UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
Commission File Number: 33-15370-D
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CUSA Technologies, Inc.
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(Exact name of the small business as specified in charter)
Nevada 87-0439511
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State of Incorporation IRS Identification Number
986 West Atherton Drive, Salt Lake City, Utah 84123
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(Address of principle executive offices)
(801) 263-1840
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(Telephone of issuer including area code)
Check whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such
reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ________
As of February 20, 1995, the Issuer had 8,791,933 shares of
its common stock, par value $0.001 per share, issued and
outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUSA Technologies, Inc. (the "Company"), has included
the condensed consolidated balance sheets of the Company and
its subsidiaries as of December 31, 1995 (unaudited) and
June 30, 1995 (the Company's most recent fiscal year),
unaudited condensed consolidated statements of earnings for
the three months ended December 31, 1994 and 1995 and
unaudited condensed consolidated statements of earning and
cash flows for the six months ended December 31, 1994 and
19951994 and 1995, together with unaudited condensed notes
thereto.
In the opinion of management of the Company, the financial
statements reflect all adjustments, all of which are normal
recurring adjustments, necessary to fairly present the
financial condition of the Company for the interim periods
presented. The financial statements included in this
report on form 10-QSB should be read in conjunction with
the audited financial statements of the Company and the
notes thereto included in the annual report of the Company
on form 10-KSB for the year ended June 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
December 31, June 30,
1995 1995
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 1,317,104 818,883
Trade accounts receivable, net of allowance for
doubtful accounts 8,044,458 5,141,582
Inventories 898,157 1,274,088
Prepaid expenses and other assets 384,497 288,310
Total current assets 10,644,216 7,522,863
Property and equipment:
Land 297,688 297,688
Buildings and improvements 2,454,852 2,431,778
Furniture, fixtures and equipment 2,581,036 2,133,952
Other 531,818 230,427
Total property and equipment 5,865,394 5,093,845
Less accumulated depreciation and amortization 1,386,682 988,663
Net property and equipment 4,478,712 4,105,182
Equipment under capital lease obligations, net 346,298 461,834
Receivables from related parties 352,207 330,054
Software development and acquisition costs, net 3,906,162 3,084,047
Excess of purchase price over fair value of net tangible
and identifiable intangible assets acquired, net 13,108,384 13,431,054
Other assets 183,493 183,842
$ 33,019,472 29,118,876
The accompanying notes are an integral part of these statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
December 31, June 30,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Lines of credit with banks $ 44,036 373,247
Current installments of long-term debt 822,781 870,668
Current installments of obligations under capital leases 156,817 170,334
Accounts payable 3,985,090 3,235,658
Accrued liabilities and deposits 3,357,451 2,841,168
Income taxes payable 30,195 50,256
Payables to related parties 1,565,129 1,962,155
Deferred revenue 6,826,316 5,515,623
Total current liabilities 16,787,815 15,019,109
Long-term debt with related parties 2,445,000 1,145,000
Long-term debt, excluding current installments 1,751,866 1,852,471
Obligations under capital leases, excluding current installments 135,436 226,356
Deferred income taxes 1,473,866 956,266
Total liabilities 22,593,983 19,199,202
Minority interest 1,864 (1,323)
Commitments and contingent liabilities - -
Stockholders' equity:
Series A convertible preferred stock, $.001 par value;
authorized 1,500,000 shares; issued 1,000,000 shares 1,000 1,000
Common stock, $.001 par value; authorized 25,000,000 shares;
issued 8,600,589 shares at December 31, 1995 and
8,509,516 shares at June 30, 1995 8,601 8,510
Additional paid-in capital 9,431,225 9,116,807
Retained earnings 982,799 794,680
Total stockholders' equity 10,423,625 9,920,997
$ 33,019,472 29,118,876
The accompanying notes are an integral part of these statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CUSA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Earnings
(Unaudited)
Three months ended Six months ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales, service revenue, and rental income $ 13,088,191 8,286,037 23,818,390 13,243,505
Cost of goods sold and other direct costs 6,605,529 4,349,392 12,210,660 6,754,987
Gross profit 6,482,662 3,936,645 11,607,730 6,488,518
Product development costs 701,441 503,234 1,336,052 742,453
Selling, general and administrative expenses 4,992,272 2,692,732 9,266,973 4,688,783
Operating income 788,949 740,679 1,004,705 1,057,282
Other income (expense):
Interest expense (142,045) (92,778) (262,708) (175,066)
Interest income 24,739 18,858 26,909 33,046
Other, net (2,943) 6,717 (3,187) 5,802
Income before income taxes 668,700 673,476 765,719 921,064
Income taxes 383,400 277,646 517,600 345,504
Net earnings $ 285,300 395,830 248,119 575,560
Earnings per common and common
equivalent share
Primary $ 0 0 0 0
Fully diluted $ 0 0 0 0
Weighted average common and common
equivalent shares
Primary 9,814,539 7,760,787 9,721,645 6,660,182
Fully diluted 9,921,639 7,760,787 9,885,194 6,660,182
The accompanying notes are an integral part of these statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Six months ended December 31,
(Unaudited)
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 248,119 575,560
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,523,663 740,614
Minority interest in earnings of subsidiary 3,187 1,961
Net change in assets and liabilities:
Accounts receivable (2,944,787) (2,453,879)
Inventories 364,015 (64,550)
Prepaid expenses and other assets (96,187) (89,615)
Accounts payable 732,350 (510,747)
Accrued liabilities and deposits 503,611 588,993
Deferred revenue 1,270,367 1,640,347
Income taxes payable (20,061) 299,680
Deferred income taxes 517,600 39,547
Net cash provided by operating activities 2,101,877 767,911
Cash flows from investing activities:
Purchase of property and equipment (787,096) (167,379)
Cash received from (paid for) for business acquisitions,
including acquisition costs, less cash acquired (52,885) 102,116
Software development costs (904,764) (241,462)
Decrease (increase) in other assets (29,754) 20,945
Net cash used in investing activites (1,774,499) (285,780)
Cash flows from financing activities:
Proceeds from debt with related party 1,300,000 995,000
Proceeds from long-term debt - 2,000,000
Repayment of debt with related party - (1,405,000)
Repayment of lines of credit (329,211) (260,000)
Repayment of obligations under capital leases (104,437) (82,712)
Repayment of long-term debt (148,492) (67,641)
Reduction of payables to related parties (439,026) (598,301)
Payments to retire common stock (50,000) -
Sale of common stock and exercise of stock options 2,009 109,340
Preferred stock dividends (60,000) (62,666)
Net cash provided by financing activities 170,843 628,020
Net increase in cash and cash equivalents 498,221 1,110,151
Cash and cash equivalents at beginning of period 818,883 379,091
Cash and cash equivalents at end of period $ 1,317,104 1,489,242
The accompanying notes are an integral part of these statements.
<PAGE>
</TABLE>
CUSA TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of CUSA Technologies, Inc. (the Company) have
been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, these financial statements do
not include all of the information and footnote disclosures
required by generally accepted accounting principles for
complete financial statements. These financial statements
and footnote disclosures should be read in conjunction with
the audited consolidated financial statements and the notes
thereto included in the Company's latest report on Form 10-
KSB for the year ended June 30, 1995. In the opinion of
management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary
to fairly present the Company's consolidated financial
position as of December 31, 1995, its consolidated results
of operations for the three months ended December 31, 1995
and 1994, and its consolidated results of operations and
cash flows for the six months ended December 31, 1995 and
1994. The results of operations for the three months and
six months ended December 31, 1995 may not be indicative of
the results that may be expected for the year ending June
30, 1996.
(2) Reclassifications and Restatement
Certain reclassifications have been made to the consolidated
statement of earnings for the three months and six months
ended December 31, 1994 to conform to the 1995
presentation. Furthermore, the consolidated statement of
earnings for the three months ended December 31, 1994 and
the consolidated statements of earnings and cash flows for
the six months ended December 31, 1994 have been restated to
reflect the acquisition of Medical Computer Management,
Inc., which has been accounted for as a pooling of
interests.
<PAGE>
(3) Earnings per Share
Earnings per common and common equivalent share is computed
by dividing net earnings by the weighted average common
shares outstanding during the period, including common
equivalent shares (if dilutive). Common equivalent shares
include stock options, convertible preferred stock and
convertible debt. Earnings used in this calculation are
reduced by the dividends paid to preferred stockholders.
(4) Acquisitions
Effective October 1, 1995, the Company acquired 100% of the
equity interest in Preferred Health Systems, Inc. (PHS), a
software development company. In connection with the
acquisition, the Company issued 75,000 shares of restricted
common stock (valued at $262,500) in exchange for all of the
outstanding stock of PHS. PHS is the owner and developer of
a fourth generation language software application for
managed healthcare organizations. The assets, liabilities,
and prior operations of PHS are not significant to the
consolidated financial statements of the Company.
On December 22, 1995, the Company acquired 100% of the
equity interest in Workgroup Design, Inc. (WGD), a lotus
notes application development company. In connection with
the acquisition, the Company issued 25,000 shares of
restricted common stock (valued at $100,000) and a note
payable in the amount of $42,000. The assets, liabilities,
and prior operations of WGD are not significant to the
consolidated financial statements of the Company.
The acquisitions of PHS and WGD were accounted for under the
purchase method of accounting and the Company's financial
statements include the results of operations of PHS and WGD
since the effective dates of the acquisitions. Pro forma
results of operations related to the acquisitions of PHS and
WGD have not been presented due to immateriality.
(5) Convertible Debentures
The Company has issued debentures to an entity controlled by
an officer and director of the Company. Total receipts
under the debenture agreement are $150,000 at June 30, 1995
and an additional $1,300,000 during the six months ended
December 31, 1995. The debentures bear interest at 8%,
payable quarterly, and are convertible into common stock of
the Company at $3.00 per share. The debentures, which
mature June 30, 1998, are included in the balance sheet
under the caption "Long-term debt with related parties."
<PAGE>
(6) Contingent Liabilities
The Company is involved in certain legal matters in the
ordinary course of business. In the opinion of management
and legal counsel, the ultimate resolution of these matters
will not have a material adverse effect on the financial
position or results of operations of the Company.
(7) Related Party Transactions
During the quarter ended December 31, 1995, the Company
entered into a subcontract and assignment agreement (the
Agreement) with a third party distribution company, in which
a major stockholder is also an officer and stockholder of
the Company. The Agreement calls for the Company to provide
software, hardware, and other resources to customers of the
third party, for which the Company earns revenues. During
the quarter ended December 31, 1995, the Company provided
approximately $560,000 in products and services to such
customers. The Company has also advanced this third party
$425,309 for business operations.
(8) Subsequent Events
Acquisition of ASI
Effective February 1, 1996, the Company acquired 100% of the
equity interest in Automated Solutions, Inc. and Automated
Systems of Arizona, Inc., and 40% of the equity interest in
Automated Solutions of California, Inc. (collectively ASI).
ASI is a business engaged in hardware and software
distribution, and related support services, principally to
the healthcare industry. The equity interests acquired in
these three entities were owned by two individuals. In
connection with the acquisition of ASI, the Company issued
50,000 shares of its restricted common stock and agreed to
settle certain liabilities of ASI in the approximate amount
of $114,000. The Company agreed to issue options to the
former owner and the employees of ASI to acquire 70,000
shares of its common stock at fair market value.
Acquisition of Source
Effective February 1, 1996, the Company acquired 100% of the
equity interest in Source Computing, Inc., Medical Clearing
Corporation, and certain assets of a proprietorship, all of
which was under common ownership (collectively, Source).
Source is a business engaged in the development,
distribution, and support of software, principally in the
areas of practice care and electronic claims processing for
the healthcare industry. In connection with the acquisition
of Source, the Company issued an aggregate of 160,000 shares
of its restricted common stock and agreed to pay an
aggregate of $300,000, of which $125,000 was paid at
closing. The Company agreed to issue options to the former
owner and the employees of Source to acquire 25,000 shares
of its common stock at fair market value.
Renewal of line of credit
In January 1996, the Company's principal bank renewed the
Company's line of credit through January 15, 1997. In
conjunction with the renewal, the bank increased the maximum
amount available to the Company under the line of credit
from $500,000 to $1,500,000 and lowered the interest rate to
prime plus 1.5%. The line of credit continues to be secured
by accounts receivable, inventory, and a trust deed on real
estate, and contains certain restrictive covenants. The
line of credit is guaranteed by the chief executive officer
of the Company. In exchange for his guarantee, the chief
executive officer received an option to purchase 68,400
shares of the Company's common stock at the lower of $5.00
per share of the market price on the exercise date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The Company develops and markets information systems,
including software, hardware, installation, training, and
software and hardware maintenance, to the financial industry
(primarily credit unions), the healthcare industry, and the
equipment rental business. Since June 30, 1994, the Company
has significantly expanded its customer base and software
offerings through the acquisition of a number of business
entities. These acquisitions were completed at various
dates through December 31, 1995, and, with the exception of
Medical Computer Management, Inc. ("MCMI"), all were
accounted for according to the rules of purchase accounting.
(For a discussion of the acquired entities, please refer to
the Company's report on Form 10-KSB dated June 30, 1995)
Thus, except for MCMI, the results of operations for the
three and six months ended December 31, 1994, do not include
the results of the operations of the entities acquired
during the 12 months ending December 31, 1995.
Net sales, service revenue, and rental income
Net sales, service income and rental income primarily
consists of new and upgrade computer system sales (including
hardware, software, installation and training), amounts
earned pursuant to hardware maintenance and software support
agreements, and the sale of related products such as
statement and government form printing. The Company's
revenues increased 58 percent from $8,286,037 for the
quarter ended December 31, 1994 to $13,088,191 for the
quarter ended December 31, 1995 and 80 percent from
$13,243,505 for the six month period ended December 31,
1994 to $23,818,390 for the six month period ended December
31, 1995. These increases are the result of increased
sales of computer systems, maintenance and support
agreements, and related products and the inclusion of the
revenues for the entities acquired during the 12 months
ended December 31, 1995 in the results from operations for
the three and six months ended December 31, 1995. The
Company's revenues for the three months ended December 31,
1995 also reflect seasonally high year end sales of new and
upgraded computer systems, and were boosted by significant
sales of the Companies new medical records product Carepoint
for Clinics.
<PAGE>
Cost of goods sold and other direct costs
Cost of goods sold and other direct costs reflect mainly the
cost of hardware and software purchased for resale, the
amortization of capitalized software development costs, the
expense of supporting and installing hardware and software,
and the cost of training customers to use the Company's
software. Costs of goods sold increased 52 percent from
$4,349,392 for the quarter ended December 31, 1994 to
$6,605,529 for the quarter ended December 31, 1995, and 81
percent from $6,754,987 for the six months ended December
31, 1994 to $12,210,660 for the six months ended December
31, 1995. When compared with the quarter ended December 31,
1994, cost of goods sold as a percentage of revenues
decreased by 2 percent in the quarter ended December 31,
1995. This recent decrease in cost of goods sold as a
percentage of revenue reflects a change in product mix
toward higher margin software sales in the three months
ended December 31, 1995 as compared with the previous year.
Management anticipates slightly reduced cost of good sold in
future periods through newly negotiated hardware discounts
and the elimination of software royalty payments to an
outside vendor for sales of medical practice management
software.
Product development costs
Product development costs represent the uncapitalized cost
of software development. Uncapitalized costs include the
time and materials required for fixing system operational
errors and maintenance software upgrades. Product
development and maintenance costs increased from $503,234 to
$701,441 for the three months ended December 31, 1994 and
1995, and from $742,453 to $1,336,052 for the six months
ended December 31, 1994 and 1995, respectively.
Selling, general and administrative expense
Selling, general and administrative expenses include direct
and indirect selling costs, general corporate overhead,
depreciation, and the amortization of intangible assets.
Selling, general and administrative expenses increased 98
percent from $2,692,732 for the quarter ended December 31,
1994 to $4,992,272 for the quarter ended December 31, 1995
and 97 percent from $4,688,783 for the six months ended
December 31, 1994 to $9,266,973 for the six months ended
December 31, 1995. Selling, general and administrative
expenses as a percentage of revenues increased from 32
percent for the quarter ended December 31, 1994 to 38
percent for the quarter ended December 31, 1995. This
percentage increase reflects the administrative costs
associated with the Company's high rate of acquisition
activity. As acquisition related expenses are reduced and
synergies are recognized, the Company expects selling,
general and administrative expenses as a percentage of
revenues to decline.
<PAGE>
Significant portions of the purchase price of the
acquisitions have been allocated to intangible software
acquisition costs and excess of the purchase price over the
fair value of the net tangible and identifiable intangible
assets acquired (collectively referred to herein as
"Acquired Intangibles."). The excess of the purchase price
over the fair value of the net tangible and identifiable
intangible assets acquired relates principally to the
customer base of the acquired businesses. The software
acquisition costs are amortized over the estimated life of
the software acquired (principally three to five years).
The portion of the Acquired Intangibles that is related to
the customer base of the acquired companies is amortized
using the straight line method over an estimated life of 15
years. During the three and six months ended December 31,
1994 and 1995, total amortization of the excess purchase
price increased from $126,252 to $247,593 and $213,165 to
$461,880 respectively, and amortization of software
development and acquisition costs increased from $123,074 to
$336,645 and $163,562 to $545,685, respectively.
The Company periodically reviews the value assigned to the
separate components that comprise the total of Acquired
Intangibles through comparison to anticipated, undiscounted
future cash flows. Outside circumstances which could
effect the anticipated future cash flows from major
components of the Company's acquired medical and credit
union related software and customer bases caused some
uncertainty as to the current valuation of the Company's
Acquired Intangibles.
Net Earnings and Income Taxes
Income before income taxes was $668,900 and $765,719 for the
three and six months ended December 31, 1995 respectively,
compared to $673,476 and $921,064 for the three and six
months ended December 31, 1994. Income taxes for 1995 were
$383,400 and $517,600 for the three and six months ended
December 31, 1995, the payment of which is substantially all
deferred into future periods because of the utilization of
acquired net operating losses or other income tax elections
that allow for such deferral. The effective income tax
rates for the three and six months ended December 31, 1995
were respectively 57 and 68 percent, which exceed the
federal statutory rate of 35 percent principally due to the
nondeductibility of the amortization of the excess purchase
price over the fair value of assets acquired associated with
all of the acquisitions except the VERSYSS Credit Union
division.
<PAGE>
Capital resources and liquidity
At December 31, 1995 the Company had current assets of
$10,644,216 and current liabilities of $16,787,815. Thus,
current liabilities exceeded current assets by $6,143,599.
Current liabilities include $6,826,316 of deferred revenue
which primarily represents customer prepayment of hardware
and software maintenance services. As discussed below, the
Company has access to a line of credit of $1,500,000, from
which it had not drawn as of December 31, 1995.
The Company has two loans in the aggregate amount of
$2,000,000 and a line of credit with a bank. The line of
credit, currently $1,500,000, bears an interest rate of
prime plus one and one half percent and is secured by
accounts receivable, inventory and a trust deed on real
estate, and matures in January of 1997. In addition to the
financing described above, the Company was advanced $995,000
from certain individual investors through a company
affiliated with an officer and director of the Company
pursuant to a subordinated line of credit which is secured
by accounts receivable.
From June 20, 1995 to October 6, 1995, the Company received
$1,450,000 pursuant to the issuance of debentures to an
entity controlled by an officer and director of the Company.
The debentures, due June 30, 1998, are convertible into the
Company's common stock at any time at the discretion of the
holders at a rate of $3.00 per share during the first year,
$3.50 per share during the second year, and $4.00 per share
during the final year, and bear an interest rate of 8
percent per annum, payable quarterly.
The Company anticipates that its current financing sources,
together with cash flow from operations will be sufficient
to meet the cash requirements of current operations through
September of 1996. The Company will continue to seek ways
to increase its working capital and to provide necessary
cash for the operation of its business.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the
ordinary course of business. In the opinion of management
and in-house legal counsel, the ultimate resolution of these
matters will not have a material effect on the financial
position or results of operations of the Company.
ITEM 5. OTHER INFORMATION
Acquisition of Automated Systems, Inc. & Automated
Solutions, Inc.
Pursuant to an Agreement and Plan of Reorganization dated as
of January 19, 1996, and closed February 8, 1996, the
Company acquired all of the equity interest in Automated
Solutions, Inc. and Automated Systems of Arizona, Inc., and
40% of the equity interest in Automated Solutions of
California, Inc. (collectively "ASI"). ASI is a distributor
of hardware, software and related support services,
principally to the healthcare industry. ASI has 25 employees
engaged in the development of product, the support of
current customers and the sale of new systems. In
connection with the acquisition of ASI, the Company issued
50,000 shares of its restricted common stock and agreed to
settle certain liabilities of ASI in the approximate amount
of $114,000. The Company agreed to issue options to the
former owner and the employees of ASI to acquire 70,000
shares of its common stock at fair market value.
Acquisition of Source Computing, Inc. and Medical Clearing
Corporation
Pursuant to an Agreement and Plan of Merger dated February
10, 1996, the Company acquired all of the equity interest in
Source Computing, Inc., Medical Clearing Corporation, and
certain assets of a proprietorship, all affiliated entities
(collectively "Source"). Source is a developer of software
systems and provider of technical support services to the
healthcare industry, principally in the areas of practice
management and electronic claims processing. Through
Medical Clearing Corporation, Source acts as a claims
clearing house for approximately one-third of its 210
medical practice management software customers. The
acquisition of Source significantly strengthens the
Company's electronic claims processing capabilities.
In connection with the acquisition of Source, the Company
issued an aggregate of 160,000 shares of its restricted
common stock and agreed to pay an aggregate of $300,000, of
which $125,000 was paid at closing. The Company agreed to
issue options to the former owner and the employees of
Source to acquire 25,000 shares of its common stock at fair
market value.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report:
Exhibit SEC Ref
Number Number Title of Document
- ------- ------- ----------------------------------
10.03 10 Agreement and Plan of Merger between the
Company and Automated Systems, Inc. and
Automated Solutions, Inc. dated January
19, 1996.
10.04 10 Agreement and Plan of Merger between the
the Company and Source Computing, Inc.
dated February 10, 1996.
10.03 10 Agreement and Plan of Merger between the
the Company and Medical Clearing
Corporation dated February 10, 1996
10.3 27 Financial Data Schedule
(b) Reports on Form 8K. NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities and Exchange Act of 1934 as amended, the Company
has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: February 20, 1996
CUSA Technologies, Inc.
By /s/ D. Jeff Peck
- -----------------------------------
D. Jeff Peck, Chief Financial Officer
<PAGE>
AGREEMENT AND PLAN OF
REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter
referred to as this
"Agreement"), is entered into this 19th day of January,
1996, by and among
CUSA TECHNOLOGIES, INC., a Nevada corporation ("CTI"), NEW
ADVANCED SOLUTIONS
OF NEVADA, INC., a Nevada corporation and a wholly-owned
subsidiary of CTI
("NewCo"), AUTOMATED SOLUTIONS., INC., a Nevada corporation
("Solutions"),
and the shareholder of Solutions, HOWARD B. JONES III
("Shareholder"), based
on the following:
Premises
A. CTI is a publicly-held corporation involved, among
other things, in the
business of providing proprietary software systems to credit
unions and
healthcare institutions.
B. Solutions is a privately-held corporations involved in
the marketing and
servicing of computer software and hardware in the
commercial and medical
markets.
C. NewCo is a newly formed, wholly-owned subsidiary of
CTI.
D. Shareholder owns 97% of the issued and outstanding
shares of Solutions.
E. The parties have agreed that Solutions will be merged
with and into
NewCo as a wholly-owned subsidiary of CTI, on the terms, and
subject to the
conditions, set forth in this Agreement.
F. The acquisition of Solutions by CTI shall be effected
through the
reorganization of Solutions with NewCo, with NewCo as the
surviving entity.
In connection with the transaction, the outstanding shares
of common stock of
Solutions will be canceled in exchange for shares of
restricted common voting
stock of CTI and cash, all for the purposes of accomplishing
a
"reorganization" pursuant to sections 368(a)(1)(A) and
368(a)(2)(D) of the
Code. After consummation of the transaction, NewCo shall
succeed to the
business, assets, and liabilities of Solutions and shall
thereafter continue
such business as a wholly-owned subsidiary of CTI.
G. Shareholder also owns 40% of a company known as
Automated Solutions of
California, Inc., a California corporation, sometimes
referred to as
"California", which he will sell to CTI in exchange for the
consideration set
forth in section 6.08.
H. Solutions owes Tom Jordan and related entities $132,000
which shall be
paid by CTI at closing.
I. The acquisition by CTI of Solutions and the part
ownership in California
are interdependent steps and both transactions are required
to be completed in
order to effectuate the acquisition.
Agreement
NOW, THEREFORE, based on the stated premises, which are
incorporated herein by
this reference, and for and in consideration of the mutual
covenants and
agreements hereinafter set forth and the mutual benefits to
the parties to be
derived herefrom, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the
meanings indicated:
Section 1.01 Solutions. Automated Solutions, Inc., is a
Nevada
corporation.
Section 1.02 Closing. The consummation of the
transactions contemplated
by this Agreement.
Section 1.03 Closing Date. The date on which the Closing
occurs.
Section 1.04 Code. The Internal Revenue Code of 1986, as
amended.
Section 1.05 CTI Common Stock. The authorized common
stock, par value
$0.001 per share, of CTI.
Section 1.06 CTI Preferred Stock. The authorized
preferred stock, par
value $0.001 per share, of CTI.
Section 1.07 Effective Date. The date, as defined in the
articles of
merger or plan of merger, on which the merger of Solutions
with and into NewCo
shall become effective in accordance with the laws of the
state of
organization.
Section 1.08 Exchange Act. The Securities Exchange Act of
1934, as
amended.
Section 1.09 Exchanged CTI Stock. The shares of CTI
Common Stock to be
issued and delivered by CTI pursuant to this Agreement in
exchange for the
shares of Solutions issued and outstanding on the Closing
Date in order to
consummate the merger of Solutions with and into NewCo.
Section 1.10 GAAP. Generally accepted accounting
principles, as in
effect on the date of determination, applied on a consistent
basis.
Section 1.11 SEC. The United States Securities and
Exchange Commission.
Section 1.12 Securities Act. The Securities Act of 1933,
as amended.
Section 1.13 Shareholder. Howard B. Jones III.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF
SOLUTIONS AND HOWARD B. JONES III
As an inducement to, and to obtain the reliance of, CTI and
NewCo, Solutions
and Jones represent and warrant as follows:
Section 2.01 Organization. Solutions is a corporation
duly organized,
validly existing, and in good standing under the laws of the
state of Nevada
and has the corporate power to own all of its properties and
assets and to
carry on its business in all material respects as it is now
being conducted,
and there is no jurisdiction in which it is not so qualified
in which the
character and location of the assets owned by it or the
nature of the business
transacted by it requires qualification, except where
failure to do so would
not have a material adverse effect on the business or
properties of Solutions.
Included in the Solutions Schedules (as hereinafter
defined) are complete and
correct copies of the articles of incorporation and bylaws
of Solutions as in
effect on the date hereof. The execution and delivery of
this Agreement does
not, and the consummation of the transactions contemplated
by this Agreement
in accordance with the terms hereof will not, violate any
provision of
Solutions' articles of incorporation or bylaws.
Section 2.02 Approval of Agreement. The board of
directors and the
Shareholder have authorized the execution and delivery of
this Agreement by
Solutions and have approved the consummation of the
transactions contemplated
hereby. Included in the Solutions Schedules is a signed
copy of a consent
duly adopted by the board of directors and the shareholders
of Solutions
evidencing such approval. Solutions has full power,
authority, and legal
right, and has taken all action required by law, its
articles of
incorporation, its bylaws, or otherwise, to execute and
deliver this Agreement
and to consummate the transactions contemplated hereby.
Section 2.03 Authority of the Shareholder. Except as set
forth in
Solutions Schedule 2.03, the Shareholder has the right and
authority, without
the prior consent of any other person or entity, to enter
into this Agreement
and consummate the transactions contemplated hereby. Except
as set forth in
Solutions Schedule 2.03, there is no lien, encumbrance, or
claim by any third
person with respect to shares of Solutions held by the
Shareholder.
Section 2.04 Capitalization. The authorized
capitalization of Solutions
consists of 25,000 shares of common stock, par value $1.00
per share, of which
23,750 shares are currently issued and outstanding. 97% of
the issued and
outstanding stock of Solutions is held by the Shareholder.
No shares of
Solutions are reserved for issuance on the exercise of
warrants or the
conversion of other securities, or the exercise of any other
call, commitment,
or right to which Solutions or the Shareholder are a party
or to which they
are subject. All issued and outstanding shares of Solutions
are validly
authorized, legally issued, fully paid, and nonassessable
and not issued in
violation of the preemptive or other right of any person.
Section 2.05 Subsidiaries and Predecessor. Solutions has
no subsidiaries
or any predecessor corporation as that term is defined by
generally accepted
accounting principles. Solutions acquired all of the
business of a sister
operation in the state of Arizona pursuant to an agreement,
a copy of which is
attached hereto as Special Exhibit 1.
Section 2.06 Financial Statements.
(a) Included in the Solutions Schedules are the unaudited
balance sheets of
Solutions as of December 31, 1994 and 1993, and the related
unaudited
statements of income and retained earnings for the years
then ended, and the
unaudited balance sheets as of September 30, 1995, and the
unaudited
statements of income and retained earnings for the year then
ended.
(b) Such financial statements have been prepared in
accordance with GAAP,
except as disclosed in the Solutions Schedules. Solutions
did not have, as of
the date of any of such balance sheets, except as and to the
extent reflected
or reserved against therein, any liabilities or obligations
(absolute or
contingent) which should be reflected in a combined balance
sheet prepared in
accordance with GAAP and all assets reflected therein
present fairly the
assets of Solutions, as if such statements were prepared in
accordance with
GAAP. The statements of income present fairly the
information required to be
set forth therein as if such statements were prepared in
accordance with
GAAP. Solutions maintains a standard system of accounting
established and
maintained in a manner permitting the preparation of
financial statements in
accordance with GAAP.
(c) The books and records of Solutions and its accounting
practices are
sufficient to permit the preparation of audited financial
statements for the
periods subsequent to December 31, 1992, in accordance with
GAAP and
regulation S-B adopted under the Exchange Act. Solutions
will maintain and
preserve its books and records in such a fashion so as to
permit the
preparation of historical audited financial statements as
may be required by
the Exchange Act and the rules and regulations adopted
thereunder. Solutions
and the Shareholder will cooperate fully and assist in the
preparation of any
such financial statements, at the cost of CTI.
(d) Solutions has filed all tax returns and, except as set
forth in the
Solutions Schedules, all reports as required by law. All
such returns and
reports are accurate and correct in all material respects.
