<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 12, 1999
NICOLLET PROCESS ENGINEERING, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 0-27928 41-1528120
--------- ------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2665 South Bayshore Drive
Suite PH2B
Coconut Grove, FL 33133
-----------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 913-3300
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 12, 1999, Nicollet Process Engineering, Inc.
("Company") acquired all of the stock of Knowledgeware Solutions, Inc.,
a Michigan Corporation ("KSI"), through the merger of Knowledgeware
Acqusition Corp., a wholly owned subsidiary of the Company, with and
into KSI with KSI being the surviving corporation. KSI creates
high-quality instructional, marketing and sales material for the
software industry.
The acquisition was made pursuant to an Agreement and Plan of Merger by
and among William Klco, Kathleen McFadden, Steven Gauld and Dane Powell
(the "Shareholders") and the Company dated November 12, 1999 (the
"Merger Agreement"). Under the terms of the Merger Agreement, the
Shareholders received 704,345 newly issued shares of the Company's
common stock and the Company acquired all of the outstanding common
stock of KSI. Each of the Shareholders also received options to
purchase 81,572 shares of the Company's common stock at a price of 85
cents per share. Each of the Shareholders may be granted options to
purchase an additional 81,572 shares of the Company's common stock at a
price of 85 cents per share if KSI achieves certain financial goals
during the three year period following the acquisition. Certain
employees of KSI will be granted options to purchase an aggregate of
291,286 shares of the Company's common stock at fair market value and
options to purchase an aggregate of 35,000 shares of the Company's
common stock at a price of 85 cents per share.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The registrant has determined that it is impracticable to provide the
required historical financial statements of KSI at this time. The
registrant will file the required historical financial statements of
the KSI under a Form 8-K/A as soon a practicable, but in any event
within 60 days after the date hereof.
b. PRO FORMA FINANCIAL INFORMATION.
The registrant has determined that it is impracticable to provide the
required pro forma financial information regarding the acquisition of
KSI at this time. The registrant will file the required pro forma
financial information under a Form 8-K/A as soon a practicable, but in
any event within 60 days after the date hereof.
c. EXHIBITS.
2.1 Agreement and Plan of Merger by and among the Company and
William Klco, Kathleen McFadden, Steven Gauld and Dane Powell
dated November 12, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NICOLLET PROCESS ENGINEERING, INC.
/s/ Roy Garcia
By: Roy Garcia
Its: Chief Financial Officer
Dated: November 29, 1999
3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Method
----------- ----------- ------
<S> <C> <C>
2.1 Agreement and Plan of Merger by and among the Company and Filed herewith.
William Klco, Kathleen McFadden, Steven Gauld and Dane Powell
dated November 12, 1999.
</TABLE>
4
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KNOWLEDGEWARE SOLUTIONS, INC.,
KNOWLEDGEWARE ACQUISITION, CORP.,
NICOLLET PROCESS ENGINEERING, INC.,
WILLIAM KLCO,
KATHY MCFADDEN,
STEVEN GAULD,
AND
DANE POWELL
NOVEMBER 12, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (collectively, this "Agreement"), dated as
of November 12, 1999, by and among NICOLLET PROCESS ENGINEERING, INC., a
Minnesota corporation ("Company"), KNOWLEDGEWARE ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Company ( the "Merger Sub"),
KNOWLEDGEWARE SOLUTIONS, INC., a Michigan corporation (the "Target"), WILLIAM
KLCO, KATHY MCFADDEN, STEVEN GAULD and DANE POWELL (William Klco, Kathy
McFadden, Steven Gauld and Dane Powell are collectively referred to as the
"Shareholders").
WHEREAS, the respective Boards of Directors of the Target, the Merger Sub
and the Company and the shareholders of the Target and the Merger Sub have
approved the merger of the Merger Sub with and into the Target, as set forth
below (the "Merger"), in accordance with applicable state law and upon the terms
and subject to the conditions set forth in this Agreement, and
WHEREAS, the Shareholders will be entitled to receive shares of the
common stock of the Company pursuant to the Merger and the holders of shares of
the Merger Sub common stock issued and outstanding immediately prior to the
Effective Time will be entitled to receive shares of the common stock of the
Target;
WHEREAS, Target, the Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger, and also to set forth various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Target,
the Merger Sub and the Company agree as follows:
ARTICLE
1.
THE MERGER
1.1 THE MERGER.
Upon the terms and subject to the satisfaction or waiver of the
conditions hereof, and in accordance with the applicable provisions of this
Agreement and applicable law, at the Effective Time, the Merger Sub shall be
merged with and into the Target. Following the Merger, the separate corporate
existence of the Merger Sub shall cease and the Target shall continue as the
surviving corporation (the "Surviving Corporation").
1.2 EFFECTIVE TIME.
As soon as practicable after the satisfaction or waiver of the conditions
set forth in Article 6, the Target and the Merger Sub shall execute, in the
manner required by law, and deliver to the Secretary of State of the State of
Michigan a Certificate of Merger and to the Secretary of State of
<PAGE>
the State of Minnesota Articles of Merger, each duly executed and verified by
the appropriate parties hereto, and the parties shall take such other and
further actions as may be required by law to make the Merger effective. The
time the Merger becomes effective in accordance with applicable law is
referred to herein as the "Effective Time."
1.3 EFFECTS OF THE MERGER.
The Merger shall have the effects set forth in the applicable provisions
of Michigan and Minnesota law and as set forth herein. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Target and the
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Target and the Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION.
(a) The Articles of Incorporation of the Target (the "Articles of
Incorporation"), as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and hereof and applicable law,
or as otherwise contemplated hereby.
(b) The Bylaws of the Target in effect at the Effective Time shall be
the By-Laws of the Surviving Corporation until thereafter amended, in accordance
with the provisions thereof, hereof and applicable law.
1.5 DIRECTORS AND OFFICERS.
The directors of Target shall be the initial directors of the Surviving
Corporation and the officers of the Target shall be the initial officers of the
Surviving Corporation and each shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal.
1.6 CLOSING.
The closing of the Merger (the "Closing") shall take place at 10:00 a.m.
on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of all of the conditions set
forth in Article VI (the "Closing Date"), at the offices of Varnum, Riddering,
Schmidt & Howlett LLP, 333 Bridge Street, N. W., Grand Rapids, Michigan, unless
another date or place is agreed to in writing by the parties hereto.
-2-
<PAGE>
1.7 SHAREHOLDER REPRESENTATIVE.
(a) Each Shareholder hereby irrevocably appoints and designates
William Klco as his or her representative and attorney-in-fact (the
"REPRESENTATIVE).
(b) The Shareholders hereby authorize the Representative (i) to take
all action necessary in connection with the waiver of any condition to the
obligations of any Shareholder to consummate the transactions contemplated
hereby; (ii) to give and receive all notices required or permitted under this
Agreement, and (iii) to take any and all additional action as is contemplated to
be taken by or on behalf of the Shareholders by the terms of this Agreement.
(c) In the event that the Representative dies, becomes unable to
perform his responsibilities hereunder or resigns from such position, the
Shareholders will select another representative to fill each such vacancy and
such substituted representative will be irrevocably appointed and designated the
Representative for all purposes of this Agreement.
(d) All decisions and actions by the Representative, including,
without limitation, any agreement between the Representative and the Company
relating to the waiver of any condition to the obligations of any Shareholder to
consummate the transaction contemplated hereby, will be binding upon all of the
Shareholders, and no Shareholder will have the right to object, dissent, protest
or otherwise contest the same.
(e) By their execution of this Agreement, each of the Shareholders
agree that:
The Company will be able to rely conclusively on the instructions
and decisions of the Representative as to any actions required to be
taken by the Representative hereunder, and no party hereunder will have
any cause of action against the Company for any action taken by the
Company in reliance upon the instructions or decisions of the
Representative;
all actions, decisions and instructions of the Representative will
be conclusive and binding upon all of the Shareholders, and no party
hereto will have any cause of action against the Representative, in his
capacity as a Representative, for any action taken, decision made or
instruction given by the Representative under this Agreement, except for
fraud or willful misconduct by the Representative;
the provisions of this Section 1.7 are independent and severable,
are irrevocable and coupled with an interest and will be enforceable
notwithstanding any rights or remedies that any Shareholder may have in
connection with the transactions contemplated by this Agreement; and
the provisions of this Section 1.7 will be binding upon the
executors, heirs, legal representatives and successors of each
Shareholder, and any references in this Agreement to a Shareholder will
mean and include the successors to the rights of the Shareholders
hereunder, whether pursuant to testamentary disposition, the laws of
descent and distribution or otherwise.
-3-
<PAGE>
ARTICLE
2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 EFFECT ON CAPITAL STOCK.
As of the Effective Time, by virtue of the Merger and without any action
on the part of the holders of any shares of Target common stock or any shares of
common stock of the Merger Sub:
(a) COMMON STOCK OF MERGER SUB. All of the shares of common stock of
the Merger Sub (the "Merger Sub Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted into 10,000 shares of
common stock of the Target.
(b) EXCHANGE OF SHARES OF COMMON STOCK. Each share of the Target
common stock issued and outstanding immediately prior to the Effective Time
(other than (1) Target Common Stock held in the Target's treasury or by any of
the Target's Subsidiaries, (2) Target Common Stock held by Company, Merger Sub
or any other Subsidiary of Company, and (3) shares of Target common stock held
by shareholders who have not voted in favor of the Merger (if entitled to vote)
and has properly exercised and perfected appraisal rights in accordance with
Section 762 of the Michigan Business Corporation Act) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into 70.4345 shares of common stock of the Company so that a total of 704,345
shares of the common stock of the Company shall be issued in exchange for 10,000
shares of the common stock of the Target by virtue of the Merger.
2.2. EXCHANGE OF CERTIFICATES.
(a) At the Closing, the Shareholders shall deliver to the Company
certificates representing all of the issued and outstanding Target Common Stock
(the "Certificates") and the Company shall deliver to each of the Shareholders
a certificate representing the number of shares of Common Stock of the Company
as is set forth opposite each Shareholder's name on Exhibit 2.2(a).
