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EXHIBIT 99(b)
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MICRO GENERAL CORPORATION,
LD XXXXXXXX.XXX, INC.,
THE SHAREHOLDERS OF LD XXXXXXXX.XXX, INC.,
AND
LD MERGER CORPORATION
DATED AS OF NOVEMBER 17, 1998
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TABLE OF CONTENTS
PAGE
INDEX OF EXHIBITS...........................................................................iv
INDEX OF SCHEDULES..........................................................................iv
RECITALS................................................................................... 1
ARTICLE I
Certain Definitions................................... 2
ARTICLE 2
Plan of Reorganization................................. 7
2.1 The Merger......................................................................... 7
2.2 Conversion of Securities............................................................ 8
ARTICLE 3
Closing........................................ 10
3.1. Closing............................................................................ 10
3.2 Mutual Deliveries at Closing...................................................... 10
3.3 Shareholders' Deliveries at Closing............................................... 10
3.4 Company's Deliveries at Closing................................................... 11
3.5 MGC's and/or Newco's Deliveries at Closing......................................... 12
3.6 Conditions of MGC and Newco........................................................ 12
3.7 Conditions of Company and Shareholders............................................. 13
ARTICLE 4
Representations and Warranties of Company and Shareholders................ 14
4.1 Organization and Standing; Articles and Bylaws..................................... 14
4.2 Authorization...................................................................... 15
4.3 Subsidiaries....................................................................... 15
4.4 Capitalization..................................................................... 15
4.5 Financial Statements/Receivables................................................... 16
4.6 Material Contracts................................................................. 16
4.7 Assets Other Than Real Property.................................................... 17
4.8 Real Property...................................................................... 17
4.9 No Conflicts....................................................................... 17
4.10 Litigation......................................................................... 17
4.11 Taxes.............................................................................. 18
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4.12 Employees.......................................................................... 18
4.13 Consents........................................................................... 19
4.14 Operating Rights................................................................... 19
4.15 Compliance with Applicable Laws.................................................... 19
4.16 Insurance.......................................................................... 19
4.17 Absence of Changes................................................................. 19
4.18 Employee Plans..................................................................... 20
4.19 Intellectual Property Rights....................................................... 21
4.20 Environment, Health and Safety..................................................... 21
4.21 Certain Transactions............................................................... 22
4.22 Bank Accounts; Powers of Attorney.................................................. 22
4.23 Investment Representations......................................................... 22
4.24 Continuity of Interest............................................................. 22
4.25 Tax-Free Reorganization............................................................ 22
4.26 Absence of Claims Against Company.................................................. 22
4.27 Employee Loans..................................................................... 22
4.28 Brokers' Fees...................................................................... 23
4.29 Full Disclosure.................................................................... 23
4.30 Disclosure......................................................................... 23
ARTICLE 5
Representations and Warranties of MGC and Newco.................... 23
5.1 Organization and Standing; Articles and Bylaws..................................... 23
5.2 Authorization...................................................................... 23
5.3 No Conflicts....................................................................... 24
5.4 MGC SEC Documents.................................................................. 24
5.5 MGC Common Stock................................................................... 24
5.6 Governmental Consents.............................................................. 25
5.7 Brokers' Fees...................................................................... 25
5.8 Full Disclosure.................................................................... 25
5.9 Disclosure......................................................................... 25
ARTICLE 6
Conduct of Business Pending Closing.......................... 25
6.1 Qualification...................................................................... 25
6.2 Ordinary Course.................................................................... 25
6.3 Corporate Changes.................................................................. 26
6.4 Indebtedness....................................................................... 26
6.5 Accounting......................................................................... 26
6.6 Compliance with Legal Requirements................................................. 26
6.7 Disposition of Assets.............................................................. 26
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6.8 Compensation....................................................................... 26
6.9 Modification or Breach of Agreements; New Agreements............................... 27
6.10 Capital Expenditures............................................................... 27
6.11 Consents........................................................................... 27
6.12 Maintenance of Insurance........................................................... 27
6.13 Discharge.......................................................................... 27
6.14 Claims............................................................................. 27
6.15 Taxes and Tax Assessments.......................................................... 27
ARTICLE 7
Additional Covenants.................................. 28
7.1 Covenants of Company and Shareholders.............................................. 28
7.2 Covenants of MGC and Newco......................................................... 28
7.3 Tax-Free Reorganization/Tax Advice................................................. 29
7.4 Continuity of Interest............................................................. 29
7.5 Access and Information............................................................. 29
7.6 Expenses........................................................................... 30
7.7 Certain Notifications.............................................................. 30
7.8 Publicity.......................................................................... 30
7.9 Further Assurances................................................................. 31
7.10 Competing Offers................................................................... 31
ARTICLE 8
Termination, Amendment and Waiver........................... 31
8.1 Termination........................................................................ 31
8.2 Effect of Termination.............................................................. 32
8.3 Amendment.......................................................................... 32
8.4 Waiver............................................................................. 32
ARTICLE 9
Indemnification.................................... 33
9.1 Survival of Representations and Warranties......................................... 33
9.2 Indemnification by Company and Shareholders........................................ 33
9.3 Indemnification by MGC............................................................. 33
9.4 Third-Party Claims................................................................. 34
9.5 Access and Information............................................................. 34
9.6 Mitigation......................................................................... 34
9.7 Right of Set-Off................................................................... 35
9.8 Limitation on Indemnity Obligations................................................ 35
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ARTICLE 10
General Provisions................................... 35
10.1 Governing Law...................................................................... 35
10.2 Successors and Assigns............................................................. 35
10.3 Entire Agreement................................................................... 36
10.4 Severability....................................................................... 36
10.5 Notice............................................................................. 36
10.6 Construction....................................................................... 37
10.7 Headings........................................................................... 37
10.8 Counterparts....................................................................... 37
10.9 Recitals, Schedules, and Exhibits.................................................. 38
INDEX OF EXHIBITS
EXHIBIT A - Certificate of Merger
EXHIBIT B - Officer's Certificate of the Company
EXHIBIT C - Secretary's Certificate of the Company
EXHIBIT D - Opinion Letter from Counsel to the Company and the Shareholders
INDEX OF SCHEDULES
Schedule 2.1(c)(1) -- List of Directors of Surviving Corporation
Schedule 2.1(c)(2) -- List of Officers of Surviving Corporation
Schedule 2.2(d) -- Allocation of Fidelity Common Stock
Company Disclosure Schedule
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 17th day of November, 1998, by and among MICRO GENERAL
CORPORATION, a California corporation ("MGC"); LD XXXXXXXX.XXX, INC., a Delaware
corporation ("Company"); XXXXXX X. XXXXXXXX, III, XXXXXXX XXXXXXXX AND EUROPA
TELECOMMUNICATIONS, INC. (collectively, the "Majority Shareholders"); and LD
MERGER CORPORATION, a Delaware corporation that is a newly-formed, wholly-owned
subsidiary of MGC ("Newco"). MGC, the Company, the Shareholders, and Newco are
sometimes referred to collectively herein as the "Parties" or singularly as a
"Party."
RECITALS
A. The Shareholders are the record and beneficial owners of all of the
issued and outstanding shares of capital stock of the Company (the "Company
Shares").
B. The respective Boards of Directors of MGC, the Company and Newco deem
it advisable and in the best interests of their respective shareholders that
Newco merge with and into the Company (the "Merger") pursuant to this Agreement,
the Certificate of Merger substantially in the form attached hereto as Exhibit
"A" (the "Certificate of Merger") and the applicable provisions of the laws of
the State of Delaware and California, if applicable.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of MGC, the Company and Newco, and the
Shareholders have approved and adopted this Agreement as a plan of
reorganization within the provisions of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
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ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article
1 shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and the plural forms of such terms. Any
capitalized term used in this Agreement and not ascribed a meaning in this
Article 1 shall have the meaning ascribed to such term elsewhere in this
Agreement.
"Adjustment Shares" has the meaning set forth in Section 2.2(e), below.
"Affiliate" means, with respect to a Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
"Average Price" has the meaning set forth in Section 2.2(e), below.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or would reasonably form the basis for
any specified consequence.
"Benefit Arrangement" mean any form of current or deferred compensation,
bonus, stock option, stock appreciation right, severance pay, salary
continuation, pension, profit-sharing, retirement or incentive plan, practice or
arrangement, any group or individual disability, medical, dental, health,
hospitalization, life insurance or other insurance plans or related benefits, or
any other welfare or similar plan or arrangement for the benefit of any
director, officer or employee of Company, whether active or retired, or for any
class or classes of such directors, officers or employees.
"Certificate of Merger" has the meaning set forth in Recital B, above.
"Claim" means any actual or threatened claim, action, suit, arbitration,
hearing, inquiry, proceeding (including administrative and informal
proceedings), complaint, charge, investigation or audit by or before any
Governmental Entity or arbitrator, and any appeal from any of the foregoing.
"Closing" has the meaning set forth in Section 3.1, below.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A, above.
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"Company Stock" means shares of Common Stock, par value $.001 per share,
of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Corporations Code" means the General Corporation Law of the State of
Delaware, as amended.
"Disclosure Schedule" means the Schedules to this Agreement required to
be prepared by the Company and the Shareholders and delivered to MGC.
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, which is subject to any provisions of ERISA and covers any
employee, whether active or retired, of the Company.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all Legal Requirements concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including Legal Requirements relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, toxic materials
or other Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles, as
amended from time to time.
"Governmental Entity" means any court, federal, state, local or foreign
government or any administrative agency or commission or any other governmental
authority or instrumentality whatsoever.
