EXHIBIT 1
EXECUTION COPY
CONTRIBUTION AND EXCHANGE AGREEMENT
BY AND AMONG
GHS, INC.,
CHANGE YOUR XXXX.XXX, LLC ("CYL")
AND THE CYL MEMBERS
May 20, 1999
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CONTRIBUTION AND EXCHANGE AGREEMENT dated as of May 20,
1999 (the "Agreement"), by and among GHS, INC., a Delaware corporation
("GHS"), CHANGE YOUR XXXX.XXX, LLC, a Delaware limited liability company
("CYL"), and Xxxxxxx X. Xxxxxxx ("Xxxxxxx"), Xxxxxxx Research International
Inc., a Nevada corporation ("RRI" and together with Xxxxxxx, the "Xxxxxxx
Group"), and CYL Development Holdings, LLC ("Development Holdings" and
collectively, with the Xxxxxxx Group, the "CYL Members").
WHEREAS, CYL intends to harness the emotional and
motivational power of leaders in the personal and professional improvement
industry and serve as the hub and consistent interface for these
personalities' online presence in order to launch the world's first and
leading site of personal and professional improvement (the "Change Your Life
Site");
WHEREAS, CYL has had discussions with GHS with a view
towards concluding an agreement by which CYL, through an exchange by its
members of units in CYL for securities in GHS, would become a wholly-owned
subsidiary of GHS;
WHEREAS, the parties hereto desire to reduce said
arrangements to written form;
WHEREAS, the respective Boards of Directors of GHS and CYL
have each determined that it is advisable and for the benefit and in the best
interests of their companies and their respective securityholders that CYL be
acquired by GHS by means of an exchange of CYL's membership units (the
"Membership Units") for shares of GHS's Series A Preferred Stock (the "GHS
Preferred Stock"), par value $.01 per share, having the terms for the Series
A Preferred Stock described in Exhibit 1.1 hereto (the "Preferred Stock
Terms") and, subject to Section 2.1, warrants (the "GHS Warrants") to acquire
shares of GHS common stock, par value $.01 per share (the "GHS Common
Stock"), of like tenor (including cashless exercise) with GHS's presently
outstanding warrants, on the terms and conditions hereinafter set forth (the
"Exchange");
WHEREAS, GHS has entered into a letter of intent with
Concept Development, Inc. ("Concept") for the acquisition of Concept in
exchange for cash and GHS Common Stock;
WHEREAS, GHS shall sell certain of it voting equity
securities to private investors (the "Private Investors") in a private
placement which transaction will close at or prior to the closing of the
Exchange;
WHEREAS, GHS, the CYL Members, Concept and the Private
Investors together have negotiated the terms of the resulting ownership of
GHS and have determined the rights of each party with respect to such
ownership;
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WHEREAS, for federal income tax purposes, it is intended
that the Exchange and the related private placement and acquisition of
Concept be treated as an integrated transaction which qualifies as a tax-free
transaction under the provisions of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Internal
Revenue Code of 1986, as amended ("the "Code");
NOW, THEREFORE, in consideration of the premises, the
mutual covenants, representations and warranties herein contained, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto intending to be bound hereby agree as
follows:
ARTICLE 1.
THE CONTRIBUTION AND EXCHANGE
SECTION 1.1. THE CONTRIBUTION AND EXCHANGE. Subject to the terms
and conditions hereof, on the Effective Date (as defined in Section 1.3), the
outstanding Membership Units shall be exchanged for shares of GHS Preferred
Stock and, subject to Section 2.1, into GHS Warrants in accordance with the
applicable provisions of this Agreement and the laws of the State of Delaware
("Delaware Law"). Following the Effective Date, CYL shall continue its
limited liability company existence under Delaware Law as a wholly-owned
subsidiary of GHS.
SECTION 1.2. BOARD OF DIRECTORS AND MEMBERS MEETING.
(a) CYL AND THE CYL MEMBERS. CYL and the CYL Members
shall, as soon as practicable, take all action necessary in accordance with
applicable law and its Certificate of Formation and Operating Agreement to
approve the Exchange and the transactions contemplated hereby.
(b) GHS. GHS shall, as soon as practicable, take all
action necessary in accordance with applicable law and its Certificate of
Incorporation and By-laws to approve the Exchange and the transactions
contemplated hereby.
SECTION 1.3. CONSUMMATION OF THE EXCHANGE; EFFECTIVE DATE. The
Exchange shall become effective at such time (the "Effective Time") as the
Closing shall have occurred in accordance with Section 2.3 (the date on which
the Effective Time occurs, the "Effective Date").
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ARTICLE 2.
EXCHANGE AND CANCELLATION
OF SECURITIES
SECTION 2.1. CONVERSION OF MEMBERSHIP UNITS. As of the Effective
Date, the CYL Members shall exchange all Membership Units issued and
outstanding immediately prior to the Effective Date for shares of GHS
Preferred Stock and GHS Warrants in such amounts as determined below. The GHS
Preferred Stock issued to the CYL Members hereby shall be convertible into
shares of GHS Common Stock in an aggregate amount which would represent 80%
of the shares of GHS Common Stock outstanding as of the Effective Date after
giving effect to the Exchange in a manner as shall be mutually acceptable to
GHS and the CYL Members. The GHS Warrants issued to the CYL Members hereby
shall be exercisable for shares of GHS Common Stock in an aggregate amount
which would represent 80% of the shares of GHS Common Stock issuable upon the
exercise of warrants and options of GHS outstanding as of the Effective Date
after giving effect to the Exchange in a manner as shall be mutually
acceptable to GHS and the CYL Members; PROVIDED, HOWEVER, that, at their
discretion, the CYL Members may elect to receive on the Effective Date in
lieu of such GHS Warrants a number of shares of GHS Preferred Stock which is
convertible into the number of shares of Common Stock for which the GHS
Warrants would have been exercisable on a cashless basis. The calculations in
the preceding two sentences shall exclude all securities issued in connection
with the New Financing referred to in Section 9.1(c) and the Concept
Transactions referred to in Section 8.4. As a result of the Exchange, GHS
will become the sole holder of Membership Units of CYL. The GHS Preferred
Stock and any GHS Warrants issuable hereunder are sometimes collectively
referred to hereinafter as the "Exchange Consideration." Each Membership Unit
so exchanged shall be entitled to receive its pro rata portion (the "Pro Rata
Portion") of the Exchange Consideration.
SECTION 2.2. PAYMENT. As of the Effective Date, each holder of
Membership Units issued and outstanding on the Effective Date shall receive
the Pro Rata Portion of the Exchange Consideration for each Membership Unit
as provided in Section 2.1 hereof. In connection with such payment, any
certificate representing a Membership Unit shall be surrendered by each CYL
Member.
SECTION 2.3. CLOSING. Subject to the satisfaction or waiver of
all of the conditions to closing contained in Article 9 hereof, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place, unless the parties shall otherwise agree, at 10:00 a.m., New York City
time, on a date to be specified by the parties, which shall be no later than
the business day after the satisfaction or waiver of the conditions to
Closing contained in Article 9 (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions) at the offices of Xxxxxx Xxxxxx White &
XxXxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, unless another date or
place is mutually agreed to by the parties (the "Closing Date").
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ARTICLE 3.
ORGANIZATIONAL DOCUMENTS
SECTION 3.1. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT OF
CYL. As of the Effective Date, the Certificate of Formation and Operating
Agreement of CYL shall be in the forms attached hereto as Exhibit 3.1.
SECTION 3.2. CERTIFICATE OF INCORPORATION AND BY-LAWS OF GHS. As
of the Effective Date, the Certificate of Incorporation and By-laws of GHS
shall be in the forms attached hereto as Exhibit 3.2.
SECTION 3.3. BOARD OF DIRECTORS; CORPORATE GOVERNANCE. In
connection with the execution of this Agreement, certain parties will enter
into a Stockholders Agreement in substantially the form of Exhibit 3.3 hereto
(the "Stockholders Agreement"). The parties shall take such reasonable
actions as are necessary to effect the agreements set forth in the
Stockholders Agreement and this Section 3.3 as soon as practicable following
the Closing, including the appointment of a new Board of Directors of the
Company as provided in the Stockholders Agreement.
ARTICLE 4.
CERTAIN PROVISIONS RELATING TO SHARES
SECTION 4.1. FRACTIONAL SHARES. Fractional shares of GHS
Preferred Stock may be issued by GHS in the Exchange. The GHS Warrants shall
not be exercisable for fractional shares of GHS Common Stock but shall be
rounded to the nearest whole share. Each CYL Member's Pro Rata Portion of the
Exchange Consideration is set forth on Schedule 4.1 hereto.
SECTION 4.2. TAKING OF NECESSARY ACTION; FURTHER ACTION. GHS, CYL
and the CYL Members shall each take all such action as may be necessary or
appropriate in order to effectuate the Exchange as promptly as possible,
subject to all of the terms and conditions hereof. If, at any time after the
Effective Date, any further action is necessary or desirable to carry out the
purposes of this Agreement GHS, CYL and the CYL Members agree to take, and
shall take, all such action.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF CYL AND THE CYL MEMBERS
Except as set forth in the Disclosure Schedule delivered by CYL to
GHS prior to the execution of this Agreement and attached hereto (the "CYL
Disclosure Schedule"), which shall identify exceptions by specific Section
references, CYL hereby represents and warrants to GHS that:
SECTION 5.1. ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. CYL
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
organized, validly existing and in good standing, or to have such power and
authority, or to be duly qualified and in good standing, as the case may be,
would not have a CYL Material Adverse Effect. The term "CYL Material Adverse
Effect" as used in this Agreement shall mean any event, change or effect
that, individually or when taken together with all other such events, changes
or effects, would be materially adverse to the condition (financial or
otherwise), prospects, business, properties, assets, or operations of CYL.
