AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of the 13th day of August 1999, by and among Dallas Gold and Silver
Exchange, Inc., a Nevada corporation ("Parent"), Xxxxxxxxx Acquisition, Inc., a
Texas corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), Jewel
Cash, Inc., a New York corporation (the "Company"), and (3) the Company's
shareholders identified on the signature page below (collectively the
"Shareholders" and individually a "Shareholder").
WITNESSETH:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of the Company (the "Shares") (such term and other capitalized
terms used herein being defined either in Article 13 or at the places in this
Agreement indicated in Article 13); and
WHEREAS, Parent and the Shareholders deem it advisable and in their
respective best interests to effect the merger of the Company with and into
Merger Sub, all on the terms and subject to the conditions set forth herein; and
WHEREAS, Parent and the Shareholders intend that this Agreement be
approved and adopted by all relevant parties as a plan of reorganization within
the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, for and in consideration of the premises, and the
mutual covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. THE MERGER
1.1. The Merger. At the Effective Time, as defined in Paragraph 3.5,
upon the terms and subject to the conditions set forth herein, and in accordance
with the respective corporate Laws of the states of incorporation of Merger Sub
and the Company (the "Corporate Laws", the Company shall be merged with and into
Merger Sub, the separate existence of the Company shall cease, and Merger Sub
shall continue as the surviving corporation (the "Merger"). Merger Sub after the
Merger is sometimes hereafter referred to as the "Surviving Corporation."
1.2. Effect of the Merger. At the Effective Time, the Surviving
Corporation shall continue its corporate existence under the Laws of its state
of incorporation and shall succeed to all rights, privileges, immunities,
franchises and powers, and be subject to all duties, liabilities, debts and
obligations, of the Company in accordance with the provisions of the Corporate
Laws.
2. THE SURVIVING CORPORATION
2.1. Articles. The articles of incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation until thereafter amended in accordance with
applicable Law and such articles of incorporation.
2.2. Bylaws. The bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable Law, the articles of
incorporation of such Surviving Corporation and such bylaws.
2.3. Board of Directors. The directors of Merger Sub immediately
prior to the Effective Time shall constitute the initial board of directors of
the Surviving Corporation, each of such persons to serve until his or her
successor is duly elected and qualified.
2.4. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall constitute the initial officers of the Surviving
Corporation, each of such officers to serve until his or her successor is duly
qualified.
3. MERGER CONSIDERATION; CONVERSION
3.1. Company Shares.
(a) At the Effective Time, by virtue of the Merger, and without any action
on the part of the Shareholders, all of the Shares issued and outstanding
immediately prior to the Effective Date shall be canceled, retired and converted
into and become the right to receive the Merger Consideration described in this
Article 3.
(b) At the Closing, as defined in Paragraph 3.5, the Shareholders shall
surrender the certificates representing the Shares, accompanied by blank stock
powers and all necessary transfer taxes and other revenue stamps, to Merger Sub,
and Merger Sub shall deliver the Merger Consideration to the Shareholders.
3.2. Merger Consideration. The "Merger Consideration" is 200,000
shares of Parent's common stock, par value $.01 per share ("Parent Stock"). The
Merger Consideration shall be subject to appropriate adjustment in the event of
a stock split, reverse stock split, stock dividend or recapitalization
subsequent to the date of this Agreement applicable to shares of Parent Stock
held of record on or before the Effective Time.
3.3. Allocation. The Merger Consideration payable at the Closing
shall be allocated among the Shareholders in accordance with the percentages set
forth opposite each such Shareholder's name next to his signature set forth
below.
3.4. Other Shares. Each share of common stock of the Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the Surviving
Corporation.
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3.5. Closing. Subject to termination of this Agreement pursuant
to Article 11, the consummation of the transactions contemplated in this
Agreement (the "Closing") shall take place at the offices of the Company, 000
Xxxx Xxxxx Xxxx, Xxxxx 000, Xx. Xxxxxxxx, Xxxxx Xxxxxxxx, 00000 at 10:00 a.m.,
Eastern time, on the later of (a) Xxxxxx 00, 0000, (x) ten (10) Business Days
after the date upon which Parent has received the Disclosure Memorandum, as
defined in Paragraph 4.11, from the Company, or (c) the first business day after
all the conditions set forth in Articles 8 and 9 have been satisfied or waived.
On the date of the Closing, the Company and Merger Sub shall file the documents
required by the Corporate Laws to effect the Merger. The Merger shall become
effective at the close of business on the date of the Closing (the "Effective
Time").
4. ADDITIONAL AGREEMENTS
4.1. Expenses. Except as otherwise provided herein, all expenses
incurred by Merger Sub and Parent in connection with the negotiations among the
parties, and the authorization, preparation, execution and performance of this
Agreement and the transactions contemplated hereby shall be paid by Merger Sub
or Parent, as the case may be. Except as otherwise provided herein, all expenses
incurred by the Shareholders and the Company in connection with the negotiations
among the parties, and the authorization, preparation, execution and performance
of this Agreement and the transactions contemplated hereby shall be paid by the
Shareholders and shall not be paid from any of the assets of the Company.
4.2. Brokers. Each party hereby represents and warrants to the others
that no broker or finder has acted on its behalf in connection with this
Agreement or the transactions contemplated herein and agrees to indemnify the
other parties from and against any and all claims or demands for commissions or
other compensation by any broker, finder or similar agent claiming to have been
employed by or on behalf of such party.
4.3. Publicity. Except as required by applicable Law, as defined
in Paragraph 13.32, and except for routine communications with the shareholders
of Parent, all press releases and other public announcements respecting the
subject matter hereof shall be made only with the mutual written agreement of
Parent and the Shareholders, provided, however, that any party hereto may make
any disclosure required to be made under applicable Law or stock exchange or
NASDAQ rule if such party has determined in good faith that it is necessary to
do so and used its best efforts, prior to the issuance of the disclosure, to
provide the other parties a copy of the proposed disclosure and to discuss the
proposed disclosure with the other parties.
4.4. Access and Inspection. The Shareholders and the Company shall
provide Parent, Merger Sub and their authorized representatives full access
during normal business hours from and after the date hereof until the Closing to
the books and records of the Company for the purpose of making such
investigation as they may reasonably desire, and the Shareholders and the
Company shall furnish such information concerning the Company as they may
reasonably request. The Shareholders and the Company shall assist Parent and
Merger Sub in making such investigation and shall cause their counsel,
accountants, consultants and other non-employee representatives to be reasonably
available for such purposes. No investigation made heretofore or hereafter by
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Merger Sub or Parent shall limit or affect the representations, warranties,
covenants and indemnities of the Shareholders hereunder.
4.5. Cooperation. The parties shall cooperate fully with each other
and with their respective counsel and accountants in connection with any steps
required to be taken as part of their respective obligation hereunder, and all
parties shall use commercially reasonable efforts to consummate the transactions
contemplated herein and to fulfill their respective obligations hereunder,
including, without limitation, causing to be fulfilled at the earliest practical
date the conditions precedent to the obligations of the parties to consummate
the transactions contemplated hereby. From time to time and at any time, at the
Surviving Corporation's request, whether on or after the date hereof, and
without further consideration, the Shareholder shall, at their expense, execute
and deliver such further documents and instruments of conveyance, assignment,
and transfer and shall take such further reasonable actions as may be necessary
or desirable, in the opinion of the Surviving Corporation, in connection with
the consummation of the transactions described herein.
4.6. Covenant Against Competition.
(a) In order to induce Merger Sub and Parent to enter into this Agreement
and to issue the Parent Stock as provided herein, each Shareholder agrees that,
for a period of three years commencing on the date of the Closing, he will not,
without the prior written consent of the Surviving Corporation, for his own
account or jointly with another, directly or indirectly, for or on behalf of any
Person, as principal, agent or otherwise:
i) own, control, manage or otherwise participate in the ownership,
control or management of a business engaged within the Territory, as
defined in Paragraph 13.57, in the business of liquidation of jewelry for
others (the "Business").
ii) solicit, call upon or attempt to solicit the patronage of any
Person that is or was a customer of the Company at any time during the four
year period prior to, the date of the Closing, for the purpose of obtaining
the patronage of any such Person in connection with the Business except as
an employee or on behalf of the Surviving Corporation or the Surviving
Corporation's Affiliates; or
iii) solicit or induce, or in any manner attempt to solicit or induce,
any person employed by Parent, the Company or the Surviving Corporation to
leave such employment, whether or not such employment is pursuant to a
written contract and whether or not such employment is at will.
(b) Notwithstanding anything herein to the contrary, (i) it shall not be a
breach of the covenants contained in subparagraph (a) above for any Shareholder
to own not more than 4.9% of the share capital of any corporation whose shares
are publicly traded, and (ii) the covenants described in this Paragraph 4.6
shall apply only if the Merger is consummated.
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(c) Although the parties have, in good faith, used their best efforts to
make the provisions of this Paragraph 4.6 reasonable in both geographic area and
in duration, and it is not anticipated, nor is it intended, by any of the
parties hereto that a court of competent jurisdiction would find it necessary to
reform the provisions hereof to make it reasonable in both geographic area and
in duration, or otherwise, the parties understand and agree that if a court of
competent jurisdiction determines it necessary to reform the scope of this
Paragraph 4.6 in order to make it reasonable in either geographic area or
duration, or otherwise, damages, if any, for a breach hereof, as so reformed,
would be deemed to accrue to the Surviving Corporation as of and from the date
of such a breach only insofar as the damages for such breach relate to an action
which occurred within the scope of the geographic area and duration as so
reformed.
4.7. Parent's Public Documents and Access to Information. Parent
has delivered to the Company and the Shareholders a copy of (i) Parent's Annual
Report on Form 10-KSB for the year ended December 31, 1998, (ii) the Quarterly
Reports on Form 10-QSB filed by Parent with respect to its first two quarters of
fiscal 1999, and (iii) all other filings (other than preliminary registration
and preliminary proxy statements) made by Parent with the Securities and
Exchange Commission ("SEC") between January 1, 1999 and the date hereof
(collectively, the "SEC Documents"). Parent agrees to provide to the Company and
the Shareholders a copy of each other document filed with the SEC between the
date hereof and the date of the Closing (other than preliminary material)
("Current SEC Documents"). In addition to the SEC Documents and the Current SEC
Documents, Parent will provide, through its Chief Financial Officer, the Company
and each Shareholder with opportunities to become familiar with the business,
financial condition, management, prospects and operations of Parent, including
reasonable opportunities to ask questions of, receive answers from and obtain
information regarding Parent and its business which is material to their
investment decision.
