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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
DATED NOVEMBER 19, 1998
AMONG
ACTION PERFORMANCE COMPANIES, INC.,
ACTION INTERACTIVE, INC.,
TECH 2000 WORLDWIDE, INC.,
XXXXX X. XXXXXXXX,
AND
XXXXXXXX X. XXXXXXXX, EXECUTRIX OF
THE ESTATE OF XXXXXXX X. XXXXXXXX
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TABLE OF CONTENTS
PAGE
SECTION 1 MERGER OF THE COMPANY AND MERGER SUBSIDIARY................... 1
1.1 Merger........................................................... 1
1.2 Effect of the Merger............................................. 1
1.3 Name of Merger Subsidiary........................................ 1
1.4 Articles of Incorporation and Bylaws............................. 1
1.5 Status and Conversion of Securities.............................. 1
(a) Conversion of Company Stock into Action Stock.............. 1
(b) Exchange of Certificates................................... 1
(c) Hold-back of Action Common Stock .......................... 2
(d) Common Stock of Merger Subsidiary ......................... 2
1.6 Accounting Treatment............................................. 2
1.7 Pooling Letter................................................... 2
1.8 Rights in Action Common Stock.................................... 2
1.9 Further Documents................................................ 2
1.10 Effective Date................................................... 2
1.11 The Closing...................................................... 2
SECTION 2 REPRESENTATIONS AND WARRANTIES................................ 3
2.1 Representations and Warranties of Shareholders................... 3
(a) Due Incorporation, Good Standing, and Qualification........ 3
(b) Power to Execute Agreement; Enforceability................. 3
(c) Capital Stock.............................................. 3
(d) Options, Warrants, and Rights; Mergers in Capital
Stock; Organization Accounting............................. 4
(e) No Bonus Shares............................................ 4
(f) Predecessor Status......................................... 4
(g) Spin-Off by Company........................................ 4
(h) Subsidiaries............................................... 4
(i) Financial Statements....................................... 4
(j) Books and Records.......................................... 4
(k) No Material Change......................................... 4
(l) Actions in the Ordinary Course of Business................. 4
(m) Title to Properties........................................ 5
(n) Litigation................................................. 5
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(o) Licenses and Permits....................................... 5
(p) No Violation............................................... 5
(q) Taxes...................................................... 5
(r) Accounts Receivable........................................ 6
(s) Contracts.................................................. 6
(t) Intellectual Property...................................... 6
(u) Compliance with Law and Other Regulations.................. 6
(v) Insurance.................................................. 7
(w) Articles, Bylaws, and Minute Books......................... 7
(x) Employee Benefit and Employment Matters.................... 7
(y) No Dividends or Other Payments to Directors,
Officers, Shareholders or Others........................... 7
2.2 Further Representations and Warranties of Shareholders........... 7
(a) Ownership of Capital Stock of the Company.................. 7
(b) Rights to Acquire Shares................................... 8
(c) Power to Execute Agreement; Enforceability................. 8
(d) Agreement Not in Breach of Other Instruments............... 8
(e) Reliance Upon Shareholder's Advisors....................... 8
(f) Intent and Access.......................................... 8
(g) No Binding Commitment to Dispose of Action Common
Stock...................................................... 8
(h) Accuracy of Statements..................................... 9
2.3 Representations and Warranties of Action and Merger
Subsidiary....................................................... 9
(a) Due Incorporation, Good Standing, and Qualification........ 9
(b) Corporate Authority........................................ 9
(c) Capital Stock.............................................. 9
(d) Options, Warrants, and Rights.............................. 9
(e) Subsidiaries............................................... 9
(f) Financial Statements....................................... 10
(g) No Material Change......................................... 10
(h) Title to Assets and Properties............................. 10
(i) Litigation................................................. 10
(j) Rights and Licenses........................................ 10
(k) No Violation............................................... 11
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PAGE
(l) Taxes...................................................... 11
(m) Accounts Receivable........................................ 11
(n) Contracts.................................................. 11
(o) Compliance with Law and Other Regulations.................. 11
(p) Insurance.................................................. 11
(q) Employees.................................................. 11
(r) SEC Reports................................................ 12
(s) Status of Action Common Stock Being Issued................. 12
(t) Accuracy of Statements..................................... 12
2.4 Survival of Representations and Warranties....................... 12
SECTION 3 PRE-CLOSING COVENANTS......................................... 12
3.1 Covenants of Shareholders and the Company........................ 12
(a) Preservation of Business................................... 12
(b) Ordinary Course............................................ 12
(c) Books and Records.......................................... 13
(d) No Organic Change.......................................... 13
(e) No Issuance of Shares, Options, or Other Securities........ 13
(f) Compensation............................................... 13
(g) Dividends.................................................. 13
(h) Confidentiality............................................ 13
(i) Obligation to Update Information........................... 13
(j) Consents and Approvals..................................... 13
3.2 Covenants of Action and Merger Subsidiary........................ 13
(a) Preservation of Business................................... 13
(b) Ordinary Course............................................ 14
(c) Books and Records.......................................... 14
(d) No Organic Change.......................................... 14
(e) Dividends.................................................. 14
(f) Obligation to Update Information........................... 14
(g) Consents and Approvals..................................... 14
SECTION 4 CONDITIONS PRECEDENT TO OBLIGATIONS........................... 14
4.1 Conditions Precedent to the Obligations of Action and
Merger Subsidiary................................................ 14
(a) Accuracy of Representations and Warranties................. 14
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(b) Performance of Agreements.................................. 14
(c) Corporate Approvals........................................ 14
(d) No Material Adverse Change................................. 14
(e) Litigation................................................. 14
(f) Pooling Letter............................................. 15
(g) Employment Agreement....................................... 15
(h) Registration Rights Agreement.............................. 15
(i) Opinion of Counsel......................................... 15
(j) Execution of Escrow Agreement.............................. 15
(k) Cancellation of Promissory Notes........................... 15
(l) Acquisition of Trademark Rights............................ 15
(m) Proceedings Satisfactory to Counsel........................ 15
4.2 Conditions Precedent to the Obligations of the Company and
Shareholders..................................................... 15
(a) Accuracy of Representations and Warranties................. 15
(b) Performance of Agreements.................................. 15
(c) Corporate Approval......................................... 15
(d) Opinion of Counsel......................................... 15
(e) No Material Adverse Change................................. 16
(f) Litigation................................................. 16
(g) Execution of Employment Agreement.......................... 16
(h) Execution of Registration Rights Agreement................. 16
(i) Execution of Escrow Agreement.............................. 16
(j) Payment of Promissory Notes................................ 16
(k) Proceedings Satisfactory to Counsel........................ 16
SECTION 5 WAIVER, MODIFICATION, ABANDONMENT............................. 16
SECTION 6 POST-CLOSING COVENANTS........................................ 17
6.1 Filing of Tax Returns and Payment of Taxes....................... 17
6.2 Non-Competition, Non-Disclosure, and Non-Solicitation............ 17
(a) Non-competition............................................ 17
(b) Confidential Information................................... 17
(c) Nonsolicitation............................................ 18
(d) Reasonableness and Remedies................................ 18
(e) Severability; Reformation.................................. 18
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PAGE
6.3 Tax and Accounting Treatment..................................... 18
6.4 Further Assurances............................................... 19
SECTION 7 INDEMNIFICATION............................................... 19
7.1 Indemnification by Shareholders.................................. 19
7.2 Indemnification By Action........................................ 19
7.3 Notice and Right to Defend Third-Party Claims.................... 19
7.4 Limitations on Indemnification; Security for the
Shareholders' Indemnification and Other Obligations.............. 20
7.5 Further Limitations on Indemnification........................... 20
7.6 Certain Claims by Shareholders................................... 20
7.7 Indemnification to be Sole Remedy................................ 21
SECTION 8 GENERAL....................................................... 21
8.1 Costs and Indemnity Against Finders.............................. 21
8.2 Controlling Law.................................................. 21
8.3 Notices.......................................................... 21
8.4 Binding Nature of Agreement; No Assignment....................... 22
8.5 Entire Agreement................................................. 22
8.6 Paragraph Headings............................................... 22
8.7 Counterparts..................................................... 22
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of
November 19, 1998, by and among ACTION PERFORMANCE COMPANIES, INC., an
Arizona corporation ("Action"); ACTION INTERACTIVE, INC., an Arizona
corporation and a wholly owned subsidiary of Action ("Merger Subsidiary");
TECH 2000 WORLDWIDE, INC., a Massachusetts corporation (the "Company"); and
XXXXX X. XXXXXXXX ("Xxxxxxxx") and XXXXXXXX X. XXXXXXXX, EXECUTRIX OF THE
ESTATE OF XXXXXXX X. XXXXXXXX (the "Estate"). Xxxxxxxx and the Estate are
each referred to herein as a "Shareholder" and, together, as "Shareholders."
Shareholders own all of the issued and outstanding capital stock of the
Company. The parties hereto desire that the Company be merged with and into
Merger Subsidiary on the terms and conditions set forth in this Agreement
(the "Merger"). For federal income tax purposes, it is intended by the
parties that the Merger shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). Specifically, it is intended that the Merger
qualify as a forward triangular reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth herein, the parties hereby approve and adopt this
Agreement as a "Plan of Reorganization" and agree as follows:
SECTION 1
MERGER OF THE COMPANY AND MERGER SUBSIDIARY
1.1 MERGER. On the Effective Date (as defined in Section 1.10), the
Company shall be merged with and into Merger Subsidiary, which shall be the
surviving corporation, pursuant to the Agreement and Plan of Merger attached as
Exhibit A hereto (the "Agreement and Plan of Merger"). At the time of Closing
(as defined below), Action shall cause the Articles of Merger to be filed with
the Secretary of State of Arizona, and Shareholders shall cause Articles of
Merger to be filed with the Secretary of State of Massachusetts.
1.2 EFFECT OF THE MERGER. Upon the Merger becoming effective, the separate
existence of the Company shall cease, and Merger Subsidiary shall succeed to and
possess all the properties, rights, privileges, powers, franchises, and
immunities, of a public as well as of a private nature, and be subject to all
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Company, all without further act or deed, as provided in Section 10-1106 of
the Arizona Business Corporation Act.
1.3 NAME OF MERGER SUBSIDIARY. The name of Merger Subsidiary shall remain
"Action Interactive, Inc."
1.4 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and the Bylaws of Merger Subsidiary as in effect on the Effective Date shall be,
from and after the Effective Date, the Articles of Incorporation and Bylaws of
Merger Subsidiary until they are amended.
1.5 STATUS AND CONVERSION OF SECURITIES.
(a) CONVERSION OF COMPANY STOCK INTO ACTION STOCK. Upon the Merger
becoming effective, the shares of common stock, no par value per share, of the
Company issued and outstanding on the Effective Date (the "Shares"), by reason
of the Merger and upon surrender to Action by the holders thereof, shall be
converted into 137,923 shares of Action's common stock, par value $.01 per share
(the "Common Stock"). The 137,923 shares of Common Stock issuable pursuant to
this Section 1.5(a), including the "Held Back Shares" (as defined below), are
collectively referred to herein as the "Action Common Stock." The shares of
Action Common Stock shall be issued, delivered, and held pursuant to Section
1.5(b), Section 1.5(c), and Section 7 of this Agreement.
