EXHIBIT 2.7
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AGREEMENT AND PLAN OF MERGER
dated as of October 9, 2000
by and between
Avatar SYSTEMS, INC.
and
HCI ACQUISITION 1998-2, INC.
d/b/a PRECISION STAINLESS FABRICATORS
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TABLE OF CONTENTS
Page
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ARTICLE I. THE MERGER.................................................1
Section 1.1 The Merger............................................1
Section 1.2 Closing...............................................1
Section 1.3 Effective Time........................................1
Section 1.4 Effects of the Merger.................................2
Section 1.5 Articles of Incorporation; Bylaws; Name...............2
Section 1.6 Directors; Officers...................................2
Section 1.7 Avatar Agreements.....................................2
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS..............................................2
Section 2.1 Effect on Capital Stock...............................2
Section 2.2 Adjustments...........................................3
Section 2.3 Further Assurances....................................3
ARTICLE III. PAYMENT FOR SHARES.........................................3
Section 3.1 Letter of Transmittal; Surrender of Certificates......3
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.............................3
Section 4.1 Representations and Warranties of Public Company......3
Section 4.2 Representations and Warranties of Avatar..............8
ARTICLE V. COVENANTS.................................................10
Section 5.1 Conduct of Business of Public Company Prior to the
Merger...............................................10
Section 5.2 Other Actions........................................12
ARTICLE VI. ADDITIONAL AGREEMENTS.....................................12
Section 6.1 Access to Information; Confidentiality...............12
Section 6.2 Reasonable Best Efforts..............................12
Section 6.3 Indemnification; Directors' and Officers' Insurance..12
Section 6.4 Public Announcements.................................13
Section 6.5 No Solicitation; Takeover Proposals..................13
Section 6.6 Reorganization.......................................14
Section 6.7 Consents, Approvals and Filings......................14
Section 6.8 Public Company Notices of Certain Events.............14
Section 6.9 Transfer Taxes.......................................15
ARTICLE VII. CONDITIONS PRECEDENT......................................15
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger...............................................15
Section 7.2 Conditions to Obligations of Avatar..................15
Section 7.3 Conditions to Obligations of Public Company..........16
Section 7.4 Frustration of Closing Conditions....................17
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER.........................17
Section 8.1 Termination..........................................17
Section 8.2 Effect of Termination................................17
Section 8.3 Amendment............................................18
Section 8.4 Extension; Waiver....................................18
Section 8.5 Procedure for Termination, Amendment, Extension or
Waiver...............................................18
-i-
ARTICLE IX. GENERAL PROVISIONS........................................18
Section 9.1 Nonsurvival of Representations and Warranties........18
Section 9.2 Fees and Expenses....................................18
Section 9.3 Definitions..........................................18
Section 9.4 Notices..............................................19
Section 9.5 Interpretation.......................................19
Section 9.6 Counterparts.........................................20
Section 9.7 Entire Agreement: Third-Party Beneficiaries..........20
Section 9.8 GOVERNING LAW........................................20
Section 9.9 Assignment...........................................20
Section 9.10 Enforcement..........................................20
Section 9.11 Severability.........................................20
EXHIBITS AND SCHEDULES
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Exhibit A - Balance Sheet of Public Company dated September 30, 2000
Schedule 4.2(b) - Authority; Noncontravention
Schedule 4.2(c) - Capital Structure
-ii-
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
October 9, 2000, is entered into by and between Avatar Systems, Inc., a Texas
corporation ("Avatar"), and HCI Acquisition 1998-2, Inc., d/b/a Precision
Stainless Fabricators, a Texas corporation (the "Public Company"). Certain
capitalized terms used in this Agreement are defined in Section 9.3 hereof.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Avatar and the Public
Company have determined that it would be advisable and in the best interests of
the shareholders of Avatar and the Public Company, respectively, for Avatar to
merge with and into Public Company pursuant and subject to the terms and
conditions set forth in this Agreement (the "Merger");
WHEREAS, Avatar and Public Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, all of the parties hereto desire that the transaction
contemplated herein be treated as a tax-free merger transaction pursuant to
Section 368 of the Code.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I.
THE MERGER
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Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the applicable provisions of
the Texas Business Corporation Act (the "TBCA"), the Merger shall be effected
and Avatar shall be merged with and into Public Company at the Effective Time
(as defined in Section 1.3), the separate existence of Avatar shall cease and
Public Company shall continue as the surviving corporation in the Merger. The
surviving corporation of the Merger shall be herein referred to as the
"Surviving Corporation."
Section 1.2 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Merger (the "Closing") will take place
as soon as practicable following the last to be satisfied or waived of the
conditions set forth in Article VII, in accordance with this Agreement (the
"Closing Date"), at the offices of ▇▇▇▇▇▇ & Diamond P.C., One Panorama Center,
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, unless another date,
time or place is agreed to by the parties hereto.
Section 1.3 Effective Time. Contemporaneously with or as promptly as
practicable after the Closing, the Surviving Corporation will file with the
Secretary of State of the State of Texas (the "Texas Secretary of State")
articles of merger or other appropriate documents, executed in accordance with
the relevant provisions of the TBCA, and make all other filings or recordings
required under the TBCA in connection with the Merger. The Merger shall become
effective upon the filing of the articles of merger with the Texas Secretary of
State (the "Effective Time").
AGREEMENT AND PLAN OF MERGER-Page 1
Section 1.4 Effects of the Merger. The Merger shall have the effects
set forth in this Agreement and in the applicable provisions of the TBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and franchises of
Avatar and Public Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Avatar and Public Company shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.5 Articles of Incorporation; Bylaws; Name. At the Effective
Time, (a) articles of incorporation of the Public Company, as amended and
restated, shall be the articles of incorporation of the Surviving Corporation,
and (b) the bylaws of the Public Company as in effect at the Effective Time
shall, from and after the Effective Time, be the bylaws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law. The name of the Surviving Corporation shall be changed to Avatar
Systems, Inc.
Section 1.6 Directors; Officers. (i) At the Effective Time, (a) the
nominees of Avatar as approved by the Public Company's shareholders at the
Special Meeting of Shareholders contemplated herein shall become the directors
of the Surviving Corporation, each of whom will serve until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be, and (b) the officers of Avatar shall be the
officers of the Surviving Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
Section 1.7 Avatar Agreements. At the Effective Time, all rights,
obligations, duties and liabilities of Avatar under existing agreements to which
Avatar is a party shall vest in the Surviving Corporation and become the
obligations, duties and liabilities of the Surviving Corporation.