4.8. Legending of Parent Stock. There shall be placed on all
certificates representing the shares of Parent Stock issued to the Shareholders
pursuant to this Agreement all appropriate restrictive legends referencing the
restrictions imposed by applicable securities Laws. Each Shareholder hereby
acknowledges and agrees that the Parent Stock shall be subject to volume
limitations or other restrictions provided in Rule 144 (or any successor
provision thereto) promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each Shareholder agrees to comply with any applicable
restrictions of Rule 144, and further agrees that he will not offer to sell,
sell or otherwise dispose of any of the Parent Stock issued to him except
pursuant to an effective registration statement or another exemption from the
registration requirements of the Securities Act, and in compliance with all
applicable requirements of Rule 144. With respect to any such sale or
disposition, each Shareholder agrees to furnish to the Surviving Corporation or
Parent upon request such information as its counsel may deem necessary to assure
that such sale or disposition is made in full compliance with this Agreement,
such rule and applicable federal and state securities Laws.
4.9. Non-Solicitation of Third Party Offers. Shareholders and the
Company agree that neither any Shareholder or any of his relatives, affiliates,
heirs or representatives, nor the Company, or any of their respective officers,
directors, management employees, Affiliates, related persons or entities or
agents, will (a) negotiate or discuss with any other Person this Agreement or
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the terms and conditions contained herein, (b) negotiate or discuss with any
other Person any other transaction involving a merger of the Company, or the
sale of any shares in or assets of the Company (except for sales of inventory in
the ordinary course of business) or any other business combination involving the
Company, (c) reveal the terms of this Agreement to any Person except for the
purpose of carrying out the transactions contemplated herein, or (d) solicit,
encourage, consider, entertain or accept any offer, bid or proposal from any
other Person respecting any transaction involving a merger of the Company, or
the sale of any shares in or assets of the Company (except for sales of
inventory in the ordinary course of business) or any other business combination
involving the Company. If the Company or any Shareholder receives a proposal of
the kind described in the preceding clause (d) prior to the date of the Closing,
then the Company or such Shareholder (as the case may be) shall immediately
notify Parent of the receipt of such proposal and shall promptly provide Parent
with a copy of such proposal (or if such proposal is not in writing, a written
summary of its terms).
4.10. Confidentiality. In connection with the negotiation of this
Agreement, a party hereto (the "Disclosing Party") may disclose Confidential
Information, as defined below, to one of the other parties hereto (the
"Disclosee"). Each Party agrees that if the transactions contemplated herein are
not consummated, it or he will return to the Disclosing Party all documents and
other written information furnished to it or him. Each party further agrees to
maintain the confidentiality of any and all Confidential Information of a
Disclosing Party and not disclose any Confidential Information to any Person or
use such Confidential Information for financial gain or in any manner adverse to
the Disclosing Party; provided, however, the foregoing obligations shall not
apply to (i) any information which was known by the Disclosee prior to its
disclosure by the Disclosing Party; (ii) any information which was in the public
domain prior to the disclosure thereof; (iii) any information which comes into
the public domain through no fault of the Disclosee; (iv) any information which
is disclosed to the Disclosee by a third party, other than an Affiliate, having
the legal right to make such disclosure; or (v) any information which is
required to be disclosed by Order of any Forum. For purposes of this Paragraph
4.10, "Confidential Information" shall mean any and all technical, business, and
other information which is (a) possessed or hereafter acquired by a Disclosing
Party and disclosed to the Disclosee and (b) derives economic value, actual or
potential, from not being generally known to Persons other than the Disclosing
Party, including, without limitation, technical or nontechnical data,
compositions, devices, methods, techniques, drawings, content, inventions,
processes, financial data, financial plans, plans, lists of actual or potential
customers or suppliers, information regarding the business plans and operations
of the Disclosing Party, and the existence of discussions and negotiations
between the parties hereto relating to the terms hereof; provided, however, it
shall not include confidential business information that does not constitute a
trade secret under applicable Law after the fifth anniversary of the date
hereof. If the transactions contemplated herein are consummated, "Confidential
Information" of Parent shall be deemed to include all Confidential Information
of Company and Surviving Corporation, and the Shareholders shall be subject to
the obligations of non-use and non-disclosure contained in this Agreement with
respect to all of such information. The provisions of this Paragraph 4.10 shall
survive any termination of this Agreement for any reason.
4.11. Disclosure. The Schedules attached hereto set forth certain
supplemental information to this Agreement and such information shall only
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modify or supplement those specific provisions hereof which refer to such
Schedules or are referred to therein. As soon as reasonably practical, the
Shareholders and the Company shall prepare and deliver to Parent a disclosure
memorandum (the "Disclosure Memorandum") setting forth any and all exceptions or
supplemental information to the representations and warranties contained in
Article 5 of this Agreement.
4.12. Intentionally omitted.
4.13. Nasdaq Listing. Parent will secure listing for the 200,000
shares of Parent Stock to be issued as the Merger Consideration at the Closing
on the National Association of Securities Dealers, Inc. Automated Quotation
System/Small Cap Market, or on such other exchange, if any, upon which the
Parent Stock may from time to time be listed or traded.
4.14. Registration Rights. Parent agrees to provide Shareholders with
the "piggyback" registration rights set forth on Schedule 4.14 with respect to
the 200,000 shares (as such number may be adjusted for any of the events set
forth in Section 3.2) of Parent Stock issued at the Closing.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS
The Shareholders and the Company have delivered, or will with the
Disclosure Memorandum deliver, to Parent certain documents and materials
pursuant to this Agreement, and all such documents and materials are or will be
true, correct and complete as of the date furnished, and any and all
modifications or amendments thereto have been or will be delivered to Parent
with the Disclosure Memorandum. At all times prior to and including the date of
the Closing, the Shareholders and the Company shall promptly provide Parent with
written notification of any event, occurrence or other information of any kind
whatsoever which affects or may affect, the continued truth, correctness or
completeness of any representation or warranty made in this Agreement or any
information contained in the Disclosure Memorandum. To induce Merger Sub and
Parent to enter into and perform this Agreement, the Company and each of the
Shareholders jointly and severally represent and warrant to Merger Sub and
Parent as follows:
5.1. Organization, Authority and Qualifications.
(a) The Company is a corporation duly organized and validly existing
under the Laws of the State of Delaware. The Company has offices and places
of business at the locations specified in the Disclosure Memorandum. The
Company has full corporate power and authority and is entitled to own or
lease its properties and to carry on its business as and in all places
where such business is conducted and such properties are owned or leased.
The Company is duly qualified as a foreign corporation to do business and
is in good standing in all the jurisdictions where such qualification is
necessary. The Shareholders have previously furnished or will deliver the
Disclosure Memorandum to Parent with true, correct and complete copies of
the articles of incorporation and bylaws of the Company, as amended to
date. The Shareholders have delivered or will deliver the Disclosure
Memorandum to Parent with true, correct and complete copies of (i) the
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minutes and other similar records of meetings of the shareholders of the
Company and its board of directors, which contain all records of meetings
and actions taken in lieu thereof of the Company's board of directors and
shareholders and show all corporate actions taken in lieu by the directors
and shareholders of the Company, and any committees of the board of
directors, and (ii) its share transfer records, which reflect fully all
issuances, transfers and redemptions of the Company's shares since the date
of its incorporation.
(b) The Company has the full right, power, and authority to execute
and deliver this Agreement and any other agreements or instruments
contemplated by this Agreement ("Other Agreements") to which it is a party
and to perform and comply with this Agreement and the Other Agreements to
which it is a party. This Agreement and the Other Agreements to which the
Company is a party have been duly and validly executed and delivered by the
Company and constitute the valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms.
5.2. Ownership of Shares; Subsidiaries.
(a) The Company has a total authorized share capital as set forth in
the Disclosure Memorandum; all of the issued and outstanding Shares are
owned of record and beneficially by the Shareholders as set forth in the
Disclosure Memorandum. All of the Shares are duly authorized, validly
issued, fully paid and nonassessable and were authorized, offered, issued
and sold in accordance with all applicable securities and other Laws and
all rights of the Company's shareholders and other Persons. The articles of
incorporation of the Company have not provided and do not provide for
preemptive rights in favor of any person. There are no outstanding
securities convertible into the share capital or rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements or
arrangements providing for the issuance (contingent or otherwise) of, or
any Actions relating to, the share capital of the Company. There are no
voting trusts, proxies or other agreements or understanding with respect to
the voting of the share capital of the Company. The Company is not subject
to any obligation to repurchase or otherwise acquire or retire any of its
share capital, and the Company has no liability for dividends declared or
accrued, but unpaid, with respect to its share capital. The Company has not
purchased or redeemed any of its share capital.
(b) The Company does not own and has no interest, direct or indirect,
or any commitment to purchase or otherwise acquire, any share capital or
other equity interest, direct or indirect, in any other Person, except as
set forth in the Disclosure Memorandum. All such interests so set forth are
owned of record and beneficially by the Company and are duly authorized,
validly issued, fully paid and nonassessable, and were authorized, offered,
issued and sold in accordance with all applicable securities and other
Laws.
(c) The Shareholders are the owners of the Shares, and the Company is
the owner of all investments required to be disclosed under Paragraph
5.2(b), free and clear of any and all Liens of any kind whatsoever. There
are no outstanding contracts, demands, commitments or other agreements or
arrangements under which Shareholders or the Company are or may become
obligated to sell, transfer or assign any of the Shares or such
investments.
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5.3. Capacity; Inconsistent Obligations.
(a) Each Shareholder has the full right, power and authority to
execute and deliver this Agreement and the Other Agreements to which he is
a party and to perform and comply with this Agreement and the Other
Agreements to which he is a party. This Agreement and the Other Agreements
to which any Shareholder is a party have been duly and validly executed and
delivered by such Shareholder and constitute the valid and legally binding
obligations of such Shareholder, enforceable in accordance with their
respective terms.
(b) Neither the execution and delivery of this Agreement and the Other
Agreements to which any Shareholder or the Company is a party, nor the
consummation of the transactions contemplated herein or therein will (i)
result in a violation of the Company's articles of incorporation or bylaws,
any Law or Order or (ii) result in a breach of, conflict with or default
under any term or provision of any indenture, note, mortgage, bond,
security agreement, loan agreement, guaranty, pledge, or other instrument,
contract, agreement or commitment to which, with respect to clauses (i) and
(ii), either the Company or any Shareholder is a party or by which either
of them or any of their respective assets and properties, including,
without limitation, the Shares, is subject or bound; nor will such actions
result in (w) the creation of any Lien on any of the Shares or any of the
Company's assets or properties, (x) the acceleration or creation of any
obligation of the Company, (y) the forfeiture of any material right or
privilege of the Company, or (z) the forfeiture of any material right or
privilege of any Shareholder which may affect such Shareholder's ability to
perform under this Agreement.
5.4. Consents. The execution and delivery by each Shareholde
and the Company of this Agreement and the Other Agreements to which either is a
party, the consummation of the transactions contemplated herein and therein, and
the performance by each Shareholder and the Company hereunder and thereunder
does not (a) require the consent, approval or action of, or any filing with or
notice to, any Government or other Person except such as have been obtained,
which are listed in the Disclosure Memorandum, or (b) impose any other term,
condition or restriction on Merger Sub or the Surviving Corporation pursuant to
any business combination or takeover Law.
