EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
LA-MAN CORPORATION,
a Nevada corporation;
DISPLAYS ACQUISITIONS CORP.,
a Florida corporation;
ELECTRONIC SIGN CORPORATION,
a California corporation d/b/a AD ART;
▇▇▇▇▇ ▇. ▇▇▇▇;
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, INDIVIDUALLY AND AS
TRUSTEE OF THE ▇▇▇▇▇▇ ▇'▇▇▇▇▇ TRUST
DATED APRIL 18, 1993;
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, INDIVIDUALLY AND AS
TRUSTEE OF THE PAPAIS TRUST
DATED JANUARY 29, 1991;
and
▇▇▇ ▇. ▇▇▇▇▇▇
DATED AS OF FEBRUARY 17, 1998
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TABLE OF CONTENTS
PAGE
SECTION 1. DESCRIPTION OF TRANSACTION................................... 2
1.1 Merger of the Company into Merger Sub.............................. 2
1.2 Effect of the Merger............................................... 2
1.3 Closing; Effective Time............................................ 2
1.4 Repurchase of Company Common Stock Prior to Merger................. 2
1.5 Conversion of Shares............................................... 3
1.6 Closing of the Company's Transfer Books............................ 4
1.7 Exchange of Certificates........................................... 4
1.8 Tax Consequences................................................... 5
1.9 Accounting Treatment............................................... 6
1.10 Termination of Agreement........................................... 6
1.11 Issuance of Additional Shares of Parent Common Stock............... 6
1.12 Further Action..................................................... 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDER.................................. 7
2.1 Due Organization; No Subsidiaries; Etc............................. 7
2.2 Articles of Incorporation and Bylaws; Records...................... 8
2.3 Capitalization, Etc................................................ 8
2.4 Financial Statements............................................... 9
2.5 Absence of Changes................................................. 9
2.6 Title to Assets.................................................... 11
2.7 Bank Accounts; Receivables; Payables............................... 11
2.8 Real Property; Equipment; Motor Vehicles........................... 12
2.9 Proprietary Assets................................................. 13
2.10 Contracts ......................................................... 14
2.11 Liabilities........................................................ 16
2.12 Compliance with Legal Requirements................................. 17
2.13 Governmental Authorizations........................................ 17
2.14 Tax Matters........................................................ 17
2.15 Employee and Labor Matters; Benefit Plans.......................... 19
2.16 Environmental Matters.............................................. 21
2.17 Insurance ......................................................... 22
2.18 Related Party Transactions......................................... 22
2.19 Legal Proceedings; Orders.......................................... 22
2.20 Company Warranties................................................. 23
2.21 Authority; Binding Nature of Agreement............................. 23
2.22 Non-Contravention; Consents........................................ 23
2.23 Full Disclosure.................................................... 24
2.24 Representations and Warranties with Respect to the Subsidiary...... 24
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TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE SHAREHOLDER................................. 25
3.1 Requisite Power and Authority...................................... 25
3.2 Title to Shares.................................................... 25
3.3 No Violation, Conflict, Etc........................................ 25
3.4 No Consent or Approval............................................. 26
3.5 No Injunctions, Orders, Etc........................................ 26
3.6 Additional Tax Representations and Warranties...................... 26
(s) Dissenters' Rights................................................. 29
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB............................................... 29
4.1 SEC Filings; Financial Statements.................................. 29
4.2 Authority; Binding Nature of Agreement............................. 29
4.3 Valid Issuance..................................................... 30
SECTION 5. COVENANTS OF THE COMPANY AND THE
SHAREHOLDER.................................................. 30
5.1 Conduct of the Company's Business.................................. 30
5.2 Necessary Consents and Other Actions............................... 31
5.3 Advice of Changes.................................................. 31
5.4 Access to Information.............................................. 31
5.5 Confidentiality; Public Announcements.............................. 31
5.6 No Solicitation.................................................... 32
5.7 FIRPTA Matters..................................................... 32
5.8 Tax Matters........................................................ 32
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES.......................... 32
6.1 Filings and Consents............................................... 32
6.2 Environmental Review............................................... 33
6.3 Capital Advance by Parent.......................................... 33
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND MERGER SUB............................................... 33
7.1 Accuracy of Representations........................................ 33
7.2 Performance of Covenants........................................... 33
7.3 Approval by the Company's Shareholders............................. 33
7.4 Completion of Due Diligence........................................ 34
7.5 Approval of Parent's Directors and Shareholders. ................. 34
7.6 Consents. ......................................................... 34
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TABLE OF CONTENTS
(CONTINUED)
PAGE
7.7 Agreements and Documents........................................... 34
7.8 FIRPTA Compliance.................................................. 35
7.9 Legal Investment................................................... 35
7.10 No Restraints...................................................... 35
7.11 No Legal Proceedings............................................... 35
7.12 Employees ......................................................... 35
7.13 New Employment and Consulting Agreements........................... 35
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY...................................................... 35
8.1 Accuracy of Representations........................................ 35
8.2 Performance of Covenants........................................... 36
8.3 Consents ......................................................... 36
8.4 No Restraints...................................................... 36
SECTION 9. INDEMNIFICATION, ETC......................................... 36
9.1 Survival of Representations, Etc................................... 36
9.2 Indemnification by the Company's Shareholders...................... 37
9.3 No Contribution.................................................... 37
9.4 Interest ......................................................... 37
9.5 Defense of Third Party Claims...................................... 38
9.6 Exercise of Remedies by Indemnitees Other Than Parent.............. 39
SECTION 10. TERMINATION AND ABANDONMENT.................................. 39
10.1 Termination........................................................ 39
10.2 Procedure Upon Termination......................................... 39
SECTION 11. AGREEMENT TO VOTE SHARES..................................... 40
11.1 Agreement To Vote Shares........................................... 40
SECTION 12. REGISTRATION RIGHTS.......................................... 40
12.1 Piggyback Registration............................................. 40
12.2 Indemnification.................................................... 41
12.3 Transferability of Registration Rights............................. 42
12.4 Amendment of Section 12............................................ 42
SECTION 13. MISCELLANEOUS PROVISIONS..................................... 42
13.1 Shareholders' Designated Agent..................................... 42
13.2 Further Assurances................................................. 43
13.3 Fees and Expenses.................................................. 43
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TABLE OF CONTENTS
(CONTINUED)
PAGE
13.4 Attorneys' Fees.................................................... 43
13.5 Notices ......................................................... 43
13.6 Time is of the Essence............................................. 44
13.7 Headings ......................................................... 44
13.8 Counterparts....................................................... 44
13.9 Governing Law; Venue............................................... 44
13.10 Successors and Assigns............................................. 45
13.11 Remedies Cumulative; Specific Performance.......................... 45
13.12 Waiver ......................................................... 45
13.13 Amendments......................................................... 45
13.14 Severability....................................................... 45
13.15 Parties in Interest................................................ 46
13.16 Entire Agreement................................................... 46
13.17 Construction....................................................... 46
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EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Ownership of Company Common Stock
Exhibit C - Selling Shareholders
Exhibit D - Form of Share Repurchase Note
Exhibits E-1 and E-2 - Forms of Continuity of Interest Certificates
Exhibit F - Form of Noncompetition Agreement
Exhibit G - Form of Release
Exhibit H - Form of Legal Opinion of ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Exhibit I - Form of Spousal Consent, Power of Attorney and
Waiver
Exhibit J - List of Certain Employees
Exhibit K - Limitations on Indemnification
Exhibit L - Form of Voting Agreement and Irrevocable Proxy
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
("Agreement") is made and entered into as of February 17, 1998, by and among:
LA-MAN CORPORATION, a Nevada corporation ("Parent"); DISPLAYS ACQUISITIONS
CORP., a Florida corporation and a wholly owned subsidiary of Parent ("Merger
Sub"); ELECTRONIC SIGN CORPORATION, a California corporation d/b/a AD ART (the
"Company"); and ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, individually and in his
capacity as Trustee of the ▇▇▇▇▇▇ ▇'▇▇▇▇▇ TRUST DATED APRIL 18, 1993, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇, individually and in her capacity as Trustee of the PAPAIS TRUST DATED
JANUARY 29, 1991, and ▇▇▇ ▇. ▇▇▇▇▇▇ (individually, "Shareholder" and
collectively, "Shareholders"). Certain other capitalized terms used in this
Agreement are defined elsewhere in this Agreement and in Exhibit A.
RECITALS:
A. Parent, Merger Sub and the Company intend to effect a merger of the
Company with and into Merger Sub in accordance with this Agreement, the
California General Corporation Law and the Florida Business Corporation Act (the
"Merger"). Upon consummation of the Merger, the Company will cease to exist.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
accounted for as a purchase in accordance with GAAP.
C. The Shareholders own (in the case of Messrs. Long and Papais
directly and in the case of ▇▇. ▇'▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇, through the ▇'▇▇▇▇▇
Trust and the Papais Trust) a total of 50 shares of common stock, no par value,
of the Company (collectively, the "Company Common Stock"), as reflected on
Exhibit B.
D. Each of the Shareholders will personally benefit from the
transactions contemplated by this Agreement and, in consideration thereof,
agrees to be bound the terms of this Agreement.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF THE COMPANY INTO MERGER SUB. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), the Company shall be merged with and into Merger Sub, and the
separate existence of the Company
shall cease. Merger Sub will continue as the surviving corporation in the Merger
(the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the California General
Corporation Law and the Florida Business Corporation Act.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Parent, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ at 2:00 p.m., Eastern
Standard Time, within three (3) business days after the satisfaction or waiver
of all conditions set forth in Sections 7 and 8 (the "Closing Date").
Contemporaneously with the Closing, a properly executed certificate or agreement
of merger conforming to the requirements of the California General Corporation
Law and properly executed articles of merger conforming to the requirements of
the Florida Business Corporation Act shall be filed with each of (a) the
Secretary of State of the State of Florida and (b) the Secretary of State of the
State of California and (c) the office of the county recorder in each county in
the State of California within which any real property owned by the Company is
located. The Merger shall become effective at the time such certificate or
agreement and articles of merger are filed with and accepted by the Secretary of
State of the State of Florida and the Secretary of State of the State of
California (the "Effective Time").
1.4 REPURCHASE OF COMPANY COMMON STOCK PRIOR TO MERGER. On the Closing
Date and immediately prior to the Closing:
(a) The Company shall repurchase a total of 25 shares of
Company Common Stock (the "Repurchasable Shares") from those Shareholders listed
on Exhibit C ("Selling Shareholders"), for total consideration of $3,000,000
(the "Share Repurchase Price"). The number of Repurchasable Shares to be
purchased from each Selling Shareholder, and the portion of the Share Repurchase
Price payable to each such Selling Shareholder, are specified on Exhibit C.
(b) The Selling Shareholders shall tender to the Company all
Company Stock Certificates evidencing the Repurchasable Shares, either endorsed
in blank or accompanied by duly signed stock powers. The Company shall promptly
cancel of record all Repurchasable Shares, and upon such cancellation the
Repurchasable Shares shall be returned to authorized but unissued shares of
Company Common Stock, and shall not be deemed outstanding immediately prior to
the Effective Time.
(c) In payment of the Share Repurchase Price, the Company
shall execute and deliver to each of the Selling Shareholders a promissory note,
in the form attached as Exhibit D ("Share Repurchase Note"), in the principal
amount equal to the portion of the Share Repurchase Price payable to such
Selling Shareholder.
