1
Exhibit 2.1
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated this 13th day of
July , 2000, by and between MEGA GROUP, INC., a New York corporation ("MEGA"),
and SMALL BUSINESS INVESTMENT CORPORATION OF AMERICA, INC., formerly known as
All American Smokorama Barbeque, Inc., an Oregon corporation ("SBICOA").
WHEREAS, MEGA and SBICOA deem it advisable and in the best interests of
each that MEGA acquire all of the issued and outstanding common stock of SBICOA
in exchange for newly issued shares of the common stock of MEGA (the "Share
Exchange"); and
WHEREAS, MEGA and SBICOA have approved and adopted this Agreement as a
"plan of reorganization" within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions, and conditions contained herein, and for other good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto agree that MEGA shall acquire all of the issued
and outstanding common stock of SBICOA, upon and subject to the following terms
and conditions:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings, unless the context shall otherwise require:
(a) "EFFECTIVE DATE" shall mean the date on which a
certificate of exchange is filed with the Secretary of State of the State of New
York and, to the extent applicable, with the Secretary of State of the State of
Oregon, or such other date for the effectiveness of the reorganization as may be
provided therein.
(b) "EXCEPTIONS SCHEDULE" shall mean Exhibit A in the case
of MEGA and Exhibit B in the case of SBICOA, both of which are attached hereto
and incorporated by reference herein.
(c) "INTERNAL REVENUE CODE" shall mean the federal Internal
Revenue Code of 1986, as amended, and rules and regulations promulgated
thereunder.
(d) "MEGA COMMON STOCK" shall mean the common stock, no par
value, of MEGA, its only outstanding class and series of capital stock, none of
which is entitled to vote, whether or not as a class or series, in connection
with the Share Exchange.
(e) "RECORD DATE" shall mean the date fixed by the board of
directors of SBICOA for determination of the holders of the SBICOA shares
entitled to notice of and to vote at the shareholder meeting called to approve
the reorganization.
2
(f) "SBICOA COMMON STOCK" shall mean the common stock, no
par value, of SBICOA, its only outstanding class and series of capital stock,
all of which is entitled to vote, but not as a class or series, in connection
with the Share Exchange.
(g) "SBICOA FULLY-DILUTED EQUITY" shall have the meaning set
forth in Section 3.01.
ARTICLE II
GENERAL TERMS AND PROVISIONS
SECTION 2.01 REORGANIZATION. Subject to and in accordance with all of
the terms and conditions hereinafter set forth, on the Effective Date, MEGA
shall issue, to the SBICOA shareholders of record on the Record Date, shares of
the authorized and previously unissued MEGA Common Stock in exchange for all,
and not less than all, of the outstanding shares of SBICOA Common Stock. The
MEGA Common Stock shall be the sole consideration given in exchange for the
SBICOA Common Stock, and it shall be voting common stock, both within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code.
SECTION 2.02 DIRECTORS AND OFFICERS OF MEGA. On the Effective Date, the
size of the Board of Directors of MEGA shall be fixed at six, the existing
members of the Board of Directors of MEGA other than Xxxxxx Xxxxxxx shall
resign, and Xxxx X. Xxxxx, Xxxxx X. Xxxxx, Xxxxxx Xxxxx, Xxxx X. Xxxxxx, and
Xxxx Xxxxx shall be appointed to the vacant Board seats of MEGA to serve until
their successors are elected and qualify. On the Effective Date, the officers of
MEGA other than Xxxxxx Xxxxxxx and Xxxxxx Xxxxx, shall resign.
SECTION 2.03 NO MEGA INDEBTEDNESS. Except as set forth in Section 2.03
of the Exceptions Schedule attached hereto as Exhibit A, on the Effective Date,
there shall be no indebtedness or other obligation owed by MEGA to any person,
and there shall be no employment or independent contractor agreement between
MEGA and any other person.
SECTION 2.04 INDEMNITY. On the Effective Date, MEGA shall enter into an
indemnity agreement with Xxxxxx Xxxxxxx ("Xxxxxxx"), in the form attached hereto
as Exhibit C, under which Xxxxxxx shall indemnify and hold MEGA, SBICOA, and
their directors, officers, shareholders, representatives, agents, affiliates,
successors, and assigns harmless from and against any and all claims or
liabilities, whether actual or contingent, liquidated or unliquidated, or
accrued or unaccrued, arising out of or related in any way to its business or
operations, including without limitation any claim asserted or which might be
asserted in those arbitration proceedings and civil actions identified in the
MEGA Exceptions Schedule, or the breach by MEGA of any of the representations,
warrants, and covenants given herein; provided, however, that Xxxxxxx shall not
be required to indemnify MEGA, SBICOA, and their directors, officers,
shareholders, representatives, agents, affiliates, successors, and assigns
harmless from and against any and all claims or liabilities arising out of or
related in any way to the Xxxxx Award.
