AGREEMENT AND PLAN OF MERGER
Among
U.S. PAWN, INC.,
U.S. PAWN CNP HOLDINGS, INC.
And
CASH-N-PAWN INTERNATIONAL, LTD.
Dated as of May 6, 1999
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TABLE OF CONTENTS
Article I
Definitions...........................................................1
Section 1.1 Defined Terms............................................1
Article II
The Merger............................................................5
Section 2.1 General............................................5
Section 2.2 Filing.............................................6
Section 2.3 Effectiveness of the Merger........................6
Section 2.4 Articles of Incorporation and Bylaws...............6
Section 2.5 Directors and Officers.............................6
Section 2.6 Conversion.........................................6
Section 2.7 Treatment of the Company's Convertible Debt........6
Section 2.8 Dissenting Shares..................................7
Section 2.9 Conversion of Shares...............................8
Section 2.10 Effects of Merger..................................9
Section 2.11 Closing............................................9
Article III
Representations and Warranties of the Company........................10
Section 3.1 Organization and Qualification....................10
Section 3.2 Corporate Authorization...........................10
Section 3.3 Capitalization....................................10
Section 3.4 Consents and Approvals............................11
Section 3.5 No Violations.....................................11
Section 3.6 Financial Statements..............................11
Section 3.7 Interim Changes...................................11
Section 3.8 Real Property.....................................13
Section 3.9 Personal Property.................................14
Section 3.10 Contracts.........................................14
Section 3.11 Litigation........................................16
Section 3.12 Compliance with Laws..............................16
Section 3.13 Labor Matters.....................................16
Section 3.14 Environmental and Safety Matters..................17
Section 3.15 Tax Matters.......................................18
Section 3.16 Employee Benefit Plans............................19
Section 3.17 Insurance.........................................20
Section 3.18 Affiliate Interests...............................20
Section 3.19 Fees, Commissions and Expenses....................21
Section 3.20 Bank Accounts.....................................21
Section 3.21 Intellectual Property.............................21
Section 3.22 Employment Agreements.............................21
Section 3.23 Indemnification of Employees, Etc.................21
Section 3.24 Disclosure........................................21
Section 3.25 Board Recommendation..............................22
Section 3.26 Year 2000 Compliant...............................22
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Article IV
Representations and Warranties of the Parent and the Purchaser.......22
Section 4.1 Organization and Qualification....................22
Section 4.2 Corporate Authorization...........................22
Section 4.3 Consents and Approvals; No Violation..............23
Section 4.4 Litigation........................................23
Section 4.5 Compliance with Laws..............................23
Section 4.6 Brokers...........................................23
Section 4.7 Ownership of Company Stock........................23
Section 4.8 Formation of Purchaser............................24
Section 4.9 Issuance of Securities............................24
Section 4.10 NASDAQ SmallCap Market Listing....................25
Section 4.11 SEC Documents.....................................25
Section 4.12 Disclosure........................................25
Section 4.13 Capitalization....................................25
Article V
Covenants............................................................25
Section 5.1 Conduct of Business of the Company and the
Subsidiaries....................................25
Section 5.2 Approval of the Shareholders of the Company.......26
Section 5.3 Approval of the Shareholders of the Parent........26
Section 5.4 Filings; Third Party Consents.....................27
Section 5.5 Proxy Statement...................................27
Section 5.6 Access to Information.............................28
Section 5.7 Confidentiality...................................29
Section 5.8 Public Announcements..............................29
Section 5.9 Exclusivity.......................................29
Section 5.10 Options...........................................30
Section 5.11 Warrants..........................................30
Section 5.12 Proxy and Lock-up.................................31
Section 5.13 Directors.........................................31
Section 5.14 Counsel Opinion...................................31
Section 5.15 Notification of Certain Matters...................32
Section 5.16 Certain Litigation................................32
Section 5.17 Rule 144..........................................32
Section 5.18 Continuation of Indemnification...................32
Article VI
Conditions to Closing................................................33
Section 6.1 Conditions to Each Party's Obligation.............33
Section 6.2 Conditions to Obligation of the Parent and
the Purchaser...................................33
Section 6.3 Conditions to Obligation of the Company...........35
Article VII
Termination..........................................................35
Section 7.1 Termination.......................................35
Article VIII
Indemnification......................................................36
Section 8.1 Indemnification...................................36
Article IX
General Provisions...................................................39
Section 9.1 Rules of Construction.............................39
Section 9.2 Notices...........................................40
Section 9.3 Governing Law.....................................41
Section 9.4 Entire Agreement..................................41
Section 9.5 Amendment; Waiver.................................41
Section 9.6 Binding Effect....................................41
Section 9.7 Counterparts......................................41
Section 9.8 Expenses..........................................41
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SCHEDULES
Schedule 2.5 Directors and Officers of Surviving Corporation
Schedule 2.7(b) Holders of 15% Subordinated Convertible Debentures and
Related Conversion Rights
Schedule 3.1 Subsidiaries
Schedule 3.3 Capitalization
Schedule 3.3A Cash-N-Pawn International, Ltd. Capital Stock and Equity
Rights
Schedule 3.4 Company Consents and Approvals
Schedule 3.5 No Violations
Schedule 3.6 Financial Statements
Schedule 3.7 Interim Changes
Schedule 3.8(a) Real Property
Schedule 3.8(b) Required Consents Under Leases
Schedule 3.8(c) Encumbrances on Fixtures
Schedule 3.9 Personal Property
Schedule 3.10(a) Other Contracts
Schedule 3.10(b) Loan Agreements and Related Documentation
Schedule 3.10(c) Consents Required Under Other Contracts and Loan Agreements
Schedule 3.11 Litigation
Schedule 3.13 Labor Matters
Schedule 3.14 Environmental and Safety Matters
Schedule 3.15(a) Filing of Tax Returns
Schedule 3.15(b) Past Audits, Agreements, Waivers or Arrangements
Schedule 3.15(c) Pending Audits and Other Proceedings
Schedule 3.15(e) Tax Return Jurisdictions
Schedule 3.16(a) Employee Plans and Employee Benefit Arrangements
Schedule 3.16(b) Employee Plan Liabilities
Schedule 3.16(f) Determination Letter Matters
Schedule 3.17 Insurance
Schedule 3.18 Affiliate Interests
Schedule 3.20 Bank Accounts
Schedule 3.21 Intellectual Property
Schedule 3.22 Employment Agreements
Schedule 3.23 Employee Indemnification
Schedule 4.3 Parent and Purchaser Consents and Approvals; No Violation
Schedule 5.1 Conduct of Business
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EXHIBITS
Exhibit A Intentionally Omitted
Exhibit B Certificate of Designation
Exhibit C Form of Promissory Note
Exhibit D Proxy and Lock-up Agreement
Exhibit E Counsel Opinion
Exhibit F Employment Agreement between the
Purchaser and Xxxx X. Xxxxxxx
Exhibit G Employment Agreement between the
Purchaser and Xxxx X. Xxxxx
APPENDICES
Appendix A Merger Consideration
Appendix A-1 Adjustment Example
Appendix A-2 Final Balance Sheet Adjustments
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of May 6, 1999, among
U.S. PAWN, INC., a Colorado corporation (the "Parent"), U.S. PAWN CNP HOLDINGS,
INC., a Colorado corporation and a wholly-owned subsidiary of the Parent (the
"Purchaser"), and CASH-N- PAWN INTERNATIONAL, LTD., a Minnesota corporation (the
"Company").
The Company and the Parent have each approved the acquisition of the
Company by the Parent pursuant to a merger of the Company with and into the
Purchaser with the Purchaser surviving such merger, upon the terms and subject
to the conditions set forth herein.
The Company and the Parent intend that the merger will be treated as a tax
free reorganization which meets the requirements of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended.
The Board of Directors of each of the Parent and the Purchaser believes it
is in the best interest of each of the Parent and the Purchaser and their
respective shareholders, and the Board of Directors of the Company believes it
is in the best interest of the Company and its shareholders, to consummate such
merger upon the terms and subject to the conditions set forth herein.
The Board of Directors of the Parent, the Purchaser and the Company have
approved and adopted this Agreement and approved the proposed merger upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties agree as
follows:
Article I
Definitions
Section 1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Affiliate" of any specified person means any officer or director
of such person and any other person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
person and, in the case of an individual, includes members of such individual's
immediate family. For purposes of this definition, "control" when used with
respect to any specified person means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(b) "Agreement" means this Agreement and includes all of the schedules
and exhibits annexed hereto.
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(c) "CBCA" means the Colorado Business Corporation Act, Colorado
Revised Statutes ss. 0-000-000, et seq.
(d) "Closing" is defined in Section 2.11.
(e) "Closing Date" is defined in Section 2.11.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Company Common Stock" means the Company's common stock, par value
$.01 per share.
(h) "Contract" means any contract, lease, license, purchase order,
sales order or other agreement or binding commitment, whether or not in written
form.
(i) "Controlling Shareholders" is defined in Section 5.12.
(j) "Converted Company Shares" is defined in Appendix A.
(k) "Dissenting Shares" is defined in Section 2.8.
(l) "Effective Time" is defined in Section 2.3.
(m) "Employee Plans" means all employee benefit plans (as defined in
Section 3(3) of ERISA) to which the Company is a party or is bound, with respect
to which payments or contributions are required to be made by the Company, or in
respect of which the Company may otherwise have any liability.
(n) "Encumbrances" means all liens, charges, security interests and
similar rights of third parties with respect to property.
(o) "Environmental and Safety Requirements" means all federal, state
and municipal statutes, regulations, common law and similar provisions having
force or effect of law, including all required orders, permits, licenses and
approvals, with respect to environmental, public health and safety, occupational
health and safety, product liability and transportation matters, including
without limitation those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, control or cleanup of any contaminant,
waste, hazardous materials or substances, chemical substances or mixtures,
pesticides, toxic compounds or materials, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation.
(p) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(r) "Exchange Agent" is defined in Section 2.9.
(s) "Exchange Agreements" is defined in Section 5.11.
(t) "Exchange Fund" is defined in Section 2.9.
(u) "GAAP" means generally accepted accounting principles in effect in
the United States.
(v) "Governmental Permit" means any franchise, consent, license,
marketing right, permit, authorization, approval or other operating authority
issued by any governmental or regulatory body.
(w) "Historical Financials" means the consolidated audited balance
sheets and statements of income and cash flows of the Company and the Operating
Subsidiaries as of and for the fiscal years ended December 31, 1998 and 1997
(including the footnotes thereto) and the consolidated balance sheets and
statements of income and cash flows of the Company and the Subsidiaries for the
interim period ended March 31, 1999.
(x) "Latest Balance Sheet" means the consolidated audited balance
sheet of the Company as of December 31, 1998.
(y) "Loss" or "Losses" means any and all out-of-pocket damages, costs,
liabilities, losses (including consequential losses), judgments, penalties,
fines, expenses or other costs, including reasonable attorney's fees, incurred
by any party.
(z) "MBCA" means the Minnesota Business Corporation Act, Minnesota
Statutes Chapter 302A.
(aa) "Material Adverse Effect" means a material adverse effect on
either (i) the assets, operations, financial condition or prospects of the
Company, or (ii) the Company's ability to consummate the transactions
contemplated hereby; provided, however, for purposes of this Agreement and
setting forth information on the disclosure schedules hereto, "Material Adverse
Effect" shall be deemed to include any event or circumstance which could
reasonably be expected to result in a liability to the Company in excess of
$5,000.
(bb) "Merger" is defined in Section 2.1.
(cc) "Merger Consideration" means the consideration as detailed on
Appendix A attached hereto.
(dd) "Operating Subsidiaries" means those subsidiaries of the Company
set forth as such on Schedule 3.1.
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(ee) "Parent Common Stock" means the Parent's common stock, no par
value.
(ff) "Parent Preferred Stock" means the Parent's preferred stock with
the terms and conditions as described on the Certificate of Designation attached
hereto as Exhibit B.
(gg) "Permitted Liens" means (i) liens for Taxes, fees, levies, duties
or other governmental charges of any kind which are not yet delinquent or are
being contested in good faith by appropriate proceedings which suspend the
collection thereof and for which appropriate reserves have been established in
accordance with GAAP; (ii) liens for mechanics, material, laborers, employees,
suppliers or similar liens arising by operation of law for sums which are not
yet delinquent or which are being contested in good faith by appropriate
proceedings or with respect to which arrangements for payment and/or release
have been made and for which appropriate reserves have been established in
accordance with GAAP; and (iii) with respect to real property, easements,
servitudes, leases, reservations or rights vested in public authorities or
public or private utility companies for rights-of-way, streets, roads, bridges,
pipes, pipelines, railroads, electric transmission and distribution lines,
telegraph and telephone lines, sewage and drainage rights and other similar
purposes, provided that such Encumbrances do not in the aggregate materially
affect the marketability of title to the property subject thereto for the
purposes for which it is currently held and do not in the aggregate materially
interfere with the conduct of the business of the Company.
(hh) "Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization or governmental entity (or any department, agency or
political subdivision thereof).
(ii) "Promissory Note" means the note or notes of the Purchaser
guaranteed by the Parent which are payable as part of the Merger Consideration
in the aggregate principal amount to be determined in accordance with Appendix
A, all in substantially the form of Exhibit C attached hereto.
(jj) "Purchaser Common Stock" means the Purchaser's common stock, no
par value.
(kk) "Securities Act" means the Securities Act of 1933, as amended.
(ll) "Subsidiary" means with respect to any Person (i) any corporation
at least a majority of whose outstanding voting stock is owned, directly or
indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, (ii) any general partnership, joint
venture or similar entity, at least a majority of whose outstanding partnership
or similar interests shall at the time be owned by such Person, or by one or
more of its Subsidiaries, or by such Person and one or more of its Subsidiaries
and (iii) any limited partnership of which such Person or any of its
Subsidiaries is a general partner. For purposes of this definition, "voting
stock" means shares, interests, participations or other equivalents in the
equity interest (however designated) in such Person having ordinary voting power
for the election of a majority of the directors (or the equivalent) of such
Person other than shares, interests, participations or other equivalents having
such power only by reason of the occurrence of a contingency.
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(mm) "Surviving Corporation" is defined in Section 2.1(a).
(nn) "Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (pursuant to Section 59A of the Code or
otherwise), custom duties, capital stock, franchise, employee's income
withholding, foreign withholding, social security (or its equivalent),
unemployment, disability, real property, personal property, sales, use,
transfer, value added, registration, alternative or add-on minimum, estimated or
other tax, including any interest, penalties or additions to tax in respect of
the foregoing, whether disputed or not, and any obligation to indemnify, assume
or succeed to the liability of any other person in respect of the foregoing, and
the term "Tax Liability" shall mean any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due) with respect to Taxes.
(oo) "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Article II
The Merger
Section 2.1 General.
(a) Upon the terms and subject to the conditions contained herein and
in accordance with the CBCA and the MBCA, at the Effective Time, the Company
shall be merged with and into the Purchaser (the "Merger") and thereupon the
separate corporate existence of the Company shall cease, and the Purchaser, as
the surviving corporation (the "Surviving Corporation"), shall continue to exist
under and be governed by the CBCA.
(b) As of the date hereof, (i) the Company has 2,566,198 shares of
Company Common Stock outstanding, all of which are entitled to vote with respect
to the Merger, and no other shares of capital stock outstanding, (ii) the
Purchaser has 100 shares of Purchaser Common Stock outstanding, all of which are
entitled to vote with respect to the Merger, and no other shares of capital
stock outstanding, and (iii) the Parent has 3,685,410 shares of Parent Common
Stock outstanding, all of which are entitled to vote with respect to the Merger,
37,800 shares of Redeemable Preferred Stock outstanding, none of which are
entitled to vote with respect to the Merger, and no other shares of capital
stock outstanding. With respect to the Parent and Purchaser and in accordance
with the CBCA, a majority vote of the outstanding shares of Purchaser Common
Stock and Parent Common Stock is required to approve the Merger. With respect to
the Company, in accordance with Shareholder Voting Agreement of the shareholders
of the Company dated September 1, 1995, the vote of sixty percent (60%) of the
outstanding shares of Company Common Stock (rather than the majority required by
the MBCA) is required to approve the Merger.
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Section 2.2 Filing. On the Closing Date, the Company and the Purchaser will
cause an appropriate mutually acceptable certificate of merger (the "Certificate
of Merger") to be executed and filed with the Secretaries of State of Colorado
and Minnesota pursuant to the applicable provisions of the CBCA and the MBCA,
and prior thereto the Parent will cause the Certificate of Designation in the
form of Exhibit B hereto to be executed and filed with the Secretary of State of
Colorado pursuant to the applicable provisions of the CBCA.
Section 2.3 Effectiveness of the Merger. The Merger shall become effective
(the "Effective Time") immediately upon the filing and acceptance of the
Certificate of Merger with the Secretaries of State of Colorado and Minnesota.
Section 2.4 Articles of Incorporation and Bylaws. Upon the Effective Time,
the Articles of Incorporation of the Purchaser in effect immediately prior to
the Effective Time shall become the Articles of Incorporation of the Surviving
Corporation. The bylaws of the Purchaser as in effect immediately prior to the
Effective Time shall become the bylaws of the Surviving Corporation as of the
Effective Time.
Section 2.5 Directors and Officers. As of the Effective Time, the directors
and officers of the Surviving Corporation shall be as designated in Schedule
2.5. Such directors shall serve in accordance with the bylaws of the Surviving
Corporation until the next annual meeting of the Surviving Corporation or until
their successors are duly elected or appointed and qualified.
Section 2.6 Conversion. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(a) Each outstanding share (or fraction thereof) of Company Common
Stock, other than Dissenting Shares, shall be converted into and shall
thereafter represent only the right to receive, upon surrender in accordance
with Section 2.9, the Merger Consideration;
(b) All shares of capital stock which are held by the Company as
treasury shares shall be canceled and retired and cease to exist, without any
conversion thereof; and
(c) The shares of Parent Common Stock and Parent Preferred Stock, if
any, issued by the Parent as the Merger Consideration shall be dated as of the
Effective Time and shall be "restricted securities" as defined in Rule 144 under
the Securities Act and shall bear a legend to such effect.
Section 2.7 Treatment of the Company's Convertible Debt.
(a) The Company's 11% Convertible Debt. As of the date hereof, the
Company has $2,000,000 of Series A 11% Senior Subordinated Convertible
Debentures due July 1, 2001 outstanding (the "Company 11% Debt"). The Company
11% Debt is convertible into Company Common Stock under certain circumstances
prior to maturity. In the event of a merger, the Company 11% Debt is convertible
into Company Common Stock at an exercise price equal to 75% of the total merger
consideration received per share of Company Common Stock. The right of
conversion expires if not exercised during the 30 day period prior to the
closing of the Merger. To the extent that the holders of the Company 11% Debt
elect to convert such debt prior to the Effective Time, the portion of the
Merger Consideration constituting the Promissory Notes will be increased (i)
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$1.17 for every $1.00 of principal amount of the Company 11% Debt that is
converted up to a maximum of $588,235 of converted Company 11% Debt and (ii)
$1.00 for every $1.00 of principal amount of Company 11% Debt that is converted
above such amount. In this way, the Parent will assume $.17 of the $.33
conversion premium of the Company 11% Debt up to a maximum aggregate increase in
the value of the Promissory Notes of $100,000. To the extent that the holders of
the Company 11% Debt elect not to convert prior to the Effective Time, each such
debtholder may either (i) retain such debt after the Effective Time as a debt
liability of the Purchaser in accordance with its terms and without any
conversion right (which liability the Purchaser, as the Surviving Corporation of
the Merger, hereby acknowledges it will assume as a result of the Merger) or
(ii) to the extent that each such debtholder is an "accredited investor" (as
defined in Regulation D under the Securities Act) and otherwise complies with
the terms of the Parent's private placement for Parent 11% Debt (as defined
below), such debtholder may exchange the Company 11% Debt such debtholder holds
for 11% Convertible Debt of the Parent (the "Parent 11% Debt"). The Parent 11%
Debt shall be on terms substantially similar to that of the Company 11% Debt
except that the Parent 11% Debt shall be (i) callable at any time by the Parent
at par value plus accrued and unpaid interest and (ii) convertible at any time
prior to maturity or upon redemption into Parent Common Stock at an exercise
price of $6.00 per share.
(b) The Company's 15% Convertible Debt. All of the Company's 15%
Subordinate Convertible Debentures due January 1, 2000 (the "Company 15% Debt")
shall be prepaid by the Company (prior to its conversion) on or prior to the
Effective Time. It is expected that such prepayment will be effected utilizing
funds from the Company's current line of credit with BNC Financial Corporation,
which line of credit shall be assumed, and is expected to be continued by, the
Purchaser following the Effective Time. If necessary to prepay the Company 15%
Debt, the Company and Parent shall use reasonable efforts to obtain a higher
line of credit from BNC Financial Corporation on terms reasonably satisfactory
to Parent, utilizing the post-Merger consolidated financial position and
creditworthiness of the Parent. In addition, prior to the Closing, the Company
shall obtain the waiver of all of the conversion rights associated with the
conversion agreements executed in connection with the Company 15% Debt. All such
holders are listed on Schedule 2.7(b).
Section 2.8 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by stockholders who
have not voted such shares in favor of the Merger or consented thereto in
writing and who have filed a written demand for payment for such shares in the
manner provided in Sections 302A.471 and 302A.473 of the MBCA (the "Dissenting
Shares") shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.6 herein, but the holder thereof shall be
entitled only to such rights as are granted by Sections 302A.471 and 302A.473 of
the MBCA. Each holder of Dissenting Shares shall receive payment therefor from
the Surviving Corporation in accordance with the MBCA; provided, however, (a) if
any such holder of Dissenting Shares shall have failed to establish his
entitlement to receive payment for such shares as provided in Sections 302A.471
and 302A.473 of the MBCA, or (b) if any such holder of Dissenting Shares shall
have effectively withdrawn his demand for payment for such shares of Common
Stock, such holder or holders (as the case may be) shall forfeit the right to
receive payment for such shares of Company Common Stock and each such share of
Company Common Stock shall thereupon be deemed to have been converted, as of the
Effective Time, into the right to receive the Merger Consideration pursuant to
Section 2.6 hereof.
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Section 2.9 Conversion of Shares. The Purchaser and the Parent shall
authorize one or more persons to act as Exchange Agent for the Merger, which
person(s) shall be reasonably acceptable to the Company (the "Exchange Agent").
Immediately prior to the Effective Time, the Parent shall, or the Parent shall
cause the Purchaser to, deposit in trust with the Exchange Agent the Parent
Common Stock and the cash portion of the Merger Consideration. Once post-closing
adjustments have been made in accordance with the provisions of Appendix A
hereof, the Parent shall, or the Parent shall cause the Purchaser to, deposit in
trust with the Exchange Agent the Promissory Notes and the Parent Preferred
Stock (the Merger Consideration deposited with the Exchange Agent is hereinafter
referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, make the payments provided for in Section 2.9 of this
Agreement out of the Exchange Fund. The Exchange Agent shall invest the cash in
the Exchange Fund, as applicable, as the Parent directs, in direct obligations
of the United States of America, obligations for which the full faith and credit
of the United States of America is pledged to provide for the payment of all
principal and interest, commercial paper obligations receiving the highest
rating from either Xxxxx'x Investors Services, Inc. or Standard and Poor's
Corporation, or certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks with capital exceeding $10 billion. Any net
profit resulting from, or interest or income produced by, such investments shall
be payable to the Purchaser. The Purchaser shall replace any monies lost through
any investment made pursuant to this Section 2.9 after the Effective Time. This
Exchange Fund shall not be used for any other purpose except as provided in this
Agreement.