ARTICLE II.
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
-------------------------------------
Section 2.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Public Company,
Avatar or any holder of (i) any shares of capital stock of Avatar or (ii) any
shares of capital stock of Public Company:
(a) Conversion of Avatar Shares. All shares of common stock,
par value $1.00 per share, of Avatar ("Avatar Common Stock") issued and
outstanding immediately prior to the Effective Time (the "Avatar
Shares") shall be converted into an aggregate of 8,000,000 shares of
Public Company Common Stock (as defined in Section 4.1(b)). The shares
of Public Company Common Stock to be issued pursuant to this Section
2.1(a) shall represent 92% of the issued and outstanding Public Company
Common Stock as of the Effective Time, and shall herein after be
referred to as the "Merger Consideration". Following the conversion,
all of the Avatar Shares shall be cancelled and shall cease to exist.
(b) Conversion of Avatar Warrants. Avatar has outstanding
warrants to purchase up to 5.7 million shares of Avatar Common Stock at
$1.00 per share (the "Avatar Warrants"). All Avatar Warrants issued and
outstanding immediately prior to the Effective Time shall be converted
into warrants to purchase up to 5.7 million shares of Public Company
Common Stock for total consideration of $5.7 million or $1.00 per
share. The Avatar Warrants shall be cancelled and the Surviving
Corporation shall issue warrants to the current holders of the Avatar
Warrant to purchase shares of the Surviving Corporation under the same
terms as the Avatar Warrants with the adjustments as provided herein.
AGREEMENT AND PLAN OF MERGER-Page 2
Section 2.2 Adjustments. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
capital stock of Public Company shall occur, including by reason of any
reclassification, recapitalization, stock dividend, stock split, or combination,
exchange or readjustment of shares of capital stock of Public Company, or any
stock dividend thereof, the Merger Consideration shall be appropriately
adjusted.
Section 2.3 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall determine or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation the right, title or interest in, to or under any of the
rights, properties or assets of Avatar acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Avatar, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of Company Avatar or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE III.
PAYMENT FOR SHARES
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Section 3.1 Letter of Transmittal; Surrender of Certificates. Unless
otherwise delivered at Closing, promptly after the Effective Time, Public
Company shall mail to each holder of record of a certificate or certificates
which, immediately prior to the Effective Time, evidence outstanding shares of
the capital stock of Avatar (the "Certificates") and to each holder of record of
Avatar Warrants ("Warrant Certificates"), (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates and Warrant Certificates shall pass, only upon proper
delivery of the Certificates and Warrant Certificates to Public Company, and
shall be in such form and have such other provisions as Public Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates and Warrant Certificates in exchange for new certificates of
Public Company representing such holders new interest in Public Company. Upon
surrender of a Certificate and/or Warrant Certificate for cancellation to the
Public Company together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such instructions, the
holder of such Certificate and/or Warrant Certificate shall be entitled to
receive in respect thereof a new certificate evidencing such holders new
interest in Public Company.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
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Section 4.1 Representations and Warranties of Public Company. Public
Company represents and warrants to Avatar as follows:
(a) Organization, Standing and Power. Public Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Public Company is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in
the aggregate) would not have a Public Company Material Adverse Effect.
For purposes of this Agreement, the term "Public Company Material
Adverse Effect" means any Material Adverse Effect with respect to
Public Company, taken as a whole, or any change or effect that
adversely, or is reasonably expected to adversely, affect the ability
of Public Company to consummate the transactions contemplated by this
Agreement in any material respect or materially impairs or delays
Public Company's ability to perform its obligations hereunder. Public
Company has made available to Avatar complete and correct copies of its
charter documents and bylaws Public Company, as amended to the date of
this Agreement.
AGREEMENT AND PLAN OF MERGER-Page 3
(b) Capital Structure. The authorized capital stock of Public
Company consists of 1,000,000 shares of common stock, par value $1.00
per share (the "Public Company Common Stock"). On the Closing Date
hereof and in accordance with the Plan, there will be 695,652 shares of
Public Company Common Stock issued and outstanding. No shares of Public
Company Common Stock will be held by Public Company in its treasury.
All outstanding shares of capital stock of Public Company will have
been duly authorized and validly issued, and will be fully paid and
nonassessable and not subject to preemptive or similar rights. No bonds
debentures, notes or other indebtedness of Public Company having the
right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the shareholders of
Public Company may vote are issued or outstanding. Except for this
Agreement and the 2000 Stock Compensation Plan to be approved by the
shareholders of the Public Company, Public Company does not have, or at
or after the Effective Time will not have, any outstanding option,
warrant, call, subscription or other right, agreement or commitment
which either (i) obligates Public Company to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of the
capital stock of Public Company, or (ii) restricts the voting,
disposition or transfer of shares of capital stock of Public Company.
There are no outstanding stock appreciation rights or similar
derivative securities or rights of Public Company. No Person has any
right to require the registration of any shares of Public Company
Common Stock or any other securities of Public Company.
(c) Authority: Noncontravention. Pursuant to authority granted
by the Plan, Public Company has the requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery
of this Agreement by Public Company and the consummation by Public
Company of the transactions contemplated hereby have been duly
authorized by the Plan and by all necessary corporate action on the
part of Public Company. This Agreement has been duly executed and
delivered by Public Company and, assuming this Agreement constitutes
the valid and binding agreement of Avatar, constitutes a valid and
binding obligation of Public Company, enforceable against Public
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies and to general
principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). The execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions hereof will not, (i) conflict with any of the provisions of
the charter documents or bylaws of Public Company, (ii) subject to the
governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a
right of first refusal, termination, cancellation or acceleration of
any obligation (including to pay any sum of money) or loss of a benefit
under, or require the consent of any person under, any indenture or
other agreement, permit, concession, ground lease, franchise, license
or similar instrument or undertaking to which Public Company is a party
or by which Public Company or any of its assets are bound, result in
the creation or imposition of a material Lien or other restriction or
encumbrance on any material asset of Public Company, which, singly or
in the aggregate, would have a Public Company Material Adverse Effect,
or (iii) subject to the governmental filings and other matters referred
to in the following sentence, violate any domestic or foreign law, rule
or regulation or any order, writ, judgment, injunction, decree,
determination or award currently in effect except for such violations,
which, singly or in the aggregate, would only have an immaterial
effect. No consent, approval or authorization of, or declaration or
filing with, or notice to, any domestic or foreign governmental agency
or regulatory authority (a "Governmental Entity") or any third party
which has not been received or made, is required by or with respect to
Public Company in connection with the execution and delivery of this
Agreement by Public Company or the consummation by Public Company of
the transactions contemplated hereby, except for (i) filings required
under the Plan, (ii) the filing of the articles of merger with the
Texas Secretary of State, and (iii) consents, approvals,
authorizations, declarations, filings and notices that, if not obtained
or made, will not, individually or in the aggregate, result in a Public
Company Material Adverse Effect.