(d) On the later of (i) the Closing Date, or (ii) in the event
Parent has not consummated the Acquisition Financing, the date of consummation
of the Acquisition Financing (anticipated to be within five (5) business days
following the Closing), Parent shall, directly or
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through Merger Sub, advance to the Company immediately available funds in an
aggregate amount equal to the principal amount of each of the Share Repurchase
Notes and the Company shall fully pay and retire each Share Repurchase Note and,
upon receipt of such payment by the Selling Shareholder, each Selling
Shareholder shall ▇▇▇▇ his or her Share Repurchase Note "cancelled" and
surrender such note to the Company. The Selling Shareholders acknowledge and
agree that the payments for the Repurchasable Shares specified in this Section
1.4 constitute all consideration payable by the Company, Merger Sub or Parent
for such Repurchasable Shares, and that the Selling Shareholders shall not be
entitled to receive, with respect to such Repurchasable Shares, any other
payments, Parent Common Stock (as hereinafter defined) or other consideration
whatsoever as the result of, incident to or upon consummation of the Merger.
(e) In the event the Acquisition Financing is not consummated
by Parent on or before March 16, 1998, the Company and the Shareholders shall
have the right, upon written notice to Parent, to rescind this Agreement and all
agreements and documents executed and delivered in connection herewith. In the
event Parent receives notice of such rescission, Parent shall as promptly as
practicable assign and transfer to the Shareholders all outstanding shares of
capital stock of the Surviving Corporation, in the same proportions as the
shares of Company Common Stock were held by the Shareholders immediately prior
to the execution and delivery of this Agreement. Between the Effective Time and
the earlier of (i) the consummation of the Acquisition Financing and (ii) March
16, 1998, Parent shall cause the business activities of the Surviving
Corporation to be conducted only in the ordinary course, to the effect that in
the event of any such rescission, the financial condition, results of operations
and legal condition of the Surviving Corporation shall be as substantially
identical as possible to the financial condition, results of operations and
legal condition of the Company as of the Effective Time.
1.5 CONVERSION OF SHARES.
(a) Subject to the other terms and provisions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
further action on the part of Parent, Merger Sub, the Company or any shareholder
of the Company, each of the 25 shares of Company Common Stock outstanding
immediately prior to the Effective Time shall be converted into the right to
receive 32,400 shares of the common stock, par value $.001 per share, of Parent
("Parent Common Stock") and such additional shares of Parent Common Stock as may
become issuable pursuant to Section 1.11. The number of shares of Parent Common
Stock issuable pursuant to this Section 1.5(a) shall be ratably adjusted to take
into account any stock dividend, stock split, reverse stock split or other
distribution of securities on outstanding shares of Parent Common Stock effected
between the date of this Agreement and the Closing Date.
(b) If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the Company, then
the shares of Parent Common Stock issued in exchange for such shares of Company
Common Stock will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing such
shares of Parent Common Stock may accordingly be marked with appropriate
legends.
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1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time,
Parent will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of shares of Parent Common Stock that such
holder has the right to receive pursuant to the provisions of this Section 1,
and the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.7, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive upon such surrender a certificate representing shares of Parent
Common Stock as contemplated by this Section 1. If any Company Stock Certificate
shall have been lost, stolen or destroyed, Parent may, in its discretion and as
a condition precedent to the payment of any cash and the issuance of any
certificate representing Parent Common Stock, require the owner of such lost,
stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit and execute and deliver to Parent an affidavit and indemnity
agreement, indemnifying Parent and the Surviving Corporation against any claim
that may be made against Parent or the Surviving Corporation with respect to
such Company Stock Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, until such
holder surrenders such Company Stock Certificate in accordance with this Section
1.7 (at which time such holder shall be entitled to receive all such dividends
and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be
issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued.
(d) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the
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Surviving Corporation may be required to deduct or withhold therefrom under the
Code or under any provision of state, local or foreign tax law. To the extent
such amounts are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
(e) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of capital stock of the Company for any
shares of Parent Common Stock (or dividends or distributions with respect
thereto), or for any cash amounts, delivered to any public official pursuant to
any applicable abandoned property, escheat or similar law.
(f) Dissenter's Shares. Notwithstanding Section 1.5(a) of this
Agreement, shares of Company Common Stock issued and outstanding at the
Effective Time which are held by a holder who has not voted in favor of the
Merger and who has demanded payment for such shares in accordance with Chapter
13 of the California General Corporation Law ("Dissenting Company Shares") shall
not be converted into or represent the right to receive Parent Common Stock
payable thereon pursuant to Section 1.4 and shall be entitled only to such
rights of appraisal as are granted by Chapter 13 of the California General
Corporation Law ("Dissenting Provisions"); unless and until such holder fails to
perfect or effectively withdraws or otherwise loses his or her right to
appraisal. If after the Effective Time any such holder fails to perfect or
effectively withdraws or loses his right to appraisal, such shares of Company
Common Stock shall be treated as if they had been converted at the Effective
Time into the right to receive the Parent Common Stock payable thereon pursuant
to Section 1.5. The Company shall give Parent prompt notice upon receipt by the
Company of any written objection to the Merger and such written demands for
payment for shares of Company Common Stock under the Dissenting Provisions, and
the withdrawals of such demands, and any other instruments provided to the
Company pursuant to the Dissenting Provisions (any shareholder duly making such
demand being hereinafter called a "Dissenting Shareholder"). Each Dissenting
Shareholder that becomes entitled, pursuant to the Dissenting Provisions, to
payment for any shares of Company Common Stock held by such Dissenting
Shareholder shall receive payment therefor from Parent (but only after the
amount thereof shall have been agreed upon or at the times and in the amounts
required by the Dissenting Provisions) and all of such Dissenting Shareholder's
shares of Company Common Stock shall be canceled. The Company shall not, except
with the prior written consent of Parent, voluntarily make any payment with
respect to, or settle or offer to settle, any demand for payment by a Dissenting
Shareholder.
1.8 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.9 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be accounted for as a purchase in accordance with GAAP.
1.10 TERMINATION OF AGREEMENT. In addition to the other termination
rights provided elsewhere in this Agreement, in the event the Designated Parent
Stock Price (as defined below) is less than $3.25 or greater than $6.25, this
Agreement may be terminated by either Parent, or
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the Company, upon written notice delivered not less than three (3) business days
prior to the Closing Date. For purposes of this Section 1.11, the "Designated
Parent Stock Price" shall be the weighted average of the closing sale prices of
a share of Parent Common Stock as reported on the Nasdaq SmallCap Market for
each of the 20 consecutive trading days ending on the 10th day immediately
preceding the Closing Date.
1.11 ISSUANCE OF ADDITIONAL SHARES OF PARENT COMMON STOCK.
(a) Subject to the provisions of Section 2.4 (b), as
additional consideration in the Merger, on or before October 31, 1999, Parent
shall issue to the Shareholders entitled to receive shares of Parent Common
Stock in the Merger, in proportion to their respective percentage ownership
interests in the shares of Company Common Stock outstanding immediately prior to
the Effective Time, up to an additional 540,000 shares of Parent Common Stock
("Additional Parent Shares"), as provided in clause (b) below. The number of
shares of Parent Common Stock issuable pursuant to this Section 1.12(a) shall be
ratably adjusted to take into account any stock dividend, stock split, reverse
stock split or other distribution of securities on outstanding shares of Parent
Common Stock effected between the date of this Agreement and the Closing Date.
(b) The issuance of Additional Parent Shares shall be subject
to, and conditioned upon, the attainment by the Surviving Corporation of certain
levels of net income (as defined under GAAP), for the Surviving Corporation's
fiscal year ending June 30, 1999. The number of Additional Parent Shares, if
any, to be issued shall be calculated based on the following net income levels
recognized by the Surviving Corporation for such fiscal year:
1998 Additional
Net Income Parent Shares
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(1) $1,400,000 49,100
(2) 1,500,000 98,200
(3) 1,600,000 147,300
(4) 1,700,000 196,400
(5) 1,800,000 245,500
(6) 1,900,000 294,600
(7) 2,000,000 343,700
(8) 2,100,000 392,800
(9) 2,200,000 441,900
(10) 2,300,000 491,000
(11) 2,400,000 540,000
(c) In the event the Surviving Corporation recognizes annual
net income in an amount between any of the net income levels specified in clause
(b) above, the number of Additional Parent Shares to be issued pursuant to this
Section 1.12 shall be adjusted on a pro rata basis. In determining annual net
income of the Surviving Corporation for the purposes of this Section 1.11, no
general or administrative corporate expenses of Parent (other than the actual
interest paid by Parent on the portion of the Acquisition Financing utilized to
fund the working
6
capital advance to the Surviving Corporation pursuant to Section 6.3) shall be
charged to or against the Surviving Corporation.
1.12 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
Each of the Company and the Shareholders, jointly and severally,
represents and warrants as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Company Contracts.
(b) The Company has not conducted any business under or
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, other than the name "Ad Art."
(c) The Company is not and has not been required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth
(i) the names of the members of the Company's board of directors and (ii) the
names and titles of the Company's officers. The board of directors of the
Company does not have and has never had any committees.
(e) The Company does not own any controlling interest in any
Entity and the Company has never owned, beneficially or otherwise, any shares or
other securities of, or any direct or indirect equity interest in, any Entity,
except for E.S.C. of Nevada, Inc., a wholly owned Nevada subsidiary of the
Company (the "Subsidiary"). The Company has not agreed and is not obligated to
make any future investment in or capital contribution to any Entity. The Company
has not guaranteed and is not responsible or liable for any obligation of any of
the Entities in which it owns or has owned any equity interest.
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2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate or articles of incorporation and bylaws, including all amendments
thereto; (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company and the board of directors of the Company. There have been no formal
meetings or other proceedings of the shareholders of the Company and the board
of directors of the Company that are not fully reflected in such minutes or
other records. There has not been any violation of any of the provisions of the
Company's articles of incorporation or bylaws, and the Company has not taken any
action that is inconsistent in any material respect with any resolution adopted
by the Company's shareholders and the Company's board of directors. The books of
account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of
1,000 shares of common stock, no par value, of which 50 shares are issued and
outstanding as of the date of this Agreement. All of the outstanding shares of
Company Common Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. Part 2.3 of the Disclosure Schedule provides an
accurate and complete description of the terms of each repurchase option (other
than as specified in Section 1.4 hereof) which is held by the Company and to
which any of such shares is subject.
(b) Except for this Agreement and as set forth in Part 2.3 of
the Disclosure Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire from
the Company any shares of the capital stock or other securities of the Company;
(ii) stock option plan, stock issuance plan or other similar plan of the
Company; (iii) outstanding security, instrument or obligation of the Company
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iv) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (v) to the Knowledge of the Company
and the Shareholders, condition or circumstance that may give rise to or provide
a basis for the assertion of a claim by any Person to the effect that such
Person is entitled to acquire or receive from the Company any shares of capital
stock or other securities of the Company.
(c) All outstanding shares of Company Common Stock have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Company Contracts.
(d) Except as set forth in Part 2.3 of the Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities of the Company.
8
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the unaudited balance
sheet of the Company as of December 31, 1997, the reviewed but unaudited balance
sheet of the Company as of December 31, 1996, and the related income statements,
statements of shareholders' equity and statements of cash flows for the 12-month
periods then ended (the "Company Financial Statements").
