EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
APRIL 13, 2000
TABLE OF CONTENTS
PAGE
I. DEFINITIONS....................................................................................................1
II. EXCHANGE OF SHARES; COVENANTS.................................................................................6
2.1 THE MERGER...........................................................................................6
2.2 CONVERSION OF CAPITAL STOCK..........................................................................7
2.3 EXCHANGE OF CERTIFICATES.............................................................................7
2.4 AFFILIATES. Contemporaneously herewith, each of
the Shareholders shall deliver to Parent a written
agreement substantially in the form attached
hereto as EXHIBIT 2.4("Pooling Letters")............................................................8
2.5 POOLING OF INTEREST OPINIONS.........................................................................9
2.6 TRADING PROHIBITIONS.................................................................................9
2.7 COVENANT NOT TO COMPETE..............................................................................9
2.8 REGISTRATION RIGHTS AGREEMENT........................................................................9
2.9 EMPLOYMENT AND CONSULTING AGREEMENTS.................................................................9
2.10 DISTRIBUTION........................................................................................9
III. REPRESENTATIONS AND WARRANTIES OF CITADEL AND THE SHAREHOLDERS..............................................10
3.1 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION....................................................10
3.2 ULTIMATE PARENT ENTITY; SUBSIDIARIES................................................................10
3.3 CAPITALIZATION......................................................................................10
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3.4 AUTHORITY AND STATUS................................................................................11
3.5 FINANCIAL STATEMENTS, LIABILITIES AND OBLIGATIONS OF CITADEL........................................11
3.6 TAXES...............................................................................................12
3.7 OWNERSHIP OF ASSETS AND LEASES......................................................................12
3.8 SUFFICIENCY OF ASSETS...............................................................................14
3.9 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS........................................................14
3.10 ABSENCE OF CHANGES.................................................................................14
3.11 LITIGATION.........................................................................................15
3.12 LICENSES AND PERMITS; COMPLIANCE WITH LAW..........................................................16
3.13 CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY....................................................16
3.14 INTELLECTUAL PROPERTY..............................................................................17
3.15 LABOR MATTERS......................................................................................18
3.16 BENEFIT PLANS......................................................................................18
3.17 SUPPLIERS..........................................................................................21
3.18 ENVIRONMENTAL MATTERS..............................................................................22
3.19 INSURANCE..........................................................................................22
3.20 EXHIBITS...........................................................................................22
3.21 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES..................................................22
3.22 INVESTMENT.........................................................................................23
3.23 OWNERSHIP OF COMPANY STOCK; TITLE..................................................................23
3.24 POOLING OF INTERESTS...............................................................................23
3.25 ACA................................................................................................24
3.26 OTHER MATTERS......................................................................................25
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............................................................26
4.1 ORGANIZATION AND STANDING...........................................................................26
4.2 AUTHORITY AND STATUS................................................................................26
4.3 PARENT COMMON STOCK.................................................................................26
4.4 NO VIOLATION........................................................................................26
4.5 REPORTS AND FINANCIAL STATEMENTS....................................................................27
V. COVENANTS AND ADDITIONAL AGREEMENTS...........................................................................27
5.1 ACCESS..............................................................................................27
5.2 FURNISHING INFORMATION; ANNOUNCEMENTS...............................................................28
5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.............................................................28
5.4 NO NEGOTIATIONS.....................................................................................31
5.5 CONSENTS; COOPERATION...............................................................................31
5.6 ADDITIONAL AGREEMENTS...............................................................................31
5.7 NOTIFICATION OF CERTAIN MATTERS.....................................................................32
5.8 ASSURANCE BY THE SHAREHOLDERS.......................................................................32
5.9 RELEASE BY SHAREHOLDERS.............................................................................32
5.10 401(k) PLAN........................................................................................32
5.11 FILING OF TAX RETURNS..............................................................................32
5.12 RELEASE OF CERTAIN GUARANTIES......................................................................33
VI. CONDITIONS TO THE OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING............................................33
6.1 REPRESENTATIONS AND WARRANTIES; COVENANTS...........................................................33
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6.2 AUTHORIZATION; CONSENT..............................................................................33
6.3 OPINIONS OF CITADEL'S AND THE SHAREHOLDERS' COUNSEL.................................................33
6.4 ABSENCE OF LITIGATION...............................................................................33
6.5 NO MATERIAL ADVERSE CHANGE..........................................................................34
6.6 LEGAL MATTERS.......................................................................................34
6.7 ANCILLARY AGREEMENTS................................................................................34
VII. CONDITIONS TO THE OBLIGATIONS OF CITADEL AND THE SHAREHOLDERS TO EFFECT THE CLOSING.........................34
7.1 REPRESENTATIONS AND WARRANTIES; COVENANTS...........................................................34
7.2 AUTHORIZATION OF THE AGREEMENT; CONSENTS............................................................34
7.3 ABSENCE OF LITIGATION...............................................................................35
7.4 LEGAL MATTERS.......................................................................................35
7.5 ANCILLARY AGREEMENTS................................................................................35
7.6 OPINION OF PURCHASERS'COUNSEL.......................................................................35
VIII. CLOSING....................................................................................................35
8.1 TRANSACTIONS AT CLOSING.............................................................................35
IX. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION...............................................37
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF CITADEL AND THE SHAREHOLDERS; INDEMNIFICATION.........37
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF PURCHASERS; INDEMNIFICATION...........................37
9.3 LIMITATION ON INDEMNIFICATION.......................................................................38
9.4 MANNER OF PAYMENT...................................................................................38
9.5 DEFENSE OF THIRD PARTY CLAIMS.......................................................................38
9.6 SURVIVAL PERIOD FOR CLAIMS..........................................................................39
X. TERMINATION...................................................................................................39
10.1 TERMINATION........................................................................................39
10.2 EFFECT OF TERMINATION..............................................................................40
XI. TAX EFFECT OF THE TRANSACTION................................................................................40
11.1 REORGANIZATION.....................................................................................40
XII. GENERAL PROVISIONS..........................................................................................42
12.1 NOTICES............................................................................................42
12.2 BROKERS............................................................................................43
12.3 FURTHER ASSURANCES.................................................................................43
12.4 WAIVER.............................................................................................44
12.5 EXPENSES...........................................................................................44
12.6 SHAREHOLDER REPRESENTATIVE.........................................................................44
12.7 NONDISCLOSURE OF TERMS.............................................................................44
12.8 BINDING EFFECT.....................................................................................44
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12.9 HEADINGS...........................................................................................44
12.10 ENTIRE AGREEMENT..................................................................................45
12.11 GOVERNING LAW.....................................................................................45
12.12 CONSENT TO JURISDICTION AND VENUE.................................................................45
12.13 COUNTERPARTS......................................................................................45
12.14 PRONOUNS..........................................................................................45
12.15 EXHIBITS INCORPORATED.............................................................................45
12.16 TIME OF ESSENCE...................................................................................45
12.17 AUDIT AND LEGAL EXPENSES..........................................................................46
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AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement"), made this 13th day of April, 2000, by and among COMPUCREDIT
CORPORATION, a Georgia corporation ("Parent"), TCG ACQUISITION, INC., a Florida
corporation and wholly owned subsidiary of Parent ("Merger Sub"), CITADEL GROUP,
INC., a Florida Corporation ("Citadel"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("DLB"), ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ("CFB," and together with DLB, the "Majority Shareholder"), ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, J. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (collectively, the
"Minority Shareholders", and together with the Majority Shareholder, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of Citadel;
WHEREAS, the Boards of Directors of Parent, Merger Sub, and Citadel
have approved this Agreement and deem it advisable and in the best interests of
each corporation and its respective shareholders to enter into this Agreement
and the other agreements contemplated herein and consummate the transactions
contemplated hereby and thereby; and
WHEREAS, the Parties have determined to effect a plan of reorganization
that qualifies as a tax-free reorganization under Section 368 (a) of the Code;
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby specifically agreed to and acknowledged, the parties hereto agree as
follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
1.1 "ACA" means America Consumer Alliance, a Texas not-for-profit
corporation.
1.2 "Agreement" shall mean this Agreement and Plan of Merger and
Reorganization.
1.3 "Benefit Plans" shall have the meaning set forth in Section
3.16.1 hereof.
1.4 "Business" shall mean the provision of credit card security
service and other fee based enhancement products to customers.
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1.5 "Business Day" shall mean a day other than a Saturday, Sunday,
or other on which commercial banks in Atlanta, Georgia are authorized or
required to close.
1.6 "Certificate of Merger" shall have the meaning set forth in
Section 2.1.3(b)
1.7 "Citadel" shall have the meaning set forth in the preamble
hereto.
1.8 "Citadel Common Stock" shall mean the common stock, $1.00 par
value, of Citadel.
1.9 "Citadel Merchant Account" shall mean that certain merchant
account of Citadel established pursuant to that certain agreement dated _____
among Citadel, First National Bank of Omaha and Data Processors International,
Inc. held at the First National Bank of Omaha and processed by Data Processors
International, Inc.
1.10 "Claims" shall mean any and all claims, demands, suits,
proceedings, actions or causes of action of any kind or character whatsoever,
known or unknown, fixed or contingent, suspected or unsuspected, direct or
indirect, however arising, whether at law or in equity, or pursuant to
administrative rule or regulation or otherwise.
1.11 "Closing" shall mean the consummation of the transactions
provided for in this Agreement.
1.12 "Closing Date" shall have the meaning set forth in Section
2.1.3(a).
1.13 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.14 "Confidential Information" means all information concerning a
given Party obtained by another Party in connection with the transactions
contemplated by this Agreement, including, without limitation, ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, business and
marketing plans and proposals, information relating to sales records, profit and
performance reports, sales and training manuals, selling and pricing procedures,
financing methods, the special demands of particular customers, the current and
anticipated demands of customers, specifications of any new products or services
under development, and any other such information treated by the Party providing
the Confidential Information as being confidential or labeled "Confidential," as
well as all physical embodiments of any of the foregoing, except information (i)
ascertainable or obtained from public information; (ii) received from a third
party not employed by or otherwise affiliated with the Party providing such
Confidential Information; or (iii) which is or becomes known to the public other
than through a breach of this Agreement by the receiving Party or by any of the
receiving Party's representatives.
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1.15 "Consent" means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including but not limited to any Governmental Body.
1.16 "Covenant Not to Compete" shall mean the Agreement Ancillary
to Sale of Business between Parent and the Majority Shareholder, substantially
in the form of EXHIBIT 2.7 attached hereto.
1.17 "CSC" means CompuCredit Services Corporation, a Nevada
corporation and wholly owned subsidiary of Parent.
1.18 "Distribution" shall have the meaning set forth in Section
2.10 hereof.
1.19 "DLB" shall have the meaning set forth in the preamble hereto.
1.20 "Effective Time" shall have the meaning set forth in Section
2.1.3(b).
1.21 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.22 "ERISA Plan" shall have the meaning set forth in Section
3.16.1.
1.23 "Escrow Account" shall have the meaning set forth in Section
8.1.3.
1.24 "Escrow Agent" shall mean an entity selected by Merger Sub and
reasonably acceptable to Citadel.
1.25 "Escrow Agreement" shall have the meaning set forth in Section
8.1.3.
1.26 "Escrow Shares" shall have the meaning set forth in Section
8.1.3.
1.27 "Financial Statements" shall have the meaning set forth in
Section 3.5.1.
1.28 "GAAP" shall have the meaning set forth in Section 3.5.1.
1.29 "Governmental Approvals" means any Consent of, with, or to any
Governmental Body.
1.30 "Governmental Body" shall mean any foreign, federal, state,
local or other governmental authority or regulatory body.
1.31 "Hazardous Substance" shall have the meaning set forth in
Section 3.18.
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1.32 "HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended.
1.33 "Indemnitee" shall have the meaning set forth in Section 9.5.
1.34 "Indemnitor" shall have the meaning set forth in Section 9.5.
1.35 "Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions; (ii) internet domain names,
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof together with all of
the goodwill associated therewith; (iii) copyrights (registered or unregistered)
and copyrightable works and registrations and applications for registration
thereof; (iv) mask works and registrations and applications for registration
thereof; (v) computer software, data, data bases and documentation thereof; (vi)
trade secrets and other Confidential Information (including ideas, formulas,
compositions, inventions, whether patentable or unpatentable and whether or not
reduced to practice, know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, technical data, copyrightable works, financial and marketing
plans and customer and supplier lists and information); (vii) other intellectual
property rights; and (viii) copies and tangible embodiments thereof (in whatever
form or medium).
1.36 "Interim Balance Sheet" shall mean the balance sheet included
within the Interim Financial Statement.
1.37 "Interim Financial Statement Date" shall mean [March 31],
2000.
1.38 "Interim Financial Statements" shall have the meaning set
forth in Section 3.5.
1.39 "Legal Requirements" means laws, ordinances, codes, rules,
regulations, standards, judgments, and other requirements of all governmental,
administrative, or judicial entities.
1.40 "Liens" shall mean any liens, equities, claims, mortgages,
deeds of trust, charges, security interests, pledges, possibilities of
reversion, restrictions or encumbrances whatsoever.
1.41 "Loss" shall have the meaning set forth in Section 9.1.
1.42 "Majority Shareholder" shall have the meaning set forth in the
preamble hereto.