(b) EXCHANGE OF CERTIFICATES. Subject to Section 1.5(c), after the
Effective Date each holder (other than Action) of an outstanding certificate or
certificates representing the Shares, upon surrender thereof to Action, shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of Action Common Stock into which the Shares
theretofore represented by such surrendered certificate or
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certificates shall have been converted as illustrated and provided for on
Schedule 1.5(b) hereto. Until so surrendered, each outstanding certificate
representing Shares shall be deemed for all purposes to represent the number of
shares of Action Common Stock into which the Shares theretofore represented
thereby shall have been converted. As promptly as practicable after the
Effective Date, Action shall make available, by transferring to Merger
Subsidiary or by transferring directly to its independent transfer agent (in
such capacity the "Exchange Agent"), for the benefit of Shareholders, the number
of shares of Action Common Stock required for conversion in accordance with this
Agreement.
(c) HOLD-BACK OF ACTION COMMON STOCK.
(i) As security for Shareholders' agreement in Section 7 to
indemnify and hold Action harmless, Action shall set aside and deliver to the
Escrow Agent under the Escrow Agreement (as defined below), in accordance with
Section 7, stock certificates representing 10% of the shares of Common Stock
issuable pursuant to Section 1.5(a) (the "Held Back Shares").
(ii) Action shall deliver stock certificates representing the
balance of the shares of Common Stock issuable in accordance with Section 1.5(a)
to Shareholders in the respective amounts to which they are entitled.
(d) COMMON STOCK OF MERGER SUBSIDIARY. All authorized shares of
Merger Subsidiary common stock, par value $.01 per share ("Merger Subsidiary
Common Stock"), whether issued or unissued, outstanding or reacquired, shall
continue unchanged as shares of Merger Subsidiary Common Stock.
1.6 ACCOUNTING TREATMENT. It is intended by the parties that the Merger
shall be treated for accounting purposes as a pooling-of-interests business
combination in accordance with generally accepted accounting principles in the
United States ("GAAP") and the rules and regulations of the Securities and
Exchange Commission (the "SEC").
1.7 POOLING LETTER. At or prior to the Closing, Shareholders shall execute
and deliver a letter agreement in favor of Action, in form and content as set
forth on Exhibit B attached hereto (the "Pooling Letter"), pursuant to which
Shareholders shall agree to hold the Action Common Stock received by
Shareholders for such period of time as is necessary to allow the Merger to be
accounted for as a pooling-of-interests under GAAP and the rules and regulations
of the SEC.
1.8 RIGHTS IN ACTION COMMON STOCK. Except as described in Section 2.3(s)
and except for the restrictions on resale or transfer described in the Escrow
Agreement and in the Pooling Letter, all Action Common Stock received by
Shareholders pursuant to this Agreement shall have the same rights as all of the
other shares of Action's outstanding Common Stock. Upon the surrender and
delivery of the Shares to Action by Shareholders, all voting rights of such
Action Common Stock received by Shareholders shall be fully exercisable by
Shareholders and Shareholders shall not be deprived or restricted in exercising
those rights.
1.9 FURTHER DOCUMENTS. From time to time, on and after the Effective Date,
as and when requested by Merger Subsidiary, Action, or their respective
successors or assigns, the appropriate officers and directors of the Company as
of the Effective Date shall, at the expense of Action, for and on behalf and in
the name of the Company or otherwise, execute and deliver all such deeds, bills
of sale, assignments, and other instruments and shall take or cause to be taken
such further or other actions as Merger Subsidiary, Action or their respective
successors or assigns may deem necessary or desirable in order to confirm of
record or otherwise to Merger Subsidiary title to and possession of all of the
properties, rights, privileges, powers, franchises, and immunities of the
Company and otherwise to carry out fully the provisions and purposes of this
Agreement.
1.10 EFFECTIVE DATE. The Merger shall become effective on the later to
occur of (a) the filing of Articles of Merger with the State of Arizona, and (b)
the filing of Articles of Merger with the Secretary of Commonwealth of
Massachusetts (the "Effective Date").
1.11 THE CLOSING. Subject to the terms and conditions of this Agreement,
the consummation of the Merger and the other transactions contemplated by this
Agreement (the "Closing") shall take place as promptly as
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practicable (and in any event within three business days after the satisfaction
or waiver of the conditions set forth in Section 4 of this Agreement), at the
offices of X'Xxxxxx, Cavanagh, Andersen, Xxxxxxxxxxxxx & Xxxxxxxx, Xxx Xxxx
Xxxxxxxxx Xxxx, Xxxxxxx, Xxxxxxx 00000, or such other time and place as the
parties may otherwise agree. The date of the Closing is sometimes referred to
herein as the "Closing Date." The parties agree that the following shall occur
at the Closing:
(a) The Company and Shareholders shall have satisfied each of the
conditions set forth in Section 4.1 and shall deliver to Action and Merger
Subsidiary the documents, certificates, opinions, consents, and letters required
by Section 4.1.
(b) Action and Merger Subsidiary shall have satisfied each of the
conditions set forth in Section 4.2 and shall deliver to the Company and
Shareholders the documents, certificates, opinions, consents, and letters
required by Section 4.2.
(c) The parties shall cause the Merger to be consummated by filing
Articles of Merger as set forth in Section 1.1.
(d) At the Closing, Action shall issue and deliver the certificates
representing the Action Common Stock, including the Held Back Shares, as set
forth in Section 1.5.
SECTION 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Except as otherwise
set forth in the Shareholders' Disclosure Schedule heretofore delivered by
Shareholders to and acknowledged as received by Action, each of Shareholders,
severally, but not jointly, represent and warrant to Action and Merger
Subsidiary as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Massachusetts, with all requisite corporate power and authority to
own, operate, and lease its assets and properties and to carry on its business
as now being conducted. The Company is not subject to any material disability by
reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction. Shareholders have heretofore delivered to Action a list setting
forth, as of the date of this Agreement, each jurisdiction in which the Company
is qualified to do business.
(b) POWER TO EXECUTE AGREEMENT; ENFORCEABILITY. The Company has the
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The Shareholders and the Board of Directors of Company have taken all
action necessary to authorize and approve the execution and delivery of this
Agreement, the performance of their respective obligations hereunder, and the
consummation of the transactions contemplated hereby. No other corporate
proceedings on the part of the Company, including a meeting of shareholders, are
necessary to authorize the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
the legal, valid and binding obligation of, the Company, enforceable against it
in accordance with its terms, except that (i) such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought.
(c) CAPITAL STOCK. As of the date hereof, the Company has an
authorized capital stock consisting of 20,000 shares of common stock, no par
value, of which 11,765 shares are issued and outstanding, all of which are owned
by the Shareholders, free and clear of all claims, liens, charges, and
encumbrances. All of the issued and outstanding shares of capital stock of the
Company have been validly authorized and issued and are fully paid and
nonassessable.
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(d) OPTIONS, WARRANTS, AND RIGHTS; MERGERS IN CAPITAL STOCK;
ORGANIZATION ACCOUNTING. The Company does not have outstanding any options,
warrants, or other rights to purchase, or securities or other obligations
convertible into or exchangeable for, or contracts, commitments, agreements,
arrangements, or understandings to issue, any shares of its capital stock or
other securities. The Company has not acquired or redeemed any Company Shares
during the two-year period immediately preceding the date of this Agreement and
has no obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Neither the voting stock
structure of the Company nor the relative ownership of shares among any of its
shareholders has been altered or changed in contemplation of the Merger.
(e) NO BONUS SHARES. None of the Shares was issued pursuant to
awards, grants, or bonuses in contemplation of the Merger.
(f) PREDECESSOR STATUS. Set forth on the Shareholders' Disclosure
Schedule is a listing of all names of all predecessor companies of the Company,
including the names of any entities acquired by the Company (by stock purchase,
merger or otherwise) as owned by the Company or from which the Company
previously acquired material assets, in any case from the earliest date upon
which Shareholders acquired stock in the Company. Within such period of time,
the Company has not been a subsidiary or division of another corporation or part
of any acquisition that was later rescinded.
(g) SPIN-OFF BY COMPANY. During the two-year period immediately
preceding the date of this Agreement, there has not been any sale, spin-off, or
split-up of material assets of either the Company or any other person or entity
that directly, or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, the Company.
(h) SUBSIDIARIES. The Company has no subsidiaries. The Company does
not own, directly or indirectly, any capital stock or other equity securities of
any corporation or have any direct or indirect equity or ownership interest in
any corporation or other business.
(i) FINANCIAL STATEMENTS. The Balance Sheet of the Company as of
October 31, 1998 (the "Company's Base Balance Sheet") and the Statements of
Operations, and the Statements of Shareholders' Equity of the Company for the
three years ended October 31, 1998, and all related schedules and notes to the
foregoing, have been prepared by the Company without audit. All of the foregoing
financial statements have been prepared in accordance with GAAP, which were
applied on a consistent basis (except as described therein), and present fairly,
in all material respects, the financial position, results of operations, and
changes of financial position of the Company as of their respective dates and
for the periods indicated. The Company does not have any material liabilities or
obligations of a type that would be included in a balance sheet prepared in
accordance with GAAP, whether related to tax or non-tax matters, accrued or
contingent, due or not yet due, liquidated or unliquidated or otherwise, except
as and to the extent disclosed or reflected in the Company's Base Balance Sheet
or incurred since October 31, 1998, in the ordinary course of business or as
contemplated by this Agreement.
(j) BOOKS AND RECORDS. The books of account and other corporate
records of the Company are complete and accurate, have been maintained in
accordance with reasonable business practices, and the matters contained therein
are appropriately reflected in the Company's financial statements.
(k) NO MATERIAL CHANGE. Since October 31, 1998, there has not been
and there is not threatened (i) any material adverse change in the business,
assets, properties, financial condition, or operating results of the Company,
(ii) any loss or damage (whether or not covered by insurance) to any of the
assets or properties of the Company, which materially affects or impairs its
ability to conduct its business, or (iii) any mortgage or pledge of any assets
or properties of the Company, or any indebtedness incurred by the Company other
than indebtedness, not material in the aggregate, incurred in the ordinary
course of business.
(l) ACTIONS IN THE ORDINARY COURSE OF BUSINESS. Since October 31,
1998, the Company has not (i) taken any action outside of the ordinary and usual
course of business; (ii) borrowed any money or become contingently liable for
any obligation or liability of another; (iii) failed to pay any of its debts and
obligations as they became due; (iv) incurred any debt, liability, or obligation
of any nature to any party except for obligations arising
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from the purchase of goods or the rendition of services in the ordinary course
of business, none of which aggregate more than $25,000 with respect to the same
supplier or customer; (v) knowingly waived any right of substantial value; (vi)
failed to use its reasonable efforts to preserve its business organization
intact, to keep available the services of its employees, or to preserve its
relationships with its customers, suppliers, and others with which it deals; or
(vii) increased or committed to increase the salary, fee, or compensation of any
officer, employee, independent contractor, agent, firm, or person performing
services for it.