As soon as practicable after the Effective Time, the Parent shall cause the
Exchange Agent to mail or deliver to each record holder of certificates which
immediately prior to the Effective Time represented shares of Company Common
Stock (the "Certificates") a letter of transmittal and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration, which letter of transmittal shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed and completed in accordance with the instructions thereto, the holder
of such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration multiplied by the number of shares represented by the Certificate,
and such Certificate shall forthwith be canceled. The Exchange Agent may
distribute the Parent Common Stock and cash portions of the Merger Consideration
in accordance with the preceding sentence prior to receipt of the Promissory
Notes and Parent Preferred Stock portion, if any. If there is delivered to the
Exchange Agent by any person who is unable to produce a Certificate for
surrender (i) evidence to the Purchaser that any such Certificate has been lost,
wrongfully taken or destroyed, (ii) any such security or indemnity as reasonably
may be requested by the Purchaser to hold it harmless, and (iii) evidence to the
reasonable satisfaction of the Purchaser that such a person is the owner of the
shares theretofore represented by each Certificate claimed by him to be lost,
wrongfully taken or destroyed and that he is the person who would be entitled to
present each such Certificate and to receive the Merger Consideration pursuant
to this Agreement, then the Purchaser, in absence of actual notice to it that
any shares theretofore represented by any such Certificate have been acquired by
a bona fide purchaser, shall cause the Exchange Agent to deliver to such person
the Merger Consideration that such person would have been entitled to receive
upon surrender of each such lost, wrongfully taken or destroyed Certificate.
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If delivery of the Merger Consideration is to be made to any person other
than the person in whose name the Certificate surrendered is registered, it
shall be a condition of such delivery that the Certificate so surrendered shall
be properly endorsed or otherwise in proper form for transfer and that the
person requesting such delivery shall pay any transfer or other taxes required
by reason of such delivery or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. As of the Effective
Time, until surrendered in accordance with the provisions of this Section 2.9,
each Certificate (other than Certificates representing Dissenting Shares) shall
represent for all purposes only the right to receive the Merger Consideration
multiplied by the number of shares represented by such Certificate. Certificates
representing Dissenting Shares shall represent for all purposes only the right
to receive payment from the Purchaser, as the Surviving Corporation, of the
"fair value" of such Dissenting Shares determined in accordance with Sections
302A.471 and 302A.473 of the MBCA. Any portion of the Exchange Fund which
remains unclaimed by the former shareholders of the Company for 180 days after
the Effective Time (including any interest thereon) shall be paid to the
Purchaser upon demand. Any shareholders of the Company shall thereafter look
only to the Purchaser with respect to the Merger Consideration payable upon due
surrender of their Certificates.
Notwithstanding the foregoing, neither the Parent, the Purchaser nor the
Exchange Agent shall be liable to a holder of shares of Company Common Stock for
any Merger Consideration delivered to a public official pursuant to applicable
abandoned property, escheat and similar laws. After the Effective Time, there
shall be no transfers on the stock transfer books of the Purchaser of the shares
of Company Common Stock that were outstanding immediately prior to the Effective
Time.
Section 2.10 Effects of Merger. The Merger shall have the effects set forth
in the CBCA and the MBCA. Without limiting the foregoing, on and after the
Effective Time, the Purchaser shall possess all the assets and interests of
every description, wherever located, and all rights, privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature,
and all debts and liabilities of each of the Company and the Purchaser, all of
which shall be vested in the Purchaser without further act or deed.
Section 2.11 Closing. The closing of the Merger (the "Closing") shall be
held at a place mutually agreeable and as soon as practicable, but in no event
more than 40 days after both the Company and the Parent have held the
shareholder meetings described in Sections 5.2 and 5.3 (the "Closing Date"), or
at such other place and time as the Parent and the Company may mutually agree.
9
Article III
Representations and Warranties of the Company
The Company represents and warrants to the Parent and the Purchaser as
follows:
Section 3.1 Organization and Qualification. The Company (i) is a
corporation validly existing and in good standing under the laws of the State of
Minnesota, (ii) has the requisite corporate power to carry on its business as
now being conducted, and (iii) is duly qualified as a foreign corporation in
good standing in each jurisdiction where the conduct of its business makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect. The Company owns, directly or indirectly, all of the capital stock of
each of the corporations set forth on Schedule 3.1. Each Operating Subsidiary is
duly and validly organized and in good standing under the laws of the
jurisdiction of its formation, and each Operating Subsidiary is duly qualified
as a foreign corporation in good standing in each jurisdiction where the conduct
of its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect. The Company does not own, and does not have any obligation to acquire,
any material equity interest in any business enterprise other than the
Subsidiaries. Except as set forth on Schedule 3.1, neither the Company nor any
Subsidiary has an investment in or owns any type of equity interest in any other
Person.
Section 3.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby are within the Company's corporate powers and
have been duly authorized by all necessary corporate action on the part of the
Company, except for the approval by the Company's shareholders, which approval
is a condition to the Merger. This Agreement constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, fraudulent conveyance
and transfer, and moratorium or other similar laws of general application
affecting the enforcement of creditors' rights generally.
Section 3.3 Capitalization. The Company's outstanding capital stock as of
the date of this Agreement consists of 2,566,198 shares of Company Common Stock.
The outstanding Company Common Stock is duly authorized and validly issued, is
fully paid and non-assessable, and as of the date of this Agreement is owned of
record as set forth on Schedule 3.3. The issued and outstanding capital stock of
each Subsidiary is set forth on Schedule 3.3, and is owned by the Company.
Except as set forth on Schedule 3.3, as of the date hereof, the Company has no
outstanding capital stock. Except as set forth on Schedule 3.3, as of the date
hereof, (i) there were no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Company or any Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of the Company or any
Subsidiary or obligating the Company or any Subsidiary to grant, extend or enter
into any such agreement or commitment, and (ii) there are no voting trusts,
proxies or other agreements or understandings to which the Company or any
Subsidiary is a party or is bound with respect to the voting of any shares of
capital stock of the Company or any Subsidiary and, to the knowledge of the
Company, there are no such trusts, proxies, agreements or understandings by,
10
between or among any of the Company's stockholders with respect to Company
Common Stock. Except as set forth on Schedule 3.3, there are no outstanding or
authorized stock appreciation rights, phantom stock, profit participation or
similar rights with respect to the Company or any Subsidiary. To the best
knowledge of the Company, no more than 35 of the holders of the Company's Common
Stock are not "accredited investors" as defined in Regulation D under the
Securities Act.
Section 3.4 Consents and Approvals. Except as set forth on Schedule 3.4, no
filings with, notices to, or approvals of, any governmental or regulatory body
are required to be obtained or made by the Company or any Subsidiary in
connection with the consummation of the transactions contemplated hereby.
Section 3.5 No Violations. The execution and delivery of this Agreement and
the performance by the Company of its obligations hereunder (i) do not and will
not conflict with or violate any provision of the certificate or articles of
incorporation or bylaws (or similar organizational documents) of the Company and
(ii) except as set forth on Schedule 3.5 or as would not result in a Material
Adverse Effect, do not and will not (a) conflict with or result in a breach of
the terms, conditions or provisions of, (b) constitute a default under, (c)
result in the creation of any Encumbrance upon the capital stock or assets of
the Company or any Subsidiary pursuant to, (d) give any third party the right to
modify, terminate or accelerate any obligation under, (e) result in a violation
of, or (f) require any authorization, consent, approval, exemption or other
action by or notice to any court or administrative or governmental body or other
third party pursuant to, any law, statute, rule or regulation or any Contract,
order, judgment or decree to which the Company or any Subsidiary is subject or
by which any of its assets are bound.
Section 3.6 Financial Statements. Except as set forth on Schedule 3.6, the
Historical Financials have been prepared in accordance with GAAP, consistently
applied and fairly present in all material respects the financial position of
the Company and the Operating Subsidiaries on a consolidated basis as of the
dates specified and the results of operations of the Company and the Operating
Subsidiaries on a consolidated basis for the periods covered thereby, and
neither the Company nor any Operating Subsidiary has any liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) (i) that
are not reflected or fully reserved against on the Latest Balance Sheet or
incurred in the ordinary course of the business consistent with past practice
subsequent to the date of the Latest Balance Sheet, (ii) that are not set forth
on the disclosure schedules hereto or, if not so specifically set forth, have
not directly arisen or will not directly arise in connection with or do not or
will not otherwise directly relate to, the matters specifically set forth on
such disclosure schedules or matters otherwise specifically disclosed by the
Company therein or herein, or (iii) if described by neither of the foregoing
clauses (i) or (ii), any of which would cause a Material Adverse Effect.
Section 3.7 Interim Changes. Except as set forth on Schedule 3.7, since the
date of the Latest Balance Sheet the Company and each Operating Subsidiary have
conducted their businesses, in all material respects, in the ordinary course and
in a manner consistent with past practice (except in connection with the
negotiation and execution and delivery of this Agreement), and there have not
been:
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(a) any changes in the financial condition, assets, liabilities,
personnel or operations of the Company or any Operating Subsidiary or in the
Company's or any Operating Subsidiary's relationships with suppliers,
distributors, lessors or others with whom they have business dealings, other
than changes which individually or in the aggregate do not have a Material
Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the Company or any Operating
Subsidiary;
(c) any increase in the compensation, bonus or benefits paid or to
become payable to any officers of the Company or any Operating Subsidiary or,
other than in the ordinary course and in a manner consistent with past practice,
any increase in the compensation or benefits payable to non-officer employees of
the Company or any Operating Subsidiary;
(d) any transfer, lease, license or other disposition of assets of the
Company or any Operating Subsidiary other than sales of inventory in the
ordinary course of business;
(e) any incurrence of indebtedness for borrowed money other than
pursuant to the Company's revolving line of credit or any Encumbrances placed on
any of the assets of the Company or any Operating Subsidiary;
(f) any new contract (or amendment to any existing contract)
obligating the Company or any Operating Subsidiary to purchase goods or services
for a period of 90 days or more, any amendment or termination of any material
lease, contract, license or other agreement or any waiver of material claims or
rights of the Company or any Operating Subsidiary against third parties;
(g) any material change in the collection, payment or credit
experience or practices or in the accounting practices, procedures or methods of
the Company or any Operating Subsidiary;
(h) any material agreement, arrangement or transaction between the
Company or any Operating Subsidiary and any Affiliate of the Company or any
Operating Subsidiary;
(i) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company for any redemption,
purchases or other acquisitions of any of the Company's securities (except for
the redemption of the Company 15% Debt and the waiver of any rights of
conversion associated therewith, any conversion of the Company 11% Debt and any
redemption of the warrants issued to Xxxxxx & Xxxxxxxxx and listed on Schedule
3.3A);
(j) other than as required by law, any increase in, amendment to, or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan;
(k) paid any bonus to the employees of the Company or any Operating
Subsidiary;
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(l) any other transaction not in the ordinary course of business and
consistent with past practices of the Company or any Operating Subsidiary that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect; or
(m) any commitment with respect to any of the foregoing.
Section 3.8 Real Property.
(a) Except as set forth on Schedule 3.8(a), neither the Company nor
any Subsidiary currently owns any real property in fee simple. Schedule 3.8(a)
sets forth a true, correct and complete list of (i) all real properties or
premises that have been owned in whole or in part by the Company or a
Subsidiary, and (ii) all real properties or premises that are leased or have
been leased in whole or in part by the Company or a Subsidiary. The properties
listed on Schedule 3.8(a) constitute all the real properties utilized by the
Company and the Subsidiaries. As to each leased property, Schedule 3.8(a) sets
forth (i) lease term, (ii) monthly rental (both base and additional rent), (iii)
renewal option, if any and (iv) any right of the landlord for each such parcel
to terminate the lease for each such parcel in the absence of a default of the
tenant thereunder. Except as set forth on Schedule 3.8(a), the Company or a
Subsidiary has good and marketable leasehold title to each leased property
described on Schedule 3.8(a). True, correct and complete copies of all
mortgages, deeds of trust, leases, guarantees of lease and other documents
concerning such real property have been delivered to the Parent or its
representatives. No amount payable by the Company or any Subsidiary under any
such lease is past due and neither the Company nor any Subsidiary has received
any notification of a default, offset or counterclaim under any such lease. No
event or condition has happened or presently exists which constitutes a default
or, after notice or lapse of time or both, would constitute a default under any
such lease.
(b) Each lease of premises utilized by the Company or a Subsidiary is
legal, valid and binding in all material respects, as between the Company or a
Subsidiary and the other party or parties thereto, and the Company or a
Subsidiary is a tenant or possessor in good standing thereunder, free of any
material default or breach and quietly enjoy the premises provided for therein.
Except as set forth on Schedule 3.8(a), neither the Company nor any Subsidiary
has assigned, mortgaged, pledged or otherwise encumbered its interest under any
such lease. Except as set forth on Schedule 3.8(b), no consent is required of
any party to any such lease by virtue of the Merger, and the Merger will not
result in the termination of any such lease.
(c) Except as set forth on Schedule 3.8(c), (i) the Company and the
Subsidiaries have all required legal or governmental approvals for each of the
properties and premises owned, leased, used or occupied by them, other than any
such approvals the absence of which, individually or in the aggregate, would not
have a Material Adverse Effect; (ii) the Company or a Subsidiary has good and
marketable title and owns outright, free and clear (except for rights of
landlords with respect to fixtures and leasehold improvements, if any, with
respect to leased premises) of all Encumbrances (other than Permitted Liens),
each improvement or fixture purported to be owned by it that is located in or on
any of the properties and premises owned, leased or occupied by it; (iii) no
improvement or fixture on any such premises is in violation of any law,
including without limitation any zoning, building, safety, health or other law
which, individually or in the aggregate, would have a Material Adverse Effect;
13
(iv) each of such premises and properties is zoned for the purposes for which
such premises or properties are currently being used and has adequate parking
and unrestricted public access; and (v) no material portion of such premises or
properties has been condemned or otherwise taken by any public authority, and no
such condemnation or taking is threatened or contemplated by any public
authority.
Section 3.9 Personal Property. Except as set forth on Schedule 3.9 and
except for rights of landlords with respect to such personal property as may be
deemed to constitute fixtures and leasehold improvements, if any, with respect
to leases premises, the Company and the Subsidiaries have good and marketable
title to their respective assets (other than real property, which is covered in
Section 3.8) free and clear of all Encumbrances. The Company's and each
Subsidiary's machinery, equipment and other tangible assets have been maintained
in all material respects in good working condition (normal wear and tear
excepted) and are sufficient for the conduct of its business. The Company's and
each Subsidiary's accounts receivable represent bona fide obligations arising in
the ordinary course of the business and are fully collectible by the Company or
the Subsidiaries, net of reserves for doubtful accounts reflected on the Latest
Balance Sheet or reserves arising in the ordinary course of business consistent
with past practice since the date of the Latest Balance Sheet. The Company's and
each Subsidiary's inventory is not obsolete or damaged, and has been prepared in
compliance in all material respects with all applicable legal requirements. The
assets reflected on the Latest Balance Sheet constitute all of the assets,
properties and other rights of the Company and the Subsidiaries except for those
assets acquired or disposed of in the ordinary course of business consistent
with past practice subsequent to the date of the Latest Balance Sheet.
Section 3.10 Contracts.
(a) Schedule 3.10(a) sets forth a true, correct and complete list of
all Contracts (other than real property leases and Loan Agreements referred to
in Section 3.10(b) hereof) to which the Company and the Subsidiaries are a party
or to which their respective assets are subject (i) which involve consideration
with a value of $5,000 or more; (ii) which will require the Purchaser to
purchase or provide goods or services for a period of more than 90 days after
the Closing Date; (iii) which evidence or provide for any indebtedness for
borrowed money for which the Purchaser will be liable following the Closing or
any Encumbrance on any of its assets; (iv) which guarantee the performance,
liabilities or obligations of any other entity; (v) which restrict in any
material respect the ability of the Company or the Subsidiaries to conduct any
business activities; (vi) which involve any Affiliate; (vii) which are not in
the ordinary course of business; (viii) which are subject to termination or
modification by any third party as a result of the transactions contemplated by
this Agreement; or (ix) which are otherwise material to the Company or the
Subsidiaries (collectively (i) through (ix) above, "Other Contracts"). Except as
set forth on Schedule 3.10(a), neither the Company nor any Subsidiary is in
material breach of any Other Contract set forth on Schedule 3.10(a), nor to the
best of the Company's knowledge is any third party in material breach of any
such Other Contract. True, correct and complete copies of all Other Contracts
set forth on Schedule 3.10(a) have previously been delivered to the Parent or
its representatives.
(b) Set forth in Schedule 3.10(b) is (x) a list of all loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements and
instruments pursuant to which any indebtedness of the Company or a Subsidiary is
outstanding or may be incurred (collectively, "Loan Agreements") and (y) the
respective principal amounts outstanding thereunder as of the dates specified in
14
Schedule 3.10(b). Except as set forth on Schedule 3.10(b), since December 31,
1998, neither the Company nor any Subsidiary has made any drawings under or with
respect to the loan or credit agreements, notes, bonds, mortgages, indentures
and other agreements referred to in clause (x) above. Except as set forth on
Schedule 3.10(b), all such indebtedness is prepayable at any time without
penalty, subject to the notice provisions of the agreements governing such
indebtedness. For purposes of this Section 3.10 "indebtedness" shall mean,
without duplication, (A) all obligations for borrowed money, or with respect to
deposits or advances of any kind, (B) all obligations evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations upon which
interest charges are customarily paid, (D) all obligations under conditional
sale or other title retention agreements relating to purchased property, (E) all
obligations issued or assumed as the deferred purchase price of property or
services (excluding obligations to creditors for inventory, services and
supplies incurred in the ordinary course of business), (F) all capitalized lease
obligations, (G) all obligations of others secured by any lien on property or
assets owned or acquired, whether or not the obligations secured thereby have
been assumed, (H) all obligations under interest rate or currency swap
transactions (valued at the termination value thereof), (I) all letters of
credit issued for the account of the Company or a Subsidiary), (J) all
obligations to purchase securities (or other property) which arise out of or in
connection with the sale of the same or substantially similar securities or
property, and (K) all guarantees and arrangements having the economic effect of
a guarantee of any indebtedness of any other person or entity.
(c) As of the date hereof, each of the Other Contracts and Loan
Agreements is in full force and effect and is a valid and binding obligation of
the Company or a Subsidiary and, to the knowledge of the Company, the other
parties thereto. Neither the Company nor any Subsidiary is in either payment
default or material non-payment default under any Other Contract or Loan
Agreement, nor does any condition exist that with notice or lapse of time or
both would constitute a material default thereunder. To the knowledge of the
Company, no other party to any Other Contract or Loan Agreement is in material
default thereunder. Neither the Company nor any Subsidiary has any reason to
believe that any of the Other Contracts or Loan Agreements that are renewable
will not be renewed on reasonable terms, nor does the Company know of any
expressed desire or intent, on the part of any other party to any of the Other
Contracts or Loan Agreements, to materially reduce or terminate the amount of
its business with the Company or a Subsidiary in the future. Except as set forth
in Schedule 3.10(c), no consent is required of any party to any of the Other
Contracts or any of the Loan Agreements by virtue of the Merger, and the Merger
will not result in the termination of any Other Contract or Loan Agreement.
Section 3.11 Litigation. Except as set forth on Schedule 3.11, there are no
pending or, to the best of the Company's knowledge, threatened claims, actions,
suits or proceedings against the Company or any Subsidiary which, if adversely
determined, individually or in the aggregate, would have a Material Adverse
Effect. Except as set forth on Schedule 3.11, neither the Company nor any
Subsidiary is presently subject to any injunction, order or other decree of any
court of competent jurisdiction.
Section 3.12 Compliance with Laws.
(a) The Company and each of the Subsidiaries have conducted their
businesses in compliance with all applicable laws and regulations of
governmental authorities, except for such violations that have been cured or
15
that, individually or in the aggregate, would not have a Material Adverse
Effect. The Company and each Subsidiary possesses, and is in compliance in all
material respects with, all Governmental Permits necessary to the conduct of its
business, except where the failure to so possess or comply with any such
Governmental Permit would not have a Material Adverse Effect, and such
Governmental Permits they possess will be in full force and effect immediately
prior to the Merger.
(b) Neither the Company nor any Subsidiary has, and, to the best of
the Company's knowledge, no director, officer, agent of employee thereof: (i)
made or agreed to make any contributions, payments or gifts of its funds or
property to any governmental official, employee or agent where either the
payment or the purpose of such contribution, payment or gift was or is illegal
under the laws of the United States, any state thereof or any other jurisdiction
(foreign or domestic); (ii) established or maintained any unrecorded fund or
asset for any purpose, or made any false or artificial entries on any of its
books or records for any reason; (iii) made or agreed to make any contribution,
or reimbursed any political gift or contribution made by any other person or
entity, to candidates for public office whether Federal, state, local or
foreign, where such contributions were or would be violative of applicable law;
or (iv) otherwise violated the Federal Corrupt Practices Act of 1977, as
amended.
Section 3.13 Labor Matters. Except as set forth on Schedule 3.13, neither
the Company nor any Subsidiary is a party to any collective bargaining agreement
or any employment, consulting or similar agreement or any agreement, plan or
arrangement providing for severance payments to any employee upon termination of
employment or which provide benefits upon a change in control. Except as set
forth on Schedule 3.13, there is no labor strike, work stoppage, unfair labor
practice charge, grievance or other labor dispute pending or, to the best of the
Company's knowledge, threatened against or with respect to the Company or any
Subsidiary. There is no existing union representation question respecting any
employees of the Company or any Subsidiary, nor to the Company's knowledge are
there any organizational efforts with respect to any employees of the Company or
any Subsidiary. The Company has complied in all material respects with
immigration and naturalization laws in connection with the employment of its
work force.
Section 3.14 Environmental and Safety Matters.
(a) Except as set forth on Schedule 3.14 or as would not have a
Material Adverse Effect:
(i) The Company and each Subsidiary are and have been in
compliance at all times with all applicable Environmental and Safety
Requirements, and neither the Company nor any Subsidiary has received notice,
report or information regarding any liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), or any corrective, investigatory or
remedial obligations, arising under Environmental and Safety Requirements with
respect to the past or present operations or properties of the Company or any
Subsidiary relating to a period of the Company's or a Subsidiary's occupancy
thereof.
(ii) The Company and each Subsidiary has obtained, and is and has
been in compliance at all times with all terms and conditions of, all permits,
licenses and other authorizations required pursuant to Environmental and Safety
Requirements for the occupation of its properties and the conduct of its
operations.
16
(iii) To the best of the Company's knowledge, none of the
following exists at any property owned or occupied by the Company or a
Subsidiary: asbestos-containing material in any form or condition;
polychlorinated biphenyl-containing materials or equipment; or underground
storage tanks.
(iv) To the best of the Company's knowledge, the transactions
contemplated by this Agreement do not impose any obligations under Environmental
and Safety Requirements for site investigation or cleanup or notification to or
consent of any government agencies or third parties.
(v) No facts, events or conditions relating to the past or
present properties or operations of the business or properties contiguous
thereto will (x) prevent, hinder or limit continued compliance by the Company
and the Subsidiaries with Environmental and Safety Requirements, (y) to the best
of the Company's knowledge, give rise to any corrective, investigatory or
remedial obligations on the part of the Company or any Subsidiary pursuant to
Environmental and Safety Requirements, or (z) to the best of the Company's
knowledge, give rise to any liabilities on the part of the Company or any
Subsidiary (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental and Safety Requirements, including without limitation
those liabilities relating to onsite or offsite hazardous substance releases,
personal injury, property damage or natural resources damage.
