Exhibit 2.1
AGREEMENT AND PLAN OF SHARE EXCHANGE
DATED AS OF MARCH 7, 2002
BETWEEN
CAPITAL DEVELOPMENT GROUP, INC.
AND
G SOCIETY, INC.
TABLE OF CONTENTS
ARTICLE 1 The Share Exchange
Section 1.1 The Share Exchange
Section 1.2. Effective Time
Section 1.3. Closing of the Share Exchange
Section 1.4. Effects of the Share Exchange
Section 1.5. Board of Directors and Officers
Section 1.6. Conversion of Shares
Section 1.7. Exchange of Certificates
Section 1.8. Stock Options
Section 1.9. Taking of Necessary Action; Further Action
ARTICLE 2 Representations and Warranties of CAPITAL
Section 2.1. Organization and Qualification
Section 2.2. Capitalization of CAPITAL
Section 2.3. Authority Relative to this Agreement; Recommendations
Section 2.4. SEC Reports; Financial Statements
Section 2.5. Information Supplied
Section 2.6. Consents and Approvals; No Violations
Section 2.7. No Default
Section 2.8. No Undisclosed Liabilities; Absence of Changes
Section 2.9. Litigation
Section 2.10. Compliance with Applicable Law
Section 2.11. Employee Benefit Plans; Labor Matters
Section 2.12. Environmental Laws and Regulations
Section 2.13. Tax Matters
Section 2.14. Title to Property
Section 2.15. Intellectual Property
Section 2.16. Insurance
Section 2.17. Vote Required
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Section 2.18. Tax Treatment
Section 2.19. Affiliates
Section 2.20. Certain Business Practices
Section 2.21. Insider Interests
Section 2.22. Opinion of Financial Adviser
Section 2.23. Disclosure
Section 2.24. No Existing Discussion
Section 2.25. Material Contracts
ARTICLE 3. Representations and Warranties of GSI
Section 3.1. Organization and Qualification
Section 3.2. Capitalization of GSI
Section 3.3. Authority Relative to this Agreement; Recommendation
Section 3.4. SEC Reports; Financial Statements
Section 3.5. Information Supplied
Section 3.6. Consents and Approvals; No Violations
Section 3.7. No Default
Section 3.8 No Undisclosed Liabilities; Absence of Changes
Section 3.9. Litigation
Section 3.10. Compliance with Applicable Law
Section 3.11. Employee Benefit Plans; Labor Matters
Section 3.12. Environmental Laws and Regulations
Section 3.13. Tax Matters
Section 3.14. Title to Property
Section 3.15. Intellectual Property
Section 3.16. Insurance
Section 3.17. Vote Required
Section 3.18. Tax Treatment
Section 3.19. Affiliates
Section 3.20. Certain. Business Practices
Section 3.21. Insider Interests
Section 3.22. Opinion of Financial Adviser
Section 3.23. Disclosure
Section 3.24. No Existing Discussions
Section 3.25. Material Contracts
ARTICLE 4. Covenants
Section 4.1. Conduct of Business of CAPITAL
Section 4.2. Conduct of Business of GSI
Section 4.3. Preparation of the Proxy Statement
Section 4.4. Other Potential Acquirers
Section 4.5. Meetings of Stockholders
Section 4.6. NASD OTC:BB Listing
Section 4.7. Access to Information
Section 4.8. Additional Agreements; Reasonable Efforts
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Section 4.9. Employee Benefits; Stock Option and Employee Purchase Plans
Section 4.10. Public Announcements
Section 4.11. Indemnification
Section 4.12. Notification of Certain Matters
ARTICLE 5. Conditions to Consummation of tile Share Exchange
Section 5.1. Conditions to Each Party's Obligations to Effect the Share
Exchange
Section 5.2. Conditions to the Obligations of CAPITAL
Section 5.3. Conditions to the Obligations of GSI
ARTICLE 6. Termination; Amendment; Waiver
Section 6.1. Termination
Section 6.2. Effect of Termination
Section 6.3. Fees and Expenses
Section 6.4. Amendment
Section 6.5. Extension; Waiver
ARTICLE 7. Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties
Section 7.2. Entire Agreement; Assignment
Section 7.3. Validity
Section 7.4. Notices
Section 7.5. Governing Law
Section 7.6. Descriptive Headings
Section 7.7. Parties in Interest
Section 7.8. Certain Definitions
Section 7.9. Personal Liability
Section 7.10. Specific Performance
Section 7.11. Construction
Section 7.12. Counterparts
Section 7.13. Termination After Effective Date
Section 7.14. Trademark
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AGREEMENT AND PLAN OF SHARE EXCHANGE
This Agreement and Plan of Share Exchange (this "Agreement"), dated as of March
7, 2002 is between CAPITAL DEVELOPMENT GROUP, INC., an Oregon corporation
("CAPITAL"), and G SOCIETY, INC., a Florida corporation ("GSI").
Whereas, the Boards of Directors of CAPITAL and GSI each have, in light
of and subject to the terms and conditions set forth herein, (i) determined that
the Share Exchange (as defined below) is fair to their respective stockholders
and in the best interests of such stockholders and (ii) approved the Share
Exchange in accordance with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Share
Exchange qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, CAPITAL and GSI desire to make certain representations,
warranties, covenants and agreements in connection with the Share Exchange and
also to prescribe various conditions to the Share Exchange.
Now, therefore, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, CAPITAL and GSI hereby agree as follows;
ARTICLE I
The Share Exchange
Section 1.1 The Share Exchange. CAPITAL DEVELOPMENT GROUP, INC., an
Oregon Corporation, at the Effective Time and upon the terms and subject to the
conditions of this Agreement and in accordance with and pursuant to the Oregon
Revised Statutes (the "ORS"), shall exchange the shares as set forth below for
one hundred percent (100%) of the issued and outstanding shares of GSI (as
defined below) (the "Share Exchange"). Following the Share Exchange, GSI shall
continue as a wholly owned subsidiary of CAPITAL DEVELOPMENT GROUP, INC., and
CAPITAL DEVELOPMENT GROUP, INC. shall be the "acquiring" corporation (the
"Acquiring Corporation"), and shall continue to be governed by the laws of the
jurisdiction of its incorporation or organization. The Share Exchange is
intended to qualify as a tax-free reorganization under Section 368 of the Code
as it relates to the non-cash Exchange of stock referenced herein.
Section 1.2 Effective Time. Subject to the terms and conditions set
forth in this Agreement, a Certificate of Share Exchange (the "Share Exchange
Certificate") shall be duly executed and acknowledged by GSI and CAPITAL, and
thereafter the Share Exchange Certificate reflecting the Share Exchange shall be
delivered to the Secretary of State of the State of Oregon and the Secretary of
State of Florida for filing pursuant to the ORS and the FBCA on the Closing Date
(as defined in Section 1.3). The Share Exchange shall become effective at such
time as a properly
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executed and certified copy of the Share Exchange Certificate
is duly filed by the Secretary of State s of the State of Oregon and Florida, in
accordance with the ORS and the FBCA or such later time as the parties may agree
upon and set forth in the Share Exchange Certificate (the time at which the
Share Exchange becomes effective shall be referred to herein as the "Effective
Time").
Section 1.3 Closing of the Share Exchange. The closing of the Share
Exchange (the "Closing") will take place at a time and on a date to be specified
by the parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of the Law Office of X. Xxx Xxxxxxxx, PA,
0000 Xxxxxx Xxxx Xxxx. Xxxxx 000, Xxxxxx Xxxxx, Xxxxxxx 00000, unless another
time, date or place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Share Exchange. The Share Exchange shall
have the effects set forth in the ORS and the FBCA. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers of GSI shall vest in the Acquiring
Corporation, and GSI shall remain a wholly owned subsidiary of CAPITAL.
Section 1.5. Board of Directors and Officers of CAPITAL. At or prior to
the Effective Time, each of GSI and CAPITAL agrees to take such action as is
necessary (i) to cause the following directors to either be appointed, pursuant
to CAPITAL'S By-Laws, or elected as may be required:
J. Xxx Xxxxxx; and
Xxxx Xxxxx; and
Xxxxxx Skallerund
Section 1.6. Conversion of Shares.
(a) At the Effective Time, each share of common stock, par value $.001
per share of GSI (individually a "GSI Share" and collectively, the "GSI Shares")
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Share Exchange and without any action on the part of GSI, or CAPITAL or
the holder thereof; be converted into the respective number of CAPITAL shares,
or a fraction thereof, and shall become fully paid and nonassessable CAPITAL
common shares. The holder(s) of GSI shares shall receive a total of Fifteen
million six hundred ninety thousand five hundred twenty three (15,690,523)
CAPITAL common shares, to be distributed pro rata among the holders of GSI
common shares. The product of the division of all outstanding GSI shares into
Fifteen million six hundred ninety thousand five hundred twenty three
(15,690,523) CAPITAL shares shall be the conversion ratio.