5.5. No Violation; Compliance with Laws. The Company is not in
default under or in violation of (a) its articles of incorporation or bylaws or
(b) any Order. The operations of the Company and its predecessors have been
conducted in all material respects in accordance with all applicable Laws.
Neither the Company nor any Shareholder has received any notification of any
asserted past or present failure by the Company to comply with any applicable
Law.
5.6. Possession of Franchise, Licenses, Etc. The Company possesses
all franchises, certificates, licenses, permits and other authorizations from
Governments and self-regulatory organizations, free from burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
its properties and assets and the conduct of its business, and the Company is
not in violation of any thereof in any material respect. The Disclosure
Memorandum sets forth a true and complete list of such licenses, permits and
other authorizations and indicates their dates of issuance, purpose and
expiration date (if any).
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5.7. Financial Statements. Prior to the date hereof, the
Shareholders have delivered to Parent copies of (i) the Company's financial
statements and related documents as indicated on Schedule 5.7 (collectively, the
"Financial Statements"), and (ii) the Company's most recent Balance Sheet as at
the date (the "Reference Date") set forth on Schedule 5.7 (the "Reference
Balance Sheet"). The Financial Statements are true, correct and complete, have
been prepared in accordance with GAAP consistently applied, present fairly the
financial condition of the Company as at the respective dates thereof and the
results of the Company's operations and cash flows for the periods then ended,
and are consistent with the books and records of the Company, which are true,
correct and complete.
5.8. Liabilities. The Company has no Liability, as defined in
Paragraph 13.33, except (i) those reflected on the Reference Balance Sheet, (ii)
Liabilities incurred in the ordinary course of business since the Reference Date
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of representation or warranty,
tort, infringement or violation of Law), and (iii) as may be set forth on the
Disclosure Memorandum.
5.9. Title to Properties. The Company has good and marketable title to
all properties and assets reflected in the Reference Balance Sheet, except
inventories and other material assets which have been disposed of in the
ordinary course of business since the date thereof, and all other properties and
assets necessary to conduct its business as currently being conducted and as
conducted during the periods covered by the Financial Statements (other than
leased property), free and clear of any and all Liens, except as may be set
forth in the notes to the Reference Balance Sheet.
5.10. Receivables. All notes and accounts receivable shown on
the Reference Balance Sheet and all such receivables now held by the Company are
valid and collectible obligations and were not and are not subject to any offset
or counterclaim, except for amounts reserved against such receivables which are
reflected on the Reference Balance Sheet and with respect to notes and accounts
receivable arising after the Reference Date and now outstanding, except for a
percentage thereof equal to the percentage which said reserved amounts on the
Reference Balance Sheet constituted of the aggregate of notes and accounts
receivable on the Reference Balance Sheet.
5.11. Inventories; Services.
(a) The inventories of the Company are merchantable and conform in all
respects to all orders, contracts or commitments for such goods and
customary trade standards for merchantable goods. Except as set forth on
the Disclosure Memorandum, none of such items of inventory is slow moving,
obsolete or below standard quantity. Each item of inventory reflected on
the Reference Balance Sheet and the books and records of the Company is
valued at the lower of cost or market in accordance with GAAP.
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(b) All products held by the Company for sale to its customers meet
the standards of (i) all applicable Laws pertaining to such products and
(ii) all contractual commitments and all express or implied warranties made
by the Company to its customers. The Company has no Liability, and there is
no basis for any Action, for repair or replacement of any products sold or
services performed by the Company or other damages in connection therewith,
except for Liabilities and Actions fully covered by the reserve, on the
Reference Balance Sheet. None of the products sold or otherwise distributed
or services performed by the Company or its predecessors prior to the date
hereof shall have been, nor has the Company or its predecessors received
any notice claiming the same to be, hazardous or unsafe in design,
specification, material, content, function or otherwise.
5.12. Personal Property.
(a) All of the machinery, equipment, vehicles, and other items of
tangible personal property which are owned or leased by the Company are in
good condition and repair, subject to normal wear and tear, suited for the
use intended and are and have been operated in conformity in all material
respects with all applicable Laws There are no material defects or
conditions which would cause such tangible personal property to be or
become inoperable or unsafe.
(b) To the best of each Shareholder's and the Company's knowledge, all
lessors of any machinery, equipment or other tangible personal property
leased by the Company have fully and completely performed and satisfied
their respective duties and obligations under such leases, and the Company
has not brought or threatened any Action against any such lessor for
failure fully and completely to perform and satisfy its duties and
obligations thereunder.
5.13. Real Property.
(a) The Company has good title to all of the real property reflected
on the Reference Balance Sheet as owned by the Company (collectively, the
"Real Property"), free and clear from all defects and Liens, except as may
be set forth in the notes to the Reference Balance Sheet.
(b) All of the Real Property is free from any development, use or
occupancy restrictions, except those imposed by applicable Law, and from
all special taxes or assessments, except those generally applicable to
other properties in the tax districts in which the Real Property is
located. No options have been granted to others to purchase, lease or
otherwise acquire any interest in the Real Property or any part thereof.
The Company has the exclusive right of possession of each tract or parcel
comprising its Real Property.
(c) The present use, occupancy and operation of the Real Property, and
all aspects of the Improvements, as defined in Paragraph 13.28, to the Real
Property are in compliance in all material respects with all, and not in
violation of any, Laws and with all private restrictive covenants of
11
record, and no Shareholder has knowledge of any proposed change therein
that would affect any of the Real Property or its use, occupancy or
operation. There exists no conflict or dispute with any Government or other
Person relating to any Real Property or the activities thereon. No portion
of the Real Property is subject to any classification, designation or
preliminary determination of any Government or pursuant to any Law which
would restrict the use, development, occupancy or operation of the Real
Property in connection with the Company's business in any material respect.
All Improvements are in good condition and repair, suited for the operation
of the Company's business.
(d) Neither the Company nor any other Person has caused any work or
improvements to be performed upon or made to any of the Real Property for
which there remains outstanding any payment obligation that would or might
serve as the basis for any Lien in favor of the Person who performed the
work.
(e) All requisite certificates of occupancy and other permits and
approvals required with respect to the Improvements and the use, occupancy
and operation thereof have been obtained and paid for and are currently in
effect and free of restrictions.
5.14. Leased Real Property. Each parcel or tract of real property
which is used by the Company in its business and does not constitute the Real
Property is subject to a lease or sublease to which the Company is a party
(individually, a "Real Property Lease"). All such Real Property Leases are valid
and in full force and effect in accordance with their terms. The Shareholders
have furnished, or will with the Disclosure Memorandum furnish, Parent with
true, correct and complete copies of all written Real Property Leases including
any and all modifications thereof. There is not under any of the Real Property
Leases (a) any default by the Company, or any event of default or event which
with notice or lapse of time, or both would constitute a default by the Company
and in respect of which the Company has not taken adequate steps to prevent a
default on its part from occurring or (b) to the knowledge of the Company or any
Shareholder, any existing default by any other party to any Real Property Lease,
or event of default or event which with notice or lapse of time, or both, would
constitute a default by any other party to any Real Property Lease.
5.15. Ability to Conduct Business and Intellectual Property Rights.
The Company owns or validly licenses the right to use all technology,
proprietary information, know-how, ideas (patented or unpatented), data,
licenses, customer lists, processes, formulas, trade secrets, telephone numbers,
fax numbers, computer software, computer programs, designs, inventions,
trademarks and service marks, trademark and service marks registrations and
applications therefor, registered and common law copyrights, and registered
copyright applications, trade names (whether or not registered or registrable),
service marks, service xxxx registrations and applications therefor, Internet
domain names and web sites (collectively, the "Proprietary Rights") necessary to
conduct its business as its business is presently being conducted. The
Disclosure Memorandum sets forth a complete and correct list (including, where
applicable, registration numbers and dates of filing, renewal and termination)
of all Proprietary Rights. Company has exercised reasonable efforts to protect
its Proprietary Rights. Except as reflected on the Disclosure Memorandum, no
Consent of any Person will be required for the use of the Proprietary Rights
after the consummation of the Merger contemplated hereby and the transactions
hereunder will not result in any breach of any agreement relating to any
Proprietary Rights. No claim or opposition has been asserted by any Person to
the ownership of or Company's right to use any of the Proprietary Rights or
challenging or questioning the validity or effect of any license or agreement
relating thereto, and there is no valid basis for any such claim or assertion.
Each of the Proprietary Rights is valid and subsisting, has not been canceled,
12
abandoned or otherwise terminated and, if applicable, has been duly asserted,
registered and filed. The Proprietary Rights owned by Company are owned free and
clear of all Liens. The Surviving Corporation's use of the Proprietary Rights
will not, and the conduct of the business as presently conducted does not,
infringe on or violate the rights of any other Person. No proceedings have been
instituted, are pending or threatened or are, to the knowledge of the
Shareholders or Company, contemplated that challenge or oppose the rights of
Company with respect to any of the Proprietary Rights. Company has not received
any notice or inquiry from any Person of any alleged infringement by Company of
any intellectual property right. Company has not given and is not bound by any
agreement of indemnification in connection with any Proprietary Rights or
Product or service sold or performed by it. Set forth on the Disclosure
Memorandum is a true, correct and complete list of all confidentiality
agreements and all other contracts, royalty agreements, licenses or other
understandings or arrangements entered into relating to the Proprietary Rights
and all such contracts are in full force and effect.
5.16. Contracts.
(a) All of the Company Contracts, as defined in Paragraph 13.8, have
been entered into in the ordinary course of the Company's business on
commercially reasonable terms, are valid and enforceable in all material
respects in accordance with their terms, are in full force and effect, and
will continue to be valid and enforceable and in full force and effect on
identical terms following the consummation of the transactions contemplated
herein. None of the Company Contracts is likely to result in a loss to the
Company upon completion of performance, and all of the Company Contracts
can be fulfilled or performed by the Company in accordance with their
respective terms without undue or unusual expenditures of money or effort.
All of the Company Contracts will be listed on the Disclosure Memorandum.
True, correct and complete copies of all Company Contracts have been
delivered or will with the Disclosure Memorandum be made available to
Parent.
(b) There are no existing material defaults, events of default or
events which, with the giving of notice or lapse of time or both, would
constitute a material default by the Company under any Company Contract. No
event has occurred which may hereafter give rise to right of termination,
acceleration, damages or any other remedy under any Company Contract.
5.17. Insurance. The Company has obtained and maintains insurance
policies which provide adequate coverage to insure the assets, properties and
business of the Company against such risks and in such amounts as are prudent
and customary, and all such policies are in force and effect. All premiums due
on such policies have been paid, and the Company has not received any notice of
cancellation with respect thereto. As of the date hereof, the Company does have
any Liability for premiums or for retrospective premium adjustments for any
period prior to the date hereof. True, correct and complete copies of all such
insurance policies have been delivered to Parent prior to the date hereof or
will be made available with the Disclosure Memorandum.