Except as disclosed in Section 5.1 of the CYL Disclosure Schedule, CYL has no
subsidiaries. Except as disclosed in Section 5.1 of CYL Disclosure Schedule,
there are no corporations, partnerships or joint venture arrangements or
other business entities in which CYL owns an equity interest.
SECTION 5.2. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT.
CYL is not in violation of any of the provisions of its Certificate of
Formation or Operating Agreement.
SECTION 5.3. CAPITALIZATION.
(a) There are 100 Membership Units issued and
outstanding, all of which are duly subscribed for and fully paid. Except as
described in this Section 5.3 or in Section 5.3 of CYL Disclosure Schedule,
as of the date of this Agreement, no Membership Units are reserved for any
other purpose. Except as set forth in Section 5.3 of the CYL Disclosure
Schedule, CYL has not granted any options in, or any other rights to
purchase, Membership Units and there are no such options or rights
outstanding. Each CYL Member is the owner of record and beneficially of the
number of Membership Units set forth in Schedule 4.1, which total amount
equals all outstanding Membership Units. Set forth in Section 5.3 of the CYL
Disclosure Schedule is a schedule showing in sufficient detail the amounts
expended to date by Development Holdings in the organization of CYL,
including a description of the uses of such expended amounts, which schedule
shall also be updated through and delivered at the Closing.
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(b) Except as set forth in Section 5.3(a) above or
otherwise contemplated hereby, as of the date of this Agreement, there are no
options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which CYL is a
party relating to the issued or unissued Membership Units or other securities
of CYL, or obligating CYL to grant, issue or sell any Membership Units or
other securities of CYL, by sale, lease, license or otherwise. There are no
obligations, contingent or otherwise, of CYL to (x) repurchase, redeem or
otherwise acquire any Membership Units; or (y) provide funds to, or make any
investment in (in the form of a loan, capital contribution or otherwise), or
provide any guarantee with respect to the obligations of CYL or any other
person. As of the date of this Agreement, CYL neither owns nor has agreed to
purchase or otherwise acquire, any capital stock of, or any interest
convertible into or exchangeable or exercisable for, any capital stock of any
corporation, partnership, joint venture or other business association or
entity. Except as set forth in Section 5.3 of CYL Disclosure Schedule, there
are no agreements, arrangements or commitments of any character (contingent
or otherwise) pursuant to which any person is or may be entitled to receive
any payment based on the revenues or earnings, or calculated in accordance
therewith, of CYL. There are no voting trusts, proxies or other agreements or
understandings to which CYL is a party or relating to CYL with respect to the
voting of Membership Units.
SECTION 5.4. AUTHORITY. CYL has all requisite power and authority
to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. Each CYL Member has
the legal right and capacity to enter into this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by CYL and the CYL Members and
the consummation by CYL of the transactions contemplated hereby have been
duly authorized by all necessary action and no other proceedings on the part
of CYL are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. The holders of Membership Units have
approved and adopted this Agreement and have approved the Exchange. This
Agreement has been duly executed and delivered by CYL and the CYL Members
and, assuming the due authorization, execution and delivery thereof by GHS,
constitutes the legal, valid and binding obligation of CYL and the CYL
Members, enforceable against CYL and the CYL Members in accordance with its
terms.
SECTION 5.5. NO CONFLICT; BUSINESS RELATIONSHIPS; REQUIRED
FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by CYL
does not, and the performance of this Agreement by CYL and the CYL Members
will not (i) conflict with or violate the Certificate of Formation or
Operating Agreement, in each case as amended or restated, of CYL, (ii)
conflict with or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment, arbitration award or decree
(collectively, "Laws") or CYL Permit (as hereinafter defined) in effect as of
the date of this Agreement and applicable to CYL or any CYL Member or by
which any of their respective properties is bound or subject to or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or
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both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of CYL or any CYL Member pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, order,
decree, franchise or other instrument or obligation to which CYL or any CYL
Member is a party or by which CYL or any CYL Member or any of their
respective properties is bound or is subject.
(b) No supplier, dealer or creditor of CYL (the "Business
Relationships") has notified CYL, either orally or in writing, that such
Business Relationships may take action which is reasonably likely to materially
and adversely affect the condition (financial or otherwise), business,
properties, assets, or operations, including sales, of CYL.
(c) The execution and delivery of this Agreement by CYL and
each CYL Member does not, and the performance of this Agreement by CYL and each
CYL Member will not require CYL or any CYL Member to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any governmental or regulatory authority ("Governmental Entities").
SECTION 5.6. PERMITS; COMPLIANCE. CYL is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders required to own,
lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the "CYL Permits"), and, to the knowledge of
CYL, there is no action, proceeding or investigation pending or threatened
regarding suspension or cancellation of any CYL Permits, except where the
failure to possess, or the suspension or cancellation of, such CYL Permits
would not have a CYL Material Adverse Effect. CYL is not in conflict with, or
in default or violation of (a) any Law, including but not limited to, Laws
pertaining to the environment, occupational safety, employment matters and
licensing or (b) any of CYL Permits, except for any such conflicts, defaults
or violations which would not have a CYL Material Adverse Effect. CYL has not
received from any Governmental Entity any written notification that CYL is in
conflict with, or has defaulted or violated any Law or CYL Permit. For
purposes of Section 5.6, an event or state of facts which would require CYL
to pay for any purpose or incur as an obligation $25,000 (or $100,000 in the
aggregate) is deemed to result in a "CYL Material Adverse Effect."
SECTION 5.7. FINANCIAL STATEMENTS. CYL and its subsidiaries
have not prepared any financial statements.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Section 5.8 of the CYL Disclosure Schedule, during the period
commencing April 21, 1999 and ending on the date of this Agreement, CYL and
its subsidiaries have conducted their respective businesses only in the
ordinary course and in a manner consistent with past practice and there has
not been: (i) any material damage, destruction or loss (not covered by
insurance)
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with respect to any material assets of CYL; (ii) any declaration, setting
aside or payment of any dividends or distributions in respect of Membership
Units or any redemption, purchase or other acquisition of, or issuance or
sale of, any of CYL's securities; (iii) any increase in the benefits under,
or the establishment or amendment of, any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option,
stock purchase or other employee benefit plan, or any increases in the
compensation payable or to become payable to directors, officers, employees
or consultants of CYL (including the payment of any bonuses), except for
increases in salaries or wages payable or to become payable in the ordinary
course of business and consistent with past practice; (iv) sale, assignment
or transfer of any material portion of its assets, except in the ordinary
course of business, or cancellation of any material debts or claims, (v)
incurring of any capital expenditures or any commitment therefor binding upon
CYL which would cause the aggregate amount of all actual expenditures for CYL
to exceed $100,000; or (vi) a CYL Material Adverse Effect.
SECTION 5.9. ABSENCE OF LITIGATION. Except as disclosed in
Section 5.9 of the CYL Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of CYL,
investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to the knowledge of CYL,
threatened in writing against CYL or any properties or rights of CYL (except
for claims, actions, suits, litigations, proceedings, arbitrations, or
investigations which, individually or in the aggregate, would not reasonably
be expected to have a CYL Material Adverse Effect) nor, to the knowledge of
CYL, does there exist any basis therefor, and CYL is not subject to any
continuing order of, consent decree, settlement agreement or other similar
written continuing investigation by, or any judgment, order, writ,
injunction, decree or award of, any Governmental Entity, court or arbitrator,
including, without limitation, cease-and-desist or other orders, except for
matters which, individually or in the aggregate, would not have a CYL
Material Adverse Effect. For purposes of this Section 5.9, "CYL Material
Adverse Effect" is deemed to include any claim, action, suit, litigation,
proceeding, arbitration or investigation which if decided against CYL would
require the payment of $25,000 individually and $100,000 in the aggregate.
SECTION 5.10. EMPLOYEE MATTERS.
(a) Except as set forth in Section 5.10 of the CYL
Disclosure Schedule, CYL is not a party to any collective bargaining
agreement, employment agreement, retirement plans (whether qualified or
non-qualified), deferred compensation or severance (except to the extent that
accrued vacation and accrued sick days may be deemed to be severance under
applicable law) agreement, consulting or advisory agreement, confidentiality
agreement or covenant not to compete (except as set forth in this Agreement)
relating to its employees or otherwise relating to its business.
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(b) CYL has complied in all material respects with all
applicable laws, rules and regulations affecting the employment of labor,
including, but not limited to, those relating to wages, hours, discrimination
and the payment of social security, withholding and similar taxes, and is not
liable for any arrears of wages or any penalties for failure to comply with
any of the foregoing. There are no controversies pending or threatened
between CYL and any of its employees, or any labor unions or collective
bargaining unit representing or purporting to represent any of its employees.
SECTION 5.11. TAXES. CYL has accurately prepared and timely filed
all Returns (as defined in Section 12.3) which are required to be filed,
except where the time to file has been extended and has paid, or made
provision for the payment of, all Taxes (as defined in Section 12.3) which
have become due pursuant to said Returns or pursuant to any assessment which
has been received by it and except where the failure to do so would not have
a CYL Material Adverse Effect. All such Returns are true and correct in all
material respects. No Tax deficiency is outstanding against CYL.