SECTION 2.05 TRANSACTION FEES. For services rendered in connection with
the transactions contemplated by this Agreement, on the Effective Date MEGA
shall issue to the following persons the following number of shares, restricted
as provided in Rule 144 promulgated under the Securities Act of 1933, as
amended, of Mega Common Stock: Xxxxxx
2
3
Xxxxxxx - 500,000 shares; Xxxxxx Xxxxx - 60,000 shares; and Xxx Xxxx - 100,000
shares; provided, however, that such shares shall be issued to each person only
if such person is an "accredited investor" as defined in the federal securities
laws and the rules thereunder and executes such confirming documents as MEGA may
reasonably request. On the Effective Date, MEGA and each person identified in
the immediately preceding sentence of this Section 2.05 shall enter into a stock
purchase and repurchase agreement acceptable to MEGA which shall provide, among
other things, that MEGA shall repurchase the shares, under certain
circumstances, for $2.50 per share paid in cash; that MEGA intends without
assurance to engage in the nonpublic offer and sale, in 2000, of shares of MEGA
Common Stock at an offering price of $5.00 per share; and that each person
identified in the immediately preceding sentence of this Section 2.05 shall have
the right, upon the commencement of such nonpublic offering to purchase such
additional number of shares of MEGA Common Stock as shall be set forth in the
stock purchase and repurchase agreement for a purchase price of $4.00 per share
paid in cash.
SECTION 2.06 DUE DILIGENCE PERIOD. Each party shall promptly provide the
other, at its respective address for notice as provided herein, with such books,
records, documents and consents that the other may reasonably request to
investigate the representations, warranties and financial condition of the
party, including all articles of incorporation and amendments, bylaws and
amendments, minutes of all incorporators, directors and shareholders meetings or
consent minutes with respect to actions taken by incorporators, directors, or
shareholders, all financial statements, tax returns, and all material contracts,
leases, and agreements to which it is a party or an intended beneficiary within
two (2) days after the date of this Agreement. Each party shall complete its
investigation within ten (10) days thereafter.
SECTION 2.07 TAKING OF NECESSARY ACTION. MEGA and SBICOA shall take all
such actions as may be necessary or appropriate in order to effectuate the
transactions contemplated by this Agreement. If, at any time after the Effective
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest MEGA with title to any or all of the SBICOA Common
Stock, the officers and directors of MEGA, and its subsidiaries, at the expense
of MEGA, shall take such necessary or desirable action.
ARTICLE III
EXCHANGE OF SHARES
SECTION 3.01 EXCHANGE RATIO. On the Effective Date, MEGA shall issue a
total of 9,309,396 shares of its Common Stock to all of the shareholders of
SBICOA in exchange for all of the issued and outstanding SBICOA Common Stock
held of record and beneficially by them. Each holder of shares of SBICOA Common
Stock shall be entitled to receive that number of shares of MEGA Common Stock
equal to the number of shares of SBICOA Common Stock held of record by the
holder multiplied by 11.98594039086. No fractional shares of MEGA Common Stock
shall be issued, and the actual number of shares of MEGA Common Stock to be
issued to each shareholder of SBICOA shall be rounded up or down to the nearest
whole number of shares. There are no issued and outstanding securities of SBICOA
which may be exercised or exchanged for shares of SBICOA Common Stock. The
shares of SBICOA Common Stock, if any, held in the treasury of SBICOA ("Treasury
Shares") shall be cancelled and shall not be exchanged or combined in accordance
with the provisions of this Section 3.01.
3
4
SECTION 3.02 EXCHANGE OF CERTIFICATES. As soon as practicable after the
Effective Date, each holder of a certificate for shares of SBICOA Common Stock,
upon surrender of same to MEGA (the "Transfer Agent"), shall be entitled to
receive, in exchange therefor, a certificate or certificates representing the
number of full shares of MEGA Common Stock for and into which the shares of
SBICOA Common Stock, represented by the certificate or certificates so
surrendered, shall have been exchanged, as provided in Section 3.01 hereinabove.
As soon as practicable after the Effective Date, the Transfer Agent shall send a
notice and transmittal form to each holder of record of an outstanding
certificate which, immediately prior to the Effective Date, evidenced shares of
SBICOA Common Stock, advising such shareholder of the terms of exchange and
combination effected by the Share Exchange and the procedure for surrendering to
the Transfer Agent such certificate or certificates in exchange for one or more
certificates representing the full number of shares of MEGA Common Stock, as
determined by Section 3.01 hereinabove.
SECTION 3.03 UNEXCHANGED CERTIFICATES. Until surrendered in accordance
with Section 3.02 hereinabove, each outstanding certificate which, prior to the
Effective Date of the Share Exchange, evidenced shares of SBICOA Common Stock,
for all corporate purposes of MEGA shall be deemed to evidence ownership of the
number of shares of MEGA Common Stock for and into which shares of SBICOA Common
Stock represented thereby will have been exchanged and combined; provided,
however, that until each such outstanding certificate is surrendered and
exchanged, no dividend or distribution payable to the holders of record of MEGA
Common Stock as of any date subsequent to the Effective Date of the Share
Exchange shall be paid to the holder of such outstanding certificate which shall
not have been surrendered with respect thereto. After the Effective Date of the
Share Exchange, there shall be no further registry of transfers of SBICOA Common
Stock on the books of SBICOA and, if a certificate representing such shares or
warrants is presented for transfer to MEGA, it shall be cancelled and exchanged
for a certificate representing shares of MEGA Common Stock, as provided for
herein.
SECTION 3.04 CERTIFICATES IN OTHER NAMES. If any certificate
representing shares of MEGA Common Stock is to be issued in a name other than
that in which the certificate surrendered in exchange therefor is registered, it
shall be a condition precedent to the issuance thereof that the certificate so
surrendered be properly endorsed and otherwise in proper form for transfer, that
the person requesting the exchange pay to the Transfer Agent any transfer or
other taxes required by reason of such issuance, and that counsel to MEGA shall
approve such transfer.