(b) Until surrendered to the Company as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a certificate
representing the 70.4345 of shares of Common Stock of the Company for each share
of Target Common Stock represented by the Certificate and the holder of such
Certificate shall cease to have any rights with respect to such shares of Target
Common Stock except as otherwise provided herein or by law.
(c) If 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, the Company will issue in exchange for such
lost, stolen or destroyed Certificate a certificate
-4-
<PAGE>
representing the number of shares of Common Stock of the Company the holder
thereof is pursuant to Section 2.2(a).
ARTICLE
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MERGER SUB
Except as otherwise disclosed to the Target in a letter delivered to it
at or prior to the execution of this Agreement (the "Company Disclosure
Letter"), the Company and the Merger Sub represent and warrant to the Target as
follows:
3.1. ORGANIZATION.
The Company and the Merger Sub each is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate powers and authorities to own,
lease and operate its properties and to carry on its business as it is now
being conducted, except where failure to be so existing and in good standing or
to have such power and authority would not have a Material Adverse Effect (as
defined in this Section 3.1). The Company and the Merger Sub each is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so duly qualified, licensed and in good standing would not have a Material
Adverse Effect. The Company and the Merger Sub have heretofore delivered to
Target a complete and correct copy of each of their articles of incorporation
and By-Laws, as currently in effect. As used in this Agreement, "Material
Adverse Effect" means, with respect to any of the parties hereto, an individual
or cumulative adverse change in or effect on the business, customers, customer
relations, properties, financial condition or results of operations of such
party which is reasonably expected to be materially adverse to the business,
customers, customer relations, properties, financial condition or results of
operations of such party; PROVIDED, HOWEVER, that the effects of changes that
are generally applicable to (i) any change in generally accepted accounting
principles ("GAAP") or SEC or other requirements applicable to companies
generally or (ii) the United States securities markets shall be excluded from
such determination; and PROVIDED, FURTHER that any adverse effect on any party
resulting from the execution of this Agreement and the announcement of this
Agreement and the transactions contemplated hereby, and the effects of any force
majeure events shall also be excluded from such determination.
3.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of common stock and 5,000,000 shares of undesignated preferred stock. As
of the date of this Agreement and immediately prior to the Effective Time, (i)
26,560,861 shares of the Company's common stock are issued and outstanding, (ii)
no shares of such common stock are issued and held in the treasury of the
Company, and (iii) no shares of preferred stock are issued and outstanding. All
the outstanding shares of the Company's capital stock are duly authorized,
validly issued, fully paid, non-assessable and free of preemptive rights.
Except as provided herein or as disclosed in the
-5-
<PAGE>
Company SEC Reports (as defined below), there are no existing (i) options,
warrants, calls, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating the Company or any of
its subsidiaries to issue, transfer or sell any shares of capital stock or
other equity interest in, the Company or any of its subsidiaries or
securities convertible into or exchangeable for such shares or equity
interests, (ii) contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any capital stock of
the Company or any of its subsidiaries of the Company or (iii) voting trusts
or similar agreements to which the Company is a party with respect to the
voting of the capital stock of the Company.
(b) All of the outstanding shares of capital stock (or equivalent
equity interests of entities other than corporations) of the Merger Sub are and
as of the Effective Time shall be beneficially owned, directly or indirectly, by
the Company, free and clear of all Liens. "Liens means any mortgage, pledge,
lien, security interest, conditional or installment sales agreement,
encumbrance, claim, easement, right of way, tenancy, covenant, encroachment,
restriction or charge of any kind or nature (whether or not of record).
3.3. AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
The Company and the Merger Sub have the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
the Company of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by the Company Board and the
Merger Sub Board and Shareholders and no other corporate action on the part of
the Company is necessary to authorize the execution and delivery by the Company
or the Merger Sub of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and the Merger Sub and is a valid and binding
obligation of the Company and the Merger Sub enforceable against the Company and
the Merger Sub in accordance with its terms, except that (i) such enforcement
may be subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.4. CONSENTS AND APPROVALS, NO VIOLATIONS.
Except as disclosed in Section 3.4 of the Company Disclosure Letter and
except for (a) applicable requirements under the Securities Act of 1933, as
amended ("Securities Act") and the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), (b) applicable requirements under state securities
or "blue sky" laws or (c) as contemplated by this Agreement, neither the
execution, delivery or performance of this Agreement by the Company or the
Merger Sub nor the consummation by the Company or the Merger Sub of the
transactions contemplated hereby will (i) violate any provision of the Articles
of Incorporation or Bylaws of the Company or the Merger Sub, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract,
-6-
<PAGE>
agreement or other instrument or obligation to which the Company or any of
its subsidiaries or the Merger Sub is a party or by which any of them or any
of their properties or assets may be bound (the "Company Agreements"), (iii)
to the best knowledge of the Company, violate any Laws, or (iv) require on
the part of the Company or the Merger Sub any filing or registration with,
notification to, or authorization, consent or approval of, any Authority.
"Laws" means any statute, treaty, law, judgment, writ, injunction, decision,
decree, order, regulation, ordinance or other similar authoritative matters.
"Authority" or "Authorities" means any foreign, federal, state or local
governmental or quasi-governmental, administrative, regulatory or judicial
court, department, commission, agency, board, bureau, instrumentality or
other authority.
3.5. SEC REPORTS AND FINANCIAL STATEMENTS
The Company has filed all reports required to be filed by it with the SEC
pursuant to the Exchange Act and the Securities Act since January 1, 1996 (as
such documents have been amended since the date of their filing, collectively,
the "Company SEC Documents"). The Company SEC Documents, as of their respective
filing dates, or if amended, as of the date of the last such amendment, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the balance sheets (including the related notes) included
in the Company SEC Documents fairly presents in all material respects the
financial position of the Company as of the respective dates thereof, and the
other related statements (including the related notes) included therein fairly
present in all material respects the results of operations and cash flows of the
Company for the respective periods or as of the respective dates set forth
therein. Each of the financial statements (including the related notes)
included in the Company SEC Documents has been prepared in all material respects
in accordance with GAAP applied on a consistent basis during the periods
involved, except as otherwise noted therein and subject, in the case of
unaudited interim financial statements, to normal year-end adjustments and the
omission of footnotes.
3.6. ABSENCE OF CERTAIN CHANGES.
Except as (a) disclosed in the Company SEC Documents, (b) disclosed in
Section of the Company Disclosure Letter or (c) contemplated by this Agreement,
since May 31, 1999, the Company has not suffered any change constituting a
Material Adverse Effect.
3.7. BROKERS OR FINDERS.
The Company, as to itself and the Merger Sub, represents that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement.
-7-
<PAGE>
3.8. INTERIM OPERATIONS OF THE MERGER SUB.
The Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
3.9. LITIGATION.
Except as disclosed in Section 3.9 the Company Disclosure Letter, as of
the date hereof, there is no action, suit, proceeding or, to its knowledge,
investigation pending or, to its knowledge, action, suit, proceeding, audit or
investigation threatened, involving the Company or the Merger Sub, by or before
any court, governmental or regulatory authority, which if adversely determined
would have a Material Adverse Effect.
ARTICLE
4.
REPRESENTATIONS AND WARRANTIES OF TARGET
Whenever any representation or warranty relating to the Target is made by
the Shareholders pursuant to this Article 4, to the extent the representation or
warranty relates to the time period subsequent to May 18, 1999 and prior to
September 1, 1999, the representation and warranty shall be deemed to be made
with respect to KnowSol, LLC, a Michigan Limited Liability Company (formerly
called KnowSol Acquisition, LLC and Knowledgeware Solutions, LLC)(KnowSol, LLC
is referred to as the "Predecessor Company"). Except as otherwise disclosed to
the Company in a letter delivered to it at or prior to the execution of this
Agreement (the "Target Disclosure Letter"), the Target represents and warrants
to the Company and Merger Sub as follows:
4.1. ORGANIZATION.
Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Target is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not have a Material
Adverse Effect. Target has heretofore delivered to Company a complete and
correct copy of each of its articles of incorporation and bylaws, as currently
in effect.
4.2. CAPITALIZATION OF TARGET.
(a) As of the date hereof, the authorized capital stock of the Target
consists of 60,000 shares of Common Stock. As of the date of this Agreement and
the Effective Time, 10,000 shares of Target Common Stock are and shall be issued
and outstanding, all of which are entitled to vote, and no shares of Target
Common Stock were held in the Target's treasury. All the outstanding shares of
Target capital stock are and shall be duly authorized, validly issued, fully
paid and
-8-
<PAGE>
non-assessable. Except as set forth above, there are, (i) no outstanding
shares of capital stock or other voting securities of the Target, (ii) no
outstanding securities of the Target convertible into or exchangeable for
shares of capital stock or voting securities of the Target and (iii) no
outstanding options or other rights to acquire from the Target, and no
obligation of the Target to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Target (the items referred to in clauses (i), (ii) and
(iii) being referred to collectively as the "Target Securities"). There are
no outstanding obligations of the Target to repurchase, redeem or otherwise
acquire any Target Securities.
(b) All of the outstanding shares of capital stock of the Target are
and as of the Effective Time shall be beneficially owned directly by the
Shareholders, free and clear of all liens, pledge, security interests, claims or
other encumbrances.
4.3. AUTHORIZATION OF TARGET; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Target has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Target of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly authorized
by its board of directors and shareholders and no other corporate action on the
part of Target is necessary to authorize the execution and delivery by Target of
this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Target and is a
valid and binding obligation of Target enforceable in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.4. AUTHORIZATION OF SHAREHOLDERS
Each of the Shareholders has full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. None of the
Shareholders is a resident of any state that has enacted community property
statutes nor is any of the Shareholders subject to any community property
statutes. Each Shareholder has the legal capacity to enter into this Agreement
and to carry out the transactions contemplated herein, including without
limitation the legal capacity to execute, deliver and perform the agreements or
contracts, if any, required by this Agreement to be executed and delivered by
any of them. This Agreement has been duly and validly executed by each of the
Shareholders and is the valid and binding legal obligation of each of the
Shareholders enforceable against each of them in accordance with its terms.