(vi) Neither the Company nor any Subsidiary has assumed any
liabilities or obligations of any third party under Environmental and Safety
Requirements.
(b) The Company and each Subsidiary have delivered to the Parent or
its representatives true, correct and complete copies of all environmental
reports, analyses, tests or monitoring in the possession of the Company and each
of Subsidiary pertaining to any property owned or operated by the Company or the
Subsidiaries at any time and a true, correct and complete list identifying all
third party facilities at which contaminants generated by the Company or any
Subsidiary have been transported, treated, stored, handled or disposed within
the past five years.
Section 3.15 Tax Matters.
(a) Except as set forth on Schedule 3.15(a), the Company and each
Subsidiary have timely filed all federal and state income Tax Returns (and all
other material Tax Returns) required to be filed through the date hereof, and
all such Tax Returns are true and complete in all material respects. The Company
and each Subsidiary have timely paid all Taxes that are due, or claimed or
asserted by any taxing authority to be due, from or with respect to the Company
and each Subsidiary for all periods prior to the date hereof, whether or not
shown on any Tax Return, including withholding and similar Taxes with respect to
its employees, except in the case of all Tax Returns other than federal and
state income Tax Returns, where the failure to do so would not have a Material
Adverse Effect. Except as set forth on Schedule 3.15(a), with respect to any
period for which Tax Returns have not yet been filed, or for which Taxes are not
17
yet due or owing, neither the Company nor any Subsidiary has any liability for
Taxes other than that set forth on the Latest Balance Sheet or incurred
subsequent to the date of the Latest Balance Sheet in the ordinary course of
business consistent with past practice. The Company and each Subsidiary have
made all required current estimated Tax payments sufficient to avoid any
underpayment penalties.
(b) Except as set forth on Schedule 3.15(b), no Tax Return of the
Company or any Subsidiary has been audited or examined by the Internal Revenue
Service or any other taxing authority during the last fiscal year. Except as set
forth on Schedule 3.15(b), there are no outstanding agreements, waivers or
arrangements extending the time within which the Company or any Subsidiary may
file any Tax Return or the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, any Taxes due from
or with respect to the Company or any Subsidiary for any taxable period. The
Company and each Subsidiary have previously delivered to the Parent or its
representatives true, correct and complete copies of all federal, state, local
or foreign income or franchise Tax Returns filed by the Company and the
Subsidiaries for the fiscal years ended December 31, 1997 and 1998. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor provision) or
any similar provision of any state, local, or foreign law has been entered into
by or with respect to the Company or any Subsidiary for any Tax period.
(c) Except as set forth on Schedule 3.15(c), no audit or other
proceeding by any court or other governmental or regulatory authority is pending
or, to the best of the Company's knowledge, threatened with respect to any Taxes
due from or with respect to the Company or any Subsidiary or any Tax Return
filed by or with respect to the Company or any Subsidiary, and there is no
pending dispute or claim concerning any Tax Liability of the Company or any
Subsidiary.
(d) Neither the Company nor any Subsidiary has made or is obligated to
make any payment, nor is the Company or any Subsidiary bound by any contract or
other agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to any payment, that would not be deductible under
Section 280G or 162(m) of the Code.
(e) Schedule 3.15(e) sets forth a list of all jurisdictions (whether
foreign or domestic) in which the Company and each Operating Subsidiary
presently files Tax Returns. To the Company's knowledge, no claim has ever been
made by an authority in a jurisdiction where the Company or a Subsidiary does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(f) Neither the Company nor any Subsidiary is a "foreign person"
within the meaning of Section 1445(g)(3) of the Code.
Section 3.16 Employee Benefit Plans.
(a) Schedule 3.16(a) contains a true, correct and complete list of all
Employee Plans and all stock option, bonus or other incentive plans, vacation
policies, and other material employee benefit arrangements of the Company and
each Subsidiary, true, correct and complete copies of which have been delivered
to the Parent or its representatives.
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(b) Except as set forth on Schedule 3.16(b) and except for
contributions not yet due and payable, neither the Company nor any Subsidiary
has any liability or potential liability (including, but not limited to, actual
or potential withdrawal liability) with respect to (x) any multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA, or (y) any Employee Plan of
the type described in Section 4063 and 4064 of ERISA or in Section 413(c) of the
Code (and regulations promulgated thereunder).
(c) No Employee Plan provides any health, life or other welfare
benefits to retired or former employees of the Company or any Subsidiary, other
than as required by Section 4980B of the Code. No Employee Plan is a defined
benefit plan (as defined in Section 3(35) of ERISA), and neither the Company nor
any Subsidiary has any actual or potential liability with respect to any defined
benefit plan. With respect to each of the Employee Plans, all required
contributions attributable to plan years ending on or prior to the Closing Date
and all required employer and salary reduction employee contributions for all
months ending on or prior to the Closing Date have been made or will be timely
made prior to the Closing Date.
(d) Each Employee Plan and all related trusts, insurance contracts and
funds (as applicable) have been maintained, funded and administered in
compliance in all material respects with all applicable laws and regulations,
including but not limited to ERISA and the Code. Neither the Company, any
Subsidiary or any Affiliate of the Company or any Subsidiary nor, to the best of
the Company's knowledge, any trustee or administrator of any Employee Plan or
any other Person, has engaged in any transaction with respect to any Employee
Plan which could reasonably be expected to subject the Company, any Subsidiary
or any trustee or administrator of such Employee Plan to any material liability,
tax or penalty (civil or otherwise) imposed by ERISA or the Code. No actions,
suits, investigations or claims with respect to the Employee Plans or with
respect to any fiduciary or other Person dealing with any Employee Plan are
pending or to the best of the Company's knowledge threatened, and the Company
has no knowledge of any facts which could reasonably be expected to give rise to
any such actions, suits, investigations or claims. The Company and each
Subsidiary have complied in all material respects with the requirements of
Section 4980B of the Code.
(e) No Employee Plan has been terminated within the last three
calendar years. No Employee Plan has incurred any accumulated funding
deficiency, whether or not waived, and none of the assets of the Company or any
Subsidiary are subject to any lien arising under 302(f) of ERISA or 412(n) of
the Code.
(f) Except as set forth on Schedule 3.16(f), each Employee Plan that
is intended to be qualified under Section 401(a) of the Code, and each trust
forming a part thereof, has received a favorable determination letter from the
Internal Revenue Service as to the qualification under the Code of such Employee
Plan and the tax exempt status of such related trust, and nothing has occurred
since the date of such determination letter that could reasonably be expected to
adversely affect the qualification of such Employee Plan or the tax exempt
status of such related trust.
(g) With respect to each Employee Plan, the Company has provided the
Parent or its representatives with true, correct and complete copies, to the
extent applicable, of (i) all documents (including summary plan descriptions and
other material employee communications) pursuant to which such Employee Plan is
19
maintained, funded and administered, (ii) the most recent annual report (Form
5500 series) filed with the Internal Revenue Service (with attachments) if such
Form is required by the Code, ERISA or any other applicable laws or regulations
(iii) the most recent financial statements, if such financial statements are
required by the Code, ERISA or any other applicable laws or regulations and (iv)
all governmental rulings, determinations and opinions (and pending requests for
governmental rulings, determinations and opinions) and correspondence with
respect thereto.
Section 3.17 Insurance. Schedule 3.17 contains a true, correct and complete
listing of all policies of insurance carried by the Company and each Subsidiary,
including the type and amount of coverage, deductible levels, expiration dates
and any outstanding unpaid claims under such policies. All premiums due with
respect to such policies have been paid and such policies are in full force and
effect and will remain in full force and effect through the Closing Date.
Neither the Company nor any Subsidiary has received any notices from any of its
insurance carriers indicating cancellation or non-renewal of any insurance or
suggested changes in the Company's or any Subsidiary's operations as a condition
of such insurance. The Company believes that such insurance is adequate for the
conduct of its business and the business of each Subsidiary and such insurance
is customary for similar companies of similar size.
Section 3.18 Affiliate Interests. Except as set forth on Schedule 3.18,
neither the Company nor any Subsidiary is a party to any transaction with (a)
any employee, officer or director of the Company or any Subsidiary, (b) any
relative of any such employee, officer or director, or (c) any entity,
corporation or partnership that, directly or indirectly, is an Affiliate of any
such employee, officer, director or relative, including without limitation any
contract, agreement or other arrangement (i) providing for the furnishing of
services by such Person, (ii) providing for the rental of real or personal
property from or to such Person, (iii) providing for the guaranty of any
obligation of such Person, (iv) requiring any payment to such Person which will
continue beyond the Closing Date, or (v) establishing any right or interest of
such Person in any of the assets or rights of the Company or any Subsidiary.
Section 3.19 Fees, Commissions and Expenses. Neither the Company nor any
Subsidiary has paid or is obligated to pay any brokerage commissions, finders'
fees or similar compensation (including any payments to employees of the
Company) in connection with the transactions contemplated by this Agreement.
Section 3.20 Bank Accounts. Schedule 3.20 sets forth a true, correct and
complete list of each of the bank accounts maintained by the Company and each
Subsidiary and the persons listed as authorized signatories thereon.
Section 3.21 Intellectual Property. Schedule 3.21 is a list of all
trademarks, trade names, patents, fictitious business names, service marks and
pending applications therefor that are owned by the Company and each Subsidiary
and a list of all trademarks, trade names, patents, fictitious business names,
service marks and pending applications therefor that are used by the Company and
each Subsidiary or which the Company or any Subsidiary has the right to use.
Except as disclosed in Schedule 3.21, to the best of the Company's knowledge, in
the last five years, no written claim alleging any infringement or violation of
any statutory or common law or any other rights of any third parties (including,
without limitation, copyright, trademark and the rights of privacy and
publicity) has been received by the Company or any Subsidiary.
20
Section 3.22 Employment Agreements. Schedule 3.22 contains a complete list
of each management, employment, consulting or other agreement, contract or
commitment, in each case, in writing, between each of the Company and each
Subsidiary and any employee, officer or director thereof (a) providing for the
employment of any person or providing for retention of management, executive or
consulting services and providing for an obligation to pay or accrue
compensation of $50,000 or more per annum, or (b) providing for the payment or
accrual of any compensation or severance upon (i) a change in control of the
Company or any Subsidiary or (ii) any termination of such management,
employment, consulting or other relationship.
Section 3.23 Indemnification of Employees, Etc. Except in connection with
matters set forth in Schedule 3.23 hereto, and except for matters covered by
insurance (subject to deductibles) as of the date hereof, there is no
proceeding, claim, suit, action or governmental investigation pending or, to the
best knowledge of the Company, threatened, with respect to which any current or
former director, officer, employee or agent of the Company or any Subsidiary is
entitled, or has asserted he is entitled, to claim indemnification from the
Company or any Subsidiary pursuant to the Articles of Incorporation or bylaws of
the Company or any Subsidiary, as provided in any indemnification agreement to
which the Company or any Subsidiary is a party, or pursuant to applicable law.
Section 3.24 Disclosure. No information supplied by the Company or any
Subsidiary in this Agreement or the Schedules or Exhibits hereto, or in the
financial statements, certificates or other writings furnished by the Company or
any Subsidiary to the Parent or any of its representatives prior to the date
hereof, contains any untrue statement of material fact or omits or shall omit to
state any material fact necessary in order to make the statements herein or
therein, in the light of circumstances under which they were made, not
misleading.
Section 3.25 Board Recommendation. On or prior to the date hereof, the
Board of Directors of the Company, at a meeting duly called and held, has by the
vote of those directors present (a) determined that this Agreement and the
transactions contemplated hereby, are fair and in the best interests of the
Company's stockholders and has approved the same and (b) resolved to recommend
that the holders of the Company Common Stock approve the Merger.
Section 3.26 Year 2000 Compliant. The Company has licensed from Vertical
Computer Systems, Inc. (The "Vendor") computer software for use in documenting
and monitoring pawn transactions and such software is the only software material
to the Company's operations. The Company believes such software is Year 2000
Compliant. Such belief is based upon assurances of the Vendor. Neither the
Company nor any of the Subsidiaries has independently evaluated the reliability
of such assurances although neither has any reason to doubt the veracity of such
assurances. In addition, without undertaking independent investigation, neither
the Company nor any Subsidiary is aware of any failure on the part of any of
their material vendors, suppliers or other business relations to be Year 2000
Compliant. Neither the Company nor any Subsidiary believes any further
evaluation of its systems (other than as described above) is required in order
for the Company's and the Subsidiary's systems to be Year 2000 Compliant except
where such failure to be Year 2000 Compliant would not cause a Material Adverse
21
Effect. "Year 2000 Compliant" means designed to be used prior to, during and
after the calendar year 2000 A.D., and will accurately receive, provide and
process date/time data (including, but not limited to, calculating, comparing,
and sequencing) from, into and between the 20th and 21st centuries, including
the years 1999 and 2000, and leap-year calculations, and will not malfunction,
cease to function or provide invalid or incorrect results as a result of
date/time data, to the extent that other information technology, used in
combination with such item, properly exchanges date/time data with it.
Article IV
Representations and Warranties of the Parent and the Purchaser
The Parent and the Purchaser, jointly and separately, represent and warrant
to the Company as follows:
Section 4.1 Organization and Qualification. Each of the Parent and the
Purchaser (i) is a corporation validly existing and in good standing under the
laws of the State of Colorado, (ii) has the requisite corporate power to carry
on its business as now being conducted, and (iii) is duly qualified as a foreign
corporation in good standing in each jurisdiction where the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate, have
a material adverse effect on the assets, operations, financial conditions or
prospects of the Parent or the Purchaser or on the ability of the Parent or the
Purchaser to consummate the transactions contemplated hereby.
Section 4.2 Corporate Authorization. Except for the approval of the
Parent's stockholders, which approval is a condition to the Merger, the
execution, delivery and performance by each of the Parent and the Purchaser of
this Agreement and the transactions contemplated hereby are within the corporate
powers of each of the Parent and the Purchaser and have been duly authorized by
all necessary corporate action on the part of each of the Parent and the
Purchaser. This Agreement constitutes a valid and binding obligation of each of
the Parent and the Purchaser, enforceable against each of the Parent and the
Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance and transfers, and moratorium or other
similar laws of general application affecting the enforcement of creditors'
rights generally.
Section 4.3 Consents and Approvals; No Violation. Except as set forth on
Schedule 4.3, the execution, delivery and performance by each of the Parent and
the Purchaser of this Agreement and the consummation of the transactions
contemplated hereby require no action by or in respect of, filing with, approval
of, or notice to any governmental or regulatory body, agency or official.
Neither the execution, delivery and performance by the Parent and the Purchaser
of this Agreement, nor the consummation by the Parent and the Purchaser of the
transactions contemplated hereby, will (a) violate, conflict with, or result in
a breach of, any provision of the charter or bylaws of the Parent or the
Purchaser, (b) result in a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any Contract to which the Parent or the Purchaser is a party, or by which its
properties or assets may be bound, except for such violations, breaches or
defaults which would not prevent or delay consummation of the transactions
contemplated hereby or (c) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body or other third party pursuant to any law, statute, rule,
regulation or any Contract, order, judgment or decree to which the Parent or the
Purchaser is subject or by which any of their assets are bound, except for such
authorizations, consents, approvals, exemptions or other actions which would not
prevent or delay consummation of the transactions contemplated hereby.
22
Section 4.4 Litigation. There are no claims, actions, suits, approvals,
investigations, informal objections, complaints or proceedings pending or, to
the best of the Parent's and the Purchaser's knowledge, threatened against the
Parent or the Purchaser before any court, arbitrator, or administrative,
governmental or regulatory authority or body, nor is the Parent or the Purchaser
subject to any order, judgment, writ, injunction or decree, which in either case
could prevent, delay or materially burden the transactions contemplated hereby.
Section 4.5 Compliance with Laws. The Parent has conducted its business in
compliance with all applicable laws and regulations of governmental authorities,
except for such violations that have been cured or that, individually or in the
aggregate, would not have a material adverse effect on the Parent's business or
financial condition. The Parent possesses, and is in compliance in all material
respects with, all Governmental Permits necessary to the conduct of its
business.
Section 4.6 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Parent or the Purchaser.
Section 4.7 Ownership of Company Stock. Other than pursuant to this
Agreement, neither the Parent nor the Purchaser nor any of their respective
Affiliates (i) beneficially owns, directly or indirectly, or (ii) are parties to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, Company Common Stock.
Section 4.8 Formation of Purchaser. The Purchaser was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement. As of
the date hereof and the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and except for
this Agreement and any other agreements or arrangements contemplated by this
Agreement or in furtherance of the transactions contemplated hereby, the
Purchaser has not and will not have incurred, directly or indirectly, through
any subsidiary or Affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
Section 4.9 Issuance of Securities.
(a) Stock. Sufficient shares of Parent Common Stock have been, and
following the filing of the Certificate of Designation attached hereto as
Exhibit B, sufficient shares of Parent Preferred Stock will have been reserved
for issuance in the Merger. The shares of Parent Common Stock and the shares of
Parent Preferred Stock to be issued in the Merger will, when issued and
delivered to the shareholders of the Company as a result of the Merger and
pursuant to the terms of this Agreement, be duly and validly authorized and
issued, fully paid, nonassessable and free of preemptive rights or other
restrictions other than those imposed pursuant to securities laws and those
expressly provided for in this Agreement, and, assuming that no more than 35 of
the holders of the Company Common Stock are not "accredited investors" as
defined in Regulation D under the Securities Act, the issuance thereof is not
required to be registered under the Securities Act or any state securities or
blue sky laws (although routine filings may be required under such state
securities or blue sky laws.)
23
(b) Promissory Notes. The Promissory Notes to be issued in the Merger
will, when issued and delivered to the shareholders of the Company as a result
of the Merger and pursuant to the terms of this Agreement, be duly and validly
authorized and issued, enforceable against the Purchaser (and, with respect to
the guaranty thereof, the Parent) in accordance with their terms, and free of
restrictions other than those imposed pursuant to securities laws, and, assuming
that no more than 35 of the holders of the Company Common Stock are not
"accredited investors" as defined in Regulation D under the Securities Act, the
issuance thereof is not required to be registered under the Securities Act or
any state securities or blue sky laws (although routine filings may be required
under such state securities or blue sky laws).
(c) Parent 11% Debt. Any Parent 11% Debt instruments issued in
accordance with Section 2.7(a) will, when issued and delivered to the holders of
Company 11% Debt pursuant to the terms of this Agreement, be duly and validly
authorized and issued, enforceable against the Parent in accordance with their
terms, and free of restrictions other than those imposed pursuant to securities
laws, and, assuming that all holders of Company 11% Debt to whom such Parent 11%
Debt is to be issued are "accredited investors" as defined in Regulation D under
the Securities Act, the issuance thereof is not required to be registered under
the Securities Act or any state securities or blue sky laws (although routine
filings may be required under such state securities or blue sky laws).
(d) Shares Issuable Upon Conversion. Sufficient shares of Parent
Common Stock have been reserved for issuance upon the conversion of the Parent
Preferred Stock and the Parent 11% Debt. The shares of Parent Common Stock
issuable upon the conversion of the Parent Preferred Stock and the Parent 11%
Debt will, when issued in accordance with the terms of the Parent Preferred
Stock or the Parent 11% Debt, as the case may be, be duly and validly issued,
fully paid, nonassessable and free of preemptive rights or other restrictions
other than those imposed pursuant to securities laws.
Section 4.10 NASDAQ SmallCap Market Listing. Parent Common Stock is duly
listed on the NASDAQ SmallCap Market and no inquiry or proceeding has been
initiated or, to the knowledge of Parent, threatened for the purpose of causing
such listing to be terminated or restricted.
Section 4.11 SEC Documents. Parent has furnished the Company with a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement, if any (collectively, "SEC Documents"), filed by
Parent with the Securities and Exchange Commission (the "SEC") since January 1,
1997, which are all the documents that Parent has been required to file with the
SEC under applicable law since that date.
Section 4.12 Disclosure. No information supplied by the Parent or the
Purchaser in this Agreement or the Schedules or Exhibits hereto, or certificates
or other writings furnished by the Parent or the Purchaser to the Company or any
of its representatives prior to the date hereof, contains any untrue statement
of material fact or omits or shall omit to state any material fact necessary in
order to make the statements herein or therein, in the light of circumstances
under which they were made, not misleading.
24
Section 4.13 Capitalization. The Parent's outstanding capital stock as of
the date of this Agreement consists of 3,685,410 shares of Parent Common Stock
and 37,800 shares of Redeemable Preferred Stock, all of which is duly authorized
and validly issued and is fully paid and nonassessable. The Purchaser's
outstanding capital stock as of the date of this Agreement consists of 100
shares of common stock, all of which is duly authorized and validly issued, is
fully paid and nonassessable, and is owned of record by Parent.
Article V
Covenants
Section 5.1 Conduct of Business of the Company and the Subsidiaries. Except
as contemplated by this Agreement or otherwise consented to in writing by the
Parent, during the period from the date of this Agreement to the Closing Date:
(a) the Company shall, and shall cause each of its Subsidiaries to, conduct its
business in the ordinary course and use its best efforts to preserve intact its
current business organizations, keep available the services of current officers
and employees and preserve its relationships with customers, suppliers,
licensors, licensees, advertisers, distributors and others having business
dealings with it and to preserve goodwill; and (b) the Company will not, and
shall not permit any of the Subsidiaries to, intentionally take any actions that
could reasonably be expected to have a Material Adverse Effect. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement or as set forth on Schedule 5.1, prior to the Closing Date, the
Company will not, and will nor permit any of the Subsidiaries to, without the
prior written consent of the Parent: (i) declare or pay any dividend or other
distribution upon, or repurchase or otherwise reacquire for value, any capital
stock of the Company; (ii) issue any capital stock of the Company or any
securities convertible into or exchangeable for capital stock of the Company;
(iii) reacquire any shares of any class of capital stock of the Company; (iv)
incur any indebtedness for borrowed money other than borrowings for working
capital purposes in the ordinary course of business; (v) acquire any substantial
assets other than in connection with planned capital expenditures approved by
the Company's board of directors prior to the date hereof and described on
Schedule 5.1; (vi) sell, pledge, dispose of or encumber its assets, except for
sales of inventory and sales of obsolete assets and assets concurrently replaced
with similar assets and the incurrence of Permitted Liens, in each case in the
ordinary course of its business consistent with past practice; (vii) except as
otherwise required by law or by any existing plan, arrangement or agreement,
enter into, adopt or amend in any material respect, any Employee Plan for the
benefit of its employees or increase the compensation or bonus payable to
executive officers of the Company; or (viii) authorize any of, or commit or
agree to take any of, the foregoing or take any other intentional action that
would cause the Company's representations and warranties to be untrue in any
material respect.
Section 5.2 Approval of the Shareholders of the Company. As soon as
practicable (but in any event no later than December 31, 1999), the Company,
acting through its Board of Directors, shall in accordance with applicable law,
take all steps necessary duly to call, give notice of, convene and hold a
special meeting of its shareholders, including the preparation and distribution
of a notice of meeting, proxy and proxy statement, for the purpose of adopting
and approving this Agreement and the transactions contemplated hereby. The
notice of such meeting shall contain the information required to be included
25
therein pursuant to the MBCA. The Board of Directors of the Company has
determined that this Agreement and the transactions contemplated hereby are
advisable and in the best interests of the shareholders of the Company, and it
shall, (i) recommend that the holders of Company Common Stock vote in favor of,
and approve, this Agreement and the transactions contemplated hereby and the
Merger, and (ii) use its reasonable best efforts to obtain such shareholder
approval.