SECTION 5.12. TAX MATTERS. Neither CYL nor, to the knowledge of
CYL, any of its affiliates has taken or agreed to take any action that would
prevent the Exchange from qualifying under the provisions of Section 351 of
the Code.
SECTION 5.13. NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 5.13 of the CYL Disclosure Schedule, neither CYL nor any of its
subsidiaries has any obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due)
involving in excess of $25,000 in the aggregate, except liabilities under
contracts or commitments described in Section 5.15 of the CYL Disclosure
Schedule (but not liabilities for breaches thereof involving in excess of
$25,000 in the aggregate).
SECTION 5.14. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of CYL.
SECTION 5.15. MATERIAL CONTRACT AND ABSENCE OF DEFAULTS. Except as
listed in Section 5.15 of the CYL Disclosure Schedule ("Material Contracts"),
CYL does not have outstanding:
(a) Any single contract providing for an expenditure by
CYL in excess of $10,000 for the purchase of any real property, machinery,
equipment or other items which are in the nature of capital investment or for
the purchase of raw materials, supplies, component parts or other items which
are in the nature of inventory;
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(b) Any contract, bid or offer to sell products or to
provide services to third parties which (A) is pursuant to terms or
conditions that CYL does not reasonably expect to satisfy or fulfill in its
entirety, or (B) which involves more than $10,000, or which, together with
all other contracts, bids or offers to or with the same party or any
affiliates parties involves more than $25,000;
(c) Any lease of any personal property under which CYL
is lessor requiring aggregate annual payments in excess of $10,000;
(d) Any revocable or irrevocable power of attorney to
any person, firm or corporation for any purpose whatsoever;
(e) Any loan agreement, indenture, promissory note,
conditional sales agreement, guarantee or other similar type of agreement
that involves $10,000 or more; or
(f) Any other material contract or commitment which is
not cancelable on thirty (30) or less days' notice without further obligation
on the part of CYL.
CYL has provided to GHS true, correct and complete copies of all
Material Contracts. CYL is not, nor has it received any notice that it is, or
has any knowledge that any other party is, in default in any respect under
any such Material Contract; and there has not occurred any event that with
the lapse of time or the giving of notice or both would constitute such a
default. CYL's Material Contracts comply with all applicable Laws.
SECTION 5.16. CORPORATE AND MEMBERS APPROVAL. The Board of
Directors of CYL, at a meeting duly called and held, has by unanimous vote of
those directors present (who constituted 100% of the Directors then in
office) or by unanimous written consent thereof, and the CYL Members, have
approved the terms of this Agreement and the transactions contemplated
hereby, including the Exchange.
SECTION 5.17. BOOKS AND RECORDS. The books of account and other
financial records of CYL are in all material respects complete and correct,
are maintained in accordance with good business practices and all Laws
applicable to CYL. The minute books of CYL contain accurate records of all
meetings, and accurately reflect all other corporate action of the
shareholders and directors of CYL.
SECTION 5.18. PROPERTIES. Except as disclosed in Section 5.18 of
the CYL Disclosure Schedule, CYL (i) has good, clear and marketable title to
all of its properties and assets which are, individually or in the aggregate,
material to CYL's business (except properties sold or otherwise disposed of
since the date thereof in the ordinary course of business), free and clear of
all liens except statutory liens securing payments of Taxes or other liens as
do not
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materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties and (ii) is the lessee of all leasehold estates reflected in
Section 5.18 of the CYL Disclosure Schedule or acquired after the date
thereof which are material to its business on a consolidated basis and is in
possession of the properties purported to be leased thereunder, and each such
lease is valid without default thereunder by the lessee or, to CYL's
knowledge, the lessor and no event has occurred or fact exists which permit a
lessor, now or with the passage of time, notice or an opportunity to cure, to
seek a remedy under a lease and CYL is entitled to quiet enjoyment to its
premises. CYL does not own any real property.
SECTION 5.19. ENVIRONMENTAL MATTERS. There has been no (a)
release or threatened release of any hazardous substance, pollutant or
contaminant as each such term presently is defined by the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, resulting
from any activity by or on behalf of CYL, including but not limited to, the
generation, handling, storage, treatment, transportation or disposal of any
hazardous substance, pollutant or contaminant from any location operated by
CYL; (b) to the knowledge of CYL, past or future action taken or to be taken
by any federal, state or local entity or by any private party under any
federal, state or local statute, rule, regulation or guideline concerning the
release of any hazardous substance, pollutant or contaminant into the soil,
air, surface or subsurface waters or the environment in general from any
location operated by CYL; and (c) claims or actions brought or which may be
brought by any third party for damages occurring at or outside of any
location operated by CYL resulting from the alleged release or threatened
release of any hazardous substance, pollutant or contaminant by CYL or any
predecessor in interest, including but not limited to, claims for health
effects to persons, property damage and/or damage to natural resources; nor
does CYL have any knowledge of any basis for any of the foregoing.
SECTION 5.20. INTELLECTUAL PROPERTY. Except as disclosed in
Section 5.20 of the CYL Disclosure Schedule, CYL has sufficient title and
ownership or other rights to all patents, trademarks, trade names, service
marks, copyrights, trade secrets and other proprietary rights ("Intellectual
Property Rights") necessary for or used in the conduct of its business as it
is presently conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. CYL has not received any
communication alleging that the Company has violated Intellectual Property
Rights of any other person or entity. CYL and each CYL Member has no
knowledge of any conflicting use of any of such Intellectual Property Rights.
SECTION 5.21. DEALINGS WITH AFFILIATES. Section 5.21 of the CYL
Disclosure Schedule sets forth a complete list, including the parties of all
oral or written agreements and arrangements to which CYL is, will be or has
been a party, at any time prior to the Effective Time, and to which any
affiliate is also a party ("Related Party Transaction"). All Related Party
Transactions are on terms no less favorable to CYL than what CYL could obtain
on an arms' length basis from an unrelated party.
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SECTION 5.22. INSURANCE. Through the Closing Date, CYL will have
adequate insurance contracts or policies in full force and effect which
provide for coverages that are usual and customary as to the amount and scope
in the business of CYL, except where failure to have such insurance policies
or contracts would not have a CYL Material Adverse Effect.
SECTION 5.23. DISCLOSURE. No representation or warranty of CYL in
this Agreement or any document, certificate or statement issued in connection
herewith contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein
and therein, in the light of the circumstances in which they were made, not
misleading.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF GHS
Except as set forth in the Disclosure Schedule delivered by GHS to
CYL prior to the execution of this Agreement and attached hereto (the "GHS
Disclosure Schedule"), which shall identify exceptions by specific Section
references, GHS hereby represents and warrants to CYL that:
SECTION 6.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each
of GHS and its subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to
own, lease and operate its properties and to carry on its business as it is
now being conducted and GHS and each subsidiary is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
organized, validly existing and in good standing, or to have such power and
authority, or to be duly qualified and in good standing, as the case may be,
would not have an GHS Material Adverse Effect. The term "GHS Material Adverse
Effect" as used in this Agreement shall mean any event, change or effect
that, individually or when taken together with all other such events, changes
or effects, would be materially adverse to the condition (financial or
otherwise), prospects, business, properties, assets or operations of GHS and
its subsidiaries, taken as a whole. Disclosed in Section 6.1 of GHS
Disclosure Schedule are all corporations, partnerships or joint venture
arrangements or other business entities in which GHS owns an equity interest.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. GHS has
heretofore furnished to CYL complete and correct copies of the Certificate of
Incorporation and By-Laws, as amended or restated, of GHS. GHS is not in
violation of any of the provisions of its Certificate of Incorporation or
By-Laws.
13
SECTION 6.3. CAPITALIZATION. As of the date of this Agreement,
the authorized capital stock of GHS consists of (a) 25,000,000 shares of GHS
Common Stock and (b) 1,000,000 shares of preferred stock, par value $.01 per
share ("GHS Preferred Shares"). As of date hereof: (i) 6,979,160 shares of
GHS Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, GHS's Certificate of Incorporation or
By-Laws or any agreement to which GHS is a party or is bound; (ii) no shares
of GHS Common Stock were held in treasury and (iii) 659,000 shares of GHS
Common Stock were reserved for future issuance pursuant to outstanding stock
options and warrants issued to certain officers, employees, directors and
other persons. Except as set forth in Section 6.3 of the GHS Disclosure
Schedule, as of the date of this Agreement, there are no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which GHS is a party relating to the issued
or unissued capital stock or other securities of GHS, or obligating GHS to
grant, issue or sell any capital stock or other securities of GHS, by sale,
lease, license or otherwise. As of the date of this Agreement, no GHS
Preferred Shares were issued and outstanding. Each of the outstanding shares
of capital stock of, or other equity interests in, each of GHS's subsidiaries
is duly authorized and validly issued and, if applicable, fully paid and
nonassessable. The shares of GHS Preferred Stock to be issued pursuant to the
Exchange have been duly authorized and, when issued in accordance with the
Exchange, will be validly issued, fully paid and nonassessable, provided that
GHS and CYL are aware that GHS does not have sufficient number of authorized
unissued shares of GHS Common Stock for issuance upon the conversion of all
of the GHS Preferred Stock. The GHS Warrants to be issued pursuant to the
Exchange will, prior to the Closing, have been duly authorized and, when the
GHS Warrants are exercised in accordance with the terms thereof, the shares
of Common Stock issuable upon exercise thereof will be validly issued, fully
paid and nonassessable.
