<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 18, 1998
VIRTUALFUND.COM, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-18114 41-1612861
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
7090 SHADY OAK ROAD
EDEN PRAIRIE, MINNESOTA 55344
(Address of registrant's principal executive offices)
(612) 941-8687
(Registrant's telephone number)
NOT APPLICABLE
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 18, 1998, VirtualFund.com, Inc. ("VFND") and Virtual
Acquisition Corp. I, a wholly owned subsidiary of VFND ("Acquisition Sub"),
entered into and consummated an Agreement and Plan of Merger (the "Merger
Agreement"), dated December 18, 1998, by and among VFND, Acquisition Sub, K&R
Technical Services, Inc. ("K&R") and the shareholders of K&R. Pursuant to and
subject to the terms and conditions of the Merger Agreement, K&R was merged with
and into Acquisition Sub (the "Merger") and all of the issued and outstanding
shares of Common Stock of K&R were converted into (i) promissory notes of VFND
aggregating $3,678,258 (of which approximately $1,428,221 is due January 29,
1999 and the balance is due June 18, 1999); and (ii) an aggregate of 1,499,998
shares of the Series A Convertible Preferred Stock of VFND. The consideration
paid by VFND to consummate the Merger was arrived at through arm's length
negotiations between VFND and the principal shareholders of K&R.
Each share of Series A Convertible Preferred Stock is convertible into
Common Stock of VFND, initially at the rate of one share of Common Stock for
each share of Series A Convertible Preferred Stock, and has a guaranteed value
of $5 per share after two years from the date of issuance. The value of the
shares of Series A Convertible Preferred Stock for financial accounting purposes
will be $5 per share based on the guaranteed value. VFND expects to account for
the Merger as a purchase.
K&R has been in business since 1955 and has grown to become a premier
provider of Internet solutions for businesses including Internet content
development, World Wide Web hosting and site management under the name TEAM
Technologies (TEAM). TEAM operates three business groups: Internet Solutions,
Professional Support Services, Systems and Network Integration.
Internet Solutions - TEAM's hosting provides customers with a cost-effective way
to have reliable, world-class Internet performance of their web and e-commerce
sites as well as solutions provided by E-Com Tools software.
Professional Support Center - Provides onsite technical staffing and consulting
resources, including requirements analysis and strategic planning.
Systems and Network Integration - Consists of professional technology services
by systems engineers, network designers and technicians, telecommunications
specialists, and systems operating software developers. Their services include:
- Local/Wide/Metro Area Network Systems Equipment
- Network Design/Configuration and Architectural Planning
- Internet Access Facilities and Network Services
- Systems Integration & Applications Interface
- Network Management and Administration
2
<PAGE>
Additional information regarding the Merger is contained in the Merger
Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
The registrant has determined that it is impracticable to provide the
required historical financial information regarding the acquisition of
K&R Services, Inc. at this time. The registrant will file the required
historical financial information under a Form 8-K/A as soon a
practicable, but in any event within 60 days after the date that this
report on Form 8-K is required to be filed.
(b) Pro Forma Financial Information
The registrant has determined that it is impracticable to provide the
required pro forma financial information regarding the acquisition of
K&R Services, Inc. at this time. The registrant will file the required
pro forma financial information under a Form 8-K/A as soon a
practicable, but in any event within 60 days after the date that this
report on Form 8-K is required to be filed.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of December 18, 1998, by and
among VirtualFund.com, Inc., Virtual Acquisition Corp. I, K&R Technical
Services, Inc. and the shareholders of K&R Technical Services, Inc.
Omitted from such Exhibit are the exhibits thereto referenced in such
agreement. The registrant will furnish supplementally a copy of any
such exhibits to the Commission upon request.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 28, 1998
VIRTUALFUND.COM, INC.
(Registrant)
By /s/ James H. Horstmann
---------------------------
JAMES H. HORSTMANN
Chief Financial Officer
4
<PAGE>
VIRTUALFUND.COM, INC.
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
2.1 Agreement and Plan of Merger, dated as of
December 18, 1998, by and among
VirtualFund.com, Inc., Virtual Acquisition
Corp. I, K&R Technical Services, Inc. and
the shareholders of K&R Technical Services,
Inc...................................... Filed electronically
herewith
5
<PAGE>
EXHIBIT 2.1
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 18 , 1998
AMONG
VIRTUALFUND.COM, INC.,
VIRTUAL ACQUISITION CORP I,
K&R TECHNICAL SERVICES, INC.
AND
THE SHAREHOLDERS OF K&R TECHNICAL SERVICES, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December 18, 1998, is by and
among VirtualFund.com, Inc., a Minnesota corporation ("Parent"), Virtual
Acquisition Corp. I, a Minnesota corporation ("Acquisition Sub"), K&R Technical
Services, Inc., an Iowa corporation ("Company"), Stephen Fisher, Mark Kittrell,
Mark Stewart (which individuals are hereinafter referred to individually as a
"Principal" and collectively as the "Principals") and Ranelle Bailiff, (Stephen
Fisher, Mark Kittrell and Mark Stewart and Ranelle Bailiff are hereinafter
referred to individually as "Shareholder" and collectively as the
"Shareholders").
A. The parties hereto wish to provide for the terms and conditions upon
which Company will be merged with and into Acquisition Sub.
B. The parties hereto wish to make certain representations, warranties,
covenants and agreements in connection with such merger and also to prescribe
various conditions to such merger.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
SECTION 1
1. Merger.
(a) Merger; Surviving Corporation. Upon satisfaction of all conditions to
the obligations of the parties contained herein (other than such conditions
as shall have been waived in accordance with the terms hereof), at the
Effective Time (as defined below), and pursuant to the provisions of the
Iowa Business Corporation Act, as amended (the "IBCA"), and the Minnesota
Business Corporation Act, as amended (the "MBCA") (the IBCA and the MBCA
are hereinafter referred to collectively as the "Corporation Codes"),
Company shall be merged with and into Acquisition Sub (the "Merger") upon
the terms and conditions set forth herein and in the Plan of Merger set
forth as Exhibit 1(a) hereto (the "Plan of Merger") and Acquisition Sub
shall be the surviving corporation ("Surviving Corporation").
(b) Articles of Incorporation. The articles of incorporation of Acquisition
Sub, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation of Surviving Corporation until duly amended or
repealed as provided therein or as otherwise provided by law.
(c) Bylaws. The bylaws of Acquisition Sub, as in effect immediately prior
to the Effective Time, shall be the bylaws of Surviving Corporation until
duly amended or repealed as provided therein or as otherwise provided by
law.
(d) Directors and Officers. The directors and officers of Acquisition Sub
immediately prior to the Effective Time shall be the directors and officers
of Surviving Corporation from and after the Effective Time (and the
directors of the Acquisition Sub immediately prior to the Effective Time
(and of the Surviving Corporation after the Effective Time) shall include
one (1) director designated by the Shareholders at least two (2) days prior
to the Effective Time to serve for a minimum term of three (3) years), and
such directors and officers shall hold office from and after the Effective
Time until the earlier of the election or appointment and qualification of
their respective successors, their respective resignations or their
respective removal in manner
<PAGE>
provided in the articles of incorporation and bylaws of Surviving
Corporation or as otherwise provided by law.
(e) Closing. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to
Section 8 hereof, a closing (the "Closing" will be held on December 18,
1998 at the offices of Oppenheimer Wolff & Donnelly LLP, 45 South Seventh
Street, Suite 3400, Minneapolis, MN or such other place as the parties may
agree, at 9:00 a.m., local time or such other time as the parties may
agree, at which time and place the documents and instruments necessary or
appropriate to effect the transactions contemplated herein will be
exchanged by the parties, provided, however, that if any of the conditions
provided for in Sections 6 and 7 hereof shall not have been satisfied or
waived by such date, then the party to this Agreement which is unable to
satisfy such condition or conditions, despite the best efforts of such
party, shall be entitled to postpone the Closing by notice to the other
parties until such condition or conditions shall have been satisfied (which
such notifying party will seek to cause to happen at the earliest
practicable date) or waived. The date on which the Closing actually takes
place is referred to herein as the "Closing Date". In no event shall the
Closing occur later than January 15, 1999 or such later date as Parent,
Company and the Shareholders may mutually agree upon (the "Termination
Date").
(f) Effective Time. Immediately prior to the Closing, the parties hereto
shall effect the Merger by filing with the Secretary of State of the State
of Iowa and with the Secretary of State of the State of Minnesota the
required number of originals of articles of merger (substantially in the
respective forms set forth in Annex I to the Plan of Merger) in accordance
with the applicable provisions of the respective Corporation Codes (the
"Articles of Merger"). The Merger shall become effective at the time of
filing of the Articles of Merger. The time when the Merger shall become
effective is referred to herein as the "Effective Time."
(g) Merger Consideration. Upon satisfaction of all conditions to the
obligations of the parties contained herein (other than such conditions as
shall have been waived in accordance with the terms hereof), at the
Effective Time, each share of Company's common stock, no par value per
share (the "Company Common Stock"), issued and outstanding immediately
prior to the Effective Time (all such issued and outstanding shares of
Company Common Stock, not including treasury shares, if any, are referred
to herein collectively as the "Shares"), shall by virtue of the Merger and
without any action on the part of the holder thereof, be converted and
changed into the right to receive (subject to and upon the terms and
conditions set forth in this Agreement): (i) a Promissory Note of Parent in
the form of Exhibit 1(g)(i) hereto (the "January 1999 Note") in the
original principal amount of $9.7752 per Share minus the per share
allocation of cash equal to the amount of the indebtedness of Company
payable to Parent as of December 17, 1998, which is the sum of seventy one
thousand seven hundred seventy three and 01/100 ($71,773.01) inclusive of
accrued interest as of December 17, 1998, which would result in a net
payment of $9.3074 per share (the "January 1999 Note Payment"); (ii) a
Promissory Note of Parent in the form of Exhibit 1(g)(ii) hereto (the
"Six-Month Note") in the original principal amount of $14.663 per Share
(the "Six-Month Note Payment"); and (iii) 9.7752 shares of the Series A
Preferred Stock, par value $.01 per share, of Parent per share of Company,
each such preferred share having the rights and preferences, and
limitations thereof, set forth in Exhibit 1(g)(iii) hereto (the "Preferred
Stock"). The amount of the January 1999 and Six-Month Note Payments will be
rounded to the nearest one-hundredth of a dollar. The number of shares of
Preferred Stock issued will be rounded to the next lower whole number and
no fractional shares will be issued. The January 1999 and Six-Month Note
Payments and the Preferred Stock are
2
<PAGE>
hereinafter referred to individually and collectively, as the context
requires, as the "Merger Consideration."
(h) Payment of Merger Consideration. The Merger Consideration will be
calculated and payable as follows:
(i) January 1999 Notes. At the Closing, Parent will deliver to the
respective Shareholders the January 1999 Notes in the original
principal amounts of the January 1999 Note Payments payable to each of
the respective Shareholders in accordance with the terms of this
Agreement.
(ii) Six-Month Notes. At the Closing, Parent will deliver to the
respective Shareholders the Six-Month Notes in the original principal
amounts of the Six-Month Note Payments payable to each of the
respective Shareholders in accordance with the terms of this
Agreement.
(iii) Preferred Stock. At the Closing, Parent will deliver to the
respective Shareholders the shares of Preferred Stock payable to each
of the respective Shareholders in accordance with the terms of this
Agreement.