13
5.18. Litigation; Contingencies. Except as may be set forth in the
Disclosure Memorandum, there are no Actions pending or threatened against, by or
affecting the Company or the Shares which could have an adverse effect on the
Company or the operation of the Company's or the Surviving Company's business
after the Closing or prevent or impede the transactions contemplated by this
Agreement. There are no unsatisfied judgments against the Company, any
Shareholder or any of the Company's predecessors or any other Orders to which
the Company, any Shareholder or any of the Company's assets and properties are
subject.
5.19. Taxes. The Company and any entity eligible or required to
file a consolidated or combined Tax return with the Company (individually, an
"Affiliated Entity" and collectively, the "Affiliated Entities"), has duly and
timely filed all federal, state, municipal, local and foreign, if any, Tax
returns and reports (including returns for estimated Taxes), and all reports and
returns of all other Governments having jurisdiction with respect to all Taxes,
as defined in Paragraph 13.56, (including, without limitation, consolidated or
combined Tax returns of some or all of the Company and the Affiliated Entities);
all such Tax returns and reports show the correct and proper amount due; and the
Taxes shown on all Tax returns and reports and all Tax assessments received by
the Company or any Affiliated Entity have been paid to the extent that such
Taxes or estimates are due. All Taxes imposed on the Company and its Affiliated
Entities by any Government and all deposits in connection therewith required by
applicable Law, and all interest and penalties thereon, which are due and
payable by the Company for all periods through the date hereof have been paid in
full, and adequate reserves for all other Taxes, whether or not due and payable,
and whether or not disputed, have been set up on the books of the Company, and
such reserves will be adequate to pay all Taxes of the Company for all periods
through the date of the Closing. There is not now any proposed assessment
against the Company or any Affiliated Entity of additional Taxes of any kind.
The Company is not a party to any Tax sharing or Tax allocation agreement,
understanding, arrangement, commitment or tolling agreement. There is no dispute
or Action concerning any Tax Liability of the Company claimed or raised by a
Government in writing.
5.20. Employment and Labor Matters.
(a) To the best of the Company's and each Shareholder's knowledge, no
employee, agent, consultant or independent contractor who performs services
on a regular basis for the Company plans to discontinue such relationship
with the Company after the Closing.
(b) Except as may be set forth on the Disclosure Memorandum, the
Company is not a party to any agreement of any kind which deals with wages,
conditions of employment, benefits or other matters affecting the
employer/employee relationship with any union, labor organization or
employee group. There are no controversies pending, or to the best of the
Company's and each Shareholder's knowledge threatened, between the Company
and any union, labor organization or employee group representing, or
seeking to represent, any of its employees, and there has been no attempt
by any union, labor organization or employee group to organize any of the
Company's employees at any time in the past five years. The Company has
substantially complied with all applicable Laws relating to wages, hours,
health and safety, payment of social security withholding and other taxes,
maintenance of workers' compensation insurance, labor and employment
relations and employment discrimination.
5.21. Employee Benefit Matters.
(a) Except as set forth in the Disclosure Memorandum, the Company
is not obligated to provide, directly or indirectly, any benefits for
employees, including pension, bonus, medical, insurance, profit
sharing or any other employee benefits, under any practice,
commitment, arrangement, agreement or Law. Except as set forth in the
Disclosure Memorandum, the Company does not, and has never, sponsored,
maintained or contributed to any employee pension benefit plan, within
the meaning of Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). The Company is not required to
contribute, and has never been required to contribute, to any
multi-employer plan within the meaning of Section 3(37)(A) of ERISA.
(b) Except as described in the Disclosure Memorandum, the Company
does not sponsor or contribute to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA. The Disclosure Memorandum
lists each employee welfare benefit plan maintained by the Company or
to which the Company contributes or is required to contribute (the
"ERISA Plans"). Each of the ERISA Plans has been operated and
administered in all material respects in accordance with applicable
Laws, including but not limited to, ERISA and the Code. Neither the
Company nor the Shareholders nor any of the directors, officers,
employees or agents of the Company, nor to the knowledge of the
Company or the Shareholders, any "party in interest" or "disqualified
person" as such terms are defined in Section 3(14) of ERISA and
Section 4975 of the Code, has been engaged in or been a party to any
"prohibited transaction" with respect to the Plans as such term is
defined in Section 406 of ERISA or Section 4975 of the Code. Any ERISA
Plan that is a group health plan within the meaning of Section 607(1)
of ERISA and Section 4980B of the Code is in compliance with the
continuation coverage requirements of Section 601 of ERISA and Section
4980B of the Code. There are no pending or, to the knowledge of the
Company or the Shareholders, threatened claims by or on behalf of any
of the ERISA Plans, by any employee or beneficiary covered under such
ERISA Plan or by any agency or governmental entity or otherwise
involving any such ERISA Plan or any of its fiduciaries (other than
for routine claims for benefits). The Company has not entered into any
pay arrangements, plans or programs which are ERISA Plans. True copies
of all ERISA Plans together with related trusts, insurance contracts,
summary plan descriptions, annual reports and Form 5500 filings for
the past three years, have been or will be delivered to Merger Sub
with the Disclosure Memorandum.
(c) No ERISA or non-ERISA Plan provides benefits, including
without limitation, death, health or medical benefits (whether or not
insured), with respect to current or former employees of the Company
beyond their retirement or other termination of service with the
Company other than (i) coverage mandated by applicable Law, (ii)
deferred compensation benefits accrued as liabilities on the books of
the Company, or (iii) benefits the full cost of which is borne by the
current or former employee or his beneficiary.
15
(d) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or
officer of the Company to severance pay, unemployment compensation or
any other payment, or (ii) accelerate the time of payment or vesting,
or increase the amount of compensation or benefits due any such
employee or officer.
5.22. Environmental Matters. The Company hold all Environmental
Permits, as defined in Paragraph 13.18, necessary for conducting its business
and operations and has conducted, and is presently conducting, its business and
operations in full compliance in all material respects with all applicable
Environmental Laws, as defined in Paragraph 13.17, and Environmental Permits.
There are no existing or pending Environmental Laws with a future compliance
date that will require operational changes, business practice modifications or
capital expenditures at the Real Property (or any other property presently or
formerly owned, operated or controlled by the Company or as to which the Company
may bear responsibility or Liability), or any of the Improvements thereon. All
Hazardous Materials, as defined in Paragraph 13.26, and Solid Waste, as defined
in Paragraph 13.53, on, in, under or off-site from the Real Property, have been
properly removed and disposed of, and no past or present disposal, discharge,
spill or other release of, or treatment, transportation or other handling of
Hazardous Materials or Solid Waste on, in, under or off-site from any Real
Property, or adjacent property, will subject the Company or any subsequent
owner, occupant or operator of such Real Property to corrective or compliance
action or any other Liability. Adequate reserves have been established on the
Reference Balance Sheet to cover all costs of environmental compliance and such
reserves will be adequate on the date of the Closing. There are no presently
pending, or to the best of the Company's and each Shareholder's knowledge,
threatened Actions or Orders against or involving the Company (including any
other persons or entities for whose acts or omissions the Company is
responsible) relating to any alleged past or ongoing violation of any
Environmental Laws or Environmental Permits, nor is the Company subject to any
Liability for-any such past or ongoing violation. The Company has kept all
records and made all filings required by applicable Laws with respect to
emissions or potential emissions into the environment of solids, liquids, gases,
heat, light, noise, radiation and other forms of matter or energy and the proper
disposal of materials, including Solid Waste.
5.23. Absence of Certain Business Practices. Neither the Company nor
any officer, employee or agent of the Company, nor any other person acting on
behalf of the Company, has, directly or indirectly, within the past five years,
given or agreed to give any gift or similar benefit to any Person who is or may
be in a position to help or hinder the Company's business (or assist the Company
in connection with any actual or proposed transaction) which (a) might subject
the Company or the Surviving Corporation to any material damage or penalty in
any Action or which might have a material effect on the Company or its assets
and properties, (b) if not given in the past, might have had a material effect
on the Company's business or its assets and properties, or (c) if not continued
in the future, might have a material effect on the Company or which might
subject the Company or the Surviving Corporation to suit or penalty in any
Action.
16
5.24. Agreements and Transactions with Related Parties. Except as set
forth in the Disclosure Memorandum or as contemplated by this Agreement, the
Company is not directly or indirectly a party to any contract, agreement or
lease with, or subject to any other obligation to repay any debt to or honor any
other commitment to, (a) any party owning, or formerly owning, beneficially or
of record, directly or indirectly, any the Shares of or other equity interest in
the Company, (b) any Affiliate of such party, (c) any director, officer or key
employee of the Company, (d) any Person in which any of the foregoing parties
has, directly or indirectly, at least a five percent beneficial interest in the
capital stock or other type of equity interest of such Person, or (e) any
partnership in which any such party is a general partner (any or all of the
foregoing being referred to herein as "Related Parties"). Without limiting the
generality of the foregoing, (x) no Related Party, directly or indirectly, owns
or controls any assets or properties which are or have been used in the
Company's business, and (y) no Related Party, directly or indirectly, engaged in
or has any significant interest in or in connection with any business (i) which
is or which within the last three years has been a competitor, customer or
supplier of the Company or has done business with the Company, or (ii) which as
of the date hereof sells or distributes products or services which are similar
or related to the Company's products or services. As of the Effective Time any
loans or other advances made by the Shareholders, including, without limitation,
any such set forth in the Disclosure Memorandum, will have been canceled or
repaid and no obligations of any nature will be owing from the Company to the
Shareholders.
5.25. Absence of Changes. Except as expressly provided for in this
Agreement, or as set forth in the Disclosure Memorandum, since the Reference
Date:
(a) there has been no change in the business, assets, properties,
Liabilities, affairs, results of operations, condition (financial or
otherwise), cash flows or prospects of the Company or in its
relationships with suppliers, customers, employees, lessors or others,
other than changes in the ordinary course of business, none of which
have had or will have a material adverse affect on the Company;
(b) there has been no damage, destruction or loss to the assets,
properties, or business of the Company, whether or not covered by
insurance;
(c) the business of the Company has been operated in the ordinary
course and consistent with its prior practices;
(d) the books, accounts and records of the Company have been
maintained in the usual regular and ordinary manner on a basis
consistent with prior years and in accordance with GAAP, and there has
been no amendment to the articles of incorporation or bylaws of the
Company;
(e) there has been no declaration, setting aside or payment of
any dividend or other distribution on or in respect of the share
capital of the Company, nor has there been any direct or indirect
redemption, retirement, purchase or other acquisition of any of the
share capital or other securities of the Company;
17
(f) no Liability of the Company has been discharged or satisfied,
other than in the ordinary course of business and consistent with
prior practice;
(g) the Company has not discontinued or determined to discontinue
the sale of material products or the performance of services
previously sold or rendered by the Company;
(h) there has been no Lien (other than Liens for current Taxes
which are not past due) created on or in the assets of the Company;
(i) there has been no sale, transfer, lease or other disposition
of any material asset or assets of the Company, except in the ordinary
course of the Company's business consistent with past practice, and no
material debt to, or claim or right of, the Company has been canceled,
compromised, waived or released;
(j) there has been no amendment, termination or waiver of, or any
notice of any amendment, termination or waiver of, any material right
of the Company under any Company Contract or under any franchise,
certificate, license, permit or authorization from any Government;
(k) the Company has not entered into any agreement, contract,
lease or license outside the ordinary course of business;
(l) the Company has not delayed or postponed the payment of any
accounts payable and other Liabilities outside the ordinary course of
business; and
(m) there has been no change in the authorized or issued share
capital of the Company or the outstanding shares or other securities
of the Company.
