EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
among
BIG CITY BAGELS, INC.,
BCB ACQUISITION CORP. I,
BCB ACQUISITION CORP. II,
INTELLIGENT COMPUTER SOLUTIONS, INC.,
VILLAGENET, INC.
and
EACH STOCKHOLDER OF INTELLIGENT COMPUTER SOLUTIONS, INC. and
VILLAGENET, INC.
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER........................................................... 1
SECTION 1.1 Definitions................... 1
SECTION 1.2 The Merger.................... 1
SECTION 1.3 Effective Time................ 2
SECTION 1.4 Effects of the Merger......... 2
SECTION 1.5 Certificate of Incorporation
and By-Laws................ 2
SECTION 1.6 The Closing................... 2
ARTICLE II
CONVERSION OF SHARES................................................. 2
SECTION 2.1 Conversion of the Stock of
the Target Corporations..... 2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
TARGET CORPORATION AND THE STOCKHOLDERS............................ 3
SECTION 3.1 Organization.................. 3
SECTION 3.2 Authority; Corporate Action... 4
SECTION 3.3 No Conflict; Required Filings
and Consents................ 4
SECTION 3.4 Capitalization: Ownership of
Target Corporation Stock.... 5
SECTION 3.5 Licenses and Permits;
Compliance with Laws........ 6
SECTION 3.6 Financial Statements.......... 6
SECTION 3.7 Real Property................. 7
SECTION 3.8 Material Contracts............ 8
SECTION 3.9 Litigation.................... 9
SECTION 3.10 Taxes, Tax Returns and Audits. 9
SECTION 3.11 Absence of Certain Changes.... 10
SECTION 3.12 Employee Benefit Plans........ 12
SECTION 3.13 Labor Relations............... 12
SECTION 3.14 Insurance Policies; Claims.... 12
SECTION 3.15 Intellectual Property......... 13
SECTION 3.16 Personal Properties; Assets... 14
SECTION 3.17 Brokers....................... 15
SECTION 3.18 Records....................... 15
SECTION 3.19 No Illegal or Improper
Transactions................ 15
SECTION 3.20 Related Transactions.......... 15
SECTION 3.21 Disclosure.................... 15
SECTION 3.22 Environmental, Health and
Safety Matters.............. 16
SECTION 3.23 Year 2000 Compliance.......... 16
SECTION 3.24 Domain Names.................. 17
SECTION 3.25 Investment Representations.... 17
SECTION 3.26 Material Customers and
Suppliers................... 18
SECTION 3.27 Nasdaq Listing................ 18
SECTION 3.28 Information Statement......... 18
SECTION 3.29 Tax Opinion................... 18
SECTION 3.30 Schedules..................... 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BIG CITY
AND THE MERGER SUBSIDIARY.......................................... 19
SECTION 4.1 Organization.................. 19
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SECTION 4.2 Authority; Corporate Action... 19
SECTION 4.3 No Conflict; Required
Filings and Consents........ 20
SECTION 4.4 Capitalization................ 20
SECTION 4.5 Licenses and Permits;
Compliance with Laws........ 21
SECTION 4.6 Real Property................. 22
SECTION 4.7 Material Contracts............ 22
SECTION 4.8 Litigation.................... 22
SECTION 4.9 Taxes, Tax Returns and Audits. 23
SECTION 4.10 Absence of Certain Changes.... 24
SECTION 4.11 Employee Benefit Plans........ 25
SECTION 4.12 Labor Relations............... 25
SECTION 4.13 Insurance Policies; Claims.... 26
SECTION 4.14 Intellectual Property......... 26
SECTION 4.15 Personal Properties; Assets... 26
SECTION 4.16 Bank Accounts................. 27
SECTION 4.17 Records....................... 27
SECTION 4.18 Environmental, Health and
Safety Matters.............. 27
SECTION 4.19 Securities and Exchange
Commission Reports.......... 27
SECTION 4.20 Information Statement......... 28
SECTION 4.21 Disclosure.................... 28
SECTION 4.22 Brokers....................... 28
SECTION 4.23 Big City Stock................ 29
SECTION 4.24 Collateral Agreements......... 29
SECTION 4.25 Schedules..................... 29
ARTICLE V
NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES OF THE PARTIES...................................... 29
SECTION 5.1 Survival...................... 29
SECTION 5.2 Nonwaiver of Rights........... 29
ARTICLE VI
COVENANTS OF TARGET CORPORATIONS
AND THE STOCKHOLDERS............................................... 30
SECTION 6.1 Conduct of Business........... 30
SECTION 6.2 Access to Information;
Confidentiality............. 32
SECTION 6.3 Maintenance of Assets;
Insurance................... 33
SECTION 6.4 No Other Negotiations......... 33
SECTION 6.5 No Securities Transactions.... 33
SECTION 6.6 Fulfillment of Conditions..... 33
SECTION 6.7 Disclosure of Certain Matters. 34
SECTION 6.8 Certain Consents.............. 34
SECTION 6.9 Non-use of Name............... 34
SECTION 6.10 Information for Information
Statement................... 34
SECTION 6.11 Lien Search................... 34
SECTION 6.12 Post Merger Tax Status........ 35
SECTION 6.13 Financial Statements of
Target Corporations........... 35
ARTICLE VII
COVENANTS OF THE BIG CITY PARTIES.................................... 35
SECTION 7.1 Conduct of Business........... 35
SECTION 7.2 Access to Information;
Confidentiality............. 37
SECTION 7.3 Maintenance of Assets;
Insurance................... 38
SECTION 7.4 No Other Negotiations......... 38
SECTION 7.5 Fulfillment of Conditions..... 39
SECTION 7.6 Disclosure of Certain Matters. 39
SECTION 7.7 Certain Consents.............. 39
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SECTION 7.8 Maintenance of Big City
Employee Medical Benefits... 40
SECTION 7.9 Filing of Current Report
on Form 8-K................. 40
SECTION 7.10 Composition of Big City and
Surviving Corporation
Board and Officers at
Effective Time.............. 40
SECTION 7.11 Blue Sky Compliance........... 40
SECTION 7.12 Taxes......................... 40
SECTION 7.13 Sale or Closing of Retail
Stores...................... 40
SECTION 7.14 Opinion of Financial Advisor.. 40
SECTION 7.15 Information Statement......... 41
SECTION 7.16 Amendment to Certificate
of Incorporation............ 41
SECTION 7.17 Representations to Tax
Counsel..................... 41
ARTICLE VIII
JOINT COVENANTS OF THE PARTIE........................................ 41
SECTION 8.1 Further Action................ 41
SECTION 8.2 Schedules..................... 41
SECTION 8.3 Regulatory and Other
Authorizations.............. 42
SECTION 8.4 Indemnification and Director
and Officer Liability
Insurance................... 42
SECTION 8.5 Reverse Stock Split........... 42
SECTION 8.6 Independent Committee......... 43
ARTICLE IX
CONDITIONS TO CLOSING................................................ 43
SECTION 9.1 Conditions to Each Party's
Obligations................. 43
SECTION 9.2 Conditions to the Obligations
of Target Corporations and
the Stockholders............ 43
SECTION 9.3 Conditions to the Obligations
of the Big City Parties..... 45
ARTICLE X
INDEMNIFICATION...................................................... 46
SECTION 10.1 Indemnification by the
Stockholders................ 46
SECTION 10.2 Indemnification by Big City... 47
SECTION 10.3 Procedure..................... 47
SECTION 10.4 Adjustment to Merger
Consideration............... 48
SECTION 10.5 Independent Committee
Determination............... 48
SECTION 10.6 Limitations................... 49
SECTION 10.7 Representations and
Warranties.................. 49
SECTION 10.8 Indemnity as Sole Recourse.... 49
ARTICLE XI
TERMINATION.......................................................... 50
SECTION 11.1 Methods of Termination........ 50
SECTION 11.2 Effect of Termination......... 51
ARTICLE XII
DEFINITIONS.......................................................... 51
SECTION 12.1 Certain Defined Terms......... 51
ARTICLE XIII
GENERAL PROVISIONS................................................... 53
SECTION 13.1 Expenses...................... 53
SECTION 13.2 Notices....................... 53
SECTION 13.3 Press Release; Public
Announcements............... 54
SECTION 13.4 Amendment..................... 55
SECTION 13.5 Waiver........................ 55
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SECTION 13.6 Headings...................... 55
SECTION 13.7 Severability.................. 55
SECTION 13.8 Entire Agreement.............. 55
SECTION 13.9 Benefit; Assignment........... 55
SECTION 13.10 Governing Law; Consent to
Jurisdiction................ 55
SECTION 13.11 Counterparts.................. 56
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EXHIBIT INDEX
Exhibit A-1 Certificate of Merger I
Exhibit A-2 Certificate of Merger II
Exhibit B Tax opinion
Exhibit C-1 Severance Agreement and Consulting
Agreement - Xxxx Xxxxxxx
Exhibit C-2 Option Agreement - Xxxx Xxxxxxx
Exhibit D GMM Opinion
Exhibit E GCD Opinion
Exhibit F Xxxxxx Xxxxxx & Xxxxxxxxx
Capital Corp. - Warrant
Exhibit G Registration Rights Agreement
Exhibit H Charter Amendment
Exhibit I Big City Representation Letter
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER, dated as of May 21,
1999, among BIG CITY BAGELS, INC., a New York corporation ("Big City"), BCB
ACQUISITION CORP. I ("BCB I") and BCB ACQUISITION CORP. II ("BCB II") (each
sometimes also referred to as a "Merger Subsidiary" or together as "Merger
Subsidiaries"), each Merger Subsidiary a New York corporation and wholly-owned
subsidiary of Big City, INTELLIGENT COMPUTER SOLUTIONS, INC. ("ICS") and
VILLAGENET, INC., ("VillageNet") (each sometimes also referred to as a "Target
Corporation" or together as the "Target Corporations"), each a New York
corporation, and each of the stockholders of each Target Corporation, all of
whom are listed in Schedule 2.1 hereto (such stockholders being referred to
collectively herein as the "Stockholders").
WHEREAS, the Stockholders are the owners of all of the outstanding
capital stock of the Target Corporations in the respective amounts as set forth
in Schedule 2.1;
WHEREAS, subject to the terms and conditions of this Agreement and Plan
of Merger ("Agreement"), the Parties desire to consummate a merger, as
contemplated herein, pursuant to which each of the Target Corporations shall be
merged with a Merger Subsidiary so that the Target Corporations become
wholly-owned subsidiaries of Big City, with each of the Target Corporations
surviving the Merger; and
WHEREAS, for Federal income tax purposes, the parties intend that such
merger qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code").
IT IS AGREED:
ARTICLE I
THE MERGER
SECTION 1.1 Definitions. Certain capitalized terms used in this Agreement shall
have the meanings specified in Article XII.
SECTION 1.2 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the Business Corporation Law of
the State of New York (the "BCL"), BCB I and BCB II shall consummate a merger
(the "Merger") with and into ICS and VillageNet, respectively, at the Effective
Time (as defined). Following the Merger, each of the Target Corporations shall
continue as the surviving corporations of the Merger and shall continue their
existence under the laws of the State of New York.
SECTION 1.3 Effective Time. As soon as practicable on or after the Closing Date,
after the satisfaction or waiver of all conditions to the Merger, the Target
Corporations and the Merger Subsidiaries shall file with the Secretary of State
of the State of New York ("Secretary of State"), in accordance with the BCL, an
executed copy of the Certificates of Merger in the form of Exhibit A-1 and
Exhibit A-2 hereto (the "Articles of Merger") reflecting the Merger. The Merger
shall become effective at such time as the Certificates of Merger are filed with
the Secretary of State (the "Effective Time"). The Stockholders hereby agree to
the adoption of this Agreement and Plan of Merger if and to the extent required
under the BCL, and acknowledge and agree that their respective signatures hereto
shall constitute their written consent for purposes of authorizing the Merger by
unanimous written consent of stockholders as provided under the BCL.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set forth
in Section 906 of the BCL.
SECTION 1.5 Certificate of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of each of ICS and VillageNet will be the Articles of
Incorporation and By-Laws of ICS and VillageNet, respectively, as the surviving
corporations of the Merger at the Effective Time.
SECTION 1.6 The Closing. Subject to the terms and conditions of this Agreement,
the consummation of the Merger and the other transactions contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at 10:00
a.m., local time, on the third Business Day after the date on which the last of
the conditions to Closing set forth in Article IX hereof (other than conditions
to be satisfied at the Closing) are fulfilled or waived by the appropriate
Party, as the case may be, at the offices of Xxxxxxxx Mollen & Xxxxxx, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other time, date or place as the
Parties may agree upon in writing. The date on which the Closing occurs is
referred to herein as the "Closing Date."
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of the Stock of the Target Corporations. At the Effective
Time, (i) the 1,000 shares of the common stock, no par value and the 40 shares
of the preferred stock, no par value of ICS ("ICS Stock"), representing all the
outstanding capital stock of ICS, shall be converted into the right to receive,
at the Closing in accordance with the BCL, 4,309,733 shares of the common stock,
$.001 par value of Big City ("Big City Common Stock") and 250,000 shares of the
Class B Preferred Stock, $.001 par value ("Big City Preferred Stock") ("ICS
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Merger Consideration") and (ii) the 1,000 shares of the common stock, no par
value, of VillageNet ("VillageNet Stock"), representing all the outstanding
capital stock of VillageNet, shall be converted into the right to receive, at
the Closing in accordance with the BCL, 4,309,733 shares of Big City Common
Stock and 250,000 shares of Big City Preferred Stock ("VillageNet Merger
Consideration"). The ICS Merger Consideration and VillageNet Merger
Consideration will collectively be referred to herein as "Merger Consideration".
At the Closing, the ICS Merger Consideration and the VillageNet Merger
Consideration, respectively, will be issued to the Stockholders listed on
Schedule 2.1 hereto, in the amounts to be provided to Big City prior to Closing
upon delivery by the Stockholders to Big City of the certificates representing
the ICS Stock and VillageNet Stock together with executed stock powers. At the
Effective Time, all of the 100 shares of common stock, no par value, of each of
BCB I and BCB II outstanding immediately prior to the Effective Time shall be
converted into and exchanged for 100 shares of the common stock, no par value,
of ICS and VillageNet, respectively, as the surviving corporations of the
Merger, which shall represent all of the issued and outstanding shares of
capital stock of each of ICS and VillageNet, respectively, as the surviving
corporations of the Merger. At the Closing, each of ICS and VillageNet, as the
surviving corporations of the Merger, shall issue to Big City a stock
certificate representing such 100 shares in exchange for the certificate which
formerly represented the 100 shares of common stock, no par value, of each of
BCB I and BCB II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF TARGET CORPORATION AND THE STOCKHOLDERS
Each of the Target Corporations and each of the Stockholders, jointly
and severally, (except as otherwise provided in the representations and
warranties set forth below), represent and warrant to the Big City Parties as
follows:
SECTION 3.1 Organization. Each of the Target Corporations is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation. Except as described on Schedule 3.1(a),
neither of the Target Corporations owns, directly or indirectly, any capital
stock or other securities of any issuer or any equity interest in any other
entity, including any partnership, limited partnership, limited liability
company, business trust, joint venture or any other business entity, or is a
party to any agreement to acquire any such securities or interest. Neither of
the Target Corporations conducts any business through any entity other than
itself. Each of the Target Corporations is qualified to do business in each
state where the nature of the business it conducts or the properties it owns,
leases or operates requires it to so qualify (which states are listed in
Schedule 3.1(b)), except where the failure to so qualify would not reasonably be
expected to have, either singly or in the aggregate, a Target Corporation
Material Adverse Effect. Each Target Corporation has all requisite corporate
power to own, lease and operate its properties and to carry on its business as
now being conducted.
