EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 26,
1998, by and among Dover Downs Entertainment, Inc., a Delaware corporation
("Parent"), FOG Acquisition Corporation, a California corporation and a wholly
owned subsidiary of Parent ("Sub"), and Grand Prix Association of Long Beach,
Inc., a California corporation (the "Company").
W I T N E S S E T H:
WHEREAS, each of Parent and the Company has concluded that a business
combination between Parent and the Company represents a strategic combination of
their complementary assets and operational and long term vision and is in the
best interests of the shareholders of Parent and the shareholders of the
Company, respectively, and, accordingly, Parent and the Company desire to effect
a business combination by means of the merger of Sub with and into the Company
(the "Merger");
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
unanimously approved the Merger, upon the terms and subject to the conditions
set forth herein;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a purchase;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, prior to the execution and delivery of this Agreement, Parent
entered into two agreements to purchase 680,000 shares of common stock, no par
value, of the Company (the "Company Stock") from two shareholders of the Company
and will purchase such shares of Company Stock on or about the date of this
Agreement (such 680,000 shares referred to herein as the "Parent Owned Company
Stock"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company and Parent have entered into a registration rights agreement providing
Parent certain registration rights with respect to the Parent Owned Company
Stock and any additional shares of Company Stock acquired by Parent; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent and certain existing shareholders of the Company (the "Supporting Company
Shareholders"), representing,
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together with the Parent Owned Company Stock, a majority of the voting
power of the Company on a fully-diluted basis assuming the exercise of all
outstanding warrants and vested options, are entering into agreements (the
"Support Agreements") pursuant to which Parent shall be granted certain voting
and option rights with respect to shares of Company Stock owned by such
shareholders, upon the terms and subject to the conditions set forth therein;
and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company and two existing shareholders of Parent, representing a majority of the
voting power of Parent, are entering into an agreement pursuant to which Company
shall be granted certain voting rights with respect to shares of Parent Class A
Common Stock (as defined below) owned by such shareholders, upon the terms and
subject to the conditions set forth therein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof
and the Agreement of Merger attached as Annex A (the "Agreement of Merger"), at
the Effective Time (as defined in Section 1.2), Sub shall be merged with and
into the Company and the separate existence of Sub shall thereupon cease, and
the Company, as the corporation surviving the Merger (the "Surviving
Corporation"), shall by virtue of the Merger continue its corporate existence
under the laws of the State of California.
Section 1.2 Effective Time of the Merger. As soon as practicable after the
conditions to the Merger set forth in Article IX hereof shall have been
satisfied or waived, the parties hereto shall execute the Agreement of Merger
and shall cause the Merger to be consummated by filing such executed Agreement
of Merger with the Secretary of State of the State of California, with an
officer's certificate of each constituent corporation attached, in such form or
forms as are required by, and executed in accordance with, the relevant
provisions of the GCL (as hereinafter defined). The Merger shall become
effective as of such filing. The date of such filing is sometimes referred to
herein as the "Effective Time."
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation. The Articles of Incorporation of
the Company as in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
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Section 2.2 By-laws. The By-laws of the Company as in effect at the
Effective Time shall be the By-laws of the Surviving Corporation, and thereafter
may be amended in accordance with their terms and as provided by law and this
Agreement.
Section 2.3 Board of Directors; Officers. The directors of Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, and the officers of Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set forth
in Section 1107 of the California Corporation Code (the "GCL").
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratio. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, the Company or any holder of any
Company Stock:
(a) All shares of Company Stock which are held by the Company or any
subsidiary of the Company and any shares of Company Stock owned by Parent or any
subsidiary of Parent shall be canceled without payment of any consideration
therefor.
(b) Subject to Section 3.4, each outstanding share of Company Stock (other
than any shares to be cancelled pursuant to Section 3.1 (a)), shall be
converted, subject to Section 3.5, into the right to receive .63 (the "Exchange
Ratio") fully paid and non-assessable shares of the common stock, par value $.10
per share of Parent ("Parent Common Stock"). Each share of Parent Common Stock
issued to holders of Company Stock in the Merger shall be issued together with
one associated stock purchase right (a "Parent Right") in accordance with the
Rights Agreement dated as of June 14, 1996, as amended, between Parent and
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"), as rights agent, or
any successor rights agreement (the "Parent Rights Agreement"). References
herein to the shares of Parent Common Stock issuable in the Merger shall be
deemed to include the associated Parent Rights.
(c) In the event of any dividend other than regular quarterly cash
dividends on the Parent Common Stock which shall not differ materially from
prior dividends (the "Parent Quarterly Dividend"), distributions, stock split,
stock dividends, reclassification, subdivision, recapitalization, combination or
exchange of shares or other similar transaction with respect to the Parent
Common Stock or Company Stock after the date of this Agreement and prior to the
Effective Time, the Exchange Ratio (and, if appropriate, the number of Parent
Rights) shall be appropriately adjusted.
(d) In the event that the average of the closing sale prices of the Parent
Common Stock for
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fifteen (15) consecutive business days next preceding the Effective Time,
as reported on the New York Stock Exchange (the "NYSE"), (the "Average Closing
Price"), is greater than $32.00 per share or less than $21.00 per share, the
Exchange Ratio shall be adjusted as follows: (a) if the Average Price is greater
than $32.00 per share, the Exchange Ratio shall equal $20.16 divided by the
Average Closing Price, rounded to the nearest four decimal places; or (b) if the
Average Price is less than $21.00 per share, the Exchange Ratio shall equal
$13.23 divided by the Average Closing Price, rounded to the nearest four decimal
places; and (c) provided that the Exchange Ratio shall not be greater than .6963
nor less than .5929.
(e) Each issued and outstanding share of stock of Sub shall be converted
into and become one validly issued, fully paid and non-assessable share of
capital stock of the Surviving Corporation.
Section 3.2 Parent to Make Certificates Available.
(a) Prior to the Effective Time, Parent shall select an Exchange Agent,
which may be ChaseMellon, Parent's Transfer Agent, or such other bank or trust
company reasonably satisfactory to the Company, to act as Exchange Agent for the
Merger (the "Exchange Agent"). As of the Effective Time, Parent shall deposit or
cause to be deposited with the Exchange Agent, and each holder of Company Stock
will be entitled to receive, upon surrender to the Exchange Agent of one or more
certificates ("Certificates") representing shares of Company Stock for
cancellation, certificates representing the number of shares of Parent Common
Stock into which such shares are converted in the Merger and Parent shall
deposit cash, from time to time as required, to make payments in consideration
of fractional shares as provided in Section 3.4 (together with any dividends or
distributions with respect thereto, the "Share Consideration"). The Exchange
Agent shall, pursuant to irrevocable instruction, deliver the Share
Consideration pursuant to Section 3.1. Except as contemplated by Section 3.2
(c), such Share Consideration shall not be used for any other purpose.
(b) As promptly as practicable after the Effective Time, Parent shall cause
the Exchange Agent to mail to each holder of a Certificate or Certificates (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent and shall be in customary form) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Share Consideration. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate evidencing that number of whole shares of Parent Common Stock which
such holder has the right to receive in respect of the Shares formerly evidenced
by such Certificate (after taking into account all shares of Company Stock then
held by such holder), cash in lieu of any fractional shares of Parent Common
Stock to which such holder is entitled pursuant to Section 3.4 and any dividends
or other distributions to which such holder is entitled pursuant to Section 3.3
and the Certificate so surrendered shall forthwith be cancelled. In the event of
a transfer of ownership of shares of Company Stock that is not registered in the
transfer records of the Company, a certificate evidencing the proper number of
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shares of Parent Common Stock, cash in lieu of any fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.4 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 3.3 may be issued to a transferee if the Certificate evidencing such
shares of Company Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 3.3, each Certificate shall be deemed, subject to
Section 3.5, at any time after the Effective Time to evidence only the right to
receive upon such surrender the certificate evidencing shares of Parent Common
Stock, cash in lieu of any fractional shares of Parent Common Stock to which
such holder is entitled pursuant to Section 3.4, and any dividends or other
distributions to which such holder is entitled pursuant to Section 3.3.
(c) Any holder of shares of Company Stock who has not exchanged his
Certificates for Parent Common Stock in accordance with subsection (a) of this
Section 3.2 within twelve months after the Effective Time shall have no further
claim upon the Exchange Agent and shall thereafter look only to Parent and the
Surviving Corporation for payment in respect of his shares of Company Stock.
Until so surrendered, Certificates shall represent solely, subject to Section
3.5, the right to receive the Share Consideration.
Section 3.3 Dividends; Stock Transfer Taxes. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Agreement until such persons surrender their Certificates
representing Company Stock. Upon such surrender, there shall be paid to the
person in whose name the certificates representing such Parent Common Stock
shall be issued (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time and a payment
date prior to surrender with respect to such whole shares of Parent Common Stock
and which have not been paid, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. In the event that any certificates representing
shares of Parent Common Stock are to be issued in a name other than that in
which the Certificates surrendered in exchange therefor are registered, it shall
be a condition of such exchange that the Certificate or Certificates so
surrendered shall be properly endorsed or be otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
certificates for such shares of Parent Common Stock in a name other than that of
the registered holder of the Certificate or Certificates surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Company Stock for
any shares of Parent Common Stock or dividends thereon properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar laws. In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost. stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving
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Corporation may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock and cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Parent Common Stock as provided in this Article 3,
deliverable in respect thereof pursuant to this Agreement.
Section 3.4 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to Section 3.1 (b). Notwithstanding any other
provision of this Agreement, each holder of Company Stock exchanged pursuant to
the Merger who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash from Parent in an amount equal
to such fractional part of a share of Parent Common Stock multiplied by the
Average Closing Price defined in Section 3.1 (d). As promptly as practicable
after the determination of the amount of cash, if any, to be paid to holders of
fractional share interests, the Exchange Agent shall so notify Parent, and
Parent shall deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional share interests
subject to and in accordance with the terms of Sections 3.2(b) and (c).
Section 3.5 Dissenting Shares.
