MERGER AGREEMENT
BY AND AMONG
FAMILY GOLF CENTERS, INC.,
FAMILY GOLF ACQUISITION, INC.
AND
EAGLE QUEST GOLF CENTERS, INC.
DATED AS OF APRIL 2, 1998
TABLE OF CONTENTS
ARTICLE I THE MERGER.......................................................1
Section 1.1 The Merger..............................................1
Section 1.2 Closing.................................................1
Section 1.3 Final Order.............................................2
Section 1.4 Arrangement Transactions................................2
Section 1.5 Adjustment of Exchange Ratio............................2
Section 1.6 Exchange of Securities..................................3
Section 1.7 Definition of Subsidiary and Affiliate..................5
ARTICLE II CERTAIN MATTERS RELATING TO EQ...................................6
Section 2.1 Memorandum and Articles of EQ...........................6
Section 2.2 Directors and Officers of EQ............................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..........6
Section 3.1 Existence, Good Standing, Corporate Authority...........6
Section 3.2 Authorization, Validity and Effect of Agreements........6
Section 3.3 Capitalization..........................................6
Section 3.4 Parent Reports and Financial Statements.................7
Section 3.5 No Violation............................................7
Section 3.6 No Brokers..............................................8
Section 3.7 Parent Common Stock.....................................8
Section 3.8 Interim Operations of Merger Sub........................8
Section 3.9 Absence of Certain Changes..............................8
Section 3.10 Proxy Statement.........................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EQ.............................9
Section 4.1 Existence, Good Standing, Corporate Authority...........9
Section 4.2 Authorization, Validity and Effect of Agreements........9
Section 4.3 Capitalization..........................................9
Section 4.4 Options.................................................9
Section 4.5 No Violations..........................................10
Section 4.6 Subsidiaries and Affiliates............................10
Section 4.7 Financial Statements...................................10
Section 4.8 Absence of Undisclosed Liabilities.....................12
Section 4.9 Tangible Personal Property; Sufficiency of Assets......12
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Section 4.10 Real Property..........................................13
Section 4.11 Machinery and Equipment................................16
Section 4.12 Copyrights and Trademarks..............................16
Section 4.13 Contracts..............................................16
Section 4.14 Absence of Default.....................................18
Section 4.15 Insurance..............................................18
Section 4.16 Third Party Options....................................18
Section 4.17 Distributions, Satisfactions, Obligations..............19
Section 4.18 Capital Expenditures...................................20
Section 4.19 Litigation.............................................20
Section 4.20 Compliance with Law....................................20
Section 4.21 Transactions with Affiliates...........................21
Section 4.22 Prohibited Payments....................................21
Section 4.23 Tax Matters............................................21
Section 4.24 Employee Benefit Plans.................................24
Section 4.25 Executive Employees....................................26
Section 4.26 Employees..............................................26
Section 4.27 Environmental Laws.....................................27
Section 4.28 Bank Accounts, Letters of Credit and Powers of
Attorney...............................................28
Section 4.29 Minute Books; Records..................................28
Section 4.30 Full Disclosure........................................28
Section 4.31 Securities Offerings...................................29
Section 4.32 Brokers or Finders.....................................29
Section 4.33 Licenses...............................................29
Section 4.34 Proxy Statement........................................29
ARTICLE V COVENANTS.......................................................30
Section 5.1 Alternative Proposals..................................30
Section 5.2 Interim Operations of EQ...............................31
Section 5.3 Filings; Other Action..................................32
Section 5.4 Inspection of Records..................................33
Section 5.5 Further Action.........................................33
Section 5.6 Expenses...............................................33
Section 5.7 Survival of Representations and Warranties of EQ.......34
Section 5.8 Governmental Approvals.................................34
Section 5.9 Public Announcements...................................34
Section 5.10 Stockholders Meeting...................................34
Section 5.11 Proxy Statement........................................34
Section 5.12 Blue Sky...............................................35
Section 5.13 Affiliates.............................................35
Section 5.14 Options................................................35
Section 5.15 Termination of Written Employment Agreements...........36
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Section 5.16 Real Estate and Other Consents.........................36
Section 5.17 Preparation of Signing Date Balance Sheet..............36
Section 5.18 Schedules..............................................37
Section 5.19 Restrictive Legends....................................37
Section 5.20 Exhibits...............................................37
ARTICLE VI CONDITIONS......................................................37
Section 6.1 Conditions to Obligation of Each Part to Effect
the Arrangement........................................37
Section 6.2 Conditions to Obligation of EQ to Effect the
Arrangement............................................38
Section 6.3 Conditions to Obligation of Parent and Merger
Sub to Effect the Merger and Arrangement...............38
ARTICLE VII TERMINATION.....................................................40
Section 7.1 Termination............................................41
Section 7.2 Effect of Termination..................................42
ARTICLE VIII INDEMNIFICATION.................................................42
Section 8.1 Indemnity..............................................42
Section 8.2 Escrow Shares..........................................42
ARTICLE IX GENERAL PROVISIONS..............................................42
Section 9.1 Notices................................................42
Section 9.2 Assignment, Binding Effect.............................43
Section 9.3 Entire Agreement.......................................43
Section 9.4 Amendment..............................................43
Section 9.5 Governing Law..........................................43
Section 9.6 Counterparts...........................................44
Section 9.7 Headings...............................................44
Section 9.8 Interpretation.........................................44
Section 9.9 Waivers................................................44
Section 9.10 Incorporation of Schedules and Exhibits................44
Section 9.11 Severability...........................................44
Section 9.12 Enforcement of Agreement...............................44
EXHIBITS
Exhibit A Plan of Arrangement
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Exhibit B Affiliate Agreement
Exhibit C Escrow Agreement
Exhibit D Registration Rights Agreement
Exhibit E Employment Agreement - Xxxxxxxxx
Exhibit F Employment Agreement - Xxxxxxx
Exhibit G Employment Agreement - Xxxxxxx
Exhibit H Non-Competition Agreement
Exhibit I Estoppel Certificate
Exhibit J U.S. Tax Matters Agreement
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MERGER AGREEMENT
THIS MERGER AGREEMENT is dated as of April 2, 1998 (the "Agreement")
among Family Golf Centers, Inc, a Delaware corporation ("Parent"), Family Golf
Acquisition, Inc., a Delaware corporation and the wholly-owned subsidiary of
Parent ("Merger Sub"), and Eagle Quest Golf Centers, Inc., a corporation
organized under the laws of British Columbia ("EQ").
WHEREAS, the parties wish to provide for the terms and conditions upon
which EQ will be acquired by Merger Sub by means of a merger (the "Merger") by
way of arrangement (the "Arrangement") pursuant to section 252 of the Company
Act (British Columbia) (the "BCCA");
WHEREAS, it is the intention of the parties to this Agreement that for
federal income tax purposes, the merger provided for herein shall qualify as a
"reorganization" within the meaning of Sections 368(a)(1)(B) of the Code, as
defined herein;
WHEREAS, it is the intention of the parties to this Agreement that the
Merger provided for herein shall qualify as a "pooling of interests" for
accounting purposes; and
NOW THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. As promptly as practicable after the execution
of this Agreement, EQ shall apply to the Supreme Court of British Columbia (the
"Court") pursuant to section 252 of the BCCA for an interim order (the "Interim
Order") in form and substance satisfactory to Parent providing for, among other
things, the calling and holding of the Stockholder Meeting (as defined in
section 5.10 of this Agreement) for the purpose of considering and, if deemed
advisable, approving the Arrangement under section 252 of the BCCA and pursuant
to the Plan of Arrangement substantially in the form of Exhibit A hereto (the
"Plan of Arrangement"). If the stockholders of EQ approve the Arrangement in
accordance with the terms of the Interim Order, thereafter EQ will take the
necessary steps to submit the Arrangement to the Court and apply for a final
order of the Court, in form and substance satisfactory to Parent, approving the
Arrangement in such fashion as the Court may direct (the "Final Order"). Upon
the terms and subject to the conditions of this Agreement, on the Closing Date
(as defined in Section 1.2 of this Agreement), the Arrangement shall become
effective.
Section 1.2 Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger and Arrangement (the "Closing") shall take
place (a) at the offices of Squadron, Ellenoff, Plesent & Xxxxxxxxx, LLP, 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m. on the later of July 7,
1998 or the first business day after all the conditions set forth in Article VI
of
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this Agreement (other than those that are waived by the party or parties for
whose benefit such conditions exist) are satisfied; or (b) at such other place,
time, and/or date upon which the parties hereto may otherwise agree. The date
upon which the Closing shall occur is referred to herein as the "Closing Date."
Section 1.3 Final Order. On the Closing Date, the parties hereto shall
cause a certified copy of the Final Order and Plan of Arrangement to be filed
for acceptance by the Registrar appointed under section 320 of the BCCA (the
"Registrar of Companies") to give effect to the Merger and Arrangement pursuant
to section 252 of the BCCA.
Section 1.4 Arrangement Transactions. On the Closing Date, by virtue
of the Arrangement and pursuant to this Agreement, the following transactions
shall occur and shall be deemed to occur in the following order without any
further act or formality:
(a) The transactions set forth in section 2.1 of the Plan of
Arrangement shall occur with the effect that, subject to Section 1.6, each
holder of common shares, without par value, of EQ (the "EQ Stock") shall be
entitled to receive, for each share of EQ Stock issued and outstanding
immediately prior to the Closing Date, (y) that number of validly issued, fully
paid and non-assessable shares of Common Stock, par value $.01 per share, of
Parent (the "Parent Common Stock") equal to the Merger Consideration Shares (as
hereinafter defined) minus the Escrow Shares and the Special Escrow Shares (as
hereinafter defined), divided by (z) that number of validly issued, fully paid
and non-assessable shares of EQ Stock outstanding immediately prior to the
Closing Date (such ratio, as adjusted as contemplated pursuant to Section 1.5,
being referred to herein as the "Exchange Ratio").
(b) The transactions set forth in Section 2.1 of the Plan of
Arrangement shall occur so that, subject to Section 1.6 and Section 6.3(f)
hereof, each holder of the outstanding warrants (collectively, the "Warrants")
to purchase EQ Stock shall either exercise such exercisable Warrants prior to
the Closing Date pursuant to their original terms, or receive that number of
validly issued, fully paid and non-assessable shares of Parent Common Stock set
forth opposite such holder's name on Schedule 1.4(b) or, if Parent exercises
the option referred to in Section 6.3(f), shall be entitled, pursuant to the
terms of such Warrants to receive upon exercise of Warrants not exchanged for
Parent Common Stock the number of shares of Parent Common Stock, which such
holders would have received if such Warrants had been exercised immediately
prior to the Closing.
(c) The transactions set forth in Section 2.1 of the Plan of
Arrangement shall occur so that, subject to Section 1.6 and Section 6.3(f)
hereof, each holder of the outstanding options (the "Options"), under the
Option Plans (as hereinafter defined) to purchase EQ Stock shall either
exercise such exercisable options prior to the Closing Date pursuant to their
original terms, or receive that number of validly issued, fully paid and
non-assessable shares of Parent Common Stock set forth opposite such holder's
name on Schedule 1.4(c).
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Section 1.5 Adjustment of Exchange Ratio. In the event that,
subsequent to and including the date of this Agreement but prior to the Closing
Date, the outstanding shares of Parent Common Stock or EQ Stock, respectively,
shall have been changed into a different number of shares or interests or a
different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, consolidation, reclassification, split, combination,
exchange, recapitalization or other similar transaction, the Exchange Ratio
shall be appropriately adjusted.
Section 1.6 Exchange of Securities.
(a) Prior to the Closing Date, Parent and Merger Sub shall enter
into an Exchange Agency Agreement and deposit 1,152,860 shares, subject to
reduction in accordance with the next sentence, of Parent Common Stock with
Continental Stock Transfer & Trust Company (the "Exchange Agent") to be issued
pursuant to the Arrangement. The 1,152,860 shares of Parent Common Stock shall
be reduced to recognize certain EQ obligations which must be settled
concurrently with the Closing by a number of shares equal to the sum of:
(i) the quotient of (y) the sum of (A) the fees and expenses of
BancAmerica Xxxxxxxxx Xxxxxxxx to be paid by EQ or its
Subsidiaries in connection with the transactions contemplated
hereby (the "RS Expenses") and (B) the fees and expenses (other
than the RS Expenses) incurred by EQ, in excess of $150,000 in
United States Dollars ("USD"), and paid or payable to the third
parties (including all fees and expenses of KPMG (as defined)
pursuant to Section 5.17) in connection with the transactions
contemplated hereby, including, without limitation, costs and
expenses of or relating to the preparation, printing and filing
of the Proxy Statement (as hereinafter defined), furnishing
(including costs of shipping and mailing) such copies of the
Proxy Statement to its stockholders, any filings required to be
made by EQ and the fees and disbursements of counsel and
accountants to EQ, divided by (z) $35.00 USD;
(ii) the quotient of amounts paid or payable to employees or
consultants for severance, termination, or in respect of a
change of control, or similar provision with written employment
or consulting agreements as a result of the transactions
contemplated hereby divided by $35.00 USD;
(iii) the quotient of $100,000 USD divided by $35.00 USD in respect
of the proposed equity investment by Xxxxxxxxx Xxxxx Partners
in EQ (the "Xxxxxxxxx Transaction");
(iv) the number of shares of Parent Common Stock issued pursuant to
Section 1.4(b) in exchange for Warrants;
(v) if Parent exercises the option referred to Section 6.3(f), in
addition to shares of Parent Common Stock referred to in the
immediately preceding paragraph as to exchanged Warrants, the
number of shares of Parent Common Stock with respect to the
Adjusted Warrants (as defined in Section 6.3(f)) which may be
deducted from the
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Merger Consideration pursuant to Section 6.3(f) (other than
those Warrants held by Scotty's Park Lane Limited Partnership);
(vi) the quotient of the Excess Liabilities (as defined in Section
5.17) divided by $35.00 USD;
(vii) in the event that there are any shares of EQ Stock, options,
warrants or any other security of EQ or any of its Subsidiaries
which EQ or any of its Subsidiaries is obligated to purchase,
or which the holder has the right to "put" to EQ or any of its
Subsidiaries ("Putable Securities"), the number of shares of
Parent Common Stock issued in satisfaction of such obligations:
and
(viii) the number of shares of Parent Common Stock issued pursuant to
Section 1.4(c) in exchange for the Options.
