AGREEMENT AND PLAN OF MERGER
by
and
among
MEGAMARKETING CORPORATION
MEGAMARKETING ACQUISITION FOUR, INC.
UST, INC.
and
THE SHAREHOLDERS OF UST, INC.
Dated as of January 31, 1999
TABLE OF CONTENTS
Page
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ARTICLE 1 - THE MERGER.........................................................1
1.1 The Merger....................................................1
1.2 Closing.......................................................1
1.3 Effective Time of the Merger..................................1
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.................................................2
2.2 No Fractional Shares..........................................2
2.3 Surrender and Exchange of Certificates Representing Seller
Common Stock................................................. 3
ARTICLE 3 - RULES OF CONSTRUCTION..............................................3
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS......5
4.1 Corporate Organization........................................5
4.2 Capitalization................................................6
4.3 Authority; No Violation.......................................6
4.4 Financial Statements..........................................7
4.5 Broker's and Other Fees.......................................8
4.6 Absence of Certain Changes or Events..........................8
4.7 Legal Proceedings.............................................8
4.8 Taxes and Tax Returns.........................................9
4.9 Benefit Plans................................................10
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........................................17
4.15 No Parachute Payments........................................17
4.16 Absence of Certain Agreements and Practices..................18
4.17 Major Vendors and Customers..................................18
4.18 Accounts Receivable..........................................18
4.19 Corporate Records............................................19
4.20 Combinations Involving Seller................................19
4.21 Bank Accounts................................................19
4.22 Labor Relations..............................................19
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4.23 Disclosure...................................................19
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE 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; Accredited Investor Status............22
5.9 Economic Risk................................................22
5.10 Tax Advice...................................................22
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT..........................23
6.1 Corporate Organization.......................................23
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..........................................25
6.7 Legal Proceedings............................................26
6.8 Taxes and Tax Returns........................................26
6.9 Compliance with Applicable Laws..............................27
6.10 Disclosure...................................................27
ARTICLE 7 - COVENANTS AND CERTAIN ACTIONS OF THE PARTIES......................27
7.1 Best Efforts; Further Assurances; Cooperation................27
7.2 Public Announcements.........................................28
7.3 Affiliates...................................................28
7.4 Shareholders' Approval.......................................28
7.5 Release by the Shareholders..................................28
7.6 Employee Matters.............................................28
(a) Employee Benefits......................................28
(b) Employment Agreements..................................29
7.7 Tax Matters..................................................29
7.8 Life Insurance Premiums......................................29
7.9 Release from Guaranties......................................29
7.10 Registration Rights..........................................29
(a) Title to Vehicles......................................29
ARTICLE 8 - CLOSING CONDITIONS................................................30
8.1 Conditions of Each Party's Obligations Under this Agreement..30
(a) Approvals and Regulatory Filings.......................30
(b) Suits and Proceedings..................................30
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(c) Escrow Agreement.......................................30
8.2 Conditions to the Obligations of Parent and Merger Sub Under
this Agreement...............................................30
(a) Covenants and Agreements; Consents.....................30
(b) Opinion of Counsel.....................................31
(c) Certificates...........................................31
(d) Employment Agreements..................................31
(e) Shareholders Agreement.................................31
(f) Consulting Agreement...................................31
(g) Resignations...........................................31
(h) Financing..............................................31
(i) Escrow Agreement.......................................31
8.3 Conditions to the Obligations of Seller and the Shareholders
Under this Agreement.........................................31
(a) Covenants and Agreements; Consents.....................31
(b) Opinion of Counsel to Parent...........................32
(c) Certificates...........................................32
(d) Employment Agreements..................................32
(e) Shareholders Agreement.................................32
(f) Consulting Agreement...................................32
(g) Escrow Agreement.......................................32
(h) Merger Consideration...................................32
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ARTICLE 9 - AMENDMENT AND WAIVER..............................................32
9.1 Specific Performance........................................32
9.2 Amendment...................................................33
9.3 Extension; Waiver...........................................33
ARTICLE 10 - INDEMNIFICATION .................................................33
10.1 Indemnification by the Shareholders.........................33
10.2 Indemnification by Parent the Surviving Corporation.........33
10.3 Claims for Indemnification..................................34
10.4 Matters Involving Third Parties.............................34
10.5 Indemnification Payment.....................................35
10.6 Arbitration.................................................35
10.7 Tax Effect and Insurance....................................36
10.8 Indemnification Exclusive Remedy............................36
10.9 Certain Limitations.........................................36
10.10 Contribution Agreement......................................37
ARTICLE 11 - MISCELLANEOUS....................................................37
11.1 Expenses....................................................37
11.2 Notices.....................................................37
11.3 Parties in Interest.........................................38
11.4 Entire Agreement............................................39
11.5 Counterparts................................................39
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11.6 Governing Law...............................................39
11.7 Invalidity of any Part......................................39
11.8 Time of the Essence; Computation of Time....................39
ARTICLE 12 EXHIBITS AND SCHEDULES
Exhibit No. Description
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Exhibit 7.3 Affiliate Representation Letter
Exhibit 8.2(b) Form of Opinion of Counsel to Seller
Exhibit 8.2(d)(1) Form of Employment Agreement for Xx. XxXxxxxx
Exhibit 8.2(d)(2) Form of Employment Agreement for Xx. Xxxxxxxx
Exhibit 8.2(e) Form of Joinder to Shareholders Agreement
Exhibit 8.2 (f) Form of Consulting Agreement for Xx. XxXxxxxx
Exhibit 8.3(b) Form of Opinion of Counsel to Parent
Schedule No. Description
----------------- -----------------
Schedule 2.1 Merger Consideration
Seller Disclosure
Schedule No. Description
----------------- -----------------
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 4.5 Broker's and Other Fees
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 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 4.19 Corporate Records
Schedule 4.21 Bank Accounts
Schedule 4.22 Labor Relations
Schedule 7.8 Life Insurance Policies
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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 6.2 Parent's Capitalization
Schedule 6.3 Defaults; Conflicts and Liens Created
Schedule 6.4 Parent Financial Statements
Schedule 6.7 Legal Proceedings
Schedule 6.8 Taxes and Tax Returns
Schedule 6.9 Compliance with Applicable Laws
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 31st day of January,
1999 (the "Agreement"), is by and among MegaMarketing Corporation, a Georgia
corporation ("Parent"), MegaMarketing Acquisition Four, Inc., a Georgia
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), UST, Inc., a
Georgia corporation ("Seller"), and Xxxxxx X. XxXxxxxx and Xxxxx Xxxxxxxx, the
shareholders of Seller (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 Merger Sub
with and into Seller with Seller surviving and the Shareholders receiving the
consideration hereinafter set forth (the "Merger");
WHEREAS, the Boards of Directors of Seller, Parent and Merger Sub have
duly adopted and approved this Agreement; Merger Sub's sole shareholder has
approved the Agreement; and the Board of Directors of Seller has recommended
this Agreement to the Shareholders, who have approved it;
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), Merger Sub
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shall be merged with and into Seller in accordance with the provisions of this
Agreement and the Georgia Business Corporation Code (the "GBCC"), and the
separate existence of Merger Sub shall thereupon cease, and Seller, 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 GBCC including, but not limited to, Section
14-2-1106 of the GBCC.
1.2 Closing. The consummation of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx
Xxxxx & Scarborough, L.L.P., 000 Xxxxxxxxx Xxxxxx, X.X., Xxxxx 0000, Xxxxxxx,
Xxxxxxx 00000 on February 3, 1999, or such other date and time as is mutually
agreeable to the parties hereto (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 Closing, the parties shall cause a certificate of merger (the
"Certificate of Merger") to be executed, delivered and filed with the Secretary
of State of Georgia in accordance with the
provisions of the GBCC. The Merger shall become effective at the close of
business on the date that the Certificate of Merger is filed with the Secretary
of State of Georgia pursuant to the GBCC (the "Effective Time"). Notwithstanding
the foregoing, the Merger shall be effective as of January 1, 1999 to the full
extent legally permissible for all accounting and financial reporting purposes,
but only if such deemed effectiveness will not result in any adverse tax
consequences to either of the Shareholders.
1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation
---------------------------------
and Bylaws of Seller 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
---------------------------------------------------
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. At the Effective Time, in consideration for the
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Shareholders' entry into this Agreement and fulfillment of the obligations,
covenants, terms and conditions set forth in this Agreement, by virtue of
the Merger:
(a) Seller Common Stock. The issued and outstanding shares of
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stock of Seller without par value per share (the "Seller Common Stock") (an
aggregate of 100,000 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 (X) One Hundred Forty-nine Thousand
Eight Hundred Eighty (149,880) shares of common stock, without par value, of
Parent (the "Parent Common Stock") and (Y) Three Million Eight Hundred
Seventy-five Thousand and no/100 Dollars ($3,875,000) in cash (the "Cash"), as
described in Schedule 2.1 hereto, including the escrow arrangements described
------------
therein.