(a) Anything to the contrary in this Agreement notwithstanding, shares of
Company Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such shares
in favor of the Merger and who (i) shall be entitled to and shall have validly
exercised rights of appraisal in the manner provided in the Sections 1300
through 1312 of the GCL (the "Dissenters' Rights Provisions") and (ii) as of the
Effective Time, shall not have effectively withdrawn or lost such right to
appraisal ("Dissenting Shares"), shall not be converted into or represent a
right to receive Parent Common Stock pursuant to Section 3.1 hereof, but the
holders thereof shall be entitled only to such rights as are granted by the
Dissenters' Rights Provisions. Each holder of Dissenting Shares who becomes
entitled to payment for such shares pursuant to the Dissenters' Rights
Provisions shall receive payment therefor from the Company in accordance
therewith; provided, however, that if (A) any such Dissenting Shares shall not
become "dissenting shares" pursuant to Sections 1300 (b) of the GCL, (B) any
such Dissenting Shares shall lose their status as "dissenting shares" pursuant
to Section 1309 thereof, or (C) any holder of Dissenting Shares shall have lost
his, her or its status as a "dissenting shareholder" pursuant to Section 1309,
then the right to appraisal with respect to such shares shall be lost and each
such share shall thereupon be deemed to have been converted, as of the Effective
Time, into and shall thereupon represent only the right to receive the
consideration otherwise payable with respect to Company Stock converted at the
Effective Time pursuant to Section 3.1 hereof. If appraisal rights with respect
to the Merger are available, the Company shall provide to holders of Dissenting
Shares the notice and other materials required by Section 1301 (a) of the GCL.
(b) The Company shall give the Parent (i) prompt notice of any written
demands for appraisal,
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withdrawals of demands for appraisal and any other instruments served
pursuant to the Dissenters' Rights Provisions received by the Company, and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Dissenters' Rights Provisions. The Company shall
not, except with the prior written consent of the Parent, voluntarily make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
Section 3.6 Stock Options.
(a) Each of the Company's stock option plans (the "Option Plans"), each of
which is set forth in Section 3.6 of the disclosure schedule delivered by the
Company to Parent in connection with this Agreement (the "Company Disclosure
Schedule"), and each option to acquire shares of Company Stock outstanding
immediately prior to the Effective Time thereunder, whether vested or unvested
(each, an "Option" and collectively, the "Options"), shall be assumed by Parent
at the Effective Time, and each such Option shall become an option, to purchase,
on the same terms and condition as were applicable under the Option Plan and the
underlying option agreements, a number of shares of Parent Common Stock (a
"Substitute Option") equal to the number of shares of Company Stock subject to
such Option multiplied by the Exchange Ratio (rounded up to the nearest whole
share). The per share exercise price for each Substitute Option shall be the
current exercise price per share of Company Stock divided by the Exchange Ratio
(rounded up to the nearest full cent), and each Substitute Option otherwise
shall be subject to all of the other terms and conditions of the original option
to which it relates, provided, however, that in the case of any option to which
Section 421 of the Internal Revenue Code of 1986, as amended (the "Code")
applies by reason of its qualification under Section 422 of the Code, 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 (a) of the Code. Parent acknowledges that the consummation of
the Merger will constitute a "Terminating Event" (as defined in the Option
Plans) or similar event with respect to the options listed on Section 3.6 of the
Company Disclosure Schedule, and that the vesting of such options shall
therefore become accelerated as a result of the Merger. Prior to the Effective
Time, the Company shall take such additional actions as are necessary under
applicable law and the applicable agreements and Option Plans to ensure that
each outstanding Option shall, from and after the Effective Time, represent only
the right to purchase, upon exercise, shares of Parent Common Stock.
(b) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Company Options appropriate notices setting forth such
holders' rights pursuant to the applicable Option Plans and the agreements
pursuant to which such Options were issued and the agreements evidencing the
grants of such Options shall continue in effect on the same terms and conditions
as specified with respect to such Options as of the Effective Time in the
applicable Option Plan governing such Option (subject to the adjustments and
amendments required by this Section 3.6, and after giving effect to the Merger
and the conversion set forth above). It is the intention of the parties that,
subject to applicable law, each Option that qualified as an incentive stock
option under Section 422 of the Code prior to the Effective Time shall continue
to qualify as an incentive stock option of Parent after the Effective Time.
(c) Parent shall take all corporate action necessary to reserve for
issuance and have available for delivery a sufficient number of shares of Parent
Common Stock to be delivered upon exercise, vesting or payments, as applicable,
of the Options converted in accordance with this Section 3.6 or upon the
exercise of the warrants set forth on Section 5.2 of the Company Disclosure
Schedule (which obligation shall be assumed by Parent in accordance with the
terms of the warrants). As soon as practicable after the Effective Time, Parent
shall file a registration statement on Form S-8 (or any successor or other
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appropriate form) with respect to the delivery of such shares of Parent Common
Stock, to the extent such registration statement is required under applicable
law so as to permit resale of such shares, and the Parent shall use its
reasonable best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such benefits and
grants remain payable and such Options remain outstanding.
Section 3.7 Shareholders' Meetings. Each of Parent and the Company will
take all action necessary in accordance with applicable law and its Certificate
or Articles of Incorporation or charter, as the case may be, and By-laws to
convene a meeting of its shareholders as promptly as practicable to consider and
vote upon (i) in the case of Parent, the approval by the holders of a majority
of the capital stock of Parent present and voting at the meeting on the issuance
of the shares of Parent Common Stock contemplated by this Agreement and (ii) in
the case of the Company, the approval by the holders of a majority of the shares
of Company Stock outstanding and entitled to vote thereon of this Agreement and
the transactions contemplated hereby. Parent shall take all action necessary to
authorize and cause Sub to consummate the Merger. The Board of Directors of each
of Parent and the Company shall recommend such approval and Parent and the
Company shall each take all lawful action to solicit such approval; including,
without limitation, timely and prompt mailing of the Proxy Statement/Prospectus
(as defined in Section 8.2); provided, however, that such recommendation is
subject to any action believed in good faith after consultation with independent
counsel to be required by the fiduciary duties of the Board of Directors of the
Company under applicable law and any such action shall not constitute a breach
of this Agreement. Parent and the Company shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day.
Section 3.8 Closing of the Company's Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no registration of
transfer of shares of Company Stock shall be made thereafter. In the event that
Certificates are presented to the Surviving Corporation after the Effective
Time, they shall be canceled and exchanged for Parent Common Stock and/or cash
as provided in Sections 3.1(b) and 3.4 and any dividends or other distributions
to which the holders are entitled pursuant to Section 3.3.
Section 3.9 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the Wilmington, Delaware offices
of Parent, at 9:00 a.m. local time on the day which is not more than one
business day after the day on which the last of the conditions set forth in
Article IX (other than those that can only be fulfilled at the Effective Time)
is fulfilled or waived or at such other time and place as Parent and the Company
shall agree in writing.
Section 3.10 Transfer Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to the fourth sentence of Section 3.3 (collectively,
"Transfer Taxes"). From and after the Effective
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Time, Parent shall pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of Company Stock, all
Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified (with reference to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company prior to
execution of this Agreement):
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted except where the failure to be
so organized or to be so organized or to have such power would not have a Parent
Material Adverse Effect. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities make
such qualification necessary, except where the failure to be so qualified will
not, alone or in the aggregate, have a Parent Material Adverse Effect. None of
Parent or Sub is in violation of any of the provisions of its Certificate or
Articles of Incorporation or By-laws.
For the purposes of this Agreement, a "Parent Material Adverse Effect"
means any material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of Parent and its
subsidiaries taken as a whole, other than any effects arising out of, resulting
from or relating to changes in general economic or financial conditions or
generally affecting the motorsports industry. Complete and correct copies as of
the date hereof of the Certificate of Incorporation and By-laws of Parent and
Sub have been delivered to the Company as part of the Parent Disclosure
Schedule.
Section 4.2 Capitalization. The authorized capital stock of Parent consists
of 35,000,000 shares of Parent Common Stock, 30,000,000 shares of Class A Common
Stock, par value $.10 per share (the "Parent Class A Common Stock"), and
1,000,000 shares of Preferred Stock, par value $.10 per share (the "Parent
Preferred Stock"). As of January 31, 1998, 2,998,950 shares of Parent Common
Stock and 12,249,380 shares of Parent Class A Common Stock were validly issued
and outstanding, fully paid, and non-assessable and no shares of Parent
Preferred Stock were issued and outstanding, 750,000 shares of Parent Common
Stock, 337,500 shares of Parent Class A Common Stock and no shares of Preferred
Stock are reserved for future issuance and there have been no changes in such
numbers through the date of this Agreement. As of the date of this Agreement,
there are no bonds, debentures, notes or other indebtedness issued or
outstanding having the right to vote on any matters on which Parent's
shareholders may vote. As of the date of this Agreement, except for options
issued under Parent's stock option plans disclosed
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under Section 4.8 as employee benefit plans, there are no options,
warrants, calls, convertible securities or other rights, agreements or
commitments presently outstanding obligating Parent to issue, deliver or sell
shares of its capital stock or debt securities, or obligating Parent to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment, and, except for exercises thereof, there have been no
changes in such numbers through the date of this Agreement. All of the shares of
Parent Common Stock issuable in accordance with this Agreement in exchange for
Company Stock at the Effective Time in accordance with this Agreement will be,
when so issued, (i) duly authorized, validly issued, fully paid, non-assessable
and free of preemptive rights and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature whatsoever and
(ii) registered under the Securities Act and the Exchange Act.
Section 4.3 Subsidiaries. Each subsidiary of Parent is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not have a Parent
Material Adverse Effect) and has the corporate or similar power to carry on its
business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of Parent is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect. Section 4.3 of the Parent Disclosure Schedule
contains, with respect to each subsidiary of Parent, its name and jurisdiction
of organization. Each subsidiary is wholly owned by Parent. All the outstanding
shares of capital stock or share capital of each subsidiary of Parent are
validly issued, fully paid and non-assessable, and are owned by Parent free and
clear of any liens, claims or encumbrances except any of the foregoing which
would not reasonably be expected to have a Parent Material Adverse Effect. There
are no existing options, warrants, calls, convertible securities or other
rights, agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of any of the subsidiaries of Parent.
Parent does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or entity
or have any obligation, commitment or undertaking to acquire any such interest.
