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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and
entered into this 11th day of May, 1999 by and among CALYX & COROLLA, INC., a
California corporation (the "Company"), XXXXXX XXXXXXX, INC., a Delaware
corporation (the "Parent"), and CALCOR ACQUISITION, a California corporation and
wholly owned subsidiary of the Parent (the "Purchaser").
A. The Company is engaged in the retail floral business (the
"Business") through the sale of cut flowers and related items through a catalog
and an internet site owned and operated by the Company under the name and xxxx
"Calyx & Corolla" (the "Operations").
B. Purchaser is a corporation duly organized under the laws of the
State of California.
C. The Company is a corporation duly organized under the laws of the
State of California.
D. The General Corporation Law of the State of California (the
"California Law") permits a merger of a corporation of the State of California
with and into a corporation of the State of California.
E. The respective Boards of Directors of each of the Parent, the
Purchaser and the Company have each approved this Agreement and deem it
advisable and in the best interests of the Parent, the Purchaser and the Company
and their respective stockholders, that the Purchaser be merged with and into
the Company (the "Merger"), the separate existence of the Purchaser to thereupon
cease and the Company to be the surviving corporation, all upon the terms and
subject to the conditions set forth herein and in accordance with the California
Law.
F. The Board of Directors of the Company has directed that this
Agreement be submitted to its shareholders (the "Shareholders") for their
adoption and approval as provided by law.
G. The Merger is intended to qualify as a reverse triangular statutory
merger under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code
of 1986, as amended (the "Code"), and this Agreement is intended to be a "Plan
of Reorganization"
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within the meaning of the regulations thereunder and the resulting business
combination is intended to be treated as a "purchase" for financial accounting
purposes.
H. The form of Voting Agreement attached as Exhibit A hereto has been
executed by the Shareholders identified on the signature page thereof.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
THE MERGER
1.1 Merger of the Purchaser into the Company. Upon the terms and
subject to the conditions hereof, and in accordance with the California Law, at
the Effective Time (as hereinafter defined), the Purchaser shall be merged with
and into the Company. Following the Merger, the Company shall continue as the
surviving corporation (hereinafter sometimes referred to as the "Surviving
Corporation") and the separate corporate existence of the Purchaser shall cease.
The separate corporate existence of the Company, with all its purposes, objects,
rights, privileges, powers and franchises, shall continue unaffected and
unimpaired by the Merger, and the Company shall succeed to all of the assets,
properties, licenses, agreements, liabilities, debts and other interests due or
belonging to the Purchaser.
1.2 Effective Time. The Merger shall not become effective until, and
shall become effective at, the point in time at which an agreement of merger in
the form prescribed by the California Law and the officers' certificates of each
of the Purchaser and the Company, in accordance with the terms of this Agreement
and the California Law, shall have been executed, acknowledged and filed with
the Secretary of State of the State of California (all such documents are
referred to hereinafter collectively as the "Merger Documents"). The Merger
Documents shall be filed as aforesaid at the time of the Closing (as hereinafter
defined). The date and time at which the Merger shall become effective as
aforesaid is herein called the "Effective Time."
1.3 Effects of the Merger. The Merger shall have the effects set forth
in Section 1107 of the California Law.
1.4 Taking of Necessary Action. The parties hereto shall each take all
such actions as may be reasonably necessary or appropriate in order to
effectuate the transactions contemplated hereby and to make the Merger effective
as of the Effective Time. If at any time after the Effective Time any further
action is necessary or desirable to carry out the
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purposes of this Agreement and to vest the Company with full title to all
properties, assets, rights, approvals, privileges, immunities and franchises of
the Company, the officers and directors of the Company shall and will be
authorized, in the name and on behalf of itself and the Company, to take all
such necessary or appropriate action.
1.5 Articles of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and Bylaws of the Surviving Corporation shall be the
Articles of Incorporation and Bylaws of the Company, as in effect immediately
prior to the Effective Time.
1.6 Directors and Officers. The directors of the Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Purchaser immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company, 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 on the business day
following the date on which the conditions to closing are satisfied or waived by
the appropriate party (the "Closing Date"), or such other place and time as
agreed upon by the parties.
ARTICLE II
STATUS AND CONVERSION OF SECURITIES
PURSUANT TO MERGER
2.1 Conversion of Company Shares. The manner and basis of converting
and exchanging the securities of the Company, the Purchaser and the Parent shall
be as follows:
(a) At and as of the Effective Time, each share of issued
and outstanding common stock of the Company ("Company Common Stock") and
any such common stock into which preferred stock of the Company ("Company
Preferred Stock") then held by such Shareholder is convertible
(collectively, "Company Stock") shall be converted into the right to
receive the number of shares of Parent's Common Stock, par value $.01 per
share (the "Parent Common Stock") equal to the Exchange Ratio (as defined
below). No share of Company Stock outstanding at the Effective
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Time shall be deemed to be outstanding or to have any rights other than
those set forth in this Section 2.1(a) after the Effective Time.
(b) At and as of the Effective Time, each share of issued
and outstanding Company Preferred Stock then held by such Shareholder shall
be deemed converted solely into the number of shares of Company Common
Stock into which it is convertible in accordance with its terms and
thereafter converted into the right to receive Parent Common Stock in the
manner set forth in Section 2.1(a) above.
(c) At and as of the Effective Time, each share of common
stock of Purchaser outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted, at and as of the Effective Time, into one
share of Company Common Stock, so that at and as of the Effective Time, the
Parent shall be the sole shareholder of the Surviving Corporation.
(d) At and as of the Effective Time, each share of capital
stock of the Parent issued and outstanding prior to the Effective Time
shall remain issued and outstanding after the Effective Time.
(e) At and as of the Effective Time, subject to Section 6.7
hereof, each option or warrant to acquire shares of Company Common Stock
set forth on Schedule 4.2 attached hereto (each, an "Outstanding Option")
will be converted into an option or warrant, as the case may be, to acquire
a number of shares of Parent Common Stock equal to the product of (x) the
number of shares of Company Common Stock issuable upon exercise of such
Outstanding Option, multiplied by (y) the Exchange Ratio (the "Assumed
Options"). The exercise price of each Outstanding Option shall equal the
quotient of (x) the exercise price of each Outstanding Option divided by
(y) the Exchange Ratio. Otherwise, the Assumed Options shall be on
substantially the same terms and conditions as the Outstanding Options.
(f) No fraction of a share of Parent Common Stock will be
issued by virtue of the Merger, but in lieu thereof, each holder of shares
of Company Stock who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock that otherwise would be received by the holder) shall receive
from the Parent an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) that fraction, multiplied by (ii) the average closing
price of one share of Parent Common Stock for the five most recent days
that the Parent Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market.
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For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Exchange Ratio" shall mean the quotient of (x) the Total Number of
Shares of Parent Common Stock To Be Issued, divided by (y) the fully diluted
outstanding capital stock of Company at Closing, including shares issuable upon
exercise of outstanding warrants and options to purchase such stock (the "Fully
Diluted Company Common").
"Merger Consideration Dollar Value" shall mean $17,487,713; provided
that such amount shall be subject to reduction in accordance with the provisions
of Sections 3.6(d) and 9.1 below.
"Total Number of Shares of Parent Common Stock To Be Issued" shall
mean the quotient of (i) the Merger Consideration Dollar Value divided by (ii)
$16.00.
Notwithstanding anything herein to the contrary, the Parent will
retain fifteen percent (15%) of the shares of Parent Common Stock to be issued
to each Shareholder (the "Withheld Shares") hereunder pursuant to the provisions
of Section 7.3 below for a period of one year following the Closing (except with
respect to the Other Withheld Shares (as defined in Section 7.3.5 below) which
shall be retained as provided therein) as security for the performance by the
Shareholders of the covenants and agreements set forth herein.
If, prior to the Effective Time, there is any change affecting the
Parent's outstanding Common Stock as a class (through merger, consolidation,
reorganization, reincorporation, stock dividend, dividend in property other than
cash, stock split, reverse stock split, liquidation, dividend, combination of
shares, change in corporation structure or other transaction), then the Exchange
Ratio and the securities or other property issuable to the Shareholders upon the
Merger shall be appropriately adjusted such that, for each share of Parent
Common Stock that such Shareholder would have been entitled to receive prior to
such change, such Shareholder shall be entitled to receive any and all new,
substituted or additional securities or other property resulting from such
change for which the holder of a share of Parent Common Stock immediately prior
to such change would be entitled by virtue of ownership of such share of Parent
Common Stock.
2.2 Exchange of Share Certificates. Registrar and Transfer Company
shall act as the exchange agent (the "Exchange Agent") in the Merger. Each
Shareholder shall, upon the Effective Time and presentation and surrender of the
certificate or certificates therefor to the Exchange Agent for cancellation in
accordance with the transmittal materials described below, be entitled to
receive in exchange therefor a certificate or certificates representing the
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number of shares of Parent Common Stock into which the shares of Company Stock
shall have been converted at the Effective Time subject to the terms and
conditions set forth in this Agreement. Until so surrendered, each certificate
which represented issued and outstanding shares of Company Stock immediately
prior to the Effective Time shall be deemed canceled at the Effective Time and
shall be deemed for all purposes to evidence only the ownership of the amount of
full shares of Parent Common Stock into which the shares of Company Stock shall
have been converted in accordance with the terms and conditions set forth in
this Agreement.
2.3 Transmittal Materials. The Exchange Agent shall send to each
Shareholder transmittal materials for use in surrendering its certificate or
certificates in exchange for the merger consideration set forth in Section 2.1
above (the "Merger Consideration"). The letter of transmittal will contain
instructions with respect to the surrender of such certificates. The Exchange
Agent shall instruct holders of record of Company Stock who hold such shares for
the account of others to provide the respective beneficial holders of such
shares instructions with respect to the surrender of their shares. All
determinations as to the adequacy of the completed certificates, letters of
transmittal and any other related documents in connection with the surrender of
such shares that are submitted to the Parent for exchange shall be made by the
Parent.
2.4 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to the Parent Common Stock with a record date after the Effective Time
will be paid to holders of any unsurrendered certificates representing shares of
Company Stock with respect to the shares of Parent Common Stock represented
thereby until the holders of record of such certificates surrender such
certificates, and no cash payment in lieu of fractional shares shall be paid to
the holders of such certificates until the holders of record of those
certificates surrender such certificates. Subject to applicable law and any
special instructions provided to the Exchange Agent in the transmittal
materials, following surrender of such certificates, the Exchange Agent shall
deliver to the record holders, without interest, certificates representing whole
shares of Parent Common Stock issued in exchange therefor along with payment in
lieu of fractional shares pursuant to Section 2.1(f) and the amount of any
dividends or other distributions with a record date after the Effective Time
payable with respect to whole shares of Parent Common Stock.
2.5 Dissenting Shares of Company Stock. Each outstanding share of
Company Stock for which written notice of intent to demand payment therefor is
delivered in accordance with Chapter 13 of the California Law and which is not
voted in favor of the Merger shall not be converted into or represent a right to
receive the Merger Consideration hereunder unless and until the holder thereof
shall have failed to perfect such holder's
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demand for payment under Chapter 13 of the California Law, at which time such
holder's shares shall be converted into a right to receive the Merger
Consideration in the same manner and subject to the same conditions as provided
for other outstanding shares of Company Stock herein. All such shares of Company
Stock for which such a written notice of intent to demand payment is so
delivered and which are not voted in favor of the Merger, except for such shares
of Company Stock for which a demand for payment is not perfected in accordance
with the California Law, are herein called "Dissenting Company Shares." The
Company shall give the Parent and the Purchaser prompt notice upon receipt by
the Company of any such written notice of intent to demand payment for shares of
Company Stock, and the Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands. The Company
agrees that prior to the Effective Time it will not, except with the prior
written consent of the Parent, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment. Each holder of
Dissenting Company Shares who becomes entitled, pursuant to Chapter 13 of the
California Law, to receive payment for the fair value of such holder's shares
shall receive payment therefor from the Company as the Surviving Corporation
(but only after the amount thereof shall have been agreed upon or finally
determined pursuant to such provisions and provided to the Company by the
Parent), and such shares shall be retired and canceled.