3
SECTION 3.2 Authority; Corporate Action. Each Target Corporation and each
Stockholder has all necessary power and authority to enter into this Agreement
and to consummate the Merger and other transactions contemplated hereby. All
corporate action necessary to be taken by each Target Corporation and each
Stockholder to authorize the execution, delivery and performance of this
Agreement and all other agreements and instruments to be delivered by each
Target Corporation and each of the Stockholders pursuant hereto has, or at the
Closing, will have been, duly and validly taken, and this Agreement and such
other agreements and instruments have been duly executed and delivered by each
Target Corporation and each Stockholder which is a party thereto. Subject to the
terms and conditions hereof, this Agreement constitutes the valid, binding and
enforceable obligation of each of the Target Corporations and each of the
Stockholders, enforceable against all such parties in accordance with their
respective terms, except as enforceability may be limited or barred by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general application now or hereafter in effect
affecting the rights and remedies of creditors and by general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). The representations and warranties made with respect to any Stockholder
in this Section 3.2 are made only by the Stockholder solely with respect to
itself.
SECTION 3.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement (and the other agreements and
instruments contemplated hereby) by each Target Corporation and each Stockholder
does not, and the performance by each Target Corporation and each Stockholder of
their respective obligations under this Agreement (and any other agreement and
instrument contemplated hereby) will not, as the case may be, (i) conflict with
or violate the Certificate of Incorporation or By-laws of each of the Target
Corporations, (ii) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to each Target Corporation or
each Stockholder or by which any of the properties or assets of a Target
Corporation is bound or affected, or (iii) except as set forth in Schedule
3.3(a), result in any breach of or constitute a default (or an event which 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 on any of the properties or assets of any Target
Corporation pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which any Target Corporation is a party or by which any Target Corporation or
any of its respective properties or assets is bound or affected, except, in the
case of clauses (ii) and (iii), above, for any such conflicts, violations,
breaches, defaults or other alterations or occurrences that would not reasonably
be expected to have, either singly or in the aggregate, a Target Corporation
Material Adverse Effect. The representations and warranties made with respect to
any Stockholder in this Section 3.3(a) are made only by the Stockholder solely
with respect to itself.
4
(b) The execution and delivery of this Agreement (and the other agreements and
instruments contemplated hereby) by each Target Corporation and each Stockholder
does not, and the performance of this Agreement (and the other agreements and
instruments contemplated hereby) by each Target Corporation and each Stockholder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority or other third
party, except for (i) compliance with the applicable requirements, if any, of
the Exchange Act (as defined) or the Securities Act (as defined), (ii) filing
and recordation of appropriate merger documents as required by the laws of the
State of New York, (iii) as set forth on Schedule 3.3(b), and (iv) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications would not reasonably be expected to have, either singly
or in the aggregate, a Target Corporation Material Adverse Effect. The
representations and warranties made with respect to any Stockholder in this
Section 3.3(b) are made only by the Stockholder solely with respect to itself.
SECTION 3.4 Capitalization: Ownership of Target Corporation Stock. The
authorized capital stock of each Target Corporation and the number of issued
shares of each class of capital stock is set forth in Schedule 3.4. The
Stockholders and their respective residential addresses and their respective
holdings of each Target Corporation's capital stock are set forth on Schedule
2.1 and, the Stockholders are the record and beneficial owners of all of the
outstanding capital stock of each Target Corporation, as so listed, free and
clear of all Liens. Except as set forth on Schedule 3.4, there are no options,
warrants, subscriptions, conversion rights or securities exchange rights or
other securities or other contractual rights outstanding which require, or give
any person the right to require, the issuance, delivery or sale (including a
right of conversion or exchange) of any capital stock of the Target
Corporations, whether or not such rights are presently exercisable. There are no
pre-emptive rights, rights of first refusal or other similar agreements
obligating a Target Corporation to offer any shares of its capital stock to any
person and none of the shares of capital stock of a Target Corporation were
issued in violation of any such rights. No holder of any securities of a Target
Corporation (or securities issuable in exchange therefor) has the right to
require any party to register such securities under the Securities Act (as
defined), either on a "demand" or a "piggyback" basis. All shares, options and
warrants and other securities of each Target Corporation issued since its date
of incorporation were issued in compliance with the registration provisions of
the Securities Act and applicable state securities laws or pursuant to an
exemption therefrom. Neither of the Target Corporations has outstanding any
bonds, debentures, notes or other obligations under the terms of which the
holders of which have any rights to vote with the Stockholders of either Target
Corporation. The representations and warranties made in the second sentence of
this Section 3.4 with respect to any Stockholder are made only by the
Stockholder solely with respect to itself.
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SECTION 3.5 Licenses and Permits; Compliance with Laws. Each Target Corporation
holds all permits, licenses and approvals (collectively, the "Permits") from all
Federal, state and local governmental authorities necessary for it to own, lease
and operate its properties and to carry on its businesses as now being
conducted, and no such Permit has been rescinded and all such Permits are in
full force and effect and are listed on Schedule 3.5, except for such Permits
the failure of which to hold would not reasonably be expected to have, either
singly or in the aggregate, a Target Corporation Material Adverse Effect. The
business of each Target Corporation is being and has been conducted in
compliance with the Permits and all applicable laws, statutes, ordinances,
regulations, judgments, orders, decrees, concessions, grants and other
authorizations of any governmental authority, except for such failures that
would not reasonably be expected to have, either singly or in the aggregate, a
Target Corporation Material Adverse Effect. Neither Target Corporation is in
default in any material respect under any of such Permits and no event has
occurred and no condition exists which, with the giving of notice, the passage
of time, or both, would constitute a default thereunder, except where such
default would not reasonably be expected to have, either singly or in the
aggregate, a Target Corporation Material Adverse Effect. Neither the execution
and delivery of this Agreement nor any of the other documents contemplated
hereby nor the consummation of the transactions contemplated hereby or thereby
nor compliance by each Stockholder and each Target Corporation with any of the
provisions hereof or thereof will result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any Permit, except for such Permits the
loss or impairment of which would not reasonably be expected to have, either
singly or in the aggregate, a Target Corporation Material Adverse Effect.
Neither Target Corporation presently provides any services that would require
that Target Corporation to obtain any authorization or make any registration in
any foreign country.
SECTION 3.6 Financial Statements.
(a) Each Target Corporation has delivered to the Big City Parties audited
financial statements of that Target Corporation for the year ended December 31,
1997 (collectively, the "Target Corporation Audited Financial Statements"). The
Target Corporation Audited Financial Statements, including all related notes and
schedules thereto, have been prepared in accordance with generally accepted
accounting principles applied in the United States ("GAAP") and fairly present
in all material respects the financial position of each Target Corporation as at
the respective dates thereof and the results of operations of each Target
Corporation for the periods indicated on a consistent basis throughout the
periods involved (except as may be noted therein).
(b) Each Target Corporation has delivered to the Big City Parties unaudited
financial statements of that Target Corporation for the year ended December 31,
1998, which are identified as Schedule 3.6(b) (collectively, the "Target
Corporation Unaudited Financial Statements"). The Target Corporation Unaudited
Financial Statements have been prepared in accordance with GAAP and fairly
6
present in all material respects the financial position of each Target
Corporation as at the respective dates thereof and the results of operations of
each Target Corporation for the periods indicated on a consistent basis
throughout the periods involved (except as may be noted therein). The Target
Corporation Unaudited Financial Statements were compiled from the books and
records of each Target Corporation regularly maintained by management and used
to prepare the financial statements of that Target Corporation in accordance
with GAAP and such books and records of account of each Target Corporation
reflect all items of income and expense and all assets and liabilities and
accruals required to be reflected therein in accordance with GAAP so as to
permit the independent accountants of each Target Corporation, without unusual
expense, to audit such Target Corporation's financial statements and issue a
report thereon in accordance with generally accepted auditing standards. There
will be no material discrepancies between the audited financial statements of
each of the Target Corporation at and for the year ended December 31, 1998
required to be delivered to the Big City Parties pursuant to Section 6.13 hereof
and the Target Corporation Unaudited Financial Statements.
(c) The accounts receivable of each Target Corporation reflected on the balance
sheet as at December 31, 1998 ("Balance Sheet") included in the Target
Corporation Unaudited Financial Statements have arisen from bona fide
transactions and are reflected on the books and records of each Target
Corporation. Adequate reserves for the uncollectability of such accounts
receivable have been established on the books and records of each Target
Corporation and are reflected on the Balance Sheet and will be reflected on the
audited financial statements of each Target Corporation.
(d) Neither Target Corporation has any debts, liabilities, commitments or
obligations (including, without limitation, any unasserted claims for which
there are circumstances known to or which should reasonably be known to exist by
the Target Corporation or any Stockholder that could serve as a basis therefor),
whether absolute or contingent, liquidated or unliquidated, matured or
unmatured, or due or to become due or otherwise, except for liabilities and
obligations (a) reflected as liabilities on the Balance Sheet, or (b) that have
arisen since December 31, 1998 in the ordinary course of business of each Target
Corporation, consistent with prior periods.
SECTION 3.7 Real Property. Schedule 3.7 contains a true, correct and complete
list and brief description of all real property leased or subleased by each
Target Corporation, all of which properties are hereinafter referred to as the
"Target Leased Real Property." Each Target Corporation has provided to the Big
City Parties true, correct and complete copies of the leases for or other
agreements or arrangements under which each Target Corporation has the right to
use the Target Leased Real Property (the "Leases") and any sublease to or other
similar agreement or arrangement with any third party with respect to such
premises ("Subleases"). Except as set forth in Schedule 3.7, each Target
Corporation has not subleased any Target Leased Real Property to others. Each
7
Target Corporation is in compliance with all of the provisions of its Leases and
Subleases and is not in default thereunder, except where the failure to be in
compliance would not be reasonably likely to have a Target Corporation Material
Adverse Effect. Each leasehold interest (i) is valid, subsisting and in full
force and effect; and (ii) is not subject to any Liens (other than collateral
assignments of the leases granted by the landlords thereunder to the extent
permitted by the terms of the Leases and which do not interfere with or detract
from each Target Corporation's use of the property subject to the Leases). The
rental set forth in each of the Leases listed in Schedule 3.7 is the actual
rental currently being paid by each Target Corporation and there are no separate
agreements or understandings with respect to same and each Target Corporation is
current on its rental obligations. The payment obligations of any sublessee
under any Sublease are equal to or greater than the payments required to be made
for the subleased space to the landlord. The Leased Real Property is occupied
under a valid and current occupancy permit or the like to the extent required by
law. Except as set forth in Schedule 3.7, there are no facts known to any of the
Target Corporations or Stockholders which would prevent any Target Leased Real
Property from being occupied by each Target Corporation after the Closing in
substantially the same manner as before. The execution and delivery of this
Agreement, and the performance of the obligations hereunder and thereunder, will
not constitute a default under any Lease.
SECTION 3.8 Material Contracts.
(a) Schedule 3.8(a) sets forth a complete and correct list of all agreements of
the following types to which each Target Corporation is a party and all or any
portion of which are currently in effect (collectively, the "Material
Contracts"): (i) agreements that would be required to be filed as exhibits to
any filings or reports (collectively, the "Required Reports") made by Big City
under the Securities Act or Exchange Act following the Merger; (ii) agreements
for the purchase, sale or distribution of products, materials, commodities,
supplies or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one
year or involve consideration payable by any party in excess of $10,000 in any
one year; (iii) loan agreements, indentures, letters of credit, mortgages, notes
and other debt instruments; (iv) agreements containing any "change of control"
provisions; (v) agreements, arrangements or understandings with any employee,
director or officer of each Target Corporation or with each Stockholder or with
any affiliate of any thereof; (vi) agreements prohibiting each Target
Corporation from engaging or competing in any line of business or limiting such
competition; (vii) joint venture, partnership and similar agreements; (viii)
acquisition or divestiture agreements relating to the (A) sale or purchase of
assets or stock of each Target Corporation (other than sales of inventory in the
ordinary course of business) or (B) the purchase of assets or stock of any other
person (other than the purchase of inventory, supplies or equipment in the
ordinary course of business); (ix) brokerage, finder's or financial advisory
agreements; (x) guarantees of indebtedness for borrowed money of any person;
(xi) reseller, agent and dealer agreements; (xii) licensing and rights
arrangements for any Intellectual Property (as defined, including all licenses
of Intellectual Property and any related rights to or by each Target Corporation
8
(or each Stockholder); (xiii) indefeasible rights of use, leases or other
agreements for the acquisition, sale, transfer, assignment or use of or access
to, bandwidth, capacity or any other telecommunications network, facilities or
product; and (xiv) agreements that, individually or together with one or more
related agreements, are material to the assets, financial condition, business or
operations of each Target Corporation. True and complete copies of all Material
Contracts have been delivered to the Big City Parties or made available for
inspection. Except as set forth on Schedule 3.8(a), Each Target Corporation is
not currently, nor has it been during the past five years, a party to any prime
contract, subcontract, basic ordering agreement, letter contract, arrangement,
purchase order, or delivery order of any kind, including all amendments,
modifications, and options thereunder or relating thereto, given by a party
holding itself out as a federal or state government or agency, division,
subdivision or procuring office thereof.
(b) Except as set forth in Schedule 3.8(b) and except for violations,
commissions or failures as would not be reasonably likely to have a Target
Corporation Material Adverse Effect, all Material Contracts are valid and in
full force and effect, and each Target Corporation has not (nor does it or each
Stockholder have any knowledge that any other party thereto has) violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default under the provisions
of, any Material Contract. The representation and warranty made with respect to
any Stockholder in the parenthetical text in the first sentence in this Section
3.8(b) is made only by the Stockholder solely with respect to itself.
SECTION 3.9 Litigation. Other than as set forth on Schedule 3.9, there are no
actions, suits, arbitrations, mediations or other proceedings pending or, to the
knowledge of each Target Corporation or each Stockholder, threatened against
each Target Corporation at law or in equity before any court, Federal, state,
municipal or other governmental department or agency or other tribunal and there
are no written customer complaints which could reasonably serve as a basis for
same. Neither Target Corporation nor its respective property is subject to any
order, judgment, injunction or decree. No claim, action, proceeding or
investigation is pending or, to the best knowledge of any of the Stockholders,
threatened against each Target Corporation or against any Stockholder which
would reasonably be expected to have a Target Corporation Material Adverse
Effect. The representations and warranties made in this Section 3.9 with respect
to any Stockholder as to the knowledge of such Stockholder of a threatened
claim, action, proceeding or investigation are made only by the Stockholder
solely with respect to itself.
SECTION 3.10 Taxes, Tax Returns and Audits. Each Target Corporation has (or, in
the case of returns becoming due after the date hereof and on or before the
Effective Time, will have prior to the Effective Time) prepared and filed on a
timely basis with all appropriate Federal, state, local and foreign governmental
authorities all returns in respect of Taxes it is required to file on or prior
to the Effective Time or by such date will have obtained the appropriate
9
extensions to file, and all such returns completely and accurately (or, in the
case of returns becoming due after the date hereof and on or before the
Effective Time, will completely and accurately) set forth the amount due of any
Taxes relating to the applicable period. Each Target Corporation has paid (or,
in the case of Taxes becoming due after the date hereof and on or before the
Effective Time, will have paid) in full all Taxes due on or before the Effective
Time and, in the case of Taxes accruing on or before the Effective Time that are
not due on or before the Effective Time, each Target Corporation has or will
have established adequate reserves on its books and records and financial
statements (including the Balance Sheet) for such payment in accordance with
GAAP. Each Target Corporation has withheld from each payment made to any of its
present or former employees, officers, directors or other party all amounts
required by law to be withheld and has, where required, remitted such amounts
within the applicable periods to the appropriate governmental authorities. In
addition, other than as set forth on Schedule 3.10, (i) there are no assessments
against any Target Corporation with respect to Taxes that have been issued and
are outstanding; (ii) no governmental authorities have audited or, to the
knowledge of each of the Stockholders, examined any Target Corporation in
respect of Taxes; (iii) neither Target Corporation has executed or filed any
agreement extending the period of assessment or collection of any Taxes which
has not yet expired by its terms; (iv) neither Target Corporation has received
written notification from any governmental authority of its intention to
commence any audit or investigation; (v) neither Target Corporation is a party
to or bound by nor has any obligation under any tax sharing or tax
indemnification agreement, provision or arrangement, whether formal or informal,
and no power of attorney, which is currently in effect, has been granted with
respect to any matter relating to Taxes of each Target Corporation; and (vi)
neither Target Corporation is presently required nor will it be required to
include any adjustment in taxable income under Section 481 of the Code (or any
similar provision of the Tax laws of any jurisdiction) as a result of any change
in method of accounting or otherwise.