(iv) Rights of Offset. Notwithstanding any other provision of this
Agreement apparently to the contrary, Parent shall have the full
right, power and authority to offset against any portion of the Merger
Consideration payable hereunder any amount that may be due and owing
to Parent under this Agreement, including without limitation any
amount that may be due and owing to Parent pursuant to the
indemnification provisions of Section 9 of this Agreement. Parent
agrees to effect any such offset in a manner such that the
Shareholders share ratably in any such reduction in the Merger
Consideration.
(i) Surrender of Certificates Representing; Shares of Company Common Stock.
At the Closing, the Shareholders will surrender the certificates
representing the Shares, duly endorsed by the registered holder, to the
Parent in exchange for the Merger Consideration payable with respect to the
shares of Company Common Stock represented by the certificates so
surrendered, and the certificates so surrendered shall forthwith be
canceled.
SECTION 2
2. Representations and Warranties of Company and the Shareholders.
Company and the Shareholders hereby jointly and severally represent and
warrant to Parent and Acquisition Sub as of the date hereof as follows:
(a) Corporate Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Iowa,
has full corporate power and authority to carry on its business as it is
now being conducted and to own, lease and operate its properties and
assets, is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or
operated by it or the conduct of its business requires such qualification
or licensing, except in such jurisdictions in which the failure to be so
qualified or licensed and in good standing would not, individually or in
the aggregate, have a material adverse effect on its condition (financial
or otherwise), working capital, assets, properties, liabilities,
obligations,
3
<PAGE>
reserves, business, prospects, goodwill or going concern value. The
Disclosure Schedule (as defined in Section 3) contains a list of all
jurisdictions in which Company is qualified or licensed to do business and
complete and correct copies of its articles of incorporation and bylaws as
presently in effect.
(b) Capitalization. The authorized capital stock of Company consists of
five hundred thousand (500,000) shares of common stock, no par value per
share (the "Company Common Stock"), of which one hundred fifty three
thousand four hundred fifty (153,450) shares are issued and outstanding and
owned beneficially and of record by the Shareholders in the following
amounts: Stephen Fisher, fifty thousand (50,000) shares; Mark Kittrell,
fifty thousand (50,000) 50,000 shares; Mark Stewart, fifty thousand
(50,000) shares; and Ranelle Bailiff, three thousand four hundred fifty
(3,450) shares. There are no shares of capital stock of Company held in
treasury as of the date hereof. All issued and outstanding shares of
capital stock of Company are duly authorized, validly issued, fully paid,
nonassessable and are without, and were not issued in violation of,
preemptive rights. Except as disclosed in the Disclosure Schedule: (i)
there are no shares of capital stock or other equity securities of Company
outstanding or any securities convertible into or exchangeable for such
shares, securities or rights; (ii) there are no outstanding options,
warrants, conversion privileges or other rights to purchase or acquire any
capital stock or other equity securities of Company or any securities
convertible into or exchangeable for such shares, securities or rights; and
(iii) there are no contracts, commitments, understandings, arrangements or
restrictions by which Company is bound to issue or acquire any additional
shares of its capital stock or other equity securities or any options,
warrants, conversion privileges or other rights to purchase or acquire any
capital stock or other equity securities of Company or any securities
convertible into or exchangeable for such shares, securities or rights.
(c) Authorization. Company and each of the Shareholders have full power and
authority to enter into this Agreement and to carry out the transactions
contemplated herein. This Agreement has been duly and validly executed by
Company and each of the Shareholders and is the valid and binding legal
obligation of Company and each of the Shareholders, enforceable against
each of them in accordance with its terms.
(d) Non-Contravention. Except as disclosed in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated herein will:
(i) Violate or be in conflict with any provision of the articles of
incorporation or bylaws of Company; or
(ii) Be in conflict with, or constitute a default, however defined (or
an event which, with the giving of due notice or lapse of time, or
both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any
debt, note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other agreement
or obligation to which Company or any of the Shareholders is a party
or by which any of them or any of their properties or assets is or may
be bound (unless with respect to which defaults or other rights,
requisite waivers or consents shall have been obtained at or prior to
the Closing) or result in the creation or imposition of any mortgage,
pledge, lien, security interest, encumbrance, restriction, adverse
claim or charge of any kind, upon any property or assets of Company or
upon the Shares under any debt, obligation, contract, agreement or
commitment to which
4
<PAGE>
Company is a party or by which Company or any of its assets or
properties is or may be bound; or
(iii) Violate any statute, treaty, law, judgment, writ, injunction,
decision, decree, order, regulation, ordinance or other similar
authoritative matters (sometimes hereinafter separately referred to as
a "Law" and sometimes collectively as "Laws") of any foreign, federal,
state or local governmental or quasi-governmental, administrative,
regulatory or judicial court, department, commission, agency, board,
bureau, instrumentality or other authority (hereinafter sometimes
separately referred to as an "Authority" and sometimes collectively as
"Authorities").
(e) Consents and Approvals. Except as disclosed in the Disclosure Schedule,
with respect to Company and the Shareholders, no consent, approval, order
or authorization of or from, or registration, notification, declaration or
filing with (hereinafter sometimes separately referred to as a "Consent"
and sometimes collectively as "Consents") any individual or entity,
including without limitation any Authority, is required in connection with
the execution, delivery or performance of this Agreement by Company and the
Shareholders, or the consummation by Company and the Shareholders of the
transactions contemplated herein.
(f) Investment Representations.
(i) Each of the Shareholders, prior to execution of this Agreement,
became familiar with the material business and financial affairs of
Parent and its subsidiaries and was given access to such information
regarding such business and financial affairs as each of the
Shareholders has deemed necessary to enable each of the Shareholders
to make an informed investment decision with respect to the shares of
Preferred Stock to be issued in connection with this Agreement. In
particular, each of the Shareholders received the following documents
and information and had sufficient time to review and consider such
documents and information: Parent's most recently issued annual report
to Shareholders; Parent's proxy statement for the most recent annual
meeting of its Shareholders; Parent's Form 10-K most recently filed
with the Securities and Exchange Commission; Parent's Form 10-Qs filed
with the Securities and Exchange Commission for fiscal quarters ended
after the fiscal year covered by the aforesaid Form 10-K; a statement
by Parent describing Parent's Preferred Stock; a statement by Parent
that there were no material changes in the affairs of Parent and its
subsidiaries that were not disclosed in the aforesaid documents and
statement; a statement by Parent that there are no undisclosed
agreements, arrangements or understandings which benefit or relate to
one or more, but not all, of the Shareholders in connection with the
transactions contemplated hereby, and, with respect to each
Shareholder who is not an "accredited investor" as defined in Rule
501(a) of the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933 (the "Rules"), copies of
all material written information which was furnished to any
Shareholder who is an "accredited investor."
(ii) Each of the Shareholders either (A) is an "accredited investor"
(as defined in Rule 501(a) of the Rules) and each such Shareholder has
presented to Parent evidence, including without limitation a copy of
such Shareholder's federal income tax returns for the last two
calendar years, of compliance with the requirements of Rule 501(a)(5)
or Rule 501(a)(6) of the Rules, or (B) has retained a "purchaser
representative" as defined in Rule 501(h) of the Rules, has furnished
to Parent all documentation establishing that
5
<PAGE>
the terms of Rule 501(h) of the Rules have been satisfied by the
Shareholder and such purchaser representative, and has furnished to
Parent all documentation requested by Parent in writing to establish
that the Shareholder, together with such purchaser representative,
have such knowledge and experience in financial and business matters
that they are capable of evaluating the merits and risks of the
investment in the shares of Preferred Stock to be issued in connection
with this Agreement.
(iii) Each of the Shareholders is acquiring the shares of Preferred
Stock to be acquired pursuant to this Agreement for such Shareholder's
account (and such Shareholder will be the sole beneficial owner
thereof) for the purpose of investment and not with a view to
distribution thereof within the meaning of the Securities Act of 1933
and the Rules, nor with any present intention of distribution or
selling such shares of Preferred Stock, and each Shareholder
understands that such shares have not been registered under the
Securities Act of 1933 and therefore cannot be resold unless they are
registered under the Securities Act of 1933 or unless an exemption
from registration is available.
(iv) Each of the Shareholders has been afforded an opportunity to ask
questions and receive answers concerning the terms and conditions of
the transactions contemplated by this Agreement and to obtain any
additional information as each of the Shareholders deemed necessary to
verify the accuracy of documents and statements identified in
subsection (i) above and copies of any exhibits identified in such
documents.
(v) Each of the Shareholders has consented to the placing of the
following or a substantially similar legend on the certificate for
shares of Preferred Stock to be issued to such Shareholder in
connection with this Agreement:
THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE AND
THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS A REGISTRATION
STATEMENT WITH RESPECT TO SUCH TRANSACTION IS IN EFFECT PURSUANT TO
THE PROVISIONS OF THAT ACT OR IF, IN THE OPINION OF COUNSEL, WHICH
OPINION OF COUNSEL SHALL BE SATISFACTORY TO THE ISSUER OF THESE SHARES
AND ITS COUNSEL, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THAT ACT IS AVAILABLE.
(g) Prohibition on Short Sales. During the period that any shares of
Preferred Stock remain issued and outstanding and convertible into shares
of Common Stock or other consideration under the terms of this Agreement,
the holders of such shares of Preferred Stock will not engage in any "short
sale," as such term is defined in Rule 3b-3 under the Securities Exchange
Act of 1934, as amended, with respect to any outstanding securities of the
Corporation. If any holder of shares of Preferred Stock engages in any such
short sale in violation of this Section 2(g), the holder shall be subject
to forfeiture of the conversion rights set forth in Section 4 of the
Certificate of Designation of the Powers, Preferences and Rights and
Qualifications, Limitations and Restrictions of Series A Convertible
Preferred Stock of VirtualFund.com, Inc., attached to this Agreement as
Exhibit 1(g)(iii), with respect to any shares of Preferred Stock then held
by such holder.
6
<PAGE>
SECTION 3
3. Representations and Warranties of Company and the Principals.
Company and the Principals hereby jointly and severally represent and
warrant to Parent and Acquisition Sub as of the date hereof as follows:
(a) Disclosure Schedule. Simultaneously with the execution and delivery of
this Agreement, Company and the Principals have executed and delivered to
Parent a disclosure schedule (the "Disclosure Schedule") divided into
sections which correspond to the subsections of Sections 2 and 3. The
Disclosure Schedule is accurate and complete in all respects in accordance
with the requirements of these Sections 2 and 3.
(b) Financial Statements. The Company and the Principals have delivered to
Parent (i) the balance sheets, statements of operations, statements of
stockholders' equity, statements of cash flows and the notes thereto of
Company as of and for the fiscal years ended December 31, 1996 and 1997,
together with the review report thereon of Bergan Paulson & Company,
certified public accountants (the "Reviewed Financial Statements"), and
(ii) the unaudited balance sheets of Company as of September 30, October
31, 1998 and November 30, 1998, respectively, and the statement of income
of Company for the periods ended September 30, 1998, October 31, 1998 and
November 30, 1998 (the "Interim Financial Statements"). The balance sheet
of Company as of October 31, 1998 included in the Interim Financial
Statements is referred to herein as the "Latest Balance Sheet"). Between
the date hereof and the Closing, Company will furnish to Parent as soon as
available and in any event within fifteen (15) days after the end of each
month, the balance sheet and statement of income for each month ended after
October 31, 1998 and for the fiscal year to date. Except as disclosed in
the Disclosure Schedule, the aforesaid financial statements, including
without limitation the financial statements delivered pursuant to this
subsection 3(b) after the date hereof (i) are or will be, as the case may
be, in accordance with the books and records of Company and have been, or
will be, as the case may be, prepared in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP"), and (ii)
fairly present or will fairly present, as the case may be, the financial
position of Company as of the respective dates thereof, and the results of
operations, changes in stockholders' equity and changes in cash flow for
the periods then ended, all in accordance with GAAP.