(m) TITLE TO PROPERTIES. The Company has good and marketable title
to all of its real and personal assets and properties, including all assets and
properties reflected in the Company's Base Balance Sheet or acquired subsequent
to October 31, 1998, except assets or properties disposed of subsequent to that
date in the ordinary course of business. Such assets and properties are subject
to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security
interest, or title retention or other security arrangement, except for liens for
the payment of federal, state, and other taxes, the payment of which is neither
delinquent nor subject to penalties, and except for other liens and encumbrances
incidental to the conduct of the business of the Company or the ownership of its
assets or properties, which were not incurred in connection with the borrowing
of money or the obtaining of advances and which do not in the aggregate
materially detract from the value of the assets or properties of the Company or
materially impair the use thereof in the operation of its business, except in
each case as disclosed in the Company's Base Balance Sheet. All leases pursuant
to which the Company leases any substantial amount of real or personal property
are valid and effective in accordance with their respective terms. The Company
owns or has the right to use all assets and properties necessary to conduct its
business as currently conducted.
(n) LITIGATION. There are no actions, suits, proceedings, or other
litigation pending or, to the knowledge of Shareholders, threatened against the
Company, at law or in equity, or before or by any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality that, if determined adversely to the Company, would individually
or in the aggregate have an adverse effect on the business, assets, properties,
operating results, prospects, or condition, financial or otherwise, of the
Company.
(o) LICENSES AND PERMITS. The Company is not subject to any material
disability or liability by reason of its failure to possess any license, permit,
franchise, certificate, consent, approval, or authorization. The Company has all
licenses, permits, franchises, consents, approvals, and authorizations of
whatever kind and type, governmental or private, necessary for the business
conducted by it and the ownership or use of all assets and properties and the
premises occupied by it. The Shareholders' Disclosure Schedule contains a true,
correct, and complete list of all licenses, permits, franchises, consents,
approvals, and authorizations necessary for the conduct of the Company's
business.
(p) NO VIOLATION. The execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby will
not violate or result in a breach by the Company of, or constitute a default
under, or conflict with, or cause any acceleration of any obligation with
respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of the Company, or (ii) any provision or restriction of
any lien, lease agreement, contract, instrument, order, judgment, award, decree,
ordinance, or regulation or any other restriction of any kind or character to
which any assets or properties of the Company is subject or by which the Company
is bound.
(q) TAXES. The Company has duly filed in correct form all Tax
Returns (as defined below) relating to the activities of the Company required or
due to be filed (with regard to applicable extensions) on or prior to the date
of this Agreement. All such Tax Returns are accurate and complete in all
material respects, and the Company has paid or made provision for the payment of
all Taxes (as defined below) that have been incurred or are due or claimed to be
due from it by federal, state, or local taxing authorities for all periods
ending on or before the date of this Agreement, other than Taxes or other
charges that are not delinquent or are being contested in good faith and have
not been finally determined and have been disclosed to Action. The amounts set
up as reserves for Taxes on the books of the Company are sufficient in the
aggregate for the payment of all unpaid Taxes (including any interest or
penalties thereon), whether or not disputed, accrued, or applicable. No claims
for taxes or assessments are being asserted or threatened against the Company.
For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges,
fees, levies, or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, transfer, license, payroll, and franchise
taxes, imposed by the United States, or any state, local or foreign government
or subdivision or agency thereof and any interest, penalties or additions
attributable thereto, and
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the term "Tax Return" shall mean any report, return, or other information
required to be supplied to a taxing authority or required by a taxing authority
to be supplied to any other person. The Company has duly and validly filed
elections for C corporation status under the Internal Revenue Code; none of such
elections have been revoked or terminated; and neither the Company nor any
shareholder of the Company has taken any action that would cause a termination
of such election.
(r) ACCOUNTS RECEIVABLE. The accounts receivable of the Company have
been acquired in the ordinary course of business, are valid and enforceable, and
are fully collectible, subject to no known defenses, set-offs, or counterclaims,
except to the extent of the reserve reflected in the books of the Company or in
such other amount that is not material in the aggregate.
(s) CONTRACTS. The Company is not a party to (i) any plan or
contract providing for bonuses, pensions, options, stock purchases, deferred
compensation, retirement payments, or profit sharing, (ii) any collective
bargaining or other contract or agreement with any labor union, (iii) any lease,
installment purchase agreement, or other contract with respect to any real or
personal property used or proposed to be used in its operations, excepting, in
each case, items included within aggregate amounts disclosed or reflected in the
Company's Base Balance Sheet, (iv) any employment agreement or other similar
arrangement not terminable by it upon 30 days or less notice without penalty to
it, (v) any contract or agreement for the purchase of any commodity, material,
fixed asset, or equipment in excess of $25,000, (vi) any contract or agreement
creating an obligation of $25,000 or more, (vii) any contract or agreement that
by its terms does not terminate or is not terminable by it upon 30 days or less
notice without penalty to it, (viii) any loan agreement, indenture, promissory
note, conditional sales agreement, or other similar type of arrangement, (ix)
any material license agreement, or (x) any contract that may result in a
material loss or obligation to it. All material contracts, agreements, and other
arrangements to which the Company is a party are valid and enforceable in
accordance with their terms; the Company and all other parties to each of the
foregoing have performed all obligations required to be performed to date;
neither the Company nor any such other party is in default or in arrears under
the terms of any of the foregoing; and no condition exists or event has occurred
that, with the giving of notice or lapse of time or both, would constitute a
default under any of them.
(t) INTELLECTUAL PROPERTY. The Company owns or holds all of the
rights to use all logos, trademarks, trade names, trade secrets, fictitious
names, service marks, patents, and copyrights that are used in or necessary to
the operation of its business (collectively, "Intellectual Property"). The
Shareholders' Disclosure Schedule sets forth a true, complete, and correct list
of all of the Intellectual Property owned or used by the Company, including but
not limited to all "domain names" used by the Company, the names of all software
programs used by the Company, and a list of all trademark and copyright
registrations applied for and/or issued with respect to the Intellectual
Property. The Company has applied for trademark or copyright registrations for
all software, "screens," and other Intellectual Property that it owns and uses
or intends to use in connection with its business operations. Shareholders are
not aware of any facts, claims, or circumstances that would enable any person or
entity to challenge the Company's ownership of or right to use any of the
Intellectual Property, including the Company's copyrights or trademarks, its
rights to register such copyrights or trademarks, and the right to seek all
available protections and remedies against any party that infringes such
copyrights or trademarks. None of the matters covered by the Intellectual
Property, nor any of the products or services sold or provided by the Company,
nor any of the processes used or the business practices followed by the Company,
infringes or has infringed upon any logo, trademark, trade name, trade secret,
fictitious name, service xxxx, patent, or copyright owned by any person or
entity (or any application with respect thereto), or constitutes unfair
competition. The Company is not and, following the Merger, Action and Merger
Subsidiary will not be, obligated to pay any royalty or other payment with
respect to any of the Intellectual Property. No person or entity is producing,
providing, selling, or using products or services that would constitute an
infringement of any of the Intellectual Property. The Company has taken all
actions reasonably necessary under applicable law to protect all trade secrets
and confidential information used or contained in the Intellectual Property
including, but not limited to, limitation of access to such information,
confidentiality agreements with employees, and advising its employees with
access to such trade secrets or confidential information regarding the status of
such trade secrets or confidential information.
(u) COMPLIANCE WITH LAW AND OTHER REGULATIONS. The Company is not
subject to and has not been threatened with any material fine, penalty,
liability, or disability as the result of its failure to comply with any
requirement of federal, state, local, or foreign law or regulation or any
requirement of any governmental body or
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agency having jurisdiction over it, the conduct of its business, the use of its
assets and properties, or any premises occupied by it.
(v) INSURANCE. The Company maintains in full force and effect
insurance coverage on its assets, properties, premises, operations, and
personnel in such amounts as the Company deems appropriate, all as set forth on
the Shareholders' Disclosure Schedule.
(w) ARTICLES, BYLAWS, AND MINUTE BOOKS. Shareholders have heretofore
delivered to Action true and complete copies of the Articles of Incorporation
and Bylaws of the Company as currently in effect. The minute books of the
Company contain complete and accurate records of all meetings and other
corporate actions held or taken by the Boards of Directors (or committees of the
Boards of Directors) and shareholders of the Company since its incorporation.
(x) EMPLOYEE BENEFIT AND EMPLOYMENT MATTERS. The Company has
fulfilled its obligations, if any, under the minimum funding standards of
Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Employee Retirement Income Security Act of 1974
("ERISA") and the regulations and published interpretations thereunder with
respect to each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company are eligible to
participate and each such plan is in compliance in all material respects with
the presently applicable provisions of ERISA and such regulations and published
interpretations. The Company has not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA. The
Shareholders' Disclosure Schedule includes true and complete copies of each
pension plan, welfare plan, and employment benefit plan applicable to the
Company and related trust agreements or annuity contracts, Internal Revenue
Service determination letters and summary plan descriptions; all of the
foregoing plans, agreements, and commitments are valid, binding, in full force
and effect, and there are no defaults thereunder; and none of the rights of the
Company or any of its ERISA Affiliates thereunder will be impaired by this
Agreement or the consummation of the transactions contemplated by this
Agreement. The Company is not a party to any collective bargaining agreement
and, to the best of Shareholders' knowledge, there is no material request for
union representation pending or threatened against the Company. The employment
of each employee of the Company is terminable at will without cost to the
Company. The Company has complied with all other applicable federal, state, and
local laws relating to the employment of labor, including, but not limited to,
the provisions thereof relative to wages, hours, collective bargaining, working
conditions, and payment of taxes of any kind, and the Company is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing or has any obligations for any vacation, sick leave, or other
compensatory time. All officers and independent contractors of the Company are
paid salaries or other compensation in accordance with the amounts set forth in
the Shareholders' Disclosure Schedule, which correctly and accurately sets forth
all salaries, expenses, and personal benefits paid to or accrued for all
directors, officers, and principal shareholders of the Company as of the date of
this Agreement, all of which are reflected as appropriate in the Company's Base
Balance Sheet.
(y) NO DIVIDENDS OR OTHER PAYMENTS TO DIRECTORS, OFFICERS,
SHAREHOLDERS OR OTHERS. Except as set forth on the Shareholder's Disclosure
Schedule, during the two-year period immediately preceding the date of this
Agreement, the Company has not declared or paid any dividends or distributions
to its shareholders or made any purchase or redemption of any shares of capital
stock of the Company or any transfer, distribution, or payment, directly or
indirectly, of any money or other assets or properties to any director, officer,
shareholder, or any of their affiliates or other person other than the payment
of compensation for services actually rendered, payments in the ordinary course
of business, or payments for goods or services in arm's length Mergers.