"Hazardous Substances" means any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any Governmental Entity.
"Indebtedness" means, when used with reference to any Person, without
duplication, (i) any Liability of such Person created or assumed by such Person,
or any Subsidiary thereof, (A)
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for borrowed money, (B) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation, deed of trust or mortgage)
given in connection with the acquisition of, or exchange for, any property or
assets (other than inventory or similar property acquired and consumed in the
Ordinary Course of Business), including securities and other indebtedness, (C)
in respect of letters of credit issued for such Person's account and "swaps" of
interest and currency exchange rates (and other interest and currency exchange
rate hedging agreements) to which such Person is a party or (D) for the payment
of money as lessee under leases that should be, in accordance with GAAP,
recorded as capital leases for financial reporting purposes; (ii) any Liability
of others described in the preceding clause (i) guaranteed as to payment of
principal or interest by such Person or in effect guaranteed by such Person
through an agreement, contingent or otherwise, to purchase, repurchase, or pay
the related Indebtedness or to acquire the security therefor; (iii) all
Liabilities or obligations secured by a Lien upon property owned by such Person
and upon which Liabilities or obligations such Person customarily pays interest
or principal, whether or not such Person has assumed or become liable for the
payment of such liabilities or obligations; and (iv) any amendment, renewal,
extension, revision or refunding of any such Liability or obligation.
"Intellectual Property" means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (v) all computer software (including data and related
documentation); (vi) all other proprietary rights; and (vii) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means facts that are known by any of the Shareholders after
having made diligent inquiry of the other Shareholders and executive officers of
the Company with respect to their knowledge of the relevant facts.
"Legal Requirement" means any statute, law, ordinance, rule, regulation,
permit, order, writ, judgment, injunction, decree or award issued, enacted or
promulgated by any Governmental Entity or any arbitrator with binding authority
on a Party or Parties, or their respective businesses and/or assets as the case
may be.
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"Liability" means any liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including, but not limited to,
any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" means all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, pledges, trusts (constructive or otherwise), deeds of trust, options
or other charges, encumbrances or restrictions.
"Losses" means any and all losses, damages, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages), and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description).
"Material Adverse Effect" means any event, effect, development,
occurrence or circumstance, individually or when taken together with all other
such events, effects, developments, occurrences or circumstances, causing,
resulting in or having a material adverse effect on (i) the business, assets,
results of operations, properties or condition (financial or otherwise) of
Company or MGC, as applicable; or (ii) the legal right or authorization of the
Company or MGC, as applicable, to continue to operate its business as a going
concern.
"Material Contracts" with respect to the Company means (i) any union
contract or any employment or consulting contract or arrangement providing for
future compensation, written or oral, with any officer, director or employee
which is not terminable on thirty (30) days notice or less without penalty or
obligation to make payments related to such termination; (ii) any plan contract
or arrangement, whether written or oral, providing for bonuses, pensions,
deferred compensation, severance pay or benefits, retirement payments, profit
sharing or the like; (iii) any existing distribution agreement, volume purchase
agreement, or similar agreement (but excluding individual customer purchase
orders) in which the annual amount involved in fiscal 1997 exceeded or is
expected to exceed $10,000 in aggregate amount; (iv) any individual customer
purchase order for the sale of goods or services in excess of $20,000; (v)
except for trade indebtedness incurred in the Ordinary Course of Business, any
Indebtedness incurred in the acquisition of companies or other entities or
Indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, leasehold obligations or
otherwise; (vi) any contract containing covenants purporting to limit in any way
the freedom of the Company to compete in any line of business or in any
geographic area; (vii) any agreement of indemnification other than those entered
into in connection with the sale of products or services of the Company in the
Ordinary Course of Business; (viii) any agreement, contract or commitment
relating to capital expenditures and which involve future payments in excess of
$25,000 in the aggregate by the Company; (ix) any agreements, contracts or
commitments relating to the disposition of assets, including any intangible
assets or intellectual property rights (other than inventory), which
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involve payments in excess of $25,000 in the aggregate by the Company; (x) any
contracts with a Governmental Entity subject to price redetermination or
renegotiation; or (xi) all insurance policies of the Company; (xii) all
equipment leases of the Company which involve payments in excess of $20,000 in
the aggregate; or (xiii) any other agreement, contract or commitment which is
material to the Company. "Material Contracts" with respect to MGC means any
agreement, contract or commitment which MGC files or is requested to file with
its SEC reports.
"Merger" has the meaning set forth in Recital B, above.
"MGC Common Stock" means the shares of restricted Common Stock, par
value of $.08 per share, of MGC.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency and, where appropriate, in accordance with formula).
"Party" has the meaning set forth in the preamble to this Agreement.
"Permitted Liens" means (i) mechanic's, materialmen's, and similar
Liens; (ii) Liens for Taxes not yet due and payable, which have been fully
reserved for; and (iii) Liens, if any, that are not substantial in character,
amount or extent and do not detract materially from the value, or interfere with
the present use or with the sale or other disposition, of the property subject
thereto or affected thereby.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof), or any other legal
entity.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2.1(a),
below.
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"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs, duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax or contribution of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE 2
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), the Company shall be merged with and into Newco pursuant to this
Agreement and the Certificate of Merger, and the separate existence of Newco
shall cease, all in accordance with the Corporations Code. The Company, as it
exists from and after the Effective Time, is sometimes referred to herein as the
"Surviving Corporation."
(b) Effect of the Merger. Subject to the terms and conditions of
this Agreement and the Certificate of Merger, at the Effective Time (i) the
separate existence of Newco shall cease and Newco shall be merged with and into
the Company; and (ii) the Merger shall have all the effects provided by the
Corporations Code, this Agreement and the Certificate of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of the Company until
thereafter amended in accordance with the provisions therein and as provided by
the Corporations Code. The Bylaws of Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of Surviving Corporation and as provided
by the Corporations Code. The initial directors of Surviving Corporation shall
be the individuals set forth on Schedule 2.1(c)(1) hereto, in each case until
their successors are elected and qualified. The initial officers of Surviving
Corporation shall be those individuals holding such titles set forth on Schedule
2.1(c)(2) hereto, in each case until their successors are duly elected and
qualified.
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2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of MGC, Newco, the Company or the
Shareholders, the shares of capital stock of Newco and the Company shall be
converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one (1) validly issued, fully paid and non-assessable share of
Company Stock.
(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of the Company that are owned directly or indirectly
by the Company, including all treasury shares and all capital stock which has
been authorized but not issued, shall be canceled and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive cash and shares of MGC
Common Stock, as more fully described in subsection (d), below. All Company
Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and the
Shareholders shall cease to have any rights with respect thereto, except the
right to receive cash and shares of MGC Common Stock to be paid or issued in
consideration therefor upon the surrender of the Certificates in accordance with
subsection (f), below.
(d) Consideration. In consideration for the cancellation and
exchange by Shareholders of the Company Shares, (i) Newco shall, immediately
after the Effective Time, pay to the Shareholders the cash sum of One Million
One Hundred Thousand Dollars ($1,100,000) by delivery, at Newco's option, of a
cashier's check or certified bank check, or by wire transfer to an account or
accounts designated by the Shareholders; and (ii) MGC shall, as soon as
practicable after the Effective Time, issue and deliver to the Shareholders one
million (1,000,000) shares of MGC Common Stock, restricted under Rule 144 of the
Act, with an additional restriction that no shareholder shall be able to sell
the MGC Common Stock issued in the Merger for a period of eighteen (18) months
from the Effective Time, either held in treasury and transferred to the
Shareholders or newly issued by MGC to the Shareholders. The cash and restricted
MGC Common Stock due the Shareholders under this subsection (d) shall be
allocated among the Shareholders in accordance with Schedule 2.2(d) hereto.
(e) Adjustment Shares. MGC shall issue, to the extent applicable,
to the Shareholders additional shares of MGC Common Stock (the "Adjustment
Shares") as follows:
(i) Subject to subsections (ii) and (iii) below, the
number of Adjustment Shares to be issued to the Shareholders shall be calculated
pursuant to the following formula: The sum of (A) the average closing price of
MGC Common Stock for the ten (10) consecutive trading days ending two (2)
trading days prior to the eighteen (18) month anniversary of the Closing Date
(the "Average Price") multiplied by 1,000,000, shall be
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subtracted from (B) $8,000,000, which amount (the "Shortfall Amount") shall then
be divided by (C) the Average Price; provided, however, if the Average Price is
not less than eight dollars ($8) per share, no Adjustment Shares shall be
issued;
(ii) Notwithstanding anything to the contrary in
subsection (i) above, the number of Adjustment Shares to be issued to the
Shareholders are subject to reduction as follows: If the Company's average gross
revenues (determined in accordance with GAAP) for the three (3) full calendar
months immediately preceding the eighteen (18) month anniversary of the Closing
Date (the "Average Revenue") is less than Three Million Five Hundred Thousand
Dollars ($3,500,000), then the Adjustment Shares shall be reduced by a fraction,
the numerator of which is the Average Revenue and the denominator of which is
Three Million Five Hundred Thousand Dollars ($3,500,000). In this regard, the
Average Revenue shall be determined by a representative of MGC and the Chief
Financial Officer of the Company. In the event of a dispute among such
individuals, the disputed issue(s) shall be submitted to KPMG Peat Marwick,
whose determination of such issue(s) shall be binding on the Parties; and
(iii) Notwithstanding anything to the contrary in
subsections (i) and (ii) above, the intent of this Section 2.2(e) is to ensure
that the Shareholders have the opportunity to obtain at least Eight Million
Dollars ($8,000,000) in value for that portion of the Merger consideration paid
in MGC Common Stock during the period between the first (1st) Anniversary of the
Closing Date and the eighteen month anniversary of the Closing Date. As such,
MGC shall have the option of paying such shortfall, if any, in cash; provided
such cash payment, in the opinion of counsel for both MGC and the Shareholders,
will not affect the ability of the Merger to qualify as a tax-free
reorganization under Section 362(a)(2)(E) of the Code.
