MERGER AGREEMENT

 

 

 

                        AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and

entered into as of the ____ day of April, 2005, by and among Cycle

Country Accessories Corp., a Nevada corporation (the "Purchaser"), its

wholly owned Cycle Country Accessories Corporation, an Iowa corporation

("Subsidiary Corp."), Simonsen Iron Works, Inc., an Iowa corporation

("Simonsen"), and Simonsen's stockholders listed on the signature page

attached hereto (the "Stockholders").

 

                                 RECITALS

 

A.     The boards of directors of Purchaser, Subsidiary Corp., and

Simonsen have each determined that the transactions described in this

agreement are in their and their shareholders' respective best interests

and, accordingly, have agreed to effect the merger provided for in this

agreement upon the terms and subject to the conditions set forth in this

agreement; and

B.     This agreement provides for the merger (the "Merger") of

Simonsen with and into Subsidiary Corp. so that Subsidiary Corp. will be

the surviving entity, and for the Stockholders to receive cash and shares

of common stock of Purchaser in exchange for their shares of capital

stock of Simonsen, and that, as a result, the Stockholders shall become

stockholders of Purchaser, and Subsidiary Corp. shall continue to conduct

the business and operations formally conducted by Simonsen as a wholly-

owned subsidiary of Purchaser; and

C.     Purchaser, Subsidiary Corp., Simonsen and the Stockholders

desire to make certain representations, warranties and agreements in

connection with the Merger; and

D.     The parties intend that the Merger shall qualify as a

reorganization within the meaning of Section 368(a)(2)(D) of the Internal

Revenue Code of 1986, as amended (the "Code").

NOW THEREFORE, in consideration of the mutual agreements herein

contained and other good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged by the parties hereto, the

parties hereto hereby agree as follows:

 

SECTION 1.   DEFINITIONS

 

"Applicable Law" or "Applicable Laws" means any statute, law,

ordinance, decree, order, rule, regulation, franchise, permit or

license of any Governmental Body.

"Average Closing Price" means the average of the closing prices for

Purchaser Shares as reported by the American Stock Exchange for each

of the 30 consecutive trading days beginning on the 31st calendar day

after the Closing Date and ending on the 30th trading day thereafter

("Pricing Period").  

"Cash Consideration" means the $7,000,000 cash consideration to be

paid by Purchaser to the Stockholders pursuant to this Agreement.  

When referring to an individual Stockholder, "Cash Consideration"

means the pro-rata portion of the $7,000,000 such Stockholder shall be

entitled to receive at the Closing.

"Code" means the Internal Revenue Code of 1986, as amended.

"Closing" has the meaning set forth in Section 2.2(a).

"Closing Date" has the meaning set forth in Section 2.2(a).

"Effective Date" has the meaning set forth in Section 2.2(b).

"Effective Time" has the meaning set forth in Section 2.2(b).

 

 

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"Environmental Laws" has the meaning set forth in Section 3.17.

"Encumbrance" means any mortgage, lien, interests, right-of-way,

claim, pledge, option, restriction, security interest, contingent or

conditional sale, or other similar claim against title.

"Exchange Act" means the Security Exchange Act of 1934, as amended.

"Governmental Body" means any nation, province, state, county, city,

town, village, district, watershed district, or other jurisdiction of

any nature; federal, state, local, municipal, foreign or other

government; governmental or quasi-governmental authority of any nature

(including any governmental agency, branch, board, commission,

department and court or other tribunal); and/or any body exercising,

or entitled or purporting to exercise, any administrative, executive,

judicial, legislative, police, regulatory or taxing authority or power

of any nature.

"IBCA" means the Iowa Business Corporation Act.

"Iowa Secretary" has the meaning set forth in Section 2.2(b).

"Material Adverse Effect" means, in connection with any entity, any

event, change or effect that is materially adverse, individually or in

the aggregate, to the condition (financial or otherwise), properties,

assets, liabilities, revenues, income, business, operations, results

of operations, or prospects of such entity.

"Merger" means the merger of Simonsen with and into Subsidiary Corp.

as contemplated by this Agreement.

"Pricing Period" means 30 consecutive trading days beginning on the

31st calendar day after the Closing Date and ending on the 30th trading

day thereafter.

"Permitted Encumbrances" means municipal zoning ordinances, public

easements and general real estate taxes and installments of special

assessments payable in the year of Closing.

"Purchaser" means Cycle Country Accessories Corp., a Nevada

corporation.

"Purchaser SEC Filings" has the meaning set forth in Section 5.7(a).

"Purchaser Shares" means Purchaser's issued and outstanding common

stock.

"Real Property" means land, buildings and improvements.

"Registration Rights Agreement" means the Registration Rights

Agreement attached hereto as Exhibit C.

"Securities Act" means the Securities Act of 1933, as amended.

"Simonsen" means Simonsen Iron Works, Inc., an Iowa corporation.

"Simonsen Certificates" means the share certificates that evidence

Stockholder's ownership interests in the Simonsen Shares.

"Simonsen Shares" means the issued and outstanding common stock of

Simonsen.

"Stock Consideration" means the newly issued Purchaser Shares that

will be paid to each of the Stockholders at the Closing upon

conversion of their Simonsen Shares as further described in Section

2.6(c).   The total Stock Consideration to be paid all the Stockholders

equals that number of Purchaser Shares equal to the greater of:    (i)

$8,000,000 divided by the Average Closing Price, or (ii) $8,000,000

divided by $6.65.   When referring to an individual Stockholder, "Stock

Consideration" means the Purchaser Shares that such Stockholder will

be receiving at the Closing.

"Stockholders" means the shareholders of Simonsen listed on Exhibit B

hereto.

"Subsidiary Corp." means Cycle Country Accessories Corporation,

Purchaser's wholly owned subsidiary, an Iowa corporation, into which

Simonsen will be merged.

 

 

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"Surviving Corporation" means, after the Effective Time, Subsidiary

Corp., i.e., Cycle Country Accessories Corporation.