5.26. Returns; Consignments. No customer of the Company has any right
to return any goods for credit or refund pursuant to any oral or written
agreement, understanding or practice which individually or in the aggregate is
material. Without limiting the generality of the foregoing, the Company does not
presently have any goods in the possession of its customers on consignment or on
a similar basis.
5.27. Bank Accounts; Safety Deposit Boxes. The Disclosure Memorandum
sets forth contains a list of each and every bank in which the Company maintains
an account or safety deposit box, the account numbers, and the names of all
persons who are authorized to draw thereon or have access thereto.
5.28. Performance Bonds. The Disclosure Memorandum describes all
contracts, work orders and jobs, oral or written, for which Company has, or is
required to provide, performance or similar bonds, the amount of such bonds and
the Person issuing the bonds. The Disclosure Memorandum further identifies all
payments, if any, which have been made during the preceding five years under any
performance or similar bonds issued on Company's behalf.
18
5.29. Products/ Service Liability. There is no Action by or before
any Government, Forum or Person pending, or to the knowledge of Company or any
Shareholder threatened, against or involving Company in connection with any
product sold by Company, alleging that the product has a defect in manufacture,
design or installation, or alleging any failure to warn of any defect or in
connection with any service rendered by the Company, alleging that the service
was defective or not performed as required or not performed at all; nor is there
any reasonable basis therefor; and there has not been any accident, happening
event caused or allegedly caused by any hazard or defect or alleged hazard or
alleged defect in the manufacture, design, materials, or workmanship or
installation, or any failure or alleged failure to warn of the hazard, defect or
alleged hazard or alleged defect, of any product sold or distributed by Company
or any service rendered by the Company.
5.30. Investment Representation. Each Shareholder is receiving shares
of the Parent Stock for investment for the Shareholder's own account, noton
behalf of others and not with a view to sell or otherwise distribute such
shares. Each Shareholder acknowledges that such shares of Parent Stock have not
been registered under the Securities Act or under any state securities Laws,
and, therefore, cannot be resold unless registered under the Securities Act and
applicable state securities Laws or unless an exemption from registration is
available and, as a result, each Shareholder must bear the risk of an investment
in the Parent Stock for an indefinite period of time. The financial condition of
each Shareholder is currently adequate to bear the economic risk of an
investment in the Parent Stock. Each Shareholder has sufficient knowledge and
experience in investment and business matters to understand the economic risk of
such an investment and the risk involved in a commercial enterprise such as
Parent. Each Shareholder has received and carefully read the SEC Documents and
the Current SEC Documents. Each Shareholder has had an opportunity to ask
questions of, and receive answers from, officers of Parent, concerning Parent
and the Parent Stock and to obtain any additional information which each
Shareholder reasonably requested and is material to its investment decision.
Each Shareholder is an "accredited investor" within the meaning of Regulation D
under the Securities Act.
5.31. Full Disclosure. No representation or warranty of any
Shareholder contained in this Agreement or in the Disclosure Memorandum, the
Schedule or any instrument, certificate, agreement or other writing delivered by
or on behalf of any Shareholder pursuant to this Agreement, or in connection
with the transactions contemplated herein contains any untrue or incomplete
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading. There is no fact
known to any Shareholder which materially and adversely affects, or in the
future may materially and adversely affect, the business, assets, properties,
liabilities, affairs, actual or anticipated results of operations, condition
(financial or otherwise), cash flows or prospects of the Company which has not
been or is not disclosed in this Agreement, the Disclosure Memorandum or in the
other instruments, certificates, agreements or writings furnished to Merger Sub
by or on behalf of any Shareholder pursuant to this Agreement or in connection
with the transactions contemplated herein. The information Contained in the
Disclosure Memorandum shall be deemed to be part of and qualify only those
sections of this Article 5 which correspond to or are referred to in the
sections of the Disclosure Memorandum.
19
6. REPRESENTATIONS AND WARRANTIES OF PARENT
As an inducement to the Shareholders to enter into and perform this
Agreement, and Parent hereby represents and warrants as follows:
6.1. Organization. Parent is a corporation duly organized and validly
existing under the Laws of the State of Nevada. Merger Sub is a corporation duly
organized and validly existing under the Laws of the State of Texas.
6.2. Authorization; No Inconsistent Agreements. Each of Merger Sub
(upon its incorporation) and Parent has full corporate power and authority to
execute and deliver this Agreement and the Other Agreements to which it is a
party and to perform and comply with this Agreement and the Other Agreements to
which it is a party in accordance with their respective terms. All proceedings
required to be taken by Merger Sub or Parent, to authorize the execution,
delivery and performance of this Agreement and the Other Agreements to which it
is a party have been or will be, prior to the Effective Time, properly taken,
and this Agreement and the Other Agreements to which it is a party constitute
the valid and legally binding obligations of Merger Sub or Parent, enforceable
in accordance with their respective terms. Neither the execution and delivery of
this Agreement and the Other Agreements to which Merger Sub or Parent is a
party, nor the consummation of the transactions contemplated herein or therein
will (i) result in a violation of their respective articles of incorporation or
bylaws or any Law or Order, or (ii) result in a breach of, conflict with or
default under any contract or other instrument to which Parent or Merger Sub is
a party or by which any of the assets of Parent or Merger Sub may be affected or
secured, or will result in the creation of any Lien on any of the assets of
Parent or Merger Sub or acceleration of any debt.
6.3. Authorization or Parent Stock. The shares of the Parent Stock to
be issued to the Shareholders pursuant to Paragraph 3.2 will be duly authorized
and reserved for issuance at or before the Closing.
6.4. Parent Documents. The financial statements of Parent included
in the Annual Report, the SEC Documents and, to the extent applicable, the
Current SEC Documents were prepared in accordance with GAAP and fairly present,
in all material respects in accordance with GAAP, the financial condition and
results of operation and changes in financial position as of the dates thereof.
6.5. Full Disclosure. The SEC Documents do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not misleading.
7. CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING
The Shareholders, jointly and severally, and the Company covenant and
agree that, except as may otherwise be provided herein, without the prior
written consent of Parent, between the date hereof and the date of the Closing:
20
7.1. Business in the Ordinary Course. The business of the Company
shall be conducted only in the ordinary and usual course and consistent with
prior practices. Without limiting the generality of the foregoing:
(a) the Company shall not enter into any material contracts,
agreements or other arrangements in connection with the business or
affecting the assets of the Company, other than those (i) entered into
in the ordinary course of the business of the Company at prices and on
terms consistent with the prior operating practices of the Company, or
(ii) which do not obligate the Company to provide goods or services to
any customer or third party for a period in excess of 12 months
(unless terminable upon 30 days notice or less) or do not involve the
payment of an amount in excess of $10,000; provided, however, that the
Company will not enter into any contract nor effect any transaction
with any Related Party;
(b) except for the disposal of used furniture, fixtures and
equipment, the utilization of miscellaneous office supplies and the
sale of inventory to customers, all in the ordinary course of the
business of the Company in accordance with past practices, the Company
shall not sell, assign, transfer, convey, pledge, mortgage, encumber
or otherwise dispose of, or cause the sale, assignment, transfer,
conveyance, pledge, mortgage, encumbrance or other disposition of, any
of the assets or properties of the Company, and in no event shall any
of the assets or properties of the Company be disposed of to Related
Parties without Parent's prior written consent;
(c) all efforts to collect notes and accounts receivable
shall be undertaken in the ordinary course in accordance with past
practices, and no rebates, discounts or concessions shall be granted
after the date of this Agreement other than in the ordinary course in
accordance with past practices;
(d) the Company shall maintain, preserve and protect all of its
assets and properties in good condition, except for ordinary wear and
tear;
(e) the books, records and accounts of the Company shall be
maintained in the ordinary course of business on a basis consistent
with prior practices and in accordance with GAAP;
(f) each Shareholder shall use his best efforts, and shall
cause the Company to use its best efforts, to preserve the Company's
business, to preserve the goodwill of the Company's suppliers,
customers and others having business relations with the Company which
relate to its business, and to assist Merger Sub in retaining the
services of key employees and agents of the company, to the extent
desired by Merger Sub;
(g) the Company shall not declare or pay any dividend or make
any distribution in respect of its stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or retire for
value any shares of its capital stock; and
(h) each Shareholder and the Company shall not take, or agree to
take, any action which would make any representation or warranty of
him or the Company contained herein, untrue, incorrect or misleading
in any material respect as of the date when made or at any time
through the Closing.
21
7.2. Compensation. No increase in the compensation or rate of
compensation or commissions payable or to become payable with respect to any
employee of the Company shall be made to or any employee, and no payment of or
commitment to pay any bonus, profit-share or other extraordinary compensation
payment or other arrangement (whether current or deferred) shall be made to or
with any such employee.
8. CONDITIONS TO OBLIGATIONS OF MERGER SUB AND PARENT
All obligations of Merger Sub and Parent hereunder are subject to the
fulfillment and satisfaction of each and every one of the following conditions
on or prior to the Closing, any or all of which may be waived in whole or in
part by Merger Sub or Parent, provided that no such waiver shall be effective
unless it is set forth in a writing executed by Merger Sub or Parent:
8.1. Contribution of all Outstanding Related Party obligations.
Prior to the Closing, each of the Shareholders shall have contributed any
outstanding obligations owed by the Company to them to the capital of the
Company and converted such obligations into equity.
8.2. Representations and Warranties. The Shareholders shall have
delivered the Disclosure Memorandum to Parent, together with the warranty of the
Shareholders that all of the information disclosed therein is true, correct and
complete, and the matters disclosed therein shall be reasonably satisfactory to
Parent and shall not disclose any fact, condition or circumstance which has had
or is reasonably likely to have a material adverse effect on the Company or its
business, assets, Liabilities, results of operations or financial condition.
Subject to the exceptions and supplemental information set forth in the
Disclosure Memorandum, the representations and warranties contained in Article 5
shall be true, correct and complete as of the date when made and shall be deemed
to be made again at and as of the date of the Closing and shall be true, correct
and complete at and as of such time.
8.3. Compliance with Agreements and Conditions. Each Shareholder and
the Company shall have performed and complied with all agreements and conditions
required hereby to be performed or complied with by them prior to or on the date
of the Closing.