(b) At the Effective Time, CAPITAL will have 972,245 preferred
convertible shares issued and outstanding. The certificate of designations
regarding these shares provides that each share of convertible preferred shall
be converted, at the option of the holder, into one share of a CAPITAL common
share. Further, the preferred shares issued shall be non-diluted in the event
the common shares of CAPITAL shall be subject to any reversal. The conversion
rights become effective on April 1, 2002 and expire on June 1, 2002, at which
time they shall become
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automatically converted into CAPITAL common shares without any further action on
the part of the holder.
(c) At the Effective Time, each GSI share held in the treasury of GSI,
immediately prior to the Effective Time shall, by virtue of the Share Exchange
and without any action on the part of GSI or CAPITAL be canceled, retired and
cease to exist and no payment shall be made with respect thereto.
Section 1.7. Exchange of Certificates.
(a) Prior to the Effective Time, CAPITAL shall enter into an agreement
with, and shall deposit with, The Law Office of X. Xxx Xxxxxxxx PA, or such
other agent or agents as may be satisfactory to CAPITAL and GSI (the "Exchange
Agent"), for the benefit of the holders of GSI Shares, for Exchange through the
Exchange Agent in accordance with this Article I; certificates representing the
appropriate number of CAPITAL Shares to be issued to holders of GSI Shares
issuable pursuant to Section 1.6 in Exchange for outstanding GSI Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding GSI Shares (the "Certificates") whose shares were converted into the
right to receive CAPITAL Shares pursuant to Section 1.6: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as GSI and CAPITAL may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in Exchange for certificates
representing CAPITAL Shares. Upon surrender of a Certificate to the Exchange
Agent, together with such letter of transmittal, duly executed, and any other
required documents, the holder of such Certificate shall be entitled to receive
in Exchange therefore a certificate representing that number of whole CAPITAL
Shares which such holder has the right to receive pursuant to the provisions of
this Article I, and the Certificate so surrendered shall forthwith be canceled.
In no event will fractional shares be issued, but if a certificate holder is
entitled to a fractional interest, said interest will be rounded up to the
nearest whole number. In no event will CAPITAL be obligated to issue shares in
excess of the amount provided for in this agreement, or Fifteen million six
hundred ninety thousand five hundred twenty three (15,690,523) shares. Until
surrendered as contemplated by this Section 1.7, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing CAPITAL Shares as
contemplated by this Agreement.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to CAPITAL Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the CAPITAL Shares represented thereby until the holder of record of
such Certificate shall surrender such Certificate.
(d) In the event that any Certificate for GSI Shares or CAPITAL Shares
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
Exchange thereforee, upon the
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making of an affidavit of that fact by the holder thereof such CAPITAL Shares if
any, as may be required pursuant to this Agreement; provided, however, that
CAPITAL or the Exchange Agent, may, in its respective discretion, require the
delivery of a suitable bond, opinion or indemnity.
(e) All CAPITAL Shares issued upon the surrender for Exchange of GSI
Shares in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such GSI Shares. There shall be
no further registration of transfers on the stock transfer books of either of
GSI or CAPITAL of the GSI Shares or CAPITAL Shares that were outstanding
immediately prior to the Effective Time. If after the Effective Time,
Certificates are presented to CAPITAL for any reason, they shall be canceled and
Exchanged as provided in this Article I.
(f) No fractional CAPITAL Shares shall be issued in the Share Exchange,
but in lieu thereof each holder of GSI Shares otherwise entitled to a fractional
CAPITAL Share shall, upon surrender of its, his or her Certificate or
Certificates, be entitled to receive an additional share to round up to the
nearest round number of shares.
Section 1.8. Stock Options and Warrants. At the Effective Time, each
outstanding option or warrant to purchase GSI Shares, if any (an "GSI Stock
Option or Stock Purchase Warrant" or collectively, "GSI Stock Options and
Warrants") issued pursuant to any GSI Stock Option Plan or Stock Warrant whether
vested or unvested, shall be converted into a Stock Option or Stock Purchase
Warrant of CAPITAL, subject to the same terms and conditions as if issued by
CAPITAL.
Section 1.9 Taking of Necessary Action: Further Action. If, at any time
after the Effective Time, GSI or CAPITAL reasonably determines that any deeds,
assignments, or instruments or confirmations or transfer are necessary or
desirable to carry out the purposes of this Agreement and to vest CAPITAL with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of GSI) the officers and directors of CAPITAL and GSI are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary or desirable action.
ARTICLE 2
Representations and Warranties of CAPITAL
Except as set forth on the Disclosure Schedule delivered by CAPITAL to
GSI (the "CAPITAL Disclosure Schedule"), CAPITAL hereby represents and warrants
to GSI as follows:
Section 2.1 Organization and Qualification.
(a) CAPITAL is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite power and authority to own, lease and operate its properties and
to carry on its businesses as now being conducted, except where
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the failure to be so organized, existing and in good standing or to have such
power and authority would not have a Material Adverse Effect (as defined below)
on CAPITAL when used in connection with CAPITAL, the term "Material Adverse
Effect" means any change or effect (i) that is or is reasonably likely to be
materially adverse to the business, results of operations, condition (financial
or otherwise) or prospects of CAPITAL, other than any change or effect arising
out of general economic conditions unrelated to any business in which CAPITAL is
engaged, or (ii) that may impair the ability of CAPITAL to perform its
obligations hereunder or to consummate the transactions contemplated hereby.
(b) CAPITAL has heretofore delivered to GSI accurate and complete
copies of the Certificate of Incorporation and Bylaws (or similar governing
documents), as currently in effect, of CAPITAL. Except as set forth on Schedule
2.1 of the CAPITAL Disclosure Schedule, CAPITAL is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on CAPITAL.
Section 2.2. Capitalization of CAPITAL.
(a) At the "Effective Time" as defined in Section 1.2, above, the
authorized capital stock of CAPITAL shall consist of: (i) Thirty Million
(30,000,000) common shares, .0001 par value are authorized; 2,437,813 common
shares, .0001 par value CAPITAL Shares will be issued and outstanding, (ii)
1,000,000 preferred shares are authorized and 972,245 preferred shares are
issued as described in the CAPITAL Disclosure Schedule, Section 3.2(c) and
Section 1.6.(b) of this Agreement, and no CAPITAL Shares were held in treasury.
All of the outstanding CAPITAL Shares have been duly authorized and validly
issued and are fully paid, non-assessable and free of preemptive rights. Except
as set forth herein, as of the date hereof, there are no outstanding (i) shares
of capital stock or other voting securities of CAPITAL, (ii) securities of
CAPITAL convertible into or Exchangeable for shares of capital stock or voting
securities of CAPITAL, except for the preferred shares of CAPITAL, (iii) options
or other rights to acquire from CAPITAL and, except as described in the CAPITAL
SEC Reports (as defined below), no obligations of CAPITAL to issue, any capital
stock, voting securities or securities convertible into or Exchangeable for
capital stock or voting securities of CAPITAL, and (iv) equity equivalents,
interests in the ownership or earnings of CAPITAL or other similar rights
(collectively, "CAPITAL Securities"). As of the date hereof; except as set forth
on Schedule 2.2(a) of the CAPITAL Disclosure Schedule there are no outstanding
obligations of CAPITAL or its subsidiaries to repurchase, redeem or otherwise
acquire any CAPITAL Securities or stockholder agreements, voting trusts or other
agreements or understandings to which CAPITAL is a party or by which it its
bound relating to the voting or registration of any shares of capital stock of
CAPITAL. For purposes of this Agreement, "Lien" means, with respect to any asset
(including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
(b) The CAPITAL Shares constitute the only class of equity securities
of CAPITAL registered or required to be registered under the Exchange Act.
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Section 2.3. Authority Relative to this Agreement; Recommendation.
CAPITAL has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by the
Board of Directors of CAPITAL (the "CAPITAL Board") and will, pursuant to the
representations and warranties herein, and as a condition precedent to the
Closing of this Agreement, secure the required Shareholder approval in
accordance with the ORS; no other corporate proceedings on the part of CAPITAL
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by CAPITAL and constitutes a valid, legal and binding agreement of
CAPITAL, enforceable against CAPITAL in accordance with its terms.
Section 2.4. SEC Reports, Financial Statements.
(a) CAPITAL has filed all required forms, reports and documents with
the Securities and Exchange Commission (the "SEC") since the filing of its
initial registration statement on Form 1O-SB, each of which has complied in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act (and the rules and
regulations promulgated thereunder, respectively), each as in effect on the
dates such forms, reports and documents were filed. CAPITAL has heretofore
delivered or promptly will deliver prior to the Effective Date to GSI, in the
form filed with the SEC (including any amendments thereto but excluding any
exhibits), (i) its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2000, (ii) all definitive proxy statements relating to CAPITAL'S
meetings of stockholders (whether annual or special) held, if any, and (iii) all
other reports or registration statements filed by CAPITAL with the SEC since the
filing of the Company's 10-SB (all of the foregoing, collectively, the "CAPITAL
SEC Reports"). None of such CAPITAL SEC Reports, including, without limitation,
any financial statements or schedules included or incorporated by reference
therein, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The audited
financial statements of CAPITAL included in the CAPITAL SEC Reports fairly
present, in conformity with generally accepted accounting principles applied on
a consistent basis (except as may be indicated in the notes thereto), the
financial position of CAPITAL as of the dates thereof and its results of
operations and changes in financial position for the periods then ended. All
material agreements, contracts and other documents required to be filed as
exhibits to any of the CAPITAL SEC Reports have been so filed.