"Taxes" has the meaning set forth in Section 3.20(a).

SECTION 2.   THE MERGER

 

2.1    The Merger

 

(a)    Upon the terms and subject to the conditions hereof and in

accordance with the Iowa Business Corporation Act "IBCA," Simonsen

shall be merged with and into Subsidiary Corp. at the Effective Time

of the Merger.   Following the Merger, the separate corporate

existence of Simonsen shall cease and Subsidiary Corp. shall

continue as the surviving corporation (the "Surviving Corporation")

and shall succeed to and assume all the rights and obligations of

Simonsen in accordance with the IBCA.

 

(b)    The Merger shall have the effects set forth herein and in

Section 490.1107 of the IBCA.   If at any time after the Effective

Time, Subsidiary Corp. as the Surviving Corporation shall consider

or be advised that any further assignments or assurances in law or

otherwise are necessary or desirable to vest, perfect or confirm, of

record or otherwise, in the Surviving Corporation, all rights, title

and interests in all real estate and other property and all

privileges, powers and franchises of Simonsen and Subsidiary Corp.,

the Surviving Corporation and its proper officers and directors, in

the name and on behalf of Simonsen and Subsidiary Corp., shall

execute and deliver all such proper deeds, assignments and

assurances in law and do all things necessary and proper to vest,

perfect or confirm title to such property or rights in the Surviving

Corporation and otherwise to carry out the purpose of this

Agreement, and the proper officers and directors of the Surviving

Corporation are fully authorized in the name of Simonsen and

Subsidiary Corp. or otherwise to take any and all such action.

 

(c)    Except as otherwise required by the IRS pursuant to a

determination (as defined in Section 1313 of the Code) or otherwise,

or by applicable law, the Parties shall not take a position on any

Tax Returns inconsistent with the treatment of the Merger for Tax

purposes with respect to the Corporations as a reorganization within

the meaning of Section 368(a)(2)(D) of the Code.

 

2.2    Closing; Effective Date and Time

 

(a)    Closing.   Subject to the terms and conditions of this

Agreement, the consummation of the Merger (the "Closing") shall take

place at the offices of the Purchaser, 2188 Highway 86, Milford,

Iowa, on the 30th day of April, 2005, or such other date upon which

the Purchaser and the Stockholders may mutually agree in writing

(the "Closing Date").

 

(b)    Effective Date and Time.   On the Closing Date and subject to

the terms and conditions hereof, articles of merger substantially in

the form of Exhibit A (the "Articles of Merger") complying with the

applicable provisions of the IBCA and in such form and executed in

such manner as required by the Secretary of State of the State of

Iowa (the "Iowa Secretary") shall be filed with the Iowa Secretary.

  The Merger shall become effective on the date (the "Effective

Date") and at the time (the "Effective Time") that the Articles of

Merger shall have been accepted for filing by the Iowa Secretary, or

at such other time as may be specified in the Articles of Merger as

filed.   If the Iowa Secretary requires any changes in the Articles

 

 

 

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of Merger as a condition to the filing of the Articles of Merger or

the issuance of a certificate to the effect that the Merger is

effective, the parties will execute any necessary revisions

incorporating such changes, provided such changes are not

inconsistent with and do not result in any material change in the

terms of this Agreement.

 

2.3    Articles of Incorporation of the Surviving Corporation

At the Effective Time, the articles of incorporation of Subsidiary

Corp. as in effect immediately prior to the Effective Time shall be the

articles of incorporation of the Surviving Corporation.   Thereafter, the

articles of incorporation may be amended or repealed in accordance with

their terms and as provided by Law.  

 

 

2.4    Bylaws of the Surviving Corporation

At the Effective Time, the bylaws of Subsidiary Corp. as in effect

immediately prior to the Effective Time shall be the bylaws of the

Surviving Corporation.   Thereafter, the bylaws may be amended or repealed

in accordance with their terms and the articles of incorporation of the

Surviving Corporation and as provided by Applicable Law.

 

2.5    Directors and Officers

At the Effective Time, the directors and officers of Subsidiary

Corp. shall continue in office as the directors and officers of the

Surviving Corporation, and such directors and officers shall hold office

in accordance with and subject to the articles of incorporation and

bylaws of the Surviving Corporation.

 

2.6    Conversion of Shares

As of the Effective Time, by virtue of the Merger and without any

action on the part of Purchaser, Subsidiary Corp., Simonsen or the

Stockholders:

 

(a)    Each share of common stock, par value $1.00 per share, of

Subsidiary Corp. that is issued and outstanding immediately prior to

the Effective Time shall remain outstanding, unchanged by the reason

of the Merger, as one fully paid and nonassessable share of common

stock, par value $1.00 per share of the Surviving Corporation.

 

(b)    All shares of any class of capital stock of Simonsen held in

the treasury of Simonsen immediately prior to the Effective Time, if

any, shall be cancelled and extinguished as of the Effective Time,

without any conversion thereof and no amount or other consideration

shall be delivered or deliverable in exchange therefor.

 

(c)    The outstanding Simonsen Shares shall be converted into a

right to receive a pro-rata portion of:   (i) the Cash Consideration,

and (ii) the Stock Consideration.   At the Closing, Purchaser shall

pay to each of the Stockholders the Cash Consideration and Stock

Consideration as follows:

 

(i)    David Bailey owns eleven (11) Simonsen Shares of the

forty (40) Simonsen Shares outstanding and will be paid

at Closing: (1) One Million Nine Hundred Twenty-five

Thousand Dollars ($1,925,000.00) in Cash Consideration

plus (2) Three hundred thirty thousand eight hundred

twenty-seven (330,827) Purchaser Shares.

 

(ii)   Joan Bailey owns eleven (11) Simonsen Shares of the

forty (40) Simonsen Shares outstanding and will be paid

at Closing: (1) One Million Nine Hundred Twenty-five

Thousand Dollars ($1,925,000.00) in Cash Consideration

plus (2) Three hundred thirty thousand eight hundred

twenty-seven (330,827) Purchaser Shares.