(b) Treasury Shares. Each share of Seller Common Stock held in
---------------
the treasury of Seller shall be automatically canceled and extinguished, and no
payment shall be made in respect of such shares.
(c) Merger Sub Common Stock. Each issued and outstanding share
-----------------------
of Merger Sub common stock at the Effective Time shall be converted into and
shall thereafter 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(b).
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2.3 Surrender and Exchange of Certificates Representing Seller Common
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Stock. At the Closing, each Shareholder shall surrender to Parent an outstanding
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certificate or certificates that immediately prior to the Effective Time
represented his Seller Common Stock (the "Certificates"). In exchange, such
Shareholder shall be entitled to receive at the Closing (subject to the escrow
provisions described in Schedule 2.1 if applicable), (a) the amount of Cash to
------------
which such Shareholder shall have become entitled pursuant to the provisions of
Schedule 2.1, payable by wire transfer to such Shareholder's designated account;
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and (b) one or more certificates as requested by the Shareholder (properly
issued, executed and countersigned, as appropriate) representing the number of
duly paid and nonassessable shares of Parent Common Stock to which such
Shareholder shall have become entitled pursuant to the provisions of Schedule
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2.1; and the Certificates so surrendered shall forthwith be canceled. The Cash
---
and the Parent Common Stock to be paid and issued to the Shareholders hereunder
shall sometimes be referred to collectively as the "Merger Consideration." From
the Effective Time until surrender in accordance with the provisions of this
Section, 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 of this Agreement shall be deemed to have been made in
full satisfaction of all rights pertaining to such securities.
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;
3
(f) Any reference to "writing" includes printing, typing, lithography
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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
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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, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(j) References in this Agreement to the "Seller Disclosure Schedules"
shall mean the disclosure schedules, dated as of the date of this Agreement,
which have been delivered on the date of this Agreement by Seller to Parent, 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;
(k) References in this Agreement to the "Shareholder Disclosure
Schedules" shall mean the disclosure schedules, dated as of the date of this
Agreement, which have been delivered on the date of this Agreement by the
Shareholders to Parent, 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;
(l) References in this Agreement to the "Parent Disclosure Schedules"
shall mean the disclosure schedules, dated as of the date of this Agreement,
which have been delivered on the date of this Agreement by Parent to Seller, 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;
(m) The term "including" shall mean "including, without limitation";
---------
(n) The term "Governmental Authority" means any United States federal
or state or foreign, governmental, regulatory or administrative authority,
agency, department, board, investigative body or commission or any court,
tribunal, or judicial or arbitral body;
(o) 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 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
4
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;
(p) 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;
(q) The term "Parent Subsidiary" means any Subsidiary of Parent;
(r) The term "Applicable Laws" means all applicable (i) statutes,
ordinances or other legislative enactments of the United States of America or
other country or foreign government, or of any state or agency thereof, (ii)
rules, regulations, orders, permits, directives or other actions or approvals of
any Governmental Authority, and (iii) judgments, awards, orders, decrees, writs
and injunctions of any court, Governmental Authority or arbitrator.
(s) Each party and its counsel have 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.
(t) A matter disclosed by any party on any numbered schedule included
in the disclosure schedules delivered by such party shall be deemed to also have
been disclosed on all other numbered schedules included in such disclosure
schedules to the extent applicable.
(u) The term "Knowledge" means actual knowledge.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDERS
Seller and the Shareholders jointly and severally by this Agreement
represent and warrant to Parent as follows:
4.1 Corporate Organization.
----------------------
(a) Seller is a corporation duly incorporated and validly existing
under the laws of the State of Georgia. 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, except as set forth on Seller
------
Disclosure Schedule 4.1, 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 Seller.
(b) Seller has no Subsidiaries.
5
(c) Seller Disclosure Schedule 4.1 sets forth copies of the
------------------------------
Articles of Incorporation and bylaws of Seller.
(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
--------------
2,000,000 shares of common stock and no shares of preferred stock or any other
form of capital stock. Seller Disclosure Schedule 4.2 sets forth the number of
------------------------------
shares of Seller Common Stock owned by each of the Shareholders. Except as set
forth on Seller Disclosure Schedule 4.2, no shares of Seller Common Stock are
------------------------------
outstanding. All Seller Common Stock has been duly authorized and validly issued
and is fully paid and nonassessable, was not issued in violation of any
preemptive rights and was issued under available exemptions from federal and
state securities laws. Except as set forth on Seller Disclosure Schedule 4.2,
------------------------------
neither Seller nor either Shareholder has granted or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character (except for the letter of intent with Parent) 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 the filing of the Certificate of Merger in
accordance with the GBCC, and except as set forth on Seller Disclosure Schedule
--------------------------
4.3, (the "Seller Approvals"), no consents, approvals, authorizations,
---
clearances or orders of, filings or registrations with or notices to
(collectively, the "Authorizations") any third party or any Governmental
Authority are necessary on behalf of Seller or the Shareholders in connection
with (i) the execution and delivery by Seller and the Shareholders of this
Agreement and (ii) the consummation by Seller and the Shareholders of the Merger
and the other transactions contemplated by this Agreement. 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 by this Agreement in accordance with the terms of this
Agreement. The execution and delivery of this Agreement have been duly and
validly approved by the Board of Directors of Seller and by the Shareholders in
accordance with the Articles of Incorporation and bylaws of Seller and with
Applicable Laws. Except for the Seller Approvals, no other corporate proceedings
on the part of Seller are necessary for Seller and the Shareholders to execute
and deliver this Agreement and be bound by the terms of this Agreement. This
Agreement has been duly and validly executed and delivered by Seller and the
Shareholders and constitutes the valid and binding obligation of Seller and
Shareholders enforceable against Seller and the Shareholders in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium or similar laws affecting the enforcement of creditors' rights
generally, and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought.
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(b) Neither the execution and delivery of this Agreement by Seller
or the Shareholders, nor the consummation by Seller and the Shareholders of the
Merger and the other transactions contemplated by this Agreement in accordance
with the terms of this Agreement, nor compliance by Seller and the Shareholders
with any of the terms or provisions of this Agreement, will: (i) assuming the
Seller Approvals are duly obtained, violate any provision of Seller's Articles
of Incorporation or bylaws; (ii) assuming that the Seller Approvals are duly
obtained, violate any Applicable Laws; or (iii) except as set forth in Seller
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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 Shareholders 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 either
Shareholder is a party, or by which they or any of their respective properties
or assets may be bound or affected; in all cases except where such violation,
conflict, breach, termination, acceleration or creation would not have a
Material Adverse Effect on Seller.
4.4 Financial Statements.
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(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,
retained earnings and cash flow for the period ended December 31, 1997, and (ii)
internally prepared interim financial statements of Seller (balance sheet and
income statement) dated October 31, 1998 and for the ten (10) month period ended
October 31, 1998 (collectively, together with the related notes and any
additional financial statements, the "Seller Financial Statements"). The Seller
Financial Statements present fairly, in all material respects, the financial
position of Seller as of the respective dates set forth in the Seller Financial
Statements, and the results of Seller's operations and its cash flows for the
respective periods set forth in the Seller Financial Statements; except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments and lack footnote disclosures, all of which
adjustments and all of such footnote disclosures are not, in the aggregate,
except as reflected on Seller Disclosure Schedule 4.4, believed by the
------------------------------
management of Seller or by the Shareholders to be material and adverse to the
business or operations of the Seller when taken as a whole.
(b) The books and records of Seller have been maintained in
compliance with applicable legal and accounting requirements and in accordance
with generally accepted accounting principles and practices.
(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 October 31, 1998, Seller had no liabilities or obligations
------------
of any kind, whether absolute, accrued, contingent or otherwise ("Liabilities").
Except as set forth on Seller Disclosure Schedule 4.4 or Seller Disclosure
------------------------------ -----------------
Schedule 4.6, since October 31, 1998, Seller has not
------------
7
incurred any Liabilities except in the ordinary course of business and
consistent with past practice. Further, at the Effective Xxxx Xxxxxx shall have
no liabilities other than trade payables due and owing for periods consistent
with Seller's past practices in the ordinary course of business, capitalized
leases for equipment, and other liabilities in the ordinary course of business
consistent with past practices (such trade payables, capitalized leases, and
other liabilities are collectively referred to as "Acceptable Liabilities").
Acceptable Liabilities may include Seller's $150,000 December 30, 1998 equipment
loan from Regions Bank and Seller's line of credit with Regions Bank if and only
to the extent that the outstanding amount of the line of credit was drawn to pay
Acceptable Liabilities, the S Distribution (which shall in no event exceed
$250,000), and the 1998 Bonuses. The term "S Distribution" means the approximate
amount of unpaid federal and state taxes the Shareholders will be required to
pay, as a result of being shareholders of Seller (an S corporation), in 1998
through the Closing Date; and the term "1998 Bonuses" means the
performance-based bonuses earned by employees of Seller.