AGREEMENT AND PLAN OF MERGER-Page 4
(d) Subsidiaries. Public Company does not own, directly or
indirectly, any of the capital stock of any other corporation or any
equity, profit sharing, participation or other interest in any
corporation, partnership, joint venture or other entity.
(e) Intellectual Property. Public Company does not own or use
any trademarks, trade names, service marks, patents, copyrights or any
applications with respect thereto. Public Company has no knowledge of
any claim that, or inquiry as to whether, any product, activity or
operation of Public Company infringes upon or involves, or has resulted
in the infringement of, any trademarks, trade names, service marks,
patents, copyrights or other proprietary rights of any other person,
corporation or other entity; and no proceedings have been instituted,
are pending or are threatened with respect thereto.
(f) Absence of Certain Changes or Events; No Undisclosed
Material Liabilities.
(i) Attached hereto as Exhibit A is a balance sheet
of Public Company dated September 30, 2000. Public Company has
conducted its business only in the ordinary course, and,
except for the Plan, there has not been (A) any change,
destruction, damage, loss or event which has had or could
reasonably be expected to have, individually or in the
aggregate. a Public Company Material Adverse Effect; (B) any
declaration, setting aside or payment of any dividend or other
distribution in respect of shares of Public Company's capital
stock, or any repurchase, redemption or other acquisition by
Public Company of any shares of their respective capital stock
or equity interests, as applicable; (C) any increase in the
rate or terms of compensation payable or to become payable by
Public Company to its directors, officers or key employees;
(D) any entry into, or increase in the rate or terms of, any
bonus, insurance, severance, pension or other employee or
retiree benefit plan, payment or arrangement made to, for or
with any such directors, officers or employees; (E) any entry
into any agreement, commitment or transaction by Public
Company , or waiver, termination, amendment or modification to
any agreement, commitment or transaction, which is material to
Public Company taken as a whole; (F) any material labor
dispute involving the employees of Public Company ; (G) any
change by Public Company in accounting methods, principles or
practices except as required or permitted by GAAP; (H) any
write-off or write-down of, or any determination to write-off
or write-down, any asset of Public Company or any portion
thereof; (I) any split, combination or reclassification of any
of Public Company's capital stock or issuance or authorization
relating to the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Public
Company's capital stock; (J) any amendment of any material
term of any outstanding security of Public Company ; (K) any
loans, advances or capital contributions to or investments in,
any other person in existence on the date hereof made by
Public Company; (L) any sale or transfer by Public Company of
any of the assets of Public Company, cancellation of any
material debts or claims or waiver of any material rights by
Public Company; or (M) any agreements by Public Company to (1)
do any of the things described in the preceding clauses (A)
through (L) other than as expressly contemplated or provided
for herein or (2) take, whether in writing or otherwise, any
action which, if taken prior to the date of this Agreement,
would have made any representation or warranty of Public
Company in this Agreement untrue or incorrect in any material
respect.
AGREEMENT AND PLAN OF MERGER-Page 5
(ii) Public Company has no Liabilities, except as set
forth in Exhibit A.
(g) Employees. Except for ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the Public
Company's sole officer and director, Public Company (i) has no
employees, (ii) does not owe any compensation of any kind, deferred or
otherwise, to any current or previous employees, (iii) has no written
or oral employment agreements with any officer or director of Public
Company or (iv) is a party to or bound by any collective bargaining
agreement. There are no loans or other obligations payable or owing by
Public Company to any shareholder, officer, director or employee of
Public Company , nor are there any loans or debts payable or owing by
any of such persons to Public Company or any guarantees by Public
Company of any loan or obligation of any nature to which any such
person is a party.
(h) Employee Benefit Plans. Except as contemplated by this
Agreement, Public Company has no (a) non-qualified deferred or
incentive compensation or retirement plans or arrangements, (b)
qualified retirement plans or arrangements, (c) other employee
compensation, severance or termination pay or welfare benefit plans,
programs or arrangements or (d) any related trusts, insurance contracts
or other funding arrangements maintained, established or contributed to
by Public Company (collectively, "Employee Benefit Plans").
(i) Voting Requirements. Holders of issued and outstanding
shares of Public Company Common Stock are entitled to vote or otherwise
approve this Agreement, the Merger or any other matter or transaction
contemplated by this Agreement.
(j) Compliance with Applicable Laws. Public Company has and
after giving effect to the transactions contemplated hereby will have
in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits") necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and to the knowledge of Public Company there has occurred no
default under any such Permit, except for the lack of Permits and for
defaults under Permits which individually or in the aggregate would not
have a Public Company Material Adverse Effect. To Public Company's
knowledge, Public Company is in compliance with, and has no liability
or obligation under, all applicable statutes, laws, ordinances, rules,
orders and regulations of any Governmental Entity, including any
liability or obligation to undertake any remedial action under
Hazardous Substances Laws (as hereinafter defined), except for
instances of non-compliance, liabilities or obligations, which
individually or in the aggregate would only have an immaterial effect.
AGREEMENT AND PLAN OF MERGER-Page 6
(k) Insurance. Public Company has no insurance policies in
effect.
(l) Brokers. No broker, investment banker, financial advisor
or other person, the fees and expenses of which will be paid by Public
Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on
behalf of Public Company.
(m) Litigation, etc. Except with regard to the Public
Company's involvement in that bankruptcy proceeding styled In re:
Hospitality Companies Inc., et al. in the United States Bankruptcy
Court for the Northern District of Texas, Dallas, Division, as of the
date hereof, (i) there is no suit, claim, action or proceeding (at law
or in equity) pending or, to the knowledge of Public Company,
threatened against Public Company (including, without limitation, any
product liability claims) before any court or governmental or
regulatory authority or body, and (ii) Public Company is not subject to
any outstanding order, writ, judgment, injunction, order, decree or
arbitration order that, in any such case described in clauses (i) and
(ii), (A) could reasonably be expected to have, individually or in the
aggregate, a Public Company Material Adverse Effect or (B) involves an
allegation of criminal misconduct or a violation of the Racketeer and
Influenced Corrupt Practices Act, as amended. As of the date hereof,
there are no suits, actions, claims or proceedings pending or, to
Public Company's knowledge, threatened, seeking to prevent, hinder,
modify or challenge the transactions contemplated by this Agreement.
