Agreement And Plan of Merger by and among Capital Growth Systems, Inc. 20/20 Merger Sub, Inc. 20/20 Technologies, Inc. 20/20 Representative, Inc. Dated as of September 8, 2006
EXHIBIT 2.1
by
and among
Capital
Growth Systems, Inc.
20/20
Merger Sub, Inc.
20/20
Technologies, Inc.
20/20
Representative, Inc.
Dated
as of September 8, 2006
This
Agreement and Plan of Merger (the “Agreement”)
is
made and entered into as of September 8, 2006, by and among CAPITAL GROWTH
SYSTEMS, INC., a Florida corporation (“Capital
Growth”),
20/20
MERGER SUB, INC., a Delaware corporation and a wholly owned subsidiary of
Capital Growth (“20/20
Mergeco”),
and
20/20 TECHNOLOGIES, INC., a Delaware corporation (“20/20”).
Also
party to this Agreement for the purposes called for herein is 20/20
Representative, Inc. (“20/20 Representative”). Xxxxxxx Xxxxxx, 00/00 Xxxxxxx,
20/20 and 20/20 Representative are sometimes referred to herein each,
individually, as a “Party”
and,
collectively, as the “Parties,”
under
the following circumstances:
RECITALS
A. Upon
the
terms and subject to the conditions set forth herein, Capital Growth desires
to
acquire all of the capital stock of 20/20 in exchange for certain cash and
stock
consideration as set forth herein.
B. Capital
Growth and 20/20 have agreed to accomplish this transaction through a forward
triangular merger whereby 20/20 Mergeco will merge with 20/20, and 20/20 Mergeco
will be the surviving corporation (the “Merger”).
C. Each
of
the boards of directors of Capital Growth, 20/20 Mergeco and 20/20 have (i)
approved this Agreement, the Merger and the transactions contemplated by this
Agreement, (ii) determined that the Merger and the transactions contemplated
by
this Agreement are fair and in the best interest of the Parties and their
stockholders, and (iii) recommended that the stockholders of each Party adopt
and approve this Agreement and the transactions contemplated by this
Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Parties hereby agree as follows:
ARTICLE
I
DEFINITIONS
In
addition to terms defined elsewhere in this Agreement, the following terms,
when
used in this Agreement, shall have the respective meanings set forth
below:
“20/20”
shall
have the meaning in the preamble to this Agreement.
“20/20
Certificates”
shall
have the meaning prescribed in Section
2.5
below.
“20/20
Common Stock”
means
the common stock, $0.00001 par value per share, of 20/20.
-i-
“20/20
Creditor(s)”
mean
the holder(s) of Indebtedness (whether secured or unsecured) of
20/20.
“20/20
Mergeco”
shall
have the meaning in the preamble to this Agreement.
“20/20
Preferred Stock”
means
the preferred stock, $ 0.0001 par value per share, of 20/20, which is comprised
of three classes: Series A Convertible Preferred Stock; Series B Convertible
Preferred Stock; and Series C Convertible Preferred Stock.
“20/20
Shares”
shall
have the meaning prescribed in Section
2.5
below.
“20/20
Stock”
means
the 20/20 Preferred Stock and the 20/20 Common Stock.
“20/20
Stockholders”
means
the legal owners of the 20/20 Shares.
“20/20
Stockholders’ Representative”
means
20/20 Representative, Inc., an Illinois corporation, who has the authority
to
act on behalf of all of the 20/20 Stockholders tendering 20/20 Shares pursuant
to this Agreement.
“Action”
means
any claim, demand, action, cause of action, chose in action, right of recovery,
right of set-off, suit, arbitration, inquiry, proceeding or investigation by
or
before any Governmental Authority.
“Affiliate”
means,
with respect to a specified Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by or
is
under common control with such Person, and without limiting the generality
of
the foregoing, includes, with respect to the specified Person: (a) any other
Person that beneficially owns or holds 10% or more of the outstanding voting
securities or other securities convertible into voting securities of such
Person, (b) any other Person of which the specified Person beneficially owns
or
holds 10% or more of the outstanding voting securities or other securities
convertible into voting securities, or (c) any director, officer or employee
of
such Person.
“Annual
Financial Statements”
shall
have the meaning prescribed in Section
4.8(a)
below.
“Audited
Balance Sheet”
shall
have the meaning prescribed in Section
4.8(a)
below.
“Bankruptcy
Event”
means
with respect to any Person: an assignment by such Person for the benefit of
creditors or an admission in writing by such Person of an inability to pay
its
debts generally as they become due; the entry of an Order, judgment or decree
adjudicating such Person bankrupt or insolvent; the petition or application
by
such Person to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of such Person or of any substantial part of its assets;
the commencement of any proceeding (or the entry of any order for relief) with
respect to such Person or its debts under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of
any jurisdiction; or the filing of any such petition or application or the
commencement of any such proceeding against such Person and either (i) such
Person by any act indicates its approval thereof, consent thereto or
acquiescence therein or (ii) such petition, application or proceeding is not
dismissed within sixty (60) days.
-ii-
“Business”
means
the business currently conducted by 20/20.
“Business
Day”
means
any day other than a Saturday, Sunday or other day on which banks are required
or authorized to be closed in the city of Chicago, Illinois.
“Business
Interests”
means
the ownership of up to (but not more than) one percent (1%) of any class of
securities of an enterprise (but without otherwise participating, directly
or
indirectly, in the management or operations of such enterprise) if such
securities are listed on any national or regional exchange or have been
registered under Section 12(g) of the Securities Exchange Act of
1934.
“Capital
Growth”
shall
have the meaning in the preamble to this Agreement.
“Capital
Growth Common Stock”
means
the common stock, $.0001 par value per share, of Capital Growth.
“Capital
Growth Series B Preferred Stock”
means
the Series B Convertible Preferred Stock, $.0001 par value per share, of Capital
Growth to be issued in accordance with the form of Articles of Amendment to
the
Articles of Incorporation attached hereto as Exhibit
2.5.
“Cash
Consideration”
means
the portion of the Merger Consideration to be paid in cash at Closing, as
adjusted as set forth in Section
2.5
below;
provided however, the Cash Consideration shall be at least the amount necessary
to repay all 20/20 Creditors holding secured Indebtedness (excluding any such
20/20 Creditors that affirmatively elect to defer repayment; provided such
amounts shall be deducted from the Transaction Shares pursuant to Section
2.5(b)(2)).
“CERCLA”
means
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended through the date hereof and any regulations promulgated
thereunder.
“Certificate
of Merger”
shall
have the meaning prescribed in Section
2.2
below.
“Closing”
shall
have the meaning prescribed in Section
3.2
below.
“Closing
Date”
shall
have the meaning prescribed in Section
3.2
below.
“Closing
Date Indebtedness”
means
the outstanding balance of all indebtedness for borrowed monies of 20/20 as
of
the Closing Date.
“COBRA”
means
the provisions of Code section 4980B and Part 6 of Subtitle B of title I of
ERISA.
“Code”
shall
mean the Internal Revenue Code of 1986, as amended.
-iii-
“Commonly
Controlled Entity”
means
any entity which is under common control with 20/20 within the meaning of
Section 414(b), (c), (m), (o) or (t) of the Code.
“Contingent
Warrant Shares”
means
the amount of Transaction Shares which are issuable to the holders of Sharing
Rights with respect to such holder’s unexpired and unexercised warrants or
options.
“Contract”
means
any contract, plan, undertaking, understanding, agreement, license, lease,
note,
mortgage or other binding commitment, whether written or oral, to which 20/20
is
a Party and includes all contracts for the provision of Services by
20/20.
“Copyrights”
mean
all copyrights (registered or otherwise) and registrations and applications
for
registration thereof, and all rights therein provided by multinational treaties
or conventions.
“Court”
means
any court or arbitration tribunal of the United States, any domestic state,
or
any foreign country, and any political subdivision thereof.
“Credit
Arrangements”
shall
have the meaning prescribed in Section
9.1(g)
below.
“Customer”
means
any Person that now or hereafter contracts for or otherwise purchases Services
or other products from 20/20.
“Database”
means
all data and other information recorded, stored, transmitted and retrieved
in
electronic form.
“Delaware
GCL”
means
the General Corporation Law of the State of Delaware, as amended.
“Disclosure
Schedule”
shall
have the meaning prescribed in the preamble to Article
IV
below.
“Documents”
means
this Agreement together with the Certificate of Merger, the Schedules and
Exhibits hereto, the 20/20 Disclosure Schedule, and the other agreements,
documents and instruments required or contemplated to be executed in connection
herewith.
“Effective
Time”
shall
have the meaning prescribed in Section
2.2
below.
“Employee
Plans”
means
all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock or other security option, stock or other security purchase, stock or
other
security appreciation rights, incentive, deferred compensation, retirement
or
supplemental retirement, severance, golden parachute, vacation, cafeteria,
dependent care, medical care, employee assistance program, education or tuition
assistance programs, insurance and other similar fringe or employee benefit
plans, programs or arrangements, and any current or former employment or
executive compensation or severance agreements, written or otherwise, which
have
ever been sponsored or maintained or entered into for the benefit of, or
relating to, any present or former employee or director of 20/20, or any trade
or business (whether or not incorporated) which is a member of a controlled
group or which is under common control with 20/20, within the meaning of Section
414 of the Code (an “ERISA
Affiliate”),
whether or not such plan is terminated.
-iv-
“Environmental
Law”
means
any Law or Regulation pertaining to: (a) the protection of health, safety and
the indoor or outdoor environment; (b) the conservation, management or use
of
natural resources and wildlife; (c) the protection or use of surface water
and
ground water; (d) the management, manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, emission, discharge,
release, threatened release, abatement, removal, remediation or handling of,
or
exposure to, any Hazardous Substance; or (e) pollution (including any emission,
discharge or release to air, land, surface water and ground water of any
material); and includes, without limitation, CERCLA and the Solid Waste Disposal
Act, as amended, 42 U.S.C. § 6901 et
seq.
“Environmental
Permits”
means
all Permits required under any Environmental Law.
“Excess
Indebtedness”
shall
have the meaning prescribed in Section
2.5(a)
below.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended.
“Financial
Statements”
shall
have the meaning prescribed in Section
4.8(b)
below.
“GAAP”
means
United States (and the United Kingdom equivalent, to the extent applicable,
of)
generally accepted accounting principles and practices in effect from time
to
time, consistently applied.
“Governmental
Authority”
means
any governmental or legislative agency or authority (other than a Court) of
the
United States, any domestic state, or any foreign country, and any political
subdivision or agency thereof, and includes any authority having governmental
or
quasi-governmental powers, including any administrative agency or
commission.
“Hardware”
means
all mainframes, midrange computers, personal computers, notebooks, servers,
switches, printers, modems, drives, peripherals and any component of any of
the
foregoing.
“Hazardous
Substance”
means
any Hazardous Substance, as defined in CERCLA, and any other chemical, compound,
product, solid, gas, liquid, pollutant, contaminant or material which is
regulated under any Environmental Law, and includes without limitation, asbestos
or any substance containing asbestos, polychlorinated biphenyls and petroleum
(including crude oil or any fraction thereof).
“HIPAA”
means
the provisions of the Code and ERISA enacted by the Health Insurance Portability
and Accountability Act of 1996.
“Holdback
Shares”
shall
have the meaning prescribed in Section
2.5
below.
-v-
“Indebtedness”
means,
with respect to any Person, (a) all indebtedness of such Person, whether or
not
contingent, for borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services, (c) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments,
(d)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the holder of such indebtedness in the event
of default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under Leases that have been or should
be,
in accordance with GAAP, recorded as capital Leases, (f) all obligations,
contingent or otherwise, of such Person under acceptance, letter of credit
or
similar facilities, (g) all obligations of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of such Person
or any warrants, rights or options to acquire such capital stock, valued, in
the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (h) all
Indebtedness of others referred to in clauses (a) through (f) above guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (1) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose
of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (3) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are rendered)
or (4) otherwise to assure a creditor against loss from any and all Indebtedness
referred to in clauses (a) through (f) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
“Information
System”
means
any combination of Hardware, Software and/or Database(s) employed primarily
for
the creation, manipulation, storage, retrieval, display and use of information
in electronic form or media.
“Intellectual
Property”
means
(a) inventions, whether or not patentable, whether or not reduced to practice
or
whether or not yet made the subject of a pending Patent application or
applications, (b) ideas and conceptions of potentially patentable subject
matter, including, without limitation, any patent disclosures, whether or not
reduced to practice and whether or not yet made the subject of a pending Patent
application or applications, (c) Patents, (d) Trademarks, (e) Copyrights, (f)
Software, (g) Web Sites, (h) trade secrets and confidential, technical or
business information (including ideas, formulas, compositions, inventions,
and
conceptions of inventions whether patentable or unpatentable and whether or
not
reduced to practice), (i) whether or not confidential, technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, Databases, Information Systems, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(j) copies and tangible embodiments of all the foregoing, in whatever form
or
medium, (k) all rights to obtain and rights to apply for Patents, and to
register Trademarks and Copyrights, (l) all rights under the License Agreements
and any licenses, registered user agreements, technology or materials, transfer
agreements, and other agreements or instruments with respect to items in (a)
to
(l) above; and (m) all rights to xxx and recover and retain damages and costs
and attorneys’ fees for present and past infringement of any of the Intellectual
Property rights hereinabove set out.
-vi-
“Interim
Balance Sheet”
shall
have the meaning prescribed in Section
4.8(b)
below.