SECTION 3.05 STOCK LEGENDS. Certificates representing shares of MEGA
Common Stock shall bear a legend restricting transfer of the shares of the MEGA
Common Stock represented by such certificate in substantially the form set forth
below:
"The shares evidenced by this certificate have not been registered under
the Securities Act of 1933 and may not be transferred, nor will any
assignee or endorsee hereof be recognized as an owner hereof by the
issuer for any purpose, unless a registration statement under the
Securities Act of 1933, as amended, with respect to such shares shall
then be in effect or unless the availability of an exemption from
registration with respect to any proposed
4
5
transfer or disposition of such shares shall be established to the
satisfaction of counsel for the issuer."
MEGA shall, from time to time, make stop transfer notations in its records to
ensure compliance in connection with any proposed transfer of the shares with
the Act, and all applicable state securities laws.
ARTICLE IV
CROSS-REPRESENTATIONS, WARRANTIES, AND COVENANTS
Except as otherwise set forth in the applicable Exceptions Schedule,
each of the parties hereto represents and warrants to, and covenants with, the
other as follows:
SECTION 4.01 ORGANIZATION; AUTHORIZATION. It is a corporation duly
organized, validly existing, and in good standing under the laws of the state or
country of its incorporation and has full power and authority to carry on its
business as it now is being conducted and to own the properties and assets it
now owns. It is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the conduct of its business or
ownership of its property requires such qualification. Subject to the requisite
approval of and authorization by the holders of its capital stock, it has full
power and authority to enter into this Agreement and to carry out the
transactions contemplated herein.
SECTION 4.02 NO DEFAULTS. It is not a party to or bound by any contract
or agreement, or subject to any charter provision or other legal restriction
(other than restrictions applicable to corporations or businesses generally),
which adversely affects its business, operations, properties, assets, or
condition, financial or otherwise. It is not in default under any material
contract, lease, agreement, or other undertaking to which it is a party or by
which it is bound. Subject to the requisite approval of and authorization by the
holders of its capital stock, neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor
compliance with the terms and conditions hereof will conflict with, result in a
breach of the unwaived terms and conditions of, or constitute a default under
its articles of incorporation or bylaws or any contract, agreement, commitment,
or other undertaking to which it is a party or by which it is bound.
SECTION 4.03 GOVERNMENTAL CONSENTS. Except for the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and any applicable state
securities laws, and the filing and recording of the appropriate documents as
required by the laws of the State of New York and, to the extent applicable, the
State of Oregon, no consent or approval of, or filing or registration with, any
governmental or regulatory authority is required in connection with the
performance of the terms of this Agreement.
SECTION 4.04 EXAMINATION OF DOCUMENTS. All original documents and other
information relating to its affairs will be made available, and copies of any
such documents will be furnished, upon request to the other party and its
counsel. Included among the documents to be made available are all articles of
incorporation and amendments, bylaws and amendments, minutes of all
incorporators, directors, and shareholders meetings or consent minutes with
respect to actions taken by incorporators, directors, or shareholders, all
financial statements, tax
5
6
returns, and all material contracts, leases, and agreements to which it is a
party or an intended beneficiary.
SECTION 4.05 TITLE TO ASSETS. It has good and marketable title to all of
its properties and assets, both real and personal, free and clear of all
security interest liens, claims, equities of others, and restrictions on the
right to transfer.
SECTION 4.06 TAX RETURNS AND PAYMENTS. All of its tax returns and
reports required by law to be filed have been duly filed, and all taxes,
assessments, fees, and other governmental charges upon it or upon any of its
properties, assets, interest, or income which are due or are to become due have
been paid or adequately reserved against. None of its federal income tax returns
is currently under examination by the Internal Revenue Service.
SECTION 4.07 NO LITIGATION.
(a) There is no action, proceeding, claim, or investigation
pending or threatened against it or to which any of its assets or properties are
subject before any court or any governmental department, commission, board,
bureau, agency, or instrumentality which involves the possibility of any
judgment or liability or which might adversely affect its assets, business, or
goodwill and, after investigation, it knows of no basis or grounds for any such
action, proceeding, claim, or investigation; and
(b) There is no outstanding order, writ, injunction, or
decree of any court, government department, commission, board, bureau,
government agency, or instrumentality, or any arbitration award, against it.
SECTION 4.08 NO ADVERSE CHANGES. Between the date of this Agreement and
the Effective Date, as a condition precedent to the obligations hereunder:
(a) It will not, without the other party's prior written
consent, engage in any material transaction not in the ordinary course of its
business, make or declare any dividends or distributions of its capital,
surplus, or profits, or redeem or issue any shares of its common stock or other
securities;
(b) There will be no changes in its assets, properties,
liabilities, or financial condition from those shown in its financial statements
or in its condition, other than changes which do not materially affect, singly
or in the aggregate, its business, assets, properties, or financial condition;
and
(c) It will not borrow any amounts or incur any liabilities
other than pursuant to contracts entered into in the ordinary course of
business; discharge any lien or encumbrance or satisfy any liabilities other
than current liabilities incurred in the ordinary course of business; mortgage,
pledge, or subject to lien or charge or any other encumbrance any of its assets
or properties; sell, assign, or transfer any of its assets except in the
ordinary course of business; waive any rights of substantial value; or loan
money to any of its directors, officers, or shareholders.
6
7
SECTION 4.09 NO ADVERSE CLAIMS. None of its officers or employees has
any claim against it, and it is not obligated to any of such persons in any way
or for any amount.