4.5. CONSENTS AND APPROVALS; NO VIOLATIONS.
Except as disclosed in Section 4.5 of the Target Disclosure Letter or as
contemplated by this Agreement, neither the execution, delivery or performance
of this Agreement by Target and the Shareholders nor the consummation by Target
and the Shareholders of the transactions contemplated
-9-
<PAGE>
hereby will (i) violate any provision of the articles of incorporation or
bylaws of Target, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which Target or any Shareholder is a party or by which it or any of their
respective properties or assets may be bound, (iii) to the best knowledge of
Target and the Shareholders, violate any Laws, or (iv) require on the part of
Target any filing or registration with, notification to, or authorization,
consent or approval of, any Authority.
4.6. LITIGATION.
Except as disclosed in Section 4.6 of the Target Disclosure Letter, there
is no action, suit, proceeding or, to its knowledge, investigation pending or,
to its knowledge, action, suit, proceeding, audit or investigation threatened,
involving the Target, by or before any court, governmental or regulatory
authority.
4.7. COMPLIANCE WITH APPLICABLE LAWS.
To the best of knowledge of Target and the Shareholders, Target is not in
default or violation of any term, condition or provision of any statute, law,
rule, regulation, judgment, decree, order, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to Target.
4.8. FINANCIAL STATEMENTS.
Section 4.8 of the Target Disclosure Letter contains a copy of the
Target's unaudited balance sheet as of August 31, 1999 and September 30, 1999
and monthly and year to date income statements of and for the periods ending
August 31, 1999 and September 30, 1999, all such financial statements
(collectively the "Financial Statements") having been prepared by the Target's
management. Except as disclosed therein or in Section 4.8 of the Target
Disclosure Letter, the Financial Statements: (i) are in accordance with the
books and records of Target and have been prepared substantially in conformity
with GAAP consistently applied for all periods (except as stated therein or in
the notes thereto); and (ii) are true, complete and accurate in all material
respects and fairly present the financial position of Target as of the
respective dates thereof, and the income or loss for the periods then ended.
The balance sheet as of September 30, 1999 is hereinafter referred to as the
"Most Recent Balance Sheet" and the statement of income for the period ending
September 30, 1999 is hereinafter referred to as the "Most Recent Income
Statement". Except as set forth in Section 4.8 of the Target Disclosure Letter,
neither Target nor the Predecessor Company has ever prepared any balance sheet,
income statement, statement of changes in stockholders' equity or changes in
cash flow which has been audited, reviewed or compiled by any third party
auditor or accountant.
-10-
<PAGE>
4.9. ABSENCE OF UNDISCLOSED LIABILITIES.
There are no Liabilities of the Target including Liabilities which may
become known or which arise only after the Closing and which result from acts,
omissions or occurrences of the Shareholders or the Target prior to the Closing
other than: (i) Liabilities and obligations which are fully reflected or
reserved for in the Most Recent Balance Sheet; (ii) Liabilities for express
executory obligations to be performed after the Closing (other than any express
executory obligations that might arise due to any default or other failure of
performance by the Target or the Shareholders prior to the Closing Date) under
the contracts described in Sections 4.12(f), 4.12(g) and 4.15 of the Target
Disclosure Letter; and (iii) Liabilities incurred by the Target in the ordinary
course of business since the Most Recent Balance Sheet (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
Law). "Liability" or "Liabilities" means any liabilities, obligations or claims
of any kind whatsoever whether absolute, accrued or unaccrued, fixed or
contingent, matured or unmatured, asserted or unasserted, known or unknown,
direct or indirect, contingent or otherwise and whether due or to become due,
including without limitation any foreign or domestic tax liabilities or deferred
tax liabilities incurred in respect of or measured by the Target's income, or
any other debts, liabilities or obligations relating to or arising out of any
act, omission, transaction, circumstance, sale of goods or services, state of
facts or other condition which occurred or existed on or before the date hereof,
whether or not known, due or payable. The Target is not subject to any
obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any person or entity.
4.10. ABSENCE OF CERTAIN CHANGES.
Except as set forth in Section 4.10 of the Target Disclosure Letter,
since the date of the Most Recent Balance Sheet, the Target has owned and
operated its assets, properties and business in the ordinary course of business
and consistent with past practice. Without limiting the generality of the
foregoing,
(a) the Target has not experienced any change which has had a Material
Adverse Effect on the Target or experienced any event or failed to take any
action which reasonably could be expected to result in a Material Adverse Effect
on the Target or, after the Effective Time, on the Surviving Corporation;
(b) the Target has not suffered any material loss, damage, destruction
of property or assets or other casualty to property or assets (whether or not
covered by insurance); and
(c) the Target has not suffered any loss of officers, directors,
employees, dealers, distributors, independent contractors, customers or
suppliers which had or may reasonably be expected to result in a Material
Adverse Effect on the Target or the Surviving Corporation.
-11-
<PAGE>
4.11. ASSETS.
(a) Except as set forth in Section 4.11 of the Target Disclosure
Letter, the Target has good and marketable title to all of its assets and
properties whether or not reflected in the Most Recent Balance Sheet or acquired
after the date thereof, free and clear of any Lien, other than Permitted Liens.
"Permitted Liens" means (i) liens securing specific Liabilities shown on the
Most Recent Balance Sheet with respect to which no breach, violation or default
exists; (ii) mechanics', carriers', workers' or other like liens arising in the
ordinary course of business; (iii) minor imperfections of title which do not
individually or in the aggregate, impair the continued use and operation of the
real property assets and fixtures to which they relate in the operation of the
Target as currently conducted; and (iv) liens for current taxes not yet due and
payable.
(b) The Target does not own any real property. Except as set forth
Section 4.11 of the Target Disclosure Letter, all real properties leased by the
Target, are free from any structural defects, in good operating condition and
repair, with no material maintenance, repair or replacement having been deferred
or neglected, suitable for the intended use and free from other material
defects. Except as set forth in Section 4.11 of the Target Disclosure Letter,
each such real property and its present use conform in all respects to all
occupational, safety or health, zoning, planning, subdivision, platting and
similar Laws. Except as set forth in Section 4.11 of the Target Disclosure
Letter, all public utilities necessary for the use and operation of any
facilities on the aforesaid real properties are available for use or access at
such properties and there is no legal or physical impairment to free ingress or
egress from any of such facilities or real properties. Neither the Target nor
any Shareholder is a foreign person, as the term foreign person is defined in
Section 1445(f)(3) of the Code.
(c) Machinery, equipment, vehicles and other personal property used by
the Target (whether or not reflected on the Most Recent Balance Sheet or
acquired after the date thereof) are in good operating condition and repair and
fit for the intended purposes thereof, and no maintenance, replacement or repair
has been deferred or neglected.
(d) The Target owns or leases all of the assets and properties, and is
a party to all licenses and other agreements, presently used or necessary to
carry on the business or operations of the Target as presently conducted. The
Target does not own or lease any assets or properties that are not used in the
ordinary course of the Target's business. All leasehold interests relating to
real property, machinery, equipment, vehicles and other personal property are
valid and in full force and effect and enforceable in accordance with their
terms and there does not exist any violation, breach, or default thereof or
thereunder.
Upon the Closing of the transactions contemplated by this Agreement, no
Shareholder will have any claim against any of the assets of the Surviving
Corporation or Company as a result of any buy-sell, tax sharing or other similar
agreement among the Shareholders.
-12-
<PAGE>
4.12. INTELLECTUAL PROPERTY.
(a) Section 4.12 of the Target Disclosure Letter contains a listing of
all (i) patents, patent applications (collectively the "Patents"), (ii)
copyrights, copyright applications (the "Copyrights"), (iii) tradenames,
registered and common law trademarks, trademark applications (the "Trademarks"),
(iv) service marks, service mark applications (the "Service Marks"), and (v)
computer programs and other computer software, trade secrets, plans and
specifications, inventions, know-how, technology, proprietary processes and
formulae (the "Trade Secrets") necessary or used in connection with the conduct
of the business of the Target (the Patents, Copyrights, Trademarks, Service
Marks and Trade Secrets are collectively referred to as "Intellectual Property
Rights "). All issued Patents and registered Copyrights, Trademarks and Service
Marks are collectively referred to as the "Registered Intellectual Property
Rights." The Intellectual Property Rights are sufficient to conduct the
Target's business as presently conducted and as proposed to be conducted.
(b) The Target owns, has the unrestricted right to use and has sole
and exclusive possession of and has good and valid title to, or sufficient
license or other rights to, all of the Intellectual Property Rights, free and
clear of all Liens.
(c) All Registered Intellectual Property Rights are in compliance with
formal legal requirements (including the payment of filing, examination and
maintenance fees and proofs of working or use), are valid and enforceable and
are not subject to any maintenance fees or taxes or actions falling due within
90 days after the Closing Date. All Patents are valid and enforceable and no
Patents have been or are now involved in any interference, reissue,
reexamination, opposition, declaratory judgment or other invalidating
proceeding, nor, to the Shareholders' knowledge is any such action threatened
with respect to any of the Patents. No application for a potentially infringing
patent has been filed and no potentially infringing patent has been issued. No
Trademarks have been or are involved in any opposition, invalidation or
cancellation proceeding and, there is no basis for the commencement of any such
proceeding. The Trademarks are valid and enforceable and no person holds any
infringing or potentially infringing trademark and, to the Shareholders'
knowledge, no application for any infringing or potentially infringing trademark
has been made.
(d) A copy of all documentation relating to the Trade Secrets have
been furnished to the Company. Such documentation is current, accurate,
complete in all material respects and in sufficient detail and content to
explain all material aspects of the Trade Secrets and to allow its full and
proper use without reliance on the memory of others. The Trade Secrets are not
part of the public domain or literature nor have they been used, divulged or
appropriated for the benefit of any person or entity other than the Target or to
the detriment of the Target. The Target has taken reasonable measures and
precautions to protect the secrecy, confidentiality and value of the Trade
Secrets.