1.43 "Material Adverse Change" shall mean any event, occurrence,
fact, condition, change, or effect that is or could reasonably be expected to be
materially adverse to the business, assets, liabilities, prospects, results from
operations or financial or other condition of Citadel.
1.44 "Material Contracts" shall have the meaning set forth in
Section 3.13.
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1.45 "Merger" shall have the meaning set forth in Section 2.1.1.
1.46 "Merger Consideration" shall have the meaning set forth in
Section 2.2.3.
1.47 "Merger Sub" shall have the meaning set forth in the preamble
hereto.
1.48 "Merger Sub Common Stock" shall mean the common stock, $.01
per share, of Merger Sub.
1.49 "Minority Shareholders" shall have the meaning set forth in
the preamble hereto.
1.50 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.51 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.52 "1999 Financial Statements" shall have the meaning set forth
in Section 3.5.
1.53 "Parent" shall mean CompuCredit Corporation, a Georgia
corporation.
1.54 "Parent Common Stock" shall mean the common stock, no par
value per share of CompuCredit Corporation.
1.55 "Parent Reports" shall have the meaning set forth in Section
4.5.
1.56 "Parties" shall mean the Purchasers, Citadel, and the
Shareholders.
1.57 "Party" shall mean any of the Purchasers, Citadel, or the
Shareholders, respectively.
1.58 "Permits" shall mean all licenses, registrations,
certificates, approvals, and permits issued by governmental authorities and
quasi-governmental authorities in regard to the Real Property, or any portion or
component of either thereof.
1.59 "Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, estate, unincorporated organization or Governmental Body.
1.60 "Purchasers" shall mean collectively Parent and Merger Sub.
1.61 "Real Property" shall mean those certain tracts of land
described on EXHIBIT 3.7.9.
1.62 "SEC" shall mean the Securities and Exchange Commission.
1.63 "Shareholders" shall have the meaning set forth in the
preamble hereto.
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1.64 "Shareholder Representative" shall have the meaning set forth
in Section 12.6.
1.65 "Surviving Corporation" shall have the meaning set forth in
Section 2.1.1.
1.66 "Tax Returns" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
1.67 "Tax" or "Taxes" shall mean any federal, state, local or
foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Body.
II. EXCHANGE OF SHARES; COVENANTS
2.1 THE MERGER.
2.1.1 MERGER OF MERGER SUB WITH AND INTO CITADEL. Upon the
terms and conditions set forth in this Agreement, at the Effective Time, Merger
Sub shall be merged with and into Citadel, and the separate existence of the
Merger Sub shall cease (the "Merger"). Citadel shall continue as the Surviving
Corporation of said Merger (the "Surviving Corporation").
2.1.2 EFFECT OF MERGER. The Merger shall have the effects
set forth in this Agreement and in the applicable provisions of the Florida
Business Corporation Act.
2.1.3 CLOSING; EFFECTIVE TIME.
(a) The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of ▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇, 3500 SunTrust Plaza, ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or any other location agreed upon by the
Parties, on April 13, 2000, or such other date to be specified in writing by
Purchasers. The "Closing Date" shall be the date on which closing actually
occurs
(b) Subject to the provisions of this Agreement,
articles of merger (the "Articles of Merger") shall be duly prepared and
executed in accordance with the Florida Business Corporation Act and
simultaneously with or as soon as practicable following the Closing delivered to
the Secretary of State of the State of Florida for filing. The Merger shall
become effective upon the later of: (a) the date and time of the filing of the
Articles of Merger with the Secretary of State of the State of Florida; or (b)
such other date and time as is provided in such Articles of Merger (the
"Effective Time").
2.1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND
OFFICERS. Upon the Effective Time:
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(a) the Articles of Incorporation of Merger Sub
shall continue as the Articles of Incorporation of the Surviving Corporation;
(b) the Bylaws of Merger Sub shall continue as
the Bylaws of the Surviving Corporation; and
(c) The officers and directors of the Merger Sub
shall become the officers and directors of the Surviving Corporation immediately
after the Effective Time.
2.2 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder of Citadel
Common Stock or Merger Sub Common Stock:
2.2.1 CAPITAL STOCK OF MERGER SUB. Each issued and
outstanding share of the capital stock of Merger Sub shall be converted into and
become one fully paid and non-assessable share of common stock, no par value, of
the Surviving Corporation.
2.2.2 CANCELLATION OF TREASURY STOCK AND STOCK OWNED BY THE
PURCHASERS. All shares of Citadel Common Stock that are owned by Citadel as
treasury stock and any shares of Citadel Common Stock owned by the Purchasers
shall be canceled and retired and shall cease to exist, and no consideration
shall be delivered in exchange therefore.
2.2.3 CITADEL COMMON STOCK. The issued and outstanding
shares of Citadel Common Stock outstanding immediately prior to the Effective
Time, shall be converted into the right to receive that number of shares of
Parent Common Stock equal to Sixty Four Million Two Hundred Thousand Dollars
($64,200,000.00) divided by Thirty Six Dollars ($36.00). Any fractional shares
of Parent Common Stock resulting from this computation shall be payable in cash
(without interest) pursuant to the terms of Section 2.3.3. The aggregate shares
of Parent Common Stock into which all shares of Citadel Common Stock will be
converted into the right to receive is referred to herein as the "Merger
Consideration." Each Shareholder shall be entitled to receive a pro rata share
of the Merger Consideration based upon such Shareholder's pro rata ownership of
Citadel Common Stock.
2.2.4 EFFECT ON CITADEL COMMON STOCK. All such shares of
Citadel Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Parent
Common Stock and any cash in lieu of fractional shares of Parent Common Stock to
be issued or paid in connection therefor upon the surrender of such certificate
in accordance with Section 2.3, without interest.
2.3 EXCHANGE OF CERTIFICATES.
2.3.1 DELIVERY OF CERTIFICATES. At the Closing, Parent
shall instruct its transfer agent to deliver to the Shareholder Representative
for re-delivery to the Shareholders: (A)
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certificates representing the shares of Parent Common Stock issuable under
Section 2.2.3 in exchange for shares of Citadel Common Stock; and (B) cash in an
amount sufficient for payment in lieu of fractional shares as contemplated by
Section 2.2.3. The Shareholder Representative shall deliver to Parent at Closing
the stock certificates representing the Citadel Common Stock.
2.3.2 NO FURTHER OWNERSHIP RIGHTS IN CITADEL STOCK. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Citadel Common Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 2.3.3) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Citadel Common Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Citadel Common Stock which
were outstanding immediately prior to the Effective Time.
2.3.3 NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a shareholder of
Parent. Notwithstanding any other provision of the Agreement, each holder of
shares of Citadel Common Stock, exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent Common
Stock (after taking into account all certificates delivered by such holder)
shall receive from Parent, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Parent Common Stock multiplied by
the average closing price per share for the twenty (20) consecutive trading days
ending on the second trade date prior to the Closing Date (or if there are no
sales on such dates, then the average between the closing bid and ask price on
any such day) as reported by the Nasdaq Stock Market, Inc. National Market.
2.3.4 STOCK LEGENDS. The shares of Parent Common Stock to
be issued in the Merger shall be characterized as "restricted securities" under
the 1933 Act, and each certificate representing any of such shares shall bear a
legend identical or similar in effect to the following legend (together with any
other legend or legends required by applicable state securities laws or
otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION
IS NOT REQUIRED.
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2.4 AFFILIATES. Contemporaneously herewith, each of the
Shareholders shall deliver to Parent a written agreement substantially in the
form attached hereto as EXHIBIT 2.4 ("Pooling Letters").
2.5 POOLING OF INTEREST OPINIONS. Parent shall instruct its
accountants, Ernst & Young, LLP, to deliver and shall use its best efforts to
cause such accountants to deliver to Merger Sub a letter dated as of the Closing
Date, addressed to Merger Sub, containing both (i) its concurrence that Parent
and Citadel each satisfies the tests applicable to it such that this Merger can
be accounted for as a "pooling of interests", which opinion letter shall be
substantially in the form of the opinion letter attached hereto as EXHIBIT 2.5
hereto; and (ii) such matters as are customarily contained in auditor's letters
regarding information about Citadel, which auditor's letters shall be in form
and substance reasonably satisfactory to Merger Sub. Parent and Citadel covenant
and agree to deliver to Ernst & Young, LLP such representation letters as may be
reasonably requested in connection with its opinion letter.
2.6 TRADING PROHIBITIONS. Each of the Shareholders hereby
acknowledges that as a result of disclosures by the Purchasers contemplated
under the Agreement, the Shareholders may, from time to time, have material,
non-public information concerning the Purchasers. Each of the Shareholders
confirms that he or she is aware, and that he or she has advised his or her
representatives that (i) the United States securities laws may prohibit a person
who has material, non-public information from purchasing or selling securities
of any company to which such information relates and (ii) material, non-public
information shall not be communicated to any other person except as permitted
herein.
2.7 COVENANT NOT TO COMPETE. Majority Shareholder shall execute on
the Closing Date a Covenant Not to Compete, in the form of EXHIBIT 2.7 attached
hereto.
2.8 REGISTRATION RIGHTS AGREEMENT. Parent and the Shareholders
shall execute on the Closing Date a Registration Rights Agreement, in the form
of EXHIBIT 2.8 hereto
2.9 EMPLOYMENT AND CONSULTING AGREEMENTS. Citadel and each of the
Shareholders shall use their best efforts to induce the individuals listed on
EXHIBIT 2.9(A) attached hereto to enter into employment agreements at Closing
with the Surviving Corporation substantially in the form of EXHIBIT 2.9(B)
hereto. DLB shall enter into a Consulting Agreement at Closing with the
Surviving Corporation substantially in the form of EXHIBIT 2.9(C).
2.10 DISTRIBUTION. Purchasers acknowledge and agree that Citadel
shall have the right to distribute cash to the Shareholders, in an amount equal
to the Shareholders' estimated income tax liability for the current year
(through the day immediately preceding the Closing Date), such amount, the
"Distribution", determined on a tax basis in accordance with the Code and the
rules and regulations promulgated thereunder; provided however that in
determining the amount of such Distribution and the related taxable net income
(i) accrued liabilities shall be determined in accordance with GAAP, and (ii)
such taxable net income shall not include any income deferred from prior years.
Within sixty (60) days after Closing, Shareholders shall make a final
determination of the amount of the Distribution, with concurrence of Purchasers
and any
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additional amounts shall be distributed by the Surviving Corporation to the
Shareholders, or any excess amounts previously distributed returned by the
Shareholders to the Surviving Corporation, as the case may be. In the event
Purchasers do not concur with the Shareholders' final determination of the
amount of the Distribution, Purchasers shall engage Ernst & Young, LLP to make
such final determination.
III. REPRESENTATIONS AND WARRANTIES OF CITADEL AND THE SHAREHOLDERS.
Citadel and the Shareholders, jointly and severally, represent and
warrant to, and for the benefit of, Purchasers as follows:
3.1 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION. Citadel is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and has the full power and authority (corporate and
otherwise) to carry on its business in the places and as it is now being
conducted and to own and lease the properties and assets which it now owns or
leases. The character of the property owned or leased by Citadel and the nature
of the business conducted by it do not require such qualification and/or
licensing in any other jurisdictions.
3.2 ULTIMATE PARENT ENTITY; SUBSIDIARIES. DLB represents that he
is the "ultimate parent entity" of Citadel for the purposes of the HSR Act, and
that pursuant to 16 C.F.R. Section 801.11, he holds less than Ten Million
Dollars ($10,000,000.00) in total assets. Citadel does not have any subsidiaries
or any other interest or investment in any Person.
3.3 CAPITALIZATION. The authorized stock of Citadel and the number
of shares of capital stock that are issued and outstanding are set forth on
EXHIBIT 3.3. The shares listed on EXHIBIT 3.3 constitute all the issued and
outstanding shares of capital stock of Citadel, have been validly authorized and
issued, are fully paid and non-assessable, have not been issued in violation of
any pre-emptive rights or of any federal or state securities law, and no
personal liability attaches to the ownership thereof. There is no security,
option, warrant, right, call, subscription, agreement, commitment or
understanding of any nature whatsoever, fixed or contingent, that directly or
indirectly: (i) calls for issuance, sale, pledge or other disposition of any
shares of capital stock of Citadel or any securities convertible into, or other
rights to acquire, any shares of capital stock of Citadel; (ii) obligates
Citadel to grant, offer, or enter into any of the foregoing; or (iii) relates to
the voting or control of such capital stock, securities or rights, except as
provided in this Agreement and the Voting Trust Agreement between ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ dated December 31, 1997. Citadel has not agreed to
register any securities under the 1933 Act.
3.4 AUTHORITY AND STATUS. Citadel and each of the Shareholders
have the capacity and authority to execute and deliver this Agreement, to
perform hereunder, and to consummate the transactions contemplated hereby
without the necessity of any act or consent of any other person whomsoever. The
execution, delivery and performance by Citadel of this Agreement and each and
every agreement, document, and instrument provided for herein have been duly
authorized and approved by the Board of Directors of Citadel and the
Shareholders. This
10
Agreement and each and every agreement, document, and instrument executed,
delivered and performed by Citadel and the Shareholders in connection herewith
constitute the valid and legally binding obligations of Citadel, or the
Shareholders, as the case may be, enforceable against each of them in accordance
with their respective terms, except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting the enforcement
of creditors' rights generally. Citadel has provided to Purchasers true, correct
and complete copies of the Articles of Incorporation and the Bylaws of Citadel.