“Interim
Financial Statements”
shall
have the meaning prescribed in Section
4.8(b)
below.
“Inventories”
means
all inventories, including, without limitation, merchandise, raw materials,
work-in-process, finished goods, replacement parts, packaging, office supplies,
maintenance supplies, computer parts and supplies and Hardware related to the
Business maintained, held or stored by or for 20/20 at any location whatsoever
and any prepaid deposits for any of the same.
“IRS”
shall
mean the United States Internal Revenue Service.
“Knowledge”
means
(a) in the case an individual, knowledge of a particular fact or other matter
if
such individual is actually aware of such fact or other matter after due
inquiry, and (b) in the case of a Person (other than an individual) such Person
will be deemed to have Knowledge of a particular fact or other matter if any
individual who is serving, or has at any time served, as a director, officer,
partner, executor, or trustee of such Person or of a Subsidiary of such Person
(or in any similar capacity) has, or at any time had, Knowledge of such fact
or
other matter, after due inquiry.
“Law”
means
all laws, statutes, ordinances and Regulations of any Governmental Authority
including all decisions of Courts having the effect of law in each such
jurisdiction.
“Leased
Real Property”
means
the real property leased by 20/20 as tenant, together with, to the extent leased
by 20/20 all buildings and other structures, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment and
items of personal property of 20/20 attached or appurtenant thereto, and all
easements, licenses, rights and appurtenances relating to the
foregoing.
“Leases”
shall
have the meaning prescribed in Section
4.10(d)
below.
“Liabilities”
means
any and all debts, liabilities and obligations, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or determinable,
including, without limitation, those arising under any Law (including, without
limitation, any Environmental Law), Action or Order, Liabilities for Taxes
and
those Liabilities arising under any Contract.
“Liens”
means
any mortgage, pledge, security interest, attachment, encumbrance, lien
(statutory or otherwise), option, conditional sale agreement, right of first
refusal, first offer, termination, participation or purchase, or charge of
any
kind (including any agreement to give any of the foregoing), provided, however,
that the term “Lien” shall not include: (a) Liens for Taxes, assessments and
charges of any Governmental Authority due and being contested in good faith
and
diligently by appropriate proceedings (and for the payment of which adequate
provision has been made); (b) servitudes, easements, restrictions, rights-of-way
and other similar rights in real property or any interest therein, provided
the
same are not of such nature as to materially adversely affect the use of the
property subject thereto; (c) Liens for Taxes either not due and payable or
due
but for which notice of assessments has not been given; (d) undetermined or
inchoate Liens, charges and privileges incidental to current construction or
current operations and statutory Liens, charges, adverse claims, security
interests or encumbrances of any nature whatsoever claimed or held by any
Governmental Authority which have not at the time been filed or registered
against the title to the asset or served upon 20/20 pursuant to Law or which
relate to obligations not due or delinquent; (e) assignments of insurance
provided to landlords (or their mortgagees) pursuant to the terms of any lease,
and Liens or rights reserved in any lease for rent or for compliance with the
terms of such lease; (f) security given in the ordinary course of the Business,
as applicable, to any public utility, municipality or Government Authority
in
connection with the operations of the Business, as applicable, other than
security for borrowed money; (g) deposits or pledges made in connection with,
or
to secure payment of, workers’ compensation, unemployment insurance, old age
pension or other social security programs mandated under applicable Laws; and
(h) restrictions on transfer of securities imposed by applicable state and
federal securities Laws.
-vii-
“Litigation”
means
any suit, action, arbitration, cause of action, claim, complaint, criminal
prosecution, investigation, inquiry, demand letter, governmental or other
administrative proceeding, whether at law or at equity, before or by any Court,
Governmental Authority, arbitrator or other tribunal.
“Material
Adverse Effect”
means
any circumstance, change in, or effect on, a Person or the business of such
Person that, individually or in the aggregate with any other circumstances,
changes in, or effects on, such Person or the business of such Person: (a)
is,
or could be, materially adverse to the business, operations, assets or
Liabilities (including, without limitation, contingent Liabilities), employee
relationships, customer or supplier relationships, results of operations or
the
condition (financial or otherwise) of such Person’s business; or (b) with
respect to 20/20 or the Business, could materially adversely affect the ability
of the Surviving Corporation to operate or conduct the Business in the manner
in
which it is currently operated or conducted, or contemplated to be
conducted.
“Merger
Consideration”
shall
mean an aggregate of $13,000,000, and shall be comprised of Cash Consideration
and Transaction Shares (based on a value of $1,000 per Transaction Share for
the
Transaction Shares issued in the form of Capital Growth Preferred Shares and
based on the trailing ten day average closing price of Capital Growth Common
Stock for the ten trading days immediately preceding the Closing Date for the
Transaction Shares issued in the form of Capital Growth Common
Stock).
“Order”
means
any judgment, order, writ, injunction, ruling, stipulation, determination,
award
or decree of or by, or any settlement under the jurisdiction of, any Court
or
Governmental Authority.
“Owned
Real Property”
means
the real property owned by 20/20, together with all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of 20/20
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
-viii-
“Party(ies)”
shall
have the meaning in the preamble to this Agreement.
“Patents”
mean
all national (including the United States) and multinational statutory invention
registrations, patents, patent registrations and patent applications, including
all reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations, and all rights therein provided by multinational treaties or
conventions and all improvements to the inventions disclosed in each such
registration, patent or application.
“Permits”
means
any licenses, permits, pending applications, consents, certificates,
registrations, approvals and authorizations.
“Person”
means
any natural person, corporation, limited liability company, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or any other entity.
“Pipe
Transaction” means that certain private offering to be led by a placement
agent following the Closing contemplated hereby pursuant to which Capital Growth
will be raising capital.
“Real
Property”
means
the Leased Real Property and the Owned Real Property.
“Receivables”
means
any and all accounts receivable, notes, book debts and other amounts due or
accruing due to 20/20 in connection with the Business whether or not in the
ordinary course, together with any unpaid financing charges accrued thereon
and
the benefit of all security for such accounts, notes and debts.
“Regulation”
means
any rule or regulation of any Governmental Authority.
“SEC”
shall
have the meaning prescribed in Section
4.24
below.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Services”
means
the services provided by 20/20 to or for the benefit of its
Customers.
“Sharing
Rights”
shall
have the meaning prescribed in Section
4.7
below.
“Software”
means
any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code
or object code, (b) databases and compilations, including any and all data
and
collections of data, whether machine readable or otherwise, (c) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of 20/20 and (e) all documentation, including user
manuals and training materials, relating to any of the foregoing.
“Subsidiary”
or “Subsidiaries”
of
a
specified Person means any other Person in which such Person owns, directly
or
indirectly, more than 50% of the outstanding voting securities or other
securities convertible into voting securities, or which may effectively be
controlled, directly or indirectly, by such Person.
-ix-
“Surviving
Corporation”
shall
have the meaning prescribed in Section
2.1
below.
“Tangible
Personal Property”
shall
have the meaning prescribed in Section
4.11(a)
below.
“Tax”
or
“Taxes”
means
any and all federal, state, local, or foreign taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or other taxing
authority, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, disability, social
security, workers’ compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs’ duties, tariffs, and similar charges, whether computed on a
separate or consolidated, unitary or combined basis or in any other manner,
whether disputed or not and including any obligation to indemnify or otherwise
assume or succeed to the Tax liability of any other Person, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority.
“Tax
Returns”
means
returns, reports and information statements, including any schedule or
attachment thereto, with respect to Taxes required to be filed with the IRS
or
any other Governmental Authority or other taxing authority or agency, domestic
or foreign, including consolidated, combined and unitary tax
returns.
“Trademarks”
mean
all trademarks, service marks, trade dress, logos, trade names and corporate
names, whether or not registered, including all common law rights, and
registrations and applications for registration thereof, including, but not
limited to, all marks registered in the United States Patent and Trademark
Office, the Trademark Offices of the States and Territories of the United States
of America, and the Trademark Offices of other nations throughout the world,
and
all rights therein provided by multinational treaties or
conventions.
“Transaction
Shares”
means
shares of Capital Growth Common Stock for all Transaction Shares other than
the
Holdback Shares, and with respect to the Holdback Shares, shall mean Capital
Growth Series B Preferred Stock with an agreed upon value of $1,000 per share,
each as issued to the 20/20 Stockholders pursuant to Section
2.5,
below.
“True-Up
Date”
shall
have the meaning prescribed to it in Section
2.5(b)(6)
below.
“Web
Sites”
means
all websites, domain names, and associated internet properties, rights, titles
and interests in any way directly or indirectly used in or associated with
the
Business.
-x-
ARTICLE
II
THE
MERGER
2.1 The
Merger.
At the
Effective Time (as hereinafter defined), in accordance with the laws of the
State of Delaware and the terms and conditions of the Documents, 20/20 Mergerco
shall be merged with and into 20/20, with 20/20 surviving. Pursuant to the
Merger, from and after the Effective Time, the separate corporate existence
of
20/20 Mergeco shall cease and 20/20, as the surviving corporation in the Merger,
shall continue its existence under the laws of the State of Delaware as a wholly
owned Subsidiary of Capital Growth. As the surviving corporation after the
Merger, 20/20 is sometimes referred to hereinafter as the “Surviving
Corporation.”
2.2 Effective
Time.
Subject
to the provisions of this Agreement, on the Closing Date (as hereinafter
defined) or as soon thereafter as is practicable, the Parties shall cause the
Merger to become effective by executing and filing with the office of the
Delaware Secretary of State, in accordance with the Delaware GCL, the
Certificate of Merger, in the forms required pursuant to Section 251 of the
Delaware GCL, which forms shall be prepared by counsel to 20/20 and Capital
Growth, and attached hereto as Exhibit
2.2
and made
a part hereof (the “Certificate
of Merger”),
the
date and time of such filings, or such later date and time as may be agreed
upon
by the Parties and specified therein, being hereinafter referred to as the
“Effective
Time.”
The
Parties hereto shall use their commercially reasonable efforts to pre-clear
the
Merger with the Secretary of State of the State of Delaware in order that on
the
Closing Date, the Certificate of Merger may be filed with the Secretary of
State
of the State of Delaware and become effective upon filing.
2.3 Effect
of the Merger.
At the
Effective Time, the Merger shall have the effect set forth in the Documents
and
in the applicable provisions of Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all of the assets,
properties, rights, privileges, immunities, powers and franchises of 20/20
shall
vest in the Surviving Corporation, and all of the debts, liabilities and duties
of 20/20 shall become the debts, liabilities and duties of the Surviving
Corporation.
2.4 Directors.
The
directors of the Surviving Corporation shall be those persons set forth on
Exhibit
2.4,
each to
hold office in accordance with the certificate of incorporation and the bylaws
of the Surviving Corporation, in each case, until their respective successors
are duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation’s
certificate of incorporation and bylaws. Additionally, the 20/20 Stockholders,
acting through the 20/20 Stockholders’ Representative, shall be allowed to
select one designee to sit on the board of Capital Growth until the next annual
meeting of Capital Growth shareholders. Capital Growth further agrees to use
its
commercially reasonable efforts to cause its board of directors to nominate
one
designee of 20/20 Stockholders’ Representative to sit on the board of directors
of Capital Growth at its next subsequent election of persons to serve on its
board of directors.
-xi-
2.5 Conversion
of Stock, Etc.
(a) At
the
Effective Time, by virtue of the Merger and without any action on the part
of
the Parties or the 20/20 Stockholders: All of the 20/20 Stock issued and
outstanding immediately prior to the Effective Time and all legal or beneficial
rights to participate in any fashion in the economic benefits of ownership
of
20/20 (other than any 20/20 Stock that is to be canceled and retired pursuant
to
Section
2.7,
and
other than any options, warrants and other contractual or other rights to
purchase or otherwise acquire or convert into 20/20 Stock that are to be
canceled and retired pursuant to Section
2.8)
(“20/20
Shares”)
shall
be converted automatically into the right to receive, in the aggregate, the
Merger Consideration; provided however, the Cash Consideration payable at
Closing shall not be paid to the 20/20 Stockholders, but shall be used to reduce
the Closing Date Liabilities; provided further, the Transaction Shares shall
be
further reduced pursuant to Section 2.5(b)(2). The Transaction Shares shall
be
issued to the 20/20 Stockholders in accordance with the relative rights of
the
20/20 Stockholders as set forth in the certificate of incorporation of 20/20,
as
amended, namely first, pro rata among the 20/20 Stockholders holding 20/20
Preferred Stock immediately prior to the Merger, pro rata, until each such
holder has received Transaction Shares with a value equal to the “Stated
Value”
of
the
aggregate outstanding 20/20 Preferred Stock, as that term is defined in the
certificates of designations with respect to the 20/20 Preferred Stock (subject
to an additional allocation of Holdback Shares, if any, available to the 20/20
Stockholders should the aforesaid allocation not result in satisfaction if
full
of the Stated Value), and the remainder of the Transaction Shares shall be
allocated among the 20/20 Stockholders holding 20/20 Common Stock pro rata
based
on their respective stock ownership as of the True-Up Date (subject to
allocation of additional Transaction Shares to the extent any of the Transaction
Shares subject to holdback as provided below are subsequently available to
the
20/20 Stockholders holding 20/20 Common Stock). On or before the Closing Date,
Capital Growth shall have filed the Articles of Amendment to Articles of
Incorporation for its Capital Growth Series B Preferred Stock (i.e.,
the
Holdback Shares), in the form attached hereto as Exhibit
2.5.