SECTION 4.10 BOOKS AND RECORDS COMPLETE. Except as set forth in the
Exceptions Schedule, its books and records are accurate and complete and there
are no matters for which proper entry has not been made in such books and
records.
SECTION 4.11 INSURANCE. It is adequately insured with respect to risks
usually insured against by companies owning properties and conducting business
similar to those owned and conducted by it. All policies are presently in force
and paid in full and will continue to be so without interruption until the
Effective Date.
SECTION 4.12 NO BROKERAGE FEES. No agent, broker, investment banker,
person, or firm acting on its behalf is or will be entitled to any broker's or
finder's fee or any other commission or fee, directly or indirectly, in
connection with any of the transactions contemplated hereby.
SECTION 4.13 COMPLIANCE WITH CERTAIN LAWS. It is in full compliance
with: (i) all federal, state, and local laws regulating atmospheric, water, and
other pollution or damage to the environment, and (ii) all federal, state, and
local laws prohibiting discrimination based on race, creed, color, sex, age,
disability, or national origin.
SECTION 4.14 AUTHORIZATION OF BOARD OF DIRECTORS. Its Board of Directors
has duly authorized the execution and delivery of this Agreement and all
documents and transactions called for hereunder, and, subject to any requisite
approval and authorization by the holders of its capital stock, this Agreement
constitutes a valid and binding obligation of the corporation in accordance with
the Agreement's terms. It shall deliver to the other party a certified copy of
resolutions of its Board of Directors pertaining to the foregoing. It has taken
or will exert its best efforts to take, prior to the Effective Date, all action
required by law, its Articles of Incorporation and Bylaws, and otherwise, to
authorize the execution, delivery, and performance of this Agreement.
SECTION 4.15 CONTRACTS. It is not a party to any (i) labor agreements,
(ii) contracts of employment, (iii) contracts for the purchase, sale, or lease
(as lessor or lessee) of real estate or personal property, (iv) contracts for
services to be rendered to it, (v) employee insurance, hospital, or medical
expense programs, or (vi) pension or profit-sharing plans, retirement plans,
bonus or incentive agreements or plans, or stock purchase or stock option plans,
formal or informal.
SECTION 4.16 ACCOUNTS AND NOTES RECEIVABLE. The accounts and notes
receivable as shown in its most recent consolidated balance sheet and the
accounts and notes receivable acquired by it subsequent to said date have been
collected or are believed by it to be collectible at the aggregate recorded
amounts thereof, less applicable reserves shown on such balance sheet.
SECTION 4.17 PROPERTY AND EQUIPMENT. The property and equipment as shown
on its most recent consolidated balance sheet are in good operating condition
and in a state of good maintenance and repair. The use of its real property
conforms in all material respects with applicable ordinances, regulations,
zoning, or building codes, and other applicable laws.
7
8
SECTION 4.18 CAPITALIZATION.
(a) It has no obligation under any agreement with any person
to register any of its securities under the 1933 Act or any applicable state
securities laws and, during the two years preceding the date of this Agreement,
it has not sold or issued any of its securities in a transaction which was not
registered under the 1933 Act or any applicable state securities law. There are
no preemptive rights with respect to any of its securities.
(b) SBICOA represents and warrants that its authorized
capital stock consists of 10,000 shares of common stock, no par value per share,
of which 6,000 shares are issued and outstanding. All of the issued and
outstanding shares of SBICOA Common Stock are validly issued, fully paid, and
nonassessable.
(c) MEGA represents and warrants that its authorized capital
stock consists of 25,000,000 shares of common stock, no par value per share, of
which 1,467,247 shares are issued and outstanding. All of the issued and
outstanding shares of MEGA Common Stock are validly issued, fully paid, and
nonassessable.
SECTION 4.19 PRINCIPAL SHAREHOLDERS. No person owns of record or, to the
best of its knowledge, owns beneficially five percent or more of any class of
the issued and outstanding shares of its voting securities.
SECTION 4.20 NO SUBSIDIARIES. It has no subsidiaries. MEGA specifically
represents and warrants that, on April 1, 2000 it sold all of the issued and
outstanding common stock of its former subsidiary, being Associates of Xxxxxxx
Park, Inc., to Xxxxxx Xxxxxxx and applied the net sale proceeds in payment of
certain outstanding obligations, now satisfied in full.
SECTION 4.21 INFORMATION FURNISHED. It has furnished to the other party
copies of all reports filed with the Securities and Exchange Commission pursuant
to Sections 13(a) and 15(d) of the Securities Exchange act of 1934 and, to the
best of its knowledge, such reports do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein not misleading. Such reports contain all of the material and
relevant information concerning its business and financial condition as of their
respective dates. MEGA has been delinquent in the filings referred to in this
Section 4.21 since the report filed in March, 1997.
SECTION 4.22 FULLY REPORTING ISSUER. MEGA represents and warrants that
it is subject to the requirements to file reports pursuant to Sections 13 or
15(d) of the Securities Exchange Act of 1934, it has filed all reports with the
Securities and Exchange Commission which it is required to file pursuant to
Sections 13(a), 14, and 15(d) Securities Exchange Act of 1934 for the preceding
thirty-six calendar months, and it has filed timely all reports required to be
filed during the preceding twelve calendar months; provided, however, that MEGA
has been delinquent in the filings referred to in this Section 4.22 since the
report filed March, 1997.
SECTION 4.23 OPTIONS AND OTHER RIGHTS. There are no outstanding options,
warrants, or rights to subscribe for, purchase, or receive shares of its common
stock or any other securities convertible into common stock.
