1
EXHIBIT 2.1
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
among
Video City, Inc.
Keystone Merger Corp.
and
West Coast Entertainment Corporation
August 1, 1999
2
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER............................................................................... 1
Section 1.01 Effective Time of the Merger................................................ 1
Section 1.02 Closing..................................................................... 1
Section 1.03 Effects of the Merger....................................................... 2
Section 1.04 Directors and Officers...................................................... 2
ARTICLE II CONVERSION OF SECURITIES................................................................ 2
Section 2.01 Conversion of Capital Stock................................................. 2
Section 2.02 Exchange of Certificates.................................................... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................... 9
Section 3.01 Organization of Seller...................................................... 9
Section 3.02 Seller Capital Structure.................................................... 10
Section 3.03 Authority; No Conflict; Required Filings and Consents....................... 11
Section 3.04 SEC Filings; Financial Statements........................................... 12
Section 3.05 No Undisclosed Liabilities.................................................. 12
Section 3.06 Absence of Certain Changes or Events........................................ 13
Section 3.07 Taxes....................................................................... 13
Section 3.08 Properties.................................................................. 15
Section 3.09 Intellectual Property....................................................... 15
Section 3.10 Agreements, Contracts and Commitments....................................... 16
Section 3.11 Litigation.................................................................. 16
Section 3.12 Environmental Matters....................................................... 16
Section 3.13 Employee Benefit Plans...................................................... 17
Section 3.14 Compliance With Laws........................................................ 18
Section 3.15 Accounting and Tax Matters.................................................. 19
Section 3.16 Registration Statement; Proxy Statement/Prospectus.......................... 19
Section 3.17 Labor Matters............................................................... 19
Section 3.18 Insurance................................................................... 20
Section 3.19 No Existing Discussions..................................................... 20
Section 3.20 Section 203 of the DGCL Not Applicable...................................... 20
Section 3.21 Inventory and Equipment..................................................... 20
Section 3.22 Year 2000................................................................... 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB......................................... 21
Section 4.01 Organization of Buyer and Sub............................................... 21
Section 4.02 Buyer Capital Structure..................................................... 22
Section 4.03 Authority; No Conflict; Required Filings and Consents....................... 23
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Section 4.04 SEC Filings; Financial Statements........................................... 24
Section 4.05 Absence of Certain Changes or Events........................................ 24
Section 4.06 Litigation.................................................................. 25
Section 4.07 Compliance With Laws........................................................ 25
Section 4.08 Registration Statement; Proxy Statement/Prospectus.......................... 25
Section 4.09 Interim Operations of Sub................................................... 25
ARTICLE V CONDUCT OF BUSINESS...................................................................... 26
Section 5.01 Covenants of Seller......................................................... 26
Section 5.02 Covenants of Buyer.......................................................... 28
Section 5.03 Cooperation................................................................. 29
Section 5.04 Confidentiality............................................................. 30
ARTICLE VI ADDITIONAL AGREEMENTS................................................................... 31
Section 6.01 No Solicitation............................................................. 31
Section 6.02 Proxy Statement/Prospectus; Registration Statement.......................... 33
Section 6.03 Certificate of Designation.................................................. 34
Section 6.04 Access to Information....................................................... 34
Section 6.05 Stockholders Meetings....................................................... 35
Section 6.06 Legal Conditions to Merger.................................................. 36
Section 6.07 Public Disclosure........................................................... 36
Section 6.08 Tax-Free Reorganization..................................................... 37
Section 6.09 Stock Listing............................................................... 37
Section 6.10 Brokers or Finders.......................................................... 37
Section 6.11 Indemnification............................................................. 37
Section 6.12 Financing Commitment........................................................ 38
Section 6.13 Board Representation........................................................ 38
ARTICLE VII CONDITIONS TO MERGER................................................................... 38
Section 7.01 Conditions to Each Party's Obligation To Effect the Merger.................. 38
Section 7.02 Additional Conditions to Obligations of Buyer and Sub....................... 40
Section 7.03 Additional Conditions to Obligations of Seller.............................. 42
ARTICLE VIII TERMINATION AND AMENDMENT............................................................. 43
Section 8.01 Termination................................................................. 43
Section 8.02 Effect of Termination....................................................... 45
Section 8.03 Fees and Expenses........................................................... 45
Section 8.04 Amendment................................................................... 47
Section 8.05 Extension; Waiver........................................................... 47
ARTICLE IX MISCELLANEOUS........................................................................... 47
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Section 9.01 Nonsurvival of Representations, Warranties and Agreements................... 47
Section 9.02 Notices..................................................................... 47
Section 9.03 Interpretation.............................................................. 48
Section 9.04 Counterparts................................................................ 48
Section 9.05 Entire Agreement; No Third Party Beneficiaries.............................. 49
Section 9.06 Governing Law............................................................... 49
Section 9.07 Jurisdiction................................................................ 49
Section 9.08 Assignment.................................................................. 49
Section 9.09 Severability................................................................ 49
Section 9.10. WAIVER OF JURY TRIAL....................................................... 50
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Exhibit A - Series F Preferred Stock Terms
Exhibit B - Form of Consulting Agreements
Exhibit C - Form of Non-Competition Agreements
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TABLES OF DEFINED TERMS
Cross Reference
Terms in Agreement
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Acquisition Proposal Section 6.01(a)
Acquisition Transaction Section 6.01(a)
Agreement Preamble
Agreement of Merger Section 1.01
Bankruptcy and Equity Exception Section 3.03(a)
Blue Sky Section 7.02(d)
Buyer Balance Sheet Section 4.04(b)
Buyer Common Stock Section 2.01(b)
Buyer Disclosure Schedule Article IV
Buyer Material Adverse Effect Section 4.01
Buyer Material Contracts Section 4.10
Buyer Meeting Section 3.16
Buyer Preferred Stock Section 2.01(b)
Buyer SEC Reports Section 4.04(a)
Buyer Stock Plans Section 4.02(a)
Buyer Termination Fee Section 8.03(f)
Buyer Voting Proposal Section 6.05(b)
Certificates Section 2.02(b)
Charter Proposal Section 6.05(b)
Closing Section 1.02
Closing Date Section 1.02
Code Preamble
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Common Exchange Ratio Section 2.01(c)
Confidentiality Agreement Section 5.04
Confidential Information Section 5.04(b)
Constituent Corporations Section 1.03
Dissenting Holder Section 2.01(g)
Dissenting Shares Section 2.01(g)
Exchange Ratios Section 2.01(c)
Effective Time Section 1.01
Environmental Law Section 3.12(c)
ERISA Section 3.13(a)
ERISA Affiliate Section 3.13(a)
Exchange Act Section 3.03(c)
Exchange Agent Section 2.02(a)
Financing Commitment Section 6.12
Exchange Fund Section 2.02(a)
Governmental Entity Section 3.03(c)
Hazardous Substance Section 3.12(c)
HSR Act Section 3.03(c)
Indemnified Parties Section 6.14(a)
International Development Agreements Section 7.01(j)
IRS Section 3.07(b)
Joint Proxy Statement Section 3.16
Material Leases Section 3.08
Merger Preamble
Order Section 6.06(b)
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Outside Date Section 8.01(b)
Preferred Exchange Ratio Section 2.01(c)
Registration Statement Section 3.16
Rule 145 Section 6.10
SEC Section 3.03(c)
Securities Act Section 3.03(c)
Seller Balance Sheet Section 3.04(b)
Seller Common Stock Section 2.01(b)
Seller Disclosure Schedule Article III
Seller Employee Plans Section (a)
Seller Material Adverse Effect Section 3.01
Seller Material Contract Section 3.10
Seller Meeting Section 3.16
Seller Nominee Section 6.13
Seller Section 3.02(b)
Seller SEC Reports Section 3.04(a)
Seller Stock Plans Section 3.02(a)
Seller Termination Fee Section 8.03(f)
Seller Voting Proposal Section 6.05(a)
Subsidiary Section 3.01
Superior Proposal Section 6.01(a)
Surviving Corporation Section 1.03(a)
Tax Section 3.07(a)
Taxes Section 3.07(a)
Third Party Section 8.03(g)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of August 1,
1999, by and among Video City, Inc., a Delaware corporation ("Buyer"), Keystone
Merger Corp., a Delaware corporation and a direct, wholly-owned subsidiary of
Buyer ("Sub"), and West Coast Entertainment Corporation, a Delaware corporation
("Seller").
WHEREAS, the Boards of Directors of Buyer and Seller deem it advisable
and in the best interests of each corporation and its respective stockholders
that Buyer and Seller combine in order to advance the long-term business
interests of Buyer and Seller;
WHEREAS, the combination of Buyer and Seller shall be effected by the
terms of this Agreement through a merger of Sub into Seller, as a result of
which the stockholders of Seller will become stockholders of Buyer (the
"Merger"); and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 Effective Time of the Merger. Subject to the provisions of
this Agreement, a certificate of merger in such form as is required by the
relevant provisions of the Delaware General Corporation Law ("DGCL") (the
"Certificate of Merger") shall be duly executed and acknowledged by the
Surviving Corporation (as defined in Section 1.03) and thereafter delivered to
the Secretary of State of the State of Delaware for filing, as soon as
practicable on the Closing Date (as defined in Section 1.02). The Merger shall
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware (the "Effective Time").
Section 1.02 Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., California time, on a date to be specified by Buyer
and Seller (the "Closing Date"), which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
VII, at the offices of Xxxxxx & Xxxxxxx, 000 Xxxx Xxxxxx Xxxxx, Xxxxx Xxxx,
Xxxxxxxxxx, unless another date, place or time is agreed to in writing by Buyer
and Seller.
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Section 1.03 Effects of the Merger. At the Effective Time (i) the
separate existence of Sub shall cease and Sub shall be merged with and into
Seller (Sub and Seller are sometimes referred to below as the "Constituent
Corporations" and Seller following the Merger is sometimes referred to below as
the "Surviving Corporation"), (ii) the Certificate of Incorporation of Seller
shall be amended so that Article 4 of such Certificate of Incorporation reads in
its entirety as follows: "The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 1,000, all of which shall
consist of Common Stock, $.01 par value per share," and, as so amended, such
Certificate of Incorporation shall be the Certificate of Incorporation of the
Surviving Corporation, and (iii) the Bylaws of Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
The Merger shall have the effects set forth in Section 259 of the DGCL.
Section 1.04 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.01 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Seller Common Stock or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares of
common stock $.01 par value per share, of Seller ("Seller Common Stock") that
are owned by Seller as treasury stock and any shares of Seller Common Stock
owned by Buyer, Sub or any other wholly-owned Subsidiary (as defined in Section
3.01) of Buyer shall be cancelled and retired and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange therefor.
All shares of Common Stock, $.01 par value per share, of Buyer ("Buyer Common
Stock") owned by Seller shall be unaffected by the Merger.
(c) Exchange Ratio for Seller Common Stock. Subject to Section 2.02,
each issued and outstanding share of Seller Common Stock (other than shares to
be cancelled in accordance with Section 2.01(b)), shall be converted into the
right to receive (i) a number of shares of Buyer Common Stock as is calculated
in accordance with subsection (d) below (the "Common Exchange Ratio"), and (ii)
0.05 shares of the Series F Preferred Stock, $.01 par value per share and
liquidation preference of $25.00 per share, plus accrued but unpaid dividends,
of the Buyer
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(the "Buyer Preferred Stock" and, together with the Buyer Common Stock, the
"Buyer Capital Stock"), having the rights and preferences set forth in a
Certificate of Designation (the "Certificate of Designation") substantially on
the terms attached hereto as Exhibit A and satisfactory to Buyer and Seller (the
"Preferred Exchange Ratio" and, together with the Common Exchange Ratio, the
"Exchange Ratios"). All such shares of Seller Common Stock, when so converted,
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Buyer Capital Stock and any cash in lieu of fractional
shares of Buyer Capital Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 2.02, without
interest.
(d) Calculation of Common Exchange Ratio. The Common Exchange Ratio
shall be calculated as follows:
(i) If the Base Price (as defined below) is greater than or equal
to $2.25 but less than or equal to $2.75, the Common Exchange
Ratio shall be equal to the quotient obtained by dividing $.75
by the Base Price;
(ii) If the Base Price is less than $2.25, the Common Exchange
Ratio shall be equal to .333;
(iii) If the Base Price is greater than $2.75 but less than $6.00,
the Common Exchange Ratio shall be equal to .2727;
(iv) If the Base Price is $6.00 or greater, the Common Exchange
Ratio shall be .25.
"Base Price" shall be defined as the average of the last prices per share at
which shares of Buyer Common Stock traded on the Nasdaq over the counter
bulletin board for the period of 20 trading days ending on the third trading day
preceding the Closing Date; provided that in calculating such average only
trading days on which the Buyer Common Stock actually traded shall be included.
(e) Adjustments to Exchange Ratio. The Common Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Buyer Common Stock or Seller Common Stock), reorganization, recapitalization or
other like change with respect to Buyer Common Stock or Seller Common Stock
occurring after the date hereof and prior to the Effective Time.