3.5 FINANCIAL STATEMENTS, LIABILITIES AND OBLIGATIONS OF CITADEL.
3.5.1 Attached hereto as EXHIBIT 3.5.1 are true, correct
and complete copies of Citadel's balance sheet as of December 31, 1999 and the
related statements of income, changes in stockholders' equity and cash flows for
the year then ended, together with the report of Ernst & Young, LLP thereon (the
"1999 Financial Statements"). Also attached hereto as EXHIBIT 3.5.1 is a true,
correct and complete copy of Citadel's balance sheet as of March 31, 2000 (the
"Interim Financial Statements Date"), and the related statements of income,
changes in stockholders' equity and cash flows for the three (3)- month period
then ended (the "Interim Financial Statements"). The 1999 Financial Statements
and the Interim Financial Statements (collectively, the "Financial Statements")
have been prepared from and are in complete accordance with the books and
records of Citadel, are true, complete and accurate statements of the financial
position of Citadel as of their respective dates, have been prepared in
accordance with generally accepted accounting principles, consistently applied
("GAAP"), fairly and accurately present the financial position and results of
operations of Citadel as of the respective dates thereof, and disclose all
liabilities of Citadel, whether absolute, contingent, accrued or otherwise,
existing as of the respective dates thereof subject in the case of Interim
Financial Statements to year end adjustments occurring in the ordinary course of
business, none of which individually or in the aggregate would be greater than
$50,000.
3.5.2 Except as set forth on EXHIBIT 3.5.2, Citadel has no
liability or obligation (whether accrued, absolute, contingent or otherwise)
except for (i) the liabilities and obligations of Citadel which are disclosed
and reserved against in the Interim Financial Statements, to the extent and in
the amounts so disclosed and reserved against, and (ii) immaterial liabilities
incurred or accrued in the ordinary course of business since the Interim
Financial Statements Date. To the best of Citadel's knowledge, there is no basis
for any assertion against Citadel as of the Interim Financial Statements Date of
any liability of any nature or in any amount not fully accrued and appearing on
the balance sheet as of that date.
3.5.3 Except as disclosed in the Interim Financial
Statements, Citadel is not in default with respect to any liabilities or
obligations, and all such liabilities or obligations shown and reflected in the
Interim Financial Statements, and such liabilities incurred or accrued
subsequent to the Interim Financial Statements Date have been, or are being,
paid or discharged as they become due, and all such liabilities and obligations
were incurred in the ordinary course of the Business.
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3.6 TAXES. Except as set forth on EXHIBIT 3.6: (a) Citadel has, as
of the date hereof, and will have, as to the Closing Date, timely and accurately
filed all Tax Returns required to have been filed on or before such dates; (b)
all Taxes shown to be due on the Tax Returns referred to in clause (a),
including without limitation all withholding or other payroll-related taxes
shown on such returns, have been or will be timely paid or deposited and all
required estimated taxes have been or will be timely paid or deposited; (c)
Citadel has not waived any statute of limitations in respect of Taxes of Citadel
or agreed to an extension of time with respect to an assessment of taxes or
deficiency; (e) no issues that have been raised or threatened in writing by the
relevant taxing authority in connection with the examination of the Tax Returns
referred to in clause (a) are currently pending; and (f) all deficiencies
asserted or assessments made as a result of any examination of the Tax Returns
referred to in clause (a) by a taxing authority have been paid in full. Citadel
has not been a member of an affiliated group filing a consolidated federal
income tax return. Citadel does not have, nor will have any liability for the
Taxes of any Person other than Citadel (A) under Treas. Reg. Section 1.1502-6
(or any similar provision of state, local, or foreign law), (B) as a transferee
or successor, (C) by contract, or (D) otherwise. For all taxable periods not
closed by the applicable statute of limitations, Citadel has been a "small
business corporation" as that term is defined in Section 1361(b) of the Code, it
has had in effect an election under Section 1362(a) of the Code to be treated as
an S corporation, and it has filed all of the federal income tax returns (and
all state income tax returns in those states permitting the equivalent of an S
corporation election) consistently with S corporation status. Citadel has not
incurred and will not, with respect to any taxable period ending on or prior to
the Closing Date or, with respect to any taxable period ending after the Closing
Date, that portion of such period ending on the Closing Date, incur any taxable
income or liability for taxes under or by reason of Sections 1371(d), 1374 or
1375 of the Code. Citadel has neither agreed nor is required to make any
adjustments under Section 481(a) of the Code, by reason of a change in method of
accounting or otherwise.
3.7 OWNERSHIP OF ASSETS AND LEASES.
3.7.1 EXHIBIT 3.7.1 attached hereto constitutes the fixed
and tangible assets schedule of Citadel as regularly maintained by Citadel and
such list is complete and correct in all material respects and includes all
material fixed or tangible assets owned by Citadel, including, but not limited
to, all machinery and equipment, office furniture and equipment and all vehicles
owned by Citadel, and depreciation schedules of the assets shown thereon.
3.7.2 Except as disclosed on EXHIBIT 3.7.2, Citadel has
good and marketable title to all of the assets shown on EXHIBIT 3.7.1 and all
other fixed or tangible assets of Citadel subject to no mortgage, pledge, lien,
security interest, conditional sale agreement, encumbrance, charge or adverse
claim whatsoever.
3.7.3 Except as shown on EXHIBIT 3.7.3 attached hereto,
none of the properties or assets used by Citadel are held under any lease, or as
conditional vendee under any conditional sale or other title retention
agreement. EXHIBIT 3.7.3 includes a list of all leases of all machinery
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and equipment of which Citadel is a lessee, including respective expiration
dates and monthly rentals.
3.7.4 Each of the leases and agreements described in
EXHIBIT 3.7.3 is in full force and effect and constitutes a legal, valid and
binding obligation of Citadel and the other respective parties thereto and is
enforceable in accordance with its terms, and there is not under any of such
leases or agreements existing any default of Citadel or of any other parties
thereto (or event or condition which, with notice or lapse of time, or both,
would constitute a default). Citadel has not received any payment from a lessor
in connection with or as inducement for entering into any such lease except as
set forth on EXHIBIT 3.7.3.
3.7.5 None of the property of Citadel shown on EXHIBITS
3.7.1 or 3.7.3 is leased by Citadel to any other person or entity.
3.7.6 There are no material items of machinery and
equipment or vehicles employed or used by Citadel which are not described in
EXHIBITS 3.7.1 or 3.7.3. Citadel either owns or leases all assets which are
necessary to conduct the Business.
3.7.7 Except pursuant to this Agreement, Citadel is not a
party to any contract or obligation whereby there has been granted to anyone an
absolute or contingent right to purchase, obtain or acquire any rights in any of
the assets, properties or operations which are owned by Citadel.
3.7.8 Except to the extent reserved for in the Financial
Statements, all of the accounts receivable of Citadel as of the Closing Date and
all of the notes receivable of Citadel as of the Closing Date are BONA FIDE,
reflect actual transactions, have arisen in the ordinary course of business and
will not be subject to any offset or counterclaim. Each of such accounts
receivable will be collectible in full within ninety (90) days after the Closing
Date.
3.7.9 The parcels of property described in EXHIBIT 3.7.9
attached hereto as the leased Real Property are the only real estate leased by
Citadel. EXHIBIT 3.7.9 includes a list of all leases of real estate of which
Citadel is a lessee, including respective expiration dates and monthly rentals.
Each of the leases described in EXHIBIT 3.7.9 is in full force and effect and
constitutes a legal, valid and binding obligation of Citadel and the other
respective parties thereto and is enforceable in accordance with its terms, and
there is not under any of such leases existing any default of Citadel or of any
other party thereto (or event or condition which, with notice or lapse of time,
or both, would constitute a default). Citadel has not received any payment from
a lessor in connection with or as inducement for entry into any such lease.
3.7.10 None of the property shown on EXHIBIT 3.7.9 is leased
by Citadel to any other person or entity.
3.7.11 There is no Real Property used by Citadel which is
not described in EXHIBIT 3.7.9. Citadel leases all Real Property which is
necessary to conduct the Business.
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3.8 SUFFICIENCY OF ASSETS. The assets described on EXHIBITS 3.7.1,
3.7.3, and 3.7.9 comprise all the assets employed primarily in connection with
the Business and include all rights, properties and other assets necessary to
permit the Surviving Corporation to conduct the Business immediately following
the Closing as currently conducted.
3.9 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution
and delivery of this Agreement and the other agreements contemplated hereby by
Citadel and the Shareholders, the performance by Citadel and the Shareholders of
their respective obligations hereunder and thereunder and the consummation by
Citadel and the Shareholders of the transactions contemplated hereby and thereby
will not (a) contravene any provision of the Articles of Incorporation or Bylaws
of Citadel; (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment, ruling or order of any
Governmental Body or of any arbitration award which is either applicable to,
binding upon, or enforceable against Citadel; (c) conflict with, result in any
breach of, or constitute a default (or an event which would, with the passage of
time or the giving of notice or both, constitute a default) under, or give rise
to a right to terminate, amend, modify, abandon or accelerate, any Material
Contract which is applicable to, binding upon or enforceable against Citadel or
the Shareholders; (d) result in or require the creation or imposition of any
Lien upon or with respect to any of the property or assets of Citadel; (e) give
to any individual or entity a right or claim against Citadel, which would have a
material adverse effect on the Purchasers; or (f) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Body, any court or tribunal, or any other Person, except (i) pursuant to the
1933 Act and the 1934 Act and applicable inclusion requirements of the Nasdaq
Stock Market, Inc. National Market; or (ii) filings required under the
securities or blue sky laws of the various states.
3.10 ABSENCE OF CHANGES. Since the date of the Interim Financial
Statement, Citadel has not:
3.10.1 transferred, assigned, conveyed or liquidated any of
its assets or the Business or entered into any transaction or incurred any
liability or obligation, other than in the ordinary course of its business;
3.10.2 suffered any Material Adverse Change, and Citadel has
not become aware of any event or state of facts which may result in any such
adverse change;
3.10.3 suffered in respect of its properties any
destruction, damage or loss, whether or not covered, by insurance;
3.10.4 suffered, permitted or incurred the imposition of any
Lien or claim upon any of its assets, except for any current year lien with
respect to personal or real property taxes not yet due and payable;
3.10.5 committed, suffered, permitted or incurred any
default in any liability or obligation;
14
3.10.6 made or agreed to any adverse change in the terms of
any contract or instrument to which it is a party;
3.10.7 other than in its best commercial judgment, waived,
canceled, sold or otherwise disposed of, for less than the face amount thereof,
any claim or right which it has against others;
3.10.8 incurred any other liability or obligation or entered
into any transaction other than in the ordinary course of business;
3.10.9 received any notices indicating, and Citadel has no
reason to believe, that any customer or supplier has taken or contemplates any
steps which could disrupt the business relationship of Citadel or the Business
with said advertiser, customer or supplier or could result in the diminution in
the value of the Business as a going concern;
3.10.10 paid, agreed to pay or incurred any obligation for
any payment of any indebtedness except current liabilities incurred in the
ordinary course of business; or
3.10.11 delayed or postponed the payment of any liabilities,
whether current or long term, or failed to pay in the ordinary course of
business any liability on a timely basis consistent with prior practice.
3.11 LITIGATION. Except as set forth on EXHIBIT 3.11, there is no
suit, action, proceeding, claim or investigation pending, threatened against or
affecting the Shareholders, Citadel or the Business, and to the best knowledge
of Citadel and the Shareholders, there exists no basis or grounds for any such
suit, action, proceeding, claim or investigation.
3.12 LICENSES AND PERMITS; COMPLIANCE WITH LAW. Citadel holds all
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of the
Business and the use of the Assets. All such licenses, certificates, permits,
franchises and rights are listed in EXHIBIT 3.12 attached hereto. Citadel has
conducted and is presently conducting the Business so as to comply in all
material respects with all applicable statutes, ordinances, rules, regulations
and orders of any governmental authority. Further, Citadel is neither presently
charged with, nor to the best of Citadel's and Shareholders' knowledge, under
governmental investigation with respect to any actual or alleged violation of
any statute, ordinance, rule or regulation, nor presently the subject of any
pending or threatened adverse proceeding by any regulatory authority having
jurisdiction over its properties or operations or the Business. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the termination of any license,
certificate, permit, franchise or right held by Citadel.
3.13 CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY.
3.13.1 EXHIBIT 3.13.1 attached hereto consists of a true and
complete list of all contracts, agreements, commitments and other instruments
(whether oral or written) to which
15
Citadel is a party that involve the receipt of revenue or an expenditure by
Citadel or require the performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of Citadel, in each case in excess of
$5,000 per year. EXHIBIT 3.13.1 also identifies all:
(i) leases, rental agreements or other contracts
or commitments affecting the ownership or leasing of, title to
or use of any interest in Real Property or personal property
with payments equal to or greater than $1,000 per month and
all maintenance or service agreements relating to any Real
Property or personal property with payments equal to or
greater than $1,000 per month;
(ii) contracts or commitments providing for
payments by Citadel based in any manner upon the sales,
purchases, receipts, income or profits of Citadel;
(iii) franchise agreements, marketing agreements,
advertising agreements or royalty agreements;
(iv) employment contracts or commitments
(including, without limitation, any standard form contracts
such as employee nondisclosure agreements), and any other
contracts, plans or commitments providing for any continuing
payment of any type or nature, including, without limitation,
any severance, termination, parachute, or other payments
(whether due to a change in control, termination or otherwise)
and bonuses and vested commissions. EXHIBIT 3.13.1 also
includes a listing of all such agreements, if any, for which
the standard form was materially or substantially modified or
materially or substantially altered, and any contracts that
are not in the standard form;
(v) contracts, agreements, understandings or
arrangements restricting Citadel from carrying on the Business
anywhere in the world;
(vi) instruments or arrangements evidencing or
related to indebtedness for money borrowed or to be borrowed,
whether directly or indirectly, by way of purchase-money
obligation, guaranty, subordination, conditional sale or
lease-purchase; and
(vii) joint venture or joint service agreements
with any party.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBIT 3.13.1 are herein referred to as the "Material
Contracts."