2.6 Rights of Former Shareholders. Each holder of a certificate
representing shares of Company Stock prior to the Effective Time who has not
previously surrendered such certificate in accordance with Section 2.2 above may
thereafter surrender such certificate to the Surviving Corporation and (subject
to applicable abandoned property, escheat and similar laws) receive from the
Parent or the Company in exchange therefor the Merger Consideration in
accordance with the terms hereof.
2.7 Closing of the Company's Transfer Books. At the Effective Time,
the stock transfer records of the Company shall be closed and no transfer of
shares of Company Stock shall thereafter be made.
2.8 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to best
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of the Company acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise necessary
to carry out the purposes of this Agreement, the Company and its proper officers
and directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
the Surviving Corporation and the officers and
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directors of the Surviving Corporation are fully authorized in the name of the
Company or otherwise to take any and all such actions.
2.9 Taxes. The Shareholders shall pay all transfer or similar taxes,
if any, required to be paid by reason of the Merger.
2.10 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Section 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
2.11 Registration on Form S-8. The Parent will cause a Form S-8
registration statement ("Form S-8") to be filed under the Securities Act of
1933, as amended ("Securities Act") with respect to the Parent Common Stock
issuable upon exercise of the Assumed Options (provided that all Outstanding
Options have been granted to persons who are eligible to receive registered
shares under a Form S-8) as soon as practicable after the Effective Time.
ARTICLE III
CLOSING; CLOSING CONDITIONS;
PRE-CLOSING COVENANTS
3.1 Closing Transactions. Subject to the conditions set forth in this
Agreement, the parties shall consummate the following transactions (the "Closing
Transactions") on the Closing Date:
(a) Xxxx Xxxxxx shall execute the Employment Agreement
substantially similar to the form attached hereto as Exhibit B;
(b) Xxx Xxxxx Xxx shall execute the Employment Agreement
substantially similar to the form attached hereto as Exhibit C;
(c) Xxxxxx Xxxxxxxx shall execute the Employment Agreement
substantially similar to the form attached hereto as Exhibit D;
(d) Xxxx Xxxxxx shall execute the Non-Competition Agreement
substantially similar to the form attached hereto as Exhibit E;
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(e) the Company and the Purchaser, as applicable, shall
deliver the opinions, certificates and other documents and instruments
required to be delivered by or on behalf of such Party under Article III;
and
(f) the parties hereto shall cause the Merger Documents to
be filed with the California Secretary of State.
3.2 The Company's Closing Deliveries. Subject to and conditioned upon
the Closing, on or prior to the Closing Date, the Company shall have delivered
to Purchaser all of the following:
(a) certificates of the Secretary of State of the State of
California and the California Franchise Tax Board providing that the
Company is in good standing;
(b) certified copies of the resolutions of the Company's
board of directors approving the transactions contemplated by this
Agreement;
(c) copies of all third party (including landlords) and
governmental consents, approvals, filings, releases and terminations
required in connection with the consummation of the transactions
contemplated herein;
(d) an opinion, dated the Closing Date, of counsel to the
Company, in form and substance reasonably satisfactory to the Purchaser;
(e) a certificate of the Company certifying that the
conditions to Closing set forth in Section 3.4 have been satisfied;
(f) written resignations, effective the Effective Time, of
the directors and officers of the Company;
(g) the Merger Documents to be executed by the Company and
its officers, as applicable;
(h) possession of the minute books, stock record books and
other books and records of the Company, including without limitation
originals of all Company leases, licenses and other contracts; and
(i) such other documents or instruments as the Purchaser may
reasonably request to effect the transactions contemplated hereby.
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3.3 The Purchaser's Closing Deliveries. Subject to and conditioned
upon the Closing, on or prior to the Closing Date, the Purchaser shall have
delivered to the Company all of the following:
(a) a certificate of the Secretary of State of the State of
California providing that the Purchaser is in good standing and a
certificate of the Secretary of State of the State of Delaware providing
that the Parent is in good standing;
(b) certified copies of the resolutions of the Parent's and
the Purchaser's boards of directors approving the transactions contemplated
by this Agreement;
(c) an opinion, dated the Closing Date, of counsel to the
Purchaser and Parent, in form and substance reasonably satisfactory to the
Company;
(d) a certificate of the Purchaser certifying that the
conditions to Closing set forth in Section 3.5 have been satisfied;
(e) the Merger Documents to be executed by the Purchaser and
its officers, as applicable; and
(f) such other documents or instruments as the Company may
reasonably request to effect the transactions contemplated hereby.
3.4 Conditions to the Parent's and the Purchaser's Obligations. The
obligation of the Parent and the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions as of the Closing Date:
(a) the representations and warranties set forth in Article
IV hereof shall be true and correct in all material respects at and as of
the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations
and warranties;
(b) the Company shall have performed and complied with all
of the covenants and agreements required to be performed by it under this
Agreement on or prior to the Closing and the applicable Shareholders shall
have complied with all of the covenants and agreements required to be
performed by them under the Voting Agreement;
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(c) the Merger shall not be prohibited by any applicable law
or governmental regulation, shall not subject the Parent or the Purchaser
to any penalty, liability or other materially adverse condition under or
pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which the Parent
or the Purchaser is subject;
(d) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable judgment, decree, injunction, order or ruling would
prevent the performance of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause such transactions to be rescinded and no judgment,
decree, injunction, order or ruling shall have been entered which has any
of the foregoing effects;
(e) the Company shall have obtained, on terms and conditions
satisfactory to the Parent and the Purchaser, such licenses, permits,
consents, approvals, waivers, authorizations, qualifications and orders of
governmental authorities, parties to contracts with the Company (including
without limitation an extension of any key Company contract expiring in
1999 on terms and conditions satisfactory to Parent) and other third
parties as are necessary in connection with the consummation of the
transactions contemplated hereby, and the Shareholders shall have approved
the Merger in accordance with the California Law and the Articles of
Incorporation and Bylaws of the Company;
(f) the Parent and the Purchaser shall have obtained, on
terms and conditions satisfactory to the Parent and the Purchaser, such
licenses, permits, consents, approvals, waivers, authorizations,
qualifications and orders of governmental authorities, parties to contracts
with the Company and other third parties (including without limitation the
holding of the Fairness Hearing and the issuance of a permit issued by the
California Department of Corporations with respect to the issuance of the
Parent Common Stock) as are necessary in connection with the consummation
of the transactions contemplated hereby;
(g) The form and substance of all certificates, instruments,
opinions and other documents delivered to the Parent and the Purchaser
under this Agreement shall be satisfactory in all respects to each of the
Parent and the Purchaser;
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(h) The Parent and the Purchaser shall have received an
opinion of counsel to the Company in form and substance satisfactory to the
Parent and the Purchaser;
(i) The Parent shall have received an opinion from the
Company's independent accounting firm, in form and substance satisfactory
to the Parent and the Purchaser, to the effect that the Merger, when
effected in accordance with the terms of this Agreement, will qualify as a
reorganization under Section 368(a)(1)(A) of the Code.
(j) A Shareholders Agreement (the "Shareholders Agreement"),
substantially in the form attached hereto as Exhibit F, with respect to
transactions relating to Parent Common Stock, shall have been executed and
delivered to the Parent by the holders of at least 80% of the issued and
outstanding shares of each class of Company Stock;
(k) Holders of at least 85% of all shares of capital stock
of the Company entitled to vote on the Merger shall have approved the
Merger;
(l) all applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended ("HSR Act") shall have expired or otherwise been terminated; and
(m) The Merger Documents shall have been filed as set forth
herein and the Merger shall have become effective.
Any condition specified in this Section 3.4 may be waived by the
Purchaser; provided that no such waiver shall be effective against the Purchaser
unless it is set forth in a writing executed by the Purchaser.
3.5 Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions as of the Closing Date:
(a) the representations and warranties set forth in Article
V shall be true and correct in all material respects at and as of the
Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations
and warranties;
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(b) each of the Parent and the Purchaser shall have
performed and complied with all of the covenants and agreements required to
be performed by it under this Agreement on or prior to the Closing;
(c) the holding of the Fairness Hearing and the issuance of
a permit issued by the California Department of Corporations with respect
to the issuance of the Parent Common Stock;
(d) the Shareholders shall have approved the Merger in
accordance with the California Law and the Articles of Incorporation and
Bylaws of the Company;
(e) the Merger shall not be prohibited by any applicable law
or governmental regulation, shall not subject the Company to any penalty,
liability or other materially adverse condition under or pursuant to any
applicable law or governmental regulation, and shall be permitted by laws
and regulations of the jurisdictions to which the Company is subject;
(f) no action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable judgment, decree, injunction, order or ruling would prevent the
performance of this Agreement or any of the transactions contemplated
hereby, declare unlawful the transactions contemplated by this Agreement or
cause such transactions to be rescinded and no judgment, decree,
injunction, order or ruling shall have been entered which has any of the
foregoing effects; and
(g) all applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated.
Any condition specified in this Section 3.5 may be waived by the
Company; provided that no such waiver shall be effective against the Company
unless it is set forth in a writing executed by the Company.
3.6 Affirmative Covenants of the Company. Prior to the Closing, unless
the Parent otherwise agrees in writing and except as expressly contemplated by
this Agreement, the Company shall:
(a) conduct its business and operations only in the ordinary
course of business, consistent with past practice;
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(b) maintain the books, accounts and records of the Company
in accordance with past custom and practice as used in the preparation of
the Financial Statements;
(c) promptly inform the Purchaser in writing of any
variances from the representations and warranties contained in Article IV
hereof or any breach of any covenant hereunder by the Company;
(d) cooperate with the Purchaser and use reasonable best
efforts to cause the conditions to the Purchaser's obligation to close to
be satisfied (including, without limitation, taking all necessary actions
(including the payment of the required filing fee which shall reduce the
Merger Consideration Dollar Value on a dollar-for-dollar basis) to comply
with the requirements, if any, under the HSR Act;
(e) acting through its Board of Directors, (i) cooperate
with the Parent and the Purchaser with respect to the filing of a permit
application with the California Department of Corporations ("DOC") and the
request for a fairness hearing before the DOC and take all actions
necessary in connection therewith, and (ii) as soon as practicable after a
hearing conducted by the DOC as to the fairness of the terms and conditions
of the Merger (the "Fairness Hearing") obtain the written consent of a
majority of shares of each class of capital stock of the Company entitled
to vote on the Merger for the purpose of adopting and approving this
Agreement, the Merger and all actions and transactions relating thereto.
The Company shall use its best efforts to obtain the requisite vote of its
shareholders required by law in favor of adoption and approval of this
Agreement, the Merger and all actions and transactions relating thereto.
The Company shall deliver to the Parent promptly after the expiration of
the period within which a Shareholder may demand payment of his shares of
Company Stock pursuant to Section 1301 of the California Law a certificate
of the Chief Executive Officer of the Company containing the names of the
Shareholders who did not vote in favor of the Merger and the adoption of
this Agreement and who filed written demand for payment of their shares of
the Company in accordance with Chapter 13 of the California Law. Such
certificate shall include the number of shares of Company Stock held by
each such Shareholder and the mailing address of each such Shareholder.
