Exhibit 2.1
IMPORTANT NOTICE
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (THE "MERGER AGREEMENT")
CONTAINS CERTAIN REPRESENTATIONS AND WARRANTIES (THE "REPRESENTATIONS") BY DGSE
COMPANIES, INC. ("DGSE") AND DGSE MERGER CORP., A WHOLLY-OWNED SUBSIDIARY OF
DGSE, IN FAVOR OF SUPERIOR GALLERIES, INC. ("SUPERIOR"), AND BY SUPERIOR IN
FAVOR OF DGSE. NO PERSON, OTHER THAN THE PARTIES TO THE MERGER AGREEMENT, ARE
ENTITLED TO RELY ON THE REPRESENTATIONS CONTAINED IN THE MERGER AGREEMENT. THE
MERGER AGREEMENT IS FILED IN ACCORDANCE WITH THE RULES OF THE SECURITIES AND
EXCHANGE COMMISSION AS A MATERIAL PLAN OF ACQUISITION, AND IS INTENDED BY DGSE
AND SUPERIOR SOLELY AS A RECORD OF THE AGREEMENT REACHED BY THE PARTIES THERETO.
THE FILING OF THE MERGER AGREEMENT IS NOT INTENDED AS A MECHANISM TO UPDATE,
SUPERSEDE OR OTHERWISE MODIFY PRIOR DISCLOSURES OF INFORMATION AND RISKS
CONCERNING DGSE AND SUPERIOR WHICH DGSE AND SUPERIOR HAVE MADE TO THEIR
RESPECTIVE STOCKHOLDERS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE THAT THE REPRESENTATIONS
ARE QUALIFIED BY INFORMATION IN CONFIDENTIAL DISCLOSURE SCHEDULES THAT DGSE HAS
DELIVERED TO SUPERIOR, AND CONFIDENTIAL DISCLOSURE SCHEDULES THAT SUPERIOR HAS
DELIVERED TO DGSE (THE "DISCLOSURE SCHEDULES"). THE DISCLOSURE SCHEDULES CONTAIN
INFORMATION THAT MODIFIES, QUALIFIES AND CREATES EXCEPTIONS TO THE
REPRESENTATIONS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE THAT CERTAIN
REPRESENTATIONS MADE IN THE MERGER AGREEMENT ARE NOT INTENDED TO BE AFFIRMATIVE
REPRESENTATIONS OF FACTS, SITUATIONS OR CIRCUMSTANCES, BUT ARE INSTEAD DESIGNED
AND INTENDED TO ALLOCATE CERTAIN RISKS BETWEEN DGSE AND ITS WHOLLY-OWNED
SUBSIDIARY, ON THE ONE HAND, AND SUPERIOR AND ITS STOCKHOLDERS, ON THE OTHER
HAND. THE USE OF REPRESENTATIONS AND WARRANTIES TO ALLOCATE RISK IS A STANDARD
DEVICE IN MERGER AGREEMENTS.
ACCORDINGLY, STOCKHOLDERS, INVESTORS AND POTENTIAL INVESTORS SHOULD NOT RELY ON
THE REPRESENTATIONS AS AFFIRMATIONS OR CHARACTERIZATIONS OF INFORMATION
CONCERNING DGSE OR SUPERIOR AS OF THE DATE OF THE MERGER AGREEMENT, OR AS OF ANY
OTHER DATE.
Execution Copy
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
DGSE COMPANIES, INC.
DGSE MERGER CORP.
SUPERIOR GALLERIES, INC.