(c) Loss Contingencies; Other Non-Accrued Liabilities. Except as disclosed
in the Disclosure Schedule or in the Latest Balance Sheet, Company does not
have:
(i) Any "Loss Contingency" (as defined by GAAP) which is not required
by GAAP to be accrued;
(ii) Any Loss Contingency involving an unasserted claim or assessment
which is not required by GAAP to be disclosed because the potential
claimants have not manifested to Company an awareness of a possible
claim or assessment; or
(iii) Any categories of known liabilities or obligations which are not
required by GAAP to be accrued.
7
<PAGE>
(d) Absence of Certain Changes. Except as disclosed in the Disclosure
Schedule, since the date of the Latest Balance Sheet, Company has owned and
operated its assets, properties and business in the ordinary course of
business and consistent with past practice. Without limiting the generality
of the foregoing, Company has not, subject to the aforesaid exceptions:
(i) Suffered any adverse change in its condition (financial or
otherwise), working capital, assets, properties, liabilities,
obligations, reserves, business, prospects, goodwill or going concern
value or experienced any event or failed to take any action which
reasonably could be expected to result in such an adverse change;
(ii) Suffered any loss, damage, destruction or other casualty (whether
or not covered by insurance) or suffered any loss of officers,
employees, dealers, distributors, independent contractors, customers,
or suppliers or other favorable business relationships, or suffered
any adverse change with respect thereto;
(iii) Declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock, or purchased or redeemed
any shares of its capital stock;
(iv) Issued or sold any shares of its capital stock, or any options,
warrants, conversion, exchange or other rights to purchase or acquire
any such shares or any securities convertible into or exchangeable for
such shares;
(v) Incurred any indebtedness for borrowed money;
(vi) Mortgaged, pledged or subjected to any lien, lease, security
interest or other charge or encumbrance any of its properties or
assets, tangible or intangible;
(vii) Acquired or disposed of any assets or properties other than
purchases and sales of inventory in the ordinary course of business;
(viii) Forgiven or canceled any debts or claims, or waived any rights;
(ix) Entered into any material transaction;
(x) Granted to any officer or salaried employee or any other employee
any increase in compensation in any form or paid any severance or
termination pay;
(xi) Entered into any commitment for capital expenditures for
additions to plant, property or equipment; or
(xii) Agreed, whether in writing or otherwise, to take any action
described in this subsection.
(e) Real Properties. Except as disclosed in the Disclosure Schedule,
Company has good and marketable fee simple record title in and to, or a
leasehold interest in and to, all of its real property assets and fixtures
reflected in the Latest Balance Sheet and all of its real property assets
and fixtures purchased or otherwise acquired since the date of the Latest
Balance Sheet or otherwise used or useful in connection with the business
of Company. Except as disclosed in the Disclosure Schedule, such leasehold
interests are valid and in full force and effect and enforceable in
accordance with their terms and there does not exist any violation, breach
or
8
<PAGE>
default thereof or thereunder. Except as disclosed in the Disclosure
Schedule, none of the real property assets or fixtures owned by Company is
subject to any mortgage, pledge, lien, security interest, encumbrance,
claim, easement, right-of-way, tenancy, covenant, encroachment, restriction
or charge of any kind or nature (whether or not of record), except the
following (herein called "Permitted Liens"): (i) liens securing specified
liabilities or obligations shown on the Latest Balance Sheet with respect
to which no breach, violation or default exists; (ii) mechanics',
carriers', workers' and other similar liens arising in the ordinary course
of business; (iii) minor imperfections of title which do not impair the
existing use of such real property assets or fixtures; and (iv) liens for
current taxes not yet due and payable or being contested in good faith by
appropriate proceedings. All security interests or guarantees related to
real estate financing have been released and evidence of the release has
been properly filed. Except as disclosed in the Disclosure Schedule, all
real properties owned by and leased to Company used in the conduct of its
business are free from structural defects, in good operating condition and
repair, with no material maintenance, repair or replacement having been
deferred or neglected, suitable for the intended use and free from other
material defects. Except as disclosed in the Disclosure Schedule, each such
parcel of real property and its present use conform in all respects to all
occupational, safety or health, zoning, planning, subdivision, platting and
similar Laws, and there is no such Law contemplated that would affect
adversely the right of Company to own or lease and operate and use such
real properties. Except as disclosed in the Disclosure Schedule, all public
utilities necessary for the use and operation of any facilities on the
aforesaid real properties are available for use or access at such
properties and there is no legal or physical impairment to free ingress or
egress from any of such facilities or real properties. Company is not a
foreign person and is not controlled by a foreign person, as the term
foreign person is defined in Section 1445(f)(3) of the Code.
(f) Machinery, Equipment, Vehicles and Personal Property. Except as
disclosed in the Disclosure Schedule, Company has good and merchantable
right, title and interest in and to, or a leasehold interest in and to, all
of its machinery, equipment, vehicles and other personal property reflected
in the Latest Balance Sheet and purchased or otherwise acquired since the
date of the Latest Balance Sheet or otherwise used or useful in connection
with the business of Company. Except as disclosed in the Disclosure
Schedule, all of such leasehold interests relating to machinery, equipment,
vehicles and other personal property are valid and in full force and effect
and enforceable in accordance with their terms and there does not exist any
violation, breach or default thereof or thereunder. Except as disclosed in
the Disclosure Schedule, none of such machinery, equipment, vehicles or
other personal property owned by Company is subject to any mortgage,
pledge, lien or security interest of any kind or nature (whether or not of
record), except Permitted Liens. Except as disclosed in the Disclosure
Schedule, the machinery, equipment, vehicles and other personal property of
Company which are necessary to the conduct of its business are in good
operating condition and repair and fit for the intended purposes thereof
and no material maintenance, replacement or repair has been deferred or
neglected.
(g) Receivables and Payables.
(i) Except as disclosed in the Disclosure Schedule, (A) Company has
good right, title and interest in and to all of its accounts
receivable and notes receivable of any kind or nature whatsoever,
whether from trade accounts or affiliated parties or otherwise
("Receivables"), as reflected in the Latest Balance Sheet or acquired
or generated since the date of the Latest Balance Sheet (except for
those paid since the date of the Latest Balance Sheet); (B) none of
such Receivables is subject to any mortgage, pledge, lien or security
interest of any kind or nature (whether or not of record); (C) all of
such
9
<PAGE>
Receivables reflected on the Latest Balance Sheet or acquired or
generated since the date of the Latest Balance Sheet constitute valid
and enforceable claims arising from bona fide transactions in the
ordinary course of business, and there are no claims, refusals to pay
or other rights of set-off against any thereof; (D) no account or note
debtor whose account or note balance exceeds $1,000 is delinquent in
payment by more than ninety (90) days; (E) the aging schedule of
Receivables previously furnished to Parent is complete and accurate;
and (F) all Receivables will be collected by Company in accordance
with their respective terms or appropriate reserves have been
established to reflect the actual amount of the Receivables that will
be collected.
(ii) All accounts payable and notes payable by Company in excess of
$1,000 arose in bona fide transactions in the ordinary course of
business and no such account payable or note payable is delinquent by
more than sixty (60) days in its payment.
(h) Intellectual Property Rights. Company owns the industrial and
intellectual property rights, including without limitation the patents,
patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, computer
programs and other computer software, inventions, know-how, trade secrets,
technology, proprietary processes and formulae (collectively, "Intellectual
Property Rights") described in the Disclosure Schedule. Except as disclosed
in the Disclosure Schedule, the use of all Intellectual Property Rights
necessary or required for the conduct of the business of Company as
presently conducted and as proposed to be conducted does not and will not
infringe or violate or allegedly infringe or violate the intellectual
property rights of any person or entity. Except as disclosed in the
Disclosure Schedule, Company does not own or use any Intellectual Property
Rights pursuant to any written license agreement and has not granted any
person or entity any rights, pursuant to written license agreement or
otherwise, to use the Intellectual Property Rights.
(i) Litigation. Except as disclosed in the Disclosure Schedule, there is no
legal, administrative, arbitration or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind
(including without limitation a proceeding, suit, claim or action, or an
investigation, review or audit, involving any environmental Law or matter),
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled or threatened or contemplated by or against or involving Company,
its assets, properties or business, or its directors, officers, agents or
employees (but only in their capacity as such), whether at law or in
equity, or which questions or challenges the validity of this Agreement or
any action taken or to be taken by the parties hereto pursuant to this
Agreement or in connection with the transactions contemplated herein.
(j) Taxes. Company has duly and timely filed all tax and information
reports, returns and related documents required to be filed by them with
any foreign or domestic governmental or taxing authority, including without
limitation all returns and reports of income, franchise, gross receipts,
sales, use, occupation, employment, withholding, excise, transfer, real and
personal property and other taxes, charges and levies (collectively, the
"Tax Returns") and, except as disclosed in the Disclosure Schedule, has
duly paid, or made adequate provision for the due and timely payment of all
such taxes and other charges, including without limitation interest,
penalties, assessments and deficiencies, due or claimed to be due from them
by any such governmental or taxing authorities; the reserves for all of
such taxes and other charges reflected in the Latest Balance Sheet are
adequate; and there are no liens for such taxes or other charges upon any
property or assets of Company. There is no omission, deficiency, error,
misstatement or misrepresentation, whether innocent, intentional or
fraudulent, in any Tax Return filed by
10
<PAGE>
Company for any period since 1988. Except as disclosed in the Disclosure
Schedule, the Tax Returns of Company have not been examined or audited by
the Internal Revenue Service or any other taxing authority for any period.
Company will promptly notify Parent in the event that Company receives
notice of any audit or examination of any Tax Return. Except as disclosed
in the Disclosure Schedule, all deficiencies asserted as a result of such
examinations have been paid or finally settled and no issue has been raised
by the Internal Revenue Service or any other taxing authority in any such
examination or audit which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Except as disclosed in the Disclosure
Schedule, there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to the examination or audit of
any Tax Return for any period or the assessment or collection of any tax
for any period. As of the Closing Date, Company will have paid over to the
taxing authority of each jurisdiction to which it is subject all taxes that
are due and payable for periods ended as of or prior to the Closing Date.
(k) Insurance. The Disclosure Schedule contains an accurate and complete
list of all policies of fire and other casualty, general liability, theft,
life, workers' compensation, health, directors and officers, business
interruption and other forms of insurance owned or held by Company,
specifying the insurer, the policy number and the term of the coverage. All
such policies are in full force and effect and all premiums with respect
thereto have been paid. Company has not been denied any form of insurance
and no policy of insurance has been revoked or rescinded during the past
five years.