(b) CAPITAL has heretofore made available or promptly will make
available to GSI a complete and correct copy of any amendments or modifications
which are required to he filed with the SEC but have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by CAPITAL with the SEC pursuant to the Exchange Act.
Section. 2.5. THIS SECTION LEFT BLANK INTENTIONALLY
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Section. 2.6. Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements to the Securities Act, the Exchange
Act, state securities or blue sky laws, the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1916, as amended (the "HSR Act"), the rules of the National
Association of Securities Dealers, Inc. ("NASD"), the filing and recordation of
the Share Exchange Certificate as required by the ORS and as set forth on
Schedule 2.6 of the CAPITAL Disclosure Schedule no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by CAPITAL of
this Agreement or the consummation by CAPITAL of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not have
a Material Adverse Effect on CAPITAL.
Except as set forth in Section 2.6 of the CAPITAL Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by CAPITAL nor
the consummation by CAPITAL of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of
CAPITAL, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which CAPITAL
is a party or by which any of its properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to CAPITAL or any or its properties or assets, except in the case of
(ii) or (iii) for violations, breaches or defaults which would not have a
Material Adverse Effect on CAPITAL.
Section 2.7. No Default. Except as set forth in Section 2.7 of the
CAPITAL Disclosure Schedule, CAPITAL is not in breach, default or violation (and
no event has occurred which with notice or the lapse of time or both would
constitute a breach default or violation) of any term, condition or provision of
(i) its Certificate of Incorporation or Bylaws (or similar governing documents),
(ii) any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which CAPITAL is now a party or by which any
of its respective properties or assets may be bound or (iii) any order, writ
injunction, decree, law, statute, rule or regulation applicable to CAPITAL or
any of its respective properties or assets, except in, the case of (ii) or (iii)
for violations, breaches or defaults that would not have a Material Adverse
Effect on CAPITAL. Except as set forth in Section 2.7 of the CAPITAL Disclosure
Schedule, each note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which CAPITAL is now a party or
by which its respective properties or assets may be bound that is material to
CAPITAL and that has not expired is in full force and effect and is not subject
to any material default thereunder of which CAPITAL is aware by any party
obligated to CAPITAL thereunder.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as
set forth in Section 2.8 of the CAPITAL Disclosure Schedule and except as and to
the extent publicly disclosed
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by CAPITAL in the CAPITAL SEC Reports, as of September 30, 2001, CAPITAL does
not have any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that would be required by generally accepted accounting
principles to be reflected on a balance sheet of CAPITAL (including the notes
thereto) or which would have a Material Adverse Effect on CAPITAL. Except as
publicly disclosed by CAPITAL, since November 15, 2001, CAPITAL has not incurred
any liabilities of any nature, whether or not accrued, contingent or otherwise,
which could reasonably be expected to have, and there have been no events,
changes or effects with respect to CAPITAL having or which reasonably could be
expected to have, a Material Adverse Effect on CAPITAL. Except as and to the
extent publicly disclosed by CAPITAL in the CAPITAL SEC Reports and except as
set forth in Section 2.8 of the CAPITAL Disclosure Schedule, since December 31,
2001, there has not been (i) any material change by CAPITAL in its accounting
methods, principles or practices (other than as required after the date hereof
by concurrent changes in generally accepted accounting principles), (ii) any
revaluation by CAPITAL of any of its assets having a Material Adverse Effect on
CAPITAL, including, without limitation, any write-down of the value of any
assets other than in the ordinary course of business or (iii) any other action
or event that would have required the consent of any other party hereto pursuant
to Section 4.1 of this Agreement had such action or event occurred after the
date of this Agreement.
Section 2.9. Litigation. Except as publicly disclosed by CAPITAL in the
CAPITAL SEC Reports, there is no suit, claim, action, proceeding or
investigation, pending or, to the knowledge of CAPITAL, threatened against
CAPITAL or any of its subsidiaries or any or their respective properties or
assets before any Governmental Entity which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on CAPITAL or
could reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as publicly disclosed by
CAPITAL in the CAPITAL SEC Reports, CAPITAL is not subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen
in the future, could reasonably be expected to have a Material Adverse Effect on
CAPITAL or could reasonably be expected to prevent or delay the consummation of
the transactions contemplated hereby.
Section 2. 10. Compliance with Applicable Law. Except as publicly
disclosed by CAPITAL in the CAPITAL SEC Reports, CAPITAL holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"CAPITAL Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which would not have a Material
Adverse Effect on CAPITAL. Except as publicly disclosed by CAPITAL in the
CAPITAL SEC Reports, CAPITAL is in compliance with the terms or the CAPITAL
Permits, except where the failure so to comply would not have a Material Adverse
Effect on CAPITAL. Except as publicly disclosed by CAPITAL in the CAPITAL SEC
Reports, the business of CAPITAL is not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity except that no representation
or warranty is made in this Section 2.10 with respect to Environmental Laws (as
defined in Section 2.1.2 below) and except for violations or possible violations
which do not, and, insofar as reasonably can be foreseen, in the future will
not, have a Material Adverse Effect on CAPITAL. Except as publicly disclosed by
CAPITAL in the CAPITAL SEC Reports, no investigation or review by any
Governmental Entity with respect to CAPITAL is pending or, to the
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knowledge of CAPITAL, threatened, nor, to the knowledge of CAPITAL, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which CAPITAL reasonably believes will not have a Material
Adverse Effect on CAPITAL.
Section 2.11. THIS SECTION LEFT BLANK INTENTIONALLY
Section 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by CAPITAL in the CAPITAL SEC Reports, (i)
CAPITAL is in material compliance with all applicable federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) (collectively, "Environmental
Laws"). except for non-compliance that would not have a Material Adverse Effect
on CAPITAL, which compliance includes but is not limited to, the possession by
CAPITAL or all material permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) CAPITAL has not received written notice of, or, to the
knowledge of CAPITAL, is the subject of, any action, cause of action, claim,
investigation, demand or notice by any person or entity alleging liability under
or non-compliance with any Environmental Law (an "Environmental Claim") that
could reasonably be expected to have a Material Adverse Effect on CAPITAL; and
(iii) to the knowledge of CAPITAL, there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in the
future.
(b) Except as publicly disclosed by CAPITAL, there are no Environmental
Claims which could reasonably be expected to have a Material Adverse Effect on
CAPITAL that are pending or, to the knowledge of CAPITAL, threatened against
CAPITAL or, to the knowledge of CAPITAL, against any person or entity whose
liability for any Environmental Claim CAPITAL has or may have retained or
assumed either contractually or by operation of law.
Section 2.13. Tax Matters.
(a) Except as set forth in Section 2.13 of the CAPITAL Disclosure Schedule:
(i) CAPITAL has filed or has had filed on its behalf in a timely manner (within
any applicable extension periods) with the appropriate Governmental Entity all
income and other material Tax Returns (as defined herein) with respect to Taxes
(as defined herein) of CAPITAL and all Tax Returns were in all material respects
true, complete and correct; (ii) all material Taxes with respect to CAPITAL have
been paid in full or have been provided for in accordance with GAAP on CAPITAL'S
most recent balance sheet which is part of the CAPITAL SEC Documents. (iii)
there are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income or other
material Tax Returns required to be filed by or with respect to CAPITAL; (iv) to
the knowledge of CAPITAL none of the Tax Returns of or with respect to CAPITAL
is currently being audited or examined by any Governmental Entity; and (v) no
deficiency for any income or other material Taxes has been assessed with respect
to CAPITAL which has not been abated or paid in full.
12
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind whatsoever
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority and. (ii.) "Tax Return" shall mean any
report, return, documents declaration or other information or filing required to
be supplied to any taxing authority or jurisdiction with respect to Taxes.
Section 2.14. Title to Property. CAPITAL has good and defensible title to
all of its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a Material Adverse
Effect on CAPITAL; and, to CAPITAL'S knowledge, all leases pursuant to which
CAPITAL leases from others real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, to
the knowledge of CAPITAL, under any of such leases, any existing material
default or event of default (or event which with notice of lapse of time, or
both, would constitute a default and in respect of which CAPITAL has not taken
adequate steps to prevent such a default from occurring) except where the lack
of such good standing, validity and effectiveness, or the existence of such
default or event, would not have a Material Adverse Effect on CAPITAL.
Section 2.15. Intellectual Property.
(a) CAPITAL owns, or possesses adequate licenses or other valid rights to
use, all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets and applications therefore that are
material to its business as currently conducted (the "CAPITAL Intellectual
Property Rights").
(b) The validity of the CAPITAL Intellectual Property Rights and the title
thereto of CAPITAL is not being questioned in any litigation to which CAPITAL is
a party.