 

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(iii) Alan Bailey owns twelve (12) Simonsen Shares of the

forty (40) Simonsen Shares outstanding and will be paid

at Closing: (1) Two Million One Hundred Thousand Dollars

($2,100,000.00) in Cash Consideration plus (2) Three

hundred sixty thousand nine hundred three (360,903)

Purchaser Shares.

 

(iv)   Lisa Bailey owns six (6) Simonsen Shares of the forty

(40) Simonsen Shares outstanding and will be paid at

Closing: (1) One Million Fifty Thousand Dollars

($1,050,000.00) in Cash Consideration plus (2) One

hundred eighty thousand four hundred fifty-one (180,451)

Purchaser Shares.

 

(d)    Purchaser shall deliver its calculation of the Average Closing

Price to each of the Stockholders within 3 business days following

the last day of the Pricing Period.   The Stockholders shall review

such calculation and, in the event of any dispute concerning the

calculation, the parties will promptly meet and attempt to resolve

such dispute.   If they fail to resolve such dispute prior to the

10th day following the end of the Pricing Period, the parties shall

mutually agree upon an independent certified public accountant to

calculate the Average Closing Price according to the terms set forth

herein and such accountant's calculation shall be final and binding.

 

  If the Average Closing Price is equal to or greater than $6.65 per

share, no additional Purchaser Shares will be issued to the

Stockholders.   If the Average Closing Price is less than $6.65 per

share, Purchaser shall, on or before the 20th day following the end

of the Pricing Period, deliver to each Stockholder the remaining

Stock Consideration as follows:

 

(i)    David Bailey shall additionally receive that number of

shares of Common Stock of the Purchaser, par value

$0.001 (rounded in the aggregate to the nearest whole

share) that is equal to $2,200,000.00 divided by the

Average Closing Price, minus 330,827.

 

(ii)   Joan Bailey shall additionally receive that number of

shares of Common Stock of the Purchaser, par value

$0.001 (rounded in the aggregate to the nearest whole

share) that is equal to $2,200,000.00 divided by the

Average Closing Price, minus 330,827.

 

(iii) Alan Bailey shall additionally receive that number of

shares of Common Stock of the Purchaser, par value

$0.001 (rounded in the aggregate to the nearest whole

share) that is equal to $2,400,000.00 divided by the

Average Closing Price, minus 360,903.

 

(iv)   Lisa Bailey shall additionally receive that number of

shares of Common Stock of the Purchaser, par value

$0.001 (rounded in the aggregate to the nearest whole

share) that is equal to $1,200,000.00 divided by the

Average Closing Price, minus 180,451.

 

 

(e)    When allocating the Cash Consideration and the Stock

Consideration to the Simonsen Shares that are to be converted

hereunder, each Stockholder first shall allocate the Cash

Consideration he or she receives hereunder to his or her Simonsen

Shares on a first-in, first-out (FIFO) basis until such Cash

Consideration is fully allocated, and the Stock Consideration shall

then be allocated to the remaining Simonsen Shares held by such

Stockholder.   In the event that any allocation under this paragraph

 

 

<PAGE>

 

causes the Merger to not qualify as a "reorganization" under Section

368(a)(2)(D) of the IRC, such allocation shall be null and void and

the Stockholders will be deemed to have allocated their Cash and

Stock Consideration in a manner that causes the Merger to qualify as

a "reorganization" under Section 368(a)(2)(D).

 

2.7    Issuance of Purchaser Shares; Exchange of Certificates

 

(a)    The Purchaser Shares that each Stockholder shall be entitled

to receive pursuant to the Merger in exchange for Simonsen Shares

shall be deemed to have been issued and outstanding at the Effective

Time.

 

(b)    At the Closing, each Stockholder shall deliver to Purchaser

the Simonsen Certificates representing all of the Simonsen Shares

owned by such Stockholder.   Each Simonsen Certificate shall be duly

endorsed for transfer by Stockholder or accompanied by stock powers

or assignments in blank duly executed by such Stockholder.   The

failure by any Stockholder to comply with this Section 2.7(b) shall

not affect the Closing or the effectiveness of the Merger.

 

(c)    Immediately following the Effective Time, Purchaser shall pay

or deliver to each Stockholder who has fully complied with Section

2.7(b), one or more certificates representing the number of whole

shares of Purchaser Shares into which the Simonsen Shares owned by

such Stockholder shall have been converted pursuant to Section

2.6(c) and (d), (ii) the amount of Cash Consideration as specified

in Section 2.6(c), and (iii) any dividends or other distributions to

which such holder is entitled pursuant to Section 2.8(e) with

respect to Purchaser Shares.   Any Stockholder who has not fully

complied with Section 2.7(b) shall not be entitled to receive the

certificates representing Purchaser Shares, until such Stockholder

has so complied.

 

(d)    No fractional shares of Purchaser Shares and no certificates

or scrip therefor, or other evidence of ownership thereof, shall be

issued in connection with the Merger.   The Stock Consideration due

each Stockholder shall be rounded upward or downward to the nearest

whole number.

 

(e)    The Stockholder will be entitled to dividends or other

distributions pertaining to the Purchaser Shares into which their

Simonsen Shares have been converted pursuant to Section 2.6 that

become payable to persons who are holders of record of Purchaser

Shares as of a record date on or after the Effective Date, but only

after they have surrendered their Simonsen Certificates.   The

Stockholders will not be entitled, however, to dividends or other

distributions that become payable before or after the Effective Date

to persons who were holders of record of Purchaser Shares as of a

record date that is prior to the Effective Date.

 

(f)    In the event that any Simonsen Certificates shall have been

lost, stolen or destroyed, upon the making of an affidavit of that

fact by the Stockholder claiming such certificate to be lost, stolen

or destroyed, Purchaser shall issue in exchange for such lost,

stolen or destroyed certificate the shares of Purchaser Shares that

such Stockholder is entitled to receive pursuant to Section 2.6(c).

