EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
dated as of August 13, 1997
Among
ELCOTEL, INC.,
TECHNOLOGY SERVICE GROUP INC.
and
ELCOTEL HOSPITALITY SERVICE, INC.
TABLE OF CONTENTS
Page
TABLE OF DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . v
ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01 The Merger. . . . . . . . . . . . . . . . . . 2
Section 1.02 Conversion of Shares. . . . . . . . . . . . . 2
Section 1.03 Surrender and Payment. . . . . . . . . . . . 3
Section 1.04 Stock Option Plans. . . . . . . . . . . . . . 5
Section 1.05 TSG Warrants. . . . . . . . . . . . . . . . . 6
Section 1.06 Fractional Shares.. . . . . . . . . . . . . . 7
ARTICLE II - THE SURVIVING CORPORATION . . . . . . . . . . . . . 7
Section 2.01 Certificate of Incorporation. . . . . . . . . 7
Section 2.02 Bylaws. . . . . . . . . . . . . . . . . . . 7
Section 2.03 Directors and Officers. . . . . . . . . . . 8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF TSG. . . . . . . 8
Section 3.01 Organization and Power. . . . . . . . . . . 8
Section 3.02 Corporate Authorization. . . . . . . . . . . 8
Section 3.03 Governmental Authorization. . . . . . . . . 9
Section 3.04 Non-Contravention. . . . . . . . . . . . . . 9
Section 3.05 Capitalization of TSG. . . . . . . . . . . .10
Section 3.06 Capitalization of Subsidiaries. . . . . . .11
Section 3.07 SEC Filings. . . . . . . . . . . . . . . . .11
Section 3.08 Financial Statements. . . . . . . . . . . .11
Section 3.09 Information Supplied. . . . . . . . . . . .12
Section 3.10 Absence of Certain Changes. . . . . . . . .12
Section 3.11 No Undisclosed Liabilities. . . . . . . . .13
Section 3.12 Litigation. . . . . . . . . . . . . . . . .14
Section 3.13 Taxes. . . . . . . . . . . . . . . . . . . .14
Section 3.14 Employee Benefit Plans; ERISA. . . . . . . .16
Section 3.15 Certain Agreements; Compliance
with Agreements. . . . . . . . . . . . .17
Section 3.16 Compliance with Laws and Orders. . . . . . .19
Section 3.17 Environmental Matters. . . . . . . . . . . .20
Section 3.18 Assets. . . . . . . . . . . . . . . . . . .21
Section 3.19 Intellectual Property Rights. . . . . . . .21
Section 3.20 Labor Matters. . . . . . . . . . . . . . . .22
Section 3.21 Transactions with Affiliates. . . . . . . .22
Section 3.22 Insurance. . . . . . . . . . . . . . . . . .22
Section 3.23 Takeover Statutes. . . . . . . . . . . . . .23
Section 3.24 Finders' Fees . . . . . . . . . . . . . . . .23
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF ELCOTEL . . . . .23
Section 4.01 Organization and Power. . . . . . . . . . .23
Section 4.02 Corporate Authorization. . . . . . . . . . .23
Section 4.03 Governmental Authorization. . . . . . . . .24
Section 4.04 Non-Contravention. . . . . . . . . . . . . .24
Section 4.05 Capitalization of Elcotel. . . . . . . . . .25
Section 4.06 Capitalization of Subsidiaries. . . . . . .25
Section 4.07 SEC Filings. . . . . . . . . . . . . . . . .26
Section 4.08 Financial Statements. . . . . . . . . . . .26
Section 4.09 Information Supplied. . . . . . . . . . . .27
Section 4.10 Absence of Certain Changes. . . . . . . . .27
Section 4.11 No Undisclosed Liabilities. . . . . . . . . .28
Section 4.12 Litigation. . . . . . . . . . . . . . . . .28
Section 4.13 Taxes. . . . . . . . . . . . . . . . . . . .29
Section 4.14 Employee Benefits; ERISA. . . . . . . . . .30
Section 4.15 Certain Agreements; Compliance with
Agreements. . . . . . . . . . . . . . . .32
Section 4.16 Compliance with Laws and Orders. . . . . . .34
Section 4.17 Environmental Matters. . . . . . . . . . . .34
Section 4.18 Assets. . . . . . . . . . . . . . . . . . .34
Section 4.19 Intellectual Property Rights. . . . . . . . .35
Section 4.20 Labor Matters. . . . . . . . . . . . . . . .35
Section 4.21 Transactions with Affiliates. . . . . . . . .36
Section 4.22 Insurance. . . . . . . . . . . . . . . . . .36
Section 4.23 Takeover Statutes. . . . . . . . . . . . . .36
Section 4.24 Finders' Fees . . . . . . . . . . . . . . . .37
Section 4.25 Opinion of Financial Advisor. . . . . . . .37
ARTICLE V - COVENANTS. . . . . . . . . . . . . . . . . . . . . .37
Section 5.01 Conduct of TSG. . . . . . . . . . . . . . .37
Section 5.02 Conduct of Elcotel. . . . . . . . . . . . .39
Section 5.03 No Solicitation.. . . . . . . . . . . . . . .42
Section 5.04 Approval of Stockholders. . . . . . . . . .43
Section 5.05 Preparation of Form S-4 and Proxy Statement. 44
Section 5.06 Access to Information. . . . . . . . . . .44
Section 5.07 Notices of Certain Events. . . . . . . . . .45
Section 5.08 Regulatory and Other Approvals. . . . . . . .46
Section 5.09 Public Announcements. . . . . . . . . . . .46
Section 5.10 Further Assurances. . . . . . . . . . . . .46
Section 5.11 TSG Affiliates. . . . . . . . . . . . . . .47
Section 5.12 Obligations of Merger Subsidiary. . . . . .47
Section 5.13 Listing of Stock. . . . . . . . . . . . . . .47
Section 5.14 Antitakeover Statutes. . . . . . . . . . . .47
Section 5.15 Tax Treatment. . . . . . . . . . . . . . . .47
Section 5.16 Appointment of Directors. . . . . . . . . . .47
ARTICLE VI - GENERAL CONDITIONS PRECEDENT TO THE MERGER. . . . .48
Section 6.01 Stockholder Approval. . . . . . . . . . . .48
Section 6.02 HSR Act. . . . . . . . . . . . . . . . . . .48
Section 6.03 Registration Statement; State Securities Laws48
Section 6.04 Listing. . . . . . . . . . . . . . . . . . .48
Section 6.05 Suits or Other Proceedings. . . . . . . . . .48
Section 6.06 Employment Agreements . . . . . . . . . . . .48
ARTICLE VII - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
ELCOTEL AND MERGER SUBSIDIARY. . . . . . . . . . . . . . . .49
Section 7.01 Representations and Warranties. . . . . . . .49
Section 7.02 Performance of Obligations. . . . . . . . .49
Section 7.03 No Material Adverse Change. . . . . . . . .49
Section 7.04 Consents. . . . . . . . . . . . . . . . . .49
Section 7.05 Opinion of TSG Counsel. . . . . . . . . . .49
Section 7.06 Stockholders Agreement. . . . . . . . . . .49
Section 7.07 Proceedings. . . . . . . . . . . . . . . . .49
ARTICLE VIII - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF TSG . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Section 8.01 Representations and Warranties. . . . . . .50
Section 8.02 Performance of Obligations. . . . . . . . .50
Section 8.03 No Material Adverse Change. . . . . . . . .50
Section 8.04 Consents. . . . . . . . . . . . . . . . . .50
Section 8.05 Opinion of Elcotel Counsel. . . . . . . . .50
Section 8.06 Stockholders Agreement. . . . . . . . . . .51
Section 8.07 Proceedings. . . . . . . . . . . . . . . . .51
Section 8.08 Tax Opinion. . . . . . . . . . . . . . . . .51
ARTICLE IX - TERMINATION . . . . . . . . . . . . . . . . . . . .51
Section 9.01 Termination. . . . . . . . . . . . . . . . .51
Section 9.02 Effect of Termination.. . . . . . . . . . . .52
ARTICLE X - MISCELLANEOUS . . . . . . . . . . . . . . . . . . .54
Section 10.01 Notices. . . . . . . . . . . . . . . . . . .54
Section 10.02 Entire Agreement; Non-Survival of
Representations and Warranties;
Third Party Beneficiaries. . . . . . . . .55
Section 10.03 Amendment. . . . . . . . . . . . . . . . . . .55
Section 10.04 Waiver. . . . . . . . . . . . . . . . . . .55
Section 10.05 Expenses. . . . . . . . . . . . . . . . . .56
Section 10.06 Successors and Assigns. . . . . . . . . . .56
Section 10.07 Governing Law. . . . . . . . . . . . . . . .56
Section 10.08 Jurisdiction. . . . . . . . . . . . . . . .56
Section 10.09 Counterparts; Effectiveness. . . . . . . . .56
Section 10.10 Interpretation. . . . . . . . . . . . . . .56
Section 10.11 Severability. . . . . . . . . . . . . . . .57
Section 10.12 Specific Performance. . . . . . . . . . . .57
EXHIBITS
Voting Agreement . . . . . . . . . . . . . . . . . . . . . . A
Affiliate Letter . . . . . . . . . . . . . . . . . . . . . . B
Opinion of TSG Counsel . . . . . . . . . . . . . . . . . . . C
Stockholders' Agreement. . . . . . . . . . . . . . . . . . . D
Opinion of Elcotel Counsel . . . . . . . . . . . . . . . . . E
TABLE OF DEFINITIONS
Term Section
------ -------
1933 Act 3.03
1934 Act 3.03
Acor preamble
Adjusted Option 1.04(a)
Affiliate Letter 5.11
Alternative Proposal 5.03
Antitrust Division 5.08
Closing 1.01(b)
Closing Date 1.01(b)
Code recitals
Confidentiality Agreement 5.06(a)
Delaware Law 1.01(a)
Elcotel preamble
Elcotel 10-K 4.08
Elcotel Agreement 4.04
Elcotel Balance Sheet 4.08
Elcotel Balance Sheet Date 4.08
Elcotel Common Stock 1.02(a)
Elcotel Disclosure Letter 2.03
Elcotel ERISA Affiliate 4.14(a)
Elcotel Financial Statements 4.08
Elcotel Plans 4.05(a)
Elcotel Benefit Plans 4.14(a)
Elcotel Securities 4.05(a)
Elcotel SEC Documents 4.07(a)
Elcotel Stockholders' Approval 5.03(b)
Elcotel Stockholders' Meeting(s) 5.03(b)
Elcotel Subsidiary Securities 4.06
Elcotel Tax Returns 4.13
Effective Time 1.01(c)
Environmental Laws 3.17(b)
Environmental Liabilities 3.17(b)
ERISA 3.14(a)
Exchange Agent 1.03(a)
Form S-4 4.09
FTC 5.08
GAAP 3.08
Governmental Authorities 3.03
Hazardous Substance 3.17(b)
Term Section
------ -------
HSR Act 3.03
Intellectual Property 3.19(a)
Laws 3.04
Material Adverse Effect 3.01
Merger 1.01(a)
Merger Consideration 1.02(c)
Merger Subsidiary preamble
Notice of Superior Proposal 5.04(a)
Orders 3.04
Person 1.02(d)
Proxy Statement 3.09
Qualified Stock Options 1.04(a)
Takeover Statute 3.23
Taxes 3.13(i)
Taxing Authority 3.13(i)
Tax Return 3.13(i)
TSG preamble
TSG 10-K 3.08
TSG Affiliates 5.11
TSG Agreement 3.04
TSG Balance Sheet 3.08
TSG Balance Sheet Date 3.08
TSG Benefit Plans 3.14(a)
TSG Common Stock 1.02(a)
TSG Disclosure Letter 3.08
TSG ERISA Affiliate 3.14(a)
TSG Financial Statements 3.01
TSG Group 3.13(i)
TSG Option Plans 1.04(a)
TSG Preferred Stock 3.05(a)
TSG Securities 3.05(a)
TSG Subsidiary Securities 3.06
TSG SEC Documents 3.07(a)
TSG Stockholders' Approval 5.03(a)
TSG Stockholders' Meeting 5.04(a)
TSG Stock Option 1.04(a)
TSG Tax Returns 3.13(a)
Service 3.13(h)
Share(s) 1.02(a)
Stockholders recitals
Term Section
------ -------
Stockholders' Meetings 5.04(b)
Subsidiary 1.02(d)
Subsidiary of TSG 3.17(b)
Superior Proposal 5.03(a)
Surviving Corporation 1.01(a)
Voting Agreement recitals
Wexford recitals
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of August 13, 1997
among ELCOTEL, INC., a Delaware corporation ("Elcotel"),
TECHNOLOGY SERVICE GROUP, INC., a Delaware corporation ("TSG"),
and ELCOTEL HOSPITALITY SERVICE, INC., a Delaware corporation and
a wholly-owned subsidiary of Elcotel ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Elcotel
and TSG have approved, and deem it advisable and in the best
interests of their respective stockholders to consummate the
acquisition of TSG by Elcotel by means of a merger of Merger
Subsidiary into TSG, as a result of which TSG will become a wholly
owned subsidiary of Elcotel, all on the terms and conditions set
forth herein;
WHEREAS, for United States federal income tax purposes,
it is intended that the Merger contemplated by this Agreement
qualify as a "reorganization" within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"); and
WHEREAS, as a condition and inducement to Elcotel
entering into this Agreement and incurring the obligations set
forth herein, concurrently with the execution and delivery of this
Agreement, Elcotel is entering into a Voting Agreement with
Wexford Partners Fund, L.P. ("Wexford") and Fundamental Management
Corporation ("Fundamental", together with Wexford, the
"Stockholders"), in the form of Exhibit A hereto (the "Voting
Agreement") pursuant to which, among other things, Wexford has
agreed to vote the shares of TSG Common Stock owned by it in favor
of this Agreement and the Merger and other transactions provided
for herein and Fundamental has agreed to vote the shares of
Elcotel Common Stock owned by it in favor of the issuance of
shares of Elcotel Common Stock pursuant to the Merger and the
other transactions contemplated by the Merger.
NOW, THEREFORE, in consideration of the promises and the
respective representations, warranties, covenants, and agreements
set forth herein and in the Voting Agreement, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger.
(a) Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time, Merger
Subsidiary shall be merged (the "Merger") with and into TSG in
accordance with the Delaware General Corporation Law (the
"Delaware Law"), whereupon the separate existence of Merger
Subsidiary shall cease, and TSG shall continue as the surviving
corporation (the "Surviving Corporation");
(b) Upon the terms and subject to the conditions
of this Agreement, the closing of the Merger (the "Closing") shall
take place at 10:00 a.m. on a date to be specified by the parties
(the "Closing Date"), which shall be no later than the fifth
business day after satisfaction of the conditions set forth in
Article 6, at the offices of Schnader, Harrison, Xxxxx & Xxxxx
LLP, 14th Floor, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
unless another time, date or place is agreed to in writing by the
parties hereto;
(c) Upon the Closing, TSG and Merger Subsidiary
will file a certificate of merger with the Secretary of State of
the State of Delaware and make all other filings or recordings
required by Delaware Law in connection with the Merger. The
Merger shall become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of
Delaware or at such later time as is agreed by Elcotel and TSG and
specified in the certificate of merger (the "Effective Time");
(d) The Merger shall have the effects set forth in
Section 259 of the Delaware Law; and
(e) Each party hereto will, either prior to or
after the Effective Time, execute such further documents,
instruments, deeds, bills of sale, assignments and assurances and
take such further actions as may reasonably be requested by one or
more of the others to consummate the Merger, to vest the Surviving
Corporation with full title to all assets, properties, privileges,
rights, approvals, immunities and franchises of Merger Subsidiary
or TSG, or to effect the other purposes of this Agreement.
Section 1.02 Conversion of Shares.
(a) At the Effective Time by virtue of the Merger,
and without any action on the part of the holder of any common
stock of TSG or Merger Subsidiary:
(i) each share of Common Stock, par value
$0.01 per share, of TSG (the "TSG Common Stock") held by TSG
as treasury stock or owned by Elcotel or any Subsidiary of
Elcotel immediately prior to the Effective Time shall
automatically be canceled and retired without any conversion
thereof, and no Elcotel Common Stock or other consideration
shall be delivered in exchange therefor;
2
(ii) each share of common stock, par value
$0.01 per share, of Merger Subsidiary outstanding immediately
prior to the Effective Time shall automatically be converted
into and become one share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares
of capital stock of the Surviving Corporation; and
(iii) each share (each, a "Share" and
collectively, the "Shares") of TSG Common Stock outstanding
immediately prior to the Effective Time shall, except as
otherwise provided in Section 1.02(a)(i), automatically be
converted into the right to receive 1.05 shares of fully paid
and non-assessable Common Stock, par value $0.01 per share of
Elcotel (the "Elcotel Common Stock").
(b) From and after the Effective Time, all Shares
converted in accordance with Section 1.02(a)(iii) shall no longer
be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate
representing any such Shares shall cease to have any rights with
respect thereto, except the right to receive the Merger
Consideration. From and after the Effective Time, all
certificates representing the common stock of Merger Subsidiary
shall be deemed for all purposes to represent the number of shares
of Common Stock of the Surviving Corporation into which they were
converted in accordance with Section 1.02(a)(ii);
(c) The Elcotel Common Stock to be received as
consideration pursuant to the Merger by each holder of Shares
(together with cash in lieu of fractional shares of Elcotel Common
Stock) is referred to herein as the "Merger Consideration"; and
(d) For purposes of this Agreement, the word
"Subsidiary" when used with respect to any Person means any other
Person, whether incorporated or unincorporated, of which at least
a majority of the securities or other interests having by their
terms ordinary voting power to elect at least a majority of the
board of directors or others performing similar functions with
respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or
more of its Subsidiaries. For purposes of this Agreement,
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other
entity or organization, including a Governmental Authority.