Section 4.4 Authority Relative to this Agreement. Parent has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Parent's Board of
Directors. The shares of Parent Common Stock to be issued pursuant to the Merger
and the other transactions contemplated hereby have been reserved for issuance
by Parent by all necessary corporate action. This Agreement constitutes a valid
and binding obligation of Parent enforceable in accordance with its terms except
as enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. Except for the approval of the issuance of the Parent Common Stock
contemplated by this Agreement by the holders of the Parent Common Stock as
described in Section 3.7,
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and the filing and recordation of appropriate merger documents as required
by the GCL, no other corporate proceedings on the part of Parent are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. Parent is not subject to or obligated under (i) any charter, by-law,
indenture or other loan or credit document provision or (ii) any other contract,
license, franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable to Parent or
any of its subsidiaries or their respective properties or assets, which would be
breached or violated, or under which there would be a default (with or without
notice or lapse of time, or both), or under which there would arise a right of
termination, cancellation, modification or acceleration of any obligation, or
any right to payment or compensation, or the loss of a material benefit, by its
executing and carrying out this Agreement except for such breaches, violations,
defaults or arising of such rights which would not reasonably be expected to
have a Parent Material Adverse Effect. Except as required by the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
corporation, securities or blue sky laws or regulations of the various states,
and except for the filing and recordation of appropriate merger documents as
required by the GCL, no filing or registration with, or authorization, consent
or approval of, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (each, a
"Governmental Entity"), is necessary for the consummation by Parent or Sub of
the Merger or the other transactions contemplated by this Agreement, other than
filings, registrations, authorizations, consents or approvals the failure to
make or obtain which has not had, and would not reasonably be expected to have,
a Parent Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby.
Section 4.5 Reports and Financial Statements. Parent has previously
furnished the Company with true and complete copies of its (i) Registration
Statement No. 333-8147 on Form S-1 effective October 3, 1996, as filed with the
Securities and Exchange Commission (the "Commission"), (ii) Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, as filed with the Commission,
(iii) Quarterly Report on Form 10-Q for the quarter ended December 31,1997, as
filed with the Commission, (iv) proxy statements related to all meetings of its
shareholders (whether annual or special) since October 4, 1996, and (v) all
other reports or registration statements filed by Parent with the Commission
since October 4, 1996, except for preliminary material, which are all the
documents that Parent was required to file with the Commission since that date
(the documents in clauses (i) through (v) being referred to herein collectively
as the "Parent SEC Reports"). As of their respective dates, the Parent SEC
Reports complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Parent SEC Reports.
As of their respective dates, the Parent SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Parent included in the Parent SEC Reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto (except as may be
indicated thereon or in the notes thereto). The financial statements included in
the Parent SEC Reports:
11
have been prepared in accordance with generally accepted accounting
principles in effect as of such time applied on a consistent basis (except as
may be indicated therein or in the notes thereto); present fairly, in all
material respects, the financial position of Parent and its subsidiaries as at
the dates thereof and the results of their operations and cash flows for the
periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments, any other adjustments described
therein and the fact that certain information and notes have been condensed or
omitted in accordance with the Exchange Act and the rules promulgated
thereunder, and are in all material respects in accordance with the books of
account and records of Parent and its subsidiaries. As of December 31, 1997,
there was no basis for any claim or liability of any nature against Parent or
its subsidiaries, whether absolute, accrued, contingent or otherwise that would
be required to be reflected on, or reserved against on a balance sheet of
Parent, or in the notes thereto, prepared in accordance with the published rules
and regulations of the Commission and generally accepted accounting principles,
which, alone or in the aggregate, has had, or would reasonably be expected to
have, a Parent Material Adverse Effect, other than as reflected in the Parent
SEC Reports.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement, since December
31, 1997, Parent and its subsidiaries have operated their respective businesses
in the ordinary course of business consistent with past practice and there has
not been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which, alone or in the aggregate, has had, or would reasonably be
expected to have, a Parent Material Adverse Effect; (ii) any damage, destruction
or loss, whether or not covered by insurance, which has had, or would reasonably
be expected to have, a Parent Material Adverse Effect; (iii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash,
stock, property or otherwise) with respect to the capital stock of the Company
or any of its subsidiaries (other than dividends or distributions between Parent
and its wholly owned subsidiaries and other than the Parent Quarterly Dividend);
(iv) any material change in Parent's accounting principles, practices or
methods; (v) any repurchase or redemption with respect to its capital stock;
(vi) any stock split, combination or reclassification of any of Parent's capital
stock or the issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for, shares of Parent's capital
stock; (vii) any grant of or any amendment of the terms of any option to
purchase shares of capital stock of Parent other than pursuant to the stock
option plans of Parent; or (viii) any agreement (whether or not in writing),
arrangement or understanding to do any of the foregoing.
Section 4.7 Litigation. Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement, there is no suit, action or proceeding
pending or, to the knowledge of Parent, threatened against Parent or any of its
subsidiaries which, alone or in the aggregate, has had or would reasonably be
expected to have, a Parent Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its subsidiaries which, alone or in the
aggregate, has had, or would reasonably be expected to have, any such Parent
Material Adverse Effect.
12
Section 4.8 Employee Benefit Plans. (a) All "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements maintained by Parent, any subsidiary of Parent or any
Parent ERISA Affiliate (as defined below) or to which Parent, any subsidiary of
Parent or any Parent ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of Parent, any subsidiary of Parent or any Parent ERISA
Affiliate are referred to herein as the "Parent Employee Benefit Plans".
(b) None of the Parent Employee Benefit Plans is a "multi employer plan",
as defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and neither
Parent nor any Parent ERISA Affiliate presently maintains or has maintained such
a plan.
(c) Parent does not maintain or contribute to any plan or arrangement which
provides or has any liability to provide life insurance or medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment, and Parent has never represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee.
(e) Each Parent Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the Internal Revenue Service (the "IRS"), and, to Parent's knowledge,
nothing has occurred with respect to the operation or organization of any such
Parent Employee Benefit Plan that would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code. With respect to any Parent Employee Benefit Plan or other
employee benefit plan which is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA, (i) Parent has not incurred and is not reasonably likely
to incur any liability under Title IV of ERISA (other than for the payment of
premiums, all of which have been paid when due), (ii) Parent has not incurred
any accumulated funding deficiency within the meaning of Section 412 of the Code
and has not applied for or obtained a waiver of any minimum funding standard or
an extension of any amortization period under Section 412 of the Code, (iii) no
"reportable event" (as such term is defined in Section 4043 of ERISA but
excluding any event for which the provision for 30-day notice to the Pension
Benefit Guaranty Corporation has been waived by regulation) has occurred or is
expected to occur and (iv) since December 31, 1996, no material adverse change
in the financial condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Parent Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) Parent
has complied in all material respects with any notice, reporting and
documentation requirements
13
of ERISA and the Code, (iii) there are no pending actions, claims or
lawsuits which have been asserted, instituted or, to Parent's knowledge,
threatened, in connection with the Parent Employee Benefit Plans, and (iv) the
Parent Employee Benefit Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA and the Code
(including rules and regulations thereunder) and other applicable federal and
state laws and regulations.
For purposes of this Agreement, "Parent ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"
under "common control" or an "affiliated service group" with Parent within the
meanings of Sections 414(b), (c) or (m) of the Code, or required to be
aggregated with Parent under Section 414(o) of the Code, or is under "common
control" with Parent, within the meaning of Section 4001(a)(14) of ERISA, or
any regulations promulgated or proposed under any of the foregoing Sections.
Section 4.9 Financial Advisor. Parent has received the opinion of Xxxxxx
Xxxxxx Xxxxxxxx & Co., Inc. ("Xxxxxx Xxxxxx") to the effect that the
consideration paid in connection with the Merger and the consideration paid for
the Parent Owned Company Stock is fair from a financial point of view
14
to the holders of Parent Common Stock. Except for Xxxxxx Xxxxxx, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
Section 4.10 Compliance with Applicable Laws. Parent and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect (the "Parent Permits"). Parent and each of its
subsidiaries is in compliance with the terms of the Parent Permits, except for
any failure to comply which, alone or in the aggregate, has not had, and would
not reasonably be expected to have, a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement,
the businesses of Parent and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which, alone or in the aggregate, have not had, and
would not reasonably be expected to have, a Parent Material Adverse Effect. To
the actual knowledge of the executive officers of Parent, during the past five
years, none of Parent's or any of its subsidiaries' officers, employees or
agents, nor any other person acting on behalf of any of them or Parent or any of
its subsidiaries, has, directly or indirectly, given or agreed to give any gift
or similar benefit to any customer, supplier, governmental employee or other
person in violation of any law, ordinance or regulation of any Governmental
Entity, including without limitation, the Foreign Corrupt Practices Act which
violation would reasonably be expected to have a Parent Material Adverse Effect.
Section 4.11 Taxes. For the purposes of this Agreement, the term "Tax"
shall include all Federal, state, local, Indian and foreign income, profits,
franchise, gross receipts, production, severance, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and assessments of
any nature whatsoever together with all interest, penalties and additions
imposed with respect to such amounts. Each of Parent and its subsidiaries has
filed all material Tax returns required to be filed by any of them and has paid
(or Parent has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns. The information contained in such Tax returns is true, complete
and accurate in all material respects. Neither Parent nor any subsidiary of
Parent is delinquent in the payment of any material Tax, assessment or
governmental charge, except where such delinquency has not had, or would not
reasonably be expected to have, a Parent Material Adverse Effect. No material
deficiencies for any taxes have been proposed, asserted or assessed against
Parent or any of its subsidiaries that have not been finally settled or paid in
full, and no requests for waivers of the time to assess any such Tax are
pending.
Section 4.12 Certain Agreements. Neither Parent nor any of its subsidiaries
is in default (or would be in default with notice or lapse of time, or both)
under any indenture, note, credit agreement, loan document, lease, license,
sponsorship, sanction, concession or other agreement, whether or not such
default has been waived, which default, alone or in the aggregate with other
such defaults, has had, or would reasonably be expected to have, a Parent
Material Adverse Effect.
15
Section 4.13 Tax Matters. To the actual knowledge of the executive officers
of Parent, Parent has not taken any action which would prevent the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code.
Section 4.14 Parent Action. The Board of Directors of Parent (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and fair to and in the best interests of
Parent and its shareholders, (b) approved the Merger and the transactions
contemplated by this Agreement in accordance with the provisions of the Delaware
General Corporation Law, and (c) recommended the approval of this Agreement and
the Merger by the holders of Parent capital stock and directed that the Merger
be submitted for consideration by Parent's shareholders at the meeting of
shareholders contemplated by Section 3.7.
Section 4.15 Environmental Matters.