 

(g)    All certificates evidencing Purchaser Shares that are issued

in exchange for Simonsen Shares in accordance with the terms of this

Agreement, together with the Cash Consideration paid for such shares

shall be deemed to have been issued in full satisfaction of all

rights pertaining to the Simonsen Shares represented by the

surrendered Simonsen Certificates.

 

 

<PAGE>

 

(h)    If purchaser changes the number of Purchaser Shares issued and

outstanding prior to the Effective Time as a result of a stock

split, stock dividend, recapitalization, reclassification, or any

action by Purchaser similar to any of the foregoing, the Stock

Consideration to be paid to Stockholders hereunder shall be

appropriately adjusted.

 

2.8    Stock Legend.   Each of the Purchaser Share Certificates issued

as part of this transaction will bear the following legend until such

time as they are not required as set forth below:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND

EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN

RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES

ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,

MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN

AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE

REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE

WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL

OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE

OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

Certificates evidencing the Purchaser Shares shall not contain any

legend (including the legend set forth above): (i) following a sale

of such Purchaser Shares pursuant to an effective registration

statement (including the Registration Statement) covering such

Purchaser Shares, or (ii) following a sale of such shares pursuant

to Rule 144 (assuming the transferor is not an affiliate of the

Purchaser), or (iii) while such shares are eligible for sale under

Rule 144(k).   The Purchaser may not make any notation on its records

or give instructions to any transfer agent of the Purchaser that

enlarge the restrictions on transfer set forth in this Section.   The

Purchaser agrees that it shall, within five business days following

such time as restrictive legends would not then be required under

this Section, issue and deliver to such Stockholder certificates

that are free of restrictive legends representing Purchaser Shares

in replacement of Purchaser Shares previously issued with

restrictive legends.

 

 

SECTION 3.   REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

REGARDING COMPANY

 

The Stockholders hereby jointly and severally represent and warrant

to the Purchaser, as of the date hereof and as of the Closing Date, as

follows:

 

3.1    Organization and Standing of the Company.   Simonsen is a

corporation which is duly organized, validly existing and in good

standing under the laws of the State of Iowa.   Complete and correct

copies of the Articles of Incorporation and By-laws, as amended, of

Simonsen will be delivered to Purchaser before the Closing Date.  

Simonsen has all necessary corporate power and authority to engage in the

business in which it is presently engaged, to own all property now owned

by it, and to lease all of the property used by it under lease.   A true

and correct copy of the corporate minutes and stock transfer records of

Simonsen will have been delivered to the Purchaser before the Closing

Date, and the same constitute a complete and accurate record of the

proceedings taken by its stockholders and directors, and a complete and

 

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accurate record of all issuances and transfer of shares of its capital

stock.   Schedule 3.1.2 contains a complete and accurate list of the

officers and directors of Simonsen.

 

3.2    Capital Structure of the Company.   The authorized capital

stock of Simonsen consists solely of one thousand (1,000) shares of

common stock, with One Hundred Dollars ($100.00) par value, of which

forty (40) shares are duly authorized, validly issued and outstanding,

and fully paid and non-assessable.   No other class or series of capital

stock of Simonsen is or has been authorized.   There is no obligation

which is or may be binding upon Simonsen to issue, sell, redeem, purchase

or exchange any of its capital stock or any right relating thereto.   The

Stockholders are the sole shareholders of record of Simonsen on the date

of this Agreement.

 

3.3    No Restrictions.   Simonsen is subject to no restriction,

agreement, law, judgment or decree which would (a) prohibit or be

violated by the execution and delivery hereof or the consummation of the

transactions contemplated hereby, (b) result in the acceleration of any

indebtedness of Simonsen, or (c) prohibit or be violated by a merger with

or into any other company.

 

3.4    No Subsidiaries.   Simonsen has no subsidiaries, nor does it

own any capital stock or other equity or ownership interest in any

corporation, partnership, limited liability company, association, trust,

joint venture or other entity.

 

3.5    Financial Statements.   Schedule 3.5 will contain at Closing a

true copy of Simonsen's audited financial statements, including the

balance sheet, the statement of income and retained earnings and the

statement of cash flows, and all notes thereto, for the periods ending

December 31, 2004 as prepared by Simonsen's certified public accountants

(hereinafter "Financial Statements").   The Financial Statements have been

prepared from Simonsen's books and records, and fairly represent

Simonsen's financial position as of the date thereon and results of

Simonsen's operations for the period then ended and each of the Financial

Statements were prepared in accordance with generally accepted accounting

principles.

 

<PAGE>

 

 

3.6    Events Subsequent to December 31, 2004.   Except to the extent

set forth in Schedule 3.6, there has not been since December 31, 2004:

 

(a)    Any damage, destruction, loss, forfeiture or other event or

events (whether or not covered by insurance) adversely affecting (i)

any property or asset of Simonsen, or (ii) the business or condition

(financial or other) of Simonsen, or (iii) the results of operations

or prospects of Simonsen;

 

(b)    Any direct or indirect redemption, purchase or other

acquisition by Simonsen of any capital stock of Simonsen, or any

declaration, setting aside or payment of any dividend or

distribution on any capital stock of Simonsen other than dividends

or distributions which would not violate Section 3.29 hereof;

 

(c)    Except for transfer of a 2001 Chrysler Town and Country van to

David Bailey as additional compensation, there has been no increase

in the compensation or benefits payable or to become payable by

Simonsen to any of its directors, officers, employees or agents,

other than increases in commission compensation to employees

compensated solely on a commission basis (provided that the method,

basis and rate of commission compensation has not changed since

December 31, 2004);

 

(d)    Any incurrence by Simonsen of any indebtedness for borrowed

money or of any other indebtedness or of any liability in respect

thereof, or any commitment by Simonsen for such incurrence, except

for the incurrence of indebtedness in the ordinary course of

business;

