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 193.
Date of Report: December 23, 1996
AMBASSADORS INTERNATIONAL, INC.
-------------------------------
(Exact name of the registrant
as specified in its charter.)
Delaware
--------------------------------
(State or other jurisdiction
of incorporation)
33-93586
--------------------------------
(Commission File Number)
91-1688605
--------------------------------
(IRS Employer I.D. Number)
Dwight D. Eisenhower Building
110 S. Ferrall St.
Spokane, Washington 91101-2203
--------------------------------
(509) 534-6200
--------------------------------
Registrant's telephone number,
including area code
N/A
--------------------------------
(Former name or former address,
if changed from last report)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
---------------------------------------------
On December 23, 1996, Ambassadors International, Inc. ("Ambassadors")
completed the acquisition of all of the outstanding shares of
Bitterman & Associates, Inc. ("BAI"), pursuant to an Agreement and
Plan of Merger by and among Ambassadors, Ambassadors Performance
Improvement, Inc., a Delaware corporation and wholly owned subsidiary
of Ambassadors ("API"), BAI and Michael H. Bitterman, a 45.48%
shareholder in BAI ("Bitterman"). The aggregate purchase price for
all outstanding shares in BAI consists of (i) $(1,250,000 in cash,
which will be paid out of Ambassadors working capital, and (ii)
138,857 shares of Ambassadors' common stock valued at $9.00 per share
(the "Ambassadors Shares"). As a consequence of the acquisition, BAI
merged with and into API (the "Merger").
BAI, based in Minnesota, is a corporate incentive/performance
improvement company. It designs programs for corporations aimed at
increasing the performance of their personnel.
In connection with the Merger, Ambassadors entered into a consulting
agreement and noncompetition agreement with Bitterman. The consulting
agreement and the noncompetition agreement each expire on December 23,
2004. Additionally, Ambassadors agreed to file a registration
statement on Form S-3 to register the Ambassadors Shares by September
23, 1997. Bitterman and the other shareholders of BAI further agreed
that they will not sell in the aggregate more than 15,000 of the
Ambassadors Shares in any month until December 23, 1998.
The Merger is being accounted for as a purchase transaction.
Item 7. Financial Statements and Exhibits.
-------------------------------------------
(a) Financial statements of businesses acquired.
Financial statements are not being filed with this report on Form
8-K, but Ambassadors will file such financial statements as an
amendment to this Form 8-K on or before March 7, 1997.
(b) Pro forma financial information.
Pro forma financial information is not being filed with this
report on Form 8-K, but Ambassadors will file such pro forma
financial information as an amendment to this Form 8-K on or
before March 7, 1997.
(c) Exhibits.
2.5 Agreement and Plan of Merger, effective as of December 11, 1996
by and among Ambassadors International, Inc., a Delaware
corporation ("Ambassadors), Ambassadors Performance Improvement,
Inc., a Delaware corporation and wholly owned subsidiary of
Ambassadors, Bitterman & Associates, Inc., a Minnesota corporation
and Michael H. Bitterman.
<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 duly authorized.
AMBASSADORS INTERNATIONAL, INC.
Date: January 3, 1997 /s/John A. Ueberroth
-----------------------------------
John A. Ueberroth, President
<PAGE>
EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), effective
as of this 11th day of December 1996 by and among Ambassadors
International, Inc., a Delaware corporation ("AII"), Ambassador
Performance Improvement, Inc., a Delaware corporation wholly-owned by
AII ("API"), Bitterman & Associates, Inc., a Minnesota corporation
(the "Corporation"), and Michael H. Bitterman ("Bitterman"), with
reference to the following facts:
A. Bitterman is the beneficial and record owner of
approximately 45.48% of the issued and outstanding shares (the
"Shares", as further defined in Section 4.4), of the capital stock of
the Corporation.
B. AII is the beneficial and record owner of all of the issued
and outstanding shares of the capital stock of API.
C. The respective Boards of Directors of AII and the
Corporation deem it advisable and in the best interest of AII and the
Corporation, and their respective shareholders, that the Corporation
be merged with and into API (the "Merger"), upon the terms and subject
to the conditions set forth in this Agreement.
D. As a part of the Merger transaction, the shareholders of the
Corporation will receive, in exchange for their shares of common stock
of the Corporation, $2,500,000 in cash and common stock of AII upon
the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER; EFFECTIVE TIME OF
MERGER. Subject to Articles 7 and 8 of this Agreement, the Merger
shall be deemed effective as of the actual Closing Date (as defined in
Section 9.1) and API and the Corporation will cause Articles of
Merger, in substantially the form of the attached Exhibit 1.1 (the
"Articles of Merger"), to be signed, verified and delivered to the
Secretary of States of Minnesota and Delaware as provided in the
Minnesota Business Corporation Act and the Delaware General
Corporation Law, on or before the Closing Date. The closing of the
Merger shall be the close of business on the date the Articles of
Merger are accepted for filing with the Minnesota Secretary of State.
On the Closing Date, the separate existence of the Corporation shall
cease and the Corporation shall be merged with and into API. API,
which shall be the party surviving the Merger, is sometimes referred
to herein as the "Surviving Corporation", and as such, as provided
under the provisions of this Agreement and under Minnesota law, will
succeed to all rights, assets, liabilities and obligations of both the
Corporation and API.
<PAGE>
1.2 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of API, as in effect on the Closing Date, shall be and,
until further amended as provided by law, continue to be the
Certificate of Incorporation of the Surviving Corporation.
1.3 BYLAWS. The Bylaws of API, as in effect on the Closing Date
shall be and, until duly amended as therein provided, continue to be
the Bylaws of the Surviving Corporation.
1.4 DIRECTORS. The members of the Board of Directors of API
immediately prior to the Closing Date shall constitute the Board of
Directors of the Surviving Corporation on the Closing Date until their
successors shall have been duly elected and qualified as provided in
the Bylaws of the Surviving Corporation.
1.5 OFFICERS. The officers of API in office on the Closing Date
shall, after the Closing Date, constitute the officers of the
Surviving Corporation until their successors shall have been duly
elected and qualified as provided in the Bylaws of the Surviving
Corporation.
1.6 EFFECT OF MERGER. At the Closing Date, subject to any
limitations or other provisions of any statutory or common law
applicable to the transactions contemplated in this Agreement, the
separate existence of API and of the Corporation shall cease, and the
Surviving Corporation shall possess all the rights, privileges,
immunities, powers and franchises of a public and of a private nature
being subject to all of the restrictions, disabilities, liabilities
and duties of API and the Corporation, the rights, privileges, powers
and franchises and immunities of API and the Corporation, all property
(whether real, personal or mixed) and all debts due on whatever
account, as well as stock subscriptions and all other things in action
or belonging to or due to the Corporation or API shall be vested in
the Surviving Corporation without further act or deed; and the title
to any real estate, or any interest therein, vested in the Corporation
and API shall not revert or be in any way impaired by reason of the
Merger.
1.7 FURTHER ASSURANCES. If, at any time after the Closing Date,
the Surviving Corporation shall reasonably decide that any further
assignments, assumptions or assurances in law or any other things are
necessary or desirable to vest, perfect or confirm of record or
otherwise, in the Surviving Corporation, title to any property or
right of API or the Corporation acquired or to be acquired by reason
or as a result of the Merger, the proper officers and directors of the
Surviving Corporation shall, in the name of API or the Corporation, as
the case may be, execute and deliver all deeds, assignments and
assurances in law and do all things reasonably necessary or proper to
vest, perfect and confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the terms and
conditions of this Agreement.
<PAGE>
ARTICLE 2
CONVERSION OF SHARES, RIGHTS
AND CONTINGENT COMMISSIONS
2.1 CONVERSION OF SHARES; MERGER AMOUNT. At the Closing (as
defined in Section 9.1), by virtue of the Merger, the 84,620.0063
issued and outstanding Shares, $1.00 par value, shall automatically
convert into the right of the shareholders of the Corporation (the
"Shareholders") to simultaneously receive, from AII and/or API, the
sum of $2,500,000 (such sum is referred to as the "Merger Amount") as
follows: (a) the Shares held by the Corporation's Employees Stock
Ownership Trust (the "ESOP") shall convert into the right to receive
in cash an amount equal to the product of (i) the Merger Amount, and
(ii) a fraction, the numerator of which is the number of Shares held
by the ESOP and the denominator of which are the number of Shares
issued and outstanding as of the Closing Date, and (b) the Shares held
by all Shareholders of the Corporation other than the ESOP shall
convert into the right to receive the following: (i) shares of common
stock of AII ("AII Common Stock") having a value of fifty percent
(50%) of the Merger Amount (as such value is determined pursuant to
Section 2.2), and (ii) cash in an amount equal to fifty percent (50%)
of the Merger Amount less the amount to be received on the Shares held
by the ESOP (which amount is described in clause (a) of this
Section 2.1).
2.2 VALUATION OF SHARES OF AII COMMON STOCK. For purposes of
Section 2.1, the shares of AII Common Stock to be delivered shall be
valued on the Closing Date at the average of the closing price for
such shares for each of the thirty (30) trading days preceding the
Closing Date.
2.3 DELIVERY OF MERGER AMOUNT. At the Closing, the stock
certificates representing the Shares shall be automatically canceled,
and the Shareholders shall deliver to AII or API all such stock
certificates. Upon delivery of such certificates, AII shall at the
Closing deliver to the Shareholders the cash portion of the Merger
Amount payable at the Closing. Certificates evidencing the portion of
the common stock of AII to be issued to the Shareholders other than
the ESOP as of the Closing Date shall be delivered within ten (10)
days of the Closing Date.
ARTICLE 3
OTHER AGREEMENTS
3.1 CONSULTING AGREEMENT. At the Closing, the Surviving
Corporation (and AII as the guarantor of the Surviving Corporation's
obligations thereunder) and Bitterman shall enter into a Consulting
Agreement ("Consulting Agreement") in the form of Exhibit 3.1 attached
hereto.
3.2 NON-COMPETITION AGREEMENT. At the Closing, the Surviving
Corporation (and AII as the guarantor of the Surviving Corporation's
obligations thereunder) and Bitterman shall enter into a Non-
Competition Agreement ("Non-Competition Agreement") in the form of
Exhibit 3.2 attached hereto.