(e) Except as set forth in Section 4.12 of the Target Disclosure
Letter, the use of all Intellectual Property Rights necessary or required for
the conduct of the business of the Target as presently conducted and as proposed
to be conducted does not and will not infringe or violate any trade secrets,
plans and specifications, patents, copyrights, tradenames, registered and common
law trademarks, trademark applications, service marks, service mark
applications, computer programs
-13-
<PAGE>
and other computer software, inventions, know-how, technology, proprietary
processes and formulae or other intellectual property rights of any other
person or entity (the "Third Party Intellectual Property Rights"). The
Target is not using any confidential information or trade secrets of others.
(f) All agreements relating to licenses of Intellectual Property
Rights granted by or to the Target or any of the Shareholders are set forth on
Section 4.12 of the Target Disclosure Letter. All such licenses set forth in
Section 4.12 of the Target Disclosure Letter are in good standing, valid and
effective in accordance with their respective terms and there is not, under any
of such licenses, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default, or would
constitute a basis for a claim of force majeure or other claim of excusable
delay or non-performance), in each case by the Target or by any other party
thereto. There are no outstanding and, to the knowledge of the Shareholders',
no threatened disputes or disagreements with respect to any such agreement.
(g) Except as set forth in Section 4.12 of the Target Disclosure
Letter, the Target is not obligated or under any Liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any Intellectual Property Rights or Third Party
Intellectual Property Rights.
(h) Except as set forth in Section 4.12 of the Target Disclosure
Letter, all employees, contractors and consultants of the Target involved in the
technical or scientific aspects of the business of the Target have executed
written agreements with the Target which assign to the Target all rights to any
inventions, improvements, discoveries or information. No employee, contractor
or consultant of the Target has entered into any agreement which restricts or
limits in any way the scope or type of work in which such employee, contractor
or consultant may be engaged or requires such employee, contractor or consultant
to transfer, assign or disclose information concerning such employee's,
contractor's or consultant's work to anyone other than the Target.
4.13. INVENTORIES.
Except as set forth in Section 4.13 of the Target Disclosure Letter, all
work in process as of the date of the Most Recent Balance Sheet is, and as of
the Effective Time will be, valued in accordance with GAAP. Except as set forth
in the Target Disclosure Letter, all inventory of Target, whether reflected in
the Most Recent Balance Sheet or otherwise, consists of a quality and quantity
useable and saleable in the ordinary course of business.
4.14. TRADE ACCOUNTS RECEIVABLE; NOTES RECEIVABLE AND PAYABLES.
(a) Section 4.14 of the Target Disclosure Letter contains a listing of
all of the receivables, if any, of the Target. Except as set forth in Section
4.14 of the Target Disclosure Letter, (i) the Target has good right, title and
interest in and to all trade accounts receivable and notes receivable reflected
in the Most Recent Balance Sheet and those acquired and generated since the date
of the Most Recent Balance Sheet (except for those paid since the date of the
Most Recent Balance Sheet) (the "Account Receivables"); (ii) none of such
Account Receivables is subject to any Lien, other than Permitted Liens; (iii)
all of the Account Receivables owing to the Target constitute
-14-
<PAGE>
valid and enforceable claims arising from bona fide transactions in the
ordinary course of business, and there are no known claims, refusals to pay
or other rights of set-off against any thereof; (iv) no account or note
debtor is delinquent in payment by more than 30 days; (v) the aging schedule
of the Account Receivables of the Target attached to the Target Disclosure
Letter is complete and accurate; and (vi) the reserve established by the
Target on the Most Recent Balance Sheet is adequate to cover any doubtful
accounts.
(b) The Target Disclosure Letter contains a listing of all trade
accounts payable and notes payable of the Target reflected in the Most Recent
Balance Sheet and those acquired and generated since the date of the Most Recent
Balance Sheet (except for those paid since the date of the Most Recent Balance
Sheet) (the "Account Payables"). All such Accounts Payables arose from bona
fide transactions in the ordinary course of the Target's business and, except as
set forth in Section 4.14 the Target Disclosure Letter, no such Account Payable
is delinquent by more than 30 days in its payment.
4.15. CONTRACTS.
(a) Section 4.15 of the Target Disclosure Letter contains an accurate
and complete list and description of:
(i) All machinery, tools, equipment, motor vehicles, rolling
stock and other tangible personal property (other than inventory and
supplies), owned, leased or used by the Target, except for items having a
value of less than $5,000 which do not, in the aggregate, have a total
value of more than $25,000, setting forth with respect to all such listed
property a summary description of all leases, Liens, restrictions,
covenants and conditions relating thereto, identifying the parties
thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof.
(ii) All real property in which the Target has a leasehold or
other interest or which is used by Target in connection with the
operation of its business, together with a description of each lease,
sublease, license, or any other instrument under which the Target claims
or holds such leasehold or other interest or right to the use thereof or
pursuant to which the Target has assigned, sublet or granted any rights
therein, identifying the parties thereto, the rental or other payment
terms, expiration date and cancellation and renewal terms thereof.
(iii) All contracts, agreements and commitments, whether or not
fully performed, in respect of the issuance, sale or transfer of the
capital stock, bonds, options, warrants or other securities of the Target
or pursuant to which the Target has acquired any substantial portion of
its business or assets.
(iv) All contracts, agreements, commitments or understandings
that restrict the Target from carrying on its businesses or any part
thereof anywhere in the world or from competing in any line of business
with any person or entity.
-15-
<PAGE>
(v) All purchase or sale contracts or agreements that call for
aggregate purchases or sales in excess over the course of such contract
or agreement of $10,000 or which continues for a period of more than
twelve months (including without limitation periods covered by any option
to renew or extend by either party) which is not terminable on 60 days'
or less notice without cost or other Liability at or any time after the
Closing.
(vi) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee stock options or stock purchase plans and group life,
health and accident insurance other employee benefit plans, agreements,
arrangements or commitments, whether or not legally binding, including,
without limitation, holiday, vacation and other bonus practices, to which
the Target is a party or is bound or which relate to the operation of the
Target's business.
(vii) All contracts, commitments, agreements and arrangements
with any "disqualified individual" (as defined in Section 280G(c) of the
Code) which contains any severance or termination pay liabilities which
would result in a disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code.
(viii) The names and current annual salary rates of all persons
(including independent commission agents) whose annual compensation
(direct or indirect) from the Target is currently at the rate of more
than Fifty Thousand Dollars ($50,000) per annum.
(ix) The names of all of the Target's directors and officers.
(x) All contracts, agreements and commitments, whether written
or oral, relating to the sale of the Target's products, including,
without limitation, any sales representative, distributor or reseller
agreements (the "Sales Agreements").
(xi) All contracts, agreements and commitments, whether or not
fully performed, relating to or arising out of the business of the Target
and not otherwise disclosed pursuant to this Section 4.15.
(b) All contracts, agreements, leases, licenses and commitments
(the "Assumed Contracts") required to be listed on Sections 4.12(f), 4.12(g)
and 4.15 of the Target Disclosure Letter (other than those which have been
fully performed) are valid and binding, enforceable in accordance with their
respective terms, and are in full force and effect. Except as otherwise
specified in Section 4.15 of the Target Disclosure Letter, none of the
Assumed Contracts contain a provision requiring the consent of any party with
respect to the consummation of the transaction contemplated herein. The
Target is not in breach, violation or default, however defined, in the
performance of any of its obligations under any Assumed Contract, and no
facts or circumstances exist which, whether with the giving of due notice,
lapse of time, or both, would constitute such a breach, violation or default
thereunder or thereof; and no other parties thereto are in breach, violation
or default, however defined, thereunder or thereof, and no facts or
circumstances exist which, whether with the giving
-16-
<PAGE>
of due notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof. None of the Assumed Contracts
is, either when considered singly or in the aggregate with others, unduly
burdensome, onerous or materially adverse to the Target's business,
properties, assets, earnings or prospects or likely, either before, with
respect to the Target, or after, with respect to the Surviving Corporation,
the Effective Time, to result in any material loss or Liability. All of the
Sales Agreements are terminable by the Target without notice and without
Liability of any kind. None of the Assumed Contracts is subject to
renegotiation with any government body. True and complete copies of all of
the Assumed Contracts (together with any and all amendments thereto) have
been delivered to the Buyer and initialed by the Target's Secretary and
identified with a reference to this Section 4.15 of this Agreement.
4.16. ENVIRONMENTAL LAWS AND REGULATIONS.
Except as set forth in Section 4.16 of the Target Disclosure Letter, (a)
Target is in material compliance with all applicable federal, state, local and
foreign laws and regulations relating to protection of the environment
(collectively, "Environmental Laws"), except for non-compliance which would not,
individually or in the aggregate, have a Material Adverse Effect, which
compliance includes, but is not limited to, the possession by the Target of
material permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof; and
(b) Target has received no written notice of, or to the knowledge of Target, is
not the subject of, any actions, causes of action, claims, investigations,
demands, or notices by any Person alleging liability under or non-compliance
with any Environmental Law ("Environmental Claims").
4.17. TAX MATTERS.
Except as set forth in Section 4.17 of the Target Disclosure Letter:
(a) There have been properly completed and duly filed on a timely
basis and in correct form, all Tax Returns required to be filed on or prior to
the date hereof by the Target or the Shareholders with respect to Taxes of the
Target. As of the time of filing, the foregoing Tax Returns correctly reflected
the facts regarding the income, business, assets, operations, activities, status
or other matters of the Target or any other information required to be shown
thereon. There is no omission, deficiency, error, misstatement or
misrepresentation, whether innocent, intentional or fraudulent, in any Tax
Return filed by the Target for any period. Any Tax Returns filed after the date
hereof, but on or before the Closing Date, will conform with the provisions of
this subsection 4.17(b).
(b) With respect to all amounts in respect of Taxes imposed upon the
Target or the Shareholders, or for which the Target or the Shareholders are or
could be liable, whether to taxing Authorities (as, for example, under Law) or
to other persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods ending on or before
the Closing Date, all applicable Tax Laws and agreements have been or will be
fully complied with, and all such amounts of Taxes required to be paid by the
Target or the Shareholders to taxing Authorities or others on or before the date
hereof have been duly paid or will be paid on or before
-17-
<PAGE>
the Closing Date. There are no Liens for such Taxes upon any property or
assets of the Target. The Target has withheld and remitted all amounts
required to be withheld and remitted by it in respect of Taxes.
