AGREEMENT AND PLAN OF MERGER
by
and
among
MEGAMARKETING CORPORATION
MEGAMARKETING ACQUISITION TWO, INC.
GENESIS DIRECT, INC.
and
THE SHAREHOLDERS OF GENESIS DIRECT, INC.
Dated as of March 6, 1998
TABLE OF CONTENTS
Page
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ARTICLE 1 - THE MERGER.........................................................1
1.1 The Merger....................................................1
1.2 Closing.......................................................2
1.3 Effective Time of the Merger..................................2
1.4 Articles of Incorporation; Bylaws.............................2
1.5 Directors and Officers of the Surviving Corporation...........2
ARTICLE 2 - CONSIDERATION AND CONVERSION AND EXCHANGE OF
SHARES....................................................................2
2.1 Consideration; Conversion of Shares...........................2
(a) Merger Consideration....................................2
(b) Treasury Shares.........................................2
(c) Merger Sub Common Stock.................................3
2.2 No Fractional Shares..........................................3
2.3 Fair Market Value.............................................3
2.4 Stock Transfer Books..........................................3
2.5 Surrender and Exchange of Certificates Representing Seller
Common Stock..................................................3
(a) Surrender and Exchange of Certificates..................3
(b) Lost Certificates.......................................3
(c) No Interest.............................................4
(d) No Liability............................................4
2.6 Dissenting Stockholders.......................................4
2.7 Adjustments...................................................4
ARTICLE 3 - RULES OF CONSTRUCTION..............................................5
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS......7
4.1 Corporate Organization........................................7
4.2 Capitalization................................................8
4.3 Authority; No Violation.......................................8
4.4 Financial Statements.........................................10
4.5 Broker's and Other Fees......................................10
4.6 Absence of Certain Changes or Events.........................10
4.7 Legal Proceedings............................................10
4.8 Taxes and Tax Returns........................................11
4.9 Employee Benefit Plans and Relations.........................12
4.10 Compliance with Applicable Laws..............................13
4.11 Certain Contracts............................................13
4.12 Properties and Insurance.....................................15
4.13 Environmental Matters........................................16
4.14 Intellectual Property........................................16
4.15 No Parachute Payments........................................17
4.16 Absence of Certain Agreements and Practices..................17
4.17 Major Vendors and Customers..................................18
4.18 Accounts Receivable..........................................18
4.19 Corporate Records............................................18
4.20 Combinations Involving Seller................................18
4.21 Bank Accounts................................................19
4.22 Labor Relations..............................................19
4.23 Disclosure...................................................19
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS....................20
5.1 Ownership of Shares..........................................20
5.2 Authorization................................................20
5.3 Absence of Violations or Conflicts...........................20
5.4 No Consents Required.........................................21
5.5 No Claims Against Seller.....................................21
5.6 Litigation Related to this Agreement.........................21
5.7 Investment Intent............................................21
5.8 Access to Information........................................22
5.9 Economic Risk................................................22
5.10 Tax Advice...................................................22
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........22
6.1 Corporate Organization.......................................22
6.2 Capitalization...............................................23
6.3 Authority; No Violation......................................24
6.4 Financial Statements.........................................25
6.5 Broker's and Other Fees......................................25
6.6 Parent Common Stock; Merger Sub Common Stock.................25
6.7 Disclosure...................................................25
ARTICLE 7 - COVENANTS OF THE PARTIES..........................................25
7.1 Conduct of Business..........................................25
7.2 Negative Covenants...........................................26
7.3 No Solicitation..............................................28
7.4 Current Information..........................................29
7.5 Access to Properties and Records; Confidentiality............29
7.6 Regulatory Matters...........................................30
7.7 Best Efforts; Further Assurances; Cooperation................30
7.8 Public Announcements.........................................31
7.9 Failure to Fulfill Conditions................................31
7.10 Disclosure Supplements.......................................31
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7.11 Affiliates...................................................31
7.12 Shareholders' Approval.......................................31
7.13 Release by Seller and the Shareholders.......................32
7.14 Shareholder Agreements.......................................32
7.15 Employee Matters.............................................32
(a) Employee Benefits......................................32
(b) Employment Agreements..................................33
7.16 No Transfers.................................................33
7.17 Special Provisions with Respect to Seller...................33
7.18 Release from Personal Guaranties............................33
7.19 Tax Matters.................................................33
(a) Transfer Taxes.........................................33
(b) Cooperation and Exchange of Information................33
(c) Tax-Free Transaction...................................33
ARTICLE 8 - CLOSING CONDITIONS................................................33
8.1 Conditions of Each Party's Obligations Under this Agreement..33
(a) Approval of Shareholders...............................34
(b) Approvals and Regulatory Filings.......................34
(c) Suits and Proceedings..................................34
(d) Tax Opinion............................................34
(e) Other Merger...........................................34
8.2 Conditions to the Obligations of Parent and Merger Sub Under
this Agreement...............................................34
(a) Representations and Warranties; Covenants and
Agreements; Consents...................................34
(b) Opinion of Counsel.....................................35
(c) Certificates...........................................35
(d) Employment Agreements..................................35
(e) Shareholders Agreement.................................35
(f) Resignation; Severance Agreement and General Release...35
(g) Financing..............................................35
8.3 Conditions to the Obligations of Seller and the Shareholders
Under this Agreement.........................................35
(a) Representations and Warranties; Covenants and
Agreements; Consents...................................35
(b) Opinion of Counsel to Parent...........................36
(c) Certificates...........................................36
(d) Employment Agreements..................................36
(e) Shareholders Agreement.................................36
(f) Seller's Payments to Certain Shareholders..............36
ARTICLE 9 - TERMINATION, AMENDMENT AND WAIVER.................................36
9.1 Termination..................................................36
9.2 Effect of Termination........................................37
9.3 Specific Performance.........................................37
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9.4 Amendment....................................................37
9.5 Extension; Waiver............................................38
ARTICLE 10 - INDEMNIFICATION..................................................38
10.1 Indemnification by Shareholders..............................38
10.2 Indemnification by Parent....................................38
10.3 Claims for Indemnification...................................39
10.4 Defense of Claim by Third Parties............................39
10.5 Third Party Claim Assistance.................................39
10.6 Settlement of Indemnification Claims.........................40
10.7 Manner of Indemnification....................................40
10.8 Indemnification Exclusive Remedy.............................40
10.9 Certain Limitations..........................................40
ARTICLE 11 - MISCELLANEOUS ...................................................41
11.1 Expenses.....................................................41
11.2 Notices......................................................41
11.3 Parties in Interest..........................................42
11.4 Entire Agreement.............................................43
11.5 Counterparts.................................................43
11.6 Governing Law................................................43
11.7 Arbitration..................................................43
11.8 Invalidity of any Part.......................................43
11.9 Time of the Essence; Computation of Time.....................44
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EXHIBITS AND SCHEDULES
Exhibit No. Description
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Exhibit 7.11 Affiliate Representation Letter
Exhibit 8.1(f) Form of Escrow Agreement
Exhibit 8.2(b) Form of Opinion of Counsel to Seller
Exhibit 8.2(d) Form of Employment Agreement
Exhibit 8.2(e) Form of Shareholders Agreement
Exhibit 8.2(f) Form of Severance Agreement and General Release
Exhibit 8.3(b) Form of Opinion of Counsel to Parent
Schedule No. Description
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Schedule 2.1 Consideration
Seller Disclosure
Schedule No. Description
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Schedule 4.1 Corporate Documents
Schedule 4.2 Seller's Capitalization
Schedule 4.3 Defaults; Conflicts and Liens Created
Schedule 4.4 Seller Financial Statements
Schedule 4.6 Certain Changes and Events
Schedule 4.7 Legal Proceedings
Schedule 4.8 Taxes and Tax Returns
Schedule 4.9 Employee Benefit Plans
Schedule 4.10 Compliance with Applicable Laws
Schedule 4.11 Certain Contracts
Schedule 4.12 Properties and Insurance Policies
Schedule 4.14 Intellectual Property
Schedule 4.15 Parachute Payments
Schedule 4.16 Absence of Certain Agreements and Practices
Schedule 4.17 Major Vendors and Customers
Schedule 4.18 Accounts Receivable
Schedule 4.21 Bank Accounts
Schedule 4.22 Labor Relations
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Shareholder Disclosure
Schedule No. Description
---------------------- -----------
Schedule 5.4 Consents
Schedule 5.5 Claims
Parent Disclosure
Schedule No. Description
---------------------- -----------
Schedule 6.1 Parent's Subsidiaries; Corporate Documents
Schedule 6.3 Defaults; Conflicts and Liens Created
Schedule 6.4 Parent Financial Statements
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 6th day of March
1998 (the "Agreement"), is by and among MegaMarketing Corporation, a Georgia
corporation ("Parent"), MegaMarketing Acquisition Two, Inc., a Georgia
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), Genesis
Direct, Inc., a Florida corporation ("Seller"), and all of the shareholders of
Seller (each a "Shareholder" and, collectively, the "Shareholders").
WHEREAS, this Agreement provides for the strategic combination of
Parent and Seller in furtherance of the parties' long-term strategic plans;
WHEREAS, the combination will be accomplished by a merger of Seller
with and into Merger Sub with Merger Sub surviving and the Shareholders
receiving the consideration hereinafter set forth (the "Merger");
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the Boards of Directors of Seller, Parent and Merger Sub
have duly adopted and approved this Agreement, and the Board of Directors of
Seller has recommended this Agreement to its shareholders and directed that it
be submitted to its shareholders for approval, the approval of Merger Sub's sole
shareholder having been obtained;
WHEREAS, the Shareholders have agreed to vote in favor of the
Merger;
NOW, THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1 - THE MERGER
1.1 The Merger. At the Effective Time (as defined below),
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Seller shall be merged with and into Merger Sub in accordance with the
provisions of this Agreement, the Georgia Business Corporation Code (the "GBCC")
and the Florida Business Corporation Act (the "FBCA"), and the separate
existence of Seller shall thereupon cease, and Merger Sub, as the surviving
corporation in the Merger (sometimes referred to as the "Surviving
Corporation"), shall continue its corporate existence under the laws of the
State of Georgia as a wholly-owned subsidiary of Parent. The Merger shall have
the effect provided under the applicable laws of the states of Georgia and
Florida including, but not limited to, Section 14-2-1106 of the GBCC and Section
607.1106 of the FBCA.
1.2 Closing. The consummation of the transactions templated by this
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Agreement (the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx
Xxxxx & Xxxxxxxxxxx, L.L.P., 000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000, Xxxxxxx,
Xxxxxxx 00000 at 2:00 p.m. on March 6, 1998 or at such other location and time
as the parties agree, or by telecopy and courier with respect to Xxxxx XxxXxxxxx
(the "Closing Date"). At the Closing, the parties shall execute and deliver the
certificates, opinions and other instruments and documents referred to in
Article 8.
1.3 Effective Time of the Merger. Contemporaneous with or
----------------------------
immediately following the execution hereof, the parties shall cause articles of
merger (the "Articles of Merger") to be executed, delivered and filed with the
Secretaries of State of Georgia and Florida in accordance with the provisions of
the GBCC and FBCA, respectively. The Merger shall become effective at the close
of business on the day of such filing and acceptance unless a different
effective time is specified in the Articles of Merger pursuant to the GBCC and
FBCA (the "Effective Time").
1.4 Articles of Incorporation; Bylaws. The Articles of
---------------------------------
Incorporation and Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation, until duly amended in accordance with applicable law.
1.5 Directors and Officers of the Surviving Corporation. At the
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Effective Time, the persons who are directors and officers of Merger Sub at the
Effective Time will become the directors and officers of the Surviving
Corporation until such time as they may be replaced in accordance with the
Bylaws of the Surviving Corporation.
ARTICLE 2 - CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES
2.1 Consideration; Conversion of Shares. At the Effective Time,
-----------------------------------
in consideration for the Shareholders' entry into this Agreement and fulfillment
of the obligations, covenants, terms and conditions set forth herein, andby
virtue of the Merger and without any action on the part of the holder thereof:
(a) Merger Consideration. Each issued and outstanding share of
--------------------
common stock of Seller, no par value per share (the "Seller Common Stock"), (an
aggregate of 2,000 shares, excluding any such shares held in the treasury of
Seller) shall automatically be canceled and extinguished and shall thereafter be
converted into only the right to receive cash and/or shares of common stock,
without par value, of Parent (the "Parent Common Stock") as set forth on
Schedule 2.1 attached hereto (the "Merger Consideration").
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(b) Treasury Shares. Each share of Seller Common Stock held in the
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treasury of Seller shall be automatically canceled and extinguished, and no
payment shall be made in respect thereof.
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(c) Merger Sub Common Stock. Each share of Merger Sub common stock,
-----------------------
without par value ("Merger Sub Common Stock"), issued and outstanding at the
Effective Time shall continue to represent one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation, which shall
then constitute all of the issued and outstanding shares of the Surviving
Corporation.
2.2 No Fractional Shares. No scrip or fractional shares of Parent
--------------------
Common Stock shall be issued in the Merger upon conversion of Seller Common
Stock as provided in Section 2.1. Each registered holder of Seller Common Stock
who would otherwise have been entitled to receive a fraction of a share of
Parent Common Stock upon conversion of his or her Seller Common Stock shall be
entitled to receive a cash payment with respect to such fractional share in an
amount equal to the product of the Fair Market Value (as defined below) of
Parent Common Stock multiplied by such fractional share. Parent will make
available promptly after the Effective Time the funds necessary for the purpose
of paying cash for fractional shares.