Notwithstanding anything to the contrary herein, no reduction shall be made
with respect to any items set forth in (iii) above, if and to the extent such
amounts have been accrued as liabilities on the Signing Date Balance Sheet (as
hereinafter defined). The shares of Parent Common Stock to be deposited, as so
reduced in accordance with the preceding sentence, are referred to as the
"Merger Consideration Shares." An amount of the Merger Consideration Shares
equal to the sum of (i) 5% thereof, (ii) any amount required to be escrowed
pursuant to Section 5.17 hereof, and (iii) an amount equal to the quotient of
$150,000 USD divided by $35.00 (collectively, the "Escrow Shares") shall be
deposited with Continental Stock Transfer and Trust Company (the "Escrow
Agent"), to be held and dealt with as provided in the Escrow Agreement among
the parties hereto and the Escrow Agent referred to in Section 6.1 hereof (the
"Escrow Agreement"), provided that in no event shall the Escrow Shares exceed
10% of the Merger Consideration. The Escrow Shares shall either be deducted pro
rata from the shares of Parent Common Stock payable to all stockholders of EQ
or, if it would not cause the condition set forth in Section 6.3(c) to not be
satisfied, shall come from the shares of Parent Common Stock payable to
officers of EQ who agree in writing to have their shares constitute the Escrow
Shares. All shares issued pursuant to this Section 1.6 shall bear a restrictive
legend as set forth in Section 5.19.
(b) As soon as reasonably practicable after the Closing Date in
accordance with section 4 of the Plan of Arrangement, Parent shall cause the
Exchange Agent to mail to each holder of record of EQ Stock immediately prior
to the Closing Date who, pursuant to the Arrangement, is entitled to receive
Parent Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and the risk of loss and title to the certificates
which formerly represented EQ Stock shall pass only upon delivery of such
certificates to the Exchange Agent and shall be in such form and have such
other customary provisions as Parent, in consultation with EQ, may reasonably
specify) and (ii) instructions for use in effecting the surrender of
certificates which represent EQ Stock into certificates representing Parent
Common Stock which such holder has the right to receive pursuant to the
provisions of this Agreement. Upon surrender of a certificate which represented
EQ Stock for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such certificate shall be entitled to
receive in exchange therefor certificates representing
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that whole number of shares of Parent Common Stock equal to that number of
shares of EQ Stock formerly held by such holder multiplied by the Exchange
Ratio then in effect. No interest will be paid or accrued on the unpaid
dividends and distributions, if any, payable to the former holders of EQ Stock,
nor will any amounts be paid in respect of any such unpaid dividends and
distributions.
(c) Solely for the purpose of administrative convenience, no
certificate representing fractional Parent Common Stock shall be issued upon
surrender for exchange of certificates formerly representing EQ Stock, and such
fractional share interests shall not entitle the owner thereof to any rights as
a security holder of Parent. All holders entitled to receive a fractional share
of Parent Common Stock shall be entitled to receive, in lieu thereof, an amount
in cash determined by multiplying such fraction times $35.00 USD.
(d) Notwithstanding anything in this Agreement to the contrary,
shares of EQ Stock outstanding immediately prior to the Closing Date and held
by a holder who has not voted in favor of the Arrangement or consented thereto
in writing and who has exercised the rights of dissent referred to in Section
3.1 of the Plan of Arrangement in respect of such shares in accordance
therewith ("Dissenting Shares"), shall not entitle the holder thereof to
receive the Merger Consideration as provided herein, unless such holder fails
to perfect or withdraws or otherwise loses his right of dissent. If, after the
Closing Date, such holder fails to perfect or withdraws or otherwise loses his
right of dissent, such shares shall be treated as if they had been entitled, as
of the Closing Date, to receive the Merger Consideration, without interest
thereon. EQ shall give Parent prompt notice of any demands or notices of
dissent received by it as to EQ Stock, and, prior to the Closing Date, Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Closing Date, EQ shall not, except with
the prior written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands.
(e) From and after the Closing Date, the stock transfer books of
EQ shall be closed and no transfer of shares of EQ Stock shall thereafter be
made other than pursuant to the Plan of Arrangement. If after the Closing Date,
certificates representing such shares are presented to Parent or to the
Exchange Agent, they shall be exchanged for Parent Common Stock together with
any cash in lieu of fractional shares as provided herein and in the Plan of
Arrangement.
(f) All shares of Parent Common Stock issued in accordance with
the terms hereof, together with any cash paid in accordance with subsection (c)
above, shall be deemed to have been issued and paid in full satisfaction of all
rights pertaining to such EQ Stock.
(g) In addition, at the Closing, each holder of Warrants shall
have the right, upon delivery of their Warrants in exchange therefor, to
receive the number of shares of Parent Common Stock set forth opposite such
holder's name on Schedule 1.4(c) (as appropriately adjusted for stock
dividends, stock splits and similar events).
Section 1.7 Definition of Subsidiary and Affiliate. As used in this
Agreement, (i) a "Subsidiary" of any party means any corporation or other
organization, whether incorporated or
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unincorporated, of which such party or any other Subsidiary of such party is a
general partner or at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party, by any one or more of its Subsidiaries, or by such party and one
or more of its Subsidiaries (ii) an "Affiliate" of any party means any
individual, corporation or other organization, whether incorporated or
unincorporated, which directly or indirectly controls, or is controlled by, or
is under common control with, such party. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any corporation or other
organization, whether incorporated or unincorporated, whether through the
ownership of voting securities, by contract or otherwise.
ARTICLE II
CERTAIN MATTERS RELATING TO
EQ
Section 2.1 Memorandum and Articles of EQ. The Memorandum and Articles
of EQ, as in effect at the Closing Date, shall be the Memorandum and Articles
of EQ until thereafter amended as provided by law.
Section 2.2 Directors and Officers of EQ. The directors and officers
of EQ immediately after the Closing Date shall be the persons designated by
Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to EQ as of the date
hereof and at the Closing Date as follows:
Section 3.1 Existence, Good Standing, Corporate Authority. Parent and
Merger Sub are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdiction of incorporation. Each
of Parent and Merger Sub is duly licensed or qualified to do business as a
foreign corporation or partnership and is in good standing under the laws of
any other state of the United States in which the character of the properties
owned or leased by it or in which the transaction of its respective business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
business, results of operations or financial condition of Parent and its
Subsidiaries taken as a whole (a "Parent Material Adverse Effect"). Parent and
Merger Sub have all requisite corporate power and authority to own, operate and
lease their respective properties.
Section 3.2 Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all
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agreements and documents to be executed and delivered in connection herewith
(the "Ancillary Agreements"), including the Escrow Agreement. The execution and
delivery of this Agreement (and the agreements contemplated hereby to be
executed by Parent or Merger Sub) and the consummation by Parent and Merger Sub
of the transactions contemplated hereby has been duly authorized by all
requisite corporate action. This Agreement constitutes, and all Ancillary
Agreements to be executed and delivered in connection herewith by Parent or
Merger Sub (when executed and delivered pursuant hereto for value received)
will constitute, the valid and legally binding obligations of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with their
respective terms.
Section 3.3 Capitalization. The authorized capital stock of Parent
consists of 50,000,000 shares of Parent Common Stock and 2,000,000 shares of
preferred stock, par value $.10 per share (the "Parent Preferred Stock"). As of
April 1, 1998, there were 12,997,846 shares of Parent Common Stock and no
shares of Parent Preferred Stock, issued and outstanding. Except as set forth
on Schedule 3.3, Parent has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable or exchangeable for securities having the right
to vote) with the stockholders of Parent on any matter. All issued and
outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights.
Section 3.4 Parent Reports and Financial Statements. Parent has
heretofore made available to EQ true and complete copies of (i) the Annual
Report of Parent on Form 10-K for the fiscal years ended December 31, 1996 and
1997; (ii) the Quarterly Reports of Parent on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; and (iii) the Proxy
Statement, relating to the 1997 Annual Meeting of Shareholders of Parent; (such
reports, registration statements, definitive proxy statements and other
documents, together with any amendments thereto, are sometimes collectively
referred to as the "Parent Commission Filings"). As of their respective dates,
each of the Parent Commission Filings complied in all material respects with
the applicable requirements and, together with certain Current Reports on Form
8-K filed by Parent, constituted all filings required during the relevant time
periods under the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations under each such Act, and none of the Parent Commission
Filings and no representation or warranty by Parent or Merger Sub in this
Agreement contained as of such date any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. All financial statements of Parent included in the
Parent Commission Filings were prepared in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP") applied on a
consistent basis.
Section 3.5 No Violation. Neither the execution and delivery by Parent
and Merger Sub of this Agreement, nor the consummation by Parent and Merger Sub
of the transactions contemplated hereby in accordance with the terms hereof,
will (a) conflict with or result in a breach of any provisions of the
Certificate of Incorporation, as amended, or the Bylaws of Parent or any of its
Subsidiaries; (b) result in a breach or violation of, a default under, or the
triggering of any
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payment or other material obligations pursuant to, or accelerate vesting under,
the 1994, 1996 or 1997 Parent Stock Option Plan, or any grant or award made
under the foregoing; (c) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the termination, or
in a right of termination or cancellation of, accelerate the performance
required by, result in the triggering of any payment or other material
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the material properties of Parent or its
Subsidiaries under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, contract, agreement or other instrument, commitment or
obligation to which Parent or any of its Subsidiaries is a party, or by which
Parent or any of its Subsidiaries or any of their respective properties is
bound or affected, except for any of the foregoing matters which would not have
a Parent Material Adverse Effect; (d) contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgement, injunction,
order or decree binding upon or applicable to Parent or any of its Subsidiaries
which would have a Parent Material Adverse Effect; or (e) other than the
filings provided for in Sections 1.1 and 1.3, the filings of reports on Form 20
under certain Canadian provincial securities laws, filings required under the
Exchange Act, the Securities Act, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the rules of the National Association
of Securities Dealers, or applicable state securities and "Blue Sky" laws or
filings in connection with the maintenance of qualification to do business in
other jurisdictions (collectively, the "Regulatory Filings"), require any
consent, approval or authorization of, or declaration, of or filing or
registration with, any domestic governmental or regulatory authority, which the
failure to obtain or make would have a Parent Material Adverse Effect.
Section 3.6 No Brokers. Parent has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of EQ or Parent to pay any finder's fee, brokerage or agent's
commissions or other like payment in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except for such fees or commissions which will be borne by Parent.
Section 3.7 Parent Common Stock. The issuance and delivery by Parent
of shares of Parent Common Stock in connection with the Arrangement and this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Parent. The shares of Parent Common Stock to be issued in
connection with the Arrangement and this Agreement, when issued in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable and not subject to preemptive rights of any sort.
Section 3.8 Interim Operations of Merger Sub. Merger Sub has been
formed solely for the purpose of engaging in the transactions contemplated
hereby, and immediately prior to the Closing Date will have engaged in no other
business activities, will have no Subsidiaries, and will have conducted its
operations only as contemplated hereby.
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Section 3.9 Absence of Certain Changes. Except as otherwise disclosed
in the Parent Commission Filings, since December 31, 1996 there has not been
any Parent Material Adverse Effect.
Section 3.10 Proxy Statement. The information supplied or to be
supplied by Parent and any Subsidiary thereof for inclusion in the Proxy
Statement (as hereinafter defined), including any amendments and supplements
thereto, will not either at the date mailed to EQ's stockholders or at the time
of the Stockholder Meeting (as hereinafter defined), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EQ
EQ represents and warrants to Parent and Merger Sub as of the date
hereof and at the Closing Date as follows:
Section 4.1 Existence, Good Standing, Corporate Authority. EQ and each
of its Subsidiaries are corporations or partnerships duly organized, validly
existing and in good standing under the laws of their respective jurisdiction
of incorporation. EQ and each of its Subsidiaries is duly licensed or qualified
to do business as a foreign corporation or partnership and is in good standing
under the laws of any other state of the United States or province or territory
of Canada in which the character of the properties owned or leased by it or in
which the transaction of its respective business makes such qualification
necessary, except where the failure to be so qualified or to be in good
standing would not have a material adverse effect on the business, results of
operations or financial condition of EQ and its Subsidiaries taken as a whole
(a "EQ Material Adverse Effect"). EQ and each of its Subsidiaries have all
requisite corporate power and authority to own, operate and lease their
respective properties.
Section 4.2 Authorization, Validity and Effect of Agreements. EQ has
the requisite corporate power and authority to execute and deliver this
Agreement and all the Ancillary Agreements. The execution and delivery of this
Agreement (and the agreements contemplated hereby) and the consummation by EQ
of the transactions contemplated hereby has been duly authorized by all
requisite corporate action. This Agreement constitutes, and all Ancillary
Agreements to be executed and delivered in connection herewith (when executed
and delivered pursuant hereto for value received) will constitute, the valid
and legally binding obligations of EQ, enforceable against EQ in accordance
with their respective terms.