(i) To the knowledge of Parent, neither Parent nor any of its
subsidiaries (a) has transported, stored, received, treated or disposed of, nor
have they arranged for any third parties to transport, receive, store, treat or
dispose of, waste to or at (1) any location other than a site where the receipt
of such waste for such purposes was not at the time of such receipt unlawful or
(2) any location designated for remedial action pursuant to the United States
Comprehensive Environmental Response, Compensation and Liability Act, as from
time to time amended, or any similar law assigning responsibility for the cost
of investigating or remediating releases of hazardous substances into the
environment, except to the extent such Parent action with respect to waste would
not have a Parent Material Adverse Effect; (b) has received written notice that
any location to which such waste has been transported, stored or disposed of has
been designated for remedial action pursuant to any applicable law relating to
responsibility for the cost of investigating or remediating releases of
hazardous substances into the environment; (c) has received written notice that
it is in material violation of any environmental law, that it is materially
liable for the release of any hazardous substances on or off of its property, or
that it is a potentially responsible party for a federal, state or local
clean-up site or for corrective action under any environmental law.
(ii) Parent has made available to Company all environmental audits,
evaluations and assessments in its possession which concern any of its
operations or properties, a complete listing of which is set forth on Section
4.15 to the Parent Disclosure Schedule.
Section 4.16 Insurance. Parent maintains insurance coverage with
reputable insurers in such amounts and covering such risks as are in accordance
with normal industry practice for companies engaged in businesses similar to
that of Parent (taking into account the cost and availability of such
insurance), except where the foregoing would not have a Parent Material Adverse
Effect.
ARTICLE V
16
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified (with references to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Company Disclosure Schedule") delivered by the Company to Parent prior to
execution of this Agreement):
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the corporate power to carry on its business as it
is now being conducted or currently proposed to be conducted except where the
failure to be so organized or to be so organized or to have such power would not
have a Company Material Adverse Effect. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not, alone or in the aggregate, have a
Company Material Adverse Effect. Company is not in violation of any of the
provisions of its Articles of Incorporation or By-laws.
For the purposes of this Agreement, a "Company Material Adverse Effect"
means a material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of the Company
and its subsidiaries taken as a whole, other than (i) any effects arising out
of, resulting from or relating to changes in general economic or financial
conditions or generally affecting the motorsports industry or (ii) the filing,
initiation and subsequent prosecution by or on behalf of the shareholders of the
Company of litigation that challenges or seeks damages with respect to the
transactions contemplated hereby (except as contemplated by Section 10.2 (d)).
Complete and correct copies as of the date hereof of the charter and By-laws of
the Company have been delivered to Parent as part of the Company Disclosure
Schedule.
Section 5.2 Capitalization. The authorized stock of the Company consists of
20,000,000 shares of Company Stock and 10,000,000 shares of Preferred Stock, no
par value (the "Company Preferred Stock"). As of January 31, 1998, 4,665,236
shares of Company Stock were validly issued and outstanding, fully paid and
nonassessable, and no shares of Company Preferred Stock were issued and
outstanding, 400,000 shares of Company Stock are reserved for future issuance,
and there have been no changes in such numbers of shares through the date of
this Agreement. Section 5.8 to the Company Disclosure Schedule sets forth by
employee the total number of shares of Company Stock issuable pursuant to the
Company's stock option plans, including detail with respect to date of grant,
exercise price, vesting schedule and options exercised to date. As of the date
of this Agreement, there are no bonds, debentures, notes or other indebtedness
issued or outstanding having the right to vote on any matters on which the
Company's shareholders may vote. As of the date of this Agreement, except for
options issued under the Company's stock option plans disclosed under Section
5.8 as employee benefit plans and except for the outstanding warrants set forth
on Section 5.2 to the Company Disclosure Schedule, there are no options,
warrants,
17
calls, convertible securities or other rights, agreements or commitments
presently outstanding obligating the Company to issue, deliver or sell shares of
its stock or debt securities, or obligating the Company to grant, extend or
enter into any such option, warrant, call or other such right, agreement or
commitment, and, except for exercises thereof, there have been no changes in
such numbers through the date of this Agreement. After the Effective Time, the
Surviving Corporation will have no obligation to issue, transfer or sell any
shares of stock of the Company or the Surviving Corporation (as opposed to
shares of Parent Common Stock) pursuant to any Company Employee Benefit Plan (as
defined in Section 5.8).
Section 5.3 Subsidiaries. Each subsidiary of the Company is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not have a Company
Material Adverse Effect) and has the corporate or similar power to carry on its
business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of the Company is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not have, a Company Material Adverse
Effect. Section 5.3 of the Company Disclosure Schedule contains, with respect to
each subsidiary of the Company, its name and jurisdiction of organization and,
with respect to each subsidiary that is not wholly owned, the number of issued
and outstanding shares of capital stock or share capital and the number of
shares of capital stock or share capital owned by the Company or a subsidiary.
All the outstanding shares of capital stock or share capital of each subsidiary
of the Company are validly issued, fully paid and nonassessable, and those owned
by the Company or by a subsidiary of the Company are owned free and clear of any
liens, claims or encumbrances except any of the foregoing which would not
reasonably be expected to have a Company Material Adverse Effect. There are no
existing options, warrants, calls. convertible securities or other rights,
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of any of the subsidiaries of the Company.
Except as set forth in the Company's Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1997, the Company does not directly or indirectly own
any interest in any other corporation, partnership, joint venture or other
business association or entity or have any obligation, commitment or undertaking
to acquire any such interest.
Section 5.4 Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Company's
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the shares of Company Stock outstanding and entitled to
vote thereon as described in Section 3.7, and the filing and recordation of
appropriate
18
merger documents as required by the GCL, no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or consummate
transactions contemplated hereby. The Company is not subject to or obligated
under (i) any charter, by-law, indenture or other loan or credit document
provision or (ii) any other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation, or any right to payment or
compensation, or the loss of a material benefit, by its executing and carrying
out this Agreement except for such breaches, violations, defaults or arising of
such rights which would not reasonably be expected to have a Company Material
Adverse Effect. Except as required by the HSR Act, the Securities Act, the
Exchange Act, and the corporation, securities or blue sky laws or regulations of
the various states, and except for the filing and recordation of appropriate
merger documents as required by the GCL, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain which has
not had, and would not reasonably be expected to have, a Company Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby.
Section 5.5 Reports and Financial Statements. The Company has previously
furnished Parent with true and complete copies of its (i) Registration Statement
No. 333-4834LA on Form SB2 effective June 25, 1996 as filed with the Commission,
(ii) Annual Reports on Form 10-KSB for the fiscal periods ended June 30, 1996,
November 30, 1996 and November 30, 1997 as filed with the Commission, (iii)
proxy statements related to all meetings of its shareholders (whether annual or
special) since June 26, 1996 and (v) all other reports or registration
statements filed by the Company with the Commission since June 26, 1996, except
for preliminary material, which are all the documents that the Company was
required to file with the Commission since that date (the documents in clauses
(i) through (v) being referred to herein collectively as the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports complied as to
form in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates, the Company SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
the Company included in the Company SEC Reports comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto (except as may be
indicated thereon or in the notes thereto). The financial statements included in
the Company SEC Reports: have been prepared in accordance with generally
accepted accounting principles in effect as of such time applied on a consistent
basis (except as may be indicated therein or in the notes thereto); present
fairly, in all material respects, the financial position of the Company and its
subsidiaries, as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case
19
of the unaudited interim financial statements, to normal year-end
adjustments and any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Exchange Act and the rules promulgated thereunder; and are in all material
respects in accordance with the books of account and records of the Company and
its subsidiaries. As of November 30, 1997, there was no basis for any claim or
liability of any nature against the Company or any of its subsidiaries, whether
absolute, accrued, contingent or otherwise that would be required to be
reflected on, or reserved against on a balance sheet of Parent, or in the notes
thereto, prepared in accordance with the published rules and regulations of the
Commission and generally accepted accounting principles, which, alone or in the
aggregate, has had or would reasonably be expected to have, a Company Material
Adverse Effect, other than as reflected in the Company SEC Reports.
Section 5.6 Absence of Certain Changes or events. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement or
contemplated by this Agreement, since November 30, 1997, the Company and its
subsidiaries have operated their respective businesses in the ordinary course of
business consistent with past practice and there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which, alone or in the aggregate, has had or would reasonably be expected to
have, a Company Material Adverse Effect; (ii) any damage, destruction or loss,
whether or not covered by insurance, which has had, or would reasonably be
expected to have, a Company Material Adverse Effect; (iii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash, stock
or property) with respect to the stock of the Company or any of its subsidiaries
(other than dividends or distributions between the Company and its wholly owned
subsidiaries; (iv) any material change in the Company's accounting principles,
practices or methods; (v) any repurchase or redemption with respect to its
stock; (vi) any stock split, combination or reclassification of any of the
Company's stock or the issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, shares of the
Company's stock; (vii) any grant of or any amendment of the terms of any option
to purchase shares of stock of the Company other than pursuant to the Option
Plans; (viii) any granting by the Company or any of its subsidiaries to any
director, officer or employee of the Company or any of its subsidiaries of (A)
any increase in compensation (other than in the case of employees in the
ordinary course of business consistent with past practice), (B) any increase in
severance or termination pay, or (C) acceleration of compensation or benefits;
(ix) any entry by the Company or any of its subsidiaries into any employment,
severance, bonus or termination agreement with any director, officer or employee
of the Company or any of its subsidiaries; or (x) any agreement (whether or not
in writing), arrangement or understanding to do any of the foregoing.
Section 5.7 Litigation. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries which, alone or in the aggregate, has had or
would reasonably be expected to have, a Company Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its subsidiaries which,
alone or in the aggregate, has had, or would reasonably be expected to have, any
such Company Material Adverse Effect. Section 5.7 of the Company Disclosure
Schedule hereto
20
sets forth a complete listing and brief description of all suits, actions
or proceedings pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries, where the amount in controversy exceeds
$25,000.
Section 5.8 Employee Benefit Plans. (a) Section 5.8 of the Company
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements or payroll practices, including, without limitation,
any such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
Directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by the Company, any subsidiary of the Company or any Company ERISA
Affiliate (as defined below) or to which the Company, any subsidiary of the
Company or any Company ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of the Company, any subsidiary of the Company or any Company
ERISA Affiliate (the "Company Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multi employer plan",
as defined in Section 4001 (a) (3) of ERISA (a "Multi employer Plan"), and
neither the Company nor any Company ERISA Affiliate presently maintains or has
maintained such a plan.