(l) Benefit Plans. Except as set forth in the Disclosure Schedule:
(i) Company does not sponsor, maintain or contribute to, and has never
sponsored, maintained, contributed to or been required to contribute
to any employee pension benefit plan ("Pension Plan") as such term is
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), including without limitation, solely
for purposes of this subsection, a plan excluded from coverage by
Section 4(b)(5) of ERISA and, including without limitation any such
Pension Plan which is a "Multiemployer Plan" within the meaning of
Section 4001(a)(3) of ERISA. Each such Pension Plan is in compliance
with the applicable provisions of ERISA for which deadlines for
compliance have passed, the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder for which deadlines of compliance have passed
and all other applicable Law. No Pension Plan is subject to Title IV
of ERISA or to Section 412 of the Code.
(ii) Company has never ceased operations at any facility or withdrawn
from any Pension Plan or otherwise acted or omitted to act in a manner
which could subject it to liability under Section 4062, Section 4063,
Section 4064 or Section 4069 of ERISA and there are no facts or
circumstances which might give rise to any liability of Company to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA
or which could reasonably be anticipated to result in any claims being
made against Parent or Company to the PBGC. Company has not incurred
any withdrawal liability (including without limitation any contingent
or secondary withdrawal liability) within the meaning of Section 4201
and Section 4204 of ERISA to any Multiemployer Plan. Company has not,
with respect to any Pension Plan which is a Multiemployer Plan,
suffered or otherwise caused a "complete withdrawal" or a "partial
withdrawal," as such terms are defined respectively in Sections 4201,
4203, 4204 and 4205 of ERISA. Company had no
11
<PAGE>
liability to any such Multiemployer Plan in the event of a complete or
partial withdrawal therefrom as of the close of the most recent fiscal
year of any such Multiemployer Plan ended prior to the date hereof.
(iii) Company does not sponsor, maintain, contribute to, and has never
sponsored, maintained, contributed to, or been required to contribute
to any employee welfare benefit plan ("Welfare Plan"), as such term is
defined in Section 3(1) of ERISA (including without limitation a plan
excluded from coverage by Section 4(b)(5) of ERISA), whether insured
or otherwise, and any such Welfare Plan maintained by Company is in
compliance with the provisions of ERISA and all other applicable Laws,
including without limitation Code Section 162(k) and 162(i) and the
related provisions of ERISA and Code Section 4980B. Company has not
established or contributed to any "voluntary employees' beneficiary
association" within the meaning of Section 501(c)(9) of the Code.
(iv) Company does not maintain or contribute to any bonus plan or
incentive plan, other than the employee bonus plans described in the
Disclosure Statement, or stock plan or any other current or deferred
compensation agreement, arrangement or policy, or any individual
employment agreement ("Compensation Plans").
(v) Neither any of the Pension Plans, Welfare Plans or Compensation
Plans, nor any trust created or insurance contract issued thereunder,
nor any trustee or administrator thereof, nor any officer, director or
employee of Company, custodian or any other "disqualified person"
within the meaning of Section 4975(e)(2) of the Code, or "party in
interest" within the meaning of Section 3(14) of ERISA, with respect
to any such Pension Plans or Welfare Plans or Compensation Plans or
any such trust or insurance contract or any trustee, custodian or
administrator thereof, or any disqualified person, party in interest
or person or entity dealing with such Pension Plans, Welfare Plans or
Compensation Plans or any such trust, insurance contract or any
trustee, is subject to a tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by
Section 502 of ERISA. There are no facts or circumstances that could
subject Company to any excise tax under Section 4972 or Sections 4976
through 4980, both inclusive, of the Code.
(vi) Full payment has been made of all amounts which Company is
required, under applicable Law, with respect to any Pension Plan,
Welfare Plan or Compensation Plan, or any agreement relating to any
Pension Plan, Welfare Plan or Compensation Plan, to have paid as a
contribution thereto. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any Pension Plan. Company does not
sponsor, maintain or contribute to, and has never sponsored,
maintained or contributed to or been required to contribute to, any
Pension Plan subject to Part 3 of Title I of ERISA or Section 412(n)
of the Code. Company has made adequate provisions for reserves to meet
contributions which have not been made because they are not yet due
under the terms of any Pension Plan, Welfare Plan or Compensation Plan
or related agreements. All Pension Plans which Company operates as
plans that are qualified under the provisions of Section 401(a) of the
Code satisfy the requirements of Section 401(a) and all other sections
of the Code incorporated therein, including without limitation
Sections 401(m) and 401(1) of the Code; and the Internal Revenue
Service has issued favorable determination letters with respect to the
current statement of all Pension Plans and nothing has occurred since
the issuance of any
12
<PAGE>
such letters that could adversely affect such favorable determination.
There will be no change on or before Closing in the operation of any
Pension Plan, Welfare Plan or Compensation Plan or any documents with
respect thereto which will result in an increase in the benefit
liabilities under such plans, except as may be required by Law.
(vii) Company has complied with all reporting and disclosure
obligations with respect to the Pension Plans, Welfare Plans and
Compensation Plans imposed by Title I of ERISA or other applicable
Law.
(viii) There are no pending or threatened claims, suits or other
proceedings against Company or any other party by present or former
employees of Company, plan participants, beneficiaries or spouses of
any of the above, including without limitation claims against the
assets of any trust, involving any Pension Plan, Welfare Plan or
Compensation Plan, or any rights or benefits thereunder, other than
the ordinary and usual claims for benefits by participants or
beneficiaries.
(ix) The transactions contemplated herein do not result in the
acceleration or accrual, vesting, funding or payment of any
contribution or benefit under any Pension Plan, Welfare Plan or
Compensation Plan.
(x) No action or omission of Company or any director, officer,
employee, or agent thereof in any way restricts, impairs or prohibits
Parent or Company or any successor from amending, merging, or
terminating any Pension Plan, Welfare Plan or Compensation Plan in
accordance with the express terms of any such plan and applicable Law.
(m) Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth:
(i) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which Company maintains
accounts, deposits or safe deposit boxes of any nature, and the names of
all persons authorized to draw thereon or make withdrawals therefrom; (ii)
the terms and conditions thereof and any limitations or restrictions as to
use, withdrawal or otherwise; and (iii) the names of all persons or
entities holding general or special powers of attorney from Company and a
summary of the terms thereof.
(n) Contracts and Commitments; No Default.
(i) Except as disclosed in the Disclosure Schedule, Company:
(A) Has no written or oral contract, commitment, agreement or
arrangement with any person which (1) requires payments from
Company to an individual in excess of $10,000 annually or in
excess of $50,000 over its term (including without limitation
periods covered by any option to extend or renew by either party)
and (2) is not terminable on thirty (30) days' or less notice
without cost or other liability;
(B) Does not pay any person or entity cash remuneration at the
annual rate (including without limitation guaranteed bonuses) of
more than $50,000 for services rendered;
13
<PAGE>
(C) Is not restricted by agreement from carrying on its
businesses or any part thereof anywhere in the world or from
competing in any line of business with any person or entity;
(D) Is not subject to any obligation or requirement to provide
funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any person or entity;
(E) Is not party to any agreement, contract, commitment or loan
to which any of its directors, officers or stockholders or any
"affiliate" or "associate" (as defined in Rule 405 as promulgated
under the Securities Act of 1933) (or former affiliate or
associate) thereof is a party;
(F) Is not subject to any outstanding sales or purchase
contracts, commitments or proposals which will result in any loss
upon completion or performance thereof;
(G) Is not party to any purchase or sale contract or agreement
that calls for aggregate purchases by Company or sales in excess
over the course of such contract or agreement of $25,000 or which
continues for a period of more than twelve months (including
without limitation periods covered by any option to renew or
extend by either party) which is not terminable on sixty (60)
days' or less notice without cost or other liability at or any
time after the Closing;
(H) Is not subject to any contract, commitment, agreement or
arrangement with any "disqualified individual" (as defined in
Section 280G(c) of the Code) which contains any severance or
termination pay liabilities which would result in a disallowance
of the deduction for any "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) under Section 280G of the
Code; and
(I) Has no distributorship, dealer, manufacturer's
representative, franchise or similar sales contract relating to
the payment of a commission.
(ii) True and complete copies (or summaries, in the case of oral items) of
all items disclosed pursuant to subsection 3(n)(i) have been made available
to Parent for review. Except as disclosed in the Disclosure Schedule, all
such items are valid and enforceable by and against Company in accordance
with their respective terms; Company is not in breach, violation or
default, however defined, in the performance of any of its obligations
thereunder, and no facts and circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such a
breach, violation or default thereunder or thereof; and no other parties
thereto are in a breach, violation or default, however defined, thereunder
or thereof, and no facts or circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such a
breach, violation or default thereunder or thereof.
(o) Labor Matters. Except as disclosed in the Disclosure Schedule:
(i) Company is and has been in compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment
14
<PAGE>
discrimination and occupational safety and health requirements, and has not
and is not engaged in any unfair labor practice;
(ii) There is no unfair labor practice complaint against Company pending or
threatened before the National Labor Relations Board or any other
comparable Authority;
(iii) There is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or directly affecting Company;
(iv) No labor representation question exists respecting the employees of
Company and there is not pending or threatened any activity intended or
likely to result in a labor representation vote respecting the employees of
Company;
(v) No grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor exist or
have been threatened;
(vi) No collective bargaining agreement is binding and in force against
Company or currently being negotiated by Company;
(vii) Company has not experienced any significant work stoppage or other
significant labor difficult;
(viii) Company is not delinquent in payments to any persons for any wages,
salaries, commissions, bonuses or other direct or indirect compensation for
any services performed by them or amounts required to be reimbursed to such
persons, including without limitation any amounts due under any Pension
Plan, Welfare Plan or Compensation Plan;
(ix) Upon termination of the employment of any person, neither Company nor
Parent will, by reason of anything done at or prior to or as of the Closing
Date, be liable to any of such persons for so-called "severance pay" or any
other payments; and
(x) Within the twelve (12) months prior to the date hereof there has not
been any expression of intention to Company by any officer or key employee
to terminate such employment.
(p) Customers, Dealers and Suppliers. Except as disclosed in the Disclosure
Schedule, there has not been in the twelve (12) months prior to the date hereof
any adverse change in the business relationship of Company with any customer,
dealer or supplier of Company representing $25,000 or more in annual business
with Company.
(q) Permits and Other Operating Rights. Except as disclosed in the Disclosure
Schedule, Company does not require the Consent of any Authority to permit it to
operate in the manner in which it is presently being operated, and possesses all
permits and other authorizations from all Authorities presently required to
permit it to operate its business in the manner in which it is presently
conducted.
(r) Compliance with Law. Except as disclosed in the Disclosure Schedule, and
without limiting the scope of any other representations or warranties contained
in this Agreement, the
15
<PAGE>
assets, properties, businesses and operations of Company are and have been in
compliance with all Laws applicable to the ownership and conduct of its assets,
properties, businesses and operations. There are no outstanding and unsatisfied
deficiency reports, plans of correction, notices of noncompliance or work orders
relating to any Authorities, and no discussions regarding any of the foregoing
with any such Authorities are scheduled or pending.
(s) Business Generally. Except as disclosed in the Disclosure Schedule, in the
last twelve (12) months prior to the date hereof, there has been no event,
transaction or information that has come to the attention of Company which, as
it relates directly to the business of Company, could, individually or in the
aggregate, reasonably be expected to have a material adverse effect on such
business.