Section 4.3 Capitalization. The authorized capital stock of EQ
consists of 101,000,000 shares divided into 1,000,000 Class A preferred shares,
without par value per share, of which none are issued and outstanding, and
100,000,000 shares of EQ Stock. As of April 2, 1998, there were 28,610,054
shares of EQ Stock issued and outstanding and, except for the addition of any
shares of EQ Stock issued upon the exercise of Warrants or options outstanding
as of April 2, 1998, or the
9
Musqueam conversion right described in Schedule 4.4(c) or any other shares
issuable upon exercise or conversion of any other outstanding options or
warrants as described in Schedule 4.4(c), there will be no additional shares
outstanding as of the Closing. Except as set forth on Schedule 4.3, EQ has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable or
exchangeable for securities having the right to vote) with the stockholders of
EQ on any matter. All issued and outstanding shares of EQ Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights.
Section 4.4 Options. Except as set forth on Schedule 4.4 hereto, there
are no existing agreements, subscriptions, options, warrants, calls,
commitments, trusts (voting or otherwise), or rights of any kind whatsoever
granting to any person or entity any interest in or the right to purchase or
otherwise acquire from EQ, or any of its Subsidiaries, at any time, or upon the
happening of any stated event, any securities, partnership interests,
membership interests or other equity interests of such entity, whether or not
presently issued or outstanding, nor are there any outstanding securities,
partnership interests, membership interests or other equity interests of any
such entity, or any other entity which are convertible into or exercisable or
exchangeable for shares or other securities, partnership interests, membership
interests or other equity interests of EQ, or any of its Subsidiaries, nor are
there any agreements, subscriptions, options, warrants, calls, commitments or
rights of any kind whatsoever granting to any person or entity any interest in
or the right to purchase or otherwise acquire from EQ, or any of its
Subsidiaries, or any other entity any securities so convertible or exercisable
or exchangeable, nor are there any proxies, agreements or understandings with
respect to the voting of or with respect to such interests, nor are there any
outstanding Putable Securities.
Section 4.5 No Violation. Except as set forth on Schedule 4.5 hereto,
neither the execution and delivery by EQ of this Agreement, nor the
consummation by EQ of the transactions contemplated hereby in accordance with
the terms hereof, will (a) conflict with or result in a breach of any
provisions of the Certificate of Incorporation, Bylaws or similar
organizational documents of EQ or any of its Subsidiaries; (b) violate,
conflict with, result in a breach of any provision of, constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, result in the termination, or in a right of termination or
cancellation of, accelerate the performance required by, result in the
triggering of any payment or other material obligations pursuant to, result in
the creation of any lien, security interest, charge or encumbrance upon any of
the material properties of EQ or its Subsidiaries under, or result in being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any material license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which EQ or any of its Subsidiaries is
a party, or by which EQ or any of its Subsidiaries or any of their respective
properties is bound or affected, except for any of the foregoing matters which
would not have a EQ Material Adverse Effect; (c) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgement,
injunction, order or decree binding upon or applicable to EQ or any of its
Subsidiaries which would have a EQ Material Adverse Effect; or (d) other than
the filings provided for in Sections 1.1 and 1.3, and applicable Regulatory
Filings, require any material consent, approval or authorization of, or
declaration, of or filing or registration with, any governmental or regulatory
authority, the failure to obtain or make would have a EQ Material Adverse
Effect.
10
Section 4.6 Subsidiaries and Affiliates. Except as set forth on
Schedule 4.6 hereto, neither EQ, nor any of its Subsidiaries owns, directly or
indirectly any interest in any other entity.
Section 4.7 Financial Statements.
(a) Attached hereto as Schedule 4.7 are true and complete copies
of the following consolidated financial statements of EQ and each of its
Subsidiaries:
(i) audited consolidated balance sheets as of December 31,
1997 and 1996, each certified by independent certified public accountants or
chartered accountants, as applicable, and unaudited consolidated balance sheets
of EQ and its Subsidiaries as of February 28, 1998 (the "Balance Sheet Date"),
all prepared by management of EQ (an unaudited consolidated balance sheet as of
the Balance Sheet Date, a "Company Balance Sheet") in accordance with U.S. GAAP
consistently applied; and
(ii) audited consolidated statements of income, retained
earnings, cash flows and changes in shareholder's equity for the fiscal years
ended 1997 and 1996, each certified by independent certified public accountants
or chartered accountants, as applicable, and unaudited consolidated statements
of income, retained earnings, cash flows and changes in shareholder's equity
for the periods ended February 28, 1998, all prepared by management of EQ in
accordance with U.S. GAAP.
(b) Pursuant to Section 5.17, a consolidated balance sheet of EQ
will be prepared as of the date of this Agreement (the "Signing Date Balance
Sheet"), and, in addition, EQ will furnish on or prior to the Closing Date,
quarterly consolidated financial statements of income, retained earnings, cash
flows and changes in shareholders' equity for the quarters ended March 31,
1997, June 30, 1997, September 30, 1997, December 31, 1997 and March 31, 1998,
all prepared by the management of EQ and reviewed by KPMG in accordance with
U.S. GAAP.
(c) The foregoing financial statements were, or, in the case of
the Signing Date Balance Sheet, will be, prepared in accordance with U.S. GAAP
applied on a basis consistent with that of preceding audited accounting
periods. Such financial statements are, or, in the case of the Signing Date
Balance Sheet, will be, correct and complete in all material respects and are
in accordance with the books and records of the applicable entity. As of the
date hereof, all the accounts, books, ledgers and financial and other records
of whatever kind of each such entity have been properly and accurately kept and
are correct and complete in all material respects and there are no inaccuracies
or discrepancies contained or reflected therein. The financial statements
fairly present in all material respects the consolidated financial position of
EQ and its Subsidiaries of the dates thereof and the consolidated results of
operations, cash flows and changes in shareholder's equity of EQ for each of
the periods then ended in conformity with U.S. GAAP. The Signing Date Balance
Sheet will fairly present the consolidated financial position of EQ and the
Subsidiaries as of the date thereof in conformity with U.S. GAAP.
11
(d) The prepaid insurance, expenses and taxes as set forth on
each Company Balance Sheet and the Signing Date Balance Sheet, or arising since
the date thereof, represent amounts of a benefit to future periods.
(e) Each Company Balance Sheet, the Signing Date Balance Sheet
and the notes thereto, correctly and completely set forth all liabilities of
such entity as of the date thereof (i) pursuant to all Plans and Government
Sponsored or Mandated Plans, as such terms are defined below, including all
unfunded past service costs, (ii) pursuant to all bonus, incentive,
compensation, insurance, deferred compensation, severance and other fringe
benefit plans, contracts, agreements, arrangements and programs of any type
coverage or form, including, without limitation, where applicable, any employee
welfare benefit program as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and (iii) for vacation pay
and compensatory time.
Section 4.8 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 4.8 hereto, there are no liabilities or obligations (whether absolute,
accrued, contingent or otherwise) with respect to either EQ or any of its
Subsidiaries, except (i) liabilities, obligations or contingencies which are
accrued or reserved against in the Company Balance Sheets and the Signing Date
Balance Sheet, and (ii) normally recurring liabilities incurred after the
Balance Sheet Date in the ordinary course of the operations of the business and
consistent with past practice.
Section 4.9 Tangible Personal Property; Sufficiency of Assets.
(a) Except as disclosed on Schedule 4.9 hereto, each of EQ and
each of its Subsidiaries has good and valid title to all tangible personal
property which it owns or uses in the operations of its business, including all
such tangible personal property reflected in its Company Balance Sheet as owned
by such entity, except (x) for personal property leased (exclusive of
capitalized leases) by such Company pursuant to a written agreement identified
on Schedule 4.9 and (y) for such tangible personal property disposed of to
third parties since the date of the Balance Sheet Date in the ordinary course
of business and consistent with past practices in each case free and clear of
all liens, charges, assessments, claims or encumbrances of any kind whatsoever
("Liens"), except (i) mechanics', materialmen's, carriers', workmen's,
warehousemen's, repairmen's, landlord's or other like Liens securing
obligations that are not delinquent, (ii) Liens for taxes and other
governmental charges which are not due and payable or which may be paid without
penalty, (iii) purchase money liens securing the purchase price of the related
personal property listed as purchase money liens on Schedule 4.9; and (iv)
other Liens, if any, set forth in Schedule 4.9. Except as set forth in Schedule
4.9, all of the tangible personal property owned or used in the operation of
the business of the Companies is in good working order, reasonable wear and
tear excepted, and are suitable for the use for which they are intended in all
material respects.
(b) Neither EQ nor its Subsidiaries own or lease any video,
amusement or arcade games. All of the inventory of each of EQ and its
Subsidiaries consists of a quality and quantity reasonably usable and saleable
in the ordinary course of business consistent with past practices, subject to
normal and customary allowances for spoilage, damage and outdated items
reflected on
12
the books and records of each Company. All items included in the inventory of
each of EQ and its Subsidiaries are the property of such entity, free and clear
of all Liens, are not held by such entity on consignment from others and
conform in all material respects to all standards applicable to such inventory
or its use or sale imposed by law.
(c) Except as set forth on Schedule 4.9, the tangible personal
property of each of EQ and its Subsidiaries which is currently owned or leased
by it is, in the aggregate, all of the tangible personal property used to
conduct such business in the manner in which such business was conducted during
the 12 month period ended February 28, 1998 and since such time, except for
additions thereto and deletions therefrom in the ordinary course of business
and consistent with past practice which could not reasonably be expected to
have a EQ Material Adverse Effect.
Section 4.10 Real Property.
(a) Schedule 4.10 sets forth a list of all real property owned in
fee by each of EQ and its Subsidiaries (individually, an "Owned Property" and,
collectively, the "Owned Properties"). Except as set forth in Schedule 4.10,
each of EQ and its Subsidiaries has good and marketable fee title to its Owned
Property, including the buildings, structures and other improvements located
thereon, in each case free and clear of all Liens, except for (i) Liens for
taxes and other governmental charges, assessments or fees which are not yet due
and payable and (ii) imperfections of title which, individually or in the
aggregate , do not materially detract from the market value of or materially
interfere with the present use or occupation of any Owned Properties
("Permitted Liens"). There are no condemnations or eminent domain (which term,
as used herein, shall include all compulsory acquisitions or taking by
governmental entities) proceedings pending or threatened against any Owned
Property or any material portion thereof. To the best of EQ's knowledge, none
of the Owned Properties nor the use thereof contravene any applicable zoning or
building bylaw, covenant, registered or unregistered restriction, land use
contract, law, ordinance or regulation (whether relating to fire, safety, the
environment, building standards, health standards or otherwise) of any
governmental authority, all of which permit the present use and occupation of
the Owned Properties. None of EQ nor its Subsidiaries has received or has
knowledge of any notice or request from any governmental authority, insurance
company or board of fire underwriters requesting the performance of any work or
alteration in respect of any of the Owned Properties. There are no material or
structural defects relating to any improvements on any of the Owned Properties.
EQ has delivered to Parent complete and accurate copies of all title insurance
policies and surveys for the Owned Real Property located in the United States.
(b) Schedule 4.10 lists all real property (including all land and
buildings) which is leased by each of EQ and its Subsidiaries as lessee or
sublessee (the "Leased Real Estate"). EQ has delivered or caused to be
delivered to Parent complete and accurate copies of all written leases and
subleases (including all amendments, extensions and modifications thereof
together with particulars of any unwritten lease or sublease) which are listed
in Schedule 4.10. None of EQ nor its Subsidiaries has received notice of or has
knowledge of any condemnation or eminent domain proceedings pending or
threatened against any Leased Real Estate. To the best of EQ's knowledge, none
of the Leased Real Estate nor the use thereof contravene any applicable zoning
or building
13
bylaw, covenant, registered or unregistered restriction, land use contract,
law, ordinance or regulation (whether relating to fire, safety, the
environment, building standards, health standards or otherwise) of any
governmental authority, all of which permit the present use and occupation of
the Leased Real Estate. None of EQ nor its Subsidiaries has received or has
knowledge of any notice or request from any governmental authority, insurance
company or board of fire underwriters requesting the performance of any work or
alteration in respect of any of the Leased Real Estate. There are no material
or structural defects relating to any Leased Real Estate. Except as set forth
in Schedule 4.10:
(i) each of the leases or subleases relating to the Leased
Real Estate (each, a "Lease" and collectively, the "Leases") is in full force
and effect and valid and binding on the lessor or sublessor and enforceable in
accordance with its terms (except insofar as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by the principles governing the
availability of equitable remedies), and all consents required under any Lease
in connection with this Agreement and the consummation of the transactions
contemplated hereby have been obtained;
(ii) no amount payable under any Lease is past due;
(iii) each of EQ and its Subsidiaries is in compliance in
all material respects with all commitments and obligations on its part to be
performed or observed under each Lease and is not aware of the failure by any
other party to any Lease to comply in all material respects with all of its
commitments and obligations;
(iv) none of EQ nor its Subsidiaries has received any notice
(A) of a default (which has not been cured), offset or counterclaim under any
Lease, or any other communication calling upon such entity to comply with any
provision of any Lease or asserting noncompliance, or asserting such entity has
waived or altered its rights thereunder, and no event or condition has happened
or presently exists which constitutes a default or, after notice or lapse of
time or both, would constitute a default under any Lease on the part of such
entity or any other party thereto, or (B) of any action, complaint, claim,
prosecution, indictment, suit, arbitration, investigation or proceeding (an
"Action") by or before any governmental entity against any party under any
Lease which if adversely determined could result in such Lease being terminated
or modified in a manner adverse to such entity;
(v) none of EQ nor its Subsidiaries has assigned, mortgaged,
pledged or otherwise encumbered its interest, under any Lease; and
(vi) none of EQ nor its Subsidiaries has exercised, or
failed to exercise within the time prescribed in each Lease, any option
provided therein to extend or renew the term thereof.
(c) The Owned Properties and the Leased Real Estate constitute,
in the aggregate, all of the real property used to conduct the business of EQ
and its Subsidiaries in the manner in
14
which such business was conducted during the 12 month period ended February 28,
1998 and since such time. Except as set forth on Schedule 4.10, no consent is
required of any party to any of the Leases by virtue of this Agreement, and the
consummation of the transactions contemplated hereby will not result in the
termination of any Lease or a material alteration of the terms of any Lease.