2.3 Fair Market Value. The parties agree that the "Fair Market
-----------------
Value" for Parent Common Stock as of the date of this Agreement shall be $2.17
per share.
2.4 Stock Transfer Books. From and after the Effective Time, no
--------------------
no transfer of Seller Common Stock outstanding prior to the Effective Time shall
be registered on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, certificates for Seller Common Stock are presented to
the Surviving Corporation for transfer, such certificates shall be canceled and
exchanged for the Merger Consideration.
2.5 Surrender and Exchange of Certificates Representing Seller
----------------------------------------------------------
Common Stock.
------------
(a) Surrender and Exchange of Certificates. Upon surrender to
--------------------------------------
Parent of an outstanding certificate or certificates that immediately prior to
the Effective Time represented Seller Common Stock (the "Certificates") at the
Closing or thereafter, the holder of such Certificates shall be entitled to
receive at the times set forth in Section 2.1, in exchange therefor one or more
certificates as requested by the holder (properly issued, executed and
countersigned, as appropriate) representing that number of whole shares of
Parent Common Stock and/or cash to which such holder of Seller Common Stock
shall have become entitled pursuant to the provisions of Section 2.1 and the
Certificates so surrendered shall forthwith be canceled. From the Effective Time
until surrender in accordance with the provisions of this Section 2.5, each
Certificate (other than Certificates representing treasury shares) shall
represent for all purposes only the right to receive the Merger Consideration.
All payments in respect of Seller Common Stock that are made in accordance with
the terms hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to such securities.
(b) Lost Certificates. In the case of any lost, misplaced, stolen
-----------------
or destroyed Certificate, the holder thereof may be required, as a condition
precedent to delivery to such holder of the Merger Consideration, to deliver to
Parent an indemnity agreement and a bond in such reasonable sum as Parent may
direct as indemnity against any claim that may be made
3
against the Parent or the Surviving Corporation with respect to the Certificate
alleged to have been lost, misplaced, stolen or destroyed.
(c) No Interest. No interest shall be paid or accrued on any
-----------
portion of the Merger Consideration regardless of the cause for delay in payment
of the Merger Consideration.
(d) No Liability. Neither Parent nor the Surviving
------------
Corporation shall be liable to any holder of shares of Seller Common Stock for
any Parent Common Stock (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
2.6 Dissenting Stockholders. Any holder of Seller Common Stock who
-----------------------
dissents from the Merger and exercises appraisal rights in accordance with the
provisions of Sections 607.1301, 607.1302, and 607.1320 of the FBCA and who
perfects such rights pursuant to Section 607.1320 of the FBCA shall be entitled
to receive, in lieu of the consideration provided in Section 2.1, the value of
such shares in cash as determined pursuant to Section 607.1320 of the FBCA.
Notwithstanding the other provisions of this Article 2, Seller Common Stock with
respect to which a proper demand has been made in accordance with Section
607.1320 of the FBCA shall not be converted into the right to receive Merger
Consideration applicable to such shares as set forth in Section 2.1, unless the
holder thereof shall have lost his or her status as a dissenting shareholder
pursuant to Section 607.1320 of the FBCA. Within ten (10) days after the
Effective Time, the Surviving Corporation shall notify in writing each holder of
Seller Common Stock who has made demand in accordance with Section 607.1320 of
the FBCA, and shall make a written offer to each such shareholder to pay for
such shares the fair value thereof, as deemed by the Surviving Corporation. Such
notice shall include a copy of certain financial statements of Seller, as
required by Section 607.1320 of the FBCA.
2.7 Adjustments. In the event that at any time after the date
-----------
hereof and prior to the Effective Time, Parent shall effect (a) a dividend or
other distribution with respect to Parent Common Stock payable in Parent Common
Stock or other property (other than cash), including the common stock, preferred
stock or other securities of a Parent Subsidiary, (b) a combination of
outstanding Parent Common Stock into a smaller number of such Parent Common
Stock, or (c) any reorganization or reclassification, or any consolidation or
merger of Parent, with another corporation, or the sale of all or substantially
all of its assets to another corporation, in such a way that holders of
outstanding Parent Common Stock shall be entitled to receive (either directly or
upon subsequent liquidation) stock, securities or other property with respect to
or in exchange for such Parent Common Stock (any such event described in (a)-(c)
above referred to as a "Diluting Event"), then, as a condition of such Diluting
Event, lawful and adequate provision shall be made whereby the Shareholders
shall thereafter be entitled to receive (under the same terms otherwise
applicable to their receipt of Parent Common Stock), in lieu of the
number of shares of Parent Common Stock to which such Shareholders are entitled
immediately prior to such Diluting Event, such shares of stock, securities or
other property as may be issued or payable with respect to or in exchange for
that
4
number of shares of Parent Common Stock to which the Shareholders were so
entitled, and in any case appropriate provision shall also be made with respect
to such Shareholders' rights and interests to the end that the provisions of
this Section 2.7 shall thereafter be applicable in relation to any shares of
stock, securities or other property thereafter deliverable to such Shareholders
pursuant to the provisions hereof. Notwithstanding the foregoing, a merger or
other transaction with the corporation named in Section 8.1(e) shall not be
considered a Diluting Event for purposes of this Section 2.7.
ARTICLE 3 - RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided
or the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other genders;
(c) Any reference to an Article, Section, Exhibit, clause,
subclause, paragraph, subparagraph, Schedule or recital is a reference to an
Article, Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule
or recital of this Agreement;
(d) Any reference to any agreement, instrument or other
document (i) shall include all appendices, exhibits and schedules thereto and
all agreements, documents or other writings incorporated by reference therein,
and (ii) shall be a reference to such agreement, instrument or other document as
amended, supplemented, modified, suspended, restated or novated from time to
time;
(e) Any reference to any statute shall be construed as including
all statutory provisions consolidating, amending or replacing such statute and
all governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing,
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lithography and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) Any reference to "dollars" and the symbol "$" means dollars
------- -
constituting legal tender for the payment of public and private debts in the
United States of America;
(i) The headings and Article, Section and paragraph
numbering contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement,
5
nor shall such headings and numbering be used in any manner to aid in the
construction of this Agreement;
(j) References herein to the "Seller Disclosure Schedules" shall
mean the disclosure schedules, dated as of the date hereof, which have been
delivered on the date hereof by Seller to Parent and all other documents,
agreements, and other items disclosed by Seller to Parent in connection with
this Agreement, and references to a numbered Seller Disclosure Schedule shall
mean that portion of the Seller Disclosure Schedules that refers to the specific
section or subsection of Article 4 of this Agreement. The disclosure of
information under any such disclosure schedule shall constitute disclosure for
all purposes of such schedule and the Agreement;
(k) References herein to the "Shareholder Disclosure
Schedules" shall mean the disclosure schedules, dated as of the date hereof,
which have been delivered on the date hereof by the Shareholders to Parent and
all other documents, agreements, and other items disclosed by each Shareholder
to Parent in connection with this Agreement, and references to a numbered
Shareholder Disclosure Schedule shall mean that portion of the Shareholder
Disclosure Schedules that refers to the specific section or subsection of
Article 5 of this Agreement. The disclosure of information under any such
disclosure schedule shall constitute disclosure for all purposes of such
schedule and the Agreement;
(l) References herein to the "Parent Disclosure Schedules" shall
mean the disclosure schedules, dated as of the date hereof, which have been
delivered on the date hereof by Parent to Seller and all other documents,
agreements, and other items disclosed by Parent to Seller in connection with
this Agreement and references to a numbered Parent Disclosure Schedule shall
mean that portion of the Parent Disclosure Schedules that refers to the specific
section or subsection of Article 6 of this Agreement. The disclosure of
information under any such disclosure schedule shall constitute disclosure for
all purposes of such schedule and the Agreement;
(m) The terms "hereof," "hereby," "hereunder" and similar shall
------ ------ ---------
refer to this Agreement as a whole;
(n) The term "including" shall mean "including, without
---------
limitation";
(o) The term "EBITDA" means earnings before income taxes,
depreciation and amortization, as determined by generally accepted accounting
principles and practices ("GAAP").
(p) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
(q) The term "Material Adverse Effect" with respect to a person or
entity means any circumstance, change in, or effect on the business and affairs
of such person or
6
entity or any Subsidiary thereof that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the business and affairs of such
person or entity and its Subsidiaries: (i) is, or would reasonably be expected
to be, materially adverse to the business, operations, assets or liabilities,
prospects, results of operations or financial condition of such person or entity
and its Subsidiaries, taken as a whole, or (ii) would reasonably be expected to
materially adversely affect the ability of such person or entity and its
Subsidiaries to operate or conduct its or their business and affairs in the
manner in which it is currently operated or conducted or contemplated by such
person or entity to be operated or conducted;
(r) The term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which a specified person or entity, directly or
indirectly, owns or controls the voting of at least a 50% share or other equity
interest or for which such person or entity, directly or indirectly, acts as a
general partner;
(s) The term "Parent Subsidiary" means any Subsidiary of Parent,
and the term "Seller Subsidiary" means any Subsidiary of Seller.
(t) Each party and its counsel has had the opportunity to negotiate
the terms and provisions of this Agreement. This Agreement, therefore, shall be
construed without regard to any presumption or other rule requiring construction
against the party causing the Agreement to be drafted.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDERS
Seller and each of the Shareholders hereby represent and warrant to
Parent as follows:
4.1 Corporate Organization.
----------------------
(a) Seller is a corporation duly incorporated, validly existing and
in active status under the laws of the State of Florida. Seller has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have, in the aggregate, a Material Adverse Effect
on Seller.
(b) Seller does not have any Subsidiaries.
(c) Seller Disclosure Schedule 4.1 sets forth copies of the
------------------------------
Articles of Incorporation and bylaws of Seller.
7
(d) Except as set forth in Seller Disclosure Schedule 4.1, Seller
------------------------------
does not own or control, directly or indirectly, any equity interest in any
corporation, company, association, partnership, joint venture or other entity.
4.2 Capitalization. The authorized capital stock of Seller consists
--------------
of 10,000 shares of Seller Common Stock and no shares of preferred stock or any
other form of capital stock. As of the date hereof, there are 2,000 shares of
Seller Common Stock issued and outstanding. Seller Disclosure Schedule 4.2 sets
------------------------------
forth the names and addresses of each of the Shareholders and the number of
shares of Seller Common Stock owned by each. Except as set forth on Seller
Disclosure Schedule 4.2, there are no shares of Seller Common Stock outstanding.
-----------------------
Seller Disclosure Schedule 4.2 sets forth all options which may be exercised for
------------------------------
issuance of Seller Common Stock and the terms upon which the options may be
exercised ("Seller Stock Options"). Seller Disclosure Schedule 4.2 sets forth
------------------------------
copies of the option plans and agreements pursuant to which the Seller Stock
Options were granted and a list of each outstanding Seller Stock Options. All
issued and outstanding shares of Seller Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, were not issued in
violation of any preemptive rights and were issued under available exemptions
from federal and state securities laws. Except as disclosed in Seller Disclosure
-----------------
Schedule 4.2, each Shareholder represents that neither Seller nor he or she has
------------
granted or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of Seller or any
securities representing the right to purchase, subscribe or otherwise receive
any shares of such capital stock or any securities convertible into any such
shares, and there are no agreements or understandings with respect to voting of
any such shares.
4.3 Authority; No Violation.
-----------------------
(a) Except for approval by the Shareholder of the Merger and the
filing of the Articles of Merger in accordance with the GBCC and FBCA
(collectively, the "Seller Approvals") and satisfaction of other conditions
precedent under this Agreement, no consents, approvals, authorizations,
clearances or orders of, filings or registrations with or notices to
(collectively "Authorizations") any third party or any Governmental Authority
are necessary on behalf of Seller or the Shareholder in connection with (i) the
execution and delivery by Seller and the Shareholder of this Agreement and (ii)
the consummation by Seller and the Shareholder of the Merger and the other
transactions contemplated hereby. Subject to receipt of the Seller Approvals,
Seller has the full corporate power and authority to execute and deliver this
Agreement and to consummate the Merger and the other transactions contemplated
hereby in accordance with the terms hereof. The execution and delivery of this
Agreement have been duly and validly approved by the Board of Directors of
Seller in accordance with the Articles of Incorporation and bylaws of Seller and
with applicable Laws (as defined below). Except for the Seller Approvals, no
other corporate proceedings on the part of Seller are necessary for the Seller
and the Shareholder to execute and deliver this Agreement and be bound by the
terms hereof. This Agreement has been duly and validly executed and delivered by
Seller and the Shareholder and, assuming it is a valid and binding obligation of
Parent and
8
Merger Sub, constitutes the valid and binding obligation of Seller and the
Shareholder enforceable against Seller and the Shareholder in accordance with
its terms.
(b) Neither the execution and delivery of this Agreement by Seller
or the Shareholder, nor the consummation by Seller and the Shareholder of the
Merger and the other transactions contemplated hereby in accordance with the
terms hereof, nor compliance by Seller and the Shareholder with any of the terms
or provisions hereof, will: (i) violate any provision of Seller's Articles of
Incorporation or bylaws; (ii) assuming that the Seller Approvals are duly
obtained, violate any United States federal, state or local or foreign statute,
code, ordinance, rule, regulation, judgment, order, writ, ruling, decree or
injunction of any Governmental Authority (collectively, "Laws") applicable to
Seller, the Shareholder or any of its or his or her respective properties or
assets; or (iii) except as set forth in Seller Disclosure Schedule 4.3, violate,
------------------------------
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in the creation of any lien, mortgage, security interest,
pledge, charge, other right of third parties or other encumbrance (collectively,
"Liens") upon any of the respective properties or assets of Seller or the
Shareholder under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Seller or the Shareholder is a party, or by
which they or any of their respective properties or assets may be bound or
affected.