3.13.2 All the Material Contracts are valid and binding upon
Citadel and the other parties thereto and are in full force and effect and
enforceable in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity relating to the
availability of equitable remedies. Neither Citadel nor, to the best knowledge
of Citadel and the
16
Shareholders, any other party to any such contract, commitment or arrangement
has breached any provision of, or is in default under, the terms thereof. To
Citadel's knowledge, there are no facts or circumstances that would prevent
Citadel's revenue producing contracts and agreements from maturing upon
performance by Citadel into accounts receivable collectible in the aggregate in
amounts consistent in all material respects with historical experience. Citadel
has not received any payment from any contracting party in connection with or as
an inducement for entering into any contract, agreement, policy or instrument
except for payment for actual services rendered or to be rendered by Citadel
consistent with amounts historically charged for such services.
3.14 INTELLECTUAL PROPERTY.
3.14.1 EXHIBIT 3.14.1 attached hereto contains a complete
and accurate list of all (a) patented or registered Intellectual Property Rights
owned or used by Citadel; (b) pending patent applications and applications for
other registrations of Intellectual Property Rights filed by or on behalf of
Citadel; and (c) material unregistered Intellectual Property Rights owned or
used by Citadel. EXHIBIT 3.14.1 also contains a complete and accurate list of
all licenses and other rights granted by Citadel to any Person with respect to
any Intellectual Property Rights and all licenses and other rights granted by
any Person to Citadel with respect to any Intellectual Property Rights, in each
case identifying the subject Intellectual Property Rights. Citadel owns and
possesses all right, title and interest to, or has the right to use pursuant to
a valid and enforceable license, all Intellectual Property Rights necessary for
the operation of the Business as presently conducted and as presently proposed
to be conducted, free and clear of all Liens and claims of any nature
whatsoever. It is not and will not be necessary to utilize any Intellectual
Property Rights of any third party or any of Citadel's employees developed,
invented or made prior to or during their employment by Citadel except for any
such Intellectual Property Rights that have previously been assigned to Citadel
pursuant to a valid and enforceable license or are otherwise owned by Citadel
free and clear of all Liens and claims of any nature whatsoever. No loss or
expiration of any Intellectual Property Right is threatened, pending or, to
Citadel's knowledge, reasonably foreseeable. Citadel has taken commercially
reasonable steps to maintain and protect the Intellectual Property Rights which
it owns and uses.
3.14.2 (a) There have been no claims made against Citadel
asserting the invalidity, misuse or unenforceability of any of the Intellectual
Property Rights owned or used by Citadel and there is no basis for any such
claim; (b) Citadel has not received any notices of, and has no knowledge of any
facts which indicate a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to any Intellectual Property
Rights (including any demand or request that Citadel license any rights from a
third party); (c) to the best of Citadel's and Shareholders' knowledge, the
conduct of the Business has not infringed, misappropriated or conflicted with
and does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons; and (d) to the best of Citadels' and Shareholders'
knowledge, the Intellectual Property Rights owned by or licensed to Citadel have
not been infringed, misappropriated or conflicted by other Persons.
17
3.15 LABOR MATTERS. EXHIBIT 3.15 attached hereto sets forth a list
of all employees and independent contractors of Citadel to whom Citadel
currently pays wages of at least $30,000 per annum, their current salaries or
rates and Citadel's salary increase guidelines. Within the last three (3) years
Citadel has not been the subject of any union activity or labor dispute, nor has
there been any strike of any kind called or threatened to be called against it;
and, Citadel has not violated any federal, state, or other governmental
statutes, regulations, or ordinances relating to employment and labor matters
including, without limitation, the provisions of Title VII of the Civil Rights
Act of 1964 (race, color, religion, sex, and national origin discrimination), 42
U.S.C. Section 1981 (discrimination), 42 U.S.C. Sections 621-634 (the Age
Discrimination in Employment Act), 29 U.S.C. Section 206 (equal pay), Executive
Order 11246 (race, color, religion, sex, and national origin discrimination),
Executive Order 11141 (age discrimination), Section 503 of the Rehabilitation
Act of 1973 (handicap discrimination), 42 U.S.C. Sections 12101-12213 (Americans
with Disabilities Act), 29 U.S.C. Sections 2001-2654 (Family and Medical Leave
Act), 29 U.S.C. Sections 651-678 (occupational safety and health) and
requirements relating to the documentation of the nationality of employees.
There has not been, and to the best of Citadel's and Shareholders' knowledge,
there will not be, any adverse change in relations with employees and
independent contractors of Citadel as a result of the transactions contemplated
by this Agreement. The staffing and employment levels of Citadel are now
sufficient to run the Business at levels of production, sales, marketing and
administration consistent with the levels of production, sales, marketing and
administration for the prior fiscal year.
3.16 BENEFIT PLANS.
3.16.1 EXHIBIT 3.16.1 attached hereto lists every pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other incentive plan, any other
written or unwritten employee program, arrangement, agreement or understanding,
(whether arrived at through collective bargaining or otherwise), any medical,
vision, dental or other health plan, any life insurance plan or any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA and
any multiemployer plan within the meaning of Section 3(37) of ERISA, currently
or previously adopted, maintained, and in its possession, sponsored in whole or
in part or contributed to by Citadel or any current or former member of a
commonly controlled group of trades or businesses (as defined in Section
4001(b)(1) of ERISA) including Citadel for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
of Citadel and under which employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries of Citadel are eligible to
participate or under or in connection with which Citadel has any contingent or
noncontingent liability of any kind whether or not probable of assertion
(collectively, the "Benefit Plans"). Any of the Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, or an "employee welfare benefit plan" as that term is defined in Section
3(1) of ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan is or
has been a multiemployer plan within the meaning of Section 3(37) of ERISA.
18
3.16.2 EXHIBIT 3.16.1 also lists with respect to all Benefit
Plans: (a) all trust agreements or other funding arrangements, including
insurance contracts, and all amendments thereto applicable to the Benefit Plans,
(b) where applicable, with respect to any such plan or plan amendments, the most
recent determination letters issued by the United States Internal Revenue
Service, (c) all rulings, opinion letters, information letters or advisory
opinions issued by the United States Department of Labor after December 31,
1974, with respect to each such Benefit Plan, (d) annual reports or returns and
audited or unaudited financial statements for the most recent three (3) plan
years and any amendments thereto, and (e) to the extent in Citadel's possession,
the most recent summary plan descriptions and any material modifications thereto
with respect to such Benefit Plans. Contemporaneously with the delivery of the
Exhibits to this Agreement, Citadel has delivered a true and complete copy of
each such Benefit Plan, agreements, letters, rulings, opinions, reports,
returns, financial statements and/or summary descriptions described in Sections
3.16.1 or 3.16.2 hereof, certified as such by a duly authorized officer of
Citadel.
3.16.3 All the Benefit Plans and the related trusts subject
to ERISA comply with and have been administered in compliance with the
provisions of ERISA, all provisions of the Code relating to qualification and
tax exemption under Code Sections 401(a) and 501(a) or otherwise applicable to
secure intended tax consequences, all applicable state or federal securities
laws and all other applicable laws, rules and regulations and collective
bargaining agreements, and has not received any notice from any governmental
agency or instrumentality questioning or challenging such compliance. All
necessary governmental approvals for the Benefit Plans which have been obtained,
including, but not limited to, timely determination letters on the qualification
of the ERISA Plans and tax exemption of related trusts, as applicable, under the
Code and timely registration and disclosure under applicable securities laws,
and all such governmental approvals continue in full force and effect. No event
has occurred which will or could give rise to disqualification of any such plan
under Sections 401(a) or 501(a) of the Code or to a tax under Section 511 of the
Code.
3.16.4 None of Citadel or any administrator or fiduciary of
any such Benefit Plan (or agent or delegate of any of the foregoing) has engaged
in any transaction or acted or failed to act in any manner which could subject
Citadel to any direct or indirect liability (by indemnity or otherwise) for a
breach of any fiduciary, co-fiduciary or other duty under ERISA. No oral or
written representation or communication with respect to any aspect of the
Benefit Plans has been made to employees of Citadel prior to the Closing Date
which is not in accordance with the written or otherwise preexisting terms and
provisions of such Benefit Plans in effect immediately prior to the Closing
Date. There are no unresolved claims or disputes under the terms of, or in
connection with, the Benefit Plans, and no action, legal or otherwise, has been
commenced with respect to any claim.
3.16.5 All annual reports or returns, unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and accurate
as of the dates thereof, and there have been no
19
amendments filed to any of such reports, returns, statements, valuations or
descriptions or required to make the information therein true and accurate.
3.16.6 No "party in interest" (as defined in Section 3(14)
of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of the
Code) of any Benefit Plan has engaged in any "prohibited transaction" (within
the meaning of Section 4975(c) of the Code or Section 406 of ERISA). There has
been no (a) "reportable event" (as defined in Section 4043 of ERISA), or event
described in Section 4062(f) or Section 4063(a) of ERISA or (b) termination or
partial termination, withdrawal or partial withdrawal with respect to any of the
ERISA Plans which Citadel (or any member of a controlled group of trades or
businesses as defined in Section 4001(b) which has, since January 1, 1975,
included Citadel) maintains or contributes to or has maintained or contributed
to or was required to maintain or contribute to for the benefit of employees of
Citadel or any subsidiaries now or formerly in existence. With respect to any
termination or withdrawal from any such ERISA Plan, Citadel has no direct or
indirect liability to said Plan or any beneficiary thereof.
3.16.7 None of the ERISA Plans is a defined benefit pension
plan.
3.16.8 As of the Interim Financial Statement Date, Citadel
had no current or future liability under any Benefit Plan that was not reflected
in the Interim Financial Statement.
3.16.9 Citadel does not maintain any Benefit Plan providing
deferred or stock based compensation which is not reflected in the Interim
Financial Statement.
3.16.10 Citadel has not maintained, and does not now
maintain, a Benefit Plan providing welfare benefits (as defined in ERISA Section
3(1)) to employees after retirement or other separation of service except to the
extent required under Part 6 of Title I of ERISA and Code Section 4980B.
3.16.11 The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee of Citadel to
severance pay, unemployment compensation or any payment contingent upon a change
in control or ownership of assets of Citadel, or (ii) accelerate the time of
payment or vesting, or increase the amount, of any compensation due to any such
employee or former employee.
3.16.12 All Benefit Plans subject to section 4980B of the
Code, as amended from time to time, or Part 6 of Title I of ERISA or both have
been maintained in compliance with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder.
3.16.13 No Benefit Plan that is an employee welfare benefit
plan, as defined in section 3(l) of ERISA, is funded through a "welfare benefit
fund" (within the meaning of Section 419(e) of the Code) and no benefits under
the Benefit Plan are provided through a voluntary employees' beneficiary
association (within the meaning of Section 501(c)(9) of the Code) or a
20
supplemental unemployment benefit plan (within the meaning of Section 501(c)(17)
of the Code).
3.16.14 No facts or circumstances exist, no actions have been
taken or omitted to be taken, nothing has occurred, and nothing will occur as a
result of the consummation of the transactions contemplated by this Agreement,
such that Citadel could reasonably be expected to be, or is subject (directly or
indirectly, such as through an indemnification, guaranty or similar agreement or
obligation) to any liability for any claims, judgments, damages, penalties,
taxes, assessments or similar items with respect to any employee benefit plan
(as defined in Section 3(3) of ERISA) currently or formerly maintained by a
member of a commonly controlled group of trades or businesses of which Citadel
is a member or to which any such company has contributed or has been obligated
to contribute during the six years prior to the date hereof.
3.16.15 Citadel will not have any liability (actual or
contingent) under any insurance policy (or ancillary agreement relating to such
insurance policy) in the nature of a retroactive rate adjustment or loss sharing
or similar arrangement arising wholly or partially out of events occurring prior
to the Closing.
3.17 SUPPLIERS. EXHIBIT 3.17 attached hereto consists of a true and
correct list of all suppliers of goods or services to Citadel setting forth as
to each such supplier its name, address, telephone number and principal person
of contact, and total purchases from each such supplier within the preceding
twelve (12) months. Citadel has not received any notice and has no knowledge
that, any supplier listed on EXHIBIT 3.17 has taken or will take any steps that
could reasonably be expected to minimize in any material respect the business
relationship of Citadel with such supplier or suppliers.