3.7 Negative Covenants of the Company. Prior to the Closing, unless
the Purchaser otherwise agrees in writing and except as expressly contemplated
by this Agreement, the Company shall not:
(a) take any action that would require disclosure under
Section 4.17;
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(b) make any loans, enter into any transaction with any key
employee or affiliate of the Company or make or grant any increase in any
employee's compensation (other than in the ordinary course of business
consistent with past practice) or make or grant any increase in any
employee benefit plan, incentive arrangement or other benefit covering any
of the employees of the Company;
(c) establish or, except in the ordinary course of business
consistent with past practice, contribute to any pension, retirement,
profit sharing or stock bonus plan or multiemployer plan covering the
employees of the Company;
(d) enter into any contract, agreement or transaction, other
than in the ordinary course of business consistent with past practice with
unaffiliated third parties;
(e) declare, pay, make or otherwise effectuate any dividends
or distributions from the Company to the Shareholders or any other
shareholders of the Company;
(f) engage in any activity other than in the ordinary course
of business consistent with past practice which would accelerate the
collection of its accounts or notes receivable, delay the payment of its
accounts payable, delay its capital expenditures, or reduce or otherwise
restrict the amount of inventory on hand; or
(g) (i) solicit, initiate or encourage the submission of any
proposal or offer from any third party relating to any liquidation,
dissolution or recapitalization of, merger or consolidation with or into,
acquisition or purchase of assets of the Company (other than with respect
to the sale of inventory and the purchase and/or replacement of equipment
in the ordinary course of business) or any equity interest in or similar
transaction or business combination involving the Company or (ii)
participate in any negotiations regarding, furnish any information with
respect to, or assist or participate in, any effort or attempt by any third
party to do or seek any of the foregoing, but will immediately notify the
Purchaser if any third party attempts to make any proposal to or initiate
any discussion or negotiation with any of them concerning any of the
foregoing.
3.8 Affirmative Covenants of the Parent and the Purchaser. Prior to
the Closing, unless the Company otherwise agrees in writing and except as
expressly contemplated by this Agreement, the Parent and the Purchaser, as
applicable, shall:
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(a) conduct its business and operations only in the ordinary
course of business, consistent with past practice;
(b) maintain its books, accounts and records in accordance
with past custom and practice as used in the preparation of the financial
statements contained in the Registration Statement (the "Parent Financial
Statements");
(c) promptly inform the Company in writing of any variances
from the representations and warranties contained in Article V hereof or
any breach of any covenant hereunder by the Parent or the Purchaser, and
(d) cooperate with the Company and use reasonable efforts to
cause the conditions to the Company's obligation to close to be satisfied
(including, without limitation, the execution and delivery of all
agreements contemplated hereunder to be so executed and delivered and the
making and obtaining of all third party and governmental filings,
authorizations, approvals, consents, releases and terminations).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Parent and the Purchaser to enter into this Agreement
and to consummate the transactions contemplated hereunder, the Company makes the
following representations and warranties concerning the Company, which
representations and warranties shall survive the Closing as provided in Section
7.1.
4.1 Organization, Power and Authority; Subsidiaries. The Company has
all requisite power and authority to own or lease its properties and to carry on
the business of the Company as it is now being conducted. The Company is legally
qualified to transact business in each of the jurisdictions in which its
business or property is such as to require that it be thus qualified, and it is
in good standing in each of the jurisdictions in which it is so qualified. The
Company does not own, of record or beneficially, any capital stock or equity
interest or investment in any corporation, partnership, joint venture,
association or business entity.
4.2 Capitalization. Schedule 4.2 attached hereto sets forth each
holder of capital stock of the Company (each, a "Shareholder") and the number of
shares of each class of the Company's capital stock owned by such Shareholder.
Each share of each series of Company Preferred Stock is, and at the Effective
Time will be, convertible into one share of Company Common Stock. All of the
shares of Company Stock (i) have been duly authorized
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and validly issued and are fully paid and non-assessable, (ii) were issued in
compliance with all applicable state and federal securities laws, and (iii) were
not issued in violation of any preemptive rights or rights of first refusal. No
preemptive rights or rights of first refusal exist with respect to the Company
Stock. Schedule 4.2 sets forth all outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require the Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital stock).
There are no outstanding stock appreciation, phantom stock, profit participation
or other similar rights with respect to the Company. There are no proxies,
voting rights or other agreements or understandings with respect to the voting
or transfer of the capital stock of the Company (except the Voting Agreement).
The Company is not obligated to redeem or otherwise acquire any of its
outstanding shares of capital stock, except the shares of Series C preferred
stock held by Capital Cities Capital which are to be redeemed, and warrants to
purchase Series C preferred stock held by Capital Cities Capital which are to be
forfeited, in exchange for cancellation of media credits contributed to the
Company pursuant to a letter agreement from ABC, Inc. to the Company dated May
7, 1999, a copy of which has been provided to the Parent. As of the date hereof,
the Shareholders constitute all of the holders of record of all issued and
outstanding shares of capital stock of the Company.
4.3 Due Authorization; Binding Obligation; No Conflicts. The
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of the Company. This
Agreement has been duly executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) contravene any
provision of the articles of incorporation or by-laws, each as amended, of the
Company; (ii) violate or conflict with any federal, state or local law, statute,
ordinance, rule, regulation or any decree, writ, injunction, judgment or order
of any court or administrative or other governmental body or of any arbitration
award which is either applicable to, binding upon or enforceable against the
Company in any manner that is likely to have a material adverse effect on the
Company's business or financial condition; or (iii) conflict with, result in any
breach of or default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under any material mortgage,
contract, agreement, lease, license, indenture, will, trust or other instrument
which is either binding upon or enforceable against the Company. The execution,
delivery and performance by the Company of this Agreement require no action by
or in respect of, or filing with, any governmental body, agency, official or
authority. Except as set forth on Schedule 4.3 attached hereto, no consent,
approval, waiver or other action by any private
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party under any contract, agreement, indenture, lease, instrument or other
document to which the Company is a party or by which the Company is bound is
required for the execution, delivery and performance of this Agreement by the
Company or the consummation of the transactions contemplated hereby.
4.4 Financial Statements. The Company previously has furnished to the
Purchaser the following financial statements, including the notes pertaining
thereto (the "Financial Statements"), of the Company:
(a) balance sheets at June 30, 1998 and June 30, 1997;
(b) balance sheet at March 31, 1999 (the "Last Balance
Sheet");
(c) statements of income for the years ended June 30, 1998
and June 30, 1997; and
(d) statement of income for the 9-month period ended
March 31, 1999.
The Financial Statements, which are attached hereto on Schedule 4.4,
present fairly the financial position of the Company, in all material respects,
at each of the said balance sheet dates and the results of its operations for
each of the said periods covered, and they have been prepared in accordance with
generally accepted accounting principles consistently applied. The books and
records of the Company properly and accurately reflect all material
transactions, properties, assets and liabilities of the Company.
4.5 Liabilities. The Company has no liabilities or obligations, either
accrued, absolute, contingent or otherwise, except: (i) liabilities set forth on
the Last Balance Sheet and not heretofore paid or discharged; (ii) to the extent
specifically set forth in or incorporated by express reference in any of the
schedules hereto; and (iii) normal liabilities incurred in the ordinary course
of business since the date of the Last Balance Sheet.
4.6 Tax Matters. Except as set forth in Schedule 4.6:
4.6.1 The Company has timely and properly filed all tax returns
and reports (including without limitation information returns) required to be
filed by it prior to the date hereof, or has filed appropriate extensions with
respect thereto, including all federal, state, local and foreign tax returns,
and has paid in full or made adequate provision by the establishment of reserves
for all taxes and other charges which have accrued or become due. All tax
returns and reports have been prepared in accordance with applicable laws and
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accurately reflect the measure of tax required to be disclosed by each such
return or report. To the best of the Company's knowledge, there is no tax
deficiency proposed or threatened against the Company. There are no tax liens
upon any property or assets of the Company. The Company has made all payments of
estimated taxes when due in amounts sufficient to avoid the imposition of any
material penalty.
4.6.2 All taxes and other assessments and levies which the
Company was required by law to withhold or to collect with respect to any
employee, shareholder or other person have been duly withheld and collected and
have been paid over to the proper governmental entity or are being held by the
Company or properly reserved against the Company for such payment. All such
withholdings and collection and all other payments due in connection therewith
as of the date of the Last Balance Sheet are duly reflected on the Last Balance
Sheet.
4.6.3 The Company is not (and has not been at any time during the
last 5 years) a U.S. real property holding corporation for purposes of Section
897 of the Code (or any corresponding provision of state, local or foreign tax
law), and the Company does not have any permanent establishment in any foreign
country, as defined in the relevant tax treaty between the United States and
such foreign county.
4.6.4 Except as set forth on Schedule 4.6.4:
(i) The Internal Revenue Service and
California Franchise Tax Board have not audited the income tax returns
of the Company for any period, and no waiver or extension of any tax
statute of limitations has been granted by the Company.
(ii) The Company has satisfied or
discharged its obligations under all state and local sales and use tax
laws.
(iii) The Company is not and has never been
the "common parent" or a member otherwise of an "affiliated group" of
corporations (as those terms are used in Section 1504(a) of the Code
and the Treasury Regulations promulgated under Section 1502 of the
Code). The Company is not and has never been required to join and has
not joined in the filing of a consolidated federal income tax return
or a state or local combined, unitary or group income or franchise tax
return.
(iv) The Company has timely withheld from
its employees, customers and other payees (and timely paid) all
amounts required to be
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withheld and paid by the tax withholding provisions of applicable
federal, state, local and foreign laws, statutes, rules and
regulations (including, without limitation, income, social security,
and employment tax withholding for all types of compensation, and
withholding on payments to non-United States persons) for all payments
made through the date hereof.
(v) The Company is not required to, and
has not, filed any tax return in any jurisdiction other than
California.
(vi) There is no power of attorney
currently in force granted by or for the Company with respect to
taxes.
(vii) There is no contract or agreement
under which the Company has, or may at any time in the future have, an
obligation to assume, share or contribute to the payment of any
portion of taxes (or any amount calculated with reference to any
portion of taxes) of any other person.
(viii) The Company is not a party to any
contract, plan or agreement, which, individually or collectively with
respect to any person but determined without regard to the effects of
any payment made pursuant to any obligation undertaken after the
Effective Time of the Merger, could give rise to the payment of any
amount that would not be deductible by the Company or a successor by
reason of Section 280G or Section 162(m) of the Code.
(ix) The Company has not received or
requested any private tax ruling or entered into any tax closing
agreement with any taxing authority (foreign or domestic).
(x) No action, suit, proceeding,
investigation, arbitration, audit, claim or assessment is presently or
proposed to be asserted or commenced by any taxing authority with
regard to any taxes imposed on the Company or for which the Company
may be liable.
(xi) Except as set forth in Schedule
4.6.4, (A) the Company is not required to make any adjustment pursuant
to Section 481 of the Code (or any similar provision of other laws or
regulations) by reason of a change in accounting method or otherwise
that will affect any taxable year beginning after the Effective Time;
(B) neither the IRS nor any other taxing authority has proposed any
such adjustment or change in accounting method, which proposal is
currently pending; and (C) the Company has no application
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pending with any taxing authority requesting permission for any change
in accounting method that relates to its business or operations.
(xii) The Disclosure Schedule contains a
list of all countries, states, provinces, cities, territories, and
other jurisdictions (whether foreign or domestic) in which the Company
files a tax return. There is no unresolved claim by a taxing authority
in any jurisdiction where the Company does not file tax returns that
it is or may be subject to taxation by such jurisdiction.
(xiii) There are no liens for taxes (other
than for taxes not yet due and payable) upon the assets of the
Company.
(xiv) The Company has not participated in
or cooperated with an "international boycott" within the meaning of
Section 999 of the Code. The Company has not filed a consent under
Section 341(f)(1) of the Code or any comparable provision of state
revenue statues, or agreed under Section 341(f)(3) of the Code to have
the provisions of Section 341(f)(2) of the Code applied to the sale of
its capital stock
(xv) The Company is not a partner or a
member of any partnership or joint venture, or any other entity
required to be classified as a partnership for federal income tax
purposes.