(c) The Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, and the Company has never represented,
promised or contracted (whether in oral or written form) to any employee or
former employee that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
severance agreements or severance policies applicable to the Company or its
subsidiaries in the event of a change of control of the Company are the
agreements and policies specifically referred to in Section 5.8 of the Company
Disclosure Schedule. The Board of Directors of the Company has determined that
the transactions contemplated hereby do not constitute a change of control for
purposes of any such agreement, plan, policy or stock option plan or program to
the extent the Company or its Board has discretion to make such determination
under such agreement, plan or policy and such Board shall not change such
determination, provided that the foregoing shall not apply to the accelerated
vesting of any stock options.
(e) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code. and each trust maintained pursuant thereto, has been
determined to be exempt from federal income
21
taxation under Section 501 of the Code by the IRS, and, to the Company's
knowledge, nothing has occurred with respect to the operation or organization of
any such Company Employee Benefit Plan that would cause the loss of such
qualification or exemption or the imposition of any material liability, penalty
or tax under ERISA or the Code. With respect to any Company Employee Benefit
Plan or other employee benefit plan which is a "defined benefit plan" within the
meaning of Section 3 (35) of ERISA, (i) the Company has not incurred and is not
reasonably likely to incur any liability under Title IV of ERISA (other than for
the payment of premiums, all of which have been paid when due), (ii) the Company
has not incurred any accumulated funding deficiency within the meaning of
Section 412 of the Code and has not applied for or obtained a waiver of any
minimum funding standard or an extension of any amortization period under
Section 412 of the Code, (iii) no "reportable event" (as such term is defined in
Section 4043 of ERISA but excluding any event for which the provision for 30-day
notice to the Pension Benefit Guaranty Corporation has been waived by
regulation) has occurred or is expected to occur and (iv) since December 31,
1996, no material adverse change in the financial condition of any such plan has
occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) the
Company has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to the
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all
material respects. in accordance with their terms and with all provisions of
ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
For purposes of this Agreement, "Company ERISA Affiliate" means any
business or entity which is a member of the same "controlled group of
corporations," under "common control" or an "affiliated service group" with the
Company within the meanings of Sections 414 (b), (c) or (m ) of the Code. or
required to be aggregated with the Company under Section 414(o) of the Code, or
is under "common control" with the Company, within the meaning of Section 4001
(a) (14) of ERISA, or any regulations promulgated or proposed under any of the
foregoing Sections.
Section 5.9 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best
interests of the Company and its shareholders, (b) approved the Merger and the
transactions contemplated by this Agreement in accordance with the provisions of
the GCL, and (c) recommended the approval of this Agreement and the Merger by
the holders of the Company Stock and directed that the Merger be submitted for
consideration by the Company's shareholders at the meeting of shareholders
contemplated by Section 3.7.
Section 5.10 Financial Advisors. The Company has received the opinion of L.
H. Friend, Weinress, Xxxxxxxx & Xxxxxxx, Inc. ("L. H. Friend") to the effect
that, as of the date hereof, the
22
Exchange Ratio is fair from a financial point of view to the holders of
Company Stock. Except for L. H. Friend, no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. The Company has previously
delivered to Parent copies of the engagement letter, dated October 22, 1997,
from L. H. Friend to the Company, and shall not amend such letter without the
consent of Parent.
Section 5.11 Compliance with Applicable Laws. The Company and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business (the "Company Permits"), except for such
permits, licenses, variances, exemptions, orders and approvals the failure to
hold which, alone or in the aggregate, has not had, and would not reasonably be
expected to have a Company Material Adverse Effect. Section 5.11 of the Company
Disclosure Schedule sets forth a complete listing of all Company Permits and
their expiration dates. The Company and each of its subsidiaries is in
compliance in all material respects with the terms of the Company Permits except
for any failure to comply which, alone or in the aggregate, has not had, and
would not reasonably be expected to have, a Company Material Adverse Effect.
Except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, the businesses of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which alone or in the aggregate have not
had, and would not reasonably be expected to have, a Company Material Adverse
Effect. To the actual knowledge of the executive officers of the Company, during
the past five years, none of the Company's or any of its subsidiaries' officers,
employees or agents, nor any other person acting on behalf of any of them or the
Company or any of its subsidiaries, has, directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, governmental
employee or other person in violation of any law, ordinance or regulation of any
Governmental Entity, including, without limitation, the Foreign Corrupt
Practices Act, which violation would reasonably be expected to have a Company
Material Adverse Effect.
Section 5.12 Taxes. Each of the Company and its subsidiaries has filed all
material Tax returns required to be filed by any of them and has paid (or the
Company has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns, except where the failure to make such payment or reserve has not
had a Company Material Adverse Effect. The information contained in such Tax
returns is true, complete and accurate in all material respects. Neither the
Company nor any subsidiary of the Company is delinquent in the payment of any
material Tax, assessment or governmental charge, except where such delinquency
has not had, or would not reasonably be expected to have, a Company Material
Adverse Effect. No material deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries that have
not been finally settled or paid in full, and no requests for waivers of the
time to assess any such Tax are pending.
Section 5.13 Environmental Matters.
23
(i) To the knowledge of Company, neither Company nor any of its
subsidiaries (a) has transported, stored, received, treated or disposed of, nor
have they arranged for any third parties to transport, receive, store, treat or
dispose of, waste to or at (1) any location other than a site where the receipt
of such waste for such purposes was not at the time of such receipt unlawful or
(2) any location designated for remedial action pursuant to the United States
Comprehensive Environmental Response, Compensation and Liability Act, as from
time to time amended, or any similar law assigning responsibility for the cost
of investigating or remediating releases of hazardous substances into the
environment, except to the extent such Company action with respect to waste
would not have a Company Material Adverse Effect; (b) has received written
notice that any location to which such waste has been transported, stored or
disposed of has been designated for remedial action pursuant to any applicable
law relating to responsibility for the cost of investigating or remediating
releases of hazardous substances into the environment; (c) has received written
notice that it is in material violation of any environmental law, that it is
materially liable for the release of any hazardous substances on or off of its
property, or that it is a potentially responsible party for a federal, state or
local clean-up site or for corrective action under any environmental law.
(ii) The Company has made available to Parent all environmental audits,
evaluations and assessments in its possession which concern any of its
operations or properties, a complete listing of which is set forth on Section
5.13 to the Company Disclosure Schedule.
Section 5.14 Material Contracts. Section 5.14 of the Company Disclosure
Schedule lists all of the following written or oral material contracts,
agreements and commitments (collectively, the "Company Contracts"):
(i) all agreements relating to the sponsorship, sanctioning,
broadcasting or advertising of the events of the Company or any of its
subsidiaries;
(ii) all agreements pertaining to the borrowing of money by the
Company or any of its subsidiaries, including any letters of credit;
(iii) all employment, consulting or personal services agreements or
contracts with any present or former officer, director or employee of the
Company or any of its subsidiaries;
(iv) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of the Company or any of its subsidiaries other than in the
ordinary course of business;
(v) all leases or subleases of real property used in the conduct of
business of the Company or any of its subsidiaries;
24
(vi) all contracts or agreements committing the Company or any of its
subsidiaries to purchase goods, deliver services or make a capital
expenditure in excess of $50,000;
(vii) all guaranties of the Company or any of its subsidiaries;
(viii) all contracts limiting the freedom of the Company or any of its
subsidiaries from engaging in or competing with any business; and
(ix) any other material contract not in the ordinary course of
business.
Section 5.15 Certain Agreements. Neither the Company nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any Company Contracts or other material agreement including, but
not limited to, any Company Benefit Plan, whether or not such default has beets
waived, which default, alone or in the aggregate with other such defaults, has
had, or would reasonably be expected to have, a Company Material Adverse Effect.
Section 5.16 Tax Matters. To the actual knowledge of the executive officers
of the Company, the Company has not taken any action which would prevent the
Merger from constituting a reorganization within the meaning of Section 368(a)
of the Code.
Section 5.17 Bank Accounts. Section 5.17 of the Company Disclosure Schedule
lists each bank, trust company or similar institution with which the Company or
any of its subsidiaries maintains an account or safe deposit box, and accurately
identifies each such account or safe deposit box by its number or other
identification and the names of all individuals authorized to draw thereon or
have access thereto.
Section 5.18 Officers and Directors. Section 5.18 of the Company Disclosure
Schedule accurately lists by name and title all officers and directors of the
Company and each of its subsidiaries.
Section 5.19 Insurance. The Company maintains insurance coverage with
reputable insurers in such amounts and covering such risks as are in accordance
with normal industry practice for companies engaged in businesses similar to
that of the Company (taking into account the cost and availability of such
insurance) except where the foregoing would not have a Company Material Adverse
Effect. Section 5.19 of the Company Disclosure Schedule sets forth a complete
listing of all insurance maintained by the Company (indicating form of coverage,
name of carrier and broker, coverage limits and premium, whether occurrence or
claims made, expiration dates, deductibles, and all endorsements).
25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. Sub has not engaged in any business since it was incorporated
other than in connection with its organization and the transactions contemplated
by this Agreement and has no, and prior to the Effective Time, will have no
liabilities except in connection with the transactions contemplated by this
Agreement.