The
Transaction Shares shall have a value equal to $13,000,000 minus the Cash
Consideration amount minus the adjustments provided for in Section 2.5(b),
and
such Transaction Shares shall be issued (based on dollar value) fifty percent
(50%) in Capital Growth Common Stock and fifty percent (50%) in Capital Growth
Series B Preferred Stock (based on a value of $1,000 per Transaction Share
for
the Transaction Shares issued in the form of shares of Capital Growth Series
B
Preferred Stock and based on the ten
day
trailing average of the closing price of Capital Growth Common Stock for the
ten
trading days immediately preceding the Closing Date,
as
quoted on the OTC: Bulletin Board (for
the
Transaction Shares issued in the form of Capital Growth Common Stock), with
the
understanding and agreement that the Transaction Shares represented by Capital
Growth Common Stock shall be delivered on the Closing Date and the balance
of
the Transaction Shares represented by Capital Growth Series B Preferred Stock
to
be reserved for delivery as set forth in Section 2.5(c) below.
(b) Reduction
in Transaction Shares; Excess Indebtedness; True-Up.
(1) To
the
extent a 20/20 Creditor agrees to convert Indebtedness owed to it by 20/20
or
its Subsidiaries into Transaction Shares, the number of Transaction Shares
shall
be reduced in an amount equal to amount of such indebtedness converted into
Transaction Shares, provided that such issuance is on terms mutually agreeable
to Capital Growth and the 20/20 Stockholders’ Representative.
(2) To
the
extent Indebtedness of 20/20 as of the Closing Date (net of cash and accounts
receivable outstanding as of the Closing Date) is in excess of the Cash
Consideration (the “Excess
Indebtedness”),
then
the number of Transaction Shares to be issued to the 20/20 Stockholders as
of
the Closing Date shall be reduced by the quotient of (i) the total amount of
such Excess Indebtedness and (ii) the value per share allocated to the
Transaction Shares which shall be a credit against the Excess Indebtedness
in
question as if Capital Growth had paid off such Excess Indebtedness with cash,
and thereafter it shall be the responsibility of Capital Growth and its
subsidiaries to address retirement of the Excess Indebtedness as they deem
necessary and proper. The total liabilities of 20/20 as of the Closing Date
(whether paid by Cash Consideration or remaining as an obligation of 20/20,
as
reduced by cash and accounts receivable of 20/20 as of the Closing Date, other
than cash funding 20/20 Stockholders’ Representative are hereinafter sometimes
referred to as the “Net Closing Date Liabilities”).
-xii-
(3) To
the
extent the 20/20 Stockholders’ Representative is funded cash pursuant to Section
9.2(c), the number of Transaction Shares shall reduce by the quotient of (i)
the
total amount funded to the 20/20 Stockholders’ Representative and (ii) the value
per share allocated to the Transaction Shares.
(4) To
the
extent any 20/20 Stockholder exercises appraisal rights as contemplated by
Section 2.6, the number of Transaction Shares shall reduce in an amount equal
to
the number of Transaction Shares that would have been allocated to such
dissenting 20/20 Stockholder had such 20/20 Stockholder not exercised appraisal
rights.
(5) The
portion of the Transaction Shares that are Holdback Shares shall not be issued
to the 20/20 Stockholders until such time as the Holdback Shares are released
pursuant to Section
9.4.
(6) For
purposes hereof, the “True-Up
Date”
shall
be a date that is 45 days following the Closing Date. On the True-Up Date,
the
20/20 Representative shall advise Capital Growth of the amount of outstanding
warrant holders of 20/20 that elected to exercise their warrants to purchase
capital stock of 20/20, and those additional persons, if any, shall be deemed
for purposes of sharing in the Merger Consideration called for hereunder as
if
they were holders of 20/20 Stock corresponding to the exercise in question,
and
the exercise consideration paid by those persons shall be deemed as if it were
additional cash on the Closing Date for purposes of the computations called
for
herein.
(c) At
Closing, one half of the Transaction Shares to be issued to the 20/20
Stockholders (collectively, the “Holdback
Shares”)
shall
be retained by Capital Growth pursuant to Section
9.4
to
secure the indemnification obligations of 20/20 and the repayment of amounts
owed to 20/20 Creditors.
(d) As
of the
Effective Time, all 20/20 Shares shall automatically be redeemed and canceled,
and from and after the Effective Time, shall cease to exist, and each holder
of
a certificate that previously represented any such share of 20/20 Common Stock
or Preferred Stock (collectively, the “20/20
Certificates”)
shall
cease to have any rights with respect thereto other than the right to receive,
if any, (i) their portion of the Transaction Shares, or (ii) the amount
determined pursuant to appraisal rights provided in Section 2.6. The foregoing
Merger Consideration shall be deemed to have been paid in full satisfaction
of
all rights pertaining to the 20/20 Shares, and after the Effective Time, there
shall be no further registration or transfers of 20/20 Shares. After the
Effective Time, as the original 20/20 Certificates are presented to the
Surviving Corporation, they shall be cancelled and Transaction Shares shall
be
issued as provided in this Section
2.5.
If any
20/20 Certificates representing 20/20 Shares shall have been lost, stolen or
destroyed, Capital Growth shall issue the applicable Transaction Shares in
exchange for such lost, stolen or destroyed certificates, upon the making of
an
affidavit of such loss by the holder thereof. In addition to the affidavit,
Capital Growth may in its discretion and as a condition precedent to the
issuance of the applicable Transaction Shares, require the owner of such lost,
stolen or destroyed certificates to deliver an irrevocable indemnification
of
Capital Growth and its Subsidiaries (including the Surviving Corporation)
against any claim that may be made against Capital Growth or the Surviving
Corporation with respect to the certificates alleged to have been lost, stolen
or destroyed. Until so surrendered, each outstanding 20/20 Certificate shall,
at
and after the Effective Time, be deemed for all purposes to represent and
evidence only the right to receive the Transaction Shares set forth in
Section
2.5,
for
each share represented by such certificate, and no interest shall be paid or
accrued on such amount.
-xiii-
(e) At
the
Effective Time, each share of 20/20 Mergeco shall be converted into and
exchanged for one (1) share of the Common Stock of the Surviving
Corporation.
2.6 Appraisal
Rights.
Any
20/20 Stockholder that exercises appraisal rights in compliance with Section
262
of the Delaware GCL shall be entitled to an appraisal of the fair value of
such
20/20 Stockholders 20/20 Shares and payment of such value together with interest
thereon, if any, under the Delaware GCL and shall not be entitled to exercise
such stockholder’s right to receive the consideration provided for in
Section
2.5.
If such
20/20 Stockholder shall have failed to perfect or shall have effectively
withdrawn or lost his right to appraisal and payment under the Delaware GCL,
as
the case may be, such 20/20 Stockholder shall thereupon become entitled to
exercise his right to receive the consideration provided for in Section
2.5
without
any interest thereon.
2.7 Cancellation
of Shares.
Immediately prior to the Effective Time, each share of 20/20 Stock either held
in 20/20’s treasury or owned by any direct or indirect wholly-owned Subsidiary
of 20/20 immediately prior to the Effective Time, shall be canceled and
extinguished without any conversion thereof or payment therefore.
2.8 Stock
Options; Warrants.
Prior
to the Effective Time, all options, warrants and other contractual or other
rights to purchase or otherwise acquire or convert into 20/20 Stock, shall
be
cancelled, extinguished and terminated, (subject to the holders possessing
the
right to share in the Merger Consideration allocable to the class of stock
with
respect to which their warrants relate, provided such holders tender the
applicable consideration therefore to 20/20 or the Surviving Corporation within
the time permitted to do so in their option or warrant). 20/20 agrees to notify
its option and warrant holders of their exercise rights, if any (applicable
to
Merger) no later than 10 days following the Effective Time. If, prior to the
expiration of the options, warrants and other contractual or other rights to
purchase or otherwise acquire or convert into 20/20 Stock, a holder exercises
in
accordance with the terms of such right, such consideration shall be made
available for distribution to the former shareholders of 20/20 in accordance
with their respective rights and priorities under this Agreement as determined
by 20/20 Representative.
2.9 Taking
of Necessary Action; Further Action.
If, at
any time and from time to time after the Effective Time, any further action
is
necessary or desirable to carry out the purposes of this Agreement and to vest
in the Surviving Corporation full right, title and possession of all properties,
assets, rights, privileges, powers and franchises of 20/20, and 20/20 Mergeco,
the officers and directors of 20/20 and the Surviving Corporation shall be
and
are fully authorized and directed, in the name of and on behalf of their
respective corporations, to take, or cause to be taken, all such lawful and
necessary action as is not inconsistent with this Agreement. Capital Growth
shall cause 20/20 Mergeco to perform all of its obligations relating to this
Agreement and the transactions contemplated hereby.
-xiv-
2.10 Post-Merger
Option Plan.
Promptly following the Closing Date, Capital Growth will take all reasonable
steps to adopt an option plan for which all employees of Capital Growth,
including any wholly-owned subsidiaries thereof, shall be eligible and which
shall call for the issuance of up to no less than 5,000,000 shares of Capital
Growth Common Stock, provided that prior to its adoption of an amendment to
its
Articles of Incorporation authorizing the issuance of not less than 50,000,000
shares of Common Stock, said plan may provide for the issuance of not less
than
5,000 shares of Series A Preferred Stock.
ARTICLE
III
CONSIDERATION;
CLOSING
3.1 Consideration.
(a) As
consideration for the Merger, subject to the provisions of Sections 2.5(b)
and
2.8, the 20/20 Stockholders shall be entitled to receive the Transaction Shares
as set forth in Section
2.5
attached
hereto.
(b) All
certificates representing Transaction Shares issued pursuant to this Agreement,
if any, shall bear a legend stating that such Transaction Shares have not been
registered under the Securities Act, and may not be transferred or sold without
such registration or an exemption therefrom.
Fractional Transaction Shares in the form of Capital Growth Common Stock shall
be rounded up to the nearest whole share. With respect to Transaction Shares
represented by Capital Growth Series B Preferred Stock, Capital Growth shall
issue fractional shares of Capital Growth Series B Preferred Stock to the
holders thereof (if the Transaction Shares are Capital Growth Series B Preferred
Stock), rounded to the nearest fraction which would result in the issuance
of a
whole number of shares of Capital Growth Common Stock on conversion of shares
of
Capital Growth Series B Preferred Stock, based on a conversion ratio of equal
to
the quotient of (i) $1,000 and (ii) the ten
day
trailing average of the closing price of Capital Growth Common Stock for the
ten
trading days immediately preceding the Closing Date,
as
quoted on the OTC: Bulletin Board (to be adjusted for any stock splits or
reverse splits between the date hereof and the Closing Date), with the
differential for any fractional as converted share of Common Stock to be rounded
up to the nearest whole share (on an as converted basis).
(c) If
it is
later determined to have been calculated in error, the Parties agree to adjust
the ten day trailing average of the closing price of Capital Growth Common
Stock
for the ten trading days immediately preceding the Closing Date, as quoted
on
the OTC: Bulletin Board and take all necessary steps to correct the
error.
3.2 Closing.
Subject
to the terms and conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the “Closing”)
shall
take place at the offices of Xxxxxx Xxxx & Xxxxxx, LLP, 000 Xxxx Xxxxxx
Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx, 00000 at 5:30
P.M.
CST, on the date hereof,
or at
such other place or time or on such other date as the Parties may agree upon
in
writing (the
day
on which the Closing takes place being the “Closing
Date”).
-xv-
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF
THE
STOCKHOLDERS AND 20/20
The
20/20
Disclosure Schedule attached hereto (the “Disclosure
Schedule”)
identifies by Section and Subsection any exception to a representation or
warranty in this Article
IV.
In
order to induce Capital Growth to enter into this Agreement and to consummate
the transactions contemplated hereby, 20/20 hereby represents and warrants
to
Capital Growth as follows:
4.1 Organization
and Qualification.
20/20
is a corporation duly organized, validly existing and in good standing under
the
laws of State of Delaware, and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each of the
jurisdictions listed on Schedule
4.1,
such
jurisdictions being the only jurisdictions in which the failure to be so
licensed or qualified could have a Material Adverse Effect on 20/20. All of
the
issued and outstanding shares of 20/20 Common Stock were issued in compliance
in
all material respects with all applicable federal and state securities
laws.
4.2 Subsidiaries
and Affiliates.
Except
as described on Schedule
4.2,
20/20
does not have any Subsidiaries, and, except as described on Schedule
4.2,
20/20
does not own, directly or indirectly, any equity or other ownership interests
of
any Person. Except as contemplated by this Agreement, 20/20 has no obligation
to
purchase any interest, or make any investment, in any Person.
4.3 Charter,
Bylaws
and
Corporate Records.
True,
correct and complete copies of each of (i) the Certificate of Incorporation
of
20/20, as amended and in effect on the date hereof, and (ii) the bylaws of
20/20
as amended and in effect on the date hereof are attached hereto as Schedule
4.3.
True,
correct and complete copies of the minute books of 20/20, have been previously
made available to Capital Growth. Such minute books contain complete and
accurate records of all meetings and other corporate actions of the board of
directors, committees of the board of directors, incorporators and 20/20
Stockholders from the date of its incorporation to the date hereof.
4.4 Authorization;
Enforceability.