8.4. Certificate of the Shareholders. Each Shareholder shall have
delivered to Merger Sub certificates executed by such Shareholder, dated the
date of the Closing, (i) certifying in such detail as Merger Sub may reasonably
request as to the fulfillment and satisfaction of the conditions specified in
Paragraphs 8.2 and 8.3 and (ii) certifying that such Shareholder either waives
or has no claim against the Company or Merger Sub in respect of any indebtedness
or for any unpaid dividends, bonuses, profit sharing or other rights or claims
of any kind, nature or description.
8.5. Resolutions. Merger Sub shall have received duly adopted
resolutions of the Board of Directors and the Shareholders of the Company,
certified by the Secretary of the Company as of the date of the Closing,
authorizing and approving the execution hereof and all other documents executed
by it including, without limitation, the Other Agreements, and the taking of any
and all other actions necessary to enable the Company to comply with the terms
hereof and to consummate the Merger.
22
8.6. Government Consents. Parent, Merger Sub and the Company
shall have received all required consents from any and all Governments and from
any quasi governmental agencies or public corporations or self-regulatory bodies
or judicial authority having jurisdiction over the transactions contemplated
hereby, or any part hereof or the business of Surviving Corporation following
the Merger.
8.7. No Material Adverse Change. There shall have been no
material adverse change in the financial condition, results of operations,
business or assets of the Company since the Reference Date.
8.8. Intentionally left blank.
8.9. Due Diligence. Parent and its representatives shall have
completed their due diligence review of the Company's books, records, Government
filings, agreements, plans and other matters relating to Company's business,
properties, assets, Liabilities and affairs, and shall be reasonably satisfied
with the results thereof.
8.10. Board Approval. Parent's Board of Directors shall have
approved this Agreement and the transactions contemplated herein.
8.11. No Inconsistent Requirements. No Action shall have been
instituted by any Government or Person (i) against a party hereto to restrain or
prohibit the consummation of the transactions herein or (ii) which could
reasonably be expected to have a material adverse effect on the Company.
8.12. Related Party Matters. All agreements and commitments of any
kind between the Company and any Related Party shall, in the reasonable opinion
of Parent, be on the substantially the same terms as if with an unrelated party
or shall be renegotiated and amended in a manner reasonably satisfactory to
Parent.
9. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND THE COMPANY
All obligations of the Shareholders and the Company hereunder are
subject to the fulfillment and satisfaction of each and every one of the
following conditions on or prior to the Closing, any or all of which may be
waived in whole or in part by the Shareholders, provided that no such waiver
shall be effective unless it is set forth in a writing executed by each
Shareholder:
9.1. Representations and Warranties. The representations and
warranties contained in Article 6 hereof shall be true and correct on and as of
the date when made and shall be deemed to be made again at and as of the date of
the Closing and shall be true and correct at and as of such time.
23
9.2. Compliance with Agreements and Conditions. Merger Sub and
Parent shall have performed and complied with all agreements and conditions
required hereby to be performed or complied with by Merger Sub or Parent prior
to or on the date of the Closing.
9.3. Certificates of Parent and Merger Sub. Parent and Merger Sub
shall have delivered to Seller a certificate executed by one of their respective
officers, dated the date of the Closing, certifying in such detail as the
Shareholders may reasonably request as to the fulfillment and satisfaction of
the conditions specified in Paragraphs 9.1 and 9.2.
9.4. Resolutions. Merger Sub and Parent shall have delivered to
the Shareholders duly adopted resolutions of the Board of Directors of Merger
Sub and Parent, certified by the Secretary or an Assistant Secretary of Merger
Sub or Parent as of the date of the Closing, authorizing and approving the
execution hereof and the taking of all other actions necessary to enable Merger
Sub and Parent to comply with the terms hereof and to consummate the Merger.
10. INDEMNITIES
10.1. Indemnification by the Shareholders. In accordance with and
subject to the provisions of this Article 10, the Shareholders shall jointly and
severally indemnify and hold harmless the Surviving Corporation, Parent, their
Affiliates, and the officers, directors, agents and employees of the Surviving
Corporation, Parent and their Affiliates (collectively, the "Indemnitees") from
and against and in respect of any and all loss, damage, Liability, cost and
expense, including reasonable attorneys' fees and amounts paid in settlement
(collectively, the "Indemnified Losses"), suffered or incurred by any one or
more of the Indemnitees by reason of, or arising out of:
(a) any misrepresentation or breach of representation or warranty
contained in this Agreement, the Schedules, the Disclosure Memorandum
or any certificate, instrument, agreement or other writing delivered
by or on behalf of any Shareholder or the Company pursuant to this
Agreement or in connection with the transactions contemplated herein,
or the breach of any covenant or agreement of any Shareholder or the
Company contained in this Agreement or in the Schedules, the
Disclosure Memorandum or any certificate, instrument, agreement or
other writing delivered to Merger Sub or Parent by or on behalf of any
Shareholder or the Company pursuant to this Agreement or in connection
with the transactions contemplated herein; and
(b) any and all Actions, Orders, assessments, fees and expenses
incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or
in enforcing this indemnification.
10.2. No Liability or Contribution by the Surviving Corporation.
The Surviving Corporation shall not have any Liability to either Shareholder as
a result of any misrepresentation or breach of representation or warranty by the
Company contained in this Agreement, any Schedule, certificate, instrument,
agreement or other writing delivered by or on behalf of any Shareholder or the
Company pursuant to this Agreement or in connection with the transactions
contemplated herein, or the breach of any covenant or agreement of any
Shareholder or the Company contained in this Agreement or in any Schedule,
certificate, instrument, agreement or other writing delivered to Merger Sub by
or on behalf of any Shareholder or the Company pursuant to the provisions of
this Agreement or in connection with the transactions contemplated herein, and
no Shareholder shall have any right of indemnification or contribution against
the Surviving Corporation on account of any event or condition occurring or
existing prior to or on the date hereof.
24
10.3. Survival. The representations and warranties of each
Shareholder and the Company contained in this Agreement or in any Schedule,
certificate, instrument, agreement or other writing delivered by or on behalf of
any Shareholder or the Company pursuant to this Agreement or in connection with
the transactions contemplated herein shall survive any investigation heretofore
or hereafter made by Merger Sub or Parent and the consummation of the
transactions contemplated herein and shall continue in full force and effect for
the periods specified below ("Survival Period"):
(a) the representations and warranties relating to the reporting,
payment or Liability for Taxes or relating to litigation, labor and
employment matters, environmental matters (i.e. Paragraphs 5.18, 5.19,
5.20, 5.21, 5.22 and 5.23) related party matters and certain business
practices, shall survive until the expiration of any applicable
statute or period of limitations, and any extensions thereof; and
(b) all other representations and warranties of each Shareholder
(other than those contained in Paragraphs 5.1, 5.2, 5.3, 5.4, 5.5 and
5.9 which shall survive indefinitely) shall be of no further force and
effect after the expiration of three (3) years from and after the date
hereof.
Anything to the contrary notwithstanding, the Survival Period shall
be extended automatically to include any time period necessary to resolve a
claim for indemnification which was made before expiration of the Survival
Period but not resolved prior to its expiration, and any such extension shall
apply only as to the claims asserted and not so resolved within the Survival
Period. Liability any such item shall continue until such claim shall have been
finally settled, decided or adjudicated.
11. TERMINATION
11.1. Passage of Time. This Agreement may be terminated by either
party if the conditions to Closing contained in Articles 8 and 9 shall not have
been satisfied or waived in writing on or before August 31, 1999; provided,
however, a party shall promptly notify the other parties hereto in writing if it
becomes aware of circumstances which would cause such other party to breach or
be unable to comply with or perform the conditions to Closing contained in
Articles 8 or 9 as applicable. Upon any such termination, no party shall have
any further rights, Liabilities or obligations hereunder; provided, however, if
any of the terms and conditions contained herein have been breached by any
party, the non-breaching parties may pursue whatever rights and remedies they
may have at Law, in equity or otherwise by reason of such breach regardless of
such termination, and such termination shall not constitute an election of
remedies.
25
12. MISCELLANEOUS
12.1. Notices. All notices or other communications required or
permitted to be given or made hereunder shall be in writing and delivered
personally or sent by pre-paid, first class certified or registered mail, return
receipt requested, or by facsimile transmission, to the intended recipient
thereof at its address or facsimile number set out below with copies to the
Persons set forth on Schedule 12.1. Any such notice or communication shall be
deemed to have been duly given immediately (if given or made in person or by
facsimile confirmed by mailing a copy thereof to the recipient in accordance
with this Paragraph 12.1 on the date of such facsimile), or five days after
mailing (if given or made by mail), and in proving same it shall be sufficient
to show that the envelope containing the same was delivered to the delivery
service and duly addressed, or that receipt of a facsimile was confirmed by the
recipient as provided above. The addresses and facsimile numbers of the parties
for purposes of this Agreement are set forth on the signature page hereto below
their respective signatures. Either party may change the address to which
notices or other communications to such party shall be delivered or mailed by
giving notice thereof to the other party hereto in the manner provided herein.
12.2. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
12.3. Governing Law. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with the Laws of the
State of Texas, without regard to its conflicts of Laws rules.
12.4. Successor and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Neither the Company nor any Shareholder may assign,
delegate or otherwise transfer any of their rights or obligations under this
Agreement without the written consent by Merger Sub or Parent. This Agreement
may be assigned by Merger Sub to any Affiliate or Parent, provided that no such
assignment shall relieve Merger Sub of its obligations hereunder.
12.5. Partial Invalidity and Severability. All rights and
restrictions contained herein may be exercised and shall be applicable and
binding only to the extent that they do not violate any applicable Laws and are
intended to be limited to the extent necessary to render this Agreement legal,
valid and enforceable. If any term of this Agreement, or part thereof, not
essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a Forum of competent jurisdiction, it is
the intention of the parties that the remaining terms hereof, or part thereof,
shall constitute their agreement with respect to the subject matter hereof and
all such remaining terms, or parts thereof, shall remain in full force and
effect. To the extent legally permissible, any illegal, invalid or unenforceable
provision of this Agreement shall be replaced by a valid provision which will
implement the commercial purpose of the illegal, invalid or unenforceable
provision.
12.6. Waiver. Any term or condition of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof, but only if
such waiver is evidenced by a writing signed by such party. No failure on the
part of any party hereto to exercise, and no delay in exercising any right,
power or remedy created hereunder, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or remedy by either party
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. No waiver by either party hereto of any breach of or
default in any term or condition of this Agreement shall constitute a waiver of
or assent to any succeeding breach of or default in the same or any other term
or condition hereof.
26
12.7. Headings. The headings of particular provisions of this
Agreement are inserted for convenience only and shall not be construed as a part
of this Agreement or serve as a limitation or expansion on the scope of any term
or provision of this Agreement.
12.8. Number and Gender. Where the context requires, the use of
the singular form herein shall include the plural, the use of the plural shall
include the singular, and the use of any gender shall include any and all
genders.
12.9. Entire Agreement. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof, and this Agreement contains the sole and entire agreement between
the parties with respect to the matters covered hereby. This Agreement shall not
be altered or amended except by an instrument in writing signed by or on behalf
of the party entitled to the benefit of the provision against whom enforcement
is sought.