SECTION 6.4. AUTHORITY. GHS has all requisite corporate power and
authority to execute and deliver this Agreement to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by GHS and the consummation by GHS
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
GHS are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by GHS and, assuming the due authorization, execution and delivery
thereof by CYL, constitutes a legal, valid and binding obligation of GHS
enforceable against GHS in accordance with its terms.
SECTION 6.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by GHS
does not, and the performance of this Agreement by GHS and the consummation
of the transactions contemplated hereby will not (i) conflict with or violate
the Certificate of Incorporation or By-Laws, or the equivalent organizational
documents, in each case as amended or restated, of GHS
14
or any of GHS's subsidiaries, (ii) conflict with or violate any Laws or GHS
Permits (as hereafter defined) applicable to GHS or any of GHS's subsidiaries
or by which any of their respective properties is bound or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of GHS
or any of GHS's subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, order, decree,
franchise or other instrument or obligation to which GHS, or any of GHS's
subsidiaries is a party or by which GHS or any of GHS's subsidiaries or any
of their respective properties is bound or subject to, except for any such
conflicts or violations described in clause (ii) or breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation or
liens or encumbrances described in clause (iii) that would not have an GHS
Material Adverse Effect.
(b) The execution and delivery of this Agreement by GHS
and the consummation by GHS of the transactions contemplated hereby do not,
and the performance of this Agreement by GHS will not require GHS to obtain
any consent, approval, authorization or permit of, or to make any filing with
or notification to, any Governmental Entities, except, with respect to the
USN Spin-off contemplated by Section 7.3(c) and the change in the members of
the Board of Directors pursuant to Section 3.3, for applicable requirements,
if any, of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities or blue sky laws ("Blue Sky Laws").
SECTION 6.6. PERMITS; COMPLIANCE. Each of GHS and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
identification numbers, approvals and orders (collectively, the "GHS
Permits") necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted, and there is no action, proceeding
or investigation pending or, to the knowledge of GHS, threatened regarding
suspension or cancellation of any of the GHS Permits, except where the
failure to possess, or the suspension or cancellation of, such GHS Permits
would not have an GHS Material Adverse Effect. Neither GHS nor any of its
subsidiaries is, or has been since January 1, 1996, in conflict with, or in
default or violation of (a) any Law by which any of them or any of their
respective properties is bound or subject to or (b) any of the GHS Permits,
except for any such conflicts, defaults or violations which would not have an
GHS Material Adverse Effect.
SECTION 6.7. GHS REPORTS; FINANCIAL STATEMENTS.
(a) Since January 1, 1996, GHS and its subsidiaries have
timely filed (i) all forms, reports, statements and other documents required
to be filed with (A) the SEC, including, without limitation (1) all Annual
Reports on Form 10-K, (2) all Quarterly Reports on Form 10-Q, (3) all proxy
statements relating to meetings of stockholders (whether annual or special),
(4) all Current Reports on Form 8-K, (5) all other reports or registration
15
statements and (6) all amendments and supplements to all such reports and
registration statements (collectively, the "GHS SEC Reports") and (B) any
other applicable state securities authorities and (ii) all forms, reports,
statements and other documents required to be filed with any other applicable
federal or state regulatory authorities, except where the failure to file any
such forms, reports, statements or other documents would not have an GHS
Material Adverse Effect (all such forms, reports, statements and other
documents in clauses (i) and (ii) of this Section 6.7(a) being referred to
herein, collectively, as the "GHS Reports"). The GHS Reports, including all
GHS Reports filed after the date of this Agreement and prior to the Effective
Date (x) were or will be prepared in all material respects in accordance with
the requirements of applicable Law (including, with respect to the GHS SEC
Reports, the Securities Act and the Exchange Act, as the case may be, and the
rules and regulations of the Securities and Exchange Commission ("SEC")
thereunder applicable to such GHS SEC Reports) and (y) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the GHS SEC
Reports filed prior to, on or after the date of this Agreement (i) have been
or will be prepared in accordance with the published rules and regulations of
the SEC and generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except, with respect to GHS SEC
Reports filed prior to the date of this Agreement, as may be indicated in the
notes thereto) and (ii) fairly present or will fairly present the
consolidated financial position of GHS and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments.
(c) Except as disclosed in the GHS SEC Reports filed
prior to the date of this Agreement, as contemplated by this Agreement and as
disclosed in Section 6.8 of the GHS Disclosure Schedule, since December 31,
1998, GHS and its subsidiaries have conducted their respective businesses
only in the ordinary course and in a manner consistent with past practice and
there has not been: (i) any material damage, destruction or loss (not covered
by insurance) with respect to any material assets of GHS or any subsidiary;
(ii) any declaration, setting aside or payment of any dividends or
distributions in respect of GHS Common Stock or any redemption, purchase or
other acquisition of, or issuance or sale of, any of GHS's securities; (iii)
any increase in the benefits under, or the establishment or amendment of, any
bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option, stock purchase or other employee benefit plan,
or any increases in the compensation payable or to become payable to
directors, officers, employees or consultants of GHS (including the
16
payment of any bonuses), except for increases in salaries or wages payable or
to become payable in the ordinary course of business and consistent with past
practice; (iv) sale, assignment or transfer of any material portion of its
assets, except in the ordinary course of business, or cancellation of any
material debts or claims; or (v) a GHS Material Adverse Effect
SECTION 6.8. ABSENCE OF LITIGATION. Except as disclosed in the
GHS SEC Reports filed prior to the date of this Agreement, there is no claim,
action, suit, litigation, proceeding, arbitration or, to the knowledge of
GHS, investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to the knowledge of GHS,
threatened in writing against GHS or any of its subsidiaries or any
properties or rights of GHS or any of its subsidiaries (except for claims,
actions, suits, litigations, proceedings, arbitrations or investigations
which, individually or in the aggregate, would not reasonably be expected to
have an GHS Material Adverse Effect), and neither GHS nor any of its
subsidiaries is subject to any continuing order of, consent decree, or, to
the knowledge of GHS, continuing investigation by, or any judgment, order,
writ, injunction, decree or award of, any Governmental Entity, court or
arbitrator, including, without limitation, cease-and-desist or other orders,
except for such matters which would not reasonably be expected to have an GHS
Material Adverse Effect.
SECTION 6.9. TAX MATTERS. To the knowledge of GHS, neither GHS
nor any of its affiliates has taken or agreed to take any action that would
prevent the Exchange from constituting a tax free transaction qualifying
under the provisions of Section 351 of the Code.
SECTION 6.10. TAXES. Except for such matters that would not have
an GHS Material Adverse Effect and except as disclosed in Section 6.10 of the
GHS Disclosure Schedule, (a) GHS and its subsidiaries have timely filed or
will timely file all Returns or reports required to be filed by any of them
with any taxing authority with respect to Taxes for any period ending on or
before the Effective Date, taking into account any extension of time to file,
granted to or obtained on behalf of GHS or its subsidiaries, (b) such Returns
and reports are true and correct, (c) all Taxes shown to be payable on such
Returns or reports and all other Taxes of GHS or any of its subsidiaries that
are due prior to the Effective Date have been paid or will be paid when due,
(d) as of the date hereof, no deficiency for any Tax of a material amount has
been asserted or assessed by a taxing authority against GHS or its
subsidiaries, (e) all liability for Taxes of GHS or its subsidiaries that are
or will become due or payable with respect to periods or partial periods
covered by the financial statements referred to in Section 6.7(b) hereof have
been timely paid or are being contested in good faith and are adequately
reserved for on such financial statements and (f) no Tax Return or reports of
GHS or any of its subsidiaries have been or are under current or pending
examination and neither GHS nor any of its subsidiaries has received notice
of any threatened examination. GHS has been with its subsidiaries a member of
a group filing consolidated or combined Returns. Neither GHS nor any
subsidiary has any liability for Taxes of any other person under Treasury
regulations section 1.1502-6, as a transferee or successor, by contract or
otherwise.
17
SECTION 6.11. BROKERS. Except as set forth in Section 6.11 of the
GHS Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of GHS.
SECTION 6.12. BOOKS AND RECORDS. The books of account and other
financial records of GHS and its subsidiaries are in all material respects
complete and correct, are maintained in accordance with good business
practices and all Laws applicable to GHS, and are accurately reflected in the
consolidated financial statements of GHS contained in the GHS SEC Reports.
The minute books of GHS contain accurate records of all meetings, and
accurately reflect all other corporate action of the shareholders and
directors of GHS.
SECTION 6.13. NO UNDISCLOSED LIABILITIES. To the knowledge of GHS,
there are no liabilities of GHS or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, other than:
(a) Liabilities disclosed or provided for in the
consolidated financial statements contained in the GHS SEC Reports; and
(b) Liabilities incurred in the ordinary course of
business consistent with past practice since December 31, 1998.
SECTION 6.14. RELATED PARTY TRANSACTIONS. Except as disclosed in
the GHS SEC Reports filed prior to the date of this Agreement, since January
1, 1996 there have been no oral or written agreements, arrangements or
transactions between GHS or any of its subsidiaries on the one hand, and any
affiliate of GHS or any of its subsidiaries on the other hand ("GHS Related
Party Transactions"). All GHS Related Party Transactions are on terms no less
favorable to GHS than what GHS could obtain on an arms' length basis from an
unrelated party
SECTION 6.15. DISCLOSURE. To the knowledge of GHS, no
representation or warranty of GHS in this Agreement or in any document,
certificate or statement issued in connection herewith contains any untrue
statement of a material fact, or omits to state any material fact necessary
in order to make the statements contained herein and therein in light of the
circumstances in which they were made, not misleading.