2.2 FURTHER REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Except as set
forth in the Shareholder's Disclosure Schedule, each Shareholder makes the
following further representations and warranties as to himself or itself:
(a) OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. Such Shareholder owns
the number of Shares of common stock of the Company set forth beside such
Shareholder's name on Schedule 1.5(b) attached hereto. Such Shareholder has
good, marketable, and unencumbered title to such Shares, and there are no
restrictions on his or its right to transfer such Shares to Action pursuant to
this Agreement. Such Shareholder has at all times
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during the two-year period immediately preceding the date of this Agreement
owned or maintained the sole equitable and beneficial interest in all of such
Shareholder's Shares.
(b) RIGHTS TO ACQUIRE SHARES. Such Shareholder does not have any
outstanding options, warrants, or other rights to purchase or subscribe for or
contracts or commitments to sell, or any interests, instruments, evidences of
indebtedness or other securities convertible in any manner into, shares of
Company's capital stock.
(c) POWER TO EXECUTE AGREEMENT; ENFORCEABILITY. Such Shareholder has
full power and authority to execute, deliver and perform this Agreement. No
other proceedings on the part of the Shareholders, including a meeting of
shareholders, are necessary to authorize the execution and delivery by the
Shareholders of this Agreement or the consummation by the Shareholders of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by, and constitutes a legal, valid, and binding agreement of, such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(d) AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, and the fulfillment of the terms hereof, will not result in the breach
of any term or provision of, or constitute a default under, or conflict with, or
cause the acceleration of any obligation under, any agreement or other
instrument of any description to which such Shareholder is a party or by which
such Shareholder is bound, or any judgment, decree, order or award of any court,
governmental body or arbitrator, or any law, rule or regulation applicable to
such Shareholder.
(e) RELIANCE UPON SHAREHOLDER'S ADVISORS. Such Shareholder
acknowledges that he or it has been encouraged to rely upon the advice of his or
its legal counsel and accountants or other financial advisers with respect to
the financial, tax, and other considerations relating to the acquisition of the
Action Common Stock. Such Shareholder represents and warrants that he or it has
reviewed with his or its own tax advisors the federal, state, local, and foreign
tax consequences of the investment in Action Common Stock. Such Shareholder is
relying solely on such advisors and not on any statements or representations of
Action or any of its officers, directors, employees, or agents and understands
that such Shareholder (and not Action) shall be responsible for his or its own
tax liability, if any, that may arise as a result of the acquisition of Action
Common Stock or the transactions contemplated by this Agreement.
(f) INTENT AND ACCESS. Such Shareholder is acquiring the shares of
Action Common Stock without a view to the public distribution or resale in
violation of any applicable federal or state securities laws. Such Shareholder
acknowledges that the shares of Action Common Stock are not registered under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws and cannot be sold publicly without registration thereunder or
an exemption from such registration. Such Shareholder understands that
certificates for such shares will contain a legend with respect to the
restrictions on transfer under federal and applicable state securities laws as
well as the fact that the shares are "restricted securities" under such federal
and state laws. Such Shareholder has been furnished with such information, both
financial and non-financial, with respect to the operations, business, capital
structure, and financial position of Action and its subsidiaries as they believe
necessary and have been given the opportunity to ask questions of and receive
answers from Action and its subsidiaries and their officers concerning Action
and its subsidiaries. Without limiting the foregoing, such Shareholder
specifically acknowledges the receipt of Action's Form 10-K Report for the
fiscal year ended September 30, 1997, as amended on Form 10-K/A; Action's Form
10-Q for the nine months ended June 30, 1998; Action's Proxy Statement dated
January 28, 1998; Action's 1997 Annual Report to Shareholders; and Action's
Prospectus dated July 21, 1998.
(g) NO BINDING COMMITMENT TO DISPOSE OF ACTION COMMON STOCK. Such
Shareholder is not under any binding commitment or contract to sell, exchange,
or otherwise dispose of any shares of Action Common Stock to be received by such
Shareholder pursuant to this Agreement.
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(h) ACCURACY OF STATEMENTS. Neither this Agreement nor any
statement, list, certificate, or other information furnished by the Company or
such Shareholder to Action in connection with this Agreement or any of the
Mergers contemplated hereby contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein, in light of circumstances in which they are made, not misleading.
2.3 REPRESENTATIONS AND WARRANTIES OF ACTION AND MERGER SUBSIDIARY. Except
as otherwise set forth in the Action's Disclosure Schedule heretofore delivered
by Action to Shareholders, and except as disclosed in any document heretofore
filed by Action with the Securities and Exchange Commission ("SEC"), each of
Action and Merger Subsidiary represents and warrants to Shareholders as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Action and
each of its subsidiaries (including Merger Subsidiary) are corporations duly
organized, validly existing, and in good standing under the laws of their
jurisdictions of incorporation with all requisite corporate power and authority
to own, operate, and lease their assets and properties and to carry on their
business as now being conducted. Neither Action nor any of its subsidiaries
(including Merger Subsidiary) is subject to any material disability by reason of
the failure to be duly qualified as a foreign corporation for the transaction of
business or to be in good standing under the laws of any jurisdiction. As used
in this Agreement with reference to Action, the term "subsidiaries" shall
include all direct or indirect subsidiaries of Action other than the Company. No
representation or warranty relating to Action, Action's consolidated financial
position, or Action and its subsidiaries taken as a whole shall be deemed to be
breached as a result of any circumstances that would constitute a breach of a
representation or warranty by the Company.
(b) CORPORATE AUTHORITY. Each of Action and Merger Subsidiary has
the corporate power and authority to enter into this Agreement and carry out the
transactions contemplated hereby. The Boards of Directors of each of Action and
Merger Subsidiary have duly authorized the execution, delivery, and performance
of this Agreement. No other corporate proceedings on the part of Action or
Merger Subsidiary, including a meeting of Action's or Merger Subsidiary's
shareholders, are necessary to authorize the execution and delivery by Action of
this Agreement or the consummation by Action of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
a legal, valid, and binding agreement of, each of Action and Merger Subsidiary,
enforceable against Action and Merger Subsidiary in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(c) CAPITAL STOCK. As of the date hereof, Action has authorized
capital stock, consisting of 25,000,000 shares of Common Stock, of which
16,423,238 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, no par value, of which no shares are issued and outstanding. As of such
date, 964,146 shares of Common Stock were reserved for issuance upon the
exercise of outstanding stock options and warrants and 2,074,688 shares of
Common Stock were reserved for issuance upon conversion of Action's 4-3/4%
Convertible Subordinated Notes due 2005. All of the issued and outstanding
shares of capital stock of Action and each of its subsidiaries (including Merger
Subsidiary) have been validly authorized and issued and are fully paid and
nonassessable. Action has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof. As
of the date hereof, Merger Subsidiary has authorized capital stock, consisting
of 4,000 shares of common stock, of which 1,000 shares are issued and
outstanding, and 1,000 shares of preferred stock, no par value, of which no
shares are issued and outstanding.
(d) OPTIONS, WARRANTS, AND RIGHTS. Neither Action nor any of its
subsidiaries has outstanding any options, warrants, or other rights to purchase,
or securities or other obligations convertible into or exchangeable for, or
contracts, commitments, agreements, arrangements or understandings to issue, any
shares of their capital stock or other securities, other than those referred to
in Section 3.2(c).
(e) SUBSIDIARIES. The outstanding shares of capital stock of the
subsidiaries of Action owned by Action or any of its subsidiaries are owned free
and clear of all claims, liens, charges, and encumbrances.
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Action does not own, directly or indirectly, any capital stock or other equity
securities of any corporation or have any direct or indirect equity or ownership
interest in any corporation or other business.
(f) FINANCIAL STATEMENTS. The Consolidated Balance Sheets of Action
and its subsidiaries as of September 30, 1996 and September 30, 1997 and the
Consolidated Statements of Operations, the Consolidated Statements of
Shareholders' Equity, and the Consolidated Statements of Cash Flows of Action
and its subsidiaries for the three years ended September 30, 1997, and all
related schedules and notes to the foregoing, have been reported on by Xxxxxx
Xxxxxxxx LLP, independent public accountants, and the Consolidated Balance Sheet
of Action and its subsidiaries as of June 30, 1998 and the Consolidated
Statement of Operations, the Consolidated Statement of Shareholders' Equity, and
the Consolidated Statement of Cash Flows of Action and its subsidiaries for the
nine months ended June 30, 1998 have been prepared by Action without audit. All
of the foregoing financial statements have been prepared in accordance with
GAAP, which were applied on a consistent basis (except as described therein),
and present fairly, in all material respects, the financial position, results of
operations, and changes of financial position of Action and its subsidiaries as
of their respective dates and for the periods indicated. Neither Action nor any
of its subsidiaries has any material liabilities or obligations of a type that
would be included in a balance sheet prepared in accordance with GAAP, whether
related to tax or non-tax matters, accrued or contingent, due or not yet due,
liquidated or unliquidated or otherwise, except as and to the extent disclosed
or reflected in the Consolidated Balance Sheet of Action and its subsidiaries as
of June 30, 1998 ("Action's Base Balance Sheet"), or incurred since the date of
Action's Base Balance Sheet, in the ordinary course of business or as
contemplated by this Agreement.
(g) NO MATERIAL CHANGE. Since the date of Action's Base Balance
Sheet, there has not been and there is not threatened (i) any material adverse
change in the business, assets, properties, financial condition, or operating
results of Action or its subsidiaries taken as a whole, (ii) any loss or damage
(whether or not covered by insurance) to any of the assets or properties of
Action or its subsidiaries, which materially affects or impairs their ability to
conduct their business, or (iii) any mortgage or pledge of any material amount
of the assets or properties of Action or any of its subsidiaries, or any
indebtedness incurred by Action or any of its subsidiaries, other than
indebtedness, not material in the aggregate, incurred in the ordinary course of
business.
(h) TITLE TO ASSETS AND PROPERTIES. Action and its subsidiaries have
good and marketable title to all of their respective real and personal assets
and properties, including all assets and properties reflected in Action's Base
Balance Sheet, or acquired subsequent to the date of Action's Base Balance
Sheet, except assets or properties disposed of subsequent to that date in the
ordinary course of business. Such assets and properties are subject to no
mortgage, indenture, pledge, lien, claim, encumbrance, charge, security
interest, or title retention or other security arrangement, except for liens for
the payment of federal, state, and other taxes, the payment of which is neither
delinquent nor subject to penalties, and except for other liens and encumbrances
incidental to the conduct of the business of Action and its subsidiaries or the
ownership of their assets or properties, which were not incurred in connection
with the borrowing of money or the obtaining of advances, and which do not in
the aggregate materially detract from the value of the assets or properties of
Action and its subsidiaries taken as a whole or materially impair the use
thereof in the operation of their respective businesses, except in each case as
disclosed in Action's Base Balance Sheet. All leases pursuant to which Action or
any of its subsidiaries lease any substantial amount of real or personal
property are valid and effective in accordance with their respective terms.
