Company shall have the right to
-------------------------
terminate this Agreement prior to expiration of the Consulting Term only as
follows:
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<PAGE>
(a) As the result of partial or total disability as provided in
Section 10.02 hereof ;
(b) Upon death of the Consultant as provided in Section 10.03
hereof;
(c) For Cause as provided in Section 10.04 hereof;
(d) Upon breach by the Consultant of his obligations under Section 7
or Section 8 hereof; or
(e) For any other, or for no, reason; provided that on or as soon as
practicable following the Termination Date, the Company pays to the Consultant
as severance, less withholding required by law (if any), in a single lump sum
or, at the Company's option, in equal installments corresponding to what would
have been the Consultant's regular pay dates and amounts, an amount equal to the
Consulting Fee that would have otherwise have been payable to the Consultant for
the remainder of the Consulting Term.
The Consultant acknowledges and agrees that the Company shall have no obligation
to pay any severance or other compensation to the Consultant upon termination by
the Company for Cause or in the event the Consultant elects to terminate this
Agreement other than as the result of the failure of the Company to perform its
obligations under this Section 10.
10.02 PARTIAL OR TOTAL DISABILITY. In the event that the Consultant is
---------------------------
unable to perform his duties and responsibilities hereunder to the full extent
required hereunder by reason of illness, injury or incapacity for six
consecutive months (herein defined as a "Disability") (during which time, if
during the Consulting Term, he shall be entitled to receive payments of the
difference between the Consulting Fee during such time, or portion thereof, and
the payments to which the Consultant is entitled pursuant to any applicable
disability insurance policy (less withholding required by law), each such
payment calculated and payable at the times corresponding to what would have
been the Consultant's regular pay dates during such time), this Agreement may be
terminated by the Company and the Company shall have no further liability or
obligation hereunder to the Consultant except for unpaid Consulting Fees accrued
through the date of termination. The Consultant agrees, in the event of any
dispute under this Section 10.02, to submit to a physical examination by a
licensed physician selected by the Company, the cost of such examination to be
paid by the Company.
10.03 DEATH. In the event that the Consultant dies, this Agreement shall
-----
terminate and thereafter the Company shall have no liability or obligation to
the Consultant, his executors, administrators, heirs, assigns or any other
person claiming under or through him except for unpaid Consulting Fees accrued
to the date of his death. Such payments shall be made to the Consultant's
surviving spouse, or if none, to the Consultant's surviving children, and the
surviving issue of deceased children, in equal shares per stirpes, or if none,
to the Consultant's estate.
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<PAGE>
10.04 CAUSE. Nothing in this Consulting Agreement shall be construed to
-----
prevent the termination of this Agreement by the Company at any time for Cause.
Such termination for Cause shall not be effective until delivery to the
Consultant of a written decision of the Board (after reasonable notice in
writing to the Consultant of the basis for such termination and an opportunity
for the Consultant, together with his counsel, to be heard before the Board),
finding that in the good faith opinion of the Board the Consultant committed
conduct constituting Cause and specifying the particulars thereof in conformity
with the requirements for a Notice of Termination.
10.05 EFFECT OF TERMINATION. In the event of a termination of this
---------------------
Agreement, upon the satisfaction and performance by the Company of its
obligations under Section 10 hereof, the Company and its Affiliates and their
respective shareholders, directors, officers, and employees, shall be deemed
fully released by the Consultant from any and all claims, rights, demands,
actions, obligations, and causes of action of any and all kind, nature, and
character, known or unknown, which the Consultant may now have or may have had
against the Company or any predecessor to the termination of employment,
including, but not limited to, any claims to any federal or state agencies, or
lawsuits in federal or state courts against the Company alleging discrimination
(including, but not limited to, claims arising under the Civil Rights Act of
1866, as amended, the Civil Rights Act of 1964, as amended, the California Fair
Employment and Housing Act, as amended, the Age Discrimination in Employment Act
of 1967, the Americans with Disabilities Act of 1990, and the Civil Rights Act
of 1991), workers' compensation claims, any claim related to employment
contracts, express or implied, or any other claims related to Consultant's
employment or association with the Company or the circumstances surrounding
Consultant's employment or association with the Company, or the termination
thereof.
10.06 RETURN OF COMPANY PROPERTY. Promptly following the Termination Date,
--------------------------
the Consultant shall turn over and surrender to the Company all property of the
Company then in his possession, including without limitation Company
automobiles, automobile keys and office keys, credit cards, debit cards,
telephone calling cards, and all business and financial records, statements,
memoranda, notebooks, correspondence and other documentation, and the Consultant
shall not retain in his actual or constructive possession copies or
reproductions of any of said items of property or information without the prior
written approval of the Company, the Consultant hereby acknowledging that all of
said items are and shall remain the sole and exclusive property of the Company
and that following the Termination Date the Consultant shall not have any
ownership interest in or right to use, either for his personal benefit or the
benefit of others, any of such items of property or information.