(b) Within sixty (60) days following the Closing Date, the
Surviving Corporation shall deliver to Parent audited balance sheets of the
Company as of December 31, 1997 and December 31, 1996 and related audited income
statements, statements of shareholders' equity and statements of cash flows for
the years then ended (the "Audited Financial Statements"), accompanied by an
unqualified report relative to such audit by a public accounting firm acceptable
to Parent. In the event the Audited Financial Statements reflect annual net
income of less than $500,000, the number of Additional Parent Shares issuable
pursuant to Section 1.12 shall be reduced (in the order such shares become
payable pursuant to clauses (1)- (11) of Section 1.12(b), by .54 shares for each
$1.00 of such shortfall in annual net income.
(c) The Company Financial Statements are, and when delivered
the Audited Financial Statements will be, true and complete in all material
respects and present and will present fairly the financial position of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods covered thereby, and have been (or, in
the case of the Audited Financial Statements will be, when delivered) prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, except for normal year-end audit adjustments.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since December 31, 1997:
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and, to the Knowledge of the Company and the
Shareholders, no event has occurred that will, or could reasonably be expected
to, have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of the Company's
assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the
issuance of (i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or any other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
9
(e) there has been no amendment to the Company's certificate
or articles of incorporation or bylaws, and the Company has not effected or been
a party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure which,
when added to all other capital expenditures made on behalf of the Company since
the Interim Statement Date, exceeds $50,000;
(h) the Company has not (i) entered into or permitted any of
the assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)) or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(i) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed of,
or leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for rights or other assets acquired,
leased, licensed or disposed of in the ordinary course of business and
consistent with the Company's past practices;
(j) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness;
(k) the Company has not made any pledge of any of its assets
or otherwise permitted any of its assets to.become subject to any Encumbrance,
except for pledges of assets made in the ordinary course of business and
consistent with the Company's past practices;
(l) the Company has not (i) lent money to any Person (other
than pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money;
(m) the Company has not (i) established or adopted any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hired any new employee;
(n) the Company has not changed any of its methods of
accounting or accounting practices in any respect;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal
Proceeding;
10
(q) the Company has not entered into any material transaction
or taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
2.6 TITLE TO ASSETS.
(a) Part 2.6 of the Disclosure Schedule identifies all assets
that are material to the business of the Company and owned by it as of December
31, 1997. None of the assets set forth in Part 2.6 of the Disclosure Schedule
has been disposed of. Except as set forth in Part 2.6 of the Disclosure
Schedule, the Company owns, and has good, valid and marketable title to, all
assets purported to be owned by it, including: (i) all assets reflected in the
Company Financial Statements; (ii) all assets referred to in Parts 2.1, 2.7(b)
and 2.9 of the Disclosure Schedule and all of the Company's rights under the
Contracts identified in Part 2.10 of the Disclosure Schedule; and (iii) all
other assets reflected in the Company's books and records as being owned by the
Company. Except as set forth in Part 2.6 of the Disclosure Schedule, all of said
assets are owned by the Company free and clear of any liens or other
Encumbrances, except for (x) any lien for current taxes not yet due and payable,
and (y) minor liens that have arisen in the ordinary course of business and that
do not (in any case or in the aggregate) materially detract from the value of
the assets subject thereto or materially impair the operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets
that are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES; PAYABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of February 11, 1998. All
existing accounts receivable of the Company (including those accounts receivable
reflected in the Company Financial Statements that have not yet been collected
and those accounts receivable that have arisen since February 11, 1998 and have
not yet been collected) (i) represent valid obligations of customers of the
Company arising from bona fide transactions entered into in the ordinary course
of business, (ii) are current and will be collected in full when due, without
any counterclaim or set off (net of an allowance for doubtful accounts not to
exceed $150,000 in the aggregate).
(c) The Company has heretofore delivered to Parent an aging
schedule of the Company's accounts payable as of January 24, 1998 ("Accounts
Payable Aging Schedule"), which schedule is and shall be accurate in all
material respects as of the Closing Date except for changes since January 24,
1998, resulting from the conduct of the Company's business in the
11
ordinary course. The accounts payable of the Company are, and as of the Closing
Date will be, current and bona fide obligations incurred in the ordinary course
of business payable when due after the Closing Date without penalty or increase
in amount, except for such non-current accounts as will not cause the Company to
incur any penalties or increases in the amounts payable that singularly or in
the aggregate would have a Material Adverse Effect on the Company. Except as
otherwise set forth in Part 2.7(c) of the Disclosure Schedule, no supplier of
goods, products or services to the Company is withholding the fulfillment of any
orders by the Company for goods, products or services or, to the Knowledge of
the Company and the Shareholders, is threatening to withhold fulfillment of any
such orders or to institute any Legal Proceeding against the Company, as the
result of the nonperformance by the Company of any of its obligations to such
supplier.
2.8 REAL PROPERTY; EQUIPMENT; MOTOR VEHICLES.
(a) The Company does not own or lease any real property or any
interest in real property, except as identified in Part 2.8 of the Disclosure
Schedule.
(b) Part 2.8 of the Disclosure Schedule sets forth a correct
and complete list of (i) all real property owned, leased or used by the Company,
together with a description of the principal buildings, improvements and
structures located thereon, (ii) all machinery and equipment owned, leased or
used by the Company, and (iii) all automobiles, trucks or other vehicles owned
by or leased to the Company. The property listed on Part 2.8 of the Disclosure
Schedule is in conformity in all material respects with all applicable Legal
Requirements relating thereto or currently in effect or scheduled to come into
effect, except as to those Legal Requirements the failure of the Company to
conform with which would not have a Material Adverse Effect on the Company.
Except as reflected on Part 2.8 of the Disclosure Schedule, the fixed assets of
the Company are located on real property owned or leased by the Company.
(c) All material items of real property, personal property,
equipment and other tangible assets owned by or leased to the Company are
adequate for the uses to which they are being put, are in good condition and
repair (ordinary wear and tear excepted) and are adequate for the conduct of the
Company's business in the manner in which such business is currently being
conducted.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $500), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company.
12
Except as set forth in Part 2.9(a)(iv) of the Disclosure Schedule, the Company
has good, valid and marketable title to all of the Company Proprietary Assets
identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Disclosure Schedule, free
and clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the Disclosure Schedule.
Except as set forth in Part 2.9(a)(v) of the Disclosure Schedule, the Company is
not obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in Part 2.9(a)(vi) of the Disclosure
Schedule, the Company has not developed jointly with any other Person any
Company Proprietary Asset with respect to which such other Person has any
rights.
(b) The Company has taken all measures and precautions
reasonably necessary to protect and maintain the confidentiality and secrecy of
all Company Proprietary Assets (except Company Proprietary Assets whose value
would be unimpaired by public disclosure) and otherwise to maintain and protect
the value of all Company Proprietary Assets. Except as provided in Part 2.9(b)
of the Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or
conflicts with any Proprietary Asset owned or used by any other Person,
including, without limitation, any former employers of any of the Company's
Shareholders. The Company is not infringing, misappropriating or making any
unlawful use of, and the Company has not at any time infringed, misappropriated
or made any unlawful use of, or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. To the Knowledge of the Company and the
Shareholders, no other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) (i) Each Company Proprietary Asset conforms in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and (ii) there has not been any claim by any customer or
other Person alleging that any Company Proprietary Asset (including each version
thereof that has ever been licensed or otherwise made available by the Company
to any Person) does not conform in all material respects with any specification,
documentation, performance standard, representation, warranty or statement made
or provided by or on behalf of the Company, and, to the Knowledge of the Company
and the Shareholders, there is no basis for any such claim. There are no
obligations of the Company to correct or repair any programming errors or other
defects in the Company Proprietary Assets, and to the Knowledge of the Company
and the Shareholders, there is no reason for the Company to establish reserves
to cover any costs associated with any obligations of the Company to correct or
repair any programming errors or other defects in the Company Proprietary
Assets.
13
(e) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable the Company to conduct its business in
the manner in which such business has been and is being conducted. Except as set
forth on Part 2.9(e) of the Disclosure Schedule, the Company has not (i)
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis or (ii) entered into any covenant not to compete or Contract limiting its
ability to exploit fully any of its Proprietary Assets or to transact business
in any market or geographical area or with any Person.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies:
(i) all Sign Contracts in effect as of the date of
this Agreement that provide for or contemplate revenues to be received by the
Company after January 1, 1998, listing the respective contract identification
numbers, effective dates and expiration dates of each such Sign Contract, which
list is and shall be accurate in all material respects as of the Closing Date
except for changes since the date of this Agreement resulting from the conduct
of the Company's business in the ordinary course.
(ii) each Company Contract relating to the employment
of, or the performance of services by, any employee, consultant or independent
contractor;
(iii) each Company Contract relating to the
acquisition, transfer, use, development, sharing or license of any technology or
any Proprietary Asset;
(iv) each Company Contract imposing any restriction
on the Company's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any technology;
(v) each Company Contract creating or involving any
agency relationship, distribution arrangement or franchise relationship;
(vi) each Company Contract relating to the
acquisition, issuance or transfer of any securities;
(vii) each Company Contract relating to the creation
of any Encumbrance with respect to any asset of the Company;
(viii) each Company Contract involving or
incorporating any guaranty, any pledge, any performance or completion bond, any
indemnity or any surety arrangement;
(ix) each Company Contract creating or relating to
any partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
14
(x) each Company Contract relating to the purchase or
sale of any product or other asset by or to, or the performance of any services
by or for, any Related Party (as defined in Section 2.18);
(xi) each Company Contract constituting or relating
to a Government Contract or Government Bid;
(xii) any other Company Contract that was entered
into outside the ordinary course of business or was inconsistent with the
Company's past practices;
(xiii) any other Company Contract that has a term of
more than 60 days and that may not be terminated by the Company (without
penalty) within 60 days after the delivery of a termination notice by the
Company; and
(xiv) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an amount
or having a value in excess of $50,000 in the aggregate, or (B) the performance
of services having a value in excess of $50,000 in the aggregate.
(Contracts in the respective categories described in clauses (i) through (xiv)
above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete
copies of all Material Contracts, including all amendments thereto. Part 2.10(b)
of the Disclosure Schedule provides an accurate description of the terms of each
Material Contract that is not in written form. Each Material Contract is valid
and in full force and effect and is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) (i) the Company has not violated or breached, or
committed any default under, any Material Contract, and, to the Knowledge of the
Company and the Shareholders, no other Person has violated or breached, or
committed any default under, any Material Contract;
(ii) No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Material Contract, (C) give any Person
the right to accelerate the maturity or performance of any Material Contract, or
(D) give any Person the right to cancel, terminate or modify any Material
Contract;
(iii) the Company has not received any notice or
other communication regarding any actual or possible violation or breach of, or
default under, any Material Contract; and
15
(iv) the Company has not waived any of its material
rights under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Material Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) The Contracts between the Company and each of its
distributors require such distributor to enter into agreements with such
distributor's end-users on the same terms and conditions as those entered into
between the Company and its end-users, and, to the Knowledge of the Company and
the Shareholders, each of the Company's distributors has complied with such
terms.