(t) Hazardous Substances and Hazardous Wastes. Except as disclosed in the
Disclosure Schedule:
(i) There is not now, nor has there ever been, any disposal, release or
threatened release of Hazardous Materials (as defined below) on, from or
under properties now or ever owned or leased by or to Company or by or to
any former subsidiary (the "Properties"). There has not been generated by
or on behalf of Company or any former subsidiary (while owned by Company)
any Hazardous Material. No Hazardous Material has been disposed of or
allowed to be disposed of on or off any of the Properties which may give
rise to a clean-up responsibility, personal injury liability or property
damage claim against Company or, or Company being named a potentially
responsible party for any such clean-up costs, personal injuries or
property damage or create any cause of action by any third party against
Company. For purposes of this subsection, the terms "disposal," "release,"
and "threatened release" shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the term "Hazardous Material" means any hazardous or
toxic substance, material or waste or pollutants, contaminants or asbestos
containing material which is or becomes regulated by any Authority in any
jurisdiction in which any of the Properties is located. The term "Hazardous
Material" includes without limitation any material or substance which is
(i) defined as a "hazardous waste" or a "hazardous substance" under
applicable Law, (ii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act, (iii) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, or (iv) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
(ii) None of Properties is (or, with respect to past Properties and
Properties of former subsidiaries, was at the time of disposition) in
violation of any Law (with respect to past Properties and Properties of
former subsidiaries, Laws in effect at the time of disposition) relating to
industrial hygiene or to the environmental conditions on, under or about
such Properties, including without limitation soil and ground water
condition and there are (or at the time of disposition were) no underground
tanks or related piping, conduits or related structures. During the period
that Company and its former subsidiaries owned or leased the Properties,
neither Company nor its former subsidiaries nor any third party used,
generated, manufactured or stored on, under or about such Properties or
transported to or from such Properties any Hazardous Materials and there
has been no litigation brought or threatened against Company or any
settlements reached by Company with any third party or third parties
alleging the presence, disposal, release
16
<PAGE>
or threatened release of any Hazardous Materials on, from or under any of
such Properties.
(u) Brokers. Except as disclosed in the Disclosure Schedule, neither Company nor
any of the Shareholders nor any of the directors, officers or employees of
Company has employed any broker, finder or financial advisor, or incurred any
liability for any brokerage fee or commission, finder's fee or financial
advisory fee, in connection with the transactions contemplated hereby, nor is
there any basis known to Company or any of the Shareholders for any such fee or
commission to be claimed by any person or entity.
(v) Accuracy of Information. No representation or warranty of Company in this
Agreement contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading as of the date of the representation or warranty.
(w) Notes from Principals and Affiliates. As of the latest financial statements
the Company carried notes and/or loan obligations from Principals (hereinafter
individually the "Principal Note" and collectively the "Principal Notes"), and
Team Property Management, L.L.C (hereinafter the "Affiliate Note"), in the
following amounts, including accrued interest through December 15, 1998: Mark
Kittrell principal plus interest $46,800.21; Stephen Fisher principal plus
interest $114,848.84; Mark Stewart principal plus interest $1,168.33 and Team
Property Management principal plus interest $281,217.42. The terms, conditions
and obligations of the Principal Notes shall be replaced by the Promissory Note
with each Principal attached as Exhibit 3(w)(1), each with a term of thirty (30)
months from the Closing Date, bearing interest, calculated annually at the
incremental borrowing rate of Parent or Parent's affiliates, with all accrued
interest and principal due in full at the maturity of the Promissory Note. The
terms, conditions and obligations of the Affiliate Note shall be replaced by the
Promissory Note from Team Property Management, L.L.C. and Principals, attached
as Exhibit 3(w)(2), bearing interest, calculated on an annual basis at the
incremental borrowing rate of Parent or Parent's affiliates, with a term of
thirty (30) months for the Principals and a term co-existing with the
obligations of Parent under the respective Note from Acquisition Sub to
Shareholders pursuant to Section 1 hereof. At maturity the principal and all
accrued interest on Affiliate Note shall offset against the Note payment or
other obligations to Principals.
(x) Year 2000 Issue. The Company and Principals are aware of the Year 2000
("Y2K") issue and its potential impact on the Company and its customers.
Principals represent that they have assessed both internal and external factors
and have caused to be conducted a Y2K internal and external Company audit of the
software and hardware systems utilized in the conduct of their business and for
client services. Principals represent that all internal and external customer
service hardware and software is either Y2K compliant or scheduled for
replacement and/or upgrade prior to the year 2000. Principals also represent
that they have not made any representations in contracts for services or
equipment regarding Y2K compliance. The Principals and Company have conducted
solution checks for clients following installation of software and equipment and
represent and verify that such solution checks for Y2K compliance and reports
thereon have been conducted reasonably and accurately based on industry
standards.
SECTION 4
4. Representations and Warranties of Parent.
17
<PAGE>
Parent represents and warrants to Company and the Shareholders as of the date
hereof as follows:
(a) Corporate Organization. Parent and Acquisition Sub are corporations duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. Acquisition Sub is a wholly owned subsidiary of Parent.
(b) Authorization. Parent and Acquisition Sub have full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated herein. The Board of Directors of Parent has taken all action
required by law, its articles of incorporation and bylaws or otherwise to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein. This Agreement is the
valid and binding legal obligation of Parent enforceable against it in
accordance with its terms except as enforceability may be limited by the
provisions of Minnesota Statutes, Sections 290.371 and 303.20.
(c) Non-Contravention. Neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated herein will:
(i) Violate any provision of the articles of incorporation or bylaws of
Parent or Acquisition Sub; or
(ii) Except for such violations, conflicts, defaults, accelerations,
terminations, cancellations, impositions of fees or penalties, mortgages,
pledges, liens, security interests, encumbrances, restrictions and charges
which would not, individually or in the aggregate, have a material adverse
effect on the business of Parent and its subsidiaries taken as a whole, (A)
violate, be in conflict with, or constitute a default, however defined (or
an event which, with the giving of due notice or lapse of time, or both,
would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which
Parent or any subsidiary of Parent is a party or by which they or any of
their properties or assets is or may be bound (unless with respect to which
defaults or other rights, requisite waivers or consents shall have been
obtained at or prior to the Closing) or (B) result in the creation or
imposition of any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, upon any property or assets of Parent or
any subsidiary of Parent under any debt, obligation, contract, agreement or
commitment to which Parent or any subsidiary of Parent is a party or by
which Parent or any subsidiary of Parent or any of their assets or
properties is or may be bound; or
(iii) Violate any Law.
(d) Consents and Approvals. No Consent is required by any person or entity,
including without limitation any Authority, in connection with the execution,
delivery and performance by Parent of this Agreement, or the consummation by
Parent of the transactions contemplated herein, other than any Consent which, if
not made or obtained, will not, individually or in the aggregate, have a
material adverse effect on the business of Parent and its subsidiaries taken as
a whole.
18
<PAGE>
(e) Brokers. Neither Parent nor any of its directors, officers or key employees
has employed any broker, finder or financial advisor, or incurred any liability
for any brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to Parent for any such fee or commission to be claimed by any person or
entity.
SECTION 5
5. Covenants.
(a) Agreements as to Specified Matters. Except as specifically disclosed on the
Disclosure Schedule, and except as may otherwise expressly be agreed in writing
by Parent after the date hereof, from the date hereof until the Closing, Company
will not:
(i) Amend its articles of incorporation or bylaws;
(ii) Permit or allow any of its properties or assets material to the
operation of its business to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except
Permitted Liens;
(iii) (A) Declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock or other securities (including
without limitation distributions in redemption or liquidation) or redeem,
purchase or otherwise acquire any shares of its capital stock or other
securities; (B) issue, grant or sell any shares of its capital stock or
equity securities of any class, or any options, warrants, conversion or
other rights to purchase or acquire any such shares or equity securities or
any securities convertible into or exchangeable for such shares or equity
securities; (C) become a party to any merger, exchange, reorganization,
recapitalization, liquidation, dissolution or other similar corporate
transaction; or (D) organize any new subsidiary, acquire any capital stock
or other equity securities or other ownership interest in, or assets of,
any person or entity or otherwise make any investment by purchase of stock
or securities, contributions to capital, property transfer or purchase of
any properties or assets of any person or entity; or
(iv) Pay, lend or advance any amounts to, or sell, transfer or lease any
properties or assets to, or enter into any agreement or arrangement with,
any director, officer, employee or shareholder.
(b) Operational Covenants. In addition, from the date hereof until the Closing,
Company will observe the operational covenants set forth in Exhibit 5(b) hereto.
To the fullest extent permitted by law, Company and the Shareholders will
defend, indemnify and hold Parent and its directors, officers, employees,
counsel, accountants, investment advisers and other authorized representatives
and agents harmless from and against any and all loss, liability, damage,
expense, claim, suit, cause of action, judgment or execution (including costs,
expenses and reasonable attorneys' fees) arising out of or in connection with
Parent's performance of the services described in Exhibit 5(b) hereto, provided,
however, that the foregoing indemnity will not apply in the event that any such
loss, liability, damage, expense, claim, suit, cause of action, judgment or
execution is attributable to the fraud, intentional criminal misconduct or gross
negligence of Parent. PARENT MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR
19
<PAGE>
WARRANTIES REGARDING THE PERFORMANCE OF THE SERVICES CONTEMPLATED BY EXHIBIT
5(b) HERETO.
(c) Conduct of Business. Company will maintain its assets and properties and
carry on its business and operations only in the ordinary course in
substantially the same manner as planned and previously operated and will use
its best efforts to preserve intact its business organizations, business
relationships (including without limitation its relationships with officers,
employees, dealers, distributors, independent contractors, customers and
suppliers), goodwill and going concern value.
(d) No Solicitation of Alternate Transaction. Company and the Shareholders will
not, and will use their best efforts to ensure that Company's directors,
officers and employees, independent contractors, consultants, counsel,
accountants, investment advisors and other representatives and agents do not,
directly or indirectly, solicit, initiate or encourage discussions or
negotiations with, provide any information to, or enter into any agreement,
understanding or arrangement with, any third party concerning any exchange
offer, merger, consolidation, sale of significant or substantial assets, sale of
securities, acquisition of beneficial ownership of or the right to vote
securities of Company, liquidation, dissolution or similar transactions
involving Company or any division of Company.
(e) Full Access to Parent. Each of Company and Parent will afford to each other
and to each other's respective directors, officers, employees, counsel,
accountants, investment advisors and other authorized representatives and agents
free and full access to the facilities, properties, books and records of Company
and Parent, respectively, in order that Parent and Company, respectively, may
have full opportunity to make such investigations as it shall desire to make of
the affairs of Company and Parent, respectively; provided, however, that any
such investigation shall be conducted in such a manner as not to interfere
unreasonably with business operations; and each of Company and Parent will
furnish such additional financial and operating data and other information as
Parent and Company, respectively, may reasonably request, including without
limitation access to their independent certified public accountants; and,
provided, further, that any such investigation shall not affect or otherwise
diminish or obviate in any respect any of the representations and warranties of
Company and Parent, respectively, herein.