<PAGE>
3.3 EMPLOYMENT AGREEMENTS. On or before the Closing Date, the
Corporation or Bitterman shall cause the termination of that certain
Amended and Restated Employment Agreement between the Corporation and
Bitterman dated May 14, 1996 ("Bitterman Employment Agreement"). All
other existing employment agreements of the Corporation shall be
deemed assumed by the Surviving Corporation upon Closing subject to
the existing terms and conditions thereof and/or such other or
additional terms and conditions, if any, as API and any affected
employee may mutually agree.
3.4 RESIGNATIONS. At the Closing, Bitterman shall cause the
directors and officers of the Corporation and La Crosse Travel
& Tours, Inc. (the "Subsidiary") to resign as directors and officers
of the Corporation and the Subsidiary, respectively, effective as of
the Closing Date; provided, however, that, except for Bitterman, no
such resignation shall in any way affect, limit, alter or modify any
of the Surviving Corporation's obligations or any employee's rights
under the terms and conditions of any employment agreement in
existence on the Closing Date naming any such director or officer as
employee, except to the extent as may hereafter be otherwise
separately agreed by API and the affected employee.
3.5 INVESTMENT REPRESENTATIONS. Concurrent with the execution
of this Agreement, Bitterman and all other Shareholders who are
entitled to receive AII Common Stock as part of the Merger shall
execute and deliver to AII investment representations in the form of
Exhibit 3.5 attached hereto.
3.6 ESOP. Prior to or concurrent with the Closing, the
Corporation shall terminate the ESOP. AII and API hereby specifically
acknowledge and agree that, notwithstanding such termination, upon
Closing, the Surviving Corporation shall automatically become the
administrator of the ESOP and shall, following the Closing Date, fully
cooperate with the ESOP trustees to complete the liquidation of the
ESOP in due course.
3.7 OPTION AGREEMENTS AND STOCK REDEMPTION AND CROSS PURCHASE
AGREEMENT. Prior to the Closing, the Corporation or Bitterman shall
take all action necessary to cause all rights to purchase Shares held
pursuant to option agreements, stock redemption and cross purchase
agreement or other agreements, including but not limited to any such
rights described in Exhibit 4.6, to be exercised or terminated.
Following the Closing Date, Richard E. Fordyce, Gary Johnson and
Gentry Thatcher shall each be entitled to participate in AII's 1995
Equity Participation Plan, true and correct copies of which have been
furnished to each of them by AII, in accordance with the specific
option rights pertaining to each of them as outlined on Exhibit 3.7
attached hereto.
3.8 NO SHOP CLAUSE. From and after the date hereof, neither the
Corporation nor Bitterman shall negotiate with or enter into any
agreement with any third party for the sale of any of the Shares or
the sale of the operating assets of the Corporation; provided,
however, that such obligation shall terminate after the Closing Date
if the Closing is not consummated for any reason other the breach of
this Agreement by the Corporation or Bitterman.
<PAGE>
3.9 REGISTRATION OF AII STOCK; TRANSFER RESTRICTIONS. The AII
Common Stock portion of the Merger Amount shall be registered by AII,
and be thereafter subject to certain transfer restrictions, as
follows:
3.9.1 REGISTRATION. Within nine (9) months following the
Closing Date, AII shall cause all of the AII Common Stock
delivered to any of the Shareholders pursuant to this Agreement
to be duly registered by filing a Form S-3 Registration Statement
("Registration Statement") in accordance with all applicable
laws, rules and regulations and shall furnish evidence of such
registration to each Shareholder holding any such AII Common
Stock; provided, however, that such registration is subject to
each Shareholder providing AII with such information, and
cooperating with AII, in such manner, as AII may reasonably
request.
3.9.2 TRANSFER RESTRICTIONS FOLLOWING REGISTRATION. For
each of the first twenty-four (24) months following the Closing
Date, each of the Shareholders shall not sell, transfer, assign
or otherwise dispose of shares of AII Common Stock which exceeds
the Maximum Amount for such Shareholder in the aggregate which
exceeds the Maximum Amount for such Shareholder in any calendar
month. For purposes of Section 3.9, the Maximum Amount for any
Shareholder shall be equal to 15,000 shares of AII Common Stock
multiplied by a fraction, the numerator of which is the number of
shares of AII Common Stock issued to such Shareholder pursuant to
Article 2 and the denominator of which is the number of shares of
AII Common Stock issued to all Shareholders pursuant to Article
2. The certificates evidencing the AII Common Stock may bear
such legends regarding restrictions on the transfer of such
certificate as are described in Section 6 of Exhibit 3.5.
3.9.3 EXPENSES. AII shall bear all registration and filing
fees, state blue sky fees, printing expenses, and fees and
disbursements of counsel and accountants for AII and up to $5,000
in fees and disbursements of counsel to the Shareholders in
connection with registering the AII Common Stock issued to
Shareholders in connection with this Agreement. Shareholders
shall bear all costs and expenses of their counsel in excess of
$5,000 in the aggregate and all underwriting discounts or
commissions or other sales costs in connection with the
registration or sale of such AII Common Stock.
3.9.4 AII INDEMNITY. In connection with such Registration
Statement, AII shall indemnify and hold harmless each holder of
the AII Common Stock covered by such Registration Statement,
amendment or supplement (such holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls
(within the meaning of the Securities Act of 1933 as amended (the
"Securities Act")) the Distributing Holder, and each underwriter
(within the meaning of the Securities Act) of such securities and
each person, if any, who controls (within the meaning of the
Securities Act) any such underwriter, against any losses, claims,
<PAGE>
damages or liabilities, joint or several, to which the
Distributing Holder, any such controlling person or any such
underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material
fact contained in any such Registration Statement or any
preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of
or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any
legal or other expenses reasonably incurred by the Distributing
Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, HOWEVER, that AII will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in said Registration Statement, said preliminary
prospectus, said final prospectus or said amendment or supplement
in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the
preparation thereof, and PROVIDED, FURTHER, that the indemnity
contained herein is subject to the condition that, in so far as
it relates to any such untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary
prospectus but eliminated or remedied in the final prospectus,
such indemnity agreement shall not inure to the benefit of any
Distributing Holder or any underwriter or any person controlling
such Distributing Holder or underwriter from whom the person
asserting any such loss, claim damage, expense, liability or
action purchased the AII Common Stock if (i) prior to the time
such final prospectus was required under the Securities Act to be
furnished to such person AII had furnished copies of the final
prospectus to such Distributing Holder or underwriter, (ii) a
copy of such final prospectus, as then corrected or supplemented,
was not furnished to such person at or prior to the time required
under the Securities Act, and (iii) the delivery of such final
prospectus would have constituted a complete defense to the claim
asserted by such person which arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact
contained in said Registration Statement, in any preliminary
prospectus or in the final prospectus or which arises out of or
is based upon the omission or alleged omission to state in any of
the foregoing any material fact required to be stated therein in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3.9.5 SHAREHOLDER INDEMNITY. Prior to the filing of any
Registration Statement covering the AII Common Stock, each
Distributing Holder will agree, severally but not jointly, to
indemnify and hold harmless AII against any losses, claims,
damages or liabilities to which AII may become subject, under the
Securities Act or otherwise, insofar as such losses, claims,
<PAGE>
damages or liabilities arise out of or are based upon any untrue
or alleged untrue statement in any Registration Statement,
preliminary prospectus, said final prospectus, or said amendment
or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in said Registration
Statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder
specifically for use in the preparation thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION AND BITTERMAN
Bitterman and the Corporation, jointly and severally, represent
and warrant to AII and API that the following statements are true,
correct and complete and will be true, correct and complete as of the
Closing Date:
4.1 EXECUTION AND DELIVERY OF AGREEMENT. The Corporation and
Bitterman have duly executed and delivered this Agreement, and this
Agreement constitutes the valid and binding obligation of each of them
enforceable against each such party in accordance with its terms. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized
by the Board of Directors of the Corporation subject to approval by
Shareholders who own a majority of the Shares.
4.2 CONSENTS AND APPROVALS. Except as described in Exhibit 4.2,
the execution and delivery by Bitterman and the Corporation of this
Agreement, the performance by Bitterman and the Corporation of their
obligations under this Agreement and the consummation by Bitterman and
the Corporation of the transactions contemplated by this Agreement do
not require Bitterman or the Corporation to obtain any consent,
approval or action of, or make any filing with or give any notice to,
any corporation, person or firm or any public, governmental or
judicial authority.
4.3 ORGANIZATION, STANDING AND AUTHORITY. The Corporation is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota and has all requisite power
and authority to own, lease and operate its assets, properties and
business and to carry on its business as now being conducted. The
Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin and has all
requisite power and authority to own, lease and operate its assets,
properties and business and to carry on its business as now being
conducted. The Corporation and Subsidiary are not required to be
qualified or otherwise authorized as a foreign corporation to transact
business in any jurisdiction other than Minnesota, Wisconsin,
<PAGE>
Illinois, Pennsylvania, New York, Florida, California and Kansas and
no other jurisdiction has claimed, in writing or otherwise, that the
Corporation or Subsidiary is required to qualify or otherwise be
licensed therein. The Corporation and Subsidiary do not presently
file any franchise, income or other tax returns in any jurisdiction
other than those referenced in this Section 4.3 above.
4.4 OUTSTANDING CAPITAL STOCK OF THE CORPORATION AND THE
SUBSIDIARY. The Corporation has 100,000 authorized shares of common
stock having $1.00 par value, of which 84,620.0063 shares are issued
and outstanding (referred to herein as the "Shares"). The Shares are
the only issued and outstanding capital stock of the Corporation. All
of the Shares are duly authorized and are validly issued, fully paid
and non-assessable. The Subsidiary has 2,800 authorized shares of
common stock, no par value, of which 400 shares are issued and
outstanding (referred to herein as the "Subsidiary Shares"). The
Subsidiary Shares are the only issued and outstanding capital stock of
the Subsidiary. All of the Subsidiary Shares are duly authorized and
are validly issued, fully paid and non-assessable.