(c) Except as set forth in Section 4.17 of the Target Disclosure
Letter, neither the federal Tax Returns of the Target (and of the Shareholders
to the extent the operations of the Target are reflected in the Shareholders'
Tax Returns) nor any state or local Tax Returns of the Target have been examined
by the Internal Revenue Service or any similar state or local Authority, and,
except to the extent shown therein, all deficiencies asserted as a result of
such examinations have been paid or finally settled and no issue has been raised
by the Internal Revenue Service or any similar state or local Authority in any
such examination which, by application of similar principles, reasonably could
be expected to result in a proposed deficiency for any other period not so
examined. Except as set forth in Section 4.17 of the Target Disclosure Letter,
all deficiencies and assessments of Taxes of the Target (or any of the
Shareholders to the extent attributable to the business or operations of the
Target) resulting from an examination of any Tax Returns by any Authority have
been paid and there are no pending examinations currently being made by any
Authority nor has there been any written or oral notification to the Target or
any Shareholder of any intention to make an examination of any Taxes by any
Authority. Except as set forth in Section 4.17 of the Target Disclosure Letter,
there are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any Tax Return for any period.
(d) For purposes of computing Taxes and the filing of Tax Returns, the
Target has not failed to treat as "employees" any individual providing services
to the Target who would be classified as an "employee" under the applicable
rules or regulations of any Authority with respect to such classification.
(e) For purposes of this Agreement, the term "TAXES" means all
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, real or personal property, windfall profits,
customs, duties or other taxes, fees, assessments, charges or levies or any kind
whatever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "TAX" means any one of the
foregoing Taxes. In addition, the term "TAX RETURNS" means all returns,
declarations, reports, statements and other documents required to be filed with
any Authority in respect of Taxes, and the term "TAX RETURN" means any one of
the foregoing Tax Returns.
4.18. BENEFIT PLANS.
Except as set forth in Section 4.18 of the Target Disclosure Letter,
neither the Target nor any affiliate of the Target sponsors, maintains,
contributes to or is required to contribute to any pension, welfare,
incentive, perquisite, paid time off, severance or other benefit plan,
policy, practice or agreement subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). There are no facts or
circumstances which could, directly or indirectly, subject the Company or any
of its affiliates (including the Surviving Corporation after the Effective
Time) to any Liability of any nature with respect to any pension, welfare,
incentive, perquisite, paid time off,
-18-
<PAGE>
severance or other benefit plan, policy, practice or agreement sponsored,
maintained or contributed to by the Target or any affiliate, to which the
Target or any affiliate is a party or with respect to which the Target or any
affiliate could have any liability.
4.19. LABOR MATTERS.
Except as set forth in Section 4.19 of the Target Disclosure Letter:
(a) the Target is and has been in compliance in all material respects
with all applicable Laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such Laws respecting employment discrimination and occupational safety and
health requirements, and has not and is not engaged in any unfair labor
practice;
(b) there is no unfair labor practice complaint against the Target
pending or threatened before the National Labor Relations Board or any other
comparable Authority;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or directly affecting the Target;
(d) no labor representation question exists respecting the employees
of the Target and there is not pending or threatened any activity intended or
likely to result in a labor representation vote respecting the employees of the
Target;
(e) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims there for exist or
have been threatened;
(f) no collective bargaining agreement is binding and in force against
the Target or currently being negotiated by the Target;
(g) the Target has not experienced any significant work stoppage or
other significant labor difficulty;
(h) the Target is not delinquent in payments to any persons for any
wages, salaries, commissions, bonuses or other direct or indirect compensation
for any services performed by them or amounts required to be reimbursed to such
persons, including without limitation any amounts due under any Pension Plan,
Welfare Plan or Compensation Plan; and
(i) upon termination of the employment of any person, neither the
Target, the Company or any subsidiary or affiliate of the Company (including the
Surviving Corporation after the Effective Time) will, by reason of anything done
at or prior to or as of the Closing Date, be liable to any of such persons for
so-called "severance pay" or any other payments.
-19-
<PAGE>
4.20. PERMITS AND OTHER OPERATING RIGHTS.
Except as set forth in Section 4.20 of the Target Disclosure Letter, the
Target does not require the Consent of any Authority to permit it to operate in
the manner in which its business is presently being operated. The Target
possesses all permits, licenses and other authorizations from all Authorities
necessary to permit it to operate its business in the manner in which it
presently is conducted and the consummation of the transactions contemplated by
this Agreement will not prevent the Target from being able to continue to use
such permits and operating rights. "Consent" mans any consent, approval, order
or authorization of or from, or registration, notification, declaration or
filing with any individual or entity, including without limitation any
Authority.
4.21. INSURANCE.
Section 4.21 of the Target Disclosure Letter contains an accurate and
complete list of all policies of fire and other casualty, auto, liability,
general liability, theft, life, workers' compensation, health, directors and
officers, business interruption and other forms of insurance owned or held by
the Target. With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect in all material
respects; (ii) neither the Target nor any other party to the policy is in
material breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a material breach or default, or permit
termination, modification, or acceleration, under the policy; and (iii) no party
to the policy has repudiated any material provision thereof. Section 4.22 of
the Target Disclosure Letter also describes any material self-insurance
arrangements affecting the Target.
4.22. BANK ACCOUNTS.
Section 4.22 of the Target Disclosure Letter contains a list of the names
of all financial institutions, investment banking and brokerage houses, and
other similar institutions at which the Target maintains accounts, deposits,
safe deposit boxes of any nature, and the names of all persons authorized to
draw thereon or make withdrawals therefrom; and the names of all persons, if
any, holding tax or other powers of attorney from the Target and a summary of
the terms thereof.
4.23. ABSENCE OF CERTAIN BUSINESS PRACTICES.
Neither the Target, the Shareholders nor any director, officer, employee
or agent of the Target, nor any other person acting on behalf of the Target or
the Shareholders, has, directly or indirectly, within the past five (5) years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Target (or assist the Target in connection with any
actual or proposed transaction) which (i) might subject the Target, the
Shareholders, or the Company or any of its affiliates (including the Surviving
Corporation after the Effective Time) to any damage or penalty in any civil,
criminal or governmental litigation proceeding, (ii) if not given in the past,
might have had an adverse affect on the assets, business or operations of the
Target as reflected in the Financial Statements, or (iii) if not continued in
the future, might adversely affect the Target's assets, business,
-20-
<PAGE>
operations or prospects or which might subject the Target, the Shareholders
or the Company or any of its affiliates (including the Surviving Corporation
after the Effective Time) to suit or penalty in any private or governmental
litigation or proceeding.
4.24. ORDERS, COMMITMENTS AND RETURNS.
Except as set forth in Section 4.24 of the Target Disclosure Letter, all
accepted and unfulfilled orders for the sale of products with a customer and the
performance of services entered into by the Target and all outstanding contracts
or commitments for the purchase of supplies, materials and services were made in
bona fide transactions in the ordinary course of business. Except as set forth
in Section 4.24 of the Target Disclosure Letter, there are no claims against the
Target to return products by reason of alleged over-shipments, defective
products or otherwise, or of products in the hands of customers, retailers or
distributors under an understanding that such products would be returnable.
4.25. PRODUCTS AND WARRANTIES.
Each product manufactured, sold, leased, or delivered by the Target has
been in conformity with all applicable contractual commitments and all express
and implied warranties, and meets or exceeds the standards required by all Laws
now in effect and neither the Target nor the Shareholders know of any pending
legislation, ordinance or regulation, which if adopted, would have a Material
Adverse Effect upon the products sold by the Target. The Target does not have
any Liability (and there is no basis for any present or any future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of it giving rise to any Liability) for replacement or repair of any product
manufactured, sold, leased, or delivered by the Target or other damages in
connection therewith. No product manufactured, sold, leased, or delivered by the
Target is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. The Target Disclosure
Letter includes copies of the standard terms and conditions of sale or lease for
the Target (containing applicable guaranty, warranty, and indemnity provisions).
4.26. YEAR 2000 COMPLIANCE.
(a) Except as set forth in Section 4.26(a) of the Target Disclosure
Letter each item of hardware, software or firmware (a "System") that is, or is
part of, an asset of or any product or service designed, manufactured, sold or
provided by, or is used in connection with the business of, the Target, is Year
2000 Compliant. For purposes of this Section 4.26, "Year 2000 Compliant" means
that the System shall be able accurately to process (including without
limitation calculate, compare and sequence) date and time data from, into and
between the years 1999 and 2000 and any other years in the 20th and 21st
centuries.
(b) The Target does not know of any inability on the part of any such
supplier, customer or service provider to timely ensure that its Systems are
Year 2000 Compliant.
-21-
<PAGE>
(c) Except as disclosed in Section 4.26(c) of the Target Disclosure
Letter, the Target is not a party to or bound by any contract which contains any
representations, warranties, covenants or agreements regarding year 2000
compliance.
4.27 PRODUCT LIABILITY; AUTO LIABILITY AND WORKERS' COMPENSATION.
The Target does not have any Liability (and there is no basis for any
present or any future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of: (i) any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Target; or (ii) any injury to individuals or property as a
result of the ownership or lease by the Target of any automobile. Except as set
forth in Section 4.27 of the Target Disclosure Letter there are no open workers'
compensation claims against the Target.
4.28 CUSTOMERS.
Except as set forth in Section 4.28 of the Target Disclosure Letter, the
Target has not received any notice (written or oral) that any customer of the
Target will terminate its relationship with the Target (or, after the Effective
Time, with the Surviving Corporation) or, as the case may be, decrease its
business with the Target or, after the Effective Time, with the Surviving
Corporation, as a result of the transactions contemplated by this Agreement or
for any other reason.
4.29 TRANSACTIONS WITH CERTAIN PERSONS.
Except as set forth in Section 4.29 of the Target Disclosure Letter,
during the past three years, the Target has not, directly or indirectly,
purchased, leased or otherwise acquired any property or obtained any services
from, or sold, leased or otherwise disposed of any property or furnished any
services to, or otherwise dealt with, in the ordinary course of business or
otherwise, (i) any Shareholder or (ii) any affiliate or associate of the
Shareholders or any officer, director, member, shareholder, or partner of any
affiliate or associate of either of the Shareholders (except with respect to
compensation in the ordinary course of business for services rendered as an
officer, director or employee of the Target). The Target does not owe any
amount to, or have any agreement or contract with or commitment to, any of its
officers, directors, shareholders, employees or consultants or any affiliate or
associate thereof (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any amount to the Target. No part of
the property or assets of any Shareholder or any direct or indirect subsidiary
or affiliate or associate of any Shareholder is used by the Target.