20/20
has the corporate power and authority to own, hold, lease and operate its
respective properties and assets and to carry on its business as currently
conducted. 20/20 has the corporate power and authority to execute, deliver
and
perform this Agreement and the other Documents to which it is a Party. The
execution, delivery and performance of this Agreement and the other Documents
to
which 20/20 is a Party and the consummation of the transactions contemplated
herein and therein have been duly authorized and approved by 20/20, and no
other
action on the part of 20/20 is necessary in order to give effect thereto other
than procurement of stockholder approval to the Merger (unless proof of approval
has been delivered as of the date hereof). This Agreement and each of the other
Documents to be executed and delivered by 20/20 has been duly executed and
delivered by, and constitute the legal, valid and binding obligations of, 20/20,
enforceable against 20/20 in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors’ rights generally and except that the
availability of equitable remedies is subject to the discretion of the Court
before which any proceeding therefore may be brought.
-xvi-
4.5 No
Violation or Conflict.
Except
as provided in Schedule
4.5,
none of
(a) the execution and delivery by 20/20 of this Agreement and the other
Documents to be executed and delivered by 20/20, (b) the consummation by 20/20
of the transactions contemplated by this Agreement and the other Documents,
or
(c) the performance of this Agreement and the other Documents required by this
Agreement to be executed and delivered by 20/20 at the Closing, will (1)
conflict with or violate the certificate of incorporation or bylaws of 20/20,
(2) conflict with or violate any Law, Order or Permit applicable to 20/20,
or by
which any 20/20 properties are bound or affected, or (3) result in any breach
or
violation of or constitute a default (or an event that with notice or lapse
of
time or both would become a default) under, or impair 20/20’s rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of any Lien on any of the properties or assets of 20/20 pursuant to,
any Contract, Permit or other instrument or obligation to which 20/20 or any
20/20 Subsidiary is a party or by which 20/20 or its respective properties
are
bound or affected except, in the case of clause (2) or (3) above, for any such
conflict, breach, violation, default or other occurrence that would not
individually or in the aggregate, have a Material Adverse Effect on
20/20.
4.6 Governmental
Consents and Approvals.
Except
for consents set forth on Schedule
4.6,
the
execution, delivery and performance of this Agreement and the other Documents
by
20/20 do not and will not require any consent, approval, authorization, Permit
or other order of, action by, filing with or notification to, any Governmental
Authority.
4.7 Capital
Structure.
The
issued capital stock of 20/20 as of the date hereof consists of 24,234,330
shares of 20/20 Common Stock, 2,716,050 shares of Series A Convertible Preferred
Stock ($0.50 Stated Value per share), 3,593,767 shares of Series B Convertible
Preferred Stock (Stated Value $1.094491 per share) and 254,365 shares of Series
C Convertible Preferred Stock (Stated Value $1.094491 per share). As of the
date
hereof, the authorized common stock of 20/20 equals 75,000,000 shares of Common
Stock and 17,000,000 shares of Preferred Stock. 20/20 has issued warrants and
options to purchase common stock and preferred stock as set forth on
Schedule
4.7
hereof.
Except as described above, there will be no shares of voting or non-voting
capital stock, equity interests or other securities of 20/20 authorized, issued,
reserved for issuance or otherwise outstanding at the Closing,
however
the holders of warrants and/or options of 20/20 exercisable for the purchase
of
capital stock do have the right, following delivery of notice of a proposed
merger in which to tender their exercise consideration and receive the
equivalent value with respect to the underlying securities to which they would
have been entitled had they exercised the warrant and/or option immediately
prior to the Closing Date (such contractual rights are referred to as the
“Sharing
Rights”).
All of
the outstanding shares of 20/20 Common Stock are duly authorized, validly
issued, fully paid and non-assessable, and not subject to, or issued in
violation of, any kind of preemptive, subscription or any kind of similar
rights. There are no bonds, debentures, notes or other Indebtedness of 20/20
having the right to vote on any matters on which stockholders of 20/20 may
vote.
There are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind (contingent
or
otherwise) to which 20/20 is a party or bound obligating 20/20 to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of 20/20 or obligating 20/20 to issue, grant,
extend or enter into any agreement to issue, grant or extend any security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking
that will survive the Closing, except as noted above with respect to the Sharing
Rights. There are no outstanding contractual obligations of 20/20 to repurchase,
redeem or otherwise acquire any shares of capital stock (or options to acquire
any such shares) or other security or equity interest of 20/20 which will
survive the Closing. Schedule 4.7
contains
a true and complete list of the record holders of the 20/20 Shares and sets
forth the full name and number of 20/20 Shares owned by each. 20/20 maintains
a
mailing list for its shareholders which it will make available for review upon
request.
-xvii-
4.8 Financial
Statements.
(a) Attached
hereto as Schedule
4.8
are
copies of the audited balance sheet of 20/20 as of December 31, 2004 (the
“Audited Balance Sheet”), and the unaudited balance sheet of 20/20 as of
December 31, 2005 (the “Unaudited
Balance Sheet”,
and
together with the Audited Balance Sheet, collectively, the “Balance
Sheets”),
together with, in each case, the related statements of operations and the
statements of changes in stockholders equity and the statements of cash flow,
for the year ended on such dates (collectively, the “Annual
Financial Statements”).
The
Annual Financial Statements are correct and complete and in accordance with
the
books and records of 20/20 and fairly present, in accordance with GAAP, in
all
material respects the financial condition of 20/20 as of the dates indicated
therein and accurately reflect in the aggregate all material aspects of the
Business.
(b) Also
attached hereto as Schedule
4.8
is a
copy of the unaudited balance sheet of 20/20 as of July 31, 2006 (the
“Interim
Balance Sheet”),
together with, in each case, the related statement of operations (unaudited),
the statement of changes in stockholders’ equity (unaudited) and the statement
of cash flows (unaudited) for the seven (7) month period ended as of July 31,
2006 (collectively, the “Interim
Financial Statements”
and,
together with the Annual Financial Statements, the “Financial
Statements”).
The
Interim Financial Statements are correct and complete and in accordance with
the
books and records of 20/20 and fairly present, in accordance with GAAP, in
all
material respects the financial condition of 20/20 as of the dates indicated
therein, are complete and correct in all material respects and accurately
reflect any and all material aspects of the Business. Also attached to Schedule
4.8 are the estimated accounts payable and estimated accounts receivable of
20/20 as of August 31, 2006; the Interim Balance Sheet, as adjusted for these
estimated amounts is referred to as the “Adjusted Interim Balance
Sheet.”
4.9 Conduct
in the Ordinary Course; Absence of Changes.
Except
as disclosed in the Disclosure Schedule, the Business has been conducted in
the
ordinary course of business, consistent with past practice, and there has been
no change in the Business which has had, or could reasonably be anticipated
to
have, a Material Adverse Effect on 20/20 or its Business.
4.10 Real
Property.
(a) 20/20
owns no real estate.
(b) Schedule
4.10(b)
lists
(1) the street address of each parcel of Leased Real Property, (2) the identity
of the lessor, lessee and current occupant (if different from lessee) of each
such parcel of Leased Real Property, and (3) the term and rental payment terms
of the Leases (and any subleases) pertaining to each such parcel of Leased
Real
Property.
-xviii-
(c) 20/20
has
made available to Capital Growth, to the extent available, for each parcel
of
Leased Real Property, all title insurance policies, title reports, surveys,
certificates of occupancy, environmental reports and audits, appraisals, other
title documents and other documents relating to or otherwise affecting the
Leased Real Property, or the operation of the Business thereon or any other
uses
thereof.
(d) 20/20
has
delivered or made available to Capital Growth correct and complete copies of
all
Leases and subleases listed in Schedule
4.10(b)
and any
and all ancillary documents pertaining thereto (including, but not limited
to,
all amendments, consents for alterations and documents recording variations
and
evidence of commencement dates and expiration dates) (the “Leases”).
With
respect to each such Lease:
(1) such
Lease is legal, valid, binding, enforceable and in full force and effect, except
as such enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors’ rights generally and except that
the availability of equitable remedies is subject to the discretion of the
Court
before which any proceeding therefore may be brought, and represents the entire
agreement between the respective landlord and tenant with respect to such
property;
(2) such
Lease, together with the consent and/or estoppel certificate contemplated by
Section
6.2,
will
not cease to be legal, valid, binding, enforceable and in full force and effect,
except as such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights generally and except
that the availability of equitable remedies is subject to the discretion of
the
Court before which any proceeding therefore may be brought, on terms identical
to those currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such Lease
or otherwise give the landlord or lessee a right to terminate such
Lease;
(3) neither
20/20 nor, to the Knowledge of 20/20, any other party to such Lease, is in
breach or default in any material respect, and, to the Knowledge of 20/20,
no
event has occurred that, with notice or lapse of time would constitute such
a
breach or default or permit termination, modification or acceleration under
such
Lease; and
(4) the
rental set forth in each Lease is the actual rental being paid, and there are
no
separate agreements or understandings with respect to the same.
-xix-
4.11 Personal
Property.
(a) Schedule
4.11
lists
each item or distinct group of machinery, equipment, tools, supplies, furniture,
fixtures, vehicles, rolling stock and other tangible personal property used
in
the Business and owned or leased by 20/20 (the “Tangible
Personal Property”).
(b) 20/20
has
delivered or made available to Capital Growth correct and complete copies of
all
leases for Tangible Personal Property (if any) and any and all material
ancillary documents pertaining thereto. With respect to each of such
leases:
(1) such
lease, together with all ancillary documents delivered pursuant to the first
sentence of this Section
4.11(b),
is
legal, valid, binding, enforceable, except as such enforcement may be limited
by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights generally and except that the availability of equitable
remedies is subject to the discretion of the Court before which any proceeding
therefore may be brought, and in full force and effect and represents the entire
agreement between the respective lessor and lessee with respect to such
property; and
(2) neither
20/20 nor, to the Knowledge of 20/20, any other party to such lease, is in
breach or default in any material respect, and no event has occurred that,
with
notice or lapse of time would constitute such a breach or default or permit
termination, modification or acceleration under, such lease; and
(3) such
lease will not cease to be legal, valid, binding, enforceable, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors’ rights generally and except that the
availability of equitable remedies is subject to the discretion of the Court
before which any proceeding therefore may be brought, and in full force and
effect on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement constitute
a
breach or default under such lease or otherwise give the lessor a right to
terminate such lease.
(c) All
Tangible Personal Property is adequate and usable for the use and purposes
for
which it is currently used, is in good operating condition, normal wear and
tear
excepted, subject to periodic maintenance and repair in accordance with good
business practice. The Tangible Personal Property owned or used by 20/20
constitutes all of the personal property used in, necessary to or required
for,
the conduct of the Business as conducted on June 30, 2006 and on the Closing
Date.
4.12 Board
Approval.
The
board of directors of 20/20 has, at a meeting duly called and held at which
all
members were present or by a unanimous written consent: (a) approved and
declared advisable this Agreement; (b) determined that the Merger and other
transactions contemplated by this Agreement are advisable, fair to and in the
best interest of 20/20 and the 20/20 Stockholders; (c) resolved to recommend
to
the stockholders of 20/20 (1) the approval of the Merger and the other
transactions contemplated hereby and (2) the approval and adoption of this
Agreement; and (d) directed that this Agreement be submitted to the stockholders
of 20/20 for their approval and adoption by way of majority written
consent.
-xx-
4.13 Insurance.
20/20
has furnished or made available to Capital Growth true and complete copies
of
all insurance policies and fidelity bonds covering the assets, business,
equipment, properties and operations of 20/20 relating to the Business, a list
of which (by type, carrier, policy number, limits, premium and expiration date)
is set forth in Schedule
4.13.
All
such insurance policies are in full force and effect and will remain in full
force and effect with respect to all events occurring prior to the Effective
Time.
4.14 Permits.
Schedule
4.14
lists
all Permits used in or otherwise required for the conduct of the Business.
Each
of the Permits is valid and in full force and effect.
4.15 Taxes.
Except
as set forth in Schedule
4.15
hereto:
(a) all Tax Returns and reports in respect of Taxes required to be filed with
respect to 20/20 or the Business have been timely filed; (b) all Taxes required
to be shown on such returns and reports or otherwise due have been timely paid;
(c) all such returns and reports are true, correct and complete in all material
respects; (d) no adjustment relating to such returns has been proposed formally
or, to the Knowledge of 20/20, informally by any Governmental Authority and,
to
the Knowledge of 20/20, no basis exists for any such adjustment; (e) there
are
no pending or, to the Knowledge of 20/20, threatened actions or proceedings
for
the assessment or collection of Taxes against 20/20 or (insofar as either
relates to the activities or income of 20/20 or could result in Liability of
20/20 on the basis of joint and/or several liability) any corporation that
was
includible in the filing of a return with 20/20 on a consolidated or combined
basis; (f) no consent under Section 341(f) of the Code has been filed with
respect to 20/20; (g) there are no Tax Liens on any assets of 20/20 or the
Business; (h) 20/20 has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party, and all
Forms W-2 and 1099 required with respect thereto have been properly completed
and timely filed; (i) 20/20 has not consented to extend the time in which any
Taxes may be assessed or collected by any taxing authority; (j) 20/20 has not
requested or been granted an extension of the time for filing any Tax Return
to
a date later than the Closing Date other than those included in Schedule
4.15;
(k)
there are no Liens for Taxes (other than for current Taxes not yet due and
payable) upon 20/20’s assets; (l) 20/20 will not be required (1) as a result of
a change in method of accounting for a taxable period ending on or prior to
the
Closing Date, to include any adjustment under Section 481(c) of the Code (or
any
corresponding provision of state, local or foreign law) in taxable income for
any taxable period (or portion thereof) beginning after the Closing Date or
(2)
as a result of any “closing agreement,” as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign law), to include
any
item of income or exclude any item of deduction from any taxable period (or
portion thereof) beginning after the Closing Date; (m) 20/20 is not a party
to
or bound by any tax allocation or tax sharing agreement or has any current
or
potential contractual obligation to indemnify any other Person with respect
to
Taxes; (n) to the Knowledge of 20/20 there is no basis for any assessment,
deficiency notice, 30-day letter or similar notice with respect to any Tax
to be
issued to 20/20 with respect to any period on or before the Closing Date; (o)
20/20 has not made any payments, and neither will become obligated (under any
contract entered into on or before the Closing Date) to make any payments,
that
will be nondeductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign law); (p) 20/20 has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code (or any corresponding provision of state, local or foreign law)
during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code
(or any corresponding provision of state, local or foreign law); (q) no claim
has ever been made in writing by a taxing authority in a jurisdiction where
20/20 does not file Tax Returns that 20/20 or a 20/20 Subsidiary is or may
be
subject to Taxes assessed by such jurisdiction; (r) 20/20 has no physical
presence in any foreign country, as defined in the relevant tax treaty between
the United States of America and such foreign country; and (s) true, correct
and
complete copies of all income and sales Tax Returns and related Extensions
filed
by or with respect to 20/20 for the past two (2) years have been furnished
or
made available to Capital Growth.