There are no
income taxes currently due to the federal or state
governments that have not
been paid. Solutions does not have any liabilities with
respect to the
payment of any federal, state, county, local, or other taxes
(including any
deficiencies, interest, or penalties) accrued for or
applicable to the period
ended on the date of the most recent balance sheet included
in the Solutions
Schedules and all such dates and years and periods prior
thereto and for which
Solutions may at said date have been liable in their own
right or as
transferee of the assets of, or as successor to, any other
corporation or
other entity, except for taxes accrued but not yet due and
payable. None of
such federal income tax returns has been audited or is
currently being audited
by the Internal Revenue Service. Solutions has not made any
election pursuant
to the Code (other than elections which relate solely to
methods of
accounting, depreciation, or amortization) which would have
a material adverse
effect on Solutions, its financial condition, its business
as presently
conducted or as proposed to be conducted, or any of its
properties or material
assets. There are no outstanding agreements or waivers
extending the
statutory period of limitation applicable to any tax return
of Solutions.
(e) The books and records, financial and otherwise, of
Solutions are in all
material respects complete and correct and have been made
and maintained in
accordance with sound business and bookkeeping practices
and, in reasonable
detail, accurately and fairly reflect the transactions
involving the assets of
Solutions. Solutions has maintained a system of internal
accounting controls
sufficient to provide reasonable assurances that (i)
transactions have been
and are executed in accordance with management's general or
specific
authorization; (ii) transactions are recorded as necessary
to permit the
preparation of financial statements in conformity with GAAP
or any other
criteria applicable to such statements and to maintain
accountability for
assets; (iii) access to assets is permitted only in
accordance with
management's general or specific authorization; and (iv) the
recorded
accountability for assets is compared with the existing
assets at reasonable
intervals, and appropriate action is taken with respect to
any differences.
(f) Except as set forth in the Solutions Schedules, the
latest of the
balance sheets included in the Solutions Schedules, or in
the notes thereto,
Solutions (i) has good and marketable title to its accounts
receivable, and
other debts due or recorded in the records and books of
account of Solutions,
free of any security interests or liens and free of any
material defenses,
counterclaims, and set-offs, and all of such accounts
receivable, invoices,
and debts are actual and bona fide amounts due Solutions for
the total dollar
amount thereof shown on the books of Solutions and resulted
from the regular
course of its business; and (ii) the accounts receivable,
invoices, and debts
set forth on the Solutions balance sheets arose in the
ordinary course of
business and are, net of any reserves shown on the balance
sheet, collectible
in full in all material respects on the continuation of
reasonable collection
efforts by Solutions or successor personnel and without
resorting to
litigation and in any event not later than 180 days after
the date billed.
Section 2.07 Information. The information concerning
Solutions set forth
in this Agreement and in the Solutions Schedules is complete
and accurate in
all material respects and does not contain any untrue
statement of a material
fact or omit to state a material fact required to make the
statements made, in
light of the circumstances under which they were made, not
misleading.
Section 2.08 Options or Warrants. Except as set forth in
the Solutions
Schedules, there are no existing warrants, calls,
commitments, or other rights
of any character relating to authorized and unissued
Solutions Stock or other
securities of Solutions, except options, warrants, calls,
commitments, or
other rights, if any, to which Solutions is not a party and
by which it is not
bound.
Section 2.09 Absence of Certain Changes or Events. Except
as set forth
in this Agreement or in the Solutions Schedules, since the
date of the most
recent balance sheet included in the Solutions Schedules:
(a) There has not been (i) any material adverse change in
the business,
operations, assets, or condition of Solutions or (ii) any
damage, destruction,
or loss to Solutions (whether or not covered by insurance)
materially and
adversely affecting the business, operations, assets, or
condition of
Solutions;
(b) Solutions has not (i) amended its articles of
incorporation or bylaws;
(ii) declared or made, or agreed to declare or make, any
payment of dividends
or distributions of any assets of any kind whatsoever to
stockholders or
purchased or redeemed, or agreed to purchase or redeem, any
of its capital
stock; (iii) waived any rights of value which in the
aggregate are
extraordinary or material considering the business of
Solutions; (iv) made any
material change in its method of management, operation, or
accounting; (v)
entered into any other material transactions, (vi) made any
accrual or
arrangement for or payment of bonuses or special
compensation of any kind or
any severance or termination pay to any present or former
officer, employee,
or shareholder; (vii) increased the rate of compensation
payable or to become
payable by it to any of its officers or directors or any of
its employees
whose monthly compensation exceeds $5,000; or (viii) made
any increase in any
profit sharing, bonus, deferred compensation, insurance,
pension, retirement,
or other employee benefit plan, payment, or arrangement made
to, for, or with
its officers, directors, or employees;
(c) Solutions has not (i) granted or agreed to grant any
options, warrants,
or other rights for its stocks, bonds, or other corporate
securities calling
for the issuance thereof; (ii) borrowed or agreed to borrow
any funds or
incurred, or become subject to, any material obligation or
liability (absolute
or contingent) except liabilities incurred in the ordinary
course of business;
(iii) paid any material obligation or liability (absolute or
contingent) other
than current liabilities reflected in or shown on the most
recent balance
sheet included in the Solutions Schedules and current
liabilities incurred
since that date in the ordinary course of business; (iv)
sold or transferred,
or agreed to sell or transfer, any of its assets,
properties, or rights
(except assets, properties, or rights not used or useful in
its business
which, in the aggregate have a value of less than $10,000 or
assets,
properties, or rights disposed of in the ordinary course of
business); (v)
made or permitted any amendment or termination of any
contract, agreement, or
license to which it is a party if such amendment or
termination is material,
considering the business of Solutions; or (vi) issued,
delivered, or agreed to
issue or deliver any stock, bonds, or other corporate
securities including
debentures (whether authorized and unissued or held as
treasury stock); and
(d) Solutions has not become subject to any law or
regulation which
materially and adversely affects the business, operations,
properties, assets,
or condition of Solutions.
Section 2.10 Title to Personal and Real Property.
(a) Except as disclosed in the most recent balance sheet
included in the
Solutions Schedules, Solutions has good and marketable title
to all its
properties, inventory, know-how, interests in properties,
and assets, which
are reflected in the most recent balance sheet included in
the Solutions
Schedules or acquired after that date (except those sold or
otherwise disposed
of since such date in the ordinary course of business) or
are used in
Solutions' business, free and clear of all material
mortgages, security
interests, royalties, liens, pledges, charges, or
encumbrances, except (i)
statutory liens or claims not yet delinquent; (ii) such
imperfections of title
and easements as do not and will not materially detract from
or interfere with
the present or proposed use of the properties subject
thereto or affected
thereby or otherwise materially impair present business
operations on such
properties; and (iii) as described in the Solutions
Schedules. All personal
property held by Solutions is in a state of good maintenance
and repair,
excepting reasonable wear and tear, and is adequate and
suitable for the
purposes for which it is presently being used.
(b) Solutions does not own any real property in fee simple.
(c) Included in the Solutions Schedules is an accurate and
complete list of
all personal property owned by Solutions or used in its
business and having a
purchase price of over $10,000, together with a description
of any mortgages,
financing instruments, or other encumbrances to the title to
such properties.
Also included in the Solutions Schedules are copies of all
leases for real
and personal property to which Solutions is a party. Except
as disclosed in
the Solutions Schedules, each such lease is in full force
and effect; all
rents and additional fees due to date on each such lease
have been paid; in
each case, the lessee has been in peaceable possession since
the commencement
of the original term of such lease and is not in default
thereunder and no
waiver, indulgence, or postponement of the lessee's
obligation thereunder has
been granted by the lessor; and there exists no event of
default or event,
occurrence, condition, or act, which, with the giving of
notice, the lapse of
time, or the happening of any further event or condition,
would become a
default under such lease, the occurrence of which would have
a material
adverse affect on Solutions. Except as set forth in the
Solutions Schedules,
Solutions has not violated any of the terms or conditions
under any such lease
in any material respect, and all of the material covenants
to be performed by
any other party under any such lease have been fully
performed. The property
leased by Solutions is in a state of good maintenance and
repair, except
reasonable wear and tear, and is adequate and suitable for
the purposes for
which it is presently being used.
Section 2.11 Intellectual Property. Solutions owns the
entire right,
title, and interest in and to its proprietary software
listed in the Solutions
Schedules and, except as listed in the Solutions Schedules,
to all of the
trade secrets, technology, know-how, tradenames, trademarks,
servicemarks, and
other proprietary information owned by or used in connection
with the business
of Solutions, including all copyrights, patents, patent
applications,
registrations, and applications with respect thereto
(collectively the
"Intellectual Property"). Except as set forth in the
Solutions Schedules,
such Intellectual Property is not subject to the payment of
royalties or any
other obligation to any other person or entity. Neither the
Shareholder nor
any other employee or former employee of Solutions owns,
directly or
indirectly, any right, title, or interest in or to the
Intellectual Property.
None of the Intellectual Property is subject to any
material order, decree,
judgment, stipulation, settlement, encumbrance, or
attachment. Except as set
forth in the Solutions Schedules, there are no pending or
threatened in
writing proceedings, litigation, or other adverse claims of
which Solutions is
aware affecting or with respect to the Intellectual
Property. The
Intellectual Property does not infringe on the copyright,
patent, trade
secret, know-how, or other proprietary right of any other
person or entity and
comprises all such rights necessary to permit the operation
of the business of
Solutions as now being conducted and as proposed to be
conducted.
Section 2.12 Litigation and Proceedings. Except as set
forth in the
Solutions Schedules, there are no actions, suits, or
proceedings pending or,
to the knowledge of Solutions, threatened by or against
Solutions or affecting
Solutions or its properties, at law or in equity, before any
court or other
governmental agency or instrumentality, domestic or foreign,
or before any
arbitrator of any kind. Solutions is not in material
default with respect to
any judgment, order, writ, injunction, decree, award, rule,
or regulation of
any court, arbitrator, or governmental agency or
instrumentality.
Section 2.13 Contracts.
(a) Included in the Solutions Schedules is a description of
every contract,
agreement, distributorship, franchise, license, or other
agreement,
arrangement, or commitment to which Solutions is a party or
by which its
assets or properties are bound, which calls for the payment
by Solutions of
more than $2,000 a month, or $24,000 in the aggregate;
(b) Except as described in this Agreement or in the
Solutions Schedules,
Solutions is not a party to or bound by, and the properties
of Solutions are
not subject to, any contract, agreement, other commitment or
instrument or any
charter or other corporate restriction or any judgment,
order, writ,
injunction, decree, or award which materially and adversely
affects, or in the
future may (as far as Solutions can now reasonably foresee)
materially and
adversely affect, the business operations, properties,
assets, or financial
condition of Solutions; and
(c) Except as included or described in the Solutions
Schedules or reflected
in the most recent Solutions balance sheet, Solutions is not
a party to any
oral or written (i) contract for the employment of any
officer, director, or
employee, whose compensation is greater than $5,000 per
month, which is not
terminable on 30 days (or less) notice; (ii) profit sharing,
bonus, deferred
compensation, stock option, severance pay, pension benefit
or retirement plan,
agreement, or arrangement covered by title IV of the
Employee Retirement
Income Security Act, as amended; (iii) agreement, contract,
or indenture
relating to the borrowing of money in amounts greater than
$1,000 in the
aggregate; (iv) guarantee of any obligation for the
borrowing of money or
otherwise, excluding endorsements made for collection and
other guarantees of
obligations, which, in the aggregate do not exceed $1,000;
(v) consulting or
other similar contract with an unexpired term of more than
one year or
providing for payments in excess of $1,000 in the aggregate;
(vi) collective
bargaining agreement; (vii) agreement with any present or
former officer or
director of Solutions whose compensation was or is greater
than $5,000 per
month; or (viii) other contract, agreement, or other
commitment, except normal
ongoing monthly operating expenses, involving payments by it
in the future of
more than $20,000 in the aggregate per contract.
Section 2.14 Material Contract Defaults. Except as set
forth in the
Solutions Schedules, Solutions is not in default in any
material respect under
the terms of any outstanding contract, agreement, lease, or
other commitment
which is material to the business, operations, properties,
assets, or
financial condition of Solutions, and there is no event of
default or other
event which, with notice or lapse of time or both, would
constitute a default
in any material respect under any such contract, agreement,
lease, or other
commitment in respect of which Solutions has not taken
adequate steps to
prevent such a default from occurring.
Section 2.15 Insurance Claims. Except as set forth in the
Solutions
Schedules, during the last three years, Solutions has not
received, or
informed its insurance carriers of, any claims for damages,
whether or not
covered by insurance, for amounts greater than $5,000.
Solutions is not
currently aware of any pending or unasserted claims.
Section 2.16 No Conflict With Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust, or other material contract, agreement, or
instrument to which
Solutions is a party or to which any of its properties or
operations are
subject, which would have a material adverse affect on
Solutions.
Section 2.17 Governmental Authorizations. Solutions has
all licenses,
franchises, permits, and other governmental authorizations
that are legally
required to enable it to conduct its business in all
material respects as
conducted on the date hereof. Except for compliance with
federal and state
securities and corporation laws, as hereinafter provided, no
authorization,
approval, consent, or order of, or registration,
declaration, or filing with,
any court or other governmental body is required in
connection with the
execution and delivery by Solutions of this Agreement and
the consummation by
Solutions of the transactions contemplated hereby.
Section 2.18 Compliance With Laws and Regulations.
Solutions has
complied with all applicable statutes and regulations of any
federal, state,
or other governmental entity or agency thereof, except to
the extent that
noncompliance would not materially and adversely affect the
business,
operations, properties, assets, or financial condition of
Solutions or except
to the extent that noncompliance would not result in the
incurrence of any
material liability for Solutions. Included in the Solutions
Schedules is a
copy of each letter of inquiry, review, or investigation or
other writing from
or to any governmental authority subsequent to December 31,
1991, evidencing a
violation or possible or alleged violation of any of the
foregoing.
Section 2.19 Insurance. Included in the Solutions
Schedules is a
complete list of all business liability, casualty,
automobile, extended
coverage, and other insurance policies which Solutions
maintains respecting
its products, services, business, properties, and employees,
showing for each
type of coverage the policy limits, principal exclusions,
deductibles,
insurer, and other relevant information. Such policies are
in full force and
effect and are free from any right of termination by the
insurance carriers.
All of the insurable properties of Solutions are insured for
its benefit in
the amount of their full replacement value (subject to
reasonable deductibles)
against losses due to fire and other casualty, with extended
coverage, and
other risks customarily insured against by persons operating
similar
properties in the localities where such properties are
located and under valid
and enforceable policies issued by insurers of recognized
responsibility.
Section 2.20 Transactions With Affiliates. Set forth in
the Solutions
Schedules is a description of every contract, agreement, or
arrangement
between Solutions and any person who is or has ever been
during the previous
three (3) years an officer or director of Solutions or
person owning of
record, or known by Solutions to own beneficially, 5% or
more of the issued
and outstanding common stock of Solutions and which is to be
performed in
whole or in part after the date hereof. In all of such
circumstances, the
contract, agreement, or arrangement was for a bona fide
business purpose of
Solutions and the amount paid or received, whether in cash,
in services, or in
kind, was, has been during the full term thereof, and is
required to be during
the unexpired portion of the term thereof, no less favorable
to Solutions than
terms available from otherwise unrelated parties in arm's
length transactions.
Except as disclosed in the Solutions Schedules or otherwise
disclosed herein,
no officer or director of Solutions or 5% shareholder of
Solutions has, or has
had during the preceding three years, any interest, directly
or indirectly, in
any material transaction with Solutions. The Solutions
Schedules also include
a description of any commitment by Solutions, whether
written or oral, to lend
any funds to, borrow any money from, or enter into any other
material
transaction with, any such affiliated person.
Section 2.21 Labor Agreements and Actions. Solutions is
not bound by or
subject to (and none of its assets or properties is bound by
or subject to)
any written or oral, express or implied, contract,
commitment, or arrangement
with any labor union, and no labor union has requested or
sought to represent
any of the employees, representatives, or agents of
Solutions. There is no
strike or other labor dispute involving Solutions pending or
threatened, which
could have a material adverse effect on the assets,
properties, financial
condition, operating results, or business of Solutions or
(as such business is
presently conducted and as it is proposed to be conducted),
and Solutions is
not aware of any labor organization activity involving its
employees.
Solutions is not aware that any officer or key employee, or
that any group of
key employees, intends to terminate their employment with
Solutions, nor does
Solutions have a present intention to terminate the
employment of any of the
foregoing. Except as set forth in the Solutions Schedules,
the employment of
each officer and employee of Solutions is terminable at the
will of Solutions.
Section 2.22 Pension Reform Act of 1974. Except as set
forth in the
Solutions Schedules, Solutions does not have any unfunded
pension liability to
the Pension Benefit Guaranty Corporation or any other person
or entity in
connection with any retirement, pension plan, or similar
arrangement.
Section 2.23 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no
information that would
give Solutions current actual knowledge of the inaccuracy of
any statements
has come to the attention of Solutions and/or its directors
and officers;
however, no special or independent investigation has been
undertaken to
determine the accuracy of such statements.
(ii) "Environment" shall mean soil, surface waters,
groundwaters, land,
stream sediments, surface or subsurface strata, ambient air,
and any
environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law,
regulation, rule, ordinance, or bylaw at the federal, state,
or local level
existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance,
hazardous waste, hazardous material, hazardous substance, or
oil as currently
defined in the Resource Conservation and Recovery Act, as
amended; the
Comprehensive Environmental Response, Compensation, and
Liability Act, as
amended; the Federal Clean Water Act, as amended; or any
other federal, state,
or local environmental law, regulation, ordinance, rule, or
bylaw, existing as
of the date hereof.
(v) "Permit" shall mean environmental permit, license,
approval, consent, or
authorization issued by a federal, state, or local
governmental entity.
(vi) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring,
emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or
dumping into the Environment.
(vii) "Threat of Release" shall mean a substantial
likelihood of a Release
which requires action to prevent or mitigate damage to the
environment which
may result from such Release.
(b) To Solutions' Current Actual Knowledge, Solutions does
not have any
material liability under any Environmental Law applicable to
its operations.
(c) Solutions has not violated any Environmental Laws
applicable to its
operations, the violation or noncompliance with which would
have a material
adverse effect on Solutions.
(d) Solutions has not:
(i) Entered into or been subject to any consent decree,
compliance order, or
administrative order with respect to its properties or any
facilities or
operations thereon;
(ii) Received written notice under the citizen suit
provision of any
violation of any Environmental Law in connection with its
properties or any
facilities or operations thereon;
(iii) Received any written request for information,
notice, demand letter,
administrative inquiry, or claim with respect to a violation
of any
Environmental Law relating to its properties or any
facilities or operations
thereon; or
(iv) Been subject to or threatened in writing with any
governmental or
citizen enforcement action with respect to a violation of
any Environmental
Law on its properties or at any facilities or operations
thereon.
Section 2.24 Solutions Schedules. Solutions has delivered
to CTI the
following schedules, which are collectively referred to as
the "Solutions
Schedules." The Solutions Schedules shall be updated
through the date of
Closing and shall be certified by the chief executive
officer of Solutions as
complete, true, and accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of Solutions in effect as of the date of this Agreement as
referred to in
section 2.01;
(b) A schedule containing copies of resolutions adopted by
the board of
directors and shareholders of Solutions approving this
Agreement and the
transactions herein contemplated as referred to in section
2.02;
(c) A schedule including the financial statements
identified in
section 2.06;
(d) A schedule including copies of all federal income tax
returns filed for
the years ended December 31, 1994 and 1993, identified in
section 2.06;
(e) A schedule listing the accounts receivable and notes
and other
obligations receivable of Solutions as of the date of the
most recent balance
sheet included in the Solutions Schedules or that arose
thereafter other than
in their ordinary course of business, indicating the debtor
and amount,
classifying the accounts to show in reasonable detail the
length of time, if
any, overdue, and stating the nature and amount of any
refunds, setoffs,
reimbursements, discounts, or other adjustments, which in
the aggregate are
greater than $1,000, due to or claimed by such debtors;
(f) A schedule listing the accounts payable and notes and
other obligations
payable of Solutions as of the date of the most recent
balance sheet included
in the Solutions Schedules or that arose thereafter other
than in the ordinary
course of the business of Solutions, indicating the creditor
and amount,
classifying the accounts to show in reasonable detail the
length of time, if
any, overdue, and stating the nature and amount of any
refunds, setoffs,
reimbursements, discounts, or other adjustments, which in
the aggregate are
greater than $1,000, payable to Solutions from any one such
creditor;
(g) A schedule setting forth a description of any material
adverse change in
the business, operations, property, inventory, assets, or
financial condition
of Solutions since the most recent balance sheet included in
the Solutions
Schedules, required to be provided pursuant to section 2.09
hereof;
(h) Copies of all agreements or arrangements and all
written statements of
practice followed with regard to the payment of
compensation, bonuses,
deferred compensation, profit sharing, pension, vacation,
retirement, or other
compensation benefits to officers, directors, or employees
whose monthly
compensation exceeds $5,000 (and descriptions of any such
agreements,
arrangements, or practices which are not in writing),
together with a schedule
setting forth the name or identification of each officer,
director, or
employee whose monthly compensation exceeds $5,000 and of
each former officer
or former employee of Solutions who is currently being paid
or who is entitled
to, or may become entitled to, compensation in amounts
greater than $5,000 per
month of any of such compensation benefits and the rate or
amounts thereof and
showing the nature of any family relationship of such person
to each
stockholder owning 5% or more of the common stock of
Solutions;
(i) A schedule containing a description of all personal
property owned by
Solutions or used in its business and having a purchase
price of over $10,000,
including a description of every material mortgage,
financing instrument, or
encumbrance to which such personal property of Solutions is
subject (except
statutory liens or claims not yet delinquent and except
liens, claims,
encumbrances, or equities which do not or in the future will
not materially
detract from or interfere with the present or proposed use
of the property
subject thereto or affected thereby);
(j) A schedule containing a description of each lease,
rental agreement, or
similar instrument, including a description of each oral
arrangement;
(k) A schedule setting forth the litigation and proceedings
as referred to
in section 2.12;
(l) A schedule listing all material contracts, agreements,
franchises,
license agreements, or other commitments to which Solutions
is a party or by
which their properties are bound, as referred to in section
2.14, but
excluding those with affiliates which are described in
section 2.21;
(m) A schedule of any insurance claims as referenced in
section 2.15;
(n) Copies of all licenses, permits, and other governmental
authorizations
(or requests or applications therefor) pursuant to which
Solutions carries on
or proposes to carry on its business (except those which are
immaterial to the
present or proposed business of Solutions), as referred to
in section 2.17;
(o) A schedule describing the matters regarding compliance
with laws and
regulations, as referred to in section 2.18;
(p) A schedule showing details of all insurance coverage as
referred to in
section 2.19;
(q) A schedule containing a description of all material
contracts, leases,
agreements, and other instruments between Solutions and any
affiliates, as
referred to in section 2.20;
(r) A schedule showing the name and location of each bank
or other
institution in which Solutions has an account or safe
deposit box, and the
names of all persons authorized to draw thereon or to have
access thereto;
(s) Copies of all powers of attorney given by Solutions now
in effect or to
be in effect;
(t) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the Solutions
Schedules by sections 2.01 through 2.23.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF
SHAREHOLDER FOR CALIFORNIA
As an inducement to, and to obtain the reliance of, CTI and
NewCo, Shareholder
represents and warrants with respect to California as
follows:
Section 3.01 Organization. California is a corporation
duly organized,
validly existing, and in good standing under the laws of the
state of
California and has the corporate power to own all of its
properties and assets
and to carry on its business in all material respects as it
is now being
conducted, and there is no jurisdiction in which it is not
so qualified in
which the character and location of the assets owned by it
or the nature of
the business transacted by it requires qualification, except
where failure to
do so would not have a material adverse effect on the
business or properties
of California. Included in the California Schedules (as
hereinafter defined)
are complete and correct copies of the articles of
incorporation and bylaws of
California as in effect on the date hereof. The execution
and delivery of
this Agreement does not, and the consummation of the
transactions contemplated
by this Agreement in accordance with the terms hereof will
not, violate any
provision of California's articles of incorporation or
bylaws.
Section 3.02 Capitalization. Shareholder owns 40% of the
issued and
outstanding stock of California.
Section 3.03 Financial Statements. To the best of
Shareholder's
knowledge:
(a) Included in the California Schedules are the unaudited
balance sheets of
California as of December 31, 1994 and 1993, and the related
unaudited
statements of income and retained earnings for the years
then ended, together
with the accompanying notes, and the audited balance sheets
as of September
30, 1995, and the unaudited statements of income and
retained earnings for the
year then ended, together with the accompanying notes.
(b) Such financial statements have been prepared in
accordance with GAAP,
except as disclosed in the California Schedules. California
did not have, as
of the date of any of such balance sheets, except as and to
the extent
reflected or reserved against therein, any liabilities or
obligations
(absolute or contingent) which should be reflected in a
combined balance sheet
prepared in accordance with GAAP and all assets reflected
therein present
fairly the assets of California, as if such statements were
prepared in
accordance with GAAP. The statements of income present
fairly the information
required to be set forth therein as if such statements were
prepared in
accordance with GAAP. California maintains a standard
system of accounting
established and maintained in a manner permitting the
preparation of financial
statements in accordance with GAAP.
(c) The books and records of California and its accounting
practices are
sufficient to permit the preparation of audited financial
statements for the
periods subsequent to December 31, 1992, in accordance with
GAAP and
regulation S-B adopted under the Exchange Act. California
will maintain and
preserve its books and records in such a fashion so as to
permit the
preparation of historical audited financial statements as
may be required by
the Exchange Act and the rules and regulations adopted
thereunder. California
and the Shareholder will cooperate fully and assist in the
preparation of any
such financial statements, at the cost of CTI.
(d) California has filed all tax returns and, except as set
forth in the
California Schedules, all reports as required by law. All
such returns and
reports are accurate and correct in all material respects.
There are no
income taxes currently due to the federal or state
governments that have not
been paid. California does not have any liabilities with
respect to the
payment of any federal, state, county, local, or other taxes
(including any
deficiencies, interest, or penalties) accrued for or
applicable to the period
ended on the date of the most recent balance sheet included
in the California
Schedules and all such dates and years and periods prior
thereto and for which
California may at said date have been liable in their own
right or as
transferee of the assets of, or as successor to, any other
corporation or
other entity, except for taxes accrued but not yet due and
payable. None of
such federal income tax returns has been audited or is
currently being audited
by the Internal Revenue Service. California has not made
any election
pursuant to the Code (other than elections which relate
solely to methods of
accounting, depreciation, or amortization) which would have
a material adverse
effect on California, its financial condition, its business
as presently
conducted or as proposed to be conducted, or any of its
properties or material
assets. There are no outstanding agreements or waivers
extending the
statutory period of limitation applicable to any tax return
of California.
(e) The books and records, financial and otherwise, of
California are in all
material respects complete and correct and have been made
and maintained in
accordance with sound business and bookkeeping practices
and, in reasonable
detail, accurately and fairly reflect the transactions
involving the assets of
California. California has maintained a system of internal
accounting
controls sufficient to provide reasonable assurances that
(i) transactions
have been and are executed in accordance with management's
general or specific
authorization; (ii) transactions are recorded as necessary
to permit the
preparation of financial statements in conformity with GAAP
or any other
criteria applicable to such statements and to maintain
accountability for
assets; (iii) access to assets is permitted only in
accordance with
management's general or specific authorization; and (iv) the
recorded
accountability for assets is compared with the existing
assets at reasonable
intervals, and appropriate action is taken with respect to
any differences.
(f) Except as set forth in the California Schedules, the
latest of the
balance sheets included in the California Schedules, or in
the notes thereto,
California (i) has good and marketable title to its accounts
receivable, and
other debts due or recorded in the records and books of
account of California,
free of any security interests or liens and free of any
material defenses,
counterclaims, and set-offs, and all of such accounts
receivable, invoices,
and debts are actual and bona fide amounts due California
for the total dollar
amount thereof shown on the books of California and resulted
from the regular
course of its business; and (ii) the accounts receivable,
invoices, and debts
set forth on the California balance sheets arose in the
ordinary course of
business and are, net of any reserves shown on the balance
sheet, collectible
in full in all material respects on the continuation of
reasonable collection
efforts by California or successor personnel and without
resorting to
litigation and in any event not later than 180 days after
the date billed.
Section 3.04 Other Information. After reasonable
investigation and to
Shareholder's best knowledge:
(a) California owes Shareholder, and Solutions $81,151 for
services
rendered;
(b) There have not been any adverse material changes in
California's
business or assets or any loss to its property not covered
by insurance
during the last twelve (12) months;
(c) There are no suits or proceedings pending or threatened
in writing by or
against California or affecting California's properties at
law or in
equity before any court or other governmental agency or
instrumentality,
domestic or foreign, or before any arbiter of any kind;
(d) California is not in default with respect to any of the
terms of any
outstanding contract, lease or other commitment which is
material to the
business operation, property, assets or financial situation
of
California. There is no other event of default which will
with notice
of lapse of time constitute a default in any material
respect under any
such contract, agreement, lease, or other commitment;
(e) California has complied with all applicable statutes of
any regulations
of any federal, state, or other governmental agency, except
to the
extent that non-compliance would not materially adversely
affect the
business, operations, property, assets or financial
condition of
California or to the extent that non-compliance would not
result in the
occurrence of any material liability for California.
Section 3.05 No Lien. There is no lien or other
encumbrance on the
shares of California held by Shareholder and such shares may
be freely
transferred to CTI.
ARTICLE IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF CTI
AND NEWCO
As an inducement to, and to obtain the reliance of,
Solutions and the
Shareholder, CTI and NewCo represent and warrant as follows:
Section 4.01 Organization. CTI and NewCo are corporations
duly
organized, validly existing, and in good standing under the
laws of the state
of Nevada, and have the corporate power to own all of their
properties and
assets and to carry on their business in all material
respects as it is now
being conducted, and there is no jurisdiction in which they
are not so
qualified in which either the character and location of the
assets owned by
them or the nature of the business transacted by them
requires qualification,
except where failure to do so would not have a material
adverse effect on the
business or properties of CTI and NewCo, respectively.
Included in the CTI
Schedules (as hereinafter defined) are complete and correct
copies of the
articles of incorporation and bylaws of CTI and NewCo in
effect on the date
hereof. The execution and delivery of this Agreement does
not, and the
consummation of the transactions contemplated by this
Agreement in accordance
with the terms hereof will not, violate any provision of the
articles of
incorporation or bylaws of CTI or NewCo. CTI and NewCo have
full power,
authority, and legal right and have taken all action
required by law, their
articles of incorporation, bylaws, and otherwise to
consummate the
transactions herein contemplated.
Section 4.02 Approval of Agreements. The board of
directors of CTI and
NewCo, respectively, have authorized the execution and
delivery of this
Agreement by CTI and NewCo, respectively, and have approved
the consummation
of the transactions contemplated hereby. Included in the
CTI Schedules are
copies of resolutions duly adopted by the boards of
directors of CTI and NewCo
evidencing such approval. CTI and NewCo, respectively, have
full power,
authority, and legal right, and have taken all action
required by law, their
articles of incorporation, their bylaws, or otherwise, to
execute this
Agreement and consummate the transactions contemplated
hereby.