18
ARTICLE 7.
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF CYL.
(a) CYL hereby covenants and agrees that, during the
period commencing on the date hereof and continuing until the Effective Time
unless otherwise expressly contemplated by this Agreement or consented to in
writing by GHS, it will:
(i) operate its business only in the usual and ordinary
course consistent with past practices;
(ii) use its best efforts to preserve substantially
intact its business organizations, maintain its rights and franchises,
retain the services of its respective officers and key employees and
maintain its relationships with its respective customers and suppliers,
and otherwise operate its business in a manner that breaches no Material
Contract (as defined);
(iii) use its best efforts to maintain and keep its
business relationships intact and unimpaired, and its properties and
assets in as good repair and condition as at present, ordinary wear and
tear excepted;
(iv) use its best efforts to keep in full force and
effect insurance comparable in amount and scope of coverage that is
usual and customary for businesses of the type in which CYL is engaged,
except where failure to have such insurance would not have a CYL
Material Adverse Effect; PROVIDED, HOWEVER, that in the event CYL deems
it necessary to take certain actions that would otherwise be proscribed
by clauses (i) - (iv) of this Section 7.1, CYL shall consult with GHS
which shall consider in good faith CYL's request to take such action and
not unreasonably withhold its consent for such action; and
(v) promptly advise GHS of the commencement or threat
(to the extent that such threat comes to its knowledge) of any claim,
action, suit, proceeding or investigation against, relating to or
involving it or any of its directors, officers, employees, agents or
consultants in connection with its business or the transactions
contemplated hereby.
(b) CYL will make its membership records and lists
available to the extent reasonably necessary to effectuate the intent of this
Agreement.
19
SECTION 7.2. NEGATIVE COVENANTS OF CYL. Except as expressly
contemplated by this Agreement, or otherwise consented to in writing by GHS,
from the date of this Agreement until the Effective Date, CYL will not do any
of the following:
(a) (i) Increase the compensation payable to or to
become payable to any director or officer (by making a bonus payment or
otherwise), (ii) grant any severance or termination pay (other than pursuant
to the normal severance policy of CYL or its subsidiaries as in effect on the
date of this Agreement and disclosed in writing to GHS) to, or enter into any
employment or severance agreement with, any director, officer or employee
(other than on a case by case basis with a limited number of employees who
are not directors or officers and in no event with employees generally and
other than employment agreements entered into with the consent of GHS, which
consent shall not be unreasonably withheld); or (iii) establish, adopt, enter
into or amend any employee benefit plan or arrangement except as may be
required by applicable Law;
(b) Declare or pay any distribution in respect of
outstanding Membership Units;
(c) (i) Redeem, purchase or otherwise acquire any
Membership Units or any securities or obligations convertible into or
exchangeable for any Membership Units, or any options, warrants or conversion
or other rights to acquire any Membership Units or any such securities or
obligations; (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its or its respective subsidiaries'
securities or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, its securities;
(d) (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale (including
the grant of any security interests, liens, claims, pledges, limitations in
voting rights, charges or other encumbrances) of, any Membership Units or
other securities, any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire, any such Membership Units; or (ii) amend or otherwise modify the
terms of any such rights, warrants or options the effect of which shall be to
make such terms more favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice);
20
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the
ordinary course of business;
(g) propose or adopt any amendments to its Certificate
of Formation or, as to its Operating Agreement, any amendments except as
contemplated hereby;
(h) change any of its methods of accounting in effect,
or make or rescind any express or deemed election relating to Taxes, settle
or compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $25,000);
(i) incur any obligation for borrowed money or purchase
money indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business consistent with
past practice, provided that CYL informs GHS promptly of any increases in
borrowings;
(j) enter into any material arrangement, agreement or
contract with any third party (other than customers in the ordinary course of
business) which provides for an exclusive arrangement with that third party
or is substantially more restrictive on CYL or substantially less
advantageous to CYL than arrangements, agreements or contracts existing on
the date hereof; or
(k) agree in writing or otherwise to do any of the
foregoing.
SECTION 7.3. AFFIRMATIVE COVENANTS OF GHS.
(a) GHS hereby covenants and agrees that, during the
period commencing on the date hereof and continuing until the Effective Time
unless otherwise expressly contemplated by this Agreement or consented to in
writing by CYL, it will:
(i) operate its business and otherwise take any actions
only in the usual and ordinary course consistent with past practices;
(ii) use its best efforts to preserve substantially
intact its business organizations, maintain its rights and franchises,
retain the services of its respective officers and key employees and
maintain its relationships with its respective customers and suppliers,
and otherwise operate its business in a manner that breaches no Material
Contract (as defined);
21
(iii) use its best efforts to maintain and keep its
business relationships intact and unimpaired, and its properties and
assets in as good repair and condition as at present, ordinary wear and
tear excepted;
(iv) use its best efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to that
currently maintained; PROVIDED, HOWEVER, that in the event GHS deems it
necessary to take certain actions that would otherwise be proscribed by
clauses (i) - (iv) of this Section 7.3, GHS shall consult with CYL which
shall consider in good faith GHS's request to take such action and not
unreasonably withhold its consent for such action; and
(v) promptly advise CYL of the commencement or threat
(to the extent that such threat comes to its knowledge) of any claim,
action, suit, proceeding or investigation against, relating to or
involving it or any of its directors, officers, employees, agents or
consultants in connection with its business or the transactions
contemplated hereby.
(b) GHS will make its stock transfer records and
stockholder lists available to the extent reasonably necessary to effectuate
the intent of this Agreement.
(c) GHS will effect the spin-off to its stockholders of
the assets and liabilities of its gamma-knife stereotactic radiosurgery
business presently conducted by its wholly-owned subsidiary, U.S.
NeuroSurgical, Inc. ("USN", and such spin-off, the "USN Spin-off"). GHS
expects that the USN Spin-off will be effected with a record date prior to
the Effective Time. The USN Spin-off will be effected in the form of a
dividend of GHS's shares in USN or shares of another wholly owned subsidiary
of GHS into which USN will be transferred (the "USN Spin-off Shares"). As
promptly as practicable after the execution of this Agreement, GHS shall
prepare and file with the SEC a Registration Statement relating to the USN
Spin-off registering the issuance of the USN Spin-off Shares under the
Securities Act (or, if permitted under applicable law, an Information
Statement and Form 10 under the Exchange Act) and such other documents
required pursuant to the Securities Act, the Exchange Act and the rules and
regulations thereunder to effect the USN Spin-off (collectively, the
"Spin-off SEC Filings"). GHS (i) shall cause the Spin-off SEC Filings to
comply as to form in all material respects with the applicable provisions of
the Securities Act, the Exchange Act and the rules and regulations
thereunder, (ii) shall use commercially reasonable efforts to have the USN
Spin-off effected as promptly as practicable, and (iii) shall take all or any
action required under any applicable federal or state securities laws in
connection with the USN Spin-off. GHS, CYL and the CYL Members shall furnish
to the other all information concerning GHS, CYL and the CYL Members as may
be reasonably required in connection with the preparation of the documents
referred to herein.
(d) In connection with the USN Spin-off and prior to the
Effective Time, GHS will obtain the release of GHS from the corporate
guaranties (the "Guaranties") delivered by GHS (and any security interest
thereby created) in favor of DVI Financial Services, Inc. originally issued
in connection with equipment financings by USN.
22
SECTION 7.4. NEGATIVE COVENANTS OF GHS. Except as disclosed in
Section 7.4 of the GHS Disclosure Schedule, expressly contemplated by this
Agreement or otherwise consented to in writing by CYL, from the date of this
Agreement until the Effective Time, GHS will not do, and will not permit any
of its subsidiaries to do, any of the following:
(a) (i) Increase the compensation payable to or to
become payable to any director or officer (by making a bonus payment or
otherwise), (ii) grant any severance or termination pay (other than pursuant
to the normal severance policy of GHS or its subsidiaries as in effect on the
date of this Agreement and disclosed in writing to CYL) to, or enter into any
employment or severance agreement with, any director, officer or employee
(other than on a case by case basis with a limited number of employees who
are not directors or officers and in no event with employees generally and
other than employment agreements entered into with the consent of CYL, which
consent shall not be unreasonably withheld); or (iii) establish, adopt, enter
into or amend any employee benefit plan or arrangement except as may be
required by applicable Law;
(b) amend any of the material terms or provisions of the
GHS Preferred Stock;
(c) declare or pay any cash dividend on outstanding
shares of its capital stock;
(d) (i) Redeem, purchase or otherwise acquire any shares
of its capital stock or equity interest or any securities or obligations
convertible into or exchangeable for any shares of its capital stock or
equity interest, or any options, warrants or conversion or other rights to
acquire any shares of its capital stock or any such securities or
obligations; (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its or its respective subsidiaries'
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock;
(e) (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale (including
the grant of any security interests, liens, claims, pledges, limitations in
voting rights, charges or other encumbrances) of, any shares of any class of
its capital stock or other securities (including shares held in treasury),
any securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire, any such shares,
except for issuance pursuant to options, warrants or other commitments
outstanding on the date hereof; or (ii) amend or otherwise modify the terms
of any such rights, warrants or options the effect of which shall be to make
such terms more favorable to the holders thereof;
23
(f) acquire or agree to acquire or be acquired, by
merging or consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets of any
other person (other than the purchase of assets from suppliers or vendors in
the ordinary course of business and consistent with past practice and other
than the Concept Transactions described in Section 8.4 hereof);
(g) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the
ordinary course of business and in connection with the USN Spin-off;
(h) propose or adopt any amendments to its Certificate
of Incorporation or, as to its By-Laws, any amendments except as contemplated
hereby;
(i) change any of its methods of accounting in effect,
or make or rescind any express or deemed election relating to Taxes, settle
or compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $25,000) ;
(j) incur any obligation for borrowed money or purchase
money indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business consistent with
past practice, provided that GHS informs CYL promptly of any increases in
borrowings;
(k) enter into any material arrangement, agreement or
contract with any third party (other than customers in the ordinary course of
business) which provides for an exclusive arrangement with that third party
or is substantially more restrictive on GHS or substantially less
advantageous to GHS than arrangements, agreements or contracts existing on
the date hereof; or
(l) agree in writing or otherwise to do any of the
foregoing.