(n) Contracts. Public Company has no material contracts,
leases, arrangements or commitments (whether oral or written) or is a
party to or bound by or affected by any contract, lease, arrangement or
commitment (whether oral or written) relating to: (a) the employment of
any person; (b) collective bargaining with, or any representation of
any employees by, any labor union or association; (c) the acquisition
of services, supplies, equipment or other personal property; (d) the
purchase or sale of real property; (e) distribution, agency or
construction; (f) lease of real or personal property as lessor or
lessee or sublessor or sublessee; (g) lending or advancing of funds;
(h) borrowing of funds or receipt of credit; (i) incurring any
obligation or liability; or (j) the sale of personal property.
(o) Real Property. Public Company does not own or lease any
real property.
(p) Environmental Matters. Public Company has not received any
written notice from any Governmental Entity that there exists any
violation of any Hazardous Substances Law (as hereinafter defined).
Public Company has no knowledge (i) of any Hazardous Substances (as
hereinafter defined) present on, under or about any asset, and to
Public Company's knowledge no discharge, spillage, uncontrolled loss,
seepage or filtration of Hazardous Substances has occurred on, under or
about any asset, (ii) that any of the assets violates, or has at any
time violated, any Hazardous Substance Laws, and to Public Company's
knowledge, (iii) there is a condition on any asset for which Public
Company has an obligation to undertake any remedial action pursuant to
Hazardous Substance Laws. For purposes hereof, "Hazardous Substances"
means, without limitation (1) those substances included within
definitions of any one or more of the terms "Hazardous Substance," and
"Hazardous Waste," "Toxic Substance" and "Hazardous Material" in the
Comprehensive Environmental Response Compensation and Liability Act, as
amended, 42 U.S.C.ss.90,601, et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901, et seq.
("RCRA"), the Toxic Substances Control Act, as amended, 15 ▇.▇.▇.▇▇.
2601, et seq., the Hazardous Materials Transportation Act, as amended,
49 ▇.▇.▇.▇▇. 1801 et seq., the Occupational Safety and Health Act, 29
▇.▇.▇.▇▇. 651, et seq., (insofar as it relates to employee health and
safety in relation to exposure to Hazardous Substances) and any other
local, state, federal or foreign laws or regulations related to the
protection of public health or the environment (collectively,
"Hazardous Substances Laws"); (2) such other substances, materials or
wastes as are or become regulated under, or as are classified as
hazardous or toxic under Hazardous Substance Laws; and (3) any
materials, wastes or substances that can be defined as (A) petroleum
products or wastes; (B) asbestos; (C) polychlorinated biphenyl; (D)
flammable or explosive; or (E) radioactive.
AGREEMENT AND PLAN OF MERGER-Page 7
(q) Anti-takeover Plan: State Takeover Statutes. Public
Company does not have in effect any plan, scheme, device or
arrangement, commonly or colloquially known as a "poison pill" or
"anti-takeover" plan or any similar plan, scheme, device or
arrangement. The Board of Directors of Public Company has approved the
Merger and this Agreement. No other state takeover statute or similar
statute or regulation applies or purports to apply to the Merger, this
Agreement or any of the transactions contemplated by this Agreement.
(r) Affiliate Transactions. Except for the Services Agreement
(the "Services Agreement") between Avatar and Halter Financial Group,
Inc., which also obligates the Public Company, there are no
transactions, agreements, arrangements or understandings between Public
Company , on the one hand, and Public Company's affiliates, on the
other hand. No payments have been made to any affiliate of Public
Company other than as specifically required by the Service Agreement,
no payments will be made in connection with this Agreement (except as
provided for herein) and, after consummation of the Merger, Public
Company shall not have any Liabilities to any affiliate or officer or
director of Public Company, except for the agreements, Liabilities,
obligations and duties of Avatar which are assumed by Public Company in
connection with this Agreement.
(s) Bankruptcy. Public Company has paid all claims required to
be paid pursuant to the Plan, including, without limitation, all claims
entitled to administrative expense priority pursuant to Section 503(b)
of Title 11 of the United States Bankruptcy Code. Except as called for
under the Plan, at the Effective Time, Public Company will have no
further obligation or liability under the Plan.
(t) Solicitation. Neither Public Company, its officers,
directors, affiliates or agents, nor any other person acting on its
behalf has solicited, directly or indirectly, any person to enter into
a merger or similar business combination transaction with Public
Company by any form of general solicitation, including, without
limitation, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
(u) Disclosure. The representations and warranties and
statements of fact made by Public Company in this Agreement are, as
applicable, accurate, correct and complete and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained
herein not false or misleading.
Section 4.2 Representations and Warranties of Avatar. Avatar represents
and warrants to Public Company as follows:
(a) Organization, Standing and Corporate Power. Avatar is a
corporation duly organized, validly existing and in good standing under
the jurisdiction in which it is incorporated, and has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business substantially as now conducted, except
where the failure to do so would not have, individually or in the
aggregate, an Avatar Material Adverse Effect. For purposes of this
Agreement, the term "Avatar Material Adverse Effect" means any Material
Adverse Effect with respect to Avatar, taken as a whole, or any change
of effect that adversely, or is reasonably expected to adversely,
effect the ability of Avatar to consummate the transactions
contemplated by this Agreement in any material respect or materially
impair or delay Avatar's ability to perform its obligations hereunder.