(c) Except as set forth in Section 2.15(c) of the CAPITAL Disclosure
Schedule, the conduct of the business of CAPITAL as now conducted does not, to
CAPITAL'S knowledge, infringe any valid patents, trademarks, trade names,
service marks or copyrights of others. The consummation of the transactions
completed hereby will not result in the loss or impairment of any CAPITAL
Intellectual Property Rights.
(d) CAPITAL has taken steps it believes appropriate to protect and maintain
its trade secrets as such, except in cases where CAPITAL has elected to rely on
patent or copyright protection in lieu of trade secret protection.
Section 2.16. Insurance. CAPITAL currently does not maintain general
liability and other business insurance.
13
Section. 2.17. LEFT BLANK INTENTIONALLY
Section 2.18. Tax Treatment. Neither CAPITAL nor, to the knowledge of
CAPITAL, any of its affiliates has taken or agreed to take action that would
prevent the Share Exchange from constituting a reorganization qualifying under
the provisions of Section 368(a) of the Code.
Section 2.19. Affiliates. Except for Principal CAPITAL Stockholder and the
directors and executive officers of CAPITAL, each of whom is listed in Section
2.19 of the CAPITAL Disclosure Schedule, there are no persons who, to the
knowledge of CAPITAL, may be deemed to be affiliates of CAPITAL under Rule
1-02(b) of Regulation S-X of the SEC (the CAPITAL Affiliates").
Section 2.20. Certain Business Practices. None of CAPITAL or any directors,
officers, agents or employees of CAPITAL has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended (the "FCPA"), or (iii) made any other unlawful payment.
Section 2.21. Insider Interests. Except as set forth in Section 2.21 of
the CAPITAL Disclosure Schedule, neither any Principal CAPITAL Stockholder, nor
any officer or director of CAPITAL has any interest in any material property,
real or personal, tangible or intangible, including without limitation, any
computer software or CAPITAL Intellectual Property Rights, used in or pertaining
to the business of CAPITAL, expect for the ordinary rights of a stockholder or
employee stock option holder.
Section 2.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the CAPITAL Board a written opinion to the effect
that, as of such date, the shares to be delivered to the holders of GSI Shares
is fair to the holders of CAPITAL Shares.
Section. 2.23. Disclosure. No representation or warranty of CAPITAL in
this Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to GSI pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or will
contain any untrue statement of a material fact or, at the date thereof, omits
or will omit to state a material fact necessary to make any statement herein or
therein, in light of the circumstances under which such statement is or will be
made, not misleading.
Section 2.24. No Existing Discussions. As of the date hereof, CAPITAL
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to any Third Party Acquisition (as defined in
Section 4.4).
Section 2.25. Material Contracts.
(a) CAPITAL has delivered or otherwise made available to GSI true,
correct and
14
complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which CAPITAL is a
party affecting the obligations of any party thereunder) to which CAPITAL is a
party or by which any of its properties or assets are bound that are material to
the business, properties or assets of CAPITAL taken as a whole, including,
without limitation, to the extent any of the following are, individually or in
the aggregate, material to the business, properties or assets of CAPITAL taken
as a whole, all: (i) employment, product design or development, personal
services, consulting, non-competition, severance, golden parachute or
indemnification contracts (including, without limitation, any contract to which
CAPITAL is a party involving employees of CAPITAL); (ii) licensing, publishing,
merchandising or distribution agreements; (iii) contracts granting rights of
first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets or stack or otherwise entered into since March 8, 2002;
(vi) contracts or agreements with any Governmental Entity. and (vii) all
commitments and agreements to enter into any of the foregoing (collectively,
together with any such contracts entered into in accordance with Section 4.1
hereof, the "CAPITAL Contracts"). CAPITAL is not a party to or bound by any
severance, golden parachute or other agreement with any employee or consultant
pursuant to which such person would be entitled to receive any additional
compensation or an accelerated payment of compensation as a result of the
consummation of the transactions contemplated hereby.
(b) Each of the CAPITAL Contracts is valid and enforceable in
accordance with its terms, and there is no default under any CAPITAL Contract so
listed either by CAPITAL or, to the knowledge of CAPITAL, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by CAPITAL or, to the
knowledge of CAPITAL, any other party, in any such case in which such default or
event could reasonably be expected to have a Material Adverse Effect on CAPITAL.
(c) No party to any such CAPITAL Contract has given notice to CAPITAL
of or made a claim against CAPITAL with respect to any breach or default
thereunder, in any such case in which such breach or default could reasonably be
expected to have a Material Adverse Effect on CAPITAL.
ARTICLE 3
Representations and Warranties of GSI
Except as set forth on the Disclosure Schedule delivered by GSI to
CAPITAL (the "GSI Disclosure Schedule"), GSI hereby represents and warrants to
CAPITAL as follows;
15
Section 3.1. Organization and Qualification.
(a) Each of GSI and its subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Material Adverse
Affect (as defined below) on GSI. When used in connection with GSI, the term
"Material Adverse Effect" means any change or effect (i) that is or is
reasonably likely to be materially adverse to the business, results of
operations, condition (financial or otherwise) or prospects of GSI and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in, which GSI and its
subsidiaries are engaged, or (ii) that may impair the ability of GSI to
consummate the transactions contemplated hereby.
(b) GSI has heretofore delivered to CAPITAL accurate and complete
copies of the Certificate of Incorporation and Bylaws (or similar governing
documents), as currently in effect, of GSI. Each of GSI and its subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on GSI.
Section 3.2. Capitalization of GSI.
(a) The total authorized capital stock of GSI consists of One Hundred
Million (100,000,000) GSI Common Shares, $.001 par value; Fifteen million six
hundred ninety thousand five hundred twenty three (15,690,523) common Shares are
currently issued and outstanding and there are Fifty Million (50,000,000)
preferred shares authorized; One Million eighty thousand (1,080,000) are
presently outstanding. All of the outstanding GSI Shares have been duly
authorized and validly issued, and are fully paid, nonassessable and free of
preemptive rights.
(b) Except as set forth in Section 3.2(b) of the GSI Disclosure
Schedule, GSI is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of its subsidiaries.
(c) Except as set forth in Section 3.2(c) of the GSI Disclosure
Schedule, between the date hereof and the Effective Time, no shares of GSI's
capital stock have been issued and no GSI Stock options have been granted.
Except as set forth in Section 3.2(a) above, as of the date hereof, there are no
outstanding (i) shares of capital stock or other voting securities of GSI, (ii)
securities of GSI or its subsidiaries convertible into or Exchangeable for
shares of capital stock or voting securities of GSI except as provided for in
Schedule 3.2(c), (iii) options or other rights to acquire from GSI or its
subsidiaries, or obligations of GSI or its subsidiaries to issue, any capital
stock, voting securities or securities convertible into or Exchangeable for
capital stock or voting securities of GSI, or (iv) equity equivalents, interests
in the ownership or earnings of GSI or its subsidiaries or other similar rights
(collectively, "GSI Securities"). As of the date hereof there are no
16
outstanding obligations of GSI or any of its subsidiaries to repurchase, redeem
or otherwise acquire any GSI Securities. There are no stockholder agreements,
voting trusts or other agreements or understandings to which GSI is a party or
by which it is bound relating to the voting or registration of any shares of
capital stock of GSI.
(d) Except as set forth in Section 3.2(d) of the GSI Disclosure
Schedule, there are no additional securities of GSI convertible into or
Exchangeable for, no options or other rights to acquire from GSI, and no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any capital stock
or other ownership interests in or any other securities of, any subsidiary of
GSI.
(e) The GSI Shares constitute the only class of equity securities of
GSI or its subsidiaries.
(f) Except as set forth in Section 3.2(f) of the GSI Disclosure
Schedule, GSI does not own directly or indirectly more than fifty percent (50%)
of the outstanding voting securities or interests (including membership
interests) of any entity.
Section 3.3. Authority Relative to this Agreement Recommendation.
(a) GSI has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of GSI (the "GSI Board"), and no other corporate proceedings
on the part of GSI are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby, except, as referred to in Section 3.17,
the approval and adoption of this Agreement by the holders of at least a
majority of the then outstanding GSI Shares. This Agreement has been duly and
validly executed and delivered by GSI and constitutes a valid, legal and binding
agreement of GSI, enforceable against GSI in accordance with its terms.
(b) The GSI Board has resolved to recommend that the stockholders of
GSI approve and adopt this Agreement.
Section 3.4. SEC Reports and Financial Statements. GSI is not required
to file forms, reports and documents with the SEC.
Section 3.5. Information Supplied. None of the information supplied or
to be supplied by GSI for inclusion or incorporation by reference to (i) the
CAPITAL Proxy Statement, 8-K or other SEC Report will, at the time the SEC
Report is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Proxy Statement will, at the date
mailed to stockholders of CAPITAL, if any, and at the times of the meeting or
meetings of stockholders of CAPITAL to be held in connection with the Share
Exchange, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein,
17
in light of the circumstances under which they are made, not misleading. The
Proxy Statement, insofar as it relates to the meeting of GSI's stockholders to
vote on the Share Exchange, will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder, and
the 8-K will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations thereunder.