-xxi-
4.16 Labor
Matters.
(a) Schedule
4.16
lists
the name, place of employment, the current annual salary rates, bonuses,
deferred or contingent compensation, pension, accrued vacation, “golden
parachute” and other like benefits paid or payable (in cash or otherwise) in
2004 and 2005, the date of employment and a description of position and job
function of each current salaried employee, officer, director, manager, member,
consultant or agent of 20/20 earning in excess of $60,000 per
annum.
(b) Except
as
set forth in Schedule
4.16,
no
employment, consulting, severance pay, continuation pay, termination or
indemnification agreements or other similar agreements of any nature (whether
in
writing or not) exist between 20/20, on the one hand, and any of its current
or
former stockholders, officers, directors, members, managers, employees or
consultants, on the other hand.
(c) (1)
20/20
is
not a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by 20/20;
(2) There
are
no controversies, strikes, slowdowns or work stoppages pending or, to the
Knowledge of 20/20, threatened between 20/20 and any of its
employees;
(3) There
are
no unfair labor practice complaints pending against 20/20 before the National
Labor Relations Board or any other Governmental Authority or any current union
representation questions involving employees of 20/20;
(4) 20/20
is
currently in material compliance with all applicable Laws relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by the appropriate Governmental Authority and has withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to
such
Governmental Authority all amounts required to be withheld from employees of
20/20 and is not liable for any arrears of wages, Taxes, penalties or other
sums
for failure to comply with any of the foregoing;
(5) 20/20
has
paid in full to all its employees or adequately accrued for in accordance with
GAAP, consistently applied, all wages, salaries, commissions, bonuses, benefits
and other compensation due to or on behalf of such employees;
(6) There
is
no claim with respect to payment of wages, salary or overtime pay that has
been
asserted or is now pending or to the Knowledge of 20/20 threatened before any
Governmental Authority with respect to any Persons currently or formerly
employed by 20/20;
-xxii-
(7) There
is
no charge or proceedings with respect to a violation of any occupational safety
or health standards that has been asserted or is now pending or to the Knowledge
of 20/20 threatened with respect to 20/20; and
(8) There
is
no charge of discrimination in employment or employment practices, for any
reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted and not settled or is now
pending or to the Knowledge of 20/20 threatened before the United States Equal
Employment Opportunity Commission, or any other Governmental Authority in any
jurisdiction in which 20/20 has employed or currently employs any
Person.
4.17 Employee
Benefit Plans.
Schedule
4.17
lists
all Employee Plans of 20/20 (the “20/20
Employee Plans”).
20/20
has provided or made available to Capital Growth correct and complete copies
of
(where applicable) (a) all plan documents, summary plan descriptions, summaries
of material modifications, amendments, and resolutions related to such plans,
(b) the most recent determination letters received from the IRS, (c) the three
most recent Form 5500 Annual Reports and summary annual reports, (d) the most
recent audited financial statement and actuarial valuation, and (e) all related
agreements, insurance contracts and other agreements which implement each such
20/20 Employee Plan. There are no restrictions on the ability of the sponsor
of
each 20/20 Employee Plan to amend or terminate any 20/20 Employee Plan and
each
20/20 Employee Plan may be transferred by 20/20 or its respective ERISA
Affiliate to the Surviving Corporation. With
respect to each 20/20 Employee Plan, no event has occurred, and there exists
no
condition or set of circumstances in connection with which 20/20 would
reasonably be expected to, directly, or indirectly, subject Capital Growth
to
any liability under ERISA, the Code or any other applicable law, except
liability for benefits claims and funding obligations payable in the ordinary
course. Each 20/20 Employee Plan conforms to, and its administration is in
compliance with, all applicable Laws. No prohibited transaction within the
meaning of ERISA section 406 or Code section 4975, or breach of fiduciary duty
under Title I of ERISA has occurred with respect to any 20/20 Employee Plan.
20/20
and
each Commonly Controlled Entity has made all payments due from it to date with
respect to each 20/20 Employees Plan. With
respect to each 20/20 Employee Plan, there are no benefits obligations for
which
contributions have not been made or properly accrued and there are no unfunded
benefits obligations that have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Financial Statements. No 20/20 Employee Plan is a multiemployer plan.
There are no actions, liens, suits or claims pending or to the Knowledge of
20/20 threatened (other than routine claims for benefits) with respect to any
20/20 Employee Plan or against the assets of any 20/20 Employee Plan. Each
20/20
Employee Plan which is intended to qualify under Code section 401(a) or 403(a)
so qualifies and its related trust is exempt from taxation under Code section
501(a). Each 20/20 Employee Plan that is not qualified under Code section 401(a)
or 403(a) is exempt from Part 2, 3 and 4 of Title I of ERISA as an unfunded
plan
that is maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees, pursuant
to
ERISA sections 201(2), 301(a)(3) and 401(a)(1). No assets of 20/20 are allocated
to or held in a “rabbi trust” or similar funding vehicle. Each 20/20 Employee
Plan that is a “group health plan” (as defined in ERISA section 607(1) or Code
section 5001(b)(1)) has been operated at all times in compliance with the
provisions of COBRA, HIPAA and any applicable, similar state law. Except as
disclosed in Schedule
4.17,
the
consummation of the transactions contemplated by this Agreement will not: (i)
entitle any current or former employee of 20/20 to severance pay, unemployment
compensation or any similar payment; (ii) accelerate the time of payment or
vesting, or increase the amount of any compensation due to, or in respect of,
any current or former employee of 20/20; (iii) result in or satisfy a condition
to the payment of compensation that would, in combination with any other
payment, result in an “excess parachute payment” within the meaning of Code
section 280G(b); or (iv) constitute or involve a prohibited transaction (as
defined in ERISA section 406 or Code section 4975), constitute or involve a
breach of fiduciary responsibility within the meaning of ERISA section 502(l)
or
otherwise violate Part 4 of Subtitle B of Title I of ERISA.
-xxiii-
4.18 Environmental
Matters.
(a)
20/20 has all Environmental Permits which are required under Environmental
Laws,
(b) 20/20 is in material compliance with all terms and conditions of such
Environmental Permits, (c) 20/20 is in material compliance with all
Environmental Laws and any other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Environmental Laws or contained in any regulation, code,
plan,
governmental Order, notice or demand letter issued, entered, promulgated or
approved thereunder, (d) there has not been any event, condition, circumstance,
activity, practice, incident, action or plan which will interfere with or
prevent continued compliance with the terms of such Environmental Permits or
which would give rise to any liability under any Environmental Law or give
rise
to any common law or statutory liability, based on or resulting from 20/20’s or
its agents’ manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, or release into
the environment, of any Hazardous Substance, and (e) 20/20 has taken all actions
reasonably necessary under applicable requirements of Environmental Law to
register any products or materials required to be registered by 20/20 (or any
of
its agents) thereunder.
4.19 Certain
Interests.
(a) Except
as
noted in Schedule
4.19,
no
officer, director or 20/20 Stockholder, and no spouse and to the Knowledge
of
20/20, no relative (or relative of such spouse) who resides with, or is a
dependent of, any such officer or director:
(1) has
any
direct or indirect financial interest in any competitor, supplier or customer
of
20/20 (except as described on Schedule
4.19),
provided, however, that the ownership of securities representing no more than
three percent (3%) of the outstanding voting power of any competitor, supplier
or customer, and which are also listed on any national securities exchange
or
traded actively in the national over-the-counter market, shall not be deemed
to
be a “financial interest” so long as the Person owning such securities has no
other connection or relationship with such competitor, supplier or
customer;
(2) owns,
directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property which 20/20 uses or has used in the conduct
of
the Business or otherwise; or
-xxiv-
(3) has
outstanding any Indebtedness to 20/20.
(b) 20/20
has
no Indebtedness, Liabilities, nor any other obligation of any nature whatsoever
to, any officer, director or stockholder of 20/20 or any spouse or to the
Knowledge of 20/20 to any relative (or relative of such spouse) who resides
with, or is a dependent of, any such officer, director or stockholder, except
for Indebtedness related to outstanding convertible notes issued by 20/20 and
legal fees owing to Xxxxxxx & Xxxxxxxx, Ltd., which is affiliated with
several 20/20 Stockholders.
4.20 Litigation.
Except
as set forth in Schedule
4.20,
there
are no Actions pending, or to the Knowledge of 20/20, threatened, against,
relating to or affecting 20/20 or the Business before any Court, Governmental
Agency or any arbitrator or mediator. Neither 20/20, nor any Stockholder is
subject to any Order which prohibits or restricts the consummation of the
transactions contemplated hereby or restricts in any way the ownership or
operations of 20/20 or the Business.
4.21 Intellectual
Property.
Except
as noted in Schedule
4.21
or for
Software, content, or other similar services/property purchased by 20/20 on
a
non-exclusive basis through contracts with vendors, all of which contracts
are
in full force and effect and none of which contracts are currently subject
to
any contractual disputes nor have been threatened with cancellation or
non-renewal by such vendors, 20/20 has the exclusive rights, titles and
interests in and to any and all Intellectual Property used by, being developed
by, or otherwise associated with the present or future operations of the
Business, as reasonably anticipated by 20/20.
4.22 Inventories.
The
Inventories reflected in the Financial Statements, if any, are in proper working
order and of merchantable quality, which can be sold in the ordinary course
of
the Business.
4.23 Receivables.
The
Receivables reflected in the Financial Statements consist solely of bona fide
accounts receivable generated by the Business in the ordinary course, which
can
be collected in the ordinary course of the Business, subject to reserves for
bad
debt maintained consistently with the bad debt reserve reflected in the Annual
Financial Statements.
4.24 Brokers.
20/20
has not employed any financial advisor, broker or finder, and 20/20 has not
incurred nor will incur any broker’s, finder’s, investment banking or similar
fees, commissions or expenses in connection with the transactions contemplated
by this Agreement.
4.25 Contracts;
Status of Contracts.
(a) Set
forth
on Schedule
4.25
is a
list of all of the Contracts of 20/20. Complete and correct copies of each
of
the Contracts of 20/20 (including all schedules, exhibits, annexes, amendments,
and modifications relating thereto) have heretofore been delivered to Capital
Growth by 20/20. The Contracts constitute all of the agreements (whether written
or oral) used by or necessary to the conduct of the Business and 20/20 is not
a
party to any other agreement (whether written or oral) not included in the
Contracts which is necessary to operate the Business (as historically operated
by 20/20).
-xxv-
(b) Except
as
set forth on Schedule
4.25,
and
except for the requirement of obtaining consents to the transfer thereof (all
of
which are set forth on Schedule
4.25),
each
Contract constitutes a valid and binding obligation of the parties thereto,
is
in full force and effect and will continue in full force and effect after the
consummation of the transactions contemplated hereby, in each case without
(i)
breaching the terms thereof, (ii) resulting in the forfeiture or impairment
of
any rights thereunder, (iii) resulting in the payment of any fees or other
charges, (iv) giving any other party the right to terminate, and (v) requiring
the consent, approval or act of, or the making of any filing with, any other
party. Except as set forth on Schedule
4.25,
20/20
is not in, or alleged to be in, breach or default under, nor, to the best of
the
Knowledge of officers of 20/20, is there or is there alleged to be any basis
for
termination of, any of the Contracts, and, to the best of the Knowledge of
officers of 20/20, no other party to any of the Contracts has breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by 20/20 or by any such other
party.
(c) To
the
extent there is a security deposit relating to a Contract, the underlying
landlord [or vendor, as applicable,] has not made a claim in respect of the
respective security deposit and no facts or circumstances exist which could
reasonably give rise to any such claim.
4.26 No
Undisclosed Liabilities.
Except
as set forth on Schedule
4.26,
20/20
is not subject to any liability (including, without limitation, unasserted
claims, whether known or unknown), whether absolute, contingent, accrued or
otherwise, which is not shown or which is in excess of amounts shown or reserved
for in the Interim Balance Sheet, other than liabilities of the same nature
as
those set forth in the Interim Balance Sheet and reasonably incurred in the
ordinary course of the Business after the Interim Balance Sheet
Date.
4.27 Board
Approval.