4.5 TITLE TO SHARES AND SUBSIDIARY SHARES. The Shareholders own
beneficially and of record, free and clear of any lien or other
encumbrance, all of the Shares as described on Exhibit 4.5 and, upon
delivery and full payment of the Merger Amount for such Shares as
provided in this Agreement, API will acquire good title to the Shares,
free and clear of any lien or other encumbrance. The Corporation owns
beneficially and of record, free and clear of any lien or other
encumbrance, all of the Subsidiary Shares. Except as described on
Exhibit 4.5, there are no outstanding options, rights, warrants,
convertible securities or other agreements or commitments obligating
Shareholders to sell any of the Shares or the Corporation to sell any
of the Subsidiary Shares.
4.6 OPTIONS OR OTHER RIGHTS. Except for this Agreement or as
described on Exhibit 4.6, there is no outstanding right, subscription,
warrant, call, unsatisfied preemptive right, option or other agreement
of any kind to purchase or otherwise to receive from the Corporation
or the Subsidiary any of the outstanding, authorized but unissued,
unauthorized or treasury shares of the capital stock or any other
equity security of the Corporation or the Subsidiary, there is no
outstanding security of any kind convertible into such capital stock,
and there is no outstanding contract or other agreement of
Shareholders, the Corporation or the Subsidiary to purchase, redeem or
otherwise acquire any outstanding Shares or Subsidiary Shares.
4.7 EQUITY INTERESTS. Except for the Subsidiary, the
Corporation has no subsidiaries which it owns or controls, and except
for the Corporation's investment portfolio the Corporation has no
equity interest, whether of record or beneficial or otherwise, in any
corporation, partnership, limited liability company, joint venture or
other business association or entity. The Subsidiary has no
subsidiaries which it owns or controls, and the Subsidiary has no
equity interest, whether of record or beneficial or otherwise, in any
corporation, partnership, limited liability company, joint venture or
other business association or entity.
<PAGE>
4.8 CORPORATE RECORDS. To the best knowledge of the Corporation
and Bitterman, the minute books of the Corporation and the Subsidiary
are accurate and complete. All formal meetings of stockholders and
directors of the Corporation and the Subsidiary heretofore held are
reflected in minutes which appear in said minute books and were duly
held. Copies of consents and of minutes of any meetings of the
directors or shareholders of the Corporation or the Subsidiary held
after the date hereof and on or prior to the Closing will be made
available to AII and its counsel immediately after such meeting, and
in all events prior to the Closing. The copies of the Articles of
Incorporation and Bylaws of the Corporation and the Subsidiary
contained in said minute books are true, correct and complete, as
amended and existing at the date hereof. To the best knowledge of the
Corporation and Bitterman, the books of account and other records of
the Corporation (for approximately only the past seven (7) years) and
the Subsidiary (to the extent the same are presently in the
Corporation's possession) are complete and correct and accurately
present and reflect, for the periods covered thereby, respectively,
all of the transactions entered into by the Corporation or the
Subsidiary or to which either of them is a party. Exhibit 4.8
attached hereto sets forth a true and complete listing of each of the
Corporation's and Subsidiary's existing officers, directors, bank
accounts, safe deposit boxes and the names of all persons authorized
to draw thereon or have access thereto.
4.9 FINANCIAL STATEMENTS. The Corporation has furnished to AII
and/or API its consolidated balance sheet as of the end of each of the
two years ended April 30, 1995 and 1996 and its statements of income,
shareholder's equity and cash flow for each of the years in the two
year period ended on April 30, 1996, together with appropriate notes
to such financial statements, accompanied by the independent auditor's
report from its independent certified public accountants, Larson,
Allen, Weishair & Co. with respect to the consolidated balance sheet
as of April 30, 1996 (collectively the "Financial Statements").
To the best knowledge of the Corporation and Bitterman, (and
except for the treatment of customer advances or the Corporation's
investment in Spencer Global (the "Balance Sheet Exceptions")), the
Financial Statements, including the related notes, have been prepared
in conformity with generally accepted accounting principles
consistently applied and are correct and complete in all material
respects and fairly present the consolidated financial position of the
Corporation and its consolidated Subsidiary as of the dates of such
balance sheets and the consolidated results of its operations for the
respective periods indicated.
Except (to the extent applicable) for the Balance Sheet
Exceptions, the Financial Statements do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
<PAGE>
The Corporation has also furnished to AII and/or API the
unaudited balance sheets of the Corporation and Subsidiary at
September 30, 1996 together with their statements of income for the
five (5) months ended September 30, 1996 (the "Interim Financial
Statements"). Except (to the extent applicable) for the Balance Sheet
Exceptions, the Interim Financial Statements are true and correct in
all material respects and have been prepared in conformity with
generally accepted accounting principles consistently applied. The
Corporation and its Subsidiary have no liabilities, accrued,
contingent or otherwise, not disclosed or provided for in the Interim
Financial Statements.
4.10 ABSENCE OF CERTAIN CHANGES. Except for this Agreement and
as indicated in Exhibit 4.10, since the date of the Interim Financial
Statements and through the Closing Date, there has not been and there
will not be any:
(a) transaction by the Corporation or the Subsidiary except
in the ordinary course of business as conducted on that date, or
execution of any contract or commitment (whether or not in the usual
and ordinary course of business) involving a potential liability of
the Corporation or the Subsidiary exceeding $10,000.00, individually,
or $50,000.00, in the aggregate;
(b) any capital expenditure by the Corporation or the
Subsidiary or lease of capital equipment;
(c) material adverse change in the condition (financial or
otherwise), liabilities, assets, or, to the best knowledge of
Bitterman and the Corporation, business or prospects of the
Corporation or the Subsidiary;
(d) to the best knowledge of Bitterman and the Corporation,
destruction, damage to or loss of any asset of the Corporation or the
Subsidiary (whether or not covered by insurance) which materially and
adversely affects the condition (financial or otherwise), business or
prospects of the Corporation;
(e) to the best knowledge of Bitterman and the Corporation,
labor trouble, strike or other event or condition of any character
materially and adversely affecting the condition (financial or
otherwise), business or prospects of the Corporation;
(f) change by the Corporation in the accounting methods or
practices (including, without limitation, any change in depreciation
or amortization policies or rates) of the Corporation;
(g) reevaluation by the Corporation or the Subsidiary of
any of their assets;
(h) declaration, setting aside or payment of a dividend or
other distribution in respect of, or any direct or indirect
redemption, repurchase, or other acquisition by the Corporation, of
any of its capital stock of any class or of any other of its
securities;
<PAGE>
(i) increase in the salary or other compensation payable or
to become payable by the Corporation or the Subsidiary to any of its
respective officers, directors or employees, the adoption of a plan or
agreement or amendment to any plan or agreement providing any new or
additional "fringe benefits", or the declaration or payment by the
Corporation or the Subsidiary of a bonus or other additional salary or
compensation to any such person or the contribution to any profit
sharing or defined benefit plan;
(j) transaction or any sale or transfer of any asset of the
Corporation or the Subsidiary, except in the ordinary course of
business;
(k) amendment or termination of any contract or other
agreement to which the Corporation or the Subsidiary is a party;
(l) loan by the Corporation or the Subsidiary to any person
or entity, or guaranty by the Corporation or the Subsidiary of any
loan;
(m) payment by the Corporation or the Subsidiary to any
person or entity, or guaranty by the Corporation or the Subsidiary of
any loan;
(n) cancellation by the Corporation or the Subsidiary
without full payment, of any note, loan, or other obligation owing to
the Corporation or the Subsidiary;
(o) mortgage, pledge or other encumbrance of any asset of
the Corporation or the Subsidiary, except for liens for taxes not due;
(p) incurrence of, assumption of, or taking any properties
subject to, any liability, except for liabilities incurred or assumed
or property taken in the ordinary course of business of the
Corporation or the Subsidiary and consistent with past practice;
(q) waiver or release of any right or claim of the
Corporation or the Subsidiary, except in the ordinary course of
business;
(r) amendment of the Articles of Incorporation, bylaws or
other charter documents of the Corporation or the Subsidiary, issuance
of any shares of capital stock or other securities or other equity
interests of the Corporation or the Subsidiary, or issuance or
creation of any warrants, obligations, subscriptions, options,
convertible securities or other commitments under which any additional
shares of capital stock or other securities or other equity interest
of the Corporation or the Subsidiary may be directly or indirectly
authorized, issued, or transferred from treasury;
(s) event or condition of any character which, to the best
knowledge of Bitterman and the Corporation, has or might reasonably be
expected to have a material and adverse effect on the financial
condition, business, assets or prospects of the Corporation; or
<PAGE>
(t) agreement, commitment by or obligation of the
Corporation or the Subsidiary to do, or undertaking by the Corporation
or Subsidiary which may cause, any of the matters described in the
preceding clauses (a) through (s).
4.11 COPIES OF DOCUMENTS; NO DEFAULT. The Corporation has made
available to AII and/or API true and complete copies of all existing
contracts or other agreements, whether or not made in the ordinary
course of business, to which the Corporation or the Subsidiary is a
party and during the term of which the Corporation or the Subsidiary
may hereafter receive or be obligated to pay at least $10,000.00. To
the extent that such contracts and agreements are individually or in
the aggregate material to the business, properties, assets,
operations, condition (financial or otherwise) or results of
operations of the Corporation or the Subsidiary, each such contract
and other agreement is valid, subsisting, in full force and effect and
binding upon the parties thereto in accordance with its terms, and the
Corporation or the Subsidiary is not in default under any of them and
neither Bitterman nor the Corporation nor the Subsidiary has received
any notice from any other party to such contract(s) alleging that such
a default exists or that such party has reason to believe that the
Corporation will not be able to fulfill, when due, all of its
obligations which remain to be performed after the date hereof. None
of such contracts or agreements will expire or be terminated or be
subject to any modification of terms or conditions solely by reason of
the consummation of the Merger. Exhibit 4.11 sets forth a list of all
such contracts and other agreements.
4.12 ASSETS. The Corporation and the Subsidiary owns outright
and has good title to all of its respective assets and properties,
free and clear of any lien or other encumbrance, except as
specifically referenced in the Financial Statements or the Interim
Financial Statements or as listed on Exhibit 4.12A. Exhibit 4.12B is
a list of all fixed assets owned by the Corporation or the Subsidiary.