3.18 ENVIRONMENTAL MATTERS. No Real Property used by Citadel or
leased by Citadel has been used by Citadel or to the best of Citadel's and
Shareholders' knowledge, any other party for the handling, treatment, storage or
disposal into the environment of any Hazardous Substance (as hereinafter
defined). No release, discharge, spillage or disposal of any Hazardous Substance
and no soil, water or air contamination by any Hazardous Substance has occurred
or is occurring in, from or on the Real Property. Citadel has complied with all
reporting requirements under any applicable federal, state or local
environmental laws and permits, and Citadel has not violated any such
environmental laws or permits. There are no claims, actions, suits, proceedings
or, to the best of Citadel's and Shareholders' knowledge, investigations related
to the presence, release, production, handling, discharge, spillage,
transportation or disposal of any Hazardous Substance or ambient air conditions
or contamination of soil, water or air by any Hazardous Substance pending or
threatened with respect to the Real Property or otherwise against Citadel in any
court or before any state, federal or other governmental agency or private
arbitration tribunal and there is no basis for any such claim, action, suit,
proceeding or investigation. There are no underground storage tanks on the Real
Property. For the purposes of this Agreement, "Hazardous Substance" shall mean
any hazardous or toxic substance or waste as those terms are defined by any
applicable federal, state or local law, ordinance, regulation, policy, judgment,
decision, order or decree including, without limitation, the Comprehensive
Environmental
21
Recovery Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ. ("CERCLA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ., and
petroleum, petroleum products and oil.
3.19 INSURANCE. Set forth in EXHIBIT 3.19 attached hereto is a
complete list of all insurance policies which Citadel maintained with respect to
its properties, employees or the Business within the preceding three (3) years.
Such policies are in full force and effect and no event has occurred which would
give any insurance carrier a right to terminate any such policy. Such policies,
with respect to their amounts and types of coverage, are adequate to insure
fully against risks to which Citadel and the Assets are exposed. Since the
beginning of Citadel's fiscal year, there has not been any change in Citadel's
relationship with its insurers or in the premiums payable pursuant to such
policies.
3.20 EXHIBITS. All Exhibits attached hereto are true, correct and
complete as of the date of this Agreement. Matters disclosed on each Exhibit
shall be deemed disclosed only for purposes of the matters to be disclosed on
such Exhibit and shall not be deemed to be disclosed for any other purpose
unless expressly provided therein.
3.21 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES. No
representation or statement contained herein or in any certificate, schedule,
list, exhibit or other instrument furnished to Purchasers pursuant to the
provisions hereof contains or will contain any untrue statement of any material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
3.22 INVESTMENT. Each Shareholder: (a) understands that the Parent
Common Stock issued in connection with the Merger under Section 2.2.3 hereof has
not been, and will not be, registered under the 1933 Act, or under any state
securities laws, and is being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, which
exemptions are dependent in part on the accuracy of the representations of the
shareholders; (b) is acquiring the Parent Common Stock solely for his or her own
account for investment purposes, and not with a view to the sale or distribution
thereof; (c) is a sophisticated investor with knowledge and experience in
business and financial matters so as to be able to evaluate the risks and merits
of an investment in the Parent Common Stock or has had an advisor with
sufficient education and experience to advise him or her as to such risks and
merits; (d) has access to certain information concerning Parent, including the
Parent Reports, and has had the opportunity to ask questions and receive answers
concerning the transaction and the business of Parent and to obtain additional
information as desired in order to evaluate the merits and risks inherent in
holding any Parent Common Stock; (e) is able to bear the economic risk and lack
of liquidity inherent in holding any Parent Common Stock; (f) is an Accredited
Investor for the reasons set forth on EXHIBIT 3.22; and (g) understands that the
Parent Common Stock cannot be transferred other than in a transaction registered
or exempt from registration under the 1993 Act and will bear the restrictive
legend described in Section 2.3.4 hereof, and that Parent has no obligation to
register the Parent Common Stock except as provided in the Registration Right
Agreement referred to in Section 2.10 hereof.
22
3.23 OWNERSHIP OF COMPANY STOCK; TITLE. Each Shareholder is the
owner of record and beneficiary of the Citadel Common Stock set forth on EXHIBIT
3.23 hereof and has, and shall transfer to Parent at the Closing, good and
marketable title to the Citadel Common Stock owned by him or her, free and clear
of any and all Liens, and restrictions on transfer (other than restrictions on
transfer imposed by applicable federal and state securities laws), proxies and
voting, or other agreements. None of the Shareholders is a party to any option,
warrant, purchase right or other contract or commitment that could require any
Shareholder to sell, transfer or otherwise dispose of the Citadel Common Stock
(other than this Agreement). Except as set forth on EXHIBIT 3.23, no Shareholder
is a party to any voting trust, or other agreement or understanding with respect
to the voting of any capital stock of Citadel.
3.24 POOLING OF INTERESTS. Neither Citadel nor the Shareholders are
aware of any facts or circumstances in respect of it or its accounting
procedures which would have the effect of precluding accounting for the
transactions contemplated hereby as a "pooling of interests."
3.25 ACA. Citadel and the Shareholders, jointly and severally,
represent and warrant to, and for the benefit of, Purchasers the following
concerning ACA. Such representations and warranties are true and correct to the
best of the knowledge of Citadel and the Shareholders after appropriate review
and due diligence of the contracts and agreements between Citadel and ACA.
Purchasers acknowledge and agree that neither Citadel nor the Shareholders have
any ownership or investments in ACA other than trade accounts receivable
occurring in the normal course of business between Citadel and ACA:
3.25.1 ACA is a not-for-profit corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
has the full power and authority (corporate and otherwise) to carry on its
activities in the places and as it is now being conducted and to own and lease
the properties and assets which it now owns or leases. The character of the
property owned or leased by ACA and the nature of the business conducted by it
do not require such qualification or licensing in any other jurisdictions. True
and correct copies of ACA's Articles of Incorporation and Bylaws have been
provided to Purchasers.
3.25.2 True and correct copies of ACA's statements of assets
and liabilities as of December 31, 1999 and the related statements of revenue
and expenses, retained earnings and cash flows for the period then ended (the
"ACA Financial Statements") have been delivered to the Purchasers. The ACA
Financial Statements are true, complete and accurate statements of the financial
position of ACA as of the date thereof, have been consistently prepared, fairly
and accurately present the financial position and results of operation of ACA as
of the date thereof, and disclose all liabilities of ACA, whether absolute,
contingent accrued or otherwise, existing as of the date thereof. ACA has no
liability or obligation (whether accrued, absolute, contingent or otherwise)
except for (i) the liabilities and obligations of ACA which are disclosed and
reserved against in the ACA Financial Statements, to the extent and in the
amounts so disclosed and reserved against; and (ii) immaterial liabilities
incurred or accrued in the ordinary course of business since the date of the ACA
Financial Statements.
23
3.25.3 ACA has, as of the date hereof, and will have, as of
the Closing Date, timely and accurately filed all Tax Returns required to have
been filed on or before such dates.
3.25.4 There is no suit, action, proceeding, claim or
investigation pending, threatened against or affecting ACA, and there exists no
basis or grounds for any suit, action, proceeding, claim or investigation.
3.25.5 ACA holds all licenses, certificates, permits,
franchises and rights from all appropriate federal, state or other public
authorities necessary for the conduct of its current activities. ACA has
conducted, and is presently conducting, its activities so as to comply in all
material respects with all applicable statutes, ordinances, rules, regulations
and orders of any governmental authority. Further, ACA is neither presently
charged with, nor under governmental investigation with respect to any actual or
alleged violation of any statute, ordinance, rule or regulation, nor presently
the subject of any pending or threatened adverse proceeding by any regulatory
authority having jurisdiction over ACA, its properties or activities.
3.25.6 True and correct copies of all contracts, agreements,
commitments or other instruments (whether oral or written) to which ACA is a
party of a type described in Section 3.13.1 hereof have been provided to the
Purchasers (the "ACA Contracts"). All ACA Contracts are valid and binding upon
ACA and the other parties thereto and are in full force and effect and
enforceable in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity relating to the
availability of equitable remedies. None of ACA, Citadel, or the Shareholders
nor any other party to any ACA Contract, has breached any provision of, or is in
default under, the terms thereof.
3.26 OTHER MATTERS.
3.26.1 The non-competition provisions of that certain
Agreement for Sale of Assets between Citadel, DLB, ▇▇▇▇▇▇▇ ▇▇▇▇, and Integon
Marketing, Inc. dated November 6, 1998 and the companion Marketing Agreement of
the same date and between the same parties do not and will not prevent Citadel
from carrying on the Business in the places and manner as it is currently being
conducted or contemplated to be conducted. Neither Citadel nor the Shareholders
have any outstanding obligation or liability under such agreement or otherwise
to Integon Marketing, Inc. or ▇▇▇▇▇▇▇ ▇▇▇▇.
3.26.2 No amounts are owed by Citadel or the Shareholders in
connection with the agreement between Citadel and Consumer Action Center, LLC,
dated February 26, 1999.
3.26.3 The notes payable to Card Security, Inc. and Sierra
Trust as referred to in that certain Agreement between DLB, CFB, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ and Citadel dated April 29, 1998 have been paid and
satisfied in full.
24
3.26.4 Neither Citadel nor the Shareholders have any
outstanding obligation or liability under any agreement or arrangement with Fort
▇▇▇▇ Bank and Trust, Experion, Key Bank and Trust, or ▇▇▇▇ List Marketing.
3.26.5 There is no suit, action or claim by ▇▇▇ ▇. ▇▇▇▇▇▇
pending, threatened against or affecting the Shareholders, Citadel or the
Business and there exists no basis therefor.
3.26.6 Citadel has complied with all of the terms of, and is
not in breach or default in any respect under, any Material Contract to which
Citadel and First Union National Bank are parties.
3.26.7 Citadel owns and possesses all right, title and
interest to all Intellectual Property Rights acquired from ACA, or related to
ACA and used in the Business, free and clear of all Liens and claims of any
nature whatsoever.
3.26.8 Citadel has no outstanding obligation or liability
for the payment of Taxes of any other person or entity or for any audit of any
other person or entity.
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
The Purchasers, jointly and severally, represent and warrant to, and
for the benefit of, Citadel and Shareholders as follows:
4.1 ORGANIZATION AND STANDING. The Purchasers are duly organized
and validly existing corporations in good standing under the laws of the
jurisdictions of their incorporation, and have the full power and authority
(corporate and otherwise) to carry on their business in the places and as it is
now being conducted and to own and lease the properties and assets which they
now own or lease.
4.2 AUTHORITY AND STATUS. The Purchasers each have the capacity
and authority to execute and deliver this Agreement, to perform hereunder, and
to consummate the transactions contemplated hereby without the necessity of any
act or consent of any other person whomsoever. The execution, delivery and
performance by the Purchasers of this Agreement and each and every agreement,
document, and instrument provided for herein have been duly authorized and
approved by their respective Board of Directors. This Agreement and each and
every other agreement, document, and instrument to be executed, delivered and
performed by the Purchasers in connection herewith constitute or will, when
executed and delivered, constitute the valid and legally binding obligations of
the Purchasers, enforceable against each of them in accordance with their
respective terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally.
4.3 PARENT COMMON STOCK. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Parent Common Stock as provided in this Agreement, the Parent Common Stock
will be (i) validly issued, fully paid, non-
25
assessable shares; (ii) listed with the Nasdaq Stock Market, Inc. National
Market; and (iii) free and clear of all liens, pledges or other encumbrances,
other than as explicitly described herein.
4.4 NO VIOLATION. The execution and delivery of this Agreement and
the other agreements contemplated hereby by the Purchasers, the performance by
the Purchasers of their respective obligations hereunder and thereunder and the
consummation by the Purchasers of the transactions contemplated hereby and
thereby will not (a) contravene any provision of the Articles of Incorporation
or Bylaws of the Purchasers; (b) violate or conflict with any law, statute,
ordinance, rule, regulation, decree, writ, injunction, judgment, ruling or order
of any Governmental Body or of any arbitration award which is either applicable
to, binding upon, or enforceable against the Purchasers; (c) conflict with,
result in any breach of, or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, or give rise to a right to terminate, amend, modify, abandon or
accelerate, any material contract which is applicable to, binding upon or
enforceable against the Purchasers; (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
the Purchasers; (e) give to any individual or entity a right; or claim against
the Purchasers, which would have a material adverse effect on the Purchasers, or
(f) require the consent, approval, authorization or permit of, or filing with or
notification to, any governmental Authority, any court or tribunal or any other
Person, except (i) pursuant to the 1933 Act and the 1934 Act and applicable
requirements of the Nasdaq Stock Market, Inc. National Market; or (ii) filings
required under the securities or blue sky laws of the various states.
4.5 REPORTS AND FINANCIAL STATEMENTS. Since December 31, 1999,
Parent has filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with the SEC,
including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements (collectively, the "Parent Reports"). Parent has previously furnished
or made available to Citadel and Shareholders copies of all Parent Reports filed
with the SEC since December 31, 1999. As of their respective dates (but taking
into account any amendments filed prior to the date of this Agreement), Parent
Reports complied in all material respects with all the rules and regulations
promulgated by the SEC and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Parent included in Parent
Reports comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and fairly present (subject, in the case of the unaudited statements,
to normal audit adjustments) the financial position of Parent and its
consolidated subsidiaries as of the date thereof and the results of their
operations and their cash flows for the periods then ended.