The
board of directors of 20/20 has, at a meeting duly called and held at which
all
members of such board of directors were present or by a unanimous written
consent: (a) approved this Agreement; (b) determined that the Merger and other
transactions contemplated by this Agreement are advisable, fair to and in the
best interest of 20/20 and each of 20/20’s stockholders; (c) resolved to
recommend to the stockholders of 20/20 (1) the approval of the Merger and the
other transactions contemplated hereby and (2) the approval and adoption of
this
Agreement; and (d) directed that this Agreement be submitted to the stockholders
of 20/20 for their approval and adoption.
4.28 Material
Information.
No
covenant, representation or warranty by 20/20, and no written statement,
schedule or certificate furnished or to be furnished by 20/20 pursuant hereto
or
at the Closing hereunder, contains or will contain any untrue statement of
a
material fact, or will omit to state a material fact necessary to provide
Capital Growth with complete and accurate information as to 20/20 or to make
the
statements therein not misleading.
-xxvi-
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF
CAPITAL
GROWTH AND 20/20 MERGECO
In
order
to induce 20/20 to enter into this Agreement and to consummate the transactions
contemplated hereby, Capital Growth represents and warrants to 20/20 as follows:
5.1 Organization
and Qualification.
Each of
Capital Growth and 20/20 Mergeco is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation. Each of Capital Growth and 20/20 Mergeco is duly qualified or
licensed as a foreign corporation to conduct business, and is in good standing,
under the laws of each jurisdiction where the character of the properties owned,
leased or operated by it, or the nature of its activities, makes such
qualification or licensing necessary, except where the failure to be so
qualified, licensed or in good standing, individually or in the aggregate,
has
not had and would not have a Material Adverse Effect on Capital Growth and
20/20
Mergeco. Each of Capital Growth and 20/20 Mergeco has made available to 20/20
true, complete and correct copies of its articles of incorporation and bylaws,
each as amended to date. Neither Capital Growth, nor 20/20 Mergeco is in default
under or in violation of any provision of its articles of incorporation or
bylaws. All of the issued and outstanding shares of capital stock of, or other
equity interests in, the 20/20 Mergeco are: (a) duly authorized, validly issued,
fully paid, non-assessable; (b) owned, directly or indirectly by Capital Growth
free and clear of all Liens; and (c) free of any restriction, including, without
limitation, any restriction which prevents the payment of dividends to Capital
Growth, or otherwise restricts the right to vote, sell or otherwise dispose
of
such capital stock or other ownership interest other than restrictions under
the
Securities Act and state securities laws.
5.2 Capital
Structure.
The
authorized capital stock of Capital Growth consists of (a) 25,000,000 shares
of
Capital Growth Common Stock $0.0001 par value per share, (b) 100,000 shares
of
Capital Growth Series A Preferred Stock, none of which has been issued, (c)
100,000 shares of Capital Growth Series B Preferred Stock, none of which has
been issued (except for those shares of Capital Growth Series B Preferred Stock
issued pursuant to the terms hereof), (d) and 4,800,000 of “blank check”
preferred stock, none of which has been issued. As of the date of this
Agreement: (1) 17,115,754 shares of Capital Growth Common Stock were issued
and
outstanding; and (2) no shares of Capital Growth Series A Preferred Stock or
Capital Growth Series B Preferred Stock were issued or outstanding. Except
as
described above and with respect to the outstanding convertible debentures
and
stock options of Capital Growth, there were no shares of voting or non-voting
capital stock, equity interests or other securities of Capital Growth
authorized, issued, reserved for issuance or otherwise outstanding. All
outstanding shares of Capital Growth Series B Preferred Stock to be issued
in
connection with the consummation of the transactions contemplated by this
Agreement will be, when issued in accordance with the terms hereof, duly
authorized, validly issued, fully paid and non-assessable, and not subject
to,
or issued in violation of, any kind of preemptive, subscription or any kind
of
similar rights. Except as provided hereunder, neither Capital Growth, nor 20/20
Mergeco is subject to any obligation or requirement to provide funds for, or
to
make any investment (in the form of a loan or capital contribution) to or in
any
Person. All of the issued and outstanding shares of Capital Growth Common Stock
were issued in compliance in all material respects with all applicable federal
and state securities laws. The authorized capital stock of each 20/20 Mergeco
consists of 1,000 shares of common stock, 100 of which are duly authorized,
validly issued and fully paid and non-assessable, and all of which are, and
at
the Closing Date will be, owned by Capital Growth free and clear of any Liens.
-xxvii-
5.3 Authorization;
Enforceability.
Each of
Capital Growth and 20/20 Mergeco has the corporate power and authority to
execute, deliver and perform this Agreement and the other Documents to which
it
is a Party. The execution, delivery and performance of this Agreement and the
other Documents to which it is a Party and the consummation of the transactions
contemplated herein and therein have been duly authorized and approved by each
of Capital Growth and 20/20 Mergeco, and no other action on the part of any
of
them is necessary in order to give effect thereto. This Agreement and each
of
the other Documents to be executed and delivered by each of Capital Growth
and
20/20 Mergeco have been duly executed and delivered by, and constitute the
legal, valid and binding obligations of, each of them, enforceable against
each
of them, in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors’ rights generally and except that the availability of
equitable remedies is subject to the discretion of the Court before which any
proceeding therefor may be brought.
5.4 No
Violation or Conflict.
None of
(a) the execution and delivery by Capital Growth and 20/20 Mergeco of this
Agreement and the other Documents to be executed and delivered by each of
Capital Growth and 20/20 Mergeco, (b) consummation by each of Capital Growth
and
20/20 Mergeco of the transactions contemplated by this Agreement and the other
Documents, or (c) the performance of this Agreement and the other Documents
required by this Agreement to be executed and delivered by each of Capital
Growth and 20/20 Mergeco at the Closing, will (1) conflict with or violate
the
articles of incorporation or bylaws of any of them, (2) conflict with or violate
any Law, Order or Permit applicable to any of them, or (3) conflict with or
violate any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease or other instrument or obligation to which any of them is
a
party or by which any of their respective properties may be bound or
affected.
5.5 Governmental
Consents and Approvals.
Except
for filings required by applicable Securities Laws or exchanges, the execution,
delivery and performance of this Agreement and the other Documents by each
of
Capital Growth and 20/20 Mergeco do not and will not require any consent,
approval, authorization, Permit or other Order of, action by, filing with or
notification to, any Governmental Authority.
5.6 Litigation.
Except
as set forth on Schedule
5.6,
there
is no suit, action, arbitration, claim, governmental or other proceeding before
any Governmental Authority pending or, to the Knowledge of Capital Growth,
threatened, against Capital Growth, or 20/20 Mergeco.
5.7 Interim
Operations.
20/20
Mergeco was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement, and has engaged in no other business activities
and has conducted its operations only as contemplated in this
Agreement.
5.8 Brokers.
Capital
Growth has not employed any financial advisor, broker or finder, and Capital
Growth has not incurred and will not incur any broker’s, finder’s, investment
banking or similar fees, commissions or expenses in connection with the
transactions contemplated by this Agreement.
-xxviii-
5.9 Board
Approval.
The
boards of directors of Capital Growth and of 20/20 Mergeco have, each at a
meeting duly called and held at which all members of such board of directors
were present or by a unanimous written consent: (a) approved this Agreement;
(b)
determined that the Merger and other transactions contemplated by this Agreement
are advisable, fair to and in the best interest of such entity and each of
their
respective stockholders; (c) resolved to recommend to the stockholders of 20/20
Mergeco (1) the approval of the Merger and the other transactions contemplated
hereby and (2) the approval and adoption of this Agreement; and (d) directed
that this Agreement be submitted to the stockholders of 20/20 Mergeco for its
approval and adoption.
5.10 Material
Information.
No
covenant, representation or warranty by Capital Growth, and no written
statement, schedule or certificate furnished or to be furnished by Capital
Growth pursuant hereto or at the Closing hereunder, contains or will contain
any
untrue statement of a material fact, or will omit to state a material fact
necessary to provide 20/20 with complete and accurate information as to Capital
Growth or to make the statements therein not misleading.
For
purposes hereof, Capital Growth represents that all of the disclosures contained
in its filings with the Securities & Exchange Commission during calendar
years 2004, 2005 and 2006 are true and correct in all material respects and
do
not omit to state or misstate any material facts regarding the business or
financial condition of Capital Growth and its Subsidiaries.
ARTICLE
VI
COVENANTS
6.1 Performance.
Subject
to the terms and conditions provided in this Agreement, each of the Parties
shall use its respective commercially reasonable efforts in good faith to take
or cause to be taken as promptly as practicable all reasonable actions that
are
within its power to cause to be performed and fulfilled those of the conditions
precedent to its obligations to consummate the transactions contemplated by
this
Agreement that are dependent upon its actions, including obtaining all necessary
approvals, to the end that the transactions contemplated hereby will be fully
and timely consummated.
6.2 Regulatory
and Other Authorizations; Notices and Consents.
(a) Each
of
the Parties will use its commercially reasonable efforts to obtain all
authorizations, consents, Orders and approvals of all Governmental Authorities
and officials that may be or become necessary for its execution and delivery
of,
and the performance of its obligations pursuant to, this Agreement and the
other
Documents and will cooperate fully with each of the Parties in promptly seeking
to obtain all such authorizations, consents, Orders and approvals.
(b) Each
of
the Parties shall give promptly such notices to third parties and use its
commercially reasonable efforts to obtain such third party consents and estoppel
certificates as the Parties may deem necessary or desirable in connection with
the consummation of the transactions contemplated by this Agreement and the
other Documents. The Parties shall cooperate with each other and use all
reasonable efforts to assist in giving such notices and obtaining such consents
and estoppel certificates.
Notwithstanding the foregoing, Capital Growth acknowledges that 20/20 shall
not
be obligated to deliver any landlord estoppel certificates as a condition
preceding to effecting the Closing contemplated hereunder.
-xxix-
6.3 Notification.
From
the date this Agreement is signed by the Parties until the Closing, each Party
to this Agreement shall promptly notify the other Parties in writing of the
occurrence, or pending or threatened occurrence, of (a) any event that would
constitute a breach or violation of this Agreement by any Party or that could
reasonably be anticipated to cause any representation or warranty made by the
notifying Party in this Agreement to be false or misleading in any respect
(including without limitation, any event or circumstance which would have been
required to be disclosed on the applicable Disclosure Schedule if such event
or
circumstance occurred or existed on or prior to the date of this Agreement),
and
(b) all other material developments affecting the assets, Liabilities, business,
financial condition, operations, results of operations, customer or supplier
relations, employee relations, projections or prospects of such Party. Any
such
notification shall not limit or alter any of the representations, warranties
or
covenants of the parties set forth in this Agreement or any rights or remedies
a
Party may have with respect to a breach of any representation, warranty or
covenant.
6.4 Conduct
of Business Pending Closing.
(a) At
all
times prior to the Closing Date, 20/20 covenants and agrees that it shall
conduct the Business only in the ordinary course of its Business consistent
with
past practices, and 20/20 shall use its commercially reasonable efforts
consistent with past practices to preserve intact the Business and to keep
available satisfactory relationships with suppliers, customers and others having
business relationships with it.
(b) From
the
date of this Agreement until the Closing Date there shall not be any material
increases or decreases in compensation, capital expenditures, asset sales or
affiliate transactions involving 20/20, nor shall there be any unusual cash
withdrawals, unusual payments, unusual contracts or contract provisions, or
other unusual transactions or business practices involving 20/20.
(c) At
all
times prior to the Closing Date, except as otherwise set forth in this
Agreement, 20/20 Mergeco covenants and agrees that it will not, directly or
indirectly, conduct any business or incur any Liabilities (contingent or
otherwise).
(d) 20/20
agrees that during the period from the date of signing of this Agreement until
the Closing Date, they shall each refrain from entering into, participating
in,
or responding to, any other negotiations, discussions, contracts, letters of
intent, or other arrangements of any nature with any third parties (other than
Capital Growth) regarding a disposition of 20/20’s Business or assets, the sale
of the stock or equity interests of 20/20, or any other actions which might
have
the effect of impeding, delaying or making more costly the Merger, provided,
however,
that
this Agreement shall no longer be legally binding upon 20/20 if the Closing
has
not occurred by September 30, 2006, unless the outside date for Closing is
extended by mutual agreement of the parties.
-xxx-
6.5 Employment
Matters.
Except
as set forth in Article X, there will be no changes in the employment status,
or
in the terms and conditions of employment, of the employees of 20/20 prior
to
the Merger.
ARTICLE
VII
REGISTRATION
RIGHTS
7.1 Transactions
Shares.
The
Transaction Shares will be unregistered, restricted stock, and shall be subject
to piggyback registration rights in connection with the registration rights
granted to the investors in the Pipe Transaction; provided however, such
registration rights shall be subject to up to a six (6) month lock-up (on terms
designated by the managing underwriter) following the effective date of the
initial registration statement filed on behalf of the investors in the Pipe
Transaction; provided further, in connection with the registration of the shares
issued to the investors in the Pipe Transaction, to the extent the managing
dealer advises Capital Growth in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, Capital Growth shall include in such registration (i) first,
the quantity of shares issued to the investors in the Pipe Transaction requested
to be included in such registration, pro
rata
among
the respective holders thereof on the basis of the number of shares requested
to
be included in such registration by each such holder, (ii) second, the
Transaction Shares, pro
rata
among
the respective holders thereof on the basis of the number of shares requested
to
be included in such registration by each such holder, and (iii) third, other
securities of the Company requested to be included in such registration, pro
rata among the respective holders thereof on the basis of the number of shares
requested to be included in such registration by each such holder.
