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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): March 10, 1998
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6395 13-3590047
- ----------------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
320 Washington Street, Mt. Vernon New York 10553
- ------------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 665-5400
---------------------
Not Applicable
---------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 10, 1998, the Registrant entered into, and consummated, an
Agreement and Plan of Merger (the "Merger Agreement") among the Registrant,
Vanguard Acquisition Corp., a wholly-owned subsidiary of the Registrant, Henlor,
Inc. ("Henlor") and the shareholders of Henlor. The transaction was structured
as a reverse triangular merger. As a result of the merger, Henlor now is a
wholly-owned subsidiary of the Registrant. Henlor, through its wholly-owned
subsidiary Vanguard Studios, Inc. ("Vanguard"), designs, manufactures and
wholesales decorative accessories furnishings for the home, including framed
hand-painted oil paintings, framed prints under glass, wall mirrors, lamps,
sculptures and decorative tabletop accessories. The acquisition of Henlor
provides the Registrant with an expanded breadth of product offerings.
Pursuant to the Merger Agreement, the purchase price paid to the
shareholders of Henlor at closing consisted of a cash payment of $705,621 and
the delivery of a subordinated promissory note in the aggregate principal amount
of $794,379. In addition, the Registrant issued to the shareholders of Henlor
an aggregate of 299,581 unregistered shares of its Class A Common Stock (the
"Merger Shares") and the Registrant repaid indebtedness of Vanguard owed to the
principal shareholders of Henlor in the amount of $294,379 . All of the Merger
Shares are being held in a two year escrow as security for the indemnification
obligations of Henlor's former shareholders pursuant to the Merger Agreement,
and the number of Merger Shares remains subject to adjustment based on the value
of the Merger Shares on the second anniversary of the closing date.
The merger was financed by (i) a bridge loan in the principal amount
of $500,000 from United Credit Corp., the Registrant's senior lender, and (ii)
the private placement to accredited investors of the Registrant's unregistered
Subordinated Convertible Promissory Notes in the aggregate principal amount of
$500,000. The aggregate purchase price was determined in arms-length
negotiations between the Registrant and the shareholders of Henlor.
The assets acquired pursuant to the Merger Agreement included, among
other things, (i) fixed assets owned, leased or used by Henlor and Vanguard,
including equipment, (ii) accounts receivable, (iii) inventory and (iv)
contracts, agreements, and leases of real and personal and property. For the
foreseeable future, the Registrant intends to utilize such assets in connection
with the operation of the business of Henlor and Vanguard.
A copy of the Merger Agreement is appended as an exhibit to this
Report.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
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Financial statements with respect to the acquisition of Henlor, Inc. by the
Registrant will be filed with an amendment to this Form 8-K within 60 days after
the date that this Report is required to be filed.
(b) Pro Forma Financial Information.
-------------------------------
Pro forma financial information with respect to the acquisition of Henlor, Inc.
by the Registrant will be filed with an amendment to this Form 8-K within 60
days after the date that this Report is required to be filed.
(c) Exhibits
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Document Description Exhibit No.
- -------------------- -----------
Agreement and Plan of Merger, dated as of March 10, 1998, 2
among the Registrant, Vanguard Acquisition Corp., a wholly-
owned subsidiary of the Registrant, Henlor, Inc. and the
shareholders of Henlor, Inc.
Employment Agreement dated as of March 10, 1998 between 99.1
Michael H. Greeley and Henlor, Inc.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
March 25, 1998 INTERIORS, INC.,
a Delaware corporation
By: /s/ John D. Mazzuto.
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Chief Financial Officer
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EXHIBIT INDEX
Exhibit Sequentially
No. Document Description Numbered Page
- ------- -------------------- -------------
2 Agreement and Plan of Merger, dated as of
March 10, 1998, among the Registrant, Vanguard
Acquisition Corp., a wholly-owned subsidiary
of the Registrant, Henlor, Inc. and the shareholders
of Henlor, Inc..
99.1 Employment Agreement dated as of March 10, 1998
between Michael H. Greeley and Henlor, Inc.
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AGREEMENT AND PLAN OF MERGER
AMONG
VANGUARD ACQUISITION CORP.,
INTERIORS, INC.,
HENLOR, INC.,
AND
THE SHAREHOLDERS OF HENLOR, INC.
MARCH 10, 1998
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TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C> <C>
ARTICLE I DEFINITIONS.............................................. 1
ARTICLE II THE MERGER............................................... 7
2.01 Merger............................................ 7
2.02 Effective Time.................................... 8
2.03 Certificate of Incorporation, Bylaws, Officers,
Name.............................................. 8
2.04 Assets and Liabilities............................ 8
2.05 Further Assurances................................ 9
2.06 Conversion of Securities.......................... 9
2.07 Post-Closing Adjustments.......................... 10
2.08 Payment of Cash for Common Stock; Exchange of
Shares............................................ 11
2.09 Escrow; Indemnification Representative............ 13
2.10 Consummation of Merger............................ 15
2.11 Closing........................................... 15
2.12 Actions at the Closing............................ 15
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING
THE COMPANY.............................................. 16
3.01 Organization and Good Standing; Authorization..... 16
3.02 No Conflicts...................................... 17
3.03 Capitalization.................................... 17
3.04 Financial Statements.............................. 18
3.05 Title to Property; Encumbrances................... 19
3.06 Inventory and Accounts Receivable................. 20
3.07 Compliance with Law............................... 21
3.08 Trademarks, Patents, Etc.......................... 21
3.09 Banking and Insurance............................. 22
3.10 Indebtedness...................................... 23
3.11 Judgments; Litigation............................. 24
3.12 Income and Other Taxes............................ 24
3.13 Corporate Records................................. 26
3.14 Employee Benefit Matters.......................... 26
3.15 No Undisclosed Liabilities........................ 26
3.16 Permits, Licenses, Etc............................ 27
3.17 Regulatory Filings................................ 27
3.18 Consents.......................................... 28
3.19 Material Contracts; No Defaults................... 28
3.20 Absence of Certain Changes........................ 30
3.21 Employees and Labor Matters....................... 32
3.22 Affiliations...................................... 33
3.23 Principal Customers and Suppliers................. 33
3.24 Warranty Liability................................ 33
</TABLE>
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<TABLE>
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<S> <C> <C>
3.25 Hazardous Materials............................... 34
3.26 Brokers' Fees..................................... 35
3.27 Disclosure........................................ 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.................. 36
4.01 Organization, Power and Authority of Buyer and
Newco............................................. 36
4.02 Authorization..................................... 36
4.03 No Conflict or Violation.......................... 36
4.04 Capitalization.................................... 37
4.05 Consents and Approvals............................ 37
4.06 Reports and Financial Statements.................. 38
4.07 Brokers' Fees..................................... 38
4.08 Compliance with Securities Laws................... 39
4.09 Disclosure........................................ 39
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....... 39
5.01 Ownership of Shares............................... 39
5.02 Delivery of Good Title............................ 39
5.03 Execution and Delivery............................ 40
5.04 No Conflicts...................................... 40
5.05 Restrictions on Transfer of Buyer Common Stock
Under Securities Laws; Registration............... 40
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER..................... 42
6.01 Conditions to Obligations of Buyer and Newco...... 42
6.02 Conditions to Obligations of the Company and
the Shareholders.................................. 44
ARTICLE VII CONDUCT OF BUSINESS PENDING CLOSING...................... 45
7.01 Qualification..................................... 45
7.02 Ordinary Course................................... 45
7.03 Organic Changes................................... 46
7.04 Indebtedness...................................... 46
7.05 Accounting........................................ 46
7.06 Compliance with Legal Requirements................ 46
7.07 Disposition of Assets............................. 46
7.08 Compensation...................................... 47
7.09 Modification or Breach of Agreements; New
Agreements........................................ 47
7.10 Capital Expenditures.............................. 47
7.11 Maintain Insurance................................ 47
7.12 Discharge......................................... 47
7.13 Actions........................................... 48
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
7.14 Permits........................................... 48
7.15 Tax Assessments and Audits........................ 48
ARTICLE VIII ADDITIONAL COVENANTS..................................... 48
8.01 Covenants of the Company and the Shareholders..... 48
8.02 Covenants of Buyer................................ 49
8.03 Access and Information............................ 50
8.04 Expenses.......................................... 51
8.05 Certain Notifications............................. 51
8.06 Publicity; Employee Communications................ 51
8.07 Further Assurances................................ 51
8.08 Competing Offers; Merger or Liquidation........... 52
8.09 Inconsistent Action............................... 52
8.10 Post-Termination Employment....................... 53
8.11 Acquisition of Shares of Buyer.................... 53
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................ 53
9.01 Termination....................................... 53
9.02 Effect of Termination............................. 54
9.03 Amendment......................................... 54
9.04 Waiver............................................ 54
ARTICLE X INDEMNIFICATION.......................................... 55
10.01 Survival of Representations and Warranties and
Covenants......................................... 55
10.02 Indemnification................................... 55
10.03 Third Party Claims................................ 57
10.04 Indemnification Non-Exclusive..................... 58
ARTICLE XI GENERAL PROVISIONS....................................... 58
11.01 Notices........................................... 58
11.02 Severability...................................... 60
11.03 Entire Agreement.................................. 60
11.04 Successors and Assigns............................ 60
11.05 Counterparts...................................... 61
11.06 Schedules and Annexes............................. 61
11.07 Construction...................................... 61
11.08 Consent to Jurisdiction........................... 61
11.09 Governing Law..................................... 61
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
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as of March 10, 1998 by and among Vanguard Acquisition Corp., a Delaware
corporation ("Newco"), Interiors, Inc., a Delaware corporation ("Buyer"),
----- -----
Henlor, Inc., a Delaware corporation (the "Company"), and the Shareholders of
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the Company listed on the signature pages hereto (collectively, the
"Shareholders").
- -------------
R E C I T A L S
- - - - - - - -
(A) The Shareholders own all of the aggregate issued and outstanding
shares of Common Stock of the Company.
(B) Buyer owns all of the issued and outstanding shares of capital
stock of Newco.
(C) The Board of Directors of each of Newco and the Company have
determined that it is fair to, and in the best interests of, their respective
corporations and stockholders for Newco to be merged with and into the Company
upon the terms and subject to the conditions set forth herein (the "Merger").
------
(D) The Board of Directors of each of Newco and the Company have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
<PAGE>
herein defined. All accounting terms defined in this Article I and those
accounting terms used in this Agreement and not defined in this Article I shall,
except as otherwise provided for herein, be construed in accordance with GAAP.
"Action" shall mean any actual or threatened claim, action, suit,
------
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean any Person which directly or indirectly
---------
controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall have the meaning assigned to such term in the
---------
introductory paragraph of this Agreement.
"Anniversary Date" shall have the meaning assigned to such term in
----------------
Section 2.07(a).
"Balance Sheet" and "Balance Sheet Date" shall have the respective
------------- ------------------
meanings assigned to such terms in Section 3.04(a).
"Business Day" shall mean any day excluding Saturday, Sunday or any
------------
day which shall be in the State of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the
-----
introductory paragraph of this Agreement.
"Buyer Common Stock" shall mean the Class A Common Stock, par value
------------------
$.001 per share, of Buyer.
"Certificates" shall have the meaning assigned to such term in Section
------------
2.08(a).
"Closing" and "Closing Date" shall have the respective meanings
------- ------------
assigned to such terms in Section 2.11.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Common Stock" shall mean the Common Stock, par value $.0001 per
------------
share, of the Company.
2
<PAGE>
"Company" shall have the meaning assigned to such term in the
-------
introductory paragraph of this Agreement.
"Constituent Corporations" shall have the meaning assigned to such
------------------------
term in Section 2.01.
"Damages" shall mean any and all losses, liabilities, obligations,
-------
costs, expenses, damages or judgments of any kind or nature whatsoever
(including reasonable attorneys', accountants' and experts' fees, disbursements
of counsel, and other costs and expenses incurred pursuing indemnification
claims under Article X hereof).
"Delaware Law" shall mean the Delaware General Corporation Law, as
------------
amended.
"Effective Time" shall have the meaning assigned to such term in
--------------
Section 2.02.
"Environmental Laws" shall mean all Legal Requirements pertaining to
------------------
the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling, storage,
treatment, removal, transport, transloading, cleanup, decontamination, discharge
and disposal of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"Escrow Agent" shall mean First Trust of California, a national
------------
association.
"Escrow Agreement" shall have the meaning assigned to such term in
----------------
Section 2.09.
"Escrow Shares" shall have the meaning assigned to such term in
-------------
Section 2.09.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Financial Statements" shall have the meaning assigned to such term in
--------------------
Section 3.04(a).
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
3
<PAGE>
"Governmental Entity" shall mean any local, state, federal or foreign
-------------------
(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Guaranties" shall have the meaning assigned to such term in Section
----------
3.10(b).
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
------------------
reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the
future.
"Indebtedness" shall mean, when used with reference to any Person,
------------
without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related Indebtedness or to acquire the security
therefor; (iii) all liabilities or obligations secured by a Lien upon property
owned by such Person and upon which liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has not
assumed or become liable for the payment of such liabilities or obligations;
and (iv) any amendment, renewal, extension, revision or refunding of any such
liability or obligation; provided,
--------
4
<PAGE>
however, that Indebtedness shall not include any liability for compensation of
- -------
such Person's employees or for inventory or similar property acquired and
consumed in the Ordinary Course or for services.
"IRS" shall mean the United States Internal Revenue Service.
---
"Leased Real Property" shall mean all real property, including
--------------------
Structures, leased by the Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
-----------------
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Letter of Intent" shall mean that certain Letter of Intent dated
----------------
January 7, 1998 among Buyer, the Company, Michael H. Greeley and Judith Greeley.
"Liability Reduction Amount" shall have the meaning assigned to such
--------------------------
term in Section 2.12(g).
"Lien" shall mean all liens (including judgment and mechanics' liens,
----
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
business, financial condition, properties, profitability, prospects or
operations of the Company.
"Merger" shall have the meaning assigned to such term in Recital C
------
hereof.
"Merger Consideration" shall have the meaning assigned to such term in
--------------------
Section 2.06(a).
"Merger Shares" shall have the meaning assigned to such term in
-------------
Section 2.06(a).
"Newco" shall have the meaning assigned to such term in the
-----
introductory paragraph of this Agreement.
5
<PAGE>
"Note" shall mean a Promissory Note of the Surviving Corporation
----
substantially in the form of Annex B attached hereto.
"Options" shall mean all outstanding options, warrants and other
-------
rights to acquire Common Stock.
"Ordinary Course" shall mean, when used with reference to the Company,
---------------
the ordinary course of the Company's business consistent with past practices.
"Permits" shall have the meaning assigned to such term in Section 3.16
-------
hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or personal
---------------
property taxes or assessments not at the time due and (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such Liens are not then delinquent.