Except as set forth on Schedule 4.10, none of the Leased Real Estate is owned,
in whole or in part, by any director, officer, stockholder, partner or member
of EQ or any of its Subsidiaries, by any affiliate of any affiliate of EQ or
any of its Subsidiaries, or by any entity created for the benefit of any family
member(s) of any of the foregoing persons.
(d) No portion of the Owned Property or Leased Real Estate is
subject to any pending condemnation proceeding or any proceeding by any
governmental authority that is materially adverse to the Owned Property or
Leased Real Estate and no such condemnation or other proceeding is threatened
or contemplated.
(e) Except as set forth on Schedule 4.10, the structures,
improvements and fixtures at or upon the Owned Property and Leased Real Estate,
including, but not limited to, roofs and structural elements thereof and the
mechanical, electrical, plumbing, heating, ventilation, air conditioning and
similar units and systems, have to date been reasonably maintained and are in
good operating condition for their intended use subject to the provision of
usual and customary maintenance and repair performed in the ordinary course of
business with respect to similar properties of like age and construction.
(f) All facilities located on the Owned Property and the Leased
Real Estate are supplied with utilities and other services necessary for the
operation of such facilities as presently operated, and all of such services
are adequate to conduct that portion of the businesses as presently is
conducted at each of such facilities.
(g) Except as set forth on Schedule 4.10, none of the Owned
Property or Leased Real Estate is located in either a special service district
or an area for which federal or other flood risk insurance is necessary.
(h) There is no water diffusion or other intrusion into any
buildings, structures or other improvements located on the Owned Property or
the Leased Real Estate which would impair the market value or use thereof in
connection with the conduct of the businesses conducted thereon.
(i) Except as set forth on Schedule 4.10, no notice of any
increase in the assessed valuation of the Owned Property or Leased Real Estate
and no notice of any contemplated special assessment has been received by EQ or
any of its Subsidiaries and, to the best knowledge of EQ, there is no
threatened special assessment pertaining to any of the Owned Property or Leased
Real Estate.
(j) Except as set forth on Schedule 4.10, there are no contracts
or agreements to which EQ or any of its Subsidiaries is a party or which were
effectuated by EQ or any of its
15
Subsidiaries or by which any of the Owned Property or Leased Real Estate is
bound, granting to others the right of use or occupancy of any portion of the
Owned Property or Leased Real Estate.
(k) Except as set forth on Schedule 4.10, the zoning or special
use permit applicable to each tract of the Owned Property and Leased Real
Estate permits the presently existing improvements and the continuation of the
businesses presently being conducted on the Owned Property and the Leased Real
Estate as a conforming use. The existing use of each tract of the Owned
Property and the Leased Real Estate is not dependent on the use or availability
of any other tract and no material or unusual restrictions exist in the right
to remodel, rebuild or replace any improvements located on the Owned Property
or Leased Real Estate, or to continue the operation of the respective
businesses thereon. Neither EQ nor any of its Subsidiaries is aware of or has
reasonable grounds to believe that there are any pending changes in laws,
regulations, statutes or the like (including zoning) that will render any part
of the businesses conducted on Owned Property or Leased Real Estate as
presently conducted illegal or uneconomical. Neither EQ nor any of its
Subsidiaries is aware of or has reasonable grounds to believe that there is any
plan, study or effort by any governmental authority or of any nongovernmental
person or entity that in any way would have a EQ Material Adverse Effect.
(l) There is no building, structure or other improvement located
on any land adjoining any of the Owned Properties or the Leased Real Estate
which encroaches upon any of the Owned Property or the Leased Real Estate and
there is no building, structure or other improvement located on any of the
Owned Property or the Leased Real Estate which encroaches on any land adjoining
any of the Owned Property or the Leased Real Estate.
Section 4.11 Machinery and Equipment. EQ has previously furnished to
Parent and Merger Sub a correct and complete list of each item of machinery and
equipment owned by of EQ and its Subsidiaries having a value in excess of
$25,000 USD. All such items are in good operating condition and repair, subject
to normal wear and use, and are usable in the ordinary course of business
conducted by EQ and its Subsidiaries. The serial numbers of such machinery and
equipment consisting of motor vehicles, boats, engines, manufactured or mobile
homes, trailers and aircraft are set forth on Schedule 4.11.
Section 4.12 Copyrights and Trademarks. EQ has previously furnished to
Parent and Merger Sub a correct and complete list of all registered trademarks,
trade names, service marks, patents and copyrights which EQ or its Subsidiaries
owns or utilizes and all applications pending therefor, if any. As of the date
hereof, there are no pending, and no threatened, interference or opposition
actions or proceedings with respect to any such trademarks, trade names,
service marks, patents or copyrights, and the use of any such trademarks, trade
names, service marks, patents and copyrights does not infringe upon or conflict
with, any trademark, trade name, patent, copyright, or other proprietary right
of any other person. As of the date hereof, no notice has been received of any
claim of any such infringement upon, or conflict with, any trademark, trade
name, patent, copyright or other proprietary right of any person. EQ has
heretofore delivered to Parent and Merger Sub true, correct and complete copies
of all such documents.
16
Section 4.13 Contracts. Schedule 4.13 lists each and every:
(i) contract or commitment to which any of EQ and its
Subsidiaries is a party not made in the ordinary course of business or
continuing over a period of more than six months from the date hereof or
exceeding $25,000 in USD in value, other than contracts and commitments listed
in any other Schedule hereto;
(ii) contract with or commitment to employees, advisors,
consultants;
(iii) debt instrument, including, without limitation, any
loan agreements, promissory notes, security agreements or other evidences of
indebtedness, where any of EQ or its Subsidiaries is a lender or borrower, in a
principal amount in excess of $25,000 USD;
(iv) contract, commitment or arrangement restricting any of
EQ or its Subsidiaries , or any of their respective employees from engaging in
business or from competing in any line of business with any other parties;
(v) contract, agreement or arrangement to which EQ or its
Subsidiaries is a party (whether as an original party or an assignee or
successor) for a line of credit or guarantee, pledge or undertaking of the
indebtedness of any other person or entity;
(vi) contract or commitment to which EQ or its Subsidiaries
is a party (whether as an original party or an assignee or successor) for any
charitable or political contribution;
(vii) loan agreement, security agreement, note, debenture,
or other contract or commitment (except for this Agreement) limiting or
restraining EQ or its Subsidiaries from declaring, setting aside, authorizing
or making payment of any dividend or any distribution, whether in cash or
property;
(viii) joint venture or partnership agreement to which EQ or
its Subsidiaries is, directly or indirectly, a party (whether as an original
party or as an assignee or successor);
(ix) agreement or agreements to which EQ or its Subsidiaries
is a party (whether as an original party or as an assignee or successor) with
respect to any assignment, discounting or reduction of any receivables, other
than normal trade discounts, of EQ or its Subsidiaries ;
(x) distributorship, sales agency, sales representative or
marketing agreement;
(xi) any license pursuant to which EQ or its Subsidiaries
has any liability or obligation or is receiving or will become entitled to
receive any benefits in excess of $25,000 USD in value, and any permit pursuant
to which such entity currently operates its business;
17
(xii) existing agreements, options, commitments or rights
with, to or in any third party to acquire any assets or properties, real,
personal or mixed, or any interest therein, of EQ or its Subsidiaries, except
for those contracts for the sale of inventory entered into in the ordinary
course of business; and
(xiii) existing agreements, options, commitments or rights
("Acquisition Contracts") to acquire any assets or properties, real, personal
or mixed, or any interest therein, except for those relating to the acquisition
of inventory in the ordinary course of business, and letters of intent,
agreements-in-principal and heads of agreement ("Letters of Intent") with
respect to any of the foregoing.
EQ has heretofore delivered to Parent and Merger Sub true, correct and
complete copies of all documents described in Schedule 4.13.
Section 4.14 Absence of Default. Except as set forth in Schedule 4.14
hereto, each of EQ and its Subsidiaries has complied with and performed all of
its respective obligations required to be performed under all material
contracts, agreements and leases to which it is a party (whether as an original
party or as an assignee or successor) as of the date hereof, and is not in
default in any material respect under any contract, agreement, loan, lease,
undertaking, commitment or other obligation; and no event has occurred which,
with or without the giving of notice, lapse of time or both, would constitute a
default thereunder in any material respect. EQ, after due inquiry of each
Subsidiary, has no knowledge that any party has failed to comply with or
perform all of its obligations required to be performed under any material
contract, agreement or lease to which EQ or its Subsidiaries is a party
(whether as an original party or as an assignee or successor) as of the date
hereof, or that any event has occurred which, with or without the giving of
notice, lapse of time or both, would constitute a default by such party
thereunder. In addition, except as disclosed in Schedule 4.14, EQ, after due
inquiry of each Subsidiary, has no knowledge of any facts or circumstances
which make a default by any party to any material contract or obligation likely
to occur subsequent to the date hereof. EQ has not received any notice that a
party to any Letter of Intent intends not to enter into a definitive agreement.
Section 4.15 Insurance. Each of EQ and its Subsidiaries maintains
insurance coverages on its structures, facilities, fixtures, machinery,
equipment, motor vehicles, inventory and other properties and assets and with
respect to its employees and operations, covering risks which are prudently
insured against by similar businesses. EQ has previously furnished to Parent
and Merger Sub a correct and complete description of all such policies or
binders of insurance held by or on behalf of EQ and its Subsidiaries or any of
its or their properties or assets (specifying the insurer, the amount of the
coverage, the type of insurance, the risks insured, the expiration date, the
policy number, the premium and any agent or broker). Except as may otherwise
have been disclosed to Parent and Merger Sub in writing (i) no notice of
cancellation or nonrenewal with respect to, or disallowance of any claim under,
any such policy or binder has been received by either EQ or its Subsidiaries
from January 1, 1998 to the date hereof, and (ii) EQ, after due inquiry of each
Subsidiary has no knowledge of any state of facts or the occurrence of any
event which reasonably might form the basis of any claim against or relating to
its or their businesses or operations or any
18
of their assets or properties which are covered by any of such policies or
binders which might substantially increase the insurance premiums payable under
any such policy or binder. EQ has previously furnished to Parent and Merger Sub
a correct and complete description of all outstanding performance bonds which
have been delivered to any person in connection with the business and
operations of each of EQ and its Subsidiaries .
Section 4.16 Third Party Options. Except as set forth pursuant to
Section 4.13(xiii) hereof, there are no existing agreements, options,
commitments or rights with, to or in any third party to acquire any assets or
properties, real, personal or mixed, or any interest therein, of EQ or its
Subsidiaries, except for those contracts entered into by any of them in the
ordinary course of business.
Section 4.17 Distributions, Satisfactions, Obligations. Except as
disclosed in Schedule 4.17 hereto, since the Balance Sheet Date, none of EQ nor
its Subsidiaries has:
(i) issued any stock, bonds, partnership or membership
interests or other securities or equity interests;
(ii) incurred any obligations or liabilities for money
borrowed;
(iii) incurred any material obligations or liabilities,
absolute or contingent;
(iv) discharged or satisfied any lien, encumbrance or
obligation, or paid any material liabilities, absolute or contingent, other
than in the ordinary course of the operation of the business;
(v) declared or made any dividend payment or distribution to
any stockholder, partner or member of any of EQ or its Subsidiaries ;
(vi) purchased or redeemed any shares of the capital stock
or other equity interests of EQ or its Subsidiaries ;
(vii) mortgaged or pledged or subjected to lien, charge or
other encumbrance, any of its material assets, tangible or intangible;
(viii) sold, transferred or disposed of any of its assets
except assets used or consumed in the ordinary course of business and obsolete
equipment and equipment which has been replaced in the ordinary course of
business;
(ix) suffered any material adverse change, material damage,
disruption of business or losses, whether covered by insurance or not, or
waived any rights of substantial value;
(x) increased compensation payable to or to become payable
by such entity to any of its employees whose salary (inclusive of bonus) is
expected to exceed $50,000 USD in
19
1998, except for increases in the ordinary course of business to an employee on
the anniversary date of his employment, or upon his annual award date, which do
not exceed 10% of the base salary of such employee; or
(xi) operated its business in any way other than in the
ordinary course.
Section 4.18 Capital Expenditures. Except as set forth in Schedule
4.18 hereto since January 1, 1998, none of EQ nor its Subsidiaries has made or
budgeted for any capital expenditures or commitments, whether or not contracted
for, in an aggregate amount exceeding $10,000 USD.
Section 4.19 Litigation. Except as set forth in Schedule 4.19 hereto,
as of the date hereof, there are no actions, suits, labor disputes or
arbitrations, legal or administrative proceedings or investigations pending
against EQ or its Subsidiaries and no actions, suits, labor disputes or
arbitrations, legal or administrative proceedings or investigations are
contemplated or threatened against EQ or its Subsidiaries or any of its or
their assets, properties or businesses, nor is any basis known by EQ, after due
inquiry of each Subsidiary, to exist for any such action or for any
governmental investigation relating to any of EQ or its Subsidiaries or its or
their properties or businesses. Neither EQ nor its Subsidiaries nor their
assets, properties or business, are subject to any judgment, order, writ,
injunction or decree of any court, governmental agency, administrative tribunal
or arbitration tribunal.
Section 4.20 Compliance with Law.
(a) Each of EQ and its Subsidiaries:
(i) has complied with each, and is not in violation of any,
law, ordinance or governmental rule or regulation to which it or its business
is subject, and
(ii) has not failed to obtain any license, permit,
certificate or other governmental authorization or inspection necessary to the
ownership or use of its assets and properties or to the conduct of its
business, which, in the event of any noncompliance, violation or failure to
obtain, as the case may be, would have a material adverse effect on the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of such entity.