Section. 3.6. Consents and Approvals; No Violations. Except as set
forth in Section 3.6 of the GSI Disclosure Schedule, and for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD and the filing
and recordation of the Share Exchange Certificate as required by the NCGL, no
filing with or notice to, and no permit, authorization, consent or approval of
any Governmental Entity is necessary for the execution and delivery by GSI of
this Agreement or the consummation by GSI of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations consents
or approvals or to make such filings or give such notice would not have a
Material Adverse Effect on GSI.
Neither the execution, delivery and performance of this Agreement by
GSI nor the consummation by GSI of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of GSI
or any of GSI's subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under, any of the terms conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract agreement or other instrument or
obligation to which GSI or any of GSI's subsidiaries is a party or by which any
of them or any of their respective properties or assets may be bound or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to GSI or any of GSI's subsidiaries or any of their respective
properties or assets except in the case of (ii) or (iii) for violations,
breaches or defaults which would not have a Material Adverse Effect on GSI.
Section 3.7. No Default. None of GSI or any of its subsidiaries is in
breach, default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a breach, default or violation) of any
term, condition or provision of (i) its Certificate of Incorporation or Bylaws
(or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
GSI or any of its subsidiaries is now a party or by which any of them or any of
their respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to GSI, its
subsidiaries or any of their respective properties or assets, except in the case
or (ii) or (iii) for violations, breaches or defaults that would not have a
Material Adverse Effect on GSI. Each note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which GSI or
any of its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound that is material to GSI and its
subsidiaries taken as a whole and that has not expired is in full force and
effect and is not subject to any material default thereunder of which GSI is
aware by any party obligated to GSI or any subsidiary thereunder.
18
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as
and to the extent disclosed by GSI, neither GSI or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet or GSI and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on GSI. Except as disclosed by GSI, none of GSI or its
subsidiaries has incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, which could reasonably be expected to have, and there
have been no events, changes or effects with respect to GSI or its subsidiaries
having or which could reasonably be expected to have, a Material Adverse Effect
on GSI. Except as and to the extent disclosed by GSI there has not been (i) any
material change by GSI in its accounting methods, principles or practices (other
than as required after the date hereof by concurrent changes in generally
accepted accounting principles, (ii) any revaluation by GSI of any of its assets
having a Material Adverse Effect on GSI, including, without limitation, any
write-down of the value of any assets other than in the ordinary course of
business or (iii) any other action or event that would have required the consent
of any other party hereto pursuant to Section 4.2 of this Agreement had such
action or event occurred after the date of this Agreement.
Section 3.9. Litigation. Except as set forth in Schedule 3.9 of the GSI
Disclosure Schedule there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of GSI, threatened against GSI or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on GSI or could reasonably be
expected to prevent or delay the consummation of the transactions contemplated
by this Agreement. Except as disclosed by GSI, none of GSI or its subsidiaries
is subject to any outstanding order, writ, injunction or decree which, insofar
as can be reasonably foreseen in the future, could reasonably be expected 'to
have a Material Adverse Effect on GSI or could reasonably be expected to prevent
or delay the consummation of the transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as disclosed by
GSI, GSI and its subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and Governmental entities necessary for
the lawful conduct of their respective businesses (the "GSI approvals) which
would not have a Material Adverse Effect on GSI. Except as disclosed by GSI, GSI
and its subsidiaries are in compliance with the terms of the GSI Permits, except
where the failure so to comply would not have a Material Adverse Effect on GSI.
Except as disclosed by GSI, tile businesses of GSI and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 3.10 with respect to Environmental Laws and except for violations or
possible violations which do not, and, insofar as reasonably can be foreseen, in
the future will not, have a Material Adverse Effect on GSI. Except as disclosed
by GSI no investigation or review by any Governmental Entity with respect to GSI
or its subsidiaries is pending or, to the knowledge of GSI, threatened, nor, to
the knowledge of GSI, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which GSI reasonably believes
will not have a Material Adverse Effect on GSI.
19
Section 3.11. Employee Benefit Plans, Labor Matters.
(a) With respect to each employee benefit plan, program policy,
arrangement and contract (including, without limitation, any "employee benefit
plan," as defined in Section 3(3) of ERISA), maintained or contributed to at any
time by GSI, any of its subsidiaries or any entity required to be aggregated
with GSI or any of its subsidiaries pursuant to Section 414 of the Code (each, a
"GSI Employee Plan"). No event has occurred and, to the knowledge of GSI, no
condition or set of circumstances exists in connection with which GSI or any of
its subsidiaries could reasonably be expected to be subject to any liability
which would have a Material Adverse Effect on GSI.
(b) (i) No GSI Employee Plan is or has been subject to Title IV or
ERISA or Section 412 of the Code; and (ii) each GSI Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of favorable internal Revenue
Service determination letter, and nothing has occurred which could reasonably be
expected to adversely affect such determination.
(c) Section 3.11(c) of the GSI Disclosure Schedule sets forth a true
and complete list, as of the date of this Agreement, of each person who holds
any GSI Stock Options, together with the number of GSI Shares which are subject
to such option, the date of grant of such option, the extent to which such
option is vested (or will become vested as a result of the Share Exchange), the
option price of such option (to the extent determined as of the date hereof),
whether such option is a nonqualified stock option or is intended to qualify as
an incentive stock option within the meaning of Section 422(b) of the Code, and
the expiration date of such option. Section 3. ii (c) of the GSI Disclosure
Schedule also sets forth the total number of such incentive stock options and
such nonqualified options. GSI has furnished CAPITAL with complete copies of the
plans pursuant to which the GSI Stock Options were issued. Other than the
automatic vesting of GSI Stock Options that may occur without any action on the
part of GSI or its officers or directors, GSI has not taken any action that
would result in any GSI Stock Options that are unvested becoming vested in
connection with or as a result of the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(d) GSI has made available to CAPITAL (i) a description of the terms of
employment and compensation arrangements of all officers of GSI and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating GSI to make annual cash payments in
an amount exceeding $60,000; (iii) a schedule listing all officers of GSI who
have executed a non-competition agreement with GSI and a copy of each such
agreement currently in effect; (iv) copies (or descriptions) of all severance
agreements, programs and policies of GSI with or relating to its employees,
except programs and policies required to be maintained by law; and (v) copies of
all plans, programs, agreements and other arrangements of the GSI with or
relating to its employees which contain change in control provisions.
(e) Except as disclosed in Section 3.1.1(e) of the GSI Disclosure
Schedule there shall be no payment, accrual of additional benefits, acceleration
of payments, or vesting in any benefit
20
under any GSI Employee Plan or any agreement or arrangement disclosed under this
Section 3.11 solely by reason of entering into or in connection with the
transactions contemplated by this Agreement.
(f) There are no controversies pending or, to the knowledge of GSI
threatened, between GSI or any of its subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect on GSI. Neither GSI nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by GSI or any of its subsidiaries (and neither
GSI nor any of its subsidiaries has any outstanding material liability with
respect to any terminated collective bargaining agreement or labor union
contract), nor does GSI know of any activities or proceedings of any labor union
to organize any of its or any of its subsidiaries' employees. GSI has no
knowledge of any strike, slowdown, work stoppage, lockout or threat thereof by
or with respect to any of its or any of its subsidiaries' employees.
Section 3.12. Environmental Laws and Regulations.
(a) Except as disclosed by GSI, (i) each of GSI and its subsidiaries is
in material compliance with all Environmental Laws, except for non-compliance
that would not have a Material Adverse Effect on GSI, which compliance includes,
but is not limited to, the possession by GSI and its subsidiaries of all
material permits and other government, authorizations required under applicable
Environmental Laws, and compliance with, the terms and conditions thereof; (ii)
none of GSI or its subsidiaries has received written notice of; or, to the
knowledge of GSI, is the subject of, any Environmental Claim that could
reasonably be expected to have a Material Adverse Effect on GSI; and (iii) to
the knowledge of GSI, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
(b) Except as disclosed by GSI, there are no Environmental Claims which
could reasonably be expected to have a Material Adverse Effect on GSI that are
pending or, to the knowledge of GSI, threatened against GSI or any of its
subsidiaries or, to the knowledge of GSI, against any person or entity whose
liability for any Environmental Claim GSI or its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
Section 3.13. Tax Matters. Except as set forth in Section 3.13 of the
GSI Disclosure Schedule: (i) GSI and each of its subsidiaries has filed or has
had filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns with respect to Taxes of GSI and each of its subsidiaries and all
Tax Returns were in all material respects true, complete and correct; (ii) all
material Taxes with respect to GSI and each of its subsidiaries have been paid
in full or have been provided for in accordance with GAAP on GSI's most recent
balance sheet which is part of the GSI SEC Documents; (iii) there are no
outstanding agreements or waivers extending the statutory period or limitations
applicable to any federal, state, local or foreign income or other material Tax
Returns required to be filed by or with respect to GSI or its subsidiaries; (iv)
to the knowledge of GSI none of the Tax Returns of or with respect to GSI or any
of its subsidiaries is currently being audited or examined by any Governmental
Entity; and (v) no deficiency for any income or other material
21
Taxes has been assessed with respect to GSI or any of its subsidiaries which has
not been abated or paid in, full.