3
Section 1.03 Surrender and Payment.
(a) Prior to the Effective Time, Elcotel shall
appoint an agent reasonably satisfactory to TSG (the "Exchange
Agent") for the purpose of exchanging certificates representing
Shares for the Merger Consideration. Promptly after the Effective
Time (but in any event within five business days thereafter),
Elcotel will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time (i) a letter of
transmittal for use in such exchange (which shall specify that
delivery of the Merger Consideration shall be effected, and risk
of loss and title to the certificates representing TSG Common
Stock shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent) and (ii) instructions
for use in effecting the surrender of the certificates
representing Shares in exchange for the certificates representing
Elcotel Common Stock and cash in lieu of fractional shares of
Elcotel Common Stock. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of
certificates theretofore representing Shares for any amount which
may be required to be paid to a public official pursuant to any
applicable abandoned property, escheat or similar law;
(b) Each holder of Shares that have been converted
into a right to receive the Merger Consideration, upon surrender
to the Exchange Agent of a certificate or certificates
representing such Shares, together with a properly completed
letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares
and any dividends payable pursuant to Section 1.03(f). Until so
surrendered, each such certificate shall, after the Effective
Time, represent for all purposes only the right to receive the
Merger Consideration and any dividends payable pursuant to Section
1.03(f) and the holder thereof shall not be entitled to vote the
Elcotel Common Stock until such certificate is surrendered;
(c) If any certificate representing Merger
Consideration is to be delivered to a Person other than the
registered holder of the Shares represented by the certificate or
certificates surrendered in exchange therefor, it shall be a
condition to the issuance of such certificate evidencing Elcotel
Common Stock that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to
the Exchange Agent any transfer or other taxes required by reason
of the issuance of shares of Elcotel Common Stock to a Person
other than the registered holder of such Shares represented by the
certificate or certificates so surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or
is not applicable;
(d) After the Effective Time, there shall be no
further registration of transfers of Shares on the stock transfer
book of TSG. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation,
they shall be canceled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in
this Article I;
4
(e) Any portion of the Merger Consideration that
remains unclaimed by the holders of Shares six months after the
Effective Time shall be returned to Elcotel, upon demand, and any
such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section 1.03 prior to that
time shall thereafter look only to Elcotel for payment of the
Merger Consideration. Notwithstanding the foregoing, Elcotel
shall not be liable to any holder of Shares for any amount paid to
a public official pursuant to applicable abandoned property laws.
Any amounts remaining unclaimed by holders of Shares seven years
after the Effective Time (or such earlier date immediately prior
to such time as such amounts would otherwise escheat to or become
property of any Governmental Authority) shall, to the extent
permitted by applicable law, become the property of Elcotel free
and clear of any claims or interest of any Person previously
entitled thereto;
(f) No dividends or other distributions with
respect to Elcotel Common Stock issued in the Merger shall be paid
to the holder of any unsurrendered certificates representing
Shares until such certificates are surrendered as provided in this
Section 1.03. Subject to the effect of applicable laws, following
the surrender of such certificates, there shall be paid, without
interest, to the record holder of the Elcotel Common Stock issued
in exchange therefor at the time of such surrender, the amount of
dividends or other distributions with a record date after the
Effective Time payable prior to or on the date of such surrender
with respect to such whole shares of Elcotel Common Stock and not
previously paid, less the amount of any withholding taxes which
may be required thereon;
(g) In the event any certificate representing
Shares shall have been lost, stolen or destroyed, upon the making
of an affidavit of the fact by the person claiming such
certificate to be lost, stolen or destroyed, Elcotel will, after
the Effective Time, issue in exchange for such lost, stolen or
destroyed certificate the certificate evidencing shares of Elcotel
Common Stock deliverable in respect thereof, as determined in
accordance with this Article I. When authorizing such issue of
the certificate of shares of Elcotel Common Stock in exchange
therefor, Elcotel may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate to give Elcotel a bond in such sum
as it may direct as indemnity against any claim that may be made
against Elcotel with respect to the certificate alleged to have
been lost, stolen or destroyed; and
(h) Approval and adoption of this Agreement by the
stockholders of TSG shall constitute, as an integral part of the
Merger, ratification of the appointment of, and the reappointment
of, said Exchange Agent.
Section 1.04 Stock Option Plans.
(a) At or before the Effective Time, Elcotel and
TSG shall take such action as may be required to effect the
following: the terms of each outstanding option granted by TSG to
purchase shares of TSG Common Stock (a "TSG Stock Option") under
the TSG 1994 Omnibus Stock Plan (the "Omnibus Plan"), the TSG 1995
Employee Stock Purchase Plan (the "Stock Purchase Plan") and the
5
TSG 1995 Non-Employee Director Stock Option Plan (the "Director
Plan," together with the Omnibus Plan and the Stock Purchase Plan,
collectively, the "TSG Option Plans"), whether vested or unvested,
shall be adjusted as necessary to provide that at the Effective
Time, each TSG Stock Option outstanding immediately prior to the
Effective Time shall be deemed to constitute and shall become an
option to acquire, on the same terms and conditions as were
applicable under such TSG Stock Option, the same number of shares
of Elcotel Common Stock as the holder of such TSG Stock Option
would have been entitled to receive pursuant to the Merger had
such holder exercised such TSG Stock Option in full immediately
prior to the Effective Time, at a price per share of Elcotel
Common Stock equal to (i) the aggregate exercise price for the
shares of TSG Common Stock otherwise purchasable pursuant to such
TSG Stock Option divided by (ii) the aggregate number of shares of
Elcotel Common Stock deemed purchasable pursuant to such TSG Stock
Option (each, as so adjusted, an "Adjusted Option"); provided that
(after aggregating all the Shares of a holder subject to TSG Stock
Options) any fractional share of Elcotel Common Stock resulting
from such calculation for such holder shall be rounded up to the
nearest whole share and provided, further, that in the case of any
option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422 through 424 of the Code
("qualified stock options"), the option price, the number of
shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order
to comply with Section 424 of the Code;
(b) As soon as practicable after the Effective
Time, Elcotel shall deliver to the holders of TSG Stock Options
appropriate notices setting forth such holders' rights pursuant to
the respective TSG Option Plans and the agreements evidencing the
grants of such TSG Stock Options and that such TSG Stock Options
and agreements shall be assumed by Elcotel and shall continue in
effect on the same terms and conditions (subject to the
adjustments required by this Section 1.04 after giving effect to
the Merger); and
(c) Elcotel shall take such actions as are
reasonably necessary for the assumption of the TSG Option Plans
pursuant to this Section 1.04, including the reservation, issuance
and listing of Elcotel Common Stock as is necessary to effectuate
the transactions contemplated by this Section 1.04. Elcotel shall
prepare and file with the SEC a registration statement on Form S-8
or other appropriate form with respect to shares of Elcotel Common
Stock subject to TSG Stock Options issued under such TSG Option
Plans and shall use its reasonable efforts to have such
registration statement declared effective as soon as practicable
following the Effective Time and to maintain the effectiveness of
such registration statement or registration statements covering
such TSG Stock Options (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such
TSG Stock Options remain outstanding.
6
Section 1.05 TSG Warrants.
(a) At or before the Effective Time, Elcotel and
TSG shall take such action in connection with warrants to purchase
575,000 shares of TSG Common Stock issued by TSG pursuant to that
certain warrant agreement between TSG and Liberty Bank and Trust
Company of Oklahoma City, N.A. dated as of May 10, 1996 as may be
required to effect the following: the terms of each outstanding
warrant to purchase shares of TSG Common Stock (a "TSG Public
Warrant") issued pursuant to such warrant agreement shall be
adjusted as necessary to provide that at the Effective Time, each
TSG Public Warrant outstanding immediately prior to the Effective
Time shall be deemed to constitute and shall become a warrant to
acquire, on substantially the same terms and conditions as were
applicable under such TSG Public Warrant, the same number of
shares of Elcotel Common Stock as the holder of such TSG Public
Warrant would have been entitled to receive pursuant to the Merger
had such holder exercised such TSG Public Warrant in full
immediately prior to the Effective Time.
(b) At or before the Effective Time, Elcotel and
TSG shall take such action in connection with the warrants to
purchase 100,000 shares of TSG Common Stock issued by TSG pursuant
to that certain underwriter's warrant agreement between TSG and
Brookehill Equities, Inc. dated as of May 10, 1996 as may be
required to effect the following: the terms of each outstanding
warrant to purchase shares of TSG Common Stock (a "TSG Underwriter
Warrant") issued pursuant to such underwriter's warrant agreement
shall be adjusted as necessary to provide that at the Effective
Time, each TSG Underwriter Warrant outstanding immediately prior
to the Effective Time shall be deemed to constitute and shall
become a warrant to acquire, on substantially the same terms and
conditions as were applicable under such TSG Underwriter Warrant,
the same number of shares of Elcotel Common Stock as the holder of
such TSG Underwriter Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised such TSG
Underwriter Warrant in full immediately prior to the Effective
Time.
Section 1.06 Fractional Shares. Neither certificates
nor scrip for fractional shares of Elcotel Common Stock will be
issued in the Merger, but in lieu thereof each holder of TSG
Common Stock otherwise entitled to a fraction of a share of
Elcotel Common Stock (after aggregating all fractional shares of
TSG Common Stock that would otherwise be received by such holder)
will be entitled hereunder to receive a cash payment. The amount
of such cash payment shall equal, in the case of each fractional
share, an amount (rounded to the nearest whole cent), without
interest, calculated as the product of (i) such fraction,
multiplied by (ii) the arithmetic mean of the closing sales prices
for the Elcotel Common Stock reported on the NASDAQ National
Market System for each of the five (5) consecutive trading days on
which Elcotel Common Stock was traded immediately preceding the
Effective Time as quoted in the Wall Street Journal or other
reliable financial newspaper or publication. For the purposes of
the preceding sentence, a "trading day" means a day on which
trading generally takes place on the NASDAQ National Market
System. No such fractional share interest shall entitle the owner
thereof to vote or to any rights of a stockholder of Elcotel.
7
ARTICLE II
THE SURVIVING CORPORATION
Section 2.01 Certificate of Incorporation. The
certificate of incorporation of Merger Subsidiary shall be the
certificate of incorporation of the Surviving Corporation, except
that, at the Effective Time, the name of the Surviving Corporation
shall be changed to "TSG" or such other name as Elcotel may
designate on or before the Effective Time, until thereafter
amended in accordance with applicable law and such certificate of
incorporation.
Section 2.02 Bylaws. The bylaws of Merger Subsidiary
in effect at the Effective Time shall be the bylaws of the
Surviving Corporation, until thereafter amended in accordance with
applicable law, the certificate of incorporation of the Surviving
Corporation and such bylaws.
Section 2.03 Directors and Officers. From and after
the Effective Time, until successors are duly elected or appointed
and qualified in accordance with the Delaware Law and the
certificate of incorporation and bylaws of the Surviving
Corporation, the directors and the officers of the Surviving
Corporation shall be those persons set forth on Schedule 2.03 to
the disclosure letter delivered by Elcotel and Merger Subsidiary
to TSG concurrently with the execution and delivery of this
Agreement (the "Elcotel Disclosure Letter").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TSG
TSG represents and warrants to Elcotel that:
Section 3.01 Organization and Power. Each of TSG and
its Subsidiaries is a corporation, partnership or other entity
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, and
has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted. Each of TSG
and its Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and
in good standing would not, individually or in the aggregate, have
a Material Adverse Effect on TSG. For purposes of this Agreement,
a "Material Adverse Effect" with respect to any Person means a
material adverse effect (i) on the condition (financial or
otherwise), business, liabilities, properties, assets, results of
operations or prospects of such Person and its Subsidiaries, taken
as a whole, or (ii) on the ability of such Person to perform its
obligations under or to consummate the transactions contemplated
by this Agreement. Schedule 3.01 to the disclosure letter
delivered by TSG to Elcotel and Merger Subsidiary concurrently
with the execution and delivery of this Agreement (the "TSG
Disclosure Letter") sets forth (i) the name and jurisdiction of
8
incorporation of each Subsidiary of TSG, (ii) its authorized
capital stock, (iii) the number of issued and outstanding shares
of capital stock, and (iv) the record and beneficial owners of
such shares. Except as set forth on Schedule 3.01 to the TSG
Disclosure Letter, TSG does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest
in, any Person. TSG has heretofore delivered to Elcotel true and
complete copies of the certificate or articles of incorporation
and bylaws as currently in effect of TSG and its Subsidiaries.
Section 3.02 Corporate Authorization. The execution,
delivery and performance by TSG of this Agreement and the
consummation by TSG of the transactions contemplated hereby are
within TSG's corporate powers and, except as set forth in the
second succeeding sentence of this Section 3.02, have been duly
authorized by all necessary corporate action, including without
limitation its Board of Directors. The Board of Directors of TSG
has recommended approval and adoption of this Agreement by the
stockholders of TSG and directed that this Agreement be submitted
to the stockholders of TSG for their approval. The affirmative
vote of a majority of the outstanding Shares is the only vote of
any class or series of TSG's capital stock necessary to approve
and adopt this Agreement and the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by
TSG and, subject to the receipt of the approval described in the
immediately preceding sentence, constitutes a legal, valid and
binding agreement of TSG, enforceable against TSG in accordance
with its terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar
laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, regardless of whether
in a proceeding in equity or at law).
Section 3.03 Governmental Authorization. The
execution, delivery and performance by TSG of this Agreement, and
the consummation by TSG of the transactions contemplated hereby,
require no action by or in respect of, or filing with or notice
to, any United States federal, state or local government, any
foreign country, any foreign state or local government or any
court, administrative agency or commission or other governmental
or regulatory agency or authority of any of the foregoing
(collectively "Governmental Authorities" and individually a
"Governmental Authority"), other than (a) the filing of a
certificate of merger with respect to the Merger with the Delaware
Secretary of State and appropriate documents with the relevant
authorities of other states in which TSG is qualified to do
business; (b) compliance with any applicable requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended
(the "HSR Act"); (c) compliance with any applicable requirements
of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "1933 Act"); (d)
compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "1934 Act"); (e) compliance with any
other applicable securities laws; and (f) those set forth on
Schedule 3.03 to the TSG Disclosure Letter.
9
Section 3.04 Non-Contravention. Except as set forth
on Schedule 3.04 to the TSG Disclosure Letter, the execution,
delivery and performance by TSG of this Agreement do not, and the
consummation by TSG of the transactions contemplated hereby will
not require the consent of any other Person, or conflict with,
result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or
give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien on any of the
assets or properties of TSG or any of its Subsidiaries under, any
of the terms, conditions or provisions of (a) the certificate or
articles of incorporation, bylaws or similar organizational
documents of TSG or any of its Subsidiaries, (b) assuming receipt
of the approval of stockholders referred to in Section 3.02, and
compliance with the matters referred to in Section 3.03, any
United States or foreign statute, law, regulation, rule or
ordinance (together "Laws") or any judgment, injunction, order,
writ, license, permit or decree of any Governmental Authority
(together "Orders") binding upon or applicable to TSG, any
Subsidiary of TSG or any of their respective assets or properties,
or (c) any note, bond, mortgage, security agreement, indenture,
lease, contract, instrument or other agreement of any kind to
which TSG or any Subsidiary of TSG is a party or by which TSG or
any Subsidiary of TSG or any of their respective assets or
properties is bound (a "TSG Agreement") or any license, franchise,
permit or other similar authorization held by TSG or any
Subsidiary of TSG. For purposes of this Agreement, "Lien" means,
with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such
asset, and, in addition with respect to real property, any
easement, right of way or other restriction, limitation or burden
of any kind in respect of such real property.
Section 3.05 Capitalization of TSG.
(a) The authorized capital stock of TSG consists
solely of 10,000,000 shares of TSG Common Stock and 100,000 shares
of preferred stock, par value $100.00 per share (the "TSG
Preferred Stock"). As of the close of business on July 31, 1997,
(i) 4,708,476 shares of TSG Common Stock are issued and
outstanding, no shares of TSG Common Stock are issued and held in
the treasury of TSG, and 1,491,524 shares of TSG Common Stock are
reserved for issuance under the TSG Option Plans and the TSG
Warrants; (ii) options to purchase 579,250 shares of TSG Common
Stock were outstanding under the TSG Option Plans (excluding
approximately 9,306 shares subject to a pending offering under the
Stock Purchase Plan) and warrants to purchase 675,000 shares of
TSG Common Stock were outstanding under the TSG Warrants, and
(iii) no shares of TSG Preferred Stock are issued, outstanding or
held in the treasury of TSG. All the outstanding shares of TSG
Common Stock are, and all shares reserved for issuance will be,
when issued in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and non-assessable.
Except (i) as set forth in this Section 3.05 and (ii) for Shares
that may be issued as provided in Section 5.01(f), there are
outstanding (x) no shares of capital stock or other voting
securities of TSG, (y) no securities of TSG convertible into or
exchangeable for shares of capital stock or voting securities of
TSG, and (z) no options, warrants or other rights to acquire from
10
TSG, and no preemptive or similar rights, subscriptions or other
rights, convertible securities, agreements, arrangements or
commitments of any character, obligating TSG to issue, transfer or
sell, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of TSG or obligating TSG to grant, extend or enter into
any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in
clauses (x), (y) and (z) being referred to collectively as the
"TSG Securities").