"Person" shall mean all natural persons, corporations, business
------
trusts, associations, companies, partnerships, limited liability companies,
joint ventures, Governmental Entities and any other entities.
"Policies" shall have the meaning assigned to such term in Section
--------
3.09(b) hereof.
"Principal Shareholders" shall mean Michael H. Greeley and Judith
----------------------
Greeley.
"Proprietary Information" shall have the meaning assigned to such term
-----------------------
in Section 3.08(b).
"Registered Rights" shall have the meaning assigned to such term in
-----------------
Section 3.08(a).
"Representative" shall mean Michael H. Greeley.
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Shareholders" shall have the meaning assigned to such term in the
------------
introductory paragraph of this Agreement.
"Shortfall Amount" shall have the meaning assigned to such term in
----------------
Section 2.07(a).
6
<PAGE>
"Shares" shall mean the issued and outstanding Common Stock.
------
"Stock Plans" shall mean all stock option plans and other stock or
-----------
equity-related plans of the Company.
"Structure" shall mean any facility, building, plant, factory, office,
---------
warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
----------
association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
"Surviving Corporation" shall have the meaning assigned to such term
---------------------
in Section 2.01 hereof.
"Tax" shall mean any Federal, state, local or foreign income, gross
---
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine,
penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
----------
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
ARTICLE II
THE MERGER
----------
SECTION 2.0 Merger. Upon the terms and subject to the conditions of
------
this Agreement, Newco shall be merged with and into the Company in accordance
with the applicable provisions of the Delaware Law. The Company and Newco are
herein sometimes referred to as the "Constituent Corporations." At the
------------------------
Effective Time, the identity and
7
<PAGE>
separate corporate existence of the Company shall cease and the Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). The Merger shall have the effects set forth in
---------------------
Section 259 of the Delaware Law.
SECTION 2.02 Effective Time. The Merger shall become effective on
--------------
the date and at the time the Certificate of Merger referred to in Section 2.10
hereof is filed with the Secretary of State of the State of Delaware in
accordance with Section 103 of the Delaware Law. The time at which the Merger
shall become effective as aforesaid is referred to hereinafter as the "Effective
---------
Time."
- ----
SECTION 2.03 Certificate of Incorporation, Bylaws, Directors and
---------------------------------------------------
Officers, Name.
- --------------
(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, from and after the Effective Time
until amended in accordance with applicable law.
(b) The Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation from and after
the Effective Time until amended in accordance with applicable law, the
Surviving Corporation's Certificate of Incorporation and such Bylaws.
(c) The directors and officers of Newco in office immediately
prior to the Effective Time shall be the directors and officers, respectively,
of the Surviving Corporation, and each shall hold his or her respective office
or offices from and after the Effective Time until his or her successor shall
have been elected and shall have qualified or as otherwise provided in the
Bylaws of the Surviving Corporation.
(d) The name of the Surviving Corporation from and after the
Effective Time shall be "Henlor, Inc." until changed in accordance with
applicable law.
SECTION 2.04 Assets and Liabilities. At the Effective Time, the
----------------------
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
and all the rights, privileges,
8
<PAGE>
powers and franchises of each of the Constituent Corporations, and all property,
real, personal and mixed, and all debts due to any of the Constituent
Corporations on whatever account, as well as for stock subscriptions and all
other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the several and respective Constituent Corporations, and the title to any
real estate vested by deed or otherwise under the laws of any jurisdiction, in
any of the Constituent Corporations, shall not revert or be in any way impaired
by this Article II; but all rights of creditors and all liens upon any property
of any of the Constituent Corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the respective Constituent Corporations shall
thenceforth attach to the Surviving Corporation, and may be enforced against it
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
SECTION 2.05 Further Assurances. If, at any time after the Effective
------------------
Date, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, properties or assets of the Constituent Corporations
acquired or to be acquired as a result of the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, properties or assets of the
Constituent Corporations acquired or to be acquired as a result of the Merger
and otherwise to carry out the purposes of this Agreement.
SECTION 2.06 Conversion of Securities.
------------------------
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of
9
<PAGE>
any of the Shares, all of the Shares shall be converted into and represent the
right to receive an aggregate of (i) $705,621 in cash, (ii) a Note in the
aggregate principal amount of $794,379 which is personally guaranteed by Laurie
Munn, Max Munn and Buyer and (iii) shares of Buyer Common Stock with a fair
market value on the Closing Date of $500,000 (the "Merger Shares"). The cash
-------------
payable and Note and Buyer Common Stock issuable in exchange for the Shares is
referred to herein, in the aggregate, as the "Merger Consideration." The Merger
--------------------
Consideration allocable to each individual Shareholder shall be in the amounts
set forth opposite each Shareholder's name on Schedule 2.06(a). For purposes of
this Section 2.06, the fair market value per share of Buyer Common Stock on the
Closing Date shall be computed using the average closing bid price per share of
Buyer Common Stock for the twenty (20) trading days immediately preceding the
third trading day prior to the Closing Date.
(b) By virtue of the Merger and without any action on the part of
the holder thereof, at the Effective Time each share of Common Stock held by the
Company as a treasury share immediately prior to the Effective Time shall be
canceled and no payment of any consideration shall be made with respect thereto.
(c) By virtue of the Merger and without any action on the part of
the holder thereof, at the Effective Time each share of common stock of Newco
that is issued and outstanding immediately prior to the Effective Time shall be
converted into one newly issued share of common stock of the Surviving
Corporation, par value $.01 per share.
SECTION 2.07 Post-Closing Adjustments.
------------------------
(a) If, on the second anniversary of the Closing Date (the
"Anniversary Date"), the Merger Shares have a fair market value of less than
- -----------------
$250,000.00, then, at the election of Buyer, Buyer shall (i) issue to the
Shareholders additional shares of Buyer Common Stock (the "Additional Shares")
------------------
having a fair market value as of the Anniversary Date equal to the difference
between (x) $250,000.00 and (y) the fair market value of the Merger Shares on
the Anniversary Date (such difference being referred to herein as the "Shortfall
---------
Amount") or (ii) pay to the Shareholders the Shortfall Amount in immediately
- ------
available funds. Any such issuance of Buyer Common Stock or payment of cash
shall be made by Buyer to the Shareholders in the same proportions which the
Merger Consideration was
10
<PAGE>
allocated among the Shareholders, within twenty (20) days of the Anniversary
Date. If Buyer elects to issue Additional Shares to the Shareholders pursuant to
this Section 2.07(a), the number of Additional Shares issuable to each
Shareholder shall be rounded to the nearest whole share. Any issuance of
Additional Shares to the Shareholders pursuant to this Section 2.07(a) shall be
subject to the provisions of the Escrow Agreement.
(b) If, on the Anniversary Date the Merger Shares have a fair
market value greater than $1,000,000.00, then the Shareholders shall return to
Buyer shares of Buyer Common Stock having a fair market value on the Anniversary
Date equal to the difference between (x) $1,000,000.00 and (y) the fair market
value of the Merger Shares on the Anniversary Date. Any such return of shares of
Buyer Common Stock shall be made by the Shareholders to Buyer in the same
proportions which the Merger Consideration was allocated among the Shareholders,
within twenty (20) days of the Anniversary Date. The number of shares of Buyer
Common Stock to be returned by each Shareholder to Buyer pursuant to this
Section 2.07(b) shall be rounded to the nearest whole share.
(c) For purposes of this Section 2.07, the fair market value of
the Merger Shares, the Additional Shares and the number of shares of Buyer
Common Stock to be returned to Buyer, if any, as of the Anniversary Date shall
be computed using the average closing bid price per share of Buyer Common Stock
for the twenty (20) trading days immediately preceding the Anniversary Date.
(d) All Additional Shares to be issued pursuant to this
Agreement, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid, non assessable and free of all
preemptive rights and will be issued in compliance with the Securities Act and
all applicable state securities laws.
SECTION 2.08 Payment of Cash for Common Stock; Exchange of Shares.
----------------------------------------------------
(a) Each holder of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
------------
outstanding shares of Common Stock will be entitled to receive, upon surrender
to Buyer of such Certificates for cancellation, his or her portion of the Merger
Consideration in the amounts calculated in accordance with Section 2.06 hereof
and, with respect to any
11
<PAGE>
cash payment, subject to any required withholding of taxes. Until properly
surrendered, each such Certificate shall be deemed for all purposes to evidence
only the right to receive such Merger Consideration.
(b) No interest shall accrue or be paid on the cash payable upon
the surrender of the Certificates. If payment is to be made to a person other
than the person in whose name the Certificates surrendered are registered, it
shall be a condition of payment that the Certificates so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificates
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Following the Effective Time, until
surrendered to Buyer in accordance with the provisions of this Section 2.08,
each Certificate shall represent for all purposes only the right to receive upon
such surrender the amount specified in the second sentence of this Section 2.08,
without any interest thereon, subject to any required withholding taxes.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Buyer shall issue in exchange
for such lost, stolen or destroyed Certificate the applicable Merger
Consideration issuable in exchange therefor pursuant to Section 2.06. Buyer
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give Buyer
indemnity against, or post a bond for, any claim that may be made against Buyer
with respect to the Certificate alleged to have been lost, stolen or destroyed.
(d) No party hereto shall be liable to a holder of Common Stock
for any cash or interest thereon delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws. If any Certificates
shall not have been surrendered prior to three years after the Effective Time
(or immediately prior to such earlier date on which any payment in respect
thereof would otherwise escheat to or become the property of any governmental
unit or agency), the payment in respect of such Certificates shall, to the
extent permitted by applicable law, become the property of the persons who have
previously
12
<PAGE>
surrendered Certificates to the Buyer, and the Surviving Corporation shall cause
the amount of such payment or payments to be divided among the holders of
previously surrendered Certificates in proportion to the payments previously
made to such holders in respect of the stock represented by such Certificates,
and such holders shall be entitled to such payments free and clear of all claims
of interest of any person previously entitled thereto.
(e) From and after the Effective Time, the holders of shares of
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Common Stock, except as otherwise
provided herein or by law.
(f) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of any shares of Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and promptly exchanged for a portion of the Merger
Consideration as provided in this Section 2.08.
(g) No certificates or script representing fractional shares of
Buyer Common Stock shall be issued to the Shareholders upon the surrender for
exchange of Certificates, and no Shareholders shall be entitled to any voting
rights, rights to receive any dividends or distributions or other rights as a
shareholder of Buyer with respect to any fractional shares of Buyer Common Stock
that would otherwise be issued to such Shareholder. In lieu of any fractional
shares of Buyer Common Stock that would otherwise be issued, each Shareholder
that would have been entitled to receive a fractional share of Buyer Common
Stock shall, upon proper surrender of such person's Certificates, receive a cash
payment equal to (i) the fair market value per share of Buyer Common Stock
multiplied by (ii) the fraction of a share that such Shareholder would otherwise
be entitled to receive.
SECTION 2.09 Escrow; Indemnification Representative.
--------------------------------------
(a) On the Closing Date, Buyer, the Representative and the Escrow
Agent shall execute and deliver an Escrow Agreement substantially in the form of
Annex A attached hereto (the "Escrow Agreement") in order to provide Buyer with
----------------
security for indemnifiable claims
13
<PAGE>
hereunder. On the Closing Date, Buyer shall deliver to the Escrow Agent the
Merger Shares and, after the Closing Date, if required pursuant to the terms of
the Escrow Agreement, Buyer shall deliver to the Escrow Agent the Additional
Shares, if any (collectively, the "Escrow Shares"). The Escrow Shares shall be
-------------
payable to Buyer or to the Shareholders, as the case may be, in accordance with
the terms set forth in the Escrow Agreement.
(b) In order to efficiently administer the transactions
contemplated hereby, including (i) the defense and/or settlement of any claims
for which the Shareholders may be required to indemnify Buyer pursuant to
Article X hereof and (ii) entering into the Escrow Agreement, the Shareholders
hereby agree to the appointment of the Representative. The Representative is
hereby authorized to take any and all action as is contemplated to be taken by
the Shareholders by the terms of this Agreement. All decisions and actions by
the Representative shall be binding upon all of the Shareholders and no
Shareholder shall have the right to object, dissent, protest or otherwise
contest the same. By their approval of this Agreement, the Shareholders agree
that:
(i) Buyer shall be able to rely exclusively on the
instructions and decisions of the Representative as to the settlement of claims
for indemnification by Buyer pursuant to Article X hereof, or any other actions
taken by the Representative hereunder, and no party hereunder shall have any
cause of action against Buyer in reliance upon the instructions or decisions of
the Representative;
(ii) all actions, decisions and instructions of the
Representative shall be final, conclusive and binding upon the Shareholders;
(iii) the provisions of this Section 2.09(b) are
independent and severable, are irrevocable and coupled with an interest, and
shall be enforceable notwithstanding any rights or remedies that any Shareholder
may have in connection with the transactions contemplated by this Agreement and
the Escrow Agreement; and
(iv) the provisions of this Section 2.09(b) shall be
binding upon the executors, heirs, legal representatives and successors of each
Shareholder, and any
14
<PAGE>
references in this Agreement to a Shareholder shall mean and include the
successors to the Shareholders' rights hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or otherwise.
In case of the resignation or the death or inability to act of Michael
H. Greeley, a successor shall be named by the vote of a majority in interest of
the Shareholders. The term "Representative" as used herein shall be deemed to
include a successor Representative.
SECTION 2.10 Consummation of Merger. As soon as practicable after
----------------------
satisfaction of the conditions set forth in Article VI hereof, the Company shall
execute and deliver to the Secretary of State of Delaware a duly executed and
verified Certificate of Merger, and the parties shall take all such other and
further actions as may be required by law to make the Merger effective.
SECTION 2.11 Closing. The closing of the Merger and the other
-------
transactions contemplated hereby (the "Closing") shall take place at the offices
-------
of Paul, Hastings, Janofsky & Walker LLP, Twenty-Third Floor, 555 South Flower
Street, Los Angeles, California 90071, at 10:00 A.M. local time on March 10,
1998, or, if all conditions appearing in Article VI hereof to the obligations of
the parties hereto to consummate the transactions contemplated hereby have not
been satisfied or waived by such date, as promptly as practicable upon
satisfaction of such conditions as Buyer and the Company may mutually establish
(such time and date being referred to herein as the "Closing Date").
------------
SECTION 2.12 Actions at the Closing. At the Closing:
----------------------
(a) The Company and the Shareholders shall deliver or cause to be
delivered to Buyer and Newco all of the documents, certificates and instruments
required to be delivered to Buyer or Newco pursuant to Section 6.01.
(b) Buyer and Newco shall deliver or cause to be delivered to the
Company and the Shareholders all of the documents, certificates and instruments
required to be delivered to the Company or the Shareholders pursuant to Section
6.02.