Section 4.03 Authority of CTI and NewCo. CTI and NewCo
have the right
and authority, without the prior written consent of any
other person or
entity, to enter into this Agreement and consummate the
transactions
contemplated hereby.
Section 4.04 Capitalization. The authorized
capitalization of CTI
consists of 5,000,000 shares of preferred stock, par value
$0.001 per share,
of which 1,000,000 shares are issued and outstanding, and
25,000,000 shares of
common stock, par value $0.001 per share, of which 8,584,846
shares are issued
and outstanding. In addition, CTI has reserved 3,008,573
shares of common
stock for issuance on the exercise of outstanding and
committed options,
delivery of shares on a relocation agreement, the conversion
of the issued and
outstanding CTI Preferred Stock, and exercise of options
pursuant to the
Employee Stock Purchase Plan. All issued and outstanding
shares of CTI Common
Stock are validly authorized, legally issued, fully paid,
and nonassessable
and not issued in violation of the preemptive or other right
of any person.
All shares of Exchanged CTI Stock to be issued pursuant to
this Agreement are
validly authorized and will be, when issued, legally issued,
fully paid, and
nonassessable and not issued in violation of the preemptive
or other right of
any person. NewCo has 1,000 shares of common stock, par
value $0.001 per
share authorized, 1,000 shares of which are issued and
outstanding and held
solely by CTI (the "NewCo Common Stock").
Section 4.05 Subsidiaries or Predecessor. CTI was
formerly known as
Mountain Surgical Centers, Inc., which was formerly known as
Dimension
Capital. CTI has 13 wholly-owned subsidiaries, some of
which also have
second-tier subsidiaries: CTI, Inc., RK&DR Concepts, Inc.
dba VERSYSS Data
Systems, New Outside Force, Inc., New Benchmark Computer
Systems, Inc.,
Computer Ease, Inc., Medical Computer Management, Inc.,
Benchmark Computer
Systems of VA., Inc., Benchmark Computer Systems, Inc.
(Wisconsin), Ford
Center for Foot Surgery, Inc., Sierra Surgery Center, Inc.,
CTI Resources,
Inc., Preferred Health Systems, Inc., and Workgroup Design,
Inc. All
references to CTI herein shall be deemed to include its
subsidiaries and
predecessor entities.
Section 4.06 Financial Statements. NewCo has no assets or
liabilities.
(a) Included in the CTI Schedules is the audited balance
sheet of CTI as of
June 30, 1995, and the related audited statements of income,
stockholders'
equity, and cash flows for each of the two fiscal years
ended June 30, 1995,
and 1994, including the notes thereto, together with the
related opinions of
the independent certified public accountants of CTI. Also
included are the
unaudited balance sheets as of September 30, 1995, and the
related unaudited
statements of earnings and cash flows for the three months
ended September 30,
1995, and 1994.
(b) All such financial statements have been prepared in
accordance with GAAP
consistently applied throughout the periods involved. The
balance sheets of
CTI present fairly, as of their respective dates, the
financial position of
CTI. CTI did not have, as of the date of any of such CTI
balance sheets,
except as and to the extent reflected or reserved against
therein, any
liabilities or obligations (absolute or contingent) which
should be reflected
in a balance sheet or the notes thereto prepared in
accordance with GAAP, and
all assets reflected therein present fairly the assets of
CTI, in accordance
with GAAP. The statements of operations, stockholders'
equity, and cash flows
present fairly the information required to be set forth
therein under GAAP.
CTI has maintained and will continue to maintain a standard
system of
accounting in a manner permitting the preparation of
financial statements in
accordance with GAAP.
(c) All such financial statements have been prepared in
accordance with
regulation S-B promulgated by the SEC regarding the form and
content of and
requirements for financial statements to be filed with the
SEC.
(d) CTI has filed all tax returns and reports as required
by law. All such
returns and reports are accurate and correct in all material
respects. CTI
has no material liabilities with respect to the payment of
any federal, state,
county, local, or other taxes (including any deficiencies,
interest, or
penalties) accrued for or applicable to the period ended on
the date of the
most recent CTI balance sheets and all such dates and years
and periods prior
thereto and for which CTI may at said date have been liable
in its own right
or as transferee of the assets of, or as successor to, any
other corporation
or other entity, except for taxes accrued but not yet due
and payable. None
of the federal income tax returns of CTI has been audited or
is currently
being audited by the Internal Revenue Service. CTI has not
elected pursuant
to the Code to be treated as an S corporation pursuant to
section 1362(a) of
the Code or a collapsible corporation pursuant to section
341(f) of the Code,
nor has CTI made any other elections pursuant to the Code
(other than
elections which relate solely to methods of accounting,
depreciation, or
amortization) which would have a material adverse effect on
CTI, its financial
condition, its business as presently conducted or as
proposed to be conducted,
or any of its properties or material assets. There are no
outstanding
agreements or waivers extending the statutory period of
limitation applicable
to any tax return of CTI.
(e) The books and records, financial and otherwise, of CTI
are in all
material respects complete and correct and have been made
and maintained in
accordance with sound business and bookkeeping practices
and, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the
assets of CTI. CTI has maintained a system of internal
accounting controls
sufficient to provide reasonable assurances that (i)
transactions have been
and are executed in accordance with management's general or
specific
authorization; (ii) transactions are recorded as necessary
to permit
preparation of financial statements in conformity with GAAP
or any other
criteria applicable to such statements and to maintain
accountability for
assets; (iii) access to assets is permitted only in
accordance with
management's general or specific authorization; and (iv) the
recorded
accountability for assets is compared with the existing
assets at reasonable
intervals and appropriate action is taken with respect to
any differences.
(f) Except as set forth in the latest balance sheets of CTI
or in the notes
thereto, CTI (i) has good and marketable title to its
receivables, and other
debts due or recorded in the records and books of CTI, free
of any security
interests or liens and free of any material defenses,
counterclaims, and set-
offs, and all of such receivables are actual and bona fide
receivables
representing obligations for the total dollar amount thereof
shown on the
books of CTI and resulted from the regular course of its
business; and (ii)
the accounts receivable set forth on the balance sheet of
CTI arose in the
ordinary course of business and are collectible in all
material respects on
the continuation of reasonable collection efforts by
personnel of CTI and
without resorting to litigation and in any event not later
than 180 days after
the date billed.
Section 4.07 Information. The information concerning CTI
and NewCo set
forth in this Agreement and in the CTI Schedules and in all
filings and
reports made by CTI with and to the SEC is complete and
accurate in all
material respects and, as of the date of such information,
does not contain
any untrue statement of a material fact or omit to state a
material fact
required to make the statements made, in light of the
circumstances under
which they were made, not misleading.
Section 4.08 Options or Warrants. There are no existing
options,
warrants, calls, commitments, or other rights of any
character relating to the
authorized and unissued NewCo stock or CTI Common Stock,
except (a) options,
warrants, calls, or commitment, if any, to which CTI is not
a party and by
which it is not bound; (b) options to acquire an aggregate
of 2,525,240 shares
of CTI Common Stock; (c) conversion rights held by the
holders of CTI
Preferred Stock to convert such stock into an aggregate of
667,000 shares of
CTI Common Stock; and (d) other commitments to issue an
aggregate of 483,333
shares of CTI Common Stock.
Section 4.09 Absence of Certain Changes or Events. Except
as set forth
in this Agreement or in the CTI Schedules, since the date of
the most recent
CTI balance sheet described in section 4.05 and included in
the CTI
Schedules:
(a) There has not been (i) any material adverse change in
the business,
operations, assets, or condition of CTI or NewCo or (ii) any
damage,
destruction, or loss to CTI or NewCo (whether or not covered
by insurance)
materially and adversely affecting the business, operations,
assets, or
condition of CTI or NewCo;
(b) CTI and NewCo have not (i) amended their articles of
incorporation or
bylaws; (ii) declared or made, or agreed to declare or make,
any payment of
dividends or distributions of any assets of any kind
whatsoever to
stockholders or purchased or redeemed, or agreed to purchase
or redeem, any of
their capital stock; (iii) waived any rights of value which
in the aggregate
are extraordinary or material; (iv) made any change in its
method of
management, operation, or accounting which is material to
CTI or NewCo; (v)
entered into any other transaction which is material to CTI
or NewCo; (vi)
made any accrual or arrangement for or payment of bonuses or
special
compensation of any kind or any severance or termination pay
to any present or
former officer, employee, or shareholder of CTI; (vii)
increased the rate of
compensation payable or to become payable by it to any of
their officers or
directors or any of their employees; or (viii) entered into
any or made any
increase in any profit sharing, bonus, deferred
compensation, insurance,
pension, retirement, or other employee benefit plan,
payment, or arrangement
made to, for, or with their respective officers, directors,
or employees;
(c) CTI and NewCo have not (i) granted or agreed to grant
any options,
warrants, or other rights for their respective stocks,
bonds, or other
corporate securities calling for the issuance thereof; (ii)
borrowed or agreed
to borrow any funds or incurred, or become subject to, any
material obligation
or liability (absolute or contingent), except liabilities
incurred in the
ordinary course of business; (iii) paid any material
obligation or liability
(absolute or contingent) other than current liabilities
reflected in or shown
on the most recent CTI balance sheet and current liabilities
incurred since
that date in the ordinary course of business; (iv) sold or
transferred, or
agreed to sell or transfer, any of their respective assets,
properties, or
rights (except assets, properties, or rights not used or
useful in its
business which, in the aggregate have a value of less than
$10,000 or assets,
properties, or rights disposed of in the ordinary course of
business); (v)
made or permitted any amendment or termination of any
contract, agreement, or
license to which they are a party if such amendment or
termination is
material, considering the business of CTI and NewCo; or (vi)
issued,
delivered, or agreed to issue or deliver any stock, bonds,
or other corporate
securities including debentures (whether authorized and
unissued or held as
treasury stock); and
(d) To the best knowledge of CTI and NewCo, CTI and NewCo
have not become
subject to any law or regulation which materially and
adversely affects, or in
the future may materially and adversely affect, the
business, operations,
properties, assets, or financial condition of CTI or NewCo.
Section 4.10 Litigation and Proceedings. There are no
actions, suits, or
proceedings pending or, to the best knowledge of CTI or
NewCo, threatened by
or against CTI or NewCo or affecting them or their
properties, at law or in
equity, before any court or other governmental agency or
instrumentality,
domestic or foreign, or before any arbitrator of any kind.
Neither CTI nor
NewCo has any knowledge of any material default on its part
with respect to
any judgment, order, writ, injunction, decree, award, rule,
or regulation of
any court, arbitrator, or governmental agency or
instrumentality.
Section 4.11 No Conflict With Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust, or other material contract, agreement, or
instrument to which CTI or
NewCo is a party or to which any of their properties or
operations are subject
which would have a material adverse affect on CTI or NewCo.
Section 4.12 Material Contract Defaults. CTI and NewCo
are not in
default in any material respect under the terms of any
outstanding contract,
agreement, lease, or other commitment which is material to
the business,
operations, properties, assets, or condition of CTI or
NewCo, and there is no
event of default or other event which, with notice or lapse
of time or both,
would constitute a default in any material respect under any
such contract,
agreement, lease, or other commitment in respect of which
CTI or NewCo has not
taken adequate steps to prevent such a default from
occurring.
Section 4.13 Governmental Authorizations. Except as set
forth in the CTI
Schedules, to the best knowledge of CTI and NewCo, they have
all licenses,
franchises, permits, and other governmental authorizations
that are legally
required to enable them to conduct their business in all
material respects as
conducted on the date hereof or as presently contemplated.
Except for
compliance with federal and state securities and corporation
laws, as
hereinafter provided, to the best of their knowledge, no
authorization,
approval, consent, or order of, or registration,
declaration, or filing with,
any court or other governmental body is required in
connection with the
execution and delivery by CTI or NewCo of this Agreement and
the consummation
by CTI and NewCo of the transactions contemplated hereby.
Section 4.14 Compliance With Laws and Regulations. CTI
and NewCo have
complied with all applicable statutes and regulations of any
federal, state,
or other governmental entity or agency thereof, except to
the extent that
noncompliance would not materially and adversely affect the
business,
operations, properties, assets, or condition of CTI or NewCo
or except to the
extent that noncompliance would not result in the incurrence
of any material
liability for CTI or NewCo. Included in the CTI Schedules
is a copy of each
letter of inquiry, review, or investigation or other writing
from or to any
governmental authority subsequent to December 31, 1991,
evidencing a violation
or possible or alleged violation of any of the foregoing.
Section 4.15 Labor Agreements and Actions. CTI and NewCo
are not bound
by or subject to (and none of their assets or properties are
bound by or
subject to) any written or oral, express or implied,
contract, commitment, or
arrangement with any labor union, and no labor union has
requested or, to the
best knowledge of CTI or NewCo, has sought to represent any
of the employees,
representatives, or agents of CTI or NewCo. There is no
strike or other labor
dispute involving CTI or NewCo pending, or to the best
knowledge of CTI or
NewCo threatened, which could have a material adverse effect
on the assets,
properties, financial condition, operating results, or
business of CTI or
NewCo (as such business is presently conducted and as it is
proposed to be
conducted), nor is CTI or NewCo aware of any labor
organization activity
involving its employees. CTI and NewCo are not aware that
any officer or key
employee, or that any group of key employees, intends to
terminate their
employment with CTI or NewCo, nor does CTI or NewCo have a
present intention
to terminate the employment of any of the foregoing. Except
as set forth in
the CTI Schedules, the employment of each officer and
employee of CTI and
NewCo is terminable at the will of CTI or NewCo.
Section 4.16 Pension Reform Act of 1974. Neither CTI nor
NewCo have any
unfunded pension liability to the Pension Benefit Guaranty
Corporation or any
other person or entity in connection with any retirement,
pension plan, or
similar arrangement.
Section 4.17 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no
information that would
give CTI or NewCo current actual knowledge of the inaccuracy
of any statements
has come to the attention of CTI or NewCo and/or their
directors and officers;
however, no special or independent investigation has been
undertaken to
determine the accuracy of such statements.
(ii) "Environment" shall mean soil, surface waters,
groundwaters, land,
stream sediments, surface or subsurface strata, ambient air,
and any
environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law,
regulation, rule, ordinance, or bylaw at the federal, state,
or local level
existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance,
hazardous waste, hazardous material, hazardous substance, or
oil as currently
defined in the Resource Conservation and Recovery Act, as
amended; the
Comprehensive Environmental Response, Compensation, and
Liability Act, as
amended; the Federal Clean Water Act, as amended; or any
other federal, state,
or local environmental law, regulation, ordinance, rule, or
bylaw, existing as
of the date hereof.
(v) "Permit" shall mean environmental permit, license,
approval, consent, or
authorization issued by a federal, state, or local
governmental entity.
(vi) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring,
emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or
dumping into the Environment.
(vii) "Threat of Release" shall mean a substantial
likelihood of a Release
which requires action to prevent or mitigate damage to the
environment which
may result from such Release.
(b) To CTI's and NewCo's Current Actual Knowledge, neither
CTI nor NewCo has
any material liability under any Environmental Law
applicable to their
operations.
(c) Neither CTI nor NewCo has violated and both are in
compliance with all
Environmental Laws applicable to their operations.
(d) Neither CTI nor NewCo have:
(i) Entered into or been subject to any consent decree,
compliance, order,
or administrative order with respect to its properties or
any facilities or
operations thereon;
(ii) Received written notice under the citizen suit
provision of any
violation of any Environmental Law in connection with its
properties or any
facilities or operations thereon;
(iii) Received any written request for information,
notice, demand letter,
administrative inquiry, or claim with respect to a violation
of any
Environmental Law relating to their properties or any
facilities or operations
thereon; or
(iv) Been subject to or threatened in writing with any
governmental or
citizen enforcement action with respect to a violation of
any Environmental
Law on its properties or at any facilities or operations
thereon.
Section 4.18 Intellectual Property. NewCo owns no
intellectual property.
Except as listed in the CTI Schedules, CTI owns the entire
right, title, and
interest in and to the PracticeCare practice management
software, the MCare
managed car software, the Carepoint for Clinics patient
records system,
certain physician credentialing software, the CUSA System
and Reliance credit
union management software, the ComputerEase equipment rental
company
management software, and other software solutions for the
medical, credit
union, and equipment rental industries and to all of the
trade secret,
technology, know-how, tradenames, trademarks, servicemarks,
and other
proprietary information owned by or used in connection to
the business of CTI,
including all copyrights, patents, patent applications,
registrations, and
applications with respect thereto (collectively, the
"Intellectual Property").
Section 4.19 CTI Schedules. CTI has delivered to
Solutions and
Shareholder the following schedules, which are collectively
referred to as the
"CTI Schedules" and which consist of separate schedules
dated as of the date
of execution of this Agreement and updated through the date
of Closing, and
instruments and data as of such date, or the date indicated
on such schedules,
all certified by the chief executive officer of CTI as
complete, true, and
accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of CTI and NewCo in effect as of the date of this Agreement,
as referred to in
section 34.01;
(b) A schedule containing copies of resolutions adopted by
the boards of
directors of CTI and NewCo approving this Agreement and the
transactions
herein contemplated as referred to in section 4.02;
(c) A schedule containing the annual report of CTI on form
10-KSB for the
year ended June 30, 1995, and the quarterly report on form
10-QSB for the
quarter ended September 30, 1995;
(d) A schedule setting forth a description of any material
change in the
business, operations, assets, or condition of CTI or NewCo
since December 31,
1994, required to be provided pursuant to section 4.09
hereof; and
(e) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the CTI Schedules by
sections 4.01 through 4.18.
ARTICLE VI
PLAN OF REORGANIZATION
Section 5.01 Terms of the Reorganization. The
consideration for the
reorganization as contemplated herein and the acquisition of
Solutions as a
wholly-owned subsidiary of CTI, subject to all of the terms,
covenants, and
conditions set forth in this Agreement, shall be exchange of
250,000 shares of
restricted common stock of CTI for all of the issued and
outstanding shares of
Solutions.
Section 5.02 The Merger. The articles of merger and plan
of merger shall
provide for the mergers of Solutions with and into NewCo,
with NewCo as the
surviving entity. The merger shall result in the following:
(a) The Solutions Stock shall be converted into an
aggregate of 50,000
shares of CTI Common Stock. The shares of CTI Common Stock
to be issued shall
not be registered under the Securities Act or applicable
state securities laws
and the certificates representing such shares shall contain
the legend set
forth in section 6.07.
(b) Upon the Effective Date of the merger, the Shareholder
shall, on the
surrender of the certificate or certificates representing
the Solutions Stock,
receive a certificate or certificates evidencing shares of
the Exchanged CTI
Stock as provided herein.
(c) On the Effective Date of the merger, the Solutions
Stock shall be
canceled, and all rights in respect thereof shall cease.
(d) On the Effective Date of the Merger, the issued and
outstanding stock of
NewCo, the surviving corporation, shall remain issued and
outstanding and
owned by CTI. NewCo shall continue as a wholly-owned
subsidiary of CTI and
the successor to the assets, liabilities, and business of
Solutions. NewCo
shall do business as "New Advanced Solutions of Nevada,
Inc." immediately
subsequent to the merger.
Section 5.03 Tax Obligations. The Shareholder shall be
solely
responsible for any tax due from the Shareholder with
respect to the receipt
by the Shareholder of the consideration set forth in section
5.01 of this
Agreement.
Section 5.04 Closing Events. At the Closing,
(a) NewCo and Solutions shall execute and deliver multiple
copies of the
articles of merger and related plan of merger in the forms
attached hereto as
Exhibit "C" and incorporated herein by reference and all
other documents
necessary to effectuate the merger herein contemplated, all
in such form as
shall be acceptable to the parties hereto and their
respective legal counsel
and shall file such articles of merger and related plan of
merger with various
states;
(b) Each of the respective parties hereto shall execute,
acknowledge, and
deliver (or shall cause to be executed, acknowledged, and
delivered) any and
all articles of merger, plans of merger, certificates,
financial statements,
schedules, agreements, resolutions, or other instruments
required by this
Agreement to be so delivered at or prior to the Closing
together with such
other items as may be reasonably requested by the parties
hereto and their
respective legal counsel in order to effectuate or evidence
the transactions
contemplated hereby; and
(c) In addition to the foregoing, each of the parties shall
execute and
deliver such additional documents as may reasonably be
required in order to
effectuate the transactions herein contemplated in
accordance with the
requirements of the Code and shall treat such transactions
for all tax
purposes consistently with the other parties' treatment
thereof and with such
characterization as a reorganization under Code sections
368(a)(1)(A) and
368(a)(2)(D).
Section 5.05 Effective Date. For corporate law purposes,
the Effective
Date of the merger shall be the date, as defined in the
articles of merger or
plan of merger, on which the merger of Solutions with and
into NewCo shall
become effective in accordance with the laws of the states
of Nevada. To the
extent permitted by GAAP, the effective date for financial
reporting purposes
shall be January 1, 1996.
Section 5.06 Effect of Merger. On the Effective Date of
the merger,
NewCo and Solutions shall cease to exist separately, and
Solutions shall be
merged with and into NewCo, the surviving corporation, in
accordance with the
provisions of this Agreement, the articles of merger, and
the plan of merger,
and in accordance with the provisions of and with the effect
provided in the
corporation laws of the state of Nevada. NewCo, as the
surviving corporation,
shall possess all the rights, privileges, franchises, and
trust and fiduciary
duties, powers, and obligations, of a private as well as of
a public nature,
and be subject to all the restrictions, obligations, and
duties of each of
NewCo and Solutions; all property, real, personal, and
mixed, and all debts
due to either of NewCo or Solutions on whatever account and
all other things
belonging to each of NewCo and Solutions and all property,
rights, privileges,
powers, and franchises, and all and every other interest
shall be thereafter
the property of NewCo as they were of NewCo and Solutions;
the title to any
real estate, whether vested by deed or otherwise, in either
NewCo or Solutions
shall not revert or be in any way impaired by reason of the
merger; provided,
however, that all rights of creditors and all liens on any
property of either
NewCo or Solutions shall be preserved unimpaired, and all
debts, liabilities,
and duties of NewCo and Solutions shall thenceforth attach
to NewCo and may be
enforced against it to the same extent as if such debts,
liabilities, and
duties had been incurred or contracted by NewCo.
Section 5.07 Termination of Merger.
(a) This Agreement and the merger contemplated hereby may
be terminated at
any time prior to the Effective Date by the consent of the
Shareholder and by
both CTI and Solutions through action of their respective
boards of directors.
In the event of termination pursuant to this paragraph (a)
of section 54.07,
no obligation, right, remedy, or liability shall arise
hereunder, and the
parties shall bear their own costs incurred in connection
with the preparation
and execution of this Agreement, the preparation and review
of financial
statements required to be delivered pursuant hereto, and the
negotiation of
the transactions contemplated hereby.
(b) This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of CTI's board of directors if
Solutions shall fail
to comply in any material respect with any of its covenants
or agreements
contained in this Agreement or if any of the representations
or warranties of
Solutions contained herein shall be inaccurate in any
material respect. In
the event of termination pursuant to this paragraph (b) of
section 54.07,
Solutions shall reimburse CTI for its costs and obligations
with respect to
the negotiation and documentation of this Agreement and the
transactions
contemplated hereby.
(c) This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of Solutions board of directors if
CTI or NewCo shall
fail to comply in any material respect with any of their
covenants or
agreements contained in this Agreement or if any of the
representations or
warranties of CTI or NewCo contained herein shall be
inaccurate in any
material respect. In the event of termination pursuant to
this paragraph (c)
of section 54.07, CTI shall reimburse Solutions for its
costs and obligations
with respect to the negotiation and documentation of this
Agreement and the
transactions contemplated hereby.
Section 5.08. Transaction for California Shares.
Concurrently with the
completion of the merger transaction described above,
Shareholder shall sell
to CTI all of the shares of California held by Shareholder,
representing 40%
of the issued and outstanding stock of California, in
exchange for a special
one time payment equal to the greater of 6% of the first
$600,000 of total net
revenue of the business of Solutions, California and the
business of the
Shareholder d/b/a Automated Systems of Arizona actually
collected for the
months of November and December 1995 or $6,000 plus 7% of
the total net
revenue actually collected for the months of November and
December 1995 in
excess of $600,000.
Section 5.09 Post-Closing Covenants of CTI and NewCo.
Subsequent to the
Closing of the transactions contemplated by this Agreement,
CTI and NewCo,
jointly and severally, covenant to do as follows:
(a) CTI and NewCo shall take all actions necessary or
reasonably requested
by the Shareholder to enable the Shareholder to sell the
Exchanged CTI Stock
without registration under the Securities Act within the
limitation of the
exemption provided by Rule 144 under the Securities Act, as
such rule may be
amended from time to time, and any similar rules or
regulations hereafter
adopted by the SEC, including, without limiting the
generality of the
foregoing, filing on a timely basis all reports required to
be filed by the
Exchange Act (or, if CTI is not required to file such
reports, making publicly
available, at the request of the Shareholder, other
information necessary to
enable the Shareholder to sell the Exchanged CTI Stock
pursuant to such rule).
Upon the request of the Shareholder, CTI will deliver to
the Shareholder a
written statement as to whether it has complied with such
requirements.
ARTICLE VI
THE ACQUISITION OF THE EXCHANGED CTI
STOCK
Section 6.01 Sale of Securities. The consummation of this
Agreement and
the issuance of the Exchanged CTI Stock as contemplated
herein, constitutes
the offer and sale of securities as those terms are defined
under the
Securities Act and applicable state statutes. Such
transactions shall be
consummated in reliance on certain exemptions from the
registration
requirements of the Securities Act and applicable state
statutes which depend,
among other items, on the circumstances under which such
securities are
acquired.
Section 6.02 Representations by the Shareholder. In order
to provide
documentation for reliance upon such exemptions, the
approval by Solutions and
the Shareholder of this Agreement and the transactions
contemplated hereby
shall constitute the parties' acceptance of, and concurrence
in, the following
representations and warranties:
(a) Solutions and the Shareholder acknowledge that neither
the Securities
Exchange Commission nor the securities commission of any
state or other
federal agency has made any determination as to the merits
of acquiring the
Exchanged CTI Stock, and that the acquisition and ownership
of the Exchanged
CTI Stock involves certain risks.
(b) Solutions and the Shareholder have received and read
this Agreement and
the annual report of CTI on form 10-K for the year ended
June 30, 1995, the
quarterly report on form 10-Q for the quarter ended
September 30, 1995, and
understand the risks related to the consummation of the
transactions herein
contemplated. Solutions and the Shareholder have been given
an opportunity to
meet with and ask questions of management of CTI concerning
the business,
operations, and assets of CTI and the transactions
contemplated by this
Agreement.
(c) The Shareholder have such knowledge and experience in
business and
financial matters that they are capable of evaluating CTI
and its business
operations.
(d) The Shareholder are acquiring the Exchanged CTI Stock
for their own
account and not with a view for resale to others.
Section 6.03 Investment Intent. The Shareholder have not
offered or sold
any securities of CTI or interest in this Agreement and have
no present
intention of dividing the Exchanged CTI Stock to be received
or the rights
under this Agreement with others or of reselling or
otherwise disposing of any
portion of such stock or rights, either currently or after
the passage of a
fixed or determinable period of time or on the occurrence or
nonoccurrence of
any predetermined event or circumstance.
Section 6.04 No Public Solicitation. Solutions and the
Shareholder were
at no time solicited by any leaflet, public promotional
meeting, circular,
newspaper or magazine article, radio or television
advertisement, or any other
form of general advertising or solicitation in connection
with the offer,
sale, or purchase of the Exchanged CTI Stock through this
Agreement.
Section 6.05 Ability to Bear Risk of Investment. The
Shareholder has
adequate means of providing for their current needs and
possible contingencies
and have no need now, and anticipate no need in the
foreseeable future, to
sell the Exchanged CTI Stock. The Shareholder are able to
bear the economic
risks of this investment, and consequently, without limiting
the generality of
the foregoing, are able to hold the Exchanged CTI Stock to
be received for an
indefinite period of time and have a sufficient net worth to
sustain a loss of
the entire investment, in the event such loss should occur.
Section 6.06 No Registration. The Shareholder understands
that the
Exchanged CTI Stock has not been registered, but is being
acquired by reason
of a specific exemption under the Securities Act as well as
under certain
state statutes for transactions by an issuer not involving
any public offering
and that any disposition of the subject Exchanged CTI Stock
may, under certain
circumstances, be inconsistent with this exemption and may
make the
Shareholder "underwriters" within the meaning of the
Securities Act. It is
understood that the definition of "underwriter" focuses upon
the concept of
"distribution" and that any subsequent disposition of the
subject Exchanged
CTI Stock can only be effected in transactions which are not
considered
synonymous with "public offering" or any other offer or sale
involving general
solicitation or general advertising. Under present law, in
determining
whether a distribution occurs when securities are sold into
the public market,
under certain circumstances one must consider the
availability of public
information regarding the issuer, a holding period for the
securities
sufficient to assure that the persons desiring to sell the
securities without
registration first bear the economic risk of their
investment, and a
limitation on the number of securities which the shareholder
is permitted to
sell and on the manner of sale, thereby reducing the
potential impact of the
sale on the trading markets. These criteria are set forth
specifically in
rule 144 promulgated under the Securities Act, and, after
two years after the
date the Exchanged CTI Stock is fully paid for, as
calculated in accordance
with rule 144(d), sales of securities in reliance upon rule
144 can only be
made in limited amounts in accordance with the terms and
conditions of that
rule. After three years from the date the securities are
fully paid for, as
calculated in accordance with rule 144(d), they can
generally be sold without
meeting those conditions, provided the holder is not (and
has not been for the
preceding three months) an affiliate of the issuer.
Section 6.07 Restrictions on Transfer. The Shareholder
acknowledges that
the shares of Exchanged CTI Stock must be held and may not
be sold,
transferred, or otherwise disposed of for value unless they
are subsequently
registered under the Securities Act or an exemption from
such registration is
available. CTI is under no obligation to register the
Exchanged CTI Stock
under the Securities Act, except as may be expressly agreed
to by it in
writing. If rule 144 is available (and no assurance is
given that it will be,
except as provided in section 5.09 of this Agreement, after
two years and
prior to three years following the date the shares are fully
paid for, only
sales of such Exchanged CTI Stock in limited amounts can be
made in reliance
upon rule 144 in accordance with the terms and conditions of
that rule. CTI
is under no obligation to the undersigned to make rule 144
available, except
as may be expressly agreed to by it in writing in this
Agreement, and in the
event rule 144 is not available, compliance with regulation
A or some other
disclosure exemption may be required before the Shareholder
can sell,
transfer, or otherwise dispose of such Exchanged CTI Stock
without
registration under the Securities Act. CTI's registrar and
transfer agent
will maintain a stop transfer order against the registration
of transfer of
the Exchanged CTI Stock, and the certificate representing
the Exchanged CTI
Stock will bear a legend in substantially the following form
so restricting
the sale of such securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND
ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED
UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED
FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLYING WITH
RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE
UNDER THE SECURITIES ACT.