 

(e)    Any contractual commitment by Simonsen to any third party,

other than as provided in this Agreement or arising in the ordinary

course of Simonsen's business, relating to (i) the property, assets

or business of Simonsen, or (ii) the acquisition or disposition of

property or assets of Simonsen;

 

(f)    Any transaction, other than at arm's length in the ordinary

course of business, between Simonsen and any shareholder, director,

officer or affiliate of Simonsen or any waiver or surrender by

Simonsen of any valuable right or property other than for fair

consideration;

 

(g)    Any unusual or novel method of transacting Simonsen's business

which has had or may reasonably be expected to have an adverse

effect on the assets or properties, liabilities, business prospects,

condition (financial or other) or results of operations of Simonsen;

 

(h)    Any change in any accounting policies and procedures or

practices by Simonsen; or

 

(i)    Any adverse change, actual or threatened, in the assets or

properties, liabilities, business prospects, condition (financial or

other) or results of operations of Simonsen, whether or not covered

by insurance.

 

3.7    Liabilities.   Except as expressly disclosed in Schedule 3.7 or

in the Financial Statements, Simonsen has no liabilities of any kind

whatsoever that have a Material Adverse Effect, whether absolute or

contingent and whether or not currently determinable, nor has any

condition existed or any event occurred which could reasonably be

expected to give rise to any such liability.

 

3.8    Guarantees.   Except as disclosed in Schedule 3.8 Simonsen is

not a guarantor or indemnitor or otherwise liable for or in respect of

any indebtedness of any person except as an endorser of checks received

by it and deposited in the ordinary course of business.

 

 

<PAGE>

 

 

3.9    Accounts and Notes Receivable.   Except as set forth on

Schedule 3.9 all accounts receivable and notes receivable of Simonsen are

owed to Simonsen by current or former customers of Simonsen and arose in

the ordinary course of Simonsen's business.   The allowance for doubtful

accounts reflected on the Financial Statements was calculated

consistently with past practice.

 

3.10   Inventories.   Except as set forth on Schedule 3.10 hereto, the

inventories set forth in the Financial Statements are stated therein at

the lower of cost or market value using the first-in, first-out (FIFO)

method.   All items of inventory acquired or manufactured by Simonsen have

been acquired or manufactured in the ordinary course of business.   Except

for inventory having a book-value not in excess of $25,000.00 in the

aggregate, to the knowledge of the Stockholders, all inventories of

Simonsen (i) consisting of raw materials and work in progress are in good

and usable condition, are not in excess of current requirements and are

convertible into finished goods which are salable to existing customers

of Simonsen, and (ii) consisting of finished goods are salable to

existing customers of Simonsen and do not exceed in quantity the total

quantity of such goods sold by Simonsen in Simonsen's previous calendar

year.   Except as set forth on Schedule 3.10 hereto, all items of

Simonsen's inventory are property accounted for in its books and records.

 

3.11   Real Property.

 

(a)    Fee Ownership.   Attached as Schedule 3.11(a) are complete and

accurate descriptions of all real property owned by Simonsen which

include the name of the record title holder and a legal description

of the property.   There are no liens, mortgages, deeds of trust or

any other encumbrance on the Real Property.   Except for Permitted

Encumbrances or as otherwise disclosed in Schedule 3.11(a), Simonsen

has good and marketable title in fee simple to all Real Property

owned by Simonsen, free of all liens, claims, encumbrances, charges

or other restrictions of any kind or character.

 

(b)    Development Restrictions.   To the knowledge of the

Stockholders, there are no matters affecting the Real Property which

might curtail or interfere with the use of any of the Real Property

for the purposes for which such Real Property is now used by

Simonsen.

 

(c)    Insurance Notices.   Neither Simonsen nor the Stockholders has

received any notice from any insurance carrier regarding defects or

inadequacies in the Real Property which, if not corrected, would

result in termination of Simonsen's insurance coverage or

 

<PAGE>

 

 

increase in the cost thereof, and the Stockholders have no knowledge

of any such defects or inadequacies.

 

(d)    Compliance.   Each parcel of Real Property is zoned in a manner

which permits its present use.   There are no pending or, to

Stockholders' knowledge, threatened requests, applications or

proceedings to alter or restrict the zoning or other use

restrictions applicable to any of Real Property.   Neither Simonsen

nor the Stockholders have received any notice from any municipal,

state, federal or other governmental authority regarding zoning,

building, fire, water, use, health, environmental, ordinance, code

or regulatory violations issued with respect to any of the Real

Property, and, to the knowledge of the Stockholders, no such

violations exist.   The buildings, improvements and fixtures upon the

Real Property are permitted, conforming structures under applicable

zoning, subdivision and building laws and ordinances, and Simonsen's

present uses of such buildings, improvements and fixtures are

permitted, conforming uses under such zoning, subdivision and

building laws and ordinances.   The Real Property includes all rights

to any off-site facilities necessary to ensure compliance with all

zoning, building, health, fire, water, use or similar statutes,

laws, regulations and orders.   No charges or violations have been

filed, served, made or, to the knowledge of the Stockholders,

threatened relating to the Real Property or any of Simonsen's

operations conducted thereon as a result of any violation or alleged

violation of any applicable ordinances, requirements, regulations,

zoning, subdivision and building laws or restrictive covenants

(including, without limitation, those relating to health, safety or

environmental protection).

 

(e)    Pending and Threatened Litigation.   There are no pending or,

to the knowledge of the Stockholders, threatened matters of

litigation, administrative action or examination, claim or demand

whatsoever relating to the Real Property.

 

(f)    Eminent Domain.   There is no pending or, to the knowledge of

the Stockholders, threatened (i) condemnation of any part of the

Real Property by any governmental authority; (ii) special assessment

against the Real Property; or (iii) action against Simonsen for

breach of any restrictive covenant affecting the Real Property.