(xvi) The Company does not treat as an
independent contractor any person that is required to be treated as an
employee. For the purposes of this Agreement, "taxes" means any
federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
4.7 Real Estate.
4.7.1 The Company owns no real estate.
4.7.2 Schedule 4.7 identifies accurately the lease agreement with
respect to the Company's leasehold premises (the "Lease"). The properties leased
pursuant
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to the Lease constitute all real property (including employee and customer
parking) used by the Business in the twelve months prior to the Closing Date. A
true and complete copy of the Lease has been delivered to the Purchaser prior to
the date hereof. Schedule 4.7 also sets forth a description of the nature and
amount of all liens on the Company's interest in the Lease. The Lease is in full
force and effect, the Company is not in default or breach under the Lease and no
event has occurred which with the passage of time or the giving of notice or
both would cause a material breach of or default under the Lease by Company that
has not been waived. To the best of the Company's knowledge, there is no breach
or default of the Lease by any other party to the Lease that has not been
heretofore satisfied or waived.
4.7.3 The Company has valid leasehold interests in the Lease,
free and clear of any liens, covenants and easements of any nature whatsoever,
except for (i) liens set forth on Schedule 4.7; (ii) liens for real estate taxes
not yet due and payable; and (iii) such imperfections of title and encumbrances,
if any, as are not material in character, amount or extent and do not detract
from the value, or interfere with the present use, of such properties.
4.7.4 Each of the premises covered by the Lease: (i) has direct
access to public roads or access to public roads by means of a perpetual access
easement, such access being sufficient to satisfy the current normal
transportation requirements of the Company's business as presently conducted at
such parcel; and (ii) is served by all utilities in such quantity and quality as
are sufficient to satisfy the current normal sales levels and business
activities as conducted at such parcel.
4.7.5 The Company has not received notice of (i) any condemnation
proceeding with respect to any portion of the premises covered by the Lease or
any access thereto, and, to the best of the Company's knowledge, no proceeding
is contemplated by any governmental authority; or (ii) any special assessment
which is reasonably expected to affect any of the premises covered by the Lease,
and, to the best of the Company's knowledge, no such special assessment is
contemplated by any governmental authority.
4.8 Good Title to and Condition of Assets. As of the Closing Date, the
Company will have good and marketable title to all of its assets, free and clear
of any liens except for liens for taxes not yet due and payable, purchase money
security interests arising in the ordinary course of business in connection with
trade payables, and such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby ("Permitted Liens"). The Company's
fixed assets currently in use and necessary for normal sales levels, are in good
operating condition, normal wear and tear excepted.
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4.9 Receivables. All of the Company's accounts receivable are valid
and legally binding, represent bona fide transactions and arose in the ordinary
course of business of the Company. All of the Company's accounts receivable are
good, valid and collectible receivables, and will be collected in full, in
accordance with the terms of such receivables, within 90 days after the Closing
Date subject to the Company's reserve for doubtful accounts as of the Closing on
the Company's books and records as of the Closing Date.
4.10 Licenses and Permits. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for the business and operations of the Company.
All such Permits are valid and in full force and effect, the Company is in
substantial compliance with their requirements, and no proceeding is pending or,
to the best of the Company's knowledge, threatened to revoke or amend any of
them. Schedule 4.10 contains a complete list of all such Permits. Except as
indicated on Schedule 4.10, none of such Permits will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated herein.
4.11 Proprietary Rights.
4.11.1 Schedule 4.11 contains an accurate and complete list of
all of the Company's material proprietary rights, including all trademarks,
trade names, patents, patent applications, licenses thereof, formulae, computer
software, slogans, trade dress, copyrights, operating rights, other licenses and
permits, and other similar intangible property and rights relating to the
products or business of the Company, except for off-the-shelf software and
licenses implied in the sale of such software.
4.11.2 Except as set forth on Schedule 4.11, (i) the Company owns
all right, title and interest in and to all of the Company's proprietary rights;
(ii) Company has received no notice of any claim by any third party asserting
the invalidity, abuse, misuse, or enforceability of any such rights, and to
Company's knowledge there are no grounds for the same; (iii) the Company has not
received a notice of conflict with the asserted rights of others within the last
five years; and (iv) the conduct of the Company's business has not infringed any
proprietary rights of others.
4.12 Relationships with Suppliers. The Company has not received any
written or oral communication prior to the date of this Agreement that any
current supplier to the Company of items important to the conduct of its
business, which items cannot be replaced by the Company at comparable cost to
the Company and the loss of which would have a material adverse effect on the
business or operations of the Company, will terminate its business relationship
with the Company.
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4.13 Contracts and Agreements with Respect to the Company. Schedule
4.13 is an accurate and complete list of the following contracts and agreements
to which the Company currently is a party:
(a) collective bargaining agreement or contract with any
labor union or any bonus, pension, profit sharing, retirement or any other
form of deferred compensation plan or any stock purchase, stock option,
hospitalization insurance or similar plan or practice, whether formal or
informal;
(b) any express contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis or
any severance agreements;
(c) agreement or indenture relating to the borrowing of
money or to mortgaging, pledging or otherwise placing a lien on any of its
assets, including, without limitation, the documents related to any
Equipment Financing;
(d) contract under which the Company has advanced or loaned
any other Person amounts in the aggregate exceeding $10,000;
(e) agreements with respect to the lending or investing of
funds;
(f) license or royalty agreements (excluding licenses or
agreements pertaining to "off-the-shelf" software);
(g) guaranty of any obligation, other than endorsements made
for collection;
(h) outstanding powers of attorney executed on behalf of the
Company;
(i) lease or agreement under which it is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by it;
(j) contract or group of related contracts with the same
party continuing over a period of more than six months from the date or
dates thereof, not terminable by it on 30 days or less notice without
penalties or does not involve less than $50,000;
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(k) any confidentiality agreement or similar arrangement
requiring the Company to maintain confidentiality of third party
information;
(l) non-compete or similar contract which prohibits it from
freely engaging in business anywhere in the world; or
(m) other agreement material to it whether or not entered
into in the ordinary course of business, except for this Agreement or the
agreements contemplated hereby which is not terminable by it on 30 days or
less notice without penalties or does not involve less than $50,000.
Except as disclosed on Schedule 4.13, (i) no contract or commitment
required to be disclosed on Schedule 4.13 and assumed by Purchaser has, to the
Company's knowledge, been breached or canceled by the other party and the
Company has no knowledge of any anticipated breach by any other party to any
contract set forth on Schedule 4.13, and (ii) the Company has performed all the
obligations required to be performed by it as of the date hereof in connection
with the contracts or commitments required to be disclosed on Schedule 4.13 and
is not in default under or in breach of any contract or commitment required to
be disclosed on Schedule 4.13, and to Company s knowledge no event has occurred
which with the passage of time or the giving of notice or both would result in a
default or breach thereunder, (iii) each agreement is legal, valid, binding,
enforceable and in full force and effect.
The Company has provided the Purchaser with a true and correct copy of
all written contracts which are required to be disclosed on Schedule 4.13, in
each case together with all amendments, waivers or other changes thereto (all of
which are disclosed on Schedule 4.13). Schedule 4.13 contains an accurate and
complete description of all material terms of all oral contracts referred to
therein.
4.14 Litigation. Except as set forth on Schedule 4.14, there are no
actions, suits, claims, governmental investigations or arbitration proceedings
pending or, to Company's knowledge, threatened against the Company or any of its
assets, or which question the validity or enforceability of this Agreement or
any action contemplated herein. There are no outstanding unsatisfied orders,
decrees or stipulations issued by any federal, state, local or foreign judicial
or administrative authority in any proceeding to which the Company is or was a
party or which apply to any of the Company's assets.
4.15 Records of the Company. The copies of the articles of
incorporation and bylaws of the Company which were provided to the Purchaser are
true, accurate and complete and reflect all amendments made through the date of
this Agreement. The minute
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books for the Company made available to the Purchaser for review were correct
and complete in all material respects as of the date of such review, no further
entries have been made through the date of this Agreement, such minute books
contained the true signatures of the persons purporting to have signed them, and
such minute books contain an accurate record of all material corporate actions
of the shareholders and directors (and any committees thereof) of the Company
taken by written consent or at a meeting within the past 10 years. All material
corporate actions taken by the Company have been duly authorized or ratified.
All accounts, books, ledgers and official and other records of the Company have
been fully, properly and accurately kept and completed in all material respects,
and there are no material inaccuracies or discrepancies of any kind contained
therein. The stock ledgers of the Company, as previously made available to the
Purchaser, contain accurate and complete records of all issuances, transfers
reported to the Company and cancellations of shares of the capital stock of the
Company.
4.16 Insurance. Schedule 4.16 attached hereto lists and briefly
describes each insurance policy maintained by the Company with respect to its
properties, assets and business, together with a claims history for the past
three years. All premiums and other payments which have become due under the
policies of insurance listed on Schedule 4.16 have been paid in full, all of
such policies are now in full force and effect and the Company has not in the
past thirty days received notice from any insurer, agent or broker of the
cancellation of, or any increase in premium with respect to, any of such
policies or bonds. The Company has no self-insurance or co-insurance programs.
Except as set forth on Schedule 4.16, the Company has not received any
notification from any insurer, agent or broker denying or disputing any claim
made by the Company or denying or disputing any coverage for any such claim or
the amount of any claim. Except as set forth on Schedule 4.16, the Company has
no claim against any of its insurers under any of such policies pending or
anticipated and there has been no occurrence of any kind which would give rise
to any such claim.
4.17 Absence of Certain Developments. Except as set forth on Schedule
4.17 attached hereto and except as expressly contemplated by this Agreement,
since the date of the Last Balance Sheet, the Company has not:
(a) suffered any material adverse change in the business,
assets or properties of Company or in the financial condition or results of
operations of the Company, other than changes occurring in the ordinary
course of business consistent with past practice or resulting from business
or economic downturns not reasonably in the control of Company (which have
not, either alone or in the aggregate, had a material adverse effect on the
business, assets or properties of Company or its financial condition or
results of operations) or suffered any material theft, damage,
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destruction or casualty to any material assets, whether or not covered
by insurance, or suffered any material destruction of its books and
records;
(b) made any distributions (whether in cash or in kind) to
any Shareholders;
(c) issued, sold or transferred or repurchased or redeemed
any interest in the Company or any rights to acquire any interest in the
Company (except for the forfeiture of the Series C warrants by Capital
Cities Capital and the repurchase or redemption of the Series C preferred
stock held by Capital Cities Capital in exchange for cancellation of media
credits previously contributed to the Company by Capital Cities Capital);
(d) incurred or become subject to any material liabilities,
except liabilities incurred in the ordinary course of business consistent
with past practice;
(e) subjected any portion of its properties or assets to any
lien (other than Permitted Liens) which will not be discharged as of the
Closing;
(f) sold, leased, assigned or transferred (including,
without limitation, transfers to the shareholders, officers and directors)
any of its tangible assets, except for sales of inventory in the ordinary
course of business consistent with past practice or in connection with
replacement of equipment or as otherwise contemplated by this Agreement, or
canceled without fair consideration any material debts or claims owing to
or held by it;
(g) sold, assigned, licensed or transferred (including,
without limitation, transfers to the shareholders, officers and directors)
any material proprietary rights owned by, issued to or licensed to it or
disclosed any confidential information (other than pursuant to agreements
requiring the disclosure to maintain the confidentiality of and preserving
all its rights in such confidential information);
(h) suffered any extraordinary losses or waived any rights
of material value;
(i) entered into, amended or terminated any material lease,
contract, agreement or commitment, or taken any other action or entered
into any other transaction other than in the ordinary course of business
consistent with past practice;
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(j) entered into any other material transaction, or
materially changed any business practice;
(k) made or granted any bonus or any wage, salary or
compensation increase to any director, officer, employee or sales
representative, group of employees or consultant (except in the ordinary
course of business consistent with past practice) or made or granted any
increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement or adopted any
new employee benefit plan or arrangement, except as contemplated by this
Agreement;
(l) made any other change in employment terms for any of its
directors, officers, and employees outside the ordinary course of business
consistent with past practice;
(m) conducted its cash management customs and practices
other than in the ordinary course of business consistent with past practice
(including, without limitation, with respect to collection of accounts
receivable, purchases of inventory and supplies, repairs and maintenance,
payment of accounts payable and accrued expenses, levels of capital
expenditures and operation of cash management practices generally);
(n) made any capital expenditures or commitments for capital
expenditures that aggregate in excess of $50,000, other than as
contemplated by the Company s current budget for capital expenditures
(which is included in Schedule 4.17 attached hereto);
(o) made any loans or advances to, or guarantees for the
benefit of, any person;
(p) made charitable contributions, pledges, association fees
or dues in excess of $5,000; or
(q) committed to do any of the foregoing.