Section 5.3 Approval of the Shareholders of the Parent. As soon as
practicable (but in any event no later than December 31, 1999), the Parent,
acting through its Board of Directors, shall in accordance with applicable law,
take all steps necessary duly to call, give notice of, convene and hold a
special meeting of its shareholders, including the preparation and distribution
of a notice of meeting, proxy and proxy statement, for the purpose of adopting
and approving this Agreement and the transactions contemplated hereby. The
notice of such meeting shall contain the information required to be included
therein pursuant to the CBCA and federal securities laws. The Board of Directors
of the Parent has determined that this Agreement and the transactions
contemplated hereby are advisable and in the best interests of the shareholders
of the Parent, and it shall, (i) recommend that the holders of Parent common
stock vote in favor of, and approve, this Agreement and the transactions
contemplated hereby and the Merger, and (ii) use its reasonable best efforts to
obtain such shareholder approval.
Section 5.4 Filings; Third Party Consents. Each of the Company, the Parent
and the Purchaser shall exercise reasonable efforts to take or cause to be taken
all actions, and to do or cause to be done all things necessary, proper or
advisable under applicable laws to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated hereby. Without limiting
the generality of the foregoing, each of the Company, the Parent and the
Purchaser shall exercise reasonable efforts to (a) obtain all necessary permits,
authorizations, consents, licenses (pawn and otherwise), waivers, and approvals
from third parties, parties to Contracts or governmental authorities including
the delivery of any required notice thereto, (b) oppose, lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (c)
otherwise fulfill all conditions to this Agreement within its reasonable
control.
Section 5.5 Proxy Statement. As soon as is practicable after the date
hereof, the Parent and the Company shall use reasonable efforts to draft a joint
proxy statement and private placement memorandum that is appropriate for the
Merger and the other transactions described herein (the "Joint Proxy
Statement"). The Parent shall file with the Securities and Exchange Commission
(the "Commission") as soon as is reasonably practicable after the date hereof an
appropriate version of the Joint Proxy Statement ("Parent's Proxy Statement")
and use its best efforts to respond to any comments thereto and cause Parent's
Proxy Statement to be mailed to holders of Parent Common Stock as promptly as
practicable thereafter. In addition, as soon as practicable after the date
hereof, the Company shall draft an appropriate version of the Joint Proxy
Statement ("Company's Proxy Statement") and cause Company's Proxy Statement to
be mailed to the holders of the Company's debt and equity security holders
concurrently with or as soon as practicable following the mailing of the
Parent's Proxy Statement. The information provided and to be provided by each of
the Company and the Parent specifically for inclusion in or incorporation by
reference in the Joint Proxy Statement shall be true and correct in all material
respects without omission of any material fact which is required to make such
information not misleading as of the date thereof and in light of the
circumstances under which given or made.
26
The Company covenants that none of the information supplied, or to be
supplied, by the Company or its Subsidiaries specifically for inclusion or
incorporation by reference in the Joint Proxy Statement or Parent's Proxy
Statement, including, without limitation, information concerning the Company,
its Subsidiaries or any of their respective affiliates, directors, officers,
employees, agents, stockholders or representatives will, at the time of mailing
of Parent's Proxy Statement or any amendment or supplement thereto to the
Parent's stockholders, contain any untrue statement of material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If, at
any time prior to the date of the Parent's stockholders' meeting, any event with
respect to the Company or any of its Subsidiaries, or with respect to other
information supplied by the Company or its Subsidiaries for inclusion in the
Joint Proxy Statement or Parent's Proxy Statement, shall occur which is required
to be described in an amendment of, or a supplement to, the Joint Proxy
Statement or Parent's Proxy Statement, such information shall be promptly
delivered to the Parent, and the Parent and the Company shall prepare an
amendment or supplement to the Joint Proxy Statement. The Parent shall then
promptly prepare and file with the Commission an amendment or supplement to
Parent's Proxy Statement and, as required by law, disseminate to the Parent's
stockholders such amendment or supplement. All documents that either the Company
or any of its Subsidiaries is responsible for filing with any governmental
authority will comply in all material respects with the provisions of applicable
law as to the information required to be contained therein, except that no
covenant is made by the Company or any of its Subsidiaries with respect to
statements made therein based on information supplied by the Parent or any of
its Subsidiaries or any of their respective affiliates, directors, officers,
employees, agents or representatives in writing for inclusion therein.
The Parent covenants that none of the information supplied, or to be
supplied, by the Parent or its Subsidiaries specifically for inclusion or
incorporation by reference in the Joint Proxy Statement or the Company's Proxy
Statement, including, without limitation, information concerning the securities
being offered as part of the Merger Consideration or the Parent, its
Subsidiaries or any of their respective affiliates, directors, officers,
employees, agents, stockholders or representatives will, at the time of mailing
of Company's Proxy Statement or any amendment or supplement thereto to the
Company's equity and debt security holders, contain any untrue statement of
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If, at any time prior to the date of the Company's stockholders'
meeting, any event with respect to the Parent or its Subsidiaries, including the
Purchaser, or with respect to other information supplied by the Parent or its
Subsidiaries for inclusion in the Joint Proxy Statement or Company's Proxy
Statement, shall occur which is required to be described in an amendment of, or
a supplement to the Joint Proxy Statement or Company's Proxy Statement, such
information shall be promptly delivered to the Company for dissemination to the
Company's equity and debt security holders. All documents that either the Parent
or any of its Subsidiaries is responsible for filing with any governmental
authority will comply in all material respects with the provisions of applicable
law as to the information required to be contained therein, except that no
covenant is made by the Parent or any of its Subsidiaries with respect to
statements made therein based on information supplied by the Company or any of
its Subsidiaries or any of their respective affiliates, directors, officers,
employees, agents or representatives in writing for inclusion therein.
27
Section 5.6 Access to Information.
(a) The Company shall afford to the Parent and its respective
accountants, counsel, financial advisors and other representatives (the "Parent
Representatives") full access during normal business hours through the Closing
Date to all Company and Subsidiary properties, books, contracts, commitments and
records (including, but not limited to, Tax Returns) and, during such period,
shall furnish promptly to the Parent (i) a copy of each report, schedule and
other document filed or received by any of them which may have a material effect
on its businesses, properties or personnel, and (ii) such other information
concerning its businesses, operations, properties, assets, condition (financial
or other) results of operations and personnel as the Parent shall reasonably
request.
(b) In the event that this Agreement is terminated in accordance with
its terms, the Parent shall, and the Parent shall cause each Parent
Representative to, promptly redeliver to the Company all non-public material in
written or machine readable form provided pursuant to this Section 5.5 and shall
not retain any copies, extracts or other reproductions in whole or in part of
such material. In such event, all documents, memoranda, notes and other writings
in written or machine readable form prepared by the Parent based on the
information in such material shall be destroyed (and the Parent shall use its
reasonable best efforts to cause their advisors and representatives to similarly
destroy their documents, memoranda and notes), and such destruction (and
reasonable best efforts) shall be certified in writing by an authorized officer
supervising such destruction.
(c) The Company shall promptly advise the Parent in writing of any
change or the occurrence of any event after the date of this Agreement having,
or which, insofar as can reasonably be foreseen, in the future may have, a
Material Adverse Effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the Company or any
Subsidiary.
Section 5.7 Confidentiality. The Parent and the Company will be furnishing
to each other certain information which is either non-public, confidential or
proprietary in nature. The Parent and the Company agree that all such
information furnished or otherwise obtained, directly or indirectly, by such
party and its officers, directors, employees, agents, Affiliates, or otherwise
and all reports, analysis, compilations, data, studies or other documents
prepared by such party, its officers, directors, employees, agents, Affiliates,
or otherwise, containing or based, in whole or in part, on any such furnished
information will be kept strictly confidential and will not, without the prior
written consent of the other party, be disclosed to any other individual,
corporation, partnership, joint venture, trust or association in any manner
whatsoever, in whole or in part and will not be used for any purpose other than
evaluating the transactions described herein; except that (i) if either party
receives an opinion of counsel that it is legally obligated to release such
information, such party may do so after notice to and consultation with the
other party, (ii) either party may disclose such information as may be necessary
in connection with seeking any required statutory approvals and (iii) either
Party may disclose any information that is required by law or judicial or
administrative order to disclose.
28
Section 5.8 Public Announcements. The Company and the Parent shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law.
Section 5.9 Exclusivity. Unless and until this Agreement shall have been
terminated in accordance herewith, the Company shall not, directly or indirectly
through any officer, director, employee, agent, Affiliate or otherwise, (i)
enter into any agreement, agreement in principle or other commitment (whether or
not legally binding) relating to any acquisition, business combination with,
recapitalization of, or merger or purchase of all or a significant portion of
the assets of, or any material equity interest in, the Company or relating to
any other similar transaction (a "Competing Transaction"), (ii) solicit,
initiate or encourage the submission of any proposal or offer from any person or
entity (including any of its officers, directors, employees and agents) relating
to any Competing Transaction, or (iii) participate in any discussions or
negotiations regarding, furnish to any other person or entity any information
with respect to, or otherwise assist, facilitate or cooperate in any way with
any effort or attempt by any other person or entity to effect a Competing
Transaction. The Company shall promptly notify the Parent if any substantive
proposal regarding a Competing Transaction (or any inquiry or contract with any
Person with respect thereto) is made, and shall advise the Parent of the
contents thereof (and, if in written form, provide the Parent with copies
thereof).
Section 5.10 Options.
Effective at the Effective Time, Parent hereby assumes the Company's
obligations with respect to its stock options, as follows:
Not later than the Effective Time, each option to purchase shares of
Company Common Stock (each a "Company Stock Option") which is outstanding
immediately prior to the Effective Time pursuant to any stock option plan
or stock incentive plan of the Company in effect on the date hereof and
which plan is identified on Schedule 3.3A (the "Company Stock Plans") shall
become and represent an option to purchase an equal number of shares (up to
a maximum of 242,350 shares) of Parent's Common Stock (a "Substitute
Company Option"), at an exercise price per share of Parent Common Stock
equal to the greater of the closing price of Parent's Common Stock on the
day of Closing or $2.375 per share. After the Effective Time, each
Substitute Company Option shall be exercisable upon the same terms and
conditions as were applicable to the related Company Stock Option
immediately prior to the Effective Time, and each Substitute Company Option
shall be vested to the extent provided in the related Company Stock Plan or
the option agreement with respect to the related Company Stock Option, as
the case may be. Prior to the Effective Time, the Company shall amend its
Company Stock Plans to provide for the foregoing. Parent represents and
warrants that it has, or at the Effective Time will have, taken all action
required to issue and reserve a sufficient number of shares of Parent
Common Stock subject to such Company Plans to provide for the exercise of
the Substitute Company Option (including without limitation such Substitute
Company Options as constitute incentive stock options). If not already
registered, Parent agrees to register with the Commission on Form S-8, and
with any state securities commission as required, on or before thirty (30)
days after the Effective Time, all Parent Common Stock subject to
Substitute Company Options.
29
Section 5.11 Warrants. Not later than the Effective Time, each warrant to
purchase shares of Company Common Stock (each a "Company Stock Warrant") which
is outstanding immediately prior to the Effective Time and which is identified
on the Schedule 3.3A (excluding the 50,000 warrants issued to Xxxxxx &
Xxxxxxxxx, which shall not be subject to such exchange) shall, pursuant to an
exchange agreement in form and substance reasonably satisfactory to the Parent
and the holders of such warrants (the "Exchange Agreements"), be exchanged for a
warrant to purchase an equal number of shares (up to a maximum of 49,090 shares)
of Parent's Common Stock (a "Substitute Company Warrant"), at an exercise price
per share of Parent Common Stock equal to the greater of the closing price of
Parent's Common Stock on the day of Closing and $2.375 per share. After the
Effective Time, each Substitute Company Warrant shall be exercisable on the same
terms and conditions as were applicable to the related Company Stock Warrant
immediately prior to the Effective Time. Parent represents and warrants that it
has, or at the Effective Time will have, taken all action required to reserve a
sufficient number of shares of Parent Common Stock to provide for the exercise
of the Substitute Company Warrants.
Section 5.12 Proxy and Lock-up. At or before the Closing Date, any Parent
Common Stock to be issued to a holder of more than seven percent (7%) of Company
Common Stock immediately prior to the Effective Time (a "Controlling
Shareholder") shall be subject to a Proxy and Lock-up Agreement substantially in
the form attached hereto as Exhibit D. Pursuant to the Proxy and Lock-up
Agreement, the Parent's Board of Directors shall be entitled to vote such shares
for all matters to be voted upon by the Parent's stockholders during the two
year period following the Effective Date provided that all such stock shall be
voted by the Parent's Board of Directors in favor of the two Director nominees
appointed in accordance with Section 5.13 below. In addition, pursuant to the
Proxy and Lock-up Agreement, all Parent Common Stock held by a Controlling
Shareholder shall, immediately following the Closing Date, be subject to a
lock-up such that no more than 25% of any such Controlling Shareholder's Parent
Common Stock may be sold by him, under Rule 144 of the Securities Act or
otherwise (in any three month period) for two years following the Effective
Time.
Section 5.13 Directors. The Controlling Shareholders have designated Xxxx
X. Xxxxxxx and Xxxx Xxxxxx (collectively and together with any successor
appointed by the Company Committee who is approved by the Parent's Board upon
the death, disability or resignation of either Designee, the "Controlling
Shareholders' Designees") as their designees to the Board of Directors of the
Parent. Parent shall seek the ratification of the Controlling Shareholders'
Designees as such Directors (in a class of Directors whose terms expire at the
Parent's 2001 annual meeting) in the Parent's Proxy Statement; provided,
however, that in the event that such designees are ratified to the Board of
Directors of the Parent, such Board of Directors shall have at least two
directors who are independent directors under any applicable rules of the NASDAQ
Small Cap Market (the "Independent Directors"); and provided further that, if
the number of Independent Directors shall be reduced below two for any reason
whatsoever, any remaining Independent Directors (or Independent Director, if
there shall be only one remaining) shall be entitled to designate a person to
fill such vacancy who shall be deemed to be an Independent Director for purposes
of this Agreement or, if no Independent Director then remains, the other
30
directors shall designate two persons to fill such vacancies who shall be
Independent Directors, and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. In connection with the foregoing, the
Parent shall increase the size of the Parent's Board of Directors to a minimum
of six directors. In addition, so long as the Proxy and Lock-up Agreements are
in effect, the Parent's board of directors shall use good faith efforts to
maintain a maximum of seven directors on the Parent's board of directors. In the
event that (i) the Parent's board of directors shall be increased to more than
seven directors or (ii) a Controlling Shareholders' Designee agrees to stand for
reelection to the Parent's board of directors at its annual meeting in 2001 and
is not re-elected, the Proxy and Lock-up Agreement(s) shall terminate.
Section 5.14 Counsel Opinion. On or before the first anniversary date of
the Effective Time, the Parent shall cause its counsel to deliver an opinion to
the Parent's stock transfer agent in substantially the form of Exhibit E
attached hereto.
Section 5.15 Notification of Certain Matters. The Company and the Parent
shall promptly notify each other of:
(a) any notice or other communication from any person alleging that
the consent of such person is required or contemplated by this Agreement;
(b) any notice or other communication from any governmental entity in
connection with the transactions contemplated by this Agreement;
(c) any action, suits, claims, investigations or proceedings commenced
or, to the actual knowledge of the executive officers of the notifying party,
threatened against, relating to or involving or otherwise affecting such party;
(d) an administrative or other order or notification relating to any
material violation or claimed violation of law;
(e) the occurrence or non-occurrence of any event or occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Closing Date; and
(f) any material failure of any party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.15
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
Section 5.16 Certain Litigation. The Company agrees that it will not settle
any litigation commenced after the date hereof against the Company or any of its
directors by any stockholder of the Company relating to the Merger or this
Agreement, without the prior written consent of the Parent. In addition, the
Company will not voluntarily cooperate with any third party which may hereafter
seek to restrain or prohibit or otherwise oppose the Merger and will cooperate
with the Parent and the Purchaser to resist any such effort to restrain or
prohibit or otherwise oppose the Merger.
31
Section 5.17 Rule 144. The Parent agrees that at all times it will file in
a timely manner all reports required to be filed by it pursuant to the Exchange
Act, and, upon the request of any holder of Parent Common Stock, will furnish
such holder with such information as may be reasonably necessary to enable such
holder to effect routine sales of Parent Common Stock pursuant to Rule 144 or
any successor rule under the Securities Act, subject to restrictions expressly
provided for in this Agreement.
Section 5.18 Continuation of Indemnification. The Parent and the Purchaser
hereby agree that all rights to indemnification now existing in favor of current
and former employees, agents, directors, or officers of the Company, as provided
in the Company's Articles of Incorporation or ByLaws, shall survive the Merger
and shall continue in full force and effect, as an obligation of the Purchaser,
as the Surviving Corporation of the Merger, and shall not be amended or revoked
except to the extent provisions expanding the scope of such rights are added
thereto or substituted therefor. The Parent hereby unconditionally guarantees
the obligations of the Purchaser as the Surviving Corporation of the Merger, to
indemnify as described in this Section 5.18. Purchaser and Parent agree to
continue to pay the premiums on the Company's current director and officer
insurance policy (the "Company D&O Policy") through April 1, 2001 up to a
maximum of $15,000 premium per year or to otherwise provide director and officer
insurance coverage covering the same persons with substantially similar coverage
as that provided by the Company D&O Policy.
Article VI
Conditions to Closing
Section 6.1 Conditions to Each Party's Obligation. The respective
obligations of each party to effect the transactions contemplated hereby are
subject to the satisfaction or waiver prior to the Closing Date of the following
conditions:
(a) No Legal Prohibition. No statute, rule, regulation or order shall
be enacted, promulgated, entered or enforced by any court or governmental
authority which would prohibit consummation by such party of the transactions
contemplated hereby.
(b) No Injunction. Such party shall not be prohibited by any order,
ruling, consent, decree, judgment or injunction of a court or regulatory agency
of competent jurisdiction from consummating the transactions contemplated
hereby.
(c) Material Adverse Effects. There shall have been no changes in the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the parties' businesses that would constitute a Material Adverse
Effect. Each party shall have continued to conduct its business in the ordinary
course, without any violation of law or any deviation from commonly accepted
business practice in the pawn shop industry that would constitute a Material
Adverse Effect.
(d) Stockholder Approval. The Merger, this Agreement and the
transactions contemplated hereby shall have been approved in a manner required
by applicable law, and by the applicable regulations of any stock exchange or
other regulatory body; provided, however, that the Controlling Shareholders
agree by their signatures below, to vote all Company Common Stock owned by them
in favor of this Agreement and the Merger.
32
Section 6.2 Conditions to Obligation of the Parent and the Purchaser. The
obligation of the Parent and the Purchaser to effect the transactions
contemplated hereby shall be subject to the fulfillment and satisfaction, prior
to or at the Closing, of the following additional conditions, unless waived by
the Parent and the Purchaser:
(a) Representations and Covenants. Except as expressly contemplated by
this Agreement, the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date. The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(b) Approvals. All governmental and third party approvals, consents,
licenses, permits or waivers required on or prior to the Closing Date which, if
not obtained, would have a Material Adverse Effect or a material adverse effect
on either the assets, operations, financial condition or prospect of the Parent
or the Surviving Corporation (which include, without limitation, those set forth
on Schedules 3, 4 and 3.8(b)) shall have been obtained in form and substance
reasonably satisfactory to the Parent.
(c) Proxy and Lock-Up Agreement. Proxy and Lock-Up Agreement shall
have been executed by the Controlling Shareholders pursuant to the terms and
conditions set forth in Section 5.12 hereof.
(d) Dissenting Shareholders. Holders of not more than 5% of the
outstanding Company Common Stock shall have perfected their appraisal rights
under the MBCA.
(e) Legal Opinion. The Parent shall have received an opinion from
counsel to the Company, effective as of the Closing Date, in form and substance
reasonably satisfactory to the Parent.
(f) Employment Agreement. The Employment Agreements, substantially in
the forms attached hereto as Exhibits F and G, between the Parent and each of
Xxxx X. Xxxxxxx, as President and Chief Operating Officer, and Xxxx X. Xxxxx, as
Chief Financial Officer, respectively, shall have been executed by each of Xxxx
X. Xxxxxxx and Xxxx X. Xxxxx, respectively.
(g) Line of Credit. The lender on the Company's current line of
credit, BNC Financial Corporation, shall have consented to continue such line of
credit on substantially similar terms with the Surviving Corporation
post-Merger.
(h) The Company 15% Debt. Subject to Section 2.7(b), all of the
Company 15% Debt shall be prepaid by the Company (prior to its conversion). In
addition, all of the holders of conversion rights and additional rights (as
described on Schedule 3.3A, Section III) associated with the Company's 15% Debt
shall have waived such rights in a form reasonably satisfactory to the Parent.
(i) Exchange Agreements. Each of the holders of the warrants set forth
on Schedule 3.3A (excluding Xxxxxx & Xxxxxxxxx) shall have executed an Exchange
Agreement.
33
(j) The Company shall have received (and sent copies to Parent) a
favorable determination letter from the Internal Revenue Service as to the
qualification under the Code of the Employee Plan that is intended to be
qualified under Section 401(a) of the Code as indicated on Schedule 3.16(f).
Section 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the transactions contemplated hereby shall be subject to the
fulfillment and satisfaction, prior to or at the Closing, of the following
additional conditions, unless waived by the Company:
(a) Representations and Covenants. Except as expressly contemplated by
this Agreement, the representations and warranties of the Parent and the
Purchaser contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. The Parent and the Purchaser shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by the
Parent and the Purchaser on or prior to the Closing Date.
(b) Employment Agreements. The Employment Agreements, substantially in
the forms attached hereto as Exhibits F and G, between the Parent and each of
Xxxx X. Xxxxxxx, as President and Chief Operating Officer, and Xxxx X. Xxxxx, as
Chief Financial Officer, respectively, shall have been executed by the Parent.
In addition, the employment agreement of Xxxxxxx X. Xxx Xxxxx, the Parent's
President and Chief Executive Officer, shall be amended to provide for a term of
at least the same duration of the employment agreements of Xxxx X. Xxxxxxx and
Xxxx X. Xxxxx.
(c) Legal Opinion. The Company shall have received an opinion from
counsel to the Parent and Purchaser, effective as of the Closing Date, in form
and substance reasonably satisfactory to the Company.
(d) Release of Guarantors. All guarantees of indebtedness of the
Company heretofore executed by any holder of Company Common Stock or any
Affiliate of any such holder shall be terminated or released or if such a
termination or release is not obtained prior to Closing, the Parent and
Purchaser shall indemnify such holder or Affiliate, as the case may be, for such
guarantee in a form reasonably satisfactory to such holder or Affiliate. The
Purchaser and Parent agree to use reasonable good faith efforts to obtain any
such termination or release.
(e) Parent Board of Directors. The Articles of Incorporation, Bylaws
and other governing documents of the Parent shall (i) provide for the class of
Directors contemplated by Section 5.13 hereof, and (ii) contain such other
provisions, if any, necessary to enable the Parent to perform the covenants set
forth in Section 5.13, such provisions in each case to be in form and substance
reasonably satisfactory to the Company.
Article VII
Termination
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) By mutual written consent of the Parent and the Company.
34
(b) By the Company:
(i) if the Closing Date shall not have occurred on or before
December 31, 1999, other than as a result of a material breach by the Company of
its representations, warranties, covenants or other obligations hereunder; or
(ii) if, prior to the Closing Date, the Parent or the Purchaser
fails to perform in any material respect any of its obligations under this
Agreement and such failure has not been cured within fifteen (15) days after
receipt of written notice from the Company.