4.5 Broker's and Other Fees. Except as disclosed in Seller Disclosure
----------------------- -----------------
Schedule 4.5, neither Seller nor either Shareholder 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. Except as disclosed in Seller Disclosure Schedule 4.5, there are no
------------------------------
fees payable to any consultants, including lawyers and accountants, in
connection with this Agreement or the transactions contemplated by this
Agreement or which would be triggered by consummation of this Agreement or the
transactions contemplated by this Agreement or the termination of the services
of such consultants by Seller or the Shareholders.
4.6 Absence of Certain Changes or Events.
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(a) Except as disclosed by Seller prior to the date hereof, and
except as disclosed in Seller Disclosure Schedule 4.6, there has been no
------------------------------
Material Adverse Effect on Seller since October 31, 1998 and to Seller's and the
Shareholders' 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 set forth in Seller Disclosure Schedule 4.6, and
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except for execution of this Agreement, since October 31, 1998 Seller has
conducted its business only in the ordinary course, consistent with past
practice.
4.7 Legal Proceedings. Except as disclosed in Seller Disclosure
-----------------
Schedule 4.7, neither Seller nor either of the Shareholders is a party to any,
------------
and there is no pending or, to Seller's or the Shareholders' Knowledge,
threatened legal, administrative, arbitral or other proceeding, claim, action or
governmental investigation of any nature against Seller, that is reasonably
likely to have a Material Adverse Effect on 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 that is reasonably likely to have a
Material Adverse Effect on Seller. Without limiting the foregoing, except as
disclosed in Seller Disclosure Schedule 4.7, no actions, suits, demands,
------------------------------
notices, claims, investigations or proceedings that are reasonably
8
likely to have a Material Adverse Effect on Seller are pending or, to Seller's
or the Shareholders' 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 Shareholders, are there any
circumstances which could lead to such actions, suits, demands, notices, claims,
investigations or proceedings that are reasonably likely to have a Material
Adverse Effect on Seller.
4.8 Taxes and Tax Returns. Except as disclosed in Seller Disclosure
--------------------- -----------------
Schedule 4.8:
------------
(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 it in respect of any United States federal,
state or local Taxes and has 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 in this Agreement, "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 that are
incurred in respect of Seller through such date.
(b) Neither Seller nor Shareholders have received any notice that
any of the Returns of Seller has been examined by the United States Internal
Revenue Service (the "IRS"), or any other United States federal or state
Governmental Authority within the past six years. To the Knowledge of Seller and
the Shareholders: 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 and
payable or being properly contested. Any Taxes being properly contested are
disclosed on Seller Disclosure Schedule 4.8. 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
9
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 have any Knowledge that any
Governmental Authority has proposed any such adjustment or change of accounting
method); (iv) has not 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 by this Agreement; or
(v) has not been a member of an affiliated group other than one of which Seller
was the common parent.
4.9 Benefit Plans.
-------------
(a) Certain definitions used in this Section are as follows:
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"DOL" shall mean the United States Department of Labor.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean, with respect to a Person, any other
Person which is required to be aggregated with such Person under
Code Section 414(b), (c), (m) and/or (o) at any time prior to the
Closing.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under Title IV of ERISA.
"Person" shall include, but is not limited to, an individual, a
trust, an estate, a partnership, an association, a company, a
corporation, a sole proprietorship, a professional corporation or
a professional association.
(b) Seller Disclosure Schedule 4.9 lists (i) each pension,
------------------------------
retirement, profit-sharing, cash or deferred, deferred compensation, stock
option, phantom stock, stock appreciation rights, employee stock ownership,
severance pay, vacation, paid time off, education-reimbursement, bonus,
incentive, and other or similar plan, program or other arrangement, (ii) each
cafeteria, Section 125, medical, vision, dental, disability, death benefit, life
insurance, health and/or accident plan, program or other arrangement, (iii) each
written or unwritten employee or other or similar program, arrangement,
agreement or understanding, whether arrived at through collective bargaining or
otherwise, and (iv) each other employee benefit plan, voluntary employees'
beneficiary association, fringe benefit plan, and other or similar plan, program
or other arrangement, agreement or understanding, including, without limitation,
each "employee benefit plan," as that term is defined in Section 3(3) of ERISA,
which is currently maintained, sponsored in whole or in part, or contributed to
by Seller or any ERISA Affiliate of Seller, for the benefit of, providing any
remuneration or benefits to, or covering any current or former employee,
retiree, dependent, spouse or other family member or beneficiary of such
employee or retiree, director, independent contractor, shareholder,
10
officer or consultant or other beneficiary of Seller or any ERISA Affiliate of
Seller or under (or in connection with) which Seller or an ERISA Affiliate of
Seller has any contingent or noncontingent liability of any kind, whether or not
probable of assertion (collectively, the "Benefit Plans"). Any of the Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, or an "employee welfare benefit plan" as that term is
defined in Section 3(1) of ERISA, is referred to herein as an "ERISA Plan."
(c) Seller Disclosure Schedule 4.9 also lists, with respect to
------------------------------
all Benefit Plans listed therein: (i) all trust agreements or other funding
arrangements, including insurance contracts, all annuity contracts, financial
contributions, actuarial statements or valuations, fidelity bonds, fiduciary
liability policies, investment manager or advisory contracts, corporate
resolutions or memoranda, administrative committee minutes or memoranda or
records, and all amendments (if any) thereto, (ii) where applicable, with
respect to any such plans or plan amendments, the most recent determination
letters issued by the IRS, (iii) all communications or other correspondence
issued within the last six (6) years by any Regulatory Authority, including
without limitation, the IRS, DOL and the PBGC with respect to such Benefit Plan,
(iv) annual reports or returns and audited or unaudited financial statements for
the most recent three plan years and any amendments thereto, and (v) the most
recent summary plan descriptions, any material modifications thereto, and all
material employee communications with respect to such Benefit Plans. Prior to or
contemporaneous with the delivery of Seller Disclosure Schedule 4.9, Seller has
------------------------------
delivered a true and complete copy of all such Benefit Plans, agreements,
letters, rulings, opinions, letters, reports, returns, financial statements and
summary plan descriptions described in this Section 4.9.
(d) All the Benefit Plans and any related trusts subject to
ERISA comply with and have been administered in compliance with the provisions
of ERISA, all applicable provisions of the Code relating to qualification and
tax exemption under Code Sections 401(a) and 501(a) or otherwise necessary to
secure intended tax consequences, all applicable state or federal securities
laws and all other applicable laws, rules and regulations and collective
bargaining agreements, and Seller has not received any notice from any
Regulatory Authority or instrumentality questioning or challenging such
compliance. All available governmental approvals for the Benefit Plans have been
obtained, including, but not limited to, timely determination letters on the
qualification of the ERISA Plans and tax exemption of, related trusts, as
applicable, under the Code and timely registration and disclosure under
applicable securities laws, and all such governmental approvals continue in full
force and effect. No event has occurred that will or could give rise to
disqualification of any such Benefit Plan under Sections 401(a) or 501(a) of the
Code or to a tax under Section 511 of the Code.
(e) Neither Seller nor any administrator or fiduciary of any
such Benefit Plan (or agent or delegate of any of the foregoing) has engaged in
any transaction or acted or failed to act in any manner that could subject
Seller to any direct or indirect liability (by indemnity or otherwise) for a
breach of any fiduciary, co-fiduciary or other duty under ERISA. No oral or
written representation or communication with respect to any aspect of the
Benefit Plans has been or will be made to employees of Seller prior to the
Closing that is not in accordance with the written or otherwise preexisting
terms and provisions of such Benefit Plans in effect immediately prior to the
Closing, except for any amendments or terminations required by the
11
terms of this Agreement. There are no unresolved claims or disputes under the
terms of, or in connection with, the Benefit Plans and no action, legal or
otherwise, has been commenced with respect to any claim.
(f) All annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and accurate
as of the dates thereof; and there have been no amendments filed to any of such
reports, returns, statements, valuations or descriptions or required to make the
information therein true and accurate.
(g) Neither Seller nor any other "party in interest" (as defined
in Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975(e)(2) of the Code) of any Benefit Plan has engaged in any "prohibited
transaction" (within the meaning of Sections 503(b) or 4975(c) of the Code or
Section 406 of ERISA) with respect to such Benefit Plan, for which there is no
statutory, regulatory or individual or class exemption. There has been no (a)
"reportable event" (as defined in Section 4043 of ERISA), or event described in
Section 4062(f) or Section 4063(a) of ERISA or (b) termination or partial
termination, withdrawal or partial withdrawal with respect to any of the ERISA
Plans that Seller or any ERISA Affiliate of Seller maintains or contributes to
or has maintained or contributed to or was required to maintain or contribute to
for the benefit of employees of Seller or any ERISA Affiliate of Seller now or
formerly in existence.