4.18 Compliance with Laws.
4.18.1 The Company is in compliance with all laws, regulations
and orders applicable to it. Within the past 5 years, the Company has not been
cited, fined or otherwise notified of any asserted past or present failure to
comply with any laws which failure to comply could reasonably be expected to
have a material adverse effect on the
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Company and, to Company's knowledge, no proceeding with respect to any such
violation is pending.
4.18.2 The Company has not made any payment of funds in
connection with the business of the Company prohibited by law, and no funds have
been set aside to be used in connection with the business of the Company for any
payment prohibited by law.
4.18.3 The Company is and at all times has been in full
compliance with the terms and provisions of the Immigration Reform and Control
Act of 1986 (the "Immigration Act"). With respect to each Employee (as defined
in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with the Immigration
Act by the Company as Employer is required, the Company has supplied to the
Purchaser an accurate and complete copy of (i) each Employee's Form I-9
(Employment Eligibility Verification Form) and (ii) all other records, documents
or other papers prepared, procured and/or retained by the Company pursuant to
the Immigration Act. The Company has not been cited, fined, served with a Notice
of Intent to Fine or with a Cease and Desist Order, nor has any action or
administrative proceeding been initiated or, to Company's knowledge, threatened
against the Company by reason of any actual or alleged failure to comply with
the Immigration Act.
4.19 Environmental Matters.
4.19.1 Except as permitted by applicable law, the Company has not
transported, stored, handled, treated or disposed, nor has it allowed or
arranged for any third parties to transport, store, handle, treat or dispose of
Hazardous Substances or other waste to or at any location other than a site
lawfully permitted to receive such Hazardous Substances or other waste for such
purposes, nor has it performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in contravention
of any laws or regulations. The Company has not stored, handled, treated or
disposed of, or allowed or arranged for any third parties to store, handle,
treat or dispose of, Hazardous Substances or other waste upon property owned or
leased by it, except as permitted by law. For purposes of this Section 4.19, the
term "Hazardous Substances" shall mean and include: (i) any "Hazardous
Substance," "Pollutant" or "Contaminant" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601, et seq., or the regulations promulgated thereunder ("CERCLA");
(ii) any hazardous waste as that term is defined in applicable state or local
law; (iii) any substance containing petroleum, as that term is defined in
Section 9001(8) of the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6991(8) or in 40 C.F.R. Section 280.1; or (iv) any other
substance for which any governmental entity with jurisdiction over the Company s
leasehold premises requires special handling in its generation, handling, use,
collection, storage, treatment or disposal.
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4.19.2 Except as set forth on Schedule 4.19 attached hereto, the
Company has not caused to occur, and to the best of its knowledge, there has not
occurred, nor is there presently occurring, a Release of any Hazardous Substance
on, into or beneath the surface of any parcel of the Company's leasehold
premises. For purposes of this Section 4.19, the term "Release" shall have the
meaning given it in CERCLA.
4.19.3 Except as set forth on Schedule 4.19 attached hereto, the
Company does not use, and has not used, any Underground Storage Tanks, and to
the best of its knowledge, there are not now nor have there ever been any
Underground Storage Tanks on the Company's leasehold premises during the
Company's tenancy. For purposes of this Section 4.19, the term "Underground
Storage Tanks" shall have the meaning given it in the Resource Conservation and
Recovery Act (42 U.S.C. Sections 6901 et seq.).
4.19.4 Schedule 4.19 identifies (i) all environmental audits,
assessments or occupational health studies undertaken by the Company or its
agents or, to the best of the Company's knowledge, undertaken by governmental
agencies relating to or affecting the Company or any of the Company's leasehold
premises within the past 5 years; (ii) the results of any ground, water, soil,
air or asbestos monitoring undertaken by the Company or its agents or, to the
best of the Company's knowledge, undertaken by governmental agencies relating to
or affecting the Company or any of the Company's leasehold premises within the
past 5 years; (iii) all written communications in Company's possession between
the Company and environmental agencies within the past 5 years; and (iv) all
citations issued under the Occupational Safety and Health Act (29 U.S.C.
Sections 651 et seq.) relating to or affecting the Company or any of the
Company's leasehold premises within the past 5 years.
4.20 Labor Relations. The Company is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and
the Company is not aware of any effort by any labor union during the 24 months
prior to the date hereof to organize any employees of the Company into one or
more collective bargaining units. There is not pending or, to the Company's
knowledge, threatened any labor dispute, strike or work stoppage which affects
or which may affect the business of the Company or which may interfere with its
continued operation. Neither the Company nor to its knowledge any agent,
representative or employee of the Company acting in that capacity has within the
last 24 months committed any unfair labor practice as defined in the National
Labor Relations Act, as amended, and there is not now pending or, to the
Company's knowledge, threatened any charge or complaint against the Company by
or with the National Labor Relations Board or any representative thereof. There
has been no strike, walkout or work stoppage involving any of the employees of
the Company during the 24 months prior to the date hereof. The Company is not
aware that any executive or key employee or group of employees has any
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plans to terminate his, her or their employment with the Company.
4.21 Employee Benefits.
4.21.1 Except as set forth on Schedule 4.21 attached hereto, with
respect to current or former employees of the Company, the Company does not
maintain or contribute to or have any actual or potential liability with respect
to any (i) deferred compensation or bonus or retirement plans or arrangements,
(ii) qualified or nonqualified defined contribution or defined benefit plans or
arrangements which are employee pension benefit plans (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or (iii) employee welfare benefit plans, (as defined in Section 3(1)
of ERISA), stock option or stock purchase plans, or material fringe benefit
plans or programs whether in writing or oral. The Company has never contributed
to any multiemployer pension plan (as defined in Section 3(37) of ERISA), and
the Company never maintained or contributed to any defined benefit plan (as
defined in Section 3(35) of ERISA). The plans, arrangements, programs and
agreements referred to the preceding two sentences are referred to collectively
as the "Plans." The Company does not maintain or contribute to any Plan which
provides health, accident or life insurance benefits to former employees, their
spouses or dependents, other than in accordance with Section 4980B of the Code
("COBRA").
4.21.2 The Plans (and related trusts and insurance contracts) set
forth on Schedule 4.21 comply in form and in operation with the requirements of
applicable laws and regulations, including ERISA and the Code and the
nondiscrimination rules thereof. All contributions, premiums or payments which
are due on or before the Closing Date under each Plan have been paid. Each Plan
which is intended to be qualified under section 401(a) of the Code (i) has been
amended on a timely basis in compliance with the Code and (ii) has received from
the Internal Revenue Service a favorable determination letter which considers
the terms of such Plan as amended.
4.21.3 All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with
respect to the Plans set forth on Schedule 4.21 have been properly and timely
filed with the appropriate government agency and distributed to participants as
required. The Company has complied with the requirements of COBRA.
4.21.4 With respect to each Plan set forth on Schedule 4.21, (i)
there have been no prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code, (ii) no fiduciary (as defined in Section 3(21) of
ERISA) has any liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration
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or investment of the assets of such Plans, and (iii) no actions, investigations,
suits or claims with respect to the assets thereof (other than routine claims
for benefits) are pending or to Company's knowledge threatened, and the Company
has no knowledge of any facts which would give rise to or could reasonably be
expected to give rise to any such actions, suits or claims.
4.21.5 With respect to each of the Plans listed on Schedule 4.21,
the Company has furnished to the Purchaser true and complete copies of (i) the
plan documents, summary plan descriptions and summaries of material
modifications, (ii) the Form 5500 Annual Report (including all schedules and
other attachments for the most recent three years), (iii) all related trust
agreements, insurance contracts or other funding agreements which implement such
plans and (iv) all contracts relating to each such plan, including, without
limitation, service provider agreements, insurance contracts, investment
management agreements and record keeping agreements.
4.21.6 The Company has not incurred (except as may have been
fully satisfied) and has no reason to expect that it will incur, any liability
to the Pension Benefit Guaranty Corporation (other than routine premium
payments) or otherwise under Title IV of ERISA (including any withdrawal
liability) or under the Code with respect to any employee pension benefit plan
(as defined in Section 3(2) of ERISA) that the Company or any member of its
"controlled group" (within the meaning of Code Section 414) maintains or ever
has maintained or to which any of them contributes, ever has contributed, or
ever has been required to contribute.
4.22 Affiliate Transactions. Except as set forth on Schedule 4.22, no
officer, director, employee, shareholder or affiliate of any such Person is a
party to any agreement, contract, commitment or transaction with the Company or
which is pertaining to the business of the Company or has any interest in any
property, real or personal or mixed, tangible or intangible, used in or
pertaining to the Business (excluding items of personal property that are
personal in nature).
4.23 Officers and Directors; Bank Accounts. Schedule 4.23 attached
hereto lists all officers and directors of the Company, and all bank accounts,
safety deposit boxes and lock boxes (designating each authorized signatory with
respect thereto) for the Company.
4.24 Accuracy of Information Furnished by the Company. No
representation of the Company contained herein contains any untrue statement of
a material fact or omits any material fact necessary to make such representation
or statement not misleading.
4.25 Closing Date. All of the representations and warranties contained
in this
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Article IV and all information delivered in any schedule, attachment or
Exhibit hereto are true and correct on the date of this Agreement and shall be
true and correct on the Closing Date, except to the extent that the Company has
advised the Purchaser otherwise in writing prior to the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
To induce the Company to enter into this Agreement and to consummate
the transactions contemplated hereunder, each of the Parent and the Purchaser,
to the extent such representation and warranty is applicable to it, makes the
following representations and warranties.
5.1 Organization, Power and Authority.
(a) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and
has all requisite corporate power and authority to enter into this
Agreement and all other agreements contemplated hereby and to perform its
obligations hereunder and thereunder. The Purchaser has delivered true and
correct copies of its Certificate of Incorporation and Bylaws to the
Company. Such Certificate of Incorporation and Bylaws will be in full force
and effect as of the Closing without amendment.
(b) The Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
has all requisite corporate power and authority to enter into this
Agreement and all other agreements contemplated hereby and to perform its
obligations hereunder and thereunder. The Parent has delivered true and
correct copies of its Certificate of Incorporation and Bylaws to the
Company. Such Certificate of Incorporation and Bylaws will be in full force
and effect as of the Closing without amendment.
5.2 Due Authorization; Binding Obligation; No Conflicts. The
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of the Parent and
the Purchaser. This Agreement has been duly executed and delivered by the Parent
and the Purchaser and is a valid and binding obligation of the Parent and the
Purchaser, enforceable in accordance with its terms. Neither
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the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will: (i) contravene any provision of the
certificate of incorporation or by-laws of the Parent or the Purchaser; (ii)
violate or conflict with any federal, state or local law, statute, ordinance,
rule, regulation or any decree, writ, injunction, judgment or order of any court
or administrative or other governmental body or of any arbitration award which
is either applicable to, binding upon or enforceable against the Parent or the
Purchaser; or (iii) conflict with, result in any breach of or default (or an
event which would, with the passage of time or the giving of notice or both,
constitute a default) under any material mortgage, contract, agreement, lease,
license, indenture, will, trust or other instrument which is either binding upon
or enforceable against the Parent or the Purchaser.