(c) The Surviving Corporation shall file the Certificate of
Merger with the Secretary of State of the State of Delaware.
15
<PAGE>
(d) Buyer shall deliver to the Representative the Note.
(e) Buyer shall deliver to the Shareholders, by wire transfer of
immediately available funds or, at Buyer's election, by certified or cashier's
check, the cash portion of the Merger Consideration.
(f) Buyer, the Representative and the Escrow Agent shall execute
and deliver the Escrow Agreement, and, not more than ten (10) Business Days
after the Closing Date, Buyer shall deliver to the Escrow Agent a certificate or
certificates representing the Merger Shares.
(g) Concurrent with the Effective Time, Buyer shall, or shall
cause the Surviving Corporation to, extinguish each of the obligations of the
Surviving Corporation set forth on Schedule 2.12(g) in an aggregate amount equal
to $294,379.00 (the aggregate amount of such payments being referred to herein
as the "Liability Reduction Amount").
--------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
REGARDING THE COMPANY
---------------------
The Principal Shareholders hereby jointly and severally represent and
warrant to, and covenant and agree with, Buyer and Newco that:
SECTION 3.01 Organization and Good Standing; Authorization.
---------------------------------------------
(a) The Company has been duly organized and is existing as a
corporation in good standing under the laws of the State of Delaware with full
power and authority (corporate and other) to own and lease its properties and to
conduct its business as currently conducted. The Company has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each jurisdiction set forth on Schedule 3.01(a),
such jurisdictions comprising all jurisdictions in which the Company owns or
leases any property, or conducts any business, so as to require such
qualification.
(b) Except as set forth in Schedule 3.01(b), the Company has no
Subsidiaries nor owns or controls, or has
16
<PAGE>
any other equity investment or other interest in, directly or indirectly, any
corporation, joint venture, partnership, association or other Person.
(c) The Company has the corporate power and authority to execute
and deliver this Agreement, to consummate the transactions contemplated hereby
and to perform its obligations under this Agreement. The execution and delivery
by the Company of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by the Company. This Agreement, upon its execution and delivery by each of the
Company and the Shareholders (assuming the due authorization, execution and
delivery hereof by the other parties hereto), will constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and similar laws relating to creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.02 No Conflicts. Subject to compliance with the applicable
------------
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificate of Merger as required by Delaware Law, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (a) conflict with or result in a
breach or violation of any term or provision of, or constitute a default under
(with or without notice or passage of time, or both), or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which the Company
is a party or by which the Company is bound or affected or to which any of the
property or assets of the Company is bound or affected including, without
limitation, all arrangements in Section 3.19 hereof, (b) result in the violation
of the provisions of the Certificate of Incorporation or Bylaws of the Company
or any Legal Requirement applicable to or binding upon it, (c) result in the
creation or imposition of any Lien upon any property or asset of the Company or
(d) otherwise adversely affect the contractual or other legal rights or
privileges of the Company. Schedule 3.02 sets forth a list of all agreements
requiring the consent of any party thereto to any of the transactions
contemplated hereby.
<PAGE>
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company consists solely of 10,000,000 shares of Common Stock, of which 762,500
are, and on the Closing Date will be, issued and outstanding. Schedule 3.03
sets forth a complete and accurate list of the holders of shares of Common
Stock, indicating the number of Shares held by each holder and their respective
addresses. All of the issued and outstanding shares of Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Other than as set forth on Schedule 3.03, (i) there are no existing
options, warrants, right, calls or commitments of any character relating to
shares of Common Stock, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Common Stock and no
commitments to issue such securities or instruments and (iii) no Person has any
right of first refusal, preemptive right, subscription right or similar right
with respect to any shares of Common Stock. The offer, issuance and sale of the
Shares were (i) exempt from the registration and prospectus delivery
requirements of the Securities Act, (ii) registered or qualified (or exempt from
registration or qualification) under the registration or qualification
requirements of all applicable state securities laws and (iii) accomplished in
conformity with all other Legal Requirements.
SECTION 3.04 Financial Statements.
--------------------
(a) Schedule 3.04(a) contains true and complete copies of (i) the
audited balance sheet of the Company at July 31, 1997 and October 31, 1996 and
1995 and the related audited statements of income, shareholders' equity and cash
flows for each of the periods then ended, together with the opinion thereon of
Thomashow, Brown & Paialii, the Company's independent accountants, and (ii) the
unaudited balance sheet of the Company (the "Balance Sheet") at December 31,
-------------
1997 (the "Balance Sheet Date") and the related unaudited statements of income,
------------------
shareholders' equity and cash flows for the five-month period ended on the
Balance Sheet Date (such unaudited and audited financial statements are
collectively referred to as the "Financial Statements").
--------------------
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the results of
operations and changes in financial position of the Company for the periods
specified therein, have been prepared in conformity with GAAP during the periods
covered thereby and prior periods
18
<PAGE>
(except that the Balance Sheet and the related unaudited statements of income,
shareholders' equity and cash flows for the five-month period ended on the
Balance Sheet Date do not contain footnotes and are subject to year end
adjustments which would not, except as set forth in Schedules 3.06(a) and
3.06(b), either individually or in the aggregate, be material), have been
derived from the accounting records of the Company and represent only actual,
bona fide transactions.
SECTION 3.05 Title to Property; Encumbrances.
-------------------------------
(a) The Company does not own any real property or any Structures.
(b) The Company has, and immediately prior to the Closing will
have, good, valid and marketable title in fee simple to all personal property
reflected on the Balance Sheet as owned by the Company and all personal property
acquired by the Company since the Balance Sheet Date, in each case free and
clear of all Liens except (i) as set forth on Schedule 3.05(a) and (ii)
Permitted Liens.
(c) Schedule 3.05(c) contains a list of all tangible personal
property having a cost or fair market value in excess of $5,000 owned by the
Company (other than personal property held by the Company as lessee under a
personal property lease).
(d) Schedule 3.05(d) contains a list of all real property leases,
licenses and personal property leases under which the Company is the lessee or
licensee, together with (i) the location and nature of each of the leased or
licensed properties, (ii) the termination date of each such lease or license,
(iii) the name of the lessor or licensor, (iv) all rental and other payments
made or required to be made for the fiscal years ending December 31, 1998 and
December 31, 1999 and (v) the date and amount of the next permitted cost-of-
living increase in each such lease or license. All leases and licenses pursuant
to which the Company leases or licenses from others real or personal property
are valid, subsisting in full force and effect in accordance with their
respective terms, and there is not, under any real property lease, personal
property lease or license, any existing default or event of default (or event
that, with notice or passage of time, or both, would constitute a default, or
would constitute a basis of force
-----
19
<PAGE>
majeure or other claim of excusable delay or nonperformance) by the Company
- -------
thereunder or, to the knowledge of the Principal Shareholders, any other party
thereto. True and complete copies of all real property leases, licenses and
personal property leases listed on Schedule 3.05(d) have been delivered to Buyer
heretofore. Except as set forth in Schedule 3.05(d), no such lease or license
will require the consent of the lessor or licensor to or as a result of the
consummation of the transactions contemplated by this Agreement. For purposes of
this Agreement, a "lease" shall include a sublease.
(e) All personal property owned by the Company and all personal
property held by the Company pursuant to personal property leases (in each case,
solely to the extent such personal property is used by the Company in the
Ordinary Course) is in good operating condition and repair, subject only to
ordinary wear and tear, has been operated, serviced and maintained properly
within the recommendations and requirements of the manufacturers thereof (if
any) and is suitable and appropriate for the use thereof made and proposed to be
made by the Company in its business and operations. The Leased Real Property
and personal property described in Sections 3.05(b) and 3.05(c) and the personal
property held by the Company pursuant to the leases and licenses described in
Schedule 3.05(d) comprise all of the Leased Real Property and personal property
used in the conduct of business of the Company. Schedule 3.05(e) sets forth a
listing of all low-value or zero-value personal property (other than inventory)
owned by the Company, together with the date such personal property was
acquired, the original cost of such personal property and the date(s) on which
such personal property was written down from its original cost.
SECTION 3.06 Inventory and Accounts Receivable.
---------------------------------
(a) All inventory set forth or reflected in the Balance Sheet, or
acquired by the Company since the Balance Sheet Date, consists of a quality and
quantity usable and saleable by the Company in the ordinary course of its
business. The value at which inventories are carried on the Balance Sheet
reflects the normal inventory valuation policy of the Company, on a basis
consistent with that of preceding period, of stating inventory at its lower of
cost or market value, and, consistent therewith, all non-current or obsolete
inventory held by the Company on the Balance Sheet Date has been valued at its
current market value on the Balance Sheet. Schedule 3.06(a) sets forth a true
and
20
<PAGE>
complete listing of all low-value or zero-value inventory owned by the Company,
together with the date such inventory was acquired, the original cost of such
inventory, the date(s) on which such inventory was written down from its
original cost and the current quantity of such inventory on hand.
(b) All accounts receivable of the Company reflected in the
Balance Sheet and all accounts receivable of the Company that have arisen since
the Balance Sheet Date (except such accounts receivable as have been collected
since such dates) are valid and enforceable claims against the account debtor,
and the goods and services sold and delivered that gave rise to such accounts
were sold and delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such accounts
receivable of the Company are fully collectible in the Ordinary Course, except
to the extent of the allowance for doubtful accounts reflected on the Balance
Sheet. Schedule 3.06(b)(1) contains a true and complete aging of the Company's
accounts receivable as of the Balance Sheet Date. Schedule 3.06(b)(2) contains a
true and complete list of all customers of the Company who enjoy non-standard
discounts or non-standard payment terms, together with a summary of any such
non-standard discounts or non-standard payment terms.
SECTION 3.07 Compliance with Law. Except where it has not had a
-------------------
Material Adverse Effect, through and including the date hereof, the Company (i)
has not violated, has not conducted its business or operations in violation of,
and has not used or occupied its properties or assets in violation of, any
material Legal Requirement, (ii) to the knowledge of the Principal Shareholders,
has not been alleged to be in violation of any material Legal Requirement, and
(iii) has not received any notice of any alleged violation of, nor any citation
for noncompliance with, any material Legal Requirement.
SECTION 3.08 Trademarks, Patents, Etc.
------------------------
(a) Schedule 3.08(a) contains a true and complete list of all
letters patent, patent applications, trade names, logos, trademarks, service
marks, trademark and service mark registrations and applications, copyrights,
copyright registrations and applications, Internet domain names, 1-800 and 1-888
telephone numbers, grants of a license or right to the Company with respect to
any of the foregoing, both domestic and foreign, owned or claimed by
21
<PAGE>
the Company or used or proposed to be used by the Company in the conduct of its
business, whether registered or not (collectively herein, "Registered Rights").
-----------------
No other material patent, trademark, service mark, trade name or copyright, or
license with respect to any of the foregoing, is necessary to permit the
Company's business to be conducted as now conducted or as heretofore or proposed
to be conducted. True and complete copies of all documentation related to the
Registered Rights have been delivered to Buyer heretofore.
(b) Except as described in Schedule 3.08(b), the Company owns
exclusively and has the exclusive and unrestricted right to use the Registered
Rights, and all renewals therefor and claims for infringement thereof, and every
trade secret, know-how, process, discovery, development, design, technique,
customer and supplier list, promotional idea, marketing and purchasing strategy,
computer program (including source code), technical data, invention, process,
confidential data and other information (collectively herein, "Proprietary
-----------
Information") required for or incident to the design, development, manufacture,
- -----------
operation, sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Company, free and clear of any right,
equity or claim of others and without infringing upon or otherwise acting
adversely to the right or claimed right of any third party under or with respect
to any of the Proprietary Information. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all
Proprietary Information, if any.
(c) Schedule 3.08(c) contains a true and complete list and non-
confidential description of all licenses of, or rights to, Proprietary
Information granted to the Company by others or to others by the Company. Except
as described in Schedule 3.08(c), (i) the Company has not sold, transferred,
assigned, licensed, restricted, encumbered or subjected to any Lien, any
Registered Right or Proprietary Information or any interest therein, and (ii)
the Company is not obligated or under any liability whatever to make any
payments by way of royalties, fees or otherwise to any owner or licensor of, or
other claimant to, any Registered Right or Proprietary Information.
(d) There are no claims or demands of any Person pertaining to, or any
Actions that are pending or, to the knowledge of the Principal Shareholders,
threatened, which challenge the rights of the Company in respect of any
Registered Right or any Proprietary Information.
22
<PAGE>
SECTION 3.09 Banking and Insurance.
---------------------
(a) Schedule 3.09(a) contains a true and complete list of the names
and locations of all financial institutions at which the Company maintains a
checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) Schedule 3.09(b) contains a true and complete list of all
insurance policies and bonds and self insurance arrangements currently in force
that cover or purport to cover risks or losses to, or associated with, the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The insurance policies, bonds
and arrangements described on Schedule 3.09(b) (the "Policies") provide such
--------
coverage against such risk of loss and in such amounts as are customary for
corporations of established reputation engaged in the same or similar business
and similarly situated. The Company has no obligation, liability or other
commitment relating to any contract of insurance containing a provision for
retrospective rating or adjustment of the Company's premium obligation. To
the knowledge of the Principal Shareholders, no facts or circumstances exist
that would cause the Company to be unable to renew its existing insurance
coverage as and when the same shall expire upon terms at least as favorable as
those currently in effect, other than possible increases in premiums that do not
result from any act or omission of the Company or the Principal Shareholders.
SECTION 3.10 Indebtedness.
------------
(a) The Company has no liability or obligation for Indebtedness
other than as set forth on Schedule 3.10(a), and true and complete copies of all
instruments and documents evidencing, creating, securing or otherwise relating
to such Indebtedness have been delivered to Buyer heretofore. Except as
described in Schedule 3.10(a), no event has occurred and no condition has become
known to the Principal Shareholders (including the
23
<PAGE>
transactions contemplated hereby) that constitutes or, with notice or passage of
time, or both, would constitute a default or a basis of force majeure or other
----- -------
claim of accelerated or increased rights, termination, excusable delay or
nonperformance by the Company or any other Person under any instrument or
document relating to or evidencing Indebtedness that would entitle any Person to
require the Company to pay any portion of the principal amount of such
Indebtedness prior to the scheduled maturity thereof. Except as set forth in
Schedule 3.10(a), no instrument or document evidencing, creating, securing or
otherwise relating to Indebtedness will require the consent of any Person to or
as a result of the consummation of the transactions contemplated by this
Agreement.
(b) Schedule 3.10(b) contains a list and brief description of all
agreements or instruments pursuant to which any of the Company's directors,
employees or shareholders have guaranteed any Indebtedness of the Company (the
"Guaranties"). True and complete copies of all Guaranties have been delivered
----------
to Buyer heretofore.