(b) Except as set forth on Schedule 3.05 to the
TSG Disclosure Letter, there are no voting trusts or other
agreements or understandings to which TSG or any Subsidiary of TSG
is a party with respect to the voting of the capital stock of TSG
or any Subsidiary of TSG. None of TSG or its Subsidiaries has any
contractual obligation to redeem, repurchase or otherwise acquire
any TSG Securities or any capital stock of any Subsidiary of TSG,
including as a result of the transactions contemplated by this
Agreement or to provide funds to, or make any investment in, any
Subsidiary of TSG or any other Person. Except as permitted by
this Agreement, following the Merger, neither TSG nor any of its
Subsidiaries will have any obligation to issue, transfer or sell
any shares of its capital stock pursuant to any employee benefit
plan or otherwise.
Section 3.06 Capitalization of Subsidiaries. Except
as set forth on Schedule 3.06 to the TSG Disclosure Letter, all of
the outstanding shares of capital stock of, or other ownership
interests in, each Subsidiary of TSG, are duly authorized, validly
issued, fully paid and nonassessable and are owned, beneficially
and of record, by TSG, directly or indirectly, free and clear of
any consensual Lien (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no (i) outstanding securities of
TSG or any Subsidiary of TSG convertible into or exchangeable for
shares of capital stock or other voting securities or ownership
interests in any Subsidiary of TSG, or (ii) options, warrants or
other rights to acquire from TSG or any Subsidiary of TSG, and no
other obligation of TSG or any Subsidiary of TSG to issue, any
capital stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable for, any
capital stock, voting securities or ownership interests in, any
Subsidiary of TSG (the items in clauses (i) and (ii) being
referred to collectively as the "TSG Subsidiary Securities").
Section 3.07 SEC Filings.
(a) TSG has filed all reports, schedules, forms,
statements and other documents with the Securities and Exchange
Commission (the "SEC") required to be filed by TSG since April 1,
1995 (the "TSG SEC Documents");
(b) As of its filing date, each TSG SEC Document
filed pursuant to the 1934 Act complied as to form in all material
respects with the requirements of the 1934 Act and did not contain
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and
11
(c) Each TSG SEC Document that is a registration
statement, as amended or supplemented, if applicable, filed
pursuant to the 1933 Act as of the date such registration
statement or amendment became effective complied as to form in all
material respects with the requirements of the 1933 Act and did
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
Section 3.08 Financial Statements. The audited
consolidated financial statements included in TSG's Annual Report
on Form 10-K for the fiscal year ended March 28, 1997 (the "TSG
10-K") and the unaudited consolidated interim financial statements
of TSG included in the TSG SEC Documents filed after such date
(collectively the "TSG Financial Statements") complied, or will
comply, as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of TSG and
its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods
then ended (subject to footnote disclosures and normal year-end
adjustments in the case of any unaudited interim financial
statements). The TSG Financial Statements have been prepared from
and are consistent with the books and records of TSG, which
reflect all material transactions of TSG and its Subsidiaries.
For purposes of this Agreement, "TSG Balance Sheet" means the
consolidated balance sheet of TSG as of March 28, 1997 set forth
in the TSG 10-K and "TSG Balance Sheet Date" means March 28, 1997.
Each Subsidiary of TSG is treated as a consolidated subsidiary of
TSG in the TSG Financial Statements for all periods covered
thereby.
Section 3.09 Information Supplied. None of the
information supplied or to be supplied by TSG for inclusion or
incorporation by reference in and none of the statements based on
such information contained in (i) the joint proxy statement to be
filed with the SEC relating to the stockholders' meetings of TSG
and Elcotel to be held in connection with the Merger, as amended
or supplemented from time to time (as so amended or supplemented,
the "Proxy Statement"), will, at the date the Proxy Statement is
first mailed to stockholders and at the time of the meetings of
such stockholders in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading,
or (ii) the registration statement on Form S-4 of Elcotel to be
filed under the 1933 Act relating to the issuance of Elcotel
Common Stock in the Merger, as amended or supplemented from time
to time (as so amended or supplemented, the "Form S-4"), will, at
the time the Form S-4 becomes effective under the 1933 Act and at
the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
12
Section 3.10 Absence of Certain Changes. Except as
disclosed in the TSG SEC Documents filed prior to the date of this
Agreement or as disclosed on Schedule 3.10 to the TSG Disclosure
Letter, since Xxxxx 00, 0000, XXX and its Subsidiaries have
conducted their respective businesses in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably
likely to have a Material Adverse Effect on TSG;
(b) any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of
capital stock of TSG, any issuance of TSG Common Stock other than
upon exercise of TSG Warrants or TSG Options outstanding on March
28, 1997, or any repurchase, redemption or other acquisition by
TSG or any Subsidiary of TSG of any amount of outstanding shares
of capital stock or other equity securities of, or other ownership
interests in, TSG or any Subsidiary of TSG;
(c) any amendment of any term of any TSG
Securities or TSG Subsidiary Securities;
(d) (i) any incurrence or assumption by TSG or any
Subsidiary of TSG of any indebtedness for borrowed money other
than under existing credit facilities in the ordinary course of
business consistent with past practices or (ii) any guarantee,
endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by TSG or any
Subsidiary of TSG for the obligations of any other Person (other
than any wholly owned Subsidiary of TSG);
(e) any creation or assumption by TSG or any
Subsidiary of TSG of any consensual Lien on any material asset of
TSG or any Subsidiary of TSG;
(f) any making of any loan, advance or capital
contribution to or investment in any Person by TSG or any
Subsidiary of TSG other than (i) loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries of
TSG or (ii) loans or advances to employees of TSG or any
Subsidiary of TSG made in the ordinary course of business
consistent with past practice;
(g) (i) any contract or agreement entered into by
TSG or any Subsidiary of TSG on or prior to the date hereof
relating to any material acquisition or disposition of any assets
or business or (ii) any modification, amendment, assignment,
termination or relinquishment by TSG or any Subsidiary of TSG of
any contract, license, or other right (including any insurance
policy naming it as a beneficiary or a loss payable payee) that
would be reasonably likely to have a Material Adverse Effect on
TSG, other than those contemplated by this Agreement;
13
(h) any change in any method of accounting or
accounting principles or practices by TSG or any Subsidiary of
TSG, except for any such change required by reason of a change in
GAAP; or
(i) any (w) grant of any severance or termination
pay to any director, officer or employee of TSG or any of its
Subsidiaries, (x) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of
TSG or any of its Subsidiaries, (y) increase in benefits payable
under any existing severance or termination pay policies or
employment agreements or (z) increase in compensation or bonus in
excess of fifteen percent or increase in other benefits payable to
officers or employees of TSG or any of its Subsidiaries or
increase in compensation, bonus or other benefits payable to
directors of TSG or any of its Subsidiaries.
Section 3.11 No Undisclosed Liabilities. Neither TSG
nor any Subsidiary of TSG has any material liabilities or
obligations (whether pursuant to contracts or otherwise) of any
kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on
the TSG Balance Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred
since March 28, 1997 in the ordinary course of business consistent
with past practice; and
(c) those liabilities or obligations under this
Agreement or incurred in connection with the transactions
contemplated hereby.
Section 3.12 Litigation. Except as disclosed on
Schedule 3.12 to the TSG Disclosure Letter, (i) there are no
actions, suits, arbitrations or proceedings pending or, to the
knowledge of TSG, threatened against, relating to or affecting,
nor are there are any Governmental Authority investigations or
audits pending or, to the knowledge of TSG, threatened against,
relating to or affecting, TSG or any of its Subsidiaries or any of
their respective assets or properties nor, to the knowledge of
TSG, is there any valid basis for any such action, suit,
arbitration, proceeding, investigation or audit which, if
adversely determined, would have a Material Adverse Effect on TSG,
and (ii) neither TSG nor any of its Subsidiaries is subject to any
order of any Governmental Authority which adversely affects the
ability of TSG to consummate the transactions contemplated by this
Agreement.
14
Section 3.13 Taxes.
(a) All Tax Returns required to be filed by TSG,
any of its Subsidiaries, or any corporation that was included in
the filing of a return with TSG or its Subsidiaries on a
consolidated, combined or unitary basis have been filed (the "TSG
Tax Returns") and all Taxes required to be shown on the TSG Tax
Returns, or a subsequent assessment with respect thereto, or
otherwise due or payable (to the extent in excess of $50,000 in
the aggregate) have been paid and any penalties and interest
relating to such Taxes (to the extent in excess of $50,000 in the
aggregate) have been paid. No other Taxes are payable by the TSG
Group with respect to items or periods covered by such Tax Returns
or with respect to Tax periods prior to the date of this
Agreement. None of the TSG Tax Returns contain, or are required
to contain, a disclosure statement under Section 6662 of the Code,
or any similar provision of state, local or foreign law, with
respect to any items that relate to TSG or its Subsidiaries in
order to avoid a penalty for any taxable year. All TSG Tax
Returns are true, correct and complete in all material respects.
TSG has made available to Elcotel correct and complete copies of
all TSG Tax Returns for all periods which are not closed by the
statute of limitations.
(b) No adjustment relating to any TSG Tax Returns
has been proposed formally or, to TSG's knowledge, informally by
any Governmental Authority (to the extent in excess of $50,000 in
the aggregate), and no basis exists for any such adjustment that
would have a Material Adverse Effect on TSG. There are no
outstanding subpoenas or requests for information with respect to
any TSG Tax Returns or portions thereof. There are no pending or,
to TSG's knowledge, threatened actions or proceedings for the
assessment or collection of Taxes for which TSG or its
Subsidiaries may be liable (to the extent in excess of $50,000 in
the aggregate). There are no Tax liens on any assets of TSG or
its Subsidiaries, except with respect to Taxes which are not yet
due and payable.
(c) No consent under Section 341(f) of the Code
has been filed with respect to TSG or any of its Subsidiaries.
Neither TSG nor any of its Subsidiaries is or has been subject to
the dual consolidated loss provisions of Section 1503 of the Code.
(d) TSG and its Subsidiaries are members of an
affiliated group (within the meaning of Section 1504 of the Code)
that is eligible to file a consolidated return. No other entity
is or has been eligible to file a consolidated or combined return
with TSG and its Subsidiaries, and neither TSG nor its
Subsidiaries have filed or consented to the filing of any Federal
or state consolidated or combined return with any entity not a
member of the TSG Group. Neither TSG nor any of its Subsidiaries
has been at any time a member of any partnership or joint venture
or the holder of a beneficial interest in any trust for any Person
for which the statute of limitations for any Tax potentially
applicable as a result of such membership or holding has not
expired.
15
(e) TSG and its Subsidiaries have properly accrued
all current or contested Taxes on their books and records, and
their books and records reflect reserves that are adequate for the
payment of all Taxes not yet due and payable that are properly
accruable thereon through the date of this Agreement (including
Taxes being contested). Neither TSG nor any of its Subsidiaries
have any material liability for any Taxes in excess of amounts
accrued or the reserves established. All Taxes required to be
withheld, collected or deposited in connection with the operations
and activities of TSG or its Subsidiaries have been timely
withheld, collected or deposited and, to the extent required, have
been paid to the relevant taxing authority.
(f) TSG owns one share of Elcotel Common Stock,
and has not owned more than one share of Elcotel Common Stock at
any time during the past five years. At the Effective Time, the
fair market value of the assets of TSG will exceed the sum of its
liabilities, plus the amount of other liabilities, if any, to
which the assets are subject.
(g) There are no requests for rulings,
determinations or information currently outstanding that could
affect the Taxes of TSG or any of its Subsidiaries.
(h) The TSG Tax Returns have been audited by the
Internal Revenue Service ("Service") or other governmental agency
(or closed by applicable statutes of limitations) and all Tax
liabilities in respect thereof have been finally determined for
all taxable years ending on or before March 31, 1993. There are
no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which TSG or
any of its Subsidiaries may be liable.
(i) "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including income, gross
receipts, excise, real or personal property, sales, withholding,
social security, retirement, unemployment, occupation, use, goods
and services, service use, license, value added, capital, net
worth, payroll, profits, withholding, franchise, transfer and
recording taxes, fees and charges, and any other taxes, assessment
or similar charges imposed by the Service or any taxing authority
(whether domestic or foreign including any state, county, local or
foreign government or any subdivision or taxing agency thereof
(including a United States possession)) (a "Taxing Authority"),
whether computed on a separate, consolidated, unitary, combined or
any other basis and such term shall include any interest whether
paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such
taxes, charges, fees, levies or other assessments. "Tax Return"
shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to
Taxes, including information returns, any documents with respect
to or accompanying payments of estimated Taxes, or with respect to
or accompanying requests for the extension of time in which to
file any such report, return, document, declaration or other
information. The term "TSG Group" shall mean, individually and
collectively, (i) TSG, (ii) its Subsidiaries, and (iii) any trust,
corporation, partnership or any other entity as to which TSG or
its Subsidiaries is liable for Taxes incurred by such entity
either as a transferee, or pursuant to Treasury Regulations
Section 1.1502-6, or pursuant to any other provision of federal,
state, local or foreign law or regulations.
16
(j) TSG has made available to Elcotel a true and
complete copy of any: (i) elections, letter rulings and
determination letters relating to Taxes with respect to TSG or its
Subsidiaries; and (ii) examination reports, closing agreements and
statements of deficiencies for Taxes assessed against or agreed to
by TSG or any of its Subsidiaries.
Section 3.14 Employee Benefit Plans; ERISA.
(a) Except as set forth on Schedule 3.14(a) to the
TSG Disclosure Letter, there are no employee benefit plans
(including any plans for the benefit of directors or former
directors), contracts or agreements (including employment
agreements and severance agreements, incentive compensation,
bonus, stock option, stock appreciation rights and stock purchase
plans) of any type (including plans described in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by TSG, any of its Subsidiaries or any
trade or business, whether or not incorporated (a "TSG ERISA
Affiliate"), that together with TSG would be deemed a "controlled
group" within the meaning of Section 4001(a)(14) of ERISA, or with
respect to which TSG, any of its Subsidiaries, or any TSG ERISA
Affiliate, has or may have a liability (the "TSG Benefit Plans").
Except as disclosed on Schedule 3.14(a) to the TSG Disclosure
Letter (or as otherwise permitted by this Agreement): (i) neither
TSG nor any ERISA Affiliate has any plan or commitment, whether
legally binding or not, to create any additional TSG Benefit Plan
or modify or change any existing TSG Benefit Plan that would
affect any employee or terminated employee of TSG or any ERISA
Affiliate; and (ii) since March 28, 1997, there has been no
change, amendment, modification to, or adoption of, any TSG
Benefit Plan;
(b) With respect to each TSG Benefit Plan: (i) if
intended to qualify under Section 401(a), 401(k) or 403(a) of the
Code, such plan so qualifies, and its trust is exempt from
taxation under Section 501(a) of the Code; (ii) no failures to
administer such plan in accordance with its terms and applicable
law have occurred that have had or would reasonably be expected to
have a Material Adverse Effect on TSG; (iii) no breaches of
fiduciary duty have occurred; (iv) no prohibited transaction
within the meaning of Section 406 of ERISA has occurred; (v) as of
the date of this Agreement, no lien imposed under the Code or
ERISA exists; and (vi) all contributions and premiums due
(including any extensions for such contributions and premiums)
have been made in full;
(c) None of the TSG Benefit Plans has incurred any
"accumulated funding deficiency", as such term is defined in
Section 412 of the Code, whether or not waived;
(d) Neither TSG nor any ERISA Affiliate has
incurred any liability under Title IV of ERISA (including Sections
4063-4064 and 4069 of ERISA) since the effective date of ERISA
that has not been satisfied in full;
17
(e) With respect to each TSG Benefit Plan that is
a "welfare plan" (as defined in Section 3(1) of ERISA), no such
plan provides medical or death benefits with respect to current or
former employees of TSG or any of its Subsidiaries beyond their
termination of employment, other than as required by law or on an
employee-pay-all basis;
(f) Except as set forth on Schedule 3.04 to the
TSG Disclosure Letter, the consummation of the Merger pursuant to
this Agreement will not (i) entitle any individual to severance
pay or any tax "gross-up" payments with respect to the imposition
of any tax pursuant to Section 4999 of the Code or accelerate the
time of payment or vesting, or increase the amount, of
compensation or benefits due to any individual with respect to any
TSG Benefit Plan, or (ii) constitute or result in a prohibited
transaction under Section 4975 of the Code or Section 406 or 407
of ERISA with respect to any TSG Benefit Plan; and
(g) There is no TSG Benefit Plan that is a
"multiemployer plan", as such term is defined in Section 3(37) of
ERISA, or which is covered by Section 4063 or 4064 of ERISA.
Section 3.15 Certain Agreements; Compliance with
Agreements.