(b) Except as set forth in Schedule 4.20 hereto, none of EQ nor
its Subsidiaries has, since (i) in the case of EQ, its date of incorporation,
and (ii) in the case of any Subsidiary, the date of its acquisition or
formation by EQ, received any claim or notice of any violation, of any
building, zoning, fire, health or employment laws (including, without
limitation, workers compensation legislation or human rights legislation),
ordinances, rules or regulations relating to the properties, premises, business
or employees of such entity, which in the event of any non-compliance or
violation would have a material adverse effect on the business, operations,
prospects, properties, assets or condition (financial or otherwise) of such
entity.
20
(c) None of EQ nor its Subsidiaries has, nor has any director,
officer, agent or employee of any such entity: (i) made or agreed to make any
contributions, payments or gifts of its funds or property to any governmental
official, employee or agent where either the payment or the purpose of such
contribution, payment or gift was or is illegal under the laws of the United
States or Canada, any state or province thereof or any other jurisdiction
(foreign or domestic); (ii) established or maintained any unrecorded fund or
asset for any purpose, or made any false or artificial entries on any of its
books or records for any reason; (iii) made or agreed to make any contribution,
or reimbursed any political gift or contribution made by any other person or
entity, to candidates for public office whether federal, state, local or
foreign, where such contributions were or would be violative of applicable law;
or (iv) violated the U.S. Federal Corrupt Practices Act of 1977, as amended.
Section 4.21 Transactions with Affiliates. None of EQ nor its
Subsidiaries nor any current director or officer thereof controls or during the
last three years has controlled, directly or indirectly, any business,
corporate or otherwise, which is or was a party to any agreement, business
arrangement or course of dealing with any of EQ or its Subsidiaries or any
property or asset which was the subject of any agreement, business arrangement
or course of dealing with any of EQ or its Subsidiaries .
Section 4.22 Prohibited Payments. Neither EQ nor its Subsidiaries, nor
any of their respective officers, directors, employees, agents or affiliates
has offered, paid, or agreed to pay to any person or entity, including any
governmental official, or solicited, received or agreed to receive from any
such person or entity, directly or indirectly, any money or anything of value
for the purpose or with the intent of obtaining or maintaining business for any
such entity or otherwise affecting the business, operations, prospects,
properties, or condition (financial or otherwise) of any such entity and which
is or was in violation of any ordinance, regulation or law, or not properly and
correctly recorded or disclosed on the books and records of such entity. None
of EQ nor its Subsidiaries has engaged in any transaction, maintained any bank
account or used any other funds except for transactions, bank accounts and
funds which have been and are properly and correctly reflected in the normally
maintained books and records of such entity.
Section 4.23 Canadian Tax Matters.
(a) Except as set forth in Schedule 4.23 as of the time of
filing, all tax returns, elections, filings and designations of EQ or any of
its Subsidiaries required by law to be filed under Canadian federal,
provincial, municipal or local laws or any foreign (i.e., not Canadian) laws by
EQ or its Subsidiaries, or any affiliated, combined or unitary group of which
any such corporation is or was a member were in all respects true, complete and
correct and filed on a timely basis. Except as set forth in Schedule 4.23,
there are no agreements, waivers, or other arrangements with any taxation
authority providing for an extension of time with respect to the filing of any
tax return, election, designation or report by, or any payment of any amount
by, or any governmental charge against, EQ or any of its Subsidiaries or with
respect to the issuance of any assessment or re-assessment of any Taxes. Except
as set forth in Schedule 4.23, neither EQ nor any of its Canadian Subsidiaries
have made or filed any election or designation under any provision of the
Income Tax Act (Canada) or any relevant provincial taxing statute at any time
prior to the Closing Date.
21
(b) EQ and its Subsidiaries have, within the time and in the
manner prescribed by law, paid all income tax, estimated tax, excise tax, sales
tax, goods and services tax, corporation capital tax, gross receipts tax,
franchise tax, employment and payroll-related tax, property tax, import tax and
all such other applicable taxes, whether or not measured in whole or in part by
net income (collectively, "Taxes") including all installments for the current
taxation year, that are due and payable and have paid all assessments and
re-assessments of Taxes, and all other governmental charges, penalties,
interest, and fines, due and payable on or before the date hereof.
(c) EQ and its Subsidiaries as of January 1, 1998 have
established on their books and records reserves that are adequate for the
payment of all Taxes not yet due and payable and there shall be no material
difference between the amounts of the book basis and the tax basis of assets
(net of liabilities) that are not accounted for by an accrual on the books for
Canadian income tax purposes.
(d) There are no liens for Taxes upon the assets of EQ or any of
its Subsidiaries except liens for Taxes not yet due.
(e) Except as set forth in Schedule 4.23, there are no
agreements, waivers or other arrangements regarding the application of the
statute of limitations with respect to any Taxes or returns that have been
given by EQ or any of its Subsidiaries.
(f) No power of attorney has been granted by EQ or any of its
Subsidiaries with respect to any matter relating to Taxes which is currently in
force.
(g) Except as set forth in Schedule 4.23, neither EQ nor any of
its Subsidiaries is a party to any agreement or arrangement (written or oral)
providing for the allocation or sharing of Taxes,
(h) Except as set forth in Schedule 4.23, there are no actions,
audits, assessments, re-assessments, suits, proceedings, investigations or
claims pending or threatened against EQ or any of its Subsidiaries or, to the
knowledge of EQ or any of its Subsidiaries in respect of Taxes, governmental
charges or assessments or any material matters under discussion with any
governmental authority relating to Taxes, governmental charges or assessments
asserted by any such authority.
(i) EQ and each of its Subsidiaries have withheld from each
payment made to any of their respective past or present employees, officers, or
directors the amount of all Taxes and other deductions required to be withheld
therefrom by law and has remitted the same to the proper tax or other receiving
officers within the time required under any applicable legislation.
(j) Except as set forth in Schedule 4.23, EQ duly collected and
remitted to the appropriate tax authority as and when required by law to do so
all amounts on account of all Goods and Services Tax and retail sales taxes and
neither EQ nor any of its Canadian Subsidiaries have
22
claimed any input tax credit, refund or rebate under the Excise Tax Act
(Canada) to which it was not entitled for any reporting period of each such
entity ending on or before the Closing Date.
(k) EQ and each of its Subsidiaries has withheld from each
payment made to any non-resident of Canada the amount of all taxes and other
deductions required to be withheld therefrom and has remitted the same to the
proper tax or other receiving officers within the time required under any
applicable legislation.
(l) There has been no material debt of EQ or any of its
Subsidiaries which has been forgiven or settled at any time prior to the
Closing Date.
(m) EQ has not deducted any material amounts in computing its
income in a taxation year which will be included in a subsequent taxation year
under Section 78 of the Income Tax Act (Canada).
(n) EQ and each of its Subsidiaries have taxation years ending on
December 31 of each year.
(o) Except as set forth in Schedule 4.23, at the date hereof,
Canadian federal and British Columbia notices of assessment have been issued in
respect of the Canadian federal and British Columbia income tax returns for EQ
and its Canadian Subsidiaries for the 1996 and previous taxation years and no
notice of re-assessment has been issued in respect thereof for EQ or any of its
Canadian Subsidiaries for the 1996 or previous taxation years.
(p) Neither EQ nor any of its Subsidiaries are aware of any
contingent liability for any Taxes or any grounds that could result in an
assessment, reassessment, or determination of any Taxes by any taxation
authority, whether federal, provincial, state, municipal, local or foreign,
including the aggressive reporting of income, expenses, or claims for
deductions in filing any tax return.
(q) No payments have been made or authorized by EQ or by any of
its Subsidiaries to any of its present or former officers, directors,
shareholders or employees or to any person or company not dealing at arm's
length (within the meaning of the Income Tax Act (Canada)) with any of its
present or former officers, directors, shareholders or employees, except in the
ordinary course of business and at the reasonable and regular rates payable to
them of salary, pension, bonuses, fees, rents or other remuneration,
consideration or compensation of any nature.
(r) As of the date hereof, the paid-up capital of each share of
capital stock or other equity interests of EQ and its Canadian Subsidiaries is
as set forth on Schedule 4.23(r).
(s) As of the date hereof, the adjusted cost base to EQ of the
issued and outstanding shares in each of its Subsidiaries is as set forth on
Schedule 4.23(s).
23
(t) As of December 31, 1996, the undepreciated capital cost for
Canadian income tax purposes of the depreciable property of EQ and each of its
Canadian Subsidiaries is as set forth on Schedule 4.23(t).
(u) As of December 31, 1996, the non-capital losses carried
forward for Canadian income tax purposes by EQ and each of its Canadian
Subsidiaries is as set forth on Schedule 4.23(u).
EQ has heretofore delivered to Parent and Merger Sub true, correct and
complete copies of all federal, state, provincial, local and foreign income tax
returns filed within the past two years referred to in this Section 4.23, and
have made available to Parent and Merger Sub access to all other income tax
returns referred to on such Schedule.
Section 4.24 Employee Benefit Plans
(a) EQ has previously furnished to Parent and Merger Sub a list
of all of employee benefit plans (within the meaning of ERISA), funds or
programs whether or not they are or are intended to be (i) covered or qualified
under the Internal Revenue Code of 1986, as amended (the "Code") or ERISA or
any other applicable law, (ii) written or oral, (iii) formal or informal, (iv)
funded or unfunded, or (v) generally available to all employees of each of EQ
and its Subsidiaries, which were or are established or maintained by such
entity and all other compensation practices, policies, terms or conditions,
whether written or unwritten (individually, a "Plan", and collectively, the
"Plans"), other than those sponsored or mandated by the federal or a provincial
government in Canada (hereinafter, collectively, "Government Sponsored or
Mandated Plans"). For purposes of this Section 4.24, the term "Company" shall
mean and include EQ and its Subsidiaries and any corporation which is a member
of a controlled group of corporations (as defined in Section 414(b) of the
Code) which includes any of EQ or its Subsidiaries; any trade or business
(whether or not incorporated) which is under common control (as defined in
Section 414(c) of the Code) with any Company; any organization (whether or not
incorporated) which is a member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes any Company; and any other entity
required to be aggregated with any Company pursuant to regulations under
Section 414(o) of the Code.
(b) EQ has not contributed or been obligated to make any
contributions for the six-year period ending on the Closing Date, to any
multi-employer plans (within the meaning of Section 3(37) of ERISA).
(c) EQ has previously furnished to Parent and Merger Sub (i) true
and complete copies of all Plan documents and other instruments relating
thereto, (ii) accurate and complete detailed summaries of all oral Plans, (iii)
true and complete copies of the most recent financial statements with respect
to the Plans, (iv) true and complete copies of all annual reports prepared
within the past five years, and (v) true and complete copies of all filings
submitted to and any correspondence received from any government agency within
the past five years.
24
(d) No Plan is intended to be or required to be qualified under
Section 401(a) and exempt from tax under Section 501(a) of the Code.
(e) The Plans and provisions thereof, the trusts created thereby,
and the operation of the Plans and Government Sponsored or Mandated Plans are
in compliance with and conform to applicable provisions of all applicable laws,
including, but not limited to, all federal, provincial and local Canadian laws,
the Code, ERISA, other statutes, and governmental rules and regulations and
there have been and there exist no prohibited transactions (as defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
(f) Each Company has made, or will make, all contributions to the
applicable Plans and Government Sponsored or Mandated Plans for all periods up
to the Closing Date as required by the terms of the Plans, the Code and ERISA
and has accrued under financial statements all contributions that will have to
be made with respect to the Plans and Government Sponsored or Mandated Plans as
of the Closing Date. Each most recent Plan audit report and annual report,
certified by the Plan's auditors, fairly presents the financial condition of
the Plan as at the date thereof and the results of operations of the Plan for
the plan year reflected therein and, there has been no material adverse change
in the condition of the Plan since the date of the most recent Form 5500 or
audited annual financial statement.
(g) With respect to any Plan that is an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA (a "Welfare Plan"), (i) each
such Welfare Plan the contributions to which are claimed as a deduction under
any provision of the Code is in compliance with all applicable requirements
pertaining to such deduction, (ii) with respect to any welfare benefit fund
within the meaning of Section 419 of the Code that comprises part of a Welfare
Plan, there is no disqualified benefit within the meaning of Section 4976(b) of
the Code that would subject the Company to a tax under Section 4976(a) of the
Code, and (iii) any such Plan that is a group health plan within the meaning of
Section 5000(b)(l) of the Code meets all of the requirements of Section 4980B
of the Code. EQ has previously furnished to Parent and Merger Sub a list of all
Welfare Plan benefits being provided or that will be provided to all former
employees (or other participants and beneficiaries) and the accrued liabilities
of same.
(h) The consummation of the transaction contemplated hereby will
not accelerate any liability under the Plans because of an acceleration of any
rights or benefits to which any participant or beneficiary (as such terms are
defined in Section 3 of ERISA) may be entitled thereunder.
(i) No Plan is in the process of being (i) amended in any manner
that would directly or indirectly increase the benefit accrued or which may be
accrued by any participant thereunder, or (ii) amended in any manner that would
materially increase the cost of maintaining such Plan.
(j) Each Plan and Government Sponsored or Mandated Plan that is
required or intended to be qualified under applicable law or registered or
approved by a governmental agency
25
or authority, has been so qualified, registered or approved by the appropriate
governmental agency or authority, and nothing has occurred since the date of
the last qualification, registration or approval to adversely affect, or cause
the appropriate governmental agency or authority to revoke, such qualification
registration or approval.
(k) All contributions (including premiums) required by law or
contract to have been made or approved by EQ under or with respect to the Plans
and Government Sponsored or Mandated Plans have been paid or accrued by EQ.
Without limiting the foregoing, there are no unfunded liabilities under any
Plan or Government Sponsored or Mandated Plan.