AGREEMENT AND PLAN OF MERGER-Page 8
(b) Authority; Noncontravention. The execution, delivery and
performance by Avatar of this Agreement and the consummation of the
Merger by Avatar has been duly authorized by all necessary corporate
action on the part of Avatar. This Agreement has been duly executed and
delivered by Avatar and, assuming this Agreement constitutes the valid
and binding agreement of Public Company , constitutes a valid and
binding obligation of Avatar, enforceable against such party in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies and to general
principles of equity. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement, will
not (i) conflict with any of the provisions of the articles of
incorporation or bylaws of Avatar, (ii) subject to the governmental
filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of
a material benefit under, or require the consent of any person under,
any indenture, or other material agreement, permit, concession,
franchise, license or similar instrument or undertaking to which Avatar
is a party or by which Avatar or any of its assets are bound or
affected, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule
or regulation, or any order, writ, judgment, injunction, decree,
determination or award binding on or applicable to Avatar and currently
in effect, which, in the case of clauses (ii) and (iii) above, singly
or in the aggregate, would have an Avatar Material Adverse Effect. No
consent, approval or authorization of, or declaration or filing with,
or notice to, any Governmental Entity which has not been received or
made is required by or with respect to Avatar in connection with the
execution and delivery of this Agreement by Avatar or the consummation
by Avatar of any of the transactions contemplated by this Agreement,
except for (i) the filing of the articles of merger with the Texas
Secretary of State, (ii) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 4.2(b)
of the Disclosure Schedule and (iii) consents, approvals,
authorizations, declarations, filings and notices that, if not obtained
or made, will not, individually or in the aggregate, result in an
Avatar Material Adverse Effect.
(c) Capital Structure. The authorized capital stock of Avatar
consists of (i) 20,000,000 shares of Avatar Common Stock. As of the
date hereof: (i) 8,000,000 shares of Avatar Common Stock were issued
and outstanding and (ii) no shares of Avatar Common Stock were held by
Avatar in its treasury. All outstanding shares of capital stock of
Avatar have been duly authorized and validly issued, and are fully paid
and nonassessable and not subject to preemptive or similar rights,
except as set forth in Section 4.2(c) of the Disclosure Schedule. No
bonds, debentures, notes or other indebtedness of Avatar having the
right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the shareholders of
Avatar may vote are issued or outstanding. Except as set forth above or
in Section 4.2(c) of the Disclosure Schedule, and except for this
Agreement, Avatar does not have and, at or after the Effective Time
will not have, any outstanding option, warrant, call, subscription or
other right, agreement or commitment which either (i) obligates Avatar
to issue, sell or transfer, repurchase, redeem or otherwise acquire or
vote any shares of the capital stock of Avatar, or (ii) restricts the
voting, disposition or transfer of shares of capital stock of Avatar.
There are no outstanding stock appreciation rights or similar
derivative securities or rights of Avatar.
AGREEMENT AND PLAN OF MERGER-Page 9
(d) Subsidiaries. Avatar does not own, directly or indirectly,
any capital stock of any other corporation or any equity profit
sharing, participation of other interest in any corporation,
partnership, joint venture or other entity.
(e) No Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Avatar.
ARTICLE V.
COVENANTS
---------
Section 5.1 Conduct of Business of Public Company Prior to the Merger.
Except as expressly contemplated by this Agreement, during the period from the
date of this Agreement to the Effective Time, Public Company shall, act and
carry on its business in the ordinary course of business consistent with past
practice and use its reasonable best efforts to preserve intact its current
business organization, and to that end, without limiting the generality of the
foregoing, except as expressly contemplated by this Agreement, Public Company
shall not, without the prior written consent of Avatar:
(i) (x) declare, set aside or pay any dividends on,
or make any other distributions (whether in cash, stock or
property) in respect of, any outstanding capital stock, (y)
split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its outstanding capital stock, or (z) purchase,
redeem or otherwise acquire any shares of outstanding capital
stock or any rights, warrants or options to acquire any such
shares;
(ii) issue, sell, grant, pledge or otherwise encumber
any shares of its capital stock, any other voting securities
or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares,
voting securities or convertible or exchangeable securities;
(iii) amend its charter documents, bylaws or other
comparable organizational documents;
(iv) directly or indirectly acquire, make any
investment in, or make any capital contributions to, any
person or except in the ordinary course of business consistent
with past practice, acquire, lease or agree to manage any
assets or properties;
(v) directly or indirectly sell, lease, mortgage or
otherwise encumber or subject to any Lien or otherwise dispose
of any of its properties or assets (including stock or other
ownership interests in any properties or Sub);
AGREEMENT AND PLAN OF MERGER-Page 10
(vi) purchase or sell any real property or other
material asset or enter into any agreement to purchase or sell
the same;
(vii) modify the terms of, terminate or fail in any
material respect to comply with the terms of any lease,
franchise agreement or joint venture agreement, or enter into
any new lease, franchise agreement or joint venture agreement;
(viii) undertake any material construction or
alteration with respect to any asset;
(ix) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, other than
indebtedness owing to or guarantees of indebtedness owing to
Public Company, (B) issue or sell any debt securities or
warrants or other rights to acquire debt securities or (C)
make any loans or advances to any other person, other than to
Public Company;
(x) make any tax election or settle or compromise any
income tax liability of Public Company. Public Company shall,
before filing or causing to be filed any tax return of Public
Company, consult with and obtain the approval of Avatar and
its advisors as to the positions and elections that may be
taken or made with respect to such return;
(xi) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise);
(xii) grant or agree to grant to any employee any
increase in wages or bonus, severance, profit sharing,
retirement, deferred compensation, insurance or other
compensation or benefits, or establish any new compensation or
benefit plans or arrangements, or amend or agree to amend any
existing Employee Benefit Plans;
(xiii) enter into or amend any employment,
consulting, severance or similar agreement;
(xiv) waive any claims or rights;
(xv) make any change in any method of accounting or
accounting practice or policy except as required by any
changes in GAAP;
(xvi) incur, enter into, amend, modify or terminate
any material commitment, contract or agreement (including with
respect to any management agreements, leases, capital
expenditures or purchases of assets);
(xvii) adopt a place of complete or partial
liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or any
agreement relating to a Takeover Proposal (as hereinafter
defined);
(xviii) engage in any transaction with, or enter into
any agreement, arrangement, or understanding with, or amend,
modify or terminate any agreement, arrangement or
understanding with, directly or indirectly, any of Public
Company's affiliates, officers or directors, including,
without limitation, any transactions, agreements, arrangements
or understandings with any affiliate, officer or director or
other person covered under Item 404 of Regulation S-K under
the Securities Act that would be required to be disclosed
under such Item 404; or
AGREEMENT AND PLAN OF MERGER-Page 11
(xix) authorize any of, or commit or agree to take
any of, the foregoing actions.