Section 6.08 Stop Order. CTI may refuse to register
transfer of the
Exchanged CTI Stock in the absence of compliance with rule
144 unless the
Shareholder furnish the issuer with an opinion of counsel
reasonably
acceptable to CTI stating that the transfer is permitted
under applicable law.
Section 6.09 Additional Documentation. In order to more
fully document
reliance on the exemptions as provided herein, the
Shareholder agree to
execute and deliver to CTI such further letters of
representation,
acknowledgment, suitability, or the like, as CTI and its
counsel may
reasonably request in connection with reliance on exemptions
from registration
under such securities laws.
Section 6.10 No Legal Opinion. Solutions, the
Shareholder, and CTI
acknowledge that the basis for relying on exemptions from
registration or
qualifications are factual, depending on the conduct of the
various parties,
and that no legal opinion or other assurance will be
required or given to the
effect that the transactions contemplated hereby are in fact
exempt from
registration or qualification.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF CTI
AND NEWCO
The obligations of CTI and NewCo under this Agreement are
subject to the
satisfaction, at or before the Closing Date, of the
following conditions:
Section 7.01 Accuracy of Representations. The
representations and
warranties made by Solutions in this Agreement shall be true
as of the
Closing, and Solutions shall have performed or complied with
all material
covenants and conditions required by this Agreement to be
performed or
complied with by Solutions prior to or at the Closing. CTI
and NewCo shall be
furnished with certificates, signed by the chief executive
officer of
Solutions and dated the Closing Date, to the foregoing
effect.
Section 7.02 Officer's Certificate. CTI and NewCo shall
have been
furnished with a certificate dated the Closing Date and
signed by the duly
authorized chief executive officer of Solutions to the
effect that:
(a) This Agreement has been duly approved by Solutions
board of directors
and stockholders and has been duly executed and delivered in
the name and on
behalf of Solutions by its duly authorized officers pursuant
to, and in
compliance with, authority granted by Solutions board of
directors;
(b) The representations and warranties of Solutions set
forth in this
Agreement are true and correct as of the date of the
certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the Solutions Schedules in the financial
condition,
business, or operations of Solutions nor has any event
occurred which, with
the lapse of time or giving of notice, may cause or create
any material
adverse change in the financial condition, business, or
operations of
Solutions up to and including the date of the certificate,
except as
authorized by this Agreement;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by Solutions and have been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of Solutions, pursuant to any mortgage,
resolution, agreement,
or instrument to which Solutions is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by Solutions and have been obtained and are in
full force and effect
or, if not required to have been obtained will be in full
force and effect by
such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law
or in equity by any public board or body pending or
threatened in writing
against Solutions, wherein an unfavorable decision, ruling,
or finding would
have a material adverse effect on the financial condition of
Solutions, the
operations or business of Solutions, the acquisition and
reorganization
contemplated herein, or any material agreement or instrument
by which
Solutions is bound or would in any way contest the existence
of Solutions.
Section 7.03 Employment Agreements With Howard B. Jones
III. CTI and
NewCo shall have entered into Employment Agreements with
Howard B. Jones III.
Section 7.04 Options. 20,000 options or 85% of fair
market value to be
distributed among Solutions employees.
Section 7.05 Good Standing. CTI and NewCo shall have
received a
certificate of good standing with respect to Solutions,
dated as of a date
within ten days prior to the Closing Date, certifying that
Solutions is in
good standing.
Section 7.06 UCC Certificate. CTI and NewCo shall have
received
certificates dated as of a date within five days of the
Closing Date to the
effect that there are no encumbrances of record on the
assets of Solutions,
other than those disclosed in the Solutions Schedules.
Section 7.07 Other Items. CTI shall have received such
further
documents, certificates, or instruments relating to the
transactions
contemplated hereby as CTI may reasonably request.
Section 7.08 Jordan Payment. CTI has paid the obligation
to Tom Jordan
and related entities.
Section 7.09 Dissenters. Arrangements have been made to
deliver shares
or comply with any dissenters' rights exercised by the other
shareholders of
Solutions.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
SOLUTIONS, AND CALIFORNIA
AND THE SHAREHOLDER
The obligations of Solutions and the Shareholder under this
Agreement are
subject to the satisfaction, at or before the Closing Date,
of the following
conditions:
Section 8.01 Accuracy of Representations. The
representations and
warranties made by CTI and NewCo in this Agreement shall be
true as of the
Closing and CTI and NewCo shall have performed and complied
with all material
covenants and conditions required by this Agreement to be
performed or
complied with by CTI and NewCo prior to or at the Closing.
Solutions shall
have been furnished with a certificate, signed by the duly
authorized chief
executive and principal financial or accounting officer or
officers of CTI and
NewCo and dated the Closing Date, to the foregoing effect.
Section 8.02 Officer's Certificate. Solutions and the
Shareholder shall
have been furnished with certificates dated the Closing Date
and signed by the
duly authorized officer or officers of CTI and NewCo to the
effect that:
(a) This Agreement has been duly approved by CTI's and
NewCo's boards of
directors and has been duly executed and delivered in the
name and on behalf
of CTI and NewCo by duly authorized officers pursuant to,
and in compliance
with, authority granted by CTI's and NewCo's boards of
directors;
(b) The representations and warranties of CTI and NewCo set
forth in this
Agreement are true and correct as of the date of the
certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the CTI Schedules in the financial
condition, business, or
operations of CTI and NewCo nor has any event occurred
which, with the lapse
of time or giving of notice, may cause or create any
material adverse change
in the financial condition, business, or operations of CTI
and NewCo, up to
and including the date of the certificate;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by CTI and NewCo have been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of CTI and NewCo, pursuant to any mortgage,
resolution,
agreement, or instrument to which CTI and NewCo is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by CTI and NewCo have been obtained and are in
full force and effect
or, if not required to have been obtained, will be in full
force and effect by
such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law
or in equity by any public board or body pending or
threatened in writing
against CTI and NewCo, wherein an unfavorable decision,
ruling, or finding
would have a material adverse effect on the financial
condition or operation
of CTI or NewCo, or the acquisition and reorganization
contemplated herein, or
any material agreement or instrument by which CTI or NewCo
is bound or would
in any way contest the existence of CTI or NewCo.
Section 8.03 Good Standing. Solutions and the Shareholder
shall have
received a certificate of good standing from the Secretary
of State of Nevada
with respect to CTI and NewCo, dated as of a date within ten
days prior to the
date of this Agreement, certifying that CTI is in good
standing as a
corporation in the state of Nevada and NewCo is in good
standing as a
corporation in the state of Nevada.
Section 8.04 Jordan Payment. CTI has paid the obligation
to Tom Jordan
and related entities.
Section 8.05 Dissenters. Arrangements have been made to
deliver shares
or comply with any dissenters' rights exercised by the other
shareholders of
Solutions.
Section 8.06 Other Items. Solutions and the Shareholder
shall have
received such further documents, certificates, or
instruments relating to the
transactions contemplated hereby as Solutions and the
Shareholder may
reasonably request.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Brokers. CTI and Solutions agree that there
were no finders
or brokers involved in bringing the parties together or who
were instrumental
in the negotiation, execution, or consummation of this
Agreement. Further,
CTI and Solutions each agree to indemnify the other against
any claim by any
third person for any commission, brokerage, or finder's fee
or other payment
with respect to this Agreement or the transactions
contemplated hereby based
on any alleged agreement or understanding between such party
and such third
person, whether express or implied, resulting from the
actions of such party.
The covenants set forth in this section 9.01 shall survive
the Closing and
the consummation of the transactions herein contemplated.
Section 9.02 Indemnification by the Shareholder. The
Shareholder agrees
to indemnify and hold harmless CTI and NewCo each of their
respective
directors and officers, and each person, if any, who
controls CTI or NewCo
within the meaning of the Securities Act, from and against
any and all losses,
claims, damages, expenses, liabilities, or actions and will
reimburse them for
any legal or other expenses reasonably incurred by them in
connection with
investigating or defending any claims or actions, resulting
in liability,
insofar as such losses, claims, damages, expenses,
liabilities, or actions
arise out of or are based upon any breach of any
representation, warranty,
covenant, or agreement in this Agreement by the Shareholder
or Solutions. The
indemnity agreement contained in this section 9.02 shall
remain operative and
in full force and effect, regardless of any investigation
made by or on behalf
of CTI and shall survive the consummation of the
transactions contemplated by
this Agreement for a period of three (3) years after the
Closing Date. The
Shareholder shall only be liable for any indemnity provided
under this section
109.02 related to loss in excess of $25,000 (in the
aggregate) and up to a
maximum equal to the consideration received by the
Shareholder under Article
VI hereof (in the aggregate).
Section 9.03 Indemnification by CTI. CTI agrees to
indemnify and hold
harmless the Shareholder from and against any and all
losses, claims, damages,
expenses, liabilities, or actions and will reimburse them
for any legal or
other expenses reasonably incurred by them in connection
with investigating or
defending any claims or actions, resulting in liability,
insofar as such
losses, claims, damages, expenses, liabilities, or actions
arise out of or are
based upon any breach of any representation, warranty,
covenant, or agreement
in this Agreement by CTI or NewCo. The indemnity agreement
contained in this
section 109.03 shall remain operative and in full force and
effect, regardless
of any investigation made by or on behalf of the Shareholder
and shall survive
the consummation of the transactions contemplated by this
Agreement for a
period of three (3) years after the Closing Date. CTI shall
only be liable
for any indemnity provided under this section 9.03 related
to loss in excess
of $25,000 (in the aggregate) and up to a maximum equal to
the consideration
received by the Shareholder under Article VI in the
aggregate.
Section 9.04 Tax Treatment. No representation or warranty
is being made
or legal opinion given by any party to any other regarding
the treatment of
this transaction for federal or state income taxation.
Except for the
acquisition of the shares of California, all parties intend
for the
transaction to be treated as a "tax-free" reorganization
under the provisions
of the Code and agree to take all corporate action
necessary, to file all tax
returns and reports, and prepare financial statements
consistent with the
treatment of the transaction as a reorganization under
sections 368(a)(1)(A)
and 368(a)(2)(D) of the Code. Although this transaction has
been structured
in an effort to qualify for treatment under sections
368(a)(1)(A) and
368(a)(2)(D) of the Code, there is no assurance that any
part of this
transaction in fact meets the requirements for such
qualification. Each party
has relied exclusively on its own legal, accounting, and
other tax advisers
regarding the treatment of this transaction for federal and
state income
taxes.
Section 9.05 Governing Law. This Agreement shall be
governed by,
enforced, and construed under and in accordance with the
laws of the United
States of America and, with respect to matters of state law,
with the laws of
the state of Nevada.
Section 9.06 Notices. Any notices or other communications
required or
permitted hereunder shall be in writing and shall be deemed
sufficiently given
if personally delivered, if sent by facsimile or telecopy
transmission or
other electronic communication confirmed by registered or
certified mail,
postage prepaid, or if sent by prepaid overnight courier
addressed as follows:
If to CTI or NewCo, to:
CTI Technologies, Inc.
New Advanced Solutions of Nevada, Inc.
Attention: Richard N. Beckstrand
986 West Atherton Drive
Salt Lake City, Utah 84123
Fax No. (801) 265-3224
Confirmation (801) 263-1840
With copies to:
Howard S. Landa, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax No. (801) 359-3954
Confirmation (801) 531-7090
If to Solutions:
4325 South Industrial Road, #340
Las Vegas, Nevada 89103
Fax No. (___) _______
Confirmation (___) _______
If to Shareholder:
4325 South Industrial Road, #340
Las Vegas, Nevada 89103
Fax No. (___) _______
Confirmation (___) _______
With copies to:
Lee A. Drizin
Raleigh, Hunt & McGarry
802 East Carson Avenue, Suite 1102
Las Vegas, Nevada 89101
Fax No. (702) 386-5990
Confirmation (804) 343-4373
or such other addresses as shall be furnished in writing by
any party in the
manner for giving notices hereunder, and any such notice or
communication
shall be deemed to have been given as of the date so
delivered or sent by
facsimile or telecopy transmission or other electronic
communication, or one
day after the date so sent by overnight courier.
Section 9.07 Attorneys' Fees. In the event that any party
institutes any
action or suit to enforce this Agreement or to secure relief
from any default
hereunder or breach hereof, the breaching party or parties
shall reimburse the
nonbreaching party or parties for all costs, including
reasonable attorneys'
fees, incurred in connection therewith and in enforcing or
collecting any
judgment rendered therein.
Section 9.08 Costs. Each of the parties shall bear its
respective costs
associated with this Agreement and the transactions
contemplated hereby,
including legal fees, accounting fees, and other costs and
expenses.
Section 9.09 Schedules; Knowledge. Whenever in any
section of this
Agreement reference is made to information set forth in the
CTI Schedules or
Solutions Schedules such reference is to information
specifically set forth in
such schedules and clearly referenced to identify the
section of this
Agreement to which the information relates. Whenever any
representation is
made to the "knowledge" of any party, it shall be deemed to
be a
representation that such officer or director has made a
reasonable
investigation of such matters.
Section 9.10 Third-Party Beneficiaries. This Agreement is
solely between
CTI and Solutions and the Shareholder, and no director,
officer, stockholder,
employee, agent, independent contractor, or any other person
or entity shall
be deemed to be a third party beneficiary of this Agreement.
Section 9.11 Entire Agreement. This Agreement, together
with the other
agreements entered into between the parties
contemporaneously with this
Agreement (this Agreement and such other documents
collectively referred to as
the "Transaction Documents"), represent the entire agreement
between the
parties relating to the subject matter hereof. All previous
agreements
between the parties, whether written or oral, have been
merged into the
Transaction Documents. The Transaction Documents fully and
completely express
the agreement of the parties relating to the subject matter
hereof. There are
no other courses of dealing, understandings, agreements,
representations, or
warranties, written or oral, except as set forth in the
Transaction Documents.
Section 9.12 Survival. The representations, warranties,
and covenants of
the respective parties shall survive the Closing of the
transactions
contemplated hereby.
Section 9.13 Counterparts. This Agreement may be executed
in multiple
counterparts, each of which shall be deemed an original and
all of which taken
together shall be but a single instrument.
Section 9.14 Amendment or Waiver. Every right and remedy
provided herein
shall be cumulative with every other right and remedy,
whether conferred
herein, at law, or in equity, and may be enforced
concurrently herewith, and
no waiver by any party of the performance of any obligation
by the other shall
be construed as a waiver of the same or any other default
then, theretofore,
or thereafter occurring or existing. This Agreement shall
only be amended by
a writing signed by all parties hereto, with respect to any
of the terms
contained herein, and any term or condition of this
Agreement may be waived or
the time for performance thereof may be extended by a
writing signed by the
party or parties for whose benefit the provision is
intended.
Section 9.15 Severability. If and to the extent that any
court of
competent jurisdiction holds any provision, or any part
thereof, of this
Agreement to be invalid or unenforceable, such holding shall
in no way affect
the validity of the remainder of this Agreement which shall
continue in full
force and effect.
Section 9.16 Successors and Assigns. This Agreement shall
insure to the
benefit of and be binding on the parties and their
successors, assigns, heirs,
executors, and administrators.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be
executed by their respective officers, hereunto duly
authorized, as of the
date first above written.
CTI:
CTI TECHNOLOGIES, INC.
By
Duly Authorized Officer
NEWCO:
NEW ADVANCED SOLUTIONS OF NEVADA, INC.
By
Duly Authorized Officer
SOLUTIONS:
AUTOMATED SOLUTIONS, INC.
By
Duly Authorized Officer
SHAREHOLDER:
HOWARD B. JONES, III
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter referred to
as the "Agreement")
is entered into this ___ day of February, 1996 by and among
CUSA
Technologies, Inc., a Nevada corporation ("CTI"), New Source
Computing, Inc.,
a Utah corporation ("NewCo"), Source Computing, Inc., an
Arizona corporation
("Source"), and Richard F. Brothers, Richard C. McKenna, and
Debbie F.
Mattingly (collectively, the "Shareholders") based on the
following:
PREMISES
A. CTI is a publicly-held corporation, involved, among
other things, in the
business of providing proprietary software systems to credit
unions and the
health care industry. Source is a privately-held
corporation that develops
and markets software systems for the health care industry.
B. The Shareholders own one hundred percent (100%) of the
issued and
outstanding stock of Source.
C. The parties have agreed that Source will be acquired as
a wholly-owned
subsidiary of CTI, on the terms and conditions set forth in
this Agreement.
D. The acquisition of Source by CTI shall be effected
through the merger of
Source with and into NewCo, a newly formed, wholly-owned
subsidiary of CTI,
with NewCo as the surviving entity. In connection with the
transaction, the
outstanding shares of common stock of Source will be
canceled in exchange for
shares of restricted common voting stock of CTI, cash, and a
note, all for the
purposes of accomplishing a "reorganization" pursuant to
Sections 368(a)(1)(A)
and 368 (a)(2)(D) of the Code. After consummation of the
transaction, NewCo
shall succeed to the business, assets, and liabilities of
Source and shall
thereafter continue business as a wholly-owned subsidiary of
CTI.
AGREEMENT
NOW, THEREFORE, based on the stated premises, and for and in
consideration of
the mutual covenants and agreements hereinafter set forth
and the mutual
benefits to the parties to be derived therefrom, it is
hereby agreed as
follows:
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the
meanings indicated:
Section 1.01 Agreement. This Agreement and Plan of
Merger, all Schedules
and Exhibits hereto and all amendments, modifications, and
supplements hereto.
Section 1.02 Closing. The consummation of the transactions
contemplated by
this Agreement.
Section 1.03 Closing Date. The date on which Closing
occurs.
Section 1.04 Code. The Internal Revenue Code of 1986, as
amended.
Section 1.05 CTI Common Stock. The authorized common
stock, par value $0.001
per share, of CTI.
Section 1.06 CTI Preferred Stock. The authorized
preferred stock, par value
$0.001 per share, of CTI.
Section 1.07 Effective Date. The date as set forth in the
closing memorandum
between the parties.
Section 1.08 Exchange Act. The Securities Exchange Act of
1934, as amended.
Section 1.09 Exchanged CTI Stock. The shares of CTI Common
Stock to be
issued and delivered by CTI to the Shareholders pursuant to
this Agreement.
Section 1.10 GAAP. Generally accepted accounting
principles, as in effect on
the Effective Date, applied on a consistent basis.
Section 1.11 SEC. The United States Securities and
Exchange Commission.
Section 1.12 Securities Act. The Securities Act of 1933,
as amended.
Section 1.13 Source Stock. The 1,255 shares of common
stock of Source, owned
by the shareholders, no par value, currently issued and
outstanding, which are
to be converted into shares of Exchanged CTI Stock pursuant
to the terms of
this Agreement.
Section 1.14 Shareholders. Richard F. Brothers, Richard C.
McKenna, and
Debbie F. Mattingly, who own one hundred percent (100%) of
the issued and
outstanding shares of Source Stock that will be converted
into shares of
Exchanged CTI Stock pursuant to the terms of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SOURCE
AND THE SHAREHOLDERS
As an inducement to, and to obtain the reliance of CTI and
NewCo, Source and
the Shareholders each represent and warrant that the
following are true to
the best of their knowledge:
Section 2.01. Organization. Source is a corporation duly
organized, validly
existing, and in good standing under the laws of the State
of Arizona and has
the corporate power to own all of its properties and assets
and to carry on
its business in all material respects as it is now being
conducted, and there
is no jurisdiction in which it is not qualified in which the
character and
location of the assets owned by it or the nature of the
business transacted by
it requires qualification, except where failure to do so
would not have a
material adverse effect on the business or properties of
Source. Included in
the Source Schedules (as hereinafter defined) are complete
and correct copies
of the articles of incorporation and bylaws of Source as in
effect on the date
hereof. The execution and delivery of this Agreement does
not, and the
consummation of the transactions contemplated by this
Agreement in accordance
with the terms hereof will not, violate any provision of
Source's articles of
incorporation or bylaws.
Section 2.02 Approval of Agreement. The board of directors
of Source and the
Shareholders have authorized the execution and delivery of
this Agreement by
Source and have approved the consummation of the
transactions contemplated
hereby. Included in the Source Schedules is a copy of the
resolutions duly
adopted by the board of directors of Source and the
Shareholders evidencing
such approval. Such consent has not been amended, modified,
rescinded or
superseded and remains in full force and effect. Source has
full power,
authority, and legal right, and has taken all action
required by law, its
articles of incorporation and bylaws, and otherwise, to
execute and deliver
this Agreement and to consummate the transactions
contemplated hereby.
Section 2.03 Authority of Shareholders. Each of the
Shareholders has the
right and authority, without the prior consent of any other
person or entity,
to enter into this Agreement and consummate the transactions
contemplated
hereby. There is no lien, encumbrance or claim by any third
person with
respect to the Source Stock owned by the Shareholders.
Section 2.04 Capitalization of Source. The entire
authorized capital stock
of Source consists of 100,000 shares of common stock, no par
value, of which
1,255 shares are validly issued and outstanding. All of
the issued and
outstanding Source Stock is owned by the Shareholders. No
shares of Source
Stock are reserved for issuance on the exercise of warrants
or the conversion
of other securities or the exercise of any other call,
commitment or right to
which Source or any of the Shareholders are a party or to
which any of them
are subject. All issued and outstanding shares have been
duly authorized and
validly issued, are fully paid, and nonassessable, and have
not been issued in
violation of any preemptive or other right of any person.
Section 2.05 Subsidiaries and Predecessor. Source has no
subsidiaries or any
predecessor corporation as that term is defined by GAAP.
Section 2.06 Financial Statements.
(a) Included in the Source Schedules are the unaudited
balance sheets of
Source as of January 31, 1995, 1994 and 1993, and the
related unaudited
statements of income and retained earnings for the years
then ended, together
with the accompanying notes, and the unaudited balance sheet
as of September
30, 1995, and the unaudited statements of income and
retained earnings for the
period then ended, together with the accompanying notes.
(b) Such financial statements have been prepared in
accordance with GAAP,
except as disclosed in the Source Schedules. Source did not
have, as of the
date of any of such balance sheets, except as and to the
extent reflected or
reserved against therein, any labilities or obligations
(absolute or
contingent) which should have been reflected in a combined
balance sheet
prepared in accordance with GAAP and all assets reflected
therein present
fairly the assets of Source, in accordance with GAAP. The
statements of
income fairly present the information required to be set
forth therein in
accordance with GAAP. Source maintains a standard system of
accounting
established and maintained in a manner permitting the
preparation of financial
statements in accordance with GAAP.
(c) The books and records of Source and its accounting
practices are
sufficient to permit the preparation of audited financial
statements for the
periods subsequent to January 31, 1993, in accordance with
GAAP and Regulation
S-B adopted under the Exchange Act. Source will maintain
and preserve its
books and records in such a fashion so as to permit the
preparation of
historical audited financial statements as may be required
by the Exchange Act
and the rules and regulations adopted thereunder. Source
and the Shareholders
will each cooperate fully and assist in the preparation of
any such financial
statements, at the cost of CTI.
(d) Source has filed all tax returns and all reports
required by law. All
such returns and reports are accurate and correct in all
material respects.
There are no income taxes currently due to the federal or
state governments
that have not been paid. Source does not have any
liabilities with respect to
the payment of any federal, state, county, local or other
taxes (including any
deficiencies, interest or penalties) accrued for or
applicable to the period
ended on the date of the most recent balance sheet included
in the Source
Schedules and all such dates and years and periods prior
thereto and for which
Source may at said date have been liable in its own right or
as transferee of
the assets of, or as a successor to, any other corporation
or other entity,
except for taxes accrued but not yet due and payable. None
of such federal
income returns have been audited or is currently being
audited by the Internal
Revenue Service. Source has not made any election pursuant
to the Code (other
than elections which relate solely to methods of accounting,
depreciation or
amortization) which would have a material adverse effect on
Source, its
financial conditions, its business as presently conducted or
as proposed to be
conducted or any of its properties or material assets.
There are no
outstanding agreements or waivers extending the statutory
period of
limitations applicable to any tax returns of Source.
(e) The books and records, financial and otherwise, of
Source are in all
material respects complete and correct and have been made
and maintained in
accordance with sound business and bookkeeping practices
and, in reasonable
detail, accurately and fairly reflect the transactions
involving the assets of
Source. Source has maintained a system of internal
accounting controls
sufficient to provide reasonable assurance that (i)
transactions have been and
are executed in accordance with management's general or
specific
authorization; (ii) transactions are recorded as necessary
to permit the
preparation of financial statements in conformity with GAAP
or any other
criteria applicable to such statements and to maintain
accountability for
assets; (iii) access to assets is permitted only in
accordance with
management's general or specific authorization; and (iv) the
recorded
accountability for assets is compared with the existing
assets at reasonable
intervals, and appropriate action is taken with respect to
any differences.
(f) Except as set forth in the Source Schedules, the latest
of the balance
sheets included in the Source Schedules or in the notes
thereto, Source (i)
has good and marketable title to its accounts receivable,
and other debts due
or recorded in the records and books of account of Source,
free of any
security interests or liens and free of any material
defenses, counterclaims,
and set-offs, and all of such accounts receivable, invoices,
and debts are
actual and bona fide amounts due Source for the total dollar
amount thereof
shown on the books of Source and resulted from the regular
course of business;
and (ii) the accounts receivable, invoices, and debts set
forth on the Source
balance sheets arose in the ordinary course of business and
are, net of any
reserves shown on the balance sheet, collectible in full in
all material
respects on the continuation of reasonable collection
efforts by Source or
successor personnel and without resorting to litigation and
in any event not
later than one hundred eighty (180) days after the date
billed.
Section 2.07 Information. The information concerning
Source set forth in
this Agreement and in the Source Schedules is accurate in
all material
respects and does not contain any untrue statement of a
material fact or omit
to state a material fact required to make the statements
made, in light of the
circumstances under which they were made, not misleading.
Section 2.08 Options or Warrants. There are no existing
warrants, calls,
commitments or other rights of any character relating to
authorized and
unissued Source Stock or other securities of Source.
Section 2.09 Absence of Certain Changes or Events. Except
as set forth in
this Agreement or in the Source Schedules, since the date of
the most recent
balance sheet included in the Source Schedules:
(a) There has not been (i) any material adverse change in
the business,
operation, assets or financial condition of Source; or (ii)
any damage,
destruction or loss to Source (whether or not covered by
insurance) materially
and adversely affecting the business, operations, assets or
financial
condition of Source;
(b) Source has not (i) amended its article of incorporation
or bylaws; (ii)
declared or made, or agreed to declare and make, any payment
of dividends or
distributions of any assets of any kind whatsoever to
shareholders or
purchased or redeemed, or agreed to purchase or redeem, any
of its capital
stock; (iii) waived any rights of value which in the
aggregate are
extraordinary or material considering the business of
Source; (iv) made any
material change in its method of management, operation or
accounting; (v)
entered into any other material transactions; (vi) made any
accrual or
arrangement for or payment of bonuses or special
compensation of any kind or
any severance or termination pay to any present or former
officer, employee or
shareholder; (vii) increased the rate of compensation
payable or to become
payable by it to any of its officers or directors or any of
its employees
whose monthly compensation exceeds Five Thousand Dollars
($5,000); or (viii)
made any increase in any profit sharing, bonus, deferred
compensation,
insurance, pension, retirement or other employee benefit
plan, payment or
arrangement made to, for, or with its officers, directors or
employees;
(c) Source has not (i) granted or agreed to grant any
options, warrants or
other rights for its stocks, bonds or other corporate
securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any
funds or incurred,
or become subject to, any material obligation or liability
(absolute or
contingent) except liabilities incurred in the ordinary
course of business;
(iii) paid any material obligation or liability (absolute or
contingent) other
than current liabilities; (iv) sold or transferred, or
agreed to sell or
transfer, any of its assets, properties or rights (except
assets, properties
or rights not used or useful in its business which, in the
aggregate have a
value of less than Five Thousand Dollars ($5,000) or assets,
properties or
rights disposed of in the ordinary course of business); (v)
made or permitted
any amendment or termination of any contract, agreement or
license to which it
is a party if such amendment or termination is material,
considering the
business of Source; or (vi) issued, delivered or agreed to
issue or deliver
any stock, bonds or other corporate securities including
debentures (whether
authorized and unissued or held as treasury stock); and
(d) Source has not become subject to any law or regulation
which materially
and adversely affects the business, operation, properties,
assets or financial
condition of Source.
Section 2.10 Title to Personal and Real Property.
(a) Except as disclosed in the most recent balance sheet
included in the
Source Schedules, Source has title to all of its properties,
inventory, know-
how, interests in properties, and assets, which are
reflected in such balance
sheet or acquired after that date (except those sold or
otherwise disposed of
since such date in the ordinary course of business) or are
used in Source's
business, free and clear of all material mortgages, security
interests,
royalties, liens, pledges, charges or encumbrances, except
(i) statutory liens
or claims not yet delinquent; (ii) such imperfections of
title and easements
as do not and will not materially detract from or interfere
with the present
or proposed use of the properties subject thereto or
affected thereby or
otherwise materially impair present business operations on
such properties;
and (iii) as described on the Source Schedules. All
personal property held by
Source is in a state of good maintenance and repair,
excepting reasonable wear
and tear, and is adequate and suitable for the purposes for
which it is
presently being used.
(b) Source does not own any real property in fee simple.
(c) Included in the Source Schedules is an accurate and
complete list of all
personal property owned by Source or used in its business
and having a
purchase price of over Five Thousand Dollars ($5,000),
together with a
description of any mortgages, financing instruments or other
encumbrances to
the title to such properties. Also included in the Source
Schedules are
copies of all leases for real and personal property to which
Source is a
party. Except as disclosed in the Source Schedules, each
such lease is in
full force and effect; all rents and additional fees due to
date on each such
lease have been paid; in each case, the lessee has been in
peaceable
possession since the commencement of the original term of
such lease and is
not in default thereunder and no waiver, indulgence of
postponement of the
lessee's obligations thereunder has been granted by the
lessor; and there
exists no event of default or event, occurrence, condition
or act, which, with
the giving of notice, the lapse of time or the happening of
any further event
or condition, would become a default under such lease, the
occurrence of which
would have a material adverse affect on Source. Except as
set forth in the
Source Schedules, Source has not violated any of the terms
or conditions under
any such lease in any material respect, and all of the
material covenants to
be performed by any other party under any such lease have
been fully
performed. The property leased by Source is in a state of
good maintenance
and repair, excepting reasonable wear and tear, and is
suitable for the
purposes for which it is presently being used.