The Preferred Exchange Ratio shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Buyer Preferred Stock or Seller
Common Stock), reorganization, recapitalization or other like change with
respect to Buyer Preferred Stock or Seller Common Stock occurring after the date
hereof and prior to the Effective Time.
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Notwithstanding the foregoing, no adjustment to the Common Exchange
Ratio or Preferred Exchange Ratio shall be made as a result of regularly
scheduled dividends or distributions payable with respect to preferred stock of
Buyer outstanding as of the date hereof or issuances of Buyer Common Stock or
preferred stock of Buyer in connection with acquisitions pending or contemplated
by Buyer as of the date hereof.
(f) Dissenters' Appraisal Rights. Any Dissenting Holder (as defined
below) (i) who files with Seller an objection to the Merger in writing before
the approval of this Agreement by the stockholders of Seller and who states in
such objection that he intends to demand payment for his shares of Seller Common
Stock if the Merger is concluded and (ii) whose shares of Seller Common Stock
are not voted in favor of the Merger shall be entitled to demand payment for his
shares of Seller Common Stock and an appraisal of the value thereof, subject to
and in accordance with the provisions of Section 262 of the DGCL.
(g) Dissenting Shares. No conversion under Section 2.01 hereof shall be
made with respect to the shares of Seller Common Stock held by a Dissenting
Holder (such shares being referred to herein as "Dissenting Shares"); provided,
however, (i) each Dissenting Share outstanding immediately prior to the
Effective Time and held by a Dissenting Holder who shall, at or prior to the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to the applicable provisions of the DGCL,
shall be deemed to be converted, as of the Effective Time, into Buyer Capital
Stock issuable with respect to such Dissenting Share in accordance with the
terms of Section 2.01 hereof and any cash in lieu of fractional shares of Buyer
Capital Stock and (ii) each Dissenting Share outstanding immediately prior to
the Effective Time and held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of appraisal
in either case pursuant to the applicable provisions of the DGCL, shall be
deemed to be converted, as of the Effective Time, into Buyer Capital Stock and
any cash in lieu of fractional shares of Buyer Capital Stock. For purposes of
this Agreement, the term "Dissenting Holder" shall mean a holder of shares of
Seller Common Stock who has demanded appraisal rights in compliance with the
applicable provisions of the DGCL concerning the right of such holder to dissent
from the Merger and demand appraisal of such holder's shares of Seller Common
Stock.
Section 2.02 Exchange of Certificates. The procedures for exchanging
outstanding shares of Seller Common Stock for Buyer Capital Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Buyer shall deposit with
a bank or trust company designated by Buyer and Seller (the "Exchange Agent"),
for the benefit of the holders of shares of Seller Common Stock, for exchange in
accordance with this Section 2.02, through the Exchange Agent, (i) certificates
representing the shares of Buyer Capital Stock (such shares of Buyer Capital
Stock, together with any dividends or distributions with respect thereto,
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being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.01 in exchange for outstanding shares of Seller Common Stock, (ii)
cash in an amount sufficient to make payments required pursuant to Section
2.02(e), and (iii) any dividends or distributions to which holders of
Certificates (as defined below) may be entitled pursuant to Section 2.02(c).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Seller Common Stock (the "Certificates") whose
shares were converted pursuant to Section 2.01 into the right to receive shares
of Buyer Capital Stock (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Buyer and
Seller may reasonably specify) and (ii) instructions for effecting the surrender
of the Certificates in exchange for certificates representing shares of Buyer
Capital Stock (plus cash in lieu of fractional shares, if any, of Buyer Common
Stock and any dividends or distributions as provided below). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Buyer, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Buyer Capital Stock which such holder has the right to receive pursuant to the
provisions of this Article II plus cash in lieu of fractional shares pursuant to
Section 2.02(e) and any dividends or distributions pursuant to Section 2.02(c),
and the Certificate so surrendered shall immediately be cancelled. In the event
of a transfer of ownership of Seller Common Stock which is not registered in the
transfer records of Seller, a certificate representing the proper number of
shares of Buyer Capital Stock plus cash in lieu of fractional shares pursuant to
Section 2.02(e) and any dividends or distributions pursuant to Section 2.02(c)
may be issued to a transferee if the Certificate representing such Seller Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Buyer Capital Stock plus cash in lieu of fractional
shares pursuant to Section 2.02(e) and any dividends or distributions pursuant
to Section 2.02(c) as contemplated by this Section 2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Buyer Capital Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Buyer
Capital Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to subsection (e) below until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record
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holder of the certificates representing whole shares of Buyer Capital Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of Buyer
Capital Stock to which such holder is entitled pursuant to subsection (e) below
and the amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Buyer
Capital Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Buyer Capital Stock.
(d) No Further Ownership Rights in Seller Common Stock. All shares of
Buyer Capital Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or other distributions paid
pursuant to subsection (c) or (e) of this Section 2.02) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Seller Common Stock, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Seller on such shares
of Seller Common Stock in accordance with the terms of this Agreement (to the
extent permitted under Section 5.01) prior to the date hereof and which remain
unpaid at the Effective Time, and from and after the Effective Time there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Seller Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Capital Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any other rights of a stockholder of Buyer.
Notwithstanding any other provision of this Agreement, each holder of shares of
Seller Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Buyer Common Stock and/or
Buyer Preferred Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, with respect to Buyer Common Stock,
cash (without interest) in an amount equal to such fractional part of a share of
Buyer Common Stock multiplied by the average of the last reported sales prices
of Buyer Common Stock, as reported on the Nasdaq over the counter bulletin
board), on each of the 20 trading days ending on the third trading day preceding
the Closing Date; provided that in calculating such average only trading days on
which the Buyer Common Stock traded shall be included and, with respect to Buyer
Preferred Stock, cash (without interest) in an amount equal to such fractional
part of a share multiplied by $25.00.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Seller for 180 days after the
Effective Time shall be
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delivered to Buyer, upon demand, and any stockholders of Seller who have not
previously complied with this Section 2.02 shall thereafter look only to Buyer
for payment of their claim for Buyer Capital Stock, any cash in lieu of
fractional shares of Buyer Capital Stock and any dividends or distributions with
respect to Buyer Capital Stock.
(g) No Liability. To the extent permitted by applicable law, neither
Buyer nor Seller shall be liable to any holder of shares of Seller Common Stock
or Buyer Capital Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. Each of Buyer and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Seller Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Surviving
Corporation or Buyer, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Seller Common Stock in respect of which such deduction and withholding
was made by Surviving Corporation or Buyer, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation or the Buyer, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation or the Buyer may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Buyer Capital Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Buyer
Capital Stock deliverable in respect thereof pursuant to this Agreement.
(j) Options and Warrants.
(i) As of the Effective Time, all options to purchase Seller
Common Stock issued by Seller pursuant to its stock option plans or otherwise
("Options") and warrants to purchase Seller Common Stock ("Warrants"), whether
vested or unvested, shall be assumed by Buyer. Immediately after the Effective
Time, each Option or Warrant outstanding immediately prior to the Effective Time
shall be deemed to constitute an option or warrant to acquire, on the same terms
and conditions as were applicable under such Option or Warrant at the Effective
Time, such number of shares of Buyer Common Stock and Buyer Preferred Stock as
is equal to the number of shares of Seller Common Stock subject to the
unexercised portion of such Option
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or Warrant multiplied by the Common Exchange Ratio and the Preferred Exchange
Ratio, respectively (with any fraction resulting from such multiplication to be
rounded down to the nearest whole number). The exercise price per share of each
such assumed Option or Warrant shall be equal to the exercise price of such
Option or Warrant immediately prior to the Effective Time divided by the Common
Exchange Ratio, rounded up to the nearest whole cent. The term, exercisability,
vesting schedule, status as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986 (as amended, the Code), if applicable, and all of
the other terms of the Options shall otherwise remain unchanged to the extent
permitted by law.
(ii) As soon as practicable after the Effective Time, Buyer or
the Surviving Corporation shall deliver to the holders of Options and Warrants
appropriate notices setting forth such holders' rights pursuant to such Options
and Warrants, as amended by this Section, and the agreements evidencing such
Options and Warrants shall continue in effect on the same terms and conditions
(subject to the amendments provided for in this Section).
(iii) Buyer shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Buyer Capital Stock for
delivery upon exercise of the Options and Warrants assumed in accordance with
this Section. As soon as practicable after the Effective Time, Buyer shall file
a Registration Statement on Form S-8 (or any successor form) under the
Securities Act of 1933, as amended (the Securities Act) with respect to all
shares of Buyer Capital Stock subject to Options that may be registered on a
Form S-8, and shall use its best efforts to maintain the effectiveness of such
Registration Statement for so long as such Options remain outstanding.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer and Sub that the statements
contained in this Article III are true and correct, except as set forth herein
or in the disclosure schedule to be delivered by Seller to Buyer on or before
the date which is ten (10) days after the date of this Agreement (the "Seller
Disclosure Schedule"). The Seller Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III and the disclosure in any paragraph shall qualify other
paragraphs in this Article III only to the extent that it is reasonably apparent
from a reading of such disclosure that it also qualifies or applies to such
other paragraphs.
Section 3.01 Organization of Seller. Each of Seller and its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of
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the jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a change or effect (i) that is
materially adverse to the business, assets, properties, results of operations,
condition (financial or otherwise) or prospects of Seller and its Subsidiaries
taken as a whole; (ii) that will prevent or materially impair or materially
delay the ability of the parties hereto to consummate the Merger; or (iii) that
would materially impair the ability of Buyer to own all of the equity of Seller,
or to operate its or any of its Subsidiaries' businesses (a "Seller Material
Adverse Effect"); provided, however, that for purposes of this Agreement, any
adverse change in the stock price of Seller in and of itself, as quoted on the
Nasdaq over the counter bulletin board, shall not be taken into account in
determining whether there has been or would be a "Seller Material Adverse
Effect" on or with respect to Seller and its Subsidiaries, taken as a whole.
Except as set forth in the Seller SEC Reports (as defined in Section 3.04) filed
prior to the date hereof, neither Seller nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity. As used in this Agreement, the
word "Subsidiary" means, with respect to Seller, any corporation or other
organization, whether incorporated or unincorporated, of which (i) Seller or any
other Subsidiary of Seller is a general partner or (ii) at least a majority of
the securities or other interests having by their terms (x) ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization or (y) a
majority of the economic interest in such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries and,
with respect to Buyer, those entities listed on Buyer Disclosure Schedule 4.01.
All of Seller's Subsidiaries are listed on Schedule 3.01. Except as set forth on
Schedule 3.01, all of the Seller's Subsidiaries are wholly-owned by Seller.
Section 3.02 Seller Capital Structure.
(a) The authorized capital stock of Seller consists of 25,000,000
shares of Common Stock ("Seller Common Stock") and 2,000,000 shares of preferred
stock, $.01 par value per share ("Seller Preferred Stock"). As of the date
hereof, (i) 14,084,704 shares of Seller Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Seller Common Stock were held in the treasury of Seller or by
Subsidiaries of Seller and (iii) no shares of Seller Preferred Stock were issued
or outstanding. The Seller Disclosure Schedule shows the number of shares of
Seller Common Stock reserved for future issuance pursuant to stock options
granted and outstanding as of the date hereof and the plans under which such
options were granted (collectively, the "Seller Stock Plans"). As of the date
hereof, all shares of Seller Common Stock subject to issuance as specified above
are duly authorized and, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be validly issued,
fully paid and nonassessable. As of the date hereof, there are
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no obligations, contingent or otherwise, of Seller or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Seller Common Stock or the
capital stock of any Subsidiary or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. As of the date
hereof, all of the outstanding shares of capital stock of each of Seller's
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and all such shares are owned by Seller or another Subsidiary of Seller free and
clear of all security interests, liens, claims, pledges, agreements, limitations
in Seller's voting rights, charges or other encumbrances of any nature.
(b) As of the date hereof, except for Options and Warrants listed on
Schedule 3.02(b), as set forth in this Section 3.02 or as reserved for future
grants of options under the Seller Stock Plans, there are no equity securities
of any class of Seller or any of its Subsidiaries, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding, and, as of the date hereof, there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
Seller or any of its Subsidiaries is a party or by which it is bound obligating
Seller or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Seller or any
of its Subsidiaries or obligating Seller or any of its Subsidiaries to grant,
extend, accelerate the vesting of, otherwise modify or amend or enter into any
such option, warrant, equity security, call, right, commitment or agreement. As
of the date hereof, there are no voting trusts, proxies or other voting
agreements or understandings to which Seller is a party or of which Seller is
aware with respect to the shares of capital stock of Seller.
Section 3.03 Authority; No Conflict; Required Filings and Consents.
(a) Seller has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement by Seller have been duly
authorized by all necessary corporate action on the part of Seller, subject only
to the approval of the Merger by Seller's stockholders under the DGCL. The
affirmative vote of the holders of a majority of the shares of Seller Common
Stock outstanding on the record date for the Seller Meeting is the only vote by
Seller's stockholders required to approve the Merger. This Agreement has been
duly executed and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (the "Bankruptcy and Equity Exception").