(h) For any ERISA Plan that is an employee pension benefit plan
as defined in ERISA Section 3(2), the fair market value of such Benefit Plan's
assets equals or exceeds the present value of all benefits (whether vested or
not) accrued to date by all participants in such Benefit Plan. For this purpose
the assumptions prescribed by the Pension Benefit Guaranty Corporation for
valuing plan assets or liabilities upon plan termination shall be applied and
the term "benefits" shall include the value of any early retirement or ancillary
benefits (including shutdown benefits) provided under any Benefit Plan. As of
the Closing, full payment will have been made of all amounts which Seller is
required to have made at or prior to such time, under any Applicable Laws, as a
contribution to any Benefit Plan of Seller or of an ERISA Affiliate of Seller,
and no accumulated funding deficiency (as defined in ERISA Section 302 or Code
Section 412), whether or not waived, will exist with respect to any Benefit
Plan.
(i) Except as described on Seller Disclosure Schedule 4.9, as of
------------------------------
the Closing, Seller will have no current or future liability with respect to any
events or matters occurring, arising or accruing on or prior to such date under
any Benefit Plan (A) that was not reflected in the Seller Financial Statements
or (B) that represents contributions required to be made under written terms of
such Benefit Plan as of the Closing.
(j) Seller does not maintain any Benefit Plan providing deferred
or stock based compensation which is not reflected in the Seller Financial
Statements.
(k) Neither Seller nor any ERISA Affiliate of Seller has
maintained, and neither now maintains, a Benefit Plan providing welfare benefits
(as defined in ERISA Section 3(1)) to employees after retirement or other
separation of service except to the extent required under Part 6 of Title I of
ERISA and Code Section 4980B.
12
(l) Except as set forth on Seller Disclosure Schedule 4.9, the
------------------------------
consummation of the Merger and the other transactions contemplated by this
Agreement will not (i) entitle any current or former employee (or any spouse,
dependent or other family member of such employee) of Seller or any ERISA
Affiliate of Seller to severance pay, unemployment compensation or any payment
contingent upon a change in control or ownership of Seller, or (ii) accelerate
the time of payment or vesting, or increase the amount, of any compensation due
to any such employee or former employee (or any spouse, dependent or other
family member of such employee).
(m) All Benefit Plans subject to Section 4980B of the Code, as
amended from time to time, or Part 6 of Title I of ERISA or both have been
maintained in good faith compliance with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder.
(n) No liability to the PBGC has been incurred as of the Closing
by Seller or any ERISA Affiliate of Seller, except for PBGC insurance premiums,
and all such insurance premiums incurred or accrued up to and including the
Closing have been timely paid.
(o) Neither Seller or any ERISA Affiliate of Seller maintains or
has maintained, has contributed to or has been required to contribute to, a
multi-employer plan (as defined in Section 3(37) of ERISA). No amount is due or
owing from Seller on account of a multi-employer plan (as defined in Section
3(37) of ERISA) on account of any withdrawal therefrom.
(p) All annual reports (as described in Section 103 of ERISA) and
all Forms 5500 relating to the applicable provisions of the Code required to be
filed in connection with one or more of the Benefit Plans have been timely and
properly filed in accordance with Applicable Laws.
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 where the failure to hold any License would not have a Material
Adverse Effect on Seller. No proceeding is pending or, to the Knowledge of
Seller or the Shareholders, threatened seeking the revocation or suspension of
any License. Seller is and has been in compliance in all material respects with
all Applicable Laws, except where the failure to be in compliance would not have
a Material Adverse Effect on Seller; and neither Seller nor either Shareholder
has received any written notices from any Governmental Authority of any
allegation of any violation of any Applicable Laws or Licenses.
4.11 Certain Contracts.
-----------------
(a) Seller Disclosure Schedule 4.11 lists the following written
-------------------------------
agreements (collectively, the "Material Contracts"), to which Seller is a party
or by which Seller or any of its properties or assets is bound:
13
(i) all written agreements that involve an annual commitment
or payment by any party thereto of more than $25,000 individually or $50,000 in
the aggregate or which have a fixed term extending more than 12 months from the
date of this Agreement (there being no oral agreements of this kind);
(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, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium or similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
(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 (on any basis other than
at-will) 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 written severance or employment
---
agreements with officers, directors, employees, agents or consultants to which
Seller is a party. Except as set forth on Seller Disclosure Schedule 4.11,
-------------------------------
Seller is not a party to any oral agreements of the kind referred to in the
preceding sentence.
(c) Except as disclosed in Seller Disclosure Schedule 4.11, no
-------------------------------
agreement or understanding to which Seller is a party or by which it 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,
-------------------------------
neither Seller nor, to the Knowledge of Seller and the Shareholders, any other
party thereto, is in default under any of the Material Contracts or any other
agreement to which Seller is a party or to
14
which it or its properties is bound; to the Knowledge of Seller and the
Shareholders, 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 Seller to terminate a Material Contract or other
such agreement; 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 by Seller entitling any other 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 affected, altered or impaired by the consummation of the
transactions contemplated by this Agreement. To the Knowledge of the
Shareholders, 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 Seller prior to the date of this Agreement without
interference or interruption.
4.12 Properties and Insurance.
------------------------
(a) Except as disclosed in the Seller Financial Statements or
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, 1998, or owned and acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of 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;
(ii) such Liens and title imperfections that do not in the aggregate have a
Material Adverse Effect on Seller; (iii) statutory liens securing the claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords, and other
like persons for labor, materials, supplies, or rentals, if any; (iv) Liens
resulting from deposits made in connection with workers' compensation,
unemployment insurance, social security and like laws; and (v) Liens of banks
and financial institutions with respect to funds on deposit therewith or other
property in possession thereof. 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 its benefit against all risks which, in the reasonable
judgment of the Shareholders, 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
opinion of the Shareholders adequate for the business engaged in by Seller.
Certificates of insurance with respect to all such policies as in effect on the
date of this Agreement are attached hereto as Seller Disclosure Schedule 4.12.
-------------------------------
Neither Seller nor either of the Shareholders has received any written notice of
cancellation or written 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.
15
(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 Shareholders, 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 by this Agreement materially and 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 written
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 materially 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. The properties and assets owned or leased
by Seller are adequate for the conduct of its business as presently conducted
and are in good repair and operating condition, normal wear and tear excepted.
The properties and assets owned or leased by Seller constitute all of the
property and assets that Seller uses or may reasonably need 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
respects with all applicable Environmental Laws (as defined below).
(b) Seller has obtained all 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
respects with all terms and conditions thereof.
(c) Neither Seller nor either of the Shareholders 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, and there is no past
or present action, activity, condition or circumstance that could be expected to
give rise to any such liability on the part of Seller to any person or entity or
for any such cleanup costs.
(d) The term "Environmental Laws" shall mean all Applicable Laws
relating to pollution or protection of the environment.
16
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 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
(except "off-the-shelf" computer software being used in accordance with the
standard license therefor), 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 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 Section 4.14 or 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 other than those disclosed in Seller Disclosure Schedule
--------------------------
4.12.
----
(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. To the Knowledge of Seller and the Shareholders, 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. The computer software performs
substantially in accordance with the documentation related thereto or used in
connection therewith and is adequate for the business purpose for which it is
used. 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)
17
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 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;
(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 in this Agreement;
(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 $25,000 from January
1, 1997 through November 30, 1998.
4.18 Accounts Receivable. Seller Disclosure Schedule 4.18 sets forth
------------------- -------------------------------
the accounts receivable of Seller as of October 31, 1998, as reflected in the
Seller Financial Statements as
18
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, and except as
disclosed in Seller Disclosure Schedule 4.18, will be good and collectible at
-------------------------------
the recorded amounts thereof. Except as disclosed in Seller Disclosure Schedule
--------------------------
4.18, no portion of the accounts receivable is subject to counterclaim or
----
setoff.
4.19 Corporate Records. Except as set forth on Seller Disclosure
----------------- -----------------
Schedule 4.19, the corporate record books (including the share records) of
-------------
Seller are complete, accurate and up to date in all material respects with all
necessary signatures and set forth all meetings and actions taken by the
shareholders 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 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 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" about which Seller or the Shareholders have
been notified. There is no unfair labor practice charge or complaint against
Seller pending before the National Labor Relations Board ("NLRB") about which
Seller or the Shareholders have been notified. There is no labor strike,
dispute, slowdown or stoppage actually pending or, to the Knowledge of Seller or
the Shareholders, threatened against or involving or affecting Seller and no
NLRB representation question exists respecting any of its employees. No
grievance or arbitration proceeding is pending and no written claim therefor
exists. There is no collective bargaining agreement that is binding on Seller.