Action and each of its subsidiaries own or have the right to use all assets and
properties necessary to conduct their business as currently conducted.
(i) LITIGATION. There are no actions, suits, proceedings, or other
litigation pending or, to the knowledge of Action, threatened against Action or
any of its subsidiaries, at law or in equity, or before or by any federal,
state, municipal, or other governmental department, commission, board, bureau,
agency, or instrumentality that, if determined adversely to Action or its
subsidiaries, would individually or in the aggregate have an adverse effect on
the business, assets, properties, operating results, prospects, or condition,
financial or otherwise, of Action and its subsidiaries taken as a whole.
(j) RIGHTS AND LICENSES. Neither Action nor any of its subsidiaries
is subject to any material disability or liability by reason of its failure to
possess any trademark, trademark right, trade name, trade name right, or
license.
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(k) NO VIOLATION. The execution and delivery of this Agreement and
the consummation of the Mergers contemplated hereby will not violate or result
in a breach by Action or any of its subsidiaries (including Merger Subsidiary)
of, or constitute a default under, or conflict with, or cause any acceleration
of any obligation with respect to, (i) any provision or restriction of any
charter, bylaw, loan, indenture, or mortgage of Action or any of its
subsidiaries (including Merger Subsidiary), or (ii) any provision or restriction
of any lien, lease agreement, contract, instrument, order, judgment, award,
decree, ordinance, or regulation or any other restriction of any kind or
character to which any assets or properties of Action or any of its subsidiaries
(including Merger Subsidiary) is subject or by which Action or any of its
subsidiaries is bound.
(l) TAXES. Action has duly filed in correct form all Tax Returns
relating to the activities of Action and its subsidiaries required or due to be
filed (with regard to applicable extensions) on or prior to the date of this
Agreement. All such Tax Returns are accurate and complete in all material
respects, and Action has paid or made provision for the payment of all Taxes
that have been incurred or are due or claimed to be due from it by federal,
state, or local taxing authorities for all periods ending on or before the date
of this Agreement, other than Taxes or other charges that are not delinquent or
are being contested in good faith and have not been finally determined and have
been disclosed to Shareholder. The amounts set up as reserves for Taxes on the
books of Action and its subsidiaries are sufficient in the aggregate for the
payment of all unpaid Taxes (including any interest or penalties thereon),
whether or not disputed, accrued, or applicable. No claims for taxes or
assessments are being asserted or threatened against Action or any of its
subsidiaries.
(m) ACCOUNTS RECEIVABLE. The accounts receivable of Action and its
subsidiaries have been acquired in the ordinary course of business, are valid
and enforceable, and are fully collectible, subject to no known defenses,
setoffs, or counterclaims, except to the extent of the reserve reflected in the
books of Action and its subsidiaries or in such other amount that is not
material in the aggregate.
(n) CONTRACTS. Neither Action nor any of its subsidiaries is a party
to (i) any plan or contract providing for bonuses, pensions, options, stock
purchases, deferred compensation, retirement payments, or profit sharing, (ii)
any collective bargaining or other contract or agreement with any labor union,
(iii) any lease, installment purchase agreement, or other contract with respect
to any real or personal property used or proposed to be used in its operations
excepting, in each case, items included within aggregate amounts disclosed or
reflected in Action's Base Balance Sheet, (iv) any employment agreement or other
similar arrangement not terminable by it upon 30 days or less notice without
penalty to it, (v) any contract or agreement for the purchase of any commodity,
material, fixed asset, or equipment in excess of $100,000, (vi) any contract or
agreement creating an obligation of $100,000 or more, (vii) any contract or
agreement that by its terms does not terminate or is not terminable by it upon
30 days or less notice without penalty to it, (viii) any loan agreement,
indenture, promissory note, conditional sales agreement, or other similar type
of arrangement, (ix) any material license agreement, or (x) any contract that
may result in a material loss or obligation to it. All material contracts,
agreements, and other arrangements to which Action or any of its subsidiaries is
a party are valid and enforceable in accordance with their terms; Action, its
subsidiaries, and all other parties to each of the foregoing have performed all
obligations required to be performed to date; neither Action, nor any of its
subsidiaries, nor any such other party is in default or in arrears under the
terms of any of the foregoing; and no condition exists or event has occurred
that, with the giving of notice or lapse of time or both, would constitute a
default under any of them.
(o) COMPLIANCE WITH LAW AND OTHER REGULATIONS. Neither Action nor
any of its subsidiaries is subject to or has been threatened with any material
fine, penalty, liability, or disability as the result of its failure to comply
with any requirement of federal, state, local, or foreign law or regulation or
any requirement of any governmental body or agency having jurisdiction over it,
the conduct of its business, the use of its assets and properties, or any
premises occupied by it.
(p) INSURANCE. Action and each of its subsidiaries maintains in full
force and effect insurance coverage on their assets, properties, premises,
operations, and personnel in such amounts as Action deems appropriate.
(q) EMPLOYEES. Neither Action nor any of its subsidiaries has ever
maintained or contributed to any "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, without limitation, any stock
option plan, stock purchase plan, deferred compensation plan, or other similar
employee benefit plan, other
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than Action's Stock Option Plans. Neither Action nor any of its subsidiaries has
ever contributed to any "multi-employer pension plan," as such term is defined
in Section 3(37)(A) of ERISA.
(r) SEC REPORTS. Action's report on Form 10-K for the fiscal year
ended September 30, 1997, as amended by Form 10-K/A, filed with the SEC and all
reports and proxy statements filed by Action thereafter pursuant to Section
13(a) or 14(a) of the Securities Exchange Act of 1934, including Action's Form
10-Q Report for the quarter ended June 30, 1998, do not contain a misstatement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading as of the
time the document was filed. Since the filing of such report on Form 10-K, as
amended by Form 10-K/A, no other report, proxy statement, or other document has
been required to be filed by Action pursuant to Section 13(a) or 14(a) of the
Securities Exchange Act of 1934 that has not been filed.
(s) STATUS OF ACTION COMMON STOCK BEING ISSUED. The shares of Action
Common Stock issued in exchange for the Shares are validly authorized and
issued, fully paid, nonassessable, free of preemptive or other similar rights,
and will be authorized for trading on the Nasdaq National Market. Subject to
restrictions upon resale set forth in the Escrow Agreement and in the Pooling
Letter, the shares of Action Common Stock are identical in all respects to the
Action Common Stock issued and outstanding as of the date hereof by reason of
the provisions of the Arizona Business Corporation Act; provided, however, that
the shares of Action Common Stock will not be registered under the Securities
Act and are issued to Shareholders pursuant to a valid exemption from
registration under the Securities Act and applicable state securities laws.
(t) ACCURACY OF STATEMENTS. Neither this Agreement nor any
statement, list, certificate, or other information furnished by Action or Merger
Subsidiary to Shareholder in connection with this Agreement or any of the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
2.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholders, Action, or Merger
Subsidiary in this Agreement shall survive the consummation of the transactions
contemplated by this Agreement for a period of three years from the date of this
Agreement (the "Expiration Date"), irrespective of any investigations or
inquiries made by any party or any knowledge that any party may possess, and
each party shall be entitled to rely upon such representations and warranties
irrespective of any investigations, inquiries, or knowledge. No claim for
recovery pursuant to Section 7 of this Agreement may be asserted after such
representations and warranties have expired; provided, however, that claims
first asserted pursuant to Section 7 of this Agreement prior to the expiration
of such representations and warranties shall not thereafter be barred.
SECTION 3
PRE-CLOSING COVENANTS
3.1 COVENANTS OF SHAREHOLDERS AND THE COMPANY. Shareholders and the
Company agree that, unless Action otherwise agrees in writing and except as set
forth in the Shareholders' Disclosure Schedule, between the date of this
Agreement and the Effective Date:
(a) PRESERVATION OF BUSINESS. Shareholders and the Company shall (i)
preserve intact the present business organization of the Company, (ii) preserve
the present goodwill and advantageous relationships of the Company with all
persons having business dealings with the Company, (iii) preserve and maintain
in force all licenses, registrations, franchises, patents, trademarks,
copyrights, bonds and other similar rights of the Company that are material to
its business, and (iv) keep intact its relationships with its employees,
representatives, and agents that are material to its business. The Company shall
not enter into any employment agreements with any of its officers or management
personnel which may not be cancelled without penalty upon notice not exceeding
30 days. The Company shall maintain in force all property, casualty, fiduciary,
directors and officers and other forms of insurance which it is presently
carrying.
(b) ORDINARY COURSE. The Company shall operate its business only in
the usual, regular and ordinary course and manner. Without limiting the
foregoing, the Company shall not (i) encumber or mortgage any
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property or assets, (ii) incur any obligation (contingent or otherwise) or
purchase or acquire, or transfer or convey, any material assets or properties or
enter into any transaction or make or enter into any contract or commitment
except in the ordinary course of business, (iii) acquire any stock or other
equity interest in any corporation, trust or other entity, (iv) waive any
material rights, or (v) pay any consulting or management fees in any material
amount.
(c) BOOKS AND RECORDS. The Company shall maintain its books,
accounts, and records in the usual, regular and ordinary manner, and on a basis
consistent with prior years, and shall comply with all laws applicable to them
or to the conduct of its business.
(d) NO ORGANIC CHANGE. Except as contemplated by this Agreement, the
Company shall not (i) amend its Articles of Incorporation or bylaws, (ii) make
any change in its capital stock by reclassification, subdivision, reorganization
or otherwise, or (iii) merge or consolidate with any other corporation, trust or
entity or change the character of its business.
(e) NO ISSUANCE OF SHARES, OPTIONS, OR OTHER SECURITIES. The Company
shall not (i) issue any shares of capital stock, or (ii) grant any option,
warrant or other right to purchase or to convert any obligation into shares of
capital stock.
(f) COMPENSATION. The Company shall not (i) increase the
compensation payable to any elected officer or to other management personnel
from the amount payable as of October 31, 1998 except in accordance with normal
and customary practice, or (ii) introduce or change any pension or profit
sharing plan, or any other employee benefit arrangement.
(g) DIVIDENDS. The Company shall not declare, make or pay any
dividend or other distribution with respect to its capital stock or otherwise or
purchase, redeem or otherwise acquire any shares of its capital stock.
(h) CONFIDENTIALITY. Until the Effective Date, the Company and
Shareholders will maintain as confidential the discussions with Action and/or
Merger Subsidiary and the terms and conditions of this Agreement and the other
agreements to be executed in connection herewith and, except as required by law,
will not make any trade, press or other announcement or disclosure in relation
to such discussions, whether before or after the Effective Date, without the
prior written consent of Action.
(i) OBLIGATION TO UPDATE INFORMATION. The Company and Shareholders
shall promptly give Action and Merger Subsidiary written notice of the existence
or occurrence of any condition which would make any representation or warranty
of the Company or Shareholders untrue or result in the breach of any agreement
or covenant by the Company or Shareholders, or which might reasonably be
expected to prevent the consummation of the transactions herein contemplated.