SECTION 3.11 Judgments; Litigation. Except as set forth on Schedule
---------------------
3.11:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or, to
the knowledge of the Principal Shareholders after reasonable investigation,
affecting the Company or its properties, assets or business or (ii) Action
pending against or affecting the Company or its properties, assets or business.
(b) To the knowledge of the Principal Shareholders, there is no (i)
outstanding judgment, order, decree, award, stipulation, injunction of any
Governmental Entity or arbitrator against or affecting any officer, director or
employee of the Company relating to the Company or its business, (ii) Action
threatened against the Company or its properties, assets or business, (iii)
Action pending or threatened against the Company's officers, directors or
employees relating to the Company or its business or (iv) basis for the
institution of any Action against the Company or any of its officers, directors,
employees, properties or assets which, if decided adversely, would have a
Material Adverse Effect.
SECTION 3.12 Income and Other Taxes. Except as set forth on Schedule
----------------------
3.12:
24
<PAGE>
(a) All Tax Returns required to be filed through and including the
date hereof in connection with the operations of the Company are true, complete
and correct in all respects and have been properly and timely filed. The
Company has not requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed. Buyer has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three taxable years, and of all
reports of, and communications from, any Governmental Entities relating to such
period. The Company has disclosed on its Federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
income Taxes for federal income tax purposes within the meaning of Code Section
6662.
(b) All Taxes required to be paid or withheld and deposited through
and including the date hereof in connection with the operations of the Company
have been duly and timely paid or deposited by the Company. The Company has
properly withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, and for Taxes on sales, and has
properly and timely remitted such withheld or collected amounts to the
appropriate Governmental Entity. Except as provided for or accrued as described
in Section 3.12(c), and except for non-material liabilities for personal
property taxes, the Company has no liabilities for any Taxes for any taxable
period ending prior to or coincident with the Balance Sheet Date.
(c) The Company has made adequate provision on its books of account
for all Taxes with respect to its business, properties and operations through
the Balance Sheet Date, and the accruals for Taxes in the Balance Sheet are
adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a tax deficiency
proposed, asserted or assessed against it, (ii) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (iii)
been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject of
other Action by any Governmental Entity. The Company has not received any
notice from any Governmental Entity of any pending examination or any
25
<PAGE>
proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting the Company or its assets or properties and the
Principal Shareholders have no reason to believe that any Governmental Entity
may assess (or threaten to assess) any Taxes for any periods ending on or prior
to the Closing Date.
(f) The Company (i) has not filed any consent or agreement pursuant
to Code Section 341(f), and no such consent or agreement will be filed at any
time on or before the Closing Date; (ii) has not made any payments, is not
obligated to make any payments and is not a party to any agreement that under
certain circumstances could obligate the Company to make any payments that will
not be deductible under Code Section 280G; (iii) is not a United States real
property holding corporation within the meaning of Code Section 897(c)(2); (iv)
is not a party to a tax allocation or sharing agreement; (v) has never been (or
does not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity; and (vii) has never filed
or been the subject of an election under Code Section 338(g) or Code Section
338(h)(10) or caused or been the subject of a deemed election under Code Section
338(e).
(g) Set forth on Schedule 3.12(g) is the amount, as of the most
recent practicable date, of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax or excess charitable
contribution.
SECTION 3.13 Corporate Records. The copies or originals of the
-----------------
Certificate of Incorporation, Bylaws, minute books and stock records of the
Company previously delivered to, or made available for inspection by, Buyer are
true, complete and correct.
SECTION 3.14 Employee Benefit Matters. Except as set forth in
------------------------
Schedule 3.14, the Company maintains no pension, retirement, profit-sharing,
employee stock ownership plan, deferred compensation, stock bonus or other
similar plan; medical, vision, dental or other health plan; life insurance plan;
vacation, severance, golden parachute or other similar plan or arrangement;
stock option, stock appreciation or other similar plan or arrangement; and any
other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA, which, in any case, relates
to the Company and for
26
<PAGE>
which the Surviving Corporation will incur any liability by operation of law or
otherwise as a result of the transactions contemplated by this Agreement.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the extent
--------------------------
set forth or provided for in the Balance Sheet or the notes thereto, (ii) as set
forth on Schedule 3.15 or (iii) for non-material current liabilities incurred
since the Balance Sheet Date in the Ordinary Course, as of the date hereof the
Company has no material liabilities, whether accrued, absolute, contingent or
otherwise, whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature, including Taxes with respect to or based
upon the transactions or events occurring at or prior to the Closing.
SECTION 3.16 Permits, Licenses, Etc. The Company possesses, and is
----------------------
operating in compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) occupy, maintain, operate and use the Leased Real Property as it is
currently used and proposed to be used (including, if applicable, with respect
to stormwater runoff and treatment of any of the Leased Real Property as a
hazardous waste facility), (ii) conduct its business as currently conducted and
as proposed to be conducted, and (iii) maintain and operate its employee benefit
plans (the "Permits") except, in each such case, where the failure to so possess
-------
or comply would not result in a Material Adverse Effect. Schedule 3.16 contains
a true and complete list of all Permits and each expiration date and scheduled
renewal date related to each Permit. Each Permit has been lawfully and validly
issued, and no proceeding is pending or, to the knowledge of the Principal
Shareholders, threatened looking toward the revocation, suspension or limitation
of any Permit. The consummation of the transactions contemplated by this
Agreement will not result in the revocation, suspension or limitation of any
Permit and, except as set forth in Schedule 3.16, no Permit will require the
consent of its issuing authority to or as a result of the consummation of the
transactions contemplated hereby.
SECTION 3.17 Regulatory Filings. The Company has made all required
------------------
registrations and filings with and submissions to all applicable Governmental
Entities relating to the operations of the Company as currently conducted and as
proposed to be conducted, including, without limitation,
27
<PAGE>
all such applicable Governmental Entities having jurisdiction over any matters
pertaining to conservation or, to the best of the knowledge of the Principal
Shareholders protection of the environment, and the treatment, discharge, use,
handling, storage or production, or disposal of Hazardous Materials. All such
registrations, filings and submissions were in compliance with all Legal
Requirements (including, to the best of the knowledge of the Principal
Shareholders, all Environmental Laws) and other requirements when filed, no
material deficiencies have been asserted by any such applicable Governmental
Entities with respect to such registrations, filings or submissions and, to the
knowledge of the Principal Shareholders, no facts or circumstances exist which
would indicate that a material deficiency may be asserted by any such authority
with respect to any such registration, filing or submission.
SECTION 3.18 Consents. All consents, authorizations and approvals of
--------
any Person to, or as a result of the consummation of, the transactions
contemplated hereby that are necessary or advisable in connection with the
operations and business of the Company as currently conducted and as proposed to
be conducted, or for which the failure to obtain the same might have,
individually or in the aggregate, a Material Adverse Effect, have been lawfully
and validly obtained by the Company, except as described in Schedules 3.02,
3.05(d), 3.10(a) and 3.16 hereto. All consents, authorizations and approvals
described in Schedules 3.02, 3.05(d), 3.10(a) and 3.16 will have been lawfully
and validly obtained prior to the Closing.
SECTION 3.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.19(a) contains a true and complete list and
description of each individual outstanding sales order and sales contract of the
Company having an indicated gross value in excess of $5,000 or having a term or
duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course. Except
as described in Schedule 3.19(a), the Company has not received any advance,
progress payment or deposit in respect of any sales order or sales contract, and
the Company has no sales order or sales contract that will result, upon
completion or performance thereof, in gross margins materially lower than those
normally experienced by the Company for the services or products covered by such
sales order or sales contract.
28
<PAGE>
(b) Schedule 3.19(b) contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of $5,000 in the aggregate from
any single supplier or other vendor. All outstanding purchase orders and
purchase commitments of the Company have been incurred in the Ordinary Course,
and no purchase order or purchase commitment of the Company is in excess of the
normal, ordinary and usual requirements of the business of the Company or at an
excessive price.
(c) Schedule 3.19(c) contains a true and complete list of all sales
agency, sales representative and similar contracts or agreements of the Company
and a description of the territory or market and the expiration or renewal date
of each such contract or agreement. True and complete copies of each such
contract or agreement have been delivered to Buyer heretofore. Except as
described in Schedule 3.19(c), all of such contracts and agreements are
terminable at any time by the Company without penalty upon not more than thirty
(30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list and
description of all noncompetition agreements and covenants under which the
Company or any Shareholder or, to the knowledge of the Principal Shareholders,
any of the Company's officers, directors or key employees is obligated, and true
and complete copies of the same have been delivered to Buyer heretofore. Except
as described in Schedule 3.19(d), the Company is not restricted by any agreement
from carrying on its business or engaging in any other activity anywhere in the
world (including relocating, closing, or terminating any of its operations or
facilities), and, to the knowledge of the Principal Shareholders, no such
officer, director or key employee is a party to or otherwise bound or affected
by any agreement, covenant or other arrangement or understanding that would
restrict or impair his ability to perform diligently his other duties to the
Company. Schedule 3.19(d) also contains a true and complete list and description
of all noncompetition agreements or covenants in favor of the Company, and true
and complete copies of the same have been delivered to Buyer heretofore.
(e) Schedule 3.19(e) contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, employee or Affiliate of the Company or with any associate,
29
<PAGE>
Affiliate or employee of any Affiliate of the Company, other than those
disclosed in Schedule 3.21(a) hereto; in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Buyer heretofore.
(f) Schedule 3.19(f) contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Buyer heretofore. For the
purposes of this subsection (f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of $5,000, (iii) involves capital expenditures
in excess of $5,000 or (iv) otherwise materially affects the Company.
(g) Except as described in Schedule 3.19(g):
(i) each agreement, contract, arrangement or commitment
described above in this Section 3.19 is, and after the Closing on identical
terms will be, legal, valid, binding, enforceable and in full force and effect;
(ii) no event or condition has occurred or become known to
the Principal Shareholders or is alleged to have occurred that constitutes or,
with notice or the passage of time, or both, would constitute a default or a
basis of force majeure or other claim of excusable delay, termination,
----- -------
nonperformance or accelerated or increased rights by the Company or any other
Person under any contract, agreement, arrangement, commitment or other under
standing, written or oral, described above in this Section 3.19, or described or
otherwise disclosed pursuant to this Agreement; and
(iii) no Person with whom the Company has such a contract,
agreement, arrangement, commitment or
30
<PAGE>
other understanding is in default thereunder or has failed to perform fully
thereunder by reason of force majeure or other claim of excusable delay,
----- -------
termination or nonperformance thereunder, the delay, termination or
nonperformance of which, or a default under which, has had or may have a
Material Adverse Effect.
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet Date,
--------------------------
except as disclosed in Schedule 3.20, the Company has not: (i) incurred any
debts, obligations or liabilities (absolute, accrued, contingent or otherwise),
other than current liabilities incurred in the Ordinary Course which,
individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (iii) sold, transferred, licensed or
leased any of its assets or properties except in the Ordinary Course; (iv)
discharged or satisfied any Lien other than a Lien securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the Ordinary Course; (v) canceled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value
other than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect; (vii) entered into any material transaction or otherwise
committed or obligated itself to any capital expenditure other than in the
Ordinary Course; (viii) made or suffered any change in, or condition affecting,
its condition (financial or otherwise), properties, profitability, prospects or
operations other than changes, events or conditions in the Ordinary Course, none
of which (individually or in the aggregate) has had or may have a Material
Adverse Effect; (ix) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; (x) other than in the Ordinary Course, made or
suffered any amendment or termination of any material contract, agreement, lease
or license to which it is a party; (xi) paid, or made any accrual or arrangement
for payment of, any severance or termination pay to, or entered into any
employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xii) paid, or made any accrual or
arrangement for payment of, any increase in compensation, bonuses or special
compensation of any kind to any employee other than pursuant to an agreement
disclosed on Schedule
31
<PAGE>
3.21(a) or Schedule 3.21(b) or other than in the Ordinary Course, or paid, or
made any accrual or arrangement for payment of, any increase in compensation,
bonuses or special compensation of any kind to any officer or director of the
Company or any consultant to the Company; (xiii) made or agreed to make any
charitable contributions or incurred any nonbusiness expenses; (xiv) changed or
suffered change in any Plan or labor agreement affecting any employee of the
Company otherwise than to conform to Legal Requirements; or (xv) entered into
any agreement or otherwise obligated itself to do any of the foregoing.
SECTION 3.21 Employees and Labor Matters.
---------------------------
(a) Schedule 3.21(a) contains a true and complete list of all
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Buyer heretofore. A true and complete copy of the Company's
employee manual has been delivered to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of all
labor, collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered to Buyer heretofore.
(c) Except for the employment and labor agreements listed on
Schedules 3.21(a), 3.21(b) and 6.02(f), neither Buyer nor the Company will have
any responsibility for continuing any person in the employ (or retaining any
person as a consultant) of the Company from and after the Closing or have any
liability for any severance payments to or similar arrangements with any such
Person who shall cease to be an employee of the Company at or prior to the
Closing. There is no agreement, arrangement, commitment or understanding between
the Company and any of its employees which could prohibit the Company from
modifying the work schedule of its employees, including without limitation a
change from a four-day work week to a five-day work week.
32
<PAGE>
(d) There is not occurring or, to the knowledge of the Principal
Shareholders, threatened, any strike, slow down, picket, work stoppage or other
concerted action by any union or other group of employees or other persons
against the Company or its premises or products. Except for activities by the
unions that are parties to any of the agreements listed on Schedule 3.21(b) with
respect to the existing members of such unions, to the knowledge of the
Principal Shareholders, no union or other labor organization has attempted to
organize any of the employees of the Company.
(e) The Company has complied with all Legal Requirements relating
to employment and labor, except where the failure to so comply would not have a
Material Adverse Effect, and, to the knowledge of the Principal Shareholders, no
facts or circumstances exist that could provide a reasonable basis for a claim
of wrongful termination by any current or former employee of the Company against
the Company.
SECTION 3.22 Affiliations. Except as disclosed on Schedule 3.22, none
------------
of the Shareholders, any officer, director or key employee of the Company or any
associate or Affiliate of the Company or any of such Persons has, directly or
indirectly, (i) an interest in any Person that (A) furnishes or sells, or
proposes to furnish or sell, services or products that are furnished or sold by
the Company or (B) purchases from or sells or furnishes to, or proposes to
purchase from or sell or furnish to, the Company any goods or services or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which the Company or any of the assets of the Company are bound or
affected.
SECTION 3.23 Principal Customers and Suppliers.