(b) Except as set forth on Schedule 3.03(b), the execution and delivery
of this Agreement by Seller does not, and the consummation of the transactions
contemplated by this
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Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of Seller, (ii)
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation, acceleration of any obligation to put any securities back to
Seller or any of its Subsidiaries or any other rights activated by any "change
of control" or similar concept or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Seller or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound, or
(iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Seller or any of its Subsidiaries or any of its or their properties or
assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Seller or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the pre-merger
notification report under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, ("HSR Act"), (ii) the filing of the Certificate of Merger with
the Delaware Secretary of State, (iii) the filing of the Joint Proxy Statement
(as defined in Section 3.16 below) with the Securities and Exchange Commission
(the "SEC") in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Seller Material Adverse Effect.
Section 3.04 SEC Filings; Financial Statements.
(a) Seller has filed and made available to Buyer all forms, reports and
documents required to be filed by Seller with the SEC since May 14, 1996
(collectively, the "Seller SEC Reports"). The Seller SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated in such Seller SEC Reports or necessary in
order to make the statements in such Seller SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Seller's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
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(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Seller SEC Reports complied as to form
in all material respects with the applicable published rules and regulations of
the SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Seller and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not and are not expected to be material in amount. The
unaudited balance sheet of Seller as of May 2, 1999 is referred to herein as the
"Seller Balance Sheet."
Section 3.05 No Undisclosed Liabilities. Except as set forth on
Schedule 3.05, as disclosed in the Seller SEC Reports filed prior to the date
hereof, or as otherwise made available in a writing by Seller to Buyer
specifying this Section 3.05, and except for normal or recurring liabilities
incurred since May 2, 1999 in the ordinary course of business consistent with
past practices, Seller and its Subsidiaries do not have any liabilities, either
accrued, contingent or otherwise (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles), and whether due or to become due, which individually or in the
aggregate exceed $250,000 or are reasonably likely to have a Seller Material
Adverse Effect.
Section 3.06 Absence of Certain Changes or Events. Except as disclosed
in the Seller SEC Reports filed prior to the date hereof, since the date of the
Seller Balance Sheet, Seller and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any change in the
financial condition, results of operations, business or properties of Seller and
its Subsidiaries, taken as a whole that, individually or in the aggregate, has
had, or is reasonably likely to have, a Seller Material Adverse Effect; (ii) any
damage, destruction or loss (whether or not covered by insurance), individually
or in the aggregate, with respect to Seller or any of its Subsidiaries having a
Seller Material Adverse Effect; (iii) any material change by Seller in its
accounting methods not required pursuant to generally accepted accounting
principles, principles or practices to which Buyer has not previously consented
in writing; (iv) any revaluation by Seller of any of its assets, individually or
in the aggregate, having a Seller Material Adverse Effect; or (v) any other
action or event that would have required the consent of Buyer pursuant to
Section 5.01 of this Agreement had such action or event occurred after the date
of this Agreement.
Section 3.07 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively,
"Taxes," means any
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and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, levies, fees, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, net worth, use and occupation, and value added, ad valorem, transfer,
gains, franchise, withholding, payroll, recapture, employment-related, excise,
unemployment insurance, social security, utility, business license, occupation,
business organization, stamp, severance, escheat, environmental and real and
personal property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity; a "Tax Authority" or "Taxing
Authority" shall mean any domestic, foreign, federal, national, state, county or
municipal or other local government, any subdivision, agency, commission or
authority thereof, or any quasi-governmental body exercising any taxing
authority or any other authority exercising Tax regulatory authority, and "Tax
Return" shall mean all returns, declarations, reports, claims for refund or
information returns or statements, including any schedule or attachment thereto,
and including any amendment thereof filed or to be filed with any Tax Authority.
(b) Seller and each of its Subsidiaries have or will have prior to the
Closing Date (i) timely filed with the proper Tax Authorities all Tax Returns
and reports required to be filed by them prior to the Closing Date (taking into
account valid extensions) which Tax Returns are complete, correct and accurate
in all respects, (ii) paid all Taxes due and payable, and (iii) paid all Taxes
for which a notice of assessment or collection has been received (other than
amounts being contested in good faith by appropriate proceedings), except in the
case of clause (i), (ii) or (iii) for any such filings, payments or accruals
which would not individually or in the aggregate, have a Seller Material Adverse
Effect. The accruals and reserves for Taxes (including deferred taxes) reflected
in the balance sheet of Seller and its Subsidiaries as of May 2, 1999 included
in Seller's Quarterly Report on Form 10-Q for the quarter ended May 2, 1999 are
in all material respects adequate to cover all Taxes of Seller and each of its
Subsidiaries, as applicable, required by be accrued through the date thereof
(including interest and penalties, if any, thereon and Taxes being contested) in
accordance with generally accepted accounting principles applied on a consistent
basis and Seller's and each of its Subsidiaries' past practices. No Taxing
Authority has asserted any claim for Taxes, or to the knowledge of the officers
or tax compliance employees of Seller, is threatening to assert any claims for
Taxes. Seller and each of its Subsidiaries have withheld or collected and paid
over to the appropriate governmental authorities (or are properly holding for
such payment) all Taxes required by law to be withheld or collected. There are
no liens for Taxes upon the assets of Seller or any of its Subsidiaries (other
than liens for Taxes that are not yet due and payable). No extension of a
statute of limitations relating to Taxes is in effect with respect to Seller or
any of its Subsidiaries.
(c) Seller and each of its subsidiaries have never been members of an
affiliated group of corporations within the meaning of Section 1504 of the Code,
with the exception of the common group for which Seller is the common parent nor
has Seller or any of its Subsidiaries, or
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any predecessor or affiliate of any of them, become liable (whether by contract,
as transferee or successor, by law or otherwise) for the Taxes of any other
person or entity under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law; and are not parties to or bound by any
Tax indemnity, Tax sharing or Tax allocation agreement (whether written or
unwritten) which includes a party other than Seller nor does Seller owe any
amount under any such agreement.
(d) Neither Seller nor any of its Subsidiaries has made, requested or
agreed to make, nor is any of them required to make, any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise for any taxable year. Neither Seller nor any of its Subsidiaries has
made any elections, and is not required, to treat any of its assets as owned by
another person or as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code or under any comparable
state or local income Tax or other Tax provision. Neither Seller nor any of its
Subsidiaries is a "consenting corporation" within the meaning of Section 341(f)
of the Code, and none of the assets of Seller or the Subsidiaries are subject to
an election under Section 341(f) of the Code.
(e) Neither Seller nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(f) Neither Seller nor any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any agreement , contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any amount as to which a deduction may be denied
under Section 162(m) of the Code or that could obligate it to make any payments
that will be an "excess parachute payment" under Section 280G of the Code.
Section 3.08 Properties. Schedule 3.08 sets forth a true and complete
list of all real property leased by Seller or its Subsidiaries (collectively
"Material Lease(s)") and the location of the premises. Schedule 3.08 identifies
all Material Leases under which Seller is in default. Seller does not own any
real property.
Section 3.09 Intellectual Property.
(a) Seller and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks and copyrights, any applications for and registrations of such
patents, trademarks, trade names, service marks and copyrights, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Seller and
its Subsidiaries as currently conducted, or planned to be conducted, the absence
of which, individually or in the aggregate, would be reasonably likely to have a
Seller Material Adverse Effect (the "Seller Intellectual Property
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Rights").
(b) The execution and delivery of this Agreement and consummation of
the Merger will not result in the breach of, or create on behalf of any third
party the right to terminate or modify or trigger any additional payments by
Seller or any Subsidiary under, any license, sublicense or other agreement
relating to the Seller's Intellectual Property Rights, or any material licenses,
sublicenses and other agreements as to which Seller or any of its Subsidiaries
is a party and pursuant to which Seller or any of its Subsidiaries is authorized
to use any third party patents, trademarks, copyrights or trade secrets ("Seller
Third Party Intellectual Property Rights"), the breach, creation or trigger of
which, individually or in the aggregate, would be reasonably likely to have a
Seller Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights
which are held by Seller or any of its Subsidiaries the loss or invalidity of
which, individually or in the aggregate, would cause a Seller Material Adverse
Effect, are valid and subsisting. Seller (i) has not been sued in any suit,
action or proceeding, or received in writing any claim or notice, which involves
a claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party; and
(ii) has no knowledge that the manufacturing, marketing, licensing or sale of
its products infringes any patent, trademark, service xxxx, copyright, trade
secret or other proprietary right of any third party, which infringement in the
cases of clause (i) and (ii), individually or in the aggregate, would reasonably
be expected to have a Seller Material Adverse Effect.
Section 3.10 Agreements, Contracts and Commitments. Schedule 3.10 sets
forth a true and complete list of all material contracts to which the Seller or
its Subsidiaries is a party (collectively, "Seller Material Contracts"). Neither
Seller nor any of its Subsidiaries has breached, or received in writing any
claim or notice that it has breached, any of the terms or conditions of any
Seller Material Contract in such a manner as, individually or in the aggregate,
are reasonably likely to have a Seller Material Adverse Effect. Each Seller
Material Contract that has not expired by its terms is in full force and effect.
Section 3.11 Litigation. Except as described in the Seller SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Seller pending or as to which Seller has
received any written notice of assertion.
Section 3.12 Environmental Matters.
(a) Except as disclosed in the Seller SEC Reports filed prior to the
date hereof, to the knowledge of the Seller (except for clauses (v), (vi) and
(vii) below, which shall not be qualified as to knowledge), (i) Seller and its
Subsidiaries have complied with all applicable Environmental
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Laws (as defined in Section 3.12(b)); (ii) the properties currently owned or
operated by Seller and its Subsidiaries (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances (as defined in Section 3.12(c)); (iii) the properties formerly owned
or operated by Seller or any of its Subsidiaries were not contaminated with
Hazardous Substances during the period of ownership or operation by Seller or
any of its Subsidiaries; (iv) neither Seller nor its Subsidiaries are subject to
liability for any Hazardous Substance disposal or contamination on any third
party property; (v) neither Seller nor any of its Subsidiaries have released any
Hazardous Substance; (vi) neither Seller nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for information alleging
that Seller or any of its Subsidiaries may be in violation of or liable under
any Environmental Law; (vii) neither Seller nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances; (viii) there are no circumstances or conditions involving
Seller or any of its Subsidiaries that could reasonably be expected to result in
any claims, liability, investigations, costs or restrictions on the ownership,
use or transfer of any property of Seller pursuant to any Environmental Law, and
(ix) there are no underground tanks located on the properties formerly or
currently owned by Seller or any of its Subsidies.
(b) As used herein, the term "Environmental Law" means any federal,
state, local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means any substance
that is: (A) listed, classified or regulated pursuant to any Environmental Law;
(B) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
Section 3.13 Employee Benefit Plans.
(a) All accrued obligations of Seller and each of its Subsidiaries
applicable to its employees, whether arising by operation of law, by contract,
by past custom or otherwise, for payments by Seller or such of its Subsidiaries
to trusts or other funds or to any governmental agency, with respect to
unemployment compensation benefits, social security benefits or any other
benefits for its employees with respect to the employment of said employees
through the date hereof have been paid or adequate accruals therefor have been
made on, as applicable, the books and records of Seller or such of its
Subsidiaries and the Seller SEC Reports.
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(b) Except as disclosed on Schedule 3.13, as of the date hereof:
(1) Neither Seller nor any entity that is a member of a group
of which Seller is a member and which is under common control with
Seller, within the meaning of the regulations promulgated under Section
414 of the Code (an "ERISA Affiliate") maintains or has any obligations
to contribute to, or has in effect or has committed to adopt, any
employee pension benefit plan within the meaning of Section 3(2) of
ERISA ("Pension Plan") or any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA ("Welfare Plan") (the Pension Plans
and the Welfare Plans are collectively referred to herein as the "ERISA
Plans");
(2) Each ERISA Plan conforms in all material respects to all
applicable laws and orders, including ERISA and the applicable
provisions of the Code. All notices, reports, returns, applications and
disclosures have been timely made which are required to be made to the
Internal Revenue Service, the U.S. Department of Labor, the Pension
Benefit Guaranty Corporation, any participants in the ERISA Plans, any
trustee, or any insurer with respect to the ERISA Plans;
(3) Seller and its ERISA Affiliates have made or provided for
(with fully-funded reserves) all contributions heretofore required to
have been made under all of the ERISA Plans, and will, by the Closing,
have made or provided for (with fully-funded reserves) all
contributions required to be made on or before the Closing under all
such plans; and
(4) The transaction contemplated by this Agreement will not
result in liability for severance or termination pay or result in
increased employee benefits becoming payable to any employees of
Seller.
(c) True, correct and complete copies of the following documents, with
respect to each of the ERISA Plans, have been delivered to Buyer:
(1) Each ERISA Plan document, employment contract, policy,
procedure or other governing instrument relating to an ERISA Plan,
including all amendments, supplements, collective bargaining
agreements, letters, memoranda, understandings and any other document
reasonably necessary to reflect the terms and conditions of each ERISA
Plan.
(2) The most recent summary plan description of each ERISA
Plan for which a summary plan description is required under ERISA, and
summaries of material modification thereto.