Section 6.2 Capitalization. The authorized capital stock of Sub consists of
1,000 shares of common stock, par value $1.00 per share, 1,000 shares of which
are validly issued and outstanding, fully paid and nonassessable and are
directly owned by Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to this Agreement. Sub has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement constitutes a valid and binding obligation
of Sub enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior to
the Effective Time, unless Parent shall otherwise agree in writing or except as
otherwise contemplated by this Agreement or the Company Disclosure Schedule:
(i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore
26
conducted, and shall, and shall cause its subsidiaries to, use their
reasonable efforts to preserve intact their present business organizations
and preserve their relationships with sponsors, sanctioning bodies,
customers, suppliers and others having business dealings with them in an
attempt to maintain, unimpaired at the Effective Time, their goodwill and
on-going businesses. The Company shall, and shall cause its subsidiaries
to, (a) maintain its books, accounts and records in the usual manner
consistent with past practice; (b) comply in all material respects with all
laws, ordinances and regulations of Governmental Entities applicable to the
Company and its subsidiaries; (c) maintain and keep its material properties
and equipment in good repair, working order and condition, ordinary wear
and tear excepted; (d) take all reasonable action to maintain its material
agreements in full force and effect and not take any action or fail to take
any action which would constitute a material breach or default thereunder;
and (e) perform in all material respects its obligations under all material
contracts and commitments to which it is a party or by which it is bound,
provided that a failure to comply with clauses (b) through (e) above shall
not be a breach hereof unless such action or inaction has had or would
reasonably be expected to have a Company Material Adverse Effect;
(ii) the Company shall not and shall not propose or agree to (A) sell
or pledge or agree to sell or pledge any capital stock owned by it in any
of its subsidiaries (except in connection with its revolving lines of
credit), (B) amend its charter or By-laws, (C) increase the size of its
Board of Directors, (D) split, combine or reclassify its outstanding stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for the outstanding shares of
stock of the Company, or declare, set aside, authorize or pay any dividend
or other distribution payable in cash, stock or property, or (E) directly
or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of Company stock except as
provided in the Right of First Refusal Agreement dated August 8, 1997 by
and among Midwest Facility Investments, Inc., a Florida corporation, Penske
Motorsports, Inc., a Delaware corporation, and various shareholders of the
Company (the "ROFR Agreement");
(iii) the Company shall not, nor shall it permit any of its
subsidiaries other than to the Company or to another subsidiary of the
Company, to, (A) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of, or rights of any kind to acquire any shares of,
its respective stock of any class, any indebtedness having the right to
vote on any matter on which the Company's shareholders may vote or any
option, rights or warrants to acquire, or securities convertible into,
exercisable for or exchangeable for, shares of stock other than issuances,
deliveries or sales of Company Stock pursuant to obligations outstanding as
of the date of this Agreement under the Company Employee Benefit Plans and
under the warrants set forth on Section 5.2 of the Company Disclosure
Schedules; (B) acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets or any other assets other than in the
ordinary course of business; (C) incur additional indebtedness or encumber
or grant a security interest in any asset or enter into any other material
transaction other than in each case in the ordinary course of business; (D)
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or
27
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof; or (E)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing; provided that the prohibitions in clauses (B), (C)
and (E) shall not apply to matters contemplated by Section 7.1 (iii) of the
Company Disclosure Schedule;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law and
except as provided in Sections 8.5 or 9.3 hereof, enter into any new (or
amend any existing) Company Employee Benefit Plan or any new (or amend any
existing) employment, severance or consulting agreement, grant any general
increase in the compensation of current or former directors, officers or
employees (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or grant any increase in the
compensation payable or to become payable to any director, officer or
employee, except in any of the foregoing cases in accordance with
preexisting contractual provisions or in the ordinary course of business
consistent with past practice;
(v) the Company shall not, nor shall it permit any of its subsidiaries
to, take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "reorganization"
within the meaning of Section 368(a) of the Code: and
(vi) the Company shall not, nor shall it permit any of its
subsidiaries to, amend, modify, terminate, waive or permit to lapse any
material right of first refusal (other than in connection with the ROFR
Agreement), preferential right, right of first offer, or any other material
right of the Company or any of its subsidiaries.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing or except as
otherwise required by this Agreement:
(i) Parent shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
sponsors, sanctioning bodies, customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Parent shall, and
shall cause its subsidiaries to, (a) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with past
practice; (b) comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to Parent and its
subsidiaries; (c) maintain and keep its material properties and equipment
in good repair, working order and condition, ordinary wear and tear
expected: (d) maintain its material agreements in full force and effect and
not take any action or fail to take any action which would constitute a
material breach or default thereunder;
28
and (e) perform in all material respects its obligations under all material
contracts and commitments to which it is a party or by which it is bound;
(ii) Parent shall not and shall not propose or agree to (A) sell or
pledge or agree to sell or pledge any capital stock owned by it in any of
its subsidiaries, (B) amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement, or (C) combine or reclassify its
outstanding capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of capital stock of Parent, or declare, set aside, authorize or pay
any dividend or other distribution payable in cash, stock, property or
otherwise (other than the Parent Quarterly Dividend), provided that the
foregoing shall not prohibit Parent from announcing or consummating a stock
split;
(iii) except as disclosed in Section 7.2 to Parent's Disclosure
Schedule or in connection with acquisitions of assets or businesses that
are primarily engaged in the same business as that conducted by Parent and
its subsidiaries as of the date of this Agreement and any financing
transactions or issuances of securities related thereto which, in each
case, do not require the approval of the shareholders of Parent, Parent
shall not, and shall not permit any of its subsidiaries to, (A) issue,
deliver or sell or agree to issue, deliver or sell any additional shares
of, or rights of any kind to acquire any shares of, its respective capital
stock of any class, any indebtedness having the right to vote on any matter
on which Parent's shareholders may vote or any options, rights or warrants
to acquire, or securities convertible into, exercisable for or exchangeable
for, shares of capital stock other than issuances, deliveries or sales of
Parent securities under Parent Employee Benefit Plans; (B) acquire, lease
or dispose or agree to acquire, lease or dispose of any capital assets or
any other assets where the amount involved exceeds $10,000,000 other than
in the ordinary course of business; (C) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any other
material transaction where the amount involved exceeds $20,000,000 other
than in each case in the ordinary course of business; (D) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof where the amount involved exceeds $25,000,000; or (E)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(iv) Parent shall not, nor shall it permit any of its subsidiaries or
affiliates to, take or cause to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; and
(v) Parent shall not, nor shall it permit any of its subsidiaries to,
amend, modify, terminate, waive or permit to lapse any material right of
first refusal, preferential right, right of first offer, or any other
material right of Parent or any of its subsidiaries.
29
Section 7.3 Conduct of Business of Sub. During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Each of the Company and Parent and
their respective subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives reasonable access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel, subject to existing
confidentiality obligations, and, during such period, each shall furnish
promptly to the other (i) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. Each of the
Company and Parent shall hold, and shall use their reasonable best efforts to
cause their respective employees, agents and representatives to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated October 24, 1997 between Parent and the Company.
Section 8.2 Registration Statement/Proxy Statement. Parent and the Company
shall cooperate and promptly prepare, and Parent shall file with the Commission
as soon as practicable, a Registration Statement on Form S-4 (the "Form S-4")
under the Securities Act, with respect to the Parent Common Stock issuable in
the Merger, portions of which Registration Statement shall also serve as the
joint proxy or information statement of Parent and Company with respect to the
meetings of shareholders of Parent and the Company contemplated by Section 3.7
(the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Parent shall use all reasonable
efforts, and the Company will cooperate with Parent, to have the Form S-4
declared effective by the Commission as promptly as practicable after the filing
thereof (including without limitation, responding to any comments received from
the Commission with respect thereto) and to keep the Form S-4 effective as long
as is necessary to consummate the Merger. Each of Parent and the Company shall,
as promptly as practicable, provide to the other copies of any written comments
received from the Commission with respect to the Proxy Statement/Prospectus or
the Form S-4 and advise the other of any oral comments with respect to the Proxy
Statement/Prospectus or the Form S-4 received from the Commission. Parent shall
use its best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by the Merger Agreement and will pay all
expenses incident thereto. Parent agrees that none of the information supplied
or to be supplied by Parent for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
30
mailing thereof and at the time of the meetings of shareholders of Parent and
the Company contemplated by Section 3.7 or (ii) in the case of the Form S-4 and
each amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees that none of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of shareholders of Parent and
the Company contemplated by Section 3.7, or (ii) in the case of the Form S-4 or
any amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to Parent will be deemed to have been supplied
by Parent and information concerning or related to the Company shall be deemed
to have been supplied by the Company. No amendment or supplement to the Proxy
Statement/Prospectus will be made by Parent or the Company without the approval
of the other party which will not be unreasonably withheld or delayed. Parent
will advise the Company, promptly after it receives notice thereof, of the time
when the Form S-4 has become effective or any supplement or amendment has been
filed, the issuance of any stop order, or the suspension of the qualification of
Parent Common Stock issuable in connection with the Merger for offering or sale
in any jurisdiction.
Section 8.3 Stock Exchange Listing. Parent shall promptly prepare and
submit to the NYSE a listing application covering the shares of Parent Common
Stock issuable in connection with the transactions contemplated hereby and shall
use its best efforts to obtain, prior to the Effective Time, approval of such
listing on the NYSE, upon official notice of issuance, of such Parent Common
Stock.
Section 8.4 Employee Matters. As of the Effective Time, the employees of
the Company and each subsidiary shall continue employment with the Surviving
Corporation and the subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of
employment or separation from service; provided, however, except as may be
specifically required by applicable law or any contract, the Surviving
Corporation and the subsidiaries shall not be obligated to continue any
employment relationship with any employee for any specific period of time.
Except with respect to the Option Plans to be assumed by the Parent as provided
by Section 3.6(a) hereto, as of the Effective Time, the Surviving Corporation
shall be the sponsor of the Company Employee Benefit Plans sponsored by the
Company immediately prior to the Effective Time, and Parent shall cause the
Surviving Corporation and the subsidiaries to satisfy all obligations and
liabilities under such Company Employee Benefit Plans; provided, however, that,
except as hereafter provided in this Section 8.4 or in the Company Disclosure
Schedule, nothing contained in this Agreement shall limit or restrict the
Surviving Corporation's right on or after the Effective Time to amend, modify or
terminate any of the Company Employee Benefit Plans. Parent will for a period of
time at least twenty-four (24) months after the Effective Time, other than
during the transition period ending November 30, 1998 (during which the
31
Company's benefit programs will be maintained or replaced by the Parent benefits
described herein), provide, or cause the Surviving Corporation to provide, and
their respective successors to maintain, to all employees of the Company
benefits under Parent's Qualified Employee Defined Benefit Plan, 401(k) Deferred
Compensation Plan, Health and Welfare Plan on the same terms generally made
available to other employees of Parent and its subsidiaries. To the extent any
employee benefit plan, program or policy of Parent, the Surviving Corporation,
or their affiliates is made available to any person who is an employee of the
Company or any of its subsidiaries immediately prior to the Effective Time: (i)
service with the Company and the subsidiaries by any employee prior to the
Effective Time shall be credited for eligibility purposes and for purposes of
qualifying for any additional benefits tied to periods of service (such as
higher rates of matching contributions and eligibility for early retirement)
under such plan, program or policy, but not for benefit accrual purposes; and
(ii) with respect to any welfare benefit plans to which such employees may
become eligible, Parent shall cause such plans to provide credit for any
co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any welfare plans maintained by the
Company and the subsidiaries for their employees prior to the Effective Time.
Section 8.5 Indemnification. (a) The Articles of Incorporation and Bylaws
of the Surviving Corporation shall contain the provisions with respect to
indemnification, advancement and director exculpation set forth in the Articles
of Incorporation and Bylaws of the Company on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six (6) years after the Effective Time in any manner that would adversely affect
the rights thereunder of persons who at any time prior to the Effective Time
were or would have been entitled to indemnification, advancement or exculpation
under the Articles of Incorporation or Bylaws of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated hereby).