Section 2.11 Intellectual Property. Source owns the entire
right, title and
interest in and to its proprietary intellectual property
listed in the Source
Schedules, including all of the trade secrets, technology,
know-how, trade
names, trademarks, service marks, copyrights, patents,
patent applications,
registrations, and applications with respect thereto, and
other proprietary
information owned or used in connection with its
business(collectively, the
("Intellectual Property"). Except as set forth in the
Source Schedules, such
Intellectual Property is not subject to the payment of
royalties or the
performance of any other obligation owed to any person or
entity. Neither the
Shareholders nor any other employee or former employee of
Source owns,
directly or indirectly, any right, title or interest in or
to the Intellectual
Property. None of the Intellectual Property is subject to
any material order,
decree, judgment, stipulation, settlement, encumbrance or
attachment. There
are no pending or threatened proceedings, litigation or
other adverse claims
of which Source is aware, affecting or with respect to the
Intellectual
Property. The Intellectual Property does not infringe on
the copyright,
patent, trade secret, know-how or other proprietary right of
any other person
or entity and comprises all such rights necessary to permit
the operation of
the business of Source as now being conducted and as
proposed to be conducted.
Section 2.12 Litigation and Proceedings. There are no
actions, suits or
proceedings pending or, to the knowledge of Source and the
Shareholders,
threatened by or against Source or affecting Source or its
properties, at law
or in equity, before any court or other governmental agency
or
instrumentality, domestic or foreign, or before any
arbitrator of any kind.
Source is not in material default with respect to any
judgment, order, writ,
injunction, decree, award, rule or regulation of any court,
arbitrator,
governmental agency or instrumentality.
Section 2.13 Contracts.
(a) Included in the Source Schedules is a description of
every contract,
agreement, distributorship, franchise, license or other
agreement, arrangement
or commitment to which Source is a party or by which its
assets or properties
are bound, which calls for the payment by Source of more
than Two Thousand
Dollars ($2,000) per month, or Twenty-Four Thousand Dollars
($24,000) in the
aggregate;
(b) Except as described in this Agreement or the Source
Schedules, Source is
not a party to or bound by, and the properties of Source are
not subject to,
any contract, agreement, other commitment or instrument or
other corporate
restriction or any judgment, order, writ, injunction, decree
or award which
materially and adversely affects, or in the future may (as
far as Source can
now reasonably foresee) materially and adversely affect, the
business
operations, properties, assets or financial condition of
Source; and
(c) Except as included or described in the Source Schedules
or reflected in
the most recent Source balance sheet, Source is not a party
to any oral or
written (i) contract for the employment of any officer,
director or employee,
whose compensation is greater than Five Thousand Dollars
($5,000) per month,
which is not terminable on thirty (30) days (or less)
notice; (ii) profit
sharing, bonus, deferred compensation, stock option,
severance pay, pension
benefit or retirement plan, agreement or arrangement covered
by Title IV of
the Employee Retirement Income Security Act, as amended;
(iii) agreement,
contract or indenture relating to the borrowing of money in
amounts greater
than One Thousand Dollars ($1,000) in the aggregate; (iv)
guarantee of any
obligation for the borrowing of money or otherwise,
excluding endorsements
made for collection and other guarantees of obligations,
which, in the
aggregate, do not exceed One Thousand Dollars ($1,000); (v)
consulting or
other similar contracts with an unexpired term of more than
one (1) year or
providing for payments in excess of One Thousand Dollars
($1,000) in the
aggregate; (vi) collective bargaining agreement; (vii)
agreement with any
present or former officer or director of Source whose
compensation was or is
greater that Five Thousand Dollars ($5,000) per month; or
(viii) other
contract, agreement or other commitment involving payments
by it in the future
of more than Ten Thousand Dollars ($10,000) in the aggregate
per agreement.
Section 2.14 Material Contract Defaults. Source is not in
default in any
material respect under the terms of any outstanding
contract, agreement, lease
or other commitment which is material to the business,
operations, properties,
assets or financial condition of Source, and there is no
event of default or
other event which, with notice or the lapse of time or both,
would constitute
a default in any material respect under any such contract,
agreement, lease or
other commitment in respect of which Source has not taken
adequate steps to
prevent such default occurring.
Section 2.15 Insurance Claims. During the last (3) three
years, Source has
not filed any claims for damages, whether or not covered by
insurance, for
amounts greater than Five Thousand Dollars ($5,000). Source
and the
Shareholders are not currently aware of any pending or
unasserted claims.
Section 2.16 No Conflict with Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust or other material contract, agreement or instrument
to which Source
is a party or to which any of its properties or operations
are subject, which
would have a material adverse affect on Source.
Section 2.17 Governmental Authorizations. Source has all
licenses,
franchises, permits, and other governmental authorizations
that are legally
required to enable it to conduct its business in all
material respects as
conducted on the date hereof or as presently contemplated.
Except for
compliance with federal and state securities and corporation
laws, as
hereinafter provided, no authorization, approval, consent or
order of, or
registration, declaration or filing with, any court or other
governmental body
is required in connection with the execution and delivery by
Source of this
Agreement and the consummation by Source of the transactions
contemplated
hereby.
Section 2.18 Compliance with Laws and Regulations. Source
has complied with
all applicable statutes and regulations of all federal,
state or other
governmental entity or agency thereof, except to the extent
that noncompliance
would not materially and adversely affect the business,
operations,
properties, assets or financial condition of Source or
except to the extent
that noncompliance would not result in the incurrence of any
material
liability of Source. Included in the Source Schedules is a
copy of each
letter of inquiry, review or investigation or other writing
from or to any
governmental authority, evidencing a violation or possible
or alleged
violation of any of the foregoing.
Section 2.19 Insurance. Included in the Source Schedules
is a complete list
of all business liability, casualty, automobile, extended
coverage, and other
insurance policies which Source maintains respecting its
products, services,
business, properties, and employees, showing for each type
of coverage the
policy limits, principal exclusions, deductibles, insurer,
premiums, term, and
other relevant information. Such policies are in full force
and effect and
are free from any right of termination by the insurance
carriers. All of the
insurable properties of Source are insured for its benefit
in the amount of
their full replacement value (subject to reasonable
deductibles) against
losses due to fire and other casualty, with extended
coverage, and other risks
customarily insured against by persons operating similar
properties in the
localities where such properties are located and under valid
and enforceable
policies issued by insurers of recognized responsibility.
Section 2.20 Transactions with Affiliates. Set forth in
the Source Schedules
is a description of every contract, agreement or arrangement
between Source
and any person who is or has ever been during the previous
three (3) years an
officer or director of Source or person owning of record, or
known to Source
to own beneficially, five percent (5%) or more of the issued
and outstanding
common stock of Source and which is to be performed in whole
or in part after
the date hereof. In all of such circumstances, the
contract, agreement or
arrangement was for a bona fide business purpose of Source
and the amount paid
or received, whether in cash, services or in kind, was, has
been during the
full term thereof, and is required to be during the
unexpired portion of the
term thereof, no less favorable to Source than terms
available from otherwise
unrelated parties in arms' length transactions. Except as
set forth in the
Source Schedules or otherwise disclosed herein, no officer
or director of
Source or five percent (5%) shareholder of Source has, or
has had during the
preceding three (3) years, any interest, directly or
indirectly, in any
material transaction with Source. The Source Schedules also
include a
description of any commitment by Source, whether written or
oral, to lend any
funds to, borrow any money from, or enter into any other
material transaction
with, any such affiliated person.
Section 2.21 Labor Agreements and Actions. Source is not
bound by or subject
to (and none of its assets or properties is bound by or
subject to) any
written or oral, express or implied, contract, commitment or
arrangement with
any labor union, and no labor union has requested or sought
to represent any
of the employees, representatives or agents of Source.
There is no strike or
other labor dispute involving Source pending or threatened,
which could have a
material adverse effect on the assets, properties, financial
condition,
operating results or business of Source or (as such business
is presently
conducted and it is proposed to be conducted), and Source is
not aware of any
labor organization activity involving its employees. Source
is not aware that
any officer or key employee, or that any group of key
employees, intends to
terminate their employment with Source, nor does Source have
a present
intention to terminate the employment of any of the
foregoing. Except as set
forth in the Source Schedules, the employment of each
officer and employee of
Source is terminable at the will of Source.
Section 2.22 Pension Reform Act of 1974. Except as set
forth in
the Source Schedules, Source does not have any unfunded
pension liability to
the Pension Benefit Guaranty Corporation or any other person
or entity in
connection with any retirement, pension plan or similar
arrangement.
Section 2.23 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no
information that would give
Source actual knowledge of the inaccuracy of any statements
has come to the
attention of Source and/or its directors and officers;
however, no special or
independent investigation has been undertaken to determine
the accuracy of
such statements.
(ii) "Environment" shall mean soil, surface waters, ground
waters, land,
stream sediments, surface or subsurface strata, ambient air,
and any
environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law,
regulation, rule, ordinance or bylaw at the federal, state
or local level
existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance,
hazardous waste, hazardous material, hazardous substance or
oil as currently
defined in the Resource Conservation and Recovery Act, as
amended, the
Comprehensive Environmental Response, Compensation, and
Liability Act, as
amended, the Federal Clean Water Act, as amended, and any
other federal, state
or local environmental law, regulation, ordinance, rule or
bylaw existing as
of the date hereof.
(v) "Permit" shall mean any environmental permit, license,
approval, consent
or authorization issued by a federal, state or local
governmental authority.
(vi) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring,
emitting, emptying, discharging, injecting, escaping,
leaching, disposing or
dumping into the Environment.
(vii) "Threat of Release" shall mean a substantial
likelihood of a Release
which requires action to prevent or mitigate damage to the
Environment which
may result from such Release.
(b) To Source's Current Actual Knowledge, Source:
(i) Does not have any material liability under any
Environmental Laws
applicable to its operations;
(ii) Possesses all Permits that are applicable to its
operations; and
(iii) Has not been involved in a Release or Threat of
Release involving any
Hazardous Material.
(c) Source has not violated any Environmental Laws
applicable to its
operation, the violation or noncompliance with which would
have a material
adverse effect on Source.
(d) Source has not:
(i) Entered into or been subject to any consent decree,
compliance order or
administrative order with respect to its properties or any
facilities or
operation thereon:
(ii) Received written notice under the citizen suit
provision of any
violation of any Environmental Law in connection with its
properties or any
facilities of operation thereon;
(iii) Received any written request for information, notice,
demand letter,
administrative inquiry or claim with respect to a violation
of any
Environmental Law relating to its properties or any
facilities or operation
thereon; or
(iv) Been subject to or threatened in writing with any
governmental or
citizen enforcement action with respect to a violation of
any Environmental
Law on its properties or at any facilities or operation
thereon.
Section 2.24 Source Schedules. Source has delivered to CTI
the following
schedules, which are collectively referred to as the "Source
Schedules." The
Source Schedules shall be updated through the Closing Date
and shall be
certified by the chief executive officer of Source as
complete, true, and
accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of Source in effect as of the date of this Agreement
referred to in Section
2.01;
(b) A schedule containing copies of resolutions adopted by
the board of
directors of Source and the Shareholders approving this
Agreement and the
transactions herein contemplated as referred to in Section
2.02;
(c) A schedule including the financial statements
identified in Section 2.06;
(d) A schedule including copies of all federal income tax
returns filed for
the years ended January 31, 1995 and 1994, identified in
Section 2.06;
(e) A schedule listing the accounts receivable and notes
and other
obligations receivable of Source as of the date of the most
recent balance
sheet included in the Source Schedules or that arose
thereafter other than in
the ordinary course of business, indicating the debtor and
amount, classifying
the accounts to show in reasonable detail the length of
time, if any, overdue,
and stating the nature and amount of any refunds, set-offs,
reimbursements,
discounts or other adjustments, which in the aggregate are
greater that
$1,000, due to or claimed by such debtors;
(f) A schedule listing the accounts payable and notes and
other obligations
payable of Source as of the date of the most recent balance
sheet included in
the Source Schedules or that arose thereafter other than in
the ordinary
course of business of Source, indicating the creditor and
amount, classifying
the accounts to show in reasonable detail the length of
time, if any, overdue,
and stating the nature and amount of any refunds, set-offs,
reimbursements,
discounts or other adjustments, which in the aggregate are
greater than One
Thousand Dollars ($1,000), payable by Source to any one such
creditor;
(g) A schedule setting forth a description of any material
adverse change in
the business, operations, property, assets or financial
condition of Source
since the most recent balance sheet included in the Source
Schedules, required
to be provided pursuant to Section 2.09 hereof;
(h) Copies of all agreements or arrangements and all
written statements of
practice followed with regard to the payment of
compensation, bonuses,
deferred compensation, profit sharing, pension, vacation,
retirement or other
compensation benefits to officers, directors or employees
whose monthly
compensation exceeds Five Thousand Dollars ($5,000) ( and
descriptions of any
such agreements, arrangements or practices which are not in
writing), together
with a schedule setting forth the name and identification of
each officer,
director or employee whose monthly compensation exceeds Five
Thousand Dollars
($5,000) and of each former officer or former employee of
Source who is
currently being paid or who is entitled to, or may become
entitled to,
compensation in amounts greater than Five Thousand Dollars
($5,000) per month
of any of such compensation benefits and the rate or amounts
thereof and
showing the nature of any family relationship of such person
to each
Shareholder;
(i) A schedule containing a description of all personal
property owned by
Source and used in its business and having a purchase price
of over Ten
Thousand Dollars ($10,000), including a description of every
material
mortgage, financing instrument or encumbrance to which such
personal property
of Source is subject (except statutory liens or claims not
yet delinquent and
except liens, claims, encumbrances or equities which do not
or in the future
will not materially detract from or interfere with the
present or proposed use
of the property subject thereto or affected thereby);
(j) A schedule containing a description of each lease,
rental agreement or
similar instrument, including a description of each oral
arrangement;
(k) A schedule setting forth the litigation and proceedings
as referred to in
Section 2.12;
(l) A schedule listing all material contracts, agreements,
franchises,
license agreements or other commitments to which Source is a
party or by which
its properties are bound, as referred to in Section 2.14,
but excluding those
with affiliates which are described in Section 2.21;
(m) A schedule of any insurance claims as referred to in
Section 2.15;
(n) Copies of all licenses, permits, and other governmental
authorizations
(or requests or applications therefor) pursuant to which
Source carries on or
proposes to carry on its business (except those which are
immaterial to the
present or proposed business of Source), as referred to in
Section 2.17;
(o) A schedule describing the matters regarding compliance
with laws and
regulations, as referred to in Section 2.18;
(p) A schedule showing details of all insurance coverage as
referred to in
Section 2.19;
(q) A schedule containing a description of all material
contracts, leases,
agreements, and other instruments between Source and any
affiliates, as
referred to in Section 2.20;
(r) A schedule showing the name and location of each bank
or other
institution in which Source has an account or safe deposit
box, and the names
of all persons authorized to draw thereon or to have access
thereto;
(s) Copies of all powers of attorney given by Source now in
effect or to be
in effect; and
(t) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the Source Schedules
by Sections 2.01 through 2.23.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF CTI AND NEWCO
As an inducement to, and to obtain the reliance of Source
and the
Shareholders, CTI and NewCo each represent and warrant as
follows:
Section 3.01. Organization. CTI and NewCo are corporations
duly organized,
validly existing, and in good standing under the laws of the
States of Nevada
and Utah, respectively, and each has the corporate power to
own all of its
properties and assets and to carry on its business in all
material respects as
it is now being conducted, and there is no jurisdiction in
which either is not
qualified in which the character and location of the assets
owned by either of
them or the nature of the business transacted by either of
them requires
qualification, except where failure to do so would not have
a material adverse
effect on the business or properties of CTI. Included in
the CTI Schedules
(as hereinafter defined) are complete and correct copies of
the articles of
incorporation and bylaws of CTI and NewCo as in effect on
the date hereof.
The execution and delivery of this Agreement does not, and
the consummation of
the transactions contemplated by this Agreement in
accordance with the terms
hereof will not, violate any provision of CTI's or NewCo's
articles of
incorporation or bylaws.
Section 3.02 Approval of Agreement. The boards of
directors of CTI and NewCo
have authorized the execution and delivery of this Agreement
by CTI and NewCo
and have approved the consummation of the transactions
contemplated hereby.
Included in the CTI Schedules are copies of resolutions
duly adopted by the
boards of directors of CTI and NewCo evidencing such
approval. Such
resolutions have not been amended, modified, rescinded or
superseded and
remains in full force and effect. Each of CTI and NewCo has
full power,
authority, and legal right, and has taken all action
required by law, its
articles of incorporation, its bylaws, and otherwise, to
execute and deliver
this Agreement and to consummate the transactions
contemplated hereby.
Section 3.03 Authority of CTI and NewCo. Except as set
forth in the CTI
Schedules, each of NewCo and CTI has the right and
authority, without the
prior consent of any other person or entity, to enter into
this Agreement and
consummate the transactions contemplated hereby.
Section 3.04 Capitalization of CTI The authorized
capitalization of CTI
consists of 5,000,000 shares of preferred stock, par value
$0.001 per share,
of which 1,000,000 shares are issued and outstanding, and
25,000,000 shares of
common stock, par value $0.001 per share, of which 8,654,846
shares are issued
and outstanding. In addition, CTI has reserved 3,008,573
shares of common
stock for issuance on the exercise of outstanding and
committed options,
delivery of shares on a relocation agreement, the conversion
of the issued and
outstanding CTI Preferred Stock, and exercise of options
pursuant to its
Employee Stock Purchase Plan. All issued and outstanding
shares of CTI Common
Stock are validly authorized, legally issued, fully paid,
and nonassessable
and not issued in violation of any preemptive or other right
of any person.
All shares of Exchanged CTI Common Stock to be issued
pursuant to this
Agreement are validly authorized and will be, when issued,
legally issued,
fully paid, and nonassessable and not issued in violation of
any preemptive or
other right of any person.
Section 3.05 Subsidiaries and Predecessor. CTI was
formerly known as
Mountain Surgical Centers, Inc., which was formerly known as
Dimension
Capital. CTI has sixteen (16) wholly-owned subsidiaries,
some of which have
second-tier subsidiaries.
Section 3.06 Financial Statements.
(a) Included in the CTI Schedules is the audited balance
sheet of CTI as of
June 30, 1995, and the related audited statements of
earnings, stockholders'
equity, and cash flows for each of the two (2) fiscal years
ended June 30,
1995, and 1994, including the notes thereto, together with
the related
opinions of the independent certified public accountants of
CTI. Also
included are the unaudited balance sheet as of September 30,
1995, and the
related unaudited statements of earnings and cash flows for
the three months
ended September 30, 1995, and 1994.
(b) All such financial statements have been prepared in
accordance with GAAP
consistently applied throughout the periods involved. The
balance sheets of
CTI present fairly, as of their respective dates, the
financial position of
CTI. CTI did not have, as of the date of any of said CTI
balance sheets,
except as and to the extent reflected or reserved against
therein, any
liabilities or obligations (absolute or contingent) which
should have been
reflected in a balance sheet or the notes thereto prepared
in accordance with
GAAP, and all assets reflected therein present fairly the
assets of CTI, in
accordance with GAAP. The statements of operations,
stockholders' equity, and
cash flows present fairly the information required to be
set forth therein
under GAAP. CTI has maintained and will continue to
maintain a standard
system of accounting established and maintained in a manner
permitting the
preparation of financial statements in accordance with GAAP.
(c) All such financial statements have been prepared in
accordance with
Regulation S-B promulgated by the SEC regarding the form and
content of
requirements for financial statements to be filed with the
SEC.
Section 3.07 Information. The information concerning CTI
set forth in this
Agreement and in the CTI Schedules and in all filings and
reports made by CTI
with and to the SEC is complete and accurate in all material
respects and, as
of the date of such information, does not contain any
untrue statement of a
material fact or omit to state a material fact required to
make the statements
made, in light of the circumstances under which they were
made, not
misleading.
Section 3.08 Options or Warrants. There are no existing
warrants, calls,
commitments or other rights of any character relating to
authorized and
unissued CTI stock, except (a) options, warrants, calls or
commitments, if
any, to which CTI is not a party and by which it is not
bound; (b) options to
acquire an aggregate of not more than 2,000,000 shares of
CTI Common Stock;
(c) conversion rights held by the holders of CTI Preferred
Stock to convert
such stock into an aggregate of 667,000 shares of CTI Common
Stock; and (d) an
aggregate of 483,333 shares of CTI Common Stock for
convertible debt.
Section 3.09 Absence of Certain Changes or Events. Except
as set forth in
this Agreement or in the CTI Schedules, since the date of
the most recent CTI
balance sheet described in Section 3.06 and included in the
CTI Schedules:
(a) There has not been (i) any material adverse change in
the business,
operation, assets or condition of CTI; or (ii) any damage,
destruction or loss
to CTI (whether or not covered by insurance) materially and
adversely
affecting the business, operations, assets or conditions of
CTI;
(b) CTI has not (i) amended its article of incorporation or
bylaws; (ii)
declared or made, or agreed to declare and make, any payment
of dividends or
distributions of any assets of any kind whatsoever to
shareholders or
purchased or redeemed, or agreed to purchase or redeem, more
than 50,000
shares any of its capital stock; (iii) waived any rights of
value which in the
aggregate are extraordinary or material considering the
business of CTI; or
(iv) made any material change in its method of management,
operation or
accounting which is material to CTI;
(c) CTI has not (i) granted or agreed to grant any
options, warrants or
other rights for its stocks, bonds or other corporate
securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any
funds or incurred,
or become subject to, any material obligation or liability
(absolute or
contingent) except liabilities incurred in the ordinary
course of business;
(iii) paid any material obligation or liability (absolute or
contingent) other
than current liabilities reflected in or shown on the most
recent CTI balance
sheet and current liabilities incurred since that date in
the ordinary course
of business; (iv) sold or transferred, or agreed to sell or
transfer, any of
its assets, properties or rights (except assets, properties
or rights not used
or useful in its business which, in the aggregate have a
value of less than
Ten Thousand Dollars ($10,000) or assets, properties or
rights disposed of in
the ordinary course of business); (v) made or permitted any
amendment or
termination of any contract, agreement or license to which
it is a party if
such amendment or termination is material, considering the
business of CTI; or
(vi) issued, delivered or agreed to issue or deliver any
stock, bonds or other
corporate securities including debentures (whether
authorized and unissued or
held as treasury stock); and
(d) To the best knowledge of CTI, CTI has not become
subject to any law or
regulation which materially and adversely affects, or in the
future may
materially and adversely affect, the business, operation,
properties, assets
or financial condition of CTI.
Section 3.10 Litigation and Proceedings. There are no
actions, suits or
proceedings pending or, to the best knowledge of CTI,
threatened in writing by
or against CTI or affecting CTI or its properties, at law or
in equity, before
any court or other governmental agency or instrumentality,
domestic or
foreign, or before any arbitrator of any kind. CTI is not
in material default
with respect to any judgment, order, writ, injunction,
decree, award, rule or
regulation of any court, arbitrator, governmental agency or
instrumentality.
Section 3.11 No Conflict with Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust or other material contract, agreement or instrument
to which CTI is a
party or to which any of its properties or operations are
subject, which would
have a material adverse affect on CTI.
Section 3.12 Material Contract Defaults. CTI is not in
default in any
material respect under the terms of any outstanding
contract, agreement, lease
or other commitment which is material to the business,
operations, properties,
assets or financial condition of CTI, and there is no event
of default or
other event which, with notice or the lapse of time or both,
would constitute
a default in any material respect under any such contract,
agreement, lease or
other commitment in respect of which CTI has not taken
adequate steps to
prevent such default occurring.
Section 3.13 Governmental Authorizations. Except as set
forth in the CTI
Schedules, to the best knowledge of CTI, it has all
licenses, franchises,
permits, and other governmental authorizations that are
legally required to
enable it to conduct its business in all material respects
as conducted on the
date hereof or as presently contemplated. Except for
compliance with federal
and state securities and corporation laws, as hereinafter
provided, no
authorization, approval, consent or order of, or
registration, declaration or
filing with, any court or other governmental body is
required in connection
with the execution and delivery by CTI of this Agreement and
the consummation
by CTI of the transactions contemplated hereby.
Section 3.14 Compliance with Laws and Regulations. Except
as set forth in
the CTI Schedules, CTI has complied with all applicable
statutes and
regulations of any federal, state or other governmental
entity or agency
thereof, except to the extent that noncompliance would not
materially and
adversely affect the business, operations, properties,
assets or financial
condition of CTI or except to the extent that noncompliance
would not result
in the incurrence of any material liability of CTI.
Section 3.15 CTI Schedules. CTI has delivered to Source
and the Shareholders
the following schedules, which are collectively referred to
as the "CTI
Schedules" and which consist of separate schedules dated as
of the date of
execution of this Agreement and updated through the date of
Closing, and
instruments and data as of such date, or the date indicated
on such schedules,
all certified by the chief executive officer of CTI as
complete, true, and
accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of CTI and NewCo in effect as of the date of this Agreement,
as referred to in
Section 3.01;
(b) A schedule containing copies of resolutions adopted by
the boards of
directors of CTI and NewCo approving this Agreement and the
transactions
herein contemplated as referred to in Section 3.02.
(c) A schedule containing the annual report of CTI on Form
10-KSB for the
year ended June 30, 1995 and the quarterly report on Form
10-QSB for the
quarter ended September 30, 1995;
(d) A schedule setting forth a description of any material
change in the
business, operations, assets, or condition of CTI since
September 30, 1995,
required to be provided pursuant to Section 3.09 hereof; and
(e) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the CTI Schedules by
Sections 3.01 through 3.14.
ARTICLE IV
PLAN OF REORGANIZATION
Section 4.01 Terms of Reorganization. The consideration
for the merger of
Source into NewCo as a wholly-owned subsidiary of CTI,
subject to all of the
terms, covenants, and conditions set forth in this
Agreement, shall be:
(a) 103,500 shares of CTI's restricted voting common stock;
(b) Sixty-Seven Thousand Five Hundred Dollars ($67,500)
payable at Closing;
and
(c) A promissory note in the amount of One Hundred Fifty-
Seven Thousand Five
Hundred Dollars ($157,500), payable to the Shareholders and
delivered at
Closing, substantially in the form of the promissory note
attached hereto as
Exhibit "A" (the "Note"). The Note will be secured by the
grant of a security
interest in the accounts receivable, customer contracts, and
intellectual
property of NewCo, substantially in the form of the security
agreement
attached hereto as Exhibit "B" (the "Security Agreement").
The consideration will be distributed to the Shareholders as
follows:
Shareholders' Distribution
Shareholder Shares of Cash at Cash
CTI Stock Closing from Note
Richard F.
Brothers 51,957 $33,885 $79,065
Richard C.
McKenna 41,234 $26,892 $62,748
Debbie F.
Mattingly 10,309 $6,723 $15,687
Section 4.02 The Merger. The articles of merger and plan
of merger shall
provide for the merger of Source with and into NewCo, with
NewCo as the
surviving entity. The merger shall result in the following:
(a) The Source Stock shall be converted into an aggregate
of One Hundred
Three Thousand Five Hundred (103,500) shares of CTI Common
Stock. All shares
of common stock held by Source as treasury shares shall be
canceled. The
shares of CTI Common Stock to be issued shall not be
registered under the
Securities Act or applicable state securities laws and the
certificates
representing such shares shall contain the legend set forth
in Section 5.07.
(b) Upon the Closing Date of the merger, the Shareholders
shall, on the
surrender of the certificate or certificates representing
the Source Stock,
receive a certificate or certificates evidencing shares of
the Exchanged CTI
Stock as provided herein.
(c) On the Effective Date of the merger, the Source Stock
shall be canceled,
and all rights in respect thereof shall cease.
Section 4.03 Tax Obligations. The Shareholders shall be
solely responsible
for any tax due from the Shareholders with respect to the
receipt by the
Shareholders of the consideration set forth in Section 4.01
of the Agreement
and any tax obligation incurred or accrued by Source or the
Shareholders.
Section 4.04 Closing Events.
(a) The Closing shall take place at the offices of Source
located at 627
South 48th Street, Suite 100, Tempe, Arizona 85281 on or
before February 10,
1996, or at such other place or at such other time or on
such other date as
the parties hereto may mutually agree.
(b) Subject to the terms and conditions of this Agreement,
at the Closing on
the Closing Date:
(i) The Shareholders shall deliver to CTI share
certificates representing all
of the Source Stock duly endorsed in blank or accompanied by
duly executed
stock powers (in blank).
(ii) Source and the Shareholders shall deliver to CTI the
certificates,
Source Schedules, and other documents and instruments to be
delivered under
Section 2.24 and Article VI hereof, together with such
other items as may be
reasonably requested by the parties hereto and their
respective legal counsel
in order to effectuate or evidence the transactions
contemplated hereby.
(iii) CTI shall pay to the Shareholders the amount of cash
which the
Shareholders have the right to receive in respect of the
surrendered Source
Stock pursuant to Section 4.01(b) and shall deliver the Note
and Pledge, along
with the shares of NewCo stock to perfect the security
interest granted under
the Pledge, pursuant to Section 4.01(c).
(iv) CTI shall deliver to the Shareholders share
certificates representing
the Exchanged CTI Stock which the Shareholders have the
right to receive in
respect of the surrendered Source Stock pursuant to Section
4.01(a), issued in
such names and in such denominations as are designated by
the Shareholders not
less than five days before the Closing Date.
(v) CTI shall deliver to Source and the Shareholders the
certificates, CTI
Schedules, and other documents and instruments to be
delivered under Section
3.15 and Article VII hereof, together with such other items
as may be
reasonably requested by the parties hereto and their
respective legal counsel
in order to effectuate or evidence the transactions
contemplated hereby.
(c) CTI, NewCo, and Source, respectively, each shall use
its reasonable
efforts to take all such action as may be necessary or
appropriate to
effectuate the merger as provided herein. If, at any time
after the Closing
Date, any further action is necessary or desirable to carry
out the purposes
of this Agreement and to vest NewCo with full right, title
and possession to
all properties, interests, assets, rights, privileges,
immunities, powers and
franchises of Source, the officers of NewCo are fully
authorized in the name
of Source and NewCo or otherwise to take, and shall take,
all such lawful and
necessary action.
Section 4.05 Effective Date. The Effective Date of the
merger shall be the
date, as defined in the articles of merger or plan of
merger, on which the
merger of Source with and into NewCo shall become effective
in accordance with
the laws of the State of Utah.
Section 4.06 Effect of Merger. On the Effective Date of
the merger, NewCo
and Source shall cease to exist separately, and Source shall
be merged with
and into NewCo, the surviving corporation, in accordance
with the provisions
of this Agreement, the articles of merger, and the plan of
merger, and in
accordance with the provisions of and with the effect
provided in the
corporation laws of the State of Utah. NewCo, as the
surviving corporation,
shall possess all the rights, privileges, franchises, and
trust and fiduciary
duties, powers, and obligations, of a private as well as of
a public nature,
and be subject to all the restrictions, obligations, and
duties of each of
NewCo and Source; all property, real, personal, and mixed,
and all debts due
to either of NewCo or Source on whatever account and all
other things
belonging to each of NewCo and Source and all property,
rights, privileges,
powers, and franchises, and all and every other interest
shall be thereafter
the property of NewCo as they were of NewCo and Source; the
title to any real
estate, whether vested by deed or otherwise, in either NewCo
or Source shall
not revert or be in any way impaired by reason of the
merger; provided,
however, that all rights of creditors and all liens on any
property of either
NewCo or Source shall be preserved unimpaired, and all
debts, liabilities, and
duties of NewCo and Source shall thenceforth attach to NewCo
and may be
enforced against it to the same extent as if such debts,
liabilities, and
duties had been incurred or contracted by NewCo.