V. COVENANTS AND ADDITIONAL AGREEMENTS
5.1 ACCESS. Between the date hereof and the Closing Date, Citadel
and the Shareholders will: (i) provide to the officers and other authorized
representatives of Purchasers full access, during normal business hours, to any
and all premises, properties, files, books, records, documents and other
information of Citadel, and will cause Citadel's officers to furnish to
Purchasers and their authorized representatives any and all financial, technical
and operating data with other information pertaining to the businesses and
properties of Citadel; and (ii) make
26
available for inspection and copying by Purchasers true and complete copies of
any documents relating to the foregoing. Purchasers will hold, and will cause
their representatives to hold, in confidence (unless and to the extent compiled
to disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law) all Confidential Information and will not
disclose the same to any third party except in connection with obtaining
financing and otherwise as may reasonably be necessary to carry out this
Agreement and the transactions contemplated hereby, including any due diligence
review by or on behalf of Purchasers. If this Agreement is terminated,
Purchasers will, and will cause their representatives to, promptly return to
Citadel, upon the reasonable request of Citadel, all Confidential Information
furnished by Citadel, including all copies and summaries thereof.
5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. Citadel and the
Shareholders, on the one hand, and Purchasers, on the other hand, will, as soon
as practical after reasonable request therefor, furnish to the other all
information concerning Citadel and the Shareholders or Purchasers, respectively,
required for inclusion in any statement or application made by Purchasers or
Citadel or the Shareholders to any governmental or regulatory body or to any
manufacturer or distributor or in connection with obtaining any third party
consent in connection with the transactions contemplated by this Agreement.
Neither Citadel nor the Shareholders, on the one hand, nor Purchasers, on the
other hand, nor any representative thereof, shall issue any press release or
otherwise make any public statement with respect to the transactions
contemplated hereby without the prior written consent of the other, except as
may be required by law.
5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
5.3.1 From and after the date of this Agreement and until
the Closing Date, Citadel shall, and the Shareholders shall cause Citadel to,
conduct its businesses solely in the ordinary course consistent with past
practices and, without the prior written consent of Purchasers, neither the
Shareholders nor Citadel will, except as required or settled pursuant to the
terms hereof, permit Citadel to:
(i) make any change in the conduct of its
businesses and operations or enter into any transaction other
than in the ordinary course of business consistent with past
practices;
(ii) make any change in its Bylaws, issue any
additional shares of capital stock or equity securities or
grant any option, warrant or right to acquire any capital
stock or equity securities or issue any security convertible
into or exchangeable for its capital stock or alter any
material term of any of its outstanding securities or make any
change in its outstanding shares of capital stock or other
ownership interests or its capitalization, whether by reason
of a reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares, stock
dividend or otherwise;
27
(iii) (A) incur, assume or guarantee any
indebtedness for borrowed money, issue any notes, bonds,
debentures or other corporate securities or grant any option,
warrant or right to purchase any thereof, except pursuant to
transactions in the ordinary course of business consistent
with past practices; (B) issue any securities convertible or
exchangeable for debt securities of Citadel; or (C) issue any
options or other rights to acquire from the Citadel, directly
or indirectly, debt securities of Citadel or any security
convertible into or exchangeable for such debt securities;
(iv) make any sale, assignment, transfer,
abandonment or other conveyance of any of its assets or any
part thereof, except transactions pursuant to existing
agreements of Citadel and dispositions in the ordinary course
of business consistent with past practices;
(v) subject any of its assets, or any part
thereof, to any Liens or suffer such to be imposed other than
such liens as may arise in are ordinary course of business
consistent with past practices;
(vi) declare, set aside or pay any dividends or
other distribution (whether in cash, stock, property or any
combinations thereof) in respect of any shares of its capital
stock or redeem, retire, purchase or otherwise acquire,
directly or indirectly, any shares of capital stock of Citadel
except as provided for in Section 2.10 hereof;
(vii) acquire any assets, raw materials or
properties, or enter into any other transaction, other than in
the ordinary course of business, consistent with past
practices;
(viii) enter into any new (or amend any existing)
employee benefit plan, program or arrangement or any new (or
amend any existing) employment severance or consulting
agreement, grant any general increase in the compensation of
officers or employee (including any such increase pursuit to
any bonus, pension, profit-sharing or other plan or
commitment) or grant any increase in compensation payable or
to become payable to any employee, except in accordance with
pre-existing contractual provisions or consistent with past
practices;
(ix) make or commit to make any individual
material capital expenditure in excess of $10,000, or
aggregate capital expenditures in excess of $50,000, except in
the ordinary course of business;
(x) pay, loan or advance any amount to, or sell,
transfer or lease any properties or assets to, or enter into
any agreement or arrangement with, any of its Affiliates,
except in the ordinary course of business;
28
(xi) guarantee any indebtedness for borrowed
money or any other obligation of any other Person, other than
in the ordinary course of business consistent with past
practice;
(xii) fail to keep in full force and effect
insurance comparable in amount and scope to coverage
maintained by it (or on behalf of it) on the date hereof;
(xiii) make any loan, advance or capital
contribution to investment in any Person, except in the
ordinary course of business;
(xiv) make any change in any method of accounting,
estimate or practice except for any such change required by
reason of a concurrent change in GAAP or write-down the value
of any inventory or write-off as uncollectible any accounts
receivable except in the ordinary course of business
consistent with past practices;
(xv) settle, release or forgive any material
claim or litigation or waive any material right;
(xvi) make, enter into, modify, amend in any
material respect or terminate any material commitment, bid or
expenditure, other than in the ordinary course of business
consistent with past practice; or
(xvii) commit itself to do any of the foregoing.
5.3.2 From and after the date hereof and until the Closing
Date, the Shareholders and Citadel will use their best efforts to cause Citadel
to:
(i) continue to maintain, in all material
respects, Citadel's properties and assets in accordance with
present practices in a condition suitable for their current
use;
(ii) comply with all applicable Environmental
Laws, and, in the event it shall receive notice that there
exists a violation of any Environmental Law with respect to
its operations, promptly (and in any event within the time
period permitted by the applicable governmental authority)
remove or remedy such violation in accordance with all
applicable Environmental Laws;
(iii) file, when due or required, or extend as
reasonably necessary, federal, state, foreign and other tax
returns and other reports required to be filed and pay when
due all Taxes, assessments, fees and other charges lawfully
levied or assessed against it unless the validity thereof is
contested in good faith and by appropriate proceedings
diligently conducted;
(iv) keep its books of account, records and files
in the ordinary course and in accordance with existing
practices;
29
(v) preserve its business organization intact
and continue to maintain existing business relationships with
suppliers, customers and others with whom business
relationships exist other than relationships that are, at the
same time, not economically beneficial to it; and
(vi) continue to conduct its business in the
ordinary course consistent with past practices.
5.4 NO NEGOTIATIONS. Until the earlier of April 14, 2000 or the
termination of this Agreement pursuant to Section 10.1 hereof, neither Citadel
nor the Shareholders nor Citadel's officers, directors, employees, advisors,
agents, representatives, Affiliates or anyone acting on behalf of the
Shareholders, Citadel, or such persons, shall, directly or indirectly,
encourage, solicit, initiate or engage in discussions or negotiations with, or
provide any information to, any Person (other than Purchasers or their
representatives) concerning any merger, sale of assets (other than in the
ordinary course of business), purchase or sale of shares of capital stock or
similar transaction involving Citadel.
5.5 CONSENTS; COOPERATION. Subject to the terms and conditions
hereof, the Shareholders, Citadel and Purchasers will use their respective best
efforts at their own expense (unless otherwise set forth herein):
5.5.1 to take all actions and do all things necessary,
proper or advisable, and to cooperate with each other, to expeditiously
consummate the transactions contemplated hereby;
5.5.2 to obtain prior to the earlier of the date required
(if so required) or the Closing Date, all Government Approvals, and make all
filings and registrations with Governmental Bodies which are required on their
respective parts for: (i) the consummation of the transactions contemplated by
this Agreement; (ii) the ownership or leasing and operating after the Closing by
Citadel of all its material properties; and (iii) the conduct after the Closing
by Citadel of its businesses as conducted by it on the date hereof;
5.5.3 to defend, consistent with applicable principles and
requirements of law, any lawsuit or other legal proceedings, whether judicial or
administrative, whether brought derivatively or on behalf of third persons
(including Governmental Bodies) challenging this Agreement or the transactions
contemplated hereby; and
5.5.4 to furnish each other such information and assistance
as may reasonably be requested in connection with the foregoing.
5.6 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of
this Agreement, each of the Parties hereto agrees to use its best efforts at its
own expense to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable Legal
Requirements to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
necessary or
30
desirable to carry out the purposes of this Agreement, the proper officers of
Citadel and the Shareholders shall take all such necessary action.
5.7 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and
the Closing, each Party to this Agreement will give prompt notice in writing to
the other Party hereto of: (i) any information that indicates that any
representation and warranty of such Party contained herein was not true and
correct as of the date made, or will not be true and correct as of the Closing;
(ii) the occurrence of any event which could result in the failure to satisfy a
condition specified in Article 6 or Article 7 hereof, as applicable; (iii) any
notice or other communication from any third Person alleging that the consent of
such third Person is or may be required in connection with the transactions
contemplated by this Agreement; and (iv) in the case of the Shareholders and
Citadel, any notice of, or other communication relating to, any default or event
which, with notice or lapse of time or both, would become a default under any
agreement of Citadel.
5.8 ASSURANCE BY THE SHAREHOLDERS. Each Shareholder shall use its
best efforts to cause Citadel to comply with its respective covenants set forth
in this Agreement.
5.9 RELEASE BY SHAREHOLDERS. The Shareholders hereby agree and
confirm that they hereby fully release, acquit and forever discharge Citadel,
together with Citadel's successors, assigns, affiliates, parent and related
parties, from any and all Claims, except for Claims arising from a breach of
this Agreement or any other agreement executed in connection hereof.
5.10 401(k) PLAN. Citadel shall take such action as is necessary,
including an amendment to the Citadel Group, Inc. 401(k) Plan ("401(k) Plan"),
to provide that participants in the 401(k) Plan shall be allowed to make no
further deferrals with respect to compensation for services performed after the
Closing Date, and Citadel shall make no further employer contributions to the
401(k) Plan after such date, other than (i) employee compensation deferrals and
(ii) matching contributions with respect to employee deferrals of compensation
for services through the Closing Date. Citadel and Parent shall take such action
as will permit current participants in the 401(k) Plan who are employed by
Citadel after the Effective Time to participate in, effective as soon as
administratively practicable after the Effective Time, the CompuCredit
Corporation 401(k) Plan (the "Purchaser Plan"). Parent shall take such actions
as may be desirable, in Parent's discretion and upon the advice of counsel, with
respect to the freezing, termination or merger into the Purchaser Plan of the
401(k) Plan, taking into consideration the rights of participants to their
accounts and the requirements of Code sections 414(l) and 411(d)(6), as
appropriate. Citadel and Parent shall also take or cause to be taken such
actions as are necessary to credit each 401(k) Plan participant who is employed
by Citadel after the Effective Time with such participant's Citadel service and
years of service (up to a maximum of 5 years of service) under the 401(k) Plan
for purposes of calculating eligibility for participation and vesting in
contributions under the Purchaser Plan.
5.11 FILING OF TAX RETURNS. The Shareholders covenant to cause all
of Citadel's Tax Returns for all periods ending on or prior to the Closing to be
timely and accurately filed with the appropriate taxing authorities. In
addition, the Shareholders agree to be responsible for all activities arising
for any audit by the appropriate taxing authority relating to Citadel's Tax
Returns for all periods ending on or before the Closing. The Shareholders shall
notify Parent within thirty days of the commencement of such activities and
shall inform Parent of any material developments in such activities. Parent will
file all such Tax Returns for all periods ending subsequent to the Closing with
the appropriate taxing authorities. The Shareholders hereby agree to cooperate
with Parent in filing such Tax Returns and to provide all information within
their knowledge or possession necessary to file such returns and requested by
Parent. All such
31
information shall be true, correct and accurate to the knowledge of the
Shareholders in all material respects. Parent agrees to give Shareholders
reasonable access to information necessary in order to: (i) file such returns;
and (ii) in the event of an audit, to defend such audit.
5.12 RELEASE OF CERTAIN GUARANTIES. Purchasers agree to have DLB
released from the guaranties of the obligations of Citadel listed on EXHIBIT
5.12 hereto within twelve (12) months of Closing, and to indemnify him for any
obligations under such guaranties, including any expenses directly related
thereto, to the extent arising out of a liability incurred by Citadel subsequent
to the date hereof or prior to the date hereof and reflected on the Financial
Statements. DLB represents and warrants that, as of the date hereof, there are
no outstanding amounts owing under the Citadel Merchant Account, and that there
are no prepayment penalties or other fees that would arise in connection with
the termination of the Citadel Merchant Account. As long as DLB is the
guarantor, Purchaser will operate the Citadel Merchant Account in a manner
consistent with Citadel's past practices.
VI. CONDITIONS TO THE OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING.
The obligations of Purchasers required to be performed by them at the
Closing shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions, each of which may be waived by Purchasers in
writing as provided herein except as otherwise required by applicable law:
6.1 REPRESENTATIONS AND WARRANTIES; COVENANTS. Each of the
representations and warranties of Citadel and the Shareholders contained in this
Agreement shall be true and correct on the date made and shall be true and
correct as of the Closing. Each of the obligations of Citadel and the
Shareholders required by any of the covenants or agreements contained in this
Agreement to be performed by them at or prior to the Closing shall have been
duly performed and complied with in all material respects as of the Closing. At
the Closing, Purchasers shall have received a certificate, dated the Closing
Date and duly executed by the Shareholders and Citadel, to the effect that the
conditions set forth in the two preceding sentences have been satisfied.