4.4 Financial Statements.
--------------------
(a) Seller Disclosure Schedule 4.4 sets forth copies of: (i) the
------------------------------
balance sheet of Seller as of December 31, 1997 and the statements of income,
shareholders' equity and cash flows for the period ended December 31, 1997
(collectively, together with the related notes and any additional financial
statements delivered pursuant to Section 7.4, the "Seller Financial
Statements"). The Seller Financial Statements have been prepared in accordance
with GAAP, applied consistently during the periods involved (except as may be
indicated therein or in the notes thereto), and present fairly, in all material
respects, the financial position of Seller as of the respective dates set forth
therein, and the results of Seller's operations and its cash flows for the
respective periods set forth therein, in accordance with GAAP.
(b) The financial books and records of Seller have been
maintained in compliance with applicable legal and accounting requirements,
including GAAP.
(c) Except as and to the extent reflected, disclosed or reserved
against in the Seller Financial Statements, or as disclosed in Seller Disclosure
-----------------
Schedule 4.4, as of December 31, 1997, Seller has not had any liabilities or
------------
obligations of any kind, whether absolute, accrued, contingent or otherwise
("Liabilities"). Since December 31, 1997, Seller has not incurred any
Liabilities except in the ordinary course of business and consistent with past
practice, which in the aggregate are not material.
9
4.5 Broker's and Other Fees. Neither Seller nor the
-----------------------
Shareholder have employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement. There are no fees (other than time
charges billed at usual and customary rates) payable to any consultants,
including lawyers and accountants, in connection with this Agreement or the
transactions contemplated hereby or which would be triggered by consummation of
this Agreement or the transactions contemplated hereby or the termination of the
services of such consultants by Seller or the Shareholder.
4.6 Absence of Certain Changes or Events.
------------------------------------
(a) Except as contemplated by this Agreement or disclosed in Seller
------
Disclosure Schedule 4.6, there has been no Material Adverse Effect on the Seller
-----------------------
since December 31, 1997 and to the best of Seller's and each Shareholder's
knowledge, no facts or conditions exist which will cause a Material Adverse
Effect on Seller (or the Surviving Corporation after the Merger) in the future.
(b) Except as contemplated by Section 8.2(f) or as set forth in
Seller Disclosure Schedule 4.6, neither Seller nor the Shareholder has taken or
------------------------------
permitted any of the actions set forth in Section 7.2(a) since December 31, 1997
and, except for execution of this Agreement, Seller has conducted its business
only in the ordinary course, consistent with past practice. Prior to December
31, 1997, neither the Seller nor the Shareholder has taken or permitted any of
the actions set forth in Section 7.2(a) that are not reflected in the Seller
Financial Statements and notes related thereto.
4.7 Legal Proceedings. Except as disclosed in Seller
----------------- ------
Disclosure Schedule 4.7, neither Seller nor the Shareholder is a party to any,
-----------------------
and there are no pending or, to Seller's or the Shareholder's knowledge,
threatened legal, administrative, arbitral or other proceedings, claims, actions
or governmental investigations of any nature against Seller. Except as disclosed
in Seller Disclosure Schedule 4.7, Seller is not a party to any order, judgment
------------------------------
or decree entered in any lawsuit or proceeding. Without limiting the foregoing,
except as disclosed in Seller Disclosure Schedule 4.7, no actions, suits,
------------------------------
demands, notices, claims, investigations or proceedings are pending or, to
Seller's or the Shareholder's knowledge, threatened against or otherwise
involving, directly or indirectly, any officer, director, employee or agent of
Seller (in connection with such officer's, director's, employee's or agent's
activities on behalf of Seller or that otherwise relate, directly or indirectly
to Seller or its properties or securities) including without limitation any
notices, demand letters or requests from any Governmental Authority relating to
such potential Liabilities, nor, to the knowledge of Seller or the Shareholder,
are there any circumstances which could lead to such actions, suits, demands,
notices, claims, investigations or proceedings.
10
4.8 Taxes and Tax Returns. Except as disclosed in Seller Disclosure
--------------------- -----------------
Schedule 4.8, except for taxes, tax returns and tax reports for any tax period
------------
for which no taxes are owed or the applicable limitation period has expired, and
except for any tax liabilities that would not have, in the aggregate, a Material
Adverse Effect on Seller:
(a) Seller has duly filed (and until the Effective Time will so
file) all returns, declarations, reports, information returns and statements
("Returns") required to be filed by them in respect of any United States
federal, state or local or foreign Taxes and have duly paid (and until the
Effective Time will so pay) all such Taxes due and payable as finally determined
by the applicable Governmental Authority, other than Taxes which are being
contested in good faith (and disclosed to Parent in writing). As used herein,
"Tax" or "Taxes" means and includes any and all taxes, fees, levies,
assessments, duties, tariffs, imposts, and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority, including,
without limitation: foreign, domestic, central, local, state or other
jurisdictional taxes or other charges on or with respect to income, estimated
income, franchises, business, occupation, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs duties, tariffs, and similar charges. Seller has established
(and until the Effective Time will establish) on its books and records reserves
that are adequate for the payment of all Taxes not yet due and payable, but are
incurred in respect of Seller through such date.
(b) None of the Returns of Seller has been examined by the
United States Internal Revenue Service (the "IRS"), or any other United States
federal, state or local or any foreign Governmental Authority within the past
six years. To the knowledge of Seller or the Shareholder, there are no audits or
other Governmental Authority proceedings presently pending nor any other
disputes pending with respect to, or claims asserted for, Taxes upon Seller, nor
has Seller given any currently outstanding waivers or comparable consents
regarding the application of any statute of limitations with respect to any
Taxes or Returns. There are no Liens for Taxes upon the assets of Seller, except
for Liens for Taxes not yet due. Seller has complied (and until the Effective
Time will comply) in all respects with all applicable Laws relating to the
payment and withholding of Taxes.
(c) Seller: (i) has not requested any extension of time
within which to file any Return which Return has not since been filed; (ii) is
not a party to any agreement providing for the indemnification, allocation or
sharing of Taxes; (iii) is not required to include in income any adjustment by
reason of a voluntary change in accounting method initiated by Seller (nor does
Seller or the Shareholder have any knowledge that any Governmental Authority has
proposed any such adjustment or change of accounting method); (iv) has filed a
consent with any Governmental Authority pursuant to which Seller has agreed to
recognize gain (in any manner) relating to or as a result of this Agreement or
the transactions contemplated hereby; or (v) has been a member of an affiliated
group other than one of which the Seller was the common parent.
11
4.9 Employee Benefit Plans and Relations. Except as disclosed in
------------------------------------
Seller Disclosure Schedule 4.9:
------------------------------
(a) Seller does not maintain or contribute to any "employee pension
benefit plan" (the "Seller Pension Plans"), as such term is defined in Section 3
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including any pension, profit-sharing, retirement, thrift or stock bonus plan,
"employee welfare benefit plan" (the "Seller Welfare Plans"), as such term is
defined in Section 3 of ERISA, or any other stock option plan, stock purchase
plan, restricted stock plan, deferred compensation plan, severance plan, phantom
stock plan, bonus plan or other similar plan, program or arrangement
(collectively the "Employee Plans"). Seller has not contributed to, or been
required to contribute to, any "Multiemployer Plan," as such term is defined in
Section 3(37) of ERISA.
(b) Each of the Seller Pension Plans is intended to be a
qualified plan within the meaning of Section 401(a) of the Code, and Seller is
not aware of any fact or circumstance that would adversely affect the qualified
status of any such plan.
(c) Each of the Seller Pension Plans, Seller Welfare Plans and
other Employee Plans has been operated in compliance in all material respects
with the provisions of ERISA, the Code, and all other applicable Laws.
(d) Seller, nor, to the knowledge of Seller or the Shareholder, any
trustee, fiduciary or administrator of any Seller Pension Plan or Seller Welfare
Plan or any trust created thereunder, has not engaged in a "prohibited
transaction" as such term is defined in Section 4975 of the Code, which could
subject Seller, or, to the knowledge of Seller or the Shareholder, any trustee,
fiduciary or administrator thereof, to the tax or penalty on prohibited
transactions imposed by said Section 4975.
(e) No Seller Pension Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" for which the 30 day
notice has not been waived with respect to any Seller Pension Plan, as that term
is defined in Section 4043(b) of ERISA.
(f) There are no pending, or, to the knowledge of Seller or the
Shareholder, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Seller Pension Plans or the
Seller Welfare Plans or any trusts related thereto, other than routine claims
for benefits made in the ordinary course for which plan administrative review
procedures have not been exhausted.
(g) Accruals; Funding
(i) Pension/Profit Sharing Plans. None of the Employee Plans
----------------------------
is a Pension/Profit Sharing Plan subject to ERISA Title IV
(including those for retired, terminated or other former employees
and agents).
12
(ii) Other Plans. Seller Disclosure Schedule 4.9 fully and
----------- ------------------------------
accurately sets forth any funding liability under each Employee Plan
not subject to ERISA Title IV, whether insured or otherwise,
specifically setting forth any liabilities under any retiree medical
arrangement and specifically designating any insured plan that
provides for retroactive premium or other adjustments.
(iii) Contributions. Except as set forth on Seller Disclosure
------------- -----------------
Schedule 4.9: (A) Seller and each trade or business (whether or not
------------
incorporated), which together with Seller is treated as a single
employer pursuant to Code Section 414(b),(c),(m) or (o) ("an ERISA
Affiliate"), has made full and timely payment of all amounts
required to be contributed under the terms of each Employee Plan and
applicable Law, or required to be paid as expense under such
Employee Plan, including the Pension Benefit Guaranty Corporation
("PBGC") premiums and amounts required to be contributed under Code
Section 412; (B) all contributions have been made in accordance with
the actuarial recommendations; and (C) no excise taxes are
assessable as a result of any nondeductible or other contributions
made or not made to an Employee Plan.
(h) Summary plan descriptions and all other returns, reports,
registration statements, prospectuses, documents, statements and communications
that are required to have been filed, published or disseminated under ERISA or
other Laws and the rules and regulations promulgated by the Department of Labor
under ERISA and the Treasury Department or by the Securities and Exchange
Commission (the "SEC") with respect to the Employee Plans have been so filed,
published or disseminated, except for those, the absence of which would not, in
the aggregate, have a Material Adverse Effect on Seller.
4.10 Compliance with Applicable Laws. Except as set forth in Seller
------------------------------- ------
Disclosure Schedule 4.10, Seller holds all licenses, franchises, permits,
------------------------
consents and authorizations ("Licenses") necessary for the lawful conduct of its
business, except for those, the absence of which would not, in the aggregate,
have a Material Adverse Effect on Seller. No proceeding is pending or threatened
seeking the revocation or suspension of any License. The Seller is and has been
in compliance in all material respects with all applicable Laws, and neither
Seller nor the Shareholder has received any notices of any allegation of any
violation of any Laws or Licenses.
4.11 Certain Contracts.
-----------------
(a) Seller Disclosure Schedule 4.11 lists the following
-------------------------------
agreements (collectively, the "Material Contracts"), including, without
limitation, leases, purchase contracts and commitments, to which Seller is a
party or by which Seller or any of its properties or assets is bound:
(i) all agreements that involve an annual commitment or
payment by any party thereto of more than $10,000 individually or
$50,000 in the aggregate
13
or which have a fixed term extending more than 12 months from the
date hereof;
(ii) all joint venture, sales agency, sales representative or
distributorship, broker, franchise, license or similar agreements;
(iii) all leases;
(iv) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to
any lending or borrowing by Seller in any amount (exclusive of
advances to employees for expenses in the ordinary course of
business);
(v) all powers of attorney, guarantees, suretyships or
similar agreements; and
(vi) all other written agreements the breach of or default
under which could have a Material Adverse Effect on Seller.
Each of the Material Contracts is valid, binding and enforceable on
the parties thereto in accordance with its terms, assuming it is a valid and
binding obligation of the other parties to the Material Contract.
(b) Except as disclosed in Seller Disclosure Schedule 4.11, (i)
-------------------------------
Seller is not a party to or bound by any agreement or understanding (whether
written or oral) with respect to the employment of any officers, employees,
directors or consultants, and (ii) the consummation of the transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional acts or events) result in any payment (whether of severance pay
or otherwise) becoming due from Seller to any officer, employee, director or
consultant thereof. Seller Disclosure Schedule 4.11 sets forth true and correct
-------------------------------
copies of all severance or employment agreements with officers, directors,
employees, agents or consultants to which Seller is a party.
(c) Except as disclosed in Seller Disclosure Schedule 4.11, no
-------------------------------
agreement or understanding to which Seller is a party or by which any of them is
bound limits the freedom of Seller to compete in any line of business or
with any person.
(d) Except as disclosed in Seller Disclosure Schedule 4.11, Seller
-------------------------------
nor, to the knowledge of Seller and the Shareholder, any other party thereto, is
not in default under any of the Material Contracts or any other agreement to
which the Seller is a party or to which it or its properties is bound; no event
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder entitling any party to terminate a Material Contract or other such
agreement; and the continuation, validity and effectiveness of all such Material
Contracts and agreements under the current terms thereof and the current rights
and obligations of Seller thereunder will in no way be adversely affected,
altered or impaired by the consummation of the transactions
14
contemplated hereby. Except as disclosed in Seller Disclosure Schedule 4.11,
-------------------------------
upon consummation of the Merger, the Surviving Corporation will be entitled to
enjoy the advantages and benefits of the business arrangements, opportunities
and relationships as enjoyed by the Seller prior to the date hereof without
interference or interruption.