Section 5.2 Other Actions. Public Company shall not, take any action
that would, or that could reasonably be expected to, result in (i) any of the
representations and warranties set forth in Section 4.1 of this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions of the Merger set forth in
Article VII not being satisfied.
ARTICLE VI.
ADDITIONAL AGREEMENTS
---------------------
Section 6.1 Access to Information; Confidentiality. Public Company
shall, afford to Avatar and to Avatar's officers, employees, counsel, financial
advisors and other representatives reasonable access during normal business
hours during the period prior to the Effective Time to all its owned and leased
properties (including as required to perform any environmental studies or
reviews of such properties), books, contracts, commitments, tax returns,
personnel and records and, during such period, Public Company shall furnish as
promptly as practicable to Avatar, its counsel, financial advisors and other
representatives, such information concerning its business, properties, financial
condition, operations and personnel as Avatar may from time to time reasonably
request, including the Plan and all documents related thereto. Any such access
or investigation shall not affect the representations or warranties made by
Public Company contained in this Agreement. Except as required by law, Public
Company and Avatar will hold, and will cause their respective directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any non-public information
obtained from the other party in confidence.
Section 6.2 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including the
satisfaction of the respective conditions set forth in Article VII.
Section 6.3 Indemnification; Directors' and Officers' Insurance.
(a) Public Company and Surviving Corporation shall, and from
and after the Effective Time, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, an officer or director of
either the Public Company or the Surviving Corporation (the
"Indemnified Parties") against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation
based on or arising out of the fact that such person is or was a
director or officer of Public Company or the Surviving Corporation
whether pertaining to any matter existing or occurring at or prior to
the Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities"), including all
Indemnified Liabilities based on, or arising out of, or pertaining to
this Agreement or the transactions contemplated hereby, in each case,
to the full extent a corporation is permitted under the TBCA,
respectively, to indemnify directors or officers.
AGREEMENT AND PLAN OF MERGER-Page 12
(b) Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to
them and Public Company (or them and the Surviving Corporation after
the Effective Time) and Public Company (or after the Effective Time,
the Surviving Corporation) shall pay all fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefore
are received; and (ii) Public Company (or after the Effective Time and
the Surviving Corporation) shall use all reasonable efforts to assist
in the vigorous defense of any such matter, provided that neither
Public Company nor the Surviving Corporation shall be liable for any
settlement effected without its prior written consent. Any Indemnified
Party wishing to claim indemnification under this Section 6.3, upon
learning of any such claim, action, suit, proceeding or investigation,
shall notify Public Company (or after the Effective Time, Avatar and
the Surviving Corporation) (but the failure so to notify shall not
relieve a party from any liability which it may have under this Section
6.3 except to the extent such failure prejudices such party), and shall
deliver to Public Company (or after the Effective Time, the Surviving
Corporation) the undertaking contemplated by the applicable Sections of
the TBCA. The Indemnified Parties as a group may retain only one law
firm to represent them with respect to each such matter unless there
is, under applicable standards of professional conduct, a conflict on
any significant issue between the positions of any two or more
Indemnified Parties. Avatar and Public Company agree that all rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, existing in favor of the
Indemnified Parties with respect to matters occurring through the
Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of not less than one year from the
Effective Time; provided, however, that all rights to indemnification
in respect of any Indemnified Liabilities asserted or made within such
period shall continue until the disposition of such Indemnified
Liabilities.
(c) The provisions of this Section 6.3 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party,
his or her heirs and his or her personal representatives and shall be
binding upon all successors and assigns of Public Company, Avatar and
the Surviving Corporation.
Section 6.4 Public Announcements. Public Company, on the one hand, and
Avatar, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or automated quotation
system.
Section 6.5 No Solicitation; Takeover Proposals. From the date hereof
until the termination of this Agreement in accordance with its terms, neither
Public Company nor Avatar shall (i) solicit, initiate or encourage the
submission of, any Takeover Proposal (as hereinafter defined), (ii) enter into
any agreement with respect to or approve or recommend any Takeover Proposal or
(iii) participate in any discussions or negotiations regarding or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director or officer of Public Company, Avatar, or
any financial advisor, attorney or other advisor, representative or agent of any
of them, whether or not such person is purporting to act on behalf thereof,
shall be deemed to be a breach of this Section 6.5 by the party with whom such
person or entity is affiliated with. For purposes of this Agreement, "Takeover
Proposal" means any proposal for a merger, sale of all or substantially all the
assets of or other business combination or recapitalization or similar
transaction involving either Public Company or Avatar or any proposal or offer
to acquire in any manner, directly or indirectly, an equity interest in the
voting securities of, or a substantial portion of the assets of, either Public
Company or Avatar, other than the transactions contemplated by this Agreement.
AGREEMENT AND PLAN OF MERGER-Page 13
Section 6.6 Reorganization. During the period from the date of this
Agreement through the Effective Time, unless the other party shall otherwise
agree in writing, neither Public Company nor Avatar shall knowingly take or fail
to take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code
or would cause any of the representations and warranties set forth in Article IV
to be untrue or incorrect in any material respect.
Section 6.7 Consents, Approvals and Filings.
(a) Public Company will make all necessary filings, as soon as
practicable, in order to facilitate prompt consummation of the Merger
and the other transactions contemplated by this Agreement. In addition,
Avatar and Public Company will each use their reasonable best efforts,
and will cooperate fully with each other (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger
and the other transactions contemplated by this Agreement; and (ii) to
obtain as promptly as practicable all necessary permits, orders or
other consents of Governmental Entities and consents of all third
parties necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement. Each of Avatar and Public
Company shall use reasonable efforts to provide such information and
communications to Governmental Entities as such Governmental Entities
may reasonably request.
(b) Each of the parties shall provide to the other party
copies of all applications in advance of filing or submission of such
applications to Governmental Entities in connection with this
Agreement, and copies of all correspondence with such Governmental
Entities, and shall keep all the parties timely apprized of the status
of the foregoing.
Section 6.8 Public Company Notices of Certain Events.
(a) Avatar shall as promptly as reasonably practicable notify
Public Company of: (i) any notice or other communication from any
person alleging that the consent of such person (or another person) is
or may be required in connection with the transactions contemplated by
this Agreement; (ii) any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement; and (iii) any fact or occurrence between the date of
this Agreement and the Effective Time of which it becomes aware which
makes any of its representations contained in this Agreement untrue or
causes any material breach of its obligations under this Agreement.