(g) The Company is not a party to any Contract which extends
the Company's warranties beyond their standard respective durations or extends
any limitation on the Company's liability.
(h) The Company has delivered to Parent true and complete
copies of the respective forms of sale, leasing and maintenance Sign Contracts
used by the Company in the conduct of its business ("Sign Contract Forms").
Except as otherwise specified in Part 2.10(h) of the Disclosure Schedule: (i)
each of the Sign Contracts is in form and substance identical or substantially
similar to the applicable Sign Contract Form, except for such Sign Contracts
copies of which have been delivered to Parent and collectively denoted as
"Dissimilar Sign Contracts"; and (ii) each Sign Contract was entered into in the
ordinary course of business.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with GAAP, and whether due
or to become due), except for: (a) liabilities identified as such in the
"liabilities" column of the balance sheets included in the Company Financial
Statements; (b) accounts payable or accrued salaries that have been incurred by
the Company since December 31, 1997 in the ordinary course of business and
consistent with the Company's past practices; (c) liabilities under Material
Contracts, to the extent the nature and magnitude of such liabilities can be
specifically ascertained by reference to the text of such Material Contracts;
and (d) the liabilities identified in Part 2.11 of the Disclosure Schedule. All
reserves contained in the Company Financial Statements, including reserves for
warranty liabilities, are adequate for their respective stated purposes.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since its formation been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Disclosure Schedule,
16
the Company has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times since its formation has been, in compliance with
all material terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The Company
has not received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body with respect to any taxable period ending
on or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. Except for estimated 1997 federal income taxes, all amounts shown
on the Company Returns to be due on or before the Closing Date have been or will
be paid on or before the Closing Date. The Company has delivered to Parent
accurate and complete copies of all Company Returns filed by the Company which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with GAAP.
(c) The Company has delivered to Parent accurate and complete
copies of all reports and similar documents (to which the Company has access)
relating to all audits or examinations by any Governmental Body of the Company
Returns. No extension or waiver of the limitation period applicable to any of
the Company Returns has been granted (by the Company or any other Person), and
no such extension or waiver has been requested from the Company.
(d) No claim or Proceeding is pending or has been threatened
against or with respect to the Company in respect of any Tax. There are no
unsatisfied liabilities for Taxes (including liabilities for interest, additions
to tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by the Company with respect to any Tax
(other than liabilities for Taxes asserted under any such notice of deficiency
or similar
17
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 28OG or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
(f) (i) The Company has used its best efforts to
accurately calculate and pay all sales or excise taxes due as the result of its
business operations and, incident thereto, to reasonably interpret the
applicable guidelines of the relevant Governmental Bodies with respect to the
calculation of the amount of sales or excise taxes due as the result of the
Company's operations. However, at times the applicable Governmental Bodies may
modify their interpretations of their own guidelines or modify the methodologies
by which they conduct sales or excise tax audits. In the event an audit after
the Effective Time by any applicable Governmental Body of either the State of
California or the State of Nevada results in the assessment of a sales or excise
tax deficiency against the Company for the period between May 27, 1995 (the date
of commencement of the Company's operations) and the Effective Time, then to the
extent such deficiency results solely from the use by such Governmental Body of
a methodology or interpretation of the regulations for the determination of such
taxes that is different from the methodology used by the Company or the
interpretation of such regulations by the Company in calculating taxes due, or
to the extent such deficiency is solely the result of a sampling process used by
the Governmental Body that yields different results than determined by the
Company, such deficiency shall not be deemed to be a breach of this Section 2.14
to the extent such deficiency does not exceed $250,000.
(ii) The Company and the Shareholders acknowledge and
agree that the provisions of clause (i) above shall not relieve it or them of
liability to Parent or Merger Sub for Damages, if any, pursuant to Article 9
hereof arising out of or in connection with issues pending before the California
State Board of Equalization relative to Ad Art Signs, Inc. audits 28-671216- 010
and ▇▇-▇▇▇▇▇▇-▇▇▇.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
incentive compensation, stock option, severance pay, termination pay,
hospitalization, medical, life or
18
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $25,000 in the aggregate.
(b) Except as specified in Part 2.15(b) of the Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and, to the
Knowledge of the Company and the Shareholders, has not at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to
those employee welfare benefit plans (as defined in Section 3(l) of ERISA,
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of Employees or former Employees which are described
in Part 2.15(c) of the Disclosure Schedule (the "Welfare Plans") and, except as
specified in Part 2.15(c) of the Disclosure Schedule, none of such plans is a
multi-employer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to
Parent:
(i) an accurate and complete copy of such Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual
report, if required under ERISA, with respect to such Plan for the last two
years;
(iii) an accurate and complete copy of the most
recent summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan, and all
material employee communications relating to such Plan;
(iv) if such Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stoploss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
19
(e) Except as specified in Part 2.15(e) of the Disclosure
Schedule: (i) the Company is not required to be, and has never been required to
be, treated as a single employer with any other Person under Section 4001(b)(1)
of ERISA or Section 414(b), (c), (m) or (o) of the Code; (ii) the Company has
never been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code; and (iii) the Company has never made a complete or
partial withdrawal from a multi-employer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability," as such term is
defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would affect any Employee.
(g) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401 (a) of the Code has received a favorable determination from the Internal
Revenue Service, and neither the Company nor any of the Shareholders has
Knowledge of any reason why any such determination letter should be revoked.
(k) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any bonus,
golden parachute or severance payment) to any current or former Employee or
director of the Company (whether or not under any Plan), or materially increase
the benefits payable under any Plan, or result in any acceleration of the time
of payment or vesting of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their dates of employment and
their positions. The Company is not a party
20
to any collective bargaining contract or other Contract with a labor union
involving any of its Employees, except as described in Part 2.15(e) of the
Disclosure Schedule.
(m) Part 2.15(m) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(o) The Company has good labor relations, and neither the
Company nor any of the Shareholders has any reason to believe that (i) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement will have a Material Adverse Effect on the Company's labor relations,
or (ii) any of the Company's employees intends to terminate his or her
employment with the Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. The Company has not received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
any Environmental Law and, to the knowledge of the Company and the Shareholders,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. Neither the Company nor, to
the Knowledge of the Company and the Shareholders, any other owner of any
property leased or controlled by the Company has received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens' group, employee or otherwise, that alleges that the Company or such
owner is not in compliance with any Environmental Law. All Governmental
Authorizations currently held by the Company pursuant to Environmental Laws are
identified in Part 2.16 of the Disclosure Schedule. (For purposes of this
Section 2.16: (i) "Environmental Law" means any federal, state, local or foreign
Legal Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated by
any Environmental Law or that is otherwise a danger to health, reproduction or
the environment.)
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete copies of the insurance policies
identified in Part 2.17 of the Disclosure Schedule. Each of the
21
insurance policies identified in Part 2.17 of the Disclosure Schedule is in full
force and effect. The Company has not received any notice or other communication
regarding any actual or possible (a) cancellation or invalidation of any
insurance policy, (b) refusal of any coverage or rejection of any claim under
any insurance policy, or (c) material adjustment in the amount of the premiums
payable with respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. (a) No Related Party has, and no
Related Party has at any time had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since January 1, 1996 been, indebted to
the Company; (c) no Related Party has entered into, or has had any direct or
indirect (other than as a shareholder of the Company) financial interest in, any
Material Contract, transaction or business dealing involving the Company; (d) no
Related Party is competing, or has at any time competed, directly or indirectly,
with the Company; and (e) no Related Party has any claim or right against the
Company (other than rights as a shareholder, director or officer of the Company
and rights to receive compensation for services performed as an employee of the
Company). (For purposes of the Section 2.18 each of the following shall be
deemed to be a "Related Party": (i) each of the Shareholders; (ii) each
individual who is, or who has at any time been, an officer of the Company; (iii)
each member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
the Company) in which any one of the individuals referred to in clauses "(i)",
"(ii)" and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise." a material voting, proprietary
or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS; REGULATORY FILINGS.
(a) Except as described in Part 2.19(a) of the Disclosure
Schedule: (i) there is no pending Legal Proceeding, and, to the Knowledge of the
Company and the Shareholders, no Person has threatened to commence any Legal
Proceeding, (aa) that involves the Company or any of the assets owned or used by
the Company or any Person whose liability the Company has retained or assumed,
either contractually or by operation of law, or (bb) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or any of the other transactions contemplated by
this Agreement; and (ii), to the Knowledge of the Company and the Shareholders,
no event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to the
commencement of any such Legal Proceeding.
(b) Part 2.19(b) of the Disclosure Schedule describes each
Legal Proceeding that has been commenced by or has been pending against the
Company since January 1, 1995.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. Neither the Company nor any of the Shareholders is subject to any
order, writ, injunction, judgment or decree that relates to the Company's
business or to any of the assets owned or used by the Company. No officer or
other employee of the Company is subject to any order, writ, injunction,
judgment or decree that prohibits such officer or other employee from engaging
in or continuing any conduct, activity or practice relating to the Company's
business.
22
(d) Part 2.19(d) of the Disclosure Schedule describes all
permits and other authorizations required by Governmental Bodies for the
performance by the Company of its obligations under all Material Contracts and
the conduct of its business in the manner presently conducted ("Material
Permits"), except for such permits or authorizations the absence of which will
not have a Material Adverse Effect on the Company. Except as described in Part
2.19(d) of the Disclosure Schedule, all Material Permits are in full force and
effect and the Company has not failed to fulfill any material condition required
to be fulfilled by the Company under any such Material Permit prior to the date
of this Agreement.
2.20 COMPANY WARRANTIES. The Company has delivered to Parent true,
complete and correct copies of the forms of all presently outstanding warranties
(including product and materials warranties, performance warranties and
warranties as to workmanship) provided to all purchasers and lessees of the
Company's products and other customers of the Company ("Company Warranties").
Except for the Company Warranties, the Company presently has outstanding no
other express or implied guaranties or warranties of product, materials,
performance or workmanship to any users of the Company's products.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the right,
power and authority to enter into and to perform its obligations under this
Agreement; and the execution, delivery and performance by the Company of this
Agreement have been duly authorized by all necessary action on the part of the
Company and its board of directors. This Agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.22 NON-CONTRAVENTION; CONSENTS. Neither the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Company's certificate or articles of incorporation
or bylaws, or (ii) any resolution adopted by the Company's shareholders or the
Company's board of directors;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company;
23
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Material Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any such Material Contract, (ii) accelerate the maturity or performance of
any such Material Contract, or (iii) cancel, terminate or modify any such
Material Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as otherwise provided in this Agreement, the Company is not and will not
be required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.23 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not, and the Closing Certificates (as defined in Section 7.5(h)
below) will not, (i) contain any representation, warranty or information that is
false or misleading with respect to any material fact, or (ii) omit to state any
material fact or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
2.24 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SUBSIDIARY. The
representations and warranties contained in this Article 2 with respect to the
Company shall also apply to the Subsidiary, and shall mean, refer to and include
the Subsidiary, with such limited modifications or exceptions as may be
applicable, e.g., the reference in Section 2.1(a) shall be to the State of
Nevada rather than the State of California, Section 2.3(a) shall be modified to
mean the capitalization of the Subsidiary, and representations and warranties
relating to the ownership of the outstanding securities of the Subsidiary shall
mean, refer to and include the Company rather than the Shareholders.