SECTION 3.11 Absence of Certain Changes. Other than as set forth on Schedule
3.11, neither Target Corporation has, since December 31, 1998:
(a) issued, delivered or agreed to issue any stock, bonds or other corporate
securities (whether authorized and unissued or held in the treasury), or granted
or agreed to grant any options (including employee stock options), warrants or
other rights for the issue thereof;
(b) borrowed or agreed to borrow any funds;
(c) incurred any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due, except current liabilities incurred in
the ordinary course of business and consistent with prior practice;
10
(d) other than pursuant to this Agreement, discharged or satisfied any
obligation or encumbrance other than ordinary operating expenses and trade
payables reflected on the Balance Sheet, and trade payables and other operating
expenses incurred after December 31, 1998 in the ordinary course of business and
consistent with prior practice, all of which payments have been made in a manner
consistent with prior practice;
(e) failed to pay any payables when due, consistent with prior practice;
(f) sold, transferred, leased to others or otherwise disposed of any assets
outside of the ordinary course of business or canceled or compromised any debt
or claim, or waived or released any right of substantial value;
(g) received any notice of termination or other threatened termination of any
Material Contract, Lease, Permit or other agreement, or suffered any damage,
destruction or loss (whether or not covered by insurance) the effect of which
would reasonably be expected to have, either singly or in the aggregate, a
Target Corporation Material Adverse Effect;
(h) encountered any labor union organizing activity labor disputes or had any
material change in its relations with its employees or agents, clients or
insurance carriers;
(i) made any accrual or arrangement for any bonus, or any increase in
compensation or any severance or termination payment to (i) any present or
former officer or employee of each Target Corporation; or (ii) to any affiliate
of any Target Corporation or any officer, director or significant shareholder of
any Target Corporation;
(j) transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any license or any of the Intellectual
Property used in the businesses or operations of each Target Corporation, or
licensed or otherwise transferred or disposed of any of its material
Intellectual Property;
(k) declared or made, or agreed to declare or make, any payment of dividends or
distributions of any assets of any kind whatsoever to any of its stockholders or
any affiliate of any of its stockholders, or purchased or redeemed, or agreed to
purchase or redeem, any of its capital stock, or made or agreed to make any
payment to any of its stockholders or any affiliate of any of its stockholders,
whether on account of debt, management fees or otherwise;
11
(l) suffered any material adverse change, in any case or in the aggregate, in
its assets, liabilities, financial condition, results of operations or business;
or
(m) entered into any agreement or made any commitment to take any of the types
of action described in any of the foregoing clauses (other than clauses (g), (h)
or (i)).
SECTION 3.12 Employee Benefit Plans. Schedule 3.12 sets forth a list of all the
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), programs and arrangements
maintained for the benefit of any current or former employee, officer or
director of each Target Corporation (collectively, the "Target Corporation
Benefit Plans"). Each Target Corporation Benefit Plan has been operated in all
material respects in accordance with the terms and requirements of applicable
law and all required returns and filings for each Target Corporation Benefit
Plan have been timely made. Neither Target Corporation has incurred any direct
or indirect liability under, arising out of or by operation of ERISA or the Code
in connection with any Target Corporation Benefit Plan or any other employee
benefit plan maintained by any other entity under common control with each
Target Corporation and no fact or event exists that could reasonably be expected
to give rise to any such liability. All contributions due and payable on or
before the date hereof in respect of each Target Corporation Benefit Plan have
been made in full and in proper form.
SECTION 3.13 Labor Relations. No Target Corporation is a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of the employees of any Target Corporation. To
the knowledge of each Target Corporation and each Stockholder, there have been
no labor organization activities involving any of the employees of each Target
Corporation during the last five years. Schedule 3.13 hereto contains a complete
list of all of the employees of each Target Corporation, including salary and
bonus paid for 1997 and 1998 and for 1999 through January 31 and material
perquisites and benefits, and of those persons currently intended to become
employees after the dates hereof, including their starting dates and agreed
compensation arrangements. Except as indicated in Schedule 3.13, none of such
employees is subject to an employment agreement or employment restriction with
each Target Corporation or with any prior employer and all employees of each
Target Corporation are terminable at will. Except as listed on Schedule 3.13 or
Schedule 2.1, no employee of a Target Corporation has any right or claim (legal,
equitable or otherwise) to receive any Merger Consideration. The representation
and warranty made in the second sentence of this Section 3.13 with respect to
any Stockholder are made only by the Stockholder solely with respect to itself.
SECTION 3.14 Insurance Policies; Claims. Schedule 3.14 sets forth all insurance
policies and bonds maintained by or on behalf of each Target Corporation. Except
as disclosed in Schedule 3.14, the insurance policies and bonds set forth in
Schedule 3.14 are provided by reputable insurers or issuers, and provide
12
adequate coverage for all normal risks incident to the businesses of each Target
Corporation and its assets. No claims have been made against a Target
Corporation as a result of allegedly defective products or any alleged libelous,
slanderous or defamatory statements or activities and none of the Stockholders
or Target Corporations knows of any basis for the assertion of any such claim.
No insurance policy issued to or on behalf of a Target Corporation has ever been
canceled by the policy issuer. No issuer of any policy covering a Target
Corporation or any of its assets, operations or employees has refused to review
a claim during the past five years. The representations and warranties made in
the third sentence of this Section 3.14 with respect to any Stockholder are made
only by the Stockholder solely with respect to itself.
SECTION 3.15 Intellectual Property.
(a) Each Target Corporation owns or possesses all right, title and interest in
and to, or a valid and enforceable license or other right to use all of the
Intellectual Property that is used in the conduct of the business of each Target
Corporation. All Intellectual Property that is used in the conduct of the
business of each Target Corporation (including all applications and
registrations therefor) is listed on Schedule 3.15(a), and no other Intellectual
Property is used or necessary in the conduct of such business. Except as
disclosed in Schedule 3.15(a), (i) each Target Corporation has the right to use
the Intellectual Property it owns or licenses; (ii) all registrations with
respect thereto are in full force and effect; (iii) there are no transfer
restrictions, direct or indirect, relating thereto affected by the Merger as
provided herein; (iv) all relevant documentation and explanatory materials
relating thereto in reasonable detail have been provided to Big City; and (v)
each Target Corporation has taken appropriate and reasonable security measures
to protect the secrecy, confidentiality, and value of each Target Corporation's
trade secrets and related Intellectual Property. All Intellectual Property
licensed to third parties is listed on Schedule 3.15(a). To the knowledge of the
Stockholders, there has been no disclosure of any trade secrets or other
proprietary information of each Target Corporation that has had, or could be
reasonably expected to have, a Target Corporation Material Adverse Effect. Each
Target Corporation has taken customary steps to backup all of its Intellectual
Property and all material Web-based, Internet and computer applications and
projects for customers and clients of the business. Neither Target Corporation
has infringed, misappropriated or otherwise violated any Intellectual Property
of any other person. To the knowledge of each of the Stockholders, no person is
infringing upon any Intellectual Property right of each of the Target
Corporations. Each Target Corporation maintains "Web wrap" agreements as
necessary to alert users and subscribers to the potential civil and criminal
liability to which they may be subject for intellectual property infringement.
The representations and warranties made in the fourth and seventh sentences of
this Section 3.15 with respect to any Stockholder are made only by the
Stockholder solely with respect to itself.
(b) "Intellectual Property" means all patents, patent applications and patent
disclosures; all inventions (whether or not patentable and whether or not
13
reduced to practice); all registered and unregistered, statutory and common law
trademarks, service marks and service xxxx rights, trade dress, trade names and
trade name rights corporate names and domain names and URLs and all the goodwill
associated therewith; all registered and unregistered statutory and common law
copyrights; all registrations, applications and renewals for any of the
foregoing; all protocols, codes and operating systems; and all trade secrets,
confidential information, ideas, formulae, compositions, know-how, manufacturing
and production processes and techniques, research information, drawings,
specifications, design plans, improvements, proposals, technical and computer
data, documentation and software, brand names, inventions, processes, trade
dress, business and product names, industrial models, designs, methodologies,
computer programs (including all source codes), databases, HTML, Java and
related codes, technical information, engineering and technical drawings,
financial business and marketing plans, customer and supplier lists and related
proprietary information, marketing materials and all other proprietary rights.
Intellectual Property does not include software licensed under a shrinkwrap
agreement.
(c) Other than as set forth on Schedule 3.15(c), each Target Corporation has
caused each of its current employees, consultants and independent contractors,
as applicable, that have worked on or contributed to the development or
improvement of any of its software or other Intellectual Property, to execute
applicable "work for hire" (as such term is used in the federal copyright
statute) and/or assignments required to vest in each Target Corporation full,
effective, exclusive and original ownership of all such Intellectual Property.
SECTION 3.16 Personal Properties; Assets. Schedule 3.16 sets forth the personal
properties and assets owned or leased by each Target Corporation as of December
31, 1998 as identified to the independent certified public accountants of each
Target Corporation for the purposes of their review of the Target Corporation
Audited Financial Statements. Each Target Corporation (a) has good and
marketable title to all personal properties and assets owned by it (except
personal properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), and those personal properties acquired after the
date thereof and not thereafter disposed of, free and clear of all Liens, except
(i) statutory liens securing payments not yet due, and (ii) such imperfections
or irregularities of title, claims, liens, charges, security interests or
encumbrances which do not secure monetary obligations and which do not
materially affect the use or marketability of the personal properties or assets
subject thereto or affected thereby or otherwise materially impair each Target
Corporation's business operations or use of such assets, and (b) is the lessee
of all other personal property reflected on Schedule 3.16, which lease is for an
annual amount in excess of $20,000. Each lease for personal property that is
material to the businesses of each Target Corporation is valid without default
thereunder by the lessee or, to the knowledge of each Target Corporation and
each Stockholder, lessor, and each Target Corporation is in possession of the
personal property purported to be leased thereunder. The personal properties and
assets of each Target Corporation are in good operating condition and repair
(ordinary wear and tear excepted).
14
SECTION 3.17 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 each Target Corporation or each Stockholder. The representation and
warranty made in this Section 3.17 with respect to any Stockholder are made only
by the Stockholder solely with respect to itself.
SECTION 3.18 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of each Target Corporation are complete and
correct in all material respects, and there have been no material transactions
involving a Target Corporation of the type typically recorded in such records
that have not been recorded.
SECTION 3.19 No Illegal or Improper Transactions. Neither Target Corporation
nor, to the best knowledge of the respective Target Corporation, any officer,
director, employee, agent or affiliate of a Target Corporation has offered, paid
or agreed to pay to any person or entity (including any governmental official)
or solicited, received or agreed to receive from any such person or entity,
directly or indirectly, any money or anything of value for the purpose or with
the intent of (i) illegally or improperly facilitating the purchase or sale of
any product or service, or (ii) avoiding the imposition of any fine or penalty,
in any manner which is in violation of any applicable ordinance, regulation or
law.
SECTION 3.20 Related Transactions. Except as disclosed in Schedule 3.20, and for
compensation and related arrangements with employees for services rendered
consistent with past practices, no current or former director, officer, employee
or Stockholder of a Target Corporation, nor any immediate family member of any
of the foregoing, is presently, or since January 1, 1996, has been, (a) a party
to any transaction with a Target Corporation (including, but not limited to, any
contract, agreement or other arrangements providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, employee or shareholder or affiliated
entities), or (b) the direct or indirect owner of an interest in any
corporation, firm, association or business organization which is a present
competitor, supplier or customer of a Target Corporation, nor does any such
person receive income from any source other than a Target Corporation which
relates to the business of, or should properly accrue to, a Target Corporation.
All related party transactions have been at arms length and all revenues and
expenses of the Target Corporation that have been collected or paid by any
affiliated entities are properly reported in the Target Corporation Unaudited
Financial Statements and will be properly reported in the audited financial
statements of the Target Corporations.
SECTION 3.21 Disclosure. No representation or warranty by any of the Target
Corporations or Stockholders contained in this Agreement or any Schedule hereto
15
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. Any representation and warranty made
in this Section 3.21 with respect to any Stockholder are made only by the
Stockholder solely with respect to itself.
SECTION 3.22 Environmental, Health and Safety Matters.
(a) Each Target Corporation, to the best of its knowledge, is in compliance with
Environmental, Health and Safety Requirements, except for such noncompliance as
would not reasonably be expected to have, either singly or in the aggregate, a
Target Corporation Material Adverse Effect.
(b) Each Target Corporation, to the best of its knowledge, has not received any
written notice, report or other information regarding any actual or alleged
material violation of Environmental, Health, and Safety Requirements, or any
material liabilities or potential material liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to each Target Corporation or its
property arising under Environmental, Health, and Safety Requirements, the
subject of which would reasonably be expected to have, either singly or in the
aggregate, a Target Corporation Material Adverse Effect.
SECTION 3.23 Year 2000 Compliance.
(a) Each Target Corporation has conducted a full assessment of its Information
Technology. Except as set forth on Schedule 3.23, to the best knowledge of each
Target Corporation, all Information Technology created by each Target
Corporation or used in or relied on by each Target Corporation in the conduct of
its business is designed to record, store, process and present date/time data
(including without limitation, calculating, comparing and sequencing) from, into
and between the twentieth and twenty-first centuries, including the years 1999
and 2000 and leap year calculations, and all such Information Technology will
not malfunction, cease to function or provide invalid or incorrect results or
degrade in performance as a result of date/time data, including to the extent
that other Information Technology, when used in combination with Information
Technology of Target Corporation, properly exchanges date/time data with it
("Year 2000 Compliant").
(b) To the best of the knowledge of each Target Corporation, all Information
Technology of third parties used in combination with Information Technology used
in or relied on by each Target Corporation in the conduct of its business is
Year 2000 Compliant.
16
(c) "Information Technology" means electronic data, communications and other
systems utilizing computer hardware, computer software, computer firmware and
other similar or related items including source codes, operating codes,
programs, utilities and other software.
(d) To the best knowledge of each Target Corporation, the cost of remedying any
and all Information Technology to ensure that it is Year 2000 compliant as
necessary to continue its operations after December 31, 1999 as currently
operated is not reasonably likely to exceed $50,000.
SECTION 3.24 Domain Names. To the best knowledge of each Target Corporation,
Schedule 3.24 sets forth all domain names assigned to or reserved by each Target
Corporation. To the best knowledge of each Target Corporation, its domain names
have been validly obtained by each Target Corporation and are exclusive to each
Target Corporation. All filings, payments and actions have been made or taken
and the domain names used in such manner as may be necessary to maintain the
right to such names. None of such domain names are a federally registered
trademark of any third party. The validity of such domain names have not been
challenged by any party and to the knowledge of each Target Corporation and each
Stockholder, no circumstances exist which would reasonably form the basis for
any such challenge. The representation and warranty made in the immediately
preceding sentence of this Section 3.24 with respect to any Stockholder are made
only by the Stockholder solely with respect to itself.