SECTION 7.5. ACCESS AND INFORMATION. Each of CYL and GHS shall:
(i) afford to other party and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "Representatives") access upon reasonable prior notice to
its officers, employees, agents, properties, offices and other facilities and
its subsidiaries and to the books and records thereof; and (ii) furnish
promptly to the other party and its Representatives such information
concerning the business, properties, contracts, records and personnel of it
and its subsidiaries (including, without limitation, financial, operating and
other data and information) as may be requested, from time to time, by the
other party.
24
SECTION 7.6. CONFIDENTIALITY.
(a) Except as may be necessary to carry out this
Agreement and the transactions contemplated hereby, each of GHS and CYL
shall, and shall require their respective officers, directors, employees and
authorized representatives to, hold in confidence prior to the Effective Time
and for two years from any termination of this Agreement all data and
information obtained by them from the other party (unless required to
disclose such information by judicial or administrative process, as otherwise
required by Law, or unless such information (i) is or becomes generally
available to the public other than as a result of a disclosure by such party,
any subsidiary of such party or any of their authorized representatives, (ii)
is independently acquired or developed by such party, any subsidiary of such
party or any of their representatives, or (iii) is or becomes available to
such party, any subsidiary of such party or any of their authorized
representatives from a source other than the other party, provided that such
source is not known to be bound by a confidentiality agreement with the other
party or by any other legal, contractual or fiduciary duty not to disclose
such information) and shall not, and shall use reasonable efforts to cause
such officers, directors, employees and authorized representatives not to,
disclose such information to others without the prior written consent of the
other party.
(b) If this Agreement is terminated, each of GHS and CYL
shall, if so requested by the other party, promptly return every document
furnished to them or their affiliates in connection with the transactions
contemplated hereby and any copies of such documents that may have been made
and shall use reasonable efforts to cause the representatives to whom such
documents were furnished promptly to return such documents and any copies of
such documents, other than documents filed with the SEC or otherwise publicly
available.
ARTICLE 8.
ADDITIONAL AGREEMENTS
SECTION 8.1. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) CYL and GHS shall each use their best efforts to:
(i) take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions contemplated by
this Agreement as promptly as practicable, (ii) obtain from any Governmental
Entities any consents, licenses, permits, waivers, approvals, authorizations
or orders required to be obtained or made by GHS or CYL or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated herein,
including, without limitation, the Exchange, (iii) make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Exchange (including the USN Spin-off required by
Section 7.3(c)) required under (A) the Securities Act and the Exchange Act
and the rules and regulations thereunder, and
25
any other applicable federal or state securities laws, (B) the
Xxxx-Xxxxx-Xxxxxx Act ("HSR Act") and (C) any other applicable Law; PROVIDED
that GHS and CYL shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such documents
to the non-filing party and its advisors prior to filing and, if requested,
to accept all reasonable additions, deletions or changes suggested in
connection therewith. CYL and GHS shall furnish all information required for
any application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated by this Agreement.
(b) Each of CYL and GHS agree to cooperate and use their
best efforts vigorously to contest and resist any action, including
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that is in effect and that
restricts, prevents or prohibits the consummation of the Exchange or any
other transactions contemplated by this Agreement, including, without
limitation, by vigorously pursuing all available avenues of administrative
and judicial appeal; PROVIDED, HOWEVER, that in no event shall either party
take, or be required to take, any action that would have a CYL or an GHS
Material Adverse Effect.
(c) Each of CYL and GHS shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, its best efforts to obtain any
third party consents: (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement; (ii) disclosed or required to be
disclosed in the CYL Disclosure Schedule or the GHS Disclosure Schedule, as
the case may be; (iii) otherwise required under any contracts, licenses,
leases or other agreements in connection with the consummation of the
transactions contemplated herein; or (iv) required to prevent a CYL Material
Adverse Effect from occurring prior to or after the Effective Time or an GHS
Material Adverse Effect from occurring prior to or after the Effective Time.
(d) In the event that either party shall fail to obtain
any third party consent described in subsection (c) above, such party shall
use its best efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon CYL and GHS,
their respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result, after the Effective Date, from
the failure to obtain such consent.
SECTION 8.2. STOCKHOLDERS; TAX TREATMENT. CYL will advise its
members of the resale restrictions imposed by federal securities laws on the
shares of GHS Preferred Stock and any GHS Warrants received by them pursuant
to the Exchange, and the shares of GHS Common Stock issuable upon conversion
of the GHS Preferred Stock or exercise of the GHS Warrants. Each party hereto
shall use its best efforts to cause the Exchange to qualify, and will not
take any actions which could prevent the Exchange from qualifying under the
provisions of Section 351 of the Code.
26
SECTION 8.3. PUBLIC ANNOUNCEMENTS. Unless otherwise required by
applicable Law or stock exchange requirements (and in that event only if time
does not permit), GHS and CYL shall consult with each other before issuing
any press release or otherwise making any public statements with respect to
the Exchange and the transactions contemplated thereby and shall not issue
any such press release or make any such public statement prior to such
consultation.
SECTION 8.4. TRANSACTIONS WITH CONCEPT DEVELOPMENT, ETC. GHS and
CYL acknowledge that GHS had entered into two Letters of Intent (the "LOI's")
each dated April 13, 1999 with Concept and with Xxxxxxxx/Xxxxx Communication
Resources, Inc. each attached as Exhibit 8.4 hereto relating, among other
things, to the proposed acquisition by GHS of Concept on the terms and
conditions set forth therein. Notwithstanding anything contained in this
Agreement, GHS shall be permitted to consummate the transactions contemplated
in the LOI's on substantially the terms described in the LOI's (the "Concept
Transactions") without the consent of CYL. The consummation of the Concept
Transactions shall not be deemed to result in a GHS Material Adverse Effect.
SECTION 8.5. XXXXXXX' APPROVAL RIGHTS. Following the Effective
Time, the parties agree to the following:
(a) During the term of the Content Provider Agreement
and License referred to in Section 9.1(f) and notwithstanding the terms
thereof, Xxxxxxx will have the right to approve the general look, feel and
functionality of the Change Your Life Site and any substantial modifications
thereto; PROVIDED that such approval is timely given in accordance with the
production policies and schedules reasonably established by CYL. CYL will
submit to Xxxxxxx a request in writing for approval of the initial general
look, feel and functionality of the Change Your Life Site and any
modifications thereto. Said decision shall be communicated directly by
Xxxxxxx in writing, and not through his intermediaries, to CYL's Chief
Executive Officer, Chief Operating Officer or their designee. If Xxxxxxx
elects not to approve said request, then Xxxxxxx will indicate in writing the
specific reasons why said approval is denied. If Xxxxxxx is unable to respond
to approval requests presented to him under this Section 8.5 in accordance
with the production policies and schedules reasonably established by CYL, the
CYL Chief Executive Officer, Chief Operating Officer or their designee may
proceed with such look, feel and functionality of the Change Your Life Site
and any modifications thereto.
(b) (i) Prior to offering or soliciting any offers, or
accepting any unsolicited offers, with respect to any new or any extensions
of existing non-Internet marketing or distribution agreements or arrangements
(other than the existing arrangements with Xxxxx-Xxxxxx and successors
thereto with respect to infomercials and the QVC channel) for Xxxxxxx Group
Content or Xxxxxxx Group Products, as those terms are defined in the Content
Provider Agreement and License Agreement referred in Section 9.1(f)
("Distribution Rights") which agreements or arrangements can reasonably be
anticipated by the Xxxxxxx Group to generate
27
annual gross revenues of at least $1,500,000, the Xxxxxxx Group shall give
prior written notice of such offers to CYL, together with such additional
information as is necessary, or reasonably requested by CYL, to evaluate such
proposed offers (the "Offer Notice"). The Offer Notice shall constitute an
invitation to CYL to submit a proposal to obtain the Distribution Rights that
are the subject of the Offer Notice.
(ii) Upon receipt of an Offer Notice pursuant to
Section 6(a) above, CYL shall have a period of 10 business days (the "Offer
Period") within which to submit a proposal (each, a "Proposal") to the
Xxxxxxx Group to acquire the Distribution Rights that are the subject of such
Offer Notice. The Xxxxxxx Group shall give due consideration to evaluate the
Proposal in light of its economic terms and conditions and the ability of CYL
to perform the tasks envisioned and respond promptly to the Proposal.
(iii) If the Xxxxxxx Group accepts the Proposal, the
Xxxxxxx Group and CYL shall each use commercially reasonable efforts to
consummate the transaction in accordance with such Proposal as promptly as
practicable.