13. DEFINITIONS
For purposes of this Agreement, the following capitalized terms shall have the
meanings specified with respect thereto below:
13.1. "Action" shall mean any action, suit, litigation, complaint,
counterclaim, claim, petition, mediation contest, or administrative proceeding,
whether at Law, in equity, in arbitration or otherwise, and whether conducted by
or before any Government or other Person.
13.2. Intentionally left blank.
13.3. "Affiliate" of any Person shall mean any other Person directly
or indirectly Controlling, Controlled by, or under direct or indirect common
Control with the former Person.
13.4. "Affiliated Entity" or "Affiliated Entities" shall have the
meaning set forth in Paragraph 5.19.
13.5. "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which commercial banks in the United States are required or
authorized to be closed.
13.6. "Closing" shall have the meaning set forth in Paragraph 3.5.
13.7. "Company" shall mean the corporation referred to in the
preamble as identified on the signature page and, when such term is used in
Articles 4, 5, 7 and 8 (except Paragraph 5.2), it shall also mean both such
corporation and all Persons required to be disclosed in the Disclosure
Memorandum pursuant to Paragraph 5.2(b) or any of them as the context requires
27
or permits, and the use of the possessive form of the term shall mean things
belonging or relating to such corporation or any such Person. The Disclosure
Memorandum shall identify the specific Person(s) in any disclosure relating to
the Company as so defined, and general references to the Company as such shall
not be acceptable.
13.8. "Company Contracts" means all existing written and oral
material agreements and commitments of the Company, including without limitation
all employment and consulting contracts, union contracts, distributorship
agreements, agreements with suppliers and customers, leases, licenses, employee
benefit plans, deferred compensation agreements, indentures, notes, bonds,
mortgages, security agreements, loan agreements, guarantees, franchise
agreements, agreements in respect of the issuance, sale, repurchase or transfer
of the Company's share capital, bonds or other securities, powers of attorney,
and any contract which involves a payment of more than $10,000 or has a term or
requires performance over a period of more 180 days.
13.9. "Confidential Information" shall have the meaning set forth in
Paragraph 4.10.
13.10. "Control" means a Person possesses, directly or indirectly,
the power to direct or cause the direction of the management and policies of
another Person, whether through the ownership of voting securities, by contract
or otherwise.
13.11. "Corporate Laws" shall have the meaning set forth in Paragraph
1.1.
13.12. "Current SEC Documents" shall have the meaning set forth in
Paragraph 4.7.
13.13. "Disclosee" shall have the meaning set forth in Paragraph
4.10.
13.14. "Disclosing Party" shall have the meaning set forth in
Paragraph 4.10.
13.15. "Disclosure Memorandum" shall have the meaning set forth in
Paragraph 4.11.
13.16. "Effective Time" shall have the meaning set forth in
Paragraph 3.5.
13.17. "Environmental Laws" shall mean all federal, national, state,
provincial, municipal, and local Laws, statutes, norms, ordinances, rules,
regulations, general or particular conditions, conventions, requirements,
decrees, covenants and common Law principles relating to health, safety and the
environment, including without limitation, Laws, statutes, ordinances, rules,
regulations, conventions, decrees, covenants and common Law principles relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or Hazardous Materials or wastes
of every kind and nature into the environment (including without limitation
ambient air, surface water, ground water, soil and subsoil), or otherwise
relating to the manufacture, generation, processing, distribution, application,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes,
or to occupational or worker safety and health, and any and all Laws, rules,
regulations, codes, directives, guidelines, policies, plans, orders, decrees,
judgments, injunctions, consent agreements, stipulations, provisions and
conditions of Environmental Permits, licenses, injunctions, consent agreements,
stipulations, certificates of authorization, and other operating authorizations,
notices or demand letters issued, entered, promulgated or approved thereunder.
28
13.18. "Environmental Permits" shall mean all permits, licenses,
certificates, approvals, authorizations, regulatory plans or compliance
schedules required by applicable Environmental Laws, or issued by a Government
pursuant to applicable Environmental Laws, or entered into by agreement of the
party to be bound, relating to activities that affect human health or the
environment, including without limitation, permits, licenses, certificates,
approvals, authorizations, regulatory plans and compliance schedules for air
emissions, water discharges, pesticide and herbicide or other agricultural
chemical storage, use or application, and Hazardous Material or Solid Waste
generation, use, storage, treatment and disposal.
13.19. "ERISA" shall have the meaning set forth in Paragraph 5.21.
13.20. "ERISA Plans" shall have the meaning set forth in
Paragraph 5.21.
13.21. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
13.22. "Forum" shall mean any federal, national, state, local,
municipal or foreign court, governmental agency, administrative body or agency,
tribunal, private alternative dispute resolution system, or arbitration panel.
13.23. "Financial Statements" shall have the meaning set forth in
Paragraph 5.7.
13.24. "GAAP" shall mean generally accepted accounting principles
published by the Financial Accounting Standards Board, consistently applied.
13.25. "Government" shall mean any federal, national, state,
provincial, local, municipal, or foreign government or any department,
commission, board, bureau, agency, public corporations, self-regulatory bodies,
instrumentality, unit, or taxing authority thereof.
13.26. "Hazardous Material" shall mean any substance or material,
including without limitation raw materials, commercial products and wastes or
waste products that, because of its quantity, concentration, or physical,
chemical or infectious characteristics may cause or significantly contribute to
an increase in mortality or an increase in serious, irreversible or
incapacitating illness, or pose a substantial hazard to human health or the
environment, including without limitation all substances and materials
designated as hazardous or toxic under any applicable Environmental Law.
13.27. "Hereof," "herein," "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and "article," "paragraph," "Schedule,"
"Exhibit" and like references are to this Agreement unless otherwise specified.
13.28. "Improvements" shall mean all buildings, structures and other
improvements of any and every nature located on the Real Property and all
fixtures attached or affixed, actually or constructively, to the Real Property
or to any such buildings, structures or other improvements.
29
13.29. "Indemnified Losses" shall have the meaning set forth in
Paragraph 10.1.
13.30. "Indemnitees" shall have the meaning set forth in
Paragraph 10.1.
13.31. "Known," "to the knowledge of," "to the best knowledge of,"
"aware" or words of similar import employed in this Agreement with reference to
any individual or entity shall be conclusively presumed to mean that the person
or entity has made reasonable and diligent efforts under the circumstances to
become knowledgeable; in the case of the Company, "knowledge" shall be deemed to
be the individual and collective knowledge (as defined above) of its directors
and senior officers and managers.
13.32. "Law" shall mean all federal, national, state, provincial,
local, municipal or foreign constitutions, statutes, rules, regulations,
ordinances, acts, codes, legislation, treaties, conventions, judicial decisions
and similar laws and legal requirements, whether of the United States of America
or any other jurisdiction as in effect from time to time.
13.33. "Liability" shall mean any liability or obligation whether known
or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due.
13.34. "Lien" shall mean any mortgage, pledge, hypothecation, security
interest, encumbrance, claim, restriction on use, lien or charge of any kind, or
any rights of others, however evidenced or created (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the lien notice records or other similar
legislation of any jurisdiction.
13.35. "Merger" shall have the meaning set forth in Paragraph 1.1.
13.36. "Merger Sub" shall have the meaning set forth in the Preamble.
13.37. "Orders" shall mean all applicable orders, writs, judgments,
decrees, rulings, consent agreements, and awards of or by any Forum or entered
by consent of the party to be bound.
13.38. "Other Agreements" shall have the meaning set forth in
Paragraph 5.1(b).
13.39. "Parent" shall have the meaning set forth in the Preamble.
13.40. "Parent Stock" shall have the meaning set forth in
Paragraph 3.2.
13.41. "Person" shall include an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization and a Government.
13.42. "Real Property" shall have the meaning set forth in
Paragraph 5.13.
13.43. "Real Property Lease" shall have the meaning set forth in
Paragraph 5.14.
30
13.44. "Reference Balance Sheet" shall have the meaning set forth in
Paragraph 5.7.
13.45. "Reference Date" shall have the meaning set forth in
Paragraph 5.7.
13.46. "Related Parties" shall have the meaning set forth in
Paragraph 5.24.
13.47. "Schedules" shall refer to the Schedules to this Agreement.
13.48. "SEC" shall have the meaning set forth in Paragraph 4.7.
13.49. "SEC Documents" shall have the meaning set forth in
Paragraph 4.7.
13.50. "Securities Act" shall have the meaning set forth in
Paragraph 4.8.
13.51. "Shareholders" shall have the meaning set forth in the
Preamble.
13.52. "Shares" shall have the meaning set forth in the Recitals.
13.53. "Solid Waste" shall mean any garbage, refuse, sludge from a
waste treatment plant, water supply treatment plant, or air pollution control
facility and other discarded material, including solid, liquid, semisolid, or
contained gaseous material resulting from industrial, commercial, mining and
agricultural operations, and from community activities.
13.54. "Survival Period" shall have the meaning set forth in
Paragraph 10.3.
13.55. "Surviving Corporation" shall have the meaning set forth in
Paragraph 1.1.
13.56. "Taxes" shall mean any present or future taxes, levies, imposts,
duties, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation income, gross receipts, excise, property,
sales, use, customs, value added, consumption, transfer, license, payroll,
employee income, withholding, social security, and franchise taxes, now or
hereafter imposed or levied by the United States of America or any Government or
by any department, agency or other political subdivision or taxing authority
thereof or therein, all deposits required in connection therewith, and all
interests, penalties, additions to tax, and other similar Liabilities with
respect thereto.
13.57. "Territory" shall refer to New York, South Carolina, Texas and
California and any other state in which Parent, the Surviving Corporation or the
Company conducted business during the four-year period preceding the date of
this Agreement or during the five-year period commencing upon the consummation
of the Merger, each of which is a current market or target market of the
Surviving Corporation.
[Signature Page Follows]
31
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized agents as of the day and year first above
written.
PARENT
Dallas Gold & Silver Exchange, Inc.
By:
Name: Xx. X. X. Xxxxx
Title: Chairman
000 Xxxxxxxxxx 00, Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xx. X. X. Xxxxx
Facsimile No.: 000-000-0000
MERGER SUB
Xxxxxxxxx Acquisition, Inc.
By:
Name: Xx. X. X. Xxxxx
Title: Chairman
000 Xxxxxxxxxx 00, Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xx. X. X. Xxxxx
Facsimile No.: 000-000-0000
COMPANY
Jewel Cash, Inc.