(c) By the Parent or the Purchaser:
(i) if the Closing Date shall not have occurred on or before
December 31, 1999, other than as a result of a material breach by the Parent or
the Purchaser of their representations, warranties, covenants or other
obligations hereunder;
(ii) if, prior to the Closing Date, the Company fails to perform
in any material respect any of its obligations under this Agreement and such
failure has not been cured within fifteen (15) days after written receipt of
notice from the Parent or the Purchaser; or
(iii) if the Parent's required stockholder approval shall not
have been obtained pursuant to the terms hereof.
(d) Effect of Termination. In the event of termination of this
Agreement by the Parent or the Company as provided herein, all obligations of
the parties under this Agreement shall terminate without liability of any party
to any other party, except (i) that the obligations set forth in Sections 5.7,
5.8, 9.3 and 9.8 of this Agreement shall survive any such termination and (ii)
for liability for any willful breach of this Agreement, including without
limitation, fees and expenses of legal counsel, accountants and other experts as
well as fees and expenses incident to the negotiation, preparation and execution
of this Agreement and related documentation and shareholder meetings (it being
understood, however, that the term "willful breach" shall be construed narrowly,
and in any event shall not be deemed to include a breach occasioned by the
failure of a party to perform a covenant or satisfy a condition where such party
has endeavored in good faith to so perform the covenant or satisfy the
condition).
Article VIII
Indemnification
Section 8.1 Indemnification.
(a) Indemnification by the Company.
(i) Subject to the provisions of this Section 8.1(a) and Section
8.1(e) hereof, the Company shall indemnify and hold harmless the
Parent and the Purchaser and their directors, officers, employees,
Affiliates, and agents at all times from and after the Closing Date,
against and in respect of Losses arising from or relating to: (A) any
breach of any of the representations or warranties made by the Company
in this Agreement, and (B) any breach of the covenants and agreements
made by the Company in this Agreement.
35
(ii) No claim for indemnification shall be asserted against the
Company with respect to any single Loss in an amount less than $1,000,
it being understood that the aggregate amount of all Losses arising
from the same operative facts and circumstances shall be deemed a
single Loss (a claim asserted against the Company for a single Loss in
excess of $1,000 being herein referred to as an "Indemnifiable
Claim"). No Loss shall be deemed to have been sustained to the extent
of any proceeds received by the Parent, the Purchaser or any other
party indemnified by the Company hereunder from any insurance policy
with respect thereto.
(iii) No amount shall be payable by the Company with respect to
any Indemnifiable Claims unless and until the aggregate amount of such
Indemnifiable Claims otherwise so payable by the Company in the
absence of this clause (iii) exceeds $100,000, in which event 50% of
the first $100,000 of such amount shall be payable by the Company and
any amount in excess of $100,000 shall be payable solely by the
Company, subject to the provisions of Section 8.1(e).
(iv) The Company's aggregate liability for indemnification
hereunder shall not exceed the greater of 10% of the aggregate value
of the Merger Consideration or $500,000 (such greater amount being
referred to herein as the "Company Liability Limit").
(v) An Indemnifiable Claim based upon a purported
misrepresentation or breach of warranty by the Company under Section
3.15 (Tax Matters) must first be asserted within three years from the
Closing Date. An Indemnifiable Claim based upon a purported
misrepresentation or breach of warranty by the Company under Section
3.14 (Environmental and Safety Matters) or Section 3.16 (Employee
Benefit Plans) must first be asserted prior to the expiration of the
statute of limitations applicable thereto, including any extension
thereof, but in any event prior to the maturity of the Promissory
Notes. All other Indemnifiable claims must first be asserted within
one year from the Closing Date. Any Indemnifiable Claim that is not
asserted within the period provided above therefor shall be forever
barred.
(b) Indemnification by the Parent and the Purchaser. The Parent and
the Purchaser shall indemnify and hold harmless the Company and its directors,
officers, employees, Affiliates, and agents at all times from and after the
Closing Date against and in respect of Losses arising from or relating to: (i)
any breach of any of the representations or warranties made by the Parent or the
Purchaser in this Agreement; and (ii) any breach of the covenants and agreements
made by the Parent or the Purchaser in this Agreement.
(c) Procedure for Claims Between Parties. In the event that the
Company, the Parent or the Purchaser as the Surviving Corporation desire to
assert a claim for indemnification against the other hereunder, such party shall
assert such claim in writing, stating the nature and basis of such claim. The
party making such claim shall, on request, provide all information and
documentation reasonably necessary to support and verify any losses which such
person believes gives rise to a claim for indemnification and shall give the
indemnifying party reasonable access to its books, records and personnel for the
purpose of investigating and verifying any such claim.
36
(d) Procedure for Claims By Third Parties. Any party asserting a right
of indemnification provided for under this Agreement (the "Indemnified Party")
in respect of, arising out of or involving a claim or demand made by any
unrelated person, firm, governmental authority or corporation against the
Indemnified Party (a "Third Party Claim") shall notify the indemnifying party
(the "Indemnifying Party") in writing of the Third Party Claim within ten
business days after such Indemnified Party becomes aware of such Third Party
Claim. As part of such notice, the Indemnified Party shall furnish the
Indemnifying Party with copies of any pleadings, correspondence or other
documents relating thereto that are in the Indemnified Party's possession. The
Indemnified Party's failure to notify the Indemnifying Party of any such matter
within the time frame specified above shall not release the Indemnifying Party,
in whole or in part, from its obligations hereunder except to the extent that
the Indemnified Party's ability to defend against such claim is actually
prejudiced thereby. The Indemnifying Party agrees (and, at such time as the
Indemnifying Party acknowledges its liability hereunder with respect to such
Third Party Claim, the Indemnifying Party shall have the sole and exclusive
right) to defend against, settle or compromise such Third Party Claim through
counsel selected by the Indemnifying Party and at the expense of such
Indemnifying Party. The Indemnified Party shall have the right (but not the
obligation) to participate in the defense of such claim through counsel selected
by it and at its own expense. If the Indemnifying Party has not yet acknowledged
its liability hereunder with respect to such Third Party Claim, then the
Indemnifying Party and the Indemnified Party shall cooperate in defending
against such Third Party Claim, and neither party shall have the right, without
the other's consent, to settle or compromise any such Third Party Claim.
(e) Set-off; Company Committee.
(i) Payment by the Company of Indemnifiable Claims shall be made
solely by setoff against payments due or to become due under the
Promissory Notes (each such setoff for indemnification purposes being
herein referred to as an "Indemnification Setoff"). No holder of a
Promissory Note shall have any personal liability for any Losses. In
the event the aggregate original principal amount of the Promissory
Notes does not exceed the Company Liability Limit, the parties hereto
shall use reasonable efforts to negotiate in good faith to provide
additional collateral to secure the Company's indemnification
obligation hereunder.
(ii) Any such Indemnification Setoff, and any payment under or
permitted prepayment of the Promissory Notes, shall be allocated to
and applied against all Promissory Notes in accordance with their
terms and in proportion to the respective outstanding principal
amounts thereof. No Indemnification Setoff may be made against the
Promissory Notes except in accordance with the provisions of Section
8.1(a) and pursuant to the written approval thereof by the Company
Committee (as hereinafter defined) or a final, nonappealable order of
a court of competent jurisdiction issued in connection with an action
brought in accordance with Section 9.4 hereof.
(iii) For purposes of this Agreement, a committee (the "Company
Committee") initially comprised of Xxxxx Xxxxx, Xxxxx Xxxxxxxx and
Xxxx Xxxxxx shall represent the interests of the Company and the
holders of Converted Company shares or the Promissory Notes, as the
case may be. In the event any member of the Company Committee shall
die or become unqualified to serve thereon, the remaining qualified
members of the Company Committee may, but shall not be obligated to,
appoint a qualified successor. An individual (including without
limitation each of the initial members of the Company Committee) shall
be qualified to serve as a member of the Company Committee only if
such person is a holder or the representative of a holder of Converted
Company Shares or a Promissory Note, as the case may be.
37
(iv) The Company Committee shall act by the vote of a majority of
its members (a "Committee Majority"). Any notices or claims by the
Company following the Closing shall be given by the Company Committee,
and shall be executed by a Committee Majority. Any notice to or claim
against the Company following the Closing shall be delivered to the
Company Committee.
(v) The Company Committee may act in reliance upon the advice of
counsel in reference to any matter relating hereto and shall not be
liable for any acts or omissions of any kind unless occasioned by its
own gross negligence or willful misconduct. The legal expenses and
other costs and expenses incurred by the Company Committee in
connection with any claim for indemnification asserted against the
Company ("Committee Indemnification Expenses") shall be initially
borne jointly and severally by the Purchaser and the Parent, provided
that: (i) upon resolution of such claim, the Parent and Purchaser
shall be reimbursed for all Committee Indemnification Expenses paid by
them by way of a set-off against any interest due and payable from
time to time on the Promissory Notes until reimbursed in full (unless
the Parent and/or the Purchaser do not prevail with respect to the
claim, in which case, in accordance with Section 9.8, the Parent and
Purchaser shall not be entitled to such reimbursement); (ii) payment
of Committee Indemnification Expenses shall not be subject to or count
as payment against the indemnification limit in Section 8.1(a)(iv).
Article IX
General Provisions
Section 9.1 Rules of Construction.
(a) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(b) Severability. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be illegal, invalid, unenforceable or void,
then such provision shall be enforced to the extent that it is not illegal,
invalid, unenforceable or void, and the remainder of this Agreement, as well as
such provision as applied to other persons, places or circumstances, shall
remain in full force and effect.
Section 9.2 Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and shall be deemed to have duly given or delivered (i) when
delivered personally, (ii) sent via a nationally recognized overnight courier to
the recipient for next business day delivery, or (iii) sent via first class
United States mail. Such notices, demands and other communications will be sent
to the address indicated below:
38
(a) If to the Company:
0000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx
Fax: (000) 000-0000
with copies to:
Xxxxxxx, Xxxxxxx & Xxxxx, XXX
0000 AT&T Tower
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
(b) If to the Purchaser or the Parent:
0000 Xxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxx Xxxxx
Fax: (000) 000-0000
with copies to:
Xxxxxxxxxx Xxxxx & Xxxxxx, P.C.
000 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
or to such other address as any party may specify by written notice given to the
other party. The date of giving any such notice shall be (i) the date of hand
delivery, (ii) the second business day following deposit with the United States
mail, or (iii) the business day after delivery to the overnight courier service.
Section 9.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF COLORADO WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
SATE OF COLORADO OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO.
Section 9.4 Entire Agreement. This Agreement (including attached exhibits
and schedules) constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement and supersedes any prior agreement or
understanding, whether written and oral, among the parties or between any of
them with respect to the subject matter of this Agreement. There are no
representations, warranties, covenants, promises or undertakings, other than
those expressly set forth or referred to herein.
39
Section 9.5 Amendment; Waiver. This Agreement may be amended, modified or
waived only by a written agreement signed by the Parent, the Purchaser and the
Company. With regard to any power, remedy or right provided in this Agreement or
otherwise available to any party, (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party,
(ii) no alteration, modification or impairment shall be implied by reason of any
previous waiver, extension of time, delay or omission in exercise or other
indulgence, and (iii) waiver by any party of the time for performance of any act
or condition hereunder does not constitute a waiver of the act or condition
itself.
Section 9.6 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors. Neither the
rights nor the obligations of any party to this Agreement may be transferred or
assigned. Any purported assignment of this Agreement or any of the rights and
obligations hereunder shall be null, void and of no effect.
Section 9.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but when taken together
shall constitute one instrument.
Section 9.8 Expenses. Each party to this Agreement shall bear all of its
own expenses in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, including without limitation
all fees and expenses of its agents, representatives, counsel and accountants.
In addition, the prevailing party in any action to enforce the terms hereof or
in any indemnification claim hereunder shall be entitled to recover reasonable
attorneys' fees and other costs incurred in said action or proceeding in
addition to any other relief to which it may be entitled.
40
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date first written above.
U.S. PAWN, INC., a Colorado corporation
By: /s/ Xxxxxxx X. Xxx Xxxxx
---------------------------------------
Xxxxxxx X. Xxx Xxxxx
Chief Executive Officer
U.S. PAWN CNP HOLDINGS, INC., a
Colorado corporation and wholly-owned
subsidiary of U.S. Pawn, Inc.
By: /s/ Xxxxxxx X. Xxx Xxxxx
---------------------------------------
Xxxxxxx X. Xxx Xxxxx, President
CASH-N-PAWN INTERNATIONAL, LTD.,
a Minnesota corporation
By: /s/ Xxxx X. Xxxxxxx
---------------------------------------
Xxxx X. Xxxxxxx
Chief Executive Officer
The undersigned Controlling Stockholders acknowledge and agree to the provisions
of Section 6.1(d) hereof.
/s/ Xxxxx X. Xxxxx
------------------
Xxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxxxxx
---------------------
Xxxxx X. Xxxxxxxx
/s/ Xxxx X. Xxxxxxx
-------------------
Xxxx X. Xxxxxxx
41
Schedules
to
Agreement and Plan of Merger
[Intentionally Omitted]
EXHIBIT A
INTENTIONALLY OMITTED
EXHIBIT B
CERTIFICATE OF DESIGNATION
of the
PREFERENCES, RIGHTS, LIMITATIONS, QUALIFICATIONS AND RESTRICTIONS
of the
SERIES B CONVERTIBLE PREFERRED STOCK
of
U.S. PAWN, INC.
U.S. PAWN, INC. (the "Corporation"), a corporation organized and existing
under the Colorado Business Corporation Act (the "CBCA"), does hereby certify
that, pursuant to the authority conferred upon the Board of Directors of the
Corporation (the "Board of Directors") by its Articles of Incorporation and
pursuant to the provisions of the CBCA, the Board of Directors at a meeting duly
called and constituted adopted the following resolution providing for the
authorization of the Corporation's Series B Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Corporation's Articles of Incorporation, the Board of Directors hereby
establishes a series of Series B Convertible Preferred Stock of the Corporation
and hereby determines the designation, preferences, rights, qualifications,
limitations and privileges of the Series B Convertible Preferred Stock of the
Corporation as follows:
Section 1. Designation of Series B Convertible Preferred Stock.
The series of Series B Convertible Preferred Stock authorized hereby,
consisting of [ _____ shares] with a par value of $10.00 per share, shall be
designated herein as the "Series B Preferred Stock."
Section 2. Dividend Rights.
The holder of each issued and outstanding share of Series B Preferred Stock
shall be entitled to receive, out of funds legally available for such purpose,
dividends in cash at the rate of 7% per annum, and no more, on the par value of
the shares payable quarterly on the first day of each calendar quarter,
commencing ____________, ____, during which a share of Series B Preferred Stock
shall be issued and outstanding. If any dividends payable on any shares of the
Series B Preferred Stock shall not be paid for any reason, the right of the
holder of such shares of Series B Preferred Stock to receive payment of such
dividends shall not lapse or terminate, but all such accrued and unpaid
dividends (the "Unpaid Dividends") shall accumulate and shall be paid without
interest to such holder, when and as authorized by the Board of Directors of the
Corporation. No dividends or other distributions shall be paid on any shares of
the Corporation's capital stock (other than dividends or distributions payable
B-1
in the same class or series of capital stock) or any payment to purchase, redeem
or otherwise acquire or retire for value any capital stock of the Corporation,
so long as any dividend arrearage exists with respect to the Series B Preferred
Stock.
Dividends paid on the Series B Preferred Stock in an amount less than the
total amount of dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share- by-share basis among all such shares at the
time outstanding. The amount of dividends payable on the Series B Preferred
Stock for any period shorter or longer than a full calendar quarter shall be
computed on the basis of a 365 or 366 day year, as applicable, and the actual
number of days elapsed in the period for which payable.
Section 3. Redemption.
(a) Optional Redemption. On or after the second anniversary of the date of
issuance, the Corporation may by resolution of the Board of Directors, at any
time and from time to time, redeem for cash the outstanding Series B Preferred
Stock, in whole or in part, at a price equal to $10.00 per share plus Unpaid
Dividends thereon by giving notice of such redemption (the "Redemption Notice")
to all holders of Series B Preferred Stock in accordance with the notice
provisions of subsection 3(b) below. Upon receipt of the Redemption Notice, the
par value of the shares of Series B Preferred Stock subject to the Redemption
Notice plus all Unpaid Dividends on such shares shall be immediately convertible
at the option of the holder thereof for a period of twenty days (the "Redemption
Conversion Period") into shares of restricted Common Stock at the "Applicable
Conversion Rate" (as defined in Section 4) per share in accordance with the
exercise provisions set forth in subsection 4(b) below. Failure of any holder of
Series B Preferred Stock to convert such shares during the Redemption Conversion
Period shall be deemed a waiver of such holder's conversion rights under this
subsection 3(a) and the Corporation may proceed to redeem such shares for cash.
If less than all of the outstanding shares of the Series B Preferred Stock are
to be redeemed, such shares to be redeemed shall be redeemed on a pro rata basis
from the holders thereof (appropriately adjusted to avoid the redemption of
fractional shares).
(b) Notice. Notice of every redemption under this Section 3, effective upon
mailing, shall be sent by registered mail not less than thirty days in advance
of the designated Redemption Conversion Period for such redemption to the
holders of record of the shares of the Series B Preferred Stock to be redeemed
at their respective addresses as the same shall appear on the books of the
Corporation. Dividends on the shares of Series B Preferred Stock called for
redemption shall cease to accrue on the date fixed for such redemption
("Redemption Date"), and such shares shall thereafter represent only the right
to receive the applicable redemption price upon surrender of such certificates
at the Corporation's principal offices. Such notice shall state: (i) the number
of shares of the holder's Series B Preferred Stock being called for redemption,
if less than all; (ii) the Redemption Date; (iii) the current per share Unpaid
Dividends, if any; (iv) the right of a holder to convert to Common Stock; (v)
the current Applicable Conversion Rate; (vi) the dates of the applicable
B-2
Redemption Conversion Period; (vii) the procedures required to exercise the
conversion right; and (viii) that the conversion right will be deemed waived if
not exercised within the Redemption Conversion Period. Shares of the Series B
Preferred Stock redeemed by the Corporation shall be retired and shall be
restored to the status of authorized and unissued shares of preferred stock,
without designation as to series and may thereafter be reissued as shares of any
authorized series of preferred stock.
Section 4. Conversion Rights.
(a) Optional Conversion. The par value of each share of Series B
Preferred Stock plus Unpaid Dividends thereon which is not subject to a
Redemption Notice pursuant to Section 3 above shall be convertible at the option
of the holder thereof , at any time and from time to time, into shares of
restricted Common Stock at the "Applicable Conversion Rate" in accordance with
the exercise provisions set forth below. "Applicable Conversion Rate" shall mean
(i) on or before the fifth anniversary of the date of issuance, $4.00 per share
of Common Stock (appropriately adjusted to reflect stock splits, stock
dividends, reorganization, consolidations and similar changes in the Common
Stock hereafter effected), and (ii) thereafter, $2.00 per share of Common Stock
(similarly subject to adjustment).
(b) Exercise Provisions for Optional Conversion. In order to exercise
the optional conversion privilege, a holder of Series B Preferred Stock shall
surrender the certificate evidencing such Series B Preferred Stock to the
Corporation at its principal office, duly endorsed to the Corporation and
accompanied by written notice to the Corporation that the holder elects to
convert a specified portion or all of such shares and the amount of accrued and
unpaid dividends thereon, if any. Series B Preferred Stock converted at the
option of the holder shall be deemed to have been converted on the Redemption
Date, if converted pursuant to Section 3, or on the day of surrender of the
certificate representing such shares for conversion (any such date, the
"Conversion Date") in accordance with the foregoing provisions, and at such time
the rights of the holder of such Series B Preferred Stock, as such holder, shall
cease and such holder shall be treated for all purposes as the record holder of
that number of shares of Common Stock issuable upon conversion. As promptly as
practicable on or after the Conversion Date, the Corporation shall issue and
mail or deliver to such holder a certificate or certificates for the number of
validly issued and fully paid shares of Common Stock issuable upon conversion,
computed by rounding up to the nearest whole share, and a certificate or
certificates for the balance of Series B Preferred Stock surrendered, if any,
not converted into Common Stock. Each share of Common Stock issued upon
conversion shall bear a customary restrictive legend regarding the
non-registration of such Common Stock ; provided, however, that the Corporation,
through its counsel, shall record an opinion with the transfer agent stating
that such shares are resaleable if sold in accordance with Rule 144 (or any
successor rule) under the Securities Act of 1933, as amended (the "Securities
Act").
(c) Mandatory Conversion. In the event the closing price of the Common
Stock, as reported on the Nasdaq Stock Market or any applicable stock exchange,
is equal to or exceeds $4.50 per share for a period of ninety consecutive days,
B-3
the Corporation may, by resolution of the Board of Directors, demand conversion
of the outstanding Series B Preferred Stock, in whole or in part, plus Unpaid
Dividends thereon, into Common Stock at a price equal to the then Applicable
Conversion Rate by giving notice of such conversion to all holders of Series B
Preferred Stock in accordance with the notice provisions of subsection 4(d)
below. In the event of a mandatory conversion in accordance with this subsection
4(c), the Corporation shall either register the converted shares of Common Stock
or, through the Corporation's counsel, record an opinion with the transfer agent
stating that such shares are resalable if sold in accordance with Rule 144 (or
any successor rule) under the Securities Act. If less than all of the
outstanding shares of the Series B Redeemable Preferred Stock are to be
converted, such shares to be converted shall be converted on a pro rata basis
from the holders thereof (appropriately adjusted to avoid the conversion of
fractional shares).
(d) Notice. Notice of mandatory conversion under Section 4(c),
effective upon mailing, shall be sent by registered mail not less than thirty
days in advance of the date designated for such conversion ("Mandatory
Conversion Date") to the holders of record of the shares of the Series B
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation. Dividends on the shares of Series B Preferred Stock
called for conversion shall cease to accrue on the Mandatory Conversion Date,
and such shares shall thereafter represent only the right to receive the
applicable number of shares of Common Stock. Such notice shall state: (i) the
number of shares of the holder's Series B Preferred Stock being called for
conversion, if less than all; (ii) the Mandatory Conversion Date; (iii) the
Applicable Conversion Rate; (iv) the required procedures for conversion; and (v)
the current per share Unpaid Dividends, if any. Shares of the Series B Preferred
Stock converted by the Corporation shall be retired and shall be restored to the
status of authorized and unissued shares of preferred stock, without designation
as to series and may thereafter be reissued as shares of any authorized series
of preferred stock.
(e) Effect of Conversion. After a conversion contemplated by this
Section 4, accrual of all dividends on the Series B Preferred Stock shall cease
and payment of any previously accrued and unpaid dividends shall be made only on
such date as declared by the Board of Directors.
Section 5. Voting Rights.
Except as may be required by law, holders of Series B Preferred Stock shall
not be entitled to vote with holders of Common Stock for the election of
directors and other matters submitted to a vote of holders of Common Stock.
Section 6. Liquidation Rights.
In the event of the liquidation, dissolution or winding up of the
Corporation, holders of the Series B Preferred Stock shall be entitled to
receive, after due payment or provision for payment of the debts and other
liabilities of the Corporation and before any distribution to holders of Common
B-4
Stock, or other series of capital stock, now or hereafter outstanding, an amount
in cash per share equal to $10.00 plus Unpaid Dividends thereon. Neither the
consolidation nor merger of the Corporation into or with another corporation or
corporations, nor the sale, lease, transfer or conveyance of all or
substantially all of the assets of the Corporation to another corporation or any
other entity shall be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section. In the event that
full dividends are not paid or made available to the holders of all outstanding
shares of Series B Preferred Stock and funds available for payment of dividends
and any other amounts due shall be insufficient to permit payment in full to
holders of all such stock of the full amounts to which they are then entitled,
then the entire amount available for payment of dividends shall be distributed
pro rata among all such holders of Series B Preferred Stock in proportion to the
full amount to which they would otherwise be respectively entitled.