4.12 Properties and Insurance.
------------------------
(a) Except as disclosed in Seller Disclosure Schedule 4.12, Seller
-------------------------------
has good and, as to owned real property, marketable title to all assets and
properties, whether real or personal, tangible or intangible, reflected in the
Seller Financial Statements as of December 31, 1997, or owned and acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since such
date), subject to no Liens except (i) statutory liens for amounts not yet
delinquent or which are being contested in good faith and (ii) such Liens and
title imperfections that do not in the aggregate have a Material Adverse Effect
upon the business, operations, assets, and financial condition of Seller. Seller
as lessee has the right under valid and subsisting leases to occupy, use,
possess and control all real property leased by Seller as presently occupied,
used, possessed and controlled by Seller or necessary in the operation of its
business as currently conducted.
(b) The business operations and all insurable properties and assets
of Seller are insured for their benefit against all material risks which, in the
reasonable judgment of the Shareholder, should be insured against, in each case
under policies or bonds issued by insurers of recognized responsibility, in such
amounts with such deductibles and against such risks and losses as are in the
reasonable opinion of the Shareholder adequate for the business engaged in by
Seller. Copies of all such policies as in effect on the date hereof are attached
hereto as Seller Disclosure Schedule 4.12. Neither Seller nor the Shareholder
-------------------------------
has received any notice of cancellation or notice of a material amendment of any
such insurance policy or bond and Seller is not in default under any such policy
or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
(c) No person other than Seller is currently entitled to possession
of any of the properties of Seller, whether owned or leased by Seller. To the
knowledge of Seller and the Shareholder, the real property, buildings,
structures and improvements owned or leased by Seller conform to all applicable
Laws, including zoning regulations, none of which would upon consummation of the
transactions contemplated hereby materially adversely interfere with the use of
such properties, buildings, structures or improvements for the purposes for
which they are now utilized. Seller has not received notice nor does Seller have
actual knowledge of (i) any pending or contemplated condemnation or eminent
domain proceeding affecting the properties owned or leased by Seller, (ii) any
proposal for increasing the assessed value of any such properties for state,
county, local or other ad valorem Taxes or (iii) any pending or contemplated
proceedings or public improvements that would result in the levy of any special
Tax or assessment against any such properties; and there are no outstanding
requirements or recommendations by Seller's insurance providers requiring or
recommending any repairs or work to be done with reference to any such
properties or any basis for such. The properties and assets owned or leased by
Seller are adequate for the conduct of their businesses as
15
presently conducted and are in good repair and operating condition, normal wear
and tear excepted. The properties and assets owned by Seller constitute all of
the property and assets that Seller uses in connection with the operation of its
business as presently conducted, and the consummation of the transactions
contemplated by this Agreement will not impair the ability of Parent to use such
properties and assets.
4.13 Environmental Matters.
---------------------
(a) The operations of Seller comply, and have complied, in all
material respects with all applicable Environmental Laws (as defined below).
(b) Seller has obtained all material environmental, health and
safety Licenses and other authorizations necessary for the operation of Seller's
business, all of which are valid and in good standing and are not subject to any
modification or revocation proceeding, and Seller is in compliance in all
material respects with all terms and conditions thereof.
(c) Neither Seller nor the Shareholder has received any written
notice of any pending or threatened investigation, proceeding or claim to the
effect that Seller is or may be liable to any person or entity, or responsible
or potentially responsible for the costs of any remedial or removal action or
other cleanup costs, as a result of noncompliance with any Environmental Laws or
arising out of the presence, generation, storage or disposal of hazardous waste,
including liability under the United States Comprehensive Environmental
Response, Compensation and Liability Act, as amended, any state superfund law or
any Environmental Law.
(d) The term "Environmental Laws" shall mean all Laws relating to
pollution or protection of the environment.
4.14 Intellectual Property.
---------------------
(a) Seller Disclosure Schedule 4.14 (i) lists and describes all
-------------------------------
patents, patent applications, trade names, trademarks, service marks, trademark
and service xxxx registrations and applications, and all patent, trademark and
service xxxx licenses, (ii) describes all material copyrights, computer
software, databases, and all other intellectual property that are owned by or
registered in the name of Seller or to which Seller has any rights as licensee
or otherwise, which list specifies which items are owned and to which items
Seller has rights as a licensee or otherwise; and (iii) lists and describes all
material contracts, agreements or understandings pursuant to which Seller has
authorized any person to use, or which any person otherwise has the right to
use, in any business or commercial activity, any of the items listed in clauses
(i) and (ii) above.
(b) The items listed or described in the Seller Disclosure Schedule
--------------------------
4.14 pursuant to the preceding subsection (a) constitute or represent all of the
----
intellectual property necessary to the conduct of Seller's business, and
Seller's ownership and use rights with respect thereto are free and clear of
Liens, subject to those, the absence of which would not
16
have a Material Adverse Effect on Seller.
(c) All federal trademark or service xxxx registrations, and all
applications to register any trademarks or service marks or any trademark
register maintained by the United States government or any state or provincial
government are based on truthful affidavits or declarations of use.
(d) Seller has not infringed upon, and Parent's conduct of Seller's
business after the Closing as presently conducted will not infringe upon, any
patent, service xxxx, trade name, trademark, copyright, trade secret or other
intellectual property belonging to any other person or entity; and Seller has
not agreed to indemnify any person or entity for or against any infringement of
or by the intellectual property set forth in the Seller Disclosure Schedule
--------------------------
4.14. Except as disclosed on Seller Disclosure Schedule 4.14, to the best
---- -------------------------------
knowledge of Seller and the Shareholder, no person or entity is infringing upon
any of Seller's patents, patent applications, trade names, trademarks, service
marks, trademark and service xxxx registrations, licenses, copyrights, computer
software or other intellectual property.
(e) Seller has, and immediately after the Closing Parent will have,
all computer software and databases that are necessary to conduct Seller's
business as presently conducted by Seller and all documentation relating to all
such computer software and databases, except for those, the absence of which
would not have a Material Adverse Effect on Seller. The computer software
performs, in all material respects, in accordance with the documentation related
thereto or used in connection therewith and is free of material defects in
programming and operation. Seller Disclosure Schedule 4.14 identifies each
-------------------------------
person or entity to whom Seller has sold, licensed, leased or otherwise
transferred or granted any interest in or rights to any of the computer software
and databases and the date of each such sale, license, lease or other transfer
or grant.
4.15 No Parachute Payments. Except as disclosed in Seller Disclosure
--------------------- -----------------
Schedule 4.15, no officer, director, employee or agent (or former officer,
-------------
director, employee or agent) of Seller is entitled now, or will or may be
entitled as a consequence of this Agreement or the Merger, to any payment or
benefit from Seller or from Parent, which if paid or provided would constitute
an "excess parachute payment," as defined in Section 280G of the Code.
4.16 Absence of Certain Agreements and Practices.
-------------------------------------------
(a) Except as set forth in Seller Disclosure Schedule 4.16 or in
-------------------------------
connection with customary transactions in the ordinary course of business, no
present or former officer, director or shareholder of Seller:
(i) owes money to Seller;
(ii) has any claim against Seller;
17
(iii) has any interest in any property or assets used by Seller
in its business;
(iv) has any benefits that are contingent on the transactions
contemplated by this Agreement, other than as stated herein;
(v) has any agreement with Seller that is not terminable by
Seller without penalty or notice;
(vi) has any agreement providing severance benefits or other
benefits, which are conditioned upon a change of control after the
termination of employment of such employee regardless of the reason
for such termination of employment; or
(vii) has any agreement or plan, any of the benefits of which
will be increased, vested or accelerated by the occurrence of any of
the transactions contemplated by this Agreement.
(b) Neither Seller nor any of its directors, officers, agents,
affiliates or employees, nor any other person acting on behalf of Seller has (i)
given or agreed to give any gift or similar benefit having a value of $1,000 or
more to any customer, supplier or governmental employee or official or any other
person, for the purpose of directly or indirectly furthering the business of
Seller, (ii) used any corporate funds for contributions, payments, gifts or
entertainment, or made any expenditures relating to political activities to
government officials or others in violation of any applicable Laws, or (iii)
received any unlawful contributions, payments, gifts or expenditures in
connection with the business of Seller.
4.17 Major Vendors and Customers. Seller Disclosure Schedule 4.17
--------------------------- -------------------------------
sets forth a list of each licensor, developer, remarketer, distributor and
supplier of property or services to, and each licensee, end-user or customer of,
Seller, to whom Seller paid or billed in the aggregate in excess of $30,000
during calendar year 1997.
4.18 Accounts Receivable. Seller Disclosure Schedule 4.18 sets forth
------------------- -------------------------------
the accounts receivable of Seller as of December 31, 1997, as reflected in the
Seller Financial Statements as of that date, together with an aging of these
accounts. These accounts receivable, and all accounts receivable of Seller
created after that date, arose from valid transactions in the ordinary course of
business, are not subject to discount, except for normal cash discounts, and
have been appropriately reduced to their estimated net realizable value.
4.19 Corporate Records. The corporate record books (including the
-----------------
share records) of Seller are complete, accurate and up to date with all
necessary signatures and set forth all meetings and actions taken by the
stockholders and directors of Seller and all transactions involving the shares
of Seller (and contain all canceled share certificates).
4.20 Combinations Involving Seller. All mergers, consolidations or
-----------------------------
other business combinations involving Seller and all liquidations, purchases or
other transactions by
18
which Seller acquired any of its business and property were conducted in
accordance with applicable certificates of incorporation, bylaws, any other
applicable agreements, instruments and documents and applicable Laws.
4.21 Bank Accounts. Seller Disclosure Schedule 4.21 lists all bank,
------------- -------------------------------
money market, savings and similar accounts and safe deposit boxes of Seller,
specifying the account numbers and the authorized signatories or persons having
access to them.
4.22 Labor Relations. Except as disclosed on Seller Disclosure
--------------- -----------------
Schedule 4.22, Seller is in material compliance with all federal and state Laws
-------------
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. There is no unlawful employment practice or discrimination
charge pending before the Equal Employment Opportunity Commission ("EEOC") or
any EEOC recognized state "referral agency." There is no unfair labor practice
charge or complaint against Seller pending before the National Labor Relations
Board ("NLRB"). There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of Seller or the Shareholder, threatened against or
involving or affecting Seller. There is no collective bargaining agreement that
is binding on Seller. Except for any Material Contract disclosed pursuant to
Section 4.11, Seller is not a party to or bound by any agreement, arrangement or
understanding with any employee or consultant that cannot be terminated on
notice of ninety (90) or fewer days without liability to Seller or that entitles
the employee or consultant to receive any salary continuation or severance
payment or retain any specified position with Seller.
4.23 Disclosure. No representation, warranty, or statement made by
----------
Seller or the Shareholder in this Agreement or in any document or certificate
furnished or to be furnished to Parent pursuant to this Agreement contains or
will contain any untrue or incomplete statement or omits or will omit to state
any fact necessary to make the statements contained herein or therein not
misleading. All facts known or reasonably available to Seller or the Shareholder
that are material to the financial condition, operation, or prospects of the
business and assets of Seller have been disclosed to Parent.
With respect to all representations and warranties made by Xxxxx
XxxXxxxxx in this Article 4, those representations and warranties are made to
Xx. XxxXxxxxx'x actual knowledge, without independent investigation or
verification, and are limited to acts, events, conditions, and circumstances
that have occurred since April 1, 1997, when he became a shareholder of Seller.
Additionally, to the extent any agent, employee, or representative of Parent or
Merger Sub has knowledge of a fact not disclosed by Seller or the Shareholder
that should have been disclosed so as to make the foregoing representations and
warranties otherwise affected by the omission true and correct and not
misleading, the Shareholder shall not be in breach of the foregoing
representations and warranties by reason of the failure to disclose the fact.
19
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
Each Shareholder represents and warrants to Parent, severally and
not jointly, with respect to himself or herself and his or her ownership of
Seller Common Stock, as follows, except that the representations and warranties
set forth in Sections 5.7, 5.8, and 5.9 do not apply to, and are not made by,
Xxxxx XxxXxxxxx:
5.1 Ownership of Shares. The Shareholder owns of record and
-------------------
beneficially all of the Seller Common Stock set forth opposite his or her name
on Seller Disclosure Schedule 4.2. Such Shareholder owns all right, title and
------------------------------
interest in and to such Seller Common Stock, free and clear of all Liens
(including those for federal or state estate or inheritance taxes), options,
rights of refusal or similar rights or other transfer restrictions of any nature
whatsoever (including any arising from any pending or threatened litigation)
other than restrictions on transfers arising out of applicable federal and state
securities Laws and the agreements identified on Seller Disclosure Schedule 4.2
------------------------------
(which shall be terminated at or prior to the Closing). The Shareholder owns no
other securities of Seller.
5.2 Authorization. With respect to this Agreement and any other
-------------
agreements, instruments and documents executed and delivered by the Shareholder
pursuant to this Agreement (this Agreement and such other agreements,
instruments and documents are collectively referred to as the "Shareholder
Delivered Agreements"): (i) such Shareholder has the right, power and authority
to enter into the Shareholder Delivered Agreements executed and delivered by him
or her and to consummate the transactions contemplated by, and otherwise to
comply with and perform his obligations under them; and (ii) the Shareholder
Delivered Agreements will, when delivered, constitute valid and binding
obligations of such Shareholder enforceable against such Shareholder in
accordance with their terms, assuming they are valid and binding obligations of
the other parties to this Agreement.