(b) Public Company shall as promptly as reasonably practicable
notify Avatar of: (i) any notice or other communication from any person
alleging that the consent of such person (or other person) is or may be
required in connection with the transactions contemplated by this
Agreement, (ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement; (iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of Public Company's knowledge,
threatened against, relating to or involving or otherwise affecting
Public Company that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 4.1(m) or
which relate to the consummation of the transactions contemplated by
this Agreement; and (iv) any fact or occurrence between the date of
this Agreement and the Effective Time of which it becomes aware which
makes any of its representations contained in this Agreement untrue or
causes any material breach of its obligations under this Agreement.
AGREEMENT AND PLAN OF MERGER-Page 14
Section 6.9 Transfer Taxes. Public Company and Avatar shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become payable
in connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
ARTICLE VII.
CONDITIONS PRECEDENT
--------------------
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) No Injunctions or Restraints. No statute, rule,
regulation, temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of
the Merger shall be in effect; provided, however, that the party
invoking this condition shall use its best efforts to have any such
temporary restraining order, injunction, order, restraint or
prohibition vacated.
(b) Governmental and Regulatory Consents. All material filings
required to be made prior to the Effective Time with, and all material
consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, Governmental Entities, in connection
with the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby by Avatar and Public Company
will have been made or obtained (as the case may be).
Section 7.2 Conditions to Obligations of Avatar. The obligations of
Avatar to effect the Merger are further subject to the satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Public Company set forth in Section 4.1 that are
qualified as to materiality or Material Adverse Effect shall be true
and correct and the representations and warranties of Public Company
set forth in Section 4.1 that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties
speak as of an earlier date. In addition, all such representations and
warranties shall be true and correct as of the date hereof and as
though made on and as of the Closing Date, except to the extent such
representation or warranty speaks of an earlier date (without regard to
any qualifications for materiality or Material Adverse Effect) except
to the extent that any such failure to be true and correct (other than
any such failure the effect of which is immaterial) individually and in
the aggregate with all such other failures would not have a Material
Adverse Effect, and Avatar shall have received a certificate signed on
behalf of Public Company by the chief executive officer of Public
Company to the effect set forth in this paragraph.
AGREEMENT AND PLAN OF MERGER-Page 15
(b) Performance of Obligations of Public Company. Public
Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Avatar shall have received a certificate signed on
behalf of Public Company by the chief executive officer of Public
Company to such effect.
(c) No Material Adverse Effect. From and after the date of
this Agreement, there shall not have been any changes or events, which,
individually or in the aggregate, have had or reasonably would be
expected to have a Material Adverse Effect.
(d) Shareholder Approval; Consents. Approval by Public
Company's shareholders of this Agreement and the transactions
contemplated hereby and all consents of third parties, if any, to the
transactions herein contemplated shall have been obtained.
(e) Opinion of Counsel. Avatar shall have received the opinion
of ▇▇▇▇▇▇ & Diamond, P.C. to the effect (i) that, to the extent
specifically applicable, this Agreement and the articles of merger are
enforceable under Texas law, and (ii) as to such other matters as are
customary in connection with consummation of a transaction such as the
Merger. Such opinion may contain customary assumptions, limitations and
qualifications.
Section 7.3 Conditions to Obligations of Public Company. The obligation
of Public Company to effect the Merger is further subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Avatar set forth in Section 4.2 that are qualified as to
materiality or Material Adverse Effect shall be true and correct and
the representations and warranties of Avatar set forth in Section 4.2
that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. In addition,
all such representations and warranties shall be true and correct as of
the date hereof and as though made on and as of the Closing Date,
except to the extent such representation or warranty speaks of an
earlier date (without regard to any qualifications for materiality or
Material Adverse Effect) except to the extent that any such failure to
be true and correct (other than any such failure the effect of which is
immaterial) individually and in the aggregate with all such other
failures would not have a Material Adverse Effect, and Public Company
shall have received a certificate signed on behalf of Avatar by the
president of Avatar to the effect set forth in this paragraph.
(b) Performance of Obligations of Avatar. Avatar shall have
performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date,
and Public Company shall have received a certificate signed on behalf
of Avatar by the president of Avatar to such effect.
AGREEMENT AND PLAN OF MERGER-Page 16
(c) Opinion of Counsel. Public Company shall have received the
opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, L.L.P. as to such matters as are customary
in connection with the consummation of a transaction such as the
Merger. Such opinion may contain customary assumptions, limitations and
qualifications.
Section 7.4 Frustration of Closing Conditions. Neither Public Company
nor Avatar may rely on the failure of any condition set forth in Section 7.1,
7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by
such party's failure to use reasonable efforts to commence or complete the
Merger and the other transactions contemplated by this Agreement.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, in any one of the following circumstances:
(i) By mutual written consent of Public Company and
Avatar.
(ii) By Public Company or Avatar, if (x) any Statute,
rule or regulation shall have been promulgated by any
competent Governmental Entity prohibiting or restricting the
Merger or (y) any federal or state court of competent
jurisdiction or other Governmental Entity shall have issued an
order, decree or ruling, or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become
final and non-appealable; provided, that a party may not
terminate this Agreement pursuant to this clause (iii) if it
has not complied with its obligations under Sections 6.2 and
6.6.
(iii) By Public Company or Avatar, if (A) the other
party shall have failed to comply in any material respect with
any material respect with any of the covenants and agreements
(or in any respect with regard to covenants and agreements
qualified by materiality) contained in this Agreement to be
complied with or performed by such party at or prior to such
date of termination, and such failure continues for ten (10)
business days after the actual receipt by such party of a
written notice from the other party setting forth in detail
the nature of such failure, or (B) a representation or
warranty of the other party contained in this Agreement shall
be untrue in any material respect or a representation or
warranty qualified as to materiality or Material Adverse
Effect, as the case may be, shall be untrue in any respect.
(iv) By Avatar, if any of the conditions set forth in
Section 7.2 hereof shall have become incapable of being
fulfilled and shall not have been waived by Avatar, or by
Public Company if any of the conditions set forth in Section
7.3 hereof shall have become incapable of being fulfilled and
shall not have been waived by Public Company.
Section 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of Sections 6.4, this Section 8.2. Article IX and
paragraphs (b) and (c) of Section 8.1 hereof) shall forthwith become void and
have no effect, without any liability on the part of any party hereto or its
directors, officers or shareholders; provided, however, that nothing in this
Section 8.2 shall relieve any party to this Agreement or liability for any
willful or intentional breach of this Agreement.