Section 7. Preemptive Rights.
Other than the conversion right provided for herein, holders of Series B
Preferred Stock shall not be entitled, as a matter of right, to subscribe for,
purchase or receive any part of any stock of the Corporation of any class
whatsoever, or of securities convertible into or exchangeable for any stock of
any class whatsoever, whether now or hereafter authorized and whether issued for
cash or other consideration or by way of dividend.
Section 8. Amendment.
This Certificate of Designation shall not be amended or supplemented
without the consent of a majority of the shares of Series B Preferred Stock
outstanding.
Section 9. Delivery of Information.
So long as the shares of Series B Preferred Stock are outstanding, the
Corporation shall send or deliver to each holder, at the same time, all
information which is sent or delivered to the holders of the Corporation's
Common Stock; provided, however, that any holder who is also a holder of Common
Stock is not required to receive duplicate information.
Section 10. Miscellaneous.
The Series B Preferred Stock, when issued, will be legally issued, fully
paid and nonassessable.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be executed by Xxxxxxx X. Xxx Xxxxx, its President, this ___ day
of ________, 1999.
Xxxxxxx X. Xxx Xxxxx
B-5
EXHIBIT C
FORM OF PROMISSORY NOTE
-----------------------
THIS NOTE WAS ORIGINALLY ISSUED ON ______________ , 199__
AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH SUCH LAWS.
______________, 199__ $____________
U.S. Pawn CNP Holdings, Inc., a Colorado corporation (the "Payor", which
term shall include any successor entity), hereby promises to pay to
_____________, (the "Payee", which term shall include any subsequent holder of
this Note), the principal amount of ______________________ Dollars
($____________), together with interest thereon in accordance with the
provisions of this Note. This Note is one of the Promissory Notes referred to in
the Agreement and Plan of Merger dated April ___, 1999 among Payor's parent
corporation, U.S. Pawn, Inc., a Colorado corporation, and guarantor of this Note
("Guarantor," which term shall include any successor entity), Payor and
Cash-N-Pawn International, Ltd., a Minnesota corporation ("CNP"), and the other
persons signatory thereto (the "Agreement"). Upon consummation of the
transactions contemplated by the Agreement, CNP will be merged with and into
Payor.
This Note is given by the Payor in partial consideration of the merger
contemplated by the Agreement.
Section 1. Payment of Principal. To the extent not theretofore paid
pursuant to Section 3 hereof, the entire unpaid principal amount of this Note,
together with all accrued and unpaid interest thereon, shall be payable in full
in cash on [_________], 2004 (the "Maturity Date").
Section 2. Payment of Interest.
(a) Interest Rate. Interest shall accrue on the unpaid principal
amount of this Note from the date hereof at the rate of [_________________]
percent ([___]%) per annum (computed on the basis of actual days elapsed in a
year of 365 or 366 days, as applicable).
(b) Payment of Interest. The Payor shall pay accrued interest
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
calendar year, commencing [____________, 1999]. Any accrued interest which for
any reason has not theretofore been paid shall be paid in full in cash on the
Maturity Date.
C-1
Section 3. Optional Prepayment of Note. The Payor may, at any time and from
time to time without premium or penalty, prepay all or any portion of the unpaid
principal amount of this Note together with accrued and unpaid interest thereon;
provided, however, that any prepayment on any of the Promissory Notes referred
to in the Agreement shall be made pro rata among all holders of all such
Promissory Notes, based upon amounts then due or owing.
Section 4. Waiver of Presentment, Protest, Demand and Dishonor. The Payor
hereby waives presentment for payment, protest, demand, notice of protest,
demand, dishonor and notice of nonpayment with respect to this Note.
Section 5. Payments. All payments on this Note shall be made in lawful
money of the United States of America by check drawn to the order of Payee at
the address shown on the books of the Payor or at such other address as Payee
may specify in writing to Payor from time to time.
Section 6. Events of Default. Each of the following events or conditions
shall constitute a default (a "Default") under this Note:
(a) the failure to make any payment of principal, interest or other
amount due under this Note within 5 business days of when such payment is due;
or
(b) the bankruptcy, insolvency or liquidation of the Payor or the
Guarantor; or
(c) the failure of the Payor or the Guarantor to perform or observe
any material term of this Note or any guaranty thereof, as the case may be, and
such failure continues for a period of sixty (60) days after written notice
thereof to Payor.
In the event that a Default shall exist and be continuing, the Payee may, by
written notice to the Payor, declare this Note and all accrued interest hereon
to be forthwith due and payable (except that no such notice shall be required in
the case of a Default described in clause (b) above), whereupon the Payee may
exercise all remedies available to it under the provisions of this Note and
applicable law.
Section 7. Unsecured; Priority. This Note is not secured by any collateral.
The Payor, for itself, its successors and assigns, covenants and agrees, and the
Payee by acceptance hereof, likewise covenants and agrees, that the payments on
this Note are hereby expressly (i) subordinated in right of payment to the prior
payment of the Payor's outstanding indebtedness for borrowed money now existing;
(ii) subordinated in right of payment to the prior payment of the Payor's
outstanding indebtedness for money borrowed from a bank or financial institution
whether now existing or hereafter created; (iii) subordinate in right of payment
to the prior payment of the Payor's outstanding indebtedness for money borrowed
from U. S. Pawn, Inc., whether now existing or hereafter created (indebtedness
under (i), (ii) and (iii) being referred to collectively as "Senior
Indebtedness"); and (iv) senior in right of payment to any indebtedness of the
C-2
Payor for borrowed money hereafter created other than that described in (ii) and
(iii) above. The subordination referred to in clauses (i), (ii) and (iii) is for
the benefit of the holders of Senior Indebtedness. All persons who, in reliance
upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, shall be entitled to rely hereon, and such provisions are made for
the benefit of the holders of Senior Indebtedness, and they or any of them may
proceed to enforce such provisions directly against the Payor. Payee, by
acceptance of this Note, agrees to take such action and execute such documents
as may be reasonably necessary or appropriate to effectuate the subordination as
provided in this Section 7; provided, however, that failure to take any such
action shall not act as a bar to payment under the terms of this Note.
Section 8. Application of Payments; Right of Offset. Payments will be first
applied to interest and other charges due at the time such payments are received
and then to principal. The Payor shall have the right to offset against any
payments due under this Note pro-rata amongst all holders of the Notes issued
pursuant to the Agreement any amounts owed to the Payor pursuant to claims for
indemnification and costs and expenses associated therewith pursuant to Article
VIII of the Agreement.
SECTION 9. GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO.
Section 10. Cancellation. After all unpaid principal and interest owed on
this Note has been paid in full, this Note shall be surrendered to the Payor for
cancellation and shall not be reissued.
Section 11. Miscellaneous. The rights and remedies of the Payee under this
Note and applicable law shall be cumulative and concurrent, and the exercise of
any one or more of them shall not preclude the simultaneous or later exercise by
the Payee of any or all such other rights or remedies. In the event any
provision of this Note is held to be invalid, illegal or unenforceable for any
reason, then such provision only shall be deemed null and void and shall not
affect any other provisions of this Note, which shall remain effective. No
modification or waiver of any provision of this Note shall be effective unless
it is in writing and signed by the Payee, and any such waiver shall be effective
only in specific instance and for the specific purpose for which it is given.
The failure of the Payee to exercise its option to accelerate this Note as
provided above, or to exercise any other option, right or remedy, in any one or
more instances, or this acceptance by the Payee of partial payments or partial
performance, shall not constitute a waiver of any Default, or the right to
exercise any option, right or remedy at any time. The nouns, pronouns, and verbs
used in this Note shall be construed as being of such number and gender as the
context may require. In the event that legal action is brought for the
enforcement of this Note, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Note, the
successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in said action or proceeding, in
addition to any other relief to which it may be entitled.
Section 12. Delivery of Information. So long as this Note is outstanding,
the Payor or the Guarantor shall send or deliver to Payee, at the same time, all
information which is sent or delivered to the holders of the Guarantor's Common
Stock; provided, however, that if the Payee is also a holder of such Common
Stock, the Payee is not required to receive duplicate information.
C-3
Section 13. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by
the Payor of evidence reasonably satisfactory to the Payor of the loss, theft,
destruction or mutilation of this Note, and of indemnity or security reasonably
satisfactory to the Payor, and upon reimbursement to the Payor of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this Note,
if mutilated, the Payor will make and deliver a new Note of like tenor, in lieu
of this Note (accompanied by a notation of the guaranty duly endorsed by the
Guarantor). Any Note made and delivered in accordance with this provision shall
be dated as of the date to which interest has been paid on this Note, or if no
interest has therefore been paid on this Note, then dated the date hereof.
Section 14. Restrictions on Transfer. Transfer of this Note is restricted.
The Payor shall be entitled to treat the person or entity listed as the
registered owner on its Note register as the owner of the Note for all purposes.
Section 15. Successors. All agreements of the Payor and the Guarantor in
this Note and the guaranty shall bind their respective successors and assigns.
IN WITNESS WHEREOF, the Payor has executed and delivered this Note on the
date first written above.
U.S. PAWN CNP HOLDINGS, INC.
By:
Name:
Title:
GUARANTY
--------
For value received, U.S. Pawn, Inc., a Colorado corporation
("Guarantor," which term shall include any successor entity) unconditionally
guarantees, to the holder of the Note, irrespective of the validity and
enforceability of the Note or the obligations of the Payor thereunder, (i) the
due and punctual payment of the principal of and interest on the Note upon which
this Guaranty is endorsed, whether at maturity or on an interest payment date,
by acceleration, upon a call for redemption, or otherwise, and (ii) the due and
punctual payment of all other obligations of the Payor to the Payee in
accordance with the terms of the Note. The Payor is wholly-owned by the
Guarantor, and the Guarantor will receive substantial benefits under the
Agreement, including from the issuance of the Notes.
C-4
The Guarantor hereby waives (a) notice of acceptance hereof, of any action
taken or omitted in reliance hereon and of any defaults of the Payor in the
payment of any sums guaranteed hereunder, or in the performance of any such
covenants and agreements, and (b) any presentment, demand, protest or notice of
any kind. The Guarantor hereby agrees that the Note may be modified, amended or
supplemented in any manner (including the renewal or extension of the Note),
without the consent of the Guarantor, and agrees that no such amendment,
modification, supplement, renewal or extension shall discharge, affect, reduce
or impair the liability of the Guarantor under this Guaranty. The Guarantor
agrees that the liability of the Guarantor hereunder shall not be discharged,
affected, reduced or impaired by reason of the release of, failure to realize
upon or resort to, any security given for the Note, or by reason of the failure
to pursue or enforce any other right or remedy under the Note, or by reason of
the failure of the holder of the Note to pursue, enforce or resort to any rights
against the Guarantor hereunder, and the Guarantor waives all right to require
the holder of the Note to pursue, enforce or resort to any and all such rights
or remedies. The Guarantor agrees that the holder of the Note may proceed
against the Guarantor under this Guaranty without first attempting to recover
from the Payor under the Note, or exhausting any other security for the Note.
Payments pursuant to this Guaranty are hereby expressly subordinated to the
prior payment in full of the Guarantor's outstanding indebtedness for borrowed
money, whether now existing or hereafter created (the "Senior Indebtedness"),
and that such subordination is for the benefit of the holders of Senior
Indebtedness. All persons who, in reliance upon such provisions, become holders
of, or continue to hold, Senior Indebtedness, shall be entitled to rely hereon,
and such provisions are made for the benefit of the holders of Senior
Indebtedness, and they or any of them may proceed to enforce such provisions
directly against the Guarantor. Payee, by acceptance of this Note and Guaranty,
agrees to take such action and execute such documents as may be reasonably
necessary or appropriate to effectuate such subordination as provided in this
Guaranty; provided, however, that failure to take any such action shall not act
as a bar to payment under the terms of this Guaranty.
In the event that legal action is brought for the enforcement of this
Guaranty, or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Guaranty, the successful or
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in said action or proceeding, in addition to any other
relief to which it may be entitled.
This Guaranty shall continue in full force and effect under its original
terms and shall not be affected by the dissolution, termination, winding up or
other discontinuation of the Payor, the sale of the Payor or other disposition
of all or substantially all of the assets of the Payor, the sale by the
Guarantor, directly or indirectly, of all or any portion of the capital stock of
the Payor, the marshaling of such assets and liabilities of the Payor, or the
receivership, bankruptcy, insolvency, reorganization, arrangement, composition
with creditors or readjustment of, or other similar proceedings affecting, the
Payor or any of its assets.
No waiver, amendment, release or modification of this Guaranty shall be
effective unless in writing duly executed by the holder of the Note on the date
of such waiver, amendment, release or modification.
C-5
The Guarantor agrees that any and all rights of subrogation and all similar
rights which it may have against the Payor or any security for the Note shall be
subordinate to any and all rights which the holder of the Note may have against
the Payor or any such security pursuant to this Guaranty, the Note, or
otherwise, and the Guarantor agrees that it will not enforce any such right of
subrogation or similar rights until the Note and all its obligations hereunder
have been paid in full. Until the Note and obligations have been paid in full,
the Guarantor shall pay all amounts received by it pursuant to its rights of
subrogation or similar rights, immediately upon receipt thereof, to the holder
of the Note in satisfaction of its obligations hereunder whether matured or
unmatured.
The Guarantor agrees that upon written notice of the institution by the
holder of the Note of any action or proceeding, legal or otherwise, for the
adjudication of any controversy with the Payor, the Guarantor will be
conclusively bound by the adjudication in any such action or proceeding and by a
judgment, award or decree entered in therein, Subject to the rights of the
Guarantor pursuant to Article VIII of the Agreement, the Guarantor waives the
right to assert in any action or proceedings brought by the holder of the Note
upon this Guaranty or the Note any offsets or counterclaims which the Guarantor
or the Payor may have with respect thereto.
The Guarantor agrees to endorse on any Note issued in exchange or
replacement for this note a guaranty in this form.
This Guaranty shall be binding upon the successors and assigns of the
Guarantor and shall inure to the benefit of the holder of the Note and such
holder's successors and assigns.
The provisions of this Guaranty are severable. In the event any portion,
provision, section or clause hereof is held invalid or unenforceable by any
court of competent jurisdiction, such holding shall not invalidate or render
unenforceable any of the remaining portions, provisions, sections or clauses
hereof. This Guaranty shall be governed by the laws of the State of Colorado.
The obligation of the Guarantor pursuant to this Guaranty shall terminate
upon payment in full of the Note and all obligations thereunder. Notwithstanding
the foregoing, this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment of the obligations
under the Note is rescinded or must otherwise be returned by the holder of the
Note upon the insolvency, bankruptcy or reorganization of the Payor, all as
though such payment had not been made.
C-6
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first above written.
U.S. PAWN, INC.
By:
Name:
Title:
C-7
EXHIBIT D
PROXY AND LOCK-UP AGREEMENT
---------------------------
U.S. Pawn, Inc.
0000 Xxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
ATTN: Xxxxxxx X. Xxx Xxxxx
Re: Common Stock and other securities of U.S. Pawn, Inc. (the "Company")
acquired in merger of Cash-N-Pawn International, Ltd. with and into
U.S. Pawn CNP Holdings, Inc.
Ladies and Gentlemen:
The undersigned is the owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock (collectively, such Common Stock
and such other securities owned by the undersigned, the "Securities") which were
acquired in connection with the merger of Cash-N-Pawn International, Ltd. with
and into U.S. Pawn CNP Holdings, Inc., a wholly owned subsidiary of the Company
(the "Merger"). A condition to, and partial consideration of, the Merger, was
that the undersigned would agree to not sell, pledge or otherwise encumber the
Securities and grant the Company a proxy to vote such Securities for a limited
period. The undersigned recognizes that the Merger will be of benefit to the
undersigned. The undersigned acknowledges that the Company and U.S. Pawn CNP
Holdings, Inc. are relying on the representations and agreements of the
undersigned contained in this letter agreement in carrying out the Merger.
LOCK-UP
-------
In consideration of the foregoing, subject to the next paragraph, the
undersigned hereby agrees that he will not, without the prior written consent of
the Company (which consent may be withheld in its sole discretion), directly or
indirectly, offer, sell, pledge or otherwise encumber, or grant any option to
purchase or otherwise dispose of, any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) by the undersigned, or publicly
announce the undersigned's intention to do any of the foregoing (any of the
foregoing transactions being hereinafter referred to as a "sale"), for a period
D-1
commencing on ________, 1999 (the "Closing Date") and continuing until the
earlier of (i) the date 2 years after the Closing Date, (ii) the date upon which
the Company has more than seven directors on its board or (iii) if a Controlling
Shareholders' Designee (as defined in the agreement governing the Merger) agrees
to stand for election to the Company's board of directors at the Company's 2001
annual meeting and is not elected, the date of the Company's 2001 annual meeting
(the "Period"). The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
Notwithstanding anything herein to the contrary, the undersigned may A)
transfer shares of Common Stock: (i) by operation by law; or (ii) by will or
laws governing descent and distribution, and B) sell in any 3 month period a
number of shares of Common Stock which does not exceed 25% of the number of
shares owned of record or beneficially by the undersigned.
Notwithstanding anything herein to the contrary, no transfer permitted by
clause A) above shall be consummated or effective unless and until each proposed
transferee executes and delivers to the Company a copy of this letter agreement.
PROXY
-----
In connection with the Merger, the undersigned hereby makes, constitutes
and appoints the board of directors of the Company, or its designee, as the
undersigned's true and lawful attorney in fact and proxy for the undersigned and
in the undersigned's name, place and stead, to vote all Common Stock owned by
the undersigned, and such additional shares of capital stock of the Company to
which the undersigned holds a proxy granted by a third party. The undersigned
hereby further grants and gives to such attorney in fact full power and
authority to do and perform every act necessary, requisite or proper to be done
to effectuate such voting of the Common Stock and other shares of capital stock
as the undersigned might do were the undersigned personally present, with full
power of substitution and revocation.
This proxy is irrevocable during the Period and is coupled with an
interest. This proxy shall automatically expire at 12:00 p.m., Denver, Colorado
time, on the last day of the Period.
The undersigned agrees that damages would be an inadequate remedy for
breach of this letter agreement and that the parties hereto may be enforced by
the remedies of specific performance and injunctive relief.
D-2
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and permissible
assigns of the undersigned.
Dated: _____________, 1999
[Name]
STATE OF MINNESOTA )
) ss:
COUNTY OF _______________ )
Subscribed and sworn to before me this ___ day of ______________, 1999 by .
Witness my hand and official seal.
My commission expires: ___________________
____________________________________
Notary Public
D-3
EXHIBIT E
COUNSEL OPINION
---------------
___________, 2000
Corporate Stock Transfer
[Address]
Ladies and Gentlemen:
We are issuing this opinion in connection with the sale (the "Subject
Sale") pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), by the shareholders listed on Schedule A attached hereto
(each a "Stockholder") of the number of shares set forth opposite each
Stockholder's name on Schedule A (each such shares, the "Shares") of the Common
Stock, no par value (the "Common Stock"), of U.S. Pawn, Inc., a Colorado
corporation (the "Company"), issued to the Stockholder in connection with the
Merger among the Company, [Newco] and Cash-N-Pawn International, Ltd. on
________, 1999. The certificates representing the Shares currently bear a legend
referring to the transfer restrictions under the Securities Act.
For the purpose of this opinion (1) below, we have assumed with your
permission that (a) the Company has filed all reports required to be filed under
Section 13 of the Securities Exchange Act of 1934, as amended, during the 12
month period immediately preceding the date of the Subject Sale, (b) the
Stockholder has been the beneficial owner of the Shares since ______________,
1999, (c) each Stockholder's Shares represent less than the greater of (i) 1.0%
of the currently outstanding Common Stock, or (ii) the average weekly reported
volume of trading in the Common Stock on all national securities exchanges
and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the filing of
the notice required by Rule 144(h) under the Securities Act, (d) no other sales
of shares of Common Stock are required to be aggregated with the Subject Sale
pursuant to Rule 144(e)(3), (e) the Shares are sold in "brokers' transactions"
(within the meaning of Section 4(4) of the Securities Act) and the Stockholder
has not solicited or arranged for the solicitation of, and will not solicit or
arrange for solicitation of, orders to buy the Common Stock in anticipation of
or in connection with the Subject Sale, and (f) the Stockholder has not made,
and will not make, any payment in connection with the Subject Sale to any person
other than the broker who executes the Subject Sale.
If the factual circumstances and assumptions set forth in this letter
prove to be incorrect or if such factual circumstances later change, our opinion
as set forth in this letter could differ. We have not made, and will not make,
any effort to independently verify any of such circumstances or assumptions.
E-1
(1) Subject to the above assumptions and subject to the limitations
expressed herein, it is our opinion that each certificate representing the
Shares which are sold in connection with the Subject Sale may be issued to the
purchaser thereof without any restrictive legend relating to the Securities Act.
(2) Assuming (a) at least two years have elapsed since the later of the
date the Stockholder acquired the Shares from the Company or from an affiliate
of the Company (calculated in accordance with subparagraph (d) of Rule 144) and
(b) the Stockholder is not, at the time of the Subject Sale, and has not been
during the three month period preceding the Subject Sale, an affiliate of the
Company; then the Shares which are sold in connection with the Subject Sale may
be issued to the purchaser thereof without any restrictive legend relating to
the Securities Act and any residue certificate covering shares not sold also may
be issued to the Stockholder without a restrictive legend relating to the
Securities Act thereon.
This letter has been furnished to you to assist the transfer agent for
the Company's Common Stock and the Stockholder in transferring the Shares and
may not be relied on by or copied to any other person or by you for any other
purpose without our prior written consent.
Our opinions herein is limited to matters arising under the Securities
Act, and we express no opinion as to the application or effect of any other
United States federal laws or the laws of any other jurisdiction.
Very truly yours,
E-2
EXHIBIT F
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into effective the ____ day of ________,
1999, ("Agreement"), by and between U.S. Pawn, Inc., a corporation organized and
existing under the laws of the State of Colorado ("Company") and Xxxx X.
Xxxxxxx, an individual residing in the State of Minnesota (hereinafter referred
to as "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Employee desires to serve the Company as President and Chief
Operating Officer on the terms as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the above premises, the mutual
covenants and promises hereinafter contained, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1. ENGAGEMENT. Throughout the term of this Agreement, Company shall employ
Employee as President and Chief Operating Officer of the Company with the title
of Chief Operating Officer, and Employee hereby accepts employment by the
Company in such capacity and on the terms and conditions hereinafter set forth.
2. DUTIES OF EMPLOYEE. Employee's duties during the term of this Agreement
shall include, but not be limited to the following:
a. To carry out such duties and perform such functions as are
included within the job description for President and Chief
Operating Officer as set forth on Exhibit A attached hereto and
incorporated herein by reference and to follow such directions as
may reasonably be given to Employee from time to time by the
Chief Executive Officer or the Board of Directors of the Company.
Such duties shall include the management and oversight of the
operations of subsidiaries for which the Company is to provide
management services. For purposes of this Agreement, the term
"Company" shall include such subsidiaries.
b. To safeguard the reputation, name and goodwill of the Company;
and
c. Subject to the vacation rights set forth in paragraph 5(c)
hereof, to devote his full energy, skill, attention and time to
the management, supervision and operation of the Company for as
many working hours as may be reasonably necessary.