4.30 BOOKS AND RECORDS.
The books of account, minute books, stock record books, and other records
of the Target, all of which have been made available to the Company, are
complete and correct in all material respects and have been maintained in
accordance with reasonable business practices. The minute books of the Target
contain accurate and complete records of all formal meetings held of, and
corporate action
-22-
<PAGE>
taken by, the Shareholders, the Board of Directors, and committees of the
Board of Directors of the Target. At the Closing, all of those books and
records will be in the possession of the Target.
4.31. BROKERS OR FINDERS.
Shareholders represent, as to themselves and Target, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finders' fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement.
4.32 BUSINESS GENERALLY.
Except as set forth in Section 4.32 of the Target Disclosure Letter,
there has been no event, transaction or information which has come to the
attention of the Shareholders which, as it relates directly to the business of
the Target, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Target or, after the Effective Time, the
Surviving Corporation.
4.33 ACCREDITED INVESTOR; ACCESS TO INFORMATION; FULL KNOWLEDGE.
(a) The common stock of the Company to be held by the Shareholders
after the effective time pursuant to Section 2.1(a) hereof (the "Company
Shares") will be held for each of the Shareholders own account for investment
purposes only and not with a view to any public resale, public distribution or
public offering thereof within the meaning of the Securities Act or any state
securities or Blue Sky law and such Company Shares will not be sold or otherwise
disposed of except in compliance with the Securities Act, or in reliance upon an
exemption therefrom and in compliance with any state securities or Blue Sky
laws. The Company Shares have not been registered under the Securities Act or
any state securities or Blue Sky law.
(b) Except as set forth in Section 4.33 of the Target Disclosure
Letter, the Shareholders agree that each of them is an "accredited investor"
within the meaning of Rule 501 of the Securities Act. Each of the Shareholders,
either alone or with a representative, have such knowledge and experience in
financial and business matters that the Shareholders are capable of evaluating
the merits and risks of the prospective investment in the Company Shares and are
able to bear the economic consequences thereof. In making the decision to
invest in the Company Shares, each of the Shareholders have relied upon
independent investigations made by them and, to the extent believed by the
Shareholders to be appropriate, Shareholders' representatives, including each of
the Shareholder's own professional, tax and other advisors. Each of the
Shareholders is a resident of the State of Michigan.
(c) The Shareholders and their representatives have been given a full
opportunity to examine all documents and to ask questions of, and to receive
answers from, Company and its representatives concerning the terms of the
Merger, the Shareholders' investment in the Company Shares and the business of
Company and such other information as each of the Shareholders desires in order
to evaluate an investment in the Company Shares, and all such questions have
been
-23-
<PAGE>
answered to the full satisfaction of the Shareholders. The Shareholders have
evaluated the merits and risks of an investment in the Company Shares and
have determined that the Company Shares are a suitable investment for the
Shareholders in light of each of the Shareholders' overall financial
condition and prospects. Each of the Shareholders have been furnished with
all publicly available information about Company's assets, operations, and
business activities which the Shareholders have requested and which the
Shareholders consider necessary or relevant to enable each of the
Shareholders to make a prudent decision about the sale of the Shares to
Company and the Shareholders acquisition of the Company Shares. The
Shareholders' acknowledge that they have reviewed the following reports filed
by Company with the Securities and Exchange Commission during the past 12
months pursuant to Section 13(a) of the Securities Exchange Act of 1934:
Annual Report on Form 10-K for the year ended August 31, 1998, Quarterly
Reports on Form 10-Q for the quarters ending November 30, 1998 and February
28 and May 31, 1999 and Proxy Statement for the 1999 Annual Meeting of
Shareholders.
(d) The Shareholders have not relied upon any representation or
warranty from Company or any of its directors, officers, employees, agents,
affiliates or representatives, with respect to the value of the Company Shares,
other than as set forth in the publicly available information described in this
Section 4.32. Company has not made any representation, warranty, acknowledgment
or covenant, in writing or otherwise, to the Shareholders regarding the value of
the Company Shares or the tax consequences, if any, of the Merger or of the
resale of the Company Shares by the Shareholders. Each of the Shareholders has
been advised, and are aware, that the market prices of shares of stock of
publicly traded companies fluctuate and that there can be no assurance as to the
future performance of any given securities, including shares of Company common
stock.
(e) The Shareholders acknowledge that the Company Shares may not be
transferred or assigned without complying with federal securities laws. Each
Shareholder has consented to the placing of the following legend on the
certificates for the Company Shares.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE
SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED ONLY IF A
REGISTRATION STATEMENT DESCRIBING SUCH PROPOSED TRANSACTION IS IN
EFFECT PURSUANT TO THE PROVISIONS OF THAT ACT OR IF, IN THE
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE
SATISFACTORY TO THE ISSUER OF THESE SHARES AND ITS COUNSEL, AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THAT ACT IS
AVAILABLE.
4.34. ACCURACY OF INFORMATION.
No representation or warranty made by the Shareholders in this Agreement,
the Target Disclosure Letter, or in any agreement, instrument, document,
certificate, statement or letter furnished to the Company at or prior to the
Closing by or on behalf of the Target or the Shareholders in connection with any
of the transactions contemplated by this Agreement contains any untrue statement
of material fact or omits to state a material fact necessary in order to make
the statements
-24-
<PAGE>
herein or therein not misleading in light of the circumstances in which they
are made, and all of the foregoing completely and correctly present the
information required or purported to be set forth herein or therein. There
is no material fact as of the date hereof which has not been disclosed in
writing to the Company to which the Shareholders have knowledge related to
the Target, its operations, properties, financial condition or prospects
which has a Material Adverse Effect or, to the knowledge of the Shareholders,
in the future may have a Material Adverse Effect on the Target (or, after the
Effective Time on the Surviving Corporation). The representations and
warranties contained in this Article 4 or elsewhere in this Agreement or any
document delivered pursuant hereto shall not be affected or deemed waived by
reason of the fact that the Company or its representatives knew or should
have known that any such representation or warranty is or might be inaccurate
in any respect.
ARTICLE
5.
COVENANTS
5.1. INTERIM OPERATIONS OF TARGET.
Shareholders covenant and agree to cause the Target to conduct its
operations in the ordinary and usual course of business consistent with past
practice and use all reasonable efforts to preserve intact its goodwill, keep
available the services of its present officers and key employees, and preserve
the goodwill and business relationships with suppliers, distributors, customers
and others having business relationships with it.
5.2. ACCESS TO INFORMATION.
Upon reasonable notice, the Target shall, and the Shareholders shall
cause the Target to, afford to the Company and its officers, employees,
accountants, counsel and other representatives, access, during normal business
hours during the period prior to the earlier of the Effective Time or the date
of termination of this Agreement, to all its properties, books, contracts,
commitments and records. Unless otherwise required by law and until the
Effective Time the Company will hold any such information which is non-public in
confidence and, in the event of termination of this Agreement, shall return all
copies of such information and all analyses based thereon to the Target and
shall not use such information for any purpose whatsoever.
5.3. NO SOLICITATION.
(a) Until the Effective Time or termination of this Agreement,
whichever shall first occur, the Target and Shareholders will not, and the
Shareholders will use all reasonable efforts to cause any officers, directors,
employees, attorneys or other agents retained by the Target not to, (i) initiate
or solicit, directly or indirectly, any inquiries or the making of any
Acquisition Proposal (as hereinafter defined), or (ii) engage in negotiations or
discussions with, or furnish any information or data to any third party relating
to an Acquisition Proposal (other than the transactions contemplated hereby).
-25-
<PAGE>
(b) For purposes of this Agreement, "Acquisition Proposal" shall mean
any bona fide proposal made by a third party to acquire (i) beneficial ownership
of a 10% or greater equity interest in the Target pursuant to a merger,
consolidation or other business combination, sale of shares of capital stock,
tender offer or exchange offer or similar transaction involving the Target
including, without limitation, any single or multi-step transaction or series of
related transactions which is structured in good faith to permit such third
party to acquire beneficial ownership of a 10% or greater equity interest in the
Target or (ii) all or substantially all of the business or assets of the Target
(other than the transactions contemplated by this Agreement).
5.4 TAX MATTERS.
(a) No new elections with respect to Taxes, or any changes in current
elections with respect to Taxes, will be made by the Target after the date of
this Agreement.
(b) The Target is not and has not been a "United States Real Property
Holding Corporation" within the meaning of Internal Revenue Code Section
897(c)(2) and the Target will issue a statement dated not more than thirty (30)
days prior to the Closing Date to that effect to the Company which conforms to
Treasury Regulation Sections 1.445-2(c)(3) and 1.897-2(h) and allows the Company
to avoid any withholding pursuant to Internal Revenue Code Section 1445 in
connection with the transactions contemplated by this Agreement.
(c) The Shareholders and the Company will: (i) each provide the other,
and the Company will cause the Surviving Corporation to provide the
Shareholders, with such assistance as may reasonably be requested by any of them
in connection with the preparation of any Tax Return, audit or other examination
by any taxing authority or judicial or administrative proceedings relating to
liability for Taxes; (ii) each retain and provide the other, and the Company
will cause the Surviving Corporation to retain and provide the Shareholders,
with any records or other information which may be relevant to such Tax Return,
audit or examination, proceeding or determination; and (iii) each provide the
other with any final determination of any such audit or examination, proceeding
or determination that affects any amount required to be shown on any Tax Return
of the other for any period.