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(3) All instruments under which the assets of any ERISA Plan
are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and
investment management agreements.
(d) All Pension Plans shall be terminated by Seller prior to the
Closing Date.
Section 3.14 Compliance With Laws. Except as set forth on Schedule
3.14, Seller has not received any notices of violation with respect to, and, to
its knowledge, Seller has complied with, and is not in violation of, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business.
Section 3.15 Accounting and Tax Matters. To its knowledge, after
consulting with its independent auditors and tax counsel, neither Seller nor any
of its Affiliates (as defined in Section 6.10) has taken or agreed to take any
action which would prevent the Merger from constituting a transaction qualifying
as a reorganization under 368(a) of the Code.
Section 3.16 Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Seller for inclusion in the registration statement
on Form S-4 pursuant to which shares of Buyer Capital Stock issued in the Merger
will be registered under the Securities Act (the "Registration Statement"),
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information to be
supplied by Seller for inclusion in the joint proxy statement/prospectus to be
sent to the stockholders of Buyer and Seller in connection with the meeting of
Seller's stockholders to consider this Agreement and the Merger (the "Seller
Meeting") and in connection with the meeting of Buyer's stockholders (the "Buyer
Meeting") to consider the issuance of shares of Buyer Capital Stock pursuant to
the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to stockholders of Seller or Buyer, at the time of the
Seller Stockholders' Meeting and the Buyer Stockholders' Meeting or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Seller
Meeting or the Buyer Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to Seller or any of its
Affiliates, officers or directors should be discovered by Seller which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, Seller shall promptly inform Buyer.
Section 3.17 Labor Matters. Neither Seller nor any of its Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or
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understanding with a labor union or labor organization, nor, as of the date
hereof, is Seller or any of its Subsidiaries the subject of any material
proceeding asserting that Seller or any of its Subsidiaries has committed an
unfair labor practice or is seeking to compel it to bargain with any labor union
or labor organization nor, as of the date of this Agreement, is there pending
or, to the knowledge of the executive officers of Seller, threatened, any
material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving Seller or any of its Subsidiaries.
Section 3.18 Insurance. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Seller or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Seller and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Seller Material Adverse Effect.
Section 3.19 No Existing Discussions. As of the date hereof, Seller has
ceased all discussions or negotiations with any other party with respect to any
proposed, potential or contemplated Acquisition Proposal (as defined in Section
6.01).
Section 3.20 Section 203 of the DGCL Not Applicable. The Board of
Directors of Seller has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
Section 3.21 Inventory and Equipment. As of the date hereof, the rental
and sale inventory of Seller consists of at least 2,600,000 units of
pre-recorded video cassettes, video discs and video games. The inventory of
Seller reflected on the Seller Balance Sheet, as well as other inventory items
acquired since the date of the Seller Balance Sheet that are now the property of
Seller will be usable and salable or rentable in the ordinary course of business
of Seller. Seller's furniture, fixtures, signs, computer hardware and software,
equipment and other personal property are suitable for the uses in which they
are currently employed, are in good operating condition and are free from any
defects, except for ordinary wear and tear and such minor defects as do not
interfere with the conduct of the Seller's business.
Section 3.22 Year 2000. Except as disclosed on Schedule 3.22 hereto, to
Seller's knowledge, all information technology used by Seller or any of its
Subsidiaries in the administration and operation of its business accurately
processes or will process date and time data (including, but not limited to
calculating, comparing and sequencing) from, into and
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between the years 1999 and 2000 and the twentieth century and the twenty-first
century, including leap year calculations, and neither performance nor
functionality of such technology will be affected by dates prior to, during or
after the year 2000, provided that such information technology receives properly
formatted date data from all hardware and software with which it interacts.
Seller and its Subsidiaries have made reasonable inquiries of their vendors
regarding the performance and functionality of the information technology of
such vendors with respect to the processing of date and time data as described
in the first sentence of this Section 3.22. Neither Seller nor any of its
Subsidiaries has received any information indicating that the performance or
functionality of the information technology of such vendors will be affected by
dates prior to, during or after the year 2000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub represent and warrant to Seller that the statements
contained in this Article IV are true and correct, except as set forth herein or
in the disclosure schedule to be delivered by Buyer to Seller on or before the
date which is ten (10) days after the date of this Agreement (the "Buyer
Disclosure Schedule"). The Buyer Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article IV and the disclosure in any paragraph shall qualify other
paragraphs in this Article IV only to the extent that it is reasonably apparent
from a reading of such disclosure that it also qualifies or applies to such
other paragraphs.
Section 4.01 Organization of Buyer and Sub. Each of Buyer and Sub and
Buyer's other Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation, has
all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted and as proposed to be conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a change or effect (i) that is materially adverse to the business, assets,
properties, results of operations, condition (financial or otherwise) or
prospects of Buyer and its Subsidiaries taken as a whole; (ii) that will prevent
or materially impair or materially delay the ability of Buyer to own all of the
equity of Seller, or to operate its or any of its Subsidiaries' businesses (a
"Buyer Material Adverse Effect"); provided, however, that for purposes of this
Agreement, any adverse change in the stock price of Buyer in and of itself, as
quoted on the Nasdaq "over the counter" bulletin board, shall not be taken into
account in determining whether there has been or would be an "Buyer Material
Adverse Effect" on or with respect to Buyer and its Subsidiaries, taken as a
whole. Except as set forth in the Buyer SEC Reports (as defined in Section 4.04)
filed prior to the date hereof, neither Buyer nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity.
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Section 4.02 Buyer Capital Structure.
(a) The authorized capital stock of Buyer consists of (i) 30,000,000
shares of Common Stock, $.01 par value ("Buyer Common Stock"), and (ii)
2,000,000 shares of Preferred Stock, $.01 par value. As of the date hereof,
there were outstanding 14,177,495 shares of Buyer Common Stock, 7,750 shares of
Series AA Convertible Redeemable Preferred Stock, 76,000 shares of Series B
Convertible Redeemable Preferred Stock, 700 shares of Series C Convertible
Redeemable Preferred Stock, 2,000 shares of Series D Convertible Redeemable
Preferred Stock and 1,800 shares of Series E Convertible Preferred Stock were
issued and outstanding. The Buyer Disclosure Schedule shows the number of shares
of Buyer Common Stock reserved for future issuance pursuant to stock options
granted and outstanding as of the date hereof and the plans under which such
options were granted (collectively, the "Buyer Stock Plans"). All shares of
Buyer Common Stock subject to issuance as specified above are duly authorized
and, upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, shall be validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of Buyer or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Buyer Common Stock or the capital stock of any Subsidiary or to provide funds to
or make any material investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations of Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock of each of Buyer'
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares and similar shares
in the case of foreign Subsidiaries) are owned by Buyer or another Subsidiary of
Buyer free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Buyer' voting rights, charges or other encumbrances
of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Buyer Stock Plans, there are no equity securities of
any class of Buyer, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. There are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Buyer or any of its Subsidiaries is a party or by
which it is bound obligating Buyer or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Buyer or any of its Subsidiaries or obligating Buyer or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement. There
are no voting trusts, proxies or other voting agreements or understandings with
respect to the shares of capital stock of Buyer to which the Buyer is a party.
Section 4.03 Authority; No Conflict; Required Filings and Consents.
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(a) Each of Buyer and the Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of each of Buyer
and Sub (including the approval of the Merger by Buyer as the sole stockholder
of Sub), subject only to the approval of the Buyer Voting Proposal and the
Charter Proposal (as defined in Section 6.05) by Buyer' stockholders. This
Agreement and has been duly executed and delivered by each of Buyer and Sub and
constitutes the valid and binding obligation of each of Buyer and Sub,
enforceable in accordance with their terms, subject to the Bankruptcy and Equity
Exception.
(b) Except as set forth on Schedule 4.03(b), the execution and delivery
of this Agreement by each of Buyer and Sub does not, and the consummation of the
transactions contemplated by this Agreement will not, (i) conflict with, or
result in any violation or breach of, any provision of the Certificate of
Incorporation or Bylaws of Buyer or Sub, (ii) result in any violation or breach
of, or constitute (with or without notice or lapse of time, or both) a default
(or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Buyer or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Buyer or any
of its Subsidiaries or any of its or their properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the pre-merger notification
report under the HSR Act, (ii) the filing of the Registration Statement with the
SEC in accordance with the Securities Act, (iii) the filing of the Certificate
of Merger with the Delaware Secretary of State, (iv) the filing of the Joint
Proxy Statement with the SEC in accordance with the Exchange Act, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, (vi) the approval by the Nasdaq National Market of the
listing of the shares of Buyer Common Stock to be issued in the transactions
contemplated by this Agreement, and (vii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be reasonably likely to have a Buyer Material Adverse Effect.
Section 4.04 SEC Filings; Financial Statements.
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(a) Buyer has filed and made available to Seller all forms, reports and
documents required to be filed by Buyer with the SEC since January 8, 1997
(collectively, the "Buyer SEC Reports"). The Buyer SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such Buyer SEC Reports or necessary in order to make the statements in such
Buyer SEC Reports, in the light of the circumstances under which they were made,
not misleading. None of Buyer' Subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Buyer SEC Reports complied as to form
in all material respects with the applicable published rules and regulations of
the SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Buyer and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
unaudited balance sheet of Buyer as of April 30, 1999 is referred to herein as
the "Buyer Balance Sheet."
Section 4.05 Absence of Certain Changes or Events. Except as disclosed
in the Buyer SEC Reports filed prior to the date hereof, since the date of the
Buyer Balance Sheet, Buyer and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any change in the financial condition,
results of operations, business or properties of Buyer and its Subsidiaries,
taken as a whole, that, individually or in the aggregate, has had, or is
reasonably likely to have, a Buyer Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to Buyer
or any of its Subsidiaries having, individually or in the aggregate, a Buyer
Material Adverse Effect; (iii) any material change by Buyer in its accounting
methods not required pursuant to generally accepted accounting principles,
principles or practices to which Seller has not previously consented in writing;
(iv) any revaluation by Buyer of any of its assets having, individually or in
the aggregate, a Buyer Material Adverse Effect; or (v) any other action or event
that would have required the consent of Seller pursuant to Section 5.02 of this
Agreement had such action or event occurred after the date of this Agreement.
Section 4.06 Litigation. Except as described in the Buyer SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Buyer pending or as to which Buyer has
received any written notice of assertion.
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Section 4.07 Compliance With Laws. To its knowledge, Buyer has complied
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state or local statute, law or regulation with respect
to the conduct of its business, or the ownership or operation of its business.
Section 4.08 Registration Statement; Proxy Statement/Prospectus. The
information in the Registration Statement (except for information supplied by
Seller for inclusion in the Registration Statement, as to which Buyer makes no
representation) shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information (except for information to be supplied by Seller for inclusion in
the Joint Proxy Statement, as to which Buyer makes no representation) in the
Joint Proxy Statement shall not, on the date the Joint Proxy Statement is first
mailed to stockholders of Buyer or Seller, at the time of the Buyer Meeting and
the Seller Meeting or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Buyer Meeting or the Seller Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
relating to Buyer or any of its Affiliates, officers or directors should be
discovered by Buyer which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Buyer shall
promptly inform Seller.
Section 4.09 Interim Operations of Sub. Sub will be formed prior to the
Merger and Buyer will cause Sub to execute a counterpart to this Agreement at
such time. Sub will be formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, will engage in no other business
activities and will conduct its operations only as contemplated by this
Agreement. All representations and warranties concerning Sub herein shall be
deemed to have been given only when Sub is formed.