SECTION 3.25 Investment Representations. Each Stockholder represents as to
itself only that (i) all Big City Stock to be acquired by such Stockholder
pursuant to this Agreement will be acquired for its account and not with a view
towards distribution thereof; (ii) it understands that it must bear the economic
risk of the investment in the Big City Stock, which cannot be sold by it unless
it is registered under the Securities Act, or an exemption therefrom is
available thereunder; (iii) it has had both the opportunity to ask questions and
receive answers from the officers and directors of Big City and all persons
acting on Big City's behalf concerning the business and operations of Big City
and to obtain any additional information to the extent Big City possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of such information; and (iv) it has
received copies of the Big City Reports described in Section 4.19. Each
Stockholder acknowledges, as to itself only, that (a) it is either (i) an
"accredited investor" as such term is defined in Rule 501(a) promulgated under
the Securities Act or (ii) a person possessing sufficient knowledge and
experience in financial and business matters to enable it to evaluate the merits
and risks of an investment in Big City; and (b) it understands that the
certificates representing the Big City Stock shall bear legends to the effect
that the Big City Stock may not be transferred except upon compliance with (i)
the registration requirements of the Securities Act (or an exemption therefrom)
and (ii) the provisions of this Agreement.
17
SECTION 3.26 Material Customers and Suppliers. Schedule 3.26 lists the ten
largest customers (measured by revenue) and suppliers (measured by cost of goods
or services) over the prior 12-month period in each of the businesses of the
Target Corporations. To the best knowledge of each Target Corporation and,
except as scheduled, no customer or supplier has ceased or materially reduced
its business with the Target Corporation during such period, has notified the
Target Corporation of any potential bankruptcy or insolvency, or accounts for
more than 10% of the annual revenues or costs of goods or services, as the case
may be, of the Target Corporation.
SECTION 3.27 Nasdaq Listing. Big City has disclosed to the Target Corporation
Parties that the Common Stock of Big City has been delisted from the Nasdaq
SmallCap Market. Big City has made no representation or warranty to the Target
Corporation Parties with respect to the ability of Big City to have any of its
securities listed on the Nasdaq SmallCap Market.
SECTION 3.28 Information Statement. The information supplied or to be supplied
by or on behalf of the Target Corporations and Stockholders for inclusion or
incorporated by reference in the Big City information statement pursuant to
Section 14(f) of the Exchange Act of 1934, as amended ("Exchange Act"), in
definitive form (the "Information Statement"), will not, at the date mailed to
the Big City stockholders, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Information Statement, insofar as it relates
to the Target Corporations and Stockholders, will comply as to form in all
material respects with the applicable provisions of the Exchange Act and rules
and regulations thereunder. The representation and warranty made in this Section
3.28 with respect to any Stockholder are made only by the Stockholder solely
with respect to itself.
SECTION 3.29 Tax Opinion. The Target Corporation Parties have received an
opinion of Xxxxxxx Xxxxxx & Xxxxxxx in the form of Exhibit B annexed hereto.
SECTION 3.30 Schedules. The Target Corporation Parties have made a good faith
effort to provide information on each Schedule to this Agreement, where
necessary, pertinent to the related representation and warranty; however, to the
extent information is provided on one schedule which should also have been
presented on another schedule, disclosure on the one schedule will be deemed
disclosure on the other schedules where appropriate.
18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BIG CITY
AND THE MERGER SUBSIDIARY
Each of the Big City Parties, jointly and severally, represents and
warrants to the Stockholders as follows:
SECTION 4.1 Organization. Each of the Big City Parties and Big City
Subsidiaries is a corporation or limited partnership, as the case may be, duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation. Except as described on Schedule 4.1(a), none
of the Big City Parties owns, directly or indirectly, any capital stock or other
securities of any issuer or any equity interest in any other entity, including
any partnership, limited partnership, limited liability company, business trust,
joint venture or any other business entity, or is a party to any agreement to
acquire any such securities or interest. None of the Big City Parties conducts
any business through any entity other than itself except for the limited
purposes for which the Big City Subsidiaries are maintained as corporate or
partnership entities. Each of the Big City Parties and Big City Subsidiaries is
qualified to do business in each state where the nature of the business it
conducts or the properties it owns, leases or operates requires it to so qualify
(which states are listed in Schedule 4.1(b)), except where the failure to so
qualify would not reasonably be expected to have, either singly or in the
aggregate, a Big City Material Adverse Effect. Each of the Big City Parties and
Big City Subsidiaries has all requisite corporate power to own, lease and
operate its properties and to carry on its business as now being conducted.
SECTION 4.2 Authority; Corporate Action. Each of the Big City Parties has all
necessary corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by the respective agreements to which
it is a party. All corporate action necessary to be taken by the Big City
Parties to authorize the execution, delivery and performance of this Agreement
and all other agreements and instruments to be delivered by the Big City Parties
in connection with the transactions contemplated hereby or thereby will have
been, duly and validly taken, and this Agreement and such other agreements and
instruments have been duly executed and delivered by each of the Big City
Parties that are party thereto. Subject to the terms and conditions hereof, this
Agreement constitutes valid, binding and enforceable obligations of each of the
Big City Parties that are party thereto, enforceable in accordance with their
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws of
general application now or hereafter in effect affecting the rights and remedies
of creditors and by general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
19
SECTION 4.3 No Conflict; Required Filings and Consents.
(a) Provided that the actions described in Section 9.1(c) and (d) are completed
by the Closing, the execution and delivery of this Agreement (and each of the
other agreements contemplated hereby) by each of the Big City Parties do not,
and the performance by each of the Big City Parties of its respective
obligations under this Agreement (and each of the other agreements or
instruments contemplated hereby) will not, as the case may be, (i) conflict with
or violate the Certificate of Incorporation or By-laws of each of the Big City
Companies, (ii) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to each of the Big City
Companies or by which any of their respective properties or assets is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
which 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 on any of the properties or
assets of any of the Big City Companies pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any of the Big City Companies is a party or by
which any of the Big City Companies or any of their respective properties or
assets is bound or affected, except, in the case of clauses (ii) and (iii),
above, for any such conflicts, violations, breaches, defaults or other
alterations or occurrences that would not reasonably be expected to have, either
singly or in the aggregate, a Big City Material Adverse Effect.
(b) The execution and delivery of this Agreement (and each of the other
agreements and instruments contemplated hereby) by each of the Big City Parties
do not, and the performance of this Agreement (and each of the other agreements
and instruments contemplated hereby) by each of the Big City Parties will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity, except (i) for (A) compliance with the
applicable requirements, if any, of the Exchange Act, Securities Act, state
securities laws or state takeover laws and (B) filing and recordation of
appropriate merger documents and the Certificate of Amendment to the Certificate
of Incorporation of Big City to establish the Big City Preferred Stock as
described in Section 9.1(c) as required by the laws of the State of New York,
and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not reasonably be
expected to have, either singly or in the aggregate, a Big City Material Adverse
Effect.
SECTION 4.4 Capitalization. The authorized capital stock of Big City and the
number of issued shares of each class of capital stock is set forth in Schedule
4.4. Except as set forth on Schedule 4.4, there are no options, warrants,
subscriptions, conversion rights or securities exchange rights or other
securities or other contractual rights outstanding which require, or give any
person the right to require, the issuance, delivery or sale (including right of
conversion or exchange) of any capital stock of Big City, the Merger
20
Subsidiaries and the Big City Subsidiaries, whether or not such rights are
presently exercisable. There are no pre-emptive rights, rights of first refusal
or other similar agreements obligating Big City, the Merger Subsidiaries and the
Big City Subsidiaries to offer any shares of its capital stock to any person.
Except as set forth on Schedule 4.4 no holder of any securities of Big City, the
Merger Subsidiaries and the Big City Subsidiaries (or securities issuable in
exchange therefor) has the right to require any party to register such
securities under the Securities Act (as defined), either on a "demand" or a
"piggyback" basis. All shares, options and warrants and other securities of Big
City issued since its date of incorporation were issued in compliance with the
registration provisions of the Securities Act and applicable state securities
laws or pursuant to an exemption therefrom. Big City does not have outstanding
any bonds, debentures, notes or other obligations under the terms of which the
holders of which have any rights to vote with the stockholders of Big City. Big
City has reserved 400,000 shares of Big City Stock for issues pursuant to
stock-based awards (including employee stock options) that may be made under the
Big City 1998 Performance Equity Plan ("1998 Option Plan"). As of the date of
this Agreement, the only awards made under the 1998 Plan is an option to
purchase 100,000 shares of Big City Stock and the option to Xxxx Xxxxxxx
referred to in Section 4.24.
SECTION 4.5 Licenses and Permits; Compliance with Laws. Big City and the Big
City Subsidiaries hold all permits, licenses and approvals (collectively, the
"Big City Permits") from all Federal, state and local governmental authorities
necessary for it to own, lease and operate its properties and to carry on its
businesses as now being conducted, and no Big City Permit has been rescinded and
all Big City Permits are in full force and effect and are listed on Schedule
4.5, except for Big City Permits which the failure to hold would not reasonably
be expected to have, either singly or in the aggregate, a Big City Material
Adverse Effect. The business of Big City is being and has been conducted in
compliance with the Big City Permits and all applicable laws, statutes,
ordinances, regulations, judgments, orders, decrees, concessions, grants and
other authorizations of any governmental authority, except for such failures
that would not reasonably be expected to have, either singly or in the
aggregate, a Big City Material Adverse Effect. Big City and the Big City
Subsidiaries are not in default in any material respect under any Big City
Permits and no event has occurred and no condition exists which, with the giving
of notice, the passage of time, or both, would constitute a default thereunder,
except where such default would not reasonably be expected to have, either
singly or in the aggregate, a Big City Material Adverse Effect. Neither the
execution and delivery of this Agreement nor any of the other documents
contemplated hereby nor the consummation of the transactions contemplated hereby
or thereby nor compliance by Big City with any of the provisions hereof or
thereof will result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any Big City Permit, except for Big City Permits the loss or
impairment of which would not reasonably be expected to have, either singly or
in the aggregate, a Big City Material Adverse Effect. The Big City Parties and
the Big City Subsidiaries do not provide any service that would require that Big
City obtain any authorization or make any registration in any foreign country.
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SECTION 4.6 Real Property. Schedule 4.6 contains a true, correct and complete
list and brief description of all real property (i) leased or subleased by Big
City and the Big City Subsidiaries or (ii) utilized or accessed by Big City and
the Big City Subsidiaries in the operation of its business, including all
rights-of-way and easement agreements. The space occupied by Big City is
adequate for its current and planned operations through December 31, 2000.
Except as set forth on Schedule 4.6, Big City has not subleased any of its real
property to others. Except as set forth on Schedule 4.6, Big City and the Big
City Subsidiaries are in compliance with all of the provisions of its leases and
subleases and are not in default thereunder. Each leasehold interest (i) is
valid, subsisting and in full force and effect; and (ii) is not subject to any
Liens (other than collateral assignments of the leases granted by the landlords
thereunder to the extent permitted by the terms of the leases and which do not
interfere with or detract from the use by Big City and the Big City Subsidiaries
of the property subject to the leases). The payment obligations of any sublessee
under any sublease are equal to or greater than the payments required to be made
for the subleased space to the landlord. Except as set forth in Schedule 4.6
there are no facts known to Big City and the Big City Subsidiaries which would
prevent Big City from occupying any of the property it leases after the Closing
in substantially the same manner as before. The execution and delivery of this
Agreement, and the performance of the obligations hereunder and thereunder, will
not constitute a default under any Lease.
SECTION 4.7 Material Contracts.
(a) There are no contracts, agreements or other documents required to be filed
with the Big City Reports (as hereinafter defined) that have not been filed as
exhibits thereto under the Exchange Act ("Big City Material Contracts"). Except
as set forth on Schedule 4.7(a), Big City and the Big City Subsidiaries are not
currently and have not been during the past five years, a party to any prime
contract, subcontract, basic ordering agreement, letter contract, arrangement,
purchase order, or delivery order of any kind, including all amendments,
modifications, and options thereunder or relating thereto, given by a party
holding itself out as a federal or state government or agency, division,
subdivision or procuring office thereof.
(b) Except as set forth in Schedule 4.7(b), all Big City Material Contracts and
material agreements of the Big City Subsidiaries are valid and in full force and
effect and Big City and the Big City Subsidiaries have not violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default under the provisions
of, any Big City Material Contract or any material agreements of the Big City
Subsidiaries, respectively.
SECTION 4.8 Litigation. Except as set forth on Schedule 4.8, there are no
actions, suits, arbitrations, mediations or other proceedings pending or, to the
knowledge of Big City, threatened against Big City or the Big City Subsidiaries
at law or in equity before any court, Federal, state, municipal or other
governmental department or agency or other tribunal nor are there any customer
complaints or other circumstances which could reasonably serve as a basis for
22
same. Except as set forth on Schedule 4.8, neither Big City nor the Big City
Subsidiaries nor their respective property is subject to any order, judgment,
injunction or decree. Except as set forth on Schedule 4.8, no claim, action,
proceeding or investigation is pending or, to the best knowledge of Big City,
threatened against Big City or the Big City Subsidiaries which would reasonably
be expected to have a Big City Material Adverse Effect.
SECTION 4.9 Taxes, Tax Returns and Audits. Big City has (or, in the case of
returns becoming due after the date hereof and on or before the Effective Time,
will have prior to the Effective Time) prepared and filed on a timely basis with
all appropriate Federal, state, local and foreign governmental authorities all
returns in respect of Taxes it is required to file on or prior to the Effective
Time or by such date will have obtained the appropriate extensions to file, and
all such returns completely and accurately (or, in the case of returns becoming
due after the date hereof and on or before the Effective Time, will completely
and accurately) set forth the amount due of any Taxes relating to the applicable
period. Big City has paid (or, in the case of Taxes becoming due after the date
hereof and on or before the Effective Time, will have paid) in full all Taxes
due on or before the Effective Time and, in the case of Taxes accruing on or
before the Effective Time that are not due on or before the Effective Time, Big
City has or will have established adequate reserves on its books and records and
financial statements (including the Balance Sheet) for such payment in
accordance with GAAP. Big City has withheld from each payment made to any of its
present or former employees, officers, directors or other party all amounts
required by law to be withheld and has, where required, remitted such amounts
within the applicable periods to the appropriate governmental authorities. In
addition, except as set forth on Schedule 4.9, (i) there are no assessments
against Big City with respect to Taxes that have been issued and are outstanding
and Big City is not aware of a basis for the assessment of additional Taxes for
any period for which tax returns have been filed; (ii) no governmental
authorities have audited or, to the knowledge of Big City, examined Big City in
respect of Taxes; (iii) Big City has not executed or filed any agreement
extending the period of assessment or collection of any Taxes which has not yet
expired by its terms; (iv) Big City has not received written notification from
any governmental authority of its intention to commence any audit or
investigation; (v) Big City is not liable for Taxes of any other person or
entity and is not a party to or bound by or nor does it have any obligation
under any tax sharing or tax indemnification agreement, provision or
arrangement, whether formal or informal, and no power of attorney, which is
currently in effect, has been granted with respect to any matter relating to
Taxes of Big City; (vi) Big City is not presently required nor will it be
required to include any adjustment in taxable income under Section 481 of the
Code (or any similar provision of the Tax laws of any jurisdiction) as a result
of any change in method of accounting or otherwise; (vii) Big City has not filed
a consent under Section 341(f) of the Code; and (viii) Big City has not and will
not make any payment that will not be deductible under Section 280G of the Code.