8
9
SECTION 4.24 ACCREDITED INVESTOR EXEMPTION. SBICOA represents and
warrants that all of the shareholders of SBICOA entitled to vote on the plan of
share exchange, and to receive shares of MEGA in the exchange, described herein
are residents of Virginia, are "accredited investors," as that term is defined
in 17 CFR 230.501(a), have sufficient knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of the
prospective investment, and are able to bear the economic risks of the
prospective investment. MEGA represents and warrants that all of the
requirements of Virginia Code, Section 13.1-514B.19 and 21VAC5-40-140 incumbent
on it to permit the MEGA Common Stock to be issued in the exchange to be offered
and sold in reliance upon the accredited investor exemption from registration
under the Virginia Securities Act are and will be met, satisfied, and
discharged. Without limiting the generality of the foregoing, MEGA represents
and warrants that it is not an issuer that is in the development stage that
either has no specific business plan or purpose or has indicated that its
business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person, and neither MEGA, nor any of
MEGA's predecessors, nor any affiliated issuer, nor any MEGA's directors,
officers, or beneficial owners of 10% or more of any class of its equity
securities, nor any of MEGA's promoters presently connected with it in any
capacity, nor any underwriter of the securities to be offered, nor any partner,
director, or officer of such underwriter:
(a) Within the last five years, has filed a registration
statement which is the subject of a currently effective registration stop order
entered by any state securities administrator or the SEC;
(b) Within the last five years, has been convicted of any
criminal offense in connection with the offer, purchase or sale of any security,
or involving fraud or deceit;
(c) Is currently subject to any state or federal
administrative enforcement order or judgment, entered within the last five
years, finding fraud or deceit in connection with the purchase or sale of any
security; or
(d) Is currently subject to any order, judgment or decree of
any court of competent jurisdiction, entered within the last five years,
temporarily, preliminarily, or permanently restraining or enjoining such party
from engaging in or continuing to engage in any conduct or practice involving
fraud or deceit in connection with the purchase or sale of any security.
SECTION 4.25 REPRESENTATIONS TRUE. No representation, warranty, or
covenants contained in this Agreement, nor any statement or certificate
furnished hereunder or in connection herewith, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE V
COVENANTS
SECTION 5.01 SHAREHOLDER MEETINGS. MEGA represents and warrants to
SBICOA that it has received all necessary approval from its shareholders to
enter into or perform under this
9
10
Agreement under its Articles of Incorporation, By-Laws, or the law of its state
of incorporation. SBICOA covenants with MEGA that it shall promptly obtain the
written consent of all of its shareholders to the transactions contemplated by
this Agreement and, if such written consent is not obtained within ten (10) days
of the date of this Agreement, then SBICOA shall submit this Agreement to its
shareholders for approval, as provided for in its Articles of Incorporation and
Bylaws, at a special or annual meeting of shareholders (the "Shareholder
Meeting") to be held on the earliest practicable date.
SECTION 5.02 PRESERVATION OF BUSINESS; ACCESS TO DOCUMENTS. From and
after the date of this Agreement and until the Effective Date, MEGA and SBICOA
covenant with each other that:
(a) It shall use its best efforts to preserve its business
organization, goodwill, and business relationships intact and to retain the
services of its officers and key employees;
(b) Provided the same does not violate any statute, order,
decree, rule, regulation, or contract, it shall give each other and its
authorized agents full access, during normal business hours, upon reasonable
notice, to all of its assets, properties, books, records, agreements, and
commitments and furnish such representatives during such period with all such
information concerning its affairs as the other may reasonably request;
provided, however, that each party and its authorized agents shall hold in
confidence all documents and information thus acquired or learned concerning the
parties and, if the transactions contemplated by this Agreement are not
consummated, all such documents shall immediately thereafter be returned to the
appropriate parties;
(c) It shall take all necessary corporate and any other
action, and shall use its best efforts to obtain all consents, approvals, and
agreements required to carry out the transactions contemplated in this Agreement
and to satisfy, or cause to be satisfied, the conditions specified herein; and
(d) It shall maintain in full force and effect insurance
policies providing coverages and amount of coverage as now provided.
SECTION 5.03 BUSINESS IN ORDINARY COURSE. MEGA and SBICOA further
covenant with each other that each of the representations and warranties set
forth in Article IV will be true and correct on the Effective Date. Until the
Effective Date, except with the prior written consent of the other party, it
shall not:
(a) effect any salary increase or increase the benefits of
any employee;
(b) enter into any written employment agreement;
(c) make any contribution to any trust or plan for the
benefit of employees;
(d) make any change in any employee benefit plan which would
materially increase the cost thereof or adopt any new employee benefit plan;
(e) issue or commit to issue any capital stock or other
ownership interests;
10
11
(f) grant or omit to grant any options, warrants, or other
rights to subscribe for or purchase or otherwise acquire any shares of capital
stock or other ownership interests or issue or commit to issue any securities
convertible into or exchangeable for shares of its common stock or other
ownership interests;
(g) declare, set aside, or pay any dividend or distribution
with respect to its common stock or other ownership interests;
(h) directly or indirectly redeem, purchase, or otherwise
acquire or commit to acquire any of its common stock or other ownership interest
or directly or indirectly terminate or reduce or commit to terminate or reduce
any bank line of credit or the availability of any funds under any loan or
financing agreement;
(i) effect a split or reclassification of any capital stock
or recapitalization;
(j) change its articles or certificate of incorporation,
bylaws, or other governing instruments, except to effectuate the transactions
contemplated by this Agreement;
(k) borrow or agree to borrow any funds except pursuant to
existing bank lines of credit or other existing loan agreements or financing
arrangements; or
(l) waive or commit to waive any right of substantial value.