(b) From and after the Effective Time, Parent, the Surviving Company shall,
jointly and severally, indemnify, defend and hold harmless the present and
former officers, directors and employees of the Company and its subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of (with the
approval of Parent and the Surviving Corporation, which approval shall not be
unreasonably withheld or delayed), or otherwise in connection with, any claim,
action, suit, proceeding or investigation (a "Claim"), to which any such person
is or may become a party by virtue of his or her service as a present or former
director, officer or employee of the Company or any of its subsidiaries and
arising out of actual or alleged events, actions or omissions occurring or
alleged to have occurred at or prior to the Effective Time (including, without
limitation, the transactions contemplated hereby), in each case to the fullest
extent permitted under the GCL (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under the GCL, upon receipt from the Indemnified Party
to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 317 (f) of the GCL). The Indemnified Parties agree to
reasonably cooperate with Parent in the investigation and defense of any Claim.
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(c) Any Indemnified Party wishing to claim indemnification under this
Section 8.5, upon learning of any such Claim, shall notify Parent and the
Surviving Corporation (although the failure so to notify Parent and the
Surviving Corporation shall not relieve either thereof from any liability that
Parent or the Surviving Corporation may have under this Section 8.5, except to
the extent such failure materially prejudices such party). Parent and the
Surviving Corporation shall have the right to assume the defense thereof and
Parent and the Surviving Corporation shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Parent and the Surviving Corporation elect not to assume
such defense or if there is an actual or potential conflict of interest between,
or different defenses exist for Parent and the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them and Parent and the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided however, that (i) Parent and the Surviving
Corporation shall not, in connection with any one such action or proceeding or
separate but substantially similar actions or proceedings arising out of the
same general allegations, be liable for the fees and expenses of more than one
separate firm of attorneys in addition to any appropriate local counsel at any
time for all Indemnified Parties unless there is a conflict on any significant
issue between the positions of any two or more of such Indemnified Parties, in
which event any additional counsel as may be reasonably required may be retained
by such Indemnified Parties at Parent's and the Surviving Corporation's expense,
(ii) Parent, the Surviving Corporation and the Indemnified Parties will
cooperate in the defense of any such matter and (iii) Parent and the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent, which consent will not be unreasonably withheld or delayed, and
provided further, that the Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
not subject to further appeal, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law.
(d) Parent shall cause to be maintained in effect for not less that six (6)
years after the Effective Time (except to the extent not generally available in
the market) directors' and officers' liability insurance and fiduciary liability
insurance that is substantially equivalent in coverage to the Company's current
insurance, with an amount of coverage of not less than 100% of the amount of
coverage maintained by the Company as of the date of this Agreement with respect
to matters occurring prior to the Effective Time, provided that the cost thereof
shall not exceed 150% of the Company's current cost per year.
(e) This Section 8.5 shall survive the consummation of the Merger and is
intended to be for the benefit of, and shall be enforceable by, the Indemnified
Parties referred to herein, their heirs and personal representatives and shall
be binding on Parent and Sub and the Surviving Corporation and their respective
successors and assigns.
Section 8.6 HSR Act. The Company and Parent shall use their reasonable best
efforts to file as soon as practicable notifications under the HSR Act in
connection with the Merger and the transactions
33
contemplated hereby and to respond as promptly as practicable to any
inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation.
Section 8.7 Additional Agreements. (a) Subject to the terms and conditions
herein provided, including the provisions of Section 3.6 hereof,
(a) each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all commercially reasonable efforts to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings and to lift any injunction to the Merger (and, in such
case, to proceed with the Merger as expeditiously as possible); and
(b) in case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.
Section 8.8 No Shop. The Company agrees (a) that neither it nor any of its
subsidiaries shall, and it shall direct and use its reasonable best efforts to
cause its officers, directors, employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, sale (other than in connection with the ROFR
Agreement), consolidation or similar transaction involving, the purchase of all
or any significant portion of the assets or equity securities of, the Company
and its subsidiaries, taken as a whole (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person proposing an Alternative Proposal, or
release any third party from any obligations under any existing standstill
agreement or arrangement, or enter into any agreement with respect to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal; (b) that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and it will
take the necessary steps to inform the individuals or entities referred to above
of the obligations undertaken in this Section; and (c) that it will notify the
other party promptly if any such inquiries or proposals are made regarding an
Alternative Proposal. Notwithstanding the foregoing, Company may, directly or
indirectly, furnish information and access to, and may participate in
discussions and negotiate with, any corporation, partnership, person or other
entity, and may agree to or endorse such Alternate Proposal if such corporation
partnership, person or other entity has made a proposal to its Board of
Directors relating to an Alternative Proposal which the Board of Directors
believes is (i) superior from a financial point of view to the Merger and (ii)
is reasonably likely to be consummated and the Board of Directors, after
consultation with independent legal counsel, determines
34
in its good faith judgment that taking such action is required to comply
with the Board of Directors' fiduciary duty to its shareholders imposed by law.
The Board of Directors shall provide a copy of any such proposal if in writing
to the Parent promptly after receipt thereof and thereafter keep the Parent
promptly advised of any material development with respect thereto and any
revision of the terms of such Alternative Proposal. Nothing in this Section 8.8
shall (x) permit the Company to terminate this Agreement (except as specifically
provided in Article 10 hereof), (y) permit Parent or the Company to enter into
any agreement with respect to an Alternative Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, the Company
shall not enter into any agreement with any person that provides for, or in any
way facilitates, an Alternative Proposal (other than a confidentiality agreement
in customary form)), or (z) affect any other obligation under this Agreement.
Section 8.9 Advice of Changes; SEC Filings. The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of any change or event that has
had, or would reasonably be expected to have, a Company Material Adverse Effect
or a Parent Material Adverse Effect, as the case may be. The Company and Parent
shall promptly provide each other (or their respective counsel) copies of all
filings made by such party with the SEC or any other Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
Section 8.10 Certain Appointments. As of the Effective Time, Parent shall
use its best efforts to (a) increase the size of the Board of Directors of
Parent to ten (10) persons and (b) nominate Xxxxxxxxxxx X. Xxxx ("Pook") for
election as a Class I director for the remainder of a three (3) year term
expiring in the year 2000 subject to shareholder approval, which approval will
be sought at the shareholder meeting contemplated by Section 3.6. At the end of
such three (3) year term, if Pook remains an employee of the Surviving
Corporation, Parent shall use its best efforts to nominate Pook for re-election
as a director for an additional three (3) year term subject to shareholder
approval.
Section 8.11 Employees. Unless and until the Merger is consummated, neither
party shall for a period of eighteen (18) months beginning the date of execution
hereof, without the prior written consent of the other party, solicit the
employment of any employees of the other party. This prohibition shall only
extend to employees in senior management or other key employees. This
prohibition shall not apply to any employee thirty (30) days after such employee
has left the employ of either party not in contravention of the preceding
sentence.
Section 8.12 Transition Team. Parent and the Company shall create a special
transition team which shall be headed jointly by one person designated by Parent
and one person designated by the Company and be composed of personnel from each
of Parent and the Company. The transition team shall facilitate the strategic
alliance of Parent and the Company during the period from the date hereof to the
Effective Time and shall report on its work to the Chief Executive Officer of
each of Parent and the Company.
35
Section 8.13 Stop Transfer. The Company agrees with, and covenants to,
Parent that the Company shall not register the transfer of any certificate
representing Common Stock owned by any Supporting Company Shareholder if such
transfer is made in violation with the terms of the Support Agreements.
Section 8.14 Right to Nominate Directors. The Company shall take all
corporate action necessary to immediately appoint the following three (3)
individuals: any of the current directors or senior officers of Parent or such
other individuals designated by Parent and reasonably acceptable to the
Company's Board, as a member of the Board of Directors of the Company to fill
existing vacancies; and thereafter during the Covered Period (as defined below)
use reasonable efforts, consistent with and no less than are taken with respect
to all other nominees to the Board of Directors, to have such designee (or other
reasonably acceptable designee of Parent) to be nominated and elected to its
Board of Directors at each election of the Company's directors. Each Parent
designee elected to the Board of Directors shall be indemnified by the Company
to the fullest extent permitted by law and, without limiting the generality of
the foregoing, shall be given indemnification agreement protection, if any, by
the Company in the same form as currently in effect for the Company's current
directors. The Company agrees to provide each such Parent designee with the same
compensation paid by the Company to its other outside directors and to reimburse
the Parent's designee for reasonable out-of-pocket expenses incurred in
connection with his or her attendance of Board meetings. In the event the
Parent's designee(s) is (are) not elected as a member of the Board of Directors
during the Covered Period, the Company shall take all corporate action necessary
to entitle such designee(s) to attend and participate in all of the Company's
Board of Directors meetings. The Covered Period shall begin on the date of
execution hereof and continue for a one (1) year period, provided that it shall
terminate immediately at such time as Parent beneficially owns less than eighty
percent (80%) of the Parent Owned Company Stock.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company Stock
and the issuance of the Parent Common Stock pursuant to this Agreement shall
have been approved by the requisite vote of the holders of the Parent capital
stock, in each case as provided in Section 3.7.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
36
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness of
the Form S-4 shall have been issued by the Commission and remain in effect.
(d) No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use all commercially reasonable efforts to have any such
injunction lifted).
(e) The Parent Common Stock to be issued to Company shareholders in
connection with the Merger shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
Section 9.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, except where the failure to so perform would not have a
Parent Material Adverse Effect. The representations and warranties of Parent and
Sub contained in this Agreement shall be true in all material respects when
made, except as expressly contemplated or permitted by this Agreement or where
the failure to be so true and correct would not or would not reasonably be
expected to have a Parent Material Adverse Effect. The representations and
warranties of Parent and Sub contained in this Agreement shall be true in all
material respects as of the Effective Time as if made on and as of such date
(except to the extent they relate to a particular date), except as expressly
contemplated or permitted by this Agreement or where the failure to be so true
and correct would not have a Parent Material Adverse Effect (which for the
purpose of this sentence shall be determined by replacing any references to the
phrase "would [not] reasonably be expected to have a Parent Material Adverse
Effect" with the phrase "would [not] have a Parent Material Adverse Effect").