ARTICLE V
CONDUCT OF BUSINESS
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Section 5.01 Covenants of Seller. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Seller agrees as to itself and its respective
Subsidiaries (except to the extent that Buyer shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and, to the extent
consistent with such business, use commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it. From the date hereof
through the Closing Date (or the earlier termination of this Agreement in
accordance with its terms), Seller shall, and shall cause each of its
Subsidiaries to, duly and timely file all tax returns required to be filed with
governmental authorities, and duly observe and conform to in all material
respects all applicable laws and orders. Except as expressly contemplated by
this Agreement or set forth in the Seller Disclosure Schedule, Seller shall not
(and shall not permit any of its respective Subsidiaries to), without the
written consent of Buyer:
(a) Accelerate, amend or change the period of exercisability of
outstanding options or restricted stock granted under any employee stock plan of
such party or authorize cash payments in exchange for any options granted under
any of such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to such
party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than (i) the grant
of options to employees, which options represent in the aggregate the right to
acquire no more than 300,000 shares (net of cancellations) of Seller Common
Stock, or (ii) the issuance of shares of Seller Common Stock pursuant to the
exercise of options outstanding on the date of this Agreement or granted
pursuant to the foregoing clause;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise
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acquire or agree to acquire any assets (other than inventory and other items in
the ordinary course of business);
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for sales of inventory in the ordinary course of
business and consistent with past practice;
(f) Except in connection with the forgiveness of certain loans to
management in an amount not to exceed $400,000, (i) increase or agree to
increase the compensation payable or to become payable to its officers or
employees, except for increases in salary or wages of employees (other than
officers) in accordance with past practices, (ii) grant any additional severance
or termination pay to, or enter into any employment or severance agreements
with, any employees or officers, (iii) enter into any collective bargaining
agreement, (iv) establish, adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination or severance or other plan,
trust, fund, policy or arrangement for the benefit of any directors, officers or
employees;
(g) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to
credit agreements in effect as of the date hereof and in compliance with Section
7.02(g); or
(i) Except in the ordinary course of business or in connection with the
settlement of disputes with respect to leased property, enter into, renew,
modify, amend or terminate any Seller Material Contract or waive, release or
assign any material rights or claims;
(j) Make any material Tax election, or grant any extensions or waiver
of a statute of limitation with respect to material Taxes, settle or compromise
any claim or liability for material Taxes or amend any material Tax Return;
(k) Change its methods of accounting as in effect at April 30, 1999
except as required by generally accepted accounting principles;
(l) Make or commit to make any capital expenditures that exceed
$1,000,000 in the aggregate;
(m) Except as required pursuant to commitments existing on the date
hereof or made without violation of this Section 5.01, make any cash
disbursement exceeding $1,000,000 for any single item or related series of items
excluding disbursements with respect to Inventory;
(n) Invest funds in debt securities or other instruments maturing more
than 90 days
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after the date of investment;
(o) Adopt or implement any stockholder rights plan that could have the
effect of impeding or restricting the consummation of the transactions
contemplated hereby;
(p) Willingly allow or permit any of Seller's insurance policies to be
suspended, impaired or canceled;
(q) Fail to maintain any assets in substantially their current state of
repair, excepting normal wear and tear or fail to replace consistent with
Seller's past practice inoperable, worn-out or obsolete or destroyed assets;
(r) Make any new loans or advances to any partnership, firm
corporation, officer, director or affiliate, or, except for expense incurred in
the ordinary course of business, any individual who is not an officer, director
or affiliate;
(s) Fail to comply with any material respect with all laws applicable
to it;
(t) Except as contemplated by clause (f) above, enter into, renew,
modify, or revise any agreement or transaction with any of its affiliates; or
(u) Intentionally do any other act which would cause any representation
or warranty of Seller in this Agreement to be or become untrue in any material
respect;
(v) Enter into any agreement, arrangement or understanding or otherwise
become obligated, to do any action prohibited hereunder; or
(w) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (v) above.
Section 5.02 Covenants of Buyer. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Buyer agrees as to itself and its respective
Subsidiaries (except to the extent that Seller shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and, to the extent
consistent with such business, use commercially reasonable efforts consistent
with past practices and policies to preserve intact is present business
organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it. Except as expressly
contemplated by this Agreement, Buyer shall not (and shall not permit any of its
respective Subsidiaries to), without the written consent of Seller:
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(a) Declare or pay any dividends on or make any other distributions,
other than regularly scheduled dividends or distributions payable with respect
to preferred stock of Buyer outstanding as of the date of this agreement
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service by such party
or in connection with acquisitions pending or contemplated by Buyer as of the
date hereof, provided, however, that Buyer shall not issue any shares of its
Common Stock in connection with any such acquisition at a price per share less
than $2.25;
(b) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement; or
(c) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) and (b).
Section 5.03 Cooperation. Subject to compliance with applicable law,
from the date hereof until the Effective Time, each of Buyer and Seller shall
make its officers available to confer on a regular and frequent basis with one
or more representatives of the other party to report on the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby (including any filing required under the HSR Act, the cost of
which shall be borne by Buyer, provided that if, for any reason, the Merger does
not occur, Seller will reimburse Buyer for one-half of the filing fee associated
therewith). Each of Buyer and Seller shall promptly notify the other in writing
of, and will use all commercially reasonable efforts to cure before the Closing
Date, any event, transaction or circumstance, as soon as practicable after it
becomes known to such party, that causes or will cause any covenant of Buyer or
Seller under this Agreement to be breached or that renders or will render untrue
any representation or warranty of Buyer or Seller contained in this Agreement.
No notice given pursuant to this paragraph shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
for purposes of determining satisfaction of any condition contained herein.
Section 5.04 Confidentiality.
(a) No Disclosure. The parties acknowledge that the transaction
described herein is of a confidential nature and shall not be disclosed except
to Representatives and Affiliates, or as required by law, until such time as the
parties make a public announcement regarding the
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transaction as provided in Section 6.07.
(b) Preservation of Confidentiality. In connection with the negotiation
of this Agreement, the preparation for the consummation of the transactions
contemplated hereby, and the performance of obligations hereunder, each of the
parties hereto acknowledges that it will have access to confidential information
relating to the other party, including technical, manufacturing or marketing
information, ideas, methods, developments, inventions, improvements, business
plans, trade secrets, scientific or statistical data, diagrams, drawings,
specifications or other proprietary information relating thereto, together with
all analyses, compilations, studies or other documents, records or data prepared
by Seller or Buyer or their respective Representatives which contain or
otherwise reflect or are generated from such information ("Confidential
Information"). The term "Confidential Information" does not include information
received by a party in connection with the transactions contemplated hereby
which (i) is or becomes generally available to the public other than as a result
of a disclosure by such party or its Representatives, (ii) was within such
party's possession prior to its being furnished to such party by or on behalf of
the other party in connection with the transactions contemplated hereby,
provided that the source of such information was not known by the receiving
party to be bound by a confidentiality agreement with or other contractual,
legal or fiduciary obligation of confidentiality to the other party or any other
Person with respect to such information or (iii) becomes available to such party
on a nonconfidential basis from a source other than the other party or any of
its Representatives, provided that such source is not bound by a confidentiality
to the other party or any other Person with respect to such information.
(c) Each party shall treat all Confidential Information of the other
party as confidential, preserve the confidentiality thereof and not disclose any
Confidential Information, except to its Representatives and Affiliates who need
to know such Confidential Information in connection with the transactions
contemplated hereby. Each party shall use all reasonable efforts to cause its
Representatives and Affiliates to treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and not
disclose any Confidential Information of the other party. Each party shall be
responsible for any breach of this Agreement by any of its Representatives and
Affiliates. If, however, Confidential Information is disclosed, the disclosing
party shall immediately notify the other party in writing and take all
reasonable steps required to prevent further disclosure.
(d) Until the Closing or the termination of this Agreement, all
Confidential Information shall remain the property of the party who originally
possessed such information. In the event of the termination of this Agreement
for any reason whatsoever, each party shall, and shall cause its Representatives
to, return to the other party all Confidential Information (including all
copies, summaries and extracts thereof) furnished to such party by such other
party in connection with the transactions contemplated hereby.
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(e) If either party or any of its Representatives or Affiliates is
requested or required (by oral questions, interrogatories, requests for
information or documents in legal proceedings, subpoena, civil investigative
demand or other similar process) or is required by operation of law to disclose
any Confidential Information of the other party, such party shall provide the
other party with prompt written notice of such request or requirement, which
notice shall, if practicable, be at least 48 hours prior to making such
disclosure, so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement, If, in the absence of a protective order or other remedy or the
receipt of such a waiver, either party or any of its Representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Confidential Information of the other party, then such party may disclose that
portion of the Confidential Information which such counsel advises is legally
required to be disclosed, provided that such party uses its reasonable efforts
to preserve the confidentiality of the Confidential Information, whereupon such
disclosure shall not constitute a breach of this Agreement.
(f) This Agreement shall supersede the confidentiality agreement dated
as of December 31, 1998 between Buyer and Seller and such confidentiality
agreement is hereby deemed terminated.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, Seller
shall not, directly or indirectly, through any officer, director, employee,
financial advisor, representative or agent of such party (i) solicit, initiate,
or encourage (including, but not limited to, by way of furnishing information)
or take any other action to facilitate any inquiries or proposals that
constitute, or could reasonably be expected to lead to a proposal or offer for a
merger, consolidation, business combination, sale of assets (other than the sale
of Seller's products or used equipment in the ordinary course of business), sale
of shares of capital stock (including without limitation by way of a tender
offer but excluding sales pursuant to existing employee and director stock
plans) or similar transaction involving Seller or any of its Subsidiaries, other
than the transactions contemplated by this Agreement (any of the foregoing
transactions being referred to in this Agreement as an "Acquisition Transaction"
and any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity, or group of persons or entities, relating to, any Acquisition Proposal,
or (iii) agree to or recommend any
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Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent Seller or its Board of Directors, from (A) furnishing
non-public information to, or entering into discussions or negotiations with,
any person or entity in connection with an unsolicited bona fide written
Acquisition Proposal by such person or entity or agreeing to (with the terms of
any such agreement being subject to termination of this Agreement in accordance
with Article VIII) or recommending an unsolicited bona fide written Acquisition
Proposal to the stockholders of Seller, if and only to the extent that (1) such
Person has made a written proposal to Seller's Board of Directors to consummate
a fully-financed Acquisition, (2) the Board of Directors of Seller believes in
good faith (after consultation with its financial advisor) that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and
would, if consummated, result in a transaction that would provide greater value
than the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and Seller's Board of Directors determines reasonably and in good
faith after consultation with outside legal counsel that failure to take such
action would be inconsistent with its fiduciary duties to Seller's stockholders
under applicable law and (3) prior to furnishing such non-public information to,
or entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than those
contained in Section 5.04 hereof; or (B) complying with Rule 14d-9 and 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal or
making any disclosure to Seller's stockholders if, in the reasonable good faith
judgment of Seller's Board of Directors, after consultation with outside legal
counsel, failure to make such disclosure would be inconsistent with its
fiduciary duties to Seller's stockholders under applicable law. Seller agrees
not to release any person from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement between it and
another person who has made, or who may reasonably be considered likely to make,
an Acquisition Proposal, unless the failure to take such action would, in the
reasonable good faith judgement of Seller's Board of Directors, after
consultation with outside legal counsel, failure to make such disclosure would
be inconsistent with its fiduciary duties to Seller's stockholders under
applicable law.
(b) Seller shall notify Buyer as promptly as practicable after receipt
by Seller (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Seller by any person or entity that
informs Seller that it is considering making, or has made, an Acquisition
Proposal. Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact. Seller shall continue to keep Buyer informed,
on a current basis, of the status of any such discussions or negotiations and
all material terms being discussed or negotiated, which shall include, without
limitation, any change to the proposed price and terms and form of payment.
Neither the Board of Directors of Seller nor any committee thereof
shall withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Buyer the approval or
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recommendation by the Board of Directors of Seller of this Agreement or the
Merger unless, following the receipt of a Superior Proposal, failing to withdraw
or modify such approval or recommendation in the reasonable good faith judgement
of Seller's Board of Directors, after consultation with outside legal counsel,
would be inconsistent with its fiduciary duties to the Seller's stockholder's
under applicable law; provided, however, that, Seller's Board of Directors shall
submit this Agreement to Seller's stockholders for approval, whether or not
Seller's Board of Directors at any time subsequent to the date hereof determines
that this Agreement is no longer advisable or recommends that the stockholders
of Seller reject it or otherwise modifies or withdraws its recommendation.
Unless Seller's Board of Directors has withdrawn its recommendation of this
Agreement in compliance herewith, Seller shall use all lawful efforts to solicit
from stockholders of Seller proxies in favor of the approval and adoption of
this Agreement and the Merger and to secure the vote or consent of stockholders
required by the DGCL and its certificate of incorporation and bylaws to approve
and adopt this Agreement and the Merger.
Section 6.02 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement,
Buyer and Seller shall prepare and file with the SEC the Joint Proxy Statement,
and Buyer shall prepare and file with the SEC the Registration Statement, in
which the Joint Proxy Statement will be included as a prospectus, provided that
Buyer may delay the filing of the Registration Statement until approval of the
Joint Proxy Statement by the SEC. Buyer and Seller shall use all reasonable
efforts to cause the Registration Statement to become effective as soon after
such filing as practicable. Each of Buyer and Seller will respond to any
comments of the SEC and will use its respective commercially reasonable efforts
to have the Joint Proxy Statement cleared by the SEC and the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filings and will cause the Joint Proxy Statement and the prospectus
contained within the Registration Statement to be mailed to its stockholders at
the earliest practicable time after both the Joint Proxy Statement is cleared by
the SEC and the Registration Statement is declared effective under the
Securities Act. Each of Buyer and Seller will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement, the Joint
Proxy Statement or any filing pursuant to Section 6.02(b) or for additional
information and will supply the other with copies of all correspondence between
such party or any of its representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to the
Registration Statement, the Joint Proxy Statement, the Merger or any filing
pursuant to Section 6.02(b). Each of Buyer and Seller will cause all documents
that it is responsible for filing with the SEC or other regulatory authorities
under this Section 6.02 to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an
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amendment or supplement to the Joint Proxy Statement, the Registration Statement
or any filing pursuant to Section 6.02(b), Buyer or Seller, as the case may be,
will promptly inform the other of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing to
stockholders of Buyer and/or Seller, such amendment or supplement.