(f) Certificate Delivery Requirement. At the Closing, each
Shareholder shall deliver to MGC, the certificates (the "Certificates")
representing the Company Shares owned by such Shareholder, as set forth on
Schedule 2.2(d) hereto, duly endorsed in blank by such Shareholder, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (f), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender a pro rata portion of the cash and MGC
Common Stock set forth in subsection (d), above.
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ARTICLE 3
CLOSING
3.1. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of MGC, located at 0000 Xxxxx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxxx, Xxxxxxxxxx
00000, on such date (the "Closing Date") and at such time as may be mutually
designated by the Parties within five (5) business days following the
satisfaction or waiver of the conditions set forth in Sections 3.6 and 3.7,
below (including, without limitation, the Requisite Regulatory Approvals), or
such other date, time, place and manner as the Parties may mutually agree. On
the Closing Date, the Certificate of Merger and any required officers'
certificates, shall be filed with the Secretary of State of the State of
Delaware (the "Secretary of State") in accordance with the provisions of the
Corporations Code. All filings required under the California Corporations Code,
if any, shall also be made on the Closing Date. The Merger shall become
effective at the time the Certificate of Merger is file-stamped by the Secretary
of State (the "Effective Time"). The Parties shall use best efforts to ensure
that the Effective Time occurs on the Closing Date.
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived by the Party benefiting therefrom, the appropriate Parties or Persons
shall execute and deliver or cause to be delivered to the appropriate Parties at
Closing the following:
(a) An executed Employment Agreement between Xxxxxx X. Xxxxxxxx,
III and the Company, effective on the day following the Effective Time, which
Employment Agreement shall include the following terms and conditions: (i) a
term of three (3) years; (ii) an annual base salary mutually agreed to by MGC
and Xx. Xxxxxxxx; (iii) an annual performance bonus mutually agreed to by MGC
and Xx. Xxxxxxxx; (iv) stock options to purchase 100,000 shares of MGC Common
Stock, which options shall (y) have an exercise price equal to the closing price
of MGC Common Stock on the effective date of the Employment Agreement; and (z)
vest 1/3 on each of the first (1st), second (2nd) and third (3rd) anniversary of
the effective date of the Employment Agreement; (v) non-competition provisions
both during the term and for a reasonable period thereafter; and (vi) such other
reasonable and standard provisions as Xx. Xxxxxxxx and MGC shall mutually agree.
3.3 Shareholders' Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been
satisfied or waived by the Party benefiting therefrom, the Shareholders shall
execute and deliver or cause to be delivered to MGC at the Closing the following
documents:
(a) The Certificates, in accordance with Section 2.2(f), above;
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(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by MGC in order to consummate
the transactions contemplated hereby.
3.4 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived by the Party benefiting therefrom, the Company shall execute and deliver
or cause to be delivered to MGC at the Closing the following:
(a) An Officer's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "B" hereto;
(b) A Secretary's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "C" hereto;
(c) An Opinion Letter from counsel to the Company and the
Shareholders substantially in the form of Exhibit "D" hereto;
(d) The Company's original minute book, such minute book to
contain (i) original Articles of Incorporation and all amendments thereto, or
copies thereof if the originals are unavailable; (ii) the Company's Bylaws
presently in effect; (iii) the Company's stock transfer records together with
all available canceled stock certificates; and (iv) all minutes of meetings or
consents in lieu of such meetings of the Company's Board of Directors and
shareholders;
(e) A good standing certificate of the Company, dated within
fifteen (15) business days of the Closing Date, for each jurisdiction in which
the Company is required to be qualified and authorized to do business;
(f) Minutes of the Board of Directors and shareholders of the
Company authorizing and approving this agreement and the transactions
contemplated herein;
(g) The resignations of all of the officers and directors of the
Company effective as of the Closing Date;
(h) Prior to the Closing, the Disclosure Schedule required to be
submitted to MGC by the Company and the Shareholders; and
(i) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by MGC at least five
(5) days prior to the Closing Date in order to consummate the transactions
contemplated hereby.
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3.5 MGC's and/or Newco's Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been
satisfied or waived by the Party benefiting therefrom, MGC and/or Newco, as
appropriate, shall execute and deliver or cause to be delivered to the
Shareholders as soon as practicable following the Effective Time:
(a) The cash in accordance with Section 2.2(d), above;
(b) The MGC Common Stock in accordance with Section 2.2(d),
above; and
(c) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by the Shareholders
at least (5) days prior to the Closing Date in order to consummate the
transactions contemplated hereby.
3.6 Conditions of MGC and Newco. MGC's and Newco's obligations hereunder
to consummate the Merger are subject to the satisfaction, at or prior to the
Effective Time, of all of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company and the
Shareholders in this Agreement shall be true, correct and complete in all
material respects on and as of the date of the Effective Time with the same
force and effect as if they had been made on and as of said date; and the
Company and the Shareholders shall have in all material respects performed all
of the obligations and complied with each and all of the covenants required to
be performed or complied with by them on or prior to the Closing Date.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which MGC determines in its reasonable
discretion has had or could have a Material Adverse Effect on the Company.
(c) Authorizations and Approvals. All authorizations, approvals
or consents from third parties, including from any Governmental Entity, landlord
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
(d) Investigation of Company. MGC shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial, legal and other),
properties, assets, prospects, operations and affairs of the Company and shall
be satisfied, in its absolute and sole discretion, with the results thereof.
(e) Deliveries. MGC shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4,
above.
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(f) Disclosure Schedule. MGC shall be satisfied in its absolute
and sole discretion with the Disclosure Schedule to be delivered by the
Shareholders and the Company in accordance with Section 3.4(h), above.
(g) No Claims. There shall not be any Claims before any
Governmental Entity (i) challenging the Merger or otherwise seeking to restrain
or prohibit the consummation of the transactions contemplated hereby, or (ii)
seeking to prohibit the direct or indirect ownership or operation by MGC of all
or a material portion of the business or assets of the Company, or to compel MGC
or the Company to dispose of or hold separate all or a material portion of the
business or assets of MGC or the Company.
(h) Corporate Action. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, agreements, instruments, releases and documents referenced herein
or incident to the transactions contemplated hereby shall be in form and
substance satisfactory to MGC and its counsel.
(i) Requisite Regulatory Approvals. All notices or filings
required to be made, all authorizations, permits, certificates, registrations,
consents, approvals or orders required to be obtained, and all waiting periods
required to expire, prior to the consummation of the transactions contemplated
by this Agreement or any Legal Requirement (collectively, the "Requisite
Regulatory Approvals") shall have been obtained or expired, as the case may be,
without the imposition of any condition which is materially burdensome upon MGC
or any Party or Person to be affected by such condition.
3.7 Conditions of Company and Shareholders. The Company's and the
Shareholders' obligations hereunder to consummate the Merger are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by MGC and Newco in this
Agreement shall be true, correct and complete in all material respects on and as
of the date of the Effective Time with the same force and effect as if they had
been made on and as of said date; and MGC and Newco shall have in all material
respects performed all of the obligations and complied with each and all of the
covenants required to be performed or complied with by them on or prior to the
Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which the Company determines in its
reasonable discretion has had or could have a Material Adverse Effect on MGC.
(c) Authorizations and Approvals. All authorizations, approvals
or consents, if any, from third parties, including from any Governmental Entity
or other Person, required to be obtained by MGC or Newco shall have been
obtained.
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(d) Deliveries. The Company or the Shareholders, as appropriate,
shall have received from MGC the delivery obligations set forth in Sections 3.2
and 3.5, above.
(e) No Claims. There shall not be any Claims before any
Governmental Entity (i) challenging the Merger or otherwise seeking to restrain
or prohibit the consummation of the transactions contemplated hereby, or (ii)
seeking to prohibit the direct or indirect ownership or operation by MGC of all
or a material portion of the business or assets of the Company, or to compel MGC
or the Company to dispose of or hold separate all or a material portion of the
business or assets of the Company or MGC.
(f) Requisite Regulatory Approvals. The Requisite Regulatory
Approvals shall have been obtained or expired, as the case may be, without the
imposition of any condition which is materially burdensome upon the Company or
any Party or Person to be affected by such condition.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
The Company and the Shareholders severally represent and warrant to MGC, Newco
and Surviving Corporation that (except for changes contemplated by this
Agreement and except as set forth in the Disclosure Schedule attached hereto),
each of the following statements is true, correct and complete as of the date of
this Agreement and will be true, correct and complete as of the date of the
Effective Time (each such statement to be made again by the Company and the
Shareholders on that date with such date being substituted for the date of this
Agreement throughout this Article 4):
4.1 Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has full power and authority to own its assets and
properties and to carry on its business as presently conducted. The Company is
duly qualified and authorized to do business, and is in good standing as a
foreign corporation, in California and each jurisdiction where the nature of its
activities and of its properties (both owned and leased) make such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect. Included in Section 4.1 of the Disclosure Schedule are copies of
the Company's Articles of Incorporation and Bylaws, as amended to the date
hereof, and a certificate of qualification to do business in the State of
California. Said copies are true, correct and complete and contain all
amendments through the date of the Effective Time.