 

(g)    Access to Real Property; Utilities.   To the knowledge of the

Stockholders, no fact or condition exists which would result in the

termination or impairment of access to the Real Property from

adjoining public or private Streets or ways or which could result in

discontinuation of presently available or otherwise necessary sewer,

water, electric, gas, telephone or other utilities or services.

 

(h)    Condition.   No representations are made with respect to the

condition of the Real Property.

 

(i)    Mechanic's Liens.   No labor, material or services have been

furnished by or at the direction of Simonsen, or to the knowledge of

the Stockholders, by any Lessor on or about the Real Property or any

part thereof, as a result of which any mechanic's, laborer's or

materialman's liens or claims thereof might arise.

 

(j)    Government Obligations.   To the knowledge of the Stockholders,

there are no unperformed obligations relative to the Real Property

outstanding to any governmental or quasi-governmental body or

authority.

 

(k)    Rights in the Real Property.   There are no purchase contracts,

 

 

<PAGE>

 

subleases, options or any other agreements of any kind, written or

oral, formal or informal, choate or inchoate, recorded or

unrecorded, whereby any person or entity other than Simonsen has

acquired or has any basis to assert any right, title or interest in,

or right to possession, use, enjoyment or proceeds of all or any

portion of the Real Property.   Simonsen does not have any interest

in, or any right or obligation to acquire any interest in, any other

real property.

 

(l)    Foreign Investments.   None of the Stockholders is a "foreign

person" within the meaning of Section 1445 of the Internal Revenue

Code of 1986, as amended (the "Code").

 

(m)    Public Improvements.   All public and quasi-public improvements

upon or adjacent to the Real Property are, to the knowledge of the

Stockholders, adequate to service the requirements of the Real

Property therefor and are fully paid for and neither the Real

Property nor the owner thereof has any obligation to pay any charge

for such public or quasi-public improvements except general real

estate taxes.

 

3.12   Title to Personal Property.

 

(a)    Except as set forth in Schedule 3.12 Simonsen has or at

Closing will have good and marketable title to the equipment,

computer hardware, furniture, vehicles and other tangible or

intangible personal property reflected as owned by Simonsen on the

Financial Statements (except for personal property disposed of in

the ordinary course of business after the date thereon, or used by

Simonsen in the conduct of its business (whether or not reflected on

the Financial Statements), free and clear of any liens, claims,

security interests, options, leases, restrictions or encumbrances

which adversely affect the marketability of title thereto other than

those created by the Purchaser.   No representation is made as to the

condition of the personal property.   Except as set forth in Schedule

3.12 Simonsen does not hold any property on consignment, nor does

Simonsen hold title to any property in the possession of others.

 

(b)    All of the computer software used by or for Simonsen in the

conduct of its business (the "Software") is either (i) owned by

Simonsen free and clear of any and all liens, claims, equities,

security interests and encumbrances whatsoever, or (ii) used by

Simonsen pursuant to a license granted to Simonsen by the third

party which, to the knowledge of the Stockholders, owns such

Software free and clear of any and all liens, claims, equities,

security interests and encumbrances whatsoever.   No such computer

software license shall terminate or become terminable as a result of

the transactions contemplated by this Agreement.   There are no

infringement suits pending or, to the knowledge of the Stockholders,

threatened against Simonsen with respect to any of the Software, and

no fact or condition exists which could give rise to any such

infringement suit.

 

3.13   Contracts.   Except as set forth in Schedule 3.13 Simonsen is

not a party to, or bound by, any oral or written contracts, agreements,

commitments, arrangements or understandings (the "Contracts"): (a) for

any indebtedness, except those incurred in the ordinary course of

business; (b) involving leasing personal property (including, without

limitation, leases for machinery and office equipment, furniture,

fixtures, vehicles, tools and dies) which require an annual payment in

excess of $5,000 or the current term of which exceeds two years; (c)

involving the payment or receipt of in excess of $10,000 per annum by

Simonsen or the current term of which exceeds six months (including,

 

<PAGE>

 

 

without limitation, vendor supply contracts or customer "blanket"

purchase orders), except those incurred in the ordinary course of

business; (d) providing for the services of dealers, distributors, sales

representatives or similar representatives; (e) relating to the

ownership, use or licensing of any patents, trademarks, trade names,

brand names, copyrights, inventions, processes, know-how, formulae,

technology, trade secrets or other proprietary rights; (f) relating to

oral or written and currently effective, warranties or representations

expressly or impliedly made by Simonsen in respect of any products

manufactured or sold by Simonsen in conduct of Simonsen's business and

any other liability or obligation of Simonsen to service, repair,

maintain, take back or otherwise do or refrain from doing anything in

respect to any products or inventory that has been delivered by Simonsen;

(g) any covenants by or binding on Simonsen not to compete or to abide by

any confidentiality agreement; (h) for the sale of goods or services to

any governmental authority, including any open purchase order issued by

such entities; (i) with any manufacturer, jobber, supplier or customer

with respect to discounts, allowances or payment terms beyond 60 days;

(j) relating to any joint venture or partnership contract or agreement;

(k) for the incurrence of any capital expenditure in excess of $10,000;

(l) for or with respect to any advertising; (m) limiting the freedom of

Simonsen, or any of its officers, directors, employees or agents to

engage in or compete in any line of business or with any person or in any

area or to use or disclose any information; (n) giving any party the

right to renegotiate or require a reduction in price or the refund of any

amount previously paid to Simonsen by such person; that is material to

Simonsen's business.

 

All of the Contracts constitute legal, valid and binding obligations

of the respective parties thereto, are in full force and effect, and

neither Simonsen or, to the knowledge of the Stockholders, any other

party thereto has violated any provision of, or committed or failed to

perform any act which with notice, lapse of time or both would constitute

a default under the provisions of any such Contract, the termination of

which could have a material adverse effect upon the properties, assets to

be purchased or liabilities to be assumed.   Correct and complete copies

of all written Contracts disclosed on Schedule 3.13 and all written

amendments thereto will be delivered to the Purchaser prior to the

Closing Date.