All of the property (whether real or personal, owned or leased) used
by the Corporation and the Subsidiary in its respective business has
been reasonably maintained, is in good operating condition allowing
for normal wear and tear, and is fit for the purposes for which they
are being utilized. All inventories reflected in the Interim
Financial Statement are stated at the lower of the Corporation's cost
or market and, as so stated, meet the Corporation's specifications,
are regularly offered from current price lists and are not custom
made, and are useable or saleable in the category in which they are
inventories in the ordinary course of its business, without discount
from the prices generally charged for like inventory other than normal
trade discounts regularly offered by the Corporation for prompt
payment or quantity purchase. The accounts receivable shown on the
Interim Financial Statement are, and all accounts receivable arising
after the date of the Interim Financial Statement and on or before the
Closing will be, valid and enforceable obligations due to the
Corporation and, to the extent they exceed, in the aggregate, the
reserve for bad debts set forth in the Interim Financial Statement
shall be paid to the Corporation within nine (9) months of the Closing
provided API uses reasonably diligent and businesslike efforts to
obtain payment thereof. The goods and services sold and delivered by
the Corporation that gave rise to such accounts receivable were sold
<PAGE>
and delivered in conformity with the applicable purchase orders,
agreements and specifications. Such accounts receivable are subject
to no valid defense or offset except routine customer complaints of an
immaterial nature.
4.13 REAL ESTATE AND LEASES. The Corporation and the Subsidiary
do not own any real property. Neither the Corporation nor the
Subsidiary has any options or contractual obligations to purchase or
acquire any ownership interest in real property. All leases,
subleases or other agreements under which the Corporation or the
Subsidiary is lessee of any real and personal property are described
on Exhibit 4.13 and true and complete copies of all such agreements
have been made available to AII and/or API. To the best knowledge of
Bitterman and the Corporation, such leases, subleases and other
agreements are in full force and effect and neither the Corporation,
the Subsidiary nor any of the other parties are in default thereunder
and the Corporation or the Subsidiary has not received any notice of
any default thereunder.
4.14 INTANGIBLE PROPERTY AND COMPUTER SOFTWARE. To the best
knowledge of Bitterman and the Corporation, the Corporation and the
Subsidiary owns and/or has registered or has valid rights to use all
trademarks, trade names, designs, formulas, know-how, processes, trade
secrets, copyrights and computer software which are necessary for the
conduct of its respective business as now being conducted. The
Corporation recognizes that the transactions contemplated by this
Agreement do or may constitute a "change in control" and the
Corporation shall take all reasonable steps requested by AII and/or
API to ensure that all intangible property and computer software
currently used in the conduct of its or the Subsidiary's business will
continue to be available following the consummation of this
transaction. The Corporation and the Subsidiary are not infringing
the rights of others with respect to any of the foregoing and neither
Bitterman nor the Corporation has received written notice that the
Corporation or the Subsidiary is infringing upon any existing or
pending trademark, trade name registration or copyright. The
Corporation and the Subsidiary do not own any patents, patent
licenses, permits with respect to patents, copyrights, or any
applications therefor. Exhibit 4.14 is a list of all trademarks,
trade names, copyrights and computer software created by or for the
Corporation's or the Subsidiary's specific use, whether or not now
being used by such party.
4.15 LITIGATION. There is no action, claim, suit or other legal
proceeding or government investigation pending or, to the best
knowledge of Bitterman and the Corporation, threatened against the
Corporation or the Subsidiary relating to or affecting the
transactions contemplated by this Agreement or which might result in
any material adverse change in the business, condition, taxes or
earnings of the Corporation or the Subsidiary. There are no
outstanding, pending or, to the best of the Corporation's and
Bitterman's knowledge, threatened orders, judgments, injunctions,
awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving the Corporation.
<PAGE>
4.16 LIABILITIES. To the best knowledge of Bitterman and the
Corporation, the Corporation and the Subsidiary did not have any
direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, nor are there any specific facts or
specific circumstances which exist that may give rise to any of the
foregoing ("Liabilities"), that was not fully and adequately reflected
or reserved against in the Financial Statements or the Interim
Financial Statements. The Corporation and the Subsidiary do not have
any Liabilities, other than (i) Liabilities fully and adequately
reflected or reserved against on the Financial Statements or the
Interim Financial Statements, and (ii) Liabilities incurred since the
date of the Financial Statements or the Interim Financial Statements
in the ordinary course of business.
4.17 EMPLOYEE RELATIONS. Listed in Exhibit 4.17 are all plans,
contracts, and arrangements, oral, implied or written, included but
not limited to union contracts, employment agreements, consulting
agreements, employee manuals, incentive payment plans and employee
benefit plans, whereunder the Corporation or the Subsidiary has any
obligations (other than obligations to make current wage or salary
payments terminable on notice of 30 days or less) to its officers or
employees or other persons or their beneficiaries or where under any
of such person owes money to the Corporation or the Subsidiary.
Exhibit 4.17 also reflects compensation payable to any officers,
directors, employees or consultants of the Corporation or the
Subsidiary who receive in excess of $60,000 per annum from wages,
bonuses or other forms of compensation.
To the best knowledge of Bitterman and the Corporation, the
Corporation and the Subsidiary are in substantial compliance with all
applicable laws relating to the employment of labor, including but not
limited to laws relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other
federal, state and local taxes. The Corporation and the Subsidiary
are neither a party to nor bound by any collective bargaining
agreement and, to the best knowledge of Bitterman and the Corporation,
no organization is currently seeking certification nor has any
organization been certified as a bargaining agent on behalf of any of
the Corporation's or the Subsidiary's employees.
4.18 ERISA
4.18.1 NO EXTRAORDINARY BENEFIT PLAN LIABILITIES. Except
for the ESOP and as disclosed on Exhibit 4.18, the Corporation and the
Subsidiary do not maintain, contribute to, or have any liability to
any pension, profit sharing or other "employee pension benefit plan"
or "employee welfare benefit plan" (as those terms are respectively
defined in sections 3(2) and 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), other than ordinary and
usual claims for benefits by participants or beneficiaries or pursuant
to domestic relations orders. Each plan listed on Exhibit 4.18 is in
compliance with the requirements prescribed by any and all statutes,
orders, or governmental rules or regulations currently in effect,
<PAGE>
including, but not limited to ERISA, and the Internal Revenue Code of
1986, as amended (the "Code"), applicable to such plans. Except as
disclosed in Exhibit 4.18, the Corporation and the Subsidiary do not
have any other plan or agreement with any of its employees, officers,
directors, agents or representatives providing for present or future
employee benefits or deferred compensation of any nature whatsoever,
stock options, stock purchase or other employee benefits of any nature
whatsoever.
4.18.2 EMPLOYEE BENEFIT PENSION PLANS. Neither the
Corporation, the Subsidiary nor any of their directors, officers,
employees or any other "fiduciary," as that term is defined in Section
3(21) of ERISA, has engaged in a "prohibited transaction", as that
term is defined in Section 406 of ERISA or Section 4975 of the Code
which could result in the assessment of a material penalty under
Section 502(i) of ERISA or an excise tax under section 4975 of the
Code. There are no claims threatened or pending with respect to the
ESOP.
4.18.3 NO MULTIEMPLOYER PLANS. Except as disclosed on
Exhibit 4.18, neither the Corporation nor the Subsidiary is a
contributing employer under or has any actual or potential liability
to any "multiemployer plan", as that term is defined in Section 3(37)
of ERISA.
4.18.4 NO UNFUNDED OR INFORMAL PLANS. The Corporation and
the Subsidiary do not maintain or contribute to any funded or unfunded
medical, health or life insurance plans or arrangements for retirees
or terminated employees.
4.18.5 PLANS IN SUBSTANTIAL COMPLIANCE. All of the
"employee welfare benefit plans", as that term is defined in section
3(1) of ERISA, maintained for eligible employees of the Corporation
and the Subsidiary and any related trust or insurance contract have
been maintained in substantial compliance with their respective terms
and in substantial compliance with all applicable laws.
4.18.6 PLANS' ANNUAL REPORTS. A true and correct copy of
the most recent annual report, actuarial report, summary plan
description and IRS determination letter with respect to any and all
of the Corporation's and the Subsidiary's plans, to the extent
applicable, and a current schedule of assets (and the fair market
value thereof assuming liquidation of any asset which is not readily
tradeable) held with respect to any funded plan arrangement or
agreement has been supplied to AII and/or API by the Corporation, and
there have been no material adverse changes in the financial condition
of any plan from that stated in the annual reports and actuarial
reports supplied.
4.19 INSURANCE. The Corporation has provided to AII and/or API
copies of all policies or binders of fire, professional errors and
omissions, liability, workers' compensation, vehicular and other
insurance held by or on behalf of the Corporation and the Subsidiary.
To the best knowledge of Bitterman and the Corporation, no claims are
pending with respect to any such policies or binders and such policies
<PAGE>
and binders are in full force and effect, and insure against risks and
liabilities to the extent and in the manner deemed appropriate and
sufficient by the Corporation. The Corporation and the Subsidiary has
insurance coverage for potential workers' compensation liabilities. A
description of each of the aforesaid insurance policies is set forth
in Exhibit 4.19.
4.20 COMPLIANCE WITH LAWS; GOVERNMENTAL MATTERS. To the best
knowledge of Bitterman and the Corporation, the Corporation and the
Subsidiary have substantially complied with all federal, state,
county, local and foreign laws, ordinances, regulations and orders
applicable to each of them and no expenditures will be required in
order to insure continued compliance therewith, except ordinary and
necessary expenditures similar to those incurred historically by the
Corporation and the Subsidiary to maintain continued compliance
therewith and expenditures arising in connection with any of the
transactions contemplated in this Agreement. Except as indicated in
Exhibit 4.20, no franchise, license, permit, order or approval of any
governmental or regulatory body is material to or necessary for the
conduct of the business of the Corporation or the Subsidiary.
Exhibit 4.20 sets forth each franchise, license, permit, order and
approval necessary to the conduct of the business of the Corporation
and the Subsidiary, together with its date of expiration and a brief
description of its material terms. To the best knowledge of Bitterman
and the Corporation, each is in full force and effect, no violations
are or have been recorded in respect of any thereof, and no proceeding
is pending, or to the knowledge of Bitterman or the Corporation,
threatened, to revoke, amend or limit any thereof and except as
indicated in Exhibit 4.20, there are no pending or threatened
proceedings by or before any governmental body which involve new
special actions, laws, regulations, ordinances or similar matters
which, if instituted, would have a material adverse effect upon the
condition (financial or otherwise), assets, liabilities, business or
prospects of the Corporation or the Subsidiary.