SECTION 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE SHAREHOLDERS
Each of the Shareholders hereby, jointly and severally, represents,
warrants and covenants as follows (such representations and warranties do not
lessen or obviate the representations and warranties of the Company and the
Shareholders set forth in Section 2 of this Agreement):
3.1 REQUISITE POWER AND AUTHORITY. Each of the Shareholders has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All action on the
Shareholders' part required for the lawful
24
execution and delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon execution and delivery, this Agreement will be the
valid and binding obligation of the Shareholders, enforceable in accordance with
its terms.
3.2 TITLE TO SHARES. Each of the Shareholders is the beneficial and
record owner of the shares of Company Common Stock set forth opposite his or her
name on Exhibit B hereto, and has good and marketable title to such shares of
Company Common Stock, free and clear of any Encumbrances (except as provided in
Section 1.4). Each Shareholder has the legal right to sell and deliver such
shares of Company Common Stock pursuant to this Agreement. The Repurchasable
Shares, and the shares of Company Common Stock exchanged in connection with the
Merger, include all shares of Company Common Stock owned beneficially or of
record by the Shareholders, and the Shareholders own no other securities of the
Company. Except for this Agreement and as set forth in Part 3.2 of the
Disclosure Schedule, the Repurchasable Shares and the shares of Company Common
Stock exchanged in connection with the Merger are not subject to any proxy,
voting trust agreement or other contract, agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of such shares. Except as set forth in Part 3.2 of the Disclosure
Schedule, none of the Shareholders has issued (and is not committed to issue)
any option, warrant or other right to subscribe for or purchase any capital
stock of the Company or securities convertible into or exchangeable for any
capital stock of the Company.
3.3 NO VIOLATION, CONFLICT, ETC. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, by the
Shareholders do not and will not violate, conflict with, result in a breach of,
or constitute a default or result in or permit any acceleration of any
obligation under (i) any law, ordinance or governmental rule or regulation to
which any Shareholder is subject, (ii) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or regulatory official,
body or authority which is applicable to any Shareholder, or (iii) any mortgage,
indenture, agreement, contract, commitment, lease, license, or other instrument
or document, oral or written, to which any Shareholder is a party, or by which
any of the shares of Company Common Stock of any Shareholder may be bound,
except where a waiver with respect hereto has been or will, prior to the
Closing, be obtained or except for such violation, default or conflict that
could not reasonably be expected to materially affect the ability of each
Shareholder to consummate the transactions provided for in this Agreement.
3.4 NO CONSENT OR APPROVAL. Neither the execution and delivery by the
Shareholders, nor the consummation by the Shareholders of the transactions
contemplated by this Agreement, requires the consent or approval of, or the
giving of advance notice by any of the Shareholders to, or the registration by
any Shareholder with, or the taking of any other action by any Shareholder in
respect of, any federal, state or local governmental authority, and the
execution, delivery and performance of this Agreement by the Shareholders will
not result in the creation of any Encumbrance upon any of the shares of Company
Common Stock owned by any Shareholder.
3.5 NO INJUNCTIONS, ORDERS, ETC. There is no injunction, order or
decree of any court or administrative agency or any action or proceeding pending
or, to the Shareholder's
25
Knowledge, threatened against any Shareholder to restrain or prohibit the
consummation of the transactions contemplated hereby.
3.6 ADDITIONAL TAX REPRESENTATIONS AND WARRANTIES. After consulting
with their counsel and auditors regarding the meaning of and factual support for
the following additional tax representations and warranties to this Agreement,
each of the Shareholders certifies and represents that the following additional
tax representations and warranties are now true and will be true as of the
Effective Time.
(a) The Merger will be consummated pursuant to the material
terms of this Agreement and none of the material terms and conditions therein
have been waived or modified and the Company has no plan or intention to waive
or modify any such material condition.
(b) Pursuant to the Merger, the Company will merge with and
into Merger Sub, and Merger Sub will acquire all of the assets and liabilities
of the Company. Specifically, the assets transferred to Merger Sub pursuant to
the Merger will represent 100% of the fair market value of the net assets and
100% of the fair market value of the gross assets held by the Company
immediately prior to the Merger. For the purpose of determining the percentage
of the Company's net and gross assets held by Merger Sub immediately following
the Merger, the following assets will be treated as property held by Merger Sub
or the Company, as the case may be, immediately prior but not subsequent to the
Merger: (i) assets disposed of by the Company or Merger Sub (other than assets
transferred from the Company to Merger Sub in the Merger) prior to or subsequent
to the Merger and in contemplation thereof (including without limitation any
asset disposed of by the Company, other than in the ordinary course of business,
pursuant to a plan or intent existing during the period ending on the Effective
Time and beginning with the commencement of negotiations (whether formal or
informal) with Parent regarding the Merger (the "Pre-Merger Period")), (ii)
assets used by the Company or Merger Sub to pay shareholders perfecting
dissenters' rights or other expenses or liabilities incurred in connection with
the Merger and (iii) assets used to make distribution, redemption or other
payments in respect of the Company Common Stock or rights to acquire such stock
(including payments treated as such for tax purposes) that are made in
contemplation of the Merger or that are related thereto.
(c) Other than in the ordinary course of business or pursuant
to its obligations under this Agreement, the Company has made no transfer of any
of its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger (or any other corporate
acquisition) or during the Pre-Merger Period.
(d) The principal reasons for the Company participating in the
Merger and the assumption of the Company's liabilities by Merger Sub pursuant to
the Merger are bona fide business reasons and purposes unrelated to Taxes.
(e) At the Effective Time, the Company will have no
outstanding equity interests other than the Company Common Stock specified in
Section 2.3 (excluding the Repurchasable Shares). At the Effective Time, the
Company will have no outstanding warrants, options, or convertible securities or
any other type of right outstanding pursuant to which any
26
person could acquire shares of Company Common Stock or any other equity interest
in the Company.
(f) The total fair market value of all consideration other
than Parent Common Stock received by the Company's Shareholders in the Merger
(including, without limitation, the cash to be paid to the Selling Shareholders
for the Repurchasable Shares as provided in Section 1.4) will be less than 50%
of the aggregate fair market value of all Company Common Stock outstanding
immediately prior to the Merger.
(g) The liabilities of the Company have been incurred by the
Company in the ordinary course of its business.
(h) The fair market value of the Company's assets will, at the
Effective Time, exceed the aggregate liabilities of the Company plus the amount
of liabilities, if any, to which such assets are subject.
(i) The Company is not and will not be at the Effective Time
an "investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv)
of the Code.
(j) The Company is not and will not be at the Effective Time
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(k) Neither the Company nor any of the Shareholders has
Knowledge of, or believes that there exists, any plan or intention on the part
of the Shareholders (a "Plan") to engage in a sale, exchange, transfer,
distribution (including, without limitation, a distribution by a corporation to
its shareholders), pledge, disposition or any other transaction which results in
a reduction in the risk of ownership or a direct or indirect disposition (a
"Sale") of shares of Parent Common Stock received in the Merger that would
reduce the Shareholders' ownership of Parent Common Stock to a number of shares
having a value as of the Effective Time of less than 50% of the aggregate fair
market value, immediately prior to the Merger, of all outstanding shares of
Company Common Stock. For purposes of this Section 3.6(k), shares of Company
Common Stock (i) with respect to which Shareholders receive consideration in the
Merger other than Parent Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights and cash received
pursuant to Section 1.4) and/or (ii) with respect to which a Sale occurs prior
to and in contemplation of the Merger, shall be considered shares of outstanding
Company Common Stock exchanged for Parent Common Stock in the Merger and then
disposed of pursuant to a Plan.
(l) Except with respect to (i) the Repurchasable Shares and
(ii) payments of cash to Shareholders who perfect dissenters' rights, 100% of
the outstanding Company Common Stock will be exchanged solely for Parent Common
Stock. Thus, except as set forth in the preceding sentence, the Company intends
that no consideration be paid or received (directly or indirectly, actually or
constructively) for Company Common Stock other than Parent Common Stock.
27
(m) The fair market value of the Merger consideration received
by each of the Shareholders (including without limitation the Share Repurchase
Price) will be approximately equal to the fair market value of the Company
Common Stock surrendered in exchange therefor and the aggregate consideration
received by the Shareholders in exchange for their shares of Company Common
Stock will be approximately equal to the fair market value of all of the
Repurchasable Shares and the outstanding shares of the Company Common Stock
immediately prior to the Merger.
(n) Each of Merger Sub, Parent, the Company and the
Shareholders will pay separately its or their own expenses relating to the
Merger.
(o) There is no intercorporate indebtedness existing between
Parent and the Company or between Merger Sub and the Company that was issued,
acquired, or will be settled at a discount as a result of the Merger, and Parent
will assume no liabilities of the Company or any Company's Shareholders in
connection with the Merger.
(p) The terms of this Agreement are the product of arm's
length negotiations.
(q) None of the compensation received by any
shareholder-employees of the Company will be separate consideration for, or
allocable to, any of their shares of Company Common Stock; none of the shares of
Parent Common Stock received by any shareholder- employees of the Company will
be separate consideration for, or allocable to, any employment agreement or any
covenants not to compete; and the compensation paid to any shareholder employees
of the Company will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
(r) With respect to each instance, if any, in which shares of
Company Common Stock have been purchased by a stockholder of Parent (a "Parent
Stockholder") during the Pre-Merger Period (a "Stock Purchase"): (i) to the
Knowledge of the Company, (A) the Stock Purchase was made by such Parent
Stockholder on its own behalf, rather than as a representative, or for the
benefit, of Parent, (B) the Stock Purchase was entered into solely to satisfy
the separate interests of such Parent Stockholder and the seller, and (C) the
purchase price paid by such Parent Stockholder pursuant to the Stock Purchase
was the product of arm's length negotiations; and (ii) the Stock Purchase was
not a formal or informal condition to consummation of the Merger.
(s) DISSENTERS' RIGHTS. Each of the Shareholders acknowledges
that he or she has been furnished a copy of, and has read and understands the
provisions of, Chapter 13 of the California General Corporation Law providing
shareholders of California corporations rights, subject to certain conditions,
to dissent from a transaction such as the Merger, to have their shares appraised
pursuant to such statutes, and to receive payment of such appraised value.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant as
follows:
28
4.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of its annual report on Form 10-KSB for
the year ended June 30, 1997, its quarterly report on Form 10-QSB for the
quarter ended September 30, 1997 and proxy statement on Schedule 14A for the
annual meeting of stockholders held on October 30, 1997, as filed by Parent with
the SEC, and prior to the Closing will deliver to the Company an accurate and
complete copy (excluding copies of exhibits) of its quarterly report on Form
10-QSB for the quarter ended December 31, 1997 (the "Parent SEC Documents"). As
of the time it was or will be filed with the SEC (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) each of the Parent SEC Documents complied or will comply in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act, as the case may be.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied (or, when filed, will comply) as to form in
all material respects with the published rules and regulations of the SEC
applicable thereto; (ii) were or will be prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered, except as may be
indicated in the notes to such financial statements and (in the case of
unaudited statements) as permitted by Form 10-QSB of the SEC, and except that
unaudited financial statements may not contain footnotes and are subject to
normal and recurring year-end audit adjustments which will not, individually or
in the aggregate, be material in magnitude; and (iii) fairly present or will
fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
4.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Parent and Merger Sub
of this Agreement (including the contemplated issuance of Parent Common Stock in
the Merger in accordance with this Agreement) have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's stockholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against them in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
4.3 VALID ISSUANCE. Subject to Section 1.4(c), the Parent Common Stock
to be issued in the Merger will, when issued in accordance with the provisions
of this Agreement, be validly issued, fully paid and nonassessable.