(a) Except as disclosed on Schedule 3.15 to the
TSG Disclosure Letter or as provided for in this Agreement,
neither TSG nor any of its Subsidiaries is a party to or bound by
any oral or written:
(i) consulting agreement not terminable on
thirty (30) days' or less notice;
(ii) agreement with any officer or other key
employee the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of the
transactions contemplated by this Agreement;
(iii) agreement with respect to any
officer providing any term of employment or compensation
guarantee;
(iv) agreement or plan, including any stock
option plan, stock appreciation rights plan, employee stock
ownership plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions
contemplated by this Agreement;
18
(v) agreement containing covenants that limit
the ability of TSG or any of its Subsidiaries to compete in
any line of business or with any Person, or that involve any
restriction on the geographic area in which, or method by
which, TSG or any of its Subsidiaries may carry on its
business (other than as may be required by law or any
regulatory agency);
(vi) agreement, contract or understanding,
other than this Agreement and the certificate of
incorporation and by-laws of TSG, regarding the capital stock
of TSG or committing to dispose of some or all of the capital
stock or all or substantially all of the assets of TSG;
(vii) partnership, joint venture or profit
sharing agreement of TSG or any of its Subsidiaries with any
Person;
(viii) agreement, contract, commitment,
indenture or other instrument of TSG or any of its
Subsidiaries relating to the borrowing of money, or the
direct or indirect guarantee of any obligation for, or an
agreement to service the repayment of, borrowed money, or any
other contingent obligation in respect to indebtedness of any
other Person, including without limitation any agreement or
arrangement relating to the maintenance of compensating
balances, any agreement or arrangement with respect to lines
of credit, any agreement or arrangement to purchase or
repurchase obligations of any other Person, any agreement or
arrangement to advance or supply funds to or to invest in any
other Person, any agreement or arrangement to pay for
property, products or services of any other Person even if
such property, products or services are not conveyed,
delivered or rendered, or any guarantee with respect to any
lease or other similar periodic payment to be made by any
other Person;
(ix) lease of TSG or any of its Subsidiaries
with annual rental payments aggregating $50,000 or more;
(x) agreement, contract or commitment of TSG
or any of its Subsidiaries relating to the disposition or
acquisition of any investment in any Person if such
investment has a book value of, or the disposition or
acquisition price of such investment or interest is, $50,000
or more;
(xi) agreement, contract or commitment which
involves payment or potential payment, pursuant to the terms
of such agreement, contract or commitment, by or to TSG or
any of its Subsidiaries of $50,000 or more within any twelve
month period commencing after the date hereof; or
(xii) agreement, contract, commitment or
arrangement between TSG or any of its Subsidiaries and any
Affiliate of TSG or any of its Subsidiaries that is not
described in or filed as an exhibit to a TSG SEC Report.
19
(b) Neither TSG nor any of its Subsidiaries nor,
to the knowledge of TSG, any other party thereto is in breach or
violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with
notice or lapse of time or both, is reasonably expected to result
in a default under, (i) the certificates or articles of
incorporation, bylaws or similar organizational documents of TSG
or any of its Subsidiaries or (ii) any contract, agreement, plan
or instrument listed on Schedule 3.15 to the TSG Disclosure
Letter, except in the case of clause (ii) for breaches, violations
or defaults which, individually or in the aggregate, are not
having and are not reasonably expected to have a Material Adverse
Effect on TSG. Except as set forth on Schedule 3.04 to the TSG
Disclosure Letter, no party to any such contract, agreement, plan
or instrument will have the right to terminate any or all of the
provisions of any such contract, agreement, plan or instrument as
a result of the transactions contemplated by this Agreement.
Section 3.16 Compliance with Laws and Orders. TSG and
its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities
necessary for the lawful conduct of their respective businesses
(the "TSG Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on TSG. TSG
and its Subsidiaries are in compliance with the terms of the TSG
Permits, except failures so to comply which, individually or in
the aggregate, are not having and are not reasonably expected to
have a Material Adverse Effect on TSG. TSG and its Subsidiaries
are not in violation of or default under any Laws or Orders,
except for such violations or defaults which, individually or in
the aggregate, are not having and are not reasonably expected to
have a Material Adverse Effect on TSG.
Section 3.17 Environmental Matters.
(a) Except as set forth on Schedule 3.17 to the
TSG Disclosure Letter:
(i) no notice, notification, demand, request
for information, citation, summons or order has been received
by, no complaint has been filed against, no penalty has been
assessed against, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of TSG
or any Subsidiary of TSG, is threatened by any Person
against, TSG or any Subsidiary of TSG with respect to any
matters relating to or arising out of any Environmental Law;
(ii) no Hazardous Substance has been
discharged, disposed of, dumped, injected, pumped, deposited,
spilled, leaked, emitted or released, in violation of any
Environmental Law, at, on, under or adjacent to any property
now or, to the knowledge of TSG, previously owned, leased or
operated by TSG or any Subsidiary of TSG; and
20
(iii) there are no Environmental
Liabilities.
(b) For purposes of this Section, the following
terms shall have the meanings set forth below:
(i) "TSG" and "Subsidiary of TSG" shall
include any entity which is, in whole or in part, a
predecessor of TSG or any of its Subsidiaries;
(ii) "Environmental Laws" means any and all
federal, state, local and foreign law (including common law),
treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit, or governmental restrictions or
any agreement with any governmental authority or other third
party, relating to human health and safety, the physical
condition of any real property now or formerly owned, leased
or operated by TSG of any of its Subsidiaries or of any
improvements thereon, the environment or to pollutants,
contaminants, wastes or chemicals or toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials, including without limitation
Hazardous Substances as defined herein;
(iii) "Environmental Liabilities" means
any and all liabilities of or relating to TSG or any
Subsidiary of TSG of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise,
which (A) arise under or relate to matters covered by
Environmental Laws and (B) arise from actions occurring or
conditions existing on or prior to the Effective Time; and
(iv) "Hazardous Substances" means any
pollutant, contaminant, waste or chemical or any toxic,
radioactive, corrosive, reactive or otherwise hazardous
substance, waste or material, or any substance having any
constituent elements displaying any of the foregoing
characteristics, including, without limitation, petroleum,
its derivatives, by-products and other hydrocarbons, or any
substance, waste or material regulated under any
Environmental Laws.
Section 3.18 Assets. The assets, properties, rights
and contracts, including (as applicable) title or leaseholds
thereto, of TSG and its Subsidiaries, taken as a whole, are
sufficient to permit TSG and its Subsidiaries to conduct their
respective businesses as currently being conducted. Neither TSG
nor its Subsidiaries owns any real property.
Section 3.19 Intellectual Property Rights.
(a) TSG and its Subsidiaries own or have the right
to use, all Intellectual Property individually or in the aggregate
material to the conduct of the businesses of TSG and its
21
Subsidiaries. To the knowledge of TSG, (i) neither TSG nor any
Subsidiary of TSG is in default (or with the giving of notice or
lapse of time or both would be in default) under any license to
use such Intellectual Property, (ii) such Intellectual
Property (other than patents) is not being infringed by any third
party, and (iii) neither TSG nor any Subsidiary of TSG is
infringing any intellectual property of any third party. For
purposes of this Agreement, "Intellectual Property" means patents
and patent rights, trademarks and trademark rights, trade names
and trade name rights, copyrights and copyright rights and other
proprietary intellectual property rights and all pending
applications for and registrations of any of the foregoing that
TSG or its Subsidiaries own, license or otherwise have the right
to use. An accurate schedule of all Intellectual Property of TSG
or its Subsidiaries consisting of patents, registered trademarks,
registered trade names and registered copyrights and all pending
applications therefor is set forth on Schedule 3.19 to the TSG
Disclosure Letter;
(b) Either TSG or one of its Subsidiaries
currently is, or, with respect to a former Subsidiary of TSG that
was merged into TSG, will be as of the Closing Date, listed in the
records of the appropriate United States, state or foreign agency
as the sole owner of record for each application and registration
included in the Intellectual Property, other than Intellectual
Property of which TSG or its Subsidiaries is a licensee;
(c) TSG and its Subsidiaries, with respect to all
Intellectual Property owned thereby, have taken or caused to be
taken all reasonable steps in the exercise of reasonable business
judgment to obtain and retain valid and enforceable Intellectual
Property rights therein, including the submission of all necessary
filings in accordance with the legal and administrative
requirements of the appropriate jurisdictions. No application or
registration listed on Schedule 3.19 to the TSG Disclosure Letter
is the subject of any pending, existing or, to TSG's knowledge,
threatened, opposition, interference, cancellation proceeding or
other legal or governmental proceeding before any registration
authority in any jurisdiction; and
(d) The consummation of the transactions
contemplated hereby will not result in the loss or impairment of
TSG's or any of its Subsidiaries' right to own or use any of the
Intellectual Property nor will it require the consent of any
Governmental Authority or third party.
Section 3.20 Labor Matters. TSG has previously
furnished to Elcotel true and complete copies of all labor and
collective bargaining agreements to which TSG or any of its
Subsidiaries is a party and that are currently in effect, together
with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slow downs or other work stoppages or
lockouts involving any employees of TSG or any of its Subsidiaries
and there are no disputes by any labor organization in progress or
pending or, to the knowledge of TSG, threatened against TSG or any
of its Subsidiaries that would have a Material Adverse Effect on
TSG. TSG and its Subsidiaries are in compliance in all material
respects with all applicable laws and regulations in respect of
employment and employment practices, terms and conditions of
employment, wages and hours, occupational safety, health or
22
welfare conditions relating to premises occupied, and civil
rights. There are no charges of unfair labor practices pending
before any Governmental Authority involving or affecting TSG or
any of its Subsidiaries. As of the date of this Agreement, there
is no representation claim or petition pending before the National
Labor Relations Board and, to the knowledge of TSG, no question
concerning representation exists with respect to the employees of
TSG or any of its Subsidiaries. TSG has not received notice that
any customer or supplier of TSG or any or its Subsidiaries is
involved in or threatened with or affected by any strike or other
labor disturbance or dispute, litigation or administrative
proceeding or judgment, order, injunction, decree or award, the
consequences of which would have a Material Adverse Effect on TSG.
Section 3.21 Transactions with Affiliates. Except to
the extent disclosed in the TSG SEC Documents filed prior to the
date of this Agreement, none of the officers or directors of TSG
or any of its Subsidiaries nor any of its Affiliates, and, to its
knowledge, none of its key employees or the key employees of any
of its Subsidiaries, is a party to any transaction with TSG or any
of its Subsidiaries (other than for services as an employee,
officer or director and other than transactions between TSG and
one or more of its direct or indirect wholly owned Subsidiaries or
between such Subsidiaries), including, without limitation, any
contract, agreement or other arrangement (i) providing for the
furnishing of services to or by, (ii) providing for rental of real
or personal property to or from, or (iii) otherwise requiring
payments to or from, any such officer, director, Affiliate or key
employee, any member of the family of any such officer, director
or key employee or any corporation, partnership, trust or other
entity in which any such officer, director or key employee has
substantial interest (excluding the ownership of not more than two
percent (2%) of the capital stock of a publicly traded
corporation) or which is an Affiliate of such officer, director or
key employee.
Section 3.22 Insurance. Schedule 3.22 to the TSG
Disclosure Letter sets forth a complete and accurate list of all
primary, excess and umbrella policies, bonds and other forms of
insurance currently owned or held by or on behalf of or providing
insurance coverage to TSG or any of its Subsidiaries and their
respective businesses, properties and assets (or its directors,
officers, agents or employees). All such policies are in full
force and effect. Neither TSG nor any of its Subsidiaries has
received notice of default under any such policy, or has received
written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material
premium increase with respect to any such policy the failure of
which to maintain, has a Material Adverse Effect on TSG. Schedule
3.22 to the TSG Disclosure Letter sets forth a complete and
accurate summary of all of the self-insurance coverage provided by
TSG or any of its Subsidiaries and no letters of credit have been
posted in respect thereof.
Section 3.23 Takeover Statutes. The Board of
Directors of TSG has duly and validly approved the Merger, this
Agreement and the transactions contemplated by this Agreement and
such approval is sufficient to render inapplicable to the Merger,
this Agreement, and the transactions contemplated by this
Agreement and the Voting Agreement the provisions of Section 203
of the Delaware Law. No other "fair price", "moratorium",
"control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United
States (each, a "Takeover Statute") applicable to TSG or any of
its Subsidiaries is applicable to the Merger or the other
transactions contemplated hereby.
23
Section 3.24 Finders' Fees. Except for a fee to
Wexford Management LLC, a copy of whose engagement letter has been
provided to Elcotel, no investment banker, broker, finder, other
intermediary or other Person is entitled to any fee or commission
from TSG or any Subsidiary of TSG upon consummation of the
transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ELCOTEL
Elcotel represents and warrants to TSG that:
Section 4.01 Organization and Power. Each of Elcotel
and its Subsidiaries is a corporation, partnership or other entity
duly organized, validly existing and is in good standing under the
laws of the jurisdiction of its incorporation or organization, and
has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted. Each of
Elcotel and its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Elcotel. Schedule
4.01 to the Elcotel Disclosure Letter sets forth a complete list
of Elcotel's Subsidiaries, all of which are wholly owned, directly
or indirectly, by Elcotel. Elcotel has heretofore delivered to
TSG true and complete copies of Elcotel's and Merger Subsidiary's
certificate of incorporation and bylaws as currently in effect.
Section 4.02 Corporate Authorization. The execution,
delivery and performance by Elcotel and Merger Subsidiary of this
Agreement and the consummation by Elcotel and Merger Subsidiary of
the transactions contemplated hereby are within the corporate
power of Elcotel and Merger Subsidiary and, except for any
required approval by the stockholders of Elcotel of the issuance
of shares of Elcotel Common Stock in connection with the Merger,
have been duly authorized by all necessary corporate action,
including the Board of Directors of Merger Subsidiary and the
Board of Directors of Elcotel, in its capacity as the sole
stockholder of Merger Subsidiary. This Agreement has been duly
executed and delivered by each of Elcotel and Merger Subsidiary
and, subject to the approval of the holders of Elcotel Common
Stock with respect to the issuance of shares of Elcotel Common
Stock in connection with the Merger (including any shares
contemplated by Sections 1.04 and 1.05), constitutes a legal,
valid and binding agreement of each of Elcotel and Merger
Subsidiary, enforceable against Elcotel or Merger Subsidiary, as
applicable, in accordance with its terms (subject to applicable
24
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights
generally from time to time in effect and to general principles of
equity, regardless of whether in a proceeding in equity or at
law). The shares of Elcotel Common Stock issued in connection
with the Merger, when issued in accordance with the terms hereof,
will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
Section 4.03 Governmental Authorization. The
execution, delivery and performance by Elcotel and Merger
Subsidiary of this Agreement, and the consummation by Elcotel and
Merger Subsidiary of the transactions contemplated hereby, require
no action by or in respect of, or filing with or notice to, any
Governmental Authority, other than (a) the filing of a certificate
of merger with respect to the Merger with the Delaware Secretary
of State and appropriate documents with the relevant authorities
of other states in which Merger Subsidiary is qualified to do
business; (b) compliance with any applicable requirements of the
HSR Act; (c) compliance with any applicable requirements of the
1933 Act; (d) compliance with any applicable requirements of the
1934 Act; (e) compliance with any other applicable securities
laws; and (f) those set forth on Schedule 4.03 to the Elcotel
Disclosure Letter.
Section 4.04 Non-Contravention. Except as set forth
on Schedule 4.04 to the Elcotel Disclosure Letter, the execution,
delivery and performance by Elcotel and Merger Subsidiary of this
Agreement do not, and the consummation by Elcotel and Merger
Subsidiary of the transactions contemplated hereby will not
require the consent of any other Person, or conflict with, result
in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any
Person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien on any of the assets or
properties of Elcotel or any of its Subsidiaries under, any of the
terms, conditions or provisions of (a) the certificate or articles
of incorporation, bylaws or similar organizational documents of
Elcotel or any of its Subsidiaries, (b) assuming receipt of the
approval of stockholders referred to in Section 4.02, and
compliance with the matters referred to in Section 4.03, any Laws
or Orders binding upon or applicable to Elcotel or any Subsidiary
of Elcotel or any of their respective assets or properties, or (c)
any note, bond, mortgage, security agreement, indenture, lease,
contract, instrument or other agreement of any kind to which
Elcotel or any Subsidiary of Elcotel is a party or by which
Elcotel or any Subsidiary of Elcotel or any of their respective
assets or properties is bound (an "Elcotel Agreement") or any
license, franchise, permit or other similar authorization held by
Elcotel or any Subsidiary of Elcotel.
Section 4.05 Capitalization of Elcotel.
(a) The authorized capital stock of Elcotel
consists of 20,000,000 shares of Elcotel Common Stock, par value
$0.01 per share. As of the close of business on July 31, 1997,
25
(i) 8,182,217 shares of Elcotel Common Stock are issued and
outstanding, 52,000 shares of Elcotel Common Stock are issued and
held in the treasury of Elcotel, and 1,775,000 shares of Elcotel
Common Stock are reserved for issuance under Elcotel's 1991 Stock
Option Plan and Elcotel's Directors' Stock Option Plan
(collectively the "Elcotel Plans") and (ii) options to purchase
661,848 shares of Elcotel Common Stock under the Elcotel Plans
("Elcotel Options") were outstanding. All the outstanding shares
of Elcotel Common Stock are, and all shares reserved for issuance
will be, when issued in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and non-assessable.
Except (i) as set forth in this Section 4.05, (ii) for Elcotel
Common Stock that may be issued as provided in Section 5.02(e);
and (iii) for the transactions contemplated by this Agreement
(including those permitted in Article II), there are outstanding
(x) no shares of capital stock or other voting securities of
Elcotel, (y) no securities of Elcotel convertible into or
exchangeable for shares of capital stock or voting securities of
Elcotel, and (z) no options, warrants or other rights to acquire
from Elcotel, and no preemptive or similar rights, subscriptions
or other rights, convertible securities, agreements, arrangements
or commitments of any character, obligating Elcotel to issue,
transfer or sell, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or
voting securities of Elcotel or obligating Elcotel to grant,
extend or enter into any such option, warrant, subscription or
other right, convertible security, agreement, arrangement or
commitment (the items in clauses (x), (y) and (z) being referred
to collectively as the "Elcotel Securities").
(b) There are no voting trusts or other agreements
or understandings to which Elcotel or any Subsidiary of Elcotel is
a party with respect to the voting of the capital stock of Elcotel
or any Subsidiary of Elcotel. None of Elcotel or its Subsidiaries
has any contractual obligation to redeem, repurchase or otherwise
acquire any Elcotel Securities, including as a result of the
transactions contemplated by this Agreement. Except as permitted
by this Agreement, following the Merger, Elcotel will not have any
obligation to issue, transfer or sell any shares of its capital
stock pursuant to any employee benefit plan or otherwise.