6.2 AUTHORIZATION; CONSENT. All notices to, and declarations,
filings and registrations with Governmental Bodies, and all Government Approvals
and all third person Consents required to consummate the transactions
contemplated hereby and necessary for the continued business operations of
Citadel, and all other Consents shall have been made or obtained.
6.3 OPINIONS OF CITADEL'S AND THE SHAREHOLDERS' COUNSEL.
Purchasers shall have been furnished with the opinion of Citadel's and the
Shareholders' counsel, and of ACA's counsel dated the Closing Date, in forms as
set forth on EXHIBIT 6.3(A) and EXHIBIT 6.3(B) attached hereto and incorporated
herein.
6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of
any court of competent jurisdiction in the United States shall be in effect: (a)
that prevents or delays the consummation of any of the transactions contemplated
hereby; or (b) would impose any
32
limitation on the ability of Purchasers effectively to exercise all rights of
ownership of the Citadel Common Stock. No action, suit or proceeding before any
court or any governmental or regulatory entity shall be pending (or threatened
by any governmental or regulatory entity), and no investigation by any
governmental or regulatory entity shall have been commenced (and be pending),
seeking to restrain or prohibit (or questioning the validity or legality of) the
consummation of the transactions contemplated by this Agreement or seeking
damages in connection therewith which Purchasers, in good faith and with the
advice of counsel, believe makes it undesirable to proceed with the consummation
of the transactions contemplated hereby.
6.5 NO MATERIAL ADVERSE CHANGE. During the period from the date of
the Interim Balance Sheet to the Closing Date, there shall not have been any
Material Adverse Change.
6.6 LEGAL MATTERS. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of the
Shareholders and Citadel under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of the Shareholders
and Citadel in furtherance of the transactions contemplated hereby, shall be
reasonably satisfactory in form and substance to counsel for Purchasers.
6.7 ANCILLARY AGREEMENTS. The Covenant Not to Compete,
Registration Rights Agreement, Employment Agreements, Consulting Agreement and
Escrow Agreement referred to in Sections 2.7, 2.8, 2.9 and 8.1.3 hereof shall
have been duly executed by the Parties.
VII. CONDITIONS TO THE OBLIGATIONS OF CITADEL AND THE SHAREHOLDERS TO EFFECT
THE CLOSING.
The obligations of the Shareholders and Citadel required to be
performed by them at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which may be
waived by Citadel and the Shareholders in writing as provided herein except as
otherwise required by applicable law:
7.1 REPRESENTATIONS AND WARRANTIES; COVENANTS. Each of the
representations and warranties of Purchasers contained in this Agreement shall
be true and correct on the date made and shall be true and correct as of the
Closing. Each of the obligations of Purchasers required by this Agreement to be
performed by them at or prior to the Closing shall have been duly performed and
complied with in all material respects as of the Closing. At the Closing, the
Shareholders shall have received a certificate, dated the Closing Date and duly
executed by an officer of Parent to the effect that the conditions set forth in
the preceding two sentences have been satisfied.
7.2 AUTHORIZATION OF THE AGREEMENT; CONSENTS. All notices to, and
declarations, filings and registrations with Governmental Bodies, and all
Government Approvals and all third person Consents required to consummate the
transactions contemplated hereby and necessary for the continued business
operations of Purchasers, and all other Consents shall have been made or
obtained.
7.3 ABSENCE OF LITIGATION. No order, stay, judgment or decree
shall have been issued by any court and be in effect restraining or prohibiting
the consummation of the transactions contemplated hereby.
33
7.4 LEGAL MATTERS. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of
Purchasers under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of Purchasers in furtherance of
the transactions contemplated hereby, shall be reasonably satisfactory in form
and substance to counsel for Citadel and the Shareholders.
7.5 ANCILLARY AGREEMENTS. The Covenant Not to Compete,
Registration Rights Agreement, Employment Agreements, Consulting Agreement and
Escrow Agreement referred to in Sections 2.7, 2.8, 2.9 and 8.1.3 hereof shall
have been duly executed by the Parties.
7.6 OPINION OF PURCHASERS' COUNSEL. Citadel and the Shareholders
shall have been furnished with the opinion of Purchasers' counsel dated the
Closing Date, in the form set forth on EXHIBIT 7.6 attached hereto and
incorporated herein.
VIII. CLOSING.
8.1 TRANSACTIONS AT CLOSING.
8.1.1 At Closing Citadel shall deliver to Purchasers the
following:
(i) certificates of compliance or certificates
of good standing of Citadel, as of the most recent practicable
date, from the appropriate governmental authority of the
jurisdiction of its incorporation;
(ii) certified copies of resolutions of the Board
of Directors of Citadel and the Shareholders approving the
transactions set forth in this Agreement;
(iii) certificates of incumbency for the officers
of Citadel who are executing this Agreement and the other
documents contemplated hereunder;
(iv) an executed Covenant Not to Compete from
Citadel and the Majority Shareholder, in the form of EXHIBIT
2.7;
(v) an executed Escrow Agreement in the form of
EXHIBIT 8.1.3 attached hereto;
(vi) an executed Registration Rights Agreement in
the form of EXHIBIT 2.8;
(vii) executed employment agreements in the form
of EXHIBIT 2.9(B) from each of the persons listed on EXHIBIT
2.9(A); executed consulting agreement in the form of EXHIBIT
2.9(C) from DLB; and
(viii) legal opinions from Citadel's and the
Shareholders' counsel and from counsel for ACA in the forms
set forth in EXHIBIT 6.3(A) and EXHIBIT 6.3(B).
34
8.1.2 PERFORMANCE BY PURCHASERS. At Closing Purchaser shall
deliver to Citadel the following:
(i) certificates of incumbency of the officers
of Purchasers who are executing this Agreement and the other
documents contemplated hereunder;
(ii) certified copy of resolutions of the Board
of Directors of Purchasers approving the transactions set
forth in this Agreement;
(iii) an executed Escrow Agreement in the form of
EXHIBIT 8.1.3; and
(iv) an executed Registration Rights Agreement in
the form of EXHIBIT 2.8;
(v) executed employment agreements in the form
of EXHIBIT 2.9(B) from each of the persons listed on EXHIBIT
2.9(A); executed consulting agreement in the form of EXHIBIT
2.9(C); and
(vi) a legal opinion from Purchasers' counsel in
the form set forth in EXHIBIT 7.6.
8.1.3 ESCROW SHARES. At the Closing, Parent shall deliver
certificates representing ten percent (10%) of the Merger Consideration (the
"Escrow Shares") to the Escrow Agent for deposit into an escrow account (the
"Escrow Account") established pursuant to the terms of an escrow agreement in
the form of EXHIBIT 8.1.3 attached hereto (the "Escrow Agreement") among the
Shareholders' Representative, Parent and the Escrow Agent. The Escrow Shares
shall be available as a source of funds to satisfy amounts owing to Purchaser
pursuant to Article IX below.
IX. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF CITADEL AND THE
SHAREHOLDERS; INDEMNIFICATION. All representations, warranties, agreements,
covenants and obligations made or undertaken by Citadel and the Shareholders in
this Agreement or in any document or instrument executed and delivered pursuant
hereto are material, have been relied upon by Purchasers, shall survive the
Closing hereunder subject to any applicable period in Section 9.6 and shall not
merge in the performance of any obligation by any party hereto. Citadel and the
Shareholders, jointly and severally, agree to and shall indemnify and hold
harmless Purchasers and their respective stockholders, directors and any
assignee at all times after the date of this Agreement from and against and in
respect of, any liability, claim, deficiency, loss, damage, or injury and all
reasonable costs and expenses (including reasonable counsel fees and costs of
any suit related thereto) suffered or incurred by Purchasers (collectively
referred to as "Loss") arising from (a) any misrepresentation by, or breach of
any covenant or warranty of, Citadel or the Shareholders contained in this
Agreement or any exhibit, certificate, or other instrument
35
furnished or to be furnished by Citadel or the Shareholders hereunder; (b) any
nonfulfillment of any agreement on the part of Citadel or the Shareholders under
this Agreement or from any misrepresentation in or omission from, any
certificate or other instrument furnished or to be furnished to Purchasers
hereunder; (c) any claim against, or liability of, Citadel, which accrued prior
to the Closing Date except as specifically accrued or reserved for in the
Financial Statements in the amounts accrued or reserved for therein; (d) arising
out of the lawsuit described on EXHIBIT 3.11 in excess of $50,000; or (e) any
liability arising in connection with Citadel's failure to maintain or possess
the items enumerated in Section 3.16.1 and Section 3.16.2. Any examination,
inspection or audit of the properties, financial condition or other matters of
Citadel and the Business conducted by Purchasers shall in no way limit, affect
or impair the ability of Purchasers to rely upon the representations,
warranties, covenants and obligations of Citadel set forth herein;
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF PURCHASERS;
INDEMNIFICATION. All representations, warranties, agreements, covenants and
obligations made or undertaken by the Purchasers in this Agreement or in any
documents or instrument executed and delivered pursuant hereto are material,
have been relied upon by Citadel and Shareholders, shall survive the Closing
hereunder subject to any applicable period in Section 9.6 and shall not merge in
the performance of any obligation by any party hereto. The Purchasers, jointly
and severally, agree to and shall indemnify and hold harmless Citadel and
Shareholders or any assignee of Citadel or Shareholders at all times after the
date of this Agreement from and against and in respect of, any Loss suffered or
incurred by Citadel or Shareholders arising from (a) any misrepresentation by,
or breach of any covenant or warranty of, the Purchasers contained in this
Agreement or any exhibit, certificate, or other instrument furnished or to be
furnished by the Purchasers hereunder; or (b) any nonfulfillment of any
agreement on the part of the Purchasers under this Agreement or from any
misrepresentation in or omission from, any certificate or other instrument
furnished or to be furnished to Citadel or Shareholders hereunder.
9.3 LIMITATION ON INDEMNIFICATION. Notwithstanding the provisions
of Sections 9.1 and 9.2 and subject to the final sentence of this Section 9.3,
no party entitled to indemnification shall be entitled to make a claim against
any party providing indemnification unless and until the aggregate amount of all
such claims which may be asserted against such party exceeds One Hundred
Thousand Dollars ($100,000) at which time such claims may be asserted for all
such indemnifiable Loss without limitation by reason of this Section 9.3. The
limitation set forth in this Section 9.3 shall not apply to: (i) any knowing
breach by any party of any of the representations and warranties made herein or
pursuant to this Agreement by such party; (ii) any intentional breach of any
covenant or obligation herein or pursuant to this Agreement; (iii) any claims
pursuant to clause (c) of Section 9.1 to the extent constituting a breach of the
representations and warranties in Section 3.5.1 hereof; (iv) any claim pursuant
to clause (d) of Section 9.1; (v) any breach of the representations and
warranties in Sections 3.25 and 3.26 hereof; or (vi) any liability arising from
Citadel's failure to possess or maintain any of the items listed in Section
3.16.1 and Section 3.16.2 hereof.
9.4 MANNER OF PAYMENT. Any indemnification by the Shareholders
pursuant to this Article IX shall be first satisfied to the extent possible from
the Escrow Account in accordance
36
with the terms and conditions of the Escrow Agreement, and thereafter shall be
satisfied directly by the Shareholders by wire transfer of immediately available
funds in accordance with the terms of this Article IX. Any indemnification by
the Purchasers pursuant to this Article IX shall be satisified solely by the
delivery of additional shares of Parent Common Stock.
9.5 DEFENSE OF THIRD PARTY CLAIMS. Any Person making a claim for
indemnification under this Article IX (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it by a third party (including without limitation, a
Governmental Body), describing the claim, the amount thereof (if known and
quantifiable) and the basis thereof; provided that the failure to so notify an
Indemnitor shall not relieve the Indemnitor of its obligations hereunder except
to the extent that (and only to the extent that) such failure shall have caused
the damages for which the Indemnitor is obligated to be greater than such
damages would have been had the Indemnitee given the Indemnitor prompt notice
hereunder. Any Indemnitor shall be entitled to participate in the defense of
such action, lawsuit, proceeding, investigation or other claim giving rise to an
Indemnitee's claim for indemnification at such Indemnitor's expense, and at its
option (subject to the limitations set forth below) shall be entitled to assume
the defense thereof at such Indemnitor's expense by appointing a reputable
counsel reasonably acceptable to the Indemnitee to be the lead counsel in
connection with such defense within fifteen (15) days after receipt of such
written notice from the Indemnitee; PROVIDED THAT:
9.5.1 the Indemnitee shall be entitled to participate in
the defense of such claim and to employ counsel of its choice for such purpose;
provided that the fees and expenses of such separate counsel shall be borne by
the Indemnitee (other than any fees and expenses of such separate counsel that
are incurred prior to the date the Indemnitor effectively assumes control of
such defense which, notwithstanding the foregoing, shall be borne by the
Indemnitor);
9.5.2 the Indemnitor shall not be entitled to assume
control of such defense and shall pay the fees and expenses of counsel retained
by the Indemnitee if (i) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation; (ii) settlement of, or an adverse judgment with respect to, the
action, lawsuit, investigation, proceeding or other claim giving rise to such
claim for indemnification would, in the reasonable judgment of the Indemnitee,
likely establish a precedential custom or practice adverse to the continuing
business interests of the Indemnitee in any material respect or the Indemnitee
reasonably believes that settlement or an adverse judgment with respect thereto
would be detrimental to or injure the Indemnitee's reputation; (iii) the claim
seeks an injunction or equitable relief against the Indemnitee; or (iv) upon
petition by the Indemnitee, the appropriate court rules that the Indemnitor
failed or is failing to vigorously prosecute or defend such claim;
9.5.3 if the Indemnitor shall control the defense of any
such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee (not to be unreasonably withheld) before entering into any settlement
of such claim and, if the Indemnitee shall control
37
the defense of any such claim, the Indemnitee shall obtain the prior written
consent of the Indemnitor (not to be unreasonably withheld) prior to entering
into any settlement of such claim; and
9.5.4 notwithstanding anything herein to the contrary,
Purchasers agree to defend the lawsuit described in EXHIBIT 3.11 hereto, subject
to their right to indemnification in respect thereof described in Section 9.1
hereof.