Section 4.07 Termination.
(a) This Agreement and the merger contemplated hereby may
be terminated at
any time prior to the Effective Date by the mutual consent
of both CTI and
Source through action of their respective boards of
directors. In the event
of termination pursuant to this Section 4.07(a), no
obligation, right, remedy,
or liability shall arise hereunder, and the parties shall
bear their own costs
incurred in connection with the preparation and execution of
this Agreement,
the preparation and review of financial statements required
to be delivered
pursuant hereto, and the negotiation of the transactions
contemplated hereby.
(b) This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of CTI's board of directors if
Source shall fail to
comply in any material respect with any of its covenants or
agreements
contained in this Agreement or if any of the representations
or warranties of
Source contained herein shall be inaccurate in any material
respect. In the
event of termination pursuant to this Section 4.07(b), no
obligation, right,
remedy, or liability shall arise hereunder, and the parties
shall bear their
own costs incurred in connection with the preparation and
execution of this
Agreement, the preparation and review of financial
statements required to be
delivered pursuant hereto, and the negotiation of the
transactions
contemplated hereby.
(c) This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of Source's board of directors if
CTI or NewCo shall
fail to comply in any material respect with any of their
covenants or
agreements contained in this Agreement or if any of the
representations or
warranties of CTI or NewCo contained herein shall be
inaccurate in any
material respect. In the event of termination pursuant to
this Section
4.07(c), no obligation, right, remedy, or liability shall
arise hereunder, and
the parties shall bear their own costs incurred in
connection with the
preparation and execution of this Agreement, the preparation
and review of
financial statements required to be delivered pursuant
hereto, and the
negotiation of the transactions contemplated hereby.
Section 4.08 Source Profit Sharing Plan.
Source has a profit sharing plan in which the Shareholders
and certain
employees participate. Source intends to terminate this
profit sharing plan
prior to the merger. In the event it is unable to do so for
whatever reason,
the Shareholders shall maintain control of the profit
sharing plan and its
assets.
ARTICLE V
THE ACQUISITION OF THE EXCHANGED CTI STOCK
Section 5.01 Sale of Securities. The consummation of this
Agreement and the
issuance of the Exchanged CTI Stock as contemplated herein,
constitutes the
offer and sale of securities as those terms are defined
under the Securities
Act and applicable state statutes. Such transactions shall
be consummated in
reliance on certain exemptions from the registration
requirements of the
Securities Act and applicable state statutes which depend,
among other items,
on the circumstances under which such securities are
acquired.
Section 5.02 Representations by the Shareholders. In order
to provide
documentation for reliance upon such exemptions, the
approval by Source and
the Shareholders of this Agreement and the transactions
contemplated hereby
shall constitute the parties' acceptance of, and concurrence
in, the following
representations and warranties:
(a) Source and the Shareholders acknowledge that neither
the SEC nor the
securities commission of any state or other federal agency
has made any
determination as to the merits of acquiring the Exchanged
CTI Stock, and that
the acquisition and ownership of the Exchanged CTI Stock
involves certain
risks.
(b) Source and the Shareholders have received and read this
Agreement and the
annual report of CTI on Form 10-KSB for the year ended June
30, 1995, and the
quarterly report on Form 10-QSB for the quarter ended
September 30, 1995, and
understand the risks related to the consummation of the
transactions herein
contemplated. Source and the Shareholders have been given
an opportunity to
meet with and ask questions or management of CTI concerning
the business,
operations, and assets of CTI and the transactions
contemplated by this
Agreement.
(c) The Shareholders have such knowledge and experience in
business and
financial matters that they are capable of evaluating CTI
and its business
operations.
(d) The Shareholders are acquiring the Exchanged CTI Stock
for their own
account and not with a view for resale to others.
Section 5.03 Investment Intent. The Shareholders have not
offered or sold
any securities of CTI or interest in this Agreement and have
no present
intention of dividing the Exchanged CTI Stock to be received
or the rights
under this Agreement with others or of reselling or
otherwise disposing of any
portion of such stock or rights, either currently or after
the passage of a
fixed or determinable period of time or on the occurrence or
nonoccurrence of
any predetermined event or circumstance.
Section 5.04 No Public Solicitation. Source and the
Shareholders were at no
time solicited by any leaflet, public promotional meeting,
circular, newspaper
or magazine article, radio or television advertisement, or
any other form of
general advertising or solicitation in connection with the
offer, sale, or
purchase of the Exchanged CTI Stock through this Agreement.
Section 5.05 Ability to Bear Risk of Investment. The
Shareholders have
adequate means of providing for their current needs and
possible contingencies
and have no need now, and anticipate no need in the
foreseeable future, to
sell the Exchanged CTI Stock obtained through this
Agreement. The
Shareholders are able to bear the economic risks of this
investment, and
consequently, without limiting the generality of the
foregoing, are able to
hold the Exchanged CTI Stock to be received for an
indefinite period of time
and have a sufficient net worth to sustain a loss of the
entire investment, in
the event such loss should occur.
Section 5.06 No Registration. The Shareholders understand
that the Exchanged
CTI Stock has not been registered, but is being acquired by
reason of a
specific exemption under the Securities Act as well as under
certain state
statutes for transactions by an issuer not involving any
public offering and
that any disposition of the subject Exchanged CTI Stock may,
under certain
circumstances, be inconsistent with this exemption and may
make the
Shareholders "underwriters" within the meaning of the
Securities Act. It is
understood that the definition of "underwriter" focuses upon
the concept of
"distribution" and that any subsequent disposition of the
subject Exchanged
CTI Stock can only be effected in transactions which are not
considered
synonymous with "public offering" or any other offer or sale
involving general
solicitation or general advertising. Under present law, in
determining
whether a distribution occurs when securities are sold into
the public market,
under certain circumstances one must consider the
availability of public
information regarding the issuer, a holding period for the
securities
sufficient to assure that the persons desiring to sell the
securities without
registration first bear the economic risk of their
investment, and a
limitation on the number of securities which the shareholder
is permitted to
sell and on the manner of sale, thereby reducing the
potential impact of the
sale on the trading markets. These criteria are set forth
specifically in
Rule 144 promulgated under the Securities Act, and, after
two years after the
date the Exchanged CTI Stock is fully paid for, as
calculated in accordance
with Rule 144(d), sales of securities in reliance upon Rule
144 can only be
made in limited amounts in accordance with the terms and
conditions of that
rule. After three years from the date the securities are
fully paid for, as
calculated in accordance with Rule 144(d), they can
generally be sold without
meeting those conditions, provided the holder is not (and
has not been or the
preceding three months) an affiliate of the issuer.
Section 5.07 Restrictions on Transfer. The Shareholders
acknowledge that the
shares of Exchanged CTI Stock must be held and may not be
sold, transferred,
or otherwise disposed of for value unless they are
subsequently registered
under the Securities Act or an exemption from such
registration is available.
CTI is under no obligation to register the Exchanged CTI
Stock under the
Securities Act. If Rule 144 is available (and no assurance
is given that it
will be), only sales of such Exchanged CTI Stock in limited
amounts can be
made in reliance upon Rule 144 in accordance with the terms
and conditions of
that rule. CTI is under no obligation to the undersigned to
make Rule 144
available, and in the event Rule 144 is not available,
compliance with
Regulation A or some other disclosure exemption may be
required before the
Shareholders can sell, transfer, or otherwise dispose of
such Exchanged CTI
Stock without registration under the Securities Act. CTI's
registrar and
transfer agent will maintain a stop transfer order against
the registration of
transfer of the Exchanged CTI Stock, and the certificate
representing the
Exchanged CTI Stock will bear a legend in substantially the
following form so
restricting the sale of such securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND
ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED
UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED
FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLYING WITH
RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE
UNDER THE SECURITIES ACT.
Section 5.08 Stop Order. CTI may refuse to register
transfer of the
Exchanged CTI Stock in the absence of compliance with Rule
144 unless the
Shareholders furnish the issuer with an opinion of counsel
reasonably
acceptable to CTI stating that the transfer is permitted
under applicable law.
Section 5.09 Additional Documentation. In order to more
fully document
reliance on the exemptions as provided herein, the
Shareholders agree to
execute and deliver to CTI such further letters of
representation,
acknowledgment, suitability, or the like, as CTI and its
counsel may
reasonably request in connection with reliance on exemptions
from registration
under such securities laws.
Section 5.10 No Legal Opinion. Source, the Shareholders,
and CTI acknowledge
that the basis for relying on exemptions from registration
or qualifications
are factual, depending on the conduct of the various
parties, and that no
legal opinion or other assurance will be required or given
to the effect that
the transactions contemplated hereby are in fact exempt from
registration or
qualification.
Section 5.11 SEC Filings. CTI agrees that it will file all
reports required
to be filed with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act,
such that the current public information requirement of Rule
144(c)(1),
promulgated under the Securities Act, shall be met.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF CTI
The obligations of CTI and NewCo under this Agreement are
subject to the
satisfaction, at or before the Closing Date, of the
following conditions:
Section 6.01 Accuracy of Representations. The
representations and warranties
made by Source and the Shareholders in this Agreement shall
be true as of the
Closing, and Source and the Shareholders shall have
performed or complied with
all material covenants and conditions required by this
Agreement to be
performed or complied with by Source or the Shareholders,
respectively, prior
to or at the Closing. CTI and NewCo shall be furnished with
a certificate,
signed by the chief executive officer of Source and dated
the Closing Date, to
the foregoing effect.
Section 6.02 Officer's Certificate. CTI and NewCo shall
have been furnished
with a certificate dated the Closing Date and signed by the
duly authorized
chief executive officer of Source to the effect that:
(a) This Agreement has been duly approved by Source board
of directors and
the Shareholders and has been duly executed and delivered in
the name and on
behalf of Source by its duly authorized officer is pursuant
to, and in
compliance with, authority granted by Source's board of
directors;
(b) The representations and warranties of Source set forth
in this Agreement
are true and correct as of the date of the certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the Source Schedules in the financial
condition, business,
or operations of Source nor has any event occurred which,
with the lapse of
time or giving of notice, may cause or create any material
adverse change in
the financial condition, business, or operations of Source
up to and including
the date of the certificate, except as authorized by this
Agreement;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by Source and the Shareholders have
been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of Source, pursuant to any mortgage,
resolution, agreement, or
instrument to which Source is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by Source and have been obtained and are in full
force and effect
or, if not required to have been obtained will be in full
force and effect by
such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law or
in equity by any public board or body pending or threatened
in writing against
so, wherein an unfavorable decision, ruling, or finding
would have a material
adverse effect on the financial condition of Source, the
operations or
business of Source, the acquisition and reorganization
contemplated herein, or
any material agreement or instrument by which Source is
bound or would in any
way contest the existence of Source.
Section 6.03 Good Standing. CTI and NewCo shall have
received a certificate
of good standing with respect to Source, dated as of a date
within twenty (20)
days prior to the Closing Date, certifying what Source is in
good standing as
a corporation in Arizona.
Section 6.04 UCC Certificate. CTI shall have received an
Arizona Uniform
Commercial Code certificate dated as of a date within five
(5) days of the
Closing Date to the effect that there are no encumbrances of
record on the
assets of Source, other than those disclosed in the Source
Schedules.
Section 6.05 Employment Agreement. Richard F. Brothers has
executed an
employment agreement with CTI, NewCo and Source.
Section 6.06 Other Items. CTI and NewCo shall have
received such further
documents, certificates, or instruments relating to the
transactions
contemplated hereby as CTI and NewCo may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF SOURCE AND THE SHAREHOLDERS
The obligations of Source and the Shareholders under this
Agreement are
subject to the satisfaction, at or before the Closing Date,
of the following
conditions:
Section 7.01 Accuracy of Representations. The
representations and warranties
made by CTI and NewCo in this Agreement shall be true as of
the Closing and
CTI and NewCo shall have performed and complied with all
material covenants
and conditions required by this Agreement to be performed or
complied with by
CTI and NewCo prior to or at the Closing. Source shall have
been furnished
with a certificate, signed by the duly authorized chief
executive and
principal financial or accounting officer or officers of CTI
and NewCo and
dated the Closing Date, to the foregoing effect.
Section 7.02 Officer's Certificate. Source and the
Shareholders shall have
been furnished with certificates dated the Closing Date and
signed by the duly
authorized officer or officers of CTI and NewCo to the
effect that:
(a) This Agreement has been duly approved by CTI's and
NewCo's boards of
directors and has been duly executed and delivered in the
name and on behalf
of CTI and NewCo by duly authorized officers pursuant to,
and in compliance
with, authority granted by CTI's and NewCo's board of
directors;
(b) The representations and warranties of CTI and NewCo set
forth in this
Agreement are true and correct as of the date of the
certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the CTI Schedules in the financial
condition, business, or
operations of CTI and NewCo nor has any event occurred
which, with the lapse
of time or giving of notice, may cause or create any
material adverse change
in the financial condition, business, or operations of CTI
and NewCo, up to
and including the date of the certificate;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by CTI and NewCo have been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of CTI and NewCo, pursuant to any mortgage,
resolution,
agreement, or instrument to which CTI and NewCo is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by CTI and NewCo have been obtained and are in
full force and effect
or, if not required to have been obtained, will be in full
force and effect by
such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law or
in equity by any public board or body pending or threatened
in writing against
CTI and NewCo, wherein an unfavorable decision, ruling, or
finding would have
a material adverse effect on the financial condition or
operation of CTI and
NewCo, or the merger contemplated herein, or any material
agreement or
instrument by which CTI and NewCo are bound or would in any
way contest the
existence of CTI and NewCo.
Section 7.03 Good Standing. Source and the Shareholders
shall have received
a certificate of good standing from the Secretary of State
of Nevada with
respect to CTI, dated as of a date within ten (10) days
prior to the date of
this Agreement, certifying that CTI is in good standing as a
corporation in
the State of Nevada.
Section 7.04 Employment Agreement. Richard F. Brothers has
executed an
employment agreement with CTI and Source.
Section 7.05 Grant of Options. CTI will grant options to
current employees
of Source to purchase a total of 25,000 shares of CTI stock.
The exercise
price of the options will be eighty-five percent (85%) of
the market price on
the date of grant and the options will vest over a five (5)
period.
Section 7.06 Other Items. Source and the Shareholders
shall have received
such further documents, certificates, or instruments
relating to the
transactions contemplated hereby as Source and the
Shareholders may reasonably
request.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Brokers. CTI and Source agree that there were
no finders or
brokers involved in bringing the parties together or who
were instrumental in
the negotiation, execution, or consummation of this
Agreement. Further, CTI
and Source each agree to indemnify the other against any
claim by any third
person for any commission, brokerage, or finder's fee or
other payment with
respect to this Agreement or the transactions contemplated
hereby based on any
alleged agreement or understanding between such party and
such third person,
whether express or implied, resulting from the actions of
such party. The
covenants set forth in this Section 8.01 shall survive the
Closing and the
consummation of the transactions herein contemplated.
Section 8.02 Indemnification by the Shareholders. The
Shareholders agree to
indemnify and hold harmless CTI and NewCo and each of their
respective
directors and officers, and each person, if any, who
controls CTI and NewCo
within the meaning of the Securities Act, from and against
any and all losses,
claims, damages, expenses, liabilities or actions and will
reimburse them for
any legal or other expenses reasonably incurred by them in
connection with
investigating or defending any claims or actions, resulting
in liability of
Ten Thousand Dollars ($10,000) or more, insofar as such
losses, claims,
damages, expenses, liabilities or actions arise directly out
of any breach of
any representation, warranty, covenant, or agreement in this
Agreement by the
Shareholders or Source. The indemnity agreement contained
in this Section
8.02 shall remain operative and in full force and effect,
regardless of any
investigation made by or on behalf of CTI and NewCo and
shall survive the
consummation of the transactions contemplated by this
Agreement for a period
of three (3) years after the Closing Date.
Section 8.03 Indemnification by CTI and NewCo. CTI and
NewCo agree to
indemnify and hold harmless the Shareholders from and
against any and all
losses, claims, damages, expenses, liabilities, or actions
and will reimburse
them for any legal or other expenses reasonably incurred by
them in connection
with investigating or defending any claims or actions,
resulting in liability,
insofar as such losses, claims, damages, expenses,
liabilities or actions,
resulting in liabililty of Ten Thousand Dollars ($10,000) or
more, insofar as
such losses, claims, damages, expenses, liabilities or
actions arise out of or
are based upon any breach of any representation, warranty,
covenant, or
agreement in this Agreement by CTI and NewCo. The indemnity
agreement
contained in this Section 8.03 shall remain operative and in
full force and
effect, regardless of any investigation made by or on behalf
of the
Shareholders and shall survive the consummation of the
transactions
contemplated by this Agreement for a period of three (3)
years after the
Closing Date.
Section 8.04 Tax Treatment. No representation or warranty
is being made or
legal opinion given by any party to any other regarding the
treatment of this
transaction for federal or state income taxation. All
parties intend for the
transaction to be treated as a "tax-free" reorganization
under the provisions
of the Code and agree to take all corporate action
necessary, to file all tax
returns and reports, and prepare financial statements
consistent with the
treatment of the transaction as a reorganization under
Section 368. Although
this transaction has been structured in an effort to qualify
for treatment
under Section 368 of the Code, there is no assurance that
any part of this
transaction in fact meets the requirements for such
qualification. Each party
has relied exclusively on its own legal, accounting, and
other tax advisers
regarding the treatment of this transaction for federal and
state income
taxes.
Section 8.05 Governing Law. This Agreement shall be
governed by, enforced,
and construed under and in accordance with the laws of the
United States of
America and, with respect to matters of state law, with the
laws of the State
of Utah.
Section 8.06 Notices. Any notices or other communications
required or
permitted hereunder shall be in writing and shall be deemed
sufficiently given
if personally delivered, if sent by facsimile or telecopy
transmission or
other electronic communication confirmed by registered or
certified mail,
postage prepaid, or if sent by prepaid overnight courier
addressed as follows:
(a) If to CTI or NewCo, to:
CTI Technologies, Inc.
986 West Atherton Drive
Salt Lake City, UT 84123
Attention: Richard N. Beckstrand
Fax No: (801) 265-3224
Confirmation (801) 263-1840
With copies to:
Prince, Yeates & Geldzahler
175 East 400 South, Suite 900
Salt Lake City, UT 84111
Attention: Gregory E. Lindley
Fax No: (801) 524-1099
(b) If to Source or the Source Computing, Inc.
Shareholders, to:
627 South 48th Street, Suite 100
Tempe, AZ 85281
Attention: Richard F. Brothers
Fax No: (602) 829-69197
or such other addresses as shall be furnished in writing by
any party in the
manner for giving notices hereunder, and any such notice or
communication
shall be deemed to have been given as of the date so
delivered or sent by
facsimile or telecopy transmission or other electronic
communication, or one
day after the date so sent by overnight courier.
Section 8.07 Attorneys' Fees. In the event that any party
institutes any
action or suit to enforce this Agreement or to secure relief
from any default
hereunder or breach hereof, the breaching party or parties
shall reimburse the
nonbreaching party or parties for all costs, including
reasonable attorneys'
fees, incurred in connection therewith and in enforcing or
collecting any
judgment rendered therein.
Section 8.08 Costs. Each of the parties shall bear its
respective costs
associated with this Agreement and the transactions
contemplated hereby,
including legal fees, accounting fees, and other costs and
expenses.
Section 8.09 Schedules; Knowledge. Whenever in any section
of this Agreement
reference is made to information set forth in the CTI
Schedules or Source
Schedules such reference is to information specifically set
forth in such
schedules and clearly referenced to identify the section of
this Agreement to
which the information relates. Whenever any representation
is made to the
"knowledge" of any party, it shall be deemed to be a
representation that such
officer or director has made a reasonable investigation of
such matters.
Section 8.10 Third-Party Beneficiaries. This Agreement is
solely between
CTI, NewCo and Source and the Shareholders, and no director,
officer,
stockholder, employee, agent, independent contractor, or any
other person or
entity shall be deemed to be a third-party beneficiary of
this Agreement.
Section 8.11 Entire Agreement. This Agreement, together
with the other
agreements entered into between the parties
contemporaneously with this
Agreement (this Agreement and such other documents
collectively referred to as
the "Transaction Documents"), represent the entire agreement
between the
parties relating to the subject matter hereof. All previous
agreement between
the parties, whether written or oral, have been merged into
the Transaction
Documents. The Transaction Documents fully and completely
express the
agreement of the parties relating to the subject matter
hereof. There are no
other courses of dealing, understandings, agreements,
representations, or
warranties, written or oral, except as set forth in the
Transaction Documents.
Section 8.12 Survival. The representations, warranties,
and covenants of the
respective parties shall survive the Closing of the
transactions contemplated
hereby.
Section 8.13 Counterparts. This Agreement may be executed
in multiple
counterparts, each of which shall be deemed an original and
all of which taken
together shall be but a single instrument.
Section 8.14 Amendment or Waiver. Every right and remedy
provided herein
shall be cumulative with every other right and remedy,
whether conferred
herein, at law, or in equity, and may be enforced
concurrently herewith, and
no waiver by any party of the performance of any obligation
by the other shall
be construed as a waiver of the same or any other default
then, theretofore,
or thereafter occurring or existing. This Agreement shall
only be amended by
a writing signed by all parties hereto, with respect to any
of the terms
contained herein, and any term or condition of this
Agreement may be waived or
the time for performance thereof may be extended by a
writing signed by the
party or parties for whose benefit the provision is
intended.
Section 8.15 Severability. If and to the extent that any
court of competent
jurisdiction holds any provision, or any part thereof, of
this Agreement to be
invalid or unenforceable, such holding shall in no way
affect the validity of
the remainder of this Agreement which shall continue in full
force and effect.
Section 8.16 Successors and Assigns. This Agreement shall
insure to the
benefit of and be binding on the parties and their
successors, assigns, heirs,
executors, and administrators.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be
executed by their respective officers, hereunto duly
authorized, as of the
date first above written.
CUSA TECHNOLOGIES, INC.
By_________________________________
Duly Authorized Officer
NEW SOURCE COMPUTING, INC.
By________________________________
Duly Authorized Officer
SOURCE COMPUTING, INC.
By________________________________
Duly Authorized Officer
THE SHAREHOLDERS:
__________________________________
Richard F. Brothers
__________________________________
Richard C. McKenna
__________________________________
Debbie F. Mattingly
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter referred to
as the "Agreement")
is entered into this ___ day of February, 1996 by and among
CUSA
Technologies, Inc., a Nevada corporation ("CTI"), New
Medical Clearing
Corporation, a Utah corporation ("NewCo"), Medical Clearing
Corporation, an
Arizona corporation ("MCC"), and Richard F. Brothers,
William C. McCormick,
Debbie F. Mattingly, and Charles R. Brothers (collectively,
the
"Shareholders") based on the following:
PREMISES
A. CTI is a publicly-held corporation, involved, among
other things, in the
business of providing proprietary software systems to credit
unions and the
health care industry. MCC is a privately-held corporation
that develops and
markets software systems for the health care industry.
B. The Shareholders own one hundred percent (100%) of the
issued and
outstanding stock of MCC.
C. The parties have agreed that MCC will be acquired as a
wholly-owned
subsidiary of CTI, on the terms and conditions set forth in
this Agreement.
D. The acquisition of MCC by CTI shall be effected through
the merger of MCC
with and into NewCo, a newly formed, wholly-owned subsidiary
of CTI, with
NewCo as the surviving entity. In connection with the
transaction, the
outstanding shares of common stock of MCC will be canceled
in exchange for
shares of restricted common voting stock of CTI, cash, and a
note, all for the
purposes of accomplishing a "reorganization" pursuant to
Sections 368(a)(1)(A)
and 368 (a)(2)(D) of the Code. After consummation of the
transaction, NewCo
shall succeed to the business, assets, and liabilities of
MCC and shall
thereafter continue business as a wholly-owned subsidiary of
CTI.
AGREEMENT
NOW, THEREFORE, based on the stated premises, and for and in
consideration of
the mutual covenants and agreements hereinafter set forth
and the mutual
benefits to the parties to be derived therefrom, it is
hereby agreed as
follows:
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the
meanings indicated:
Section 1.01 Agreement. This Agreement and Plan of
Merger, all Schedules
and Exhibits hereto and all amendments, modifications, and
supplements hereto.
Section 1.02 Closing. The consummation of the transactions
contemplated by
this Agreement.
Section 1.03 Closing Date. The date on which Closing
occurs.
Section 1.04 Code. The Internal Revenue Code of 1986, as
amended.
Section 1.05 CTI Common Stock. The authorized common
stock, par value $0.001
per share, of CTI.
Section 1.06 CTI Preferred Stock. The authorized
preferred stock, par value
$0.001 per share, of CTI.
Section 1.07 Effective Date. The date as set forth in the
closing memorandum
between the parties.
Section 1.08 Exchange Act. The Securities Exchange Act of
1934, as amended.
Section 1.09 Exchanged CTI Stock. The shares of CTI Common
Stock to be
issued and delivered by CTI to the Shareholders pursuant to
this Agreement.
Section 1.10 GAAP. Generally accepted accounting
principles, as in effect on
the Effective Date, applied on a consistent basis.
Section 1.11 SEC. The United States Securities and
Exchange Commission.
Section 1.12 Securities Act. The Securities Act of 1933,
as amended.
Section 1.13 MCC Stock. The 2,500 shares of common stock
of MCC, owned by
the shareholders, no par value, currently issued and
outstanding, which are
to be converted into shares of Exchanged CTI Stock pursuant
to the terms of
this Agreement.
Section 1.14 Shareholders. Richard F. Brothers, William C.
McCormick, Debbie
F. Mattingly, and Charles R. Brothers, who own one hundred
percent (100%) of
the issued and outstanding shares of MCC Stock that will be
converted into
shares of Exchanged CTI Stock pursuant to the terms of this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MCC
AND THE SHAREHOLDERS
As an inducement to, and to obtain the reliance of CTI and
NewCo, MCC and the
Shareholders each represent and warrant that the following
are true to the
best of their knowledge:
Section 2.01. Organization. MCC is a corporation duly
organized, validly
existing, and in good standing under the laws of the State
of Arizona and has
the corporate power to own all of its properties and assets
and to carry on
its business in all material respects as it is now being
conducted, and there
is no jurisdiction in which it is not qualified in which the
character and
location of the assets owned by it or the nature of the
business transacted by
it requires qualification, except where failure to do so
would not have a
material adverse effect on the business or properties of
MCC. Included in the
MCC Schedules (as hereinafter defined) are complete and
correct copies of the
articles of incorporation and bylaws of MCC as in effect on
the date hereof.
The execution and delivery of this Agreement does not, and
the consummation of
the transactions contemplated by this Agreement in
accordance with the terms
hereof will not, violate any provision of MCC's articles of
incorporation or
bylaws.
Section 2.02 Approval of Agreement. The board of directors
of MCC and the
Shareholders have authorized the execution and delivery of
this Agreement by
MCC and have approved the consummation of the transactions
contemplated
hereby. Included in the MCC Schedules is a copy of the
resolutions duly
adopted by the board of directors of MCC and the
Shareholders evidencing such
approval. Such consent has not been amended, modified,
rescinded or
superseded and remains in full force and effect. MCC has
full power,
authority, and legal right, and has taken all action
required by law, its
articles of incorporation and bylaws, and otherwise, to
execute and deliver
this Agreement and to consummate the transactions
contemplated hereby.
Section 2.03 Authority of Shareholders. Each of the
Shareholders has the
right and authority, without the prior consent of any other
person or entity,
to enter into this Agreement and consummate the transactions
contemplated
hereby. There is no lien, encumbrance or claim by any third
person with
respect to the MCC Stock owned by the Shareholders.
Section 2.04 Capitalization of MCC. The entire authorized
capital stock of
MCC consists of 10,000,000 shares of common stock, no par
value, of which
2,500 shares are validly issued and outstanding. All of
the issued and
outstanding MCC Stock is owned by the Shareholders. No
shares of MCC Stock
are reserved for issuance on the exercise of warrants or the
conversion of
other securities or the exercise of any other call,
commitment or right to
which MCC or any of the Shareholders are a party or to which
any of them are
subject. All issued and outstanding shares have been duly
authorized and
validly issued, are fully paid, and nonassessable, and have
not been issued in
violation of any preemptive or other right of any person.
Section 2.05 Subsidiaries and Predecessor. MCC has no
subsidiaries or any
predecessor corporation as that term is defined by GAAP.
Section 2.06 Financial Statements.
(a) Included in the MCC Schedules are the unaudited balance
sheets of MCC as
of December 31, 1995 and 1994, and the related unaudited
statements of income
and retained earnings for the years then ended.
(b) Such financial statements have been prepared in
accordance with GAAP,
except as disclosed in the MCC Schedules. MCC did not have,
as of the date of
any of such balance sheets, except as and to the extent
reflected or reserved
against therein, any labilities or obligations (absolute or
contingent) which
should have been reflected in a combined balance sheet
prepared in accordance
with GAAP and all assets reflected therein present fairly
the assets of MCC,
in accordance with GAAP. The statements of income fairly
present the
information required to be set forth therein in accordance
with GAAP. MCC
maintains a standard system of accounting established and
maintained in a
manner permitting the preparation of financial statements in
accordance with
GAAP.
(c) The books and records of MCC and its accounting
practices are sufficient
to permit the preparation of audited financial statements
for the periods
subsequent to December 31, 1993, in accordance with GAAP and
Regulation S-B
adopted under the Exchange Act. MCC will maintain and
preserve its books and
records in such a fashion so as to permit the preparation of
historical
audited financial statements as may be required by the
Exchange Act and the
rules and regulations adopted thereunder. MCC and the
Shareholders will each
cooperate fully and assist in the preparation of any such
financial
statements, at the cost of CTI.
(d) MCC has filed all tax returns and all reports required
by law. All such
returns and reports are accurate and correct in all material
respects. There
are no income taxes currently due to the federal or state
governments that
have not been paid. MCC does not have any liabilities with
respect to the
payment of any federal, state, county, local or other taxes
(including any
deficiencies, interest or penalties) accrued for or
applicable to the period
ended on the date of the most recent balance sheet included
in the MCC
Schedules and all such dates and years and periods prior
thereto and for which
MCC may at said date have been liable in its own right or as
transferee of the
assets of, or as a successor to, any other corporation or
other entity, except
for taxes accrued but not yet due and payable. None of such
federal income
returns have been audited or is currently being audited by
the Internal
Revenue Service. MCC has not made any election pursuant to
the Code (other
than elections which relate solely to methods of accounting,
depreciation or
amortization) which would have a material adverse effect on
MCC, its financial
conditions, its business as presently conducted or as
proposed to be conducted
or any of its properties or material assets. There are no
outstanding
agreements or waivers extending the statutory period of
limitations applicable
to any tax returns of MCC.