Section 4.06 Capitalization of Subsidiaries. Except
as set forth on Schedule 4.06 to the Elcotel Disclosure Letter,
all of the outstanding shares of capital stock of, or other
ownership interests in, each Subsidiary of Elcotel, are duly
authorized, validly issued, fully paid and nonassessable and are
owned beneficially, and of record, by Elcotel, directly or
indirectly, free and clear of any consensual Lien (including any
restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests). There are no
(i) outstanding securities of Elcotel or any Subsidiary of Elcotel
convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary
of Elcotel, or (ii) options, warrants or other rights to acquire
from Elcotel or any Subsidiary of Elcotel, and no other obligation
of Elcotel or any Subsidiary of Elcotel to issue, any capital
stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for, any capital
stock, voting securities or ownership interests in, any Subsidiary
of Elcotel (the items in clauses (i) and (ii) being referred to
collectively as the "Elcotel Subsidiary Securities").
26
Section 4.07 SEC Filings.
(a) Elcotel has filed all reports, schedules,
forms, statements and other documents with the SEC required to be
filed by Elcotel since April 1, 1995 (the "Elcotel SEC
Documents");
(b) As of its filing date, each Elcotel SEC
Document filed pursuant to the 1934 Act complied as to form in all
material respects with the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and
(c) Each Elcotel SEC Document that is a
registration statement, as amended or supplemented, if applicable,
filed pursuant to the 1933 Act as of the date such registration
statement or amendment became effective complied as to form in all
material respects with the requirements of the 1933 Act and did
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
Section 4.08 Financial Statements. The audited
consolidated financial statements included in Elcotel's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997 (the
"Elcotel 10-K") and the unaudited consolidated interim financial
statements of Elcotel included in the Elcotel SEC Documents filed
after such date (collectively the "Elcotel Financial Statements")
complied, or will comply, as to form in all material respects 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 as may be
indicated in the notes thereto) and fairly present the
consolidated financial position of Elcotel and its consolidated
Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended
(subject to footnote disclosures and normal year-end adjustments
in the case of any unaudited interim financial statements). The
Elcotel Financial Statements have been prepared from and are
consistent with the books and records of Elcotel, which reflect
all material transactions of Elcotel and its Subsidiaries. For
purposes of this Agreement, "Elcotel Balance Sheet" means the
consolidated balance sheet of Elcotel as of March 31, 1997 set
forth in the Elcotel 10-K and "Elcotel Balance Sheet Date" means
March 31, 1997.
Section 4.09 Information Supplied. None of the
information supplied or to be supplied by Elcotel for inclusion or
incorporation by reference in and none of the statements based on
such information contained in (i) the Proxy Statement will, at the
date the Proxy Statement is first mailed to stockholders and at
the time of the meetings of such stockholders in connection with
the Merger, contain any untrue statement of a material fact or
27
omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (ii) the Form S-4 will, at the time
the Form S-4 becomes effective under the 1933 Act or at the
Effective Time, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
Section 4.10 Absence of Certain Changes. Except as
disclosed in the Elcotel SEC Documents filed prior to the date of
this Agreement or as disclosed on Schedule 4.10 to the Elcotel
Disclosure Letter, since March 31, 1997, Elcotel and its
Subsidiaries have conducted their respective businesses as in the
ordinary course consistent with past practice and there has not
been:
(a) any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably
likely to have a Material Adverse Effect on Elcotel;
(b) any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of
capital stock of Elcotel, any issuance of Elcotel Common Stock
other than upon exercise of Elcotel Options outstanding on March
28, 1997, or any repurchase, redemption or other acquisition by
Elcotel or any Subsidiary of Elcotel of any amount of outstanding
shares of capital stock or other equity securities of, or other
ownership interests in, Elcotel or any Subsidiary of Elcotel;
(c) any amendment of any term of any Elcotel
Securities or any Elcotel Subsidiary Securities;
(d) (i) any incurrence or assumption by Elcotel or
any Subsidiary of Elcotel of any indebtedness for borrowed money
other than under existing credit facilities in the ordinary course
of business consistent with past practices or (ii) any guarantee,
endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by Elcotel or any
Subsidiary of Elcotel for the obligations of any other Person
(other than any wholly owned Subsidiary of Elcotel);
(e) any creation or assumption by Elcotel or any
Subsidiary of Elcotel of any consensual Lien on any material asset
of Elcotel or any Subsidiary of Elcotel;
(f) any making of any loan, advance or capital
contribution to or investment in any Person by Elcotel or any
Subsidiary of Elcotel other than (i) loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries of
Elcotel or (ii) loans or advances to employees of Elcotel or any
Subsidiary of Elcotel made in the ordinary course of business
consistent with past practice;
28
(g) (i) any contract or agreement entered into by
Elcotel or any Subsidiary of Elcotel on or prior to the date
hereof relating to any material acquisition or disposition of any
assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by Elcotel or any
Subsidiary of Elcotel of any contract, license or other right
(including any insurance policy naming it as a beneficiary or a
loss payable payee) that would be reasonably likely to have a
Material Adverse Effect on Elcotel, other than those contemplated
by this Agreement;
(h) any change in any method of accounting or
accounting principles or practices by Elcotel or any Subsidiary of
Elcotel, except for any such change required by reason of a change
in GAAP; or
(i) any (w) grant of any severance or termination
pay to any director, officer or employee of Elcotel or any of its
Subsidiaries, (x) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of
Elcotel or any of its Subsidiaries, (y) increase in benefits
payable under any existing severance or termination pay policies
or employment agreements or (z) increase in compensation or bonus
in excess of fifteen percent or increase in other benefits payable
to officers or employees of Elcotel or any of its Subsidiaries or
increase in compensation, bonus or other benefits payable to
directors of Elcotel or any of its Subsidiaries.
Section 4.11 No Undisclosed Liabilities. Neither
Elcotel nor any Subsidiary of Elcotel has any material liabilities
or obligations (whether pursuant to contracts or otherwise) of any
kind whatsoever whether, accrued, contingent, absolute,
determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on
the Elcotel Balance Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred
since April 1, 1997 in the ordinary course of business consistent
with past practice; and
(c) those liabilities or obligations under this
Agreement or incurred in connection with the transactions
contemplated hereby.
Section 4.12 Litigation. Except as disclosed on
Schedule 4.12 to the Elcotel Disclosure Letter, (i) there are no
actions, suits, arbitrations, or proceedings pending or, to the
knowledge of Elcotel, threatened against, relating to or
affecting, nor are there any Governmental Authority investigations
or audits pending or, to the knowledge of Elcotel, threatened
against, relating to or affecting, Elcotel or any of its
Subsidiaries or any of their respective assets or properties nor,
to the knowledge of Elcotel, is there any valid basis for any such
action, suit, arbitration, proceeding, investigation or audit,
which if adversely determined would have a Material Adverse Effect
on Elcotel, and (ii) neither Elcotel nor any of its Subsidiaries
is subject to any order of any Governmental Authority which
adversely affects the ability of Elcotel to consummate the
transactions contemplated by this Agreement.
29
Section 4.13 Taxes.
(a) All Tax Returns required to be filed by
Elcotel, any of its Subsidiaries, or any corporation that was
included in the filing of a return with Elcotel or its
Subsidiaries on a consolidated, combined or unitary basis have
been filed (the "Elcotel Tax Returns") and all Taxes required to
be shown on the Elcotel Tax Returns, or a subsequent assessment
with respect thereto, or otherwise due or payable (to the extent
in excess of $50,000 in the aggregate) have been paid and any
penalties and interest relating to such Taxes have been paid. No
other Taxes (to the extent in excess of $50,000 in the aggregate)
are payable by the Elcotel Group with respect to items or periods
covered by such Tax Returns or with respect to Tax periods prior
to the date of this Agreement. None of the Elcotel Tax Returns
contain, or are required to contain, a disclosure statement under
Section 6662 of the Code, or any similar provision of state, local
or foreign law, with respect to any items that relate to Elcotel
or its Subsidiaries in order to avoid a penalty for any taxable
year. All Elcotel Tax Returns are true, correct and complete in
all material respects. Elcotel has made available to TSG correct
and complete copies of all Elcotel Tax Returns for all periods
which are not closed by the statute of limitations.
(b) No adjustment relating to any Elcotel Tax
Returns has been proposed formally or, to Elcotel's knowledge,
informally by any Governmental Authority (to the extent in excess
of $50,000 in the aggregate), and no basis exists for any such
adjustment that would have a Material Adverse Effect on TSG.
There are no outstanding subpoenas or requests for information
with respect to any Elcotel Tax Returns or portions thereof.
There are no pending or, to Elcotel's knowledge, threatened
actions or proceedings for the assessment or collection of Taxes
for which Elcotel or its Subsidiaries may be liable (to the extent
in excess of $50,000 in the aggregate). There are no Tax liens on
any assets of Elcotel or its Subsidiaries, except with respect to
Taxes which are not yet due and payable.
(c) No consent under Section 341(f) of the Code
has been filed with respect to Elcotel or any of its Subsidiaries.
Neither Elcotel nor any of its Subsidiaries is or has been subject
to the dual consolidated loss provisions of Section 1503 of the
Code.
(d) Elcotel and its Subsidiaries are members of an
affiliated group (within the meaning of Section 1504 of the Code)
that is eligible to file a consolidated return. No other entity
is or has been eligible to file a consolidated or combined return
with Elcotel and its Subsidiaries, and neither Elcotel nor its
Subsidiaries have filed or consented to the filing of any Federal
or state consolidated or combined return with any entity not a
member of the Elcotel Group. Neither Elcotel nor any of its
Subsidiaries has been at any time a member of any partnership or
joint venture or the holder of a beneficial interest in any trust
30
for any Person for which the statute of limitations for any Tax
potentially applicable as a result of such membership or holding
has not expired.
(e) Elcotel and its Subsidiaries have properly
accrued all current or contested Taxes on their books and records,
and their books and records reflect reserves that are adequate for
the payment of all Taxes not yet due and payable that are properly
accruable thereon through the date of this Agreement (including
Taxes being contested). Neither Elcotel nor any of its
Subsidiaries have any material liability for any Taxes in excess
of amounts accrued or the reserves established. All Taxes
required to be withheld, collected or deposited in connection with
the operations and activities of Elcotel or its Subsidiaries have
been timely withheld, collected or deposited and, to the extent
required, have been paid to the relevant taxing authority.
(f) Elcotel does not own, nor has it owned during
the past five years, any of the capital stock of TSG. At the
Effective Time, the fair market value of the assets of Elcotel
will exceed the sum of its liabilities, plus the amount of other
liabilities, if any, to which the assets are subject.
(g) There are no requests for rulings,
determinations or information currently outstanding that could
affect the Taxes of Elcotel or any of its Subsidiaries.
(h) The Elcotel Tax Returns have been audited by
the Service or other governmental agency (or closed by applicable
statutes of limitations) and all Tax liabilities in respect
thereof have been finally determined for all taxable years ending
on or before March 31, 1993. There are no outstanding waivers or
agreements extending the statute of limitations for any period
with respect to any Tax to which Elcotel or any of its
Subsidiaries may be liable.
(i) The term "Elcotel Group" shall mean,
individually and collectively, (i) Elcotel, (ii) its Subsidiaries,
and (iii) any trust, corporation, partnership or any other entity
as to which Elcotel or its Subsidiaries is liable for Taxes
incurred by such entity either as a transferee, or pursuant to
Treasury Regulations Section 1.1502-6, or pursuant to any other
provision of federal, state, local or foreign law or regulations.
(j) Elcotel has made available to TSG a true and
complete copy of any: (i) elections, letter rulings and
determination letters relating to Taxes with respect to Elcotel or
its Subsidiaries; and (ii) examination reports, closing agreements
and statements of deficiencies for Taxes assessed against or
agreed to by Elcotel or any of its Subsidiaries.
31
Section 4.14 Employee Benefits; ERISA.
(a) Except as set forth on Schedule 4.14(a) to the
Elcotel Disclosure Letter, there are no employee benefit plans
(including any plans for the benefit of directors or former
directors), contracts or agreements (including employment
agreements and severance agreements, incentive compensation,
bonus, stock option, stock appreciation rights and stock purchase
plans) of any type (including plans described in Section 3(3) of
ERISA), maintained by Elcotel, any of its Subsidiaries or any
trade or business, whether or not incorporated (an "Elcotel ERISA
Affiliate"), that together with Elcotel would be deemed a
"controlled group" within the meaning of Section 4001(a)(14) of
ERISA, or with respect to which Elcotel or any of its Subsidiaries
has or may have a liability (the "Elcotel Benefit Plans"). Except
as disclosed on Schedule 4.14 to the Elcotel Disclosure Letter,
since March 31, 1997, there has been no change, amendment,
modification to, or adoption of, any Elcotel Benefit Plan;
(b) With respect to each Elcotel Benefit Plan:
(i) if intended to qualify under Section 401(a), 401(k) or 403(a)
of the Code, each such plan so qualifies, and its trust is exempt
from taxation under Section 501(a) of the Code; (ii) no failure to
administer such plan in accordance with its terms and applicable
law have occurred that have had or would reasonably be expected to
have a Material Adverse Effect on Elcotel; (iii) no breaches of
fiduciary duty have occurred; (iv) no prohibited transaction
within the meaning of Section 406 of ERISA has occurred; (v) as of
the date of this Agreement, no lien imposed under the Code or
ERISA exists; and (vi) all contributions and premiums due
(including any extensions for such contributions and premiums)
have been made in full;
(c) None of the Elcotel Benefit Plans has incurred
any "accumulated funding deficiency", as such term is defined in
Section 412 of the Code, whether or not waived;
(d) Neither Elcotel nor any ERISA Affiliate has
incurred any liability under Title IV of ERISA (including Sections
4063-4064 and 4069 of ERISA) since the effective date of ERISA
that has not been satisfied in full;
(e) With respect to each Elcotel Benefit Plan that
is a "welfare plan" (as defined in Section 3(1) of ERISA), no such
plan provides medical or death benefits with respect to current or
former employees of Elcotel or any of its Subsidiaries beyond
their termination of employment, other than as required by law or
on an employee-pay-all basis;
(f) The consummation of the Merger pursuant to
this Agreement will not (i) entitle any individual to severance
pay or any tax "gross-up" payments with respect to the imposition
of any tax pursuant to Section 4999 of the Code or accelerate the
time of payment or vesting, or increase the amount, of
compensation or benefits due to any individual with respect to any
Elcotel Benefit Plan, or (ii) constitute or result in a prohibited
transaction under Section 4975 of the Code or Section 406 or 407
of ERISA with respect to any Elcotel Benefit Plan; and
32
(g) There is no Elcotel Benefit Plan that is a
"multiemployer plan", as such term is defined in Section 3(37) of
ERISA, or which is covered by Section 4063 or 4064 of ERISA.
Section 4.15 Certain Agreements; Compliance with
Agreements.
(a) Except as disclosed on Schedule 4.15 to the
Elcotel Disclosure Letter or as provided for in this Agreement,
neither Elcotel nor any of its Subsidiaries is a party to or bound
by any oral or written:
(i) consulting agreement not terminable on
thirty (30) days' or less notice;
(ii) agreement with any officer or other key
employee the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of the
transactions contemplated by this Agreement;
(iii) agreement with respect to any
officer providing any term of employment or compensation
guarantee;
(iv) agreement or plan, including any stock
option plan, stock appreciation rights plan, employee stock
ownership plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions
contemplated by this Agreement;
(v) agreement containing covenants that limit
the ability of Elcotel or any of its Subsidiaries to compete
in any line of business or with any Person, or that involve
any restriction on the geographic area in which, or method by
which, Elcotel or any of its Subsidiaries may carry on its
business (other than as may be required by law or any
regulatory agency);
(vi) agreement, contract or understanding,
other than this Agreement and the certificate of
incorporation and by-laws of Elcotel, regarding the capital
stock of Elcotel or committing to dispose of some or all of
the capital stock or all or substantially all of the assets
of Elcotel;
(vii) partnership, joint venture or profit
sharing agreement of Elcotel or any of its Subsidiaries with
any Person;
33
(viii) agreement, contract, commitment,
indenture or other instrument of Elcotel or any of its
Subsidiaries relating to the borrowing of money, or the
direct or indirect guarantee of any obligation for, or an
agreement to service the repayment of, borrowed money, or any
other contingent obligation in respect to indebtedness of any
other Person, including without limitation any agreement or
arrangement relating to the maintenance of compensating
balances, any agreement or arrangement with respect to lines
of credit, any agreement or arrangement to purchase or
repurchase obligations of any other Person, any agreement or
arrangement to advance or supply funds to or to invest in any
other Person, any agreement or arrangement to pay for
property, products or services of any other Person even if
such property, products or services are not conveyed,
delivered or rendered, or any guarantee with respect to any
lease or other similar periodic payment to be made by any
other Person;
(ix) lease of Elcotel or any of its
Subsidiaries with annual rental payments aggregating $50,000
or more;
(x) except as set forth on Schedule 5.02 to
the Elcotel Disclosure Letter, agreement, contract or
commitment of Elcotel or any of its Subsidiaries relating to
the disposition or acquisition of any investment in any
Person if such investment has a book value of, or the
disposition or acquisition price of such investment or
interest is, $50,000 or more;
(xi) agreement, contract or commitment which
involves payment or potential payment, pursuant to the terms
of such agreement, contract or commitment, by or to Elcotel
or any of its Subsidiaries of $50,000 or more within any
twelve month period commencing after the date hereof; or
(xii) agreement, contract, commitment or
arrangement between Elcotel or any of its Subsidiaries and
any Affiliate of Elcotel or any of its Subsidiaries that is
not described in or filed as an exhibit to an Elcotel SEC
Report.