(j) CONSENTS AND APPROVALS. The Company and Shareholders shall use
its best efforts to obtain all necessary consents and approvals of other persons
and governmental authorities to the performance by the Company of the
transactions contemplated by this Agreement. The Company and Shareholders shall
make all filings, applications, statements, and reports to all federal and state
government agencies or entities which are required to be made prior to the
Effective Date by or on behalf of the Company pursuant to any statute, rule or
regulation in connection with the transactions contemplated by this Agreement.
3.2 COVENANTS OF ACTION AND MERGER SUBSIDIARY. Each of Action and Merger
Subsidiary agrees that, unless the Company otherwise agrees in writing and
except as set forth in the Action's Disclosure Schedule, between the date of
this Agreement and the Effective Date:
(a) PRESERVATION OF BUSINESS. Action shall use its best efforts to
(i) preserve intact the present business organization of Action and its
subsidiaries, (ii) preserve the present goodwill and advantageous relationships
of Action and its subsidiaries with investors and all other persons having
business dealings with Action and its subsidiaries, (iii) preserve and maintain
in force all licenses, registrations, franchises, patents, trademarks,
copyrights, bonds, and other similar rights of Action and its subsidiaries that
are material to its business, and (iv) keep intact its relationships with its
employees, representatives, and agents that are material to its business.
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(b) ORDINARY COURSE. Action and its subsidiaries shall operate their
businesses only in the usual, regular, and ordinary course and manner.
(c) BOOKS AND RECORDS. Action and its subsidiaries shall maintain
their books, accounts and records in the usual, regular, and ordinary manner,
and on a basis consistent with prior years, and shall comply with all laws
applicable to them or to the conduct of their business.
(d) NO ORGANIC CHANGE. Except as contemplated by this Agreement,
Action shall not (i) amend its Articles of Incorporation or bylaws, (ii) make
any change in its capital stock by reclassification, subdivision, reorganization
or otherwise, or (iii) merge or consolidate with any other corporation, trust or
entity or change the character of its business.
(e) DIVIDENDS. Action shall not declare, make or pay any dividend or
other distribution with respect to its capital stock or otherwise or purchase,
redeem or otherwise acquire any shares of its capital stock.
(f) OBLIGATION TO UPDATE INFORMATION. Action and Merger Subsidiary
shall promptly give the Company and Shareholders written notice of the existence
or occurrence of any condition which would make any representation or warranty
of Action and Merger Subsidiary untrue or result in the breach of any agreement
or covenant by Action or Merger Subsidiary, or which might reasonably be
expected to prevent the consummation of the transactions herein contemplated.
(g) CONSENTS AND APPROVALS. Action and Merger Subsidiary shall use
their best efforts to obtain all necessary consents and approvals of other
persons and governmental authorities to the performance by Action of the
transactions contemplated by this Agreement. Action and Merger Subsidiary shall
make all filings, applications, statements and reports to all federal and state
government agencies and entities which are required to be made prior to the
Effective Date by or on behalf of Action or its subsidiaries pursuant to any
statute, rule or regulation in connection with the transactions contemplated by
this Agreement.
SECTION 4
CONDITIONS PRECEDENT TO OBLIGATIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACTION AND MERGER
Subsidiary. The obligations of Action and Merger Subsidiary under this Agreement
are, at the option of Action and Merger Subsidiary, subject to the satisfaction
of the following conditions on or before the Effective Date:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and Shareholders herein contained shall have been
true and correct in all material respects when made, and, in addition, shall be
true and correct in all material respects on and as of the Effective Date with
the same force and effect as though made on and as of the Effective Date, except
as affected by the transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. The Company and Shareholders shall
have in all material respects performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by them on or prior to the Effective Date.
(c) CORPORATE APPROVALS. All necessary corporate action on the part
of the directors and shareholders of the Company adopting this Agreement and
approving the transactions contemplated hereby shall have been taken by the
Effective Date.
(d) NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change in the business, properties or financial condition of the Company.
(e) LITIGATION. No action or proceeding by any governmental agency
shall have been instituted or threatened which would enjoin, restrain or
prohibit, or might result in substantial damages in respect of this Agreement or
the consummation of the transactions contemplated by this Agreement, and would
in the reasonable judgment of Action or Merger Subsidiary make it inadvisable to
consummate such transactions, and no
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court order shall have been entered in any action or proceeding instituted by
any other party which enjoins, restrains or prohibits this Agreement or
consummation of the transactions contemplated by this Agreement.
(f) POOLING LETTER. At or prior to the Closing, Shareholders shall
have executed and delivered the pooling letter in the form as set forth on
Exhibit B hereto (the "Pooling Letter").
(g) EMPLOYMENT AGREEMENT. At or prior to the Closing, Xxxxxxxx shall
have executed and delivered an employment agreement in the form attached as
Exhibit C hereto (the "Employment Agreement").
(h) REGISTRATION RIGHTS AGREEMENT. At or prior to the Closing,
Shareholders shall have executed and delivered a registration rights agreement
in the form attached as Exhibit D hereto (the "Registration Rights Agreement")
with respect to the registration for resale of the Action Common Stock to be
issued to the Shareholders in exchange for the Shares.
(i) OPINION OF COUNSEL. At or prior to the Closing, Shareholders
shall have delivered to Action an opinion of counsel substantially to the effect
as set forth in Exhibit E hereto.
(j) EXECUTION OF ESCROW AGREEMENT. At or prior to the Closing,
Shareholders shall have executed and delivered an escrow and security agreement
in the form attached as Exhibit F hereto (the "Escrow Agreement").
(k) CANCELLATION OF PROMISSORY NOTES. At the Closing, Shareholders
shall have delivered to Action the Notes (as defined below), marked "Cancelled."
(l) ACQUISITION OF TRADEMARK RIGHTS. The Company shall have acquired
all right, title, and interest in and to that certain trademark registration for
the name "Go Racing!" identified by Registration No. 2,145,010 issued March 17,
1998 by the U.S. Patent and Trademark Office.
(m) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
the Company and Shareholders and all instruments executed and delivered by the
Company or Shareholders on or prior to the Effective Date in connection with the
transactions herein contemplated shall be satisfactory in form and substance to
counsel for Action.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND
Shareholders. The obligations of the Company and Shareholders under this
Agreement are, at the option of the Company and Shareholders, subject to the
satisfaction of the following conditions on or before the Effective Date.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Action and Merger Subsidiary herein contained shall have been
true and correct in all material respects when made and, in addition, shall be
true and correct in all material respects on and as of the Effective Date with
the same force and effect as though made on and as of the Effective Date, except
as affected by the transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. Action and Merger Subsidiary shall
have in all material respects performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by Action and Merger Subsidiary on or prior to the
Effective Date.
(c) CORPORATE APPROVAL. All necessary corporation action on the part
of the directors and shareholders of Action and Merger Subsidiary approving and
adopting this Agreement and approving the transactions contemplated hereby shall
have been taken by the Effective Date.
(d) OPINION OF COUNSEL. At or prior to the Closing, Action shall
have delivered to Shareholders an opinion of counsel substantially to the effect
as set forth in Exhibit G hereto.
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(e) NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change in the business, properties or financial condition of Action or Merger
Subsidiary.
(f) LITIGATION. No action or proceeding by any governmental agency
shall have been instituted or threatened which would enjoin, restrain or
prohibit, or might result in substantial damages in respect of this Agreement or
the consummation of the transactions contemplated by this Agreement, and would
in the reasonable judgment of the Company or Shareholders make it inadvisable to
consummate such transactions, and no court order shall have been entered in any
action or proceeding instituted by any other party which enjoins, restrains or
prohibits this Agreement or consummation of the transactions contemplated by
this Agreement.
(g) EXECUTION OF EMPLOYMENT AGREEMENT. At or prior to the Closing,
Merger Subsidiary shall have executed and delivered the Employment Agreement.
(h) EXECUTION OF REGISTRATION RIGHTS AGREEMENT. At or prior to the
Closing, Action shall have executed and delivered the Registration Rights
Agreement.
(i) EXECUTION OF ESCROW AGREEMENT. At or prior to the Closing,
Action shall have executed and delivered the Escrow Agreement.
(j) PAYMENT OF PROMISSORY NOTES. At the Closing, Action shall pay to
the Estate, as holder of that certain Promissory Note dated August __, 1996, and
that certain Revolving Credit Promissory Note dated August __, 1996, each
between the Company, as maker, and Xxxxxxx X. Xxxxxxxx, as payee and each as
modified by that certain Note Modification Letter Agreement dated November 19,
1998 between the Company and the Estate (collectively and as modified, the
"Notes"), the outstanding principal amount of $600,000.00 together with accrued
and unpaid interest in the amount of $60,000.00.
(k) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
Action and Merger Subsidiary and all instruments executed and delivered by and
on or prior to the Closing Date in connection with the transactions herein
contemplated shall be satisfactory in form and substance to counsel for the
Company and Shareholders.
SECTION 5
WAIVER, MODIFICATION, ABANDONMENT
5.1 WAIVERS. The failure of the Company or Shareholders to comply with any
of their obligations, agreements or conditions as set forth herein may be waived
expressly in writing by Action and Merger Subsidiary, without the requirement
for a vote of stockholders. The failure of Action and Merger Subsidiary to
comply with any of their obligations, agreements or conditions as set forth
herein may be waived expressly in writing by the Company and Shareholders
without the vote of Shareholders.
5.2 MODIFICATION. This Agreement may be modified at any time in any
respect by the mutual consent of Action, Merger Subsidiary, the Company, and
Shareholders. Any such modification may be approved by any such party, without
further shareholder approval, except that the number of shares of Common Stock
to be issued in exchange for the Shares may not be decreased without the consent
of the Company's shareholders given by the same vote as is required under
applicable state law for approval of this Agreement.
5.3 ABANDONMENT PRIOR TO CLOSING DATE. The Merger may be abandoned on or
before the Closing Date:
(a) By the mutual agreement of Action, Merger Subsidiary, the
Company, and the Shareholders;
(b) By Action or Merger Subsidiary, if any of the conditions
provided in Section 4.1 shall not have been satisfied, complied with or
performed in any material respect, and Action and Merger Subsidiary shall not
have waived such failure of satisfaction, noncompliance or nonperformance;
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(c) By the Company and Shareholders, if any of the conditions
provided in Section 4.2 shall not have been satisfied, complied with or
performed in any material respect, and the Company and Shareholders shall not
have waived such failure of satisfaction, noncompliance or nonperformance; or
(d) At the option of Action, Merger Subsidiary, the Company or
Shareholders, if there shall have been instituted and be pending or threatened
any legal proceeding before any court or governmental agency seeking to restrain
or prohibit or to obtain damages in respect of this Agreement or the
consummation of the Merger contemplated by this Agreement, or if any order
restraining or prohibiting the Merger shall have been issued by any court or
governmental agency and shall be in effect.