4.2 Authorization. All corporate action on the part of the Company, its
officers, directors and the Shareholders necessary for the authorization,
execution and delivery of this Agreement and the documents contemplated hereby,
the performance of all of the Company's and the Shareholders' obligations
hereunder and thereunder, and for the exchange and
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cancellation of the Company Shares have been taken or will be taken prior to the
Closing. This Agreement and the documents contemplated hereby, when executed and
delivered, shall constitute valid and legally binding obligations of the Company
and the Shareholders enforceable in accordance with their respective terms.
4.3 Subsidiaries. Except as set forth in Section 4.3 of the Disclosure
Schedule, the Company has no Subsidiaries and does not presently own, of record
or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other entity.
4.4 Capitalization. The authorized capital stock of the Company consists
of 10,000,000 shares of Common Stock, par value $.001 per share, of which
170,454 shares are issued and outstanding. All of the Company Shares have been
duly authorized and validly issued and are fully paid and non-assessable. Except
as set forth in Section 4.4 of the Disclosure Schedule, all of the Company
Shares were offered, issued, sold and delivered by the Company in compliance
with all applicable Legal Requirements. None of the Company Shares were issued
in violation of any preemptive rights created by any Legal Requirement, by the
Company's charter documents, or by any agreement to which the Company may be
bound.
Section 4.4 to the Disclosure Schedule hereto contains a complete list of, and
the number of shares owned of record by, the holders of the issued and
outstanding Company Stock.
There are no outstanding shares of Company Stock, preferred stock or any other
equity securities of the Company, and there are no options, warrants, calls,
conversion rights, commitments or agreements of any character to which the
Company or the Shareholders may be bound that do or may obligate the Company or
the Shareholders to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of Company Stock, preferred stock or other equity
securities or that do or may obligate the Company or the Shareholders to grant,
extend or enter into any such option, warrant, call, conversion right,
commitment or agreement. There are no outstanding arrangements, agreements,
commitments or understandings of any kind affecting or relating to the voting,
issuance, purchase, redemption, repurchase or transfer of any capital stock of
the Company or any other securities of the Company. The Company and the
Shareholders have not, or prior to the Effective Time will have not, become a
party to or subject to any contract or obligation wherein any Person has a right
or option to purchase or acquire any rights in any additional capital stock or
securities of the Company. Except as set forth in Section 4.4 of the Disclosure
Schedule, the Shareholders own of record and beneficially, and have good and
marketable title to all of the Company Shares, free and clear of all Claims,
Liens and Encumbrances. As a result of the Merger, MGC will be the record and
beneficial owner of all outstanding capital stock of the Company and rights to
acquire capital stock of the Company.
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4.5 Financial Statements/Receivables. Section 4.5 of the Disclosure
Schedule includes (i) true, complete and correct copies of the Company's balance
sheet as of December 31, 1997 (the end of its most recently completed fiscal
year) and statements of income, cash flows and retained earnings for the year
ended December 31, 1997; and (ii) true, complete and correct copies of the
Company's balance sheet as of September 30, 1998, and statements of income and
cash flows for the period then ended (collectively, the "Financial Statements").
Except as set forth in Section 4.5 of the Disclosure Schedule, the Financial
Statements have been prepared in accordance with GAAP consistently applied and
fairly present the financial position of the Company as of the dates thereof and
the results of its operations and cash flows for the periods then ended,
subject, in the case of the September 30, 1998 Financial Statements, to the
omission of complete footnote information. There are no Company Liabilities,
direct or indirect, fixed or contingent, which are not reflected in the balance
sheet as of September 30, 1998, except for Liabilities incurred in the Ordinary
Course of Business subsequent to September 30, 1998, which, either individually
or in the aggregate, would not be material. To the Knowledge of the Company and
the Shareholders, there is no Basis for any assertion against the Company of any
Liability or obligation of any nature whatsoever that is not fully reflected in
the Financial Statements which, either individually or in the aggregate, would
be material. Since the date of the September 30, 1998 Financial Statements,
there have been no material changes in the Company's accounting policies.
The accounts and notes receivable reflected on the Financial Statements or
acquired after the respective dates thereof arose from bona fide transactions
occurring in the Ordinary Course of Business and are collectible in full in the
Ordinary Course of Business except for the amount of the reserve for bad debts
shown on the respective Financial Statements.
4.6 Material Contracts. Included in Section 4.6 of the Disclosure
Schedule are true, correct and complete copies of all Material Contracts of the
Company. Each Material Contract is a valid and binding obligation of the Company
and is enforceable against the Company and the other Person or Persons thereto,
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and subject to the availability
of equitable remedies. The Company has performed all obligations required to be
performed by it and is not in default under or in breach of any term or
provision of any Material Contract to which the Company is a party, is subject
or is otherwise bound, and no event has occurred that, with the giving of notice
or the passage of time or both, would constitute such a default or breach under
any Material Contract. To the Knowledge of the Company and the Shareholders, no
party with whom the Company has a Material Contract is in default of its
obligations thereunder. Except as set forth in Section 4.6 of the Disclosure
Schedule, no consent or approval of any party to any of the Material Contracts
is necessary in order to permit the Company to consummate the transactions
contemplated hereby.
4.7 Assets Other Than Real Property. The Company has good and marketable
title to all properties and assets (other than real property which is subject to
Section 4.8, below) owned or leased by the Company, free and clear of all Liens
except for Permitted Liens. All
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of the vehicles, machinery and equipment of the Company are in good working
order and condition, ordinary wear and tear excepted.
4.8 Real Property. The Company does not own any real property. Section
4.8 to the Disclosure Schedule hereto contains all real property leases,
subleases, licenses or similar agreements ("Leases") to which the Company is a
party. The Company has valid leasehold interests in the Leased Premises, free
and clear of all Liens and Claims, except for (i) Claims of lessors, co-lessees
or sublessees in such matters as are reflected in the Leases; (ii) title
exceptions affecting the fee estate of the lessor under such Leases; and (iii)
other matters as described in the Disclosure Schedule. The Company is not in
default, and no facts or circumstances have occurred which, through the passage
of time or the giving of notice, or both, would constitute a default under any
Lease. The activities of the Company, with respect to the Leased Premises, are
in all material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all laws and regulations of any Governmental
Entity.
4.9 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by the Company will result in any of the following: (i) a
default or an event that, with notice or lapse of time or both, could be a
default, breach or violation of (A) the Articles of Incorporation or Bylaws of
the Company, or (B) any Material Contract; (ii) the termination of any Material
Contract or the acceleration of the maturity of any Indebtedness or other
material obligation of the Company; (iii) the creation or imposition of any Lien
(except for Permitted Liens) on any of the assets or properties of the Company;
(iv) the creation or imposition of any Lien on any shares of the Company Stock;
or (v) a violation or breach of any writ, injunction or decree of any
Governmental Entity or arbitrator to which the Company is a party or by which
any of its properties are bound.
4.10 Litigation. There are no Claims before any court or administrative
agency pending or currently threatened against or with respect to the Company
(or to the Knowledge of the Company or the Shareholders any Basis therefor),
which question the validity of this Agreement or any action taken or to be taken
in connection herewith, or which, individually or in the aggregate, might result
in a Material Adverse Effect, or in any material impairment of the right or
ability to carry on its business as now conducted or as proposed to be
conducted, or in any material Liability or Loss on the part of the Company. The
Company and the Shareholders are not a party or subject to, and none of their
assets are bound by, the provisions of any order, writ, injunction, judgment, or
decree of any Governmental Entity or arbitrator.
4.11 Taxes. The Company has no Liability for any federal, state or local
Taxes, except for Taxes which have accrued and are not yet payable. The Company
has filed or caused to be filed all Tax Returns, included in Section 4.11 of the
Disclosure Schedule, required under applicable law to be filed on or before the
date of the Effective Date, the Company has paid or made provision for all Taxes
and other charges which have or may become due for the periods covered by such
Tax Returns, and all such Tax Returns are true,
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correct and complete in all respects. None of the Tax Returns of the Company are
currently under investigation or audit, nor is an investigation or audit
pending, and there has not been an investigation or audit of the Tax Returns of
the Company since the incorporation of the Company. There are no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any Tax Return for any period. The accounting treatment of all items of
income, gain, loss, deduction and credit as reported on all Tax Returns and
estimates filed by or on behalf of the Company are true, correct and complete,
and all deferred Taxes and all Taxes due for the period ending on the Closing
Date have been accrued on the Balance Sheet of the September 30, 1998 Financial
Statements. No Claim has ever been made by any Governmental Entity in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. All Taxes owed by the Company or which
the Company is obligated to withhold from amounts owed or owing to any employee,
stockholder, creditor or third party have been paid. There are no unresolved
Claims concerning the Company's Tax Liability, and to the Knowledge of the
Company and the Shareholders no Basis for any such Claims exist.
4.12 Employees. Section 4.12 of the Disclosure Schedule sets forth a
complete list of all current employees of the Company, together with each
employee's title or job classification, and the current annual or hourly rate of
compensation payable to each such employee. There are no unfair labor practice
complaints, strikes, slowdowns, stoppages or other controversies pending or
threatened, attempts to unionize or controversies threatened between the Company
and, or relating to, any of its employees, nor to the Knowledge of the Company
or the Shareholders any Basis therefore. Except as set forth in Section 4.12 of
the Disclosure Schedule, the Company is not a party to any collective bargaining
agreement with respect to any of its employees or to a written employment
contract with any of its employees, and there are no understandings with respect
to the employment of any officer or employee of the Company which are not
terminable by the Company without Liability on not more than thirty (30) days'
notice. Except as set forth in Section 4.12 of the Disclosure Schedule, no
officer, director, or employee is entitled to receive any payment of any amount
under any existing employment or other agreement, Benefit Arrangement,
Employment Plan or other benefit, or to the accrual or vesting of any other
benefit (including vacation accruals) or other payment which are not reflected
or reserved for in the Financial Statements. To the Knowledge of the Company and
the Shareholders, the Company has complied with all applicable Legal
Requirements which govern workers' compensation, equal employment opportunity
and equal pay. The Company's employment of each of its employees is in
compliance with all immigration and naturalization laws of the United States.