---------------------------------
(a) Schedule 3.23(a) contains a true and complete list of the name
and address of each customer that purchased in excess of 5% of the Company's
sales of goods or services during the twelve months ended on the Balance Sheet
Date, and since that date no such customer has terminated its relationship with
or adversely curtailed its purchases from the Company or indicated (for any
reason) its intention so to terminate its relationship or curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of each
supplier from whom the Company purchased in excess of 5% of the Company's
purchases of
33
<PAGE>
goods or services during the twelve months ended on the Balance Sheet Date, and
since that date no such supplier has terminated its relationship with or
adversely curtailed its accommodations, sales or services to the Company or
indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
SECTION 3.24 Warranty Liability. Schedule 3.24 contains a true and
------------------
complete description of (i) all warranties granted or made with respect to
services rendered or products sold by the Company, and (ii) the Company's
aggregate liability related to such warranties for each of the last three years.
SECTION 3.25 Hazardous Materials. Except as set forth on Schedule
-------------------
3.25:
(a) No Hazardous Material (i) has been released, placed, stored,
generated, used, manufactured, treated, deposited, spilled, discharged, released
or disposed of on or under any real property currently or previously owned or
leased by the Company or is presently located on or under any Leased Real
Property (or, to the knowledge of the Principal Shareholders, any property
adjoining any Leased Real Property), (ii) is presently maintained, used,
generated, or permitted to remain in place by the Company in violation of any
Environmental Law, (iii) is required by any Environmental Law to be eliminated,
removed, treated or mitigated by the Company, given the nature of its present
condition, location, nature, material or maintenance, or (iv) is of a type,
location, material, nature or condition which requires special notification to
third parties by the Company under Environmental Law or common law.
(b) No notice, citation, summons or order has been received by the
Company or any Shareholder, no notice has been given by the Company and no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or, to the knowledge of the Principal Shareholders, threatened
by any Governmental Entity, with respect to (i) any alleged violation by the
Company of any Environmental Law or (ii) any alleged failure by the Company to
have any environmental permit, certificate, license, approval, registration or
authorization required in connection with its business or properties, or (iii)
any use, possession, generation, treatment, storage, recycling, transportation,
release or
34
<PAGE>
disposal by or on behalf of the Company of any Hazardous Material.
(c) The Company has not received any request for information,
notice of claim, demand or notification that it is or that indicates that it may
be a "potentially responsible party" with respect to any investigation or
remediation of any threatened or actual release of any Hazardous Material.
Schedule 3.25(c) contains a true and complete list of all Material Safety Data
Sheets applicable to the Company's operations at the Leased Real Property.
(d) No above-ground or underground storage tanks, whether or not
in use, are or have ever been located at any property currently owned or leased
by the Company.
(e) No notice has been received by the Company with respect to
the listing or proposed listing of any property currently or previously owned,
operated or leased by the Company on the National Priorities List promulgated
pursuant to CERCLA, CERCLIS or any similar state list of sites requiring
investigation or cleanup.
(f) To the knowledge of the Principal Shareholders, there have
been no environmental inspections, investigations, studies, tests, reviews or
other analyses conducted in relation to any Leased Real Property.
(g) The Company has not released, transported, or arranged for
the transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
SECTION 3.26 Brokers' Fees. No broker, finder or similar agent has
-------------
been employed by or on behalf of the Company or the Shareholders in connection
with this Agreement or the transactions contemplated hereby, and neither the
Company nor any of the Shareholders has entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
SECTION 3.27 Disclosure. Except as set forth on Schedule 3.27, no
----------
representation or warranty of the Company or the Shareholders in this Agreement
and no information contained in any Schedule or other writing delivered by the
Company or the Shareholders pursuant to this Agreement or at
35
<PAGE>
the Closing contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to make the statements
herein or therein not misleading. There is no fact that the Company or the
Shareholders has not disclosed to Buyer or Newco in writing that has had or,
insofar as the Company or the Shareholders can now foresee, may have a material
adverse effect on the ability of the Company or the Shareholders to perform
fully this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to, and covenants and agrees
with, the Shareholders that:
SECTION 4.01 Organization, Power and Authority of Buyer and Newco.
----------------------------------------------------
Each of Buyer and Newco has been duly organized and is existing as a corporation
in good standing under the laws of the State of Delaware with full power and
authority (corporate and other) to own and lease its properties and to conduct
its business as currently conducted.
SECTION 4.02 Authorization. Each of Buyer and Newco has the
-------------
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
under this Agreement. The execution and delivery by each of Buyer and Newco of
this Agreement, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by each of Buyer and Newco. This Agreement, upon its execution and delivery by
each of Buyer and Newco (assuming the due authorization, execution and delivery
hereof by the other parties hereto), will constitute the legal, valid and
binding obligation of each of Buyer and Newco, enforceable against each of Buyer
and Newco in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency and similar laws relating to
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.03 No Conflict or Violation. Subject to compliance with
------------------------
the applicable requirements of the
36
<PAGE>
Securities Act and any applicable state securities laws and the filing of the
Certificate of Merger as required by Delaware Law, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not (a) conflict with or result in a breach or
violation of any term or provision of, or constitute a default under (with or
without notice or passage of time, or both), or otherwise give any Person a
basis for accelerated or increased rights or termination or nonperformance
under, any indenture, mortgage, deed of trust, loan or credit agreement, lease,
license or other agreement or instrument to which Buyer or Newco is a party or
by which Buyer or Newco is bound or affected or to which any of the property or
assets of Buyer or Newco is bound or affected, (b) result in the violation of
the provisions of the Certificate of Incorporation or Bylaws of Buyer or Newco
or any Legal Requirement applicable to or binding upon them, (c) result in the
creation or imposition of any Lien upon any property or asset of Buyer or Newco
or (d) otherwise adversely affect the contractual or other legal rights or
privileges of Buyer or Newco. Schedule 4.03 sets forth a list of all agreements
to which Buyer or Newco is a party requiring the consent of any party thereto to
any of the transactions contemplated hereby.
SECTION 4.04 Capitalization. The authorized capital stock of Buyer
--------------
consists of (i) 30,000,000 shares of Buyer Common Stock, of which 5,091,241 were
issued and outstanding on December 31, 1997, (ii) 2,500,000 shares of Class B
Common Stock, par value $.001 per share, of which 469,750 were issued and
outstanding on December 31, 1997, and (iii) 5,300,000 shares of Series A
Preferred Stock, par value $.01 per share, of which 1,147,000 were issued and
outstanding on December 31, 1997. All of the issued and outstanding shares of
capital stock of Buyer are duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. All of the Shares of Buyer
Common Stock to be issued pursuant to this Agreement, when issued in accordance
with this Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. The authorized capital stock
of Newco consists solely of 100 shares of common stock, of which 100 are, and on
the Closing Date will be, issued and outstanding. All of the issued and
outstanding shares of capital stock of Newco are, and on the Closing Date will
be, owned beneficially and of record by Buyer.
SECTION 4.05 Consents and Approvals. No consent, approval,
----------------------
authorization, license, permit or other action by,
37
<PAGE>
or filing with, any governmental or regulatory authority is required in
connection with the execution and delivery of this Agreement by Buyer and Newco
or the consummation by Buyer and Newco of the transactions contemplated hereby,
except for such consents, approvals, authorizations, licenses, permits, actions
or filings as will have been obtained, taken or filed at or prior to the
Closing.
SECTION 4.06 Reports and Financial Statements.
--------------------------------
(a) The Buyer has previously furnished to the Company complete
and accurate copies, as amended or supplemented, of its (i) Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997 and December 31, 1997,
(ii) Annual Report on Form 10-K for the fiscal year ended June 30, 1997, each as
filed with the Securities and Exchange Commission (the "SEC"), and (iii) all
---
other reports filed by the Buyer under Section 13 of the Exchange Act with the
SEC since June 30, 1997 through the Closing Date (such reports are collectively
referred to herein as the "Buyer Reports"). The Buyer Reports constitute all of
-------------
the documents required to be filed by the Buyer under the Exchange Act with the
SEC since June 30, 1997. As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of the
Buyer included in the Buyer Reports (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Buyer. Since December 31, 1997 Buyer has not,
except as disclosed in Schedule 4.06, made or suffered any change in, or
condition affecting, its condition (financial or otherwise), properties,
profitability, prospects or operations other than changes, events or conditions
in the ordinary course of
38
<PAGE>
Buyer's business none of which (individually or in the aggregate) has had or may
have a material adverse effect on its business, financial condition, properties,
profitability, prospects or operations.
SECTION 4.07 Brokers' Fees. Except as set forth on Schedule 4.07,
-------------
no broker, finder or similar agent has been employed by or on behalf of Buyer or
Newco in connection with this Agreement or the transactions contemplated
hereby, and neither Buyer nor Newco have entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
SECTION 4.08 Compliance with Securities Laws. The Merger Shares
-------------------------------
issued in connection with the Merger will be issued in compliance with the
Securities Act and all applicable state securities laws.
SECTION 4.09 Disclosure. Except as set forth on Schedule 4.09, no
----------
representation or warranty of Buyer or Newco in this Agreement and no
information contained in any Schedule or other writing delivered by Buyer or
Newco pursuant to this Agreement or at the Closing contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact required to make the statements herein or therein not misleading. There is
no fact that Buyer or Newco has not disclosed to the Company or the Shareholders
in writing that has had or, insofar as the Buyer or Newco can now foresee, may
have a material adverse effect on the ability of the Buyer or Newco to perform
fully this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE SHAREHOLDERS
-------------------
Each Shareholder hereby represents and warrants to, and covenants and
agrees with, Buyer and Newco that:
SECTION 5.01 Ownership of Shares. The Shareholder owns of record
-------------------
and beneficially the number of Shares set forth opposite its name on Schedule
3.03 hereto, and has, and at all times prior to and as of the Closing the
Shareholder will have, good and marketable title to such Shares free and clear
of all Liens.
39
<PAGE>
SECTION 5.02 Delivery of Good Title. All consents, approvals,
----------------------
authorizations and orders necessary for the sale and delivery of the Shares to
be sold by the Shareholder hereunder have been obtained, and the Shareholder
has, and immediately prior to the Closing the Shareholder will have, full right,
power, authority and capacity to sell, assign, transfer and deliver such Shares
pursuant to this Agreement.
SECTION 5.03 Execution and Delivery. The Shareholder has the power
----------------------
and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. This Agreement, upon its execution and delivery by the Shareholder
(assuming the due authorization, execution and delivery hereof by the other
parties hereto), will constitute the legal, valid and binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws relating to creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 5.04 No Conflicts. The execution, delivery and performance
------------
of this Agreement by the Shareholder and the consummation by the Shareholder of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any term or provision of, or (with or without notice or
passage of time, or both) constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive and other), loan agreement or other agreement
or instrument to which the Shareholder is a party or by which the Shareholder or
the Shareholder's Shares are bound, or violate the provisions of any statute, or
any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court
or any arbitrator, having jurisdiction over the Shareholder or the property of
the Shareholder.
SECTION 5.05 Restrictions on Transfer of Buyer Common Stock Under
----------------------------------------------------
Securities Laws; Registration.
- -----------------------------
(a) The Shareholder understands and agrees that the shares of
Buyer Common Stock it will acquire in the Merger have not been registered under
the Securities Act and that, accordingly, such shares will not be fully trans-
40
<PAGE>
ferable except as permitted under various exemptions contained in the Securities
Act or upon satisfaction of the registration and prospectus delivery
requirements of the Securities Act. The Shareholder acknowledges that it must
bear the economic risk of its investment in such shares of Buyer Common Stock
for an indefinite period of time since such shares have not been registered
under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) The Shareholder hereby represents and warrants that it is
acquiring the shares of Buyer Common Stock in the Merger for investment purposes
only, for its own account, and not as nominee or agent for any other Person, and
not with the view to, or for resale in connection with, any distribution thereof
within the meaning of the Securities Act.
(c) The Shareholder hereby agrees with Buyer as follows:
(i) The certificates evidencing the shares of Buyer Common
Stock it will acquire in the Merger, and each instrument or certificate issued
in transfer thereof, will bear substantially the following legends:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been
taken for investment purposes only and not with a view to
the distribution thereof, and such securities may not be
sold or transferred unless there is an effective
registration statement under such Act covering such
securities or the issuer corporation receives an opinion of
counsel (which may be counsel for the issuer corporation)
stating that such sale or transfer is exempt from the
registration and prospectus delivery requirements of such
Act."
"The securities evidenced by this certificate are subject
to, and transferable only in accordance with, the provisions
of an Escrow Agreement among Interiors, Inc. (the "Company")
and others, as such Agreement may be amended from time to
time. A copy of this
41
<PAGE>
Agreement is on file in the office of the Secretary of the
Company."
(ii) The certificates representing such shares of Buyer
Common Stock, and each instrument or certificate issued in transfer thereof,
will also bear any legend required under any applicable state securities law.
(iii) Absent an effective registration statement under the
Securities Act, covering the disposition of the shares of Buyer Common Stock
which the Shareholder acquires in the Merger, the Shareholder will not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of such
shares of Buyer Common Stock without first providing Buyer with an opinion of
counsel (which may be counsel for Buyer) to the effect that such sale, transfer,
assignment, pledge, hypothecation or other disposition will be exempt from the
registration and the prospectus delivery requirements of the Securities Act and
the registration or qualification requirements of any applicable state
securities laws.
(iv) The Shareholder consents to Buyer's making a notation
on its records or giving instructions to any transfer agent of the Buyer Common
Stock in order to implement the restrictions on transfer set forth in this
subsection (c).
(d) If at any time after the Anniversary Date (but without the
obligation to do so) Buyer determines to file a registration statement under the
Securities Act on Form S-3 with respect to the proposed resale of shares of
Buyer Common Stock held by Max Munn or Laurie Munn, Buyer shall give written
notice of such determination to the Shareholders. Upon the written request of
any Shareholder, Buyer will cause all shares of Buyer Common Stock held by such
Shareholder to be included in such registration statement. Each Shareholder
agrees that it will cooperate with Buyer and its counsel in connection with the
preparation and filing of any such registration statement.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
------------------------------------
SECTION 6.01 Conditions to Obligations of Buyer and Newco.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Newco to consummate
42
<PAGE>
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions:
(a) There shall not be instituted and pending or threatened any
Action before any Governmental Entity (i) challenging the Merger or otherwise
seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct or indirect
ownership or operation by Buyer of all or a material portion of the business or
assets of the Company, or to compel Buyer or the Company to dispose of or hold
separate all or a material portion of the business or assets of the Company or
Buyer.
(b) The representations and warranties of the Shareholders in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date and each of
the Company and each Shareholder shall have complied with all covenants and
agreements and satisfied all conditions on the Company's or his or her part, as
applicable, to be performed or satisfied on or prior to the Closing Date.
(c) Buyer shall have received from each Shareholder a
certificate dated the Closing Date in substantially the form attached as Annex C
hereto.