(l) There are no pending or threatened matters, actions, audits,
suits, claims, investigations, litigation or other enforcement actions against
EQ with respect to any of the Plans or Government Sponsored or Mandated Plans.
(m) There are no actions, suits or claims pending or, to the best
knowledge of EQ, threatened by former or present employees of EQ (or their
beneficiaries) or any union representing employees of the Company with respect
to the Plans or Government Sponsored or Mandated Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(n) Neither EQ nor any of its Subsidiaries has any 401(k) or
other type of pension plan in the United States.
(o) No conditions or event has occurred with respect to the Plans
and Government Sponsored or Mandated Plans which has or could reasonably be
expected to result in a liability to EQ.
Section 4.25 Executive Employees.
(a) Annexed hereto as Schedule 4.25 is a correct and complete
list of the names, titles and current annual salary rates of and bonuses paid
or payable (including the value of any stock-based compensation) to all present
non-union officers and employees, consultants and management service providers
of each of EQ and its Subsidiaries whose 1998 annual salary or compensation
(including bonuses paid or payable in 1997 or thereafter) is expected to exceed
$50,000 USD ("Executive Employees").
(b) Neither EQ nor any of its Subsidiaries has any employment
agreement with, and does not maintain any Plan with respect to, any Executive
Employees or other employees, except as disclosed on Schedule 4.25.
(c) All information and other relevant documentation relating the
financial condition of EQ and its Subsidiaries provided to Parent or Merger Sub
by EQ accurately reflect all outstanding liability relating to compensation for
length of service, overtime (including, without limitation, banked overtime),
vacation or holiday pay, salary, bonuses, stock options or any other
26
compensation owed or owing to any and all employees, consultants and management
service providers of each of EQ and its Subsidiaries.
Section 4.26 Employees. Annexed hereto as Schedule 4.26 is a correct
and complete list of all labor and collective bargaining agreements (whether
written or oral) to which each of EQ or its Subsidiaries is a party or by which
any of them is bound, and all employment, profit sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consultancy, retirement, severance, welfare or incentive agreements, plans or
contracts (other than those identified herein) to which any of them is a party.
EQ has delivered copies of all such agreements, contracts and plans to Parent
and Merger Sub. None of EQ nor any of its Subsidiaries is in default with
regard to any of such agreements, plans or contracts. Each of EQ and its
Subsidiaries is in compliance in all material respects with all applicable laws
relating to the employment of labor. There are no controversies (other than
routine grievances) pending or threatened, between any of EQ or its
Subsidiaries, and any of its employees, consultants or labor unions or other
collective bargaining units representing any of its employees. No complaints
have been filed against any of EQ or its Subsidiaries with the National Labor
Relations Board or any provincial labor relations board, employment standards
board, human rights commission, workers compensation board or similar
regulatory authority, and none of EQ nor its Subsidiaries has received any
notice or communication reflecting an intention or a threat to file any such
complaint.
Section 4.27 Environmental Laws.
(a) Each of EQ and its Subsidiaries has obtained and holds all
permits, licenses and other authorizations which are required with respect to
the operation of its business under Federal, state, provincial, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases or
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes ("Hazardous Substances") into the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial toxic or hazardous substances
or wastes (the "Environmental Laws"), except any permits, licenses and other
authorizations the absence of which would not, individually or in the
aggregate, materially adversely affect any of EQ or its Subsidiaries, and all
such permits, licenses and other authorizations are in good standing and EQ and
its Subsidiaries are not in default thereunder.
(b) Each of EQ and its Subsidiaries is in full compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing notice or demand letter pending or threatened against
any of EQ or its Subsidiaries relating
27
in any way to the Environmental Laws or any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(d) No events, conditions, activities, practices, incidents,
actions or plans of action taken or to be taken by any of EQ or its
Subsidiaries are reasonably likely to (i) interfere with or prevent compliance
or continued compliance with the Environmental Laws or with any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated or approved thereunder, in any manner which could
have a EQ Material Adverse Effect, (ii) give rise to any common law or legal
liability, including, without limitation, liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorizations Act of 1986, or any other
applicable Environmental Laws or similar state, provincial or local laws, or
(iii) form the basis of any claim, action, demand, suit, proceeding, hearing or
notice of violation based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, toxin or hazardous substance
or waste.
(e) EQ has made available to Parent and Merger Sub true and
correct copies of all environmental audits or assessments, analyses of soil,
groundwater, indoor and outdoor air, sediment, surface water and
asbestos-containing materials relating in whole or in part to EQ and its
Subsidiaries, any Owned Property or any Leased Real Estate undertaken by or on
behalf of EQ or any of its Subsidiaries, and any written communications
received by EQ relating in whole or in part to the existence of Hazardous
Substances at any Owned Property or Lease Real Estate or any real property
previously owned or operated by EQ or its Subsidiaries or the compliance of EQ
and its Subsidiaries with respect to any Environmental Law.
Section 4.28 Bank Accounts, Letters of Credit and Powers of Attorney.
EQ has previously furnished to Parent and Merger Sub a true and correct list of
(a) all bank accounts, lock boxes and safe deposit boxes relating to the
business and operations of each of EQ and its Subsidiaries, (b) all outstanding
letters of credit issued by financial institutions for the account of each of
EQ and its Subsidiaries (setting forth, in each case, the financial institution
issuing such letter of credit, the maximum amount available under such letter,
the terms (including the expiration date) of such letter of credit and the
party or parties in whose favor such letter of credit was issued), and (c) the
name and address of each person who has a power of attorney to act on behalf of
each of EQ and its Subsidiaries. EQ has heretofore delivered to Parent and
Merger Sub true, correct and complete copies of each such letter of credit and
each such power of attorney.
Section 4.29 Minute Books; Records. The minute books and/or other
official records, as applicable, of each of EQ and its Subsidiaries as
previously made available to Parent and Merger Sub for inspection, contain
complete and accurate records of all meetings and accurately reflect all other
action of the stockholders, boards of directors, management committees or other
governing bodies, as applicable, of each of EQ and its Subsidiaries. The stock
certificate books, stock transfer ledgers and/or capital account records, as
applicable, of each of EQ and its Subsidiaries as previously made available to
Parent and Merger Sub for inspection, are true and complete. All stock and/or
other
28
applicable transfer taxes levied or payable with respect to all transfers of
shares and/or other equity interests, as applicable, of each of EQ and its
Subsidiaries prior to the date hereof have been paid and appropriate transfer
tax stamps affixed.
Section 4.30 Full Disclosure. No representation or warranty by EQ in
this Agreement, any Schedule hereto or in any list, certificate, document or
written statement delivered by EQ to Parent or Merger Sub pursuant hereto,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make any statement herein or therein, in the light of the
circumstances under which it was made, not misleading. Except as described in
the Schedules hereto or in any list, certificate, document or written statement
delivered or to be delivered, all documents and agreements are valid and
effective in accordance with their respective terms, and there is not under any
of such documents or agreements, or any obligation, covenant or condition
contained therein, any existing default by any of EQ or its Subsidiaries or any
other party, or event which with notice, lapse of time, or both, would
constitute a default which would have a EQ Material Adverse Effect. There is no
fact known to EQ, which EQ has not disclosed or will not disclose to Parent and
Merger Sub which adversely affects or, so far as EQ, can now reasonably
foresee, which may adversely affect, the continued operation of any EQ or its
Subsidiaries.
Section 4.31 Securities Offerings. None of EQ nor its Subsidiaries has
offered, or is offering, for sale any of its securities by means of offering
memoranda or circulars, subscription agreements, or other documentation which
contains any untrue statement of a material fact or omits to state any material
fact necessary to make any statement therein, in the light of the circumstances
under which it was made, not misleading.
Section 4.32 Brokers or Finders. Other than BancAmerica Xxxxxxxxx
Xxxxxxxx, no agent, broker, investment banker, financial advisor or other
person or entity is or will be entitled, by reason of any agreement, act or
statement by any of EQ or its Subsidiaries, to any financial advisory,
broker's, finder's or similar fee or commission in connection with any of the
transactions contemplated by this Agreement.
Section 4.33 Licenses.
(a) Each of EQ and its Subsidiaries holds all licenses
(including, without limitation, liquor licenses), franchises, registrations,
ordinances, authorizations, permits, certificates, variances, qualifications,
exemptions, orders, approvals and waivers of any governmental entity (Federal,
state, provincial and local) (collectively, "Licenses") which are required for
the conduct of its business operations as currently conducted. All of the
Licenses (including, without limitation, all liquor licenses) are in full force
and effect, and no Action is pending or threatened, seeking the revocation or
limitation of any of the Licenses. Schedule 4.33 lists all Licenses (including
all liquor licenses) that are material to the business of each of EQ and its
Subsidiaries. Except as indicated on Schedule 4.33, no License will terminate
as a result of this Agreement or the transactions contemplated hereby.
29
(b) Schedule 4.33 lists all entities, other than EQ and its
Subsidiaries, that hold licenses to serve or sell alcoholic beverages in
locations on the premises of or associated with or contiguous to the facilities
operated by EQ and its Subsidiaries in connection with the business of EQ and
its Subsidiaries.
Section 4.34 Proxy Statement. The information supplied or to be
supplied by EQ and any Subsidiary thereof for inclusion in the Proxy Statement
(as hereinafter defined), including any amendments and supplements thereto,
will not either at the date mailed to EQ's stockholders or at the time of the
Stockholder Meeting (as hereinafter defined), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement, as to
information supplied by EQ or any Subsidiary thereof, will comply in all
material respects with all applicable provisions of applicable Canadian law.
ARTICLE V
COVENANTS
Section 5.1 Alternative Proposals. From the date hereof until such
time as Parent's designees shall constitute a majority of the members of the
Board of Directors of EQ, EQ agrees that (a) neither it nor any of its
Subsidiaries shall, nor shall it, nor any of its Subsidiaries permit their
respective officers, directors, employees, agents, representatives or
Affiliates (including, without limitation, any investment banker, attorney or
accountant retained by them) to initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation any proposal or offer to its or their
stockholders) which constitutes or is reasonably likely to lead to any
Alternative Proposal, as hereinafter defined, or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, or otherwise cooperate in any way with, any corporation,
partnership, person or other entity or group (each a "Third Party") relating to
an Alternative Proposal, or otherwise facilitate any effort or attempt to make
or implement an Alternative Proposal; (b) it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and will
take the necessary steps to inform the individuals or entities referred to
above of the obligations undertaken in this Section 5.1; and (c) it will notify
Parent immediately if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any information is requested by
any Third Party with respect to an Alternative Proposal or which could lead to
an Alternative Proposal and immediately notify Parent of all material terms of
any proposal which it may receive in respect of any such Alternative Proposal,
including the identity of the Third Party making the Alternative Proposal or
the request for information, if known, and thereafter shall inform Parent on a
timely, ongoing basis of the status and content of any discussions or
negotiations with such Third Party, including immediately reporting any
material changes to the terms and conditions thereof. As used herein,
"Alternative Proposal" means any inquiry, proposal or offer from any Third
Party relating to a direct or indirect acquisition or purchase of 15% or more
of any class of equity securities or EQ or any of its Subsidiaries, any tender
offer or exchange offer that if consummated would result in any Third Party
beneficially
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owning 15% or more of any class of equity securities of EQ or any of its
Subsidiaries, any merger, consolidation, business combination, sale of all or
substantially all of the assets, recapitalization, liquidation, dissolution or
similar transaction involving EQ or any of its Subsidiaries, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or Arrangement or which would reasonably
be expected to dilute materially the benefits to Parent of the transactions
contemplated hereby. As used herein, "Superior Proposal" means any bona fide
fully-financed written offer made by a Third Party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the EQ Stock then outstanding or all or substantially all of the assets
of EQ and otherwise on terms which the Board of Directors of EQ determines
(after consultation with a nationally recognized investment bank) to be
economically superior to the transaction contemplated by this Agreement.
Section 5.2 Interim Operations of EQ. Prior to the Closing Date,
unless Parent has consented in writing thereto, EQ and each of its
Subsidiaries:
(a) shall conduct its operations according to its usual, regular
and ordinary course in substantially the same manner as heretofore conducted;
(b) shall use its reasonable efforts to preserve intact its
business organizations and goodwill, keep available the services of officers
and employees and maintain satisfactory relationships with those persons having
business relationships with it;
(c) shall not amend its Certificate of Incorporation or its
Bylaws, Memorandum or Articles or comparable governing instruments;
(d) shall promptly notify Parent of any material emergency or
other material change in its condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its business
or of its properties, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the breach of any representation or warranty
contained herein;
(e) shall not (A), issue or redeem any capital stock or otherwise
change its capitalization as it existed on the date hereof other than as
contemplated by Section 4.3; (B) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire any
capital stock; (C) increase any compensation or enter into or amend any
employment or consulting agreement with any of its present or future officers,
directors or employees; (D) grant, pay or admit liability to pay any severance
or termination package to any employee or consultant, except as necessary to
comply with Section 5.15; (E) adopt any new employee benefit plan (including
any stock option, benefit or purchase plan) or amend any existing employee
benefit plan in any respect;
(f) shall not declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital stock;
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(g) shall not enter into any material transaction, or agree to
enter into any material transaction, outside the ordinary course of business,
including, without limitation, any transaction involving a merger,
consolidation, joint venture, partial or complete liquidation or dissolution,
reorganization, recapitalization, restructuring or a purchase, sale, lease or
other disposition of a substantial portion of assets or capital stock.
(h) shall not incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of others.
(i) shall not make any loans, advances or capital contributions
to, or investments in, any other person;
(j) shall not make or commit to make any capital expenditures
except as set forth in Schedule 5.2, up to a maximum after the date hereof of
$25,000 USD for each of its existing sites;
(k) shall not apply any of its assets to the direct or indirect
payment, discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate or enter into any transaction
with any Affiliate.