(b) Buyer and Seller shall make all necessary filings with respect to
the Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
Section 6.03 Certificate of Designation. Prior to the Closing, the
Buyer shall file the Certificate of Designation with the Secretary of State of
the State of Delaware.
Section 6.04 Access to Information. Upon reasonable notice, Seller and
Buyer shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, reasonable access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and, during such period, each of Seller and
Buyer shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is nonpublic in confidence in accordance with Section
5.04 hereof. No information or knowledge obtained in any investigation pursuant
to this Section 6.04 or otherwise shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
Section 6.05 Stockholders Meetings.
(a) The Seller, acting through its Board of Directors, shall, subject
to and according to applicable law and its Certificate of Incorporation and
Bylaws, promptly and duly call, give notice of, convene and hold as soon as
practicable to ensure obtaining requisite stockholder approval following the
date on which the Registration Statement becomes effective the Seller Meeting
for the purpose of voting to approve and adopt this Agreement and the Merger
(the "Seller Voting Proposal"). The Board of Directors of the Seller shall,
subject to the fiduciary duties of the Board of Directors of Seller under
applicable law as advised by outside counsel, (i) recommend approval and
adoption of the Seller Voting Proposal by the stockholders of the Seller and
include in the Joint Proxy Statement such recommendation and (ii) take all
reasonable and lawful action to solicit and obtain such approval; provided,
however, that in the context of an Acquisition Proposal the Board of Directors
of Seller may withdraw such recommendation (and be relieved of its duty to
solicit approval of Seller's shareholders but not be relieved of its obligations
to call and hold the Seller Shareholder Meeting for the purposes of voting to
approve
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and adopt the Seller Voting Proposal) if (but only if) (i) the Board of
Directors of Seller has received a Superior Proposal and (ii) such Board of
Directors upon advice of its outside legal counsel determines that it is
required, in order to comply with its fiduciary duties under applicable law, to
recommend such Superior Proposal to the stockholders of Seller. The Seller
stockholder vote required for the approval of the Seller Voting Proposal shall
be a majority of the outstanding shares of Seller Common stock on the record
date for the Seller Meeting.
(b) Buyer, acting through its Board of Directors, shall, subject to and
in accordance with applicable law and its Certificate of Incorporation and
Bylaws, promptly and duly call, give notice of, convene and hold as soon as
practicable to ensure obtaining requisite stockholder approval following the
date on which the Registration Statement becomes effective, the Buyer Meeting
for the purpose of voting (i) to amend its Certificate of Incorporation to
increase its authorized Capital Stock in connection with the transactions
contemplated hereby (the "Charter Proposal"), (ii) to approve the issuance of
the shares of Buyer Capital Stock to be issued in the Merger (the "Buyer Voting
Proposal") and (iii) to elect the Seller Nominee (as defined in Section 6.13
below) to the Board of Directors of Buyer. The Board of Directors of Buyer
shall, subject to the fiduciary duties of the Board of Directors of Buyer under
applicable law as advised by outside counsel, (i) recommend approval of the
Charter Proposal, the Buyer Voting Proposal and the election of the Seller
Nominee and include in the Joint Proxy Statement such recommendation and (ii)
take all reasonable and lawful action to solicit and obtain such approval. The
Buyer stockholder vote required for approval of the Buyer Voting Proposal shall
be a majority of the shares of Buyer Common Stock present or represented at the
Buyer Meeting at which a quorum is present.
Section 6.06 Legal Conditions to Merger.
(a) Subject to the terms hereof, Seller and Buyer shall use their
respective commercially reasonable efforts to (i) take, or cause to be taken,
all appropriate action, and do, or cause to be done, all things necessary and
proper under applicable law to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from any
Governmental Entity or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
Seller or Buyer or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the Merger,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any related
governmental request thereunder, and (C) any other applicable law and (iv)
execute or deliver any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Seller and Buyer shall cooperate with each other in connection with
the making of all such filings,
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including providing copies of all such documents to the non-filing party and its
advisors prior to filing and, if requested, to accept all reasonable additions,
deletions or changes suggested in connection therewith. Seller and Buyer shall
use their respective commercially reasonable efforts to furnish to each other
all information required for any application or other filing to be made pursuant
to the rules and regulations of any applicable law (including all information
required to be included in the Joint Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Each of Seller and Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their commercially reasonable
efforts to obtain any third party consents related to or required in connection
with the Merger that are (A) necessary to consummate the transactions
contemplated hereby, (B) disclosed or required to be disclosed in the Seller
Disclosure Schedule or the Buyer Disclosure Schedule, as the case may be, or (C)
required to prevent a Seller Material Adverse Effect or a Buyer Material Adverse
Effect from occurring prior to or after the Effective Time.
Section 6.07 Public Disclosure. Buyer and Seller shall use commercially
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statement with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement prior to using such efforts, except as may be required by law.
Section 6.08 Tax-Free Reorganization. Buyer and Seller shall each use
its best efforts to cause the Merger to qualify and be treated as a
reorganization within the meaning of Section 368(a) of the Code. The parties
hereto hereby adopt this Agreement as a plan of reorganization.
Section 6.09 Stock Listing. Buyer shall use commercially reasonable
efforts to cause the shares of Buyer Preferred Stock to be issued in the Merger
to be listed on the Nasdaq National Market, the American Stock Exchange, the
Nasdaq Small Cap Market, or the Pacific, Chicago, Boston or Philadelphia Stock
Exchange, subject to official notice of issuance, on or prior to the Closing
Date (the "Listing").
Section 6.10 Brokers or Finders. Each of Buyer and Seller represents,
as to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Xxxxxxx Associates, Inc., whose fees and expenses will be paid by Seller in
accordance with Seller's agreement with such firm (a copy of which has been
delivered by Seller to Buyer prior to the date of this Agreement), and The Value
Group, L.L.C., Xxxxxx Xxxxxxxxxx Xxxxx, Inc. and R.W. Presspridge & Company,
Inc., whose fees and expenses will be paid by Buyer in accordance with Buyer'
agreement with such firm.
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Section 6.11 Indemnification.
(a) From and after the Effective Time, Buyer agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of Seller (the "Indemnified Parties"),
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of such person's
status as an officer or director of Seller and pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
Delaware law (and Buyer and the Surviving Corporation shall also advance
expenses as incurred to the fullest extent permitted under applicable law,
provided the Indemnified Party to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined pursuant to a
final judgment of a court of competent jurisdiction that such Indemnified Party
is not entitled to indemnification).
(b) For a period of six years after the Effective Time, Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy covering
those persons who are currently covered by Seller's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered to
Buyer) with coverage in amount and scope at least as favorable to such persons
as Seller's existing coverage; provided, that in no event shall Buyer or the
Surviving Corporation be required to expend in excess of 200% the annual premium
currently paid by Seller for such coverage.
(c) For a period of six years after the Effective Time, Buyer shall not
take any action, and shall cause the Surviving Corporation not to take any
action, to amend the provisions of the Certificate of Incorporation or bylaws of
the Surviving Corporation relating to indemnification of officers and directors.
(d) The provisions of this Section 6.11 are intended to be an addition
to the rights otherwise available to the current officers and directors of
Seller by law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
Section 6.12 Financing Commitment. Buyer shall use commercially
reasonable efforts to obtain a commitment for the financing necessary to perform
all of its obligations under this Agreement and all agreements contemplated
hereby or necessary thereto (the "Financing Commitment").
Section 6.13 Board Representation. Seller shall be entitled to
designate an individual, reasonably acceptable to Buyer, to stand for election
to the Board of Directors of Buyer (the
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"Seller Nominee"). Buyer shall use reasonable efforts to cause its Board of
Directors to nominate the Seller Nominee to stand for election to the Board of
Directors of Buyer at the Buyer Meeting and at each meeting of the stockholders
of Buyer held thereafter at which directors are to be elected until the fifth
anniversary of the Closing Date.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Seller Voting Proposal shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
shares of Seller Common Stock outstanding on the record date for the Seller
Meeting and the Charter Proposal shall have been approved by the affirmative
vote of the holders of a majority of the shares of Buyer Common Stock
outstanding on the record date for the Buyer Meeting.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Approvals. Other than the filing provided for by Section 1.02, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity, the
failure of which to file, obtain or occur is reasonably likely to have a Buyer
Material Adverse Effect or Seller Material Adverse Effect shall have been filed,
been obtained or occurred.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
(e) No Injunctions. No Governmental Entity (including any federal,
state or court) of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order) or statute, rule, regulation which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(f) Tax Opinion. Seller shall have received a written opinion of Xxxx
and Xxxx LLP to the effect that (i) the Merger will constitute a reorganization
within the meaning of Section
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368(a) of the Code, (ii) Seller, Sub and Buyer will each be "party to a
reorganization" within the meaning of Section 368(b) of the Code, and (iii)
holders of Seller Common Stock should not recognize gain or loss for United
States federal income tax purposes upon the exchange of their Seller Common
Stock solely for Buyer Common Stock and Buyer Preferred Stock in the Merger.
Such opinion may rely on representation letters from the Buyer, Sub and Seller,
which are substantially in the forms heretofore provided by Seller's counsel to
Buyer's counsel or otherwise customary for a transaction of this type, and which
includes a representation of the Buyer that it has no present plan or intention
to cause the redemption of the Buyer Preferred Stock pursuant to its terms.
(g) Opinion of Financial Advisor. The financial advisor of Seller,
Xxxxxxx Associates, Inc., shall have delivered to Seller, no later than August
18, 1999, an opinion dated on or about the date of this Agreement to the effect,
as of such date, that the terms of the transactions contemplated by this
Agreement, taken as a whole, are fair to the holders of Seller Common Stock from
a financial point of view.
(h) Certificate of Designation. The text of the Certificate of
Designation shall have been agreed to by Buyer and Seller by August 18, 1999.
(i) Consulting and Non-Competition Agreements. The Buyer and each of T.
Xxxx Xxxxxxxx, Xxxxx X. Xxxxxxxx III and Xxxxxxx X. Xxxxx, as the case may be,
shall have executed and delivered to the other party thereto Consulting
Agreements substantially in the form attached hereto as Exhibit B and
Non-Competition Agreements substantially in the form attached hereto as Exhibit
C. The compensation to be paid to T. Xxxx Xxxxxxxx, Xxxxx X. Xxxxxxxx III and
Xxxxxxx X. Xxxxx under such agreements shall be as determined to be fair and
reasonable by a third party expert selected by Seller and approved by Buyer,
which approval shall not be unreasonably withheld.
(j) Certain Agreements. Buyer, T. Xxxx Xxxxxxxx and Xxxxx X. Xxxxxxxx
III will execute and deliver a five-year international development agreement and
a ten-year international non-competition agreement on terms to be negotiated in
good faith by such parties (the "International Development Agreements"). The
compensation to be paid to T. Xxxx Xxxxxxxx and Xxxxx X. Xxxxxxxx III under the
International Development Agreements shall be as determined to be fair and
reasonable by a compensation consultant selected by Seller and approved by
Buyer, which approval shall not be unreasonably withheld.
Section 7.02 Additional Conditions to Obligations of Buyer and Sub. The
obligations of Buyer and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Buyer and Sub:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in this Agreement shall be true and correct as of the date
of this Agreement and (except to
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the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except for,
(i) changes contemplated by this Agreement and (ii) where the failures to be
true and correct, individually or in the aggregate, have not had and are not
reasonably likely to have a Seller Material Adverse Effect or a Buyer Material
Adverse Effect; and Buyer shall have received a certificate signed on behalf of
Seller by the chief executive officer and the chief financial officer of Seller
to such effect.
(b) Performance of Obligations of Seller. Seller shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and Buyer shall have received at
the Closing a certificate signed on behalf of Seller by the chief executive
officer and the chief financial officer of Seller to such effect.
(c) Due Diligence. The satisfactory completion, as determined by Buyer,
of Buyer's due diligence regarding Seller and Seller's Subsidiaries may be
asserted as a basis to terminate this Agreement at Buyer's sole and unfettered
discretion at any time prior to 5:00 p.m., California time, on August 22, 1999;
provided that Buyer may not assert the failure of this condition after such time
and date; provided further that Buyer shall have no obligation to disclose its
basis for asserting the failure of this condition.
(d) Disclosure Schedules. Buyer's satisfaction with the Seller
Disclosure Schedules may be asserted as a basis to terminate this Agreement at
Buyer's sole and unfettered discretion at any time prior to 5:00 p.m.,
California time, on August 18, 1999; provided that Buyer may not assert the
failure of this condition after such time and date unless the Seller Disclosure
Schedules were delivered after July 30, 1999, in which case such date shall be
extended by the number of days after July 30, 1999 that the Seller Disclosure
Schedules were delivered.
(e) No Material Adverse Effect. Since May 2, 1999, there shall not have
occurred any Seller Material Adverse Effect and Buyer shall have received at the
Closing a certificate signed on behalf of Seller by the chief executive officer
and the chief financial officer of Seller to such effect.
(f) Financing. Buyer shall have obtained or arranged for financing in
an amount sufficient to consummate the transactions contemplated by this
agreement and on terms acceptable to Buyer in its sole discretion.