(d) Buyer shall have received a certificate of the President of
the Company in substantially the form attached as Annex D hereto.
(e) Buyer shall have received a certificate of the Secretary of
the Company dated the Closing Date in substantially the form attached as Annex E
hereto.
(f) Each of Michael H. Greeley, Judith Greeley and Mary P.
Saunders shall have entered into a Non-Competition Agreement with Buyer
substantially in the form attached as Annex F hereto, and Russell Yeager shall
have entered into a Nonsolicitation Agreement with Buyer substantially in the
form attached as Annex N hereto.
(g) Buyer, the Escrow Agent and the Representative shall have
entered into the Escrow Agreement.
43
<PAGE>
(h) Buyer shall be satisfied, in its sole discretion, that the
issuance of Buyer Common Stock to the Shareholders in connection with the Merger
shall be exempt from the registration and prospectus delivery requirements of
the Securities Act.
(i) The authorizations, consents, waivers and approvals by or
from third parties set forth on Schedule 6.01(i) required for the consummation
of the transactions contemplated hereby shall have been obtained and all Liens
on the assets and properties of the Company set forth in Schedule 6.01(i) shall
have been released or terminated.
(j) No act, event or condition shall have occurred after the
date hereof which Buyer determines has had or could reasonably be expected to
have a Material Adverse Effect.
(k) Buyer shall have concluded (through its representatives,
accountants, counsel and other experts) satisfactorily an investigation of the
Company and shall be satisfied in its sole discretion with the results thereof.
(l) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
SECTION 6.02 Conditions to Obligations of the Company and the
------------------------------------------------
Shareholders. Notwithstanding any other provision of this Agreement, the
- ------------
obligations of the Company and the Shareholders to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date, and Buyer
shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the Closing
Date.
44
<PAGE>
(b) The Shareholders shall have received a certificate of the
Secretary of Buyer dated the Closing Date in substantially the form attached as
Annex G hereto.
(c) The Shareholders shall have received a certificate of the
President of Buyer in substantially the form attached as Annex H hereto.
(d) The Shareholders shall have received a certificate of the
Secretary of Newco dated the Closing Date in substantially the form attached as
Annex I hereto.
(e) The Shareholders shall have received a certificate of the
President of Newco in substantially the form attached as Annex J hereto.
(f) Michael H. Greeley and Mary P. Saunders shall each have
entered into an Employment Agreement with the Surviving Corporation
substantially in the forms attached as Annex K and L hereto, respectively.
(g) Laurie Munn, Max Munn and Buyer shall have executed a
Continuing Guaranty in favor of the Representative substantially in the form
attached as Annex M hereto.
(h) No act, event or condition shall have occurred after the date
hereof which the Shareholders determine has had or could reasonably be expected
to have a material adverse effect on the business, financial condition,
properties, profitability, prospects or operations of Buyer.
(i) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to the Shareholders and their counsel.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and the Shareholders covenant and agree (except as
expressly
45
<PAGE>
contemplated by this Agreement or to the extent that Buyer shall otherwise
expressly consent in writing) that:
SECTION 7.01 Qualification. The Company shall maintain all
-------------
qualifications to transact business and remain in good standing in the foreign
jurisdictions set forth on Schedule 3.01(a).
SECTION 7.02 Ordinary Course. The Company shall conduct its business
---------------
in, and only in, the Ordinary Course and shall preserve intact its current
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and going business
value shall be unimpaired at the Closing Date. The Company shall maintain its
properties and assets in good condition and repair.
SECTION 7.03 Organic Changes. Except as required to consummate the
---------------
Merger, the Company shall not (a) amend its Certificate of Incorporation or
Bylaws (or equivalent documents), (b) acquire by merging or consolidating with,
or agreeing to merge or consolidate with, or purchase substantially all of the
stock or assets of, or otherwise acquire any business or any corporation,
partnership, association or other business organization or division thereof, (c)
enter into any partnership or joint venture, (d) declare, set aside, make or pay
any dividend or other distribution in respect of its capital stock or purchase
or redeem, directly or indirectly, any shares of its capital stock, (e) issue or
sell any shares of its capital stock of any class or any options, warrants,
conversion or other rights to purchase any such shares or any securities
convertible into or exchangeable for such shares, or (f) liquidate or dissolve
or obligate itself to do.
SECTION 7.04 Indebtedness. The Company shall not incur any
------------
Indebtedness, sell any debt securities or lend money to or guarantee the
Indebtedness of any Person. The Company shall not restructure or refinance its
existing Indebtedness.
SECTION 7.05 Accounting. The Company shall not make any change in
----------
the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted by it. The
Company shall maintain its books, records and accounts in accordance with GAAP.
46
<PAGE>
SECTION 7.06 Compliance with Legal Requirements. The Company shall
----------------------------------
comply promptly with all requirements that applicable law may impose upon it and
its operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, Buyer
in connection with any such requirements imposed upon Buyer, or upon any of its
affiliates, in connection therewith or herewith.
SECTION 7.07 Disposition of Assets. Other than in the Ordinary
---------------------
Course, the Company shall not sell, transfer, license, lease or otherwise
dispose of, or suffer or cause the encumbrance by any Lien upon any of, its
properties or assets, tangible or intangible, or any interest therein.
SECTION 7.08 Compensation. The Company shall not (a) adopt or amend
------------
in any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other plan, agreement, trust, fund or arrangement for the benefit
of employees (whether or not legally binding) other than to comply with any
Legal Requirement or (b) pay, or make any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind, or
any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any current or former officer, director, employee
or consultant of the Company.
SECTION 7.09 Modification or Breach of Agreements; New Agreements.
----------------------------------------------------
The Company shall not terminate or modify, or commit or cause or suffer to be
committed any act that will result in breach or violation of any term of, or
(with or without notice or passage of time, or both) constitute a default under
or otherwise give any person a basis for nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement, instrument, arrangement or understanding, written or oral, disclosed
in this Agreement or the Schedules hereto. The Company shall refrain from
becoming a party to any contract or commitment other than in the Ordinary
Course. The Company shall meet all of its contractual obligations in accordance
with their respective terms.
SECTION 7.10 Capital Expenditures. Except for capital expenditures
--------------------
or commitments necessary to maintain its properties and assets in good condition
and repair (the
47
<PAGE>
amount of which shall not exceed $20,000 in the aggregate), the Company shall
not purchase or enter into any contract to purchase any capital assets.
SECTION 7.11 Maintain Insurance. The Company shall maintain its
------------------
Policies in full force and effect and shall not do, permit or willingly allow to
be done any act by which any of the Policies may be suspended, impaired or
canceled.
SECTION 7.12 Discharge. The Company shall not cancel, compromise,
---------
release or discharge any claim of the Company upon or against any person or
waive any right of the Company of material value, and not discharge any Lien
(other than Permitted Liens) upon any asset of the Company or compromise any
debt or other obligation of the Company to any person other than Liens, debts or
obligations with respect to current liabilities of the Company.
SECTION 7.13 Actions. The Company shall not institute, settle or
-------
agree to settle any Action before any Governmental Entity.
SECTION 7.14 Permits. The Company shall maintain in full force and
-------
effect, and comply with, all Permits.
SECTION 7.15 Tax Assessments and Audits. The Company shall furnish
--------------------------
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the Company's operations for periods ending on or prior to the Closing Date.
The Shareholders shall cause the Company to promptly inform Buyer of, and permit
the participation by Buyer in, any investigation, audit or other proceeding by a
Governmental Entity in connection with any Taxes, assessment, governmental
charge or duty and shall not consent to any settlement or final determination in
any proceeding without the prior written consent of Buyer.
ARTICLE VII
ADDITIONAL COVENANTS
--------------------
SECTION 8.01 Covenants of the Company and the Shareholders. During
---------------------------------------------
the period commencing on the date hereof and continuing through the Closing
Date, the Company and each Shareholder agrees to:
48
<PAGE>
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in connection with any such requirements imposed upon Buyer or upon any of
its affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to cooperate
with Buyer in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by the Company or the
Shareholder, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.01 of
this Agreement;
(d) promptly advise Buyer orally and, within three business days
thereafter, in writing of any change in the Company's business or condition that
has had or may have a Material Adverse Effect; and
(e) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 8.02 Covenants of Buyer. During the period commencing on the
------------------
date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information
49
<PAGE>
to, the Company and the Shareholders in connection with any such requirements
imposed upon the Shareholders or the Company or upon any of the Affiliates of
the Company in connection therewith or herewith;
(b) use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable best efforts to preserve intact its
business organization, employees and other business relationships, to operate
its business in the Ordinary Course and to maintain its books, records and
accounts in accordance with GAAP;
(d) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.02 of
this Agreement;
(e) promptly advise the Company and, within three business days
thereafter, in writing of any change in Buyer's business or condition that has
had or may have a material adverse effect on the business, financial condition,
properties, profitability, prospects or operations of Buyer; and
(f) deliver to the Shareholders prior to the Closing a written
statement disclosing any untrue statement in this Agreement or any Schedule
hereto (or supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, promptly upon the discovery of
such untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent the
Shareholders from terminating this Agreement pursuant to Section 9.01(d) hereof
at any time at or prior to the Closing in respect of any original untrue or
misleading statement.
SECTION 8.03 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, (i) the Company
will permit, and the Shareholders will cause the Company's officers, directors,
key employees and
50
<PAGE>
advisors to permit, Buyer and its representatives and agents reasonable access
to the Company's books and records, facilities, key personnel, customers,
suppliers, independent accountants and attorneys, as requested by Buyer and (ii)
Buyer will permit the Company and its representatives and agents reasonable
access to Buyer's books and records, facilities, key personnel, customers,
suppliers, independent accountants and attorneys, as requested by the Company.
(b) Section 7 of the Letter of Intent (Confidentiality) shall
survive the execution and delivery of this Agreement. Each Shareholder hereby
agrees to be bound by the terms of Section 7 of the Letter of Intent as though
the Shareholder was an original party to the Letter of Intent.
SECTION 8.04 Expenses. Except as otherwise specifically provided
--------
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents provided, however, that the fees and expenses of the
-------- -------
Escrow Agent under the Escrow Agreement shall be shared one-half by Buyer and
one-half by the Shareholders.
SECTION 8.05 Certain Notifications. At all times from the date
---------------------
hereof to the Closing Date, each party shall promptly notify the others in
writing of the occurrence of any event that will or may (i) render any
statement, representation or warranty of such party in this Agreement (including
the Schedules hereto) inaccurate or incomplete in any material respect or (ii)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(iii) result in the failure by such party to satisfy any of the conditions
specified in Article VI hereof.
SECTION 8.06 Publicity; Employee Communications. At all times prior
----------------------------------
to the Closing Date, each party shall obtain the consent of all other parties
hereto prior to issuing, or permitting any of its directors, officers, employees
or agents to issue, any press release or other information to the press,
employees of the Company or any third party with respect to this Agreement or
the transactions contemplated hereby; provided, however, that no
-------- -------
51
<PAGE>
party shall be prohibited from supplying any information to any of is
representatives, agents, attorneys, advisors, financing sources and others to
the extent necessary to complete the transactions contemplated hereby so long as
such representatives, agents, attorneys, advisors, financing sources and others
are made aware of and agree to be bound by the terms of this Section 8.06.
Nothing contained in this Agreement shall prevent any party to this Agreement at
any time from furnishing any required information to any Governmental Entity or
authority pursuant to a Legal Requirement or from complying with its legal or
contractual obligations.
SECTION 8.07 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Shareholders or the proper officers or directors of the Company, Buyer or Newco,
as the case may be, shall take or cause to be taken all such necessary or
convenient action and execute, and deliver and file, or cause to be executed,
delivered and filed, all necessary or convenient documentation.
SECTION 8.08 Competing Offers; Merger or Liquidation. The Company
---------------------------------------
and the Shareholders agree that they will not, and the Shareholders will cause
the Company not to, directly or indirectly, through any officer, director, agent
or otherwise, solicit, initiate or encourage discussions with, or the
submissions of bids, offers or proposals by, any Person with respect to an
acquisition of the Company or its assets or capital stock or a merger or similar
transaction, and the Company and the Shareholders will not, and the Shareholders
will not permit the Company to, engage any broker, financial adviser or
consultant with an incentive to initiate or encourage proposals or offers from
other parties. Furthermore, the Company and the Shareholders shall not, and the
Shareholders shall not permit the Company to, directly or indirectly, through
any officer, director, agent or otherwise, engage in negotiations concerning any
such transaction with, or
52
<PAGE>
provide information to, any Person other than Buyer and its representatives,
with a view to engaging, or preparing to engage, that Person with respect to any
matters referenced in this Section. The Shareholders shall ensure that the
Company shall not commence any proceeding to merge, consolidate or liquidate or
dissolve or obligate itself to do so. Section 2 of the Letter of Intent
(Exclusivity) shall survive the execution and delivery of this Agreement. Each
Shareholder agrees to be bound by the terms of Section 2 of the Letter of Intent
as though the Shareholder was an original party to the Letter of Intent.
SECTION 8.09 Inconsistent Action. The Shareholders shall not take or
-------------------
suffer to be taken, and shall not permit the Company to take or cause or suffer
to be taken, any action that would cause any of the representations or
warranties of the Principal Shareholders in this Agreement to be untrue,
incorrect, incomplete or misleading. Buyer will not take or suffer to be taken
any action that would cause any of the representations or warranties of Buyer in
this Agreement to be untrue, incorrect, incomplete or misleading.
SECTION 8.10 Post-Termination Employment. The Shareholders
---------------------------
acknowledge and agree that, subject to any written contracts of employment, if
any, after the Closing (a) neither Buyer nor the Company shall be required to
employ or retain any employee of the Company or any other Person, and (b) Buyer,
in its sole and absolute discretion, may cause the Company to retain all, some,
or none of such employees.
SECTION 8.11 Acquisition of Shares of Buyer. Each Shareholder agrees
------------------------------
that for a period of three (3) years following the date hereof it will not,
without the prior written consent of Buyer, other than by virtue of its
ownership of the Mergers Shares and the Additional Shares, (a) make or in any
way participate, directly or indirectly in any "solicitation" of "proxies" to
vote (as such terms are defined and used in the rules, regulations and releases
of the SEC), (b) make any public announcement or offer with respect to, or
submit any proposal for, any transaction involving Buyer or its securities or
assets, or (c) in connection with the foregoing, seek to advise or influence any
Person to form or join or in any way participate in a "group" as defined in
Section 13(d)(3) of the Exchange Act.