(l) shall not alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices therein reflected,
except to conform to requirements set forth in this Agreement;
(m) shall not grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or encumbrance of
any kind;
(n) shall maintain insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are currently
in effect; and
(o) shall not take any action which would disqualify the Merger
or Arrangement as a "pooling of interests" for accounting purposes.
Section 5.3 Filings; Other Action.
(a) Subject to the terms and conditions herein provided, EQ and
Parent shall use all reasonable efforts to take, or cause to be taken, all
action and do, or cause to be done, all things necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement. If, at any time after the Closing Date, any further reasonable
action is necessary or desirable to carry out the purpose of this Agreement,
the proper officers and directors of Parent and EQ shall take all such
necessary action.
(b) (i) EQ and Parent shall give any notices to third parties,
and use all reasonable efforts to obtain any third party consents, necessary,
proper or advisable to consummate
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the transactions contemplated in this Agreement, including, without limitation,
the consents of any lenders, landlords or parties to agreements under which a
breach, with notice or lapse of time or both, would result in the termination
or cancellation thereof, accelerate the performance required thereby, result in
the triggering of any payment or other material obligations pursuant thereto,
result in the creation of any lien, security interest, charge or encumbrance
upon any material properties of EQ or any of its Subsidiaries thereunder, or
result in such agreements being declared void, voidable or without further
binding effect.
(ii) In the event that either party shall fail to obtain any
third party consent described in subsection (b) (i) above, such party shall use
all reasonable efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon EQ and Parent,
their Subsidiaries, and their respective businesses resulting, or which could
reasonably be expected to result after the Closing Date, from the failure to
obtain such consent.
(c) From and after the date of this Agreement until the Closing
Date, each party hereto shall promptly notify the others of (i) the occurrence,
or non-occurrence, of any event the occurrence, or non-occurrence, of which
would be likely to cause any condition to the obligations of any party to
effect the Merger or Arrangement and the other transactions contemplated by
this Agreement not to be satisfied, or (ii) the failure of EQ or Parent, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it pursuant to this Agreement which would be
likely to result in any condition to the obligations of any party to effect the
Merger or Arrangement and the other transactions contemplated by this Agreement
not to be satisfied; provided, however, that the delivery of any notice
pursuant hereto shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
Section 5.4 Inspection of Records. From the date hereof to the Closing
Date, EQ shall (a) allow all designated officers, attorneys, accountants and
other representatives of Parent reasonable access at all reasonable times to
the offices, records and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of EQ; (b)
furnish to Parent and its representatives such financial and operating data and
other information as such persons may reasonably request; and (c) instruct the
employees, counsel, accountants and financial advisors of EQ to cooperate with
the Parent and its representatives in its investigation of EQ business.
Section 5.5 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the
Arrangement.
Section 5.6 Expenses. Whether or not the Merger and Arrangement is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall, except as otherwise provided
herein, be paid by EQ if incurred by EQ, and by Parent
33
if incurred by Parent or Merger Sub; provided, however that (i) in the event
that this Agreement is terminated pursuant to Sections 7.1(c) or 7.1(g) hereof,
EQ shall promptly pay Parent or Merger Sub $2,000,000 USD as liquidated
damages, and reimburse Parent or Merger Sub, as the case may be, all
out-of-pocket expenses and fees (including, without limitation, fees and
expenses payable to all governmental authorities, banks, investment banking
firms and other financial institutions, and their respective agents and
counsel, and all fees and expenses of counsel, accountants, financial printers,
proxy solicitors, exchange agents, experts and consultants), whether incurred
prior to, on or after the date hereof, in connection with the Merger,
Arrangement and the consummation of the transactions contemplated hereby; or
(ii) in the event that this Agreement is terminated pursuant to Section 7.1(e),
Parent or Merger Sub shall promptly pay EQ $2,000,000 USD in liquidated
damages. In either instance, the liquidated damages provided for herein shall
represent the only damages that may be sought by the parties hereto, or any
stockholder of EQ, under this Agreement in the event of a termination of this
Agreement as aforesaid or any violation or breach of this Agreement which gave
rise thereto.
Section 5.7 Survival of Representations and Warranties of EQ.
Notwithstanding any right of Parent to investigate the affairs of EQ and
notwithstanding any knowledge of facts determined or determinable by Parent
pursuant to such investigation or right of investigation, Parent has the right
to rely fully upon the representations, warranties, covenants and agreements of
EQ contained in this Agreement. All such representations, warranties, covenants
and agreements shall survive the execution and delivery hereof and the
consummation of the transactions contemplated hereby for a period of one year
following the Closing Date. All representations, warranties, covenants and
agreements made herein by Parent and Merger Sub shall survive the execution and
delivery hereof and the consummation of the transactions contemplated hereby
for a period of one year following the Closing Date.
Section 5.8 Governmental Approvals. As promptly as practicable after
the execution of this Agreement, Parent, Merger Sub and EQ shall file
notification reports under the HSR Act, the Competition Act (Canada) and the
Investment Canada Act (collectively the "Acts"), as applicable, and shall
request early termination of any applicable waiting periods under such Acts and
use their commercially reasonable efforts to obtain clearance or authorization
under the Acts of the Arrangement and the other transactions contemplated by
this Agreement at the earliest practical time.
Section 5.9 Public Announcements. Each party to this Agreement and
their respective Subsidiaries shall consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or any transaction contemplated hereby and shall not issue any such
press release (unless required by applicable law) or make any such public
statement without the prior consent of the other parties hereto, which consent
shall not be unreasonably withheld.
Section 5.10 Stockholders Meeting. EQ shall call a meeting of its
stockholders (the "Stockholder Meeting") to be held as promptly as practicable
for the purpose of considering and voting upon this Agreement and the
Arrangement. The Board of Directors of EQ shall recommend
34
that the stockholders of EQ approve this Agreement and the Arrangement (the
"Stockholder Approval").
Section 5.11 Proxy Statement.
(a) As promptly as practicable after the execution of this
Agreement, EQ shall comply with applicable Canadian securities and corporate
laws and prepare and file as appropriate, a proxy statement relating to the
Stockholder Meeting to be held in connection with the Arrangement (together
with any amendments thereof or supplements thereto, the "Proxy Statement"), EQ
shall cause the Proxy Statement to comply as to form in all material respects
with applicable Canadian securities and corporate laws and shall take all or
any action required under any applicable federal or state securities laws of
the United States or provincial or territorial securities laws of Canada.
Parent shall furnish to EQ all information concerning Parent as EQ may
reasonably request in connection with the preparation of the documents referred
to herein. As promptly as practicable after the Interim Order shall have been
obtained from the Court, EQ shall mail the Proxy Statement to its stockholders.
(b) The information supplied by each of Parent and EQ for
inclusion in the Proxy Statement shall not, at (i) the time the Proxy Statement
is first mailed to the stockholders of EQ, (ii) the time of the Stockholders
Meeting, or (iii) the Closing Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. If at any
time prior to the Closing Date, any event or circumstance relating to EQ,
Parent or any of their respective Subsidiaries or officers or directors, should
be discovered by such party which should be set forth in an amendment or a
supplement to the Proxy Statement, such party shall promptly inform the other
thereof and take appropriate action in respect thereof.
Section 5.12 Blue Sky. Parent shall use its commercially reasonable
efforts to obtain prior to the Closing Date all approvals or permits required
to carry out the transactions contemplated hereby under applicable U.S. and
Canadian state, provincial, territorial and local securities laws and
regulations ("Blue Sky Laws") in connection with the issuance of the Parent
Common Stock pursuant to the Arrangement; provided, however, that with respect
to such qualifications Parent shall not be required to register or qualify as a
foreign corporation or take any action which would subject it to general
service of process or taxation in any jurisdiction where it is not now subject.
EQ shall cooperate with Parent in the making of all required filings under
applicable Canadian and Blue Sky Laws in connection with the issuance of Parent
Common Stock pursuant to the Arrangement. Notwithstanding anything in this
Agreement to the contrary, Parent shall be under no obligation to file a
registration statement with the Securities and Exchange Commission (the "SEC")
in order to register the Parent Common Stock to be issued pursuant to the
Arrangement under the Securities Act. As part of its applications for the
Interim Order and the Final Order, EQ will inform the Court that, if the Court
approves the Arrangement, the Parent Common Stock to be issued pursuant to the
Arrangement will not require registration under the Securities Act by virtue of
the Court's approval.
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Section 5.13 Affiliates. At least ten (10) days prior to the mailing
of the Proxy Statement, (a) EQ shall deliver to Parent a letter identifying all
persons who may be deemed to be affiliates of EQ under Rule 145 of the
Securities Act as of the record date of the Stockholders' Meeting, including,
without limitation, all of its directors and executive officers (the "Rule 145
Affiliates") and (b) EQ shall advise the persons identified in such letter of
the resale restrictions imposed by applicable securities laws and shall use
commercially reasonable efforts to obtain from each person identified in such
letter a written agreement substantially in the form of Exhibit B hereto.
Section 5.14 Options. The Committee (as defined in the Eagle Quest
Golf Centers, Inc. 1996 Stock Option Plan and the Eagle Quest Golf Centers,
Inc. 1997 Amended Stock Option Plan, collectively, the " Option Plans") shall
promptly after the date hereof, determine pursuant to Section 11.4 of the
Option Plans that the transactions contemplated hereby shall be deemed a
Terminating Event (as defined in the Option Plans) for purposes of the Option
Plans and shall within 30 days after the date hereof give the notice to
optionees under the Option Plans contemplated by Section 11.3 thereof.
Section 5.15 Termination of Written Employment Agreements. EQ shall
take such actions as are necessary to terminate the written employment and
consulting agreements set forth on Schedule 4.25 prior to the Closing Date.
Section 5.16 Real Estate and other Consents. EQ shall take all actions
and do all things necessary to obtain the consents described in, and satisfy
the conditions of, Section 6.3(h) hereof.
Section 5.17 Preparation of Signing Date Balance Sheet. On or before
May 22, 1998, EQ shall prepare and deliver to Parent and Merger Sub a
consolidated balance sheet of EQ as of the close of business on March 31, 1998
(the "Signing Date Balance Sheet"). The Signing Date Balance Sheet shall be
prepared in accordance with US GAAP applied on a basis consistent with that
used in, and in accordance with the same accounting principles applied in, the
preparation of the financial statements referred to in Section 4.7, and shall
be reviewed by KPMG Peat Marwick ("KPMG"). KPMG shall also provide an opinion
on the calculation (the "Calculation") of Signing Date Net Liabilities and
Excess Liabilities (as such terms are defined below) as of the date of such
Signing Date Balance Sheet and calculated as set forth below. Unless Parent
elects to forego such review, Xxxxxxx X. Xxxxxx & Company LLP ("Xxxxxx") shall
have 25 days to review the Signing Date Balance Sheet and the Calculation. If
Xxxxxx disagrees with the amount of Signing Date Net Liabilities shown on the
Signing Date Balance Sheet or the Calculation, then (i) it shall issue a report
to such affect and, unless the parties otherwise agree, the Signing Date Net
Liabilities as shown in the KPMG reviewed balance sheet and the Excess
Liabilities calculated by KPMG shall be increased (the "Liability Adjustment")
by 50% of the difference between such number from the KPMG reviewed balance
sheet and the Signing Date Net Liabilities and Excess Liabilities shown in the
Xxxxxx report and (ii) a number of shares (the "Special Escrow Shares") of
Parent Common Stock equal to the quotient of 50% of such difference and $35.00
USD shall be placed in escrow pending the post-closing dispute resolution
described below. The "Signing Date Net Liabilities" shall mean the amount of
Total Liabilities, plus the value assigned to warrants issued with the
Subordinated Debenture (and minus the total purchase price paid in connection
with the acquisition of the
36
Douglasdale Golf Center) as set forth on the Signing Date Balance Sheet plus
any other debt discount and deferred financing costs minus the sum of (A) cash
(exclusive of any cash from the issuance of shares of EQ Common Stock or the
exercise of options or warrants for EQ Common Stock subsequent to February 20,
1998), (B) restricted cash deposits and (C) inventory. (EQ shall cause a
physical inventory to be taken no later than April 15, 1998 and to be observed
by KPMG and, at Parent's option, Xxxxxx for purposes of the preceding
sentence.) The amount, if any, by which such Signing Date Net Liabilities (as
adjusted for the Liability Adjustment) is greater than $22,300,000 USD shall
be, for purposes of Section 1.6(a), the Excess Liabilities (as adjusted for the
Liability Adjustment). If shares of Parent Common Stock have been escrowed
pursuant to this Section 5.17, then KPMG and Xxxxxx shall have 30 days after
the Closing Date to come to an agreement as to what the Signing Date Net
Liabilities and Calculation should have been. If they are unable to agree
within such 30-day period, the two firms shall appoint a third accounting firm
of recognized national standing which shall resolve the dispute (including, if
necessary, auditing the Signing Date Balance Sheet) within 60 days and whose
decision shall be final and binding. Promptly after the dispute is resolved,
any Special Escrow Shares to which the holders of EQ Stock would have been
entitled based on such resolution shall be released from escrow to such holders
and any Special Escrow Shares or other Escrow Shares to which Parent or Merger
Sub would have been entitled shall be released from escrow to Parent. A number
of Shares of Parent Common Stock equal to the expenses of such third accounting
firm divided by $35.00 USD shall also be deducted from the Escrow Shares if the
Excess Liabilities, as determined by such third party accountants, is closer to
the amount of Excess Liabilities proposed by Xxxxxx than to the amount of
Excess Liabilities proposed by KPMG.
Section 5.18 Schedules. Each of the parties hereto shall deliver all
final Schedules required to be delivered by them in a form acceptable to both
parties as contemplated hereby on or prior to April 15, 1998.