(f) Confidentiality. Each of the parties hereto agrees that it will not use, or
permit the use of, any of the information relating to any other party hereto
furnished to it in connection with the transactions contemplated herein
("Information") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "Disclose"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their responsible directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's regular counsel, by other requirements of Law. The term "Information" as
used herein shall not include any information relating to a party which the
party disclosing such information can show: (i) to have been in its possession
prior to its receipt from another party hereto; (ii) to be now or to later
become generally available to the public through no fault of the disclosing
party; (iii) to have been available to the public at the time of its receipt by
the disclosing party; (iv) to have been received separately by the disclosing
party in an unrestricted manner from a person entitled to disclose such
information; or (v) to have been developed independently by the disclosing party
without regard to any information received in connection with this transaction.
Each party hereto also agrees to promptly return to the party from whom
originally received all
20
<PAGE>
original and duplicate copies of written materials containing Information should
the transactions contemplated herein not occur. A party hereto shall be deemed
to have satisfied its obligations to hold the Information confidential if it
exercises the same care as it takes with respect to its own similar information.
(g) Filings; Consents; Removal of Objections. Subject to the terms and
conditions herein provided, the parties hereto shall use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert their best efforts to that end, including without
limitation: (i) the removal or satisfaction, if possible, of any objections to
the validity or legality of the transactions contemplated herein; and (ii) the
satisfaction of the conditions to consummation of the transactions contemplated
hereby.
(h) Further Assurances; Cooperation; Notification.
(i) Each party hereto will, before, at and after Closing, execute and
deliver such instruments and take such other actions as the other party or
parties, as the case may be, may reasonably require in order to carry out
the intent of this Agreement.
(ii) At all times from the date hereof until the Closing, each party will
promptly notify the other in writing of the occurrence of any event which
it reasonably believes will or may result in a failure by such party to
satisfy the conditions specified in Article 5 and Article 6 hereof.
(i) Supplements to Disclosure Schedule. Prior to the Closing Date, Company will
supplement or amend the Disclosure Schedule with respect to any event or
development which, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of Company which has
been rendered inaccurate by reason of such event or development, including
without limitation, statements of operations for November 1998. For purposes of
determining the accuracy as of the date hereof of the representations and
warranties of Company contained in Section 2 and 3 hereof in order to determine
the fulfillment of the conditions set forth in subsection 6(a) hereof, the
Disclosure Schedule shall be deemed to exclude any information contained in any
supplement or amendment hereto delivered after the delivery of the original
Disclosure Schedule.
(j) Public Announcements. None of the parties hereto shall make any public
announcement with respect to the transactions contemplated herein without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed; provided, however, that any of the parties
hereto may at any time make any announcements which are required by applicable
Law so long as the party so required to make an announcement promptly upon
learning of such requirement notifies the other parties of such requirement and
discusses with the other parties in good faith the exact proposed wording of any
such announcement.
21
<PAGE>
(k) Employment Contracts. Surviving Corporation will offer employment contracts
in a form acceptable to each of the Principals and Surviving Corporation.
(l) Employee and Benefit Matters. Except as expressly provided in subsection
5(k) above, nothing contained in this Agreement or in any other agreement or
document executed or delivered in connection with the transactions contemplated
hereby will be deemed or construed to constitute a binding commitment of Parent,
Surviving Corporation or Company to (i) retain any employees of Company for any
particular period of time or at any particular rate of compensation after the
Closing Date; or (ii) continue any plan, arrangement or other commitment of any
kind relating to any employee benefits, welfare, insurance, compensation,
perquisites or similar matters of any kind or nature for any particular period
of time or at any particular level after the Closing Date. Parent and Surviving
Corporation undertake the responsibility after the Closing Date for any and all
employee benefit, welfare and insurance programs and liability for any liability
arising from any lapse thereof occurring after the Closing Date. Parent and
Surviving Corporation shall have no responsibility for payment to, on account
of, in lieu of, or as penalty, tax or any other financial obligation arising,
including continuing payments to employee 401(k) accounts, related to the
cancellation of the TEAM Employee Stock Option Plan ("ESOP").
(m) Real Estate Matters. The Surviving Corporation intends to maintain and
assume the current building lease with the Principals or their affiliates. The
Principals agree to cause the removal of Company from any guarantee of financing
for any current real estate holdings or for any obligations regarding any
existing or proposed building or other real estate interest. The Surviving
Corporation will have the right of first refusal for, but no obligation to lease
or otherwise occupy, the planned 6,000 square feet of additional space
contemplated by the Principals if it is developed. For the space currently
planned for construction in early 1999, the Surviving Corporation shall have
sixty (60) days to exercise such right of first refusal after receipt of the
offer to lease, which shall include all information reasonably necessary to
evaluate the use of the space, including, but not limited to floor plans,
specifications and costs. For all future contemplated real estate leasing
opportunities, the Surviving Corporation shall have one hundred twenty (120)
days to exercise such right of first refusal after receipt of the offer to
lease, which shall include all information reasonably necessary to evaluate the
use of the space, including, but not limited to floor plans, specifications and
costs. Except as expressly set forth above, the Surviving Corporation will have
no obligation to occupy or provide any guarantee or other financial support of
any kind with respect to, any other building development. Notwithstanding
anything in a building lease, the Surviving Corporation shall have no obligation
for penalties, taxes or other payments due or increased as a result of any
violation, default or breach of any development agreement related to the current
or proposed real estate holdings or development. Principals agree that they will
exempt a lease with the Surviving Corporation from the commission obligations
under any agreement with a Realtor or leasing agent.
(n) Tax Matters. The parties intend for the Merger to qualify as a tax-free
reorganization under Internal Revenue Code Section 368(a)(1)(A) and 368(a)(2)(D)
(the "Code Sections"). The parties intend for the "boot" portion of the
transaction contemplated by this Agreement to substantially qualify for capital
gains treatment on the individual personal returns of the Principals.
In the event the transaction is examined by the Internal Revenue Service,
Parent will indemnify the Principals for reasonable costs and expenses to defend
the intended treatment. In addition, Parent will indemnify Principals should the
cash portion of the intended transaction be
22
<PAGE>
recast by a binding interpretation or decision, or by consent of the Principals
and Parent, which results in additional tax, fees or penalties due. This
indemnification is limited to the tax effects of the cash portion of the
transaction and shall be limited to the one-time computation of the out of
pocket expenses actually incurred by the Principals, and excludes the additional
tax effects of the indemnification payment. The Shareholders remain responsible
for the tax treatment and taxes related to the other portion of the proposed
transaction.
(o) Personal Guarantee of Principals. The Parent agrees to cause the removal of
Principals from the obligations under the Continuing Guarantee to Firstar Bank
Iowa, N.A. and the personal guarantees to Deutsche Financial Services, 1501 W.
Fountainhead Parkway, St. 600, Tempe, AZ, and any other personal guarantee for
financing of Company property or funds.
(p) Investment in CommonLine, Inc. The Company and the Principals hereby jointly
and severally represent and warrant to Parent and Acquisition Sub that: (i) Team
N.V. I, LP, an Iowa limited partnership ("Team N.V."), is an affiliate of the
Principals in that the Principals are limited partners of Team N.V. and that
Team dot Holdings, L.C., an Iowa limited liability company (whose only members
are the Principals) ("Team dot Holdings"), is the general partner of Team N.V.;
and (ii) the Company is not a limited partner of Team N.V. The Principals
covenant that within ninety (90) days of this Agreement they will: (i) use their
best efforts to cause Team N.V. to transfer all shares of common stock of
CommonLine, Inc., a Minnesota corporation ("CommonLine"), owned by Team N.V.
(the "Subject Shares") to the Surviving Corporation (notwithstanding any
existing contractual or other restrictions preventing such transfer); and (ii)
settle all disputes with CommonLine and its other shareholders (both holders of
common stock and preferred stock) such that the Surviving Corporation will have
all rights and assets acquired by Team N.V., Team dot Holdings or the Principals
(including, without limitation, cash, property or any rights to intellectual
property owned or licensed by CommonLine) in connection with the settlement of
such dispute at no cost to Surviving Corporation or Parent.
SECTION 6
6. Conditions to Obligation of Parent.
Notwithstanding any other provision of this Agreement to the contrary, the
obligation of Parent to effect the transactions contemplated herein shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) Representations and Warranties True. The representations and warranties
of Company and the Shareholders contained in this Agreement, including
without limitation in the Disclosure Schedule initially delivered to Parent
pursuant to Section 3 (and not including any changes or additions delivered
to Parent pursuant to subsection 5(i)), shall be in all respects true,
complete and accurate as of the date when made and at and as of the Closing
as though such representations and warranties were made at and as of such
time, except for changes specifically permitted or contemplated by this
Agreement, and except insofar as the representations and warranties relate
expressly and solely to a particular date or period, in which case they
must be true, complete and accurate in all respects at the Closing with
respect to such date or period.
23
<PAGE>
(b) Performance. Company and the Shareholders shall have performed and
complied in all respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
Company and the Shareholders on or prior to the Closing.
(c) Required Approvals and Consents.
(i) All action required by law and otherwise to authorize the
execution, delivery and performance of this Agreement and the
consummation of the Merger and the other transactions contemplated
hereby shall have been duly and validly taken.
(ii) All Consents of or from all Authorities or other persons or
entities required to consummate the transactions contemplated herein
shall have been delivered, made or obtained, and Parent shall have
received copies thereof.
(iii) The Board of Directors of Parent shall have approved the
execution, delivery and performance of this Agreement and the
consummation of the Merger and the transactions contemplated hereby.
(d) Adverse Changes. No material adverse change shall have occurred in the
business of Company.
(e) No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have been
instituted or threatened, and not resolved to the reasonable satisfaction
of Parent, which questions the validity or legality of the transactions
contemplated hereby or which, if successfully asserted, would individually
or in the aggregate, otherwise have a material adverse effect on the
conduct of the business of Company.
(f) Opinion of Company's and the Shareholders' Counsel. Parent shall have
received an opinion of Ball, Kirk and Holm, counsel for Company and the
Shareholders, dated the Closing Date, in the form set forth in Exhibit 6(f)
hereto.
(g) Certificates. Parent shall have received such certificates of officers
of Company, in form and substance reasonably satisfactory to Parent, dated
the Closing Date, to evidence compliance with the conditions set forth in
this Section 6 and such other matters as may be reasonably requested by
Parent.
(h) Due Diligence. Parent shall have received all information requested
by it pursuant to subsection 5(e) and Parent shall be satisfied in its
reasonable discretion that its due diligence investigation shall not have
revealed any material adverse issues or concerns not disclosed by Company
on or prior to the date hereof in this Agreement or in the Disclosure
Schedule.
(i) Restructuring Transactions. The business and assets of Team dot
Holdings, L.C. and Team N.V. I, L.P. shall have been acquired by Company or
by a corporate subsidiary or other entity fully owned by Company prior to
the Closing in transaction that shall be subject to the approval of Parent
in all respects.
(j) Employment Contracts. The Principals shall have executed and delivered
the employment contracts contemplated by subsection 5(k) hereof.
24
<PAGE>
(k) Filing of Articles of Merger. The Articles of Merger shall have been
filed, and the Merger shall have become effective, in accordance with the
Corporation Codes.
(l) Release of Guarantees. The Shareholders shall have caused Company to be
released from any and all guarantees with respect to any financing for any
real estate projects or developments, whether currently developed or
proposed for development. Parent shall have undertaken to release
Principals and Shareholders from any personal guarantee for financing of
Company property or funds.