(e) The books and records, financial and otherwise, of MCC
are in all
material respects complete and correct and have been made
and maintained in
accordance with sound business and bookkeeping practices
and, in reasonable
detail, accurately and fairly reflect the transactions
involving the assets of
MCC. MCC has maintained a system of internal accounting
controls sufficient
to provide reasonable assurance that (i) transactions have
been and are
executed in accordance with management's general or specific
authorization;
(ii) transactions are recorded as necessary to permit the
preparation of
financial statements in conformity with GAAP or any other
criteria applicable
to such statements and to maintain accountability for
assets; (iii) access to
assets is permitted only in accordance with management's
general or specific
authorization; and (iv) the recorded accountability for
assets is compared
with the existing assets at reasonable intervals, and
appropriate action is
taken with respect to any differences.
(f) Except as set forth in the MCC Schedules, the latest of
the balance
sheets included in the MCC Schedules or in the notes
thereto, MCC (i) has good
and marketable title to its accounts receivable, and other
debts due or
recorded in the records and books of account of MCC, free of
any security
interests or liens and free of any material defenses,
counterclaims, and set-
offs, and all of such accounts receivable, invoices, and
debts are actual and
bona fide amounts due MCC for the total dollar amount
thereof shown on the
books of MCC and resulted from the regular course of
business; and (ii) the
accounts receivable, invoices, and debts set forth on the
MCC balance sheets
arose in the ordinary course of business and are, net of any
reserves shown on
the balance sheet, collectible in full in all material
respects on the
continuation of reasonable collection efforts by MCC or
successor personnel
and without resorting to litigation and in any event not
later than one
hundred eighty (180) days after the date billed.
Section 2.07 Information. The information concerning MCC
set forth in this
Agreement and in the MCC Schedules is accurate in all
material respects and
does not contain any untrue statement of a material fact or
omit to state a
material fact required to make the statements made, in light
of the
circumstances under which they were made, not misleading.
Section 2.08 Options or Warrants. There are no existing
warrants, calls,
commitments or other rights of any character relating to
authorized and
unissued MCC Stock or other securities of MCC.
Section 2.09 Absence of Certain Changes or Events. Except
as set forth in
this Agreement or in the MCC Schedules, since the date of
the most recent
balance sheet included in the MCC Schedules:
(a) There has not been (i) any material adverse change in
the business,
operation, assets or financial condition of MCC; or (ii) any
damage,
destruction or loss to MCC (whether or not covered by
insurance) materially
and adversely affecting the business, operations, assets or
financial
condition of MCC;
(b) MCC has not (i) amended its article of incorporation or
bylaws; (ii)
declared or made, or agreed to declare and make, any payment
of dividends or
distributions of any assets of any kind whatsoever to
shareholders or
purchased or redeemed, or agreed to purchase or redeem, any
of its capital
stock; (iii) waived any rights of value which in the
aggregate are
extraordinary or material considering the business of MCC;
(iv) made any
material change in its method of management, operation or
accounting; (v)
entered into any other material transactions; (vi) made any
accrual or
arrangement for or payment of bonuses or special
compensation of any kind or
any severance or termination pay to any present or former
officer, employee or
shareholder; (vii) increased the rate of compensation
payable or to become
payable by it to any of its officers or directors or any of
its employees
whose monthly compensation exceeds Five Thousand Dollars
($5,000); or (viii)
made any increase in any profit sharing, bonus, deferred
compensation,
insurance, pension, retirement or other employee benefit
plan, payment or
arrangement made to, for, or with its officers, directors or
employees;
(c) MCC has not (i) granted or agreed to grant any options,
warrants or other
rights for its stocks, bonds or other corporate securities
calling for the
issuance thereof; (ii) borrowed or agreed to borrow any
funds or incurred, or
become subject to, any material obligation or liability
(absolute or
contingent) except liabilities incurred in the ordinary
course of business;
(iii) paid any material obligation or liability (absolute or
contingent) other
than current liabilities; (iv) sold or transferred, or
agreed to sell or
transfer, any of its assets, properties or rights (except
assets, properties
or rights not used or useful in its business which, in the
aggregate have a
value of less than Five Thousand Dollars ($5,000) or assets,
properties or
rights disposed of in the ordinary course of business); (v)
made or permitted
any amendment or termination of any contract, agreement or
license to which it
is a party if such amendment or termination is material,
considering the
business of MCC; or (vi) issued, delivered or agreed to
issue or deliver any
stock, bonds or other corporate securities including
debentures (whether
authorized and unissued or held as treasury stock); and
(d) MCC has not become subject to any law or regulation
which materially and
adversely affects the business, operation, properties,
assets or financial
condition of MCC.
Section 2.10 Title to Personal and Real Property.
(a) Except as disclosed in the most recent balance sheet
included in the MCC
Schedules, MCC has title to all of its properties,
inventory, know-how,
interests in properties, and assets, which are reflected in
such balance sheet
or acquired after that date (except those sold or otherwise
disposed of since
such date in the ordinary course of business) or are used in
MCC's business,
free and clear of all material mortgages, security
interests, royalties,
liens, pledges, charges or encumbrances, except (i)
statutory liens or claims
not yet delinquent; (ii) such imperfections of title and
easements as do not
and will not materially detract from or interfere with the
present or proposed
use of the properties subject thereto or affected thereby or
otherwise
materially impair present business operations on such
properties; and (iii) as
described on the MCC Schedules. All personal property held
by MCC is in a
state of good maintenance and repair, excepting reasonable
wear and tear, and
is adequate and suitable for the purposes for which it is
presently being
used.
(b) MCC does not own any real property in fee simple.
(c) Included in the MCC Schedules is an accurate and
complete list of all
personal property owned by MCC or used in its business and
having a purchase
price of over Five Thousand Dollars ($5,000), together with
a description of
any mortgages, financing instruments or other encumbrances
to the title to
such properties. Also included in the MCC Schedules are
copies of all leases
for real and personal property to which MCC is a party.
Except as disclosed
in the MCC Schedules, each such lease is in full force and
effect; all rents
and additional fees due to date on each such lease have been
paid; in each
case, the lessee has been in peaceable possession since the
commencement of
the original term of such lease and is not in default
thereunder and no
waiver, indulgence of postponement of the lessee's
obligations thereunder has
been granted by the lessor; and there exists no event of
default or event,
occurrence, condition or act, which, with the giving of
notice, the lapse of
time or the happening of any further event or condition,
would become a
default under such lease, the occurrence of which would have
a material
adverse affect on MCC. Except as set forth in the MCC
Schedules, MCC has not
violated any of the terms or conditions under any such lease
in any material
respect, and all of the material covenants to be performed
by any other party
under any such lease have been fully performed. The
property leased by MCC is
in a state of good maintenance and repair, excepting
reasonable wear and tear,
and is suitable for the purposes for which it is presently
being used.
Section 2.11 Intellectual Property. MCC owns the entire
right, title and
interest in and to its proprietary intellectual property
listed in the MCC
Schedules, including all of the trade secrets, technology,
know-how, trade
names, trademarks, service marks, copyrights, patents,
patent applications,
registrations, and applications with respect thereto, and
other proprietary
information owned or used in connection with its
business(collectively, the
("Intellectual Property"). Except as set forth in the MCC
Schedules, such
Intellectual Property is not subject to the payment of
royalties or the
performance of any other obligation owed to any person or
entity. Neither the
Shareholders nor any other employee or former employee of
MCC owns, directly
or indirectly, any right, title or interest in or to the
Intellectual
Property. None of the Intellectual Property is subject to
any material order,
decree, judgment, stipulation, settlement, encumbrance or
attachment. There
are no pending or threatened proceedings, litigation or
other adverse claims
of which MCC is aware, affecting or with respect to the
Intellectual Property.
The Intellectual Property does not infringe on the
copyright, patent, trade
secret, know-how or other proprietary right of any other
person or entity and
comprises all such rights necessary to permit the operation
of the business of
MCC as now being conducted and as proposed to be conducted.
Section 2.12 Litigation and Proceedings. There are no
actions, suits or
proceedings pending or, to the knowledge of MCC and the
Shareholders,
threatened by or against MCC or affecting MCC or its
properties, at law or in
equity, before any court or other governmental agency or
instrumentality,
domestic or foreign, or before any arbitrator of any kind.
MCC is not in
material default with respect to any judgment, order, writ,
injunction,
decree, award, rule or regulation of any court, arbitrator,
governmental
agency or instrumentality.
Section 2.13 Contracts.
(a) Included in the MCC Schedules is a description of every
contract,
agreement, distributorship, franchise, license or other
agreement, arrangement
or commitment to which MCC is a party or by which its assets
or properties are
bound, which calls for the payment by MCC of more than Two
Thousand Dollars
($2,000) per month, or Twenty-Four Thousand Dollars
($24,000) in the
aggregate;
(b) Except as described in this Agreement or the MCC
Schedules, MCC is not a
party to or bound by, and the properties of MCC are not
subject to, any
contract, agreement, other commitment or instrument or other
corporate
restriction or any judgment, order, writ, injunction, decree
or award which
materially and adversely affects, or in the future may (as
far as MCC can now
reasonably foresee) materially and adversely affect, the
business operations,
properties, assets or financial condition of MCC; and
(c) Except as included or described in the MCC Schedules or
reflected in the
most recent MCC balance sheet, MCC is not a party to any
oral or written (i)
contract for the employment of any officer, director or
employee, whose
compensation is greater than Five Thousand Dollars ($5,000)
per month, which
is not terminable on thirty (30) days (or less) notice; (ii)
profit sharing,
bonus, deferred compensation, stock option, severance pay,
pension benefit or
retirement plan, agreement or arrangement covered by Title
IV of the Employee
Retirement Income Security Act, as amended; (iii) agreement,
contract or
indenture relating to the borrowing of money in amounts
greater than One
Thousand Dollars ($1,000) in the aggregate; (iv) guarantee
of any obligation
for the borrowing of money or otherwise, excluding
endorsements made for
collection and other guarantees of obligations, which, in
the aggregate, do
not exceed One Thousand Dollars ($1,000); (v) consulting or
other similar
contracts with an unexpired term of more than one (1) year
or providing for
payments in excess of One Thousand Dollars ($1,000) in the
aggregate; (vi)
collective bargaining agreement; (vii) agreement with any
present or former
officer or director of MCC whose compensation was or is
greater that Five
Thousand Dollars ($5,000) per month; or (viii) other
contract, agreement or
other commitment involving payments by it in the future of
more than Ten
Thousand Dollars ($10,000) in the aggregate per agreement.
Section 2.14 Material Contract Defaults. MCC is not in
default in any
material respect under the terms of any outstanding
contract, agreement, lease
or other commitment which is material to the business,
operations, properties,
assets or financial condition of MCC, and there is no event
of default or
other event which, with notice or the lapse of time or both,
would constitute
a default in any material respect under any such contract,
agreement, lease or
other commitment in respect of which MCC has not taken
adequate steps to
prevent such default occurring.
Section 2.15 Insurance Claims. During the last (3) three
years, MCC has not
filed any claims for damages, whether or not covered by
insurance, for amounts
greater than Five Thousand Dollars ($5,000). MCC and the
Shareholders are not
currently aware of any pending or unasserted claims.
Section 2.16 No Conflict with Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust or other material contract, agreement or instrument
to which MCC is a
party or to which any of its properties or operations are
subject, which would
have a material adverse affect on MCC.
Section 2.17 Governmental Authorizations. MCC has all
licenses, franchises,
permits, and other governmental authorizations that are
legally required to
enable it to conduct its business in all material respects
as conducted on the
date hereof or as presently contemplated. Except for
compliance with federal
and state securities and corporation laws, as hereinafter
provided, no
authorization, approval, consent or order of, or
registration, declaration or
filing with, any court or other governmental body is
required in connection
with the execution and delivery by MCC of this Agreement and
the consummation
by MCC of the transactions contemplated hereby.
Section 2.18 Compliance with Laws and Regulations. MCC has
complied with all
applicable statutes and regulations of all federal, state or
other
governmental entity or agency thereof, except to the extent
that noncompliance
would not materially and adversely affect the business,
operations,
properties, assets or financial condition of MCC or except
to the extent that
noncompliance would not result in the incurrence of any
material liability of
MCC. Included in the MCC Schedules is a copy of each letter
of inquiry,
review or investigation or other writing from or to any
governmental
authority, evidencing a violation or possible or alleged
violation of any of
the foregoing.
Section 2.19 Insurance. Included in the MCC Schedules is a
complete list of
all business liability, casualty, automobile, extended
coverage, and other
insurance policies which MCC maintains respecting its
products, services,
business, properties, and employees, showing for each type
of coverage the
policy limits, principal exclusions, deductibles, insurer,
premiums, term, and
other relevant information. Such policies are in full force
and effect and
are free from any right of termination by the insurance
carriers. All of the
insurable properties of MCC are insured for its benefit in
the amount of their
full replacement value (subject to reasonable deductibles)
against losses due
to fire and other casualty, with extended coverage, and
other risks
customarily insured against by persons operating similar
properties in the
localities where such properties are located and under valid
and enforceable
policies issued by insurers of recognized responsibility.
Section 2.20 Transactions with Affiliates. Set forth in
the MCC Schedules is
a description of every contract, agreement or arrangement
between MCC and any
person who is or has ever been during the previous three (3)
years an officer
or director of MCC or person owning of record, or known to
MCC to own
beneficially, five percent (5%) or more of the issued and
outstanding common
stock of MCC and which is to be performed in whole or in
part after the date
hereof. In all of such circumstances, the contract,
agreement or arrangement
was for a bona fide business purpose of MCC and the amount
paid or received,
whether in cash, services or in kind, was, has been during
the full term
thereof, and is required to be during the unexpired portion
of the term
thereof, no less favorable to MCC than terms available from
otherwise
unrelated parties in arms' length transactions. Except as
set forth in the
MCC Schedules or otherwise disclosed herein, no officer or
director of MCC or
five percent (5%) shareholder of MCC has, or has had since
the inception of
MCC, any interest, directly or indirectly, in any material
transaction with
MCC. The MCC Schedules also include a description of any
commitment by MCC,
whether written or oral, to lend any funds to, borrow any
money from, or enter
into any other material transaction with, any such
affiliated person.
Section 2.21 Labor Agreements and Actions. MCC is not
bound by or subject to
(and none of its assets or properties is bound by or subject
to) any written
or oral, express or implied, contract, commitment or
arrangement with any
labor union, and no labor union has requested or sought to
represent any of
the employees, representatives or agents of MCC. There is
no strike or other
labor dispute involving MCC pending or threatened, which
could have a material
adverse effect on the assets, properties, financial
condition, operating
results or business of MCC or (as such business is presently
conducted and it
is proposed to be conducted), and MCC is not aware of any
labor organization
activity involving its employees. MCC is not aware that any
officer or key
employee, or that any group of key employees, intends to
terminate their
employment with MCC, nor does MCC have a present intention
to terminate the
employment of any of the foregoing. Except as set forth in
the MCC Schedules,
the employment of each officer and employee of MCC is
terminable at the will
of MCC.
Section 2.22 Pension Reform Act of 1974. Except as set
forth in the MCC
Schedules, MCC does not have any unfunded pension liability
to the Pension
Benefit Guaranty Corporation or any other person or entity
in connection with
any retirement, pension plan or similar arrangement.
Section 2.23 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no
information that would give
MCC actual knowledge of the inaccuracy of any statements has
come to the
attention of MCC and/or its directors and officers; however,
no special or
independent investigation has been undertaken to determine
the accuracy of
such statements.
(ii) "Environment" shall mean soil, surface waters, ground
waters, land,
stream sediments, surface or subsurface strata, ambient air,
and any
environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law,
regulation, rule, ordinance or bylaw at the federal, state
or local level
existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance,
hazardous waste, hazardous material, hazardous substance or
oil as currently
defined in the ReMCC Conservation and Recovery Act, as
amended, the
Comprehensive Environmental Response, Compensation, and
Liability Act, as
amended, the Federal Clean Water Act, as amended, and any
other federal, state
or local environmental law, regulation, ordinance, rule or
bylaw existing as
of the date hereof.
(v) "Permit" shall mean any environmental permit, license,
approval, consent
or authorization issued by a federal, state or local
governmental authority.
(vi) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring,
emitting, emptying, discharging, injecting, escaping,
leaching, disposing or
dumping into the Environment.
(vii) "Threat of Release" shall mean a substantial
likelihood of a Release
which requires action to prevent or mitigate damage to the
Environment which
may result from such Release.
(b) To MCC's Current Actual Knowledge, MCC:
(i) Does not have any material liability under any
Environmental Laws
applicable to its operations;
(ii) Possesses all Permits that are applicable to its
operations; and
(iii) Has not been involved in a Release or Threat of
Release involving any
Hazardous Material.
(c) MCC has not violated any Environmental Laws applicable
to its operation,
the violation or noncompliance with which would have a
material adverse effect
on MCC.
(d) MCC has not:
(i) Entered into or been subject to any consent decree,
compliance order or
administrative order with respect to its properties or any
facilities or
operation thereon:
(ii) Received written notice under the citizen suit
provision of any
violation of any Environmental Law in connection with its
properties or any
facilities of operation thereon;
(iii) Received any written request for information, notice,
demand letter,
administrative inquiry or claim with respect to a violation
of any
Environmental Law relating to its properties or any
facilities or operation
thereon; or
(iv) Been subject to or threatened in writing with any
governmental or
citizen enforcement action with respect to a violation of
any Environmental
Law on its properties or at any facilities or operation
thereon.
Section 2.24 MCC Schedules. MCC has delivered to CTI the
following
schedules, which are collectively referred to as the "MCC
Schedules." The MCC
Schedules shall be updated through the Closing Date and
shall be certified by
the chief executive officer of MCC as complete, true, and
accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of MCC in effect as of the date of this Agreement referred
to in Section 2.01;
(b) A schedule containing copies of resolutions adopted by
the board of
directors of MCC and the Shareholders approving this
Agreement and the
transactions herein contemplated as referred to in Section
2.02;
(c) A schedule including the financial statements
identified in Section 2.06;
(d) A schedule including copies of all federal income tax
returns filed for
the year ended December 31, 1994, identified in Section
2.06;
(e) A schedule listing the accounts receivable and notes
and other
obligations receivable of MCC as of the date of the most
recent balance sheet
included in the MCC Schedules or that arose thereafter other
than in the
ordinary course of business, indicating the debtor and
amount, classifying the
accounts to show in reasonable detail the length of time, if
any, overdue, and
stating the nature and amount of any refunds, set-offs,
reimbursements,
discounts or other adjustments, which in the aggregate are
greater that
$1,000, due to or claimed by such debtors;
(f) A schedule listing the accounts payable and notes and
other obligations
payable of MCC as of the date of the most recent balance
sheet included in the
MCC Schedules or that arose thereafter other than in the
ordinary course of
business of MCC, indicating the creditor and amount,
classifying the accounts
to show in reasonable detail the length of time, if any,
overdue, and stating
the nature and amount of any refunds, set-offs,
reimbursements, discounts or
other adjustments, which in the aggregate are greater than
One Thousand
Dollars ($1,000), payable by MCC to any one such creditor;
(g) A schedule setting forth a description of any material
adverse change in
the business, operations, property, assets or financial
condition of MCC since
the most recent balance sheet included in the MCC Schedules,
required to be
provided pursuant to Section 2.09 hereof;
(h) Copies of all agreements or arrangements and all
written statements of
practice followed with regard to the payment of
compensation, bonuses,
deferred compensation, profit sharing, pension, vacation,
retirement or other
compensation benefits to officers, directors or employees
whose monthly
compensation exceeds Five Thousand Dollars ($5,000) ( and
descriptions of any
such agreements, arrangements or practices which are not in
writing), together
with a schedule setting forth the name and identification of
each officer,
director or employee whose monthly compensation exceeds Five
Thousand Dollars
($5,000) and of each former officer or former employee of
MCC who is currently
being paid or who is entitled to, or may become entitled to,
compensation in
amounts greater than Five Thousand Dollars ($5,000) per
month of any of such
compensation benefits and the rate or amounts thereof and
showing the nature
of any family relationship of such person to each
Shareholder;
(i) A schedule containing a description of all personal
property owned by MCC
and used in its business and having a purchase price of over
Ten Thousand
Dollars ($10,000), including a description of every material
mortgage,
financing instrument or encumbrance to which such personal
property of MCC is
subject (except statutory liens or claims not yet delinquent
and except liens,
claims, encumbrances or equities which do not or in the
future will not
materially detract from or interfere with the present or
proposed use of the
property subject thereto or affected thereby);
(j) A schedule containing a description of each lease,
rental agreement or
similar instrument, including a description of each oral
arrangement;
(k) A schedule setting forth the litigation and proceedings
as referred to in
Section 2.12;
(l) A schedule listing all material contracts, agreements,
franchises,
license agreements or other commitments to which MCC is a
party or by which
its properties are bound, as referred to in Section 2.14,
but excluding those
with affiliates which are described in Section 2.21;
(m) A schedule of any insurance claims as referred to in
Section 2.15;
(n) Copies of all licenses, permits, and other governmental
authorizations
(or requests or applications therefor) pursuant to which MCC
carries on or
proposes to carry on its business (except those which are
immaterial to the
present or proposed business of MCC), as referred to in
Section 2.17;
(o) A schedule describing the matters regarding compliance
with laws and
regulations, as referred to in Section 2.18;
(p) A schedule showing details of all insurance coverage as
referred to in
Section 2.19;
(q) A schedule containing a description of all material
contracts, leases,
agreements, and other instruments between MCC and any
affiliates, as referred
to in Section 2.20;
(r) A schedule showing the name and location of each bank
or other
institution in which MCC has an account or safe deposit box,
and the names of
all persons authorized to draw thereon or to have access
thereto;
(s) Copies of all powers of attorney given by MCC now in
effect or to be in
effect; and
(t) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the MCC Schedules by
Sections 2.01 through 2.23.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF CTI AND NEWCO
As an inducement to, and to obtain the reliance of MCC and
the Shareholders,
CTI and NewCo each represent and warrant as follows:
Section 3.01. Organization. CTI and NewCo are corporations
duly organized,
validly existing, and in good standing under the laws of the
States of Nevada
and Utah, respectively, and each has the corporate power to
own all of its
properties and assets and to carry on its business in all
material respects as
it is now being conducted, and there is no jurisdiction in
which either is not
qualified in which the character and location of the assets
owned by either of
them or the nature of the business transacted by either of
them requires
qualification, except where failure to do so would not have
a material adverse
effect on the business or properties of CTI. Included in
the CTI Schedules
(as hereinafter defined) are complete and correct copies of
the articles of
incorporation and bylaws of CTI and NewCo as in effect on
the date hereof.
The execution and delivery of this Agreement does not, and
the consummation of
the transactions contemplated by this Agreement in
accordance with the terms
hereof will not, violate any provision of CTI's or NewCo's
articles of
incorporation or bylaws.
Section 3.02 Approval of Agreement. The boards of
directors of CTI and NewCo
have authorized the execution and delivery of this Agreement
by CTI and NewCo
and have approved the consummation of the transactions
contemplated hereby.
Included in the CTI Schedules are copies of resolutions
duly adopted by the
boards of directors of CTI and NewCo evidencing such
approval. Such
resolutions have not been amended, modified, rescinded or
superseded and
remains in full force and effect. Each of CTI and NewCo has
full power,
authority, and legal right, and has taken all action
required by law, its
articles of incorporation, its bylaws, and otherwise, to
execute and deliver
this Agreement and to consummate the transactions
contemplated hereby.
Section 3.03 Authority of CTI and NewCo. Except as set
forth in the CTI
Schedules, each of NewCo and CTI has the right and
authority, without the
prior consent of any other person or entity, to enter into
this Agreement and
consummate the transactions contemplated hereby.
Section 3.04 Capitalization of CTI The authorized
capitalization of CTI
consists of 5,000,000 shares of preferred stock, par value
$0.001 per share,
of which 1,000,000 shares are issued and outstanding, and
25,000,000 shares of
common stock, par value $0.001 per share, of which 8,654,846
shares are issued
and outstanding. In addition, CTI has reserved 3,008,573
shares of common
stock for issuance on the exercise of outstanding and
committed options,
delivery of shares on a relocation agreement, the conversion
of the issued and
outstanding CTI Preferred Stock, and exercise of options
pursuant to its
Employee Stock Purchase Plan. All issued and outstanding
shares of CTI Common
Stock are validly authorized, legally issued, fully paid,
and nonassessable
and not issued in violation of any preemptive or other right
of any person.
All shares of Exchanged CTI Common Stock to be issued
pursuant to this
Agreement are validly authorized and will be, when issued,
legally issued,
fully paid, and nonassessable and not issued in violation of
any preemptive or
other right of any person.
Section 3.05 Subsidiaries and Predecessor. CTI was
formerly known as
Mountain Surgical Centers, Inc., which was formerly known as
Dimension
Capital. CTI has sixteen (16) wholly-owned subsidiaries,
some of which have
second-tier subsidiaries.
Section 3.06 Financial Statements.
(a) Included in the CTI Schedules is the audited balance
sheet of CTI as of
June 30, 1995, and the related audited statements of
earnings, stockholders'
equity, and cash flows for each of the two (2) fiscal years
ended June 30,
1995, and 1994, including the notes thereto, together with
the related
opinions of the independent certified public accountants of
CTI. Also
included are the unaudited balance sheet as of September 30,
1995, and the
related unaudited statements of earnings and cash flows for
the three months
ended September 30, 1995, and 1994.
(b) All such financial statements have been prepared in
accordance with GAAP
consistently applied throughout the periods involved. The
balance sheets of
CTI present fairly, as of their respective dates, the
financial position of
CTI. CTI did not have, as of the date of any of said CTI
balance sheets,
except as and to the extent reflected or reserved against
therein, any
liabilities or obligations (absolute or contingent) which
should have been
reflected in a balance sheet or the notes thereto prepared
in accordance with
GAAP, and all assets reflected therein present fairly the
assets of CTI, in
accordance with GAAP. The statements of operations,
stockholders' equity, and
cash flows present fairly the information required to be
set forth therein
under GAAP. CTI has maintained and will continue to
maintain a standard
system of accounting established and maintained in a manner
permitting the
preparation of financial statements in accordance with GAAP.
(c) All such financial statements have been prepared in
accordance with
Regulation S-B promulgated by the SEC regarding the form and
content of
requirements for financial statements to be filed with the
SEC.
Section 3.07 Information. The information concerning CTI
set forth in this
Agreement and in the CTI Schedules and in all filings and
reports made by CTI
with and to the SEC is complete and accurate in all material
respects and, as
of the date of such information, does not contain any
untrue statement of a
material fact or omit to state a material fact required to
make the statements
made, in light of the circumstances under which they were
made, not
misleading.
Section 3.08 Options or Warrants. There are no existing
warrants, calls,
commitments or other rights of any character relating to
authorized and
unissued CTI stock, except (a) options, warrants, calls or
commitments, if
any, to which CTI is not a party and by which it is not
bound; (b) options to
acquire an aggregate of not more than 2,000,000 shares of
CTI Common Stock;
(c) conversion rights held by the holders of CTI Preferred
Stock to convert
such stock into an aggregate of 667,000 shares of CTI Common
Stock; and (d) an
aggregate of 483,333 shares of CTI Common Stock for
convertible debt.
Section 3.09 Absence of Certain Changes or Events. Except
as set forth in
this Agreement or in the CTI Schedules, since the date of
the most recent CTI
balance sheet described in Section 3.06 and included in the
CTI Schedules:
(a) There has not been (i) any material adverse change in
the business,
operation, assets or condition of CTI; or (ii) any damage,
destruction or loss
to CTI (whether or not covered by insurance) materially and
adversely
affecting the business, operations, assets or conditions of
CTI;
(b) CTI has not (i) amended its article of incorporation or
bylaws; (ii)
declared or made, or agreed to declare and make, any payment
of dividends or
distributions of any assets of any kind whatsoever to
shareholders or
purchased or redeemed, or agreed to purchase or redeem, more
than 50,000
shares any of its capital stock; (iii) waived any rights of
value which in the
aggregate are extraordinary or material considering the
business of CTI; or
(iv) made any material change in its method of management,
operation or
accounting which is material to CTI;
(c) CTI has not (i) granted or agreed to grant any
options, warrants or
other rights for its stocks, bonds or other corporate
securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any
funds or incurred,
or become subject to, any material obligation or liability
(absolute or
contingent) except liabilities incurred in the ordinary
course of business;
(iii) paid any material obligation or liability (absolute or
contingent) other
than current liabilities reflected in or shown on the most
recent CTI balance
sheet and current liabilities incurred since that date in
the ordinary course
of business; (iv) sold or transferred, or agreed to sell or
transfer, any of
its assets, properties or rights (except assets, properties
or rights not used
or useful in its business which, in the aggregate have a
value of less than
Ten Thousand Dollars ($10,000) or assets, properties or
rights disposed of in
the ordinary course of business); (v) made or permitted any
amendment or
termination of any contract, agreement or license to which
it is a party if
such amendment or termination is material, considering the
business of CTI; or
(vi) issued, delivered or agreed to issue or deliver any
stock, bonds or other
corporate securities including debentures (whether
authorized and unissued or
held as treasury stock); and
(d) To the best knowledge of CTI, CTI has not become
subject to any law or
regulation which materially and adversely affects, or in the
future may
materially and adversely affect, the business, operation,
properties, assets
or financial condition of CTI.
Section 3.10 Litigation and Proceedings. There are no
actions, suits or
proceedings pending or, to the best knowledge of CTI,
threatened in writing by
or against CTI or affecting CTI or its properties, at law or
in equity, before
any court or other governmental agency or instrumentality,
domestic or
foreign, or before any arbitrator of any kind. CTI is not
in material default
with respect to any judgment, order, writ, injunction,
decree, award, rule or
regulation of any court, arbitrator, governmental agency or
instrumentality.
Section 3.11 No Conflict with Other Instruments. The
execution of this
Agreement and the consummation of the transactions
contemplated by this
Agreement will not result in the breach of any term or
provision of, or
constitute an event of default under, any material
indenture, mortgage, deed
of trust or other material contract, agreement or instrument
to which CTI is a
party or to which any of its properties or operations are
subject, which would
have a material adverse affect on CTI.
Section 3.12 Material Contract Defaults. CTI is not in
default in any
material respect under the terms of any outstanding
contract, agreement, lease
or other commitment which is material to the business,
operations, properties,
assets or financial condition of CTI, and there is no event
of default or
other event which, with notice or the lapse of time or both,
would constitute
a default in any material respect under any such contract,
agreement, lease or
other commitment in respect of which CTI has not taken
adequate steps to
prevent such default occurring.