4.21 TAX MATTERS.
4.21.1 PAYMENT OF TAXES AND FILING OF TAX RETURNS. The
Corporation and the Subsidiary have filed all Tax Returns (defined as
any return, declaration, report, claim for refund or information
return or statement relating to taxes, including any schedules or
attachments and including any amendments) that either of them was
required to file. All such Tax Returns were correct and complete in
all material respects. All Taxes (defined as any federal, state,
local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits,
withholdings, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not) due and payable on or before the Closing Date
by the Corporation or the Subsidiary for any and all periods of time
through the Closing (whether or not shown on any Tax Return) have been
paid or will be paid as of the Closing Date. The Corporation and the
<PAGE>
Subsidiary are not currently the beneficiaries of any extension of
time within which to file any Tax Return. Neither the Corporation nor
the Subsidiary has received any claim by an authority in a juris-
diction where the Corporation or the Subsidiary does not file Tax
Returns that the Corporation or the Subsidiary is or may be subject to
taxation by that jurisdiction. There are no security interests on any
of the assets of the Corporation or the Subsidiary that arose in
connection with any failure (or alleged failure) to pay any Tax.
4.21.2 TAX OBLIGATIONS TO THIRD PARTIES. The Corporation
and the Subsidiary have withheld and paid all taxes required to have
been withheld and paid (other than taxes not yet due) in connection
with amounts paid or owing to any employee, creditor, independent
contractor, or other third party.
4.21.3 No OUTSTANDING TAX LIABILITY. Neither Bitterman nor
any director or officer (or employee responsible for tax matters) of
the Corporation or the Subsidiary has actual knowledge (or, to the
best knowledge of Bitterman and the Corporation, any reason to expect)
that any authority will assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim
concerning any tax liability of the Corporation or the Subsidiary
either claimed or raised by any authority in writing or as to which
the Corporation or Bitterman or the directors and officers (and
employees responsible for tax matters) of the Corporation or the
Subsidiary have actual knowledge based upon personal contact with any
agent of such authority. No Tax Returns due for any period after the
Corporation's fiscal year ended April 30, 1992 have been audited or
currently are the subject of audit and no other audits are pending.
The Corporation has delivered or made available to AII and/or API
correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against
or agreed to the Corporation or the Subsidiary for all periods after
the Corporation's fiscal year ended April 30, 1992.
4.21.4 STATUTE OF LIMITATIONS AND WAIVER. Neither the
Corporation nor the Subsidiary has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
4.22 BUSINESS CONDITIONS. Other than generally applicable market
and business risks, neither Bitterman nor the Corporation have actual
knowledge of any existing specific condition, nor, to the best
knowledge of Bitterman and the Corporation, does any fact exist, which
would have a material adverse effect upon the business of the
Corporation or the Subsidiary or will prevent the business of the
Corporation or the Subsidiary from being carried on in its present
form following Closing. To the best knowledge of Bitterman and the
Corporation, the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement will not cause any of
the Corporation's or the Subsidiary's clients or customers to
terminate their association with the Corporation or the Subsidiary.
To the best knowledge of Bitterman and the Corporation, neither
Bitterman nor any officer, director or employee of the Corporation or
<PAGE>
the Subsidiary owns, directly or indirectly, a controlling interest
in, or is an employee of, any corporation, firm or other business
organization which is a competitor of the Corporation or the
Subsidiary.
4.23 FULL DISCLOSURE. All documents and other papers delivered
by or on behalf of the Corporation or Bitterman in connection with
this Agreement and the transactions contemplated hereby are true,
complete and authentic in all material respects. The information
furnished to AII and/or API by or on behalf of the Corporation or
Bitterman in connection with this Agreement and the transactions
contemplated hereby does not contain any untrue statement of a
material fact and does not omit to state any material fact necessary
to make the statements made, in the context in which made, not false
or misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF API AND AII
API and AII jointly and severally represent and warrant to the
Shareholders and the Corporation that the following statements are
true, correct and complete and will be true, correct and complete as
of the Closing Date:
5.1 EXECUTION AND DELIVERY OF AGREEMENT. AII and API have duly
executed and delivered this Agreement, and this Agreement constitutes
the valid and binding obligation of each of them enforceable against
each such party in accordance with its terms. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement has been duly authorized by the Boards
of Directors of AII and API.
5.2 CONSENTS AND APPROVALS. Except as described in Exhibit 5.2,
the execution and delivery by AII and API of this Agreement, the
performance by AII and API of their obligations under this Agreement
and the consummation by AII and API of the transactions contemplated
by this Agreement do not require AII or API to obtain any consent,
approval or action of, or make any filing with or give any notice to,
any corporation, person or firm or any public, governmental or
judicial authority.
5.3 ORGANIZATION, STANDING, AND AUTHORITY. AII is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to
own, lease and operate its assets, properties and business and to
carry on its business as now being conducted. API is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to
own, lease and operate its assets, properties and business and to
carry on its business as now being conducted.
<PAGE>
5.4 TITLE TO AII STOCK. The AII Common Stock to be delivered to
the Shareholders, other than the ESOP, pursuant to this Agreement has
been duly authorized and, once issued and delivered in accordance with
the terms of this Agreement, will be validly issued, fully paid and
non-assessable and free and clear of any lien or other encumbrance
upon issuance.
5.5 LITIGATION. There is no action, claim, suit or other legal
proceeding or governmental investigation pending or, to the best
knowledge of AII and API, threatened against AII or API relating to or
affecting the transactions contemplated by this Agreement or which
might result in any material adverse change in the business,
condition, taxes or earnings of AII or API. There are no outstanding,
pending or, to the best of AII's and API's knowledge, threatened
orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or
involving AII or API.
5.6 INVESTMENT REPRESENTATIONS. The Shares are being acquired
by API for its own account, for investment purposes only and not with
a view to or for sale in connection with any distribution thereof.
AII and API each have such knowledge and experience in financial, tax
and business matters that they are capable of evaluating the merits
and risks of this transaction.
5.7 SEC FORMS. AII has furnished to the Corporation and
Bitterman a copy of AII's Form 10-KSB for its fiscal year ended
December 31, 1995 and Form 10-QSB for its fiscal quarter ended
September 30, 1996 (collectively, the "SEC Forms"), which has been
filed with the Securities and Exchange Commission and AII shall also
furnish the Corporation and Bitterman with a copy of any subsequent
SEC filings promptly following the filing and in any event prior to
Closing. AII represents and warrants that the financial and other
information contained therein are true, accurate and complete, and are
in accordance with the books and records of AII, set forth fairly
AII's financial condition and results of its operations as of the
dates specified therein, are understood to contain and reflect all
necessary adjustments for a fair presentation of the results of
operations and financial condition for the periods covered thereunder
and, with respect to any of AII's contracts and commitments, contain
and reflect reserves for all material liabilities and for all
reasonably anticipated material losses.
5.8 CAPITAL STRUCTURE OF AII. Except for options and other
rights issued under AII's 1995 Equity Participation Plan, the current
capital structure of AII is constituted as disclosed in the SEC Forms
and there are no other options, rights, warrants, convertible
securities or other agreements or commitments relating thereto which
are not disclosed therein.
5.9 FULL DISCLOSURE. All documents and other papers delivered
by or on behalf of AII or API in connection with this Agreement and
the transactions contemplated hereby are true, complete and authentic
in all material respects. The information furnished to any of the
Shareholders or the Corporation by or on behalf of AII or API in
<PAGE>
connection with this Agreement and the transactions contemplated
hereby does not contain any untrue statement of a material fact and
does not omit to state any material fact necessary to make the
statements made, in the context in which made, not false or
misleading.
ARTICLE 6
COVENANTS AND AGREEMENTS PRIOR TO CLOSING
The parties covenant and agree as follows:
6.1 CONTINUED DUE DILIGENCE. During the period from the date
hereof through and until the Closing Date, API shall continue to have
reasonable access (during normal business hours) to the assets,
liabilities, properties, employees, business and operations of the
Corporation and the Subsidiary, and the right to make such continuing
examination of the books, records and financial condition of the
Corporation and the Subsidiary as API may wish.
6.2 EXPENSES. Except as otherwise specifically provided in this
Agreement, the parties to this Agreement shall each bear their own
respective expenses incurred in connection with the preparation,
execution and performance of this Agreement and the transactions
contemplated hereby, including without limitation, all fees and
expenses of agents, representatives, counsel and accountants.
Notwithstanding the foregoing it is specifically hereby understood and
agreed that all such expenses incurred by the Corporation or Bitterman
shall, upon and following Closing, be and remain the obligation of,
and be paid for by, the Surviving Corporation as the successor to the
Corporation; provided, however, that such legal and accounting fees
and expenses incurred by Bitterman and the Corporation from and after
October 1, 1996 through the Closing (such fees and expenses are
referred to as the "Professional Fees") and paid for by the
Corporation or the Surviving Corporation shall be deducted from the
"Threshold Amount" referenced in Section 11.1.1 below.
6.3 INDEMNIFICATION AGAINST BROKERAGE. AII and Bitterman shall
indemnify and save the other harmless from any claim or demand for
commission or other compensation by any broker, finder, agent or
similar intermediary claiming to have been employed by or on behalf of
AII and API on the one hand, or the Corporation and Shareholders, on
the other hand, and to bear the cost of legal expenses incurred in
defending against any such claim.
6.4 EMPLOYMENT OF CONTINUING EMPLOYEES. Upon Closing, all
existing employment agreements of the Corporation, other than the
Bitterman Employment Agreement, shall be deemed assumed by the
Surviving Corporation. Prior to Closing, API shall be free to contact
any of the officers or key employees of the Corporation who have
written employment agreements with the Corporation, for the purpose of
negotiating any modifications to such employment agreements as API and
the affected officer or employee may mutually agree, provided all such
modifications or amendments shall become effective only upon the
Closing unless otherwise agreed by the Corporation. Except as
<PAGE>
otherwise provided in this Agreement, and subject to all employment
agreements in existence on Closing, API reserves the right to make (or
to cause the Corporation or the Subsidiary to make) necessary
personnel or staffing adjustments following the Closing and this
Agreement shall not be construed to create contractual employment
rights in any employees other than as employees terminable at will.