 

3.14   Intellectual Property.   Simonsen has no domestic or foreign

patents, patent applications pending, patent applications in process,

written employee invention disclosures, trademarks, trademark

registrations, trademark registration applications, copyrights, copyright

registrations, copyright registration applications, service marks,

service mark registrations, service mark registration applications, know-

how agreements, licenses, rights acquired through litigation, logos,

trade names, and slogans used in the conduct of Simonsen's business, as

presently conducted or as presently planned to be conducted.

 

 

3.15   Foreign Assets.   Except as described in Schedule 3.15 Simonsen

does not have any interest in any real property or tangible or intangible

personal property or other asset located outside the continental limits

of the United States of America, including stock, securities or

investments in, claims against, or receivables from any person

substantially all the property or business of which is located outside of

such continental limits.

 

3.16   Compliance with Law.   Except as disclosed in Schedule 3.16

hereto, to the knowledge of the Stockholders, Simonsen is not in default

under or in violation of any applicable statute, law, ordinance, decree,

order, rule, regulation, franchise, permit or license of any governmental

body, which may result in a material adverse effect upon any property or

asset of Simonsen or upon Simonsen's business, condition (financial or

other), results of operations or prospects.

 

 

<PAGE>

 

3.17   Environmental Matters.

 

(a)    Except as set forth in Schedule 3.17, to the knowledge of the

Stockholders, Simonsen has not violated, and has received no notice

of any violation of the Environmental Laws, whether on property

owned, leased or controlled by Simonsen or on property of others, or

otherwise, and there is no known condition with respect to Simonsen

or its assets or its prior actions which with the passage of time is

reasonably likely to lead to a material violation of any of the

Environmental Laws.

 

(b)    Except as set forth on Schedule 3.17 hereto, Simonsen has

obtained and maintained in good standing all permits, inspections

licenses and other authorizations which are required under the

Environmental Laws for the operation of Simonsen's business,

complete copies (or, if oral, a written summary) of which have been

provided to the Purchaser.

 

(c)    Except as set forth on Schedule 3.17 hereto, to the knowledge

of the Stockholders, Simonsen is in compliance with all terms and

conditions of such required permits, licenses and authorizations,

and it and its properties are also in compliance with all other

limitations, restrictions, conditions, standards, prohibitions,

requirements, obligations, schedules, timetables and other

provisions contained in the Environmental Laws.

 

(d)    Except as set forth in Schedule 3.17 hereto, there is no

civil, criminal or administrative action, suit, demand, claim,

hearing, notice of violation, notice of investigation, proceeding

notice or demand letter pending or, to the knowledge of the

Stockholders, threatened against Simonsen relating in any way to the

Environmental Laws.

 

(e)    Except as set forth in Schedule 3.17, there are no orders from

or agreements with any governmental or any private party relating to

violations of or compliance with the Environmental Laws.

 

(f)    Except as disclosed in Schedule 3.17, (i) to the knowledge of

the Stockholders, there has been no storage, treatment, generation,

discharge, incineration, transportation or disposal of industrial,

toxic or hazardous substances or solid or hazardous waste by

Simonsen (or, to the knowledge of the Stockholders, its predecessors

in interest) at the Real Property in violation of any federal, state

or local law, statute, rule or regulation or the common law or any

decree, order, arbitration award or agreement with, or any license

or permit from, any federal, State or local governmental authority;

and (ii) there has been no spill, discharge, leak, emission,

injection, escape, dumping, or release by Simonsen (or, to the

knowledge of the Stockholders, by others) of any kind onto the Real

Property or into the environment surrounding the Real Property of

any industrial, toxic or hazardous substance or solid or hazardous

waste as defined under any federal, state or local law, statute,

rule or regulation other than those releases permissible under such

law, statute, rule or regulation or allowable under applicable

permits.

 

(g)    The term "Environmental Law" shall mean and include all

federal, state and local statutes, ordinances, regulations and rules

presently in force or hereafter enacted (up to and including the

Closing Date) relating to environmental quality, contamination, and

 

 

 

<PAGE>

 

clean up of Hazardous Substances, including, without limitation, the

Comprehensive Environmental Response, Compensation and Liability Act

of 1980, 42 U.S.C. 6090 et seq., as amended by the Superfund

Amendments and Reauthorization Act of 1986; the Resource

Conservation and Recovery Act of 1976, 42 U.S.C. 6091 et seq., as

amended by the Hazardous and Solid Waste Amendments of 1984; and all

state superlien and environmental clean up statutes and all rules

and regulations promulgated under said statutes, as amended.   The

term "Hazardous Substance" shall mean and include all hazardous and

toxic substances, waste or materials, and any pollutant or

contaminant, including, without limitation, PCBs, asbestos, asbestos

containing material, petroleum products, and all other materials

that are included under or regulated by any Environmental Law.

 

3.18   Litigation.

 

(a)    Except as disclosed in Schedule 3.18(a), there is no suit,

arbitration, claim, investigation, action or proceeding, in law or

in equity, now pending or, to the knowledge of the Stockholders,

threatened before any court, arbitrator, commission, administrative

or regulatory body, or any governmental agency to which Simonsen is

a party or which may result in any judgment, award, order, decree,

liability or other determination which will or could have an adverse

effect upon any of the property, personnel or assets of Simonsen, or

upon Simonsen's business, condition (financial or other), results of

operations or prospects, or which will or could prevent or interfere

with the consummation of any transactions contemplated hereby, nor

to the knowledge of the Stockholders is there any reasonable basis

therefor.   No such judgment, order, award or decree has been

entered, nor has any such determination been made or liability been

incurred, which has, or could have, such an effect.