(b) Neither Elcotel nor any of its Subsidiaries
nor, to the knowledge of Elcotel, any other party thereto is in
breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or both, is reasonably
expected to result in a default under, (i) the certificates or
articles of incorporation, bylaws or similar organizational
documents of Elcotel or any of its Subsidiaries or (ii) any
contract, agreement, plan or instrument listed on Schedule 4.15 to
the Elcotel Disclosure Letter, except in the case of clause (ii)
for breaches, violations or defaults which, individually or in the
aggregate, are not having and are not reasonably expected to have
a Material Adverse Effect on Elcotel. No party to any such
contract, agreement, plan or instrument will have the right to
terminate any or all of the provisions of any such contract, plan
or instrument as a result of the transactions contemplated by this
Agreement.
34
Section 4.16 Compliance with Laws and Orders. Elcotel
and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities
necessary for the lawful conduct of their respective businesses
(the "Elcotel Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on Elcotel.
Elcotel and its Subsidiaries are in compliance with the terms of
the Elcotel Permits, except failures so to comply which,
individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on Elcotel.
TSG and its Subsidiaries are not in violation of or default under
any Laws or Orders, except for such violations or defaults which,
individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on Elcotel.
Section 4.17 Environmental Matters.
(a) Except as set forth on Schedule 4.17 to the
Elcotel Disclosure Letter:
(i) no notice, notification, demand, request
for information, citation, summons or order has been received
by, no complaint has been filed against, no penalty has been
assessed against, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of
Elcotel or any Subsidiary of Elcotel, is threatened by any
Person, against Elcotel or any Subsidiary of Elcotel with
respect to any matters relating to or arising out of any
Environmental Law;
(ii) no Hazardous Substance has been
discharged, disposed of, dumped, injected, pumped, deposited,
spilled, leaked, emitted or released, in violation of any
Environmental Law, at, on, under or adjacent to any property
now or, to the knowledge of Elcotel, previously owned, leased
or operated by Elcotel or any Subsidiary of Elcotel; and
(iii) there are no Environmental
Liabilities.
(b) For purposes of this Section 4.17, capitalized
terms used shall have the meanings assigned to them in Section
3.17(b), except that in all cases the word "Elcotel" shall be
substituted for the word "TSG".
Section 4.18 Assets. The assets, properties, rights
and contracts, including (as applicable) title or leaseholds
thereto, of Elcotel and its Subsidiaries, taken as a whole, are
sufficient to permit Elcotel and its Subsidiaries to conduct their
respective businesses as currently being conducted. All real
property owned by Elcotel or its Subsidiaries is owned free and
clear of all Liens, except (a) those reflected or reserved against
35
in the Elcotel Balance Sheet (or notes thereto), (b) taxes and
general and special assessments not in default and payable without
penalty or interest, and (c) Liens that do not materially
adversely interfere with any present use of such property.
Section 4.19 Intellectual Property Rights.
(a) Elcotel and its Subsidiaries own or have the
right to use, all Intellectual Property individually or in the
aggregate material to the conduct of the businesses of Elcotel and
its Subsidiaries. To the knowledge of Elcotel, (i) neither
Elcotel nor any Subsidiary of Elcotel is in default (or with the
giving of notice or lapse of time or both would be in default)
under any license to use such Intellectual Property, (ii) such
Intellectual Property (other than patents) is not being infringed
by any third party, and (iii) neither Elcotel nor any Subsidiary
of Elcotel is infringing any intellectual property of any third
party. An accurate schedule of all Intellectual Property of
Elcotel or its Subsidiaries consisting of patents, registered
trademarks, registered trade names and registered copyrights and
all pending applications therefor is set forth on Section 4.19 to
the Elcotel Disclosure Letter;
(b) Either Elcotel or one of its Subsidiaries
currently is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for
each application and registration included in the Intellectual
Property, other than Intellectual Property of which Elcotel or its
Subsidiaries is a licensee;
(c) Elcotel and its Subsidiaries, with respect to
all Intellectual Property owned thereby, have taken or caused to
be taken all reasonable steps in the exercise of reasonable
business judgment to obtain and retain valid and enforceable
Intellectual Property rights therein, including the submission of
all necessary filings in accordance with the legal and
administrative requirements of the appropriate jurisdictions. No
application or registration listed on Schedule 4.19 to the Elcotel
Disclosure Letter is the subject of any pending, existing or, to
Elcotel's knowledge, threatened, opposition, interference,
cancellation proceeding or other legal or governmental proceeding
before any registration authority in any jurisdiction; and
(d) The consummation of the transactions
contemplated hereby will not result in the loss or impairment of
Elcotel's or any of its Subsidiaries' right to own or use any of
the Intellectual Property nor will it require the consent of any
Governmental Authority or third party.
Section 4.20 Labor Matters. Elcotel has previously
furnished to TSG true and complete copies of all labor and
collective bargaining agreements to which Elcotel or any of its
Subsidiaries is a party and that are currently in effect, together
with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slow downs or other work stoppages or
36
lockouts involving any employees of Elcotel or any of its
Subsidiaries and there are no disputes by any labor organization
in progress or pending or, to the knowledge of Elcotel, threatened
against Elcotel or any of its Subsidiaries that would have a
Material Adverse Effect on Elcotel. Elcotel and its Subsidiaries
are in compliance in all material respects with all applicable
laws and regulations in respect of employment and employment
practices, terms and conditions of employment, wages and hours,
occupational safety, health or welfare conditions relating to
premises occupied, and civil rights. There are no charges of
unfair labor practices pending before any Governmental Authority
involving or affecting Elcotel or any of its Subsidiaries. As of
the date of this Agreement, there is no representation claim or
petition pending before the National Labor Relations Board and, to
the knowledge of Elcotel, no question concerning representation
exists with respect to the employees of Elcotel or any of its
Subsidiaries. Elcotel has not received notice that any customer
or supplier of Elcotel or any or its Subsidiaries is involved in
or threatened with or affected by any strike or other labor
disturbance or dispute, litigation or administrative proceeding or
judgment, order, injunction, decree or award, the consequences of
which would have a Material Adverse Effect on Elcotel.
Section 4.21 Transactions with Affiliates. Except to
the extent disclosed in the Elcotel SEC Documents filed prior to
the date of this Agreement, none of the officers or directors of
Elcotel or any of its Subsidiaries nor any of its Affiliates, and,
to its knowledge, none of its key employees or the key employees
of any of its Subsidiaries, is a party to any transaction with
Elcotel or any of its Subsidiaries (other than for services as an
employee, officer or director and other than transactions between
Elcotel and one or more of its direct or indirect wholly owned
Subsidiaries or between such Subsidiaries), including, without
limitation, any contract, agreement or other arrangement (i)
providing for the furnishing of services to or by, (ii) providing
for rental of real or personal property to or from, or (iii)
otherwise requiring payments to or from, any such officer,
director, Affiliate or key employee, any member of the family of
any such officer, director or key employee or any corporation,
partnership, trust or other entity in which any such officer,
director or key employee has substantial interest (excluding the
ownership of not more than two percent (2%) of the capital stock
of a publicly traded corporation) or which is an Affiliate of such
officer, director or key employee.
Section 4.22 Insurance. Schedule 4.22 to the Elcotel
Disclosure Letter sets forth a complete and accurate list of all
primary, excess and umbrella policies, bonds and other forms of
insurance currently owned or held by or on behalf of or providing
insurance coverage to Elcotel or any of its Subsidiaries and their
respective businesses, properties and assets (or its directors,
officers, agents or employees). All such policies are in full
force and effect. Neither Elcotel nor any of its Subsidiaries has
received notice of default under any such policy, or has received
written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material
premium increase with respect to any such policy the failure of
which to maintain, has a Material Adverse Effect on Elcotel.
Schedule 4.22 to the Elcotel Disclosure Letter sets forth a
complete and accurate summary of all of the self-insurance
coverage provided by Elcotel or any of its Subsidiaries and no
letters of credit have been posted in respect thereof.
37
Section 4.23 Takeover Statutes. The Boards of
Directors of Elcotel and Merger Subsidiary have duly and validly
approved the Merger, this Agreement and the transactions
contemplated by this Agreement and such approval is sufficient to
render inapplicable to the Merger, this Agreement, and the
transactions contemplated by this Agreement and the Voting
Agreement, the provisions of Section 203 of the Delaware Law. No
other Takeover Statute applicable to Elcotel or any of its
Subsidiaries is applicable to the Merger or the other transactions
contemplated hereby.
Section 4.24 Finders' Fees. Except for a fee payable
to Cameron Associates, a copy of whose engagement agreement has
been provided to TSG, no investment banker, broker, finder, other
intermediary or other Person is entitled to any fee or commission
from Elcotel or any Subsidiary of Elcotel upon consummation of the
transactions contemplated by this Agreement.
Section 4.25 Opinion of Financial Advisor. Elcotel
has received the written opinion of Xxxxxx, Xxxxxx & Co. to the
effect that, as of the date hereof, the Merger Consideration to be
received by the holders of Shares in the Merger is fair to Elcotel
from a financial point of view. Elcotel has delivered to TSG a
copy of such opinion.
ARTICLE V
COVENANTS
Section 5.01 Conduct of TSG. From the date hereof
until the Effective Time, except as otherwise expressly required
by this Agreement or with the prior written consent of Elcotel,
TSG shall conduct, and shall cause its Subsidiaries to conduct,
their respective businesses in the ordinary course consistent with
past practice and shall use their best efforts to preserve intact
their business organizations and relationships with customers,
suppliers, creditors and business partners and shall use their
reasonable efforts to keep available the services of their present
officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, without
the prior written approval of Elcotel (which approval will not be
unreasonably withheld or delayed with respect to (c), (d), (h),
(i), (j), (n) or (o) or (k) as it applies to filing any amended
Tax Return):
(a) TSG will not adopt or propose any change in
its certificate of incorporation or any change in its bylaws;
(b) TSG will not, and will not permit any
Subsidiary of TSG to, adopt a plan or agreement of complete or
partial liquidation, or resolutions providing for or authorizing
such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of TSG or
any of its Subsidiaries (other than a liquidation or dissolution
of any Subsidiary or a merger or consolidation between wholly
owned Subsidiaries);
38
(c) TSG will not, and will not permit any
Subsidiary of TSG to, make any investment in or any acquisition of
the business of any Person or any material amount of assets (other
than inventory);
(d) TSG will not, and will not permit any
Subsidiary of TSG to, sell or otherwise dispose of any assets
(other than inventory) in an amount that would be material to TSG
and its Subsidiaries, taken as a whole, except in the ordinary
course of business consistent with past practice;
(e) TSG will not, and will not permit any
Subsidiary of TSG to, declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect
to its capital stock other than dividends paid by any Subsidiary
of TSG to TSG or any other Subsidiary of TSG, or split, combine,
reclassify or take similar action with respect to any of its
capital stock or TSG Securities or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or TSG Securities;
(f) TSG will not, and will not permit any
Subsidiary of TSG to, issue, deliver, sell, transfer, pledge,
dispose of or encumber any shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of
any class or series of TSG or its Subsidiaries, other than the
issuance of (i) options with an exercise price at least equal to
the fair market value of the TSG Common Stock on the date of grant
for up to 20,000 shares of TSG Common Stock under the Omnibus Plan
as in effect on the date hereof, (ii) rights to purchase shares of
TSG Common Stock granted pursuant to the Stock Purchase Plan as in
effect on the date hereof during the offering period that
commenced on July 14, 1997 and that will end on January 9, 1998,
estimated at 9,306.14 shares of TSG Common Stock based on a stock
price of $5.00 per share on July 14, 1997 and eligible employees
with $39,551.11 of estimated aggregate compensation deductions
(based on current compensation levels), (iii) options granted
automatically under the Director Plan as in effect on the date
hereof, and (iv) issuances of TSG Common Stock pursuant to the
exercise of options granted pursuant to the TSG Option Plans and
the exercise of TSG Warrants described in Section 3.05(a) which
are outstanding on the date hereof, and TSG will not amend the
terms of any option, warrant, right or other security outstanding
under any of the TSG Plans or commence any new offering under the
Stock Purchase Plan;
(g) TSG will not, and will not permit any
Subsidiary of TSG to, redeem, purchase or otherwise acquire
directly or indirectly any of TSG's capital stock or any TSG
Securities;
39
(h) TSG will not, and will not permit any
Subsidiary of TSG to, enter into or amend in any material respect
any employment contract with any of its officers, directors or
employees earning annual compensation of more than $50,000, adopt
or amend any TSG Benefit Plan in any material respect or make any
payments, awards or distributions under any TSG Benefit Plan or
otherwise not consistent with past practice or custom except (i)
as required by a contract in existence on the date hereof and
listed on Schedule 3.15 to the TSG Disclosure Letter; or (ii) as
necessary to make any TSG Benefit Plan listed on Schedule 3.14 to
the TSG Disclosure Letter meet the requirements of ERISA to the
extent such amendment is described in such Schedule or is approved
by Elcotel;
(i) TSG will not, and will not permit any
Subsidiary of TSG to, (i) enter into (or commit to enter into) any
new lease or renew any existing lease (except pursuant to
commitments for such lease or lease renewal entered into as of the
date hereof) or (ii) purchase or acquire or enter into any
agreement to purchase or acquire any real estate;
(j) TSG will not, and will not permit any
Subsidiary of TSG to, make or commit to make any capital
expenditures in excess of $150,000 in the aggregate exclusive of
existing commitments with Avex Electronics for capital
expenditures not exceeding $200,000 in the aggregate.
(k) TSG will not, and will not permit any
Subsidiary of TSG to, change any tax election, change any annual
tax accounting period, change any method of tax accounting, file
any amended Tax Return, enter into any closing agreement relating
to any Tax, settle any Tax claim or assessment, surrender any
right to claim a Tax refund or consent to any extension or waiver
(other than a reasonable extension or waiver) of the limitations
period applicable to any Tax claim or assessment, if any such
action would have the effect of increasing the aggregate Tax
liability or reducing the aggregate tax assets of TSG and its
Subsidiaries, taken as a whole, or, to the knowledge of TSG,
Elcotel and its Subsidiaries, taken as a whole;
(l) TSG will not, and will not permit any
Subsidiary of TSG to, (i) incur any indebtedness for borrowed
money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice, or
(ii) voluntarily purchase, cancel, prepay or otherwise provide for
a complete or partial discharge in advance of a scheduled
repayment date with respect to, or waive any right under, any
indebtedness for borrowed money;
(m) TSG will not, and will not permit any
Subsidiary of TSG to, enter into any contract or amend or modify
any existing contract, or engage in any new transaction outside
the ordinary course of business consistent with past practice or
not on an arm's length basis, with any Affiliate of such party or
any of its Subsidiaries;
(n) TSG will not, and will not permit any
Subsidiary of TSG to, agree or commit to do any of the foregoing;
and
40
(o) TSG will not, and will not permit any
Subsidiary of TSG to, take or agree or commit to take any action
that would make any representation or warranty of TSG in this
Agreement inaccurate at, or as of any time prior to, the Effective
Time.
Section 5.02 Conduct of Elcotel. From the date hereof
until the Effective Time, except as otherwise expressly required
by this Agreement or with the prior written consent of TSG,
Elcotel shall conduct, and shall cause its Subsidiaries to
conduct, their respective businesses in the ordinary course
consistent with past practice and shall use their best efforts to
preserve intact their business organizations and relationships
with customers, suppliers, creditors and business partners and
shall use their reasonable efforts to keep available the services
of their present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the
Effective Time, without the prior written approval of TSG (which
approval will not be unreasonably withheld or delayed with respect
to (c), (d), (h), (i), (j), (n) or (o) or (k) as it applies to
filing any amended Tax Return):
(a) Elcotel will not adopt or propose any change
in its certificate of incorporation or any change in its bylaws,
except as and to the extent required to consummate the Merger;
(b) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, adopt a plan or agreement of complete or
partial liquidation, or resolutions providing for or authorizing
such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of Elcotel
or any of its Subsidiaries (other than a liquidation or
dissolution of any Subsidiary or a merger or consolidation between
wholly owned Subsidiaries);
(c) Except as set forth on Schedule 5.02 to the
Elcotel Disclosure Letter, Elcotel will not, and will not permit
any Subsidiary of Elcotel to, make any investment in or any
acquisition of the business of any Person or any material amount
of assets (other than inventory);
(d) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, sell or otherwise dispose of any assets
(other than inventory) in an amount that would be material to
Elcotel and its Subsidiaries, taken as a whole, except in the
ordinary course of business consistent with past practice;
(e) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with
respect to its capital stock, other than dividends paid by any
Subsidiary of Elcotel to Elcotel or any other Subsidiary of
Elcotel, or split, combine, reclassify or take similar action with
respect to any of its capital stock or Elcotel Securities or issue
or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock of Elcotel Securities;
41
(f) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, issue, deliver, sell, transfer, pledge,
dispose of or encumber any shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of
any class or series of Elcotel or its Subsidiaries, other than (x)
issuances by any Subsidiary of Elcotel to Elcotel or any other
Subsidiary of Elcotel, (y) issuances pursuant to the exercise of
options granted pursuant to the Elcotel Plans described in Section
4.05(a) which are outstanding on the date hereof or granted as
contemplated in clause (z) below, and (z) any grant of options to
purchase Elcotel Common Stock to new employees of Elcotel or any
of its Subsidiaries pursuant to the Elcotel Plans that could
result in the issuance of not more than 75,000 shares in the
aggregate of Elcotel Common Stock;
(g) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, redeem, purchase or otherwise acquire
directly or indirectly any of Elcotel's capital stock or any
Elcotel Securities;
(h) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, enter into or amend in any material
respect any employment contract with any of its officers,
directors or employees earning annual compensation of more than
$50,000 (other than as contemplated by Section 6.06), adopt or
amend any Elcotel Benefit Plan in any material respect or make any
payments, awards or distributions under any Elcotel Benefit Plan
or otherwise not consistent with past practice or custom except
(i) as required by a contract in existence on the date hereof and
listed on Schedule 4.15 to the Elcotel Disclosure Letter; or (ii)
as necessary to make any Elcotel Benefit Plan listed on Schedule
4.14 to the Elcotel Disclosure Letter meet the requirements of
ERISA to the extent such amendment is described in such Schedule
or is approved by TSG;
(i) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, (i) enter into (or commit to enter into)
any new lease or renew any existing lease (except pursuant to
commitments for such lease or lease renewal entered into as of the
date hereof) or (ii) purchase or acquire or enter into any
agreement to purchase or acquire any real estate;
(j) Except as set forth on Schedule 5.02 to the
Elcotel Disclosure Letter, Elcotel will not, and will not permit
any Subsidiary of Elcotel to, make or commit to make any capital
expenditures in excess of $150,000 in the aggregate;
(k) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, change any tax election, change any
annual tax accounting period, change any method of tax accounting,
file any amended Tax Return, enter into any closing agreement
relating to any Tax, settle any Tax claim or assessment, surrender
42
any right to claim a Tax refund or consent to any extension or
waiver (other than a reasonable extension or waiver) of the
limitations period applicable to any Tax claim or assessment, if
any such action would have the effect of increasing the aggregate
Tax liability or reducing the aggregate tax assets of TSG and its
Subsidiaries, taken as a whole, or, to the knowledge of Elcotel,
TSG and its Subsidiaries, taken as a whole;
(l) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, (i) incur any indebtedness for borrowed
money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice or
other than in connection with the transactions contemplated by
this Agreement, or (ii) voluntarily purchase, cancel, prepay or
otherwise provide for a complete or partial discharge in advance
of a scheduled repayment date with respect to, or waive any right
under, any indebtedness for borrowed money;
(m) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, enter into any contract or amend or
modify any existing contract, or engage in any new transaction
outside the ordinary course of business consistent with past
practice or not on an arm's length basis, with any Affiliate of
such party or any of its Subsidiaries;
(n) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, agree or commit to do any of the
foregoing; and
(o) Elcotel will not, and will not permit any
Subsidiary of Elcotel to, take or agree or commit to take any
action that would make any representation or warranty of Elcotel
in this Agreement inaccurate at, or as of any time prior to, the
Effective Time.