Section 5.19 Restrictive Legend. Each share of Parent Common Stock
issued pursuant to the Merger and Arrangement shall bear a restrictive legend
limiting the transfer of such shares until the date which is 31 days after the
first combined financial results of the parties hereto are publicly issued.
Section 5.20 Exhibits Exhibits substantially in the form of the
Exhibits previously delivered to the parties, with such changes as shall be
mutually agreed by the parties, shall be added as the definitive Exhibits
hereto on or before April 15, 1998. The parties covenant to negotiate in good
faith to finalize such Exhibits.
ARTICLE VI
CONDITIONS
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Section 6.1 Conditions to Obligation of Each Party to Effect the
Merger and Arrangement. The obligation of each party hereto to effect the
Merger and Arrangement shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) EQ shall have received the Stockholder Approval.
(b) All necessary regulatory and governmental approvals and
consents shall have been obtained.
(c) Any applicable waiting period under the XXX Xxx, xxx
Xxxxxxxxxxx Xxx (Xxxxxx) and the Investment Canada Act shall have expired or
been terminated.
(d) Parent shall have received all permits and other
authorizations necessary to issue the Parent Common Stock pursuant to the
Arrangement including, without limitation, any necessary exemption orders or
waivers from applicable securities commissions in Canada.
(e) The parties hereto shall have entered into the Escrow
Agreement substantially in the form of Exhibit C hereto.
(f) The Final Order shall have been issued by the Court.
(g) A certified copy of each of the Final Order and the Plan of
Arrangement shall have been filed with the British Columbia Registrar of
Companies.
Section 6.2 Conditions to Obligation of EQ to Effect the Merger and
Arrangement. The obligation of EQ to effect the Merger and Arrangement shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Parent shall have performed, in all material respects, all of
its agreements contained herein that are required to be performed by Parent on
or prior to the Closing Date, and EQ shall have received a certificate of the
President or Senior Vice President of Parent dated the Closing Date, certifying
to such effect.
(b) The representations and warranties of Parent and Merger Sub
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects as of the Closing,
and EQ shall have received a certificate of the President or Vice President of
Parent, dated the Closing Date, certifying to such effect.
(c) Parent shall have executed and delivered a registration
rights agreement substantially in the form of Exhibit D.
Section 6.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger and Arrangement. The obligations of Parent and Merger Sub to
effect the Merger and Arrangement shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
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(a) The representations and warranties of EQ contained in this
Agreement and in any document delivered in connection herewith shall be true
and correct in all material respects as of the Closing, and Parent and Merger
Sub shall have received a certificate of the President or Senior Vice President
of EQ, dated the Closing Date, certifying to such effect.
(b) EQ shall have performed, in all material respects, all of its
agreements contained herein that are required to be performed by EQ on or prior
to the Closing Date, and Parent shall have received a certificate of the
President or a Vice President of EQ, dated the Closing Date, certifying to such
effect.
(c) Parent and Merger Sub shall have received an opinion letter
from EQ's independent auditors concurring with EQ's management that EQ meets
the conditions of paragraphs 46(a)-(c) of the Accounting Principles Board #16
(APB16) which are the conditions required for EQ to be eligible for pooling of
interest accounting treatment in accordance with US GAAP.
(d) Merger Sub shall have executed and delivered employment
agreements, substantially in the form of Exhibits E, F and G attached hereto,
with respect to each of Messrs. Xxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxx and
Xxxxxx X. Xxxxxxx, respectively, or shall have entered into a two-year
non-competition agreement substantially in the form of Exhibit H hereto with
any such person who does not enter into such employment agreement.
(e) Each of the employment and consulting agreements listed on
Schedule 4.25 shall have been terminated by EQ or its applicable Subsidiary.
(f) All Options under the Option Plans shall have been exercised
in accordance with their terms, converted into shares of Parent Common Stock
pursuant to Section 1.4(c) or shall have expired or otherwise been terminated.
At the Closing, the holders of the Warrants shall have exercised their Warrants
or exchanged their Warrants for the number of shares of Parent Common Stock set
forth on Schedule 1.4(b), provided, however, that if one or more holders of
Warrants fail to so exercise or exchange their Warrants, in accordance with
their terms, then Parent and Merger Sub shall have the right, but not the
obligation, to close and to reduce the Merger Consideration by a number of
shares of Parent Common Stock equal to the number of shares obtained by
multiplying the maximum number of shares of EQ Stock which could be obtained
upon exercise of such Warrants (except for those with an exercise price of more
than $35.00 per share of Parent Common Stock) by the Exchange Ratio (assuming
all Warrant-holders had exchanged as set forth on Schedule 1.4(a) and without
giving effect to any reduction in such Exchange Ratio resulting from the
adjustment thereto which would be caused by this provision) and permitting such
Warrants (including any such Warrants with an exercise price of more than
$35.00 per share of Parent Common Stock) to become exercisable for Parent
Common Stock in accordance with their terms (the "Adjusted Warrants").
(g) Holders of not more than 2% of outstanding EQ Stock shall
have given notice of their intent to exercise rights of dissent pursuant to
Section 3.1 of the Plan of Arrangement.
39
(h) (i) Parent and Merger Sub shall have received from each
landlord and any over landlord of each landlord and overlandlord of the Leased
Real Estate, an estoppel certificate in the form of Exhibit I hereto.
(ii) With respect to the Owned Property and Leased Real
Estate, Parent and Merger Sub shall have received from each of EQ's or its
Subsidiaries' lenders whose loan is secured by a mortgage or deed of trust
encumbering any of such properties (each a "Mortgage Lender"), a statement to
the effect that to its knowledge no default under its mortgage or deed of trust
exists nor is such lender aware of the occurrence or non-occurrence of any
event which, with notice or the passage of time, or both, would constitute such
a default.
(iii) Parent and Merger Sub shall have received from the
title company or companies it selects to report the condition of the title to
the Owned Property and Leased Real Estate located in the United States
commitments for title insurance with premiums at ordinary rates showing that
the condition of title is such as represented by EQ under Sections 4.10(a) or
4.10(b) hereof. On Schedule 6.3(h)(iii) EQ (a) lists the Owned Property and
Leased Real Property for which it or any of its Subsidiaries obtained title
insurance or a commitment for title insurance, (b) identifies the particular
title insurance company that issued such policy or commitment and (c) describes
the policy or commitment by its date and number. Parent or Merger Sub, when
selecting the title insurance company to report the condition of title to the
Owned Property and Leased Real Property, shall use the title insurance company
that issued each such policy or commitment to update same.
(iv) Any environmental site assessment commissioned by
Parent or Merger Sub with respect to any of the Owned Property and Leased Real
Estate shall show that the representations set forth in Section 4.27 are true
in all material respects.
(v) With respect to the Leased Real Estate and Owned
Property, Parent shall have received consents to a change of control
contemplated by the consummation of the Arrangement from (i) each landlord and
any overlandlord of each landlord whose consent to the Arrangement is required
by any Lease, and (ii) each Mortgage Lender whose consent to the Arrangement is
required by applicable loan documents or whose loan would be in default as a
result of the Arrangement.
(i) EQ shall have executed and delivered the U.S. Tax Matters
Agreement substantially in the form attached as Exhibit J hereto.
(j) No action shall have been taken, and no statute, rule,
regulation, executive order, judgment, decree, or injunction (other than a
temporary restraining order) shall have been enacted, entered, promulgated or
enforced (and not repealed, superseded, lifted or otherwise made inapplicable),
by any court of competent jurisdiction or governmental authority which
restrains, enjoins or otherwise prohibits the consummation of the transactions
contemplated hereby.
(k) Clearance from the SEC with respect to the treatment of the
transactions contemplated hereby as a "pooling of interests" for accounting
purposes shall have been obtained.
40
(l) All obligations of EQ to purchase Putable Securities shall
have been terminated.
(m) EQ shall have delivered to Parent and Merger Sub audited
financial statements (as may be required by Item 305 of Regulation S-K under
the Act, and as requested by Xxxxxx), consisting of an audited income statement
as of December 31, 1996, of each entity which EQ has acquired, or from whom EQ
has acquired an operating facility, from January 1, 1997 through the Closing
Date.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Merger and Arrangement contemplated hereby may be abandoned, by written notice
promptly given to the other parties hereto, at any time prior to the Closing
Date, whether prior to or after approval by their respective stockholders or
members:
(a) By mutual written consent of Parent and EQ;
(b) By either Parent or EQ, if a court of competent jurisdiction
or a Governmental Entity shall have issued an order, decree or ruling or taken
any other action, in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) By Parent, if EQ fails to perform in all material respects
its obligations under this Agreement (including, without limitation, its
obligations under Sections 5.18 and 5.20), or there has been a material
violation or breach by EQ of any representation, warranty or agreement
contained herein;
(d) By Parent, if there shall have occurred a EQ Material Adverse
Effect since the date of this Agreement;
(e) By EQ, if Parent fails to perform in all material respects
its obligations under this Agreement, or there has been a material violation or
breach by Parent or Merger Sub of any representation, warranty or agreement
contained herein;
(f) By Parent, in its sole and absolute discretion, during the
period prior to the date which is the later of April 30, 1998 and ten (10) days
after delivery by KPMG of the 1997 audited consolidated financial statements of
EQ and its Subsidiaries, (the "Due Diligence Period"), provided, however, that
the Due Diligence Period, and the right to terminate during it, shall be
extended if EQ has not provided Parent with all agreements and other documents
referred to in this Agreement and the Schedules hereto and such other
information as has been reasonably requested
41
by Parent by the number of days it takes to so furnish such information and
documents, plus two days after it has been furnished;
(g) By EQ, if, prior to the Closing Date, any Third Party has
made a bona fide fully financed written offer relating to an Alternative
Proposal, or has commenced a tender or exchange offer for EQ Stock, and EQ's
Board of Directors determines in good faith (i) after consultation with its
financial advisors, that such transaction constitutes a Superior Proposal and
(ii) after having received the written opinion of outside legal counsel to EQ,
that the failure to engage in such negotiations or discussions or provide such
information would result in a breach of the fiduciary duties of the Board of
Directors of EQ under applicable law;
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement and abandonment of the Merger and Arrangement as provided in
Section 7.1 hereof, this Agreement shall forthwith become void and there shall
be no liability on the part of Parent or EQ, except as set forth in this
Section 7.2 and Section 5.6 hereof, and except to the extent that such
termination results from the willful breach of a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnity. (a) Parent and Merger Sub and their assignees
(the "Indemnified Parties") shall be defended and held harmless from and
against any losses, liabilities, damages or deficiencies (including interest,
penalties and reasonable attorneys' fees and disbursements) ("Losses") based
upon, arising out of or otherwise in respect of the breach of any
representation, warranty, covenant or agreement of EQ contained in this
Agreement or in any document or other writing delivered pursuant to this
Agreement (determined for this purpose as if all references to knowledge and
materiality contained in Article IV are deleted).
(b) Notwithstanding anything to the contrary herein, the
Indemnified Parties shall not be entitled to indemnification under Section
8.1(a) with respect to the first $50,000 of Losses (the "Threshold Amount").
Section 8.2 Escrow Shares. The indemnification arising under Section
8.1 shall be satisfied solely from the Escrow Shares in accordance with the
terms of the Escrow Agreement.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Parent or Merger Sub: If to EQ:
Family Golf Centers, Inc. Eagle Quest Golf Centers, Inc.
000 Xxxxxxxxxxx Xxxx 000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000 Xxxxxxxxx, XX X0X0X0, XXXXXX
Fax: (000) 000-0000 Fax: (000) 000-0000
Attn: Xxxxxxx Xxxxx, President Attn: X.X. Xxxxxxx, President
With copies to: With copies to:
Squadron, Ellenoff, Plesent & Xxxxx, Day, Xxxxxx, & Xxxxx
Xxxxxxxxx, LLP 000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
000 Xxxxx Xxxxxx Xxx Xxxxxxx, Xx 00000
Xxx Xxxx, Xxx Xxxx 00000 Fax: (000) 000-0000
Fax: (000) 000-0000 Attn: Xxxxx X. Xxxxxxxxx
Attn: Xxxxxxx X. Xxxx
XxXxxxxx Xxxxxxxx Swinton & Company
Barristers and Solicitors 000 Xxxx Xxxxxx, Xxxxx 0000
X.X. Xxx 00000, Xxxxxxx Xxxxxx Xxxxxxxxx, XX X0X 0X0
0000-00 Xxxxxxxx Xxxxxx Attn: Xxxxxxx X. Xxxxxxx
Xxxxxxxxx, XX X0X 0X0
Attn: Xxxxxxx Xxxxxxx Catalyst, Corporate Finance Lawyers
0000-0000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX X0X 0X0
Attn: Xxxxx X. Xxxxxxx
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 9.2 Assignment, Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Merger Sub
43
may assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect Subsidiary of Parent. Subject
to the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective permitted successors
and assigns.
Section 9.3 Entire Agreement. This Agreement and any documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
Section 9.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its rules of conflict of laws.
Section 9.6 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 9.7 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.
Section 9.8 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 9.9 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
Section 9.10 Incorporation of Schedules and Exhibits. The Schedules
and Exhibits attached hereto and referred to herein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
Section 9.11 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and
44
provisions of this Agreement or affecting the validity or enforceability of any
of the terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
Section 9.12 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which they are entitled at law or in equity.
45
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
FAMILY GOLF CENTERS, INC.
By: /s/ Krishnan X. Xxxxxx
--------------------------------
Name: Krishnan X. Xxxxxx
Title: Chief Financial Officer,
Chief Opertaing Officer,
Executive Vice President,
Assistant Secretary and
Treasurer
FAMILY GOLF ACQUISITION, INC.
By: /s/ Krishnan X. Xxxxxx
--------------------------------
Name: Krishnan X. Xxxxxx
Title:
EAGLE QUEST GOLF CENTERS, INC.
By:/s/ Xxxxxx X. Xxxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
46