5.3 Absence of Violations or Conflicts. The execution and delivery
----------------------------------
of the Shareholder Delivered Agreements and the consummation by such Shareholder
of the transactions contemplated by, or other compliance with the performance
under them do not and will not with the passing of time or giving of notice or
both: (i) constitute a violation of, be in conflict with, constitute a default
or require any payment under, permit a termination of, or result in the creation
or imposition of any Lien upon any assets of Seller or any of the Seller Common
Stock under (A) any contract, agreement, commitment, undertaking or
understanding (including rights of refusal or similar rights or other transfer
restrictions) to which such Shareholder is a party or to which he or she or his
or her properties or Seller or its properties are subject or bound, (B) any
judgment, decree or order of any Governmental Authority to which such
Shareholder or his or her properties are subject or bound, or (C) any applicable
Laws; or (ii) create, or cause the acceleration of the maturity of, any debt,
obligation or liability of such Shareholder that would result in any Lien or
other claim upon the assets of Seller.
20
5.4 No Consents Required. Except as set forth on Shareholder
-------------------- -----------
Disclosure Schedule 5.4, no Authorization of or with any Governmental Authority
-----------------------
or any other Authorization of or with any other third party on the part of such
Shareholder is required in connection with his or her execution or delivery of
the Shareholder Delivered Agreements or the consummation of the transactions
contemplated by, or other compliance with the performance under, such
Shareholder Delivered Agreements by such Shareholder.
5.5 No Claims Against Seller. Except as set forth on Shareholder
------------------------ -----------
Disclosure Schedule 5.5, such Shareholder has no claim against Seller, except
-----------------------
for accrued compensation and benefits and expenses or similar obligations
incurred in the ordinary course of business (including reimbursement of medical
expenses pursuant to the Employee Plans disclosed pursuant to this Agreement),
and except as otherwise specifically provided in this Agreement.
5.6 Litigation Related to this Agreement. Such Shareholder is not a
------------------------------------
party to or subject to any judgment, decree or order entered in any lawsuit or
proceeding brought by any Governmental Authority or other third party seeking to
prevent the execution of this Agreement or the consummation of the transactions
contemplated hereby.
5.7 Investment Intent. Such Shareholder will acquire the Parent
-----------------
Common Stock pursuant to this Agreement for his or her own account, to hold for
investment and with no present intention of dividing his or her participation
with others or reselling or otherwise participating, directly or indirectly, in
a distribution thereof, and he or she will not make any sale, transfer or other
disposition of the Parent Common Stock in violation of the Securities Act of
1933 (the "1933 Act") or any applicable state securities laws (the "State
Acts"). Without limiting the foregoing, such Shareholder has no plan or
intention to sell or otherwise dispose of any of the Parent Common Stock issued
to him or her pursuant to this Agreement or to effect any other transaction
which would adversely affect the status of the Merger as a tax-free
reorganization under the Code. Such Shareholder agrees that there will be placed
on the certificate or other evidence of the Parent Common Stock, or any
substitutions therefor, a legend stating in substance:
THE SECURITIES EVIDENCED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT), OR ANY STATE SECURITIES
LAWS IN RELIANCE ON ONE OR MORE EXEMPTIONS
THEREUNDER AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN TRANSACTIONS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT THEREUNDER. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN AN AGREEMENT AND PLAN OF MERGER
(THE AGREEMENT) DATED MARCH 6, 1998 AMONG
THE CORPORATION AND THE HOLDER OF THESE
21
SECURITIES AND OTHERS. ANY ATTEMPTED
TRANSFER IN VIOLATION OF THE AGREEMENT SHALL
BE NULL AND VOID. A COPY OF THE AGREEMENT OR
A SUMMARY OF SUCH RESTRICTIONS IS AVAILABLE
FROM THE CORPORATION UPON REQUEST.
5.8 Access to Information. Such Shareholder has been given access
---------------------
to all material and relevant information concerning Parent, thereby enabling
such Shareholder to make an informed investment decision concerning his or her
investment in the Parent Common Stock. Such Shareholder has relied solely upon
an independent investigation made by him or her and his or her representatives,
if any, and has, prior to the date hereof, been given access to and the
opportunity to examine data and information relating to Parent. In making his or
her investment decision to acquire the Parent Common Stock pursuant to this
Agreement, such Shareholder is not relying on any oral or written
representations or assurances from Parent or any other person or any
representative of Parent or any other person other than as set forth in this
Agreement.
5.9 Economic Risk. Such Shareholder represents that he or she is
-------------
able to bear the economic risk of an investment in the Parent Common Stock,
which such Shareholder acknowledges is currently illiquid, including a possible
total loss of his or her investment. In making this statement, such Shareholder
hereby represents and warrants to Parent that he or she has adequate means of
providing for his or her current needs and contingencies; he or she is able to
afford to hold the Parent Common Stock for an indefinite period and he or she
further represents that he or she has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and
risks of the investment in the Parent Common Stock. Further, such Shareholder
represents that he or she has no present need for liquidity in the Parent Common
Stock and is willing to accept such investment risks.
5.10 Tax Advice. Such Shareholder has reviewed with his or her tax
----------
advisor the United States federal, state, local and foreign tax consequences of
the transactions contemplated by this Agreement. Such Shareholder is relying
solely on such advisors and not on any statements or representations of Parent
or any of its agents, except as provided herein and in the tax opinion delivered
hereunder and understands that he or she (and not Parent) shall be responsible
for his or her own tax liability that will arise as a result of this investment
or the transactions contemplated by this Agreement.
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to Seller and the
Shareholders as follows:
6.1 Corporate Organization.
----------------------
(a) Parent and Merger Sub are corporations duly organized, validly
existing and in good standing under the laws of the State of Georgia. Parent and
Merger Sub have the
22
corporate power and authority to own or lease all of their properties and assets
and to carry on their businesses as they are now being conducted, are duly
licensed or qualified to do business and are in good standing in each
jurisdiction in which the nature of the business conducted by them or the
character or location of the properties and assets owned or leased by them makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on Parent or Merger Sub, as the case may be.
(b) All Subsidiaries of Parent are listed on Parent Disclosure
-----------------
Schedule 6.1. Each Subsidiary is duly organized and validly existing and in good
------------
standing under the laws of its state or other jurisdiction of incorporation.
Each Parent Subsidiary has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a Material Adverse
Effect on Parent. Parent Disclosure Schedule 6.1 sets forth copies of the
------------------------------
Articles of Incorporation and bylaws, if any, as in effect on the date hereof,
of Parent and each of the Parent Subsidiaries. Except as set forth in the Parent
------
Disclosure Schedule 6.1, Neither Parent nor Merger Sub owns or controls,
-----------------------
directly or indirectly, any equity interest in any corporation, company,
association, partnership, joint venture or other entity.
6.2 Capitalization. As of the date hereof, the authorized capital
--------------
stock of Parent consists of 10,000,000 shares of Parent Common Stock and 500,000
shares of preferred stock, without par value ("Parent Preferred Stock"). As of
the date hereof, there were 2,977,200 shares of Parent Common Stock issued and
outstanding, no shares of Parent Preferred Stock issued and outstanding, 260,192
shares reserved for issuance upon the exercise of that certain Stock Purchase
Warrant issued by Parent to Sirrom Investments, Inc. on the date hereof (which
amount is subject to adjustment pursuant to the Stock Purchase Warrant), and
13,846 shares of Parent Common Stock reserved for issuance upon the exercise of
outstanding stock options ("Parent Stock Options"). As of the date hereof, the
authorized capital stock of Merger Sub consists of 10,000 shares of Merger Sub
Common Stock. As of the date hereof, there were 1,000 shares of Merger Sub
Common Stock issued and outstanding and no shares of Merger Sub Common Stock
reserved for issuance upon the exercise of outstanding stock options and
warrants. All issued and outstanding shares of Parent Common Stock, and all
issued and outstanding shares of capital stock of each of the Parent
Subsidiaries, have been duly authorized and validly issued and are fully paid
and nonassessable. All of the outstanding shares of capital stock of each Parent
Subsidiary are owned by Parent and are free and clear of any Liens. Except as
disclosed above, neither Parent nor any of the Parent Subsidiaries has granted
nor is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
subscription or issuance of any shares of capital stock of Parent or any of the
Parent Subsidiaries or any securities representing the right to purchase,
subscribe or otherwise receive any shares of such capital stock or any
securities convertible into any such shares, and there are no agreements or
understandings with respect to voting of any such shares.
23
6.3 Authority; No Violation.
-----------------------
(a) Except for the filings of the Merger documents as required by
the GBCC and the FBCA (collectively, the "Parent Approvals"), no Authorization
of any Governmental Authority is necessary on behalf of Parent or Merger Sub in
connection with the execution and delivery by Parent and Merger Sub of this
Agreement and the consummation by Parent and Merger Sub of the Merger and the
other transactions contemplated hereby. Subject to receipt of the Parent
Approvals, Parent has the full corporate power and authority to execute and
deliver this Agreement and to consummate the Merger and the other transactions
contemplated hereby in accordance with the terms hereof. The execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Parent in accordance with the Articles of Incorporation of
Parent and applicable Laws. Except for the Parent Approvals, no other corporate
proceedings on the part of Parent are necessary to consummate the Merger and the
other transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and constitutes the valid and binding
obligation of Parent enforceable against Parent in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by Parent,
nor the consummation by Parent of the Merger and the other transactions
contemplated hereby in accordance with the terms hereof, or compliance by Parent
with any of the terms or provisions hereof, will (i) assuming that the Parent
Approvals are duly obtained, violate any provision of Parent's Articles of
Incorporation or bylaws, (ii) assuming that the Parent Approvals are duly
obtained, violate any Law applicable to Parent, any of the Parent Subsidiaries,
or any of their respective properties or assets, or (iii) except as set forth in
Parent Disclosure Schedule 6.3, violate, conflict with, result in a breach of
------------------------------
any provisions of, constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, result in the termination
of, accelerate the performance required by, or result in the creation of any
Lien upon any of the respective properties or assets of Parent or the Parent
Subsidiaries under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent or any of the Parent Subsidiaries is a
party, or by which they or any of their respective properties or assets may be
bound or affected except, with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a Material Adverse Effect on the
Parent, and which will not prevent or delay the consummation of the Merger and
the other transactions contemplated hereby.
(c) Subject to receipt of the Parent Approvals, Merger Sub has the
full corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and the other transactions contemplated hereby in
accordance with the terms hereof. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors and the sole shareholder of Merger
Sub in accordance with the Articles of Incorporation of Merger Sub and
applicable Laws. Except for the Parent Approvals, no other corporate proceedings
on the part of Merger Sub are necessary to consummate the Merger or the other
transactions so
24
contemplated. This Agreement has been duly and validly executed and delivered by
Merger Sub and constitutes the valid and binding obligation of Merger Sub
enforceable against Merger Sub in accordance with its terms.
6.4 Financial Statements.
--------------------
(a) The financial statements of Parent set forth in Parent
------
Disclosure Schedule 6.4 (the "Parent Financial Statements") are prepared in
-----------------------
accordance with GAAP, and, as of their respective dates, did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
(b) Since February 10, 1998, there has not been any change,
occurrence or circumstance in the business, results of operations or financial
condition of Parent or any Parent Subsidiary having, individually or in the
aggregate, a Material Adverse Effect on Parent, other than changes, occurrences
and circumstances set forth in Parent Disclosure Schedule 6.4.
------------------------------
6.5 Broker's and Other Fees. Neither Parent nor any of the Parent
-----------------------
Subsidiaries nor any of their directors or officers has employed any broker or
finder or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement.
6.6 Parent Common Stock; Merger Sub Common Stock. At the Effective
--------------------------------------------
Time, the Parent Common Stock to be issued pursuant to the Merger, and all
issued and outstanding shares of Merger Sub Common Stock, will be duly
authorized and validly issued, fully paid and nonassessable, free of preemptive
rights and free and clear of all Liens created by or through Parent or Merger
Sub (except as set forth in this Agreement and the documents and agreements
executed in connection herewith).
6.7 Disclosure. No representation, warranty, or statement made by
----------
Parent or Merger Sub in this Agreement or in any document or certificate
furnished or to be furnished to Seller or the Shareholder pursuant to this
Agreement contains or will contain any untrue or incomplete statement or omits
or will omit to state any fact necessary to make the statements contained herein
or therein not misleading. All facts known or reasonably available to Parent or
Merger Sub that are material to the financial condition, operation, or prospects
of the business and assets of Parent or Merger Sub have been disclosed to Seller
and the Shareholders.
ARTICLE 7 - COVENANTS OF THE PARTIES
7.1 Conduct of Business. Seller, the Shareholders, Parent and
-------------------
Merger Sub agree that from the date hereof to the Effective Time, Seller,
Parent and Merger Sub shall conduct their business only in the ordinary course
and consistent with prudent business practice
25
and past practice, except for transactions permitted hereunder (or, in the case
of Seller, with the prior written consent of Parent, and in the case of Parent
or Merger Sub, with the written consent of Seller, which consent shall not be
unreasonably withheld). Without limiting the generality of the foregoing,
Seller, Parent and Merger Sub shall use their best efforts to:
(a) maintain their status in good standing in all jurisdictions in
which they are required to be qualified or registered to conduct its business;
(b) maintain all of their tangible assets in good operating
condition and maintain the protection of all intellectual property in
substantially the same standing as exists on the date hereof;
(c) continue performance in the ordinary course of their
obligations under their contracts and agreements;
(d) preserve their business organization intact, keep available
their present officers and employees (except that Seller shall not continue to
employ Xxxxx XxxXxxxxx) and preserve their present relationships with suppliers,
customers and others having business relationships with them; and
(e) maintain their existing insurance, subject to variations in
amount required by the ordinary operations of their business.