53
<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 9.0 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by mutual consent of all of the parties hereto;
(b) by the Shareholders, on the one hand, or by Buyer, on the
other hand, by written notice to the other party or parties hereto if the Merger
shall not have been consummated on or before April 1, 1998 (or such later date
as Buyer and the Shareholders may agree), provided that in the case of a
termination under this clause (b), the party or parties terminating this
Agreement shall not then be in material breach of any of its or their
obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by the Shareholders under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.01 have not been met on the Closing Date, and, in each case, Buyer is
not then in material default of its obligations hereunder; or
(d) by the Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.02 have not been met on the Closing Date, and, in each case, the
Shareholders are then in material default of its obligations hereunder.
SECTION 9.0 Effect of Termination.
---------------------
(a) In the case of any termination of this Agreement, the
provisions of Sections 8.03(b) and 8.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.01(a), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
54
<PAGE>
(c) In the event of termination of this Agreement as provided in
Section 9.01(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party or parties or any other Person under the terms of this Agreement
or otherwise.
SECTION 9.03 Amendment. This Agreement may be amended only by a
---------
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 Waiver. Any term or provision of this Agreement may be
------
waived in writing at any time by the party or parties entitled to the benefits
thereof. Any waiver effected pursuant to this Section 9.04 shall be binding
upon all parties hereto. No failure to exercise and no delay in exercising any
right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude the
exercise of any other right, power or privilege. No waiver of any breach of any
covenant or agreement hereunder shall be deemed a waiver of any preceding or
subsequent breach of the same or any other covenant or agreement. The rights
and remedies of each party under this Agreement are in addition to all other
rights and remedies, at law or in equity, that such party may have against the
other parties.
ARTICLE X
INDEMNIFICATION
---------------
SECTION 10.01 Survival of Representations and Warranties and
----------------------------------------------
Covenants.
- ---------
(a) The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until March
31, 2000 (except for claims in respect thereof pending at such time, which shall
survive until finally resolved or settled); provided, however, that the
-------- -------
representations and warranties contained in Article V and in Section 3.25 shall
survive until the expiration of the applicable statute of limitations.
55
<PAGE>
(b) No Action may be commenced with respect to any
representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 11.01 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 10.01(a) for such representation, warranty, covenant or agreement.
SECTION 10.02 Indemnification.
---------------
(a) Subject to the limitations set forth in Sections 10.02(c),
(d) and (e), the Shareholders jointly and severally covenant and agree to
defend, indemnify and hold harmless Buyer and each Person who controls Buyer
within the meaning of the Securities Act, and after the Closing, the Company,
from and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by the Shareholders in this Agreement or in any writing delivered pursuant
to this Agreement or at the Closing or (ii) the failure of the Principal
Shareholders or the Company to perform or observe fully any covenant, agreement
or pro vision to be performed or observed by the Shareholders or the Company
pursuant to this Agreement.
(b) Subject to the limitation set forth in Sections 10.02(c) and
(f), Buyer covenants and agrees to defend, indemnify and hold harmless the
Shareholders from and against any Damages arising out of or resulting from: (i)
any inaccuracy in or breach of any representation, warranty, covenant or
agreement made by Buyer in this Agreement or in any writing delivered pursuant
to this Agreement or at the Closing; or (ii) the failure by Buyer to perform or
observe any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement.
(c) The indemnification obligations of the Shareholders under
Section 10.02(a), or of Buyer pursuant to Section 10.02(b), shall apply only to
the extent that the amount of Damages exceeds an accumulated total of $20,000,
at which point the obligations of the Shareholders or Buyer, as the case may be,
shall be to indemnify for all Damages (including the first $20,000).
(d) The Shareholders' aggregate liability under this Section
10.02 shall be limited to the Escrow
56
<PAGE>
Shares, and no Shareholder shall have any liability under this Section 10.02 in
an amount in excess of such Shareholder's pro rata ownership of the Escrow
Shares. The Shareholders' ownership of the Escrow Shares shall be allocated
among them pro rata in accordance with the number of Shares owned by each of
them as set forth on Schedule 3.03 hereto. No Shareholder shall have any right
of contribution or equitable indemnification against the Company or the
Surviving Corporation for the Shareholders' obligations under Section 10.02(a).
(e) Upon the occurrence of an Event of Default (as defined in
the Notes) under any of the Notes, the obligations of the Shareholders under
this Section 10.02 shall terminate and be of no further force or effect.
(f) The aggregate liability of Buyer under this Section 10.02
shall be limited to $175,000.
(g) The rights to indemnification set forth in this Section
10.02 shall be the sole and exclusive remedies of the parties with respect to
the breach of any representation, warranty, covenant or agreement contained in
this Agreement. Each party hereto shall retain all rights and remedies to which
it may be entitled under applicable law for matters other than the breach of any
representation, warranty, covenant or agreement contained in this Agreement
(including, without limitation, conduct constituting fraud by any party hereto
in connection with the transactions contemplated hereby or enforcement of the
terms of the Note).
SECTION 10.03 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to Section
10.02 (an "Indemnified Party") receives notice of the assertion by any third
-----------------
party of person of any Action (any such claim or Action being referred to herein
as an "Indemnifiable Claim") with respect to which another party hereto (an
-------------------
"Indemnifying Party") is or may be obligated to provide indemnification, the
------------------
Indemnified Party shall promptly notify the Indemnifying Party in writing (the
"Claim Notice") of the Indemnifying Claim; provided, however, that the failure
------------ -------- -------
to provide such notice shall not relieve or otherwise affect the obligation of
the Indemnifying Party to provide indemnification hereunder, except to the
extent that any Damages directly resulted or were caused by such failure.
57
<PAGE>
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided, however, that (i) the Indemnifying Party shall permit the
-------- -------
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
--------
however, that the Indemnified Party shall notify the Indemnifying Party of any
- -------
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.03 to the contrary
notwithstanding, the Shareholders shall not be entitled to assume the defense
for any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Buyer or the Company which Buyer
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of Buyer or the Company; provided,
--------
however, if such equitable relief portion of the Indemnifiable Claim can be so
- -------
separated from that for money damages, the Shareholders shall be entitled to
assume the defense of the portion relating to money damages.
58
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
------------------
SECTION 11. Notices. All notices and other communications under or
-------
in connection with this Agreement shall be in writing and shall be deemed given
(a) if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three days after being mailed, or (c) if given by facsimile, upon
confirmation of transmission by facsimile, in each case to the parties at the
following addresses:
(a) If to Buyer or Newco, addressed to:
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553-1017
Facsimile: (914) 665-1610
Attention: Mr. Max Munn
With copies to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
Facsimile: (213) 627-0705
Attention: DeAnne H. Ozaki, Esq.
and
Irvin Rothfarb, Esq.
15 West 53/rd/ Street
New York, New York 10019
Facsimile: (212) 262-6228
and
Mr. Dennis D'Amore
1755 Glendale Boulevard
Los Angeles, California 90026
Facsimile: (213) 664-5679
59
<PAGE>
(b) If to the Company, addressed to:
Henlor, Inc.
12250 Montague Street
Pacoima, California 91331
Facsimile: (818) 896-2271
Attention: Mr. Michael H. Greeley
With a copy to:
Musick, Peeler & Garrett, LLP
One Wilshire Boulevard
Suite 2000
Los Angeles, California 90017
Facsimile: (213) 624-1376
Attention: Stephen J.M. Morris, Esq.
(c) If to the Shareholders, addressed to:
Mr. Michael H. Greeley
22120 Kinzie Street
Chatsworth, California 91311
With a copy to:
Musick, Peeler & Garrett, LLP
One Wilshire Boulevard
Suite 2000
Los Angeles, California 90017
Facsimile: (213) 624-1376
Attention: Stephen J.M. Morris, Esq.
SECTION 11.02 Severability. If any term or provision of this
------------
Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
such term or provision in any other jurisdiction, the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
60
<PAGE>
SECTION 11.03 Entire Agreement. Except as specifically set forth
----------------
herein, this Agreement, including the annexes and schedules attached hereto and
other documents referred to herein, contain the entire understanding of the
parties hereto in respect of their subject matter and supersede all prior and
contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter, including, without limitation, the
Letter of Intent.
SECTION 11.04 Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs and assigns; provided, however, that no party may
-------- -------
assign either this Agreement or any of its rights, interests or obligations
hereunder in whole or in part without the prior written consent of the other
parties hereto (other than to the Surviving Corporation as a result of the
Merger), and any such transfer or assignment without said consent shall be void,
ab initio. Subject to the immediately preceding sentence, this Agreement is not
- ---------
intended to benefit, and shall not run to the benefit of or be enforceable by,
any other person or entity other than the parties hereto and their permitted
successors and assigns.
SECTION 11.05 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 11.06 Schedules and Annexes. The schedules and annexes to
---------------------
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
SECTION 11.07 Construction.
------------
(a) The article, section and subsection headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
61
<PAGE>
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
SECTION 11.08 Consent to Jurisdiction. Each party hereto irrevocably
-----------------------
submits to the exclusive jurisdiction of the courts of the State of California
and the United States District Court for the Central District of California for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby and to the laying
of venue in any such court. Each party hereto irrevocably waives any objection
to the laying of venue of any such suit, action or proceeding brought in any
such court and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 11.09 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
62
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
VANGUARD ACQUISITION CORP.
By: /s/ Max Munn
-------------------------
An Authorized Officer
INTERIORS, INC.
By: /s/ Michael H. Greeley
-------------------------
An Authorized Officer
HENLOR, INC.
By: /s/ Michael H. Greeley
-------------------------
An Authorized Officer
/s/ Michael H. Greeley
----------------------------
MICHAEL H. GREELEY
/s/ Judith Greeley
----------------------------
JUDITH GREELEY
/s/ Mary P. Greeley Saunders
----------------------------
MARY P. GREELEY SAUNDERS
/s/ Russell Yeager
----------------------------
RUSSELL YEAGER
63
<PAGE>
/s/ Judy Yeager
----------------------------
JUDY YEAGER
/s/ Amy Louise Greeley
----------------------------
AMY LOUISE GREELEY
/s/ Stephen J. M. Morris
----------------------------
STEPHEN J. M. MORRIS
/s/ Kathleen M. Cerruti
----------------------------
KATHLEEN M. CERRUTI
WILLIAM M. SCOTT NANCY C. SCOTT
REVOCABLE TRUST
By: /s/ William M. Scott
--------------------------
William M. Scott, Trustee
By: /s/ Nancy C. Scott
--------------------------
Nancy C. Scott, Trustee
64
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of this 10th day of March, 1998, by and between HENLOR, INC., a Delaware
corporation with an address at c/o Interiors, Inc., 320 Washington Street, Mt.
Vernon, New York 10553-1017 (the "Company") and MICHAEL H. GREELEY, residing at
22120 Kinzie Street, Chatsworth, California 91311 ("Employee").
RECITALS
--------
A. WHEREAS, the Company, Vanguard Acquisition Corp., a Delaware
corporation ("Vanguard"), Interiors, Inc., a Delaware corporation ("Interiors")
and the shareholders of the Company have entered into that certain Agreement and
Plan of Merger dated as of March 10, 1998 (the "Merger Agreement"), pursuant to
which Vanguard will be merged with and into the Company;
B. WHEREAS, pursuant to the terms of the Merger Agreement, the
Company and Employee agreed that the Company would enter into an employment
agreement with Employee;
C. WHEREAS, the Company desires to secure the services of Employee,
and Employee desires to furnish his services to the Company, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Terms used in this Agreement in capitalized form
-------------
which are not defined in this Agreement shall have the same definitions as used
in the Merger Agreement.
2. Employment. Upon the terms and subject to the conditions set forth
----------
in this Agreement, the Company employs Employee, and Employee accepts such
employment.
3. Duties Of Employee.
------------------
3.1 General Duties. During the term of this Agreement, Employee
--------------
shall serve as an employee of the Company, subject to the provisions of this
Agreement and, except as otherwise provided herein, such additional rules and
regulations of employment as shall be generally applicable to employees of the
Company. Employee shall do and perform services and duties typically performed
by a president and chief operating officer of a company, and such other
services, consistent with his primary responsibilities, and duties as may be
prescribed by the Board of Directors of the Company from time to time.
3.2 Extent of Services. Except as may otherwise be agreed in
------------------
writing between the Company and Employee, during the term of this Agreement,
Employee shall: (a) devote his entire business time, attention, skills and
energies to the business of the Company; (b) faithfully and to the best of his
ability serve the Company; and (c) not perform any act or take any action
inconsistent with his duties to the Company.
<PAGE>
3.3 Location. Except for business trips necessary or appropriate for
--------
the proper performance of his services and duties hereunder, Employee shall
perform the services contemplated herein in the County of Los Angeles,
California.
4. Compensation.
------------
4.1 Salary. In consideration of the services to be rendered by
------
Employee hereunder, the Company shall pay or cause to be paid to Employee during
the term of this Agreement an annual salary of One Hundred Fifty Thousand
Dollars ($150,000), payable in accordance with the Company's normal payroll
practices for employees generally. The foregoing salary shall be Employee's
sole compensation for all services provided by Employee hereunder.
4.2 Discretionary Bonuses. The Board of Directors of the Company
---------------------
may, at its sole and absolute discretion, provide discretionary bonuses based
upon performance. Performance reviews shall be conducted by the Company at
least annually. Employee acknowledges and agrees that the Company shall be
under no obligation to award any bonus as a result of any performance review.
4.2 Deductions; Withholdings. The salary payable to Employee
------------------------
hereunder is the gross amount. The Company shall have the right to deduct or
withhold therefrom all taxes and other amounts which may be required to be
deducted or withheld under any provision of applicable law (including, without
limitation, social security payments, income tax withholdings and other
deductions required by law) now in effect or which may become effective any time
during the term of this Agreement.
5. Employee Benefits.
-----------------
5.1 General. Except as provided in Section 5.2 below, employee shall
-------
be entitled to coverage and benefits under medical, dental, pension,
401(k)/profit-sharing or other benefit plans generally provided by the Company
to its employees.
5.2 Life and Disability Insurance. Employee shall be entitled to a
-----------------------------
maximum reimbursement of Six Thousand Dollars ($6,000) per year for life
insurance premiums for life insurance policies currently in effect for Employee.
Reimbursements for life insurance premiums shall be made within twenty-one (21)
days following the Company's receipt of an expense statement, including, where
appropriate, all original statements of charges and proof of payment. In
addition, Employee shall be entitled to coverage under the Company's current
long term disability insurance policy offered to key executives; provided,
however, that should the Company discontinue such insurance Employee shall
receive payment in an amount equal to that portion of the long term disability
insurance premiums in effect at the time of discontinuance which is attributable
to Employee. Employee acknowledges and agrees that the foregoing is in lieu of
coverage under any other life and/or disability insurance offered by the Company
to any of its employees.
5.3 Vacation and Sick Time. Until changed in writing by the Company,
----------------------
Employee shall be entitled to (a) two (2) weeks of paid vacation, which shall be
taken in accordance with the Company's written vacation policy, and (b) seven
(7) days of paid sick leave for personal illness, which shall be used in
accordance with the Company's written sick leave policy and which shall not be
carried forward from year to year or converted to cash or vacation days, during
each year of employment with the Company.