5.3 Litigation. There are no actions, suits, claims, governmental
investigations or arbitration proceedings pending or, to the best of the
Parent's and the Purchaser's knowledge, threatened against or affecting the
Parent or the Purchaser, or which question the validity or enforceability of
this Agreement or any action contemplated herein, and there is no basis for any
of the foregoing. There are no outstanding orders, decrees or stipulations
issued by any federal, state, local or foreign judicial or administrative
authority in any proceeding to which the Parent or the Purchaser is or was a
party.
5.4 Compliance with Laws. Each of the Parent and the Purchaser is in
compliance in all material respects with all laws, regulations and orders
applicable to it. Neither the Parent nor the Purchaser nor, to their knowledge,
any of their affiliates has been cited, fined or otherwise notified in writing
of any asserted failure to comply with any laws, including those relating to the
issuance and the sale of securities, the violation of which could reasonably be
expected to have a material adverse effect on the current and prospective
operations and business of the Parent and the Purchaser or on the Parent's
ability to consummate a public offering or private placement of securities and
no proceeding with respect to any such violation is now pending or, to the
Parent's or the Purchaser's knowledge, has been threatened.
5.5 Issuance of Shares. Upon issuance of the Shares to the
Shareholders at the Closing pursuant to the terms of this Agreement, the Shares
(i) will have been duly authorized and validly issued and will be fully paid and
non-assessable, (ii) will have been issued in compliance with all applicable
state and federal securities laws, and (iii) will not have been issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the issuance of the
Shares to the Company pursuant to this Agreement and no such rights arise by
virtue of or in connection with the transactions contemplated hereby.
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5.6 Accuracy of Information Furnished by the Parent and the Purchaser.
No representation contained herein or written statement made or furnished by any
officer of the Parent or the Purchaser to the Company in accordance with this
Agreement contains any untrue statement of a material fact or omits any material
fact necessary to make such representation or statement not misleading, and, in
connection with the transactions contemplated hereby, the Company and the
Shareholders are entitled to rely on the reports filed by the Parent with the
Securities and Exchange Commission to the same extent as the other stockholders
of the Parent.
5.7 Closing Date. All of the representations and warranties contained
in this Article V and elsewhere in this Agreement and all information delivered
in any schedule, attachment or Exhibit hereto or in any writing delivered to the
Company are true and correct on the date of this Agreement and shall be true and
correct on the Closing Date, except to the extent that the Parent or the
Purchaser has advised the Company otherwise in writing prior to the Closing.
ARTICLE VI
CERTAIN ACTIONS AFTER THE CLOSING
6.1 Intentionally Omitted.
6.2 Intentionally Omitted.
6.3 Intentionally Omitted.
6.4 Continued Employment of the Company's Employees. Immediately after
the Closing, the Purchaser will offer employment to all persons currently
employed by the Company who wish to become employees of the Purchaser at the
same base salary and in the same position as in effect on the date hereof. Those
persons accepting employment will be eligible to receive stock options under
Parent's stock option plan (in addition to the Assumed Options) and will receive
benefits under all other benefit plans of Parent to the same extent as employees
of Parent with comparable duties and responsibilities. The period of service of
such employees at the Company shall be applied toward any waiting period or
tenure requirements for all benefits, including but not limited to vacation
benefits and insurance coverage, unless prohibited by the terms of third party
agreements or policies extending such benefits, or by applicable law.
6.5 Books and Records. Unless otherwise consented to in writing by the
Company, the Purchaser will not, for a period of seven years following the date
hereof,
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destroy, alter or otherwise dispose of any of the books and records of
the Company without first offering to surrender to the Company such books and
records or any portion thereof of which the Purchaser may intend to destroy,
alter or dispose. The Purchaser will allow the Company and his representatives,
attorneys and accountants access to such books and records, upon reasonable
request for access during such party's normal business hours, for the purpose of
examining and copying the same in connection with any matter whether or not
related to or arising out of this Agreement or the transactions contemplated
hereby.
6.6 Holdback. The Voting Agreement shall provide that each of Xxxx
Xxxxxx, H&Q Flower Investors, Inc. H&Q London, Inc. and Capital Cities
(collectively, the "Principal Shareholders") will agree not to sell any shares
of Common Stock received in the Merger for a period beginning on the Closing
Date and ending on the earlier to occur of (x) 60 days after the Closing, (y)
October 30, 1999, and (z) the date which is 120 days following the closing of
Parent's planned registered underwritten public offering of Common Stock.
6.7 Acceleration of Options. As of the Effective Time, all unvested
options to acquire Company Stock set forth on Schedule 4.2 which are owned by
non-employees of the Company shall be deemed vested. In addition, if any
employee of the Company is terminated by the Company without cause prior to the
first anniversary of the Closing Date, Parent shall accelerate the vesting of
all unvested options to acquire Company Stock set forth on Schedule 4.2 of the
Company which remain unvested at the time of such termination.
6.8 Options at Closing. At least five (5) business days prior to the
Closing, Xxxx Xxxxxx shall designate in writing to the Parent a list of
employees ("Designated Employees") of the Company (subject to approval of the
Chief Executive Officer of the Parent and the eligibility of such persons under
the applicable Parent option plan) who will be granted options to purchase up to
an aggregate of 10,000 shares of Parent Common Stock at an exercise price per
share equal to the fair market value of Parent Common Stock on the Closing Date
(the "Parent Options"). As soon as practicable following the Closing, the Parent
will cause the Parent Options to be issued to the Designated Employees, subject
to the terms and conditions customarily applied to options issued to the
Parent's other employees and subject to the Parent option plan under which such
Parent Options shall be issued.
6.9 Election of Xxxx Xxxxxx as Director of Parent. Immediately
following the Effective Time, Xxxx Xxxxxx shall be appointed to Parent's board
of directors.
6.10 Indemnification of Directors and Officers. For a period of two
years following the Closing, Parent shall (x) maintain any directors and
officers insurance policies in place at the time of closing, (y) not amend the
bylaws of the Company so as to adversely affect the indemnification of officers
and directors as of any period prior to the Closing, and
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(z) guarantee any indemnity claims made by officers or directors of the Company
(who held such positions as of the Closing) only if and to the extent that the
Company distributed any cash or other assets to Parent or any of its affiliates
(but net of any cash or other assets Parent and its affiliates contributed to
the Company).
ARTICLE VII
INDEMNIFICATION
7.1 Agreements to Indemnify. As used in this Agreement, "Indemnifiable
Damages" means, without duplication, the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including reasonable counsel and
paralegal fees and expenses) incurred or suffered by a party (or any other
person covered by this Section 7.1), on a pre-tax basis, to the extent resulting
from (i) any breach by the other party of any representation or warranty made by
such other party in this Agreement (a "Breach of Warranty Claim"); (ii) any
violation by the other party of any covenant or agreement made by such other
party in this Agreement (unless waived in writing by the party making the
claim).
7.1.1 Subject to the limitations provided for herein, each of the
Shareholders shall indemnify and hold the Purchaser and the Parent and their
respective officers, directors, employees, shareholders, agents, successors and
assigns (the "Purchaser Parties") harmless in respect of all Indemnifiable
Damages suffered by the Purchaser Parties.
7.1.2 The Purchaser and the Parent shall indemnify the
Shareholders and their agents, heirs, successors and assigns (collectively, the
"Shareholder Parties") and hold each of them harmless in respect of all
Indemnifiable Damages suffered by the Shareholder Parties.
7.1.3 Each of the representations and warranties made by the
parties in this Agreement, shall survive for a period of 12 months after the
Closing Date, notwithstanding any investigation at any time made by or on behalf
of any party, and upon the expiration of such 12-month period such
representations and warranties shall expire.
7.1.4 The Purchaser and the Parent acknowledge and consent that
after Closing their sole and exclusive remedy for Indemnifiable Damages, except
in the case of fraud or with respect to any covenant or agreement set forth in
Section 3.6 and Section 3.7 above, shall be to proceed directly against the
Withheld Shares. Furthermore, the Purchaser and the Parent acknowledge that they
shall have no recourse against any Shareholder for
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Indemnifiable Damages (except with respect to any covenant or agreement set
forth in Section 3.6 and Section 3.7 above) once the Parent has fully set off
against or distributed all of the Withheld Shares.
7.1.5 All Indemnifiable Damages which the Purchaser or the Parent
is entitled to recover shall be offset against the Withheld Shares of all of the
Shareholders on a pro rata basis (except that, with respect to any covenant or
agreement performed or to be performed by the Company or any Shareholder as
contemplated hereunder, such offset shall not be the exclusive remedy for
Indemnifiable Damages which the Purchaser or the Parent is entitled to recover).
7.2 Settlement of Claims.
7.2.1 The Shareholders will not be liable for any Indemnifiable
Damages based upon a Breach of Warranty Claim unless and until the aggregate
amount of Indemnifiable Damages based upon Breach of Warranty Claims exceeds
$50,000, after which time the Shareholders will only be liable for the
Indemnifiable Damages that exceed $50,000.
7.2.2 Neither the Shareholders, the Parent nor the Purchaser
shall have any liability under the indemnification provisions of this Agreement
for any individual claim less than $1,000.
7.2.3 The Party or Parties seeking indemnification under Section
7.1 (the "Indemnified Party") shall give written notice (a "Claim Notice") to
the other Party or Parties, as the case may be (the "Indemnifying Party") after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party) or discovering the liability,
obligation or facts giving rise to such claim for indemnification and in any
event within the period specified in relevant item of subsection 7.1.3,
describing the claim, the amount thereof (if known and quantifiable), and the
basis thereof; provided that the failure to so notify the Indemnifying Party
shall not relieve the Indemnifying Party of its or his obligations hereunder
except to the extent such failure shall have materially prejudiced the
Indemnifying Party. If any action, lawsuit, proceeding, investigation or other
claim shall be brought or asserted by any third party which, if adversely
determined, would entitle the Indemnified Party to indemnity pursuant to Section
7.1, the Indemnified Party shall promptly notify the Indemnifying Party of the
same in writing, specifying in detail the basis of such claim and the facts
pertaining thereto and the Indemnifying Party shall be entitled to participate
in the defense of such action, lawsuit, proceeding, investigation or other claim
giving rise to the Indemnified Party's claim for indemnification at its expense,
and at its option (subject to the limitations set forth below), if, but only if,
the Indemnifying Party gives
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notice of such election to the Indemnified Party within 10 days after receiving
notice of such action, lawsuit, proceeding, investigation or other claim, shall
be entitled to appoint lead counsel of such defense with reputable counsel
reasonably acceptable to the Indemnified Party and assume control of such
defense; provided that in the event the Indemnifying Party elects to assume
control of such defense, it shall:
(a) be fully responsible for all Indemnifiable Damages
relating to such claims and that it will provide full indemnification to
the Indemnified Party for all such Indemnifiable Damages relating to such
claim, and
(b) unconditionally guarantee the payment and performance of
any liability or obligation which may arise with respect to such claim or
the facts giving rise to such claim for indemnification, and
(c) furnish the Indemnified Party with reasonable evidence
that the Indemnifying Party is and will be able to satisfy any such
liability;
and provided further that the Indemnifying Party shall not have the right to
assume control of such defense and shall pay the reasonable fees and expenses of
counsel retained by the Indemnified Party, if the claim as to which the
Indemnifying Party seeks to assume control (i) seeks non-monetary relief, (ii)
involves criminal or quasi-criminal allegations solely against the Indemnified
Party, (iii) involves a claim as to which the Indemnified Party reasonably
believes an adverse determination would materially injure the Indemnified
Party's reputation or future business prospects, or (iv) involves a claim which,
upon petition by the Indemnified Party, the Indemnifying Party failed or is
failing to vigorously prosecute or defend.