7.2 Negative Covenants.
------------------
(a) Seller and the Shareholders agree that from the date hereof to
the Effective Time, except as otherwise approved by Parent in writing or as
permitted or required by this Agreement, Seller will not:
(i) change any provision of its Articles of
Incorporation or bylaws;
(ii) issue any additional shares of Seller Common Stock or
securities or change the number of shares of its authorized or
other issued capital stock or issue or grant any option, warrant,
call, commitment, subscription, right to purchase or agreement of
any character relating to the authorized or issued capital stock of
Seller or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of its capital stock, or
declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock;
(iii) directly or indirectly redeem, purchase or otherwise
acquire any capital stock of Seller;
(iv) grant any severance or termination pay (other than
pursuant to policies or contracts in effect on the date hereof and
that were not required to be modified or terminated pursuant to the
terms hereof and that have been disclosed
26
to Parent pursuant hereto) to, or enter into or amend any employment
or severance agreement with, any of its directors, officers or
employees; adopt any new employee benefit plan or arrangement of any
type; or award any increase in compensation or benefits to its
directors, officers or employees except with respect to employee
increases in the ordinary course of business and consistent with
past practices and policies and, with regard to bonuses in amounts
that do not result in a material variance from the amounts reserved
for such payments through the date of the most recent balance sheet
included in the Seller Financial Statements;
(v) sell or dispose of any assets other than in the ordinary
course of business consistent with past practices;
(vi) make any capital expenditures outside the ordinary course
of business;
(vii) acquire in any manner whatsoever any business or entity;
(viii) enter into, terminate, modify or amend any agreement or
arrangement with any officer or director of Seller or any
"affiliate" of any such officer or director, as that term is defined
in Regulation 14A of the Securities Exchange Act of 1934 (the "1934
Act") (an "Affiliate");
(ix) make any change in its accounting methods or practices;
(x) incur, create, assume or guarantee any Liabilities except
in the ordinary course of business;
(xi) increase, or make any change in any assumptions underlying
the method of calculating any bad debt, contingency or other
reserves from those reflected in the Seller Financial Statements set
forth on Seller Disclosure Schedule 4.4;
------------------------------
(xii) make any change in the method of valuing assets included
in the Seller Financial Statements set forth on Seller Disclosure
-----------------
Schedule 4.4;
------------
(xiii) pay, discharge or satisfy any Liabilities, other than by
payment, discharge or satisfaction in the ordinary course of
business;
(xiv) permit or allow any of its assets (real, personal or
mixed, tangible or intangible) to be subjected to any Lien;
(xv) write down the value of any inventory or write off as
uncollectible any notes or accounts receivable, except for write-
downs and write-offs in the ordinary course of business;
27
(xvi) cancel or waive any claims or rights, or sell, transfer,
distribute or otherwise dispose of any assets or properties, except
in the ordinary course of business;
(xvii) declare, file or permit to be filed any voluntary or
involuntary bankruptcy, receivership, insolvency or other similar
proceeding or petition with any Governmental Authority with respect
to Seller or any of the Shareholders;
(xviii) fail to perform its obligations under any Material
Contract (except those being contested in good faith) or enter into,
assume or amend any agreement that would be a Material Contract
other than agreements to provide services entered into in the
ordinary and usual course of business;
(xix) take any action that would or could reasonably be
expected to result in (A) a Material Adverse Effect on Seller or (B)
any of its representations and warranties contained in Article 4 not
being true and correct in any material respect at the Effective
Time, or that would cause any of its conditions to Closing not to be
satisfied; or
(xx) directly or indirectly agree to do any of the foregoing.
(b) Parent agrees that from the date hereof to the Effective
Time, except as otherwise approved by Seller in writing or as permitted or
required by this Agreement, it will not, nor will it permit any of the Parent
Subsidiaries to:
(i) declare, set aside or pay any dividend or other
distribution of cash or property (other than capital stock) in
respect of its capital stock, other than regular cash dividends in
amounts not materially greater than customarily paid by Parent;
(ii) make any material change in its accounting methods or
practices, other than changes required by GAAP or by Governmental
Authorities;
(iii) take any action that would result in any of its
representations and warranties contained in Article 6 not being true
and correct in any material respect at the Effective Time or that
would cause any of its conditions to Closing not to be satisfied; or
(iv) directly or indirectly agree to do any of the foregoing.
7.3 No Solicitation. From the date hereof to the Effective Time or
---------------
the earlier termination of this Agreement in accordance with its terms, Seller
and the Shareholders:
(a) shall not, and Seller shall direct and use its best efforts to
cause its Affiliates, officers, directors, employees, agents and representatives
(including without
28
limitation, the Shareholders, any investment banker, attorney or accountant
retained by it) not to: initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to the Shareholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
equity securities of, Seller (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any information or data to, or have any discussions with,
any person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal;
(b) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and Seller will take the necessary steps
to inform the individuals or entities referred to above of the obligations
undertaken in this Section 7.3; and
(c) will notify Parent immediately of the receipt and terms of any
Acquisition Proposal, but neither Seller nor the Shareholders shall be obligated
to notify Parent of the identity of any potential acquirer.
7.4 Current Information.
-------------------
(a) During the period from the date of this Agreement to the
Effective Time or the earlier termination of this Agreement in accordance with
its terms, on a frequent basis;
(i) Seller will cause one or more of its representatives
to confer with representatives of Parent regarding its business,
operations, properties, assets and financial condition; and
(ii) each of Seller and Parent will cause one or more of
its representatives to confer with representatives of the other
party regarding matters relating to the completion of the
transactions contemplated herein.
(b) Prior to the Effective Time, as soon as practicable after the
end of every month (but in no event later than thirty days thereafter) beginning
with the month in which this Agreement is signed, Seller will deliver to Parent
an unaudited balance sheet as of the end of such month, and related statements
of income and cash flows for such month, each certified by an officer of Seller
as meeting the standards for financial statements set forth in Section 4.4.
7.5 Access to Properties and Records; Confidentiality.
-------------------------------------------------
(a) Seller shall permit Parent and its representatives reasonable
access to its properties, and shall disclose and make available to Parent and
its representatives all books, papers and records and information relating to
its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
29
meetings, organizational documents, agreements, filings with any Governmental
Authority, accountants' work papers, litigation files, plans affecting
employees, and any other records and information in which Parent and its
representatives may have a reasonable interest.
(b) All information furnished by the parties hereto previously in
connection with transactions contemplated by this Agreement or pursuant hereto
shall be used solely for the purpose of evaluating the Merger and shall be
treated as the sole property of the party delivering the information until
consummation of the Merger contemplated hereby and, if Merger shall not occur,
each party and each party's advisors shall return to the other party all
documents or other materials containing, reflecting or referring to such
information, will not retain any copies of such information, shall use
commercially reasonable efforts to keep confidential all such information, and
shall not directly or indirectly use such information for any competitive or
other commercial purposes. In the event that the Merger does not occur, all
documents, notes and other writings prepared by a party hereto or its advisors
based on information furnished by the other party shall be promptly destroyed.
The obligation to keep such information confidential shall continue for three
years from the date the Merger is abandoned but shall not apply to (i) any
information which (A) the party receiving the information can establish by
convincing evidence was already in its possession prior to the disclosure
thereof to it by the other party; (B) was then generally known to the public;
(C) became known to the public through no fault of the party receiving such
information; or (D) was disclosed to the party receiving such information by a
third party not bound by an obligation of confidentiality; or (ii) any
information that is requested or required (by interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
processes) to be disclosed by Law or Governmental Authority, to the extent that
the party subject to such request or requirement provides the other parties
hereto with prompt notice thereof so that they may seek an appropriate
protective order or waive compliance with the provisions of this Section 7.5.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any party hereto is nonetheless, in the opinion of its counsel, compelled to
disclose information that is protected hereunder to any Governmental Authority
or else stand liable for contempt or suffer other censure or penalty, said party
may disclose such information to such Governmental Authority without liability
hereunder.
(c) No investigation by Parent heretofore or hereafter made shall
affect the representations and warranties of Seller and the Shareholders, and
each such representations and warranties shall survive any such investigation,
subject to Article 10.
7.6 Regulatory Matters. Each of the parties will promptly furnish
------------------
each other with copies of written communications received by them or any of
their respective Subsidiaries from, or delivered by any of the foregoing to,
any Governmental Authorities in respect of the transactions
contemplated hereby.
7.7 Best Efforts; Further Assurances; Cooperation. Subject to the
---------------------------------------------
other provisions in this Agreement, the parties hereto shall in good faith
perform their obligations under this Agreement before, at and after the
Effective Time, and shall each use their reasonable best efforts to do, or cause
to be done, all things necessary, proper or advisable
30
under applicable Laws to obtain all Authorizations and satisfy all conditions to
the obligations of the parties under this Agreement and to cause the
transactions contemplated by this Agreement to be carried out promptly in
accordance with the terms hereof and shall cooperate fully with each other and
their respective officers, directors, employees, agents, counsel, accountants
and other designees in connection with any steps required to be taken as part of
their respective obligations under this Agreement. Upon the execution of this
Agreement and thereafter, each party shall take such actions and execute and
deliver such documents as may be reasonably requested by the other parties
hereto in order to consummate the transactions contemplated by this Agreement.
7.8 Public Announcements. No party shall make any public
--------------------
announcement regarding any aspect of this Agreement without the prior written
consent of the other parties hereto.
7.9 Failure to Fulfill Conditions. In the event that Parent or
-----------------------------
Seller determines that a material condition to its or the other's obligation to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to April 30, 1998 (the "Deadline Date"), it will promptly notify the other
party. Except for any acquisition or merger discussions Parent may enter into
with other parties, Seller and Parent will promptly inform the other of any
facts applicable to Seller or Parent that would be likely to prevent or
materially delay consummation of the Merger.
7.10 Disclosure Supplements. From time to time prior to the
----------------------
Effective Time, each party hereto will promptly notify the other party of any
inaccuracy in its respective Disclosure Schedules delivered pursuant hereto
including, without limitation, any matter which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in such Schedule or which is necessary to correct any information in
such Schedule that has been rendered inaccurate. Notwithstanding the foregoing,
for the purpose of determining satisfaction of the conditions set forth in
Article 8, no such notification shall be deemed to amend such Disclosure
Schedules or shall be deemed to be part hereof unless agreed to by the other
party.
7.11 Affiliates. Simultaneously with the execution and delivery of
----------
this Agreement, Seller shall deliver to Parent copies of letter agreements, each
substantially in the form of Exhibit 7.11, executed by all directors, executive
------------
officers and by any other person who is an "affiliate" of Seller for purposes of
Rule 145 under the 1933 Act (collectively, the "Affiliates") who are to receive
Parent Common Stock pursuant to this Agreement, as set forth in Schedule 2.1.
------------
Each letter agreement shall provide that such person will not sell, pledge,
transfer or otherwise dispose of any shares of Parent Common Stock to be
received by such Affiliate in the Merger, except in compliance with the
applicable provisions of the 1933 Act and the rules and regulations thereunder.
The certificates of Parent Common Stock issued to Affiliates of Seller will bear
an appropriate legend reflecting the foregoing.
7.12 Shareholders' Approval. As soon as practicable following the
----------------------
date hereof, all of the Shareholders shall approve the Merger in compliance with
applicable law.
31
The Shareholders may effect such approval by unanimous written consent in lieu
of a shareholders' meeting.
7.13 Release by Seller and the Shareholders.
--------------------------------------
(a) If the Merger occurs as contemplated by this Agreement, then
the Shareholders hereby release Seller from any and all claims, rights and
causes of action that the Shareholders may have or may have had against Seller
arising out of any transactions between the Shareholders and Seller prior to, or
arising with respect to any act or omissions occurring prior to the Effective
Time; provided, however, that the foregoing release does not apply to accrued
compensation and benefits and expenses or similar obligations incurred in the
ordinary course of business (including reimbursement of medical expenses
pursuant to the Employee Plans disclosed pursuant to this Agreement).
(b) If the Merger occurs as contemplated by this Agreement, then
Seller hereby releases each Shareholder from any and all claims, rights and
causes of action that Seller may have or may have had against such Shareholder
arising out of any transactions between such Shareholder and Seller prior to, or
arising with respect to any act or omissions occurring prior to the Effective
Time; provided, however, that the foregoing release does not apply to accrued
compensation and benefits and expenses or similar obligations incurred in the
ordinary course of business (including reimbursement of medical expenses
pursuant to the Employee Plans disclosed pursuant to this Agreement).
7.14 Shareholder Agreements. On or prior to the Closing Date, all
----------------------
agreements among the Shareholders and Seller relating to Seller or any stock or
securities of Seller shall have been canceled at no cost to Seller.
7.15 Employee Matters.
----------------
(a) Employee Benefits. Parent shall take all action necessary or
-----------------
appropriate to permit the employees of Seller at the Effective Time who shall
continue to be employed by the Surviving Corporation thereafter ("Continuing
Employees") to participate after the Effective Time in Parent's employee benefit
programs and to cause the Surviving Corporation to take all actions necessary or
appropriate to adopt Parent's employee benefit programs effective as of the
Effective Time. Parent will cause the Surviving Corporation to give each
Continuing Employee full credit for service with Seller for purposes of
eligibility to participate in, vesting and payment of benefits under, and
eligibility for any subsidized benefit provided under (but not, except as
provided in the preceding sentence, for purposes of determining the amount of
any benefit under) any Parent employee benefit plan; provided, however, that
nothing in this Agreement shall be deemed to require Parent to cause to be
continued any employee's employment, responsibilities or officer title for any
definite period, or to change the terms or conditions of any existing employee
benefit program.