4.23 Disclosure. No representation, warranty, or statement made by
----------
Seller or the Shareholders 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 in this Agreement or in such
document or certificate not misleading. All facts known or reasonably available
to Seller or the Shareholders that are material to the financial condition,
operation, or prospects of the business and assets of Seller have been disclosed
to Parent.
19
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder, severally and not jointly, represents and warrants to
Parent, with respect to himself and his ownership of Seller Common Stock, as
follows:
5.1 Ownership of Shares. The Shareholder owns of record and beneficially
all of the Seller Common Stock set forth opposite his name on Seller Disclosure
-----------------
Schedule 4.2. The 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 restrictions shall be
------------------------------
terminated at or prior to the Closing). The Shareholder owns no other securities
of Seller, and no other shares of the Seller Common Stock are issued and
outstanding.
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) the Shareholder has the right, power and authority
to enter into the Shareholder Delivered Agreements executed and delivered by him
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 the
Shareholder enforceable against the Shareholder in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium or similar
laws affecting the enforcement of creditors' rights generally, and except that
the availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
5.3 Absence of Violations or Conflicts. Except as set forth on
----------------------------------
Shareholder Disclosure Schedule 5.3, the execution and delivery of the
-----------------------------------
Shareholder Delivered Agreements and the consummation by the 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 the Shareholder is a party or to which he or his
properties or Seller or its properties are subject or bound, (B) any judgment,
decree or order of any Governmental Authority to which the Shareholder or his
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
the Shareholder that would result in any Lien or other claim upon the assets of
Seller; in all cases except where such violation, conflict, default, payment,
20
termination, creation, imposition or acceleration would not have a Material
Adverse Effect on Seller or the Shareholder.
5.4 No Consents Required. Except for the filing of the Certificate of
--------------------
Merger in accordance with the GBCC, and except for the Seller Approvals, and
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 the Shareholder is required in connection with
his 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 the Shareholder.
5.5 No Claims Against Seller. To the knowledge of the Shareholder,
------------------------
except as set forth on Shareholder Disclosure Schedule 5.5, the 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. The 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 by this Agreement.
5.7 Investment Intent. The Shareholder will acquire the Parent Common
-----------------
Stock pursuant to this Agreement for his own account, to hold for investment and
with no present intention of dividing his participation with others or reselling
or otherwise participating, directly or indirectly, in a distribution thereof,
and he 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, the Shareholder has no plan or intention to sell or otherwise dispose
of any of the Parent Common Stock issued to him pursuant to this Agreement. The
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 REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES" HAVE BEEN ISSUED AND SOLD IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933
(THE "1933 ACT") AND SECTION 10-5-9(13) OF THE OFFICIAL CODE
OF GEORGIA ANNOTATED (THE "GEORGIA CODE"). THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i)
PURSUANT TO AN EFFECTIVE REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE 1933 ACT AND THE GEORGIA CODE, AND (ii)
UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF
COMPLIANCE WITH THE 1933 ACT, THE GEORGIA CODE AND THE
APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE
ISSUER
21
SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL
SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER
SET FORTH IN AN AGREEMENT AND PLAN OF MERGER (THE AGREEMENT)
DATED AS OF JANUARY 31, 1999 AMONG THE ISSUER AND THE HOLDER
OF THE 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 ISSUER UPON REQUEST.
5.8 Access to Information; Accredited Investor Status. The Shareholder
-------------------------------------------------
has been given access to all material and relevant information concerning
Parent, thereby enabling the Shareholder to make an informed investment decision
concerning his investment in the Parent Common Stock. The Shareholder has relied
solely upon an independent investigation made by him and his representatives, if
any, and has, prior to the date of this Agreement, been given access to and the
opportunity to examine data and information relating to Parent. In making his
investment decision to acquire the Parent Common Stock pursuant to this
Agreement, the 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 the MegaMarketing Corporation
Business Plan dated November 24, 1998, as provided to the Shareholders, and this
Agreement. Xx. XxXxxxxx has reviewed the definition of "accredited investor" in
Rule 501 of Regulation D under the 1933 Act and is an accredited investor.
5.9 Economic Risk. The Shareholder represents that he is able to bear
-------------
the economic risk of an investment in the Parent Common Stock, which the
Shareholder acknowledges is currently illiquid, including a possible total loss
of his investment. In making this statement, the Shareholder represents and
warrants to Parent that he has adequate means of providing for his current needs
and contingencies; he is able to afford to hold the Parent Common Stock for an
indefinite period and he further represents that he has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the investment in the Parent Common Stock. Further, the
Shareholder represents that he has no present need for liquidity in the Parent
Common Stock and is willing to accept such investment risks.
5.10 Tax Advice. The Shareholder has reviewed with his tax advisor the
----------
United States federal and state tax consequences of an investment in the Parent
Common Stock and the transactions contemplated by this Agreement. The
Shareholder is relying solely on such advisors and not on any statements or
representations of Parent or any of its agents, except as provided in this
Agreement, and understands that he (and not Parent) shall be responsible for his
own tax liability that will arise as a result of this investment or the
transactions contemplated by this Agreement.
22
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Seller and the Shareholders as follows:
6.1 Corporate Organization.
----------------------
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia. Parent 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, 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.
(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 of this
Agreement, of Parent and each of the Parent Subsidiaries. Except as set forth in
the Parent Disclosure Schedule 6.1, Parent does not own or control, directly or
------------------------------
indirectly, any equity interest in any corporation, company, association,
partnership, joint venture or other entity.
6.2 Capitalization. As of the date of this Agreement, 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 of this Agreement, there are 6,719,425 shares of Parent Common
Stock issued and outstanding, 141,120 shares of Parent Preferred Stock issued
and outstanding, 693,846 shares reserved for issuance upon the exercise of that
certain Stock Purchase Warrant issued by Parent to Sirrom Investments, Inc.
("Sirrom"), and 1,254,096 shares of Parent Common Stock reserved for issuance
upon the exercise of outstanding stock options and warrants ("Parent Stock
Options"). 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 other than a
pledge to Sirrom to secure the repayment of a loan from Sirrom to Parent. Except
for the Parent Stock Options disclosed in Parent Disclosure Schedule 6.2 and the
------------------------------
warrant issued to Sirrom referenced above, as of the date of this Agreement,
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,
23
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.
6.3 Authority; No Violation.
-----------------------
(a) Except for the filings of the Merger documents as required by
the GBCC (the "Parent Approvals"), no Authorization of any Governmental
Authority is necessary on behalf of Parent in connection with the execution and
delivery by Parent of this Agreement and the consummation by Parent of the
Merger and the other transactions contemplated by this Agreement. 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 by this Agreement in accordance with the
terms of this Agreement. The execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement 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 by this Agreement. 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
and Merger Sub, nor the consummation by Parent and Merger Sub of the Merger and
the other transactions contemplated by this Agreement in accordance with the
terms of this Agreement, or compliance by Parent and Merger Sub with any of the
terms or provisions of this Agreement, will (i) assuming that the Parent
Approvals are duly obtained, violate any provision of Parent's or Merger Sub's
Articles of Incorporation or bylaws, (ii) assuming that the Parent Approvals are
duly obtained, violate any Laws 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 by this Agreement.
(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 by this Agreement
in accordance with the
24
terms of this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement 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 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) Parent Disclosure Schedule 6.4 sets forth copies of: (i) the
------------------------------
balance sheet of Parent as of December 31, 1997 and the statements of income,
shareholders' equity and cash flows for the period ended December 31, 1997 and
(ii) internally prepared interim financial statements of Parent (balance sheet
and income statement) dated October 31, 1998 and for the ten (10) month period
ended October 31, 1998 (collectively, together with the related notes and any
additional financial statements, the "Parent Financial Statements"). The Parent
Financial Statements present fairly, in all material respects, the financial
position of Parent as of the respective dates set forth in the Parent Financial
Statements, and the results of Parent's operations and its cash flows for the
respective periods set forth in the Parent Financial Statements; except that the
unaudited interim financial statements were not subject to normal and recurring
year-end adjustments and do not contain footnote disclosures, all of which
adjustments and all of such footnote disclosures are not, in the aggregate,
believed by the management of Parent to be material to the business or
operations of Parent when taken as a whole.
(b) The Parent Financial Statements, 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 in such Parent Financial Statements or
necessary in order to make the statements made in such Parent Financial
Statements, in light of the circumstances under which they were made, not
misleading.
(c) Since October 31, 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 disclosed by the Parent prior to the date of this Agreement.
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. At the Effective Time, the Parent Common
-------------------
Stock to be issued pursuant to the Merger 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
25
Parent (except as set forth in this Agreement and the documents and agreements
executed in connection herewith).