4.13 Consents. Except as set forth in Section 4.13 of the Disclosure
Schedule, all consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations or filings with, any
Governmental Entity or under any Material Contract, required on the part of the
Company in connection with the valid execution and delivery of this Agreement
and the exchange and cancellation of the Company Stock, or the consummation of
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any other transaction contemplated hereby have been obtained, or will be
effective at the Closing.
4.14 Operating Rights. The Company has all operating authority,
licenses, franchises, permits, certificates, consents, rights and privileges
(collectively, "Licenses") as are necessary or appropriate to the operation of
its business as now conducted. Section 4.14 of the Disclosure Schedule contains
copies of the Licenses. Such Licenses are in full force and effect, no
violations have been or are expected to have been recorded in respect of any
such Licenses, and no proceeding is pending or threatened, or to the Knowledge
of the Company and the Shareholders any Basis therefore, that could result in
the revocation or limitation of any such Licenses. The Company has conducted its
business so as to comply in all material respects with all such Licenses.
4.15 Compliance with Applicable Laws. The properties, assets, business
and operations of the Company have been and are being maintained and conducted
in compliance with all Legal Requirements to which the Company is subject. No
investigation or review by any Governmental Entity with respect to the Company
is pending or threatened, or to the Knowledge of the Company or the Shareholders
is there any Basis therefore, nor has any Governmental Entity indicated to the
Company an intention to conduct the same.
4.16 Insurance. Section 4.16 of the Disclosure Schedule sets forth an
accurate list, as of October 31, 1998, of all insurance policies carried by the
Company and all insurance loss runs or workmen's compensation claims received
for the past two (2) policy years. Attached to Section 4.16 of the Disclosure
Schedule are true, complete and correct copies of the summaries from the
insurance companies of all current insurance policies, all of which are in full
force and effect. All premiums payable under all such policies have been paid
and the Company is otherwise in full compliance with the terms of such policies
(or other policies providing substantially similar insurance coverage). There is
no threatened termination of or material premium increase with respect to, any
of such policies. All Claims previously made under such policies have been
timely filed.
4.17 Absence of Changes. Except as set forth in Section 4.17 to the
Disclosure Schedule, since January 1, 1998, there has not been (i) any change or
amendment in the Articles of Incorporation, Bylaws or other governing
instruments of the Company; (ii) any sale or issuance of, or grant of options or
rights to acquire, any shares of the Company Stock or other securities of the
Company or any declaration, setting aside, or payment of dividends or
redemptions in respect of any shares of capital stock of the Company, or any
direct or indirect redemption, purchase, or other acquisition of such stock, or
any agreement, understandings or commitments to do the same; (iii) any transfer
or other disposition or pledge of, or the grant of options or rights to acquire,
any of the outstanding shares of the Company Stock; (iv) any amendment,
termination or revocation, or any threat of any amendment, termination, or
revocation of any Material Contract; (v) any sale, transfer, mortgage, pledge,
or subjection to Lien (other than Permitted Liens) of, on or affecting any of
the assets of the Company valued
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at or above $10,000 individually or in the aggregate; (vi) any increase in the
compensation paid or payable or in the fringe benefits provided to any employee
of the Company, or the adoption of any Benefit Arrangements or Employee Plans
not in existence in the fiscal year ended December 31, 1997; (vii) any damage,
destruction or loss, whether or not covered by insurance, of any of the assets
of the Company; (viii) any purchase or lease, or commitment for the purchase or
lease, of equipment or other capital items not disclosed in the Financial
Statements which is in excess of the normal, ordinary and usual requirements of
the business of the Company; (ix) any change that by itself or together with
other changes, has had a Material Adverse Effect; (x) any agreement or
arrangement made by the Company or any Shareholder to take any action which, if
taken prior to the date hereof, would have made any representation or warranty
set forth in this Agreement untrue or incorrect as of the date when made; or
(xi) the commencement or notice or threat of commencement of any Claim against
the Company or any of its affairs.
4.18 Employee Plans. Section 4.18 of the Disclosure Schedule sets forth
a complete list of all Employee Plans and Benefit Arrangements maintained,
administered or contributed to, or otherwise participated in, by the Company.
True and complete copies of each such Employee Plan or Benefit Arrangement,
including amendments thereto, have been provided to MGC, together with true and
complete copies of (i) annual reports for the most recent three (3) years (Form
5500 Series including, if applicable, Schedules A and B thereto); (ii) all plan
documents and the most recent summary plan description of each such Employee
Plan, together with any modifications thereto; and (iii) the most recent
favorable determination letter (if applicable) from the Internal Revenue Service
for each such Employee Plan. None of the Employee Plans is a "multiemployer
plan" as defined in Section 3(37) of ERISA or a "multiple employer plan" as
covered in Section 412(c) of the Code, and the Company has not been obligated to
make a contribution to any such multiemployer or multiple employer plan. All
contributions (including all employer contributions and employee salary
reduction contributions) which are due have been paid to each such Employee Plan
or Benefit Arrangement and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee Plan
or Benefit Arrangement or accrued in accordance with past custom and practice of
Company. Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and each trust maintained pursuant thereto is
exempt from income tax under Section 501(a) of the Code. Neither the Company nor
any Employee Plan, nor any trusts created thereunder, nor any trustee,
administrator nor any other fiduciary thereof, has engaged in a "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the Code,
or any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of
ERISA.
4.19 Intellectual Property Rights.
(a) Except as set forth in Section 4.19 of the Disclosure
Schedule, the Company owns, or has the right to use, sell or license all
Intellectual Property necessary or required for the conduct of its business as
presently conducted and such rights to use, sell or
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license are reasonably sufficient for such conduct of the Company's business.
The Company has taken all reasonable and practicable action designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
right in, all of its Intellectual Property.
(b) Except as set forth in Section 4.19 of the Disclosure
Schedule, neither the manufacture, marketing, license, sale or intended use of
any Intellectual Property licensed or sold by the Company or currently under
development by the Company violates any license or agreement between the Company
and any third party or infringes any Intellectual Property of any other party;
and there is not pending or threatened, nor to the Knowledge of the Company or
the Shareholders any Basis therefor, any Claim contesting the validity,
ownership or right to use, sell, license or dispose of any Intellectual Property
or that the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor to the Knowledge of the Company
or the Shareholders, is there any Basis for any such assertion.
4.20 Environment, Health and Safety.
(a) The Company has complied with all Environmental, Health and
Safety Laws, except where failure to comply would not have a Material Adverse
Effect, and no Claim or notice has been filed or commenced against it alleging
any failure to so comply. Without limiting the generality of the preceding
sentence, the Company has obtained and been in compliance with all of the terms
and conditions of all Licenses and other authorizations which are required
under, and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
which are contained in, all Environmental, Health, and Safety Laws, except where
failure to comply would not have a Material Adverse Effect.
(b) The Company has not handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property or
facility in any manner that could form a Basis for any present or future Claim
against the Company giving rise to any Liability, except where having done so
would not have a Material Adverse Effect. The Company has no Liability for
damage to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law which could have a
Material Adverse Effect.
(c) To the Knowledge of the Company and the Shareholders, all
properties used in the Company's business are free of Hazardous Substances,
except where the existence thereof would not have a Material Adverse Effect.
4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between the
Company, on the one hand, and any Shareholder, officer or director of the
Company, or any person or entity affiliated with any of
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them, on the other hand, including, without limitation, any transactions,
arrangements or understandings relating to the purchase or sale of goods or
services or the sale, lease or use of any of the assets of or by the Company,
with or without adequate compensation, or to any indebtedness owed to or by the
Company, in any amount whatsoever.
4.22 Bank Accounts; Powers of Attorney. Section 4.22 of the Disclosure
Schedule sets forth an accurate list, as of the date of this Agreement, of the
following: (i) the name of each financial institution in which the Company has
any account or safe deposit box; (ii) the names in which the accounts or boxes
are held; (iii) the type of account; and (iv) the name of each person authorized
to draw thereon or have access thereto. Section 4.22 of the Disclosure Schedule
also sets forth the name of each Person holding a general or special power of
attorney from the Company and a description of the terms of such power.
4.23 Investment Representations. Each Shareholder, other than Europa
Telecommunications, Inc., is an "accredited investor," as such term is defined
under the Securities Act. Each Shareholder is receiving the MGC Common Stock for
his own account for investment purposes only, and not as a nominee or agent for
any other Person, and not with a view to or for resale in connection with any
distribution thereof. Each Shareholder acknowledges that the MGC Common Stock to
be issued hereunder will not be registered under the Securities Act, nor
qualified under any state securities laws on the ground, among others, that no
distribution or public offering is to be effected.
4.24 Continuity of Interest. Each Shareholder has no present plan,
intention or arrangement to dispose of any of the shares of MGC Common Stock
issued to him hereunder in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1.
4.25 Tax-Free Reorganization. The Company and the Shareholders have
taken all action necessary to ensure that the Merger qualifies, in all respects,
as a tax-free reorganization pursuant to Code Section 368(a)(2)(E).