Section. 3.14. Title to Property. GSI and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which, individually or in the aggregate, would not
have a Material Adverse Effect on GSI; and, to GSI's knowledge, all leases
pursuant to which GSI or any of its subsidiaries lease from others real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, to the knowledge of GSI, under any or
such leases, any existing material default or event of default (or event which
with notice or lapse of time, or both, would constitute a material default and
in respect of which GSI or such subsidiary has not taken adequate steps to
prevent such a default from occurring) except where the lack of such good
standing, validity and effectiveness, or the existence of such default or event
of default would not have a Material Adverse Effect on GSI.
Section 3.15. Intellectual Property.
(a) Each of GSI and its subsidiaries owns, or possesses adequate
licenses or other valid rights to use, all existing United States and foreign
patents, trademarks, trade names, services marks, copyrights, trade secrets, and
applications therefore that are material to its business as currently conducted
(the "GSI Intellectual Property Rights").
(b) Except as set forth in Schedule 3.15(b) of the GSI Disclosure
Schedule the validity of the GSI Intellectual Property Rights and the title
thereto of GSI or any subsidiary, as the case may be, is not being questioned in
any litigation to which GSI or any subsidiary is a party.
(c) The conduct of the business of GSI and its subsidiaries as now
conducted does not, to GSI's knowledge, infringe any valid patents, trademarks,
trade names, service marks or copyrights of others. The consummation of the
transactions contemplated hereby will not result in the loss or impairment of
any GSI Intellectual Property Rights.
(d) Each of GSI and its subsidiaries has taken steps it believes
appropriate to protect and maintain its trade secrets as such, except in cases
where GSI has elected to rely on patent or copyright protection in lieu of trade
secret protection.
Section 3.16. Insurance. GSI and its subsidiaries maintain general
liability and other business insurance that GSI believes to be reasonably
prudent for its business.
Section 3.17. Vote Required. The affirmative vote of the holders of at
least a majority of the outstanding GSI Shares is the only vote of the holders
of any class or series of GSI's capital stock necessary to approve and adopt
this Agreement and the Share Exchange.
Section 3.18. Tax Treatment. Neither GSI nor, to the knowledge of GSI,
any of its
22
affiliates has taken or agreed to take any action that would prevent the Share
Exchange from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
Section 3.19. Affiliates. Except for the directors and executive
officers of GSI, each of whom is listed in Schedule 3.19 of the GSI Disclosure
Schedule, there are no persons who, to the knowledge of GSI, may be deemed to be
affiliates of GSI under Rule 1-02(b) of Regulation S-X of the SEC (the "GSI
Affiliates").
Section 3.20. Certain Business Practices. None of GSI, any of its
subsidiaries or any directors, officers, agents or employees of GSI or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the FCPA, or (iii) made any other unlawful payment.
Section 3.21. Insider Interests. Except as set forth in Section 7.14
and Schedule 3.21 of the GSI Disclosure Schedule, no officer or director of GSI
has any interest in any material, property, real or personal, tangible or
intangible, including without limitation, any computer software or GSI
Intellectual Property Rights, used in or pertaining to the business of GSI or
any subsidiary, except for the ordinary rights of a stockholder or employee
stock option holder.
Section 3.22. Opinion of Financial Adviser. No advisers, as of the date
hereof, have delivered to the GSI Board a written opinion to the effect that, as
of such date, the Exchange ratio contemplated by the Share Exchange is fair to
the holders of GSI Shares.
Section 3.24. Disclosure. No representation or warranty of GSI in this
Agreement or any certificate, schedule, document or other instrument furnished
or to be furnished to CAPITAL pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or will
contain any untrue statement of a material fact or, at the date thereof, omits
or will omit to state a material fact necessary to make any statement herein or
therein, in light of the circumstances under which such statement is or will be
made, not misleading.
Section 3.25. No Existing Discussions. As of the date hereof GSI is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in Section
5.4).
Section 3.26. Material Contracts.
(a) GSI has delivered or otherwise made available to CAPITAL true,
correct and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which GSI is a
party affecting the obligations of any party thereunder) to which GSI or any of
its subsidiaries is a party or by which any of their properties or assets are
bound that are, material to the business, properties or assets of GSI and its
subsidiaries taken as
23
a whole, including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of GSI and its subsidiaries taken as a whole, all: (i) employment, product
design or development, personal services, consulting, non-competition,
severance, golden parachute or indemnification contracts (including, without
limitation, any contract to which GSI is a party involving employees of GSI);
(ii) licensing, publishing, merchandising or distribution agreements; (iii)
contracts granting rights of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets or stock or otherwise (vi)
contracts or agreements with any Governmental Entity; and (vii) all commitments
and agreements to enter into any of the foregoing (collectively, together with
any such contracts entered into in accordance with Section 5.2 hereof; the "GSI
Contracts"). Neither GSI nor any of its subsidiaries is a party to or bound by
any severance, golden parachute or other agreement with any employee or
consultant pursuant to which such person would be entitled to receive any
additional compensation or an accelerated payment of compensation as a result of
the consummation of the transactions contemplated hereby.
(b) Each of the GSI Contracts is valid and enforceable in accordance
with its terms, and there is no default under any GSI contract so listed either
by GSI of, to the knowledge of GSI, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by GSI or, to the knowledge of GSI, any other
party, in any such case in which such default or event could reasonably be
expected to have a Material Adverse Effect on GSI .
(c) No party to any such GSI Contract has given notice to GSI of or
made a claim against GSI with respect to any breach or default thereunder, in
any such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on GSI.
ARTICLE 4
Covenants
Section 4.1 Conduct of Business of CAPITAL. Except as contemplated by
this Agreement or as described in Section 4.of the CAPITAL Disclosure Schedule,
during the period from the date hereof to the Effective Time, CAPITAL will
conduct its operations in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to preserve
intact its current business organization, keep available the service of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time Without
limiting the generality of the foregoing, except as otherwise expressly provided
in this Agreement or as described in Section 4.1 of the CAPITAL Disclosure
Schedule, prior to the Effective Time, CAPITAL will not, without the prior
written consent of GSI:
(a) Amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
24
(b) Amend the terms of any stock of any class or any other securities
(except bank loans) or equity equivalents;
(c) Split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed distribution in respect of its
capital stock or otherwise make any payments to stockholders in their capacity
as such, or redeem or otherwise acquire any of its securities;
(d) Adopt a plan of complete or partial liquidation, dissolution, share
Exchange, consolidation, restructuring, recapitalization or other reorganization
of CAPITAL (other than the Share Exchange);
(e) (i) Incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person (iii) make
any loans, advances or capital contributions to, or investments in, any other
person; (iv) pledge or otherwise encumber shares of capital stock of CAPITAL; or
(v) mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon (other than tax Liens for
taxes not yet due);
(f) Except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner, or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights or
performance units); provided, however, that this paragraph (f) shall not prevent
CAPITAL from (i) entering into employment agreements or severance agreements
with employees in the ordinary course of business and consistent with past
practice or (ii) increasing annual compensation and/or providing for or amending
bonus arrangements for employees for fiscal 2002 in the ordinary course of
year-end compensation reviews consistent with past practice and paying bonuses
to employees for fiscal 2001 in amounts previously disclosed to GSI (to the
extent that such compensation increases and new or amended bonus arrangements do
not reset in a material increase in benefits or compensation expense to
CAPITAL);
(g) Acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary course
of business);
(h) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
25
(i) Revalue in, any material respect any of its assets including,
without limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) Acquire (by share Exchange, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice which would be material to CAPITAL; (iii) authorize any new capital
expenditure or expenditures which, individually is in excess of $1,000 or, in
the aggregate, are in excess of $5,000; provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) Make any tax election or settle or compromise any income tax
liability material to CAPITAL;
(l) Settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
CAPITAL;
(m) Commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or in the
ordinary course of business; or
(n) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(m) or any action which would make any
of the representations or warranties of, contained in this Agreement untrue or
incorrect.