23
SECTION 4.10 Absence of Certain Changes. Other than as set forth on Schedule
4.10, or as required or provided by this Agreement or as a result of the sale or
closing of retail stores owned by Big City since December 31, 1998 pursuant to
arrangements or agreements concluded or executed prior to the date of this
Agreement, Big City has not, since December 31, 1998:
(a) issued, delivered or agreed to issue any stock, bonds or other corporate
securities (whether authorized and unissued or held in the treasury), or granted
or agreed to grant any options (including employee stock options), warrants or
other rights for the issue thereof;
(b) borrowed or agreed to borrow any funds;
(c) incurred any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due, except current liabilities incurred in
the ordinary course of business and consistent with prior practice;
(d) discharged or satisfied any obligation or encumbrance other than ordinary
operating expenses and trade payables reflected on the balance sheet dated
December 31, 1998 included in the Big City Reports, and trade payables and other
operating expenses incurred after December 31, 1998 in the ordinary course of
business and consistent with prior practice, all of which payments have been
made in a manner consistent with prior practice;
(e) failed to pay any payables when due, consistent with prior practice;
(f) sold, transferred, leased to others or otherwise disposed of any assets
outside of the ordinary course of business or canceled or compromised any debt
or claim, or waived or released any right of substantial value;
(g) received any notice of termination or other threatened termination of any
Big City Material Contract, lease, Big City Permit or other agreement, or
suffered any damage, destruction or loss (whether or not covered by insurance)
the effect of which would reasonably be expected to have, either singly or in
the aggregate, a Big City Material Adverse Effect;
(h) encountered any labor union organizing activity labor disputes or had any
material change in its relations with its employees or agents, clients or
insurance carriers;
24
(i) made any accrual or arrangement for or any bonus, or any increase in
compensation or any severance or termination payment to any present or former
officer or employee of Big City;
(j) transferred or granted any rights under, or entered into any settlement
regarding the breach or infringement of, any license or any of the Intellectual
Property used in the businesses or operations of Big City, or licensed or
otherwise transferred or disposed of any of its material Intellectual Property;
(k) declared or made, or agreed to declare or make, any payment of dividends or
distributions of any assets of any kind whatsoever to any of its stockholders or
any affiliate of any of its stockholders, or purchased or redeemed, or agreed to
purchase or redeem, any of its capital stock, or made or agreed to make any
payment to any of its stockholders or any affiliate of any of its stockholders,
whether on account of debt, management fees or otherwise;
(l) suffered any material adverse change, in any case or in the aggregate, in
its assets, liabilities, financial condition, results of operations or business;
or
(m) entered into any agreement or made any commitment to take any of the types
of action described in any of the foregoing clauses (other than clauses (g), (h)
or (i)).
SECTION 4.11 Employee Benefit Plans. Schedule 4.11 sets forth a list of all the
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), programs and arrangements
maintained for the benefit of any current or former employee, officer or
director of Big City (collectively, the "Big City Benefit Plans"). Each Big City
Benefit Plan has been operated in all material respects in accordance with the
terms and requirements of applicable law and all required returns and filings
for each Big City Benefit Plan have been timely made. Big City has not incurred
any direct or indirect liability under, arising out of or by operation of ERISA
or the Code in connection with any Big City Benefit Plan or any other employee
benefit plan maintained by any other entity under common control with Big City,
and no fact or event exists that could reasonably be expected to give rise to
any such liability. All contributions due and payable on or before the date
hereof in respect of each Big City Benefit Plan have been made in full and in
proper form.
SECTION 4.12 Labor Relations. Big City is not a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of the employees of Big City. To the knowledge of
Big City, there have been no labor organization activities involving any of the
employees of Big City during the last five years. Schedule 4.12 sets forth those
25
persons with whom Big City has entered into an employment agreement or
employment restriction and except for those persons listed on Schedule 4.12 all
employees of Big City are terminable at will.
SECTION 4.13 Insurance Policies; Claims. Schedule 4.13 sets forth all insurance
policies and bonds maintained by or on behalf of Big City. Except as disclosed
in Schedule 4.13, the insurance policies and bonds set forth in Schedule 4.13
are provided by reputable insurers or issuers, and provide adequate coverage for
all normal risks incident to the businesses of Big City and its assets. No
claims have been made against Big City as a result of allegedly defective
products or any alleged libelous, slanderous or defamatory statements or
activities and Big City does not know of any basis for the assertion of any such
claim. No insurance policy issued to or on behalf of Big City has ever been
canceled by the policy issuer. No issuer of any policy covering Big City or any
of its assets, operations or employees has refused to review a claim during the
past five years.
SECTION 4.14 Intellectual Property. Big City owns or possesses all right, title
and interest in and to, or a valid and enforceable license or other right to use
all of the Intellectual Property that is used in or necessary to the conduct of
the business of Big City. All Intellectual Property that is used or necessary in
the conduct of the business of Big City (including all applications and
registrations therefor) is listed on Schedule 4.14, and no other Intellectual
Property is used or necessary in the conduct of such business. Except as
disclosed in Schedule 4.14, (i) Big City has the exclusive right to use its
Intellectual Property; (ii) all registrations with respect thereto are in full
force and effect; (iii) there are no transfer restrictions, direct or indirect,
relating thereto that would prevent or impair any transfer thereof to the
Surviving Corporation as provided herein; and (iv) Big City has taken
appropriate and reasonable security measures to protect the secrecy,
confidentiality, and value of Big City's trade secrets and related Intellectual
Property. All Intellectual Property licensed to third parties is listed on
Schedule 4.14. To the knowledge of Big City, there has been no disclosure of any
trade secrets or other proprietary information of Big City that has had, or
could be reasonably expected to have, a Big City Material Adverse Effect. Big
City has taken customary steps to backup all of its Intellectual Property. Big
City has not infringed, misappropriated or otherwise violated any Intellectual
Property of any other person. To the knowledge of Big City, no person is
infringing upon any Intellectual Property right of Big City.
SECTION 4.15 Personal Properties; Assets. Big City (a) has good and marketable
title to all personal property and assets owned by it (except personal property
sold or otherwise disposed of since the date thereof in the ordinary course of
business and the sale of franchise assets), and that personal property acquired
after the date thereof and not thereafter disposed of, free and clear of all
Liens, except (i) statutory liens securing payments not yet due, and (ii) such
imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances which do not secure monetary obligations and which do
not materially affect the use or marketability of the personal properties or
26
assets subject thereto or affected thereby or otherwise materially impair Big
City's business operations or use of such assets. Each lease for personal
property that is material to the businesses of Big City is valid without default
thereunder by the lessee or, to the knowledge of Big City, lessor, and Big City
are in possession of the personal property purported to be leased thereunder.
The personal properties and assets of Big City are in good operating condition
and repair (ordinary wear and tear excepted), and constitute all of the personal
properties, assets and rights which are necessary for the businesses and
operations of Big City as currently conducted and planned through December 31,
1999.
SECTION 4.16 Bank Accounts. Schedule 4.16 sets forth the name of each bank in
which Big City has an account or safe deposit box, vault, lock-box or other
arrangement, the account number and description of each account at each bank and
the names of all persons authorized to draw thereon or to have access thereto;
and the names of all persons, if any, holding tax or other powers of attorney
from Big City.
SECTION 4.17 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of Big City are complete and correct in all
material respects, and there have been no material transactions involving Big
City of the type typically recorded in such records that have not been recorded.
SECTION 4.18 Environmental, Health and Safety Matters.
(a) To the best of its knowledge, Big City is in compliance with Environmental,
Health and Safety Requirements, except for such noncompliance as would not
reasonably be expected to have, either singly or in the aggregate, a Big City
Material Adverse Effect.
(b) To the best of its knowledge, Big City has not received any written notice,
report or other information regarding any actual or alleged material violation
of Environmental, Health, and Safety Requirements, or any material liabilities
or potential material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to Big City or its property arising under Environmental,
Health, and Safety Requirements, the subject of which would reasonably be
expected to have, either singly or in the aggregate, a Big City Material Adverse
Effect.
SECTION 4.19 Securities and Exchange Commission Reports.
(a) Big City has filed all forms, reports, statements and other documents
required to be filed with the Commission and has heretofore made available to
the Target Corporation Parties, in the same form filed with the Commission,
together with any amendments thereto, copies of its (i) Annual Report on Form
10-K for the year ended December 31, 1998 and all Quarterly Reports on Form 10-Q
27
filed since January 1, 1999 and (ii) all proxy statements relating to meetings
of stockholders (whether annual or special) since January 1, 1999 (collectively,
the "Big City Reports"). As of their respective filing dates, the Big City
Reports complied as to form in all material respects with the requirements of
the Securities Act and Exchange Act and did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statement therein, in light of the circumstances under
which they were made, not misleading.
(b) The financial statements of the Big City Companies for the year ended
December 31, 1998 audited and reported on by Xxxxxxx X. Xxxxxx & Company, LLP
(collectively, the "Big City Financial Statements") are contained in the Annual
Report on Form 10-K for the year ended December 31, 1998 which has been
delivered to the Target Corporation Parties as part of the Big City Reports. The
Big City Financial Statements, including all related notes and schedules
thereto, fairly present in all material respects the consolidated financial
position of the Big City Companies as at the respective dates thereof and the
consolidated results of operations and cash flows of the Big City Companies for
the periods indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be noted therein) and subject, in
the case of interim financial statements, to normal year-end adjustments.
SECTION 4.20 Information Statement. The information supplied or to be supplied
by or on behalf of Big City for inclusion or incorporation by reference in the
Information Statement will not, at the date mailed to the Big City stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Information Statement, insofar as it relates to Big City, will
comply as to form in all material respects with the applicable provisions of the
Exchange Act and rules and regulations thereunder.
SECTION 4.21 Disclosure. No representation or warranty by either of the Big City
Parties contained in this Agreement or any Schedule hereto, when taken together
with the Big City Reports, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading.
SECTION 4.22 Brokers. Except for a finder's fee payable at the Closing to
Xxxxxx, Holden & Xxxxxxxxx Capital Corp. by issuance of the Warrant referred to
in Section 4.24, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transaction contemplated by this Agreement based upon arrangements made by or on
behalf of the Big City Parties.
28
SECTION 4.23 Big City Stock. The shares of Big City Stock and shares of Big City
Preferred Stock to be issued to the Stockholders pursuant to this Agreement
will, when issued as provided in this Agreement, be validly issued, fully paid
and non-assessable.
SECTION 4.24 Collateral Agreements. (a) Big City has executed the Severance
Agreement and Option Agreement for Xxxx Xxxxxxx in the form of Exhibit C-1 and
C-2 and (b) Big City has executed the Warrants granting to Xxxxxx, Holden &
Xxxxxxxxx Capital Corp. the right to purchase up to 500,000 shares of the Common
Stock of Big City in the form of Exhibit F annexed hereto.
SECTION 4.25 Schedules. The Big City Parties have made a good faith effort to
provide information on each Schedule to this Agreement, where necessary,
pertinent to the related representation and warranty; however, to the extent
information is provided on one schedule which should also have been presented on
another schedule, disclosure on the one schedule will be deemed disclosure on
the other schedules where appropriate.
ARTICLE V
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES
SECTION 5.1 Survival. Each statement, representation, warranty, covenant and
agreement made or deemed made by any Party to another under this Agreement shall
remain in effect continuously to and following the Closing, and shall terminate
at such time as the obligation to indemnify for breaches of such statement,
representation, warranty, covenant or agreement under Article X, terminates.
Notwithstanding the above, there shall be no duty to update such statements,
representations or warranties after the Closing.
SECTION 5.2 Nonwaiver of Rights. The representations, warranties, covenants and
agreements made or deemed made by any Party to another shall not be affected or
deemed waived by reason of the fact that another Party or its representatives
knew or should have known that any such representations, warranties, covenants
or agreements is or might be inaccurate in any respect. Any furnishing of
information by any Party to another pursuant to, or otherwise in connection
with, this Agreement, including, without limitation, any information contained
in any document, contract, book or record of the delivering Party to which
another Party shall have access or any information obtained by, or made
available to, any Party as a result of any investigation made by or on behalf of
such Party prior to or after the date of this Agreement, shall not affect such
Party's right to rely on any representation, warranty, covenant or agreement
made or deemed made by another Party in this Agreement and shall not be deemed a
waiver thereof. Notwithstanding the foregoing, in the event a Party learns prior
to Closing that a representation, warranty or covenant of the other Party is
materially inaccurate, that Party shall have the obligation to notify the other
Party of such inaccuracy.
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ARTICLE VI
COVENANTS OF TARGET CORPORATIONS AND THE STOCKHOLDERS
SECTION 6.1 Conduct of Business. Each Target Corporation and each Stockholder
covenants and agrees that each Target Corporation will conduct its business and
operations in the ordinary course consistent with previous practice. Each Target
Corporation and each Stockholder covenants and agrees that, from the date hereof
through the Closing Date, except as otherwise set forth in this Agreement or
agreed to by Big City in writing, they shall cause each Target Corporation to:
(a) conduct its business only in the ordinary course and in a manner consistent
with the current practice of such business, preserve substantially intact the
business organization of each Target Corporation, use commercially reasonable
efforts to keep available the services of the current employees of each Target
Corporation and preserve the current relationships of each Target Corporation
with customers and other persons with which Target Corporation has significant
business relations, and comply with all requirements of law, the violation of
which would reasonably be expected to have, either singly or in the aggregate, a
Target Corporation Material Adverse Effect;
(b) not pledge, sell, transfer, dispose of, or otherwise encumber or grant any
rights or interests to others of any kind with respect to, all or any part of
its capital stock or enter into any discussions or negotiations with any other
party to do so;
(c) not pledge, sell, lease, transfer, dispose of or otherwise encumber any of
its property or assets other than consistent with past practices and in the
ordinary course of business or enter into any discussions or negotiations with
any other party to do so;
(d) not (i) issue any shares of its capital stock nor any options, obligations,
rights, warrants or other securities convertible into or exchangeable for its
capital stock, or any other class of securities, whether debt or equity, of each
Target Corporation; or (ii) amend or otherwise modify the terms of any such
securities, options, obligations, rights or warrants in a manner inconsistent
with the provisions of this Agreement or the effect of which shall be to make
such terms more favorable to the holders thereof;
(e) not declare any dividend or make any distribution in cash, securities or
otherwise on the outstanding shares of its capital stock, or directly or
indirectly redeem or purchase any such capital stock;
30
(f) not, in any manner whatsoever, advance, transfer (other than in payment for
goods received or services rendered in the ordinary course of business) or
distribute to any of the Stockholders or any of their affiliates, or otherwise
withdraw, cash or cash equivalents in any manner inconsistent with established
cash management practices, except to pay existing obligations of each Target
Corporation in accordance with their terms;
(g) not make, agree to make or announce any general wage or salary increase or
enter into or amend any employment contract or, unless provided for by contract
executed on or before the date of this Agreement and provided to the Big City
Parties, increase the compensation payable or to become payable to any of its
officers or employees or adopt or increase the benefits of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement, except for those
increases, consistent with past practices, normally occurring as the result of
regularly scheduled salary reviews and increases, and except for increases
directly or indirectly required as a result of changes in applicable law or
regulations;
(h) not make any capital expenditures, except in the ordinary course of business
and consistent with past practices;
(i) not propose or adopt any amendments to its Certificate of Incorporation or
By-laws, except as contemplated hereby;
(j) not merge or consolidate with, or acquire all or substantially all of the
assets of, or otherwise acquire any business operations of, any person or entity
or enter into any agreement for any of the foregoing;
(k) not (i) change any of its methods of accounting in effect at December 31,
1998, or (ii) make or rescind any material, express or deemed election relating
to taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes,
or change any of its methods of reporting income or deductions for Federal
income tax purposes from those employed in the preparation of the Federal income
tax returns for the taxable year ending December 31, 1998;
(l) not deviate from past practices or schedules with respect to the payment of
accounts payable or collection of accounts receivable;
(m) except pursuant to this Agreement, not prepay, before the scheduled
maturity thereof, any of its long-term debt, or incur any obligation for
31
borrowed money, whether or not evidenced by a note, bond, debenture or similar
instrument, other than indebtedness incurred in the ordinary course of business
consistent with past practices;
(n) not enter into or modify in any material respect any Material Contract,
Lease or Permit other than in the ordinary course of business;
(o) not take any action that will, or could reasonably be expected to, result
in any of its representations and warranties set forth in this Agreement being
inaccurate or in any of the conditions to the Merger not being satisfied; or
(p) forebear from agreeing in writing or otherwise to do any of the foregoing.