9.6 SURVIVAL PERIOD FOR CLAIMS. A claim for indemnification
against any party hereto based solely on the representations and warranties
contained in this Agreement shall survive the Closing hereunder for a period
ending upon the earlier to occur of the issuance of the first independent audit
report of Parent and the Surviving Corporation following the Merger, or one (1)
year, unless notice of such claim is provided prior to such time; provided
however that claims based upon the representations and warranties contained in
Sections 3.25 and 3.26 hereof shall survive the Closing and may be made within
three (3) years of the Closing Date.
X. TERMINATION
10.1 TERMINATION. This Agreement may be terminated at any time
prior to Closing:
10.1.1 by written mutual consent of Purchasers, Citadel and
the Shareholders;
10.1.2 by Purchasers, Citadel, or the Shareholders if any
court of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and any such order, decree, ruling or other
action shall have become final and non-appealable;
10.1.3 by Purchasers if any of the conditions specified in
Article VI hereof have not been met or waived by Purchasers on or before April
14, 2000 (provided Purchasers are not in material breach of their
representations, warranties, covenants or agreements under this Agreement).
10.1.4 by Citadel or Shareholders if any of the conditions
specified in Article VII hereof have not been met or waived by Citadel or
Shareholders on or before April 14, 2000 (provided Citadel or Shareholders are
not in material breach of their representations, warranties, covenants or
agreements under this Agreement).
If Purchasers, Citadel, or the Shareholders shall terminate this
Agreement pursuant to the provisions hereof, such termination shall be
effectuated by written notice to the other parties specifying the provision
hereof pursuant to which such termination is made.
10.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 10.1 above, this Agreement shall forthwith become null and
void, and none of the Parties hereto or any of their respective officers,
directors, employees, agents, affiliates, consultants, shareholders, or
principals shall have any liability or obligation hereunder or with respect
hereto,
38
except for any liability arising out of any breach of this Agreement prior to
its termination and as set forth in Section 12.17 hereof.
XI. TAX EFFECT OF THE TRANSACTION.
11.1 REORGANIZATION. It is understood and agreed that each party
has looked to its own advisors for advice and counsel as to such tax effects.
Notwithstanding the foregoing, Purchasers and Citadel acknowledge that this
transaction constitutes a reorganization of Citadel pursuant to Section 368(a)
of the Code. In order to insure that the reorganization will qualify for
tax-free status under Section 368(a), the Parties make the following
representations and warranties and agree to take the following actions:
11.1.1 The parties shall each adopt a plan or reorganization
adopting the provisions of this Agreement and which adoption shall appear upon
the official records of the Purchasers and Citadel. The parties shall cause the
officers of each of the corporations party hereto to perform and carry out the
respective obligations of the corporations contained in the plan of
reorganization.
11.1.2 The Purchasers and Citadel agree that neither party
will take any action inconsistent with such a reorganization or which will
prevent this transaction from qualifying as such a reorganization.
11.1.3 The Purchasers will not take, or cause the Surviving
Corporation to take, any position on any Federal, state or local income or
franchise tax return, or to take any other tax reporting position, that is
inconsistent with the treatment of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by applicable
state or local tax law (and then only to the extent required by such applicable
state or local tax law).
11.1.4 Following the Merger, Purchasers will not cause or
permit the Surviving Corporation to take any action that would result in any
violation of the "substantially all" test of Section 368(a)(2)(E) of the Code.
11.1.5 Neither the Purchasers, nor any Person that is
related to Purchasers, has any present plan or intention, following the Merger,
to reacquire, or to cause any Person related to Purchasers to acquire, any
Parent Common Stock. Except for cash paid in lieu of fractional share interests
of Parent Common Stock pursuant to the Merger, neither Purchasers, nor any
Person that is related to Purchasers, will, in connection with the Merger,
purchase, redeem, or otherwise reacquire any of the shares of Parent Common
Stock issued in the Merger. For purposes of this representation, a Person shall
be treated as related to Purchasers if such Person is related to Purchasers
within the meaning of Treasury Regulation Section 1.368-1(e)(3).
11.1.6 Purchasers have no present plan or intention to sell,
transfer or dispose of any capital stock of the Surviving Corporation or to
cause the Surviving Corporation to issue additional shares of its capital stock.
39
11.1.7 Purchasers have no present plan or intention,
following the Merger, to liquidate the Surviving Corporation, to merge the
Surviving Corporation with and into another corporation, to sell or otherwise
dispose of any of the capital stock of the Surviving Corporation, to cause the
Surviving Corporation to distribute to Purchasers any assets of the Surviving
Corporation or any of its subsidiaries or the proceeds of any borrowings
incurred by the Surviving Corporation or any of its subsidiaries, or to cause
the Surviving Corporation to sell or otherwise dispose of any of the assets held
by the Surviving Corporation or any of its subsidiaries at the time of the
Merger, except for dispositions of such assets in the ordinary course of
business and transfers described in Section 368(a)(2)(C) of the Code or Treasury
Regulation Section 1.368-2(k).
11.1.8 Purchasers will pay its expenses, if any, incurred in
connection with the Merger. Except as set forth in Section 12.17 hereof,
Purchasers have not paid (directly or indirectly) or agreed to assume any
expenses or other liabilities, whether fixed or contingent, incurred or to be
incurred by Citadel or the Shareholders in connection with or as part of the
Merger or any related transactions.
11.1.9 Following the Merger, Parent intends to cause the
Surviving Corporation to continue Citadel's "historic business" or to use a
significant portion of the Citadel's "historic business assets" in a business
(as such terms are defined in Treasury Regulation Section 1.368-1(d)).
11.1.10 Purchasers are not investment companies as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
11.1.11 No Citadel Common Stock will be redeemed for cash or
other property furnished by Parent, except as provided in Section 2.3.3 hereof.
11.1.12 Merger Sub is a corporation newly formed for the
purpose of participating in the Merger and at no time prior to the Merger has
had assets (other than nominal assets contributed upon the formation of Merger
Sub, which assets will be held by the Surviving Corporation following the
Merger), liabilities, or business operations.
XII. GENERAL PROVISIONS.
12.1 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail, return receipt requested, or sent by
Federal Express or other nationally recognized overnight delivery service
addressed as follows:
40
If to Citadel or Shareholders:
Citadel Group, Inc.
Suite 100
2570 West International ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
▇. ▇. ▇▇▇▇▇▇▇, Esq.
Winderweedle, Haines, ▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
NationsBank Center
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Purchasers:
Compucredit Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
and a copy to:
▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
12.1.1 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made. If delivered by mail or overnight delivery service, the date
on which such notice, request, instruction or document is received shall be the
date of delivery. In the event any such notice, request, instruction or document
is mailed or sent to a party in accordance with this Section 12.1 and is
returned to the sender as non-deliverable, then such notice, request,
instruction or document shall be deemed to have been delivered or received on
the fifth day following the deposit of such notice, request, instruction or
document in the United States mails or overnight delivery service, as the case
may be.
12.1.2 Any party hereto may change its address specified for
notices herein by designating a new address by notice in accordance with this
Section 12.1.
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12.2 BROKERS.
12.2.1 Each of Citadel and the Shareholders represent and
warrant to Purchasers that it or they have not retained any investment banker,
broker or finder in connection with this Agreement or any of the transactions
contemplated hereby. Each of Citadel and the Shareholders agree to indemnify and
hold harmless the Purchasers from and against any fee, claim, loss, or expense
arising out of any claim by any investment banker, broker or finder employed or
alleged to have been employed by it.
12.2.2 The Purchasers represent and warrant to Citadel and
the Shareholders that they have not retained any investment banker, broker or
finder in connection with this Agreement or any of the transactions contemplated
hereby. The Purchasers, jointly and severally, agree to indemnify and hold
harmless Citadel and the Shareholders from and against any fee, claim, loss, or
expense arising out of any claim by any investment banker, broker or finder
employed or alleged to have been employed by it.
12.3 FURTHER ASSURANCES. Each party covenants that at any time, and
from time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
party to confirm or perfect or otherwise to carry out the intent and purposes of
this Agreement.
12.4 WAIVER. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived by
any other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
12.5 EXPENSES. Except as set forth in Section 12.17 hereof, all
expenses incurred by the Parties hereto in connection with or related to the
authorization, preparation and execution of this Agreement and the Closing of
the transactions contemplated hereby, including, without limitation of the
generality of the foregoing, all fees and expenses of brokers, agents,
representatives, counsel and accountants employed by any such party, shall be
borne solely and entirely by the party which has incurred the same.
12.6 SHAREHOLDER REPRESENTATIVE. Each Shareholder, by acceptance of
Merger Consideration, shall be deemed to have designated and appointed DLB with
full power of substitution (the "Shareholder Representative") as the
representative of any such shareholder to perform all such acts as are required,
authorized or contemplated by this Agreement to be performed by the Shareholders
and hereby acknowledges that the Shareholder Representative shall be the only
person authorized to take any such action so required, authorized or
contemplated by this Agreement by any Shareholder. Each Shareholder is thereby
deemed to have further acknowledged that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Shareholder. Each Shareholder is thereby deemed to
have authorized the other Parties to disregard any notice or other action taken
by each shareholder pursuant to this Agreement except for the Shareholder
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Representative. The other Parties are and will be entitled to rely on any action
so taken or any notice given by the Shareholder Representative and are and will
be entitled and authorized to give notices only to the Shareholder
Representative for any notice contemplated by this Agreement to be given to any
such Shareholder.
12.7 NONDISCLOSURE OF TERMS. Citadel and the Shareholders each
represent and warrant that prior to the execution hereof it has not disclosed
any of the terms, conditions, obligations or matters contained in or relating to
this Agreement and the transactions contemplated herein.
12.8 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
12.9 HEADINGS. This section and the other headings in this
Agreement are inserted solely as a matter of convenience and for reference and
are not a part of this Agreement.
12.10 ENTIRE AGREEMENT. This Agreement and the ancillary agreement
contemplated herein constitute the entire agreement among the parties hereto and
supersede and cancel any prior agreements, representations, warranties, or
communications, whether oral or written, among the parties hereto relating to
the transactions contemplated hereby or the subject matter herein. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought. Notwithstanding the foregoing, nothing herein shall
waive, supercede or cancel any of the terms and conditions of that certain
agreement dated May 28, 1999 by and among Citadel, CSC, and American Consumer
Alliance, Inc., and of that certain Confidentiality Agreement dated March 9,
2000 between CSC and Citadel, or the other agreements contemplated thereby, all
of which shall remain in full force and effect.
12.11 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
12.12 CONSENT TO JURISDICTION AND VENUE. Each of Citadel, the
Purchasers and the Shareholders consent and submit to personal jurisdiction in
the State of Georgia and venue within the Federal courts of the Northern
District of Georgia.
12.13 COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
12.14 PRONOUNS. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter gender as the context requires.
12.15 EXHIBITS INCORPORATED. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such Exhibits, if any, will
be filled in as required in order to consummate the transactions contemplated
herein and in accordance with this Agreement.
12.16 TIME OF ESSENCE. Time is of the essence in this Agreement.
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12.17 AUDIT AND LEGAL EXPENSES. Purchasers agree to reimburse
Citadel for audit expenses undertaken of Citadel by Ernst & Young at the request
of Purchasers. Purchasers agree to reimburse the Shareholders for reasonable
attorney fees actually incurred in connection with the transactions contemplated
hereby, not to exceed Thirty Thousand Dollars ($30,000.00). The reimbursement
obligations contained in this Section 12.7, shall be binding on Purchasers
whether or not Closing occurs, unless Closing does not occur due to the breach
or default of, or failure to satisfy a condition to Closing by, Citadel or the
Shareholders.
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IN WITNESS WHEREOF, each party hereto has executed or caused
this Agreement to be executed on its behalf, all on the day and year first above
written.
COMPUCREDIT CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: PRESIDENT
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TCG ACQUISITION, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: PRESIDENT
---------------------------------
CITADEL GROUP, INC.
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Title: PRESIDENT
---------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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/s/ J. ▇▇▇▇▇▇ ▇▇▇▇▇▇
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J. ▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇, CUSTODIAN FOR ▇▇▇▇▇▇▇
▇▇▇▇▇▇, UNDER THE UNIFORM TRANSFERS TO
MINORS ACT OF THE STATE OF FLORIDA
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