ARTICLE
VIII
CONDITIONS
PRECEDENT TO CLOSING
8.1 Conditions
Precedent to the Obligations of Capital
Growth.
The
obligation of each of Capital Growth and 20/20 Mergeco to consummate the
transactions described in this Agreement shall be subject to the fulfillment
on
or before the Closing of the following conditions precedent, each of which
may
be waived by a Capital Growth in its sole discretion:
(a) Representations,
Warranties and Covenants of 20/20.
The
representations and warranties of 20/20 contained in this Agreement shall have
been true and correct when made and shall be true and correct in all material
respects as of the Closing, with the same force and effect as if made as of
the
Closing Date, other than such representations and warranties that are expressly
made as of another date, and the covenants and agreements contained in this
Agreement to be complied with by 20/20 on or before the Closing shall have
been
complied with.
(b) Authorizations,
Approvals and Consents.
All
authorizations, approvals or consents of any and all Governmental Authorities
or
other Persons required to be obtained by the 20/20 to consummate the
transactions contemplated by this Agreement which, either individually or in
the
aggregate, if not obtained, would have a material adverse effect on the
Business, including without limitation, the authorizations, approvals, or
consents listed on Schedule
4.6,
shall
have been validly obtained and copies thereof shall have been delivered to
Capital Growth.
-xxxi-
(c) No
Actions, Suits or Proceedings.
No
Order of any Court or Governmental Authority shall have been issued restraining,
prohibiting, restricting or delaying, the consummation of the transactions
contemplated by this Agreement and the other Documents. No Litigation shall
be
pending or, to the Knowledge of the Parties to this Agreement, threatened,
(except to the extent disclosed in this Agreement), before any Court or
Governmental Authority to restrain, prohibit, restrict or delay, or to obtain
damages or a discovery order in respect of this Agreement or the consummation
of
the transactions contemplated hereby. No insolvency proceeding of any character
including without limitation, bankruptcy, receivership, reorganization,
dissolution or arrangement with creditors, voluntary or involuntary, affecting
20/20 shall be pending, and 20/20 shall not have taken any action in
contemplation of, or which would constitute the basis for, the institution
of
any such proceedings.
(d) No
Adverse Change of 20/20.
No
events or conditions shall have occurred which individually or in the aggregate,
have had, or may reasonably be anticipated to give rise to any Material Adverse
Effect on 20/20 since the date of this Agreement.
(e) Corporate
Action.
20/20
shall have taken all corporate action necessary to approve the transactions
contemplated by this Agreement, and 20/20 shall have furnished Capital Growth
and 20/20 Mergeco with copies of resolutions, adopted by the board of directors
and, if necessary, stockholders of 20/20 and certified by the secretary of
20/20
as of the Closing Date, in form and substance reasonably satisfactory to Capital
Growth, in connection with such transactions.
(f) Due
Diligence.
Capital
Growth shall have completed its due diligence investigation of 20/20 (including,
without limitation, an examination of the corporate books and records,
financials, historical operations, management, business practices, computer
systems, prospects, legal, tax, ERISA and other matters) not later than the
Closing Date, and the results of such investigation shall be satisfactory to
Capital Growth in its sole discretion as of such date and the date of execution
of this Agreement.
(g) Executives.
Xxxxxxx
X. Xxxxx and Xxxxxx Xxxx shall enter into employment agreements (to the extent
required by Capital Growth) with the Surviving Corporation containing customary
terms and conditions.
(h) Creditors.
20/20
shall have entered into agreements with each of the 20/20 unsecured Creditors
regarding the payment of Indebtedness by 20/20 after the Effective Date (the
“Creditor
Arrangements”),
any
such Creditor Arrangement in form and substance approved by Capital Growth.
The
Creditor Arrangements shall do at least one of the following (and in any event,
must be in form and substance approved by Capital Growth): (i) cause the
Indebtedness of the 20/20 Creditor to be converted into Transaction Shares
(or
upon mutual consent of the parties, Capital Growth Series B Preferred Stock);
(ii) forgive a portion of such Indebtedness (such forgiveness to occur
immediately prior to the Effective Time, and/or (iii) defer the payment
obligation under the Indebtedness for a period calling for quarterly payment
over at least 8 calendar quarters, commencing on or following the last quarter
of 2006.
-xxxii-
(i) Legal
Opinions of Counsel for 20/20.
Legal
counsel for 20/20 shall have delivered to Capital Growth a written opinion
of
counsel in the form and substance reasonably satisfactory to Capital Growth
regarding its authority to enter into the transactions called for
herein.
(j) Capital
Growth Funding.
Capital
Growth shall have received net proceeds from the private offering and/or
financing in the form of cash or assignment of secured liabilities of 20/20
to
Capital Growth of not less than $3,100,000; the parties hereto acknowledge
and
agree that to the extent Capital Growth acquires any of the notes evidencing
secured Indebtedness of 20/20, then the obligation evidenced by such Notes
shall
be deemed to be a portion of the Cash Consideration payable hereunder and the
amount of such Indebtedness shall be credited against Capital Growth’s purchase
obligations hereunder.
(k) Corporate
Action.
20/20
shall have taken all corporate action necessary to approve the transactions
contemplated by the Agreement, the 20/20 Stockholders shall have duly approved
the Merger, and 20/20 shall have furnished Capital Growth with copies of
resolutions, adopted by the board of directors of 20/20 and the 20/20
Stockholders and certified by the secretary of 20/20 as of the Closing Date,
in
form and substance reasonably satisfactory to Capital Growth, in connection
with
such transactions.
(l) Other
Documents.
The
Company shall have furnished or caused to be furnished to the Parent the
documents set forth in Section
8.4
and such
other documents and certificates as may be reasonably requested by Capital
Growth.
8.2 Conditions
Precedent to the Obligations of 20/20.
The
obligation of 20/20 to consummate the transactions described in this Agreement
shall be subject to the fulfillment on or before the Closing of the following
conditions precedent, each of which may be waived by a Capital Growth in its
sole discretion:
(a) Representations,
Warranties and Covenants of Capital Growth and 20/20 Mergeco.
The
representations and warranties of each of Capital Growth and 20/20 Mergeco
contained in this Agreement shall have been true and correct when made and
shall
be true and correct in all material respects as of the Closing, with the same
force and effect as if made as of the Closing Date, other than such
representations and warranties that are expressly made as of another date,
and
the covenants and agreements contained in this Agreement to be complied with
by
Capital Growth and 20/20 Mergeco on or before the Closing shall have been
complied with, and 20/20 shall have received a certificate to such effect signed
by a duly authorized officer of Capital Growth and the 20/20
Mergeco.
(b) No
Actions, Suits or Proceedings.
No
Order of any Court or Governmental Authority shall have been issued restraining,
prohibiting, restricting or delaying, the consummation of the transactions
contemplated by this Agreement and the other Documents. No Litigation shall
be
pending or, to the Knowledge of the Parties to this Agreement, threatened,
before any Court or Governmental Authority to restrain, prohibit, restrict
or
delay, or to obtain damages or a discovery order in respect of this Agreement
or
the consummation of the transactions contemplated hereby. No insolvency
proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting 20/20 shall be pending, and 20/20 shall
not
have taken any action in contemplation of, or which would constitute the basis
for, the institution of any such proceedings
-xxxiii-
(c) No
Adverse Change of Capital Growth or 20/20 Mergeco.
No
events or conditions shall have occurred which individually or in the aggregate,
have had, or may reasonably be anticipated to give rise to any Material Adverse
Effect on Capital Growth or 20/20 Mergeco.
(d) Corporate
Action.
Capital
Growth and 20/20 Mergero shall have taken all corporate action necessary to
approve the transactions contemplated by this Agreement, and Capital Growth
and
20/20 Mergeco shall have furnished 20/20 with copies of resolutions, adopted
by
the board of directors and, if necessary, stockholders of Capital Growth and
20/20 Mergeco and certified by the secretary of Capital Growth and 20/20 Mergeco
as of the Closing Date, in form and substance reasonably satisfactory to 20/20,
in connection with such transactions.
(e) Employment
Agreements.
The
terms of the employment agreements for Xxxxxxx Xxxxxx and Xxxxxx Xxxx shall
be
on terms satisfactory to each of them.
(f) Other
Documents.
Capital
Growth and 20/20 Mergeco shall have furnished or caused to be furnished to
20/20
the documents set forth in Section
8.4
and such
other documents and certificates as may be reasonably requested by
20/20.
8.4 Delivery
of Documents
by 20/20. 20/20 agrees to execute and deliver, or cause to be executed and
delivered, to Capital Growth at the Closing, the following:
(a) All
of
the instruments and documents required to be delivered under Section
8.1;
(b) all
corporate minute books and stock record books of 20/20; and
(c) Such
other documents as Capital Growth may reasonably request.
8.5 Delivery
of Documents
by Capital Growth and 20/20 Mergeco. Capital Growth and 20/20 Mergeco agree
to execute and deliver, or cause to be executed and delivered, to 20/20 at
the
Closing, the following:
(a) All
of
the instruments and documents required to be delivered under Section
8.2;
(b) Such
other documents as 20/20 may reasonably request
-xxxiv-
ARTICLE
IX
INDEMNIFICATION
9.1 Survival
of Representations, Warranties and Covenants.
The
representations and warranties contained in this Agreement shall survive (and
shall be unaffected by (and shall not be deemed waived by) any investigation,
audit, appraisal or inspection at any time made by or on behalf of another
party
hereto) for two (2) years after the Closing Date. All covenants and agreements
contained in this Agreement (and in the corresponding covenants and agreements
set forth in any of the Documents) shall survive the Closing and continue in
full force until fully performed in accordance with their terms.
9.2 Indemnification.
(a) The
20/20
Stockholders agree to indemnify and hold harmless Capital Growth and the
Surviving Corporation, and each of their respective successors and assigns,
together with all of their officers and directors, from and against any and
all
losses, damages, liabilities, obligations, costs or expenses which are caused
by
or arise out of (1) any breach or default in the performance by the 20/20
Stockholders or 20/20 of any covenant or agreement of the 20/20 Stockholders
or
20/20 contained in this Agreement; (2) any material breach of warranty or
inaccurate or erroneous representation made by 20/20 herein, in this Agreement
or in any schedule (including the Disclosure Schedule) delivered to Capital
Growth or the 20/20 Mergeco pursuant hereto or in any certificate or other
instrument delivered by or on behalf of 20/20 pursuant hereto; (3) any
infringement actions relating to the Trademarks used by 20/20 or any other
loss
arising out of a determination that 20/20 is not entitled to use such Trademarks
or service marks; (4) all Liabilities of 20/20 as of the Closing Date, including
any liabilities listed on Schedule
9.2(a);
and (5)
any and all actions, suits, proceedings, claims, demands, judgments, costs
and
expenses (including reasonable legal fees) arising out of the foregoing (any
one
such item being herein called a “Loss”
and
all
such items being herein collectively called “Losses”);
provided,
however,
that
the aforesaid indemnification shall be limited to the Holdback
Shares.
(b) Capital
Growth and the 20/20 Mergeco jointly and severally agree to indemnify and hold
harmless the 20/20 Stockholders and their respective successors and assigns,
from and against any and all Losses which are caused by or arise out of (1)
any
material breach or default in the performance by Capital Growth or the 20/20
Mergeco of any covenant or agreement of Capital Growth or the 20/20 Mergeco
contained in this Agreement; (2) any material breach of warranty or inaccurate
or erroneous representation made by Capital Growth or the 20/20 Mergeco herein,
in this Agreement or in any schedule delivered to 20/20 pursuant hereto or
in
any certificate or other instrument delivered by or on behalf of Capital Growth
or the 20/20 Mergeco pursuant hereto; and (3) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) arising out of the foregoing.
(c) Any
actions taken or decisions made with respect to the 20/20 Stockholders pursuant
to this Article 10 shall be taken or made by the 20/20 Stockholders’
Representative. No 20/20 Stockholder shall have any individual rights pursuant
to this Article X, and the decision of the 20/20 Stockholders’ Representative
shall be binding upon each 20/20 Stockholder. Any expenses incurred by 20/20
Stockholders’ Representative and its counsel and accountants in connection with
this Agreement shall be the sole responsibility of the 20/20 Stockholders’
Representative; provided however, 20/20 may fund up to $25,000 to 20/20
Stockholders’ Representative from its available cash as of the Closing Date
(which amount shall be deducted from the Merger Consideration). Notwithstanding
the foregoing, to the extent that 20/20 Stockholder’s Representative refunds any
of such monies to Capital Growth prior to the distribution of all of the
remaining Holdback Shares, simultaneously with the final distribution of the
Holdback Shares, Capital Growth shall distribute such additional Transaction
Shares representing the amount refunded (based on a value of $1,000 per
Transaction Share).
-xxxv-
(d) Any
indemnified party seeking indemnification hereunder shall give to the party
obligated to provide indemnification to such indemnified party a notice
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such notice the amount or the
method of computation of the amount of such claim, and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed pursuant hereto or in connection herewith upon which such claim is
based. After the giving of any notice pursuant hereto, the amount of
indemnification to which an indemnified party shall be entitled under this
Article
XI
shall be
determined by the written agreement between the indemnified party and the
indemnifying party or by a final judgment or decree of any Court of competent
jurisdiction.