(iv) If the Xxxxxxx Group in its sole discretion
rejects the Proposal or if CYL fails to submit a Proposal during the Offer
Period, the Xxxxxxx Group shall be free to enter into an agreement for the
Distribution Rights that are the subject of the Offer Notice in any manner
and with any Person.
SECTION 8.6. GHS CHARTER AMENDMENT. Promptly following the
Effective Time, GHS shall take such action as is necessary to amend its
Certificate of Incorporation in order to increase the number of authorized
shares of GHS Common Stock to allow the conversion of all of the issued GHS
Preferred Stock and exercise of all of the GHS Warrants. The parties
acknowledge that there is currently an insufficient number of authorized
unissued shares of GHS Common Stock to allow such conversion and exercise and
that such amendment to the GHS Certificate of Incorporation is not a
condition to Closing.
SECTION 8.7. GHS BOARD OF DIRECTORS. Promptly following the
Effective Time, GHS shall take all actions that are necessary to reconfigure
the GHS Board of Directors in accordance with the provisions of the By-laws
attached hereto as Exhibit 3.2 and in accordance with the Stockholders
Agreement as provided in Section 3.3 and, in connection therewith, shall take
all actions required to be taken pursuant to Rule 14f-1 of the Exchange Act.
28
ARTICLE 9.
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Exchange
and the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent
permitted by applicable Law:
(a) CONSENTS AND APPROVALS. All material consents,
approvals and authorizations legally required to be obtained to consummate
the Exchange shall have been obtained from and made with all required
Governmental Entities or any other third party.
(b) NO ORDER. No Governmental Entity or federal or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is in effect and which has the effect of making the Exchange illegal or
otherwise prohibiting consummation of the Exchange.
(c) NEW EQUITY FINANCING. GHS shall have closed a new
equity financing resulting in net proceeds to GHS of at least $7,000,000 on
terms reasonably satisfactory to GHS and the CYL Members (the "New
Financing").
(d) LITIGATION SETTLEMENT. The litigation presently
pending in the United District Court for the District of Maryland, Southern
Division bearing Case No. AW-97-1791 involving GHS shall have been settled on
the terms set forth in that certain Agreement of Settlement attached hereto
as Exhibit 9.1(d).
(e) HSR ACT. Any applicable waiting period under the HSR
Act shall have expired or been terminated.
(f) CONTENT PROVIDER AGREEMENT. CYL will have entered
into a Content Provider Agreement and License pursuant to which the Xxxxxxx
Group will provide an exclusive, perpetual arrangement regarding internet
programming, promotion, products and services. The terms and provisions of
such arrangement are set forth in the Content Provider Agreement and License
attached hereto as Exhibit 9.1(f) (the "Content Provider Agreement").
(g) STOCKHOLDERS AGREEMENT. The Stockholders Agreement
shall have been executed and delivered by the parties thereto.
(h) LETTER AGREEMENT. A letter agreement pertaining to
the reimbursement of certain business expenses incurred by Xxxxxxx shall be
executed in a form mutually acceptable to GHS and the Xxxxxxx Group.
29
(i) REGISTRATION RIGHTS AGREEMENT. GHS and the CYL
Members will have entered into a Registration Rights Agreement in the form
attached hereto as Exhibit 9.1(i).
SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF GHS. The
obligations of GHS to effect the Exchange and the other transactions
contemplated herein are also subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be waived
by GHS in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of CYL contained in this Agreement shall be
true and correct as of the Effective Date (without regard to any materiality,
CYL Material Adverse Effect or similar qualifications thereto), as though
made on and as of the Effective Date, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, PROVIDED that if the aggregate effect of
breaches of such representations and warranties of CYL does not result in a
CYL Material Adverse Effect or materially adversely affect the transactions
contemplated hereby, this condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. CYL shall have performed
or complied with all agreements and covenants required by this Agreement to
be performed or complied with by it, in all material respects, on or prior to
the Effective Date.
(c) NO LIABILITIES OF CYL. A the Effective Time, there
shall be no liabilities at CYL, other than its obligations under the Content
Provider Agreement or for Expenses which shall be borne by Development
Holdings pursuant to Section 10.5(a) and except as otherwise agreed to by GHS.
(d) CERTIFICATES. GHS shall have received such
certificates from officers and representatives of CYL as it shall have
reasonably requested.
SECTION 9.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CYL. The
obligations of CYL to effect the Exchange and the other transactions
contemplated in this Agreement are also subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which
may be waived by CYL in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of GHS contained in this Agreement shall be
true and correct as of the Effective Date (without regard to any materiality,
GHS Material Adverse Effect or similar qualifications thereto), as though
made on and as of the Effective Date, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, PROVIDED that if the aggregate effect of
breaches of such
30
representations and warranties of GHS does not result in a GHS Material Adverse
Effect or materially adversely affect the transactions contemplated hereby, this
condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. GHS shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it, in all material respects, on or prior to the
Effective Date.
(c) RELEASES FROM GUARANTIES. GHS shall have been released
from the Guaranties and all security interests or other liens therefor.
(d) GHS WORKING CAPITAL. At the Effective Time, GHS shall
have at least $3,000,000 in cash or cash equivalents in its bank or other
accounts (less amounts advanced relating to CYL's operations, including amounts
paid relating to a new New York City rental property, and less the expenses,
including legal fees, and consideration payable in connection with the
acquisition and funding contemplated by the Concept Transactions), free and
clear of all liens or encumbrances, PROVIDED that such $3,000,000 amount, as the
same may be reduced, shall be exclusive of the net proceeds to the Company from
the New Financing.
(e) USN SPIN-OFF. GHS shall have authorized the USN Spin-off
in accordance with the provisions of Section 7.3(c). In addition, all operating
assets and all liabilities of any type of GHS and its subsidiaries (other than
USN) shall have been transferred to USN in anticipation of the USN Spin-off, and
at the Effective Time there shall be no other liabilities at GHS or its
subsidiaries (other than USN) except liabilities contemplated by this Agreement,
including any fees and expenses payable by GHS in consummating the transactions
contemplated by this Agreement, liabilities resulting from Concept Transactions
and as otherwise agreed to by the CYL Members. GHS and USN shall have entered
into such agreements concerning the allocation of assets and liabilities between
them, indemnification and such other matters as shall be reasonably acceptable
to GHS and the CYL Members.
(f) TAX MATTERS. The CYL Members shall be satisfied, in
their reasonable judgment, that the transactions contemplated hereby in their
entirety would qualify as a tax-free transaction under Section 351 or other
relevant sections of the Code.
(g) AMENDMENT TO GHS'S BY-LAWS. GHS shall take such actions
as are necessary to amend and restate its By-Laws in the form referred to in
Section 3.2.
(h) CERTIFICATES. CYL shall have received such certificates
from officers and representatives of GHS as it shall have reasonably requested.
31
ARTICLE 10.
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval
of this Agreement and the Exchange by the stockholders of each of GHS and
members of CYL:
(a) by mutual consent of GHS and the CYL Members;
(b) by GHS, upon a breach of any representation, warranty,
covenant or agreement on the part of CYL or the CYL Members set forth in this
Agreement, or if any representation or warranty of CYL or the CYL Members shall
have become untrue, in either case such that the conditions set forth in Section
9.2(a) or Section 9.2(b) would not be satisfied;
(c) by the CYL Members, upon breach of any representation,
warranty, covenant or agreement on the part of GHS set forth in this Agreement,
or if any representation or warranty of GHS shall have become untrue, in either
case such that the conditions set forth in Section 9.3(a) or Section 9.3(b)
would not be satisfied;
(d) by either GHS or the CYL Members, if there shall be any
Order which is final and nonappealable preventing the consummation of the
Exchange, except if the party relying on such Order has not complied with its
obligations under Section 8.1(b);
(e) by either GHS or the CYL Members, if the Exchange shall
not have been consummated before May 31, 1999; and
(f) by GHS or the CYL Members at any time prior to the
Effective Date if (i) in the case of termination by GHS, any of the conditions
specified in Section 9.2 shall not have been met in all material respects or
waived prior to such time as such condition can no longer be satisfied or (ii)
in the case of termination by the CYL Members, any of the conditions specified
in Section 9.3 shall not have been met in all material respects or waived prior
to such time as such condition can no longer be satisfied.
The right of any party hereto to terminate this Agreement
pursuant to this Section 10.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party hereto,
any person controlling any such party or any of their respective officers or
directors, whether prior to or after the execution of this Agreement.
SECTION 10.2. EFFECT OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 10.1, this Agreement shall
forthwith become void, there shall be no liability on the part of GHS or CYL or
any of their respective officers, directors or members to the other and all
rights and obligations of any party hereto shall cease, and except
32
that nothing herein shall relieve any party of liability for any willful breach
of any representation or warranty or failure to perform or comply with any
obligation under this Agreement prior to the termination hereof and except that
Section 7.6, 10.2, 10.5 and Articles 12 shall survive such termination.
SECTION 10.3. AMENDMENT. This Agreement may be amended by the
parties hereto, in the case of GHS or CYL by action taken by or on behalf of
their respective Boards of Directors at any time prior to the Effective Time.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 10.4. WAIVER. At any time prior to the Effective Time, any
party hereto may: (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto; (ii) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto; and (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 10.5. FEES, EXPENSES AND OTHER PAYMENTS.
(a) Except as provided in Section 10.5(c), all Expenses (as
defined in paragraph (b) of this Section 10.5) incurred by the parties hereto
shall be borne solely and entirely by the party which has incurred such
Expenses, provided that the Expenses borne by CYL through the Closing shall be
borne solely by Development Holdings.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, and all other matters related to
the closing of the transactions contemplated herein.