Section 4.2. Conduct of Business of GSI. Except as contemplated by this
Agreement or as described in Schedule 4.2 of the GSI Disclosure Schedule during
the period from the date hereof to the Effective Time, GSI will conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, seek to preserve intact its current
business organization, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement or as
described in Schedule 4.2 of the GSI Disclosure Schedule, prior to the Effective
Time, GSI will not, without the prior written consent of:
(a) Amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) Authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or
26
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities (except bank loans) or equity equivalents
(including, without limitation, any stock options or stock appreciation rights;
(c) Split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed distribution in respect of its
capital stock or otherwise make any payments to stockholders in their capacity
as such, or redeem or otherwise acquire any of its securities;
(d) Adopt a plan of complete or partial liquidation, dissolution, share
Exchange consolidation, restructuring, re-capitalization or other reorganization
of GSI (other than the Share Exchange);
(e) (i) Incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit under
existing lines of credit in the ordinary course of business (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iii) make
any loans, advances or capital contributions to or investments in, any other
person; (iv) pledge or otherwise encumber shares of capital stock of GSI or its
subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon (other than
tax Liens for taxes not yet due);
(f) Except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner, or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights or
performance units); provided, however, that this paragraph (f) shall not prevent
GSI or its subsidiaries from (i)entering into employment agreements or severance
agreements with employees in the ordinary course of business and consistent with
past practice or (ii) increasing annual compensation and/or providing for or
amending bonus arrangements for employees for fiscal 2001 in the ordinary course
of yearend compensation reviews consistent with past practice and paying bonuses
to employees for fiscal 2001 in amounts previously disclosed to (to the extent
that such compensation increases and new or amended bonus arrangements do not
result in a material increase in, benefits or compensation expense to GSI);
(g) Acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions other than in the ordinary course
of business;
(h) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
27
(i) Revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory of writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) Acquire (by share Exchange, consolidation, or acquisition of
stock or assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in, the ordinary course of business consistent with past
practice which would be material to GSI; (iii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $1,000 or, in
the aggregate, are in excess of $5,000: provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) Make any tax election or settle or compromise any income tax
liability material to GSI and its subsidiaries taken as a whole;
(l) Settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on, GSI;
(m) Commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or except in the
ordinary course of business; or
(n) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(m) or any action which would make any
of the representations or warranties of the GSI contained in this Agreement
untrue or incorrect.
Section 4.3 Other Potential Acquirers.
(a) GSI, its affiliates and. their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any Third Party Acquisition.
Section 4.4. Meetings of Stockholders. GSI shall take all action
necessary, in accordance with the Oklahoma General Corporate Act to duly call,
give notice of, convene and hold a meeting of its stockholders as promptly as
practicable, to consider and vote upon the adoption and approval of this
Agreement and the transactions contemplated hereby. The stockholder votes
required for the adoption and approval of the transactions contemplated by this
Agreement shall be the vote required by the ORS and its charter.
Section 4.5. OTC:BB Listing. The parties shall use all reasonable
efforts to cause the CAPITAL Shares, subject to Rule 144, to be traded on the
Over-the-Counter Bulletin Board (OTC:BB).
28
Section. 4.6. Access to Information.
(a) Between the date hereof and the Effective Time, CAPITAL will give
GSI and its authorized representatives, and GSI will give CAPITAL and its
authorized representatives, reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of itself and its
subsidiaries, will permit the other party to make such inspections as such party
may reasonably require and will cause its officers and those of its subsidiaries
to furnish the other party with such financial and operating data and other
information with respect to the business and properties of itself and its
subsidiaries as the other party may from time to time reasonably request.
(b) Between the date hereof and the Effective Time, CAPITAL shall
furnish to GSI, and GSI will furnish to CAPITAL, within 25 business days after
the end of each quarter, quarterly statements prepared by such party in
conformity with its past practices) as of the last day of the period then ended.
(c) Each of the parties hereto will hold and will cause its consultants
and advisers to hold in confidence all documents and information furnished to it
in connection with the transactions contemplated by this Agreement.
Section 4.7. Additional Agreements. Reasonable Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperating in the preparation and filing of the Proxy Statement and the 8-K,
any filings that may be required under the HSR Act, and any amendments to any
thereof; (ii) obtaining consents of al third parties and Governmental Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement; (iii) contesting any legal proceeding relating
to the Share Exchange and (iv) the execution of any additional instruments
necessary to consummate the transactions contemplated hereby. Subject to the
terms and conditions of this Agreement, GSI and CAPITAL agree to use all
reasonable efforts to cause the Effective Time to occur as soon as practicable
after the stockholder votes with respect to the Share Exchange. In case at any
time after the Effective Time any further action is necessary to carry out the
purposes of this Agreement, the proper officers and directors of each party
hereto shall take all such necessary action.
Section 4.8. Employee Benefits Stock Option and Employee Purchase
Plans. Neither CAPITAL nor GSI has any, or contemplates the institution of
Employee Benefit Plans.
Section 4.9. Public Announcements. GSI, and CAPITAL will consult with
one another before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement,
including, without limitation, the Share Exchange, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable law or by obligations pursuant to any
listing agreement with the NASD Over-the-Counter Bulletin Board (OTC:BB) as
determined by
29
GSI or CAPITAL.
Section 4.10. Indemnification.
(a) To the extent, if any, not provided by an existing right under one
of the parties, directors and officers liability insurance policies, from and
after the Effective Time, CAPITAL shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement arising out
of actions or omissions occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time) that are in whole
or in part (i) based on, or arising out of the fact that such person is or was a
director, officer or employee of such party or a subsidiary of such party or
(ii) based on, arising out of or pertaining to the transactions contemplated by
this Agreement. In the event of any such loss expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) CAPITAL shall
pay the reasonable fees and expenses of counsel selected by the indemnified
Parties, which counsel shall be reasonably satisfactory to CAPITAL, promptly
after statements therefore are received and otherwise advance to such
Indemnified Party upon request reimbursement of documented expenses reasonably
incurred, in either case to the extent not prohibited by the ORS or its
certificate of incorporation or bylaws, (ii) CAPITAL will cooperate in the
defense of any such matter and (iii) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the ORS and CAPITAL'S certificate of incorporation or bylaws
shall be made by independent counsel mutually acceptable to CAPITAL and the
Indemnified Party; provided, however, that CAPITAL shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, or conflict on any significant issue between positions of
any two or more Indemnified Parties.
(b) In the event CAPITAL or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or Acquiring corporation or entity or such consolidation or share
Exchange or (ii) transfers all or substantially all of its properties and assets
to any person, then and in either such case, proper provision shall be made so
that the successors and assigns of CAPITAL shall assume the obligations set
forth in this Section 4.11.
(c) To the fullest extent permitted by law, from and after the
Effective Time, all rights to indemnification now existing in favor of the
employees, agents, directors or officers of CAPITAL and GSI and their
subsidiaries with respect to their activities as such prior to the Effective
Time, as provided in CAPITAL'S and GSI'S certificate of incorporation or bylaws,
in effect on the date thereof or otherwise in effect on the date hereof, shall
survive the Share Exchange and shall continue in full force and effect for a
period of not less than six years from the Effective Time.
30
(d) The provisions of this Section 4.11 are intended to be for the
benefit of and shall be enforceable by, each indemnified Party, his or her heirs
and his or her representatives.
Section 4.11. Notification of Certain Matters. The parties hereto shall
give prompt notice to the other parties, of (i) the occurrence or nonoccurrence
of any event the occurrence or nonoccurrence of which would be likely to cause
any representation or warranty contained in, this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii) any
material failure of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, (iii) any notice
of, or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by such party or any of
its subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any contract or agreement material to the financial
condition, properties, businesses or results of operations of such party and its
subsidiaries taken other communication from any third party alleging that the
consent of such third party is or may as a whole to which such party or any of
its subsidiaries is a party or is subject, (iv) any notice or be required in
connection with the transactions contemplated by this Agreement, or (v) any
material adverse change in their respective financial condition, properties,
businesses, results of operations or prospects taken as a whole, other than
changes resulting from general economic conditions; provided, however, that the
delivery of any notice pursuant to this Section 4.11 shall not cure such breach
or non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
ARTICLE 5
Conditions to Consummation of the Share Exchange
Section 5.1 Conditions to Each Party's Obligations to Effect the Share
Exchange. The respective obligations of each party hereto to affect the Share
Exchange are subject to the satisfaction at or prior to the Effective Time of
the following conditions:
(a) this Agreement shall have been approved and adopted by the
stockholders of CAPITAL and GSI; and
(b) this Agreement shall have been approved and adopted by the Board of
Directors of CAPITAL and GSI; and
(c) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Share Exchange;
(d) any waiting period applicable to the Share Exchange under the HSR
Act shall have
31
terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received; and
Section 5.2 Conditions to the Obligations of CAPITAL. The obligation of
CAPITAL to effect the Share Exchange is subject to the satisfaction at or prior
to the Effective Time of the following conditions:
(a) the representations of GSI contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof would not have a Material Adverse Effect on
GSI) at and as of the Effective Time with the same effect as if made at and as
of the Effective Time (except to the extent such representations specifically
related to an earlier date, in which case such representations shall be true and
correct as of such earlier date), and at the Closing GSI shall have delivered to
CAPITAL a certificate to that effect;
(b) each of the covenants and obligations of GSI to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time and
at the Closing GSI shall have delivered to CAPITAL a certificate to that effect;
(c) GSI shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the Share
Exchange as relates to any obligation, right or interest of GSI under any loan
or credit agreement, note, mortgage, indenture, lease or other agreement or
instrument, except those for which failure to obtain such consents and approvals
would not, in the reasonable opinion of CAPITAL, individually or in the
aggregate, have a Material Adverse Effect on GSI; and
(d) there shall have been no events, changes or effects with respect to
GSI or its subsidiaries having or which could reasonably be expected to have a
Material Adverse Effect on GSI.