AGREEMENT AND PLAN OF MERGER-Page 17
Section 8.3 Amendment. Subject to the applicable provisions of the
TBCA, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to Section 8.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement. Any agreement on the part of a party
to any such extension or wavier shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.
A termination of this Agreement pursuant to Section 8.1 hereof, an amendment of
this Agreement pursuant to Section 8.3 hereof or an extension or waiver pursuant
to Section 8.4 hereof shall, in order to be effective, require by Public Company
or Avatar, as the case may be, action by its Board of Directors or the duly
authorized committee or designee of its Board of Directors.
ARTICLE IX.
GENERAL PROVISIONS
------------------
Section 9.1 Nonsurvival of Representations and Warranties. Except as
otherwise contemplated herein, none of the representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 9.1 shall not limit any covenant or
agreement of the parties, which by its terms contemplates performance after the
Effective Time.
Section 9.2 Fees and Expenses. Each party hereto shall pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, other
than the expenses incurred in connection with printing and mailing proxy
materials to shareholders, which shall be paid by Avatar.
Section 9.3 Definitions. For purposes of this Agreement, and except as
otherwise defined in this Agreement:
(a) "Affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first person;
(b) "Business day" means any day other than Saturday, Sunday
or any other day on which banks in the City of Dallas, Texas are
required or permitted to close;
(c) "Code" shall mean the Internal Revenue Code of 1986;
AGREEMENT AND PLAN OF MERGER-Page 18
(d) "Liability" means, as to any Person, all debts,
liabilities and obligations, direct, indirect, absolute or contingent
of such Person, whether accrued, vested or otherwise, whether known or
unknown and whether or not actually reflected, or required in
accordance with GAAP to be reflected, in such Person's balance sheet.
(e) "Liens" means, collectively, all material pledges, claims,
liens, charges, mortgages, conditional sale or title retention
agreements, hypothecations, collateral assignments, security interests,
easements and other encumbrances of any kind or nature whatsoever;
(f) "Material Adverse Effect" with respect any person means an
event that has had or would reasonably be expected to have a material
adverse effect on the business, financial condition or results of
operations of such person and its subsidiaries taken as a whole;
(g) "Person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other
entity; and
(h) "Plan" means Public Company's Joint Plan of Reorganization
dated August 21, 2000 as modified on September 15, 2000 and confirmed
on September 27, 2000 in the United States Bankruptcy Court for the
North District of Texas Dallas Division.
Section 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Public Company prior to the Effective Time,
to:
Halter Financial Group, Inc.
One Panorama Center
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Avatar, to
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.5 Interpretation. When a reference is made in this Agreement
to a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
AGREEMENT AND PLAN OF MERGER-Page 19
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.7 Entire Agreement: Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer upon
any person other than the parties hereto and the third party beneficiaries
referred to in the following sentence, any rights or remedies. The parties
hereto expressly intend the provisions of Section 6.3 to confer a benefit upon
and be enforceable by, as third party beneficiaries of this Agreement, the third
persons referred to in, or intended to be benefited by, such provisions.
Section 9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.10 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Texas, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 9.11 Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
AGREEMENT AND PLAN OF MERGER-Page 20
IN WITNESS WHEREOF, Public Company and Avatar have caused this
Agreement to be signed in multiple counterparts by their respective officers
thereunto duly authorized, all as of the date first written above.
HCI ACQUISITION 1998-2, INC., d/b/a Precision
Stainless Fabricators
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
AVATAR SYSTEMS, INC.
By: /s/ R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President
AGREEMENT AND PLAN OF MERGER-Page 21
DISCLOSURE SCHEDULE
TO
AGREEMENT AND PLAN OF MERGER
Section 4.2(b) - As a result of a prior reorganization of Avatar and this
Merger, Avatar will be in default under the following leases:
1. IBM Corporation - Equipment lease
2. IBM Corporation - Equipment lease
3. ▇▇▇▇▇▇ ▇▇▇▇▇▇ Financial - Telephone equipment lease
4. ▇▇▇▇ ▇▇▇▇▇▇▇ Mutual Life Insurance, Dallas office space,
including amendments
5. Midland Red Oak Realty, Midland office space
All representations and warranties of Avatar under Section 4.2 are
subject to the provisions of the Amended and Restated Loan Agreement dated July
7, 2000 by and between Avatar and Bank One, Texas N.A. (the "Bank One Loan
Agreement). Pursuant to the Bank One Loan Agreement, Avatar assumed the prior
loan made to Avatar Ltd., the predecessor of Avatar, in the amount of
$288,888.96. As collateral and security for the indebtedness, Avatar granted to
Bank One a first and prior lien and security interest in and to the property
described in the Security Agreement (as defined in the Bank One Loan Agreement).
The consent of Bank One will be required for the Merger.
Section 4.2(c) - The capital structure and corporate organization of Avatar is
subject to the following agreements:
1. Stock Purchase Agreement by and between Avatar Systems, Inc.
and Cybertec Holdings Plc. as of July 10, 2000.
2. Management Agreement by and between Avatar and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇. as of July 10, 2000.
3. Shareholders' Agreement by and among Avatar, Merchants Capital
Holdings, Ltd., Cybertec, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as of July 10, 2000.
4. Consulting Agreement by and among Avatar, Merchant Capital
Holdings, and its affiliate, First Merchants Capital Limited,
as of July 10, 2000.
5. Five-Year Warrants to Purchase Common Stock of Avatar issued
to:
a. Cybertec - 1,000,000 shares - $1.00 per share
b. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ - 600,000 shares $1.00 per share
c. Merchants Capital Holdings, Ltd. - 2,000,000 shares -
$1.00 per share
d. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. - 1,600,000 shares - $1.00 per
share
e. ▇▇▇ ▇▇▇▇▇ - 250,000 shares - $1.00 per share
f. ▇▇▇▇▇ ▇▇▇▇▇ - 250,000 shares $1.00 per share
6. Investor's Rights Agreement by and among Avatar, Cybertec,
Merchants Capital Holdings, Ltd., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇., ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ as of July 10, 2000.
7. Letter of Intent dated August 25, 2000 between Avatar and Oil
& Gas Information Systems, Inc. providing for the acquisition
by Avatar of all of the outstanding capital stock of Oil & Gas
Information Systems, Inc. for $6,700,000 cash and other
considerations.
DISCLOSURE SCHEDULE-PAGE 1