11. INDEPENDENT CONTRACTOR STATUS. The relationship of the Consultant to the
Company under this Agreement is that of an independent contractor, and not that
of an employee of the Company. The Company shall have no obligation to provide
to the Consultant, and shall not provide, any workers' compensation coverage or
life, or other benefits provided by the Company to its employees generally,
other than medical coverage. The Consultant shall be solely responsible for
paying and the Company shall have no responsibility or obligation to withhold,
any FICA tax or any federal, state, or local unemployment insurance, income tax,
or
6
<PAGE>
other taxes or similar charges or assessments of any nature whatsoever incurred
or payable as the result of the performance by the Consultant of his obligations
under this Agreement.
12. SURVIVAL. Notwithstanding the termination of the employment relationship
between the parties hereto, the obligations of the Consultant under Sections 7,
8, 9, 10.05 and 10.06 hereof shall survive and remain in full force and effect
and the Company shall be entitled to equitable relief against the Consultant
pursuant to the provisions of Section 9 hereof. In addition to and not in
limitation of the provisions of the preceding sentence, notwithstanding any such
termination of the employment relationship between the parties hereto,
obligations of the Company under this Agreement that are intended pursuant to
the terms hereof to survive any such termination shall survive and remain in
full force and effect and such obligations shall be enforceable by the
Consultant in accordance with the provisions of this Agreement.
13. NOTICE. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission (provided acknowledgment of receipt
thereof is delivered to the sender) or sent by certified, registered or express
mail, postage prepaid. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or, if
mailed, three days after the date of deposit in the United States mails as
follows:
If to Consultant, to:
Lou A. Papais
3133 North Ad Art Road
Stockton, CA 95215
with a copy to:
Blair M. White
Attorney at Law
46 Forest Meadows Drive
Murphys, CA 95247
If to the Company, to:
Ad Art Displays, Inc.
5029 Edgewater Drive
Orlando, FL 32810
Attention: J. William Brandner
Chairman
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<PAGE>
with a copy to:
Marshall S. Harris, Esq.
Broad and Cassel
390 N. Orange Ave., Suite 1100
Orlando, FL 32801
or to such other names or addresses as the Company, Parent or the Consultant, as
the case may be, shall designate by notice to the other parties hereto in the
manner specified in this section.
14. REVIEW. The Consultant represents and acknowledges that (a) he has been
advised by the Company to consult his own legal counsel with respect to this
Agreement and (b) he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with his counsel.
15. GOVERNING LAW; VENUE. This Agreement shall be governed by, and construed
and interpreted under, the laws of the State of California without giving effect
to any conflict of laws provisions. Venue for any action by the parties to
enforce this Agreement shall be as provided in Section 9 hereof.
16. CONTENTS OF AGREEMENT; AMENDMENT AND ASSIGNMENT. This Agreement sets
forth the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes any and all prior or existing employment or
consulting agreements between the Company and the Consultant or his Affiliates,
including without limitation Canterbury Properties, Inc., and the Consultant
hereby releases and forever discharges the Company, Parent and all of their
respective Affiliates, shareholders, directors, officers, employees and agents
from any and all claims for additional fixed or incentive compensation or other
benefits, or other claims or causes of action of any nature whatsoever arising
out of or in connection with or under any and all such other agreements, it
being the mutual intent of the Company, Parent and the Consultant that any and
all such agreements are superseded in their entirety by this Agreement. This
Agreement cannot be changed, modified or terminated except upon written
amendment duly executed by the parties hereto. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, representatives, successors and assigns of
the parties hereto, except that the duties and responsibilities of the
Consultant hereunder are of a personal nature and shall not be assignable in
whole or in part by the Consultant. The Consultant acknowledges that, from time
to time, the Company may establish, maintain and distribute employee manuals or
handbooks or personnel policy manuals, and officers or other representatives of
the Company may make written or oral statements relating to personnel policies
and procedures. Such manuals, handbooks and statements are intended only for
general guidance. No policies, procedures or statements of any nature by or on
behalf of the Company (whether written or oral, and whether or not contained in
any employee manual or handbook or personnel policy manual), and no acts or
practices of any nature, shall be construed to modify this Agreement.
8
<PAGE>
17. SEVERABILITY. If any provision of this Agreement or application thereof
to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
18. ENFORCEMENT; NO MITIGATION; NON-EXCLUSIVITY. Any party to this Agreement
that is required to incur any expenses associated with the enforcement of such
party's rights under this Agreement, whether by arbitration, litigation, other
legal action or otherwise, shall be entitled, upon successfully enforcing any
such rights, to recover from the party against whom such rights were
successfully enforced all such costs and expenses (including all reasonable
attorneys' fees and expenses). For purposes of this Section 18, "successfully
enforcing" shall mean the attainment of a final and binding determination
pursuant to any arbitration, litigation, or other legal action awarding damages,
equitable relief or other relief for the enforcement of the rights of any party
hereunder.
19. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof, and any such right, remedy or power may
be exercised from time to time and as often as may be deemed expedient or
necessary.
20. HEADINGS. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement and shall
not affect in any way the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed or caused to be
executed this Agreement as of the date first above written.
AD ART DISPLAYS, INC.
By: /s/ J. William Brandner
--------------------------
Name: J. William Brandner
Title: Chairman
/s/ Lou A. Papais
--------------------
LOU A. PAPAIS
9