6.7 Legal Proceedings. Except as disclosed in Parent Disclosure
----------------- -----------------
Schedule 6.7, neither Parent nor Merger Sub is a party to any, and there is no
------------
pending or, to Parent's or Merger Sub's Knowledge, threatened legal,
administrative, arbitral or other proceeding, claim, action or governmental
investigation of any nature against Parent or Merger Sub. Except as disclosed in
Parent Disclosure Schedule 6.7, neither Parent nor Merger Sub is a party to any
------------------------------
order, judgment or decree entered in any lawsuit or proceeding that is likely to
have a Material Adverse Effect on Parent or Merger Sub. Without limiting the
foregoing, except as disclosed in Parent Disclosure Schedule 6.7, no actions,
------------------------------
suits, demands, notices, claims, investigations or proceedings that are likely
to have a Material Adverse Effect on Parent or Merger Sub are pending or, to
Parent's or Merger Sub's Knowledge, threatened against or otherwise involving,
directly or indirectly, any officer, director, employee or agent of Parent or
Merger Sub (in connection with such officer's, director's, employee's or agent's
activities on behalf of Parent or Merger Sub or that otherwise relate, directly
or indirectly to Parent or Merger Sub or their 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 Parent or Merger Sub, are there any circumstances which could lead
to such actions, suits, demands, notices, claims, investigations or proceedings.
6.8 Taxes and Tax Returns. Except as disclosed in Parent Disclosure
--------------------- -----------------
Schedule 6.8:
------------
(a) Each of Parent and Merger Sub has duly filed (and until the
Effective Time will so file) all Returns required to be filed by it in respect
of any United States federal, state or local Taxes and has 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 Seller in writing). Each of
Parent and Merger Sub 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 that are incurred in respect of Parent
and Merger Sub through such date.
(b) None of the Returns of Parent or Merger Sub has been examined
by 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 Parent and
Merger Sub: 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 Parent or Merger Sub; nor has Parent or Merger Sub
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 Parent or Merger Sub, except for
Liens for Taxes not yet due and payable or being properly contested. Any Taxes
being properly contested are disclosed on Parent Disclosure Schedule 6.8. Parent
------------------------------
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) Neither Parent nor Merger Sub (i) has requested any extension
of time
26
within which to file any Return which Return has not since been filed; (ii) is a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (iii) is required to include in income any adjustment by reason of a
voluntary change in accounting method initiated by Parent or Merger Sub (nor
does Parent or Merger Sub 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 Parent or Merger Sub
has agreed to recognize gain (in any manner) relating to or as a result of this
Agreement or the transactions contemplated by this Agreement; or (v) has been a
member of an affiliated group other than one of which Parent or Merger Sub was
the common parent.
6.9 Compliance with Applicable Laws. Except as set forth in Parent
------------------------------- ------
Disclosure Schedule 6.9, each of Parent and Merger Sub holds all Licenses
-----------------------
necessary for the lawful conduct of its business except where the failure to
hold any License would not have a Material Adverse Effect on Parent or Merger
Sub. No proceeding is pending or, to the Knowledge of Parent or Merger Sub,
threatened seeking the revocation or suspension of any License. Each of Parent
and Merger Sub is and has been in compliance in all material respects with all
Applicable Laws, except where the failure to be in compliance would not have a
Material Adverse Effect on Parent or Merger Sub; and neither Parent nor Merger
Sub has received any written notices from any Governmental Authority of any
allegation of any violation of any Applicable Laws or Licenses.
6.10 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 Parent or Merger Sub 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 in this
Agreement or in such document or certificate 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 and
Merger Sub have been disclosed to Seller and the Shareholders.
ARTICLE 7 - COVENANTS AND CERTAIN ACTIONS OF THE PARTIES
7.1 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 (a) to do, or
cause to be done, all things necessary, proper or advisable under Applicable
Laws to obtain all Authorizations and satisfy all conditions to the obligations
of the parties under this Agreement; (b) to cause the transactions contemplated
by this Agreement to be carried out promptly and in accordance with the terms of
this Agreement; and (c) to 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.
27
7.2 Public Announcements. Each party agrees that, without the consent
--------------------
of the other parties, it will not release or issue any reports, statements,
announcements, or releases pertaining to this Agreement and its
implementation.
7.3 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 7.3, 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 providing 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.
7.4 Shareholders' Approval. On or before the date of this Agreement,
----------------------
the Shareholders have approved the Merger in compliance with applicable law.
7.5 Release by the Shareholders. Each Shareholder hereby releases
---------------------------
Seller from any and all claims, rights and causes of action that the Shareholder
may have or may have had against Seller arising out of any transactions between
the 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 shall not apply to (a) 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) the rights of such Shareholder under
this Agreement and any agreements related hereto; (c) all rights to
indemnification enjoyed by such Shareholder, whether under the GBCC or the
Articles of Incorporation or Bylaws of Seller (as currently in effect); and (d)
rights under any current errors and omissions and directors and officers
insurance policies of Seller.
7.6 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 (the "Continuing
Employees") either (i) 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, or (ii) to participate after the Effective
Time in the employee benefit programs currently offered by Seller and to cause
the Surviving Corporation to take all actions necessary or appropriate to
continue Seller's employee benefit programs effective as of the Effective Time.
Upon the commencement of the Continuing Employees' participation upon or after
the Effective Time in Parent's employee benefit programs, 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
28
preceding sentence, for purposes of determining the amount of any benefit under)
any Parent employee benefit plan; provided, however, that except as otherwise
provided in the Employment Agreements described in Section 8.2(d) below or in
the Consulting Agreement described in Section 8.2(f) below, nothing in this
Agreement shall be deemed to require Parent to cause to be continued any
Continuing Employee's employment, responsibilities or officer title for any
definite period, or to change the terms or conditions of any existing employee
benefit program or to conform the terms of any employee benefit program that
Parent may offer in the future to the terms of the employee benefit program
previously offered by Seller or the Surviving Corporation.
(b) Employment Agreements. Subject to the exceptions specified
---------------------
in Section 7.5 above, all employment agreements between Seller and either
Shareholder are terminated.
7.7 Tax Matters. 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.
7.8 Life Insurance Premiums. From and after the Effective Time, Parent
-----------------------
shall pay one half of all premiums on the life insurance policies insuring the
life of Xx. XxXxxxxx which are listed on Schedule 7.8 hereto, conditioned upon
------------
Xx. XxXxxxxx paying the other half of such payments. Parent's payments of such
premiums shall not exceed $120,000 and shall be made pro rata as and when Xx.
XxXxxxxx makes such payments, provided that if Parent has not satisfied this
obligation upon the termination of the Consulting Agreement referenced in
Article 8 below, Parent shall place into escrow funds sufficient to satisfy the
remaining balance of the foregoing obligation. Parent hereby acknowledge that
neither Parent nor any affiliate of Parent is or shall be the beneficiary of
such policies.
7.9 Release from Guaranties. From and after the Effective Time, Parent
-----------------------
shall use good faith diligent efforts to cause each Shareholder to be released
from all personal guaranties of indebtedness and other contracts of Seller and,
to the extent that a lender is unwilling to release any Shareholder from a
guaranty despite such efforts, Parent shall indemnify such Shareholder for any
loss or expense he may suffer as a result of any claim or demand made upon him
under such guaranty. In any event, Parent shall repay in full any obligation so
guaranteed no later than December 31, 1999 (or otherwise obtain the release of
the guaranty).
7.10 Registration Rights. Parent shall provide the Shareholders with
-------------------
the same rights to participate as selling shareholders in connection with public
offerings of the Parent's common stock as are enjoyed by the members of
Parent's senior management team.
7.11 Title to Vehicles. Not later than February 15, 1999, Parent shall
-----------------
cause good and marketable title to that certain Lincoln Navigator sport utility
vehicle and that certain BMW 7-series sedan, free of all liens and encumbrances,
to be transferred to Xx. XxXxxxxx, provided that in no event shall Parent be
required to expend more than $60,000 to arrange such transfer of titles.
29
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:
(a) Approvals and Regulatory Filings. All necessary Authorizations
--------------------------------
of Governmental Authorities required to consummate the transactions contemplated
by this Agreement 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
Authorizations shall have been satisfied; and all statutory waiting periods in
respect thereof shall have expired.
(b) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated by this Agreement 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 and directors. 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 by this
Agreement 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 Parent or Seller or their
respective directors or officers 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.
(c) Escrow Agreement. First Union National Bank shall have
----------------
executed and delivered an Escrow Agreement among the Shareholders, Parent, and
First Union National Bank relating to the Cash and the shares of Parent Common
Stock to be placed in escrow pursuant to Article 2 (the "Escrow Agreement").