SECTION 5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 CONDUCT OF THE COMPANY'S BUSINESS. From and after the date hereof
and prior to the Closing, the Company will conduct, and the Shareholders will
cause the Company to conduct, its business and affairs only in the ordinary
course, consistent in all material respects
29
with prior practice. Without limiting the generality of the foregoing, prior to
the Closing, the Company will not, and the Shareholders will cause the Company
not to, without Parent's prior written approval or except as expressly provided
for in this Agreement:
(a) change its certificate or articles of incorporation or
bylaws or merge or consolidate or obligate itself to do so with or into any
other entity;
(b) enter into any contract, agreement, commitment or other
understanding or arrangement of a type which would have to be set forth in Part
2.10(a) of the Disclosure Schedule hereof; or
(c) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
Company Financial Statements (or the notes thereto), PROVIDED that in no event
shall the Company repay any long-term indebtedness except to the extent required
by the terms thereof; or
(d) declare or pay any dividend or distribution on any of its
shares of capital stock; or
(e) perform, take any action or incur or permit to exist any
acts, transactions, events or occurrences of the type described in clauses (c)
through (q) of Section 2.5 hereto which would have been inconsistent with the
representations and warranties set forth in Section 2.5 had the same occurred
after the close of the Unaudited Interim Balance Sheet and prior to the date
hereof.
The Company and the Shareholders agree to use their best efforts
consistent with past practice and policies to preserve intact the Company's
present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
5.2 NECESSARY CONSENTS AND OTHER ACTIONS. Prior to the Closing, the
Company will use its reasonable best efforts to obtain such written consents and
take such other actions as may be necessary or appropriate to allow the
consummation of the transactions contemplated hereby and to allow the Company to
carry on its business after the Closing.
5.3 ADVICE OF CHANGES. Prior to the Closing, the Company will notify
Parent in writing promptly after learning of (a) any event subsequent to the
date of this Agreement which would render any representation or warranty of the
Company or any of the Shareholders contained in this Agreement, if made on or as
of the date of such event or the Closing Date, untrue or inaccurate in any
material respect or would cause the Company to fail to comply with its
obligations hereunder in any material respect, (b) any notice of default
received by the Company or any of the Shareholders under any material instrument
or material agreement to which any of them is a party or by which any of them is
bound, which default would, if not
30
remedied, have a Material Adverse Effect on the Company, or (c) any actions,
suits, proceedings or investigations by or before any court, board or
governmental agency, initiated by or against it or known by it to be threatened
against the Company or any of the Shareholders. The Company agrees to discuss
with Parent in advance any major reductions in its work force.
5.4 ACCESS TO INFORMATION. The Company will give Parent and Merger Sub
and their financing sources, together with their attorneys, accountants and
other representatives, during normal business hours reasonable access to the
Company's personnel and to its properties, documents, contracts, books and
records, and will furnish Parent and Merger Sub with copies of such documents
and with such information with respect to its affairs as Parent and Merger Sub
and their financing sources may from time to time reasonably request.
5.5 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.
(a) The Company, its Board of Directors and the Shareholders
will hold in confidence all discussions and negotiations with Parent relating to
the acquisition of the assets or any equity interest in the Company by Parent
except for disclosure of such discussions and negotiations to its employees,
legal counsel, accountants and other advisors necessary in connection with such
acquisition and except for such disclosure as may be necessary pursuant to
applicable securities laws or as may be required of, or advisable for, the
Company's officers and directors to make in the exercise of their fiduciary
duties, as advised by the Company's counsel. In addition, from the date of this
Agreement until the Closing Date, the Company, the Shareholders and their
respective representatives will hold in confidence and not use any information
obtained from Parent that is not publicly available except for disclosures of
such information to sources of financing necessary in connection with this
Agreement, which disclosures shall only be made subject to a reasonable form of
confidentiality agreement customary in the industry. In the event that this
Agreement is terminated, all information obtained by the Company, the
Shareholders and their respective Representatives from Parent that is not
publicly available will be returned to Parent and will continue to be kept in
confidence and not used by the Company, the Shareholders and their respective
Representatives; and all information obtained by Parent and Merger Sub and their
respective Representatives from the Company, and the Shareholders that is not
publicly available will be returned to Company and the Shareholders,
respectively, and will continue to be kept in confidence and not used by Parent
and Merger Sub and their respective Representatives.
(b) (i) None of the Company or the Shareholders shall (and the
Company shall not permit any of its Representatives to) issue any press release
or make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement, without
Parent's prior written consent, and (ii) Parent will use reasonable efforts to
consult with the Company prior to issuing any press release or making any public
statement regarding the Merger.
5.6 NO SOLICITATION. The Company undertakes and agrees that until the
Termination Date (as defined in Section 10.1 below), the Company shall not, and
shall cause its respective officers, representatives, agents, employees and
shareholders not to, directly or indirectly, solicit, encourage, entertain,
negotiate or conduct discussions regarding any transaction which entails the
31
sale of all or substantially all of its assets, any merger or consolidation of
the Company with any person other than Parent, the sale or other transfer of any
of the Company's outstanding capital stock to any person other than Parent or
the issuance and sale of any authorized but unissued shares of capital stock or
securities convertible into such shares to any third party. In the event the
Company receives, directly or indirectly, or learns that any of its shareholders
has received, from any third party any offer to enter into any such prohibited
transaction, then the Company shall promptly communicate to Parent in writing
the material terms of such offer and the identity of the third party making the
offer.
5.7 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under ▇▇▇▇▇▇▇ ▇.▇▇▇ - ▇(▇)(▇)
▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Treasury Regulations.
5.8 TAX MATTERS. Each of the Company and the Shareholders shall execute
and deliver to Parent at the Closing a Continuity of Interest Certificate in the
form of Exhibit E-1 or E-2, as applicable (the "Continuity of Interest
Certificate").
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 FILINGS AND CONSENTS. From and after the date hereof and prior to
the Closing, each party to this Agreement (a) shall make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request) promptly deliver to Parent a copy of each such filing made,
each such notice given and each such Consent obtained by the Company.
6.2 ENVIRONMENTAL REVIEW. Parent shall have the right to conduct any
and all inspections, investigations, tests and studies (including, without
limitation, investigations with regard to zoning, conditional use permits,
building codes and other environmental regulations, architectural inspections,
engineering tests, economic feasibility studies, availability of water, soils,
seismic and geologic reports and environmental testing) with respect to the
property owned by the Company, including without limitation the property
utilized as its corporate headquarters and manufacturing facility at 3133 North
Ad Art Road, Stockton, California (the "Stockton Property"). Parent and its
agents, contractors and subcontractors shall have the right to enter upon such
properties at reasonable times during ordinary business hours to make any and
all inspections and tests as may be necessary or desirable in their sole
judgment and discretion. Parent and Merger Sub shall indemnify and hold the
Company harmless from any and all damage arising out of or as a result of the
negligence of Parent and its agents, contractors and/or subcontractors in
connection with such entry and/or activities upon such properties, except
liability which results from the release of pre-existing toxic or hazardous
materials on or about such properties resulting from normal environmental
testing procedures. The parties
32
acknowledge that Parent intends to commence a Phase I environmental review of
the Stockton Property prior to Closing and that such review may not be completed
by Closing. The cost of such review shall be at the exclusive expense of Parent.
6.3 CAPITAL ADVANCE BY PARENT. As soon as reasonably practicable
following the consummation of the Acquisition Financing, Parent shall advance to
the Surviving Corporation the approximate sum of $1,000,000 from the proceeds of
the Acquisition Financing for working capital.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company and the Shareholders in this Agreement and in
each of the other agreements and instruments delivered to Parent in connection
with the transactions contemplated by this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate in
all material respects as of the Closing as if made at the Closing (without
giving effect to any update to the Disclosure Schedule).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company and the Shareholders are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all material
respects.
7.3 APPROVAL BY THE COMPANY'S SHAREHOLDERS. This Agreement and all
transactions contemplated hereby shall have been duly approved by the
affirmative vote of holders of 100% of the shares of Company Common Stock
(including the Repurchasable Shares) entitled to vote with respect thereto.
7.4 COMPLETION OF DUE DILIGENCE. Parent shall have completed, to its
satisfaction in its sole and absolute discretion, its due diligence examination
of the capitalization, business, properties, financial condition, operations and
obligations of the Company.
7.5 APPROVAL OF PARENT'S DIRECTORS AND SHAREHOLDERS. This Agreement and
all transactions contemplated hereby shall have been duly approved by the Board
of Directors of Parent and, if the Closing Date occurs on or after February 23,
1998, the shareholders of Parent.
7.6 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement, including
without limitation any required consents from Parent's lending institutions,
shall have been obtained and shall be in full force and effect.
33
7.7 AGREEMENTS AND DOCUMENTS. Parent and Merger Sub shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Noncompetition Agreements, in the form of Exhibit F,
executed by each of the Shareholders;
(b) a Release, in the form of Exhibit G, executed by each of
the Shareholders;
(c) a Shareholder Investment Certification, satisfactory in
form and content to Parent, executed by each of the Shareholders receiving
Parent Common Stock in the Merger;
(d) dated as of a date not more than five days prior to the
Closing Date and satisfactory in form and content to Parent, executed by OB-1
Associates; Western Financial Savings, Bank; Masco Properties; ▇▇▇▇▇▇
Enterprises, a limited partnership; and Ad Art, Inc. and any other lessor under
any real property lease to which the Company is a party as tenant or subtenant.
(e) the legal opinion of ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., counsel to the
Company and the Shareholders and dated as of the Closing Date, in the form of
Exhibit H;
(f) a certificate executed by each of the Shareholders to the
effect that each of the representations and warranties set forth in Sections 2
and 3 is accurate in all respects as of the Closing Date as if made on the
Closing Date and that the conditions set forth in Sections 7.1, 7.2, 7.3 and 7.4
have been duly satisfied (the "Closing Certificates");
(g) written resignations of all directors of the Company,
effective as of the Effective Time;
(h) a Continuity of Interest Certificate, executed by each of
the Shareholders; and
(i) a Spousal Consent, Power of Attorney and Waiver, in the
form of Exhibit I, executed by each of the spouses (if any) of ▇▇▇▇▇ ▇. ▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, and ▇▇▇ ▇. ▇▇▇▇▇▇.
7.8 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.8(b).
7.9 LEGAL INVESTMENT. On the Closing Date, the issuance of the shares
of Parent Common Stock to the Shareholders shall be legally permitted by all
laws and regulations to which the Shareholders, the Company, Merger Sub and
Parent are subject.
7.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal
34
Requirement enacted or deemed applicable to the Merger that makes consummation
of the Merger illegal.
7.11 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Merger or seeking to prohibit
or limit the exercise by Merger Sub of any material right pertaining to its
ownership of the Company Common Stock following the Merger.
7.12 EMPLOYEES. All of the individuals identified on Exhibit J shall
have agreed to remain employees of the Company or shall not have ceased to be
employed by, or expressed an intention to terminate their employment with, the
Company.