ARTICLE VI
CONDITIONS PRECEDENT TO SHARE EXCHANGE
The obligations of each of the parties under this Agreement are subject
to the satisfaction of the following express conditions precedent at or before
the Effective Date:
SECTION 6.01 COMPLIANCE WITH LAWS. All statutory requirements for the
valid consummation by it of the transactions contemplated by this Agreement
shall have been fulfilled.
SECTION 6.02 BLUE SKY FILINGS. All Blue Sky filings and permits or
orders required of it to carry out the transactions contemplated by this
Agreement shall have been made and received containing no term or condition
reasonably unacceptable to it.
SECTION 6.03 DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated herein and all documents incident
thereto shall be reasonably satisfactory in form and substance to it and its
counsel.
SECTION 6.04 SHAREHOLDER APPROVALS; LIMIT ON DISSENTING SHARES. To the
extent shareholder approval is required of it, this Agreement and the
transactions contemplated hereby shall have been approved by the written consent
of all of its shareholders, or it shall have received the requisite approval and
authorization of its shareholders at a duly held special or annual meeting of
its shareholders. No holders of any outstanding shares of each party to this
Agreement shall dissent from the Share Exchange.
11
12
SECTION 6.05 OPINIONS OF COUNSEL. It shall have received from counsel to
the other party an opinion, dated as of the Effective Date, in form and
substance satisfactory to it, to the effect that:
(a) It has been duly incorporated and is a validly existing
corporation in good standing under the laws of its state or country of
incorporation, with full corporate power and authority to own and operate its
properties and to carry on its business as presently being conducted.
(b) It is duly qualified and licensed to transact business
in each state or other jurisdiction in which it transacts business and by each
governmental authority by which it is required to be licensed, except for
jurisdictions in which failure to qualify would not materially and adversely
affect its business, operations, or financial condition.
(c) It has an authorized capital as set forth in Article IV
hereinabove and the outstanding shares of its common stock stated as issued and
outstanding have been duly and validly issued and are fully paid and
nonassessable and contain no preemptive rights. To the best knowledge of such
counsel, there are no outstanding options, warrants, or other rights to
subscribe for, purchase, or receive shares of its common stock or securities
convertible into its common stock, other than as set forth in Article IV
hereinabove.
(d) Neither the execution and delivery of this Agreement nor
compliance with the terms of this Agreement will conflict with or result in a
material breach of any of the terms, conditions, or provisions of, or constitute
a material default under its articles of incorporation or bylaws or any material
note, indenture, mortgage, deed of trust, or other material agreement or
instrument known to such counsel to which it is a party or by which it or any of
its property is bound, or any existing law, order, rule, regulation, writ,
injunction, or decree known to such counsel of any government, governmental
instrumentality, agency, body, arbitration tribunal, or court, domestic or
foreign, having jurisdiction over it or its properties.
(e) This Agreement has been duly authorized and executed by
it, and all corporate action by it required to authorize the Share Exchange has
been taken.
(f) Except as may be set forth herein, such counsel knows of
no material litigation, proceeding, claim, or governmental investigation pending
or threatened against or relating to it or its properties or business.
In rendering such opinion, counsel may rely on certificates of its
officers as to matters of fact and, as to matters of law, may rely on opinions
of local counsel chosen by it provided that copies of such opinions of such
other counsel accompany the opinion delivered by counsel. Neither party shall be
required to deliver to the other any tax opinion in connection with the Share
Exchange.
SECTION 6.06 CERTIFICATE OF PRESIDENT AND SECRETARY. It shall have
received from the other a certificate of the other's President or Vice President
and Secretary, dated as of the Effective Date, to the effect that the
representations, warranties, and covenants of the other in this Agreement are
true and correct at and as of the Effective Date, that no error, misstatement,
or omission has been discovered or is known with respect to such representations
and warranties,
12
13
and that the other has complied with all the agreements and has satisfied all
the covenants on its part to be performed at or prior to the Effective Date.
SECTION 6.07 NO ADVERSE CHANGE. Between the date of execution of this
Agreement and the Effective Date, except in the ordinary course of its business
the other party (a) shall not have incurred any liabilities or obligations
(direct or contingent) or disposed of any of its assets, or entered into any
material transaction, or suffered or experienced any materially adverse change
in its condition, financial or otherwise, and (b) shall not have increased its
issued and outstanding shares of common stock or any other securities.
SECTION 6.08 EMPLOYMENT AND STOCKHOLDER AGREEMENTS. All employment
agreements and agreements among shareholders of each party in existence on the
date of this Agreement shall have been terminated, satisfied, and discharged,
and the persons identified in Section 2.05 hereof shall have entered into a
stock purchase and repurchase agreement conforming to the requirements of said
Section 2.05.