(e) No
party
hereunder shall be obligated under this Section
9.2
to pay
any amounts for indemnification hereunder relating to a claim to the extent
of
(A) any tax benefit to the indemnified party therefrom, or (B) any insurance
proceeds and any indemnity, contribution or similar payment paid to the
indemnified party or any affiliated entity from any third party with respect
thereto.
9.3 Third
Party Claim.
If any
third person asserts a claim against an indemnified party hereunder that, if
successful, might result in a claim for indemnification against any indemnifying
party hereunder, the indemnifying party shall be given prompt written notice
thereof and shall have the right (a) to participate in the defense thereof
and
be represented, at his or its own expense, by advisory counsel selected by
it,
and (b) to approve any settlement if the indemnifying party is, or will be,
required to pay any amounts in connection therewith. Notwithstanding the
foregoing, if within ten (10) Business Days after delivery of the indemnified
party’s notice described above, the indemnifying party indicates in writing to
the indemnified party that, as between such parties, such claims shall be fully
indemnified for by the indemnifying party as provided herein, then the
indemnifying party shall have the right to control the defense of such claim,
provided that the indemnified party shall have the right (1) to participate
in
the defense thereof and be represented, at his or its own expense, by advisory
counsel selected by it, and (2) to approve any settlement if the indemnified
party’s interests are, or would be, affected thereby, which approval shall not
be unreasonably withheld, conditioned or delayed.
9.4 Offset;
Security
for Indemnification Claims.
(a) All
amounts determined to be owing to Capital Growth for indemnification obligations
of 20/20 pursuant to Section
9.1
shall be
offset against the Holdback Shares, such offset to be either upon the agreement
of Capital Growth and the
20/20
Stockholders’ Representative,
or,
absent such agreement, at the conclusion of the procedures specified in this
Section
9.3.
In the
event Capital Growth is entitled to offset against the Holdback Shares, the
number of Holdback Shares that shall be canceled and no longer deliverable
to
the 20/20 Stockholders shall equal the amount of the indemnification claim
owned
to Capital Growth divided by the fair market value of the Holdback Shares,
with
the fair market value of the Holdback Shares being determined based on an agreed
upon value of $1,000 per Transaction Share for the Holdback Shares. Capital
Growth’s exercise of the offset right contained herein shall not limit any other
remedies Capital Growth has pursuant to this Agreement, at law or in equity,
but
in no event shall any of the 20/20 Stockholders have personal liability to
Capital Growth with respect to this Agreement.
-xxxvi-
(b) On
the
first Business Day after each date set forth under the heading “Release Date” in
the table below (each, a “Release
Date”),
Capital Growth will transfer to the 20/20 Stockholders the number of Holdback
Shares under the heading “Release Amount” in the table below (each, a
“Release
Amount”)
minus
the sum
of (i) the Liabilities of 20/20 existing as of the Closing Date immediately
prior to the Closing which are in excess of the Net Closing Date Liabilities
and
(ii) the number of Holdback Shares equal to the aggregate amount of claims
by
Capital Growth pending on the applicable Release Date divided by the
fair
market value of the Holdback Shares (determined based on the closing price
of
the Holdback Shares on the previous ten (10) Business Days immediately preceding
the applicable Release Date).
With
respect to any pending claims referred to in the preceding sentence, promptly
following resolution of any such claims, the Holdback Shares, if any, which
have
not been offset by Capital Growth in connection with such resolution, and which
would have been offset by Capital Growth if the claim had been resolved prior
to
the date set forth in the first sentence of this paragraph, will be transferred
to the 20/20 Stockholders.
|
Release
Date
|
Release
Amount
|
|
12
months after the Effective Date
|
50%
of the Holdback Shares
|
|
24
months after the Effective Date
|
Remainder
of Holdback Shares, less any Contingent Warrant Shares
|
|
Thereafter,
as and when, but in no event after the fourth anniversary of the
Closing
Date
|
Contingent
Warrant Shares, as such shares are exercised or terminate
|
Notwithstanding
the foregoing, upon the mutual agreement of Capital Growth and the 20/20
Stockholders’ Representative and as contemplated by Section
2.5(b)(1),
Holdback Shares shall be released to the 20/20 Creditors in connection with
the
settlement of claims or payment of Liabilities of 20/20 existing as of the
Closing Date.
-xxxvii-
Capital
Growth shall use its commercially reasonable efforts to cause the Capital Growth
Series B Preferred Stock to be converted to Capital Growth Common Stock on
or
before the first Release Date set forth above.
ARTICLE
X
TERMINATION
10.1 Termination.
(a) A
Party
shall have the right to terminate this Agreement in the event that one of the
conditions precedent to the obligation of such Party to close the transaction
hereunder set forth in Section
10.1
have not
been met by the scheduled Closing Date, as extended by mutual agreement of
the
Parties.
(b) This
Agreement shall terminate if the Closing does not occur by September 30, 2006,
unless such date is extended by mutual agreement of the Parties.
ARTICLE
XI
MISCELLANEOUS
11.1 Notices.
All
notices, requests, consents and other communications hereunder shall be in
writing, shall be addressed to the receiving Party’s address set forth below or
to such other address as a Party may designate by notice hereunder, and shall
be
either (a) delivered by hand, (b) made by facsimile transmission, (c) sent
by
recognized overnight courier, or (d) sent by certified mail, return receipt
requested, postage prepaid.
|
If
to Capital Growth or the 20/20
Mergeco,
to:
|
|
|
|
Capital
Growth Systems, Inc.
00
Xxxx Xxxxxxxx Xxxxx - Xxxxx X
Xxxxxxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxx
X. Xxxxxx
Chief
Executive Officer
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with
a copy to:
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|
|
Xxxxxx
Xxxx & Xxxxxx, LLP
000
X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxxx
X. Xxxxxxxx
Facsimile: (000)
000-0000
E-mail: xxxxxxxxx@xxxxxxxxxx.xxx
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-xxxviii-
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If
to 20/20 or 20/20
Stockholders’ Representative,
to:
|
20/20
Technologies, Inc.
000
Xxxxx Xxxxxx Xxxxx - Xxxxx 000
Xxxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxxx
X. Xxxxx
Chief
Executive Officer
|
|
with
a copy to:
|
|
|
Xxxxxxx
& Xxxxxxxx, Ltd.
000
Xxxx Xxxxxx Xxxxx - Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxxxx
X. Xxxxxxxxx
Facsimile: (000)
000-0000
E-Mail: xxxxxxxxxx@xxxxxxxxxx.xxx
|
All
notices, requests, consents and other communications hereunder shall be deemed
to have been delivered (1) if by hand, at the time of the delivery thereof
to
the receiving party at the address of such party set forth above, (2) if sent
by
facsimile transmission, at the time receipt has been acknowledged by electronic
confirmation or otherwise, (3) if sent by overnight courier, on the next
Business Day following the day such notice is delivered to the courier service,
or (4) if sent by certified mail, on the fifth (5th) Business Day following
the
day such mailing is made.
11.2 Entire
Agreement.
This
Agreement and the other Documents embody the entire agreement and understanding
between the Parties with respect to the subject matter hereof and supersede
all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement
of
any kind not expressly set forth in the Documents shall affect, or be used
to
interpret, change or restrict, the express terms and provisions of this
Agreement.
11.3 Binding
Effect.
This
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, heirs, personal representatives, legal
representatives, and permitted assigns.
The
parties acknowledge that although Xxxxxxx & Xxxxxxxx Ltd. has performed
certain services for the benefit of Capital Growth and affiliates related to
its
financing and other activities, it has not provided any services or rendered
any
advice to Capital Growth or affiliates with respect to the subject matter of
this Agreement.
11.4 Assignment.
Neither
this Agreement, nor any right hereunder, may be assigned by any of the Parties
without the prior written consent of the other Parties.
11.5 Modifications
and Amendments.
The
terms and provisions of this Agreement may be modified or amended only by
written agreement executed by all Parties hereto.
11.6 Waivers.
The
terms and provisions of this Agreement may be waived, or consent for the
departure therefrom granted, only by written document executed by the Party
entitled to the benefits of such terms or provisions. No such waiver or consent
shall be deemed to be or shall constitute a waiver or consent with respect
to
any other terms or provisions of this Agreement, whether or not similar. Each
such waiver or consent shall be effective only in the specific instance and
for
the purpose for which it was given, and shall not constitute a continuing waiver
or consent. No failure or delay by a Party in exercising any right, power or
remedy under this Agreement, and no course of dealing between the Parties
hereto, shall operate as a waiver of any such right, power or remedy of the
Party. No single or partial exercise of any right, power or remedy under this
Agreement by a Party, nor any abandonment or discontinuance of steps to enforce
any such right, power or remedy, shall preclude such Party from any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The election of any remedy by a Party shall not constitute a waiver
of the right of such Party to pursue other available remedies. No notice to
or
demand on a Party not expressly required under this Agreement shall entitle
the
party receiving such notice or demand to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Party giving such notice or demand to any other or further action in any
circumstances without such notice or demand.
-xxxix-
11.7 No
Third Party Beneficiary.
Except
as otherwise provided herein, nothing expressed or implied in this Agreement
is
intended, or shall be construed, to confer upon or give any Person other than
the Parties and their respective heirs, personal representatives, legal
representatives, successors and permitted assigns, any rights or remedies under
or by reason of this Agreement. Notwithstanding the foregoing, the indemnified
entities and persons referred to in Article X are expressly acknowledged to
be
third party beneficiaries of this Agreement.
11.8 Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
11.9 Publicity.
20/20
shall not make, or cause to be made, any press release or public announcement
in
respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of Capital
Growth, except as may be required by Law. Neither Capital Growth nor 20/20
shall
make, or cause to be made, any press release or public announcement in respect
of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of 20/20,
except pursuant to the advice of Capital Growth’s securities law counsel.
Capital Growth and 20/20 shall cooperate in regard to the timing and contents
of
any press release or public announcement which Capital Growth and 20/20 shall
decide to make.
11.10 Governing
Law.
This
Agreement and the rights and obligations of the parties hereunder shall be
construed in accordance with and governed by the Law of the State of Illinois
without giving effect to the conflict of law principles thereof.
11.11 Counterparts;
Facsimile Signatures.
This
Agreement may be executed in any number of counterparts, either manually or
via
facsimile transmission of signatures, each of which shall be deemed an original
but all of which together shall constitute one and the same
agreement.
-xl-
11.12 Headings.
The
descriptive headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation
of
this Agreement.
11.13 Expenses.
Except
as otherwise specified in this Agreement, all costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, whether or not the Closing shall have occurred, including, with
respect to 20/20, expenses related to audit work with respect to 20/20 for
period occurring prior to the Closing which shall be undertake following the
Closing. To the extent such costs and expenses have not been satisfied or
constitute obligations of 20/20 at Closing, such costs shall be a reduction
to
the Merger Consideration.
11.14 Further
Assurances.
At any
time and from time to time after the Closing Date each Party shall execute
and
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation as may be reasonably requested in order to more effectively carry
forth the terms and conditions of this Agreement and the Documents.
11.15 Arbitration.
Any
controversy, dispute or claim arising out of or in connection with this
Agreement shall be settled by final and binding arbitration to be conducted
by
an arbitration tribunal in Chicago, Illinois, pursuant to the rules of the
American Arbitration Association. The arbitration tribunal shall consist of
one
arbitrator. If the parties cannot agree on the arbitrator, the office of the
American Arbitration Association in Chicago, Illinois shall make the necessary
appointment. The decision or award of the arbitrator shall be final, and
judgment upon such decision or award may be entered in any competent Court
or
application may be made to any competent Court for judicial acceptance of such
decision or award and an Order of enforcement. In the event of any procedural
matter not covered by the aforesaid rules, the procedural law of the State
of
Illinois shall govern. Notwithstanding the agreement to arbitrate contained
in
this Section
11.15,
any
party may apply to any Court having jurisdiction to enforce this Agreement
to
seek provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the dispute is otherwise resolved.
11.16 Incorporation
by Reference.
Each
exhibit and schedule to this Agreement is hereby incorporated into this
Agreement by reference thereto, with the same legally binding force and effect
as if such exhibit or schedule were fully set forth herein. any disclosure
made
in this Agreement or in any schedule or any document attached to any schedule
shall be deemed to be a disclosure for all schedules. If the schedules and
exhibits have not been completed prior to the Closing Date, the parties shall
complete such schedules within five (5) business days after the date hereof.
The
schedules shall not reveal any materially adverse conditions not otherwise
disclosed in the Financial Statements.
[Remainder
of Page Left Intentionally Left Blank]
-xli-
IN
WITNESS WHEREOF, the parties hereto have each executed and delivered this
Agreement and Plan of Merger as of the day and year first above
written.
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Capital
Growth Systems, Inc.
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By:
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/s/
Xxxxxx X. Xxxxxx
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Name:
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Xxxxxx
X. Xxxxxx
|
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Title:
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Chief
Executive Officer
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20/20
Merger
Sub, Inc.
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By:
|
/s/
Xxxxxx X. Xxxxxx
|
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Name:
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Xxxxxx
X. Xxxxxx
|
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Title:
|
Chief
Executive Officer
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20/20
Technologies,
Inc.
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By:
|
/s/
Xxxxxxx X. Xxxxx
|
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Name:
|
Xxxxxxx
X. Xxxxx
|
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Title:
|
Chief
Executive Officer
|
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| 20/20 Representative, Inc | ||
| By: | /s/ Xxxxxxx X. Xxxxx | |
| Name: | Xxxxxxx X. Xxxxx | |
| Title: |
Chief
Executive Officer
|
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-xlii-