32
(b) Employment Agreements. On or prior to the Closing Date, all
---------------------
employment agreements between Seller and any of the Shareholders shall have been
canceled at no cost to Seller.
7.16 No Transfers. Except pursuant to this Agreement or with the
------------
prior written consent of Purchaser, none of the Shareholders shall transfer any
of the Seller Common Stock after the date of this Agreement.
7.17 Special Provisions with Respect to Seller. If the Closing
-----------------------------------------
occurs as provided herein, then at that time all representations, warranties,
covenants and agreements to the extent made or adopted by Seller (and only to
such extent) shall expire and be of no further force and effect, and Seller's
having made representations, warranties, covenants and agreements shall in no
way limit the liability of the Shareholders for those representations,
warranties, covenants and agreements pursuant to this Agreement.
7.18 Release from Personal Guaranties. If the closing occurs as
--------------------------------
provided herein, Parent shall use all reasonable efforts to obtain the release
of the Shareholders from the personal guaranties set forth on Seller
------
Disclosure Schedule 4.11.
------------------------
7.19 Tax Matters
-----------
(a) Transfer Taxes. The Shareholders shall pay all stock transfer
--------------
and other similar Taxes and fees in respect of the exchange of the Seller Common
Stock and shall be responsible for paying all the costs of filing all Returns
relating to such Taxes and fees.
(b) Cooperation and Exchange of Information. The Shareholders, the
---------------------------------------
Surviving Corporation and Parent agree to furnish, or to cause to be furnished
in good faith to each other, such cooperation and assistance as is reasonably
necessary to file any future returns, to respond to audits, to negotiate
settlements with Governmental Authorities and to prosecute and defend against
Tax claims.
(c) Tax-Free Transaction. The parties hereto intend that the Merger
--------------------
shall be treated as a tax-free reorganization under the Code, shall report the
Merger as such for federal and state income tax purposes, and shall take no
action after the Effective Time to adversely affect the status of the Merger as
a tax-free reorganization under the Code.
ARTICLE 8 - CLOSING CONDITIONS
8.1 Conditions of Each Party's Obligations Under this Agreement.
-----------------------------------------------------------
The respective obligations of each party under this Agreement to consummate the
Merger shall be subject to the satisfaction, or, where permissible under
applicable Law, waiver at or prior to the Closing Date of the following
conditions:
33
(a) Approval of Shareholders. This Agreement, the Merger and the
------------------------
transactions contemplated hereby shall have been approved by the requisite vote
of the shareholders of Seller.
(b) Approvals and Regulatory Filings. All necessary Authorizations
--------------------------------
of Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition that would
materially impair the value of Seller, or that would materially impair the value
of Parent and the Parent Subsidiaries, taken as a whole. All conditions required
to be satisfied prior to the Effective Time by the terms of such approvals and
consents shall have been satisfied; and all statutory waiting periods in respect
thereof shall have expired.
(c) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to Parent or Seller
or their officers, directors or shareholders. No suit or proceeding shall have
been instituted by any person, or, to the knowledge of Parent or Seller, shall
have been threatened by any Governmental Authority, and not subsequently
withdrawn, dismissed or otherwise eliminated, which seeks (i) to prohibit,
restrict or delay consummation of the transactions contemplated hereby or to
limit in any material respect the right of Parent to control any material aspect
of the business of Parent and the Parent Subsidiaries or Seller after the
Effective Time, or (ii) to subject Purchaser or Seller or their respective
directors, officers or shareholders to material liability on the ground that it
or they have breached any Law or otherwise acted improperly in relation to the
transactions contemplated by this Agreement.
(d) Tax Opinion. Parent and Seller each shall have received the
-----------
opinions of Xxxxxx Xxxxxxx Xxxxx & Xxxxxxxxxxx, L.L.P., dated as of the Closing
Date, in form and substance reasonably satisfactory to Parent and to Seller and
their counsel, that the Merger will qualify as a tax-free reorganization under
the Code.
(e) Other Merger. The merger of Control Group Ltd., a Delaware
------------
corporation, with a Subsidiary of Parent shall have been consummated prior to or
simultaneously with the Merger.
8.2 Conditions to the Obligations of Parent and Merger Sub Under
------------------------------------------------------------
this Agreement. The obligations of Parent and Merger Sub under this Agreement
--------------
shall be further subject to the satisfaction or waiver, at or prior to the
Closing Date (and continues until the Effective Time in the case of Section
8.2(a)), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
---------------------------------------------------------
Consents. The representations and warranties of Seller and the Shareholders
--------
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall also be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date,
except that those representations and warranties which are confined to a
particular date shall speak only as of such date, and Seller and the
Shareholders shall have performed in all material respects the agreements,
covenants and obligations to be performed by it or them at or
34
prior to the Effective Time. All Authorizations of or with any nongovernmental
third party that are required for or in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby by Seller and the Shareholders shall have been obtained or made, except
where the failure to obtain any such Authorization would not have a Material
Adverse Effect on Seller.
(b) Opinion of Counsel. Parent shall have received an opinion of
------------------
counsel to Seller, dated the Closing Date, in form and substance reasonably
satisfactory to Parent, covering the matters set forth on Exhibit 8.2(b).
--------------
(c) Certificates. Seller shall have furnished Parent with such
------------
certificates of its officers and such other documents to evidence fulfillment of
the conditions set forth in this Article 8 and otherwise to consummate the
transactions contemplated pursuant to this Agreement as Parent may reasonably
request.
(d) Employment Agreements. Xxxxx Xxxxx, Xxxxxx X. Xxxxx, and
---------------------
Xxxxxxxxx X. Xxxx shall have executed and delivered Employment Agreements with
Parent in the form attached hereto as Exhibit 8.2(d), with the blanks therein
-------------
properly completed, the effectiveness of which are expressly conditioned upon
consummation of the Merger.
(e) Shareholders Agreement. Xxxxx Xxxxx, Xxxxxx X. Xxxxx, and
----------------------
Xxxxxxxxx X. Xxxx shall have executed and delivered a Shareholders Agreement
with Parent in the form attached hereto as Exhibit 8.2(e), with the blanks
-------------
therein properly completed, the effectiveness of which is expressly conditioned
upon consummation of the Merger.
(f) Resignation; Severance Agreement and General Release. Seller
----------------------------------------------------
and Xxxxx XxxXxxxxx shall have executed and delivered to Parent a Severance
Agreement and General Release in the form attached hereto as Exhibit 8.2(f),
--------------
with the blanks therein properly completed.
(g) Financing. Parent shall have closed and received the proceeds
---------
of financing, upon terms and conditions satisfactory to Parent in all respects
from Sirrom Investments, Inc. in the amount of $3,000,000.00, and CoreStates
Bank, N.A. shall have consented in writing to the assumption by Parent of
Control Group Ltd.'s obligations to CoreStates Bank, N.A. pursuant to certain
loans from CoreStates Bank, N.A. to Control Group Ltd.
8.3 Conditions to the Obligations of Seller and the Shareholders
------------------------------------------------------------
Under this Agreement. The obligations of Seller and the Shareholders under this
--------------------
Agreement shall be further subject to the satisfaction or waiver, at or prior to
the Closing Date (and continues until the Effective Time in the case of Section
8.3(a)), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of Parent and Merger Sub contained
--------
in this Agreement, including but not limited to any financial projections
disclosed by Seller to Parent, shall be true
35
and correct in all respects as of the date hereof and shall also be true and
correct in all material respects on the date hereof and on the Closing Date as
though made on and as of the Closing Date, except that those representations and
warranties that are confined to a particular date shall speak only as of such
date, and Parent shall have performed in all material respects the agreements,
covenants and obligations to be performed by it at or prior to the Effective
Time. All Authorizations of or with any nongovernmental third party that are
required for or in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby by Parent and the
Merger Sub shall have been obtained or made, except where the failure to obtain
any such Authorizations would not have a Material Adverse Effect on Parent or
the Parent Subsidiaries, taken as a whole.
(b) Opinion of Counsel to Parent. Seller shall have received an
----------------------------
opinion of counsel to Parent, dated the Closing Date, substantially in the form
and substance set forth on Exhibit 8.3(b). Xxxxx XxxXxxxxx shall have
-------------
received a letter from counsel to Parent permitting him to rely on such opinion.
(c) Certificates. Parent and Merger Sub shall have furnished Seller
------------
with such certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Article 8 and
otherwise to consummate the transactions contemplated pursuant to this Agreement
as Seller may reasonably request.
(d) Employment Agreements. The Parent shall have executed and
---------------------
delivered Employment Agreements to each of Xxxxx Xxxxx, Xxxxxx X. Xxxxx and
Xxxxxxxxx X. Xxxx in the form attached hereto as Exhibit 8.2(d), with the blanks
--------------
therein properly completed, the effectiveness of which are expressly conditioned
upon consummation of the Merger.
(e) Shareholders Agreement. The Parent shall have executed and
----------------------
delivered a Shareholders Agreement with certain of the Shareholders in the form
attached hereto as Exhibit 8.2(e), with the blanks therein properly completed,
-------------
the effectiveness of which is expressly conditioned upon consummation of the
Merger.
(f) Seller's Payments to Certain Shareholders. Certain Shareholders
-----------------------------------------
shall have received payment from Seller for certain amounts due and payable from
Seller, as set forth on Schedule 2.1 hereto.
------------
ARTICLE 9 - TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated prior to the
-----------
Effective Time, whether before or after approval of this Agreement by the
shareholders of Merger Sub, Parent and Seller:
(a) by mutual written consent of Parent and Seller;
(b) by Parent or Seller if the Effective Time shall not have
occurred on or prior to the Deadline Date;
36
(c) by Parent if there has been a material breach of any
representation, warranty, covenant, agreement or obligation of Seller hereunder
in each case which either is not capable of being remedied, or, if capable of
being remedied, shall not have been remedied within 20 days after receipt by
Seller of notice in writing from Parent to Seller specifying the nature of such
breach and requesting that it be remedied;
(d) by Seller, if there has been a material breach in any
representation, warranty, covenant, agreement or obligation of Parent hereunder
in each case which either is not capable of being remedied, or, if capable of
being remedied, shall not have been remedied within 20 days after receipt by
Parent of notice in writing from Seller specifying the nature of such breach and
requesting that it be remedied;
(e) by Parent if any of the conditions set forth in Section 8.1 or
8.2 is not satisfied and is no longer capable of being satisfied by the Deadline
Date; or
(f) by Seller if any of the conditions set forth in Section 8.1 or
8.3 is not satisfied and is no longer capable of being satisfied by the Deadline
Date.
9.2 Effect of Termination. If either Parent or Seller terminates
---------------------
and abandons this Agreement pursuant to Section 9.1, this Agreement, other than
Sections 7.5, 7.6, 7.13, this Section 9.2, Article 10 and Section 11.1 (each of
which shall survive termination) shall forthwith become void and have no effect,
without any liability on the part of any party or its officers, directors or
shareholders; provided, however, that nothing contained in this Section 9.2
shall relieve any party from any liability for any breach of this Agreement.
9.3 Specific Performance. The parties acknowledge that the rights of
--------------------
each party to consummate the transactions contemplated hereby are special,
unique, and of extraordinary character, and that, in the event that any party
violates or fails or refuses to perform any covenant made by it herein, the
other party or parties will be without adequate remedy at law. Each party
agrees, therefore, that in the event that it violates, fails or refuses to
perform any covenant or agreement made by it herein, the other party or parties
so long as it or they are not in breach hereof, may, in addition to the remedies
at law, institute and prosecute an action in a court of competent jurisdiction
to enforce specific performance of such covenant or agreement or seek any other
equitable relief.
9.4 Amendment. This Agreement may be amended by action taken by the
---------
parties hereto at any time before or after approval of this Agreement and
matters related thereto, as the case may be, by the shareholders of Merger Sub
or Seller but, after any such approval, no amendment shall be made that changes
the amount or changes the form of the consideration to be delivered to the
Shareholders without the approval of the shareholders of the company that would
be negatively affected by any such change (and specifically the approval of all
the Shareholders). This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties hereto.
37
9.5 Extension; Waiver. The parties may, at any time prior to the
-----------------
Effective Time of the Merger, (a) extend the time for the performance of any of
the obligations or other acts of the other parties hereto; (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced and shall apply only to the specific condition,
representation or warranty identified by such writing as being waived, extended
or modified.
ARTICLE 10 - INDEMNIFICATION
10.1 Indemnification by Shareholders. Subject to the terms of this
-------------------------------
Article 10, Seller and each Shareholder (but after the consummation of the
Merger, solely the Shareholders, and not the Seller) shall indemnify, defend,
save and hold harmless Parent, Merger Sub (and Seller, after the consummation of
the Merger) (collectively, the "Parent Indemnified Parties"), from and against
any demands, claims, actions, losses, damages, deficiencies, liabilities, costs
and expenses (including, without limitation, reasonable attorneys' and
accountants' fees and expenses), together with interest and penalties, if any,
awarded by court order or otherwise agreed to (collectively, "Indemnifiable
Damages"), suffered by the Parent Indemnified Parties that arise out of or
result from any of the following (whether or not a third party initiates the
proceeding or claim giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
or agreements made by Seller or the Shareholders in this Agreement;
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by Seller or the
Shareholders at the Closing; or
(c) any expenses, charges, fees, or costs associated with any audit
of Seller for Taxes related to periods prior to the Closing Date, and any Taxes
imposed as a result of any such audit, even though any such audit commences, or
a party does not become aware of any such audit until after the Closing Date.