Section 5.03 No Solicitation. From the date hereof
until the earlier of the Effective Time and the termination of
this Agreement, TSG agrees that (a) it will not, and will cause
its Subsidiaries and the officers, directors, employees,
investment bankers, consultants and other agents of TSG and its
Subsidiaries and the Affiliates of TSG not to, directly or
indirectly, initiate, solicit, encourage (including by way of
furnishing information) or facilitate or take any action to
initiate, solicit, encourage or facilitate any inquiries or the
making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders)
with respect to a merger, consolidation or other business
combination including TSG or any of its Subsidiaries or any
acquisition or similar transaction (including, without limitation,
a tender or exchange offer) involving the purchase of (x) all or
any significant portion of the assets of TSG and its Subsidiaries
taken as a whole, (y) 5% or more of the outstanding shares of TSG
Common Stock or (z) 15% of the outstanding shares of the capital
stock of any Subsidiary of TSG (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage
in any discussions or negotiations concerning, or provide any
confidential information or data to, or have any discussions with,
any person or group relating to an Alternative Proposal (excluding
the transactions contemplated by this Agreement) or otherwise
facilitate any effort or attempt to make or implement an
Alternative Proposal; (b) it will immediately cease and cause to
be terminated and will cause its Subsidiaries and the officers,
43
directors, employees, investment bankers, consultants and other
agents of TSG and its Subsidiaries and the Affiliates of TSG to
immediately cease and terminate, any existing activities,
discussions or negotiations with any parties with respect to any
of the foregoing, and it will take the necessary steps to inform
such parties of its obligations under this Section; and (c) it
will notify Elcotel immediately (and in no event later than 24
hours after receipt of any Alternative Proposal) if any such
inquiries, proposals or offers are received by, any such
information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or
any of such Persons; provided, however, that nothing contained in
this Section 5.03 shall prohibit the Board of Directors of TSG
from (i) furnishing information to (but only pursuant to a
confidentiality agreement in customary form and having terms and
conditions substantially comparable to the Confidentiality
Agreement) or entering into discussions or negotiations with any
person or group that makes an unsolicited bona fide Alternative
Proposal, if, and only to the extent that, (A) the Board of
Directors of TSG, based upon the written opinion of outside
counsel (a copy of which shall be provided promptly to Elcotel),
determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to
stockholders imposed by Delaware Law, (B) prior to furnishing such
information to, or entering into discussions or negotiations with,
such Person or group, TSG provides written notice to Elcotel to
the effect that it is furnishing information to, or entering into
discussions or negotiations with such Person or group, and (C) TSG
keeps Elcotel informed (which notice shall be provided orally and
in writing) of the status and material information including the
identity of such Person or group with respect to any such
discussions or negotiations and any Alternative Proposal and the
material terms thereof and gives Elcotel at least 24 hours'
advance notice of any information to be supplied to, and at least
48 hours' advance notice of any agreement to be entered into with,
any Person or group making such Alternative Proposal; and (ii) to
the extent required, complying with Rule 14e-2 promulgated under
the 1934 Act with regard to an Alternative Proposal.
Section 5.04 Approval of Stockholders.
(a) TSG shall, through its Board of Directors,
duly call, give notice of, convene and hold a meeting of its
stockholders (the "TSG Stockholders' Meeting") for the purpose of
voting on the approval and adoption of this Agreement and the
Merger (the "TSG Stockholders' Approval") as soon as reasonably
practicable after the date hereof. Except as provided in the next
sentence, the Board of Directors of TSG shall recommend approval
and adoption of this Agreement and the Merger by the holders of
TSG Common Stock and shall use its best efforts to obtain such
approval and adoption. The Board of Directors of TSG shall be
permitted to (i) not recommend to the holders of TSG Common Stock
that they give the TSG Stockholders' Approval or (ii) withdraw or
modify in a manner adverse to Elcotel its recommendation to the
holders of TSG Common Stock that they give the TSG Stockholders'
Approval, but in each of cases (i) and (ii) only if and to the
extent that TSG has complied with Section 5.03 and a Superior
Proposal is pending at the time the TSG Board of Directors
determines to take any such action or inaction; provided that no
44
such failure to recommend, withdrawal or modification shall be
made unless TSG shall have delivered to Elcotel a written notice
(a "Notice of Superior Proposal") advising Elcotel that the Board
of Directors of TSG has received a Superior Proposal and
identifying the Person or group making such Superior Proposal;
provided, further that nothing contained in this Agreement shall
prevent the Board of Directors of TSG from complying with Rule
14e-2 under the 1934 Act with regard to an Alternative Proposal.
For purposes of this Agreement, "Superior Proposal" means any bona
fide Alternative Proposal for at least a majority of the
outstanding Shares on terms that the Board of Directors of TSG
determines in its good faith judgment (based on the advice of an
independent reputable financial advisor, taking into account all
the terms and conditions of the Alternative Proposal, including
any break-up fees, expense reimbursement provisions and conditions
to consummation) are more favorable and provide greater value to
all holders of TSG Common Stock than this Agreement and the Merger
taken as a whole;
(b) Elcotel shall, through its Board of Directors,
duly call, give notice of, convene and hold a meeting of its
stockholders (the "Elcotel Stockholders' Meeting" and, together
with the TSG Stockholders' Meeting, the "Stockholders' Meetings")
for the purpose of voting on the issuance of Elcotel Common Stock
in the Merger (the "Elcotel Stockholders' Approval") as soon as
reasonably practicable after the date hereof. The Board of
Directors of Elcotel shall recommend that the stockholders of
Elcotel approve such issuances of Elcotel Common Stock, and shall
use its best efforts to obtain such approval;
(c)
Elcotel and TSG shall coordinate and cooperate
with respect to the timing of the Stockholders' Meetings and shall
use their best efforts to cause the Stockholders' Meetings to be
held on the same day and as soon as practicable after the date
hereof.
Section 5.05 Preparation of Form S-4 and Proxy
Statement. TSG and Elcotel shall prepare and file with the SEC as
soon as reasonably practicable after the date hereof, the Proxy
Statement, and Elcotel shall prepare and file with the SEC as soon
as reasonably practicable after such date, the Form S-4 in which
the Proxy Statement will be included within the prospectus.
Elcotel and TSG shall use their best efforts to have the Form S-4
declared effective by the SEC as promptly as practicable after
such filing. Elcotel shall also take any action (other than
qualifying as a foreign corporation or taking any action which
would subject it to service of process in any jurisdiction where
Elcotel is not now so qualified or subject) required to be taken
under applicable state blue sky or securities laws in connection
with the issuance of Elcotel Common Stock in connection with the
Merger. If at any time prior to the Effective Time any event
shall occur that should be set forth in an amendment of or a
supplement to the Form S-4, Elcotel shall prepare and file with
the SEC such amendment or supplement as soon thereafter as is
reasonably practicable. Elcotel, Merger Subsidiary and TSG shall
cooperate with each other in the preparation of the Form S-4 and
the Proxy Statement and any amendment or supplement thereto, and
each shall notify the other of the receipt of any comments of the
SEC with respect to the Form S-4 and any amendment or supplement
thereto or for additional information, and shall provide to the
45
other promptly copies of all correspondence between Elcotel or
TSG, as the case may be, with respect to the Form S-4 or the Proxy
Statement. Elcotel shall give TSG and its counsel the opportunity
to review and comment on the Form S-4 and all responses to
requests for additional information by and replies to comments of
the SEC before their being filed with, or sent to, the SEC. Each
of TSG, Elcotel, and Merger Subsidiary agrees to use its best
efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC
and to cause (x) the Form S-4 to be declared effective by the SEC
at the earliest practicable time and to be kept effective as long
as is necessary to consummate the Merger, and (y) the Proxy
Statement to be mailed to the holders of Elcotel Common Stock and
TSG Common Stock entitled to vote at the meetings of the
stockholders of Elcotel and TSG at the earliest practicable time.
Section 5.06 Access to Information.
(a) To the extent permitted by applicable law,
from the date hereof until the Effective Time, TSG will give
Elcotel, its counsel, financial advisors, auditors and other
authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of
TSG and its Subsidiaries, will furnish to Elcotel, its counsel,
financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such
Persons may reasonably request and will instruct TSG's employees,
auditors, counsel and financial advisors to cooperate with Elcotel
in its investigation of the business of TSG and its Subsidiaries;
provided that no investigation pursuant to this Section shall
affect any representation or warranty given by TSG to Elcotel
hereunder. The foregoing information shall be held in confidence
to the extent required by, and in accordance with, the provisions
of the confidentiality agreement dated February 27, 1997 between
Elcotel and TSG (the "Confidentiality Agreement").
(b) To the extent permitted by applicable law,
from the date hereof until the Effective Time, Elcotel will give
TSG, its counsel, financial advisors, auditors and other
authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of
Elcotel and its Subsidiaries, will furnish to TSG, its counsel,
financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such
Persons may reasonably request and will instruct Elcotel's
employees, auditors, counsel and financial advisors to cooperate
with TSG in its investigation of the business of Elcotel and its
Subsidiaries, provided that no investigation pursuant to this
Section shall affect any representation or warranty given by
Elcotel to TSG hereunder. Such information shall be held in
confidence to the extent required by, and in accordance with, the
Confidentiality Agreement.
Section 5.07 Notices of Certain Events.
(a) TSG and Elcotel shall promptly notify each
other of:
46
(i) any notice or other communication from
any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated
by this Agreement; and
(ii) any notice or other communication from
any Governmental Authority in connection with the
transactions contemplated by this Agreement.
(b) TSG shall promptly notify Elcotel of any
actions, suits, claims, investigations or proceedings commenced
or, to its knowledge, threatened against, relating to or involving
or otherwise affecting TSG or any Subsidiary of TSG which, if
pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.12 or Section 3.17 or
which relate to the consummation of the transactions contemplated
by this Agreement.
(c) Elcotel shall promptly notify TSG of any
actions, suits, claims, investigations or proceedings commenced
or, to its knowledge, threatened against, relating to or involving
or otherwise affecting Elcotel or any Subsidiary of Elcotel which,
if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 4.12 or which relate to
the consummation of the transactions contemplated by this
Agreement.
Section 5.08 Regulatory and Other Approvals. Subject
to the terms and conditions of this Agreement, each of TSG and
Elcotel will proceed diligently and in good faith to, as promptly
as practicable, (a) obtain all consents, approvals or actions of,
make all filings with and give all notices to Governmental
Authorities or any other public or private third parties required
of Elcotel, TSG or any of their Subsidiaries to consummate the
Merger and the other transactions contemplated hereby, and (b)
provide such other information and communications to such
Governmental Authorities or other public or private third parties
as the other party or such Governmental Authorities or other
public or private third parties may reasonably request in
connection therewith. In addition to and not in limitation of the
foregoing, each of the parties will (x) take promptly all actions
necessary to make the filings required of Elcotel and TSG or their
Affiliates under the HSR Act no later than fifteen business days
after the date hereof, (y) comply at the earliest practicable date
with any request for additional information received by such party
or its Affiliates from the Federal Trade Commission (the "FTC") or
the Antitrust Division of the Department of Justice (the
"Antitrust Division") pursuant to the HSR Act, and (z) cooperate
with the other party in connection with such party's filings under
the HSR Act and in connection with resolving any investigation or
other inquiry concerning the Merger or the other transactions
contemplated by this Agreement commenced by either the FTC or the
Antitrust Division or state attorneys general. Without limiting
the generality of the foregoing, Elcotel and TSG shall together,
or pursuant to an allocation of responsibility to be agreed
between them, coordinate and cooperate in determining whether any
action by or in respect of, or filing with, any Governmental
Authorities is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any contracts,
47
in connection with the consummation of the transactions
contemplated by this Agreement, and in seeking any such actions,
consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or
waivers.
Section 5.09 Public Announcements. So long as this
Agreement is in effect, Elcotel and TSG will consult with each
other before issuing any press release or making any SEC filing or
other public statement with respect to this Agreement or the
Voting Agreement or the transactions contemplated hereby or
thereby and, except as may be required by applicable law, court
process or any listing agreement with any national securities
exchange or with NASDAQ, will not issue any such press release or
make any such SEC filing or other public statement prior to such
consultation and providing the other party with a reasonable
opportunity to comment thereon and approve the same (such approval
not to be unreasonably withheld or delayed).
Section 5.10 Further Assurances. At and after the
Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name
and on behalf of TSG or Merger Subsidiary, any deeds, bills of
sale, assignments or assurances and to take and do, in the name
and on behalf of TSG or Merger Subsidiary, any other actions and
things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to
and under any of the rights, properties or assets of TSG acquired
or to be acquired by the Surviving Corporation as a result of, or
in connection with, the Merger.
Section 5.11 TSG Affiliates. At least thirty (30)
days prior to the Effective Time, TSG shall deliver a letter to
Elcotel identifying all persons who, at the time of the TSG
Stockholders' Meeting, may, in TSG's reasonable judgment, be
deemed to be "affiliates" (as such term is used in Rule 145 under
the 0000 Xxx) of TSG ("TSG Affiliates"). TSG shall use its best
efforts to cause each TSG Affiliate to deliver to Elcotel at or
prior to the Effective Time a letter substantially in the form and
to the effect of Exhibit B hereto (an "Affiliate Letter").
Elcotel shall be entitled to issue appropriate stop transfer
instructions to the transfer agent for the Elcotel Common Stock to
be issued to TSG Affiliates pursuant to the Merger, consistent
with the terms of such Affiliate Letters.
Section 5.12 Obligations of Merger Subsidiary.
Elcotel will take all action necessary to cause Merger Subsidiary
to perform its obligations under this Agreement and to consummate
the Merger on the terms and conditions set forth in this
Agreement.
Section 5.13 Listing of Stock. Elcotel shall use its
best efforts to cause the shares of Elcotel Common Stock to be
issued in connection with the Merger to be approved for listing on
the NASDAQ National Market System at or prior to the Effective
Time, subject to official notice of issuance.
48
Section 5.14 Antitakeover Statutes. If any Takeover
Statute is or may become applicable to the Merger, each of Elcotel
and TSG shall take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover
Statute on the Merger.
Section 5.15 Tax Treatment. Each of Elcotel and TSG
shall not take any action and shall not fail to take any action
which action or failure to act would cause, or would be reasonably
likely to cause, Elcotel, TSG or their respective stockholders
(except to the extent that any stockholder of TSG may receive cash
in lieu of fractional shares) to recognize gain or loss for
federal income tax purposes as a result of the issuance of Elcotel
Common Stock in the Merger, and TSG shall use its reasonable
efforts to obtain the opinion of counsel referred to in Section
8.08.
Section 5.16 Appointment of Directors. Elcotel shall
invite Xxxxx Xxxxxxxx, Xxxx Xxxxxxxx, Xxxxxxx Xxxxx and Xxxxxxx
Xxxxxxxxx to become members of the Board of Directors of Elcotel
immediately following the Effective Time and shall increase the
size of the Board of Directors of Elcotel to nine members,
including those four persons, C. Xxxxxxx Xxxxx, Xxxxxx Xxxx,
Xxxxxxx Xxxxx and two independent directors who are currently
members of the Board of Directors of Elcotel, immediately
following the Effective Time.