6.5 TERMINATED EMPLOYEES; COBRA INDEMNIFICATION. Bitterman
shall pay and be liable to API and shall indemnify, defend and hold
harmless API and the Corporation, under, and subject to the
limitations and other terms of, the Indemnification (as defined in
Section 11.1.1), from and against and in respect of any and all
losses, damages, liabilities, taxes and sanctions that arise under
Sections 106(b)(1), 162(i)(2) and 4980B of the Code, interest thereon
and any penalties, costs and expenses (including, without limitation,
disbursements and reasonable legal fees incurred in connection
therewith and in seeking indemnification therefor, and any amounts or
expenses required to be paid or incurred in connection with any
action, suit proceeding, claim, appeal, demand, assessment or
judgment) imposed upon, incurred by, or assessed against API, the
Corporation or the Subsidiary and any of their employees arising by
reason of or relating to any failure to substantially comply with the
health care continuation coverage requirements of Section 4980B
(formerly Section 162(k)) of the Code and Sections 601 through 608 of
ERISA which failure occurred on or prior to the Closing Date with
respect to any current or prior employee of the Corporation or the
Subsidiary or any qualified beneficiary of such employee (as defined
in Section 4980B(g)(l) (formerly Section 162(k)(7)(B)) of the Code) on
or prior to the Closing Date. For purposes of this provision,
references to the Code and ERISA shall include references to any
provision of such statutes as they may be amended from time to time.
6.6 BANK ACCOUNTS. Prior to the Closing, neither the
Corporation nor the Subsidiary shall establish any new bank accounts
or add any authorized signatories without the prior written consent of
AII.
6.7 APPROVAL OF SHAREHOLDERS. The Corporation will duly call
and will promptly hold a meeting of its Shareholders (or obtain
written consents in lieu of a meeting) for the purpose of approving
the Merger on the terms and conditions set forth in this Agreement and
in connection therewith will comply fully with the applicable
provisions of the Minnesota Business Corporation Act and the Bylaws of
the Corporation relating to the calling and holding of a meeting of
shareholders for such purpose. API will duly call and will promptly
hold a meeting of its shareholders (or obtain written consents in lieu
of a meeting) for the purpose of approving the Merger on the terms and
conditions set forth in this Agreement and in connection therewith
will comply fully with the applicable provisions of the Delaware
Business Corporation Act and the Bylaws of API relating to the calling
and holding of a meeting of shareholders for such purpose. AII will
also duly and promptly take such corporate action as shall be
necessary to approve the Merger on the terms and conditions set forth
in this Agreement and the applicable provisions of the Delaware
Business Corporation Act and the Bylaws of AII relating thereto.
<PAGE>
6.8 FURTHER ASSURANCES. Each of the parties to this Agreement
shall execute such documents and other papers and take such further
actions as may reasonably be required or desirable to carry out the
provisions hereof and the transactions contemplated hereby. Each such
party shall use its best efforts to fulfill or obtain the fulfillment
of the conditions to the Closing as promptly as practicable.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF API AND AII
The obligations of API and AII under this Agreement are subject
to the satisfaction or waiver at or prior to the Closing of the
following conditions:
7.1 PERFORMANCE. Each of the acts and undertakings of the
Corporation, Bitterman and Shareholders to be performed at or prior to
the Closing pursuant to this Agreement shall have been performed in
all material respects.
7.2 SHAREHOLDER APPROVAL. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by
this Agreement shall have been duly authorized by Shareholders owning
a majority of the Shares.
7.3 DISSENTERS' RIGHTS. No Shareholder shall have perfected
dissenters' rights with respect to the Merger under the Minnesota
Business Corporation Act.
7.4 CORPORATE ACTIONS. API shall have received:
7.4.1 A certified copy of the resolutions duly adopted by
the Board of Directors and Shareholders of the Corporation authorizing
the execution, delivery and performance of this Agreement by the
Corporation;
7.4.2 A certificate of the Secretary or an Assistant
Secretary of the Corporation as (i) to the incumbency and signatures
of officers of the Corporation, and (ii) to the absence of any
proceedings for dissolution or liquidation with respect to the
Corporation; and
7.4.3 Resignations of all of the officers and directors of
the Corporation and the Subsidiary in accordance with the terms of
this Agreement.
7.5 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Bitterman and of the Corporation
made in this Agreement shall be true in all respects on and as of the
Closing Date and with the same effect as though such representations
and warranties had been made on and as of such date except as
otherwise contemplated or permitted by this Agreement, and API shall
have received at Closing a certificate or certificates to that effect
dated the Closing Date and executed on behalf of the Corporation by a
duly authorized officer of the Corporation and by Bitterman.
<PAGE>
7.6 ACTIONS OR PROCEEDINGS. No action or proceeding by any
governmental agency shall have been instituted or threatened which
seeks to enjoin, restrain or prohibit, or which would if successful
result in, damages in respect of, this Agreement or the complete
consummation of the transactions as contemplated by this Agreement,
and which would, in the good faith and reasonable judgment of API,
make it inadvisable to consummate such transactions, and no court
order shall have been entered and be in force in any action or
proceeding instituted by any other party which enjoins, restrains or
prohibits this Agreement or the complete consummation of the
transactions as contemplated by this Agreement.
7.7 SECURITIES LAWS. AII shall have received all necessary
permits and otherwise complied with any state Blue Sky, securities,
tender offer or take-over laws applicable to the issuance of shares of
AII Common Stock in connection with the Merger.
7.8 EMPLOYMENT AGREEMENTS. API shall have negotiated and
executed such amendments or modifications, effective as of the
Closing, to the written employment agreements with such non-at-will
employees of the Corporation as shall be satisfactory to API in its
sole and absolute discretion.
7.9 OPINION OF COUNSEL. API shall have received a favorable
opinion, reasonably satisfactory to API, of Snelling, Christensen &
Laue, P.A., counsel to the Corporation and Bitterman, dated as of the
Closing Date, addressed to API, to the effect that:
(a) The Corporation and the Subsidiary are duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and Wisconsin, respectively, and have all requisite power to
own, lease and operate their respective assets, properties and
business as now conducted.
(b) Bitterman and the Corporation have the full right,
power and authority required to enter into, execute and deliver this
Agreement and all other agreements and instruments to be executed by
Bitterman or the Corporation in connection herewith and to perform
fully its obligations hereunder and thereunder.
(c) This Agreement and all other agreements and instruments
to be executed by Bitterman and the Corporation in connection herewith
have been duly and validly authorized, executed and delivered by
Bitterman and the Corporation and constitute the legal, valid and
binding obligations of Bitterman and the Corporation, enforceable in
accordance with their respective terms, except to the extent that such
enforceability is limited by bankruptcy, insolvency, moratorium or
similar laws now or hereafter in effect relating to or limiting
creditors' rights generally.
(d) The authorized, issued and outstanding capital stock of
the Corporation and the Subsidiary is as stated in Exhibit 4.5 hereof;
all of the shares of issued and outstanding capital stock of the
Corporation and the Subsidiary have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable.
<PAGE>
(e) To the best knowledge of such counsel, neither the
Corporation or the Subsidiary is a party to or bound by any
outstanding option or agreement to sell, issue, buy or otherwise
dispose of or acquire any shares of capital stock or any debt security
of the Corporation or the Subsidiary.
(f) To the best knowledge of such counsel, there is no
pending claim, action, suit, investigation or proceeding of any kind
in which the Corporation or the Subsidiary has been served with
process or otherwise received actual notice, which will have a
material adverse effect on the Corporation or the Subsidiary.
(g) The ESOP has been terminated (but not liquidated) by
the Corporation.
(h) To the best knowledge of such counsel, no Shareholder
shall have perfected dissenters' rights with respect to the Merger
under the Minnesota Business Corporation Act.
(i) All necessary permits under Minnesota securities,
tender offer or take-over laws applicable to the issuance of shares of
AII Common Stock in connection with the Merger have been obtained.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF
BITTERMAN AND THE CORPORATION
The obligations of Bitterman and the Corporation under this
Agreement are subject to the satisfaction or waiver at or prior to the
Closing of the following conditions:
8.1 PERFORMANCE. Each of the acts and undertakings of API and
AII to be performed at or prior to the Closing pursuant to this
Agreement shall have been performed in all material respects.
8.2 SHAREHOLDER APPROVAL. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by
this Agreement shall have been duly authorized by Shareholders owning
a majority of the Shares and no Shareholder shall have perfected
dissenters rights with respect to the Merger under the Minnesota
Business Corporation Act.
8.3 CORPORATE ACTIONS. The Shareholders shall have received:
8.3.1 A certified copy of the resolutions duly adopted by
the Board of Directors and Shareholders of API authorizing the
execution, delivery and performance of this Agreement by API
including, without limitation, the Consulting Agreement and Non-
Competition Agreement;
8.3.2 A certificate of the Secretary or an Assistant
Secretary of API as to the absence of any proceedings for
dissolution or liquidation with respect to API; and
<PAGE>
8.3.3 A certified copy of the resolutions duly adopted by
the Board of Directors of AII authorizing the execution, delivery
and performance of this Agreement by AII, including, without
limitation, AII's guarantee of API's obligations under the Non-
Competition Agreement and the Consulting Agreement, and the
issuance and delivery of the AII Common Stock to the Shareholders
in accordance with this Agreement.
8.4 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of API and AII made in this Agreement
shall be true in all respects on and as of the Closing Date and with
the same effect as though such representations and warranties had been
made on and as of such date except as otherwise contemplated or
permitted by this Agreement, and the Shareholders shall have received
at Closing a certificate or certificates to that effect dated the
Closing Date and executed on behalf of API and AII by duly authorized
officers.
8.5 ACTIONS OR PROCEEDINGS. No action or proceeding by any
governmental agency shall have been instituted or threatened which
seeks to enjoin, restrain or prohibit, or which would if successful
result in, damages in respect of, this Agreement or the complete
consummation of the transactions as contemplated by this Agreement,
and which would, in the good faith and reasonable judgment of
Bitterman or the other Shareholders, make it inadvisable to consummate
such transactions, and no court order shall have been entered and be
in force in any action or proceeding instituted by any other party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.6 OPINION OF COUNSEL. The Shareholders shall have received a
favorable opinion, reasonably satisfactory to the Shareholders, of
Richman, Lawrence, Mann, Greene, Chizever, Friedman & Phillips,
counsel to API and AII, dated as of the Closing Date, addressed to the
Shareholders, to the effect that:
(a) API and AII have all requisite power, authority and
approval required to enter into, execute and deliver this Agreement
and all other agreements and instruments to be executed by API and AII
in connection herewith and to perform fully their respective
obligations hereunder and thereunder.