ARTICLE VII
TERMINATION, FURTHER ASSURANCES, AND MISCELLANEOUS
SECTION 7.01 TERMINATION AND POSTPONEMENT. Notwithstanding the prior
approval of this Agreement or the Share Exchange by the shareholders of either
party to this Agreement, this Agreement and the Share Exchange contemplated
hereby may be terminated, and the transactions provided for herein abandoned, at
any time prior to the Effective Date (except as otherwise set forth herein), as
follows:
(a) by either party to this Agreement by written notice to
the other party, on or before July 1, 2000, in the event that such party
determines that the consummation of the transactions contemplated by this
Agreement is not feasible or in such party's best interests as a result of the
due diligence review provided for in Section 2.07 herein;
(b) by mutual consent of the Boards of Directors of MEGA and
SBICOA;
(c) by the Board of Directors of either party to this
Agreement if any of the conditions set forth in Article VI shall not have been
met by the other on or before July 15, 2000; or
(d) by the Board of Directors of either party if the Share
Exchange shall not have been effected by July 15, 2000.
In the event of the termination and abandonment of this Agreement and the Share
Exchange contemplated hereby, this Agreement shall become void and of no effect,
without any liability on the part of any party or its directors, officers, or
shareholders excepts as to such claims and liabilities as may have accrued at or
prior to the date of termination.
SECTION 7.02 SURVIVAL. All agreements, representations, warranties, and
covenants made hereunder or in connection with the transactions contemplated
hereby shall survive the Effective Date or the termination of this Agreement,
and shall remain effective in accordance with the
13
14
terms hereof regardless of any investigation at any time made by or on behalf of
MEGA or SBICOA.
SECTION 7.03 EXPENSES. Each party shall bear its own costs and expenses,
including attorney's fees, in connection with this Agreement and the
transactions contemplated hereby.
SECTION 7.04 ASSIGNMENT. This Agreement may not be assigned nor any of
the performances hereunder delegated by operation of law or otherwise by any
party hereto, and any purported assignment or delegation shall be void.
SECTION 7.05 HEADINGS. The article and section headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of this Agreement.
SECTION 7.06 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives, assigns, and transferors.
SECTION 7.07 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof. There
are no representations, warranties, conditions, or other obligations except as
herein specifically provided. Any waiver, amendment, or modification hereof must
be in writing. A waiver in one instance shall not be deemed to be a continuing
waiver or waiver in any other instance.
SECTION 7.08 COUNTERPARTS. This Agreement may be executed in
counterparts and each counterpart hereof shall be deemed to be an original, but
all such counterparts together shall constitute but one agreement an original,
but all such counterparts together shall constitute but one agreement.
SECTION 7.09 NOTICES. All notices, requests, instructions, or other
documents to be given hereunder shall be deemed given if in writing and sent by
registered or certified mail, return receipt requested, or facsimile
transmission or electronic mail with confirmation of receipt, to:
if to MEGA: c/o Xxxxxx Xxxxxxx
000 Xxxxxx Xxxx
Xxxxxxxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
and Xxxxxxx X. Xxxxxxxx, Esq.
Pechenik & Xxxxx, P.C.
00 Xxxxxx Xxxxxx
Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
xxxxxxxx@xxxxx.xx.xxx
if to SBICOA: x/x Xxxxx X. Xxxxx
0000 Xxxxx Xxxxxx Avenue N.W., Suite 415
14
15
Xxxxxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Xxxxx.Xxxxx@xxxxxx.xxx
and Xxxxxx X. Xxxxx, Esq.
Xxxxxxxxx Xxxxxxx
0000 Xxxxxx Xxxx., Xxxxx 0000
XxXxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Xxxxxx@xxxxx.xxx
SECTION 7.10 CONSTRUCTION. Each party has been represented by counsel in
this transaction and has had an opportunity, directly and through counsel, to
participate in the drafting of this Agreement and of the documents to be
delivered hereunder. Accordingly, no provision of this Agreement or any document
to be delivered hereunder shall be construed against a party on the basis that
such party was nominally the drafter of such provision.
15
16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MEGA GROUP, INC.,
a New York corporation
By: /s/ XXXXXX XXXXXXX
------------------
(SEAL) Xxxxxx Xxxxxxx, President
SMALL BUSINESS INVESTMENT
CORPORATION OF AMERICA, INC.,
an Oregon corporation
By: /s/ XXXX X. XXXXX
-----------------
(SEAL) Xxxx X. Xxxxx, Chairman and Chief
Executive Officer
16
17
EXHIBIT A
EXCEPTIONS SCHEDULE FOR MEGA
SECTIONS 2.03, 4.05, 4.07, 4.09, AND 4.15:
1. MEGA is obligated to HSBC Bank, 00 Xxxx Xxxxxx, Xxxxxxx Xxxx,
Xxx Xxxx, xx a promissory note(s), in the approximate total unpaid principal
amount, interest, charges, and fees of $34,000.
2. MEGA is a defendant in that certain civil action captioned Xxxxx
X. Xxxxxxx and Xxxxxx X. Xxxxx vs. Mega Group, Inc. et al, case no. 2645-97,
pending in the Supreme Court for the County of Albany (the "Xxxxxxx and Xxxxx
Case"). The claims of the plaintiffs against MEGA in the Xxxxxxx and Xxxxx Case
have been compromised, settled, and released, but the remaining defendants may
retain the right to assert a claim in contribution and/or indemnification
against MEGA.
3. MEGA is a plaintiff in that certain civil action captioned Mega
Group, Inc. vs. Xxxxxx Xxxxxx and Xxxxx Xxxxxx, case no. 2000-448, pending in
the Supreme Court for the County of Saratoga (the "Halton Case"). Xx. Xxxxxx, a
former officer and director of MEGA, has asserted a counterclaim for breach of
contract, in the approximate amount of $1,500,000.00, against MEGA.
4. Xxxxxx Xxxxx has obtained an arbitration award of approximately
$160,000 in his favor and against MEGA (the "Xxxxx Award"), and the award may be
reduced to judgment.