SECTION 6.2 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Closing Date, the Target
Corporation Parties will (i) permit the Big City Parties and their
Representatives reasonable access to all of the books, records, reports and
other related materials, offices and other facilities and properties of each
Target Corporation; (ii) permit the Big City Parties and their Representatives
to make such inspections thereof as they may reasonably request; and (iii)
furnish the Big City Parties and their Representatives with such financial and
operating data (including without limitation the work papers of each Target
Corporation's accountants) and other information with respect to each Target
Corporation as the Big City Parties may from time to time reasonably request.
(b) Between the date of this Agreement and the Closing Date, employees or
Representatives of Big City may meet with and interview all employees of each
Target Corporation at reasonable times during business hours as may be arranged
by Big City and each Target Corporation.
(c) Each of the Target Corporation Parties shall hold and shall cause their
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all terms of
this Agreement and related agreements and all documents and information
concerning any of the Big City Companies furnished to them by the Big City
Parties or their Representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been (i) previously known by any of the Target Corporation
Parties, (ii) in the public domain through no fault of any of the Target
Corporation Parties or (iii) later lawfully acquired by any of the Target
Corporation Parties from another source, which source shall not be the agent of
any of the Big City Companies or person under confidentiality obligation to any
of the Big City Companies) and, except as otherwise required by applicable law,
rule or regulation, none of the Target Corporation Parties shall release or
32
disclose such information to any other person, except its auditors, actuaries,
attorneys, financial advisors, bankers and other consultants and advisors who
need to know same in connection with this Agreement.
SECTION 6.3 Maintenance of Assets; Insurance. Between the date of this
Agreement and the Closing Date, the Stockholders shall cause each Target
Corporation to continue to maintain and service the assets of each Target
Corporation consistent with past practice. Through the Closing Date, each Target
Corporation shall maintain insurance policies providing insurance coverage for
its business and the assets of each Target Corporation of the kinds, in the
amounts and against the risks as are commercially reasonable for the businesses
and risks covered.
SECTION 6.4 No Other Negotiations. Unless and until this Agreement shall have
been terminated pursuant to its terms, none of the Target Corporation Parties
nor any of their Representatives shall, directly or indirectly, solicit,
institute, initiate, pursue or enter into any inquiries, discussions, proposals
or negotiations with any person concerning any merger, sale of substantial
assets, tender offer, sale of shares of stock or similar transaction involving a
Target Corporation or disclose, directly or indirectly, any information not
customarily disclosed to the public concerning a Target Corporation, afford to
any other person access to the properties, books or records of a Target
Corporation, or otherwise assist any person preparing to make or who has made
such an offer, or enter into any agreement with any third party providing for a
business combination transaction, equity investment or sale of significant
amount of assets of a Target Corporation.
SECTION 6.5 No Securities Transactions. None of the Target Corporation Parties
shall engage in any transactions involving the securities of Big City prior to
the Closing Date, and, thereafter, any of the Stockholders that is an employee
of the Surviving Corporation or any of the other Big City Companies shall not
engage in any such transaction except as allowed under Big City's policies. In
addition, each Stockholder covenants that it will not sell or otherwise transfer
any Big City Stock acquired in this transaction unless such stock is registered
under the Securities Act or an exemption therefrom is available.
SECTION 6.6 Fulfillment of Conditions. The Stockholders shall use their
commercially reasonable efforts to fulfill, or cause to be fulfilled, the
conditions specified in Article IX to the extent that the fulfillment of such
conditions is within their control. The foregoing obligation includes taking or
refraining from such actions as may be necessary to fulfill such conditions
(including causing each Target Corporation to conduct its businesses in such
manner that on the Closing Date the representations and warranties of the
Stockholders contained herein shall be accurate as though then made, except as
contemplated by the terms hereof).
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SECTION 6.7 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, the Target Corporation Parties shall give the
Big City Parties prompt written notice of any event or development that occurs
that (a) had it existed or been known on the date hereof would have been
required to be disclosed under this Agreement or (b) would cause any of the
representations and warranties of any of the Target Corporation Parties
contained herein to be inaccurate or otherwise misleading, (c) gives a Target
Corporation any reason to believe that any of the conditions set forth in
Article IX will not be satisfied, or (d) is of a nature that is or may be
materially adverse to the operations, prospects or condition (financial or
otherwise) of a Target Corporation.
SECTION 6.8 Certain Consents. The Target Corporation Parties, in consultation
with the Big City Parties and their Representatives, shall use their
commercially reasonable efforts to obtain consents under all Material Contracts,
Leases and Permits and all other instruments to which each Target Corporation is
a party or by which it is bound which require the consent of any other party or
person either by the terms thereof or as a matter of law in connection with the
Merger.
SECTION 6.9 Non-use of Name. From and after the date hereof, no Stockholder
shall establish or otherwise be associated with, as an owner, partner,
shareholder, employee or otherwise, any firm which utilizes the name
"Intelligent Computer Solutions" or "VillageNet" or any variant thereof as part
of its business name other than in connection with their employment by Big City
or the Surviving Corporation and their affiliates after the Closing Date or
grant to any person or entity the right to use the name "Intelligent Computer
Solutions" or "VillageNet" or any variant thereof, or grant any material rights
to any Intellectual Property to any third party other than in the ordinary
course of business of Big City or the Surviving Corporation and their
affiliates.
SECTION 6.10 Information for Information Statement. The Target Corporation
Parties will cooperate with Big City in the preparation of the Information
Statement and furnish to Big City all information concerning each of the Target
Corporation Parties that is required or customary for inclusion in an
Information Statement.
SECTION 6.11 Lien Search. The Target Corporations will order and provide to Big
City a lien search ("Lien Search") by a mutually acceptable company of each of
the Target Corporations in respect of UCC filings, federal and state tax lien
and judgments, and federal and state courts (including bankruptcy court) in each
jurisdiction in which the Target Corporations are incorporated and conduct a
substantive portion of their business operations, as listed in Schedule 3.1(b)
which Lien Search will be paid by the Target Corporations.
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SECTION 6.12 Post Merger Tax Status. The Target Corporation Parties will not
undertake any actions prior to the Closing that would adversely affect the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 6.13 Financial Statements of Target Corporations. Each Target
Corporation will provide to Big City within forty-five days after the date of
this Agreement audited financial statements for the fiscal year ended December
31, 1998, together with all related notes and schedules, which have been
prepared in accordance with GAAP and Regulation S-X (and where applicable
Regulation S-B), together with an executed independent accountant's report
thereon.
ARTICLE VII
COVENANTS OF THE BIG CITY PARTIES
SECTION 7.1 Conduct of Business. Each of the Big City Parties covenants and
agrees that from the date hereof through the Closing Date, except as otherwise
set forth in this Agreement, including Section 7.13, or agreed to by the
Stockholders in writing, each Big City Party will conduct its business and
operations in the ordinary course consistent with previous practice, and each
will:
(a) conduct its business only in the ordinary course and in a manner consistent
with the current practice of such business, preserve substantially intact the
business organization of each Big City Party, use commercially reasonable
efforts to keep available the services of the current employees of each Big City
Party and preserve the current relationships of each Big City Party with
customers and other persons with which the Big City Party has significant
business relations, and comply with all requirements of law, the violation of
which would reasonably be expected to have, either singly or in the aggregate, a
Big City Corporation Material Adverse Effect; provided, however, the foregoing
will not limit the ability of the Big City Parties to offer, negotiate or sell
their respective assets or to otherwise curtail any of their respective business
activities and take other steps to reduce their respective expenses or suffer
concomitant changes in relationships with customers or other persons having
business relations with the Big City Parties and cause changes in the
application of applicable law and regulation, with the written consent of the
Target Corporation Parties, which will not be unreasonably withheld;
(b) not pledge, sell, transfer, dispose of, or otherwise encumber or grant any
rights or interests to others of any kind with respect to, all or any part of
its capital stock, except pursuant to outstanding instruments defining the
rights of securities holders;
(c) unless pursuant to a written agreement disclosed on Schedule 7.1(c) binding
on any Big City Party as of the date of this Agreement, not pledge, sell,
35
transfer, dispose of, or otherwise encumber or grant any of its property or
assets other than consistent with past practices and in the ordinary course of
business or enter into any discussions or negotiations with any other party to
do so;
(d) not (i) issue any options, obligations, rights, warrants or other securities
convertible into or exchangeable for its capital stock, or any other class of
securities, whether debt or equity, of each Big City Party other than options
automatically granted to directors of Big City on March 1 of each year pursuant
to its 1996 Performance Equity Plan; or (ii) amend or otherwise modify the terms
of any outstanding options, obligations, rights or warrants in a manner
inconsistent with the provisions of this Agreement or the effect of which shall
be to make such terms more favorable to the holders thereof;
(e) not declare any dividend or make any distribution in cash, securities or
otherwise on the outstanding shares of its capital stock other than as required
by the Certificate of Incorporation, or directly or indirectly redeem or
purchase any such capital stock;
(f) not, in any manner whatsoever, advance, transfer (other than in payment for
goods received or services rendered in the ordinary course of business) or
distribute to any of the stockholders of the Big City Parties or any of their
affiliates, or otherwise withdraw, cash or cash equivalents in any manner
inconsistent with established cash management practices, except to pay existing
obligations of each of the Big City Parties in accordance with their terms;
(g) not make, agree to make or announce any general wage or salary increase or
enter into or amend any employment contract or, unless provided for by contract
executed on or before the date of this Agreement and provided to the Target
Corporation Parties, increase the compensation payable or to become payable to
any of its officers or employees or adopt or increase the benefits of employee
bonus, insurance, pension or other employee benefit plan, payment or
arrangement, except for those increases, consistent with past practices,
normally occurring as the result of regularly scheduled salary reviews and
increases, and except for increases directly or indirectly required as a result
of changes in applicable law or regulations;
(h) not make any capital expenditures, except in the ordinary course of business
and consistent with past practices;
(i) not propose or adopt any amendments to its Certificate of Incorporation or
By-laws;
36
(j) not merge or consolidate with, or acquire all or substantially all of the
assets of, or otherwise acquire any business operations of, any person or entity
or enter into any agreement for any of the foregoing;
(k) not (i) change any of its methods of accounting in effect at December 31,
1998, or (ii) make or rescind any material, express or deemed election relating
to taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes,
or change any of its methods of reporting income or deductions for Federal
income tax purposes from those employed in the preparation of the Federal income
tax returns for the taxable year ending December 31, 1998;
(l) not deviate from past practices or schedules with respect to the payment of
accounts payable or collection of accounts receivable;
(m) not prepay, before the scheduled maturity thereof, any of its long-term
debt, or incur any obligation for borrowed money, whether or not evidenced by a
note, bond, debenture or similar instrument, other than indebtedness incurred in
the ordinary course of business consistent with past practices;
(n) not enter into or modify in any material respect any Big City Material
Contract, lease or Big City Permit other than in the ordinary course of
business, provided Big City may enter into and modify its officer and director
liability insurance, including its renewal and/or extension through tail and
similar arrangements;
(o) not take any action that will, or could reasonably be expected to, result
in any of its representations and warranties set forth in this Agreement being
inaccurate in a manner that would result in a Big City Material Adverse Effect
or in any of the conditions to the Merger not being satisfied; or
(p) forebear from agreeing in writing or otherwise to do any of the foregoing.
SECTION 7.2 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Closing Date, the Big City
Parties will (i) permit the Target Corporation Parties and their Representatives
reasonable opportunity to meet with and ask questions of the appropriate
officers of Big City and shall furnish the Target Corporation Parties and their
Representatives with such appropriate financial and operating data and other
information with respect to Big City as the Target Corporation Parties may from
time to time reasonably request.
37
(b) Each of the Big City Parties shall hold and shall cause their
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information concerning any of the Target Corporation Parties
furnished to them by the Target Corporation Parties or their Representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
any of the Big City Parties, (ii) in the public domain through no fault of any
of the Big City Parties or (iii) later lawfully acquired by any of the Big City
Parties from another source, which source shall not be the agent of any of the
Target Corporation Parties or person under confidentiality obligation to any of
the Target Corporation Parties and, except as otherwise required by applicable
law, rule or regulation, none of the Big City Parties shall release or disclose
such information to any other person, except its auditors, actuaries, attorneys,
financial advisors, bankers and other consultants and advisors who need to know
same in connection with this Agreement.
SECTION 7.3 Maintenance of Assets; Insurance. Between the date of this
Agreement and the Closing Date, the Big City Parties will continue to maintain
and service the assets of each of the Big City Parties consistent with past
practice. Through the Closing Date, each of the Big City Parties shall maintain
insurance policies providing insurance coverage for its business and the assets
of each of the Big City Parties of the kinds, in the amounts and against the
risks as are commercially reasonable for the businesses and risks covered.
SECTION 7.4 No Other Negotiations.
(a) Unless and until this Agreement shall have been terminated pursuant to its
terms, none of the Big City Parties nor any of their Representatives shall,
directly or indirectly, solicit, institute, initiate, pursue or enter into any
inquiries, discussions, proposals or negotiations with any person concerning any
merger, sale of all the assets, tender offer, sale of shares of stock or similar
transaction involving a Big City Party or disclose, directly or indirectly, any
information not customarily disclosed to the public concerning a Big City Party,
afford to any other person access to the properties, books or records of a Big
City Party, or otherwise assist any person preparing to make or who has made
such an offer, or enter into any agreement with any third party providing for a
business combination transaction, or sale of all assets of a Big City Party.
(b) Notwithstanding anything to the contrary in this Agreement, (A) in the event
that there is an unsolicited proposal to enter into a merger, business
combination, purchase of substantially all the assets or similar transaction of
or with one or more of the Big City Parties, Big City at its discretion, may
furnish to and communicate with the party or parties public and non-public
information requested by them and Big City may negotiate with these parties, if
(i) the board of directors of Big City determines in good faith, based upon the
38
advice of its financial advisors, that such business combination proposal would,
if consummated, result in a transaction that is more favorable to the Big City
stockholders from a financial point of view, than the transaction contemplated
by this Agreement, and based on the advice of its outside counsel, that, as a
result, such action is necessary for Big City's board of directors to act in a
manner consistent with its fiduciary duties under applicable law, and (ii) prior
to furnishing such information to or entering into negotiations with such third
party, Big City, (x) provides prompt notice to the Target Corporations to the
effect that it is furnishing information to or entering into discussions or
negotiations with such third party and (y) receives from such third party an
executed confidentiality agreement on terms at least as stringent as those
contained in any confidentiality agreement among the Target Corporations and Big
City, and (B) Big City may comply with Rule 14e-2 promulgated under the Exchange
Act with regard to a tender or exchange offer. Big City shall notify the Target
Corporations orally and in writing of any such inquiries, offers or proposals
(including the terms and conditions of any such proposal and the identity of the
person making it) within 24 hours of the receipt thereof, shall keep the Target
Corporations informed of the status and details of any such inquiry, offer or
proposal, and shall give the Target Corporations five days' advance notice of
any agreement to be entered into with or any information to be supplied to any
person making such inquiry, offer or proposal.
SECTION 7.5 Fulfillment of Conditions. From the date hereof to the Closing, the
Big City Parties shall use their commercially reasonable efforts to fulfill or
cause to be fulfilled the conditions specified in Article IX to the extent that
the fulfillment of such conditions is within their control. The foregoing
obligation includes taking or refraining from such actions as may be necessary
to fulfill such conditions (including conducting the business of each of the Big
City Parties in such manner that on the Closing Date the representations and
warranties of the Big City Parties contained herein shall be accurate as though
then made).
SECTION 7.6 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, the Big City Parties shall give the Target
Corporation Parties prompt written notice of any event or development that
occurs that (a) had it existed or been known on the date hereof would have been
required to be disclosed under this Agreement, (b) would cause any of the
representations and warranties of any of the Big City Parties contained herein
to be inaccurate or otherwise misleading, (c) gives the Big City Parties any
reason to believe that any of the conditions set forth in Article IX will not be
satisfied, or (d) is of a nature that would result in a Big City Material
Adverse Effect.