(b) AII and API are both duly organized, validly existing
and in good standing under the laws of the State of Delaware and have
all requisite power to own, lease and operate their respective assets,
properties and business as now conducted.
(c) This Agreement and all other agreements and instruments
to be executed and delivered by AII and API, or either of them, in
connection herewith, including without limitation, the Consulting
Agreement and the Non-Competition Agreement, have been duly and
validly authorized, executed and delivered by AII and API and
constitute the legal, valid and binding obligations of AII and API,
respectively, enforceable in accordance with their respective terms,
except to the extent that such enforceability is limited by
bankruptcy, insolvency, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally.
<PAGE>
(d) To the best knowledge of such counsel and except as
disclosed to the Shareholders prior to Closing, there is no pending
claim, action, suit, investigation or proceeding of any kind in which
AII or API has been served with process or otherwise received actual
notice which will have a material adverse effect on AII or API.
(e) The shares of AII Common Stock to be issued to the
Shareholders other than the ESOP will be, when delivered to such
Shareholders pursuant to this Agreement, duly authorized, validly
issued, fully paid and non-assessable shares of AII Common Stock free
and clear of any lien or other encumbrance upon issuance.
(f) Except for options and other rights issued under AII's
1995 Equity Participation Plan, the current capital structure of AII
is constituted as disclosed in the SEC Forms and there are no other
options, rights, warrants, convertible securities or other agreements
or commitments relating thereto which are not disclosed therein.
8.7 TERMINATION OF OPTION AGREEMENTS AND STOCK REDEMPTION AND
CROSS PURCHASE AGREEMENT. The option agreements and stock redemption
and cross purchase agreement described in Exhibit 4.6 shall have been
terminated.
8.8 TAX OPINION. The Shareholders shall have received a
favorable opinion, satisfactory to Bitterman and the other
Shareholders from tax counsel selected by Bitterman and addressed to
the Shareholders, to the effect that the transaction contemplated
under this agreement shall qualify as a valid "Hybrid Type A"
reorganization under Section 368 of the Code, applicable regulations
and law, and that the receipt by the Shareholders of the AII Common
Stock portion of the Merger Amount will not give rise to the
recognition of gain or loss.
ARTICLE 9
CLOSING
9.1 CLOSING. The consummation of the transaction contemplated
in this Agreement (the "Closing") shall be held at 10:00 a.m. on
December 20, 1996 or at such other time and date as the parties shall
mutually agree (the "Closing Date") and shall be effective as of the
actual Closing Date. The Closing shall be held at the offices of
Richman, Lawrence, Mann, Greene, Chizever, Friedman & Phillips, 9601
Wilshire Boulevard, Beverly Hills, California 90210, or any other
place as the parties shall mutually agree.
9.2 TRANSACTIONS AT THE CLOSING. At the Closing, the following
shall occur:
(a) API shall pay the cash portion of the Merger Amount
which is to paid at the Closing.
(b) The Shareholders shall deliver the certificates
representing the Shares to API, endorsed in blank or accompanied by
executed blank stock powers.
<PAGE>
(c) Bitterman and the Corporation shall deliver to API the
certificate referred to in Section 7.5.
(d) API shall deliver to the Shareholders the certificate
referred to in Section 8.4.
(e) The Corporation shall deliver to API the opinion letter
described in Section 7.9.
(f) API shall deliver to the Shareholders the opinion
letter described in Section 8.6.
(g) API and Bitterman shall deliver the Consulting
Agreement.
(h) API and Bitterman shall deliver the Non-Competition
Agreement.
(i) The Corporation shall deliver the resignations of all
of the officers and directors of the Corporation and the Subsidiary.
(j) The Corporation shall deliver evidence that the
Bitterman Employment Agreement and the option agreements and stock
redemption and cross purchase agreement referred to Exhibit 4.5 (items
2 and 4) have been terminated.
(k) API and the Corporation shall execute and deliver to
each other the Article of Merger and cause the same to be delivered
with appropriate fees for filing to the Secretary of States of
Minnesota and Delaware.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
10.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding
AII's and API's investigation of the affairs of the Corporation, and
excluding facts actually discovered or determined by AII or API
pursuant to such investigation, AII and API shall have the right to
rely fully upon the representations, warranties, covenants and
agreements of the Corporation and Bitterman contained in this
Agreement or the Exhibits attached hereto but only with respect to all
matters referred to in Section 11.2, 11.3 or 11.4 herein. To the
extent any of parties hereto have, prior to Closing, actual knowledge
of any facts or circumstances which constitutes a violation of, or
which is otherwise inconsistent with any representation or warranty
made by any other part under this Agreement then, in such event, the
party possessing such knowledge shall, upon Closing, be deemed to have
waived and released any claim or right against such other party under
Section 11.1 (but NOT Section 11.2, 11.3, 11.4) or any section of this
Agreement, other than Sections 11.2, 11.3 and 11.4, based on such
facts or circumstances.
<PAGE>
10.2 PERIOD OF SURVIVAL. All representations, warranties,
covenants and agreements of any of the parties hereto shall survive
the Closing to the extent as is set forth in Section 11.1.3 below.
ARTICLE 11
INDEMNIFICATION
11.1 OBLIGATIONS TO INDEMNIFY.
11.1.1 Subject to the time limitations set forth in Section
11.1.3 below, Bitterman shall indemnify, defend and hold harmless API
(and their affiliates and assigns) from and against all claims,
losses, liabilities, damages, deficiencies, payments, costs and
expenses actually incurred (including interest, penalties and
attorneys' fees) (collectively "General Losses"), directly resulting
from a breach of the covenants, representations and warranties of
Bitterman and/or the Corporation contained in this Agreement;
provided, however, that Bitterman shall not be liable under this
Section 11.1.1 unless and until the aggregate amount of General Losses
exceeds the aggregate amount of $75,000.00 minus the Professional Fees
(the "Threshold Amount") and then only to the extent of such excess.
The obligations of Bitterman under this Section 11.1.1 and Sections
11.2, 11.3 and 11.4 are referred to in this Agreement as an
"Indemnification." Notwithstanding any statement to the contrary
contained herein, neither Bitterman nor any of the Shareholders shall
have any responsibility or liability, under any Indemnification herein
or otherwise, for any General Losses arising from any act or omission
of AII or API.
11.1.2 Subject to the time limitations set forth in Section
11.1.3 below, AII and API shall jointly and severally indemnify,
defend and hold harmless Bitterman and the other Shareholders from and
against all General Losses directly resulting from a breach of the
covenants, representations and warranties of AII and API contained in
this Agreement. The obligations of AII and/or API under this Section
11.1.2 are also referred to in this Agreement as an "Indemnification."
11.1.3 No party shall have any obligation under this
Agreement with respect to any claim of breach or Indemnification where
notice thereof is not given to the party against whom Indemnification
is sought, within the one (1) year period commencing on the Closing
Date, except for (i) claims of fraud or intentional misrepresentation,
which shall survive the Closing indefinitely; and (ii) claims with
respect to any Tax Return or Taxes under Section 4.2 or any claims
with respect to Sections 4.18, 11.2, 11.3 or 11.4 herein, which shall
survive for the applicable statute of limitations under the Code or
other applicable law.
11.2 GENERAL TAX INDEMNIFICATION BY BITTERMAN. Bitterman shall,
under the Indemnification described in Section 11.1.1 above, and
subject to the limitations and other terms and conditions with respect
thereto set forth in this Article 11, also indemnify, defend and hold
harmless, on an actual net after-tax basis, API and the Corporation
<PAGE>
from and against any liability for Taxes attributable to the
operations or transactions of the Corporation resulting from any
assessment or proposed assessment (an "Asserted Tax Liability") by any
taxing authority with respect to any taxable year or that portion of
any taxable year of the Corporation ending on or before the Closing
Date, or ending after the Closing Date if it includes a pre-Closing
Date period, but only to the extent the Taxes payable in respect
thereof were properly due and payable on or before the Closing Date,
including interest and penalties due thereon and also including, to
the extent otherwise provided in this Agreement, any expenses
reasonably incurred by API and the Corporation as a result of
contesting such Asserted Tax Liability. Notwithstanding anything to
the contrary contained in this Section 11.2, Bitterman shall have no
obligation under this Section 11.2 to indemnify API for any taxes,
interest or penalties imposed as a result of any act or omission taken
by the Surviving Corporation from and after the Closing Date except to
the extent that such taxes, interest or penalties would have been
imposed had the Closing not taken place and the Surviving Corporation
had not engaged in any such act or omission.
Since payments under this Section 11.2 may be taxable, the term
"on an actual net after-tax basis" as used in this Section 11.2 means
the payments under this Section 11.2 will be grossed up to provide for
the taxes due on such payments, if any, after consideration of all
corresponding deductions or other present or future tax savings or
other benefits which may accrue or be available to API, AII or the
Surviving Corporation as a result thereof. In the event of any claim
of liability against Bitterman under this Section 11.2, API or its
designated representative shall comply with the procedure specified in
Section 11.5 below and shall keep Bitterman fully and timely informed
with respect to the commencement, status and nature of any Asserted
Tax Liability and shall, in good faith, allow Bitterman, at his sole
expense, to participate in any proceeding related thereto and to make
comments to API or its representative, regarding the conduct of or
positions taken in any such proceeding or related proceeding. In no
event shall API enter into any settlement or resolution of any pending
tax related disputes involving the same or any related governmental
agency without the consent of Bitterman, which consent shall not be
unreasonably withheld, regardless of whether any liability is asserted
against Bitterman for such related tax matter hereunder.
11.3 ESOP INDEMNIFICATION BY BITTERMAN. Bitterman shall, under
the Indemnification described in Section 11.1.1 above, and subject to
the limitations and other terms and conditions with respect thereto
set forth in this Article 11, also indemnify, defend and hold
harmless, API and the Corporation from and against any General Losses
attributable to the ESOP, its trustees, beneficiaries or
administrators and the establishment, operation, termination or
liquidation of the ESOP.