(g) Limitation on Indebtedness. In no event shall the aggregate of all
notes payable, loans payable, accounts payable and other indebtedness of Seller
immediately prior to the Effective Time, exceed $100,000,000 and Buyer shall
have received at the Closing a certificate signed on behalf of Seller by the
chief executive officer and the chief financial offer of Seller to such effect.
(h) Inventory. Notwithstanding any other provision in this Agreement,
the total
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number of pre-recorded video cassettes, video discs and video games as part of
Seller's rental and sale inventory at the Closing shall be no less than
2,600,000 units, and Buyer and shall have received at the Closing a certificate
signed on behalf of Seller by the chief executive officer and the chief
financial offer to Seller to such effect.
(i) Consents. All consents and approvals listed on Schedule 3.03(b)
shall have been obtained, except such as would not, individually or in the
aggregate, have a Seller Material Adverse Effect.
(j) Buyer Voting Proposal. The Buyer Voting Proposal shall have been
approved by the affirmative vote of the holders of a majority of the Shares of
Buyer Common Stock present or represented at the Buyer Meeting at which a quorum
is present.
(k) Fairness Opinion. No later than August 18, 1999, Buyer shall have
received a written opinion of its financial advisor, Xxxxxx Xxxxxxxxxx Xxxxx
Inc., to the effect that, as of the date of such opinion, that the terms of the
transactions contemplated by this Agreement, taken as a whole, are fair to the
holders of Buyer's stockholders from a financial point of view.
(l) No Litigation. No suit, action, investigation, inquiry or other
proceeding (derivative or otherwise) by any Governmental Entity or other person
or entity shall have been instituted or threatened which (i) questions the
validity or legality of the transactions contemplated by this Agreement or (ii)
otherwise relates to the transactions contemplated by this Agreement and would
be reasonably likely to have a Seller Material Adverse Effect.
(m) Voting Agreements. No later than August 18, 1999, T. Xxxx Xxxxxxxx,
Xxxxx Xxxxxxxx, Xxxxx X. Xxxxxxxx III and their respective affiliates who held,
beneficially or of record, capital stock of Seller, shall have entered into
agreements, on terms to be negotiated in good faith and customary in
transactions such as that contemplated by this Agreement, requiring them to vote
all such stock in favor of the Seller Voting Proposal (as defined above).
(n) Dissenters' Rights. Any Dissenting Shares (as defined in Section
2.01) shall not exceed 5% of the shares of Seller Common Stock issued and
outstanding immediately prior to the Effective Time.
Section 7.03 Additional Conditions to Obligations of Seller. The
obligation of Seller to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Seller:
(a) Representations and Warranties. The representations and warranties
of Buyer and Sub set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for, (i) changes contemplated by this
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Agreement and (ii) where the failures to be true and correct, individually or in
the aggregate, have not had and are not reasonably likely to have a Buyer
Material Adverse Effect or a material adverse effect upon the consummation of
the transactions contemplated hereby; and Seller shall have received at the
Closing a certificate signed on behalf of Buyer by the chief executive officer
and the chief financial officer of Buyer to such effect.
(b) Performance of Obligations of Buyer and Sub. Buyer and Sub shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, and Seller shall
have received at the Closing a certificate signed on behalf of Buyer by the
chief executive officer and the chief financial officer of Buyer to such effect.
(c) Certificate of Designation. The Certificate of Designation shall
have been filed with the Secretary of State of the State of Delaware.
(d) Satisfaction of Indebtedness. Buyer shall have entered into an
agreement with PNC Bank, N.A. ("Agent"), as agent for the several lenders to
Seller (the "Lenders"), providing for the satisfaction of Seller's indebtedness
to the Lenders.
(e) Due Diligence. The satisfactory completion, as determined by
Seller, of Seller's due diligence regarding Buyer may be asserted as a basis to
terminate this Agreement at Seller's sole and unfettered discretion at any time
prior to 5:00 p.m., California time, on August 22, 1999; provided that Seller
may not assert the failure of this condition after such time and date; and
provided further that Seller shall have no obligation to disclose its basis for
asserting the failure of this condition.
(f) Disclosure Schedules. Seller's satisfaction with the Buyers
Disclosure Schedules may be asserted as a basis to terminate this Agreement at
Seller's sole and unfettered discretion at any time prior to 5:00 p.m.,
California time, on August 18, 1999; provided that Seller may not assert the
failure of this condition after such time and date unless the Buyer Disclosure
Schedules were delivered after July 30, 1999, in which case such date shall be
extended by the number of days after July 30, 1999 that the Buyer Disclosure
Schedules were delivered.
(g) Voting Agreements. No later than August 18, 1999, persons who hold,
beneficially, or have the power to vote at least 40% of the outstanding capital
stock of Buyer shall have entered into agreements, on terms to be negotiated in
good faith and customary in transactions such as that contemplated by this
Agreement, requiring them to vote all such stock in favor of the Buyer Voting
Proposal and the Seller Nominee.
ARTICLE VIII
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TERMINATION AND AMENDMENT
Section 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Seller or Buyer:
(a) by mutual written consent of Buyer and Seller; or
(b) by either Buyer or Seller if the Merger shall not have been
consummated by December 31, 1999 (the "Outside Date") (provided that the right
to terminate this Agreement under this Section 8.01(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Buyer or Seller if a Governmental Entity of competent
jurisdiction shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or
(d) by Buyer or Seller if (x) at the Seller Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of Seller
in favor of the Seller Voting Proposal shall not have been obtained; or if (y)
at the Buyer Meeting (including any adjournment or postponement), the requisite
vote of the stockholders of Buyer in favor of the Charter Proposal shall not
have been obtained (provided that the right to terminate this Agreement under
this Section 8.01(d) shall not be available to any party seeking termination who
at the time is in breach of or has failed to fulfill its obligations under this
Agreement); or
(e) by Buyer, if (i) the Board of Directors of Seller shall have
withdrawn or modified its recommendation of the Seller Voting Proposal; (ii)
after the receipt by Seller of an Acquisition Proposal, Buyer requests in
writing that the Board of Directors of Seller reconfirm its recommendation of
this Agreement or the Merger and the Board of Directors of Seller fails to do so
within 10 business days after its receipt of Buyer' request; (iii) the Board of
Directors of Seller shall have recommended to the stockholders of Seller an
Acquisition Proposal; (iv) a tender offer or exchange offer for 15% or more of
the outstanding shares of Seller Common Stock is commenced (other than by Buyer
or an Affiliate of Buyer) and the Board of Directors of Seller does not
recommend that the stockholders of Seller not tender their shares in such tender
or exchange offer; or (v) for any reason Seller fails to call and hold the
Seller Meeting by the Outside Date; or
(f) by Seller, if (i) the Board of Directors of Buyer shall have
withdrawn or modified
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its recommendation of the Buyer Voting Proposal; or (ii) for any reason Buyer
fails to call and hold the Buyer Meeting by the Outside Date;
(g) by Buyer or Seller, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.02(a) or (b) (in the case of termination by Buyer) or 7.03(a) or (b)
(in the case of termination by Seller) not to be satisfied, and (ii) shall not
have been cured within 30 days following receipt by the breaching party of
written notice of such breach from the other party; or
(h) by Seller, if the condition set forth in Section 7.03(g) shall not
have been satisfied.
(i) by Buyer, if the condition set forth in Section 7.02(m) shall not
have been satisfied.
Section 8.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Buyer, Seller,
Sub or their respective officers, directors, stockholders or Affiliates, except
as set forth in Sections 5.04, 6.10, 8.03 and Article IX; provided that any such
termination shall not limit liability for any willful breach of this Agreement
and the provisions of Sections 5.04, 6.10, 8.03 and Article IX of this
Agreement.
Section 8.03 Fees and Expenses.
(a) Except as set forth in this Section 8.03, each party shall be
responsible for its own fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
(b) In the event that Buyer, after receiving a Financing Commitment,
shall fail to perform its obligations hereunder by December 31, 1999 for any
reason other than the failure of the conditions set forth in Section 7.01 or
7.02, Buyer shall, in no event later than the earlier of December 31, 1999 or
two days after any such failure to perform, pay Seller the Buyer Termination Fee
by wire transfer of same day funds to a bank account designated by Seller, which
amount shall be liquidated damages for Buyer's breach of this Agreement.
(c) In the event that:
(i) any Person shall have made an Acquisition Proposal to
the Seller or to its stockholders and thereafter this
Agreement is terminated (A) by either party pursuant
to Section 8.01(b) or (B) by either party pursuant to
Section 8.01(d) as a result of the required approval
of the Seller's stockholders having not be obtained;
or
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(ii) this Agreement is terminated by Buyer pursuant to
Section 8.01(g) or 8.01(e),
then, in any such case, Seller shall in no event later than two days after such
termination pay Buyer the Seller Termination Fee by wire transfer of same day
funds to a bank account designated by Buyer.
(d) In the event that this Agreement is terminated (i) by Buyer
pursuant to Section 8.01(b) as a result of Seller's breach of any of Seller's
representations, warranties, covenants or agreements set forth in this Agreement
or Section 8.01(e) or (ii) by either party pursuant to Section 8.01(d) as a
result of the required approval of Seller's stockholders having not been
obtained (provided for purpose of this clause (ii) only that the requisite
approval of Buyer's stockholders has been obtained), then, after any such
termination, Seller shall reimburse Buyer, promptly after being requested to do
so by Buyer, for all out-of-pocket costs and expenses (up to a maximum of
$750,000) actually incurred by Buyer in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, fees and
expenses of accountants, attorneys, financial advisors, commercial banks,
experts and consultants.
(e) In the event that this Agreement is terminated (i) by Seller
pursuant to Section 8.01(b) as a result of Buyer's breach of any of Buyer's
representations, warranties, covenants or agreements set forth in this Agreement
or Section 8.01(f) or (ii) by either party pursuant to Section 8.01(d) as a
result of the required approval of Buyer's stockholders having not been obtained
(provided for purpose of this clause (ii) only that the requisite approval of
Seller's stockholders has been obtained), then, after any such termination,
Buyer shall reimburse Seller, promptly after being requested to do so by Buyer,
for all out-of-pocket costs and expenses (up to a maximum of $750,000) actually
incurred by Seller in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, fees and expenses of
accountants, attorneys, financial advisors, commercial banks, experts and
consultants.
(f) As used in this Agreement "Buyer Termination Fee" shall be an
amount equal to $10,000,000 and "Seller Termination Fee" shall be an amount
equal to $3,000,000, if this Agreement is terminated prior to Buyers receipt of
a Financing Commitment and $4,000,000 if this Agreement is terminated
thereafter.
(g) Notwithstanding any provision herein to the contrary, irrespective
of which party first gives notice of termination, no party to this Agreement
determined to be in breach of this Agreement shall be entitled to collect any
payment under this Article VIII.
The parties acknowledge that the agreements contained in this Section
8.03 are an integral part of the transactions contemplated in this Agreement,
and that, without these
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agreements, the parties would not enter into this Agreement; accordingly, if
Seller fails to promptly pay the Seller Termination Fee or the fees and expenses
of Buyer or if the Buyer fails to pay the Buyer Termination Fee or the fees and
expenses of Seller, each as required by this Section 8.03, and in order to
obtain such payment the non-defaulting party commences a suit which results in a
judgment against the defaulting party for any amount of the fees and expenses
set forth in this Section 8.03, the defaulting party shall pay to the
non-defaulting party its costs and expenses i(including attorney's fees) in
connection with such suit together with interest on such amount in respect of
the period from the date such amount became due until the date such amount is
paid at the prime rate of The Chase Manhattan Bank in effect from time to time
during such period.
Section 8.04 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Seller or of Buyer, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.05 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Articles I and II, Sections 1.04,
2.01, 2.02, 5.04, 6.10, 6.11 and Article IX.
Section 9.02 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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(a) if to Buyer or Sub, to:
Video City Inc.
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Chief Executive Officer
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telecopy: (000) 000-0000
(b) if to Seller, to:
West Coast Entertainment Corporation
Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx 000 & Xxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
with a copy to:
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000
Section 9.03 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The phrases "the date of this
Agreement", "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to August 1, 1999. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be following by the words "without limitation." The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
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Agreement. For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the Chairman, Chief Executive Officer, Chief Financial Officer, any Vice
President or Controller of such party, has actual knowledge of such matter.
Section 9.04 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 9.05 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.11 are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Seller nor
Buyer makes any other representations or warranties, and each hereby disclaims
any other representations and warranties made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery or disclosure
to the other or the other's representatives of any documentation or other
information with respect to any one or more of the foregoing.
Section 9.06 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law.
Section 9.07 Jurisdiction. Each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this agreement in any court other than a
Federal court sitting in the State of Delaware or a Delaware state court.
Section 9.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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Section 9.09 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 9.10. WAIVER OF JURY TRIAL. EACH OF BUYER, SELLER AND SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF BUYER, SELLER OR SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, Buyer, Sub and Seller have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
VIDEO CITY, INC.
By: /s/ Xxxxxx X. Xxx
--------------------------
Title: CEO
--------------------------
KEYSTONE MERGER CORP.