SECTION 7.7 Certain Consents. The Big City Parties, in consultation with the
Target Corporation Parties, shall use their commercially reasonable efforts to
obtain consents under all Big City Material Contracts, leases and Big City
Permits and all other instruments to which each Big City Party is a party or by
which it is bound which require the consent of any other party or person either
39
by the terms thereof or as a matter of law in connection with the Merger, except
that Big City will not obtain consent from Xxxxxxx del Lago Group, L.L.C. in
connection with any of the transactions contemplated by this Agreement.
SECTION 7.8 Maintenance of Big City Employee Medical Benefits. From the date
hereof, through the last day of the month in which the Closing takes place, Big
City shall continue to afford coverage under its existing health and medical
plans to those employees of Big City that are covered under such plans as of the
date hereof.
SECTION 7.9 Filing of Current Report on Form 8-K. Promptly after execution of
this Agreement, Big City shall file if required or permitted under the Exchange
Act a Current Report on Form 8-K ("8-K") with the Securities and Exchange
Commission ("SEC") to report the proposed Merger and the terms thereof.
SECTION 7.10 Composition of Big City and Surviving Corporation Board and
Officers at Effective Time. Big City will take all necessary actions to ensure
that, at the Effective Time, the Board of Directors of Big City and the
Surviving Corporations are comprised of, and the officer positions of Big City
and the Surviving Corporations are filled with, the persons set forth on
Schedule 7.10, each to serve until his or her successor is elected and qualified
or until the earlier termination, resignation or removal.
SECTION 7.11 Blue Sky Compliance. Big City will make such filings in each United
States jurisdiction wherein resides a shareholder of the Target Corporations as
may be necessary under the laws of such jurisdiction to permit the issuance of
the Big City stock hereunder, to the extent the laws of such jurisdiction permit
such issuance.
SECTION 7.12 Taxes. The Big City Parties will not undertake any actions prior to
the Closing that would adversely affect the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 7.13 Sale or Closing of Retail Stores. Notwithstanding anything to the
contrary contained in this Article VII or elsewhere in this Agreement, after the
date of this Agreement, Big City shall not be permitted to enter into an
arrangement or agreement to sell or close any or all of the retail stores owned
by Big City or its subsidiaries prior to the Closing without the written consent
of the Target Corporation Parties, which consent will not be unreasonably
withheld. The limitations of this Section 7.13 do not apply to a written
agreement disclosed on Schedule 7.1(c) binding on any Big City Party as of the
date of this Agreement.
SECTION 7.14 Opinion of Financial Advisor. Big City will use commercially
reasonable efforts to obtain from Heritage Capital Corp, an opinion that the
40
consideration to be paid by Big City for each of the Target Corporations is fair
to the Big City stockholders from a financial point of view, within the later of
(i) 45 days after the receipt by Big City of the audited financial statements of
each of the Target Corporations for the year ended December 31, 1998 or (ii) 30
days after the date of this Agreement.
SECTION 7.15 Information Statement. Prior to the Closing Date, Big City will
prepare and distribute to the holders of Common Stock of Big City the
Information Statement pursuant to the applicable rules and regulations under the
Exchange Act.
SECTION 7.16 Amendment to Certificate of Incorporation. Prior to the Closing
Date, the board of directors of Big City will approve the Amendment to the
Certificate of Incorporation to fix the terms of the Big City Preferred Stock,
as set forth in Exhibit H hereto, and file the amendment with the Secretary of
State of the State of New York.
SECTION 7.17 Representations to Tax Counsel. Big City agrees to deliver at the
request of the Target Corporation Parties the representations to tax counsel for
the Target Corporations in the form and in the substance of Exhibit I hereto,
provided, however, Big City shall not be required to deliver such
representations if such representations are not true and correct as of the time
of such delivery.
ARTICLE VIII
JOINT COVENANTS OF THE PARTIES
SECTION 8.1 Further Action. Each of the Parties shall execute all documents and
other instruments and take all further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Upon the terms and subject to the conditions hereof, each of the Parties
shall use commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
SECTION 8.2 Schedules. The Parties shall have the obligation to supplement or
amend the Schedules being delivered concurrently with the execution of this
Agreement and annexed hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules. The obligations of
the Parties to amend or supplement the Schedules being delivered herewith shall
terminate on the Closing Date. Notwithstanding any such amendment or
supplementation, except as otherwise provided herein, the representations and
warranties of the Parties shall be made with reference to the Schedules as they
exist at the time of execution of this Agreement.
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SECTION 8.3 Regulatory and Other Authorizations. The Parties will promptly make
all necessary filings, if any, and use their commercially reasonable efforts to
obtain all authorizations, consents, orders and approvals of all Federal, state
and other regulatory bodies and officials that are required for the consummation
of the transactions contemplated by this Agreement and will cooperate fully with
each other in connection therewith.
SECTION 8.4 Indemnification and Director and Officer Liability Insurance.
(a) Big City and the Target Corporation Parties agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current directors and officers of Big City as provided
in the certificate of incorporation or bylaws of the Big City or in any
indemnification agreements shall survive the Merger and shall continue in full
force and effect in accordance with their terms.
(b) If after the Effective Time, Big City and/or the Surviving Corporations
shall cause to be maintained in effect the policies of directors' and officers'
liability insurance, the policies will cover former officers and directors of
the Big City Parties for a period of three years.
(c) In the event Big City or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns assume the
obligations set forth in this Section 8.4.
(d) The provisions of this Section 8.4 are intended to be for the benefit of,
and shall be enforceable by, each indemnified party and his or her heirs and
representatives and shall survive the Merger and the Closing.
SECTION 8.5 Reverse Stock Split. Big City agrees that it shall not, and the
Stockholders agree that they shall not cause Big City to, effect a reverse split
of Big City Stock prior to the first anniversary of the Effective Time unless
Big City at the time of such reverse split shall meet all requirements for
listing of its Common Stock on the Nasdaq SmallCap Market or the Nasdaq National
Market except for the minimum bid price requirement and the reverse stock split
is being effected to enable Big City to obtain or maintain listing on either of
such trading markets.
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SECTION 8.6 Independent Committee. Until such time as the period for
presenting a claim for indemnification has expired under Sections 10.1 or 10.2,
the Board of Directors of Big City shall include at least one person who
qualifies as an "independent director" as described in Section 10.5.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger and the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:
(a) Directors and Officers of Big City and Surviving Corporation. The persons
listed in Section 7.10 shall have been elected directors of Big City (unless
this condition is waived by the Stockholders);
(b) No Governmental Order or Regulation. There shall not be in effect any order,
decree or injunction (whether preliminary, final or appealable) of a United
States Federal or state court of competent jurisdiction, and no regulation shall
have been enacted or promulgated by any governmental authority or agency, that
prohibits consummation of the Merger, and no litigation pending or threatened
regarding same; and
(c) Amendment to Big City Certificate of Incorporation. The board of directors
will have approved the Certificate of Amendment to the Certificate of
Incorporation establishing the Big City Preferred Stock in the form of Exhibit H
annexed hereto, and the certificate will have been filed with the Secretary of
State of the State of New York.
(d) Information Statement. The Information Statement will have been prepared by
Big City and distributed to the stockholders of Big City not less than ten days
prior to the Closing in compliance with the requirements of Section 14(f) of the
Exchange Act.
SECTION 9.2 Conditions to the Obligations of Target Corporations and the
Stockholders. The obligations of each Target Corporation and each Stockholder to
consummate the Merger and the other transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations and Warranties; Covenants. Without supplementation after the
date hereof, the representations and warranties of the Big City Parties
43
contained in this Agreement shall be, with respect to those representations and
warranties qualified by any materiality standard, true and correct in all
respects, as of the Closing, and with respect to all other representations and
warranties, true and correct in all material respects, as of the Closing, with
the same force and effect as if made as of the Closing, and all the covenants
contained in this Agreement to be complied with by the Big City Parties on or
before the Closing Date shall have been complied with, and the Stockholders
shall have received certificates of officers of the Big City Parties to such
effect provided, however, that this condition shall be fulfilled and the Target
Corporation and its Stockholders shall have no right to terminate this Agreement
under Section 11.1(b) if, in the aggregate and taken as a whole, the breach of
any of such representation and warranties or covenants would not result in a Big
City Material Adverse Effect;
(b) Certain Employment and Option Matters. Big City shall have entered into the
Severance Agreement and the Option Agreement with Xxxx Xxxxxxx, each in the form
of Exhibits C-1 and C-2 annexed hereto, respectively;
(c) Legal Opinion. The Stockholders shall have received from Xxxxxxxx Mollen &
Xxxxxx, counsel to the Big City Parties, a legal opinion addressed to the
Stockholders, dated the Closing Date, opining in all material respects to the
matters set forth on Exhibit D annexed hereto;
(d) Consents. The Big City Parties shall have obtained and delivered to the
Target Corporation Parties all government and private third party consents to
the Merger (as described in Sections 7.7) except that Big City will not have to
obtain consent from Xxxxxxx del Lago Group, L.L.C. in connection with any of the
transactions contemplated by this Agreement;
(e) No Material Adverse Effect. At the Closing, there shall have been no event
that would have a Big City Material Adverse Effect. Between the date of this
Agreement and the Closing Date, there shall not have occurred an event which
would reasonably be expected to result in a Big City Material Adverse Effect;
(f) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken
by the Big City Parties in connection with the consummation of the transactions
contemplated by this Agreement shall have been duly and validly taken, and
copies of all documents, resolutions and certificates incident thereto, duly
certified by officers of the Big City Parties as of the Closing, shall have been
delivered to the Stockholders; and
(g) Registration Rights. Big City shall have executed and delivered to the
Stockholders a Registration Rights Agreement substantially in the form of
Exhibit G annexed hereto.
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SECTION 9.3 Conditions to the Obligations of the Big City Parties. The
obligations of the Big City Parties to consummate the Merger and the other
transactions contemplated by this Agreement shall be subject to the fulfillment,
at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. Without supplementation after the
date hereof, the representations and warranties of Target Corporations and the
Stockholders contained in this Agreement shall be, with respect to those
representations and warranties qualified by any materiality standard, true and
correct in all respects, as of the Closing, and with respect to all other
representations and warranties, true and correct in all material respects, as of
the Closing Date, with the same force and effect as if made as of the Closing,
and all the covenants and agreements contained in this Agreement to be complied
with by any of the Target Corporation Parties on or before the Closing Date
shall have been complied with, and the Big City Parties shall have received a
certificate of an officer of each Target Corporation and a certificate of the
Stockholders to such effect;
(b) Legal Opinion. The Big City Parties shall have received from Xxxxxxx, Carton
& Xxxxxxx, counsel to each of the Target Corporation Parties, a legal opinion
addressed to the Big City Parties, dated the Closing Date, opining in all
material respects to the matters set forth on Exhibit E hereto.
(c) Consents. The Target Corporation Parties shall have obtained and delivered
to the Big City Parties all governmental and private third party consents to the
Merger as described in Sections 6.8;
(d) No Material Adverse Change. At the Closing, there shall have been no
material adverse change in the assets, liabilities, financial condition or
business of Target Corporations as of December 31, 1998 ("Target Corporation
Material Adverse Change"). Between the date of this Agreement and the Closing
Date, there shall not have occurred an event which would reasonably be expected
to constitute a Target Corporation Material Adverse Effect;
(e) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken
by the Target Corporation Parties in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by the officers of each Target Corporation as of the
Closing, shall have been delivered to the Big City Parties;
(f) Release by Stockholders. Each Stockholder shall execute and deliver to the
Big City Parties a certificate acknowledging and agreeing that, except as set
forth in this Agreement, each Target Corporation has no obligation or duty to
their respective Stockholders (or any of its affiliates) now owing or to become
45
due and that each such Stockholder has no rights with respect to any assets or
securities of the Target Corporation;
(g) Insurance. Big City shall have obtained a binder (or similar type
commitment) from its insurance carrier presently providing Big City with
directors and officers liability insurance with respect to a three-year "tail"
policy relating to Big City's existing directors and officers commencing upon
the Closing, which policy shall be non-cancelable by Big City and fully paid.
(h) Tax Opinion. The Stockholders shall have received from tax counsel to the
Target Corporations an opinion that the Merger should qualify as a
reorganization under section 368(a) of the Code, provided, however, that the
condition set forth in this Section 9.2(h) shall be deemed satisfied unless
there shall have occurred (a) a change in law (which includes a change in or
issuance of relevant statutes, regulations, published rulings or positions of
the Internal Revenue Service or court decisions) since the date hereof, (b) a
failure by the Big City Parties to deliver representations to tax counsel for
the Target Corporations, (c) notification to tax counsel for the Target
Corporation Parties, or independent knowledge by such tax counsel, that any of
the Big City representations relied upon by such tax counsel are no longer true
in any material respect, or (d) a change in facts or circumstances with respect
to the Big City Parties or the Target Corporation Parties that have been
addressed by their respective representations and relied upon by such tax
counsel, which change was not within the control of the Target Corporation
Parties, in each case such that such tax counsel determines that a tax opinion
substantially in the same form as the form tax opinion attached as Exhibit B
hereto cannot be delivered or, if delivered, may no longer be relied upon.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnification by the Stockholders. Subject to the limitations
set forth in Section 10.6, the Stockholders shall severally (in proportion of
their ownership of each of the shares of common stock of the Target
Corporations) indemnify and hold harmless Big City and, assuming the Merger is
consummated, the Surviving Corporations, from and against, and shall reimburse
Big City and the Surviving Corporations for, any Damages which may be sustained,
suffered or incurred by them, whether as a result of any Third Party Claim or
otherwise, and which arise or result from the breach of any Target Corporations'
or Stockholders' covenants, representations, warranties, agreements, obligations
or undertakings contained in this Agreement. This indemnity will survive the
Closing. Claims made for indemnity hereunder must be made prior to the
forty-fifth day after the committee of independent directors (referred to in
Section 10.5) of Big City has received the audited, consolidated financial
statements for the fiscal year ending December 31, 1999, of Big City. Any claim
for indemnity asserted within the relevant period under this section shall
survive until resolved.
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SECTION 10.2 Indemnification by Big City. Subject to the limitations set forth
in Section 10.6, Big City will indemnify and hold harmless the Stockholders,
from and against, and shall reimburse the Stockholders for, any Damages which
may be sustained, suffered or incurred by them, whether as a result of any Third
Party Claim or otherwise, and which arise or result from the breach of any of
the Big City Parties covenants, representations, warranties, agreements,
obligations or undertakings contained in this Agreement. This indemnity will
survive the Closing. Claims made for indemnity hereunder must be made prior to
the forty-fifth day after the committee of independent directors of Big City has
received the audited consolidated financial statements for the fiscal year
ending December 31, 1999, of Big City. Any claim for indemnity asserted within
the relevant period under this section shall survive until resolved.
SECTION 10.3 Procedure.
(a) Third-Party Claims. In the event that an Indemnified Party becomes aware of
a Third Party Claim for which an Indemnifying Party would be liable to an
Indemnified Party hereunder, the Indemnified Party shall give reasonably prompt
notice in writing to the Indemnifying Party of such claim, identifying the basis
for such claim or demand, and the amount or the estimated amount thereof to the
extent then determinable (which estimate shall not be conclusive of the final
amount of such claim whether or not the claim is a Third Party Claim ("Claim
Notice"); provided, however, that any delay in giving the Claim Notice will not
be deemed a waiver of nor result in any discontinuation of any rights of the
Indemnified Party, except to the extent the rights of the Indemnifying Party are
actually prejudiced by such failure. The Indemnifying Party, upon request of the
Indemnified Party, shall retain counsel (who shall be reasonably acceptable to
the Indemnified Party) to represent the Indemnified Party and shall pay the
reasonable fees and disbursements of such counsel with regard thereto; provided,
however, that the Indemnified Party is hereby authorized, prior to the date on
which it receives written notice from the Indemnifying Party designating such
counsel, to retain counsel, whose fees and expenses shall be at the expense of
the Indemnifying Party, to file any motion, answer or other pleading and take
such other action which it reasonably shall deem necessary to protect its
interests or those of the Indemnifying Party until the date on which the
Indemnified Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless (x) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (y) the named parties of any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The Indemnifying
Party shall not, in connection with any proceedings or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one such
firm for the Indemnified Party (except to the extent the Indemnified Party
retained counsel to protect its (or the Indemnifying Party's) rights prior to
the selection of counsel by the Indemnifying Party). If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any Third Party Claim which the
47
Indemnifying Party defends. A Third Party Claim may not be settled by the
Indemnifying Party without the prior written consent of the Indemnified Party
(which consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and unconditional
release; provided, however, that the Indemnifying Party shall not settle any
claim without the prior written consent of the Indemnified Party (which consent
shall not be unreasonably withheld) if such Claim is not exclusively for
monetary Damages.