Section 5.3 Conditions to the Obligations of GSI. The respective
obligations of GSI to affect the Share Exchange are subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(a) the representations of CAPITAL contained in this Agreement or in
any other document delivered pursuant hereto shall be true and correct (except
to the extent that the breach thereof would not have a Material Adverse Effect
on CAPITAL) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing CAPITAL
shall have delivered to GSI a certificate to that effect;
(b) each of the covenants and obligations of CAPITAL to be performed at
or before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all
32
material respects at or before the Effective Time and at the Closing CAPITAL
shall have delivered to GSI a certificate to that effect; and
(c) there shall have been no events, changes or effects with respect to
CAPITAL having or which could reasonably be expected to have a Material Adverse
Effect on CAPITAL.
ARTICLE 6
Termination; Amendment; Waiver
Section 6.1. Termination. This Agreement may be terminated and the
Share Exchange may be abandoned at any time prior to the Effective Time, whether
before or after approval and adoption of this Agreement by CAPITAL's or GSI's
stockholders:
(a) by mutual written consent of CAPITAL and GSI;
(b) by GSI or CAPITAL if (i) any court of competent jurisdiction in the
United States or other United States Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Share Exchange and such order, decree,
ruling or other action is or shall have become nonappealable or (ii) the Share
Exchange has not been consummated by March 11, 2002; provided, however, that no
party may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date,
(c) by CAPITAL if (i) there shall have been a breach of any
representation or warranty on the part of GSI set forth in this Agreement, or if
any representation or warranty of GSI shall have become untrue, in either case
such that the conditions set forth in Section 5.2(a) would be incapable of being
satisfied by March 28, 2002 (or as otherwise extended), (ii) there shall have
been a breach by GSI of any of their respective covenants or agreements
hereunder having a Material Adverse Effect on GSI or materially adversely
affecting (or materially delaying) the consummation of the Share Exchange, and
GSI, as the case may be, has not cured such breach within 20 business days after
notice by CAPITAL thereof, provided that CAPITAL has not breached any of its
obligations hereunder or (iii) CAPITAL shall have convened a meeting of its
Board of Directors to vote upon the Share Exchange and shall have failed to
obtain the requisite vote;
(d) by GSI if (i) there shall have been a breach of any representation
or warranty on the part of CAPITAL set forth in this Agreement, or if any
representation or warranty of CAPITAL shall have become untrue, in either case
such that the conditions set forth in Section 5.3(a) would be incapable of being
satisfied by March 28, 2002 (or as otherwise extended), (ii) there shall have
been a breach by CAPITAL of its covenants or agreements hereunder having a
Material Adverse Effect on CAPITAL or materially adversely affecting (or
materially, delaying) the consummation of the Share Exchange, and CAPITAL, as
the case may be, has not cured such breach within
33
twenty business days after notice by GSI thereof, provided that GSI has not
breached any of its obligations hereunder.
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith became void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, owners or stockholders, other
than the provisions of this Section 6.2 and Sections 4.7(c). 7.13 and 6.3
hereof. Nothing contained in this Section 6.2 shall relieve any party from
liability for any breach of this Agreement.
Section 6.3. THIS SECTION LEFT BLANK INTENTIONALLY
Section 6.4. Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
Section 6.5. Extension: Waiver. At any time prior to the Effective
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 7
Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings both written and oral, between the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise.
Section 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement and the
34
application of such provision to other persons or circumstances, shall not be
affected thereby, and to such end, the provisions of this Agreement are agreed
to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested),
to each other party as follows:
If to CAPITAL:
Xxxxxxx Xxxx
Capital Development Group
C/O Xxxxxx Xxxxxxxxxx
BJM Consultants
0000 Xxxxx Xxxx Xxxxx Xxxxxxxxx
Xxxxxxxxxx XX 00000
If to GSI:
Mr. J. Xxx Xxxxxx
G Society, Inc.
000 XX 00xx Xxxxxx
Xxxxx, Xxxxxxx 00000
And copies of all notices to:
X. Xxx Xxxxxxxx, Esq.
0000 Xxxxxx Xxxx Xxxx. Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxx 00000
(000) 000-0000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon, without regard to
the principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.9 and 4.11, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason
35
of this Agreement.
Section 7.3. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means (except as otherwise provided in Sections 2.1.9,
3.19 and 4.13) a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof.;
(d) "knowledge" or "known means, with respect to any matter in
question, if an executive officer of CAPITAL or GSI or its subsidiaries, as the
case may be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of CAPITAL, GSI or any other person,
means any corporation, partnership, limited liability company, association,
trust, unincorporated association or other legal entity of which CAPITAL, GSI or
any such other person, as the case may be (either alone or through or together
with any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of CAPITAL, GSI or any officer, director,
employee, agent, representative or investor of any party hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merge, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that, if a party
hereto is entitled to receive any payment or reimbursement of expenses pursuant
to Sections 6.3(a), (b) or (c), it shall not be entitled to specific performance
to compel the consummation of the Share Exchange.
Section 7.11. Construction. CAPITAL and GSI have participated jointly
in the negotiation
36
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, the Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
Section 7.12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but which
shall constitute one and the same agreement.
Section 7.13 Termination . If this Agreement is terminated by GSI at any time
prior to the Effective Date for any reason except as provided for herein, GSI
agrees to pay to CAPITAL Fifty Thousand ($50,000.00) Dollars.
Section 7.14 Trademarks and Patents: All Patents and Trademarks and
Trade Names shall remain titled in the name of the corporate entity which now
holds the rights to said patent, trademark or trade-name. No transfer or
assignment of a patent, trademark or trade-name shall be effective unless
approved by a majority vote of each corporate board of directors of CAPITAL and
GSI, separately.
In Witness Whereof each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
G SOCIETY, INC.
By:
-------------------------
Name:
-----------------------
Title: Chairman
CAPITAL DEVELOPMENT GROUP, INC.
By:
-------------------------
Name:
-----------------------
Title: President
37
CAPITAL DISCLOSURE SCHEDULE
Schedule 2.1 Organization See Amended Articles/Bylaws
/Minutes
Schedule 2.6 Consents & Approvals None Required
Schedule 2.7 No Default Not Applicable
Schedule 2.8 No Undisclosed Liability None Exist
Schedule 2.9 Litigation None Exist
Schedule 2.10 Compliance with Applicable Law Not Applicable - full
disclosed in 1OKSB
Schedule 2.11 Employee Benefit Plans Section 2.11(a) Not
Applicable - None Exist
Section 2.11(b) No Benefit
Plan Exist
Section 2.11( c) No Options
Exist
Section 2.E 1(d) No
Agreements Exist
Schedule 2.12 Environmental Laws and Regs Not Applicable
Schedule 2 13 Tax Matters None Exist
Schedule 2.14 Title to Property None Exist
Schedule 2.15 Intellectual Property None Exist
Schedule 2.16 Insurance None Exist
Schedule 2 1.7 Vote Required See Shareholder Meeting
Certificate
Schedule 2.13 Tax Treatment Not Applicable
Schedule 2 19 Affiliates None Exist
Schedule 2.20 Certain Business Practices None Exist
Schedule 2.21 Insider Interest None Exist
Schedule 2.22 Opinion of Financial Adviser Waived-None Exist
38
GSI DISCLOSURE SCHEDULE
Schedule 3.2(b) Subsidiary Stock Not Applicable
Schedule 3.2(c) Capital Stock Rights 15,690,523 shares of common
stock.
1,080,000 shares of
preferred stock
convertible into common
stock
Schedule 3.2(d) Securities conversions Options and Warrants
Schedule 3.2 (f) Subsidiaries Gaywired, Inc.,
Lesbianation Enterprises,
Inc., QT Magazine, Inc.,
GPublications, Inc.
Schedule 3.6 Consents & Approvals None Required
Schedule 3.7 No Default Not Applicable
Schedule 3.8 No Undisclosed Liability None Exist
Schedule 3.9 Litigation None
Schedule 3.10 Compliance with Applicable Law Not Applicable
Schedule 3.11 Employee Benefit Plans Section 3.11(c) Employee
incentive Options not
vested Section 3.11(c) No
Agreements Exist
Schedule 3.12 Environmental Laws and Regs. Not Applicable
Schedule 3.13 Tax Matters Payroll tax returns and
payments. Federal Tax
Returns.
Schedule 3.14 Title to Property None Exist
Schedule 3.15(b) Intellectual Property None Exist
Schedule 3.17 Vote Required See Shareholder Meeting
Certificate
Schedule 3.18 Tax Treatment Not Applicable
Schedule 3.19 Affiliates NONE
Schedule 3.20 Certain Business Practices None Exist
Schedule 3.21 Insider Interest None Exist
39
Schedule 3.22 Opinion of Financial Adviser Waived - None Exist
Schedule 4.1 Conduct of Business See Amended & Restated
Articles
Schedule 4.2 Conduct of Business None Exist
40