4.26 Absence of Claims Against Company. No Shareholder has any Claims
against the Company.
4.27 Employee Loans. There are no outstanding loans and/or other
advances made by the Company to any of its officers, directors, employees,
agents or consultants.
4.28 Brokers' Fees. The Company and the Shareholders have no Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
4.29 Full Disclosure. Neither this Agreement, the representations and
warranties by the Company and the Shareholders contained herein, the Exhibits or
Schedules hereto, nor any
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other written statement or certificate delivered or to be furnished to MGC in
connection herewith, when read together, contain, to the Knowledge of the
Shareholders and the Company, any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading.
4.30 Disclosure. The Company and the Shareholders have no actual advance
knowledge as of the date of the execution of this Agreement of a breach of any
representation or warranty contained in Article 5 below (including any Schedule
referred to therein) made by MGC or Newco.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MGC AND NEWCO
MGC and Newco represent and warrant to the Company and the Shareholders
that (except for changes contemplated by this Agreement) each of the following
statements is true, correct and complete in all material respects as of the date
of this Agreement and will be true, correct and complete in all material
respects as of the date of the Effective Time (each such statement to be made
again by MGC and Newco on that date with such date being substituted for the
date of this Agreement throughout this Article 5):
5.1 Organization and Standing; Articles and Bylaws. MGC and Newco are
corporations duly organized, validly existing and in good standing under the
laws of the State of California and the State of Delaware, respectively, have
full power and authority to own their respective assets and properties and to
carry on their respective businesses as presently conducted. MGC and Newco are
duly qualified and authorized to do business, and are in good standing as
foreign corporations, in each jurisdiction where the nature of their respective
activities and of their respective properties (both owned and leased) make such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect.
5.2 Authorization. All corporate action on the part of MGC and Newco,
and their respective officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the documents
contemplated hereby, the performance of all of MGC's and Newco's obligations
hereunder and thereunder, and for the exchange and cancellation of the Company
Shares and the issuance of the MGC Common Stock have been taken or will be taken
prior to the Closing. This Agreement and the documents contemplated hereby, when
executed and delivered by MGC and Newco, shall constitute valid and legally
binding obligations of MGC and Newco enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
5.3 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by MGC or Newco will result in any of the following: (i) a
default or an event that,
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with notice or lapse of time or both, could be a default, breach or violation of
(A) the Articles of Incorporation or Bylaws of MGC or Newco, or (B) any Material
Contract of MGC or Newco; (ii) the termination of any Material Contract of MGC
or Newco or the acceleration of the maturity of any Indebtedness or other
material obligation of MGC or Newco; (iii) the creation or imposition of any
Lien (except for Permitted Liens) on any of the respective assets or properties
of MGC or Newco; (iv) the creation or imposition of any Lien on any shares of
the MGC Common Stock; or (v) a violation or breach of any writ, injunction or
decree of any Governmental Entity to which MGC or Newco is a party or by which
any of their respective properties are bound.
5.4 MGC SEC Documents. MGC has filed all forms, reports and documents
required to be filed with the SEC (the "MGC SEC Documents"), all of which have
been made delivered to the Company. As of their respective dates, the MGC SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such MGC SEC Documents, and none
of the MGC SEC Documents contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of MGC included in the MGC SEC
Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except in the case of the
unaudited interim financial statements, as permitted by Form 10-Q promulgated by
the SEC) and fairly present (subject, in the case of the unaudited interim
financial statements, to recurring audit adjustments normal in nature and
amount) the consolidated financial position of MGC as at the dates thereof and
the consolidated results of its operations and cash flows or changes in
financial position for the periods then ended. There has been no Material
Adverse Effect on MGC since the filing of MGC's most recent Form 10-Q and there
is no Basis for believing that there will be a Material Adverse Effect on MGC's
results to be stated in MGC's Form 10-Q for the third quarter of 1998.
5.5 MGC Common Stock. All of the shares of MGC Common Stock to be issued
to the Shareholders in connection with the Merger will be duly authorized,
validly issued, fully paid and non-assessable. Such shares, when issued in
accordance with the terms hereof, will have been offered, issued, sold and
delivered by MGC in compliance with all applicable state and federal laws, free
and clear of all Liens and Claims and none of such shares shall be issued in
violation of the preemptive rights, rights of first offer, or other rights of
any shareholder of MGC.
5.6 Governmental Consents. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any Governmental Entity, required on the part of MGC and/or
Newco in connection with the valid execution and delivery of this Agreement and
the issuance of MGC Common Stock, or the consummation of
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any other transaction contemplated hereby have been obtained, or will be
effective at the Closing.
5.7 Brokers' Fees. Neither MGC nor Newco is a party to or obligated
under any agreement with any broker, agent, or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for herein will result in any
liability to any broker, agent, or finder.
5.8 Full Disclosure. Neither this Agreement, the representations and
warranties by MGC and/or Newco contained herein, the Exhibits or Schedules
hereto, nor any other written statement or certificate delivered or to be
furnished to Company in connection herewith, when read together, contain any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading.
5.9 Disclosure. MGC and Newco have no actual advance knowledge as of the
date of the execution of this Agreement of a breach of any representation or
warranty contained in Article 4 above (including any Schedule referred to
therein) made by the Shareholders or the Company.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and the Shareholders, severally, covenant and
agree that:
6.1 Qualification. The Company shall maintain all qualifications to
transact business and remain in good standing in its jurisdiction of
incorporation and in the foreign jurisdictions in which the Company owns or
leases any property or conducts any business.
6.2 Ordinary Course. The Company shall conduct its business in, and only
in, the Ordinary Course of Business and, to the extent consistent with such
business, shall not make or institute any unusual or novel methods of
management, accounting, or operation that vary materially from those methods
used by the Company as of September 30, 1998. The Company will use commercially
reasonable efforts to preserve its business organization intact, to keep
available to the Company its present officers and employees, and to preserve its
present relationships with suppliers, customers, and others having business
relationships with the Company. The Company shall maintain its properties and
assets in good condition and repair.
6.3 Corporate Changes. The Company shall not (i) amend its Articles of
Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase
substantially all of the stock or assets of, or otherwise acquire, any business
or any corporation, partnership, association or
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other business organization or division thereof; (iii) enter into any
partnership or joint venture; (iv) declare, set aside, make or pay any dividend
or other distribution in respect of its capital stock or purchase or redeem,
directly or indirectly, any shares of its capital stock; (v) issue or sell any
shares of its capital stock of any class or any options, warrants, conversion or
other rights to purchase any such shares or any securities convertible into or
exchangeable for such shares; or (vi) liquidate or dissolve or obligate itself
to do so.
6.4 Indebtedness. The Company shall not incur any Indebtedness, sell any
debt securities or lend money to or guarantee the Indebtedness of any Person.
The Company shall not restructure or refinance its existing Indebtedness.
6.5 Accounting. The Company shall not make any change in the accounting
principles, methods or practices followed by it or depreciation or amortization
policies or rates heretofore adopted by it. The Company shall maintain its
books, records, and accounts in accordance with GAAP (except as otherwise set
forth in Section 4.5 of the Disclosure Schedule) applied on a basis consistent
with that of prior periods.
6.6 Compliance with Legal Requirements. The Company shall comply
promptly and in all material respects with all Legal Requirements imposed upon
it, its operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, MGC in
connection with any such requirements imposed upon MGC, or upon any of its
Affiliates, in connection therewith or herewith.
6.7 Disposition of Assets. Except in the Ordinary Course of Business,
the Company shall not sell, transfer, license, lease or otherwise dispose of, or
suffer or cause the encumbrance by any Lien other than Permitted Liens upon any
of its properties or assets, tangible or intangible, or upon any interest
therein.
6.8 Compensation. Except in the Ordinary Course of Business, the Company
shall not (i) adopt or amend in any material respect any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, Employee Plan, Benefit Arrangement, or any other agreement, trust,
fund or arrangement for the benefit of employees other than to comply with any
Legal Requirement; or (ii) pay, or make any accrual or arrangement for payment
of, any increase in compensation, bonuses or special compensation of any kind,
or any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any Shareholder or any current or former officer,
director, employee or consultant of the Company.
6.9 Modification or Breach of Agreements; New Agreements. Except in the
Ordinary Course of Business, the Company shall not terminate or modify, or
commit or cause or suffer to be committed any act that will result in breach or
violation of any term of or (with or without notice or passage of time, or both)
constitute a default under or otherwise give any Person a basis for
nonperformance under, any Material Contract, written or oral. The
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Company shall refrain from becoming a party to any contract or commitment other
than in the Ordinary Course of Business. The Company shall meet all of its
contractual obligations in accordance with their respective terms.
6.10 Capital Expenditures. Except in the Ordinary Course of Business,
and except for capital expenditures or commitments necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $15,000 individually or in the aggregate), the Company shall not
purchase or enter into any contract to purchase any capital assets.
6.11 Consents. The Company shall use commercially reasonable efforts to
obtain any consent, authorization or approval of, or exemption by, any
Governmental Entity or Person required to be obtained or made by any Party
hereto in connection with the transactions contemplated hereby or the taking of
any action in connection with the consummation thereof.
6.12 Maintenance of Insurance. The Company shall maintain its policies
of insurance in full force and effect on substantially the same terms and
conditions as in effect on September 30, 1998, and shall not do, permit or
willingly allow to be done any act by which any of said policies of insurance
may be suspended, materially impaired or canceled.