(c) If this Agreement shall be terminated by the CYL Members
pursuant to Section 10.1(c) or by GHS pursuant to Section 10.1(b) (in each case,
the "Non-Breaching Party"), then the other party shall pay to the Non-Breaching
Party, in consideration of the time, effort and resources expended in connection
herewith, all of the Non-Breaching Party's Expenses. This shall be in addition
to any other rights the Non-Breaching Party shall have.
(d) Any payment required to be made pursuant to Section
10.5(c) shall be made to the Non-Breaching Party entitled to receive such
payment not later than two business days after delivery to the other party of
notice of demand for payment and an itemization setting forth in reasonable
detail all Expenses of the Non-Breaching Party, if any, and
33
shall be made by wire transfer of immediately available funds to an account
designated by the Non-Breaching Party in the notice of demand for payment
delivered pursuant to this Section 10.5(d).
ARTICLE 11.
INTENTIONALLY LEFT BLANK
ARTICLE 12.
GENERAL PROVISIONS
SECTION 12.1. EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of CYL and GHS in this Agreement shall
expire at the Effective Time.
SECTION 12.2. NOTICES. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall
be effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to
the telecopier number specified below:
(a) If to GHS:
GHS, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Mr. Xxxx Xxxx
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx White & XxXxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx XxXxxxx, Esq.
Telecopier No.: (000) 000-0000
34
(b) If to CYL:
Change Your Xxxx.xxx, LLC
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Polish, Chief Operating Officer
Telecopier No.(000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx XX, Esq.
Telecopier No.: (000) 000-0000
(c) If to the Xxxxxxx Group:
Xxxxxxx Research International Inc.
0000 Xxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxxxxx
Telecopier No.: (000) 000-0000
with a copy to:
Loeb & Loeb, LLP
Suite 1800, 0000 Xxxxxxxx Xxxx.
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telecopier No.: (000) 000-0000
SECTION 12.3. CERTAIN DEFINITIONS. For purposes of this
Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person and shall be deemed to include
directors and executive officers of a person;
(b) "business day" means any day other than a day on which
banks in the State of New York are authorized or obligated to be closed;
35
(c) "control" (including the terms "controlled", "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise;
(d) "knowledge" shall mean, with respect to any matter in
question, with respect to CYL, if an executive officer of CYL or a CYL Member
or, with respect to GHS, if an executive officer of GHS, as the case may be, has
actual knowledge of such matter, after due inquiry;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(f) "Returns" mean all tax returns, statements, reports,
forms (including estimated tax or information returns and reports, or filing
extensions with respect thereto) required to be filed with any taxing authority
in connection with the determination or administration of any tax;
(g) "subsidiary" or "subsidiaries" of CYL, GHS or any other
person, means any corporation, partnership, joint venture or other legal entity
of which CYL, GHS or such other person, as the case may be (either alone or
through or together with any other subsidiary), controls or owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity or, which by
contract or agreement, has the power to control such corporation or other legal
entity, or which otherwise constitutes a "subsidiary" as defined in Regulation
S-X Section 210.1-02(w).
(h) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees or levies, payable to any federal, state, local or foreign taxing authority
or agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license, payroll,
withholding disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall profits,
transfer and gains taxes, (ii) customs duties, imposts, charges, levies or other
similar assessments of any kind, and (iii) interest, penalties and additions to
tax imposed with respect thereto.
SECTION 12.4. HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
36
SECTION 12.5. SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 12.6. ENTIRE AGREEMENT. This Agreement (together with
the Exhibits and Schedules hereto) constitute the entire agreement of the
parties and supersede all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof.
SECTION 12.7. ASSIGNMENT. This Agreement shall not be assigned
by operation of law or otherwise.
SECTION 12.8. PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 12.9. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE. No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be
a waiver of, or acquiescence in, any breach of any representation, warranty
or agreement herein, nor shall any single or partial exercise of any such
right preclude other or further exercise thereof or of any other right. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 12.10. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
SECTION 12.11. DISPUTE RESOLUTION. (a) In the event of any
dispute, controversy or claim arising out of or relating to this Agreement,
representatives of the parties shall meet in New York, NY, San Diego, CA or such
other city as may be mutually agreeable to the parties involved as soon as
reasonably possible (but not later than ten (10) days after written notice from
one party to the other of such dispute) and shall enter into good faith
negotiations aimed at resolving the dispute. If they are unable to resolve the
dispute in a mutually satisfactory manner within thirty (30) days from the date
of such notice, the matter may be submitted by any involved party to arbitration
as provided for below.
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(b) Any dispute, controversy or claim between or among any
of the parties arising out of or relating to this Agreement or the breach,
termination or invalidity thereof, including any dispute as to whether any
dispute is subject to arbitration, which has not been resolved after good faith
negotiations pursuant to Section 12.11(a) hereof shall be settled by binding
arbitration administered by the American Arbitration Association in accordance
with its then current Commercial Arbitration Rules except as provided herein.
(c) Any arbitration shall be conducted by a three person
arbitration panel. The three person arbitration panel shall consist of one party
arbitrator selected by CYL, one party arbitrator selected by GHS, each of whom
shall be named within ten (10) days of the demand for arbitration, and one
neutral arbitrator selected by the first two arbitrators. If the two party
appointed arbitrators cannot agree on the neutral arbitrator within ten (10)
days of the selection of the last party appointed arbitrator, the American
Arbitration Association shall appoint the neutral arbitrator, who shall act as
chairperson. In the event of a vacancy with respect to an arbitrator, the
vacancy shall be filled within ten (10) days of notice of the vacancy in the
same manner and subject to the same requirements as are provided for in the
original appointment to that position. If the vacancy is not filled within ten
(10) days, the American Arbitration Association shall make the appointment.
Unless otherwise mutually agreed, the place of arbitration shall be Xxx Xxxx, XX
xx Xxx Xxxxx, XX, as selected by the party receiving the request for
arbitration.
(d) The law applicable to the validity of the arbitration
clause, the conduct of the arbitration, including the resort to a court for
interim relief, enforcement of the award or any other question of arbitration
law or procedure shall be the United States' Federal Arbitration Act, 9 U.S.C.
Section 1 ET SEQ. The involved parties shall be entitled to engage in
reasonable discovery including requests for the production of all relevant
documents and a reasonable number of depositions. The arbitration panel shall
have the sole discretion to determine the reasonableness of any requested
document production or deposition. It is the intent of the parties that a
substantive hearing be held within sixty (60) days of the appointment of the
neutral arbitrator or the rejection of a challenge thereto, whichever shall
occur later. A stenographic record of every hearing shall be made. The
presentation of evidence shall be governed by the federal Rules of Evidence.
(e) Any award, including any interim award, made shall be
made by a majority of the arbitrators applying the substantive law of New York
and shall (i) be in writing and state the arbitration panel's findings of fact
and conclusions of law; (ii) be made promptly, and in any event within sixty
(60) days after the conclusion of the arbitration hearing; and (iii) be binding
against the parties involved and may be entered for enforcement in any court of
competent jurisdiction.
(f) The costs of any arbitration proceeding (e.g.,
arbitrators, court reporter and room rental fees) shall be equally divided
between CYL and GHS. However, each party shall pay its own expense, including
attorneys' and other professionals' fees and disbursements.
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(g) The arbitration provision set forth in this Section
12.11 shall be a complete defense to any suit, action or proceeding instituted
in any court with respect to any matter arbitrable under this Agreement, except
that judicial intervention may be sought in accordance with Section 12.12
hereof.
SECTION 12.13. SPECIFIC PERFORMANCE. The parties acknowledge
that the failure of any party or its affiliates to substantially perform its
material obligations and covenants under this Agreement may result in a
significant frustration of the respective business objectives of the parties and
that remedies at law may be inadequate to protect the rights and interests of
the other party. Accordingly, the parties, in addition to the remedies provided
in this Agreement or otherwise available for the enforcement of this Agreement,
expressly consent to an order for specific performance of such obligations and
covenants of a party or its affiliates or an order granting other substantially
equivalent remedies calculated to require performance of any such obligations or
covenants.
SECTION 12.14. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
39
IN WITNESS WHEREOF, GHS, CYL and the CYL Members have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
GHS, INC. CHANGE YOUR XXXX.XXX, LLC
By: By:
--------------------------------- ---------------------------------
Name: Xxxx Xxxx Name:
Title: President Title:
CYL MEMBERS:
------------------------------
Xxxxxxx X. Xxxxxxx
XXXXXXX RESEACH INTERNATIONAL INC.
By:___________________________
Name:
Title:
CYL DEVELOPMENT
HOLDINGS, LLC
By:
---------------------------------
Name:
Title:
40
LIST OF EXHIBITS AND SCHEDULES TO
CONTRIBUTION AND EXCHANGE AGREEMENT
LIST OF EXHIBITS
----------------
1.1 GHS Preferred Stock Terms
3.1 CYL Certificate of Formation and Operating Agreement
3.2 GHS Certificate of Incorporation and By-Laws
3.3 Stockholders Agreement
8.4 Concept Development and Xxxxxxxx/Xxxxx Letters of Intent
9.1(d) Settlement Agreement
9.1(f) CYL Content Provider Agreement and License
9.1(i) Registration Rights Agreement
LIST OF SCHEDULES
-----------------
4.1 CYL Members and Pro Rata Portion
CYL Disclosure Schedule
GHS Disclosure Schedule
41