7.13 NEW EMPLOYMENT AND CONSULTING AGREEMENTS. The Company shall have
entered into employment agreements or new employment agreements with ▇▇▇▇▇ ▇.
▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇, and a consulting agreement with ▇▇▇ ▇. ▇▇▇▇▇▇,
terminating all prior and other employment or consulting agreements with such
parties and their Affiliates, on such financial and other terms as approved by
Parent.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the
Merger and otherwise consummate the transactions contemplated by this Agreement
are subject to the satisfaction, at or prior to the Closing, of the following
conditions:
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall be
accurate in all material respects as of the Closing as if made at the Closing.
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
8.3 CONSENTS. All Consents required for the consummation by the Company
and the Shareholders of all transactions contemplated by this Agreement,
including without limitation any required Consents from the Company's lending
institutions, shall have been obtained and shall be in full force and effect.
8.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
35
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company and
the Shareholders (including the representations and warranties set forth in
Sections 2 and 3 hereof and the representations and warranties set forth in the
Closing Certificates) shall survive the Closing and shall expire 30 months
following the Closing Date (except for Sections 2.1, 2.3, 2.6, 2.8(a), 2.14,
2.15, 2.16, 2.19(c) and 3.2, each of which shall survive until the expiration of
its respective statute of limitations); PROVIDED, HOWEVER, that if, at any time
prior to the expiration of the applicable survival period, any Indemnitee
(acting in good faith) delivers to the Shareholders a written notice alleging
the existence of an inaccuracy in or a breach of any of the representations and
warranties made by the Company or any of the Shareholders (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 9.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive the applicable survival period until such time as such claim is
fully and finally resolved. The representations and warranties made by Parent
and Merger Sub in Article 4 shall expire 30 months following the Closing Date.
(b) The representations, warranties, covenants and obligations
of the Company and the Shareholders, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any information furnished to, or any investigation made by or
Knowledge of, any of the Indemnitees or any of their Representatives.
Notwithstanding the foregoing, in the event Parent has knowledge, as the result
of written information furnished to Parent by the Company or any of the
Shareholders, of a material fact required to be disclosed on any part of the
Disclosure Schedule that is not so disclosed, such material fact shall be deemed
to be disclosed on the applicable part of the Disclosure Schedule for purposes
of this Agreement.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company and the Shareholders in this Agreement.
9.2 INDEMNIFICATION BY THE COMPANY'S SHAREHOLDERS.
(a) From and after the Effective Time (but subject to Section
9.1(a) and clause (b) below), the Company's Shareholders shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which directly or indirectly arise from or as a
result of, or are directly or indirectly connected with: (i) any breach of any
representation or warranty set forth in Sections 2 or 3 or in the Closing
Certificates; (ii) any breach of any covenant or obligation of the Company on
any Shareholder (including the covenants set forth in Sections 5 or 6); or (iii)
any Legal Proceeding relating to any breach of the type referred to in clause
"(i)" or "(ii)" above
36
(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 9).
(b) The Shareholders shall not be obligated to compensate and
reimburse the Indemnitees for Damages under this Section 9.2 unless and until
the aggregate amount of Damages exceeds $375,000.00. The indemnification
obligations of each of the Shareholders under this Section 9.2 shall be ratable
on the basis of the percentages set forth opposite such Shareholder's name on
Exhibit K, and each Shareholder shall not be obligated to compensate and
reimburse the Indemnitees for Damages under this Section 9.2 in excess of the
amounts set forth opposite such Shareholder's name on Exhibit K.
(c) The Shareholders acknowledge and agree that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation by the Company or the
Shareholders then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages as
a result of and in connection with such inaccuracy or breach.
9.3 NO CONTRIBUTION. Each of the Shareholders waives, and acknowledges
and agrees that none of them shall have or shall exercise or assert (or attempt
to exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability for which he or she may become
subject under or in connection with this Agreement or the Closing Certificates.
9.4 INTEREST. In the event that any of the Shareholders is required to
hold harmless, indemnify, compensate or reimburse any Indemnitee pursuant to
this Section 9 with respect to any Damages, the Shareholder shall also be liable
to such Indemnitee for interest on the amount of such Damages (for the period
commencing as of the date on which one of the Shareholders first received notice
of a claim for recovery by such Indemnitee and ending on the date on which the
liability of the Shareholders to such Indemnitee is fully satisfied, at a
floating rate equal to the rate of interest publicly announced by SouthTrust,
N.A., Orlando, Florida, from time to time as its prime, base or reference rate.
9.5 DEFENSE OF THIRD PARTY CLAIMS. The following procedures shall be
applicable with respect to indemnification for third party claims arising in
connection with any provision of this Section 9:
(a) Promptly after receipt by an Indemnitee of written notice
of the assertion or the commencement of any claim, liability or obligation by a
third party, whether by legal process or otherwise (a "Claim"), with respect to
any matter referred to in this Section 9, the Indemnitee shall give written
notice thereof (the "Notice") to the person from whom indemnification is sought
pursuant hereto (an "Indemnitor") and shall thereafter keep the Indemnitor
reasonably informed with respect thereto, provided that failure of the
Indemnitee to give the Indemnitor prompt notice as provided herein shall not
relieve the Indemnitor of its
37
obligations hereunder unless such failure alone and not in conjunction with
other factors results in (i) a default judgment, (ii) the expiration of the time
to answer a complaint, or (iii) the inability of the Indemnitee to adequately
defend against such Claim. In case any such Claim is brought against any
Indemnitee, the Indemnitor shall be entitled to assume the defense thereof, by
written notice of its intention to the Indemnitee within 30 days after receipt
of the Notice, with counsel reasonably satisfactory to the Indemnitee, with such
expenses of counsel to be borne equally by the Indemnitor and the Indemnitee.
Notwithstanding the assumption by the Indemnitor of the defense of any Claim as
provided in this Section 9.5, the Indemnitee shall be permitted to join in the
defense of such claim and to employ counsel at its own expense.
(b) If the Indemnitor shall fail to notify the Indemnitee of
its desire to assume the defense of any such Claim within the prescribed period
of time, or shall notify the Indemnitee that it will not assume the defense of
any such Claim, then the Indemnitee shall assume the defense of any such Claim,
in which event it may do so in such manner as it may deem appropriate. The
Indemnitor shall be permitted to join in the defense of such Claim and to employ
counsel at its own expense.
(c) No Indemnitee shall make any settlement of any Claim which
would give rise to liability on the part of an Indemnitor hereunder without the
written consent of the indemnitor, which consent shall not be unreasonably
withheld. If a firm written offer is made to settle a Claim and the Indemnitor
desires to accept such settlement offer, but the Indemnitee elects not to
consent thereto, then the Indemnitee may continue to contest or defend such
Claim; provided, however, that the total maximum liability of the Indemnitor to
indemnify or otherwise reimburse the Indemnitee in accordance with this
Agreement with respect to such Claim shall be limited to and shall not exceed
the amount of the settlement offer rejected by the Indemnitee, plus reasonable
out-of-pocket costs and expenses (including attorneys' fees) to the date of
notice that the Indemnitor desires to accept such settlement offer.
(d) Amounts payable by an Indemnitor to an Indemnitee under
this Section 9 shall be payable by the Indemnitor as incurred by the Indemnitee.
9.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
SECTION 10. TERMINATION AND ABANDONMENT
10.1 TERMINATION. This Agreement may be terminated and the transactions
herein contemplated may be abandoned at any time prior to the Effective Time
notwithstanding approval thereof by the shareholders of the Company and Merger
Sub (and, in the event that such termination occurs pursuant to Section 10.1(a),
(b), (c), (d) or (e) below, the date on which such termination occurs shall be
referred to as the "Termination Date"):
(a) by written notice pursuant to Section 1.11; or
38
(b) by mutual written consent of the Company, Merger Sub and
Parent; or
(c) by Parent, if there shall have been a violation or breach
by the Company of any of the Shareholders of any material agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of Parent and Merger Sub
impossible and such violation or breach has not been waived by Parent; or
(d) by the Company, if there shall have been a violation or
breach by Merger Sub or Parent of any material agreement, representation or
warranty contained in this Agreement which has rendered the satisfaction of any
condition to the obligations of the Company impossible and such violation or
breach has not been waived by the Company; or
(e) by Parent, Merger Sub or the Company, if the Effective
Time shall not have occurred on or before February 20, 1998.
10.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment pursuant to this Section 10, written notice thereof shall forthwith
be given to each party, and this Agreement shall terminate and be abandoned
without further action by the Company, Parent or Merger Sub. If this Agreement
is terminated as provided herein:
(a) each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the party
furnishing the same;
(b) all information received by any party hereto with respect
to the business of any other party or its subsidiaries (other than information
which is a matter of public knowledge or which has heretofore been or is
hereafter published in any publication for public distribution or filed as
public information with any governmental authority) shall not at any time be
used for the advantage of, or disclosed to third parties by, such party for any
reason whatsoever; and
(c) no party hereto shall have any liability or further
obligation to any other party to this Agreement, except as stated in this
Section 10.2, and except for such legal and equitable rights and remedies which
any party may have by reason of any breach or violation by any other party of
any representation or warranty or any covenant or agreement made hereunder or
pursuant hereto.
SECTION 11. AGREEMENT TO VOTE SHARES
11.1 AGREEMENT TO VOTE SHARES. In consideration of Parent, the Company
and Merger Sub taking further actions necessary to effect the Merger, each of
the Shareholders agrees to vote, intending to be bound hereby, all of his or her
shares of Company Common Stock, pursuant to the terms and conditions of the
Voting Agreement and Irrevocable Proxy in the form of Exhibit L, in favor of the
Merger on terms substantially as set forth in this Agreement as modified in any
manner that may be necessary to preserve the essential features of the
transaction. Each Shareholder shall execute and deliver the Voting Agreement and
39
Irrevocable Proxy in the form of Exhibit L on even date with this Agreement. In
addition, each of such parties further agrees to take all such other actions and
to execute such documents as may be reasonably necessary to effect the Merger
and the transactions contemplated herein, including without limitation,
execution of any documents or certificates that may be reasonably required to
preserve desired tax and accounting treatment and to ensure compliance with
applicable federal and state securities laws. Each of such parties understands
that in reliance on the foregoing agreements, Parent, the Company and Merger Sub
have executed this Agreement and will proceed to take other actions that will
involve considerable expense to such companies.
SECTION 12. REGISTRATION RIGHTS
12.1 PIGGYBACK REGISTRATION.
(a) Until the first anniversary of the Closing Date, Parent
shall notify all recipients (each, a "Holder") of the Parent Common Stock
hereunder (the "Registrable Securities") in writing at least 15 days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of Parent (including, but not limited to,
registration statements relating to secondary offerings of securities of Parent,
but excluding registration statements relating to employee benefit plans or with
respect to corporate reorganizations or other transactions under Rule 145 of the
Securities Act) and will afford each such Holder an opportunity to include in
such registration statement ALL or part of the Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by it shall, within ten (10)
days after the above-described notice from Parent, so notify Parent in writing.
If a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter FILED by Parent, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by Parent with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(b) UNDERWRITING. If the registration statement under which
Parent gives notice under Section 12.1(a) is for an underwritten public
offering, Parent shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 12.1 shall be conditioned upon such Holder's participation in the
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement and selling shareholder documents in customary form with
the underwriter or underwriters selected for such underwriting by Parent.