6.13 Discharge. The Company shall not cancel, compromise, release or
discharge any Claim of the Company upon or against any Person or waive any right
of the Company of material value, and shall not discharge any Lien upon any
asset of the Company or compromise any debt or other obligation of the Company
to any Person other than Liens, debts or obligations with respect to current
Liabilities of the Company.
6.14 Claims. The Company shall not institute, settle or agree to settle
any Claim before any Governmental Entity, without the prior written consent of
MGC.
6.15 Taxes and Tax Assessments. The Company shall pay, when due, and
prior to the imposition or assessment of any interest, penalties or Liens by
reason of the nonpayment of, all Taxes assessed against the Company, its assets,
properties or operations. The Company shall furnish promptly to MGC a copy of
all notices of proposed assessment or similar notices or reports that are
received from any taxing authority and which relate to the Company's operations
for periods ending on or prior to the Closing Date.
ARTICLE 7
ADDITIONAL COVENANTS
7.1 Covenants of Company and Shareholders. During the period from the
date hereof through the Closing Date, the Company and the Shareholders agree to:
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(a) Comply promptly with all applicable Legal Requirements
imposed upon them with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, MGC in
connection with any such requirements imposed upon MGC or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their reasonable best efforts to obtain (and to cooperate
with MGC in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by the Company and/or the
Shareholders in connection with the transactions contemplated by this Agreement;
(c) Use their reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.6,
above;
(d) Promptly advise MGC orally and, within three (3) business
days thereafter, in writing of any change in the Company's business or condition
that has had or would reasonably be expected to have a Material Adverse Effect
on the Company;
(e) Deliver to MGC prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Exhibit or Schedule
hereto (or supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, immediately upon the discovery of
such untrue statement or omission, accompanied by a written supplement to any
Exhibit or Schedule to this Agreement that may be affected thereby; provided,
however, that the disclosure of such untrue statement or omission shall not
prevent MGC from terminating this Agreement pursuant to Section 8.1(b), below,
at any time at or prior to the Closing in respect of any original untrue or
misleading statement; and
(f) Prior to the Closing, deliver to MGC the Disclosure Schedule.
7.2 Covenants of MGC and Newco. During the period from the date hereof
to the Closing Date, MGC and Newco shall:
(a) Comply promptly with all applicable Legal Requirements
imposed upon it with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, the Shareholders
in connection with any such requirements imposed upon the Shareholders or the
Company or upon any of the Company's Affiliates in connection therewith or
herewith;
(b) Use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by MGC in connection with the transactions contemplated by this
Agreement;
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(c) Use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.7 of
this Agreement;
(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of the Company, or use at least a
significant portion of the Company's historical business assets in a business,
in each case in accordance with Treasury Regulation Section 1.368-1; and
(e) Promptly advise the Company orally and, within three (3)
business days thereafter, in writing of any change in MGC's or Newco's business
or condition that has had or would reasonably be expected to have a Material
Adverse Effect on MGC or Newco.
7.3 Tax-Free Reorganization/Tax Advice. Each Shareholder shall assume
and be fully responsible for any and all Liability, including without limitation
any and all Tax Liability, incurred by such Shareholder, which is caused by,
arises from, or relates to the failure of the Merger to qualify, in any
respects, as a tax-free reorganization pursuant to Section 368(a)(2)(E) of the
Code. The Company and Shareholders acknowledge that they have received their own
independent tax advice with respect to the Merger, this Agreement and the
transactions contemplated thereby, including without limitation whether the
Merger qualifies as a tax-free reorganization in accordance with Section 368(a)
of the Code, and are not in any way relying on any statements or advice of MGC,
Newco or any of their officers, directors, employees, agents or representatives
with respect to such matters.
7.4 Continuity of Interest. The Shareholders shall not dispose of any
shares of MGC Common Stock in a manner that would cause the Merger to violate
the continuity of shareholder interest requirement set forth in Treasury
Regulation Section 1.368-1.
7.5 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, the Shareholders shall cause the Company to
afford to MGC and to MGC's accountants, counsel, and other representatives,
reasonable access during regular business hours and without undue interruption
to its business to all of its properties, books, contracts, commitments, records
and personnel and, during such period, to cause the Company to furnish promptly
to MGC all information concerning its business, properties and personnel as MGC
may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.8, below, MGC shall hold in confidence, and shall use reasonable efforts to
ensure that its employees and representatives hold in confidence, all such
information supplied to it by any Shareholder or the Company concerning the
Company and shall not disclose such information to any third party except as may
be required by any Legal Requirement and except for information that (i)
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is or becomes generally available to the public other than as result of
disclosure by MGC or its representatives; (ii) becomes available to MGC or its
representatives from a third party other than the Shareholders or the Company,
and MGC or its representatives have no reason to believe that such third party
is not entitled to disclose such information; (iii) is known to MGC or its
representatives on a non-confidential basis prior to its disclosure by the
Shareholders or the Company; or (iv) is made available by the Shareholders or
the Company to any other Person on a non-restricted basis. MGC's obligations
under the foregoing sentence shall expire on the Closing Date or, if the Closing
does not occur, two (2) years after the date hereof.
7.6 Expenses. All costs and expenses (including, without limitation, all
legal fees and expenses and costs) incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Party incurring
the same. Notwithstanding anything to the contrary in the preceding sentence,
the Company shall only be responsible for up to a maximum of Ten Thousand
Dollars ($10,000) of such costs and expenses incurred by the Company and the
Shareholders, and the Shareholders shall be responsible for the balance of such
costs and expenses incurred by the Company and the Shareholders.
7.7 Certain Notifications. At all times from the date hereof to the
Closing Date, each Party shall promptly notify the others in writing of the
occurrence of any event that will or reasonably would be expected to result in
the failure to satisfy any of the conditions specified in Sections 3.6 and 3.7,
above.
7.8 Publicity. At all times prior to the Closing Date, each Party shall
obtain the consent of all other Parties hereto prior to issuing, or permitting
any of its directors, officers, employees or agents to issue, any press release
or other information to the press, employees of the Company or any third party
with respect to this Agreement or the transactions contemplated hereby;
provided, however, that no party shall be prohibited from supplying any
information to any of its representatives, agents, attorneys, advisors, and
others to the extent necessary to complete the transactions contemplated hereby
so long as such representatives, agents, attorneys, advisors, and others are
made aware of the terms of this Section 7.8. Nothing contained in this Agreement
shall prevent any party to this Agreement at any time from furnishing any
required information to any Governmental Entity or authority pursuant to a Legal
Requirement or from complying with its legal or contractual obligations;
provided that the Party furnishing such information shall have used its
reasonable best efforts to comply with this provision first, and in any event
does so only with the advice of counsel.
7.9 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each
of the Parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
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(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, Shareholders
and the proper officers or directors of MGC and the Company, as the case may be,
shall take or cause to be taken all such necessary or convenient action and
execute, and deliver and file, or cause to be executed, delivered and filed, all
necessary or appropriate documentation.
(c) Xxxxxx X. Xxxxxxxx shall fully cooperate with MGC and
Surviving Corporation in obtaining a "key man" insurance policy, in an amount to
be determined by MGC and Surviving Corporation in their sole discretion,
insuring the life and/or health of Xx. Xxxxxxxx for the benefit of MGC and/or
Surviving Corporation.
7.10 Competing Offers. The Shareholders agree that they will not, and
will cause the Company not to, directly or indirectly, through an officer,
director, agent, or otherwise, solicit, initiate or encourage the submissions of
bids, offers or proposals by, any Person with respect to an acquisition of the
Company or its assets or capital stock or a merger or similar transaction, and
the Shareholders will not, and will not permit the Company to, engage any
broker, financial adviser or consultant to initiate or encourage proposals or
offers from other Persons. Furthermore, the Shareholders shall not, and shall
not permit the Company to, directly or indirectly, through any officer,
director, agent or otherwise, engage in negotiations concerning any such
transaction with, or provide information to, any Person other than MGC and its
representatives with a view to engaging, or preparing to engage, that Person
with respect to any matters in this Section 7.10. The Shareholders shall ensure
that the Company shall not commence any proceeding to merge, consolidate or
liquidate or dissolve or obligate itself to do so.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of MGC and the Company;
(b) By the Shareholders and the Company as a group, on the one
hand, or by MGC, on the other hand, if there has been a breach, failure to
fulfill or default (collectively, a "Breach") on the part of the other Party
(the "Breaching Party") of any of the representations and warranties contained
herein or in the due and timely performance and satisfaction of any of the
covenants, agreements or conditions contained herein; or
(c) By the Shareholders and the Company as a group, on the one
hand, or by MGC, on the other hand, if there shall be a final non-appealable
order of a Governmental Entity or arbitrator in effect preventing consummation
of the Merger; or there shall be any
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action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity or
arbitrator which would make the consummation of the Merger illegal.
8.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 8.1, above, this Agreement shall forthwith become
void, and there shall be no Liability or obligation on the part of any Party or
its officers, directors or shareholders. Notwithstanding the foregoing sentence,
(i) the provisions of Section 7.5 and 7.6 shall remain in full force and effect
and survive any termination of this Agreement; (ii) each Party shall remain
liable for any breach of this Agreement prior to its termination; and (iii) in
the event of termination pursuant to Section 8.1(b), above, then notwithstanding
the provisions of Section 7.6, above, the breaching Party shall be liable to the
non-breaching Party to the extent of the expenses incurred by such other party
in connection with this Agreement and the transactions contemplated thereby.
8.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 8.3 shall be binding upon all Parties.