11.4 EMPLOYMENT INDEMNIFICATION BY BITTERMAN. Bitterman shall,
under the Indemnification described in Section 11.1.1 above, and
subject to the limitations and other terms and conditions with respect
thereto set forth in this Article, also indemnify, defend and hold
harmless, API and the Corporation from and against any General Losses
<PAGE>
with respect to any employee or independent contractor of the
Corporation alleging that on or before the Closing Date the
Corporation or any of its shareholders, directors, officers, employees
or agents did not on behalf of the Corporation substantially comply
with all applicable laws relating to such employee or contractor
(including, without limitation, laws relating to wages, hours, equal
opportunity, sexual harassment, collective bargaining and the payment
of social security and other federal, state and local taxes).
11.5 INDEMNIFICATION PROCEDURE. In the event of any claims of
Indemnification under this Agreement, the party claiming the right to
Indemnification (the "Indemnified Party") shall notify the party
against whom Indemnification is sought (the "Indemnifying Party") of
such claim within a commercially reasonably time not to exceed thirty
(30) days following receipt of actual knowledge by the Indemnified
Party of the facts upon which such claim is based. Thereafter:
11.5.1 If the basis of such claim is a legal, governmental,
or administrative proceeding, the Indemnifying Party may, at its
option and expense, defend any such proceeding if the proceeding could
give rise to an Indemnification obligation hereunder. If the
Indemnifying Party elects to defend any proceeding, it shall notify
the Indemnified Party within thirty (30) days of the delivery of
notice of such claim of such election, acknowledge its obligation to
provide the Indemnification and shall have full control over the
conduct of such proceeding, although the Indemnified Party shall have
the right to retain legal counsel at its own expense and shall have
the right to approve any settlement of any dispute giving rise to such
proceeding, provided that such approval may not be unreasonably
withheld. The Indemnified Party shall reasonably cooperate with the
Indemnifying Party in such proceeding. If the Indemnifying Party does
not provide such notice and acknowledgement within such thirty (30)
day period, the Indemnified Party shall be free to pay, compromise or
defend such claim following fifteen (15) days prior notice thereof to
the Indemnifying Party and may pursue against the Indemnifying Party
any remedies available in law or equity, including, but not limited
to, rights to offset, if applicable, as described in Section 11.6
below.
11.5.2 If the basis of such claim is not a legal,
governmental, administrative proceeding, the Indemnifying Party shall
have thirty (30) days after receiving notice of such claim from the
Indemnified Party to cure the basis for such claim. Except as
otherwise provided in this Section 11.5.2 below, if the Indemnifying
Party has not cured the basis for such claim within such time, the
Indemnified Party shall be free to resolve the basis for such claim
(by negotiation, settlement, payment or otherwise) and may pursue
against the Indemnifying Party any remedies available in law or
equity, including, but not limited to, rights to offset, if
applicable, as described in Section 11.6 below. Notwithstanding the
foregoing, however, in the event the Indemnifying Party, within such
time, commences and pursues, in good faith, any contest or other
course of action reasonably intended to resolve the basis for such
claim which cannot be concluded within such time for any reason other
<PAGE>
than delay on the part of the Indemnifying Party then, in such event,
and provided the Indemnified Party is not hereby prejudiced, such time
period shall be deemed extended to the extent reasonably necessary
under the circumstances for the Indemnifying Party to cure the basis
for such claim.
11.5.3 Notwithstanding any statement to the contrary
contained herein, in the event any party has a claim of
Indemnification against Bitterman hereunder which falls within the
Threshold Amount, Bitterman shall be entitled to notice thereof in
accordance with this Section 11.5 from such party.
11.5.4 The Indemnifying Party may object to any claim of
Indemnification by notice of timely objection to the Indemnified Party
given within thirty (30) days of the Indemnified Party's notice of
such claim. If such objection is timely made, and the parties are
unable to resolve the same by mutual agreement within ten (10) days
thereafter, then, the matter shall be resolved by arbitration in
accordance with the American Arbitration Association Rules of
Commercial Arbitration, in Minneapolis, Minnesota, upon demand of
either party.
11.6 OFFSET. In the event API becomes entitled to
Indemnification for a finally determined amount under this Article 11
hereof with respect to any General Losses actually incurred by the
Corporation in excess of the Threshold Amount, API may, in its sole
and absolute discretion, elect to offset such amount against any
amounts (whether principal, interest or otherwise) thereafter due to
Bitterman from API under the Consulting Agreement or the Non-
Competition Agreement. The parties hereby acknowledge that API has
not hereby made an election of remedies in reserving such offset
rights, or in exercising any such offset rights from time to time;
that Bitterman is and shall, unless otherwise provided herein, remain
liable for any and all of his obligations pursuant to this Agreement;
and that API may, with respect to any General Losses pursue any other
remedy at law or equity directly against Bitterman. API's offset
rights herein set forth represent neither a liquidation of damages nor
a limitation of liability, but a source of funds which may, but need
not, be utilized in satisfaction of any General Loss actually incurred
by and finally determined to be due to API hereunder.
ARTICLE 12
MISCELLANEOUS
12.1 PUBLICITY. Except as may otherwise be required by law, no
publicity release or other general public announcement concerning this
Agreement or the transactions contemplated by this Agreement shall be
made by Shareholders or the Corporation without advance approval
thereof by API.
<PAGE>
12.2 NOTICES. Any notice or other communication required or
permitted under this Agreement shall be in writing and shall be
delivered personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, three business days after the date of deposit in the United
States mails, as follows:
(i) if to AII or API to:
Ambassadors International, Inc.
500 Newport Center Drive
Suite 900
Newport Beach, California 92660
Attention: Mr. John Ueberroth
with a copy to:
Richman, Lawrence, Mann, Greene,
Chizever, Friedman & Phillips
9601 Wilshire Boulevard, Penthouse
Beverly Hills, California 90210-5270
Attention: Gerald M. Chizever, Esq.
(ii) if to the Corporation to:
Bitterman & Associates, Inc.
2600 Fernbrook Lane, Suite 124
Plymouth, Minnesota 55447
Attention: Mr. Richard E. Fordyce
if to Bitterman to:
Mr. Michael H. Bitterman
c/o Mr. Joseph Christensen
5101 Vernon Avenue, Suite 400
Edina, Minnesota 55436
in each case, with a copy to:
Snelling, Christensen & Laue, P.A.
5101 Vernon Avenue South, Suite 400
Minneapolis, Minnesota 55436
Attention: Joseph J. Christensen, Esq.
Any party may, by notice given in accordance with this Section to the
other parties, designate another address or person for receipt of
notices hereunder.
12.3 ENTIRE AGREEMENT. This Agreement (including the Exhibits)
contains the entire agreement among the parties with respect to the
Merger and related matters and transactions, as set forth herein, and
supersedes all other prior agreements, written or oral, with respect
to the subject matter of this Agreement, including but not limited to
that certain Memorandum of Understanding between AII and the
Corporation dated October 15, 1996.
<PAGE>
12.4 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms of this Agreement may be
waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party against whom the waiver is sought to be
enforced. No delay on the part of any party in exercising any right,
power or privilege under this Agreement shall operate as a waiver
thereof; nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof
or the exercise of any other such right, power or privilege. The
rights and remedies provided in this Agreement are cumulative and are
not exclusive of any rights or remedies that any party may otherwise
have at law or in equity. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any breach of any
covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state
of facts upon which any claim of any such breach is based may also be
the subject matter of any other covenant or agreement contained in
this Agreement (or in any other agreement between the parties) as to
which there is no breach.
12.5 GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
Minnesota.
12.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and assigns and legal representatives. This
Agreement is not assignable, except by operation of law or by API to
any nominee which is also a wholly owned subsidiary of AII.
12.7 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
12.8 EXHIBITS. The Exhibits are a part of this Agreement as if
fully set forth herein. All references herein to Sections,
subsections, clauses and Exhibits shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
12.9 LEGAL ACTION. In the event that any party hereto institutes
arbitration or legal action in connection with a breach or default or
other legal disputes hereunder, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs incurred in connection
with such arbitration or action. Such arbitration or action shall be
initiated only in the State of Minnesota.
12.10 HEADINGS. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
<PAGE>
12.11 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be enforceable
under applicable law. However, if any provision of this Agreement
shall be deemed unenforceable under applicable law by a court having
jurisdiction, such provision shall be unenforceable, without
invalidating the remainder thereof or any of the remaining provisions
of this Agreement.
12.12 MODIFICATION. No modification of this Agreement or waiver
of any such right or remedy shall be effective unless made in writing
duly executed by the parties hereto.
<PAGE>
ARTICLE 13
SIGNATURES
IN WITNESS WHEREOF, this Agreement has been executed and delivered on
behalf of each of the parties hereto as of the day and year first
above written.
/s/Michael H. Bitterman
-------------------------------------
MICHAEL H. BITTERMAN
BITTERMAN & ASSOCIATES, INC.
By: /s/Richard E. Fordyce
-------------------------------------
Richard E. Fordyce, President
AMBASSADORS INTERNATIONAL, INC.
By: /s/John Ueberroth
-------------------------------------
John A. Ueberroth, President
AMBASSADOR PERFORMANCE IMPROVEMENT, INC.
By: John A. Ueberroth
-------------------------------------
Its: President
-------------------------------------
<PAGE>
EXHIBITS
Exhibit 1.1 Articles of Merger
Exhibit 3.1 Consulting Agreement
Exhibit 3.2 Non-Competition Agreement
Exhibit 3.5 Investment Representations
Exhibit 3.7 AII 1995 Equity Participation Rights
Exhibit 4.2 Consents and Approvals
Exhibit 4.3 Foreign Jurisdictions
Exhibit 4.5 Title to Shares
Exhibit 4.6 Options
Exhibit 4.8 Corporate Records
Exhibit 4.10 Certain Changes
Exhibit 4.11 Contracts
Exhibit 4.12A Liens
Exhibit 4.12B Fixed Assets
Exhibit 4.13 Leases
Exhibit 4.14 Intangibles
Exhibit 4.17 Employment Agreements
Exhibit 4.18 Pension Plans
Exhibit 4.19 Insurance
Exhibit 4.20 Licenses
Exhibit 5.2 Consents and Approvals
<PAGE>