If the Indemnifying Party is permitted to assume and control the
defense and elects to do so, the Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnifying Party in any
such action and to participate in the defense thereof, but the reasonable fees
and expenses of such counsel employed by the Indemnified Party shall be at the
expense of the Indemnified Party unless (i) the employment thereof has been
specifically authorized by the Indemnifying Party in writing, or (ii) the
Indemnifying Party has been advised by counsel that a reasonable likelihood
exists of a conflict of interest between the Indemnifying Party and the
Indemnified Party.
If the Indemnifying Party shall control the defense of any such claim,
the Indemnifying Party shall obtain the prior written consent of the Indemnified
Party before entering into any settlement of a claim or ceasing to defend such
claim, if pursuant to or as a result of such settlement or cessation, injunction
or other equitable relief will be imposed
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against the Indemnified Party or if such settlement does not expressly
unconditionally and irrevocably release the Indemnified Party from all
liabilities and obligations with respect to such claim, with prejudice.
7.2.4 Amounts set off against the Withheld Shares shall be
treated as adjustments to the Net Purchase Price.
7.3 Security For Indemnification Claims by the Purchaser Parties.
7.3.1 As security for the obligations of the Shareholders under
Section 7.1, the Company does hereby grant a first priority security interest
in, and pledge and instruct the Parent to set aside and hold, certificates
representing the Withheld Shares. The Parent shall set off against the Withheld
Shares any Indemnifiable Damages for which the Shareholders are responsible
under Section 7.1, subject, however, to the terms and conditions of this Section
7.3.
7.3.2 The amount of Indemnifiable Damages to be set off against
the Withheld Shares (the "Set Off Amount") shall be (x) the full amount of the
claim made in such Claim Notice if the Shareholder Representative either agreed
to such amount or failed to respond to such Claim Notice in writing within ten
(10) business days from the date of such Claim Notice (the "Contest Period") or
(y) if such claim is contested by the Shareholder Representative prior to the
end of the Contest Period, the amount of the claim that is either agreed to by
the parties or the amount of any final, non-appealable judgment on such claim,
in each case together with interest thereon at a rate of 7% per annum from the
date on which the Set Off Amount is determined through the date of payment.
7.3.3 In connection with any set off against the Withheld Shares,
the Withheld Shares shall be valued at Fair Market Value on the date on which
such set off occurs. For purposes of this Agreement, "Fair Market Value" of each
Withheld Share shall be the average closing price of the Common Stock on the
NASDAQ National Market as reported in The Wall Street Journal (Southeast
Edition) for the five trading days immediately preceding the day as of which
"Fair Market Value" is being determined.
7.3.4 Except with respect to Withheld Shares set off against
pursuant to the provisions of this Section 7.3 (and in the case of such shares,
until such time as such set off occurs), all Withheld Shares shall be deemed to
be owned by the Shareholders and the Shareholders shall be entitled to vote the
same; provided, however, that there shall also be deposited with the Parent
subject to the terms of this Section 7.3, all shares of the Common Stock issued
to the Shareholders as a result of any stock dividend or stock split and all
cash issuable to the Shareholders as a result of any cash dividend, with respect
to the Withheld
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Shares. All stock and cash issued or paid upon the Withheld Shares and deposited
with the Parent under this Section 7.3.4 shall be distributed to the party
entitled to receive the Withheld Shares as to which such stock and cash was
issued or paid at the time the Withheld Shares as to which such stock and cash
was issued or paid are delivered to such party.
7.3.5 On the first anniversary of the Closing Date, (x) with
respect to all claims made by the Parent which have been fully and finally
resolved pursuant to Section 7.3.2 and not previously set off against the
Withheld Shares pursuant to the exception to the preceding sentence, the Parent
shall set off the Set Off Amount against the Withheld Shares, and (y) distribute
to the Shareholders any Withheld Shares (other than Other Withheld Shares) which
are not set off against pursuant to item (x) of this Section 7.3.5; provided
that 12,500 Withheld Shares ("Other Withheld Shares") shall continue to be
retained by Parent until the second anniversary of the Effective Time as
security for any expenses, losses, costs, deficiencies, liabilities or damages
resulting from the matters set forth in the first paragraph under Section 4.5 of
the Disclosure Schedule; provided further that if any claim made in a Claim
Notice delivered on or prior to either of such dates has been properly contested
by the Shareholder Representative and has not either been resolved by the
parties or is not subject to a final, nonappealable judgment (each, an
"Unresolved Claim"), then the Parent shall be entitled to continue to hold
Withheld Shares or Other Withheld Shares, as applicable, having a Fair Market
Value equal to the amount of such Unresolved Claim until such claim is agreed to
by the parties or any final, non-appealable judgment is rendered with respect to
such claim, at which time the Parent shall set off the amount of such Unresolved
Claim determined pursuant to Section 7.3.3 against the Withheld Shares or Other
Withheld Shares being held in respect of such Unresolved Claim and deliver any
remaining Withheld Shares or Other Withheld Shares to the Shareholders. Parent
shall reimburse any costs or expenses, including reasonable legal fees, incurred
by the Shareholders in obtaining possession of Withheld Shares or Other Withheld
Shares that are not released to them as and when provided in this Section.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written consent of the Company and the
Purchaser;
(b) by the Company or the Purchaser if there has been a
material
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misrepresentation or breach on the part of the other Party of the
representations, warranties or covenants set forth in this Agreement or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating Party's obligations to consummate the
transactions contemplated hereby unless such terminating Party's willful or
knowing breach of this Agreement has caused the condition to be
unsatisfied; or
(c) automatically if the Closing has not occurred on or
prior to July 31, 1999, unless a party's willful or knowing breach of this
Agreement has prevented the consummation of the transactions contemplated
hereby at or prior to such time, in which case the nonbreaching party may
elect to extend or terminate this Agreement.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any Party to any other Party
under this Agreement, except that nothing herein shall relieve any Party from
liability for any knowing and willful breach of this Agreement prior to such
termination.
ARTICLE IX
MISCELLANEOUS
9.1 Transaction Expenses. The Purchaser and the Parent will indemnify
and hold harmless the Company and the Shareholders from the commission, fee or
claim of any person, firm or corporation employed or retained or claiming to be
employed or retained by the Purchaser or the Parent to bring about, or to
represent it in, the transactions contemplated hereby. The Shareholders will
indemnify and hold harmless the Purchaser from the commission, fee or claim of
any person, firm or corporation employed or retained or claiming to be employed
or retained by the Shareholders or the Company to bring about, or to represent
any of them in, the transactions contemplated hereby. In addition, each party
shall pay their own expenses (including legal and accounting fees) incident to
the negotiation and preparation of this Agreement and any other documents
prepared in connection therewith, and the consummation of the transactions
contemplated herein; provided that the Company shall be entitled to pay the
following fees and expenses incurred in connection with the Merger
(collectively, the "Permitted Fees and Expenses"): (x) all reasonable accounting
fees and expenses; and (y) one-half of the reasonable legal fees and expenses
(up to a maximum of $75,000 with respect to this clause (y). The Merger
Consideration Dollar Value shall be reduced dollar-for-dollar for any legal or
advisory fees paid by the Company on its
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own behalf or on behalf of its directors, officers or shareholders) in
connection with the Merger which do not constitute Permitted Fees and Expenses.
9.2 Amendment and Modification. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by all of
them in writing.
9.3 Entire Agreement. This Agreement, including the exhibits,
schedules, certificates and other documents and agreements delivered on the date
hereof in connection herewith, contains the entire agreement of the parties
hereto with respect to the purchase of the Purchased Assets and the other
transactions contemplated herein, and supersedes all prior understandings and
agreements (oral or written) of the parties with respect to the subject matter
hereof. The parties expressly represent and warrant that in entering into this
Agreement they are not relying on any prior representations made by any other
party concerning the terms, conditions or effects of this Agreement which terms,
conditions or effects are not expressly set forth herein. Any reference herein
to this Agreement shall be deemed to include the schedules and exhibits.
9.4 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be to an article, section, paragraph, clause, schedule or exhibit of this
Agreement unless otherwise indicated. The headings contained herein and on the
schedules are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement or the schedules. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." The term "knowledge" or
"best of knowledge" when applied to any person, shall mean the actual knowledge,
without further investigation, of such person and, in the case of a corporation,
its officers and directors. Time shall be of the essence in this Agreement.
9.5 Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
9.6 Notices. Any notice, consent, approval, request, acknowledgment,
other communications or information to be given or made hereunder to any of the
parties by any other party shall be in writing and delivered personally or sent
by certified mail, postage prepaid, as follows, or by facsimile to the fax
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number listed below (provided that, for a facsimile, a copy is also sent
promptly by U.S. mail, certified mail or overnight delivery service):
If to the Company:
Calyx & Corolla
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Fax: (000) 000-0000
e-mail: xxxxxxx@xxxxxxxxxxxxxxx.xxx
With a copy to:
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx
Xxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esq.
Fax: (000) 000-0000
e-mail: xxxxxxx@xxxxxx.xxx
If to the Parent or the Purchaser, addressed to:
Xxxxxx Xxxxxxx, Inc.
Xxx Xxxxxxxxx Xxxxx, 00xx Xxxxx
Xxxx Xxxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx
Fax: (000)000-0000
e-mail: xxxxxxxxx@xxxxxxxxxxxxx.xxx
with a copy to:
Xxxxx X. Xxxx, Esq.
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Fax: (000)000-0000
e-mail: xxxxx@xxxx.xxx
Any party may change the address to which notices hereunder are to be
sent to it by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally or by
facsimile or e-mail shall be deemed to have been given on the date it is so
delivered, and any notice delivered by registered or
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certified mail shall be deemed to have been given on the date it is received.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
conflicts of laws principles that would cause any state's laws, other than the
laws of the State of California, to apply.
9.8 Confidentiality; Publicity. Except as may be required by law, rule
or regulation or as otherwise permitted or expressly contemplated herein,
neither the Company nor his affiliates, agents or representatives shall disclose
to any third party the subject matter or terms of this Agreement without the
prior consent of the Purchaser. In addition, no press release or other public
announcement related to this Agreement or the transactions contemplated hereby
will be issued by any of such persons hereto without the prior approval of the
Purchaser.
9.9 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 hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
9.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior consent of the other parties, except that after the
Closing, the Purchaser may assign its rights (but if so must also delegate its
duties) to any person who acquires all or substantially all of the assets of the
Purchaser.
9.11 Binding Effect; No Third Party Beneficiaries. This Agreement
shall inure to the benefit of, be binding upon and be enforceable by and against
the Company, the Shareholders, the Parent and the Purchaser and their respective
successors and permitted assigns, and nothing herein expressed or implied shall
be construed to give any other person any legal or equitable rights hereunder.
9.12 Negotiation Representations. Each party hereto expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself or himself of the terms,
contents, conditions and effects of this
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Agreement; (b) said party has relied solely and completely upon its or his own
judgment in executing this Agreement; (c) said party has had the opportunity to
seek and has obtained the advice of counsel before executing this Agreement; (d)
said party has acted voluntarily and of its or his own free will in executing
this Agreement; (e) said party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is the result of
arm's-length negotiations conducted by and among the parties and their counsel.
9.13 Shareholder Representative.
9.13.1 As an additional condition to Purchaser and Parent's
obligations hereunder, the Shareholders will consent to the appointment of Xxxx
Xxxxxx to serve as representative of the Shareholders ("Shareholder
Representative") and the Shareholder Representative will agree to so serve, to
act for the Shareholders and in each such Shareholders' name, place and stead,
in any and all capacities to do and perform every act and thing required or
permitted to be done in connection with the transactions contemplated by this
Agreement and the other agreements contemplated hereby, as fully to all intents
and purposes as such Shareholder might or could do in person, including, without
limitation:
(a) determine the presence (or absence) of claims for
indemnification against the Purchaser or Parent pursuant to Section 7.1
above;
(b) deliver all notices required to be delivered by such
Shareholder under this Agreement including, without limitation, any notice
of a claim for which indemnification is sought from the Purchaser or Parent
under Article VII above;
(c) receive all notices required to be delivered to such
Shareholder under this Agreement, including, without limitation, any notice
of a claim for which indemnification is sought under Section 7.1 above;
(d) take any and all action on behalf of such Shareholder
from time to time as the Shareholder Representative may deem necessary or
desirable to defend, pursue, resolve and/or settle claims under this
Agreement, including, without limitation, indemnification under Section 7.1
above;
(e) enter into such amendments and waivers of this on behalf
of such Shareholder from time to time as the Shareholder Representative may
deem necessary or desirable;
(f) receive service of process on behalf of such Shareholder
in
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connection with any legal proceedings related to this or any of the
transactions contemplated hereby or thereby; and
(g) engage and employ agents and representatives (including
accountants, legal counsel and other professionals) and to incur such other
expenses as the Shareholder Representative deems necessary or prudent in
connection with the administration of the foregoing.