5. MEGA is a defendant in that certain civil action captioned First
State Bank vs. Mega Group, Inc., case no. 2000-418 pending in the Supreme Court
for the County of Saratoga (the "First State Bank Case"), for collection of a
computer lease, in the approximate total unpaid lease receivable, interest,
charges, and fees of $58,000.00.
6. AMS Services, Inc., a computer programming company, has asserted
a claim in the approximate amount of $16,000 against MEGA.
7. Xxxxxx Xxxxx, a former employee, has asserted a claim in the
approximate amount of $35,000.00 against MEGA.
8. MEGA is obligated to Xxxxxx Xxxxxxx, an officer and director of
MEGA, under an employment agreement, in the approximate total due and unpaid
amount of $0.
SECTION 4.19:
SBICOA owns of record and beneficially 766,693 shares of MEGA Common
Stock.
17
18
EXHIBIT B
EXCEPTIONS SCHEDULE FOR SBICOA
SECTION 4.19:
Xxxxx Xxxxx, Xxxx Xxxxx, and Xxxx Xxxxxx each own of record and
beneficially 2,000 shares of SBICOA Common Stock.
18
19
EXHIBIT C
FORM OF INDEMNITY AGREEMENT
AGREEMENT OF INDEMNITY
This Agreement, made this ____ day of _______, 2000, between Xxxxxx
Xxxxxxx ("Indemnitor") and Mega Group, Inc., a New York corporation, and Small
Business Investment Corporation of America, Inc., an Oregon corporation,
(collectively, "Indemnitee").
For $10.00 and other good and valuable consideration paid by Indemnitee
and received in hand by Indemnitor, Indemnitor shall indemnify and hold harmless
Indemnitee and its directors, officers, shareholders, affiliates, associates,
representatives, agents, successors, and assigns (collectively, "Indemnitee
Group") from and against any and all claims or liabilities, whether actual or
contingent, liquidated or unliquidated, or accrued or unaccrued, arising out of
or related in any way to the business or operations of Mega Group, Inc.,
including without limitation any claim asserted or which might be asserted in
those arbitration proceedings and civil actions identified in the MEGA
Exceptions Schedule attached to that certain Agreement and Plan of Share
Exchange, dated ______ ___, 2000, by and between Mega Group, Inc. and Small
Business Investment Corporation of America, Inc. (the "Agreement and Plan of
Share Exchange"), or the breach by MEGA of any of the representations, warrants,
and covenants given therein; provided, however, that Xxxxxxx shall not be
required to indemnify MEGA, SBICOA, and their directors, officers, shareholders,
representatives, agents, affiliates, successors, and assigns harmless from and
against any and all claims or liabilities arising out of or related in any way
to the Xxxxx Award, as defined in the Agreement and Plan of Share Exchange.
Indemnitor may, at his option, assume the defense of the claim
(including, but not limited to, the employment of counsel, who shall be counsel
satisfactory to Indemnitee, and the payment of expenses of said counsel), and
shall be entitled to settle and compromise said claim in the name of the
Indemnitee Group on such terms as the Indemnitor may negotiate, provided that
the Indemnitee Group shall have no obligation to contribute any funds or assets
to said settlement. The Indemnitee Group shall have the right to employ separate
counsel in any such action or claim and to participate in the defense thereof,
and such fees and expenses of such counsel shall be at the expense of the
Indemnitor. Promptly after the settlement or other final determination of the
amount of any such claim, the Indemnitor shall pay to the Indemnitee, for the
benefit of the Indemnitee Group, an amount in cash equal to the claim.
Notwithstanding any other provision herein to the contrary, the
obligation of Indemnitor hereunder shall be non-recourse to Indemnitor and shall
be satisfied only from the security and in the manner provided hereinbelow.
Imdemnitor hereby assigns to Indemnitee, for security and for the benefit of the
Indemnitee Group, all of his shares of Mega Common Stock, as defined in the
Agreement and Plan of Share Exchange, grants a security interest therein to
Indemnitee for the benefit of the Indemnitee Group to secure the obligation
provided herein, delivers to Indemnitee for the benefit of the Indemnitee Group
certificates for all of said shares together with not less than ten stock powers
signed in blank, and upon the settlement or other final determination of the
amount of any such claim authorizes the Indemnittee to complete and deliver to
the member or members of the Indemnitee Group against which the claim has been
19
20
asserted, together with a stock certificate for transfer, a stock power for such
number of shares as is determined by dividing the amount of the claim as settled
or finally determined by $2.50.
The aforementioned assignment for security shall terminate four years
after the date hereof or thirty days after the settlement or final determination
of the last remaining claim, whichever comes last, whereupon Indemnitee shall
reassign all remaining stock certificates and stock powers to Indemnitor, and
this Agreement of Indemnity shall terminate and be of no further force and
effect.
This Agreement shall be binding on and inure to the benefit of the
heirs, executors, administrators, successors, and assigns of the respective
parties to this Agreement.
20
21
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal,
this ___ day of _________, 2000.
"Indemnitor"
---------------------------
Xxxxxx Xxxxxxx
"Indemnitee"
MEGA GROUP, INC.
By:
------------------------------------
Xxxxxx Xxxxxxx, President
SMALL BUSINESS INVESTMENT
CORPORATION OF AMERICA, INC.
By:
------------------------------------
Xxxx X. Xxxxx, Chairman and Chief
Executive Officer
21