Section 3.13 Governmental Authorizations. Except as set
forth in the CTI
Schedules, to the best knowledge of CTI, it has all
licenses, franchises,
permits, and other governmental authorizations that are
legally required to
enable it to conduct its business in all material respects
as conducted on the
date hereof or as presently contemplated. Except for
compliance with federal
and state securities and corporation laws, as hereinafter
provided, no
authorization, approval, consent or order of, or
registration, declaration or
filing with, any court or other governmental body is
required in connection
with the execution and delivery by CTI of this Agreement and
the consummation
by CTI of the transactions contemplated hereby.
Section 3.14 Compliance with Laws and Regulations. Except
as set forth in
the CTI Schedules, CTI has complied with all applicable
statutes and
regulations of any federal, state or other governmental
entity or agency
thereof, except to the extent that noncompliance would not
materially and
adversely affect the business, operations, properties,
assets or financial
condition of CTI or except to the extent that noncompliance
would not result
in the incurrence of any material liability of CTI.
Section 3.15 CTI Schedules. CTI has delivered to MCC and
the Shareholders
the following schedules, which are collectively referred to
as the "CTI
Schedules" and which consist of separate schedules dated as
of the date of
execution of this Agreement and updated through the date of
Closing, and
instruments and data as of such date, or the date indicated
on such schedules,
all certified by the chief executive officer of CTI as
complete, true, and
accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws
of CTI and NewCo in effect as of the date of this Agreement,
as referred to in
Section 3.01;
(b) A schedule containing copies of resolutions adopted by
the boards of
directors of CTI and NewCo approving this Agreement and the
transactions
herein contemplated as referred to in Section 3.02.
(c) A schedule containing the annual report of CTI on Form
10-KSB for the
year ended June 30, 1995 and the quarterly report on Form
10-QSB for the
quarter ended September 30, 1995;
(d) A schedule setting forth a description of any material
change in the
business, operations, assets, or condition of CTI since
September 30, 1995,
required to be provided pursuant to Section 3.09 hereof; and
(e) A schedule setting forth any other information,
together with any
required copies of documents, required to be disclosed in
the CTI Schedules by
Sections 3.01 through 3.14.
ARTICLE IV
PLAN OF REORGANIZATION
Section 4.01 Terms of Reorganization. The consideration
for the merger of
MCC into NewCo as a wholly-owned subsidiary of CTI, subject
to all of the
terms, covenants, and conditions set forth in this
Agreement, shall be:
(a) 45,000 shares of CTI's restricted voting common stock;
and
(b) Fifty Thousand Dollars ($50,000) payable at Closing.
The consideration will be distributed to the Shareholders as
follows:
Shareholders' Distribution
Shareholder Shares of Cash at
CTI Stock Closing
Richard F. Brothers 12,000 $-0-
William C.
McCormick 11,666 $50,000
Debbie F. Mattingly 10,667 $-0-
Charles R. Brothers 10,667 $-0-
Section 4.02 The Merger. The articles of merger and plan
of merger shall
provide for the merger of MCC with and into NewCo, with
NewCo as the surviving
entity. The merger shall result in the following:
(a) The MCC Stock shall be converted into an aggregate of
Forty-Five Thousand
(45,000) shares of CTI Common Stock. All shares of common
stock held by MCC
as treasury shares shall be canceled. The shares of CTI
Common Stock to be
issued shall not be registered under the Securities Act or
applicable state
securities laws and the certificates representing such
shares shall contain
the legend set forth in Section 5.07.
(b) Upon the Closing Date of the merger, the Shareholders
shall, on the
surrender of the certificate or certificates representing
the MCC Stock,
receive a certificate or certificates evidencing shares of
the Exchanged CTI
Stock as provided herein.
(c) On the Effective Date of the merger, the MCC Stock
shall be canceled, and
all rights in respect thereof shall cease.
Section 4.03 Tax Obligations. The Shareholders shall be
solely responsible
for any tax due from the Shareholders with respect to the
receipt by the
Shareholders of the consideration set forth in Section 4.01
of the Agreement
and any tax obligation incurred or accrued by MCC or the
Shareholders.
Section 4.04 Closing Events.
(a) The Closing shall take place at the offices of MCC
located at 627 South
48th Street, Suite 100, Tempe, Arizona 85281 on or before
February 10, 1996,
or at such other place or at such other time or on such
other date as the
parties hereto may mutually agree.
(b) Subject to the terms and conditions of this Agreement,
at the Closing on
the Closing Date:
(i) The Shareholders shall deliver to CTI share
certificates representing all
of the MCC Stock duly endorsed in blank or accompanied by
duly executed stock
powers (in blank).
(ii) MCC and the Shareholders shall deliver to CTI the
certificates, MCC
Schedules, and other documents and instruments to be
delivered under Section
2.24 and Article VI hereof, together with such other items
as may be
reasonably requested by the parties hereto and their
respective legal counsel
in order to effectuate or evidence the transactions
contemplated hereby.
(iii) CTI shall pay to the Shareholders the amount of cash
which the
Shareholders have the right to receive in respect of the
surrendered MCC Stock
pursuant to Section 4.01(b).
(iv) CTI shall deliver to the Shareholders share
certificates representing
the Exchanged CTI Stock which the Shareholders have the
right to receive in
respect of the surrendered MCC Stock pursuant to Section
4.01(a), issued in
such names and in such denominations as are designated by
the Shareholders not
less than five days before the Closing Date.
(v) CTI shall deliver to MCC and the Shareholders the
certificates, CTI
Schedules, and other documents and instruments to be
delivered under Section
3.15 and Article VII hereof, together with such other items
as may be
reasonably requested by the parties hereto and their
respective legal counsel
in order to effectuate or evidence the transactions
contemplated hereby.
(c) CTI, NewCo, and MCC, respectively, each shall use its
reasonable efforts
to take all such action as may be necessary or appropriate
to effectuate the
merger as provided herein. If, at any time after the
Closing Date, any
further action is necessary or desirable to carry out the
purposes of this
Agreement and to vest NewCo with full right, title and
possession to all
properties, interests, assets, rights, privileges,
immunities, powers and
franchises of MCC, the officers of NewCo are fully
authorized in the name of
MCC and NewCo or otherwise to take, and shall take, all such
lawful and
necessary action.
Section 4.05 Effective Date. The Effective Date of the
merger shall be the
date, as defined in the articles of merger or plan of
merger, on which the
merger of MCC with and into NewCo shall become effective in
accordance with
the laws of the State of Utah.
Section 4.06 Effect of Merger. On the Effective Date of
the merger, NewCo
and MCC shall cease to exist separately, and MCC shall be
merged with and into
NewCo, the surviving corporation, in accordance with the
provisions of this
Agreement, the articles of merger, and the plan of merger,
and in accordance
with the provisions of and with the effect provided in the
corporation laws of
the State of Utah. NewCo, as the surviving corporation,
shall possess all the
rights, privileges, franchises, and trust and fiduciary
duties, powers, and
obligations, of a private as well as of a public nature, and
be subject to all
the restrictions, obligations, and duties of each of NewCo
and MCC; all
property, real, personal, and mixed, and all debts due to
either of NewCo or
MCC on whatever account and all other things belonging to
each of NewCo and
MCC and all property, rights, privileges, powers, and
franchises, and all and
every other interest shall be thereafter the property of
NewCo as they were of
NewCo and MCC; the title to any real estate, whether vested
by deed or
otherwise, in either NewCo or MCC shall not revert or be in
any way impaired
by reason of the merger; provided, however, that all rights
of creditors and
all liens on any property of either NewCo or MCC shall be
preserved
unimpaired, and all debts, liabilities, and duties of NewCo
and MCC shall
thenceforth attach to NewCo and may be enforced against it
to the same extent
as if such debts, liabilities, and duties had been incurred
or contracted by
NewCo.
Section 4.07 Termination.
(a) This Agreement and the merger contemplated hereby may be
terminated at any
time prior to the Effective Date by the mutual consent of
both CTI and MCC
through action of their respective boards of directors. In
the event of
termination pursuant to this Section 4.07(a), no obligation,
right, remedy, or
liability shall arise hereunder, and the parties shall bear
their own costs
incurred in connection with the preparation and execution of
this Agreement,
the preparation and review of financial statements required
to be delivered
pursuant hereto, and the negotiation of the transactions
contemplated hereby.
(b)This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of CTI's board of directors if MCC
shall fail to
comply in any material respect with any of its covenants or
agreements
contained in this Agreement or if any of the representations
or warranties of
MCC contained herein shall be inaccurate in any material
respect. In the
event of termination pursuant to this Section 4.07(b), no
obligation, right,
remedy, or liability shall arise hereunder, and the parties
shall bear their
own costs incurred in connection with the preparation and
execution of this
Agreement, the preparation and review of financial
statements required to be
delivered pursuant hereto, and the negotiation of the
transactions
contemplated hereby.
(c) This Agreement and the merger may be terminated at any
time prior to the
Effective Date by action of MCC's board of directors if CTI
or NewCo shall
fail to comply in any material respect with any of their
covenants or
agreements contained in this Agreement or if any of the
representations or
warranties of CTI or NewCo contained herein shall be
inaccurate in any
material respect. In the event of termination pursuant to
this Section
4.07(c), no obligation, right, remedy, or liability shall
arise hereunder, and
the parties shall bear their own costs incurred in
connection with the
preparation and execution of this Agreement, the preparation
and review of
financial statements required to be delivered pursuant
hereto, and the
negotiation of the transactions contemplated hereby.
ARTICLE V
THE ACQUISITION OF THE EXCHANGED CTI STOCK
Section 5.01 Sale of Securities. The consummation of this
Agreement and the
issuance of the Exchanged CTI Stock as contemplated herein,
constitutes the
offer and sale of securities as those terms are defined
under the Securities
Act and applicable state statutes. Such transactions shall
be consummated in
reliance on certain exemptions from the registration
requirements of the
Securities Act and applicable state statutes which depend,
among other items,
on the circumstances under which such securities are
acquired.
Section 5.02 Representations by the Shareholders. In order
to provide
documentation for reliance upon such exemptions, the
approval by MCC and the
Shareholders of this Agreement and the transactions
contemplated hereby shall
constitute the parties' acceptance of, and concurrence in,
the following
representations and warranties:
(a) MCC and the Shareholders acknowledge that neither the
SEC nor the
securities commission of any state or other federal agency
has made any
determination as to the merits of acquiring the Exchanged
CTI Stock, and that
the acquisition and ownership of the Exchanged CTI Stock
involves certain
risks.
(b) MCC and the Shareholders have received and read this
Agreement and the
annual report of CTI on Form 10-KSB for the year ended June
30, 1995, and the
quarterly report on Form 10-QSB for the quarter ended
September 30, 1995, and
understand the risks related to the consummation of the
transactions herein
contemplated. MCC and the Shareholders have been given an
opportunity to meet
with and ask questions or management of CTI concerning the
business,
operations, and assets of CTI and the transactions
contemplated by this
Agreement.
(c) The Shareholders have such knowledge and experience in
business and
financial matters that they are capable of evaluating CTI
and its business
operations.
(d) The Shareholders are acquiring the Exchanged CTI Stock
for their own
account and not with a view for resale to others.
Section 5.03 Investment Intent. The Shareholders have not
offered or sold
any securities of CTI or interest in this Agreement and have
no present
intention of dividing the Exchanged CTI Stock to be received
or the rights
under this Agreement with others or of reselling or
otherwise disposing of any
portion of such stock or rights, either currently or after
the passage of a
fixed or determinable period of time or on the occurrence or
nonoccurrence of
any predetermined event or circumstance.
Section 5.04 No Public Solicitation. MCC and the
Shareholders were at no
time solicited by any leaflet, public promotional meeting,
circular, newspaper
or magazine article, radio or television advertisement, or
any other form of
general advertising or solicitation in connection with the
offer, sale, or
purchase of the Exchanged CTI Stock through this Agreement.
Section 5.05 Ability to Bear Risk of Investment. The
Shareholders have
adequate means of providing for their current needs and
possible contingencies
and have no need now, and anticipate no need in the
foreseeable future, to
sell the Exchanged CTI Stock obtained through this
Agreement. The
Shareholders are able to bear the economic risks of this
investment, and
consequently, without limiting the generality of the
foregoing, are able to
hold the Exchanged CTI Stock to be received for an
indefinite period of time
and have a sufficient net worth to sustain a loss of the
entire investment, in
the event such loss should occur.
Section 5.06 No Registration. The Shareholders understand
that the Exchanged
CTI Stock has not been registered, but is being acquired by
reason of a
specific exemption under the Securities Act as well as under
certain state
statutes for transactions by an issuer not involving any
public offering and
that any disposition of the subject Exchanged CTI Stock may,
under certain
circumstances, be inconsistent with this exemption and may
make the
Shareholders "underwriters" within the meaning of the
Securities Act. It is
understood that the definition of "underwriter" focuses upon
the concept of
"distribution" and that any subsequent disposition of the
subject Exchanged
CTI Stock can only be effected in transactions which are not
considered
synonymous with "public offering" or any other offer or sale
involving general
solicitation or general advertising. Under present law, in
determining
whether a distribution occurs when securities are sold into
the public market,
under certain circumstances one must consider the
availability of public
information regarding the issuer, a holding period for the
securities
sufficient to assure that the persons desiring to sell the
securities without
registration first bear the economic risk of their
investment, and a
limitation on the number of securities which the shareholder
is permitted to
sell and on the manner of sale, thereby reducing the
potential impact of the
sale on the trading markets. These criteria are set forth
specifically in
Rule 144 promulgated under the Securities Act, and, after
two years after the
date the Exchanged CTI Stock is fully paid for, as
calculated in accordance
with Rule 144(d), sales of securities in reliance upon Rule
144 can only be
made in limited amounts in accordance with the terms and
conditions of that
rule. After three years from the date the securities are
fully paid for, as
calculated in accordance with Rule 144(d), they can
generally be sold without
meeting those conditions, provided the holder is not (and
has not been or the
preceding three months) an affiliate of the issuer.
Section 5.07 Restrictions on Transfer. The Shareholders
acknowledge that the
shares of Exchanged CTI Stock must be held and may not be
sold, transferred,
or otherwise disposed of for value unless they are
subsequently registered
under the Securities Act or an exemption from such
registration is available.
CTI is under no obligation to register the Exchanged CTI
Stock under the
Securities Act. If Rule 144 is available (and no assurance
is given that it
will be), only sales of such Exchanged CTI Stock in limited
amounts can be
made in reliance upon Rule 144 in accordance with the terms
and conditions of
that rule. CTI is under no obligation to the undersigned to
make Rule 144
available, and in the event Rule 144 is not available,
compliance with
Regulation A or some other disclosure exemption may be
required before the
Shareholders can sell, transfer, or otherwise dispose of
such Exchanged CTI
Stock without registration under the Securities Act. CTI's
registrar and
transfer agent will maintain a stop transfer order against
the registration of
transfer of the Exchanged CTI Stock, and the certificate
representing the
Exchanged CTI Stock will bear a legend in substantially the
following form so
restricting the sale of such securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND
ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED
UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED
FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLYING WITH
RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE
UNDER THE SECURITIES ACT.
Section 5.08 Stop Order. CTI may refuse to register
transfer of the
Exchanged CTI Stock in the absence of compliance with Rule
144 unless the
Shareholders furnish the issuer with an opinion of counsel
reasonably
acceptable to CTI stating that the transfer is permitted
under applicable law.
Section 5.09 Additional Documentation. In order to more
fully document
reliance on the exemptions as provided herein, the
Shareholders agree to
execute and deliver to CTI such further letters of
representation,
acknowledgment, suitability, or the like, as CTI and its
counsel may
reasonably request in connection with reliance on exemptions
from registration
under such securities laws.
Section 5.10 No Legal Opinion. MCC, the Shareholders, and
CTI acknowledge
that the basis for relying on exemptions from registration
or qualifications
are factual, depending on the conduct of the various
parties, and that no
legal opinion or other assurance will be required or given
to the effect that
the transactions contemplated hereby are in fact exempt from
registration or
qualification.
Section 5.11 SEC Filings. CTI agrees that it will file all
reports required
to be filed with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act,
such that the current public information requirement of Rule
144(c)(1),
promulgated under the Securities Act, shall be met.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CTI
The obligations of CTI and NewCo under this Agreement are
subject to the
satisfaction, at or before the Closing Date, of the
following conditions:
Section 6.01 Accuracy of Representations. The
representations and warranties
made by MCC and the Shareholders in this Agreement shall be
true as of the
Closing, and MCC and the Shareholders shall have performed
or complied with
all material covenants and conditions required by this
Agreement to be
performed or complied with by MCC or the Shareholders,
respectively, prior to
or at the Closing. CTI and NewCo shall be furnished with a
certificate,
signed by the chief executive officer of MCC and dated the
Closing Date, to
the foregoing effect.
Section 6.02 Officer's Certificate. CTI and NewCo shall
have been furnished
with a certificate dated the Closing Date and signed by the
duly authorized
chief executive officer of MCC to the effect that:
(a) This Agreement has been duly approved by MCC board of
directors and the
Shareholders and has been duly executed and delivered in the
name and on
behalf of MCC by its duly authorized officer is pursuant to,
and in compliance
with, authority granted by MCC's board of directors;
(b) The representations and warranties of MCC set forth in
this Agreement are
true and correct as of the date of the certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the MCC Schedules in the financial
condition, business, or
operations of MCC nor has any event occurred which, with the
lapse of time or
giving of notice, may cause or create any material adverse
change in the
financial condition, business, or operations of MCC up to
and including the
date of the certificate, except as authorized by this
Agreement;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by MCC and the Shareholders have
been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of MCC, pursuant to any mortgage, resolution,
agreement, or
instrument to which MCC is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by MCC and have been obtained and are in full
force and effect or,
if not required to have been obtained will be in full force
and effect by such
time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law or
in equity by any public board or body pending or threatened
in writing against
so, wherein an unfavorable decision, ruling, or finding
would have a material
adverse effect on the financial condition of MCC, the
operations or business
of MCC, the acquisition and reorganization contemplated
herein, or any
material agreement or instrument by which MCC is bound or
would in any way
contest the existence of MCC.
Section 6.03 Good Standing. CTI and NewCo shall have
received a certificate
of good standing with respect to MCC, dated as of a date
within twenty (20)
days prior to the Closing Date, certifying what MCC is in
good standing as a
corporation in Arizona.
Section 6.04 UCC Certificate. CTI shall have received an
Arizona Uniform
Commercial Code certificate dated as of a date within five
(5) days of the
Closing Date to the effect that there are no encumbrances of
record on the
assets of MCC, other than those disclosed in the MCC
Schedules.
Section 6.05 Other Items. CTI and NewCo shall have
received such further
documents, certificates, or instruments relating to the
transactions
contemplated hereby as CTI and NewCo may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF MCC AND THE SHAREHOLDERS
The obligations of MCC and the Shareholders under this
Agreement are subject
to the satisfaction, at or before the Closing Date, of the
following
conditions:
Section 7.01 Accuracy of Representations. The
representations and warranties
made by CTI and NewCo in this Agreement shall be true as of
the Closing and
CTI and NewCo shall have performed and complied with all
material covenants
and conditions required by this Agreement to be performed or
complied with by
CTI and NewCo prior to or at the Closing. MCC shall have
been furnished with
a certificate, signed by the duly authorized chief executive
and principal
financial or accounting officer or officers of CTI and NewCo
and dated the
Closing Date, to the foregoing effect.
Section 7.02 Officer's Certificate. MCC and the
Shareholders shall have been
furnished with certificates dated the Closing Date and
signed by the duly
authorized officer or officers of CTI and NewCo to the
effect that:
(a) This Agreement has been duly approved by CTI's and
NewCo's boards of
directors and has been duly executed and delivered in the
name and on behalf
of CTI and NewCo by duly authorized officers pursuant to,
and in compliance
with, authority granted by CTI's and NewCo's board of
directors;
(b) The representations and warranties of CTI and NewCo set
forth in this
Agreement are true and correct as of the date of the
certificate;
(c) There has been no material adverse change since the
date of the balance
sheet included in the CTI Schedules in the financial
condition, business, or
operations of CTI and NewCo nor has any event occurred
which, with the lapse
of time or giving of notice, may cause or create any
material adverse change
in the financial condition, business, or operations of CTI
and NewCo, up to
and including the date of the certificate;
(d) All material conditions required by this Agreement to
have been met,
satisfied, or performed by CTI and NewCo have been met;
(e) The consummation of the transactions contemplated by
this Agreement does
not violate any material law, regulation, order, writ,
injunction, or decree
of any court or governmental body or result in the creation
or imposition of
any material mortgage, lien, charge, or encumbrance of any
nature upon any of
the properties of CTI and NewCo, pursuant to any mortgage,
resolution,
agreement, or instrument to which CTI and NewCo is a party;
(f) All material authorizations, consents, approvals,
registrations, and/or
filings with any governmental body, agency, or court
required in connection
with the execution and delivery of the documents
contemplated by this
Agreement by CTI and NewCo have been obtained and are in
full force and effect
or, if not required to have been obtained, will be in full
force and effect by
such time as may be required; and
(g) There is no action, suit, proceeding, inquiry, or
investigation at law or
in equity by any public board or body pending or threatened
in writing against
CTI and NewCo, wherein an unfavorable decision, ruling, or
finding would have
a material adverse effect on the financial condition or
operation of CTI and
NewCo, or the merger contemplated herein, or any material
agreement or
instrument by which CTI and NewCo are bound or would in any
way contest the
existence of CTI and NewCo.
Section 7.03 Good Standing. MCC and the Shareholders shall
have received a
certificate of good standing from the Secretary of State of
Nevada with
respect to CTI, dated as of a date within ten (10) days
prior to the date of
this Agreement, certifying that CTI is in good standing as a
corporation in
the State of Nevada.
Section 7.04 Other Items. MCC and the Shareholders shall
have received such
further documents, certificates, or instruments relating to
the transactions
contemplated hereby as MCC and the Shareholders may
reasonably request.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Brokers. CTI and MCC agree that there were no
finders or
brokers involved in bringing the parties together or who
were instrumental in
the negotiation, execution, or consummation of this
Agreement. Further, CTI
and MCC each agree to indemnify the other against any claim
by any third
person for any commission, brokerage, or finder's fee or
other payment with
respect to this Agreement or the transactions contemplated
hereby based on any
alleged agreement or understanding between such party and
such third person,
whether express or implied, resulting from the actions of
such party. The
covenants set forth in this Section 8.01 shall survive the
Closing and the
consummation of the transactions herein contemplated.
Section 8.02 Indemnification by the Shareholders. The
Shareholders agree to
indemnify and hold harmless CTI and NewCo and each of their
respective
directors and officers, and each person, if any, who
controls CTI and NewCo
within the meaning of the Securities Act, from and against
any and all losses,
claims, damages, expenses, liabilities or actions and will
reimburse them for
any legal or other expenses reasonably incurred by them in
connection with
investigating or defending any claims or actions, resulting
in liability of
Ten Thousand Dollars ($10,000) or more, insofar as such
losses, claims,
damages, expenses, liabilities or actions arise directly out
of any breach of
any representation, warranty, covenant, or agreement in this
Agreement by the
Shareholders or MCC. The indemnity agreement contained in
this Section 8.02
shall remain operative and in full force and effect,
regardless of any
investigation made by or on behalf of CTI and NewCo and
shall survive the
consummation of the transactions contemplated by this
Agreement for a period
of three (3) years after the Closing Date.
Section 8.03 Indemnification by CTI and NewCo. CTI and
NewCo agree to
indemnify and hold harmless the Shareholders from and
against any and all
losses, claims, damages, expenses, liabilities, or actions
and will reimburse
them for any legal or other expenses reasonably incurred by
them in connection
with investigating or defending any claims or actions,
resulting in liability,
insofar as such losses, claims, damages, expenses,
liabilities or actions,
resulting in liability of Ten Thousand Dollars ($10,000) or
more, insofar as
such losses, claims, damages, expenses, liabilities or
actions arise directly
out of any breach of any representation, warranty, covenant,
or agreement in
this Agreement by CTI and NewCo. The indemnity agreement
contained in this
Section 8.03 shall remain operative and in full force and
effect, regardless
of any investigation made by or on behalf of the
Shareholders and shall
survive the consummation of the transactions contemplated by
this Agreement
for a period of three (3) years after the Closing Date.
Section 8.04 Tax Treatment. No representation or warranty
is being made or
legal opinion given by any party to any other regarding the
treatment of this
transaction for federal or state income taxation. All
parties intend for the
transaction to be treated as a "tax-free" reorganization
under the provisions
of the Code and agree to take all corporate action
necessary, to file all tax
returns and reports, and prepare financial statements
consistent with the
treatment of the transaction as a reorganization under
Section 368. Although
this transaction has been structured in an effort to qualify
for treatment
under Section 368 of the Code, there is no assurance that
any part of this
transaction in fact meets the requirements for such
qualification. Each party
has relied exclusively on its own legal, accounting, and
other tax advisers
regarding the treatment of this transaction for federal and
state income
taxes.
Section 8.05 Governing Law. This Agreement shall be
governed by, enforced,
and construed under and in accordance with the laws of the
United States of
America and, with respect to matters of state law, with the
laws of the State
of Utah.
Section 8.06 Notices. Any notices or other communications
required or
permitted hereunder shall be in writing and shall be deemed
sufficiently given
if personally delivered, if sent by facsimile or telecopy
transmission or
other electronic communication confirmed by registered or
certified mail,
postage prepaid, or if sent by prepaid overnight courier
addressed as follows:
(a) If to CTI or NewCo, to:
CTI Technologies, Inc.
986 West Atherton Drive
Salt Lake City, UT 84123
Attention: Richard N. Beckstrand
Fax No: (801) 265-3224
Confirmation (801) 263-1840
With copies to:
Prince, Yeates & Geldzahler
175 East 400 South, Suite 900
Salt Lake City, UT 84111
Attention: Gregory E. Lindley
Fax No: (801) 524-1099
(b) If to MCC or the Shareholders:
627 South 48th Street, Suite 100
Tempe, AZ 85281
Attention: Richard F. Brothers
Fax No: (602) 829-6917
or such other addresses as shall be furnished in writing by
any party in the
manner for giving notices hereunder, and any such notice or
communication
shall be deemed to have been given as of the date so
delivered or sent by
facsimile or telecopy transmission or other electronic
communication, or one
day after the date so sent by overnight courier.
Section 8.07 Attorneys' Fees. In the event that any party
institutes any
action or suit to enforce this Agreement or to secure relief
from any default
hereunder or breach hereof, the breaching party or parties
shall reimburse the
nonbreaching party or parties for all costs, including
reasonable attorneys'
fees, incurred in connection therewith and in enforcing or
collecting any
judgment rendered therein.
Section 8.08 Costs. Each of the parties shall bear its
respective costs
associated with this Agreement and the transactions
contemplated hereby,
including legal fees, accounting fees, and other costs and
expenses.
Section 8.09 Schedules; Knowledge. Whenever in any section
of this Agreement
reference is made to information set forth in the CTI
Schedules or MCC
Schedules such reference is to information specifically set
forth in such
schedules and clearly referenced to identify the section of
this Agreement to
which the information relates. Whenever any representation
is made to the
"knowledge" of any party, it shall be deemed to be a
representation that such
officer or director has made a reasonable investigation of
such matters.
Section 8.10 Third-Party Beneficiaries. This Agreement is
solely between
CTI, NewCo and MCC and the Shareholders, and no director,
officer,
stockholder, employee, agent, independent contractor, or any
other person or
entity shall be deemed to be a third-party beneficiary of
this Agreement.
Section 8.11 Entire Agreement. This Agreement, together
with the other
agreements entered into between the parties
contemporaneously with this
Agreement (this Agreement and such other documents
collectively referred to as
the "Transaction Documents"), represent the entire agreement
between the
parties relating to the subject matter hereof. All previous
agreement between
the parties, whether written or oral, have been merged into
the Transaction
Documents. The Transaction Documents fully and completely
express the
agreement of the parties relating to the subject matter
hereof. There are no
other courses of dealing, understandings, agreements,
representations, or
warranties, written or oral, except as set forth in the
Transaction Documents.
Section 8.12 Survival. The representations, warranties,
and covenants of the
respective parties shall survive the Closing of the
transactions contemplated
hereby.
Section 8.13 Counterparts. This Agreement may be executed
in multiple
counterparts, each of which shall be deemed an original and
all of which taken
together shall be but a single instrument.
Section 8.14 Amendment or Waiver. Every right and remedy
provided herein
shall be cumulative with every other right and remedy,
whether conferred
herein, at law, or in equity, and may be enforced
concurrently herewith, and
no waiver by any party of the performance of any obligation
by the other shall
be construed as a waiver of the same or any other default
then, theretofore,
or thereafter occurring or existing. This Agreement shall
only be amended by
a writing signed by all parties hereto, with respect to any
of the terms
contained herein, and any term or condition of this
Agreement may be waived or
the time for performance thereof may be extended by a
writing signed by the
party or parties for whose benefit the provision is
intended.
Section 8.15 Severability. If and to the extent that any
court of competent
jurisdiction holds any provision, or any part thereof, of
this Agreement to be
invalid or unenforceable, such holding shall in no way
affect the validity of
the remainder of this Agreement which shall continue in full
force and effect.
Section 8.16 Successors and Assigns. This Agreement shall
insure to the
benefit of and be binding on the parties and their
successors, assigns, heirs,
executors, and administrators.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be
executed by their respective officers, hereunto duly
authorized, as of the
date first above written.
CUSA TECHNOLOGIES, INC.
By_________________________________
Duly Authorized Officer
NEW MEDICAL CLEARING CORPORATION
By________________________________
Duly Authorized Officer
MEDICAL CLEARING CORPORATION
By________________________________
Duly Authorized Officer
THE SHAREHOLDERS:
__________________________________
Richard F. Brothers
__________________________________
William C. McCormick
___________________________________
Debbie F. Mattingly
__________________________________
Charles R. Brothers
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AS OF DECEMBER 31, 1995, AND STATEMENTS OF EARNINGS FOR THE
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,317,104
<SECURITIES> 0
<RECEIVABLES> 8,044,458
<ALLOWANCES> 249,000
<INVENTORY> 898,157
<CURRENT-ASSETS> 10,644,216
<PP&E> 5,865,394
<DEPRECIATION> 1,386,682
<TOTAL-ASSETS> 33,019,472
<CURRENT-LIABILITIES> 16,787,815
<BONDS> 0
<COMMON> 8,601
0
1,000
<OTHER-SE> 10,414,024
<TOTAL-LIABILITY-AND-EQUITY> 33,019,472
<SALES> 13,088,191
<TOTAL-REVENUES> 13,088,191
<CGS> 6,605,529
<TOTAL-COSTS> 12,299,242
<OTHER-EXPENSES> 120,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,045
<INCOME-PRETAX> 668,700
<INCOME-TAX> 383,400
<INCOME-CONTINUING> (285,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285,300
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
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