ARTICLE VI
GENERAL CONDITIONS PRECEDENT TO THE MERGER
The obligations of TSG, Elcotel and Merger Subsidiary to
consummate the Merger pursuant to this Agreement and the other
transactions required to be consummated by such date by this
Agreement are subject to the satisfaction (or waiver by the party
for whose benefit the applicable condition exists) of each of the
following conditions:
Section 6.01 Stockholder Approval. This Agreement and
the transactions contemplated hereby shall have been approved and
adopted by the stockholders of TSG in accordance with Delaware
Law. The stockholders of Elcotel shall have approved the issuance
of Elcotel Common Stock in the Merger by the requisite vote under
applicable law and under the applicable rules of the NASDAQ
National Market System, as the case may be.
Section 6.02 HSR Act. Any applicable waiting period
under the HSR Act relating to the transactions contemplated by
this Agreement shall have expired or been terminated.
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Section 6.03 Registration Statement; State Securities
Laws. The Form S-4 shall have become effective in accordance with
the provisions of the 1933 Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no
proceeding seeking such an order shall be pending or threatened.
Elcotel shall have received all state securities or blue sky
permits and other authorizations necessary to issue the Elcotel
Common Stock pursuant to this Agreement.
Section 6.04 Listing. The shares of Elcotel Common
Stock to be issued in the Merger shall have been approved for
listing on the NASDAQ National Market System, subject to official
notice of issuance.
Section 6.05 Suits or Other Proceedings. There shall
not be pending any suit, action or proceeding by any Governmental
Authority, (i) seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this
Agreement, or seeking to obtain from Elcotel or TSG any damages
the amount of which would be reasonably likely to have a Material
Adverse Effect on TSG or Elcotel, or (ii) seeking to prohibit or
limit the ownership or operation by Elcotel, TSG or any of their
respective Subsidiaries of, or to compel Elcotel, TSG or any of
their respective Subsidiaries to dispose of or hold separate, any
material portion of the business or assets of Elcotel, TSG or any
of their respective Subsidiaries, as a result of the Merger or any
of the other transactions contemplated by this Agreement.
Section 6.06 Employment Agreements. Elcotel shall
have entered into an employment agreement with each of Xxxxxxx
Xxxxxxxxx, C. Xxxxxxx Xxxxx and Xxxxxx Xxxx.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF ELCOTEL AND MERGER SUBSIDIARY
The obligations of Elcotel and Merger Subsidiary to
consummate the Merger pursuant to this Agreement and the other
transactions required to be consummated by such date by this
Agreement are further subject to the satisfaction, at or prior to
the Effective Time, of each of the following conditions (all or
any of which may be waived in whole or in part by Elcotel and
Merger Subsidiary in their sole discretion):
Section 7.01 Representations and Warranties. The
representations and warranties made by TSG in this Agreement shall
be true and correct as of the Closing Date as though made on and
as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing
Date, on and as of such earlier date, and TSG shall have delivered
to Elcotel a certificate, dated the Closing Date and executed by
its President to such effect.
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Section 7.02 Performance of Obligations. TSG shall
have performed and complied with each agreement, covenant and
obligation required by this Agreement to be so performed or
complied with by TSG at or prior to the Closing, and TSG shall
have delivered to Elcotel a certificate, dated the Closing Date
and executed by its President to such effect.
Section 7.03 No Material Adverse Change. There shall
not have been any change in the consolidated business, results of
operations, financial condition or prospects of TSG and its
Subsidiaries, taken as a whole, between March 28, 1997 and the
Closing Date which would have a Material Adverse Effect on TSG.
Section 7.04 Consents. Elcotel shall have received
consents or waivers from such Persons as are necessary for Elcotel
to consummate the transactions contemplated by this Agreement.
Section 7.05 Opinion of TSG Counsel. At the Closing,
Elcotel shall have received from Xxxxxxxxx Traurig Xxxxxxx Xxxxxx
Xxxxx & Xxxxxxx, counsel to TSG, a written opinion reasonably
satisfactory to Elcotel, dated as of the Closing Date,
substantially to the effect as set forth in Exhibit C hereto.
Section 7.06 Stockholders Agreement. The Stockholders
shall have each entered into the Stockholders Agreement, in the
form set forth in Exhibit D hereto.
Section 7.07 Proceedings. All proceedings to be taken
on the part of TSG in connection with the transactions
contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Elcotel,
and Elcotel shall have received copies of all such documents and
other evidences as Elcotel may reasonably request in order to
establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TSG
The obligations of TSG to consummate the Merger pursuant
to this Agreement and the other transactions required to be
consummated by such date by this Agreement are further subject to
the satisfaction, at or prior to the Effective Time, of each of
the following conditions (all or any of which may be waived in
whole or in part by TSG in its sole discretion):
Section 8.01 Representations and Warranties. The
representations and warranties made by Elcotel and Merger
Subsidiary in this Agreement shall be true and correct as of the
Closing Date as though made on and as of the Closing Date or, in
the case of representations and warranties made as of a specified
date earlier than the Closing Date, on and as of such earlier
date, and Elcotel and Merger Subsidiary shall each have delivered
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to TSG a certificate, dated the Closing Date and executed by
Elcotel's Chairman of the Board or President and by Merger
Subsidiary's Chairman of the Board or President to such effect.
Section 8.02 Performance of Obligations. Elcotel and
Merger Subsidiary shall each have performed and complied with each
agreement, covenant and obligation required by this Agreement to
be so performed or complied with by Elcotel or Merger Subsidiary
at or prior to Closing, and Elcotel and Merger Subsidiary shall
each have delivered to TSG a certificate, dated the Closing Date
and executed by Elcotel's Chairman of the Board or President and
by Merger Subsidiary's Chairman of the Board or President to such
effect.
Section 8.03 No Material Adverse Change. There shall
not have been any change in the consolidated business, results of
operations, financial condition or prospects of Elcotel and its
Subsidiaries, taken as a whole, between March 31, 1997 and the
Closing Date which would have a Material Adverse Effect on
Elcotel.
Section 8.04 Consents. TSG shall have received
consents or waivers from such Persons as are necessary for TSG to
consummate the transactions contemplated by this Agreement.
Section 8.05 Opinion of Elcotel Counsel. At the
Closing, TSG shall have received from Xxxxxxxx Xxxxxxxx Xxxxx &
Xxxxx LLP, counsel to Elcotel, a written opinion reasonably
satisfactory to TSG, dated as of the Closing Date, substantially
to the effect as set forth in Exhibit E hereto.
Section 8.06 Stockholders Agreement. The Stockholders
and Elcotel shall have each entered into the Stockholders
Agreement, in the form set forth in Exhibit D hereto.
Section 8.07 Proceedings. All proceedings to be taken
on the part of Elcotel in connection with the transactions
contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to TSG, and
TSG shall have received copies of all such documents and other
evidences as TSG may reasonably request in order to establish the
consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 8.08 Tax Opinion. TSG shall have received an
opinion of counsel, in form and substance reasonably satisfactory
to TSG, on the basis of certain facts, representations and
assumptions set forth in such opinion which are consistent with
the state of facts existing at the Effective Time, to the effect
that neither TSG nor any of its stockholders shall recognize gain
or loss for U.S. federal income tax purposes as a result of the
Merger (other than in respect of any cash paid in lieu of
fractional shares). In rendering the opinions described in the
preceding sentence, such counsel may require and rely upon
representations contained in this Agreement and in certificates of
officers and principal stockholders of TSG, Elcotel and their
respective Subsidiaries.
52
ARTICLE IX
TERMINATION
Section 9.01 Termination. This Agreement may be
terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Effective Time whether prior to
or after Stockholders' Approval:
(a) By mutual written agreement of TSG and Elcotel
duly authorized by action taken by or on behalf of their
respective Boards of Directors;
(b) By either TSG or Elcotel upon notification to
the non-terminating party by the terminating party;
(i) at any time after November 30, 1997 if
the Merger shall not have been consummated on or prior to
such date and such failure to consummate the Merger is not
caused by or substantially attributable to a breach of this
Agreement by the terminating party;
(ii) if (A) TSG Stockholders' Approval (under
Delaware Law) or (B) Elcotel Stockholders' Approval (under
Delaware Law and under the applicable regulations of NASDAQ
National Market System), as the case may be, shall not be
obtained by reason of the failure to obtain the requisite
vote upon a vote held at a meeting of stockholders, or any
adjournment thereof, called therefor;
(iii) if (A) there has been a material
breach of any representation, warranty, covenant or agreement
on the part of the non-terminating party set forth in this
Agreement, which breach is not curable or, if curable, has
not been cured within thirty (30) days following receipt by
the non-terminating party of notice of such breach from the
terminating party, or (B) any condition precedent to the
terminating party's obligations set forth in Article VII,
with respect to Elcotel, or Article VIII, with respect to
TSG, of this Agreement has not been met or waived by such
party by November 30, 1997; or
(iv) if any court of competent jurisdiction or
other competent Governmental Authority shall have issued an
order making illegal or otherwise restricting, preventing or
prohibiting the Merger and such order shall have become final
and nonappealable;
53
(c) By TSG if (i) the Board of Directors of TSG
determines in good faith, based upon the written opinion of
outside counsel (a copy of which shall be provided promptly to
Elcotel), that termination of the Agreement is required for the
Board of Directors to comply with its fiduciary duties to
stockholders imposed by law by reason of an unsolicited bona fide
Superior Proposal having been made; provided that TSG shall have
complied with the provisions of clauses (B) and (C) of Section
5.03 and shall notify Elcotel at least 48 hours in advance of its
intention to terminate this Agreement or enter into a definitive
agreement with respect to such Superior Proposal; or (ii) the
Board of Directors of Elcotel shall have withdrawn or modified in
a manner materially adverse to TSG its approval or recommendation
of this Agreement or the Merger; or
(d) By Elcotel if the Board of Directors of TSG
(x) shall have withdrawn or modified in a manner materially
adverse to Elcotel its approval or recommendation of this
Agreement or the Merger or (y) shall have recommended a Superior
Proposal to the stockholders of TSG or shall have entered into a
definitive agreement providing for a Superior Proposal with a
Person other than Elcotel.
Section 9.02 Effect of Termination.
(a) If this Agreement is validly terminated by
either TSG or Elcotel pursuant to Section 9.01, this Agreement
will forthwith become null and void and there will be no liability
or obligation on the part of either TSG or Elcotel (or any of
their respective representatives or Affiliates), except (i) that
the provisions of Sections 10.05 and 10.08, this Section 9.02 and
the Confidentiality Agreement will continue to apply following any
such termination, (ii) that nothing contained herein shall relieve
any party hereto from liability for wilful breach of its
representations, warranties, covenants or agreements contained in
this Agreement and (iii) as provided in paragraph (b) below. The
effectiveness of any termination under this Agreement shall be
subject to the payments (if any) required to be made pursuant to
paragraph (b) below being so made;
(b) (i) If this Agreement is terminated by (x)
TSG pursuant to Section 9.01(c)(i) or (y) by Elcotel
pursuant to Section 9.01(d)(y), then TSG shall pay or cause to be paid to
Elcotel, by wire transfer of same day funds on the day of
such termination, a termination fee of $1,300,000;
(ii) In the event that (x) this Agreement is terminated
by either party pursuant to Section 9.01(b)(ii)(A) and prior to such
termination any person or group shall have made an
Alternative Proposal or by Elcotel pursuant to Section
9.01(d)(x), then TSG shall pay or cause to be paid to
Elcotel, by wire transfer of same day funds upon receipt of
appropriate documentation therefor, Elcotel's documented out-of-pocket
expenses relating to this Agreement and the
transactions contemplated hereby; provided, however, that
such expenses shall not exceed $500,000;
54
(iii) In the event that this Agreement is
terminated by either party pursuant to Section 9.01(b)(ii)(B)
or by TSG pursuant to Section 9.01(c)(ii), then Elcotel shall
pay or cause to be paid to TSG, by wire transfer of same day
funds upon receipt of appropriate documentation therefor,
TSG's documented out-of-pocket expenses relating to this
Agreement and the transactions contemplated hereby; provided
however, that such expenses shall not exceed $500,000;
(iv) In the event that this Agreement is
terminated by either party pursuant to Section 9.01(b)(iii),
then the non-terminating party shall pay or cause to be paid
to the terminating party by wire transfer of same day funds
upon receipt of appropriate documentation therefor, the
terminating party's documented out-of-pocket expenses
relating to this Agreement and the transactions contemplated
hereby; provided, however, that such expenses shall not
exceed $500,000; and
(c) The parties acknowledge that the agreements
contained in this Section 9.02 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, the parties hereto would not enter into this
Agreement; accordingly, if either party fails promptly to pay the
amount due pursuant to this Section 9.02, and in order to obtain
such payment, either party commences a suit which results in a
judgment against the non-paying party for any fee or expense
reimbursement set forth in this Section 9.02, the non-paying party
shall pay to the other party as the case may be, its cost and
expenses (including reasonable attorney's fees and expenses) in
connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date
such payment was required to be made.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and will
be deemed to have been duly given only if delivered personally or
by facsimile transmission or mailed (first class mail postage
prepaid), or by overnight express courier (charges prepaid or
billed to the account of the sender) to the parties at the
following addresses or facsimile numbers:
If to Elcotel or Merger Subsidiary, to:
Elcotel, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: President
55
with a copy to: Xxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
Suite 3600
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esquire
If to TSG, to: Technology Service Group, Inc.
00 Xxxxxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: President
with a copy to: Xxxxxxxxx Traurig et al.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxx, Esquire
or such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the other parties
hereto. Each such notice, request or other communication shall be
effective (a) if delivered personally, upon delivery, (b) if given
by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section 10.01 and the appropriate
facsimile confirmation is received, (c) if given by mail in the
manner described above, on the third business day after mailing,
or (d) if delivered by overnight express courier, on the next
business day.
Section 10.02 Entire Agreement; Non-Survival of
Representations and Warranties; Third Party Beneficiaries.
(a) This Agreement (including any exhibits
hereto), the other agreements referred to in this Agreement and
the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with
respect to such subject matter. None of this Agreement, the
Confidentiality Agreement or any other agreement contemplated
hereby or thereby (or any provision hereof or thereof) is intended
to confer on any Person other than the parties hereto or thereto
any rights or remedies (except that Article I is intended to
confer rights and remedies on the Persons specified therein);
56
(b) The TSG Disclosure Letter, the Elcotel
Disclosure Letter and any Exhibits attached to this Agreement and
referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein; and
(c) The representations and warranties contained
herein or in any schedule, instrument or other writing delivered
pursuant hereto shall not survive the Effective Time.
Section 10.03 Amendment. This Agreement may be
amended, supplemented or modified by action taken by or on behalf
of the respective Boards of Directors of the parties hereto at any
time prior to the Effective Time, whether prior to or after the
Stockholders' Approvals shall have been obtained, but after such
adoption and approval only to the extent permitted by applicable
law. No such amendment, supplement or modification shall be
effective unless set forth in a written instrument duly executed
by or on behalf of each party hereto.
Section 10.04 Waiver. At any time prior to the
Effective Time, any party hereto may to the extent permitted by
applicable law (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii)
waive any inaccuracies in the representations and warranties of
the other parties hereto contained herein or in any document
delivered pursuant hereto or (iii) waive compliance with any of
the covenants, agreements or conditions of the other parties
hereto contained herein. No such extension or waiver shall be
effective unless set forth in a written instrument duly executed
by or on behalf of the party extending the time of performance or
waiving any such inaccuracy or non-compliance. No waiver by any
party of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of
the same or any other term or condition of this Agreement on any
future occasion.
Section 10.05 Expenses. Except as otherwise specified
in Section 9.02 or agreed in writing by the parties, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement, whether or not the
Merger is consummated, shall be paid by the party incurring such
cost or expense.
Section 10.06 Successors and Assigns. The provisions
of this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective
successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations
under this Agreement without the written consent of the other
parties hereto except that Merger Subsidiary may assign, in its
sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned
Subsidiary of Elcotel, it being understood that no such assignment
shall relieve Merger Subsidiary from any of its obligations
hereunder.
57
Section 10.07 Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State of Delaware
(without regard to principles of conflict of laws).
Section 10.08 Jurisdiction. Any suit, action or
proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against
any of the parties in any federal court located in the State of
Delaware or any Delaware state court, and each of the parties
hereto hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any
such suit, action or proceeding and waives any objection to venue
laid therein. Process in any such suit, action or proceeding may
be served on any party anywhere in the world, whether within or
without the State of Delaware. Without limiting the generality of
the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 10.01,
together with written notice of such service to such party, shall
be deemed effective service of process upon such party.
Section 10.09 Counterparts; Effectiveness. This
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties
hereto.
Section 10.10 Interpretation. When a reference is made
in this Agreement to a Section or Schedule, such reference shall
be to a Section of this Agreement or a Schedule to the Disclosure
Letter unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation". The phrases "the date
of this Agreement", "the date hereof", and terms of similar
import, unless the context otherwise requires, shall be deemed to
refer to August 13, 1997.
Section 10.11 Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void,
unenforceable or against public policy, the remainder of the
terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such determination that
any term, provision, covenant or restriction of this Agreement is
invalid, void, unenforceable or against public policy, the parties
hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
58
Section 10.12 Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware or
any Delaware state court, in addition to any other remedy to which
they are entitled at law or in equity.
59
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
ELCOTEL, INC.
By: /s/
---------------------------
Name: Xxxxxx Xxxx
Title: President
TECHNOLOGY SERVICE GROUP, INC.
By: /s/
---------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: President & CEO
ELCOTEL HOSPITALITY SERVICE, INC.
By: /s/
---------------------------
Name: Xxxxxx Xxxx
Title: President
60