The Company shall have received a certificate of the President and Chief
Executive Officer or a Vice President of each of Parent and Sub to that effect.
(b) The employment agreements between the Company and each of Pook and
Xxxxx X. Xxxxxxxxxx in the form attached hereto as Exhibit 9.3(b)(1) and
Exhibit 9.3(b)(2), respectively, shall have been executed and delivered and
shall be in full force and effect.
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this
37
Agreement required to be performed on or prior to the Effective Time,
except where the failure to so perform would not have a Company Material Adverse
Effect. The representations and warranties of the Company contained in this
Agreement (a) shall be true in all material respects when made, except as
expressly contemplated or permitted by this Agreement or where the failure to be
so true and correct would not or would not reasonably be expected to have a
Company Material Adverse Effect; (b) shall be true in all material respects as
of the Effective Time as if made on and as of such date (except to the extent
they relate to a particular date), except as expressly contemplated or permitted
by this Agreement or where the failure to be so true and correct would not have
a Company Material Adverse Effect (which for the purpose of this clause (b)
shall be determined by replacing any references to the phrase "would [not]
reasonably be expected to have a Company Material Adverse Effect" with the
phrase "would [not] have a Company Material Adverse Effect"); provided (c) that
in either case, the representations and warranties in Section 5.2 must be true
and correct in all respects. Parent and Sub shall have received a certificate of
the President and Chief Executive Officer or a Vice President of the Company to
that effect.
(b) The employment agreements between the Company and each of Pook and
Xxxxx X. Xxxxxxxxxx in the form attached hereto as Exhibit 9.3 (b) (1) and
Exhibit 9.3 (b) (2), respectively, shall have been executed and delivered and
shall be in full force and effect.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination by, Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after approval by the shareholders of the Company or Parent, by
the mutual consent of Parent and the Company.
Section 10.2 Termination by Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned (a) by Parent or the Company if the
Merger shall not have been consummated by August 30, 1998 or, if the Effective
Time shall not have occurred because of the failure of a condition set forth in
Section 9.1(b), (c) or (d), by September 30, 1998, or (b) by Parent or the
Company if the approval of the Company's shareholders required by Section 3.7
shall not have been obtained at a meeting duly convened therefor or at any
adjournment or postponement thereof, or (c) by the Company if the approval of
Parent's shareholders required by Section 3.7 shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof,
(d) by Parent or the Company if a United States federal or state court of
competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable, or (e) by Parent if the Support
Agreements or comparable agreements in form reasonably acceptable to Parent
shall, when aggregated with the Parent Owned Company Stock or any subsequently
acquired shares of Company Stock acquired by Parent or its affiliates, fail to
continue in full force and effect or to represent a majority of the
38
voting power of the Company on a fully diluted basis assuming the exercise
of all outstanding warrants and vested options and such failure shall not have
been cured within fourteen (14) days of its receipt of written notice from
Parent of such failure; provided, that the party seeking to terminate this
Agreement pursuant to clause (d) above shall have used all commercially
reasonable efforts to remove such injunction, order or decree; and provided in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger; and provided that no termination under clause (e)
above shall be permitted after the vote on the Merger if the Company's
shareholders approve the Merger.
Section 10.3 Termination due to Breach. This Agreement may be terminated
and the Merger may be abandoned: (a) by Parent, if there has been a breach of
any material representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement such that any of the conditions set forth in
Section 9.3 (a) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Company through the exercise of its reasonable best efforts and for so long as
the Company continues to exercise such reasonable best efforts (but in no event
longer than thirty (30) days after Parent's notification of the Company of the
occurrence of such Terminating Company Breach), Parent may not terminate this
Agreement under this subsection; or (b) by the Company, if there has been a
breach of any material representation, warranty, covenant or agreement on the
part of Parent or Sub set forth in this Agreement, such that any of the
conditions set forth in Section 9.2 (a) would not be satisfied (a "Terminating
Parent Breach"); provided, however, that, if such Terminating Parent Breach is
curable by Parent or Sub through the exercise of its reasonable best efforts and
for so long as Parent and Sub continue to exercise such reasonable best efforts,
(but in no event longer than thirty (30) days after the Company's notification
of Parent of the occurrence of such Terminating Parent Breach), the Company may
not terminate this Agreement under this subsection.
Section 10.4 Other Termination Rights. (a) This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, by
action of the Board of Directors of Parent, if the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent its
approval or recommendation of this Agreement or the Merger or shall have
recommended an Alternative Proposal with respect to the Company to the Company's
shareholders.
(b) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, by action of the Board of Directors of the
Company, if the Company shall have received an Alternative Proposal which the
Board of Directors of the Company believes is (i) superior from a financial
point of view to the Merger and (ii) reasonably likely to be consummated and the
Board of Directors of the Company after consultation with independent legal
counsel, believes such action is required to comply with its fiduciary duties
imposed by law.
Section 10.5 Effect of Termination and Abandonment. (a) In the event that
(i) any person shall have made an Alternative Proposal with respect to the
Company and thereafter this Agreement is terminated by either party pursuant to
Section
39
10.2(b) and within 12 months thereafter such Alternative Proposal with respect
to the Company shall have been consummated, (ii) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent its
approval or recommendation to the Company's stockholders by reason of an
Alternative Proposal with respect to the Company and Parent shall have
terminated this Agreement pursuant to Section 10.4(a) and within 12 months
thereafter any Alternative Proposal with respect to the Company shall have been
consummated, (iii) the Board of Directors of the Company shall have recommended
an Alternative Proposal with respect to the Company to the Company's
stockholders and Parent shall have terminated this Agreement pursuant to Section
10.4(a) and within 12 months thereafter any Alternative Proposal with respect to
the Company shall have been consummated, or (iv) the Company shall have
terminated this Agreement pursuant to Section 10.4(b) and within 12 months
thereafter any Alternative Proposal with respect to the Company shall have been
consummated, then, in any such case, the Company shall in no event later than
the date of consummation of such Alternative Proposal pay Parent a fee of Three
Million and 00/100 Dollars ($3,000,000.00) (a "Termination Fee ), which amount
shall be payable by wire transfer of same day funds. For purposes of clause (a)
above, no Termination Fee shall be payable unless such Alternative Proposal is
superior from a financial point of view to the Merger. The Company acknowledges
that the agreements contained in this Section are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Parent and Sub would not enter into this Agreement. Accordingly, if the Company
fails to promptly pay the amount due pursuant to this Section, and, in order to
obtain such payment, Parent or Sub commences a suit which results in a judgment
against the Company for the fee and expenses set forth in this Section, the
Company shall pay to Parent its costs and expenses (including attorneys fees) in
connection with such suit.
(b) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article X, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section,
Section 8.11 and Section 11.3 and except for the provisions of the
Confidentiality Agreement referred to in Section 8.1 and the provisions of
Section 11.1. Moreover, in the event of termination of this Agreement pursuant
to Section 10.2 (a) or Section 10.3, nothing herein shall prejudice the ability
of the non-breaching party from seeking its costs and expenses and damages from
any other party for any breach of this Agreement, including without limitation,
attorneys' fees and the right to pursue any remedy at law or in equity.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements set forth
in this Agreement shall terminate at the Effective Time or upon termination of
this Agreement pursuant to Article X, as the case may be, except that the
agreements set forth in Articles I, II and III and Sections 8.4, 8.5, 8.7, 8.10
and Article XI shall survive the Effective Time and those set forth in or
referred to in Section 10.5 shall survive termination. All covenants and
agreements set forth in this Agreement shall survive in accordance with their
terms.
Section 11.2 Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail,
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postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Xxxxxxxxxxx X. Xxxx
Chief Executive Officer
Grand Prix Association of Long Beach, Inc.
0000 Xxxxxxx Xxxxxx
Xxxx Xxxxx, XX 00000
With a copy to: Xxxxx X. Xxxxxx, Esquire
Xxxx, Scholer, Fierman, Xxxx & Handler, L.L.P.
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000-0000
If to Parent or Sub: Xxxxx XxXxxxx
President & Chief Executive Officer
Dover Downs Entertainment, Inc.
0000 X. XxXxxx Xxxxxxx
Xxxxx, XX 00000
With a copy to: Xxxxx X. Xxxxxxxxxx, Esquire
Dover Downs Entertainment, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the Merger is consummated,
except as provided in Section 10.4 and Section 8.2, all costs and expenses,
including legal and accounting fees, incurred in connection with this Agreement
and the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger is consummated except as
expressly provided herein and except that the expenses of printing and mailing
the Form S-4 and the Proxy Statement/Prospectus, shall be shared equally by the
Company and Parent.
Section 11.4 Publicity. So long as this Agreement is in effect, Parent, Sub
and the Company agree to consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with NASDAQ
or any national securities exchange.
Section 11.5 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an
41
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 11.6 Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except as provided in Section 8.5
and 8.10 nothing in this Agreement, expressed or implied, including without
limitation the provisions of Section 8.4, is intended to nor shall it confer on
any person other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
Section 11.7 Entire Agreement. This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement dated October 24, 1997, between the Company and Parent and any
documents delivered by the parties in connection herewith and therewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
Section 11.8 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with the Mergers by
the shareholders of the Company and Parent, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its rules of conflict of laws.
EACH OF THE PARTIES HERETO (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR ANY
DELAWARE STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT
SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR
OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT
BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING
IN THE STATE OF DELAWARE OR A DELAWARE STATE COURT.
Section 11.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts,
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each of which when so executed and delivered shall be an original, but any
such counterparts shall together constitute one and the same instrument. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all of the parties hereto.
Section 11.11 Headings and Table of Contents. Headings of the Articles and
Sections of this Agreement and the Table of Contents are for the convenience of
the parties only, and shall be given no substantive or interpretive effect
whatsoever.
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Section 11.12 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 11.13 Waivers. At any time prior to the Effective Time, the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies by the other party
in the representations and warranties contained herein or in any documents
delivered pursuant hereto and (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party. Except as provided in this
Agreement, no action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereunder
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provision hereunder.
Section 11.14 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 11.15 Subsidiaries. As used in this Agreement, the word
"subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
Dover Downs Entertainment, Inc.
By:
---------------------------
Name: Xxxxx XxXxxxx
Title: President
FOG Acquisition Corporation
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By:
---------------------------
Name: Xxxxx XxXxxxx
Title: President
Grand Prix Association of Long Beach, Inc.
By:
---------------------------
Name: Xxxxxxxxxxx X. Xxxx
Title: Chief Executive Officer
45