By: /s/ Xxxxxx X. Xxx
--------------------------
Title: President
--------------------------
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Xxxxxxx X. Xxxxx
--------------------------
Title: CFO
--------------------------
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EXHIBIT A
TERMS OF SERIES F PREFERRED STOCK
Issuer ................................... Video City, Inc.
Issue ................................... 704,235 Shares of Series F
Convertible Redeemable
Preferred Stock
Stated Value................................ $17,605,875, or $25 per
share
Liquidation Preference...................... Mandatory redemption at
stated value plus accrued
but unpaid dividends (to be
paid either in cash or in
Common Stock of the Issuer
at the Issuer's election)
in the event of a
liquidation, dissolution,
merger, consolidation or
sale of substantially all
assets
Dividends................................... 5%, or $1.25 per share,
payable quarterly at the
issuer's election in (a)
cash or (b) registered
shares of the issuer's
common stock valued as of
the issuance date in the
same manner as the Base
Price is calculated as of
the Closing Date in Section
2.01(d) of the Agreement
and Plan of Merger or (c)
additional shares of Series
F Preferred Stock valued at
its stated value
Optional Redemption......................... At any time at the issuer's
election for an amount
equal to the liquidation
preference payable, at the
issuer's election, in cash
or in registered shares of
the issuer's common stock
valued as of the issuance
date in the same manner as
the Base Price is
calculated as of the
Closing Date in Section
2.01(d) of the Agreement
and Plan of Merger
Ranking..................................... Junior to all existing and
future issuances of
preferred stock
Voting Rights............................... One vote per share
Conversion.................................. Convertible at the election
of the holder into Common
Stock at a conversion price
of $14.00 per share
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EXHIBIT B
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), made this ____ day of
_________, 1999 is entered into by Video City, Inc., a Delaware corporation
having a principal place of business at _________________________________ (the
"Company"), and ________________, residing at _____________________________ (the
"Consultant").
INTRODUCTION
The Company, West Coast Entertainment Corporation ("West Coast") and
Keystone Acquisition Corp., a wholly-owned subsidiary of the Company, have
entered into an Agreement and Plan of Merger as of the date hereof (the "Merger
Agreement"). The Consultant has served as the ___________________ of West Coast.
The Company desires to retain the services of the Consultant, and the Consultant
desires to perform certain services for the Company, in each case relating to
transitional matters following the Merger (as defined in the Merger Agreement).
In consideration of the mutual covenants and promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, the parties agree as follows:
1. Services. During the Consultation Period (as defined below), the
Consultant agrees to perform such consulting, advisory and related services to
and for the Company as may be reasonably requested from time to time by the
Company (consistent with Consultant's obligations under any other agreement
between Consultant and the Company) in order to assist the Company in an orderly
transition of control over the day to day operations and management of West
Coast after the Merger.
2. Term. This Agreement shall commence on the date hereof and shall
continue for a period of 120 days after such date (such period, as it may be
extended, being referred to as the "Consultation Period"), unless sooner
terminated in accordance with the provisions of Section 4. After the expiration
of the Consultation Period, the Consultant shall continue to be available to
provide such services to the the Company as the Consultant and the Company may
mutually agree.
3. Compensation.
3.1 Consulting Fees. The Company shall pay to the Consultant a
consulting fee of $____________. Such fee shall be paid as follows:
_______________ ___________________________________________. Such fee shall be
non-refundable.
3.2 Reimbursement of Expenses. The Company shall reimburse the
Consultant for all reasonable and necessary expenses incurred or paid by the
Consultant in connection with, or related to, the performance of his services
under this Agreement. The Consultant shall submit to the Company itemized
monthly statements, in a form satisfactory to the Company, of such expenses
incurred in the previous month. The Company shall pay to the Consultant amounts
shown on each such statement within 30 days after receipt thereof.
Notwithstanding the foregoing,
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the Consultant shall not incur total expenses in excess of $500 per month
without the prior written approval of the Company.
3.3 Benefits. The Consultant shall not be entitled to any benefits,
coverages or privileges, including, without limitation, social security,
unemployment, medical or pension payments, made available to employees of the
Company.
4. Termination. The Company may terminate the Consultation Period,
effective immediately upon receipt of written notice, if the Consultant breaches
or threatens to breach any provision of this Agreement.
5. Cooperation. The Consultant shall use his best efforts in the
performance of his obligations under this Agreement. The Company shall provide
such access to its information and property as may be reasonably required in
order to permit the Consultant to perform his obligations hereunder. The
Consultant shall cooperate with the Company's personnel, shall not interfere
with the conduct of the Company's business and shall observe all rules,
regulations and security requirements of the Company concerning the safety of
persons and property.
6. Inventions and Proprietary Information.
6.1 Inventions.
(a) All inventions, discoveries, computer programs,
data, technology, designs, innovations and improvements (whether or not
patentable and whether or not copyrightable) ("Inventions") related to the
business of the Company which are made, conceived, reduced to practice, created,
written, designed or developed by the Consultant, solely or jointly with others
and whether during normal business hours or otherwise, during the Consultation
Period or thereafter if resulting or directly derived from Proprietary
Information (as defined below), shall be the sole property of the Company. The
Consultant hereby assigns to the Company all Inventions and any and all related
patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States and
elsewhere and appoints any officer of the Company as his duly authorized
attorney to execute, file, prosecute and protect the same before any government
agency, court or authority. Upon the request of the Company and at the Company's
expense, the Consultant shall execute such further assignments, documents and
other instruments as may be necessary or desirable to fully and completely
assign all Inventions to the Company and to assist the Company in applying for,
obtaining and enforcing patents or copyrights or other rights in the United
States and in any foreign country with respect to any Invention. The Consultant
also hereby waives all claims to moral rights in any Inventions.
(b) The Consultant shall promptly disclose to the
Company all Inventions and will maintain adequate and current written records
(in the form of notes, sketches, drawings and as may be specified by the
Company) to document the conception and/or first
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actual reduction to practice of any Invention. Such written records shall be
available to and remain the sole property of the Company at all times.
6.2 Proprietary Information.
(a) The Consultant acknowledges that his relationship
with the Company is one of high trust and confidence and that in the course of
his service to the Company he will have access to and contact with Proprietary
Information. The Consultant agrees that he will not, during the Consultation
Period or at any time thereafter, disclose to others, or use for his benefit or
the benefit of others, any Proprietary Information or Invention.
(b) For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
information (whether or not patentable and whether or not copyrightable) owned,
possessed or used by the Company, including, without limitation, any Invention,
formula, vendor information, customer information, apparatus, equipment, trade
secret, process, research, report, technical data, know-how, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget, license,
price, cost and employee list that is communicated to, learned of, developed or
otherwise acquired by the Consultant in the course of his service as a
consultant to the Company.
(c) The Consultant's obligations under this Section
6.2 shall not apply to any information that (i) is or becomes known to the
general public under circumstances involving no breach by the Consultant or
others of the terms of this Section 6.2, (ii) is generally disclosed to third
parties by the Company without restriction on such third parties, or (iii) is
approved for release by written authorization of the Board of Directors of the
Company.
(d) Upon termination of this Agreement or at any
other time upon request by the Company, the Consultant shall promptly deliver to
the Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials) relating to the business of
the Company.
(e) The Consultant represents that his retention as a
consultant with the Company and his performance under this Agreement does not,
and shall not, breach any agreement that obligates him to keep in confidence any
trade secrets or confidential or proprietary information of his or of any other
party or to refrain from competing, directly or indirectly, with the business of
any other party. The Consultant shall not disclose to the Company any trade
secrets or confidential or proprietary information of any other party.
(f) The Consultant acknowledges that the Company from
time to time may have agreements with other persons or with the United States
Government, or agencies
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thereof, that impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Consultant agrees to be bound by all such
obligations and restrictions that are known to him and to take all action
necessary to discharge the obligations of the Company under such agreements.
6.3 Remedies. The Consultant acknowledges that any breach of
the provisions of this Section 6 shall result in serious and irreparable injury
to the Company for which the Company cannot be adequately compensated by
monetary damages alone. The Consultant agrees, therefore, that, in addition to
any other remedy it may have, the Company shall be entitled to enforce the
specific performance of this Agreement by the Consultant and to seek both
temporary and permanent injunctive relief (to the extent permitted by law)
without the necessity of proving actual damages.
7. Independent Contractor Status. The Consultant shall perform all
services under this Agreement as an "independent contractor" and not as an
employee or agent of the Company. The Consultant is not authorized to assume or
create any obligation or responsibility, express or implied, on behalf of, or in
the name of, the Company or to bind the Company in any manner.
8. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the addresses set forth above
or at such other address or addresses as either party shall designate to the
other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
11. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Consultant.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
13. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Consultant are personal and shall not be assigned by him.
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14. Miscellaneous.
14.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
14.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
14.3 In the event that any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
[the remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
VIDEO CITY, INC.
By:____________________________
Title:_________________________
CONSULTANT
________________________________
[NAME]
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EXHIBIT C
NON-COMPETITION AGREEMENT
This Agreement is made this ________ day of ____, 1999 between Video
City, Inc., a Delaware corporation (hereinafter referred to collectively with
its subsidiaries as the "Company"), and _________________ (the "Principal"), and
is made in connection with the Company's acquisition of West Coast Entertainment
Corporation, a Delaware corporation ("West Coast"), as of the date hereof.
WHEREAS, the Principal has served as the _________________ of West
Coast;
WHEREAS, the Company has entered into that certain Agreement and Plan
of Merger, dated July 29, 1999, by and among West Coast, the Company and
Keystone Acquisition Corp., a wholly owned subsidiary of the Company (the
"Merger Agreement");
WHEREAS, the Company desires to protect the value of its investment in
acquiring West Coast pursuant to the terms of the Merger Agreement by securing
the Principal's agreement to undertake certain obligations and to refrain from
certain activities; and
WHEREAS, the Principal agrees to undertake certain obligations and to
refrain from certain activities for the Company's benefit.
NOW, THEREFORE, for good and valuable consideration and in
consideration of the amounts to be paid to the Principal by the Company pursuant
to Section 2 of this Agreement and the obligations that the Principal hereby
agrees to undertake for the benefit of the Company, the Principal and Company
each agree as follows:
1. Non-Competition.
(a) For the five (5) year period commencing on the date hereof
through and including the fifth anniversary of the date hereof, the Principal
will not directly or indirectly, engage in any business or enterprise (whether
as owner, partner, officer, director, employee, investor, lender or otherwise,
except as the holder of not more than 1% of the outstanding stock of a company
or as a holder of shares of the Company) involved in the retail sale or rental
of pre-recorded movies and electronic games (the "Business") anywhere in the
Territory (as defined below). In addition, the Principal will not influence or
attempt to influence any person who has been, is or will become a contracting
party with West Coast or the Company to terminate or amend any written or oral
agreement with West Coast or the Company.
(b) For purposes of this Agreement, the "Territory" shall mean
all counties within the United States.
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2. Consideration.
(a) In consideration of the obligations the Principal agrees
to undertake in this Agreement, the Company shall pay to the Principal
$_____________, to be paid as follows: ________________________________________.
(b) The amounts payable by the Company to the Principal
pursuant to Section 2(a) shall become immediately due and payable without notice
or demand upon any default in the payment of any amount due to the Principal
under this or any other agreement or instrument between the Company and the
Principal when such amount is due.
(c) All payments by the Company pursuant to this Agreement
shall be made without set-off or counterclaim and be free and clear and without
any deduction or withholding for any taxes or fees of any nature whatever,
unless the obligation to make such deduction or withholding is imposed by law.
The Company shall hold the Principal harmless from all liabilities with respect
to or resulting from any delay or omission to make such deduction or withholding
required by law.
(d) The Company shall pay on demand all costs of collection,
including reasonable attorneys' fees, incurred by the Principal in enforcing the
obligations of the Company under this Section 2.
3. Miscellaneous.
(a) Extension. If the Principal violates the provisions of
Section 1, the Principal shall continue to be bound by the restrictions set
forth in Section 1 until a period of five (5) years has expired without any
violation of such provisions.
(b) No Employment Contract. The Principal acknowledges that
this Agreement does not constitute a contract of employment.
(c) Interpretation. If any restriction set forth in Section 1
is found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(d) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(e) Waiver of Rights. No delay or omission by the Company in
exercising any right under this Agreement will operate as a waiver of that or
any other right. A waiver or consent
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given by the Company on any one occasion is effective only in that instance and
will not be construed as a bar to or waiver of any right on any other occasion.
(f) Equitable Remedies. The restrictions contained in this
Agreement are necessary for the protection of the business and goodwill of the
Company and are considered by the Principal to be reasonable for such purpose.
The Principal agrees that any breach of this Agreement is likely to cause the
Company substantial and irrevocable damage and therefore, in the event of any
such breach, the Principal agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific performance,
injunctive and other equitable relief.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
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THE PRINCIPAL ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT
AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
VIDEO CITY, INC.
Date:_____________, 1999 By:________________________
PRINCIPAL:
[NAME]
Date:_____________, 1999 By:________________________
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