(e) In the event of any termination pursuant to this Section 5.3
(other than pursuant to Section 5.3(a), written notice setting forth the reasons
thereof shall forthwith be given by Shareholders if the Company or Shareholders
is the terminating party, to Action and Merger Subsidiary, or by Action and
Merger Subsidiary, if they are the terminating parties, to the Company and
Shareholders. This Agreement shall terminate automatically if the Effective Date
shall not have occurred on or before December 15, 1998, or such later date as
shall have been agreed to by Action, Merger Subsidiary, the Company, and the
Shareholders under Section 5.2.
5.4 EFFECT OF ABANDONMENT. If the Merger is abandoned prior to the Closing
Date, (a) this Agreement shall forthwith become wholly void and of no effect
without liability to any party to this Agreement or to the directors, officers,
representatives, and agents of any such party, and (b) Action and Merger
Subsidiary on the one hand and the Company and on the other hand shall each pay
their own fees and expenses incident to the negotiation, preparation, and
execution of this Agreement and the obtaining of the necessary approvals
thereof, including fees and expenses of their counsel, accountants, investment
bankers, and other experts. If the Merger does not take place as a result of the
fault of any party, that party shall reimburse all fees, costs, expenses, and
damages incurred or suffered by the other parties.
SECTION 6
POST-CLOSING COVENANTS
6.1 FILING OF TAX RETURNS AND PAYMENT OF TAXES. Shareholders shall, at
their cost and expense, provide all information or other assistance as may
reasonably be requested by Action to enable Action or the Company to prepare or
cause to be prepared all federal, state, and local Tax Returns with respect to
the Company for all periods prior to the Effective Date that have not as yet
been filed as required. Each Shareholder agrees that Shareholders shall be
jointly and severally responsible for any and all tax obligations of the Company
or Shareholders arising as a result of the Company's status as either a C
corporation or an S corporation prior to the Effective Date. Each Shareholder
agrees that Shareholders shall promptly pay any and all Taxes determined to be
owed by the Company or Shareholders as a result of the Company's status as
either a C corporation or S corporation prior to the Effective Date.
6.2 NON-COMPETITION, NON-DISCLOSURE, AND NON-SOLICITATION. Action is
unwilling to enter into and perform this Agreement unless Xxxxxxxx enters into
the non-competition, non-disclosure, and non-solicitation agreements contained
in this Section 6.2. To induce Action to enter into this Agreement, Xxxxxxxx
agrees as follows:
(a) NON-COMPETITION. Neither Xxxxxxxx nor any person or entity
directly or indirectly in control of or controlled by Xxxxxxxx (each, a
"Xxxxxxxx'x Affiliate") shall for a period of five years after the Effective
Date (or such lesser period to the maximum extent provided by applicable law),
directly or indirectly, for itself or himself or on behalf of any other person,
firm, partnership, corporation, or other entity, anywhere in the world, engage
in any business relating to the design, creation, development, implementation,
maintenance, or distribution of, or consulting services related to, Internet
web-sites and related content relating to or associated with motorsports or
automobile racing. The five-year period referred to in this Section 6.2(a) shall
be stayed during any violation or breach of the terms of this Section 6.2(a).
(b) CONFIDENTIAL INFORMATION. Xxxxxxxx recognizes that the Company
is engaged in a highly competitive business, the success of which is dependent
upon confidential and proprietary information. Xxxxxxxx agrees that Xxxxxxxx and
each of Xxxxxxxx'x Affiliates will maintain in strict secrecy and confidence all
confidential, proprietary, or other information relating to the Company's,
Merger Subsidiary's, or Action's business, which
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information is obtained by or comes into the knowledge or possession of Xxxxxxxx
or Xxxxxxxx'x Affiliates. Furthermore, neither Xxxxxxxx nor any of Xxxxxxxx'x
Affiliates will, unless first authorized in writing by Action, disclose to any
person, firm, or other entity, or use for the benefit of Xxxxxxxx, Xxxxxxxx'x
Affiliates or for the benefit of any person, firm, or other entity, at any time,
after the Effective Date, any confidential information, relating to the
Company's or Action's business. For purposes of this Agreement, confidential
information will include, without limitation, any trade secrets, knowledge or
information with respect to processes, techniques, procedures, or know-how
unique to the Company or Action, or to which the Company or Action has been
given access in confidence by a third party pursuant to any agreement with that
third party; the names of any of the Company's or Action's customers or vendors;
the prices at which the Company or the Action obtains or has obtained or at
which the Company or Action sells or has sold the Company's or Action's products
or services or at which the Company or Action has bought materials, supplies or
services; or any other information of, about or concerning the business of the
Company or Action. Xxxxxxxx understands and agrees that all confidential
information is a valuable and special asset of the Company and Action and is
important, material, and confidential, that such confidential information
gravely affects the effective and successful conduct of the business of the
Company and Action and the Company's and Action's goodwill, and that any breach
of the terms of this Section 6.2(b) would be a material breach of this
Agreement.
(c) NONSOLICITATION. Neither Xxxxxxxx nor any of Xxxxxxxx'x
Affiliates shall, for a period of five years after the Effective Date (or such
lesser period to the maximum extent provided by applicable law), directly or
indirectly, for Xxxxxxxx, Xxxxxxxx'x Affiliates, or on behalf of, or in
connection with any person, firm, or other entity other than Action, request any
past, present, or future suppliers or customers of the Company or Action to
curtail or cancel their business with the Company or Action; solicit, canvas,
accept, encourage or authorize any other person to solicit, canvas, accept,
authorize or encourage, from any past or present supplier or customer of the
Company or Action, any business for any other person, firm, or corporation
engaged in a business the same as, similar to or in general competition with the
business of the Company or Action; or induce or attempt to influence any
employee, independent contractor, or agent of the Company or Action to terminate
that person's employment with or engagement by the Company or Action. The
five-year period referred to in this Section 6.2(c) shall be stayed during any
violation or breach of the terms of this Section 6.2(c).
(d) REASONABLENESS AND REMEDIES. Xxxxxxxx specifically acknowledges
that because its business involves services related to the "World Wide Web," the
Company currently operates its business throughout the world and the geographic
and time restrictions in this Section 6.2 are necessary and reasonable. Xxxxxxxx
hereby acknowledges and agrees that the restrictions set forth in this Section
6.2 are reasonable and necessary, that any violation thereof would result in
substantial and irreparable injury to Action, and that Action may not have an
adequate remedy at law with respect to any such violation. Accordingly, Xxxxxxxx
agrees that, in the event of any actual or threatened violation of this Section
6.2, Action shall have the right and privilege to obtain, in addition to any
other remedies that may be available, equitable relief, including temporary and
permanent injunctive relief, to cease or prevent any actual or threatened
violation of any provision hereof.
(e) SEVERABILITY; REFORMATION. Each and every provision set forth in
this Section 6.2 is independent and severable from the others, and no
restriction will be rendered unenforceable by virtue of the fact that, for any
reason, any other or others of them may be unenforceable in whole or in part. If
any provision of this Section 6.2 is unenforceable for any reason whatsoever,
that provision will be appropriately limited and reformed to the maximum extent
provided by applicable law. If the scope of any restriction contained herein is
too broad to permit enforcement to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law so as to be judged reasonable
and enforceable, and Xxxxxxxx agrees that such scope may be modified by an
arbitrator or judge in any proceeding to enforce this Section 6.2. This
includes, without limitation, altering or enforcing only portions of the limits
on activity restrictions, the geographic scope, and the duration of this Section
6.2 unless to do so would be contrary to law or public policy.
6.3 TAX AND ACCOUNTING TREATMENT. Action and each of the Shareholders
shall use their respective reasonable best efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368 of the Internal
Revenue Code. Except as disclosed on the Shareholders' Disclosure Schedule or as
otherwise consented to in writing by Action, neither Action nor any of the
Shareholders shall take any action (including, but not limited to, sales of the
Action Common Stock prior to any applicable time periods required for
pooling-of-interests treatment) after the Effective Date to cause the Merger not
to be accounted for as a pooling-of-interests business combination.
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6.4 FURTHER ASSURANCES. On and after the Effective Date, Shareholders and
Action shall execute and deliver all such deeds, bills of sale, assignments, and
other instruments and shall take or cause to be taken such further or other
actions as any party may reasonably request from time to time in order to
effectuate the transactions provided for herein. The parties shall cooperate
with each other and with their respective counsel and accountants in connection
with any steps to be taken as a part of their respective obligations under this
Agreement.
SECTION 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SHAREHOLDERS. If at any time after the Effective
Date until the Expiration Date it is discovered that any representation or
warranty of Shareholders contained or referred to in this Agreement or in any
certificate, schedule, exhibit, or document delivered pursuant hereto was
incomplete, incorrect or untrue, or that the Company or Shareholders breached
any covenant or agreement contained in this Agreement, Shareholders shall
promptly pay Action the amount of the loss, expense, or damage suffered or
incurred by Action that would not have been suffered or incurred if the facts
set forth in those representations or warranties had been correct or those
covenants and agreements had not been breached. Without in any way limiting any
of the rights of Action, Shareholders severally (up to their respective
percentage ownership of the Company immediately prior to the Merger), but not
jointly, shall indemnify and hold Action, Merger Subsidiary, the Company, and
their respective employees, agents, representatives, and all other persons or
entities charged or chargeable with responsibility or liability therefor,
harmless for, from, and against all liabilities, suits, actions, proceedings,
claims, demands, losses, damages, fees, costs, taxes, penalties, and expenses
(including, but not limited to, reasonable attorneys' and accountants' fees)
caused by, arising out of, or otherwise related to the operation of the
Company's business prior to the Effective Date.
7.2 INDEMNIFICATION BY ACTION. If at any time after the Effective Date
until the Expiration Date it is discovered that any representation or warranty,
of Action contained or referred to in this Agreement or in any certificate,
schedule, exhibit, or document delivered pursuant hereto was incomplete,
incorrect or untrue, or that Action breached any covenant or agreement contained
in this Agreement, Action shall promptly pay Shareholders the amount of the
loss, expense, or damage suffered or incurred by Shareholders that would not
have been suffered or incurred if the facts set forth in those representations
or warranties had been correct or those covenants and agreements had not been
breached. Without in any way limiting any of the rights of Shareholders, Action
shall indemnify and hold Shareholders and their employees, agents,
representatives, and all other persons or entities charged or chargeable with
responsibility or liability therefor, harmless for, from, and against all
liabilities, suits, actions, proceedings, claims, demands, losses, damages,
fees, costs, taxes, penalties and expenses (including, but not limited to,
reasonable attorneys' and accountants' fees) caused by, arising out of or
otherwise related to the operation of the Company's business subsequent to the
Effective Date.