8.2 Conditions to the Obligations of Parent and Merger Sub Under this
-----------------------------------------------------------------
Agreement. The obligations of Parent and Merger Sub under this Agreement to
---------
consummate the Merger shall be further subject to the satisfaction or waiver, at
or prior to the Closing Date, of the following conditions (with the
effectiveness of all agreements listed below being expressly conditioned upon
consummation of the Merger):
(a) Covenants and Agreements; Consents. Each of Seller and the
----------------------------------
Shareholders shall have performed in all material respects the agreements,
covenants and obligations to be performed by it or them under this Agreement and
the other agreements contemplated hereby at or before the Effective Time. All
Authorizations of or with any nongovernmental third party that are required for
the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement by Seller and the Shareholders shall
have been obtained or made, or waived by such third party, except where
30
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 Chorey, Taylor & Xxxx, A Professional Corporation, 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 or others and such other documents described herein
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. Each of the Shareholders shall have
---------------------
executed and delivered an Employment Agreement with Parent in the form attached
hereto as Exhibit 8.2(d)(1) and Exhibit 8.2(d)(2), as applicable.
----------------- -----------------
(e) Shareholders Agreement. The Shareholders shall have executed
----------------------
and delivered a joinder agreement with Parent in the form attached hereto as
Exhibit 8.2(e) making the Shareholders parties to that certain Second Amended
-------------
and Restated Shareholders Agreement dated as of December 17, 1998 by and among
Parent and the current holders of common stock of Parent (the "Shareholders
Agreement").
(f) Consulting Agreement. Xx. XxXxxxxx shall have executed and
--------------------
delivered a Consulting Agreement with Parent in the form attached hereto as
Exhibit 8.2(f).
--------------
(g) Resignations. Seller shall have delivered to Parent, to the
------------
extent requested by Parent, the written resignations of the directors and
officers of Seller.
(h) Financing. Regions Bank shall have consented in writing to the
---------
assumption by Parent of Seller's obligations to such lender pursuant to the
$500,000 line of credit disclosed on Seller Disclosure Schedule 4.3.
------------------------------
(i) Escrow Agreement. The Shareholders shall have executed and
----------------
delivered the Escrow Agreement.
8.3 Conditions to the Obligations of Seller and the Shareholders Under
------------------------------------------------------------------
this Agreement. The obligations of Seller and the Shareholders under this
--------------
Agreement to consummate the Merger shall be further subject to the satisfaction
or waiver, at or prior to the Closing Date, of the following conditions (with
the effectiveness of all agreements listed below being expressly conditioned
upon consummation of the Merger):
(a) Covenants and Agreements; Consents. Each of Parent and Merger
----------------------------------
Sub shall have performed in all material respects the agreements, covenants and
obligations to be performed by it under this Agreement and the other agreements
contemplated hereby at or before the Effective Time. All Authorizations of or
with any nongovernmental third party that
31
are required for or in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this Agreement
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 Xxxxxx Xxxxxxx Xxxxx & Xxxxxxxxxxx, L.L.P., counsel to Parent, dated
the Closing Date, in form and substance reasonably satisfactory to Seller,
covering the matters set forth on Exhibit 8.3(b).
--------------
(c) Certificates. Each of Parent and Merger Sub shall have
------------
furnished Seller with such certificates of its officers or others and such other
documents described herein 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. Parent shall have executed and
---------------------
delivered an Employment Agreement with each of the Shareholders in the forms
attached hereto as Exhibit 8.2(d)(1) and Exhibit 8.2(d)(2).
----------------- -----------------
(e) Shareholders Agreement. Parent shall have executed and
----------------------
delivered a joinder agreement with the Shareholders in the form attached hereto
as Exhibit 8.2(e).
-------------
(f) Consulting Agreement. Parent shall have executed and
--------------------
delivered a Consulting Agreement with Xx. XxXxxxxx in the form attached hereto
as Exhibit 8.2(f).
--------------
(g) Escrow Agreement. Parent shall have executed and delivered
----------------
the Escrow Agreement.
(h) Merger Consideration. Parent shall have delivered to the
--------------------
Shareholders and the Escrow Agent all of the Merger Consideration.
ARTICLE 9 - AMENDMENT AND WAIVER
9.1 Specific Performance. The parties acknowledge that the rights of
--------------------
each party to consummate the transactions contemplated by this Agreement 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 in this
Agreement relating to nonmonetary matters, the other party or parties will be
without an 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 in this Agreement that relates to nonmonetary matters, the other
party or parties, so long as it or they are not in breach of this Agreement,
may, in addition to the remedies set forth in Article 10, 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.
32
9.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of all the parties hereto.
9.3 Extension; Waiver. The parties may (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 in
this Agreement or in any document delivered pursuant thereto; or (c) waive
compliance with any of the agreements or conditions contained in this Agreement.
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 the Shareholders. Subject to the terms of this
-----------------------------------
Article 10, Schedule 2.1, and the Escrow Agreement, from and after the Effective
------------
Time, the Shareholders shall, jointly and severally, indemnify, defend, save and
hold harmless Parent, Merger Sub (and the Surviving Corporation, after the
consummation of the Merger) and any of their successors and assigns
(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, and 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 a 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 made by Seller or any Shareholder 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.
Any of the foregoing to the contrary notwithstanding, the Shareholders'
indemnification obligations in connection with the breach of any provision of
Article 5 or in connection with the breach of any post closing covenants of
either Shareholder shall be several and not joint.
10.2 Indemnification by Parent and the Surviving Corporation. Subject
-------------------------------------------------------
to the terms of this Article 10, from and after the Effective Time, Parent and
the Surviving Corporation shall, jointly and severally, indemnify, defend, save
and hold harmless the Shareholders, and
33
any of their respective heirs, beneficiaries, successors and assigns
(collectively, the "Seller Indemnified Parties"), from and against any
Indemnifiable Damages suffered by the Seller Indemnified Parties, or any of
them, that arise out of or result from any of the following (whether or not a
third party initiates a 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; or
(b) any breach of any representation, warranty, covenant or
agreement made by Parent or by Merger Sub in a document, certificate or
affidavit delivered by Parent or Merger Sub at the Closing.
10.3 Claims for Indemnification. The representations, warranties,
--------------------------
covenants and agreements in this Agreement and in all other agreements delivered
in connection herewith (excluding the covenants in the Employment Agreements,
the Consulting Agreement, the Escrow Agreement and the Shareholders Agreement
which shall survive until the expiration of all applicable statutes of
limitation) shall survive the Closing for a period that ends on the Final Date
(as the term is defined in Schedule 2.1 hereto), and shall not be affected by
any investigation made by the parties hereto prior to the date of this Agreement
or the Effective Time. 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 after 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
(and in any event within fifteen (15) days after the receipt of any Third Party
Claim); provided, however, that the failure to give such notice within either
such period shall not result in the waiver or loss of any right to bring such
claim after such period unless, and only to the extent that, the other party is
actually prejudiced by such failure. If a claim is pending or threatened or the
Indemnified Party has a reasonable good faith 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. All claims for indemnification under
this Agreement and under all other agreements delivered in connection herewith
(excluding claims for breaches of the Employment Agreements, the Consulting
Agreement, the Escrow Agreement and the Shareholders Agreement) must be made no
later than the Final Date. 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 Matters Involving Third Parties.
-------------------------------
(a) If any third party shall notify the Indemnified Party as to
any matter in respect of which the right to indemnification contained in this
Article 10 may be claimed (a "Third Party Claim"), the Indemnified Party shall
give the Indemnifying Party notice of such Third Party Claim as provided in
Section 10.3 above; and the Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim, consent to the entry of any
34
judgment with respect thereto and enter into any settlement with respect
thereto, all with counsel of its choice, so long as the Indemnifying Party
notifies the Indemnified Party in writing, within fifteen (15) days after the
Indemnified Party has given the Indemnifying Party notice of the Third Party
Claim pursuant to Section 10.3, that the Indemnifying Party will indemnify the
Indemnified Party from and against Indemnifiable Damages the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of or
caused by the Third Party Claim.
(b) If the Indemnifying Party undertakes the defense of any Third
Party Claim pursuant to Section 10.4(a) above, the Indemnified Party may retain
separate co-counsel at its sole cost and expense (and such expenses shall not be
Indemnifiable Damages) and participate in the defense of such Third Party Claim.
The Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to any Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably). The
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim that does not include a
full release by the third party of the Indemnified Party from all Indemnifiable
Damages relating to such Third Party Claim, without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).
(c) The parties hereto shall provide, or cause their appropriate
employees or representatives to provide, to the other parties hereto information
or data in connection with the handling of the defense of any Third Party Claim
or litigation (including counterclaims filed by the parties), and 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, (1) all out-of-pocket, travel and similar expenses incurred
by its personnel in rendering these services; and (2) all fees and expenses for
services performed by third parties engaged by or at the request of such other
party.