(m) Notes with Affiliates and Principals. The Principals and Team Property
Management L.L.C. shall have executed and delivered promissory notes in the
form attached hereto as Exhibits 3(w)(1) and 3(w)(2).
(n) Evidence of Exercise of Stock Options. Shareholder shall supply
evidence of the exercise of stock options granted to Ranelle Bailiff and
the issuance of stock pursuant to that exercise.
SECTION 7
7. Conditions to Obligation of Company and the Shareholders.
Notwithstanding anything in this Agreement to the contrary, the obligation
of Company and the Shareholders to effect the transactions contemplated herein
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions:
(a) Representations and Warranties True. The representations and warranties
of Parent contained in this Agreement shall be in all respects true,
complete and accurate as of the date when made and at and as of the Closing
as though such representations and warranties were made at and as of such
time, except for changes specifically permitted or contemplated by this
Agreement, and except insofar as the representations and warranties relate
expressly and solely to a particular date or period, in which case they
must be true, complete and accurate in all respects at the Closing with
respect to such date or period.
(b) Performance. Parent shall have performed and complied in all respects
with all agreements, covenants, obligations and conditions required by this
Agreement to be performed or complied with by Parent at or prior to the
Closing.
(c) Approvals. All action required to be taken by Parent to authorize the
execution, delivery and performance of this Agreement and the consummation
of the Merger and the other Transactions contemplated hereby shall have
been duly and validly taken.
(d) No Proceeding or Litigation. No suit, action, investigation, inquiry or
other proceeding by any Authority or other person or entity shall have been
instituted or threatened, and not resolved to the reasonable satisfaction
of Company and the Shareholders, which questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would individually or in the aggregate, otherwise have a material adverse
effect on Parent.
(e) Certificates. Parent shall have furnished Company and the Shareholders
with such certificates of Parent's officers, in form and substance
reasonably acceptable to Company and the Shareholders, dated the Closing
Date, to evidence compliance with the conditions set forth in this
25
<PAGE>
Section 7 and such other matters as may be reasonably requested by Company
and the Shareholders.
(f) Opinion of Parent Counsel. Company and the Shareholders shall have
received an opinion of Sandra Ferrian, General Counsel to Parent, dated the
Closing Date, in the form set forth in Exhibit 7(f) hereto.
(g) Employment Contracts. Acquisition Sub shall have executed and delivered
the employment contracts contemplated by subsection 5(k) hereof.
SECTION 8
8. Termination and Abandonment.
(a) Methods of Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time, but not
later than the Closing:
(i) By mutual written consent of Parent and Company; or
(ii) By Parent on or after the Termination Date or such later date as
may be established pursuant to Section 1 hereof, if any of the
conditions provided for in Section 6 of this Agreement shall not have
been satisfied (or waived in writing by Parent) prior to such date; or
(iii) By Company on or after the Termination Date or such later date
as may be established pursuant to Section 1 hereof, if any of the
conditions provided for in Section 7 of this Agreement shall not have
been satisfied (or waived in writing by Company) prior to such date;
or
(iv) By Parent if there has been a material breach of any
representation, warranty, covenant or agreement on the part of Company
or the Shareholders set forth in this Agreement of which notice has
been given to Company or the Shareholders in writing by Parent and
which has not been fully cured or cannot be fully cured within twenty
(20) days of the receipt of such notice; or
(v) By Company or the Principals if there has been a material breach
of any representation, warranty, covenant or agreement on the part of
Parent set forth in this Agreement of which notice has been given to
Parent in writing by Company or the Shareholders and which has not
been fully cured or cannot be fully cured within twenty (20) days of
the receipt of such notice.
In the event of termination and abandonment pursuant to this
subsection 8(a), written notice thereof shall forthwith be given to the
other party or parties, and, except as set forth below, the provisions of
this Agreement shall terminate, and the transactions contemplated herein
shall be abandoned, without further action by any party hereto.
(b) Effect of Termination. If this Agreement is terminated as provided
herein:
(i) Each party will, upon request, redeliver all documents, work
papers and other material of any other party (and all copies thereof)
relating to the transactions
26
<PAGE>
contemplated herein, whether obtained before or after the execution
hereof, to the party furnishing the same;
(ii) The provisions of subsections 5(f) and 10(a) will continue to be
applicable; and
(iii) Each party shall have all of its rights and remedies available
at law, including the right to injunctive relief, for any breach of
any representation, warranty, covenant or agreement set forth in this
Agreement.
SECTION 9
9. Survival and Indemnification.
(a) Survival. The representations and warranties of each of the parties
hereto shall survive the Closing.
(b) Indemnification by Parent. Parent agrees to indemnify the Shareholders
from and against any and all loss, liability, damage or expense, including
without limitation reasonable attorneys' fees and other reasonable costs
and expenses incident to, and amounts paid or required to be paid in
settlement or satisfaction of, any claim, suit, action or proceeding (a
"Loss" or collectively, "Losses") suffered or incurred by the Shareholders
by reason of:
(i) Any untrue representation of, or breach of warranty by, Parent in
any part of this Agreement, provided, however, that no claim for
indemnity may be made pursuant to this subsection after the first
anniversary of the Closing Date; and
(ii) Any nonfulfillment of any covenant, agreement or undertaking of
Parent in any part of this Agreement that has not been specifically
waived in writing by Company.
(c) Indemnification by the Shareholders. The Principals jointly and
severally agree to indemnify Parent from and against any and all Loss or
Losses (as defined above) suffered or incurred by Parent by reason of:
(i) Any untrue representation of, or breach of warranty by, Company or
the Shareholders in any part of this Agreement or the Disclosure
Schedule, provided, however, that no claim for indemnity may be made
pursuant to this subsection after the first anniversary of the Closing
Date, except that any claim relating to the items set forth in
subsections 3(j) and 3(l), relating to taxes and employee benefits
matters, may be asserted up to thirty (30) days after the passing of
the statute of limitations with respect to the matters set forth in
such subsections;
(ii) Any nonfulfillment of any covenant, agreement or undertaking of
Company in any part of this Agreement that has not been specifically
waived in writing by Parent;
(iii) Any nonfulfillment of any covenant, agreement or undertaking of
any Principal under any of the Employment Contracts contemplated in
Section 5(k) hereof; and
(iv) Any failure to pay, satisfy or discharge any amounts due and
owing pursuant to the Principal Notes or Affiliate Note.
27
<PAGE>
Ranelle Bailiff agrees to indemnify Parent from and against any and
all Loss or Losses (as defined above) suffered or incurred by Parent by
reason of any untrue representation of, or breach of warranty by, Ranelle
Bailiff in Section 2 of this Agreement or the Disclosure Schedule as it
relates to any of the parts of Section 2, provided, however, that no claim
for indemnity may be made pursuant to this paragraph after the first
anniversary of the Closing Date.
The obligations of the Shareholders to indemnify Parent pursuant
hereto shall be secured by the rights of offset of Parent against the
January 1999 Notes or Six-Month Notes, which shall constitute a
non-exclusive source of funds for the satisfaction of the Shareholders'
indemnification obligations to Parent, all pursuant to the provisions of
this Agreement and the January 1999 Notes or Six-Month Notes.
(d) Limitations on Claims.
(i) Minimum Amount of Claims. Notwithstanding the foregoing, however,
neither Parent nor the Shareholders shall be entitled to recover for
any claims asserted hereunder until the aggregate amount which such
party or group is entitled to recover for any claims asserted
hereunder exceeds $10,000, after which such party or group shall be
entitled to recover for all claims recoverable hereunder including
those aggregating less than $10,000.
(ii) Waiver and Release of Claims. The Shareholders acknowledge and
agree that they have had an adequate opportunity to investigate the
assets, business and prospects of Parent, its financial condition and
results of operations, and all other factors relevant to the value of
the Merger Consideration payable hereunder, and the Shareholders
hereby release and forever discharge Parent and its directors,
officers, employees, agents and representatives from any and all
claims or causes of action arising out of any representations,
warranties, statements, documents or information provided by any of
the foregoing in connection with the Merger and the transactions
contemplated hereby, except that the foregoing release and discharge
shall not apply to the extent that any such party released and
discharged hereunder is found by a court of competent jurisdiction to
have (A) provided any representations, warranties, statements,
documents or information in bad faith or (B) engaged in fraudulent
conduct, which in either case results in damages to the Shareholders.
(e) Indemnification Procedure.
(i) If at any time a party entitled to indemnification hereunder (the
"Indemnitee") shall receive notice of any facts that may result in a
Loss, the Indemnitee shall promptly give written notice of the
discovery of such potential or actual Loss (a "Notice of Claim") to
the party obligated to provide indemnification (the "Indemnitor"). A
Notice of Claim shall set forth (i) a brief description of the nature
of the potential or actual Loss, and (ii) the total amount of Loss
anticipated (including any costs or expenses which have been or may be
reasonably incurred in connection therewith). Upon receipt of a Notice
of Claim, the Indemnitor may elect to cure the Loss within thirty (30)
days after the date of receipt of the Notice of Claim, or if such cure
cannot be effected within such thirty (30) day period, diligently
proceed to effect such cure. If such cure cannot be effected, payment
of the amount of Loss due the Indemnitee as set forth in a Notice of
Claim shall be made by the Indemnitor no later than the thirtieth
(30th) day after the date of the Notice of Claim (or such later date
as the Indemnitor receives written notice that an
28
<PAGE>
actual Loss has occurred) unless the Indemnitor objects to the Notice
of Claim pursuant to subsection 9(e)(ii) or the provisions of
subsection 9(e)(iii) are applicable thereto. The Indemnitee's failure
to give prompt notice or to provide copies of documents or to furnish
relevant data, shall not constitute a defense (in whole or in part) to
any claim by the Indemnitee against the Indemnitor for
indemnification, except and only to the extent that such failure shall
have caused or increased such liability or adversely affected the
ability of the Indemnitor to defend against or reduce its liability.
(ii) If the Indemnitor shall object to any Loss as to which a Notice
of Claim is sent by the Indemnitee, the Indemnitor shall give written
notice of such objection to the Indemnitee within thirty (30) days
after the date of receipt of the Notice of Claim. If the Indemnitor
does not give written notice of any objections to the Notice of Claim
to the Indemnitee within such 30-day period, then the Notice of Claim
shall be deemed to be accepted by the Indemnitor. If the Indemnitor
objects to the Notice of Claim by written notice to the Indemnitee
within such 30-day period, then the Indemnitor and the Indemnitee will
promptly meet to resolve any differences regarding the Notice of
Claim. If any such differences are not resolved within thirty (30)
days after delivery to the Indemnitee of the Indemnitor's written
objections, then the parties hereto shall submit the dispute to
binding arbitration in Minneapolis, Minnesota in accordance with the
rules of the American Arbitration Association for a final
determination. The cost of such arbitration will be borne by the
parties in proportion to the amount by which the final amount of the
Indemnitee's Loss or Losses as determined by the arbitrator differs
from the respective parties' calculation of the Indemnitee's Loss or
Losses as submitted by them to the arbitrator. The parties agree that
the determination by such arbitrator will be binding upon the parties
for all purposes.