By:
Name: Xxxxxx Xxxxxx
Title: President
000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xx. Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
Facsimile No.: 000-000-0000
32
SHAREHOLDERS:
Percentage: 88.294%
Name: Xxxxxx Xxxxxx
Address: 000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xx. Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No.: 000-000-0000
Percentage: 2.137%
Name: Xxxxxx Xxxxxx
Address: 000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xx. Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No.: 000-000-0000
Percentage: 7.432%
Name: Xxxxx Xxxxxx
Address: 000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xx. Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No.: 000-000-0000
Percentage: 2.137%
Name: Xxxxx Xxxxxx
Address: 000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xx. Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No.: 000-000-0000
33
INDEX TO SCHEDULES
Schedule
------------
4.14 Piggyback Registration Rights
5.7 Financial Statements/Reference Date
12.1 Copies of Notices
34
SCHEDULE 4.14
TO
AGREEMENT AND PLAN OF MERGER
Piggyback Registration Rights
Section 1. Definitions As used in this Piggyback Registration Rights
Schedule, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended.
"Common Stock" means the common stock of Dallas Gold and Silver
Exchange, Inc. par value $0.01 per share.
"Company" means Dallas Gold and Silver Exchange, Inc.
"Shareholder" means a holder of Registrable Shares.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Section 2.1 hereof,
including, without limitation, all registration, qualification, and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration, but excluding any underwriting
commissions or discounts related to the Registrable Shares and any fees or
disbursements of counsel to the Selling Shareholders.
"Registrable Shares" means the 200,000 shares of Common Stock of the
Company issued in connection with that certain Agreement and Plan of Merger,
among the Company, Xxxxxxxxx Acquisition, Inc., Jewel Cash, Inc. and the
shareholders of Jewel Cash, Inc. (the "Merger Agreement"), together with any
shares that may be issued in respect of such 200,000 shares by virtue of any
stock split, stock dividend or recapitalization.
"Selling Shareholder" means a Shareholder selling all or a portion of
its Registrable Shares pursuant to an exercise of its registration rights
hereunder.
Section 2.1 Company Registrations. If at any time or times after the
date hereof, the Company shall determine to register any of its securities (for
itself or for any other shareholder of securities of the Company) under the Act
or any successor legislation (other than a registration relating to stock option
plans, employee benefit plans or a transaction pursuant to Rule 145 under the
Act), and in connection therewith the Company may lawfully and contractually
register shares of Common Stock held by the Shareholders, the Company will
promptly give written notice thereof to the Shareholders and will include in
such registration and effect the registration under the Act of all Registrable
Shares that the Shareholders may request in writing by notice delivered to the
Company within 20 days after receipt by the Shareholders of the notice given by
the Company.
Each Shareholder shall be entitled to exercise its rights pursuant to
this Section 2.1 only once, provided however that in the event that such
Shareholder is unable to include in such registration all of the Registrable
Shares proposed to be registered by it, due to the managing underwriter's
imposition of a limit on the number of Shares to be distributed, or if the
registration statement pertaining to the offering is withdrawn for no fault of
the selling Shareholder, or for other legal or contractual reasons, the Selling
Shareholder shall be entitled to exercise its rights hereunder such number of
times as shall be necessary to register all of the Registrable Shares proposed
to be registered by it, and to sell such Registrable Shares pursuant to an
effected registration statement that is not limited by the managing underwriter
as to the amount of shares offered, is not withdrawn and is not limited for
other legal or contractual reasons.
If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Shareholders as a part of the written notice given pursuant to this
Section 2.1. In such event the right of any Shareholder to registration pursuant
to this Section 2.1 shall be conditioned upon such Shareholder's participation
in such underwriting and the inclusion of Registrable Shares in the underwriting
to the extent provided herein.
All Shareholders proposing to distribute their Registrable Shares
through such underwriting shall (together with the Company) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 2.1, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Shares and other securities to be
distributed through such underwriting. The Company shall so advise all
Shareholders distributing their securities through such underwriting of such
limitation and the number of shares of Registrable Shares that may be included
in the registration (and underwriting if any) shall be allocated among all
Shareholders in proportion, as nearly as practicable, to the respective amounts
of Registrable Shares requested by such Shareholders and legally or
contractually permitted to be included in such Registration Statement. No
Registrable Shares excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Shareholder or Shareholders to the
nearest 100 shares. The number of Registrable Shares underwritten in an offering
may be limited by registration rights of a higher priority granted to persons
other than the Shareholders of the Registrable Shares.
If any Shareholder or Shareholders disapprove of the terms of any such
underwriting, such Shareholder or Shareholders may elect to withdraw therefrom
by written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to 180
days after the effective date of the registration statement relating thereto, or
such other shorter period of time as the underwriters may require.
2
The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 2.1 prior to the effectiveness
of such registration whether or not any Shareholder has elected to include
securities in such registration.
All Registration Expenses incurred pursuant to this Section 2.1 shall
be borne by the Company, except for underwriting commissions and discounts
attributable to shares sold by the Shareholders and any fees or disbursements of
counsel to the Selling Shareholders, which discounts, commissions, fees and
disbursements shall be paid by the Shareholders selling shares of Common Stock.
Section 2.2 Assignment. Subject to compliance with applicable federal
and state securities laws, the registration rights granted under this Section 2
may be assigned to any subsequent Shareholder that acquires at least 50,000
shares of Registrable Shares, provided that notice of such transfer and
assignment, together with the name and address of the transferee, is given to
the Company.
Section 2.3 Obligations of the Company. Whenever, under the preceding
paragraphs of this Section 2, the Company is required hereunder to register any
Registrable Shares, the Company shall as expeditiously as reasonably possible:
(a) prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such shares that complies with
all requirements of the Act and use its commercially reasonable efforts to cause
such registration statement to become effective; provided, in no event shall the
Company be limited in determining to withdraw any such registration statement at
any time;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply in
all material respects with the provisions of the Act with respect to the sale of
securities covered by such registration statement for the period necessary to
complete the proposed public offering;
(c) Furnish to the Selling Shareholders such copies of each preliminary
and final prospectus and such other documents as the Selling Shareholders may
reasonably request;
(d) Enter into an underwriting agreement with customary terms and
provisions as reasonably agreed by the Company and the proposed underwriter, if
any, of the offering; and
(e) Use its commercially reasonable best efforts to register and
qualify the shares covered by such registration statement under applicable
securities or "blue-sky" laws; provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business as a
foreign corporation in any such jurisdiction wherein it is not so qualified.
3
Section 2.4 Obligations of the Selling Shareholders. When ever the
Company is required hereunder to register any Registrable Shares, the Selling
Shareholders shall furnish the Company, in writing, all information and
covenants concerning the Selling Shareholders and the proposed methods of sale
or other disposition of the Registrable Shares as the Company, any underwriter,
the SEC and/or any state or other regulatory authority may request. The Selling
Shareholders will cooperate with the Company and use reasonable efforts to
assist the Company in the preparation and filing of the registration statement
and all other necessary documentation and to obtain all permits, consents,
approvals and authorizations of all third parties and governmental bodies
necessary to effect the registration. The Selling Shareholders agree to execute,
deliver and/or file with or supply to the Company, any underwriter, the SEC
and/or any state or other regulatory authority such additional information as is
necessary to carry out the provisions hereof or to effect the registration or
qualification of the shares under applicable securities laws and regulations of
any jurisdiction and such information as the Company may reasonably require to
ensure that the transfer or disposition of the registered shares is not in
violation of any applicable securities laws. The Selling Shareholders further
agree to furnish to the Company, not later than every thirty (30) days after the
date of effectiveness of the registration statement, a report of the number of
registered shares sold during such thirty (30) day period and to cancel any
orders to sell and/or to reverse any sales of registered shares which orders
and/or sales, in the Company's opinion, based upon the opinion of legal counsel
experienced in securities law matters were effected in violation of applicable
federal or state securities laws. The Company will notify each Selling
Shareholder of any shares covered by such registration statement, (i) at any
time when a prospectus relating thereto is required to be delivered under
applicable securities laws, (ii) of the happening of any event as a result of
which the prospectus included in such registration statement as then in effect
includes an untrue statement of material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, or (iii) of any
other occurrence which, under applicable securities laws, requires the
prospectus to be revised or updated, and upon receipt of such notice and until a
supplemental or amended prospectus is available, each Selling Shareholder will
cease to offer or sell any shares covered by the registration statement and will
return all copies of the prospectus to the Company if requested to do so by the
Company and will not sell any of the shares until provided with a current
prospectus and notice from the Company that it may resume its selling effort.
Section 2.5 Indemnification.
(a) The Company will indemnify each Selling Shareholder, each of its
officers, directors and partners, and each other person, if any, who controls
such Shareholder within the meaning of Section 15 of the Act, against any
losses, claims, damages, expenses, or liabilities to which such persons may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, expenses, or liabilities (or actions in respect thereof) arise out of
4
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement or any preliminary
prospectus or final prospectus or amendment or supplement thereto on the
effective date thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
such persons for any reasonable legal or any other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action including by periodic payments during the course of
any defense or investigation as such expenses are incurred); provided, however,
that the Company will not be liable to a Shareholder to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, or any preliminary prospectus or final prospectus
or amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by the Selling Shareholders specifically for use in the preparation thereof.
(b) In connection with any registration statement in which a
Shareholder of Registrable Shares is participating, each such Shareholder will
furnish to the Company in writing such information with respect to the name and
address of such Shareholder and the amount of Registrable shares held by such
Shareholder and such other information as the Company shall reasonably request
for use in connection with any such registration statement or prospectus, and
agrees to indemnify, to the extent permitted by law, the Company, its directors
and officers and each Person who controls the Company (within the meaning of the
Act) against any losses, claims, damages, liabilities and expenses resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon any information with respect to such
Shareholder so furnished in writing by such Shareholder specifically for
inclusion in any prospectus or registration statement. In no event shall the
liability of any selling Shareholder of Registrable Shares hereunder be greater
in amount than the dollar amount of the proceeds received by such Shareholder
upon the sale of the Registrable Shares giving rise to such indemnification
obligation.
5
SCHEDULE 5.7
TO
AGREEMENT AND PLAN OF MERGER
Financial Statements
The Shareholders have delivered the following financial statements to
Parent:
(1) Balance Sheet of the Company as at ______________, 1999,
Statements of Income, Retained Earnings and Cash Flow for the
_____-month period then ended, together with supporting schedules; and
(2) Balance Sheets of the Company as at _______________, 1998,
1997, and 1996, Statements of Income, Retained Earnings and Cash Flow
for the fiscal years then ended, together with the accompanying Notes
to Financial Statements.
The date of the Reference Balance Sheet is _____________, and
the Reference Date is _____________.
1
SCHEDULE .2.1
TO
AGREEMENT AND PLAN OF MERGER
Copies of Notices
Copies of all notices to the following parties shall be sent to the
additional Persons set forth along side the relevant party at the address shown:
Party Copy to:
To the Company: Xxxxxxx, Del Deo, Dolan, Griffinger
& Xxxxxxxxx
Xxx Xxxxxxxxxx Xxxxx
Xxxxxx, Xxx Xxxxxx 00000-0000
Telecopy: (000) 000-0000
Telephone: (000) 000-0000
Attn: Xxxx X. XxXxxxxxx, Esq.
To Parent or Merger Sub: Dallas Gold & Silver Exchange, Inc.
0000 Xxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
Telephone: (000) 000-0000
Attn: Xx. X. X. Xxxxx