F-1
3. DUTIES OF THE COMPANY. The duties of the Company during the term hereof
shall be as follows:
a. To timely pay Employee the compensation hereafter set forth for
the services to be performed by Employee;
b. To periodically reimburse all business expenses incurred by the
Employee in the performance of such services and approved by the
Chief Executive Officer or the Board of Directors of the Company;
and
c To provide reasonable office facilities, equipment and support
staff for the performance of Employee's duties set forth herein.
4. RELATIONSHIP OF THE PARTIES. Employee shall be considered at all times
and when acting in the ordinary course of his employment and performing the
duties herein set forth to be an employee of the Company. Employee shall have
the authority to take such actions and to enter into such contracts, agreements
or commitments for or on behalf of the Company as may be approved by the
Company's Chief Executive Officer or the Board of Directors.
5. COMPENSATION. Employee shall be entitled to receive as full compensation
during the term hereof:
a. Base Annual Salary: A base annual salary ("Base") of One Hundred
Twenty-Four Thousand Five Hundred Dollars ($124,500.00) per annum
beginning on _____________, 1999. Said Base Salary shall be
reviewed annually on January 1, beginning January 1, 2001, and
such Base Salary may be increased at the sole discretion of the
Board of Directors of the Company, taking into consideration the
number of stores in operation, the capital financing of the
Company, the financial performance of the Company and the
performance of the Employee. In the event this Agreement
terminates on a date other than an anniversary date hereof, the
Base Salary shall be prorated. Said Base Salary shall be paid to
Employee bi-weekly each Friday or on such other regular system as
the Company may establish from time to time. There shall be
withheld from the said Base Salary such amounts necessary for
taxes or other amounts authorized by law or authorized in writing
by Employee.
b. Car Allowance. Employee shall receive a monthly car allowance
during the term of this Agreement in the amount of $1,000.00 per
month. Said car allowance shall be payable on the first pay check
of each month. In the event this Agreement terminates on a date
other than the last day of the month, the car allowance shall be
prorated.
F-2
c. Personal Benefits. Employee, in addition to the foregoing, shall
be entitled to receive all employee benefits made available to
management pursuant to the Company's employee policies in effect
from time to time during the term of this Agreement, which
benefits shall include, but not be limited to, family health and
medical hospital insurance coverage which is the same or
substantially similar to the coverage provided to other similar
executive employees and annual paid vacation of three weeks per
year.
d. Stock Purchase Option. Employee may be entitled to earn options
to purchase stock of the Company (the "Options") under the
following terms and conditions:
(i) The Compensation Committee of the Board of Directors
shall grant to the Employee Options to purchase 67,000
shares of the common stock ("Shares") of the Company
pursuant to the terms and conditions of the Company's
incentive stock option plans. Subject to Section 6.b.ii
below, such Options shall vest on December 31, 2001.
(ii) In addition to the Options set forth in Section
5.c.(i), above, the Employee may be granted additional
Shares of the Company under the Plan as so determined
by the Compensation Committee, in its sole discretion,
annually on December 31, beginning December 31, 1999,
taking into consideration the number of stores in
operation, the capital financing of the Company, the
financial performance of the Company and the
performance of the Employee.
(iii)The Options granted hereunder shall be exercisable at
the fair market value of such Shares on the date of
grant, or such other price as may be necessary to
qualify such Options for tax treatment under Internal
Revenue Code Section 421. The number of Options and
Shares granted to the Employee hereunder for purchase
shall be adjusted for stock splits and
recapitalizations of the Company.
e. Cash Bonus. [Employee shall be eligible to earn an annual
cash bonus based on, among other things, the number of
stores in operation, the capital financing of the Company,
and financial performance of the Company, and the individual
performance of Employee. The exact criteria to be used in
determining the amount of and benchmarks for such cash bonus
shall be determined in good faith by the parties hereto
during the 30 days following the execution of the Merger
Agreement.]
F-3
f. Relocation Allowance. In the event the Company requires
Employee to relocate, the Company shall give Employee a
reasonable allowance for the costs associated with such
relocation, the exact amount to be determined in good faith
by the parties hereto.
6. TERM TERMINATION.
a. Term. The term of this Agreement shall commence and continue from
________________, 1999, until December 31, 2001, unless otherwise
terminated as herein provided.
b. Termination.
i. For Cause. This Agreement may be terminated by either
party for cause at any time during the term hereof.
Cause for the purpose of this Agreement shall be the
failure of the Company to substantially meet its
obligations under Section 3 hereof or Employee to
substantially meet his obligations as set forth on
Exhibit A, upon 30 days written notice thereof and
failure to cure said default. In the event of such a
termination by the Company for cause, the Company shall
have no further obligations hereunder.
ii. By Company Without Cause. This Agreement may be
terminated by Company without cause at any time during
the term hereof.
In the event of such a termination by Company without
cause or a termination by Employee for cause pursuant
to clause (i) above, the Company shall continue to pay
Employee at Employee's option, the Base, any pro rata
portion of the Cash Bonus for the year of termination,
the car allowance and all medical, major medical and
hospital insurance benefits to become due during the
remaining term of this Agreement; provided, however,
that the obligations of Company hereunder shall be
reduced and deemed forgiven to the extent of an amount
equal to any compensation earned by Employee and the
value of any comparable benefits to which Employee may
become entitled during said remaining term. In
addition, at the Company's election, the Company shall
pay the Employee a lump sum payment equal to the
difference between the exercise price(s) of all stock
options vested and unvested in the Employee on the
effective date of the Employee's termination (the
"options") and the closing price of the underlying
securities on the effective date of the Employee's
termination for the options, or the Company shall vest
all options and extend the exercisibility of the
F-4
options for a period of two years from the effective
date of the Employee's termination, provided, however,
that if, on the effective date of the Employee's
termination, the closing price of the underlying
securities is less than the exercise price of the
options, the Company shall vest all options and extend
the exercisibility of the options for a period of two
years from the effective date of the Employee's
termination.
iii. By Employee Without Cause. This Agreement may be
terminated by the Employee without cause (resignation).
In the event of such a termination, the Company shall
have no further obligations hereunder.
iv. Continuation of Terms. Except as provided herein, the
termination of this Agreement with or without cause
shall not affect the continuing obligations of the
parties hereto, as their respective interests may
appear, to Options earned prior to termination or under
any subsequent employment agreement, or to the
enforcement of the confidentiality, noncompetition and
similar provisions of this Agreement.
7. CONFIDENTIALITY AND NONCOMPETITION AGREEMENT, Employee contemporaneously
with the execution of this Agreement is executing a Confidentiality and
Noncompetition Agreement in the form attached hereto and made a part hereof as
Exhibit B.
8. ANNUAL RENEWAL. In the event that this Agreement is not renewed or
replaced on or before December 31, 2001, and either the Employee or the Company
has not been notified of the desire of the other party to terminate this
Agreement or negotiate for a revised employment arrangement by June 30, 2001,
then this Agreement shall be automatically extended for a period of one (1) year
under the same terms and conditions. Such extensions shall continue from year to
year (with a corresponding requirement for notification on June 30th of each
such extension year) except as provided herein.
9. MISCELLANEOUS.
a. This Agreement shall be deemed the entire agreement of the
parties and any amendment, modification, abrogation or addition
hereto shall be null and void unless embodied in writing and
signed by the parties hereto.
F-5
b. The terms, provisions and sections of this Agreement shall be
deemed severable and, in the event of unenforceability,
illegality or invalidity of any of said terms, provisions or
sections, the same shall be severed and stricken herefrom and the
remainder of said Agreement interpreted and construed in a manner
so as to render the balance of said Agreement enforceable and
consistent with the intent of the parties hereto.
c. This Agreement may not be assigned by either party without the
prior written consent of the other party.
d. The Agreement shall be deemed to be a Colorado agreement and
shall be enforced, interpreted and construed pursuant to Colorado
law.
e. Any controversy or claim arising out of or relating to this
Agreement, or any breach hereof, shall be settled in arbitration
in the city and state where Employee is based in accordance with
the arbitration rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be
entered by any Court having jurisdiction thereof. If any party
refuses or neglects to appear at or participate in such
arbitration proceedings, the arbitrator(s) are empowered to
decide the controversy in accordance with whatever evidence is
presented by the party or parties who do participate. The
arbitrator(s) are authorized to award any party or parties such
sum as they consider proper for the time, expense and trouble of
arbitration, including arbitrator fees and attorney's fees. The
decision of the arbitrator(s) shall be final and shall not be
subject to appeal to any court of law or in equity.
IN WITNESS THEREOF, the undersigned have executed this Agreement effective
the date and year first above written.
COMPANY
U.S. PAWN, INC.
By:
Its:
EMPLOYEE
Xxxx X. Xxxxxxx
F-6
The undersigned acknowledge and agree that this Agreement shall supersede the
Employment Agreement by and between Cash-N-Pawn International, Ltd. and Employee
dated _____________, _____ (the "Prior Agreement") and upon execution by the
parties above, the Prior Agreement shall be canceled and of no further force and
effect.
Xxxx X. Xxxxxxx
CASH-N-PAWN INTERNATIONAL, LTD.
By:
Title:
F-7
EXHIBIT A
---------
Job Description
Oversee the day-to-day operations of Company stores at the direction and under
the supervision of the Company's Chief Executive Officer. Such duties may
include:
1. Oversee hiring and training of store employees.
2. Oversee the training of Area Managers.
3. Assist the Company's Chief Executive Officer in overseeing advertising and
marketing programs.
4. Assist the Company's Chief Executive Officer in the selection of hardware
and software for store management inventory control and accounting.
5. Oversee supervision of store personnel and training.
6. Oversee store construction.
7. Assist the Company's Chief Executive Officer in overseeing public
relations.
9. Other responsibilities as may be required by the Company's Chief Executive
Officer or the Board of Directors.
EXHIBIT B
---------
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
--------------------------------------------
Effective Date: _____________, 1999
Parties: U.S. Pawn, Inc. ("Company")
Xxxx X. Xxxxxxx ("Employee")
RECITALS:
---------
1. Cash-N-Pawn International, Ltd., the company which employed Employee prior
to the date hereof, was merged with and into U.S. Pawn CNP Holdings, Inc.,
a Colorado corporation and wholly owned subsidiary of the Company (the
"Merger").
2. Employee and Company have entered into an Employment Agreement dated the
even date hereof employing him with the Company.
3. Employee, directly and indirectly, will control the day to day operations
of the Company.
4. Employee, in his position with the Company has and will continue to create,
obtain and have access to confidential information, documents, trade
secrets, and private information belonging to the Company.
5. Employee acknowledges that he has no proprietary right or valid business
purpose for the use or retention of said documents except insofar as it
relates to his status with the Company.
NOW, THEREFORE, as a condition to the employment of the Employee and to the
Merger, and for additional good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and between
Employee and Company as follows:
1. Confidentiality and Noncompetition. Employee acknowledges that the
services he performs and the expertise and knowledge he has or will
gain in his dealings with Company and its clients and prospective
clients are of a special and unusual nature with a unique value, the
loss of which cannot be adequately compensated by damages in an action
at law. In view of the unique value of the services and information of
Employee, and of the hardship to Company which may occur due to the
competition of Employee with Company, or the dissemination of
information to competitors of Company, Employee agrees as follows:
1
a. Confidentiality. Employee hereby covenants and agrees that he
shall not directly or indirectly release or utilize, and will
return to Company, all copies of any confidential information,
trade secrets, client lists, prospective client lists and other
information relating to the development, marketing or performing
of any and all products or services of Company which may have
been or may be disclosed to Employee, or to which he may have
obtained access (regardless of whether such information may have
been created by Employee). Confidential information shall not
include information which:
i. at the time of disclosure was or thereafter is generally
known by and available to the public (other than as a result
of a disclosure directly or indirectly by the Employee or
his representatives);
ii. was available to Employee on a nonconfidential basis from a
source other than the Company or its employees or agents;
provided that such source is not and was not bound by a
confidentiality agreement with the Company; and
iii. has been independently acquired or developed by Employee
without violating his obligations under this Agreement.
b. Noncompetition. Employee hereby covenants and agrees that he will
not directly or indirectly, either as principal, agent, manager,
employee, owner, partner, stockholder, member, officer or
director of a corporation, limited liability company, partnership
or otherwise engage in the soliciting, marketing or furnishing of
the pawn shop consumer lending business or check cashing business
(or competitive products or services of Company) within a radius
of fifty (50) miles of any existing or proposed store of the
Company for the period of his providing services to the Company
and for a period of three (3) years thereafter. This paragraph
1.b. shall not apply if Employee is terminated by the Company
pursuant to Section 6.b.ii or the Employee terminates pursuant to
Section 6.b.i of Employee's Employment Agreement.
c. Nondisparagement. Employee agrees that he shall not disparage
Company, its affiliates or their predecessors, stockholders,
members, governors, officers, directors, employees or agents, nor
the products or services of such entities or individuals.
d. Solicitation of Employees. Employee hereby covenants and agrees
that he will not at any time during the period of his providing
services to the Company and for a period of two (2) years
thereafter solicit or seek to influence any agent or employee of
2
the Company or any affiliate of the Company to become directly or
indirectly the agent, employee, co-employee or contractor for
Employee, any competitor of the Company, or any other party.
Company shall have the right to enforce the provisions of this
Agreement by specific remedies, including, but not limited to,
temporary restraining orders and temporary and permanent
injunctions, but such remedies shall be cumulative and shall not
preclude the parties from seeking damages resulting from a breach
of this Agreement. These remedies shall be in addition to and not
in limitation of any other rights or remedies to which Company,
its successors, affiliates or related entities has or may be
entitled at law, in equity or under this Agreement.
2. Reasonableness of Restrictions.
a. Reasonableness, Employee has carefully read and considered the
provisions of this Agreement and, having done so, agrees that the
restrictions set forth herein, including but not limited to the
time period of the restrictions and the entities and activities
to which such restrictions apply are fair and reasonable, and are
reasonably required for the protection of the interests of
Company, its shareholders, officers, directors and employees.
b. Modification by Court. In the event that, notwithstanding the
foregoing, any of the provisions of this Agreement shall be held
to be invalid or unenforceable, the remaining provisions hereof
shall nevertheless continue to be valid and enforceable as
through the invalid or unenforceable parts had not been included
herein. In the event that any provision relating to the time
period, areas of restriction and/or the entities or activities of
restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period, areas of
restriction and/or entities or activities such court deems
reasonable and enforceable, the time period, areas of restriction
and/or entities or activities of restriction deemed reasonable
and enforceable by said court shall become and thereafter be the
maximum time period, areas of restriction and/or entities and
activities.
3. Return of Documents. All documents, files and materials relating to
the operations of the Company, its clients or prospective clients
shall be returned to Company on or immediately following the
termination of services of Employee with Company.
4. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach hereof, shall be settled by arbitration
in the city and state in which Employee is based in accordance with
the Arbitration Rules of the American Arbitration Association, and
3
judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. If any party refuses or
neglects to appear at or participate in such arbitration proceedings,
the arbitrator(s) are empowered to decide the controversy in
accordance with whatever evidence is presented by the party or parties
who do participate. The arbitrators are authorized to award any party
or parties such sums as they consider proper for the time, expense,
and trouble of arbitration, including arbitrator fees and attorneys'
fees. The decisions of the arbitrator(s) shall be final and shall not
be subject to appeal to any court, in law or in equity.
Notwithstanding the above, the Company shall be authorized to use the
courts of the states in which this Agreement is to be effective in
order to obtain temporary restraining orders, temporary or permanent
injunctions, and other relief at law or in equity relating to the
enforcement of this Agreement.
5. Miscellaneous.
a. The provisions and prohibitions of this Agreement may be enforced
by court proceedings at law or in equity.
b. The mutual obligations hereof shall survive the termination of
services of Employee.
c. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their legal representatives, successors and
permitted assigns.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective the date and year first above written.
COMPANY
U.S. PAWN, INC.
By:
Its:
EMPLOYEE
Xxxx X. Xxxxxxx
4
The undersigned acknowledge and agree that this Confidentiality and
Noncompetition Agreement shall supercede the Confidentiality and Noncompetition
Agreement by and between Cash-N-Pawn International, Ltd. And Employee dated
_________________ (the "Prior C and N Agreement") and upon execution by the
parties above, the Prior C and N Agreement shall be cancelled and of no further
force and effect.
Xxxx X. Xxxxxxx
CASH-N-PAWN INTERNATIONAL, LTD.
By:
Title:
5
EXHIBIT G
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into effective the ____ day of
____________, 1999, ("Agreement") by and between U.S. Pawn, Inc., a corporation
organized and existing under the laws of the State of Colorado ("Company") and
Xxxx X. Xxxxx, an individual residing in the State of Minnesota (hereinafter
referred to as "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Employee desires to serve the Company as a Chief Financial Officer
and the Company desires to employ the Employee as Chief Financial Officer on the
terms as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the above premises, the mutual
covenants and promises hereinafter contained, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1. ENGAGEMENT. Throughout the term of this Agreement, Company shall employ
Employee as a Chief Financial Officer of the Company with the title of Chief
Financial Officer, and Employee hereby accepts employment by the Company in such
capacity and on the terms and conditions hereinafter set forth.
2. DUTIES OF EMPLOYEE. Employee's duties during the term of this Agreement
shall include, but not be limited to the following:
a. To carry out such duties and perform such functions as are
included within the job description for Chief Financial Officer
as set forth on Exhibit A attached hereto and incorporated herein
by this reference and to follow such directions as may reasonably
be given to Employee from time to time by the Board of Directors
of the Company or the Chief Executive Officer of the Company
("CEO"), who shall be responsible for evaluating the Employee's
job performance and determining the extent to which the Employee
is fulfilling his duties set forth herein. Such duties shall
include the management and oversight of the financial operations
of the Company, subsidiaries of the Company and all of the
affiliated companies for which the Company is to provide
management services. For purposes of this Agreement, the term
"Company" shall include such subsidiaries; and
G-1
b. Subject to the vacation rights set forth in paragraph 5(b)
hereof, to devote his full energy, skill, attention and time to
the financial management, supervision and operation of the
Company for as many working hours as may be reasonably necessary.
3. DUTIES OF THE COMPANY. The duties of the Company during the term hereof
shall be as follows:
a. To timely pay Employee the compensation hereafter set forth for
the services to be performed by Employee;
b. To periodically reimburse all business expenses incurred by the
Employee in the performance of such services and approved by the
CEO of the Company; and
c. To provide reasonable office facilities, equipment and support
staff for the performance of Employee's duties set forth herein
or delegated by the CEO.
4. RELATIONSHIP OF THE PARTIES. Employee shall be considered at all times
and when acting in the ordinary course of his employment and performing the
duties herein set forth to be an employee of the Company. Employee shall have
the authority to take such actions and to enter into such contracts, agreements
or commitments for or on behalf of the Company as may be approved by the
Company's Board of Directors.
5. COMPENSATION. Employee shall be entitled to receive as full compensation
during the term hereof.
a. Base Annual Salary: A base annual salary ("Base") of One Hundred
Thousand Dollars ($100,000.00) per annum beginning on the
effective date hereof. Said Base Salary shall be reviewed
annually on January 1, beginning January 1, 2001, and such Base
Salary may be increased at the sole discretion of the Board of
Directors of the Company, taking into consideration the number of
stores in operation, the capital financing of the Company, the
financial performance of the Company and the performance of the
Employee. In the event this Agreement terminates on a date other
than an anniversary date hereof, the Base Salary shall be
prorated. Said Base Salary shall be paid to Employee bi-weekly
each Friday or on such other regular system as the Company may
establish from time to time. There shall be withheld from the
said Base Salary such amounts necessary for taxes or other
amounts authorized by law or authorized in writing by Employee.
G-2
b. Car Allowance. Employee shall receive a monthly car allowance
during the term of this Agreement in the amount of $500.00 per
month. Said car allowance shall be payable on the first pay check
of each month. In the event this Agreement terminates on a date
other than the last day of the month, the car allowance shall be
prorated.
c. Personal Benefits. Employee, in addition to the foregoing, shall
be entitled to receive all employee benefits made available to
management pursuant to the Company's employee policies in effect
from time to time during the term of this Agreement, which
benefits shall include, but not be limited to, family health and
medical hospital insurance coverage which is the same or
substantially similar to the coverage provided to other similar
executive employees, and annual paid vacation of three weeks per
year.
d. Stock Purchase Option. Employee may be entitled to earn options
to purchase stock of the Company (the "Options") under the
following terms and conditions:
(i) The Compensation Committee of the Board of Directors shall
grant to the Employee Options to purchase 67,000 shares of
the common stock ("Shares") of the Company pursuant to the
terms and conditions of the Company's incentive stock option
plans. Subject to Section 6.b.ii below, such options shall
vest on December 31, 2001.
(ii) In addition to the Options set forth in Section 5.c.(i),
above, the Employee may be granted additional Shares of the
Company under the Plan as so determined by the Compensation
Committee, in its sole discretion, annually on December 31,
beginning December 31, 1999 taking into consideration the
number of stores in operation, the capital financing of the
Company, the financial performance of the Company and the
performance of the Employee.
(iii)The Options granted hereunder shall be exercisable at the
fair market value of such Shares on the date of grant, or
such other price as may be necessary to qualify such Options
for tax treatment under Internal Revenue Code Section 421.
The number of Options and Shares granted to the Employee
hereunder for purchase shall be adjusted for stock splits
and recapitalizations of the Company.
e. Cash Bonus. [Employee shall be eligible to earn an annual cash
bonus based on, among other things, the number of stores in
operation, the capital financing of the Company, and financial
performance of the Company, and the individual performance of
Employee. The exact criteria to be used in determining the amount
of and benchmarks for such cash bonus shall be determined in good
faith by the parties hereto during the 30 days following the
execution of the Merger Agreement.]
G-3
f. Relocation Allowance. In the event the Company requires Employee
to relocate, the Company shall give Employee a reasonable
allowance for the costs associated with such relocation, the
exact amount to be determined in good faith by the parties
hereto.
6. TERM TERMINATION.
a. Term. The term ("Term") of this Agreement shall commence and
continue from the effective date hereof until December 31, 2001,
unless otherwise terminated as herein provided.
b. Termination.
i. For Cause. This Agreement may be terminated by either party
for cause at any time during the term hereof. Cause for the
purpose of this Agreement shall be the failure of the
Company to substantially meet its obligations under Section
3 hereof or Employee to substantially meet his obligations
as set forth on Exhibit A, upon 30 days written notice
thereof and failure to cure said default. In the event of
such a termination by the Company for cause, the Company
shall have no further obligations hereunder.
ii. By Company Without Cause. This Agreement may be terminated
by Company without cause at any time during the term hereof.
In the event of such a termination by Company without cause
or a termination by Employee for cause pursuant to clause
(i) above, the Company shall continue to pay Employee at
Employee's option, the Base, any pro rata portion of the
Cash Bonus for the year of termination, the car allowance
and all medical, major medical and hospital insurance
benefits to become due during the remaining term of this
Agreement; provided, however, that the obligations of
Company hereunder shall be reduced and deemed forgiven to
the extent of an amount equal to any compensation earned by
Employee and the value of any comparable benefits to which
Employee may become entitled during said remaining term. In
addition, at the Company's election, the Company shall pay
the Employee a lump sum payment equal to the difference
between the exercise price(s) of all stock options vested
and unvested in the Employee on the effective date of the
G-4
Employee's termination (the "options") and the closing price
of the underlying securities on the effective date of the
Employee's termination for the options, or the Company shall
vest all options and extend the exercisibility of the
options for a period of two years from the effective date of
the Employee's termination, provided, however, that if, on
the effective date of the Employee's termination, the
closing price of the underlying securities is less than the
exercise price of the options, the Company shall vest all
options and extend the exercisibility of the options for a
period of two years from the effective date of the
Employee's termination.
iii. By Employee Without Cause. This Agreement may be terminated
by the Employee without cause (resignation). In the event of
such a termination, the Company shall have no further
obligations hereunder.
iv. Continuation of Terms. Except as provided herein, the
termination of this Agreement with or without cause shall
not affect the continuing obligations of the parties hereto,
as their respective interests may appear, to Options earned
prior to termination or under any subsequent employment
agreement, or to the enforcement of the confidentiality,
noncompetition and similar provisions of this Agreement.