(d) Without limiting the generality of the foregoing, the Company will
retain, and will cause the Surviving Corporation to retain, and the Shareholders
will retain, until the applicable statutes of limitations (including any
extensions) have expired, copies of all Tax Returns, supporting work schedules
and other records or information which be relevant to such returns for all tax
periods or portions thereof ending before or including the date hereof and will
not destroy or otherwise dispose of any such records without first providing the
other party with a reasonable opportunity to review and copy the same. The
Shareholders will request that records in the possession of their accountants be
retained by them for the customary retention period established by the firm (but
in no event less than ten (10) years) and that such records be made available to
the Company upon its request.
(e) Except as provided herein below, the Target and the Shareholders
will exercise complete control over the handling, disposition and settlement of
any governmental inquiry,
-26-
<PAGE>
examination or proceeding (at their sole cost and expense) that could result
in a determination with respect to Taxes due or payable by the Company or the
Target. The Shareholders will promptly notify the Company if, in connection
with any such inquiry, examination or proceeding, any government authority
proposes in writing to make any assessment or adjustment with respect to
items of Taxes of the Target, which assessments or adjustments could affect
the Target following the date hereof or the Surviving Corporation after the
Effective Time, and will consult with the Company with respect to any such
proposed assessment or adjustment. The Company will notify Shareholders in
writing promptly upon learning of any such inquiry, examination of
proceeding. The Shareholders will not enter into any settlement or litigation
with respect to an inquiry, examination or proceeding without the prior
written consent of the Company, which consent will not be unreasonably
withheld. In the event the Shareholders are not diligent or reasonable in
their handling, disposition or settlement of any such governmental inquiry,
examination or proceeding, Company will have the right, at Shareholders'
expense, to pursue any and all remedies and actions available to it relating
to such governmental inquiry, examination or proceeding and Shareholders will
no longer exercise any control over such governmental inquiry, examination or
proceeding.
(f) The Company and the Surviving Corporation will file and control
any Tax Returns required to be filed by the Surviving Corporation for periods
beginning on or after the Closing Date. The Shareholders agree that they will
provide, and will cause their accountants and other representatives to provide,
to the Company on a timely basis the information, including but not limited to
all work papers and records relating to the Target, that it or the accountants
or other representatives have within their control and that may be reasonably
necessary or related to: (i) the preparation of any and all Tax Returns,
information returns and reports required to be filed by the Company or the
Surviving Corporation with governmental agencies; and (ii) audits or other tax
determinations or proceedings by or before such agencies, such information to be
provided in the form in which it has in the past been maintained by the Target,
the Shareholders, their respective accountants or other representatives.
5.5 CONFIDENTIALITY AND PUBLICITY.
The Shareholders, Target and the Company shall maintain the
confidentiality of this Agreement except as described in this Section 5.5. The
initial press release with respect to the execution of this Agreement shall be a
joint press release acceptable to the Representative and the Company.
Thereafter, so long as this Agreement is in effect, none of the Shareholders,
the Target, the Company nor any of their respective affiliates shall issue or
cause the publication of any press release or other announcement with respect to
the Merger, this Agreement or the other transactions contemplated hereby without
the prior consultation of the other party, except as may be required by law or
by any listing agreement with a national securities exchange.
5.6 APPROVALS AND CONSENTS; COOPERATION.
The parties hereto shall use all reasonable efforts, and cooperate with
each other, to obtain as promptly as practicable all governmental and third
party authorizations, approvals, consents or waivers, required in order to
consummate the transactions contemplated by this Agreement, including, without
limitation, the Merger.
-27-
<PAGE>
5.7 AGREEMENTS REGARDING STOCK OPTIONS.
(a) The Shareholders, directors and employees of the Surviving
Corporation shall be eligible to participate in the Nicollet Process
Engineering, Inc. 1995 Amended and Restated Stock Incentive Plan (the "Plan").
Pursuant to the Plan:
(i) At the Closing, the Company shall grant to each Shareholder
options to acquire 81,572 shares of common stock of the Company (an
aggregate of 326,288 shares of common stock of the Company), at a price
of 85 cents per share. The options shall be subject to the terms and
conditions of the Plan, and shall vest evenly each quarter over a five
year period following the date of Closing; provided, however, that the
options shall not be exercisable with respect to any shares unless the
Shareholder continues to be employed by the Company or an affiliate of
the Company on the second anniversary of the date of Closing.
(ii) In addition to the options to be granted pursuant to
Section 5.7(a)(i), options shall be issued to the Shareholders granting
to each of them the right to purchase up to 81,572 shares of the
Company's common stock (an aggregate of 326,288 shares of common stock of
the Company) at a price of 85 cents per share. The grant of options for
such additional shares will be conditioned upon the performance of the
Surviving Corporation as compared to a three-year business plan that has
been approved by the board of directors of the Target and the Company.
Such additional options shall be granted in amounts up to 108,763 shares
per year for each of the three years of the business plan. The options
shall be earned based upon achieving revenue projection goals as follows:
- 25% of annual allotment if the Surviving Corporation
achieves 112.5% of Revenue Projection;
- 50% of annual allotment if the Surviving Corporation
achieves 125% of Revenue Projection;
- 75% of annual allotment if the Surviving Corporation
achieves 137.5% of Revenue Projection; and
- 100% of annual allotment if the Surviving Corporation
achieves 150% of Revenue Projection.
"Revenue Projection" shall have the meaning set forth on Exhibit
5.7(a)(ii) hereto.
All options granted pursuant to this paragraph shall be granted
equally to the Shareholders of Target. Options not earned in any year
shall expire.
(iii) Options to purchase an aggregate of up to 291,286 shares of
the Company's common stock at a price equal to the Fair Market Value of
the Common Stock (as defined in the Plan) at the time such options are
issued shall be issued to the persons named on
-28-
<PAGE>
Exhibit 5.7(a)(iii) within 60 months following the Effective Time. The
Company's board of directors shall act in accordance with the directions
received by the Shareholder Representative when determining the number
of option shares granted to each of the persons named on Exhibit
5.7(a)(iii). The options granted pursuant to this Section 5.7(a)(iii)
shall be subject to terms and conditions as specified by the Company's
board of directors acting in accordance with the directions received by
the Shareholder Representative at the time such options are issued.
(iv) Options to purchase 5,000 shares (an aggregate of 35,000
shares) of the Company's common stock at a price equal to 85 cents per
share shall be issued to each of the seven persons named on Exhibit
5.7(a)(iv) by the Company's board of directors, acting in accordance with
the directions received by the Shareholder Representative. Such options
shall be subject to terms and conditions as specified by the Company's
board of directors acting in accordance with the directions received by
the Shareholder Representative at the time such options are issued. To
the extent that options to purchase shares of the Company's common stock
are not granted by the Company's board of directors hereunder, the number
of options shares not so granted shall be added to the options shares
under Section 5.6(b)(iii).
(b) The Company shall reserve for issuance pursuant to the options to
be granted under Section 5.7 (a) and (b), 978,862 shares of its common stock and
shall take such action as is necessary to assure the issuance of its common
shares on the valid exercise of such options.
5.8. COMPANY LOANS.
At the Effective Time, the Company shall make available to the Surviving
Corporation working capital loans in amounts up to and including $750,000 (this
maximum amount includes, and is not in addition to, any amounts advanced to the
Target by the Company prior to the Effective Time). All loans made to the
Surviving Corporation will bear interest at the annual rate of 9% simple. All
loans will be payable upon demand of the Company. At the request of the
Company, the Surviving Corporation will issue a promissory note made payable to
the Company (or its assignee) on terms consistent with the foregoing as evidence
of such indebtedness.
5.9. BONUS PLAN.
The parties agree that the Surviving Corporation shall establish a bonus
plan for the Shareholders providing for the award of annual cash bonuses based
upon achievement of revenues and profits set forth in annual budgets approved by
the Surviving Corporation's board of directors and the Company. Each
Shareholder will be eligible to participate in such bonus plan so long as such
Shareholder remains employed by the Surviving Corporation. All bonuses earned
pursuant to such bonus plan will be in amounts up to 40% of each such
Shareholder's base salary and shall be payable on a quarterly basis.
-29-
<PAGE>
5.10. FURTHER ASSURANCES.
Each of the parties hereto agrees to use their respective commercially
reasonable best 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
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, the Merger, which
efforts shall include, without limitation, the execution and delivery of such
further instruments and documents as may be reasonably requested by the other
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby.
5.11 EMPLOYMENT AGREEMENT.
The employment agreements between each of the Shareholders and Target
will expire 60 days following the Closing Date, notwithstanding the express
provisions of such agreements. Within 60 days following the Closing Date, the
Surviving Corporation and the Shareholders shall enter new employment
agreements, the terms and conditions of which shall be negotiated and agreed
upon in good faith by the Shareholders, the Company and the Surviving
Corporation.
ARTICLE
6.
CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction (or, if permissible, waiver by the party for whose
benefit such conditions exist) at or prior to the Effective Time of the
following conditions:
(a) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect, and no Law shall have been enacted, entered,
promulgated or enforced by any Authority which prohibits, restricts or makes
illegal the consummation of the Merger, PROVIDED, HOWEVER, that the parties
shall have used their commercially reasonable best efforts to prevent any rule,
regulation, injunction, decree or other order, and to appeal as promptly as
possible any injunction, decree or other order that may be entered;
(b) the filing of a Certificate of Merger with the Secretary of State
of the State of Michigan and the filing of Articles of Merger with the Secretary
of State of the State of Minnesota;
(c) all authorizations, approvals or consents required to permit the
consummation of the Merger shall have been obtained and be in full force and
effect; and
(d) No suit, action, investigation, inquiry or other proceeding by any
Authority or other person or entity will have been instituted or threatened
which delays or questions the validity or legality of the transactions
contemplated hereby or which, if successfully asserted, would
-30-
<PAGE>
individually or in the aggregate, otherwise have a Material Adverse Effect on
Target's, or, after the Effective Time, the Surviving Corporation's,
business, financial condition, prospects, assets or operations.
6.2. CONDITIONS TO THE OBLIGATIONS OF THE TARGET AND THE SHAREHOLDERS.
The obligations of the Target and Shareholders to effect the Merger are
subject to the satisfaction (or waiver by the Representative and Target) at or
prior to the Effective Time of the following further conditions:
(a) the delivery to the Shareholders of certificates representing an
aggregate of 704,345 shares of the Company's Common Stock, and options to
acquire an aggregate 326,288 shares of the Company's Common Stock pursuant to
Section 5.7(a)(i).