10.5 Indemnification Payments. The Indemnifying Party shall pay to the
------------------------
Indemnified Party the full amount of any and all Indemnifiable Damages (other
than Indemnifiable Damages resulting from a Third Party Claim) for which it is
required to indemnify the Indemnified Party under this Article 10, within thirty
(30) days after its receipt of notice thereof from the Indemnified Party
pursuant to Section 10.3 above; and the full amount of any and all Indemnifiable
Damages resulting from a Third Party Claim for which it is required to indemnify
the Indemnified Party under this Article 10, within thirty (30) days after final
settlement or adjudication thereof.
10.6 Arbitration. Any dispute, claim or controversy relating in any way
-----------
to this Agreement or the other agreements to be entered into in connection with
this Agreement (other than the Employment Agreements, the Consulting Agreement
and the Escrow Agreement) or the transactions contemplated hereby or thereby,
whether in contract, in tort or otherwise, except a request for equitable,
injunctive or restraining relief (as described in Section 9.1) or to enforce an
arbitration award, shall be resolved by arbitration in Atlanta, Georgia, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), subject to the limitations of this Section 10.6. This
agreement to arbitrate will be specifically enforceable under the prevailing law
of any court having jurisdiction. Notice of a
35
demand for arbitration will be filed in writing with the applicable other
signatory hereto and with AAA. The demand for arbitration shall be made within a
reasonable time after the claim, dispute or other matter in question has arisen,
and in no event shall any such demand be made after the date when institution of
legal or equitable proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of limitations. The
signatories hereto agree that three (3) arbitrators experienced in the matters
at issue shall arbitrate all disputes. The arbitrators shall be selected by the
joint agreement of the signatories hereto, but if they do not so agree within
twenty (20) days after the date of the notice of a demand for arbitration
referred to above, the selection shall be made pursuant to the Commercial
Arbitration Rules of AAA from the panels of arbitrators maintained by AAA. The
award rendered by the arbitrators will be final, judgment may be entered upon it
in any court having jurisdiction thereof, and the award will not be subject to
vacation, modification or appeal, except to the extent permitted by Sections 10
and 11 of the Federal Arbitration Act, the terms of which Sections the
signatories hereto agree shall apply. Notwithstanding any provision of this
Article 10 to the contrary, each participant in the arbitration shall pay its
own expenses of arbitration, and the expenses of the arbitrators shall be
equally shared; provided, however, that if in the opinion of the arbitrators any
claim for indemnification, or any defense or objection thereto, was
unreasonable, the arbitrators may assess, as part of their award, all or any
part of the arbitration expenses of the other participant(s) (including
reasonable attorneys' fees) and of the arbitrators against the participant(s)
raising such unreasonable claim, defense or objection.
10.7 Tax Effect and Insurance. The liability of any Indemnifying Party
------------------------
with respect to any indemnification claim shall be reduced by the tax benefit
actually realized by and any insurance proceeds received by the
Indemnified Party as a result of any Indemnifiable Damages upon which such
indemnification claim is based.
10.8 Indemnification Exclusive Remedy. In the absence of fraud, and
-------------------------------
except for non-monetary equitable relief (for which the provisions of Section
9.1 shall provide the sole and exclusive remedy of the parties), 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, warranty or covenant contained in this Agreement and the other
agreements to be entered into in connection with this Agreement (other than the
Employment Agreements, the Consulting Agreement, the Escrow Agreement and the
Shareholders Agreement).
10.9 Certain Limitations. The foregoing indemnification obligations are
-------------------
subject to the limitation that no Indemnifying Party shall have any liability
for indemnification to any Indemnified Party pursuant to this Article 10 or
otherwise unless the total Indemnifiable Damages for which the Indemnifying
Party would be liable exceed $25,000 in the aggregate; provided that once such
threshold is met, the Indemnifying Party shall be liable for the total
Indemnifiable Damages, not just the amount in excess of such threshold. In no
event shall the aggregate liability of the Shareholders for Indemnifiable
Damages under this Agreement and the other agreements entered into in connection
with the consummation of the transactions contemplated hereby exceed Two Million
Dollars ($2,000,000).
36
10.10 Contribution Agreement. Notwithstanding (and without limiting, as
----------------------
far as Parent and Merger Sub are concerned) any joint and several liability of
the Shareholders under certain provisions of this Agreement or any other
agreement entered into in connection with the consummation of the transactions
contemplated hereby, the Shareholders hereby agree between themselves that each
Shareholder's respective liability and obligation under any of said provisions
shall be proportionate to the percentage of Seller Common Stock owned by such
Shareholder immediately preceding the Effective Time. If any liability or
obligation under this Agreement or any of such other agreements is paid or
otherwise satisfied by any Shareholder in excess of his proportionate share,
such Shareholder shall have an immediate right of contribution from the other
Shareholder for such excess.
ARTICLE 11 - MISCELLANEOUS
11.1 Expenses. Except as otherwise expressly stated in this Agreement,
--------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement (including legal, accounting and
investment banking fees and expenses) shall be borne by the party incurring such
costs and expenses. Without limiting the forgoing, the Shareholders agree that
they shall pay all fees, commissions, and disbursements owed to Croft and Xxxxxx
LLC, Xxxxxx, Xxxxxx & Xxxx, A Professional Corporation, and O'Xxxx Xxxx, L.L.C.
incurred in connection with this Agreement and the transactions contemplated by
this Agreement.
11.2 Notices. All notices or other communications which are required or
-------
permitted under this Agreement 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:
37
(a) If to Parent or Merger Sub, to:
MegaMarketing Corporation
0000 Xxxx Xxxxxxx Xxxx.
Xxxxx 000
Xxxxx, XX 00000
Attn: Xxxx X. Xxxxx, President and Chief Executive Officer
Telefax: (000) 000-0000
Copy to:
Xxxxxx Xxxxxxx Xxxxx & Xxxxxxxxxxx, L.L.P.
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Telefax: (000) 000-0000
(b) If to Seller, to:
UST, Inc.
0000 Xxxxxxxx Xxxxxxx
Xxxxxxxx 000
Xxxxx 000
Xxxxxxxx, XX 00000
Telefax: (000) 000-0000
Copy to:
Xxxxx X. Xxxxxxxx, Xx.
Chorey, Taylor & Xxxx, A Professional Corporation
Suite 1700, The Lenox Building
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxxxx, Xxxxxxx 00000
Telefax: (000) 000-0000
(c) If to the Shareholders, to their respective addresses as set
forth on the signature page to this Agreement;
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 two business days after the date actually sent via overnight or
express courier, five 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, the Parent Indemnified Parties, the
Seller Indemnified Parties and their respective successors, representatives and
assigns. This Agreement (and the rights and interests in this Agreement) may not
be assigned by any party without the written consent of the other parties;
provided, however, Parent may assign its interests in this Agreement to a
purchaser or transferee of all or substantially all of the business or assets of
Parent or the
38
Surviving Corporation, whether by sale of stock or assets, merger or otherwise;
provided further, however, that if Parent shall (i) sell all or substantially
all of the business or assets of Parent to a person or entity which is not an
affiliate of Parent, or (ii) merge with or into a person or entity which is not
an affiliate of Parent, and within 60 days after any such event any four of the
five Executive Officers of Parent are no longer employed by Parent, then the
Final Date (as defined in the Schedule 2.1 to this Agreement) shall, at the
option of the Shareholders, be accelerated to the date of the sale of the
business or assets under (i) above, or to the date of the termination of
employment of the fourth Executive Officer. Executive Officers as used in this
Section 11.3 means Xxxx X. Xxxxx, Xxxx X. Xxxxx III, Xxxxxxx X. Xxxx, Xxxxxx X.
Xxxxxxxxx and Xxxxxxx X. Xxxxxx. Any 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, contains 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 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 by this Agreement 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. 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.
11.7 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 in this
Agreement, 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 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.
11.8 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., Xxxxxxx,
00
Xxxxxxx time on the next succeeding regular business day to exercise such right
or to discharge such duty.
40
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
FOUR, INC.
/s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------
By: Xxxxxx X. Xxxxxxxxx
---------------------------
Its: President
---------------------------
UST, INC.
/s/ Xxxxxx X. XxXxxxxx
-----------------------------------
By: Xxxxxx X. XxXxxxxx
---------------------------
Its: Chief Executive Officer
---------------------------
THE SHAREHOLDERS:
/s/ Xxxxxx X. XxXxxxxx
-----------------------------------
Xxxxxx X. XxXxxxxx
Address: 0000 Xxxxxxxxx Xxxx Xxxxx
---------------------------
Xxxxxx, Xxxxxxx 00000
---------------------------
/s/ Xxxxx Xxxxxxxx
-----------------------------------
Xxxxx Xxxxxxxx
Address: 000 Xxxx Xxxxx
-----------------------------------
Xxxxxx, Xxxxxxx 00000
-----------------------------------
41