7. CONFIDENTIALITY AND NONCOMPETITION AGREEMENT. Employee contemporaneously
with the execution of this Agreement is executing a Confidentiality and
Noncompetition Agreement in the form attached hereto and made a part hereof as
Exhibit B.
8. ANNUAL RENEWAL. In the event that this Agreement is not renewed or
replaced on or before December 31, 2001, and either the Employee or the Company
has not been notified of the desire of the other party to terminate this
Agreement or negotiate for a revised employment arrangement by June 30, 2001,
then this Agreement shall be automatically extended for a period of one (1) year
under the same terms and conditions. Such extensions shall continue from year to
year (with a corresponding requirement for notification on June 30th of each
such extension year) except as provided herein.
G-5
9. MISCELLANEOUS.
a. This Agreement shall be deemed the entire agreement of the
parties and any amendment, modification, abrogation or addition
hereto shall be null and void unless embodied in writing and
signed by the parties hereto.
b. The terms, provisions and sections of this Agreement shall be
deemed severable and, in the event of unenforceability,
illegality or invalidity of any of said terms, provisions or
sections, the same shall be severed and stricken herefrom and the
remainder of said Agreement interpreted and construed in a manner
so as to render the balance of said Agreement enforceable and
consistent with the intent of the parties hereto.
c. This Agreement may not be assigned by either party without the
prior written consent of the other party.
d. The Agreement shall be deemed to be a Colorado agreement and
shall be enforced, interpreted and construed pursuant to Colorado
law.
e. Any controversy or claim arising out of or relating to this
Agreement, or any breach hereof, shall be settled in arbitration
in the city and state where Employee is based in accordance with
the arbitration rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be
entered by any Court having jurisdiction thereof. If any party
refuses or neglects to appear at or participate in such
arbitration proceedings, the arbitrator(s) are empowered to
decide the controversy in accordance with whatever evidence is
presented by the party or parties who do participate. The
arbitrator(s) are authorized to award any party or parties such
sum as they consider proper for the time, expense and trouble of
arbitration, including arbitrator fees and attorney's fees. The
decision of the arbitrator(s) shall be final and shall not be
subject to appeal to any court of law or in equity.
G-6
IN WITNESS THEREOF, the undersigned have executed this Agreement effective
the date and year first above written.
COMPANY:
U.S. PAWN, INC.
By:
Its:
EMPLOYEE:
Xxxx X. Xxxxx
The undersigned acknowledge and agree that this Agreement shall supersede the
Employment Agreement by and between Cash-N-Pawn International, Ltd. and Employee
dated _____________, _____ (the "Prior Agreement") and upon execution by the
parties above, the Prior Agreement shall be canceled and of no further force and
effect.
Xxxx X. Xxxxx
CASH-N-PAWN INTERNATIONAL, LTD.
By:
Title:
G-7
EXHIBIT A
---------
JOB DESCRIPTION
Oversee the day-to-day financial affairs of the Company at the direction and
under supervision of the Company's Chief Executive Officer. Such duties may
include:
1. Oversee external and internal financial reporting functions including SEC
compliance and coordination with external auditing firm.
2. Oversee the cash management function including banking relationships.
3. Oversee preparation of annual budgets and variance reporting.
4. Oversee the internal administration of the Company's legal affairs and
provide primary contact with outside legal counsel.
5. Assist the Chief Executive Officer and Chief Operating Officer in the
selection of hardware and software for inventory control and general ledger
accounting.
6. Oversee lease contract negotiation and compliance.
7. Oversee the licensing and permit function.
8. Oversee tax reporting compliance function.
9. Oversee insurance and other risk management functions.
10. Oversee employee benefit administration.
11. Assist the Chief Executive Officer in overseeing stockholder and public
relations.
12. Other responsibilities as may reasonably be required by the Chief Executive
Officer or the Board of Directors.
EXHIBIT B
---------
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
--------------------------------------------
Effective Date: __________, 1999
Parties: U.S. Pawn, Inc. ("Company")
Xxxx X. Xxxxx ("Employee")
R E C I T A L S:
----------------
1. Cash-N-Pawn International, Ltd., the company which employed Employee prior
to the date hereof, was merged with and into U.S. Pawn CNP Holdings, Inc.,
a Colorado corporation and wholly owned subsidiary of the Company (the
"Merger").
2. Employee and Company have entered into an Employment Agreement dated the
even date hereof employing him with the Company.
3. Employee, directly and indirectly, will control the day to day finances of
the Company.
4. Employee, in his position with the Company has and will create, obtain and
have access to confidential information, documents, trade secrets, and
private information belonging to the Company.
5. Employee acknowledges that he has no proprietary right or valid business
purpose for the use or retention of said documents except insofar as it
relates to his status with the Company.
NOW, THEREFORE, as a condition to the employment of the Employee and to the
Merger, and for additional good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and between
Employee and Company as follows:
1. Confidentiality and Noncompetition. Employee acknowledges that the
services he will perform and the expertise and knowledge he has or
will gain in his dealings with Company and its clients and prospective
clients are of a special and unusual nature with a unique value, the
loss of which cannot be adequately compensated by damages in an action
at law. In view of the unique value of the services and information of
Employee, and of the hardship to Company which may occur due to the
competition of Employee with Company, or the dissemination of
information to competitors of Company, Employee agrees as follows:
1
a. Confidentiality, Employee hereby covenants and agrees that he
shall not directly or indirectly release or utilize, and will
return to Company, all copies of any confidential information,
trade secrets, client lists, prospective client lists and other
information relating to the development, marketing or performing
of any and all products or services of Company which may have
been or may be disclosed to Employee, or to which he may have
obtained access (regardless of whether such information may have
been created by Employee). Confidential information shall not
include information which:
(i) at the time of disclosure was or thereafter is generally
known by and available to the public (other than as a result
of a disclosure directly or indirectly by the Employee or
his representatives);
(ii) was available to Employee on a nonconfidential basis from a
source other than the Company or its employees or agents;
provided that such source is not and was not bound by a
confidentiality agreement with the Company; and
(iii)has been independently acquired or developed by Employee
without violating his obligations under this Agreement.
b. Noncompetition, Employee hereby covenants and agrees that he will
not directly or indirectly, either as principal, agent, manager,
employee, owner, partner, stockholder, member, officer or
director of a corporation, limited liability company, partnership
or otherwise engage in the soliciting, marketing or furnishing of
the pawn shop consumer lending business or check cashing business
(or competitive products or services of Company) within a radius
of fifty (50) miles of any existing or proposed store of the
Company for the period of his providing services to the Company
and for a period of three (3) years thereafter. This paragraph
1.b. shall not apply if Employee is terminated by the Company
pursuant to Section 6.b.ii or the Employee terminates pursuant to
Section 6.b.i of Employee's Employment Agreement.
c. Nondisparagement, Employee agrees that he shall not disparage
Company, its affiliates or their predecessors, stockholders,
members, governors, officers, directors, employees or agents, nor
the products or services of such entities or individuals.
d. Solicitation of Employees, Employee hereby covenants and agrees
that he will not at any time during the period of his providing
services to the Company and for a period of two (2) years
thereafter solicit or seek to influence any agent or employee of
2
the Company or any affiliate of the Company to become directly or
indirectly the agent, employee, co-employee or contractor for
Employee, any competitor of the Company, or any other party.
Company shall have the right to enforce the provisions of this
Agreement by specific remedies, including, but not limited to,
temporary restraining orders and temporary and permanent injunctions,
but such remedies shall be cumulative and shall not preclude the
parties from seeking damages resulting from a breach of this
Agreement. These remedies shall be in addition to and not in
limitation of any other rights or remedies to which Company, its
successors, affiliates or related entities has or may be entitled at
law, in equity or under this Agreement.
2. Reasonableness of Restrictions.
a. Reasonableness, Employee has carefully read and considered the
provisions of this Agreement and, having done so, agrees that the
restrictions set forth herein, including but not limited to the
time period of the restrictions and the entities and activities
to which such restrictions apply are fair and reasonable, and are
reasonably required for the protection of the interests of
Company, its shareholders, officers, directors and employees.
b. Modification by Court, In the event that, notwithstanding the
foregoing, any of the provisions of this Agreement shall be held
to be invalid or unenforceable, the remaining provisions hereof
shall nevertheless continue to be valid and enforceable as
through the invalid or unenforceable parts had not been included
therein. In the event that any provision relating to the time
period, areas of restriction and/or the entities or activities of
restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period, areas of
restriction and/or entities or activities such court deems
reasonable and enforceable, the time period, areas of restriction
and/or entities or activities of restriction deemed reasonable
and enforceable by said court shall become and thereafter be the
maximum time period, areas of restriction and/or entities and
activities.
3. Return of Documents. All documents, files and materials relating to
the operations of the Company, its clients or prospective clients
shall be returned to Company on or immediately following the
termination of services of Employee with Company.
4. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach hereof, shall be settled by arbitration
in the city and state in which Employee is based in accordance with
the Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered
3
in any court having jurisdiction thereof. If any party refuses or
neglects to appear at or participate in such arbitration proceedings,
the arbitrator(s) are empowered to decide the controversy in
accordance with whatever evidence is presented by the party or parties
who do participate. The arbitrators are authorized to award any party
or parties such sums as they consider proper for the time, expense,
and trouble of arbitration, including arbitrator fees and attorneys'
fees. The decisions of the arbitrator(s) shall be final and shall not
be subject to appeal to any court, in law or in equity.
Notwithstanding the above, the Company shall be authorized to use the
courts of the states in which this Agreement is to be effective in
order to obtain temporary restraining orders, temporary or permanent
injunctions, and other relief at law or in equity relating to the
enforcement of this Agreement.
5. Miscellaneous.
a. The provisions and prohibitions of this Agreement may be enforced
by court proceedings at law or in equity.
b. The mutual obligations hereof shall survive the termination of
services of Employee.
c. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their legal representatives, successors and
permitted assigns.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective the date and year first above written.
COMPANY:
U.S. PAWN, INC.
By:
Its:
EMPLOYEE:
Xxxx X. Xxxxx
The undersigned acknowledge and agree that this Confidentiality and
Noncompetition Agreement shall supercede the Confidentiality and Noncompetition
Agreement by and between Cash-N-Pawn International, Ltd. And Employee dated
_________________ (the "Prior C and N Agreement") and upon execution by the
parties above, the Prior C and N Agreement shall be cancelled and of no further
force and effect.
Xxxx X. Xxxxx.
CASH-N-PAWN INTERNATIONAL, LTD.
By:
Title:
5
APPENDIX A
MERGER CONSIDERATION
--------------------
Subject to adjustment as provided below, each outstanding share (or
fraction thereof) of Company Common Stock (such shares of Company Common Stock
other than Dissenting Shares, herein referred to as "Converted Company Shares")
shall be converted into and shall thereafter represent the right to receive,
upon surrender in accordance with Section 2.9 of the Agreement, each of the
following as Merger Consideration:
(a) Parent Common Stock: A number of restricted shares of Parent Common
Stock equal to 750,000 (subject to appropriate adjustment for any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange with respect to the Parent Common Stock occurring before the Effective
Time) divided by the total number of shares of Company Common Stock issued and
outstanding on the Closing Date (the "Outstanding Stock Number");
(b) Cash: A cash payment equal to $550,000 divided by the Outstanding Stock
Number;
(c) Promissory Note: 9.63% Promissory Notes in an aggregate principal
amount equal to $2,450,000 divided by the Outstanding Stock Number; and
(d) Preferred Stock: A number of shares of Parent Preferred Stock with a 7%
preferred dividend equal to 12,500 divided by the Outstanding Stock Number.
The foregoing principal amount of Promissory Notes and number of shares of
Parent Preferred Stock in (c) and (d) above, and the interest rate for the
Promissory Notes specified in (c) above, are for illustrative purposes based
upon a Determination Price (as hereinafter defined) of $2.50. The combined yield
provided by the interest rate on the Promissory Notes and the dividend on the
Parent Preferred Stock shall equal 9.5%, and, subject to adjustment as provided
below, the aggregate of the face amount of the Promissory Notes and par value of
Parent Preferred Stock shall equal $2,575,000 (the "Aggregate Additional
Consideration").
With respect to each holder of Company Common Stock, if the aggregate
number of shares of either Parent Common Stock or Parent Preferred Stock
collectively issuable to such holder for conversion of all of such holder's
Company Common Stock includes a fractional share, such fractional share shall be
rounded up to the nearest whole number.
Adjustments:
------------
A. In no event shall the total dollar value (excluding any amount added to the
Merger Consideration as a result of the conversion of the Company 11% Debt
pursuant to Section B.(1) of this Appendix A) of the Merger Consideration exceed
$5,000,000 or be less than $4,700,000. Accordingly, to the extent the dollar
value of the Parent Common Stock component of the Merger Consideration:
1
(i) exceeds $1,875,000 (i.e., the Determination Price exceeds $2.50), the
following adjustments shall be made to the following Merger Consideration
components in such order until the value of the Merger Consideration as
determined above equals $5,000,000:
(a) First, the Aggregate Additional Consideration shall be reduced
until equal to zero $1 for each $1 that the total dollar value of the
Parent Common Stock component of the Merger Consideration exceeds
$1,875,000.
(b) Second, for any additional amounts, the cash component of the
Merger Consideration shall be reduced $1 for each $1 until equal to zero.
(c) Thereafter, the Parent Common Stock component shall be reduced so
that the aggregate value of the Parent Common Stock equals $5,000,000.
(ii) is less than $1,575,000 (i.e., the Determination Price is less than
$2.10) then the Aggregate Additional Consideration shall be increased
dollar-for-dollar for the amount the aggregate value of the Parent Common Stock
component of the Merger Consideration is less than $1,575,000.
B. Following any adjustments under Section A above, the Merger Consideration
shall be adjusted as follows in such order:
(i) Up to the full extent of any reduction pursuant to paragraph A(i)(b) or
(c) above, first the Parent Common Stock and then the cash component of the
Merger Consideration; and thereafter the Aggregate Additional Consideration
shall be increased (i) $1.17 for every $1.00 of principal amount of the Company
11% Debt that is converted up to a maximum of $588,235 of converted Company 11%
Debt and (ii) $1.00 for every $1.00 of principal amount of Company 11% Debt that
is converted prior to the Effective Time above such amount. In this way, the
Parent will assume $.17 of the $.33 conversion premium of the Company 11% Debt
up to a maximum aggregate increase in the value of the Promissory Notes of
$100,000. The total principal amount of the outstanding Company 11% Debt is
$2,000,000 and as of April 1, 1999 $0 accrued but unpaid interest thereon.
(ii) As soon as practicable (but in no event later than 45 days) following
the Closing Date, the Company, through the Company Committee, shall prepare and
Xxxxxxxx Xxxxx Xxxxxxx & Xxxxxxx, P.C. (the "Auditor") shall review (i) a
balance sheet of the Company and the Subsidiaries on a consolidated basis as of
the Closing Date (the "Closing Date Balance Sheet") and (ii) a supplemental
"Final Balance Sheet" which shall be the Closing Date Balance Sheet with
adjustments for the excluded amounts described on Appendix A-2. The Closing Date
Balance Sheet shall be prepared in accordance with GAAP applied on a basis
consistent with the accounting principles used in preparation of the Latest
Balance Sheet, and the Final Balance Sheet shall also be prepared on such basis,
subject to the adjustments made in accordance with Appendix A-2. The Purchaser
or Parent shall have a period of 30 business days following delivery of the
Closing Date Balance Sheet and the Final Balance Sheet to object in writing to
the Closing Date Balance Sheet or the Final Balance Sheet. If no objection is
made within such period, the Closing Date Balance Sheet and the Final Balance
Sheet shall be final and binding on the parties. If an objection is made, the
parties shall attempt in good faith to resolve such dispute and if no resolution
2
is reached within ten (10) business days, the parties shall engage a mutually
acceptable "Big Five" accounting firm that is not otherwise related to the
Parent, the Purchaser or the Company to resolve such dispute. The determination
of such accounting firm shall be final and binding upon the parties, and the
fees and expenses of such firm and of the parties in connection with such
dispute shall be borne on one hand by Purchaser and the Parent, jointly and
severally, and on the other hand by the holders of Converted Common Shares (by
reduction on a dollar-for-dollar basis from the Aggregate Additional
Consideration), in proportion to the variance of their positions on the
calculation of net assets on the Final Balance Sheet from the determination made
by such firm. The Aggregate Additional Consideration shall be reduced on a
dollar-for-dollar basis for any reduction in net assets of the Company and the
Subsidiaries on a consolidated basis as shown on the Final Balance Sheet from
the net assets reflected on the Latest Balance Sheet.
(iii) Following the adjustments described in the foregoing clauses (i) and
(ii) above, the Aggregate Additional Consideration shall be allocated between
the Promissory Notes and the Parent Preferred Stock in the following manner: the
number of shares of Parent Preferred Stock will be adjusted upwards or downwards
(and the portion of the Aggregate Additional Consideration allocated to the
Promissory Notes will be adjusted exactly dollar-for-share opposite (e.g., $1
increase in aggregate principal amount of Promissory Notes for a 1 share
decrease in Parent Preferred Stock) so that the sum of the value of Parent
Preferred Stock (using a value of $10 per share) plus the value of Parent Common
Stock (using the average of the closing prices of Parent Common Stock on the
NASDAQ SmallCap Market for the five trading days immediately preceding the day
two days prior to the Closing Date) (such average price per share of Parent
Common Stock being herein referred to as the "Determination Price") equals 40%
(or, if following the foregoing calculation the number of shares of Parent
Preferred Stock is reduced to zero, at least 40%) of the total Merger
Consideration (Parent Common Stock (using the same valuation as above) plus cash
plus Promissory Notes plus Parent Preferred Stock).
After all of the foregoing adjustments, the interest rate on the Promissory
Notes shall be adjusted (to the nearest hundredth of a percent) such that the
blended yield of the Promissory Notes and the Parent Preferred Stock equals
9.5%.
Examples of calculations of the Merger Consideration and the allocation of
the Aggregate Additional Consideration based on various values for the
Determination Price of Parent Common Stock are attached hereto as Appendix A-1.
As the Determination Price cannot be determined at this time, such calculations
are provided for exemplary purposes only.
3
APPENDIX A-1
ADJUSTMENT EXAMPLE
------------------
Number of Parent common shares 750,000 750,000 750,000 750,000 750,000 750,000 750,000
Price per Parent common share
at closing $ 1.75 $ 2.10 $ 2.25 $ 2.50 $ 2.67 $ 2.75 $ 3.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
Value of Parent common shares $1,312,500 $1,575,000 $1,687,500 $1,875,000 $2,000,000 $2,062,500 $2,250,000
Debt 2,270,000 2,270,000 2,337,500 2,450,000 2,450,000 2,387,500 2,200,000
Cash 550,000 550,000 550,000 550,000 550,000 550,000 550,000
Value of Parent preferred shares 567,500 305,000 237,500 125,000 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Merger Consideration $4,700,000 $4,700,000 $4,812,500 $5,000,000 $5,000,000 $5,000,000 $5,000,000
========== ========== ========== ========== ========== ========== ==========
Ratio of equity to total
Merger Consideration 40.00% 40.00% 40.00% 40.00% 40.00% 41.25% 45.00%
Annual dividend on Parent
preferred stock - 7% $ 39,725 $ 21,350 $ 16,625 $ 8,750 $ 0 $ 0 $ 0
Annual interest requirement
on Debt 229,838 223,275 228,000 235,875 232,750 226,813 209,000
Total return on preferred
stock and Debt - 9.5% $ 269,563 $ 244,625 $ 244,625 $ 244,625 $ 232,750 $ 226,813 209,000
Annual interest rate on Debt 10.13% 9.84% 9.75% 9.63% 9.50% 9.50% 9.50%
The calculations presented herein are for illustrative purposes only and do not take into consideration any adjustments that may be
required pursuant to paragraphs B(i) and B(ii) of Appendix A of the Agreement.
X-0
XXXXXXXX X-0
FINAL BALANCE SHEET ADJUSTMENTS
-------------------------------
Section B(ii) of Appendix A (Merger Consideration) provides that the Company,
through the Company Committee, shall prepare, and the Auditor shall review,
the Closing Date Balance Sheet and a supplemental Final Balance Sheet. This
Appendix A-2 describes the adjustments to be made to the Closing Date
Balance Sheet in the preparation of the Final Balance Sheet therefrom,
which adjustments are as follows:
In light of the adjustment to the Aggregate Additional Consideration to
be made pursuant to Section B(i) of Appendix A, the Final Balance
Sheet shall show as a liability of the Company the aggregate amount of
Company 11% Debt converted to Company Common Stock from and after the
date of the Agreement and prior to the Effective Time, so that the
Final Balance Sheet shall reflect the amount of Company 11% Debt
outstanding on the date of the Agreement as if no such Company 11%
Debt shall have been converted.
The Final Balance Sheet shall not show, either as a reduction of assets or
an increase in liabilities so as to cause a reduction in net assets as
stated in such Final Balance Sheet, any costs or liabilities as may
directly arise in connection with, or otherwise directly relate to,
the matters specifically set forth in the disclosure schedules to the
Agreement or matters otherwise specifically disclosed by the Company
in such disclosure schedules or in the Agreement, in each case
regardless of whether or not such costs or liabilities have been paid,
accrued or provided for by the Company as of the Effective Time.
The Final Balance Sheet shall not show, either as a reduction of assets or
an increase in liabilities so as to cause a reduction in net assets as
stated in such Final Balance Sheet, any costs or liabilities paid or
incurred from and after January 1, 1999, up to an aggregate amount not
to exceed $216,700, of the following types, in each case regardless of
whether or not such costs or liabilities have been paid, accrued or
provided for by the Company as of the Effective Time:
Legalfees and expenses relating to the negotiation of the Agreement
and the consummation of the Merger, including without limitation
legal fees and expenses incurred in connection with the
preparation of proxy statements and obtaining required corporate
and third party approvals for and in connection with the Merger,
the retirement of the 15% Company Debt and the waiver or
cancellation of associated rights, the obtaining of financing for
the retirement of such indebtedness and the waiver or
cancellation of such rights, the conversion or exchange of the
11% Company Debt, the retirement of the agent's warrants and
other rights held by Xxxxxx & Xxxxxxxxx Financial, Inc., and the
surrender or exchange of other options, warrants, and other
equity rights and any amendment of plan documents therefor.
A-2-1
Accounting fees and expenses related to reports, reviews or
consultations relating to the negotiation of the Agreement, the
consummation of the Merger, and the preparation of the Closing
Date Balance Sheet and the Final Balance Sheet.
The redemption price paid for or other cost of retirement of the
agent's warrants and other rights held by Xxxxxx & Xxxxxxxxx
Financial, Inc.
With respect to the annual premium paid by the Company for directors
and officers liability insurance coverage through April 2000, the
portion allocable to the period from and after the Effective
Time.
All of Xxxxx Royal's salary, and related payroll expenses and 50% of
Xxxxx Xxxxxx'x salary.
Travel and associated costs relating to meetings, due diligence or
other purposes relating to the Merger.
The fees and expenses of the Auditor in connection with the review of the
Closing Date Balance Sheet and the Final Balance Sheet shall be paid by the
Purchaser as the Surviving Corporation of the Merger and/or the Parent.
A-2-2