 

(b)    Except as disclosed in Schedule 3.18(b), to the knowledge of

the Stockholders, there are no facts which, if known by a potential

claimant or governmental authority, would give rise to a claim or

proceeding which, if asserted or conducted with results unfavorable

to Simonsen, would have a material adverse effect on the business or

financial condition of Simonsen, or the consummation of the

transaction herein contemplated, or the use of Simonsen's assets

(whether by the Purchaser or Simonsen after the Closing or by

Simonsen prior thereto ).

 

3.19   Consents.   Except as disclosed on Schedule 3.19, neither

Simonsen nor the Stockholders is required to obtain any consents or other

approvals from any governmental agency or other person (including,

without limitation, any lessor, lender, insurance company or financial

institution) as a result of the transactions contemplated hereby.

 

3.20   Tax Matters.

 

(a)    As used herein, the term "Taxes" means any federal, state,

local or foreign income, corporation, gross receipts, profits,

gains, capital duty, franchise, withholding, social security,

unemployment, disability, property, wealth, welfare, stamp, excise,

occupation, sales, use, transfer, value added, alternative minimum,

estimated or similar tax, together with any interest, penalties or

additions in respect of the foregoing, and including any transferee

or secondary liability in respect of such taxes.

 

(b)    Except as set forth on Schedule 3.20:

 

(i)    Simonsen has timely filed with the appropriate taxing

authorities all returns or extensions (including without

limitation information returns and other material

information) in respect of Taxes required to be filed

 

 

<PAGE>

 

through the date hereof and shall timely file any such

returns required to be filed on or prior to the Closing

Date.   The returns and other information filed are

complete and accurate in all material respects.   The

Stockholders will make available to the Purchaser, prior

to the Closing Date, complete and accurate copies of

Simonsen's federal, and state and local tax returns for

the past six years together with all examination reports

and statements of deficiencies assessed against or

agreed to by Simonsen for any taxable period ended on or

after January 1, 1999.   Schedule 3.20 indicates those

Tax returns of Simonsen filed since January 1, 1999 that

have been audited and indicates those Tax returns that

currently are the subject of audit;

 

(ii)   All Taxes due to be paid before the Closing Date

(whether or not shown on an Tax return filed by

Simonsen) have been timely paid, or shall be timely

paid, or an adequate reserve has been established

therefor, as set forth on Schedule 3.20 or Simonsen's

Financial Statements heretofore delivered to the

Purchaser;

 

(iii) There are no pending or, to the knowledge of the

Stockholders, threatened audits, investigations or

claims for or relating to any material additional

liability in respect of Taxes, and there are no matters

under discussion with any governmental authorities with

respect to Taxes that in the reasonable judgment of

Simonsen or such Company's attorneys or

 

 

<PAGE>

 

accountants, is likely to result in a material

additional liability for Taxes.   Except as set forth on

Schedule 3.20, no extension of a statute of limitations

relating to Taxes is in effect with respect to Simonsen;

 

(iv)   There are no liens for Taxes (other than for current

Taxes not yet due and payable) on any Company's assets;

 

(v)    No claim with respect to Simonsen has been made on or

after January 1, 1999 by an authority in a jurisdiction

where such Company does not file Tax returns that

Simonsen is or may be subject to taxation by that

jurisdiction;

 

(vi)   Simonsen has withheld and paid all Taxes required to

have been withheld and paid in connection with amounts

paid or owing to any employee, independent contractor,

creditor, stockholder or other party, and has complied

in all material respects with all laws relating to Tax

withholding;

 

(vii) There is no unresolved dispute or claim concerning any

Tax liability of Simonsen either claimed or raised by

any Tax authority in writing.   There are no outstanding

rulings of, or requests for rulings with, any Tax

authority addressed to Simonsen that are, or if issued

would be, binding on Simonsen;

 

(viii)       Simonsen is not a party to any joint venture,

partnership or other arrangement or contract which could

be treated as a partnership for federal income Tax

purposes.

 

3.21   Compensation.   Schedule 3.21 correctly identifies each officer

and director of Simonsen and each other persons if such other persons had

compensation (salaries, commissions, bonuses, benefits or in any other

form) in 2004 in excess of $50,000 from Simonsen, each such individual's

present base salary on an annualized basis, the type and amount of

commissions, bonuses or other compensation each such employee is

presently eligible to receive.

 

3.22   Labor Relations.   There is neither pending nor, to the

knowledge of the Stockholders, threatened any labor dispute, labor

organizing activity, election petition or proceeding, proceeding

preparatory thereto, strike, slow down or work stoppage which affects or

which may affect Simonsen's business, or which may interfere with its

continued operations, and neither Simonsen nor any officer, director,

employee or agent of Simonsen has committed any unfair labor practice as

defined in the National Labor Relations Act of 1947, as amended.  

Simonsen is not a party to or bound by any collective bargaining

agreement.   Simonsen's relations with its employees are satisfactory and

no employee paid other than on an hourly wage basis has announced or

threatened his or her intention to leave Simonsen's employ.

 

3.23   Employee Benefit Plans; ERISA.   All "employee benefit plans,"

as defined in Section 3(3) of ERISA, sponsored, maintained or contributed

to by Simonsen are listed on Schedule 3.23 hereto, and complete and

accurate copies of the plans (or related insurance policies) will be

furnished to Purchaser prior to Closing.   Except as disclosed in Schedule

3.23, Simonsen is not a party to, does not have in effect or to become

effective after the date of this Agreement any bonus, cash or deferred

compensation, severance, medical, health or hospitalization, pension,

profit sharing or thrift, retirement, stock option, employee stock

ownership, life or group insurance, death benefit, welfare, salesmen

incentive, vacation, sick leave, disability or trust agreement or

arrangement.

 

<PAGE>

 

(i)    Each employee benefit plan required to be listed in

Schedule 3.23 hereto has been administered, without

material exception, in compliance with applicable

provisions of ERISA and the Code.

 

(ii)   All reporting and disclosure requirements under ERISA

and the Code for the plans listed in Schedule 3.23

hereto have been complied with, except for such n