7.3 NOTICE AND RIGHT TO DEFEND THIRD-PARTY CLAIMS. Promptly upon receipt
of notice of any claim, demand, or assessment or the commencement of any suit,
action, or proceeding with respect to which indemnity may be sought pursuant to
this Agreement (a "Third Party Claim"), Action or Shareholders, as the case may
be, (the "Indemnitee") shall notify in writing, if possible, within sufficient
time to respond to such Third Party Claim or to answer or otherwise plead in
such action (but in any event within 30 days), the party from whom
indemnification is sought (the "Indemnitor"). In case any Third Party Claim
shall be asserted, or any suit, action, or proceeding commenced against the
Indemnitee, the Indemnitor shall be entitled, at the Indemnitor's expense, to
participate therein, and, to the extent that the Indemnitor may wish, to assume
the defense, conduct, or settlement thereof, at the Indemnitor's own expense,
with counsel satisfactory to the Indemnitee, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed, provided that the
Indemnitor confirms to the Indemnitee that it is a claim to which its rights of
indemnification apply. The assumption of the defense, compromise, and settlement
of such Third Party Claim by the Indemnitor shall be an acknowledgement of the
obligation of the Indemnitor to indemnify the Indemnitee with respect to such
claim hereunder. The Indemnitor shall have the right to settle or compromise
monetary claims. As to any settlement or compromise of any other claim, however,
the Indemnitor shall first obtain the prior written consent from the Indemnitee,
which consent shall be exercised in the sole discretion of the Indemnitee. If
the Indemnitor decides not to participate, the Indemnitee shall be entitled, at
the Indemnitor's expense, to defend, conduct, settle, or compromise such matter
with counsel satisfactory to the Indemnitor, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed. Notwithstanding the
above, if, in the reasonable opinion of the Indemnitee, any Third Party Claim or
the litigation or
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resolution thereof involves an issue or matter that could have a material
adverse effect on the business, operations, assets, properties, or prospects of
the Indemnitee (including, without limitation, the administration of the tax
returns and responsibilities of the Indemnitee under applicable tax laws), the
Indemnitee shall have the right to control the defense, compromise, and
settlement of such Third Party Claim undertaken by the Indemnitor, and the costs
and expenses of the Indemnitee in connection therewith shall be included as part
of the indemnification obligation of the Indemnitor hereunder. If the Indemnitee
shall elect to exercise such right, the Indemnitor shall have the right to
participate in, but not to control, the defense, compromise, and settlement of
such Third Party Claim at its sole cost and expense.
7.4 LIMITATIONS ON INDEMNIFICATION; SECURITY FOR THE SHAREHOLDERS'
INDEMNIFICATION AND OTHER OBLIGATIONS. Action may recover for indemnification
under this Section 7 only from the Action Common Stock paid to Shareholders
pursuant to this Agreement, valued at the average of the per-share closing sale
prices of the Common Stock on the Nasdaq National Market on each trading day
from (and including) the date on which the existence of this Agreement is
publicly announced through (and including) the Effective Date (the "Per Share
Value"), provided, however, that to the extent Shareholders have sold shares of
Action Common Stock and the number of shares they continue to hold is not
sufficient to satisfy such indemnification obligation, then Action may recover
from Shareholders' other assets. Except as may otherwise be permitted and still
preserve pooling-of-interests accounting treatment, it is hereby understood and
agreed that Action may only satisfy an indemnification obligation arising under
this Agreement through payment of additional shares of its Common Stock, valued
at the Per Share Value. At the Closing, Action and each of the Shareholders
shall enter into the Escrow Agreement with respect to the Held Back Shares. As
security for the Agreement by the Shareholders to indemnify and hold Action
harmless as described in this Section 7, Action shall deliver certificates
representing the Held Back Shares to the "Escrow Agent" (as defined in the
Escrow Agreement), to be held pursuant to the terms of the Escrow Agreement.
Action may set off against the Held Back Shares any loss, damage, cost, or
expense for which Shareholders may be responsible pursuant to this Agreement
whether or not indemnified pursuant to this Section 7, subject, however, to the
terms and conditions of the Escrow Agreement. Action and Shareholders agree that
any shares remaining in escrow upon expiration of the Escrow Agreement shall be
returned to Shareholders, subject to Action's rights to recover from
Shareholders for any claims that remain pending but unresolved at the time the
Escrow Agreement expires or any further claims that arise prior to the
Expiration Date. Notwithstanding any term of this Agreement to the contrary, no
provision of this Agreement shall limit or be deemed to limit any liability that
one party may have against any other parties hereto (i) that arises by statute
or any applicable federal, state, or local law, or (ii) with respect to a claim
of fraud.
7.5 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything to
the contrary in this Agreement, no Indemnitor shall have any obligation to
indemnify any Indemnitee pursuant to this Section 7 for individual claims of
less than $25,000 ("Small Claims"). Furthermore, no Indemnitor shall have any
obligation to indemnify any Indemnitee pursuant to this Section 7 unless and
until such Indemnitee has suffered indemnifiable loss, expense, or damage in
excess of an aggregate $150,000 deductible for all losses, expenses, or damages
suffered or incurred, including Small Claims, (i.e., a cumulative deductible
amount for all occurrences, including Small Claims, and not on a per-occurrence
basis), after which point the Indemnitor will be obligated to indemnify the
Indemnitee for, from, and against the amount of losses, expenses, or damages
suffered or incurred by the Indemnitee in excess of such aggregate $150,000
deductible amount. Notwithstanding anything to the contrary in this Agreement,
Shareholders shall have no obligation to indemnify Buyer and Merger Subsidiary,
and Buyer and Merger Subsidiary shall have no obligation to indemnify
Shareholders, for, from and against losses, expenses, or damages suffered or
incurred to the extent that such losses, expenses, or damages in the aggregate
(i.e., not on a per-occurrence basis) exceed the product of (A) 137,923 shares
times (B) the Per Share Value.
7.6 CERTAIN CLAIMS BY SHAREHOLDERS. As of the Effective Date, each of the
Shareholders hereby releases and forever discharges the Company of and from any
and all obligations, defaults, acts, actions, causes of action, suits,
proceedings, disputes, rights, claims, and demands, at law or in equity (whether
real or contingent, known or unknown), that such Shareholder ever had or now has
relating to or arising from the actions or omissions of the Company or any of
its other shareholders, officers, directors, employees, agents, representatives,
or any of their respective family members, heirs, successors and assigns;
provided, however, that nothing set forth in this Section 7.6 shall release any
of the parties hereto from any breach of the covenants, representations or
warranties set forth in this Agreement or from the performance of any of the
obligations set forth in this Agreement or any documents or instrument delivered
pursuant hereto. With respect to any action, lawsuit, proceeding, complaint,
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claim or demand brought by the Action or the Company against any of the
Shareholders pursuant to or arising under this Agreement, each Shareholder
hereby agrees that he or it will not make any claim for indemnification against
Action or the Company by reason of the fact that he or it is or was a director,
officer, employee or agent of the Company or was serving at the request of the
Company as a director, officer, employee or agent of another entity, whether
such claim is for judgment, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses or otherwise or whether such claim is made pursuant
to any statute, charter document, bylaw, agreement or otherwise.
7.7 INDEMNIFICATION TO BE SOLE REMEDY. The rights of indemnification
provided for in this Section 7 shall be the sole or exclusive remedy of any
party hereto for any breach of any representation, warranty, or any other matter
governed by this Agreement.
SECTION 8
GENERAL
8.1 COSTS AND INDEMNITY AGAINST FINDERS. Each party hereto shall be
responsible for its own costs and expenses in negotiating and performing this
Agreement and hereby indemnifies and holds the other parties harmless against
any claim for finders' fees based on alleged retention of a finder by it.
8.2 CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance, and enforcement shall be governed by and
construed in accordance with the laws of the state of Arizona, notwithstanding
any Arizona or other conflict-of-law provisions to the contrary.
8.3 NOTICES. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made, and received (i) if personally delivered,
on the date of delivery, (ii) if by facsimile transmission, upon receipt, (iii)
if mailed, three days after deposit in the United States mail, registered or
certified, return receipt requested, postage prepaid, and addressed as provided
below, or (iv) if by a courier delivery service providing overnight or
"next-day" delivery, on the next business day after deposit with such service
addressed as follows:
If to Action or Merger Subsidiary: If to the Company or Shareholders:
Action Performance Companies, Inc. 0000 Xxxxxxxx Xxxxxx
0000 X. Xxxxxxxx Xxxx Xxxxxx, XX 00000
Xxxxxxx, XX 00000 Attention: Xxxxx X. Xxxxxxxx
Attention: President Fax: (000) 000-0000
Fax: (000) 000-0000
with a copy given in the manner with a copy given in
the manner prescribed above, to: prescribed above, to:
O'Connor, Cavanagh, Anderson, Goodwin, Procter & Xxxx LLP
Xxxxxxxxxxxxx & Xxxxxxxx, P.A. Exchange Place
One East Camelback Road 00 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000 Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxx, Esq. Attention: Xxxxxx X. Cable, Esq.
Fax: (000) 000-0000 Fax: (000) 000-0000
with an additional copy given
in the manner described above to:
Xxxx X. Xxxxxx, Esq.
00 Xxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
Any party may alter the address to which communications or copies are to be
sent by giving notice to such other parties of change of address in
conformity with the provisions of this paragraph for the giving of notice.
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8.4 BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, and assigns, except that no party may assign, delegate, or
transfer its rights or obligations under this Agreement without the prior
written consent of the other parties hereto. Any assignment, delegation, or
transfer made in violation of this Section 8.4 shall be null and void.
8.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits attached hereto, contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, inducements, and conditions, express
or implied, oral or written, except as herein contained. The express terms
hereof control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
8.6 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACTION PERFORMANCE COMPANIES, INC.
/s/ XXXXXXXXXXX X. XXXXXX
By:_______________________________________
Its: Chief Financial Officer
______________________________________
/s/ XXXXX XXXXXXX
By:__________________________________________
Its: Xxxxx Xxxxxxx, Chief Accounting Officer
_________________________________________
ACTION INTERACTIVE, INC.
/s/ XXXXXXXXXXX X. XXXXXX
By:__________________________________________
Its: Chief Financial Officer
_________________________________________
TECH 2000 WORLDWIDE, INC.
/s/ XXXXX X. XXXXXXXX
By:__________________________________________
Its: President
_________________________________________
/s/ XXXXX X. XXXXXXXX
_____________________________________________
XXXXX X. XXXXXXXX
THE ESTATE OF XXXXXXX X. XXXXXXXX
/s/ XXXXXXXX X. XXXXXXXX
By:__________________________________________
Its: Executrix
_________________________________________
30
SCHEDULE 1.5(b)
TOTAL NUMBER
OF SHARES OF NUMBER OF
NUMBER OF SHARES ACTION NUMBER OF SHARES TO BE
COMPANY TO COMMON STOCK HELD-BACK ISSUED DIRECTLY
SHAREHOLDER BE TRANSFERRED TO BE ACQUIRED SHARES TO SHAREHOLDERS
----------- -------------- -------------- ------ ---------------
XXXXX X. XXXXXXXX 10,000 117,235 11,724 105,511
THE ESTATE OF
XXXXXXX X. XXXXXXXX 1,765 20,688 2,069 18,619
------ ------- ------ -------
TOTAL 11,765 137,923 13,793 124,130