8.4 Waiver. Any term or provision of this Agreement may be waived in
writing at any time by the Party or Parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 8.4 shall be binding upon all
Parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of a preceding or subsequent breach
of the same or any other covenant or agreement. The rights and remedies of each
Party under this Agreement are in addition to all other rights and remedies,
whether at law, in equity or otherwise, that such Party may have against the
other Parties.
ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations and
warranties of the Parties contained in this Agreement or in any writing
delivered pursuant hereto or at the Closing shall survive the Closing and the
consummation of the transactions contemplated hereby until the first (1st)
anniversary of the Closing Date; provided that the representations and
warranties contained in Sections 4.2, 4.4, 4.11, and 4.20 shall continue until
the second (2nd) anniversary of the Closing Date; provided further, however,
that in order to preserve the indemnity claims described below, unless otherwise
settled by the Parties involved, the Party asserting an indemnity claim must
file an action in an appropriate court of
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law on or before the six (6) month anniversary of the expiration of the
particular representation or warranty in question.
9.2 Indemnification by Company and Shareholders. Effective as of the
Closing and in consideration for the exchange of the Company Shares, the
Shareholders severally covenant and agree with MGC, Newco and Surviving
Corporation and their respective officers, directors, employees, shareholders,
assigns, successors and affiliates (an "MGC Indemnified Party") to indemnify and
hold harmless an MGC Indemnified Party from, against and in respect of any and
all Losses suffered, sustained, incurred or paid by any MGC Indemnified Party in
connection with, resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of any
Shareholder or the Company set forth in this Agreement or any certificate,
document or instrument delivered by or on behalf of any Shareholder or the
Company in connection herewith;
(b) any non-fulfillment of any covenant or agreement on the part
of any Shareholder or the Company in this Agreement; or
(c) the business, operations or assets of the Company prior to
the Effective Time, except to the extent disclosed in the Financial Statements
or the Disclosure Schedule.
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.3 Indemnification by MGC. Effective as of the Closing, MGC covenants
and agrees with the Shareholders and their respective heirs, successors and
assigns (a "Shareholder Indemnified Party") to indemnify and hold harmless a
Shareholder Indemnified Party from, against and in respect of any and all Losses
suffered, sustained, incurred or paid by any Shareholder Indemnified Party in
connection with, resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of MGC or Newco
set forth in this Agreement or any certificate, document or instrument delivered
by or on behalf of MGC or Newco in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of MGC or Newco in this Agreement which is required to be performed after the
Closing.
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.4 Third-Party Claims. In the event any third party asserts any Claim
with respect to any matter as to which the indemnities in this Agreement relate,
the Party or Person against whom the Claim is asserted (the "Indemnified Party")
shall give prompt notice to the other Party or Person (the "Indemnifying
Party"), and the Indemnifying Party shall have the right at
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its election to take over the defense or settlement of the third-party Claim at
its own expense by giving prompt notice to the Indemnified Party. If the
Indemnifying Party does not give such notice and does not proceed diligently to
defend the third-party Claim within thirty (30) days after receipt of the notice
of the third-party Claim, the Indemnifying Party shall be bound by any defense
or settlement that the Indemnified Party may make as to those claims and shall
reimburse the Indemnified Party for its Losses related to the defense or
settlement of the third-party Claim. The Parties shall cooperate in defending
against any asserted third-party Claims. For purposes of this Article 9, the
reference to this Agreement includes any certificate, Disclosure Schedule,
Exhibit, list, summary or other information provided or delivered to a party by
the Indemnifying Party or its agents and affiliates in connection with this
Agreement.
9.5 Access and Information. With respect to any Claim for
indemnification hereunder, the Indemnified Party will give to the Indemnifying
Party and its counsel, accountants and other representatives full and free
access during normal business hours and upon the giving of reasonable prior
notice to their books and records relating to such Claims, and to their
employees, accountants, counsel and other representatives, all without charge to
the Indemnifying Party, except for reimbursement of reasonable out-of-pocket
expenses; provided, however, that all attorney-client privileged documents and
all attorney work product documents shall not be required to be provided. The
Indemnified Party agrees to maintain any of its books and records which may
relate to a Claim for indemnification hereunder for such period of time as may
be necessary to enable the Indemnifying Party to resolve such Claim; provided
that the failure to do so shall not relieve the Indemnifying Party of any
obligation hereunder unless the Indemnifying Party demonstrates that the failure
to do so substantially prejudiced the Indemnifying Party in the defense of any
third-party proceeding, and then only to the extent so prejudiced.
9.6 Mitigation. The Indemnified Parties agree to mitigate their Losses
and use their reasonable efforts to collect any indemnifiable damages from any
available insurer or third-party indemnitors before collecting from the
Indemnifying Party; provided, however, nothing in the foregoing sentence shall
preclude any Indemnified Party from filing a Claim against the Indemnifying
Party from the outset. If any amounts are recovered from an insurer or third
party after payment to an Indemnified Party, the recovering party (or parties)
shall promptly pay over to such Indemnifying Party (or Parties) any such
recovered amounts, but only to the extent of any Losses with respect to such
matter.
9.7 Right of Set-Off. Any Party to this Agreement shall be entitled to
set-off against any amounts due to another Party under the terms of this
Agreement or under any additional agreement, any amounts due from such other
Party under the terms of this Agreement; provided, however, that a final
adjudication under any Legal Requirement has first been obtained by the Party
entitled to set-off.
9.8 Limitation on Indemnity Obligations. Notwithstanding any other
provision in this Article 9 to the contrary:
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(a) The Shareholders shall not be required pursuant to this
Article 9 to indemnify any of the MGC Indemnified Parties until the aggregate
amount of the MGC Indemnified Parties' Losses under this Article 9 exceed
Twenty-Five Thousand Dollars ($25,000) (the "Basket Amount"), after which the
Shareholders severally shall be obligated for any and all Losses of the MGC
Indemnified Parties, including the Basket Amount;
(b) The maximum liability of the Shareholders under this Article
9 shall be limited to no more than Three Million Dollars ($3,000,000), except
with respect to a breach of section 4.2, 4.4, 4.11 or 4.12, in which case the
maximum liability of each Shareholder shall be its pro rata share of the
consideration received pursuant to Section 2.2, above; and
(c) The Shareholders shall have the option of paying an MGC
Indemnified Party for any liability incurred by such Shareholder under this
Article 9 in either (i) cash; or (ii) shares of MGC Common Stock, which shares
shall be valued based on the closing price of MGC Common Stock on the date that
demand for payment of such liability is made by such MGC Indemnified Party.
ARTICLE 10
GENERAL PROVISIONS
10.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California. Proper venue shall be in the state or federal courts located in
Orange County, California.
10.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
Parties hereto.
10.3 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement among the Parties with regard to the
subject matter hereof and no Party shall be liable or bound to any other Party
in any manner by any representations, warranties, covenants, or agreements
except as specifically set forth herein or therein. Nothing in this Agreement,
express or implied, is intended to confer upon any Person, other than the
Parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or Liabilities under or by reason of this Agreement,
except as expressly provided herein.
10.4 Severability. In the event any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the Parties, and the
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validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
10.5 Notice. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given (i) if
delivered personally (including by overnight express or messenger), upon
delivery; (ii) if delivered by registered or certified mail, return receipt
requested, upon the earlier of actual delivery or three (3) days after being
mailed; or (iii) if given by facsimile, upon confirmation of transmission by
facsimile, in each case to the Parties at the following addresses:
(a) If to MGC, Newco or Surviving Corporation, addressed to:
Micro General Corporation
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxx X. Xxxx, Esq.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
(b) If to the Shareholders (Pre-Closing) or the Company
(Pre-Closing), addressed to:
LD Xxxxxxxx.xxx, Inc.
00000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, III
Facsimile: (619) ___-____
With a copy to:
Xxxxx, Xxxxxxxx & Xxxxxxxxx, PC
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
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(c) If to a Shareholder (Post-Closing), addressed to such
Shareholder at such Shareholder's most recent address as
shown on the records of the Company:
With a copy to:
Xxxxx, Xxxxxxxx & Xxxxxxxxx, PC
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
10.6 Construction. Parties to this Agreement have participated jointly
in the negotiation and drafting of this Agreement and have had competent counsel
of their own choosing. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
10.7 Headings. The headings of the Articles and Sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
10.8 Counterparts. This Agreement may be executed by facsimile and in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
10.9 Recitals, Schedules, and Exhibits. The Recitals, Schedules and
Exhibits to this Agreement are incorporated herein and, by this reference, made
a part hereof as if fully set forth at length herein.
[SIGNATURES ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the foregoing Agreement and Plan of Reorganization
is hereby executed as of the date first above written.
MGC:
MICRO GENERAL CORPORATION,
a California Corporation
By: /s/ XXXXXXX X. XXXXX
-------------------------------
Its: Chief Executive Officer
-------------------------------
COMPANY:
LD XXXXXXXX.XXX, INC.,
a Delaware Corporation
By: /s/ XXXXXX X. XXXXXXXX, III
-------------------------------
Its: President
-------------------------------
SHAREHOLDERS:
/s/ XXXXXX X. XXXXXXXX, III
------------------------------------
Xxxxxx X. Xxxxxxxx, III
/s/ XXXXXXX XXXXXXXX
------------------------------------
Xxxxxxx Xxxxxxxx
EUROPA TELECOMMUNICATIONS, INC.,
a Delaware corporation
By:
-------------------------------
Its:
-------------------------------
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NEWCO:
LD MERGER CORPORATION,
a Delaware Corporation
By: /s/ XXXXXXX X. XXXXX
-------------------------------
Its: Chief Executive Officer
-------------------------------
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