-2-
<PAGE>
5.4 Holidays. Employee shall be entitled to such paid holidays as
--------
are designated by the Company.
5.5 Automobile; Automobile Insurance. Employee shall receive payment
--------------------------------
in the amount of One Thousand Dollars ($1,000) per month for all automobile
leasing, automobile insurance and all other automobile related expenses
(including without limitation mileage), payable in accordance with the Company's
normal payroll practices for employees generally. Employee acknowledges and
agrees that such payment shall be used solely for automobile leasing, insurance
and related expenses.
6. Term. The term of this Agreement and Employee's employment with the
----
Company shall commence on the Closing Date and shall continue for a period of
five (5) years, unless sooner terminated pursuant to Section 7 below.
7. Termination.
-----------
7.1 Termination For Cause. Employee understands and agrees that this
---------------------
Agreement and the employment relationship may be terminated immediately by the
Company for "cause," upon written notice to Employee in the manner set forth in
Section 10.3 below. "Cause" shall mean (a) habitual inattention to, neglect of
or unwillingness to perform Employee's duties, (b) failure or refusal to follow
any reasonable directive of the Board of Directors of the Company, if such
failure or refusal is not cured within seven (7) business days after the
Company's written notice to Employee of such failure or refusal, (c) commission
of any act punishable by criminal penalty, except for routine traffic offenses
or other similar offenses which do not reflect negatively on Employee's ability
or capability to perform his services hereunder and which do not violate Clauses
(d) or (e) of this Section 7.1, or any act involving gross negligence by
Employee, (d) commission of any other act reasonably likely to affect adversely
the business or reputation of the Company, if such conduct is not corrected
within seven (7) business days after the Company's written notice to Employee of
such conduct, (e) breach of any material term or condition of this Agreement, if
such breach is not cured within seven (7) business days after the Company's
written notice to Employee of such breach, and/or (f) two (2) or more violations
of Clauses (b), (d) or (e) during any twelve (12) month period. Upon termination
of Employee for "cause," the Company shall promptly pay to Employee all accrued
compensation which has been earned but not paid as of the date such termination
occurs.
7.2 Termination Without Cause. Employee understands and agrees that,
-------------------------
should the Company deem it necessary or advisable, this Agreement and the
employment relationship may be terminated immediately by the Company without
"cause" (as defined above), upon written notice to Employee in the manner set
forth in Section 10.3; provided that Employee shall be entitled to continued
compensation at the compensation level, including benefits but excluding
bonuses, and according to the payment periods in effect at the time of such
termination for the remainder of time, if any, in the period which consist of
the first two (2) years after the Closing Date and seventy percent (70%) of his
compensation at the compensation level, including benefits but excluding
bonuses, and according to the payment periods in effect at the time of such
termination for the remainder of time, if any, in the period which consists of
years three (3) through five (5) after the Closing Date; provided further that
Employee shall not continue to accrue paid time off for vacation, sick days or
holidays. With respect to benefits continued after termination pursuant to this
Section 7.2, the Company shall have the option to either continue the benefits
or pay to Employee the amount of the insurance premiums or other benefits in
effect at the time of termination.
-3-
<PAGE>
7.3 Death. In the event of the death of Employee during the Term,
-----
the Company shall pay, or cause to be paid, to any one or more beneficiaries
designated by Employee pursuant to notice to the Company or, failing such
designation, to Employee's estate, the salary provided for herein through the
date on which Employee's death occurs.
7.4 Disability. In the event that Employee shall become, by reason
----------
of physical or mental disability, incapable of performing his duties and
services in accordance with the provisions of Section 3 hereof, and such
incapacity(ies) shall continue for an aggregate period of ninety (90) days
during any twelve (12) month period, the Company shall have the right to
terminate Employee's employment hereunder by giving him written notice of such
termination and, thereafter, Employee's employment hereunder shall immediately
terminate. In the event of such termination, the Company shall continue to pay,
or cause to be paid, to Employee the salary provided for herein through the date
such termination occurs.
7.5 Termination by Employee. This Agreement may be terminated
-----------------------
immediately by Employee upon written notice to the Company in the manner set
forth in Section 10.3 below in the event of: (a) the appointment of an
assignee, referee, receiver or trustee for the Company or upon the adjudication
and bankruptcy or the liquidation of the Company or (b) breach of any material
term or condition of this Agreement by the Company, if such breach is not cured
within seven (7) business days after Employee's written notice to the Company of
such breach. A termination by Employee of this Agreement pursuant to the
provisions of this Section 7.5 shall be deemed to be a termination under Section
7.2 above.
7.6 No Additional Compensation. Except as expressly provided in this
--------------------------
Section 7, Employee acknowledges and agrees that he will not be entitled to any
additional compensation as a result of the termination of this Agreement or his
services hereunder.
7.7 Effect of Termination. Upon termination or expiration of this
---------------------
Agreement, Employee shall immediately surrender to the Company all lists, books,
records, materials and documents, together with all copies thereof, and all
other property in his possession or under his control, relating to or used in
connection with the past or present business of the Company, or Henlor or any
affiliate or subsidiary of Henlor. Employee acknowledges and agrees that all
such lists, books, records, materials and documents, including without
limitation compilations or collections of suppliers', contractors', employees'
and customers' names and addresses, are the sole and exclusive property of the
Company.
8. Nondisclosure; Ownership and Protection of Proprietary Rights.
-------------------------------------------------------------
8.1 Nondisclosure. Employee shall not at any time during the term of
-------------
this Agreement or thereafter, either directly or indirectly, disclose or divulge
to any other person, firm or corporation the names, addresses, preferences,
prices being charged or any other confidential information concerning or
relating to any of the former or existing suppliers, contractors, vendors or
customers of the Company or any affiliate or subsidiary of the Company
(collectively, the "Customers") with respect to the past, present or future
business of the Company or any affiliate or subsidiary of the Company, or any
secret, proprietary or confidential information concerning or relating to the
past, present or future business of the Company or any affiliate or subsidiary
of the Company (collectively, "Confidential Information"), and he will not
divert or attempt to divert any of the Customers or do any act to impair,
prejudice or destroy the goodwill of the Company with the Customers.
-4-
<PAGE>
8.2 Ownership of Intellectual Property. Employee acknowledges and
----------------------------------
agrees that all intellectual property (including without limitation all ideas,
concepts, inventions, plans, developments, software, data, configurations,
materials (whether written or machine-readable), designs, drawings,
illustrations and photographs, which may be protectable, in whole or in part,
under any patent, copyright, trademark, trade secret or other intellectual
property law), developed, created, conceived, made or reduced to practice during
his employment with the Company which (a) relate to the current, future or
potential business of the Company, (b) result from the duties or work performed
by Employee hereunder, or (c) are developed during working time or using the
Company's equipment, supplies, facilities, resources, materials or information,
shall be the sole and exclusive property of the Company and Employee shall and
hereby does assign all right, title and interest in and to such intellectual
property to the Company.
8.3 Nonsolicitation. Because Employee's solicitation of the
---------------
Customers or employees/contractors of the Company under certain circumstances
would necessarily involve the use or disclosure of Confidential Information,
Employee shall not, either directly or indirectly, at any time during the term
of this Agreement and for a period of three (3) years from the date of
termination or expiration of this Agreement (a) call on, solicit or take away,
or attempt to call on, solicit or take away, any past or present Customers of
the Company, (b) employ, hire or solicit the employment of any person employed
by the Company, (c) do any act to impair, prejudice or destroy the goodwill of
the Company or to prejudice or impair the relationship or dealing between the
Company and the Customers or between the Company and any of its
employees/contractors, or (d) assist any other person, firm or corporation in
any such acts; provided that Employee's post-termination obligations under this
Section 8.3 shall not apply if this Agreement is terminated by Employee either
as a result of an uncured, material breach of this Agreement by the Company or
bankruptcy of the Company, or the failure of the Company to continue to make
payments to Employee in the event of the Company's termination of Employee in
accordance with the provisions of Section 7.2 hereof. Henlor shall have the
right to cure any breach or failure identified above within seven (7) business
days after the Company's receipt of Employee's written notice to the Company of
such breach or failure; provided that the Company shall lose its right to cure
under this Section 8.3 if the Company materially breaches this Agreement or
fails to pay more than three (3) times during any twelve (12) month period.
8.4 Noncompetition. Employee shall not, at any time during the term
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of this Agreement, be or become (a) interested or engaged in any manner,
directly or indirectly, in any county and/or city in the United States of
America or any county or political subdivision in any state or country in the
world, either alone or with any person, firm or corporation now existing or
hereafter created, in any business, trade or other enterprise substantially
similar to or which is or may be directly or indirectly competitive with the
past, present or future business of the Company (the "Business") or (b) directly
or indirectly, a stockholder, bondholder, officer, director or employee of, or
in any manner associated with, or aid or abet or give information or financial
assistance to any business which is or may be competitive with the Business;
provided that nothing contained in this Section 8.4 shall prevent Employee from
acquiring or holding, as a passive investment, not more than five percent (5%)
of the outstanding capital shares of any publicly held corporation engaged in
such business. Employee represents and warrants that as of the date hereof,
Employee does not own more than five percent (5%) of the outstanding capital
shares of any publicly held corporation engaged in a business which is or may be
competitive with the Business.
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<PAGE>
8.5 Survival. Except as expressly provided above, the provisions of
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this Section 8 shall survive the termination of this Agreement, irrespective of
the reason therefor.
9. Relief. Employee acknowledges that (a) the services to be rendered
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by him are of a special, unique and extraordinary character and it would be very
difficult or impossible to replace such services, (b) the provisions of Section
8 are reasonable and necessary to protect the legitimate interests of the
Company, (c) the restrictions contained in Section 8 will not prevent Employee
from earning or seeking a livelihood, (d) the restrictions contained in Section
8 shall apply in all areas where such application is permitted by law and (e)
any violation of this Agreement by Employee would result in irreparable harm to
the Company. Accordingly, Employee consents and agrees that, if he violates any
of the provisions of this Agreement, the Company shall be entitled to, in
addition to other remedies available to it, an injunction to be issued by any
court of competent jurisdiction restraining him from committing or continuing
any violation of this Agreement, without the need to post any bond or for any
other undertaking, including without limitation proving the inadequacy of money
damages.
In the event that the whole or any part of the provisions of Section 8
hereof shall be determined to be invalid by reason of the extent, duration,
scope or other provision set forth therein, the extent, duration, scope or other
provision of that section shall be reduced so as to cure such invalidity and in
its reduced form the provisions of Section 8 shall be enforceable in the manner
contemplated hereby. The provisions of this Section 9 shall survive the
termination of this Agreement, irrespective of the reason therefor.
10. Miscellaneous.
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10.1 Waiver of Breach. Neither party's failure to enforce any
----------------
provision or provisions of this Agreement shall be deemed or in any way
construed as a waiver of any such provision or provisions, nor prevent that
party thereafter from enforcing each and every provision of this Agreement. The
rights granted the parties herein are cumulative and shall not constitute a
waiver of any party's right to assert all other legal remedies available to it
under the circumstances.
10.2 Successors; Assigns. The Company shall be entitled to assign
-------------------
its rights and obligations hereunder; provided that such assignment does not (a)
materially impair Employee's material rights hereunder and (b) impair the
continuing obligation of Interiors to guarantee the Company's payment
obligations to Employee under this Agreement. Employee shall not assign any of
his rights or obligations under this Agreement without the prior written consent
of the Board of Directors of the Company. Subject to the foregoing, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the heirs, legal representatives, executors, successors and assigns of Employee
and the Company.
10.3 Notices. All notices and other communications which are
-------
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to be sufficiently given (a) if delivered personally, upon
delivery and (b) if delivered by registered or certified mail (return receipt
requested), postage prepaid, upon the earlier of actual delivery or upon three
(3) days after being mailed, in each case to Employee or the Company at the
address set forth at the beginning of this Agreement. Either party may, by
notice given hereunder, designate any further or different address to which
subsequent notices or other communications shall be sent.
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<PAGE>
10.4 Severability. If any term or provision of this Agreement is
------------
held to be void or unenforceable by any court of competent jurisdiction, only
that objectionable term or provision shall be deleted herefrom while the
remainder of the term, provision and agreement shall be enforceable.
10.5 Governing Law. This Agreement shall be governed by and
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construed in accordance with the internal, substantive laws of the State of
California. Venue of any "Proceeding" (as defined below) shall be exclusively
in the County of Los Angeles in the foregoing state, and both parties hereby
consent and agree to such exclusive venue.
10.6 Attorneys' Fees. In the event any litigation, arbitration,
---------------
mediation or other proceeding ("Proceeding") is initiated by any party against
any other party to enforce, interpret or otherwise obtain judicial or quasi-
judicial relief in connection with this Agreement, the prevailing party or
parties in such proceeding shall be entitled to recover from the unsuccessful
party or parties all costs, expenses and reasonable attorneys' fees relating to
or arising out of such Proceeding (whether or not the Proceeding results in a
judgment), including any post-judgment or post-award Proceeding, including,
without limitation, one to enforce any judgment or award resulting from any such
Proceeding. Any such judgment or award shall contain a specific provision for
the recovery of all such subsequently incurred costs, expenses and reasonable
attorneys' fees.
10.7 Arbitration of Disputes. All disputes between Employee and the
-----------------------
Company or any related person or party are to be resolved by final and binding
arbitration in accordance with the Mutual Agreement to Arbitrate Claims attached
as Exhibit A to this Agreement, except as provided in such Arbitration
Agreement.
10.8 Counterparts. This Agreement may be executed simultaneously in
------------
two (2) or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one (1) and the same instrument.
Furthermore, facsimiles of signatures may be taken as the actual signatures, and
each party agrees to furnish the other with documents bearing the original
signatures within ten (10) days of the facsimile transmission.
10.9 Complete Agreement; Amendments. This Agreement, including the
------------------------------
exhibit, contains the entire understanding between the parties hereto with
respect to the subject matter hereof and supersedes any prior agreements and
understandings relating thereto. This Agreement may not be waived, changed,
modified, extended or discharged orally, but only by a written instrument signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
The "Company"
HENLOR, INC.
By: /s/ Max Munn
------------------------------------------
Max Munn
President
"Employee"
/s/ Michael H. Greeley
- ---------------------------------------------
Michael H. Greeley
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<PAGE>
The undersigned hereby unconditionally guaranties the performance of the
Company's compensation and benefits obligations to Employee.
INTERIORS, INC.
By: /s/ Max Munn
---------------------------------------------
Max Munn
President
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<PAGE>
EXHIBIT A
"Mutual Agreement to Arbitrate Claims"
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See Attached