(iii) If any Notice of Claim relates to any claim made against an
Indemnitee or by any third person, the Notice of Claim shall state the
nature, basis and amount of such claim. The Indemnitor shall have the
right, at its election, by written notice given to the Indemnitee, to
assume the defense of the claim as to which such notice has been
given. Except as provided in the next sentence, if the Indemnitor so
elects to assume such defense, it shall diligently and in good faith
defend such claim and shall keep the Indemnitee reasonably informed of
the status of such defense, and the Indemnitee shall cooperate fully
with the Indemnitor in the defense of such claim, provided that in the
case of any settlement providing for remedies other than monetary
damages for which indemnification is provided, the Indemnitee shall
have the right to approve the settlement, which approval shall not be
unreasonably withheld or delayed. If the Indemnitor does not so elect
to defend any claim as aforesaid or shall fail to defend any claim
diligently and in good faith (after having so elected), the Indemnitee
may assume the defense of such claim and take such other action as it
may elect to defend or settle such claim as it may determine in its
reasonable discretion, provided that the Indemnitor shall have the
right to approve any settlement, which approval will not be
unreasonably withheld or delayed.
SECTION 10
10. Miscellaneous Provisions.
(a) Expenses. Except as otherwise provided in this Agreement, Parent will
bear its own, and the Shareholders (and not Company) will bear their own,
costs, fees and expenses in connection
29
<PAGE>
with the negotiation, preparation, execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby, including without limitation fees, commissions and expenses payable
to brokers, finders, investment bankers, consultants, exchange or transfer
agents, attorneys, accountants and other professionals, whether or not the
transactions contemplated herein are consummated.
(b) Amendment and Modification. Subject to applicable Law, this Agreement
may be amended or modified by the parties hereto at any time prior to the
Closing with respect to any of the terms contained herein; provided,
however, that all such amendments and modifications must be in writing duly
executed by Parent, Company and the Shareholders.
(c) Waiver of Compliance; Consents. Any failure of a party to comply with
any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. No single or
partial exercise of a right or remedy shall preclude any other or further
exercise thereof or of any other right or remedy hereunder. Whenever this
Agreement requires or permits the consent by or on behalf of a party, such
consent must be given in writing in the same manner as for waivers of
compliance.
(d) No Third Party Beneficiaries. Nothing in this Agreement will entitle
any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
(e) Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be made in writing and shall be
deemed to have been duly given and effective:
(i) on the date of delivery, if delivered personally;
(ii) on the date of receipt if sent by reputable nationwide overnight
courier; or
(iii) on the date of transmission, if sent by facsimile, telecopy,
telegraph, telex or other similar telegraphic communications
equipment:
If to Parent:
To: VirtualFund.com, Inc.
7090 Shady Oak Road
Eden Prairie, MN 55344
Attention: Mel Masters
Fax No. (612) 943-8652
With a copy to:
VirtualFund.com, Inc.
7090 Shady Oak Road
Eden Prairie, MN 55344
Attention: Sandra Ferrian
Fax No. (612) 943-3599
30
<PAGE>
or to such other person or address as Parent shall furnish to the
other parties hereto in writing in accordance with this subsection.
If to Company or to the Shareholders:
To: TEAM Technologies
1025 Technology Parkway
Cedar Falls, IA 50613
Attention: Steve Fisher
Fax No. (319) 266-9385
or to such other address as Company or the Shareholders shall furnish
to the other parties hereto in writing in accordance with this
subsection.
(f) Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
(whether voluntarily, involuntarily, by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties, provided, however, that Parent may assign this Agreement, in whole
or in any part, and from time to time, to a wholly owned, direct or
indirect, subsidiary of Parent, but any such assignment shall not relieve
Parent of its obligations hereunder.
(g) Governing Law. This Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the internal
substantive laws of the State of Minnesota (without regard to the laws of
conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and
remedies.
(h) Jurisdiction. Each of the parties hereto hereby irrevocably consents to
the exclusive jurisdiction of the state and federal courts located within
Hennepin County, Minnesota, for the adjudication of any claim or
controversy arising hereunder or in connection with the Merger or the
transactions contemplated hereby, or for the enforcement of any judgment or
award in arbitration relating to this Agreement, the Merger or the
transactions contemplated hereby. Each such party hereby irrevocably waives
any claim of forum non conveniens in connection with any claim or
controversy venued in any of the courts referred to above.
(i) Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
(j) Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(k) Headings. The table of contents and the headings of the sections and
subsections of this Agreement are inserted for convenience only and shall
not constitute a part hereof.
31
<PAGE>
(l) Entire Agreement. The exhibits and other writings referred to in this
Agreement or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as "this Agreement" or the "Agreement". There
are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the transaction or
transactions contemplated by this Agreement.
(m) Injunctive Relief. It is expressly agreed among the parties hereto that
monetary damages would be inadequate to compensate a party hereto for any
breach by any other party of its covenants and agreements set forth herein.
Accordingly, the parties agree and acknowledge that any such violation or
threatened violation will cause irreparable injury to the other and that,
in addition to any other remedies which may be available, such party shall
be entitled to injunctive relief against the threatened breach of this
Agreement or the continuation of any such breach without the necessity of
proving actual damages and may seek to specifically enforce the terms of
this Agreement.
(n) Attorneys' Fees. The prevailing party or parties in any legal action
commenced to (i) enforce the terms and conditions of this Agreement or (ii)
recover damages or any other relief for the breach by another party or
parties of this Agreement, shall be entitled to recover such prevailing
party's or parties' reasonable attorneys' fees, including expenses of such
attorneys, from the non-prevailing party or parties in any such legal
action.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
VIRTUALFUND.COM, INC.
By:
------------------------------
Title:
------------------------------
VIRTUALFUND ACQUISITION CORP. I
By:
------------------------------
Title:
------------------------------
K & R TECHNICAL SERVICES, INC.
By:
------------------------------
Title:
------------------------------
------------------------------------
Steve Fisher
------------------------------------
Mark Kittrell
------------------------------------
Mark Stewart
------------------------------------
Ranelle Bailiff
33
<PAGE>
TABLE OF CONTENTS
Page
----
1. Merger......................................................................1
(a) Merger; Surviving Corporation.......................................1
(b) Articles of Incorporation...........................................1
(c) Bylaws..............................................................1
(d) Directors and Officers..............................................1
(e) Closing.............................................................2
(f) Effective Time......................................................2
(g) Merger Consideration................................................2
(h) Payment of Merger Consideration.....................................3
(i) Surrender of Certificates Representing; Shares of Company
Common Stock.......................................................3
2. Representations and Warranties of Company and the Shareholders..............3
(a) Corporate Organization..............................................3
(b) Capitalization......................................................4
(c) Authorization.......................................................4
(d) Non-Contravention...................................................4
(e) Consents and Approvals..............................................5
(f) Investment Representations..........................................5
3. Representations and Warranties of Company and the Principals................7
(a) Disclosure Schedule.................................................7
(b) Financial Statements................................................7
(c) Loss Contingencies; Other Non-Accrued Liabilities...................7
(d) Absence of Certain Changes..........................................8
(e) Real Properties.....................................................8
(f) Machinery, Equipment, Vehicles and Personal Property................9
(g) Receivables and Payables............................................9
(h) Intellectual Property Rights.......................................10
(i) Litigation.........................................................10
(j) Taxes..............................................................10
(k) Insurance..........................................................11
(l) Benefit Plans......................................................11
(m) Bank Accounts; Powers of Attorney..................................13
(n) Contracts and Commitments; No Default..............................13
(o) Labor Matters......................................................14
(p) Customers, Dealers and Suppliers...................................15
(q) Permits and Other Operating Rights.................................15
(r) Compliance with Law................................................15
(s) Business Generally.................................................16
(t) Hazardous Substances and Hazardous Wastes..........................16
(u) Brokers............................................................17
(v) Accuracy of Information............................................17
4. Representations and Warranties of Parent...................................17
(a) Corporate Organization.............................................18
(b) Authorization......................................................18
i
<PAGE>
(c) Non-Contravention..................................................18
(d) Consents and Approvals.............................................18
(e) Brokers............................................................19
5. Covenants..................................................................19
(a) Agreements as to Specified Matters.................................19
(b) Operational Covenants..............................................19
(c) Conduct of Business................................................20
(d) No Solicitation of Alternate Transaction...........................20
(e) Full Access to Parent..............................................20
(f) Confidentiality....................................................20
(g) Filings; Consents; Removal of Objections...........................21
(h) Further Assurances; Cooperation; Notification......................21
(i) Supplements to Disclosure Schedule.................................21
(j) Public Announcements...............................................21
(k) Employment Contracts...............................................22
(l) Employee and Benefit Matters.......................................22
(m) Real Estate Matters................................................22
(n) Tax Matters........................................................22
(o) Personal Guarantee of Principals...................................23
(p) Investment in CommonLine, Inc......................................23
6. Conditions to Obligation of Parent.........................................23
(a) Representations and Warranties True................................23
(b) Performance........................................................24
(c) Required Approvals and Consents....................................24
(d) Adverse Changes....................................................24
(e) No Proceeding or Litigation........................................24
(f) Opinion of Company's and the Shareholders'Counsel..................24
(g) Certificates.......................................................24
(h) Due Diligence......................................................24
(i) Restructuring Transactions.........................................24
(j) Employment Contracts...............................................24
(k) Filing of Articles of Merger.......................................25
(l) Release of Guarantees..............................................25
(m) Notes with Affiliates and Principals...............................25
(n) Evidence of Exercise of Stock Options..............................25
7. Conditions to Obligation of Company and the Shareholders...................25
(a) Representations and Warranties True................................25
(b) Performance........................................................25
(c) Approvals..........................................................25
(d) No Proceeding or Litigation........................................25
(e) Certificates.......................................................25
(f) Opinion of Parent Counsel..........................................26
(g) Employment Contracts...............................................26
8. Termination and Abandonment................................................26
(a) Methods of Termination.............................................26
(b) Effect of Termination..............................................26
ii
<PAGE>
9. Survival and Indemnification...............................................27
(a) Surviva............................................................27
(b) Indemnification by Parent..........................................27
(c) Indemnification by the Shareholders................................27
(d) Limitations on Claims..............................................28
(e) Indemnification Procedure..........................................28
10. Miscellaneous Provisions..................................................29
(a) Expenses...........................................................29
(b) Amendment and Modification.........................................30
(c) Waiver of Compliance; Consents.....................................30
(d) No Third Party Beneficiaries.......................................30
(e) Notices............................................................30
(f) Assignment.........................................................31
(g) Governing Law......................................................31
(h) Jurisdiction.......................................................31
(i) Severability.......................................................31
(j) Counterparts.......................................................31
(k) Headings...........................................................31
(l) Entire Agreement...................................................32
(m) Injunctive Relief..................................................32
(n) Attorneys'Fees.....................................................32
iii
<PAGE>
LIST OF EXHIBITS
NAME OF EXHIBIT NUMBER OF EXHIBIT
- --------------- -----------------
Plan of Merger Exhibit 1(a)
Form of January 1999 Note Exhibit 1(g)(i)
Form of Six-Month Note Exhibit 1(g)(ii)
Certificate of Rights and Preferences Exhibit 1(g)(iii)
Promissory Notes from Principals Exhibit 3(w)(1)
Promissory Notes from Team Property Management Exhibit 3(w)(2)
Operational Covenants Exhibit 5(b)
Opinion of Company's Counsel Exhibit 6(f)
Opinion of Parent's Counsel Exhibit 7(f)
iv