(b) the representations and warranties of Company and the Merger Sub
contained in Article 3 shall be true and accurate as of the Effective Time as if
made at and as of such time;
(c) each of the Company and the Merger Sub shall have performed in all
material respects all of the respective obligations hereunder required to be
performed by the Company or the Merger Sub, as the case may be, at or prior to
the Effective Time;
(d) the Shareholders will have received from Oppenheimer, Wolff &
Donnelly LLP, counsel to the Company, dated the Closing Date, substantially in
the form and substance as set forth in Exhibit 6.2(d) hereto;
(e) Target shall have received a certificate signed by two executive
officers of the Company, dated as of the Closing Date, to the effect that, to
the best of such officers' knowledge, the conditions set forth in Section 6.2(b)
and Section 6.2(c) have been satisfied; and
(f) there shall not have been any material adverse change in the
business, financial condition or results of operations of the Company from the
date hereof to the Closing Date.
6.3. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company and the Merger Sub to effect the Merger
are subject to the satisfaction (or waiver by the Company) at or prior to the
Effective Time of the following further conditions:
(a) the delivery to the Company of the Certificates;
(b) the representations and warranties of the Target and the
Shareholders contained in Article 4 shall be true and accurate as of the
Effective Time as if made at and as of such time;
-31-
<PAGE>
(c) the Target and Shareholders shall have performed in all material
respects all of the obligations hereunder required to be performed by the Target
and Shareholders at or prior to the Effective Time;
(d) the Company shall have received a certificate signed by the
Representative and an executive officer of the Target, dated as of the Closing
Date, to the effect that, to the best of the Representative's and such executive
officer's knowledge, the conditions set forth in Section 6.3(b) and Section
6.3(c) have been satisfied; and
(e) there shall not have been any material adverse change in the
business, financial condition or results of operations of the Target since the
Most Recent Balance Sheet.
(f) Company will have received from Varnum, Riddering, Schmidt &
Howlett, counsel to Target, dated the Closing Date, substantially in the form
and substance as set forth in Exhibit 6.3(e) hereto;
(g) The Shareholders will have caused the Target to terminate all
outstanding stock options, warrants, convertible securities and other rights to
acquire capital stock of the Target; and
(h) The Company will have received all information requested by it
pursuant to Section 5.2 of this Agreement.
ARTICLE
7.
TERMINATION
7.1 TERMINATION.
Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and the Merger contemplated herein may be abandoned
at any time prior to the Effective Time:
(a) By the mutual consent of the Company, Shareholders, Target and the
Merger Sub.
(b) By either the Company, on the one hand, or the Target and the
Shareholders, on the other hand:
(i) if the Effective Time shall not have occurred on or prior
to October 31, 1999; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 7.1 (b)(i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Merger to occur on
or prior to such date;
(ii) if any Authority shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their respective
-32-
<PAGE>
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable.
(b) By the Target and the Shareholders if the Company or the Merger
Sub (i) breaches or fails in any material respect to perform or comply with any
of their material covenants and agreements contained herein or (ii) breaches its
representations and warranties in any material respect such that the conditions
set forth in Section 6.1 or Section 6.2 would not be satisfied; PROVIDED,
HOWEVER, that if any such breach is curable by the breaching party through the
exercise of the breaching party's commercially reasonable best efforts and for
so long as the breaching party shall be so using its commercially reasonable
best efforts to cure such breach, the Shareholders may not terminate this
Agreement pursuant to this Section 7.1 (c).
(d) By Company if the Target or Shareholders (i) breaches or fails in
any material respect to perform or comply with any of its material covenants and
agreements contained herein or (ii) breaches its representations and warranties
in any material respect such that the conditions set forth in Section 6.1 or
Section 6.3 would not be satisfied; PROVIDED, HOWEVER, that if any such breach
is curable by the Target or the Shareholders through the exercise of the
Target's or Shareholders' commercially reasonable best efforts and for so long
as the Target or Shareholders shall be so using their respective commercially
reasonable best efforts to cure such breach, Company may not terminate this
Agreement pursuant to this Section 7.1 (d).
7.3. EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in Section
7.1, written notice thereof shall forthwith be given to the other party or
parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall forthwith become null and void, and there shall
be no liability on the part of the Shareholders, the Target, the Merger Sub or
the Company or their respective directors, officers, employees, shareholders,
representatives, agents or advisors other than, with respect to the
Shareholders, the Target and the Company, the liability for willful breach of
this Agreement.
ARTICLE
8.
RELEASE
The Shareholders hereby release the Company the Merger Sub and their
respective subsidiaries (including the Surviving Corporation after the Effective
Time), officers, directors, shareholders, employees and affiliates
(collectively, the "Released Parties") of and from any and all claims,
complaints, causes of action or demands of whatever kind, known or unknown
(collectively, the "Claims"), which any of the Shareholders has or may have as
of, or prior to the Effective Time, against the Released Parties for any
actions, conduct, decisions, behavior or events relating to or arising out of
any of the Shareholders' status or relationship as an employee, officer,
director or shareholder of the Target. The Shareholders understand that this
release extends to, but is not limited to, Claims for breach of contract, breach
of any express or implied promise, retaliation,
-33-
<PAGE>
breach of public policy, negligence, intentional infliction of emotional
distress, defamation or any other tortious conduct or any Claims under the
federal or state securities laws.
ARTICLE
9.
MISCELLANEOUS
9.1. AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended, modified and
supplemented in any and all respects by written agreement of the parties hereto,
by action taken by their respective Boards of Directors, at any time prior to
the Closing Date with respect to any of the terms contained herein.
9.2. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Agreement or in any
schedule, instrument or other document delivered pursuant to this Agreement
shall survive the Effective Time or the termination of this Agreement. This
Section 9.2 shall not limit any covenant or agreement contained in this
Agreement which by its terms contemplates performance after the Effective Time.
9.3. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (which is confirmed)
or sent by an overnight courier service, such as Federal Express, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Company or the Merger Sub, to:
Roy Garcia
TECHinspirations
2665 South Bayshore Drive, Suite PH2B
Coconut Grove, FL 33133
Telecopy No.: (305) 913-3306
with a copy to:
Thomas Letscher, Esq.
Oppenheimer Wolff & Donnelly, LLP
Plaza VII Building
45 South 7th Street, Suite 3400
Minneapolis, MN 55402-1609
Telephone No.: (612) 607-7000
Telecopy No.: (612) 607-7100
and
-34-
<PAGE>
(b) if to the Target or Shareholders, to:
William Klco
60 Monroe Center, N.W., Suite 8A
Grand Rapids, Michigan 49503
Telephone No.: (616) 233-1319
Telecopy No.: (616) 456-5250
with a copy to:
Robert Diamond, Esq.
Varnum, Riddering, Schmidt & Howlett
333 Bridge St., N.W., Suite 1700
Telephone No.: (616) 336-6000
Telecopy No.: (616) 336-7000
9.4. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
9.5. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES.
This Agreement (including the documents and the instruments referred to
herein) constitutes the entire agreement and supersedes all prior agreements and
understandings, including, without limitation, all representations and
warranties made by the parties in connection herewith, both written and oral,
among the parties with respect to the subject matter hereof. This Agreement
shall be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended or shall confer upon
any other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
9.6. SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void,
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
9.7. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the
laws of the State of Minnesota without giving effect to the principles of
conflicts of law thereof or of any other jurisdiction.
9.8. SPECIFIC PERFORMANCE.
-35-
<PAGE>
Each of the parties hereto acknowledges and agrees that in the event of
any breach of this Agreement, each non-breaching party would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that the parties hereto (a) will waive, in any action for
specific performance, the defense of adequacy of a remedy at law and (b) shall
be entitled, in addition to any other remedy to which they may be entitled at
law or in equity, to compel specific performance of this Agreement in any action
instituted in a court of competent jurisdiction.
9.9. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective permitted
successors and assigns.
9.10. EXPENSES.
All costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not any of the transactions
contemplated hereby is consummated, it being understood that upon consummation
of the Merger, all of the expenses of Target, up to a maximum of $25,000 shall
be paid by the Surviving Corporation. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby of Target in excess of $25,000 shall be paid by the
Shareholders.
9.11. HEADINGS.
Headings of the Articles and Sections of this Agreement are for
convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.
9.12. WAIVERS.
Except as otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligation, covenant, agreement or condition herein
may be waived by the party or parties entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
IN WITNESS WHEREOF, Target, the Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
-36-
<PAGE>
NICOLLET PROCESS ENGINEERING, INC.
By:
---------------------------------------------
Evros Psiloyenis
Its: President
KNOWLEDGEWARE SOLUTIONS, INC.
By:
---------------------------------------------
Its:
---------------------------------------------
KNOWLEDGEWARE ACQUISITION CORP.
By:
--------------------------------------------
Evros Psiloyenis
Its: President
SHAREHOLDERS:
- --------------------------------- ------------------------------------
William Klco Kathy McFadden
- --------------------------------- ------------------------------------
Steven Gauld Dane Powell
-37-
<PAGE>
EXHIBIT 2.2(a)
The number of shares of Company's Common Stock to be issued to each of the
respective Shareholders is as follows
<TABLE>
<CAPTION>
----------------------------------------
Name Shares
to be issued
----------------------------------------
<S> <C>
William Klco 335,409
----------------------------------------
Steven Gauld 223,629
----------------------------------------
Kathy McFadden 111,780
----------------------------------------
Dane Powell 33,527
----------------------------------------
</TABLE>
<PAGE>
EXHIBIT 5.7(a)(ii)
The following revenue projections shall be used for purposes of Section
5.7(a)(ii):
September 1, 1999 through August 31, 2000 total revenue target $1,309,191
September 1, 2000 through August 31, 2001 total revenue target $3,784,760
September 1, 2001 through August 31, 2002 total revenue target $7,368,939
-2-
<PAGE>
EXHIBIT 5.7(a)(iv)
Cynthia Peterson
Janese Branski
Conan Venus
Dale Richardson
Heath Cleland
Thomas O'Brien
Bryan Cote
-3-