(b) Direct Claims. In the event any Indemnified Party has a direct claim against
any Indemnifying Party, the Indemnified Party shall send a Claim Notice with
respect to the claim to the Indemnifying Party.
(c) Books and Records. After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Article X, the affected Parties each
agree to retain all books and records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any Party hereunder
and designated as confidential by the Party providing such information or
documents and which is not otherwise generally available to the public and not
already within the knowledge of the Party to whom the information is provided
(unless otherwise covered by the confidentiality provisions of any other
agreement among the Parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third party (except
for the representatives of the Party being provided with the information, in
which event the Party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
SECTION 10.4 Adjustment to Merger Consideration. Any indemnification payment
made pursuant to this Article X will be deemed to be an adjustment to the Merger
Consideration.
SECTION 10.5 Independent Committee Determination. Whether any claim for
indemnification is sought pursuant to Sections 10.1, or any decision is required
to be made on behalf of Big City or the Surviving Corporations in connection
with a claim or action for indemnification under those sections, shall be
determined by a committee of the Board of Directors of Big City comprised solely
of the independent directors of Big City. For the purposes of this Agreement, an
independent director shall be a person who is not a Stockholder and who is not
and has not been during the ten years prior to the Effective Time employed by or
otherwise affiliated with either of the Target Corporations or of any of the
Stockholders.
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SECTION 10.6 Limitations.
(a) Basket. Big City on the one hand and the Stockholders collectively on the
other hand shall not be required to indemnify the other under Sections 10.01 or
10.02 unless the aggregate of all amounts for which indemnity would otherwise be
due against it or them exceeds $200,000 and then, only for amounts in excess of
$200,000.
(b) Payment and Ceiling. The amount due upon payment of an indemnified claim
will be made solely by the delivery of shares of Big City Common Stock and/or
Big City Preferred Stock, free and clear of all Liens, valued for this purpose
at the last sale price of the Big City Common Stock on the last trading day
prior to the date the Claim Notice is given ("Sale Price"). The payment of
Damages by Big City will be made solely by Class B Preferred Stock that is
convertible into 7,797,942 shares of Big City Common Stock. The payment of
Damages will be up to a maximum of 7,797,942 shares of Big City Common Stock (or
their equivalent of Big City Preferred Stock) issued as the Merger Consideration
deliverable pro rata from among all the Stockholders in respect of Damages
resulting from an act or actions by the Target Corporations and up to the
maximum amount of ten percent of the shares of Big City Common Stock and Big
City Preferred Stock (calculated by reference to the underlying Common Stock)
issued to a Stockholder as Merger Consideration in respect of Damages resulting
from an act or actions solely of that Stockholder. The number of shares of Big
City Common Stock and Big City Preferred Stock deliverable as payment of Damages
will be proportionately increased or decreased to account for any stock
dividend, subdivision, reclassification, stock split or combination of Big City
Common Stock.
SECTION 10.7 Representations and Warranties. For purposes of indemnity under
this Article X for breach of a representation or warranty of a Party under this
Agreement, the representations and warranties shall be the representations and
warranties of a Party made herein, as supplemented, modified or amended by any
schedule thereto as of the Closing Date in accordance with Section 8.02 (except
where such supplementation, modification or amendment is made to cure a
misrepresentation or omission existing as of the date hereof), without regard to
any materiality qualifications or standards otherwise contained therein.
SECTION 10.8 Indemnity as Sole Recourse. After the Closing Date, a Party may
seek remedy against any other Party for breach of a representation, warranty or
covenant hereunder only under and in accordance with the terms of this Article
X.
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ARTICLE XI
TERMINATION
SECTION 11.1 Methods of Termination. The transactions contemplated herein may
be terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual written consent of the Big City Parties and all the Stockholders;
(b) By the Big City Parties (if they are not then in material breach of their
obligations hereunder) if (i) a material default or breach shall be made by the
Target Corporation Party with respect to the due and timely performance of any
of their covenants and agreements contained herein and such default is not cured
within thirty days, or (ii) if any of the Target Corporation Party's
representations and warranties, (x) made without any materiality standard, are
not true and correct in all material respects as of the date hereof and as of
the Closing Date or (y) made with any materiality standard, are not true and
correct in all respects as of the date hereof and as of the Closing Date;
(c) By the Target Corporation Parties (if they are not then in material breach
of their obligations hereunder) if (i) a material default or breach shall be
made by the Big City Parties with respect to the due and timely performance of
any of their covenants and agreements contained herein and such default or
breach results or would result in a Big City Material Adverse Effect and such
default or breach is not cured within thirty days, or (ii) if any of the Big
City Parties representations and warranties, (x) made without any materiality
standard, are not true and correct in all material respects as of the date
hereof and as of the Closing Date or (y) made with any materiality standard, are
not true and correct in all respects as of the date hereof and as of the Closing
Date, provided, however, that the inaccuracies of any such representations or
warranties shall not give rise to the right to terminate under this clause (ii)
of this Section 11.1(c)(ii) unless the inaccuracies, in the aggregate and taken
as a whole, reflect and would result in a Big City Material Adverse Effect;
(d) By either the Target Corporation Parties or the Big City Parties if,
pursuant to Section 7.14, Big City is unable to obtain an opinion from Heritage
Capital Corp. that the consideration to be paid by Big City for each of the
Target Corporations is fair to the Big City stockholders from a financial point
of view.
(e) By either the Target Corporation Parties or the Big City Parties (if the
terminating Party is not then in material breach of its obligations hereunder)
if the Effective Time has not occurred by six months from the date of this
Agreement for any reason unless the Parties agree to an extension in writing.
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SECTION 11.2 Effect of Termination. In the event of termination by a Party, or
both Parties, pursuant to Section 11.1 hereof, written notice thereof shall
forthwith be given to the other Party and all obligations (except as set forth
in this Section 11.2) of the Parties shall terminate and no Party shall have any
right against the other Party hereto. Notwithstanding the foregoing, if this
Agreement is so terminated by one Party under Section 11.1(b) or (c) above, it
is expressly agreed and understood that the non-terminating party shall, within
five days of termination, pay or reimburse the terminating party for all the
documented out-of-pocket reasonable fees and expenses incurred by the
terminating party (including the reasonable fees and expenses of its counsel,
accountants, consultants and advisors) in connection with this Agreement and the
transactions contemplated hereby, and if such termination is with respect to a
representation or warranty made upon execution of this Agreement or a breach of
a representation or warranty deemed to be made at the Closing and such breach
was caused by factors within the control of the non-terminating party, then the
terminating Party's right to pursue all legal remedies for breach of contract or
otherwise, including, without limitation, Damages relating thereto shall survive
such termination unimpaired. If the transactions contemplated by this Agreement
are terminated and/or abandoned as provided herein:
(a) Each Party hereto will return all documents, work papers and other material
(and all copies thereof) of the other Party, relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the Party furnishing the same; and
(b) All confidential information received by either Party hereto with respect to
the business of the other Party shall be treated in accordance with Sections 6.2
and 7.2 hereof, which shall survive such termination or abandonment.
ARTICLE XII
DEFINITIONS
SECTION 12.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Big City Material Adverse Effect" means a material adverse effect on
the results of operations, financial condition, business or assets of Big City
and its subsidiaries, taken as a whole and considered as one enterprise such
that Big City would have a negative net worth (less all non-cash accounting
charges required to be stated in the financial statements of Big City that are
associated with the merger transaction between the Big City Parties and the
Target Corporation Parties or are contemplated by this Agreement and assuming
all contingent liabilities of the Big City Parties and Big City Subsidiaries
reasonably expected to mature, are for this purpose deemed actual liabilities of
Big City ) as of the Closing Date or an event that would materially impair any
51
of the Big City Parties ability to consummate the transactions contemplated by
this Agreement.
"Big City Parties" means Big City and the Merger Subsidiaries.
"Big City Subsidiaries" means Big City NY, Inc., a New York
corporation, Bagel Partners, Inc., a New York corporation, and Pumpernickel
Partners, L.P., a Delaware limited partnership.
"Business Day" means a day of the year on which banks are not required
or authorized to be closed in the City of New York.
"Damages" means the dollar amount of any loss, damage, cost, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements incurred by an Indemnified Party in any action or proceeding
between the Indemnified Party and the Indemnifying Party or between the
Indemnified Party and a third party, which is determined (as provided in Article
X) to have been sustained, suffered or incurred by a Party and to have arisen
from or in connection with an event or state of facts which is subject to
indemnification under this Agreement; the amount of Damages shall be the amount
finally determined by a court of competent jurisdiction or appropriate
governmental administrative agency (after the exhaustion of all appeals) or the
amount agreed to upon settlement in accordance with the terms of this Agreement.
"Environmental, Health, and Safety Requirements" means all federal,
state, local and foreign statutes, regulations, and ordinances concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, as such requirements are enacted and in effect on or prior to the
Closing Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Lien" means any lien, claim, charge, option, security interest,
restriction or encumbrance.
"Party" means Big City and/or the Merger Subsidiaries, on the one hand,
and the Stockholders and/or the Target Corporations, on the other hand
(collectively, the "Parties").
"Representatives" of either Party means such Party's employees,
accountants, auditors, actuaries, counsel, financial advisors, bankers,
investment bankers and consultants.
52
"Securities Act" means the Securities Act of 1933, as amended.
"Target Corporation Material Adverse Effect" means a material adverse
effect on the results of operations, financial conditions, business or assets of
a Target Corporation, or an event that would materially impair the ability of
any Target Corporation or Stockholder to consummate the transactions
contemplated by this Agreement.
"Target Corporation Parties" means, collectively, each of the
Stockholders and each of the Target Corporations.
"Tax" or "Taxes" means all income, gross receipts, sales, stock
transfer, excise, bulk transfer, use, employment, franchise, profits, property
or other taxes, fees, stamp taxes and duties, assessments, levies or charges of
any kind whatsoever, together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority with respect thereto.
"Third Party Claim" means a claim, demand, suit, proceeding or action
by a person, firm, corporation or government entity other than a party hereto or
any affiliate of such party.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1 Expenses. Except as otherwise provided herein, all costs and
expenses, including, without limitation, fees and disbursements of
Representatives, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, whether or not the Closing shall have occurred. The Stockholders shall
pay all such expenses incurred by the Target Corporations.
SECTION 13.2 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 personally or by facsimile or one day after
delivery to a nationally recognized courier, in each case, to the Parties at the
following addresses or facsimile numbers (or at such other address or facsimile
numbers for a Party as shall be specified by like notice, except that notices of
changes of address shall be effective upon receipt):
53
(a) If to the Stockholders, as set forth in Schedule 2.1,
If to ICS,
Advanced Testing Technologies, Inc.
000 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xx. Xxx Xxxx
Facsimile No. 000-000-0000
If to VillageNet,
000 Xxxxxxx Xxxxxx
Xxxxx 0X
Xxxxxxx, XX 00000
Attention: Mr. Xxxxx Xxxxxx
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxxx, Carton & Xxxxxxx
Suite 3400 Quaker Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxxxx, Esq.
Facsimile No.: 000-000-0000
(b) If to Big City or the Merger Subsidiary:
Big City Bagels, Inc.
00 Xxxxxxxx Xxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxx, Chairman
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxx Mollen & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile No.: 000-000-0000
SECTION 13.3 Press Release; Public Announcements. The Parties shall not make
any other public announcements in respect of this Agreement or the transactions
contemplated herein without prior consultation and approval by the other party
as to the form and content thereof, which approval shall not be unreasonably
withheld. Notwithstanding the foregoing, Big City may make any disclosure which
its counsel advises is required by applicable law or regulation, in which case,
Big City shall use commercially reasonably efforts to give the Stockholders
reasonable advance notice and opportunity to comment.
54
SECTION 13.4 Amendment. This Agreement may not be amended or modified except by
an instrument in writing signed by the Parties.
SECTION 13.5 Waiver. At any time prior to the Closing, either Party may (a)
extend the time for the performance of any of the obligations or other acts of
the other Party, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance 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 to be bound thereby.
SECTION 13.6 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.
SECTION 13.7 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 adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties 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 13.8 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto constitute the entire agreement and supersede all prior agreements and
undertakings, both written and oral, between the Target Corporations, the
Stockholders and Big City with respect to the subject matter hereof.
SECTION 13.9 Benefit; Assignment. This Agreement shall inure to the benefit of
and be binding upon the Parties and the successors and permitted assigns of the
Parties and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder. This Agreement is
not assignable by any Party without the express written consent of the other
Parties.
SECTION 13.10 Governing Law; Consent to Jurisdiction. Except as to matters
governed by the BCL, this Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law. Each
Party hereby submits to the exclusive jurisdiction of the courts (city, state
and federal) located in the County of New York, State of New York, for any
action, proceeding or claim brought by any other Party pursuant to this
55
Agreement or any other agreement, instrument or other document executed and
delivered in connection with this Agreement or pursuant hereto and waives any
objection to the venue of any such suit, action or proceeding and the right to
assert that such forum is not a convenient forum. Service of process in any such
action or proceeding brought against a Party may be made by registered mail
addressed to such Party at the address set forth in Section 13.2 or to such
other address as such Party shall notify the other Party in writing is to be
used for such purpose pursuant to Section 13.2.
SECTION 13.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above.
BCB ACQUISITION CORP. I INTELLIGENT COMPUTER SOLUTIONS, INC.
/s/ Xxxx Xxxxxxx /s/ Xxxxx Xxxxxx
By:________________________ By:_______________________________
BCB ACQUISITION CORP. II
/s/ Xxxx Xxxxxxx
By:___________________________
BIG CITY BAGELS, INC. VILLAGENET, INC.
/s/ Xxxx Xxxxxxx /s/ Xxx Xxxx
By:___________________________ By:_______________________________
/s/ Xxxxx Xxxxxx /s/ Xxxxxx Xxxx
______________________________ ______________________________
Xxxxx Xxxxxx, Stockholder Xxxxxx Xxxx, Stockholder
/s/ Xxxxx Xxxx /s/ Xxxxx Xxxx
______________________________ ______________________________
Xxxxx Xxxx, Stockholder Xxxxx Xxxx, Stockholder
Xxx Xxxx Living Trust, Stockholder
/s/ Xxxxxxx Xxxx /s/ Xxx Xxxx
_______________________________________ By:_______________________________
Xxxxxxx Xxxx, custodian for Xxx Xxxx, Trustee
Xxxxx Xxxx, Stockholder
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Xxxxxxx Xxxx Living Trust, Stockholder
/s/ Xxxxxxx Xxxx /s/ Xxxxxx X. Xxxxxxx
By:_________________________________ ______________________________
Xxxxxxx Xxxx, Trustee Xxxxxx X. Xxxxxxx, Stockholder
/s/ Xxxxxx X. Xxxxxxx /s/ Xxxxxx X. Xxxxxxx
______________________________ ______________________________
Xxxxxx X. Xxxxxxx, Stockholder Xxxxxx X. Xxxxxxx, custodian for
Xxxxxxxxx X. Xxxxxxx, Stockholder
/s/ Xxxxxxx Xxxxxxx, Xx.
______________________________
Xxxxxxx Xxxxxxx, Xx., Stockholder
57