Any additional details of the Shareholder Representatives' role and
duties with regard to the Shareholders will be specified in the proxy materials
soliciting Shareholder approval of the Merger.
9.13.2 Each Shareholder grants unto the Shareholder
Representative full power and authority to do and perform each and every act and
thing necessary or desirable to be done in connection with the transactions
contemplated by this Agreement as fully to all intents and purposes as such
Person might or could do in person, hereby ratifying and confirming all that the
Shareholder Representative may lawfully do or cause to be done by virtue hereof.
Each Shareholder, by executing this Agreement, agrees that such agency, proxy
and power of attorney are coupled with an interest, and are therefore
irrevocable without the consent of the Shareholder Representative shall survive
the death, incapacity, or bankruptcy of such Person. Each Shareholder
acknowledges and agrees that, any delivery by the Shareholder Representative of
any waiver, amendment, agreement, opinion, certificate or other documents
executed by the Shareholder Representative or any decisions made by the
Shareholder Representative pursuant to this Section 9.15, such Person shall be
bound by such documents or decision as fully as if such Shareholder had executed
and delivered such documents or made such decisions.
9.13.3 Liability of the Shareholder Representative. The
Shareholder Representative shall not be liable to any Shareholder for any action
taken or omitted by him or any agent employed by him hereunder or under any
other agreement contemplated hereby, or in connection therewith, except that the
Shareholder Representative shall not be relieved of any liability imposed by law
for gross negligence or willful misconduct. The Shareholder Representative shall
not be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement.
9.13.4 Removal of the Shareholder Representative. The Shareholder
Representative may be removed at any time upon written notice to the Purchaser
signed by Shareholders (except the Shareholder Representative) holding a
majority of the shares of Common Stock issued hereunder.
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9.13.5 Replacement of the Shareholder Representative. Upon the
death, disability, incapacity or resignation or removal of all of the persons
constituting the Shareholder Representative, the Shareholders shall jointly
select a person to serve as the representative of the Shareholders hereunder.
Any substituted representative shall agree in writing to perform the duties of
the Shareholder Representative hereunder and shall be deemed the Shareholder
Representative for all purposes of this Agreement and the other agreement
contemplated hereby. Upon any replacement of the Shareholder Representative, the
new Shareholder Representative shall promptly notify the Purchaser of such
occurrence.
9.13.6 Actions of the Shareholder Representative; Liability of
the Shareholder Representative. Each Shareholder agrees that the Purchaser shall
be entitled to rely on any action taken by the Shareholder Representative, on
behalf of the Shareholders, pursuant to this Section 9.13 (each, an "Authorized
Action"), and that each Authorized Action shall be binding on each Shareholder
as fully as if such Shareholder had taken such Authorized Action. The Purchaser
agrees that the Shareholder Representative shall have no liability to the
Purchaser for any Authorized Action (other than in his capacity as a
Shareholder), except to the extent that such Authorized Action is found by a
final order of a court of competent jurisdiction to have constituted fraud or
willful misconduct. The Shareholders jointly and severally agree to pay, and to
indemnify and hold harmless the Purchaser from and against any losses which it
may suffer, sustain, or become subject to, as the result of any claim by any
Person that an Authorized Action is not binding on, or enforceable against, the
Shareholders.
9.14 Submission to Jurisdiction; Agent for Service of Process.
9.14.1 Each of the Shareholders hereby (i) irrevocably submits to
the exclusive jurisdiction of the United States District Court for the Northern
District of California or the Southern District of Florida or in any California
state court sitting in San Francisco County or any Florida state court sitting
in Miami-Dade or Broward counties for any actions, suits or proceedings arising
out of or related to this Agreement, any of the other agreements executed in
connection with this Agreement and the transactions contemplated hereby or
thereby, (ii) irrevocably waives, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum, and (iii) agrees that service of any process, summons,
notice or document in any such action, suit or proceeding in the manner set
forth in Section 9.14.2 shall be effective service of process for any such
action, suit or proceeding brought in any such court.
9.14.2 Each of the Shareholders hereby irrevocably designates and
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appoints the Shareholder Representative as his or its agent to accept and
acknowledge on his or its behalf any and all process which may be served in
connection with any suit, action or proceeding arising out of or related to this
Agreement, any of the other agreements executed in connection with this
Agreement and the transactions contemplated hereby or thereby, such service
being hereby acknowledged by each of the Shareholders to be effective and
binding service on it in every way.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the day and year first above written.
XXXXXX XXXXXXX, INC.
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Xxxx X. Xxxxxxxx
Its: Senior Vice President
CALCOR ACQUISITION
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Xxxx X. Xxxxxxxx
Its: Senior Vice President
CALYX & COROLLA, INC.
By: /s/ Xxxx X. Xxxxxx
-------------------------------
Its: President
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INDEX OF SCHEDULES AND EXHIBITS
TO
AGREEMENT AND PLAN OF MERGER
DISCLOSURE SCHEDULES
Schedule 4.2 - Capitalization
Schedule 4.3 - Due Authorization
Schedule 4.4 - Financial Statements
Schedule 4.6 - Tax Matters
Schedule 4.7 - Real Estate
Schedule 4.10 - Licenses and Permits
Schedule 4.11 - Proprietary Rights
Schedule 4.13 - Contracts and Agreements
Schedule 4.14 - Litigation
Schedule 4.16 - Insurance
Schedule 4.17 - Absence of Certain Developments
Schedule 4.19 - Environmental Matters
Schedule 4.21 - Employee Benefits
Schedule 4.22 - Affiliate Transactions
Schedule 4.23 - Officers and Directors
Exhibit A - Voting Agreement
Exhibit B - Employment Agreement - Owades
Exhibit C - Employment Agreement - Xxx
Exhibit D - Employment Agreement - Sterling
Exhibit E - Noncompetition Agreement
Exhibit F - Shareholders Agreement
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TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER ........................................................ 2
1.1 Merger of the Purchaser into the Company ............................. 2
1.2 Effective Time ....................................................... 2
1.3 Effects of the Merger ................................................ 2
1.4 Taking of Necessary Action ........................................... 2
1.5 Articles of Incorporation and Bylaws ................................. 3
1.6 Directors and Officers ............................................... 3
1.7 Closing .............................................................. 3
ARTICLE II STATUS AND CONVERSION OF SECURITIES
PURSUANT TO MERGER ............................................................ 3
2.1 Conversion of Company Shares ......................................... 3
2.2 Merger Consideration ................................................. 5
2.3 Exchange of Share Certificates ....................................... 6
2.4 Transmittal Materials ................................................ 6
2.5 Distributions with Respect to Unexchanged Shares ..................... 6
2.6 Dissenting Shares of Company Stock ................................... 7
2.7 Rights of Former Shareholders ........................................ 7
2.8 Closing of the Company's Transfer Books .............................. 7
2.9 Additional Actions ................................................... 8
2.10 Taxes ................................................................ 8
2.11 Tax and Accounting Consequences ...................................... 8
ARTICLE III CLOSING; CLOSING CONDITIONS;
PRE-CLOSING COVENANTS ......................................................... 8
3.1 Closing Transactions ................................................. 8
3.2 The Company's Closing Deliveries ..................................... 9
3.3 The Purchaser's Closing Deliveries ................................... 9
3.4 Conditions to the Parent's and the Purchaser's Obligations ........... 10
3.5 Conditions to the Company's Obligations .............................. 12
3.6 Affirmative Covenants of the Company ................................. 13
3.7 Negative Covenants of the Company .................................... 14
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53
3.8 Affirmative Covenants of the Parent and the Purchaser ................ 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................... 16
4.1 Organization, Power and Authority; Subsidiaries ...................... 16
4.2 Capitalization ....................................................... 16
4.3 Due Authorization; Binding Obligation; No Conflicts .................. 17
4.4 Financial Statements ................................................. 17
4.5 Liabilities .......................................................... 18
4.6 Tax Matters .......................................................... 18
4.7 Real Estate .......................................................... 21
4.8 Good Title to and Condition of Assets ................................ 22
4.9 Receivables .......................................................... 22
4.10 Licenses and Permits ................................................. 22
4.11 Proprietary Rights ................................................... 23
4.12 Relationships with Suppliers ......................................... 23
4.13 Contracts and Agreements with Respect to the Company ................. 23
4.14 Litigation ........................................................... 25
4.15 Records of the Company ............................................... 25
4.16 Insurance ............................................................ 25
4.17 Absence of Certain Developments ...................................... 26
4.18 Compliance with Laws ................................................. 28
4.19 Environmental Matters ................................................ 29
4.20 Labor Relations ...................................................... 30
4.21 Employee Benefits .................................................... 30
4.22 Affiliate Transactions ............................................... 32
4.23 Officers and Directors; Bank Accounts ................................ 32
4.24 Accuracy of Information Furnished by the Company ..................... 32
4.25 Closing Date ......................................................... 32
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER ............................................... 32
5.1 Organization, Power and Authority .................................... 32
5.2 Due Authorization; Binding Obligation; No Conflicts .................. 33
5.3 Liabilities .......................................................... 33
5.4 Litigation ........................................................... 34
5.5 Compliance with Laws ................................................. 34
5.6 Issuance of Shares ................................................... 34
5.7 Accuracy of Information Furnished by the Parent and the Purchaser .... 34
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ARTICLE VI CERTAIN ACTIONS AFTER THE CLOSING ................................ 34
6.1 Intentionally Omitted ................................................ 34
6.2 Intentionally Omitted ................................................ 35
6.3 Intentionally Omitted ................................................ 35
6.4 Continued Employment of the Company's Employees ...................... 35
6.5 Books and Records .................................................... 35
6.6 Holdback ............................................................. 35
6.7 Acceleration of Options .............................................. 35
6.8 Options at Closing ................................................... 36
6.9 Election of Xxxx Xxxxxx as Director of Parent ........................ 36
6.10 Indemnification of Directors and Officers ............................ 36
ARTICLE VII INDEMNIFICATION ................................................. 36
7.1 Agreements to Indemnify .............................................. 36
7.2 Settlement of Claims ................................................. 37
7.3 Security For Indemnification Claims by the Purchaser Parties ......... 39
ARTICLE VIII TERMINATION .................................................... 41
8.1 Termination .......................................................... 41
8.2 Effect of Termination ................................................ 41
ARTICLE IX MISCELLANEOUS .................................................... 42
9.1 Transaction Expenses ................................................. 42
9.2 Amendment and Modification ........................................... 42
9.3 Entire Agreement ..................................................... 42
9.4 Interpretation ....................................................... 42
9.5 Execution in Counterpart ............................................. 43
9.6 Notices .............................................................. 43
9.7 Governing Law ........................................................ 44
9.8 Confidentiality; Publicity ........................................... 44
9.9 Severability ......................................................... 44
9.10 Assignment ........................................................... 45
9.11 Binding Effect; No Third Party Beneficiaries ......................... 45
9.12 Negotiation Representations .......................................... 45
9.13 Shareholder Representative ........................................... 45
9.14 Submission to Jurisdiction; Agent for Service of Process ............. 48
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