Notwithstanding any other provision of this Section 12.1, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to Parent; second, to those
holders of Parent registration rights existing prior to the date of this
Agreement, to the extent priority over any subsequent holders of registration
rights is expressly provided for in such pre-existing rights, otherwise pro rata
with the Holders; third, to the Holders on a pro rata basis based on the total
Registrable Securities held by the Holders; and fourth, to any shareholder of
Parent (other than a Holder) on a pro rata basis. No such reduction shall reduce
the securities being offered by Parent for its own account to be
40
included in the registration and underwriting. If the underwriter so determines
in good faith, any or all of the Registrable Securities may be excluded from any
underwriting in accordance with this Section 12.1(b).
(c) RIGHT TO TERMINATE REGISTRATION. Parent shall have the
right to terminate or withdraw any registration initiated by it under this
Section 12.1 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
(d) EXPENSES. Parent shall bear all expenses incurred pursuant
to this Section 12.1 in connection with the preparation and filing with the SEC
of the registration statement and any amendments and supplements thereto and the
prospectuses therewith. All underwriting discounts and selling commissions
incurred in connection with such registration shall be borne by the holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered.
12.2 INDEMNIFICATION.
(a) In connection with any registration statement in which a
holder of Parent Common Stock with rights under this Section 12 is
participating, each such holder will furnish to Parent in writing such
information and affidavits as Parent reasonably requests for use in connection
with such registration statement or prospectus and, to the extent permitted by
law, will indemnify Parent, its directors and officers and each Person who
controls Parent (within the meaning of the Securities Act) against all Damages
resulting from any untrue or alleged untrue statement of material fact contained
in such registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in writing by
such holder for inclusion in such registration statement; PROVIDED that the
obligation to indemnify will be several, not joint and several, among such
holders and the liability of each such holder will be in proportion to and
limited to the net amount received by such holder from the sale of Parent Common
Stock with rights under this Section 12, pursuant to such registration
statement.
(b) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any consent to the
entry of any judgment or any settlement made by the indemnified party without
its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
41
(c) The indemnification provided for under this Section 12
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of securities and
the Merger. Parent also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the event
Parent's indemnification is unavailable for any reason.
12.3 TRANSFERABILITY OF REGISTRATION RIGHTS. The rights under this
Section 12 are not transferable except in connection with (a) a transfer by will
or intestacy and (b) estate planning transfers consisting of gifts to the spouse
or issue of the transferee and transfers to trusts for the benefit of the spouse
or issue of the transferee.
12.4 AMENDMENT OF SECTION 12. Notwithstanding anything to the contrary
contained in this Agreement, the provisions of this Section 12 may be amended by
Parent at any time with the consent of the Holders of a majority of the shares
of Parent Common Stock subject (or to be subject) to the provisions of this
Section 12.
SECTION 13. MISCELLANEOUS PROVISIONS
13.1 SHAREHOLDERS' DESIGNATED AGENT. The Shareholders hereby
irrevocably appoint ▇▇▇ ▇. ▇▇▇▇▇▇ as their agent for purposes of Section 9 (the
"Shareholders" Designated Agent"), and ▇▇▇ ▇. ▇▇▇▇▇▇ hereby accepts his
appointment as the Shareholders' Designated Agent. Parent shall be entitled to
deal exclusively with the Shareholders' Designated Agent on all matters relating
to Section 9, and, in connection with the matters contemplated by this
Agreement, shall be entitled to rely conclusively (without further evidence of
any kind whatsoever) on any document executed or purported to be executed on
behalf of any of the Company's Shareholders by the Shareholders' Designated
Agent, and on any other action taken or purported to be taken on behalf of any
of the Company's Shareholders by the Shareholders' Designated Agent, as fully
binding upon such shareholder. If the Shareholders' Designated Agent shall die,
become disabled or otherwise be unable to fulfill his responsibilities as agent
of the Company's Shareholders, then the Company's Shareholders shall, within ten
days after such death or disability, appoint a successor agent and, promptly
thereafter, shall notify Parent of the identity of such successor. Any such
successor shall become the "Shareholders' Designated Agent" for purposes of
Section 9 and this Section 13.1. If for any reason there is no Shareholders'
Designated Agent at any time, all references herein to the Shareholders'
Designated Agent shall be deemed to refer to the Company's Shareholders.
13.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
13.3 FEES AND EXPENSES. The Company shall bear and pay all fees, costs
and expenses (including legal fees and accounting fees) that have been incurred
or that are incurred by the Company in connection with the transactions
contemplated by this Agreement, including all fees, costs and expenses incurred
by such parties in connection with or by virtue of (a) the negotiation,
42
preparation and review of this Agreement (including the Disclosure Schedule) and
all agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions contemplated by
this Agreement, (b) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any Consent required to be
obtained by the Company in connection with any of such transactions, and (c) the
consummation of the Merger.
13.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
13.5 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent: La-Man Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Broad and ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.A.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company: Electronic Sign Corporation
d/b/a Ad Art
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Shareholders: ▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Attorney at Law
43
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice sent by facsimile shall also be sent by first class mail or express
delivery service.
13.6 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
13.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
13.9 GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of Florida, without giving effect to principles of conflicts of laws. Venue for
any action to enforce any rights or obligations under this Agreement shall be,
and the parties hereto submit to the jurisdiction of, any federal or state court
of competent jurisdiction sitting in the Eastern District of California.
13.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent and its successors and assigns (if any);
and Merger Sub and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; the Company's Shareholders (to the extent
set forth in Section 1.4); Parent; Merger Sub; the other Indemnitees (subject to
Section 9.6); and the respective successors and assigns (if any) of the
foregoing. Parent may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 9), in whole or in
part, to any other Person without obtaining the consent or approval of any other
party hereto or of any other Person.
13.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
44
13.12 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
13.13 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
13.14 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
13.15 PARTIES IN INTEREST. Except for the provisions of Sections 1.4
and 12, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
13.16 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; PROVIDED, HOWEVER, that the Non-
Disclosure and No-Shop Agreement executed on behalf of Parent and the Company
with respect to the Merger shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms until the earlier of (a) the
Effective Time, or (b) the date on which such Mutual Non-Disclosure Agreement is
terminated in accordance with its terms.
13.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
45
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
46
The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
LA-MAN CORPORATION,
a Nevada corporation
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President and
Chief Executive Officer
DISPLAYS ACQUISITIONS CORP.,
a Florida corporation
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
ELECTRONIC SIGN CORPORATION
D/B/A AD ART, a California corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, President
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, INDIVIDUALLY
/s/ ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, INDIVIDUALLY AND
AS TRUSTEE OF THE ▇▇▇▇▇▇ ▇'▇▇▇▇▇
TRUST DATED APRIL 18, 1993
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, INDIVIDUALLY AND AS
TRUSTEE OF THE PAPAIS TRUST DATED
JANUARY 29, 1991
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇
47
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION FINANCING. "Acquisition Financing" shall mean the issuance
and sale by Parent of convertible debentures, Parent Common Stock, and warrants
to purchase Parent Common Stock intended to yield gross proceeds of
approximately $4,700,000 to Parent, part of which proceeds will be used by
Parent to advance to the Company funds to retire all of the Share Repurchase
Notes and to provide the Company with approximately $1,000,000 in working
capital.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any
capital stock or other equity security of the Company (other than common stock
issued to employees of the Company, upon exercise of Company Options or
otherwise, in routine transactions in accordance with the Company's past
practices), (ii) any option, call, warrant or right (whether or not immediately
exercisable) to acquire any capital stock or other equity security of the
Company (other than stock options granted to employees of the Company in routine
transactions in accordance with the Company's past practices), or (iii) any
security, instrument or obligation that is or may become convertible into or
exchangeable for any capital stock or other equity security of the Company; or
(c) any merger, consolidation, business combination,
reorganization or similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
A - 1
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Parent on behalf of the
Company and the Shareholders.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GAAP. "GAAP" shall mean generally accepted accounting principles.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any
A - 2
Governmental Body or pursuant to any Legal Requirement; or (b) right under any
Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any domestic or
foreign: (a) nation, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Parent; (b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; PROVIDED,
HOWEVER, that none of the Shareholders shall be deemed to be "Indemnitees."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably diligent and comprehensive investigation concerning the truth or
existence of such fact or other matter.
The Company shall be deemed to have "Knowledge" of a particular fact or other
matter if any Representative of the Company has Knowledge of such fact or other
matter. The Shareholders shall be deemed to have "Knowledge" of a particular
fact or other matter if any Shareholder has Knowledge of such fact or other
matter or if any Representative of the Company has Knowledge of such fact or
other matter.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any domestic or foreign
action, suit, litigation, arbitration, proceeding (including any civil,
criminal, administrative, investigative or appellate proceeding), hearing,
inquiry, audit, examination or investigation commenced, brought, conducted or
heard by or before, or otherwise involving, any court or other Governmental Body
or any arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any domestic or
foreign federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on a Person if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the
A - 3
Agreement or in the Closing Certificates but for the presence of "Material
Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse impact or effect on such Person's business, assets, liabilities,
operations, financial condition or prospects, or the ability of such person to
perform any obligations under or contemplated by this Agreement.
"▇'▇▇▇▇▇ TRUST" shall mean the ▇▇▇▇▇▇ ▇'▇▇▇▇▇ Trust dated April 18,
1993.
"PAPAIS TRUST" shall mean the Papais Trust Agreement dated January 29,
1991.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service ▇▇▇▇ (whether
registered or unregistered), service ▇▇▇▇ application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SHAREHOLDERS. "Shareholders" shall mean the holders of Company Common
Stock set forth on Exhibit B, being all of the Company's shareholders.
SIGN CONTRACTS. "Sign Contracts" shall mean Contracts entered into by
the Company for the sale, leasing or maintenance of signs, electronic display
message centers, billboards and other outdoor advertising or display structures
of any nature.
TAX. "Tax" shall mean any domestic or foreign tax (including any income
tax, franchise tax, capital gains tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any domestic or foreign return
(including any information return), report, statement, declaration, estimate,
schedule, notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
A - 4
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
A - 5
EXHIBIT B
OWNERSHIP OF COMPANY COMMON STOCK
NAME AND NO. OF SHARES OF
ADDRESS OF SHAREHOLDER COMPANY COMMON STOCK
---------------------- --------------------
▇▇▇▇▇ ▇. ▇▇▇▇ 10
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, as Trustee 10
of the ▇▇▇▇▇▇ ▇'▇▇▇▇▇
TRUST DATED APRIL 18, 1993
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee 10
of the PAPAIS TRUST
DATED JANUARY 29, 1991
6964 ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ 20
P.O. Box 1545
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
B - 1
EXHIBIT C
SELLING SHAREHOLDERS
NAME OF NO. OF
SELLING SHAREHOLDERS REPURCHASED SHARES REPURCHASE PRICE
-------------------- ------------------ ----------------
▇▇▇▇▇ ▇. ▇▇▇▇ 5 $600,000
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, 10 $1,200,000
as Trustee of the
▇▇▇▇▇▇ ▇'▇▇▇▇▇
TRUST DATED
APRIL 18, 1993
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ $1,200,000
as Trustee of the
PAPAIS TRUST DATED
JANUARY 29, 1991
C - 1