10.2 Indemnification by Parent. Subject to the terms of this Article
-------------------------
10, Parent shall indemnify, defend, save and hold harmless Seller and the
Shareholders (but after consummation of the Merger, solely the Shareholders, and
not the Seller) (collectively, the "Seller Indemnified Parties"), from and
against any Indemnifiable Damages suffered by the Seller Indemnified Parties
that arise out of or result from any of the following (whether or not a third
party initiates the proceeding or claim giving rise to such Indemnifiable
Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by Parent or Merger Sub in this Agreement;
38
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by Parent or Merger
Sub at the Closing; or
(c) any claim made against any Shareholder pursuant to any of the
personal guaranties of such Shareholder on contracts disclosed on Seller
------
Disclosure Schedule 4.11.
------------------------
10.3 Claims for Indemnification. The representations, warranties,
--------------------------
covenants and agreements in this Agreement shall survive the Closing subject to
the limitations set forth herein. The party seeking indemnification (the
"Indemnified Party") shall give the party from whom indemnification is sought
(the "Indemnifying Party") a written notice ("Notice of Claim") within sixty
(60) days of the discovery of any loss, liability, claim or expense in respect
of which the right to indemnification contained in this Article 10 may be
claimed; provided, however, that the failure to give such notice within such
sixty (60) day period shall not result in the waiver or loss of any right to
bring such claim hereunder after such period unless, and only to the extent
that, the other party is actually prejudiced by such failure. In the event a
claim is pending or threatened or the Indemnified Party has a reasonable belief
as to the validity of the basis for such claim, the Indemnified Party may give
written notice (a "Notice of Possible Claim") of such claim to the Indemnifying
Party, regardless of whether a loss has arisen from such claim. A party shall
have no liability under this Article 10 for breach of a representation or
warranty, unless a Notice of Claim or Notice of Possible Claim therefor is
delivered by the Indemnified Party prior to the second anniversary of the
Effective Time; provided, however, that as to any liability arising pursuant to
Sections 4.1, 4.2, 4.3, 4.8, 4.9, 4.13, 4.14, Article 5 and Sections 6.1, 6.2
and 6.3 hereof, any Notice of Claim or Notice of Possible Claim must be
delivered by the Indemnified Party not later than ninety (90) days after the
expiration of the applicable statute of limitations (including any extensions)
therefor; and provided, further, that the limitations set forth in this Section
10.3 shall not apply to liability under this Article 10 for any intentional
breach of a representation or warranty in this Agreement. Any Notice of Claim or
Notice of Possible Claim shall set forth the representations, warranties,
covenants and agreements with respect to which the claim is made, the specific
facts giving rise to an alleged basis for the claim and the amount of liability
asserted or anticipated to be asserted by reason of the claim.
10.4 Defense of Claim by Third Parties. If any claim is made by a
---------------------------------
third party against a party to this Agreement that, if sustained, would give
rise to a liability of another party under this Agreement, the party against
whom the claim is made shall promptly cause notice of the claim to be delivered
to the other party and shall afford the other party and its counsel, at the
other party's sole expense, the opportunity to join in the defense and
settlement of the claim. The failure to provide such notice will not relieve the
Indemnifying Party of liability under this Agreement unless, and only to the
extent that, the Indemnifying Party is actually prejudiced by such failure.
10.5 Third Party Claim Assistance. From time to time after the
----------------------------
Closing, Parent, the Surviving Corporation, and the Shareholders shall provide
or cause their appropriate employees or representatives to provide the other
party with information or data in connection with the handling and defense of
any third party claim or litigation (including
39
counterclaims filed by the parties) in respect to which a party may be required
to indemnify another party under this Agreement. The party receiving such
information or data shall reimburse the other party for all of its reasonable
costs and expenses in providing these services, including, without limitation,
(i) all out of pocket, travel and similar expenses incurred by its personnel in
rendering these services; and (ii) all fees and expenses for services performed
by third parties engaged by or at the request of such other party.
10.6 Settlement of Indemnification Claims. If a recipient of a
------------------------------------
Notice of Claim desires to dispute such claim, it shall, within thirty (30) days
after receipt of the Notice of Claim, give counternotice, setting forth the
basis for disputing such claim, to Parent or the Shareholders, as the case may
be. If no such counternotice is given within such thirty (30) day period, or if
Parent or the Shareholders, as the case may be, acknowledges liability for
indemnification, then the amount claimed shall be promptly satisfied as provided
in Section 10.7. If, within thirty (30) days after the receipt of counternotice
by Parent or the Shareholders, as the case may be, the Shareholders and Parent
shall not have reached agreement as to the claim in question, then the party
disputing the claim shall satisfy any undisputed amount as specified in Section
10.7 and the disputed amount of the claim of indemnification shall be submitted
to and settled by arbitration in accordance with the then prevailing commercial
arbitration rules of the American Arbitration Association. Such arbitration
shall be held in the Atlanta, Georgia area before a panel of three (3)
arbitrators, one selected by each of the parties and the third selected by
mutual agreement of the first two, and all of whom shall be independent and
impartial under the rules of the American Arbitration Association. The decision
of the arbitrators shall be final and binding as to any matter submitted under
this Agreement. To the extent the decision of the arbitrators is that a party
shall be indemnified hereunder, the amount shall be satisfied as provided in
Section 10.7. Judgment upon any award rendered by the arbitrators may be entered
in any court of competent jurisdiction. The date of the arbitrator's decision or
the date a claim otherwise becomes payable pursuant to this Section 10.6 is
referred to as the "Determination Date."
10.7 Manner of Indemnification. All indemnification under this
-------------------------
Article 10 shall be made by payment of cash or delivery of a certified or
cashier's check in the amount of the indemnification liability no later than
five (5) days following the Determination Date.
10.8 Indemnification Exclusive Remedy. In the absence of fraud, and
--------------------------------
except for non-monetary equitable relief, if the Closing occurs, indemnification
pursuant to the provisions of this Article 10 shall be the sole and exclusive
remedy of the parties for any breach of any representation or warranty contained
in this Agreement.
10.9 Certain Limitations. The foregoing indemnification obligations
-------------------
are subject to the limitation that no Indemnifying Party shall have any
liability for indemnification for breaches of representations and warranties
pursuant to this Article 10 unless the total Indemnifiable Damages for which the
Indemnifying Party would be liable exceed $10,000 in the aggregate, and then
only for the excess; provided, however, that the foregoing limitation shall not
-------- -------
apply to any Indemnifiable Damages with respect to, as a result of or involving
any intentional breach of a representation or warranty in this Agreement. In no
event shall the
40
liability of the Shareholders and Parent under this Article 10 exceed the total
consideration paid by Parent for the Seller Common Stock, and in no event shall
an individual Shareholder's liability under this Article 10 exceed the total
consideration paid by Parent for such Shareholder's Seller Common Stock pursuant
to Sections 2.1(a) and (b). Additionally, the maximum cumulative, aggregate
amount of Xxxxx XxxXxxxxx'x liability under this Article 10 is limited to
$50,000.00, and Xx. XxxXxxxxx shall not have any liability under this Article 10
on account of any of those matters, whether individually or in the aggregate, in
excess of $50,000.00.
ARTICLE 11 - MISCELLANEOUS
11.1 Expenses.
--------
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal, accounting and investment banking fees and
expenses) shall be borne by the party incurring such costs and expenses.
(b) Notwithstanding any provision in this Agreement to the
contrary, if either of the parties shall default in its obligations hereunder,
the non-defaulting party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the defaulting party for all damages,
costs and expenses, including without limitation reasonable legal, reasonable
accounting, reasonable investment banking and reasonable printing expenses
incurred or suffered by the non-defaulting party in connection herewith or in
the enforcement of its rights hereunder.
11.2 Notices. All notices or other communications which are required
-------
or permitted hereunder shall be in writing and sufficient if delivered
personally or by reputable overnight or express courier, sent by registered or
certified mail, postage prepaid, or by telefax (with subsequent delivery via one
of the two previous methods) as follows:
(a) If to Parent or Merger Sub, to:
MegaMarketing Corporation
0000 Xxxxxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, President and Chief Executive Officer
Telefax: (000) 000-0000
41
Copy to:
Xxxxxx Xxxxxxx Xxxxx & Scarborough, L.L.P.
000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxx
Telefax: (000) 000-0000
(b) If to Seller, to:
Genesis Direct, Inc.
000 Xxxxxxx Xxxx, Xxxxx 0
Xxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxx, President
Telefax: (000) 000-0000
Copy to:
Xxxxxx X. XxXxxxxx
0000 Xxx xx Xxx Xxxx.
Xxxxx 000
Xxxxx, XX 00000
Telefax: (000) 000-0000
(c) If to the Shareholders, to their respective addresses as set
forth on the signature page to this Agreement and if to Xxxxx XxxXxxxxx, with a
copy to:
Xxxxxx X. Xxxxx
Xxxxx, Xxxxxxxxx & Xxxxxxx, P.A.
000 X. Xxxxxx Xxxxx, Xxxxx 0000
P. O. Xxx 0000
Xxxxx, XX 00000
Telefax: (000) 000-0000
or to such other addresses and telefax numbers as shall be furnished
in writing by any party, and any such notice or communications shall be deemed
to have been given as of three business days after the date actually sent via
overnight or express courier, eight days after mailed and upon telefax
confirmation of receipt to addressee by the sender.
11.3 Parties in Interest. This Agreement shall be binding on and
-------------------
shall inure to the benefit of the parties hereto and their respective
successors, representatives and assigns. This Agreement (and the rights and
interests herein) may not be assigned by any party without the written consent
of the other parties; provided, however, Parent may assign its interests herein
to (a) an entity controlling, controlled by or under common control with Parent
or (b) a purchaser or transferee of all or substantially all of the business or
assets of Parent or the Surviving Corporation, whether by sale of stock or
assets, merger or otherwise. Any
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attempted assignment in contravention of the foregoing shall be null and void.
Nothing in this Agreement is intended to confer, expressly or by implication,
upon any other person any rights or remedies under or by reason of this
Agreement.
11.4 Entire Agreement. This Agreement, which includes the Disclosure
----------------
Schedules and the other documents, agreements and instruments executed and
delivered pursuant to or in connection with this Agreement, contain the entire
agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior negotiations,
arrangements or understandings, written or oral, with respect thereto.
11.5 Counterparts. This Agreement may be executed by each party upon
------------
a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signatures of all of the
parties. This Agreement may be executed in two or more counterparts, each of
which shall be an original, and each of which shall constitute one and the same
agreement. Any party may deliver an executed copy of this Agreement and of any
documents contemplated hereby by facsimile transmission to another party and
such delivery shall have the same force and effect as any other delivery of a
manually signed copy of this Agreement or of such other documents.
11.6 Governing Law.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) Parent, Seller and the Shareholders consent to the exclusive
jurisdiction and venue of the courts of Xxxxxx County, Georgia and the United
States Federal District Court for the Northern District of Georgia, in any
judicial proceeding brought to enforce this Agreement. The parties agree that
any forum other than the State of Georgia is an inconvenient forum and that a
lawsuit (or non-compulsory counterclaim) brought by one party against another
party, in a court of any jurisdiction other than the State of Georgia should be
forthwith dismissed or transferred to a court located in the State of Georgia.
11.7 Arbitration. Any dispute, controversy or claim arising out of
-----------
or relating to this Agreement or any other related documents, agreements,
certificates or other writing, or the breach, termination, construction,
validity or enforceability hereof or thereof, shall be settled by binding
arbitration in accordance with the rules of the American Arbitration Association
in force at the time and in the manner described in Section 10.6.
11.8 Invalidity of any Part. If any provision or part of this
----------------------
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement and shall be construed as if such invalid,
illegal or unenforceable provision or part thereof had never been contained
herein, but only to the extent of its invalidity, illegality, or
unenforceability. Upon any such determination that any term or other provision
is invalid, illegal or incapable of
43
being enforced, the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible.
11.9 Time of the Essence; Computation of Time. Time is of the
----------------------------------------
essence of each and every provision of this Agreement. Whenever the last day for
the exercise of any right or the discharge of any duty under this Agreement
shall fall upon Saturday, Sunday or a federal, public or legal holiday, the
party having such right or duty shall have until 5:00 p.m., Atlanta, Georgia
time on the next succeeding regular business day to exercise such right or to
discharge such duty.
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IN WITNESS WHEREOF, Parent, Merger Sub, Seller and Shareholders have
caused this Agreement to be executed by their duly authorized officers as of the
day and year first above written.
MEGAMARKETING CORPORATION
/s/ Xxxx X. Xxxxx
------------------------------
By: Xxxx X. Xxxxx
--------------------------
Its: President
--------------------------
MEGAMARKETING ACQUISITION
TWO, INC.
/s/ Xxxxxx X. Xxxxxxxxx
------------------------------
By: Xxxxxx X. Xxxxxxxxx
--------------------------
Its: President
--------------------------
GENESIS DIRECT, INC.
/s/ Xxxxxx X. Xxxxx
------------------------------
By: Xxxxxx X. Xxxxx
--------------------------
Its: President
--------------------------
SHAREHOLDERS:
/s/ Xxxxxx X. Xxxxx
------------------------------
Name: Xxxxxx X. Xxxxx
----------------------
Address:
----------------------
/s/ Xxxxx Xxxxx
------------------------------
Name: Xxxxx Xxxxx
----------------------
Address:
----------------------
45
/s/ Xxxxxxxxx X. Xxxx
------------------------------
Name: Xxxxxxxxx X. Xxxx
----------------------
Address:
----------------------
/s/ Xxxxx XxxXxxxxx
------------------------------
Name: Xxxxx XxxXxxxxx
----------------------
Address:
----------------------
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