and
STANFORD INTERNATIONAL BANK, LTD.,
as Stockholder Agent
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July 12, 2006
-----------------------------------
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TABLE OF CONTENTS
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Page
Article I. Defined Terms; Construction................................................................1
Section 1.1 Certain Definitions........................................................1
Section 1.2 Other Definitions.........................................................15
Section 1.3 Construction..............................................................15
Article II. The Merger...............................................................................16
Section 2.1 The Merger................................................................16
Section 2.2 The Closing...............................................................16
Section 2.3 Effective Time............................................................16
Section 2.4 Effect of the Merger......................................................17
Section 2.5 Certificate of Incorporation; Bylaws......................................17
Section 2.6 Directors and Officers....................................................17
Article III. Conversion of Securities; Exchange of Certificates......................................17
Section 3.1 Conversion of Securities..................................................17
Section 3.2 Capitalization Adjustments to Shares......................................18
Section 3.3 Allocation and Distribution of Merger Consideration.......................18
Section 3.4 Surrender of Certificates; Payment........................................18
Section 3.5 Withholding Rights........................................................20
Section 3.6 Share Transfer Books......................................................20
Section 3.7 Company Options...........................................................20
Section 3.8 Unvested Company Shares...................................................22
Section 3.9 Company Warrants..........................................................22
Section 3.10 Appraisal Rights..........................................................23
Section 3.11 Taking of Necessary Action; Further Action................................23
Section 3.12 Tax Consequences..........................................................24
Section 3.13 Accounting Treatment......................................................24
Section 3.14 Escrow Agreement; Escrow Account..........................................24
Section 3.15 Transfer Of Contingent Rights.............................................25
Article IV. Company Representations and Warranties...................................................25
Section 4.1 Organization and Qualification; Subsidiaries..............................25
Section 4.2 Certificate of Incorporation and Bylaws; Corporate Books and Records......26
Section 4.3 Capitalization............................................................26
Section 4.4 Authority.................................................................28
Section 4.5 No Conflict; Required Filings and Consents................................29
Section 4.6 Permits; Compliance With Law..............................................29
Section 4.7 SEC Filings; Financial Statements.........................................30
Section 4.8 Disclosure Documents......................................................32
Section 4.9 Absence of Certain Changes or Events......................................33
Section 4.10 Employee Benefit Plans....................................................34
Section 4.11 Customers.................................................................38
Section 4.12 Contracts.................................................................38
Section 4.13 Litigation................................................................41
Section 4.14 Environmental Matters.....................................................41
Section 4.15 Intellectual Property.....................................................41
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Section 4.16 Taxes.....................................................................44
Section 4.17 Insurance.................................................................46
Section 4.18 Opinion of Financial Advisor..............................................47
Section 4.19 Brokers...................................................................47
Section 4.20 Properties................................................................47
Section 4.21 Interested Party Transactions.............................................47
Section 4.22 Export and Import Laws....................................................47
Section 4.23 Pseudo-Foreign Corporation................................................47
Section 4.24 Representations Complete..................................................48
Article V. Representations and Warranties of Parent and Merger Sub...................................48
Section 5.1 Organization and Qualification; Subsidiaries..............................48
Section 5.2 Certificate of Incorporation and Bylaws; Corporate Books and Records......49
Section 5.3 Capitalization............................................................49
Section 5.4 Authority.................................................................50
Section 5.5 No Conflict; Required Filings and Consents................................51
Section 5.6 Permits; Compliance With Law..............................................51
Section 5.7 SEC Filings; Financial Statements.........................................52
Section 5.8 Disclosure Documents......................................................54
Section 5.9 Absence of Certain Changes or Events......................................55
Section 5.10 Employee Benefit Plans....................................................56
Section 5.11 Customers.................................................................60
Section 5.12 Contracts.................................................................60
Section 5.13 Litigation................................................................62
Section 5.14 Environmental Matters.....................................................63
Section 5.15 Intellectual Property.....................................................63
Section 5.16 Taxes.....................................................................66
Section 5.17 Insurance.................................................................68
Section 5.18 Opinion of Financial Advisor..............................................68
Section 5.19 Brokers...................................................................68
Section 5.20 Properties................................................................68
Section 5.21 Interested Party Transactions.............................................69
Section 5.22 Export and Import Laws....................................................69
Section 5.23 Capitalization, Ownership and Prior Activities of Merger Sub..............69
Section 5.24 Interested Stockholders...................................................69
Section 5.25 Representations Complete..................................................69
Article VI. Covenants................................................................................69
Section 6.1 Conduct of Business by the Company Pending the Closing....................69
Section 6.2 Conduct of Business by Parent Pending the Closing.........................73
Section 6.3 SEC Reports; Preparation of Form S-4 and Proxy Statement..................76
Section 6.4 Parent Stockholders Meeting...............................................78
Section 6.5 Company Stockholders Meeting..............................................79
Section 6.6 Access to Information; Confidentiality....................................79
Section 6.7 Notice of Acquisition Proposals...........................................80
Section 6.8 Affiliate Letters.........................................................81
Section 6.9 State Takeover Statutes...................................................81
Section 6.10 Certain Notices...........................................................81
Section 6.11 Public Announcements......................................................81
Section 6.12 Certain Litigation........................................................82
Section 6.13 Employees.................................................................82
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Section 6.14 Termination of Benefit Plans..............................................83
Section 6.15 Parent Board..............................................................83
Section 6.16 Tax Matters...............................................................83
Section 6.17 Third Party Consents......................................................83
Section 6.18 Reasonable Efforts........................................................83
Section 6.19 Refinancings..............................................................84
Section 6.20 Conversion and Exchange Agreement; Minimum Stockholders Equity............84
Section 6.21 Preparation of Company Financial Statements...............................84
Section 6.22 Indemnification...........................................................85
Article VII. Closing Conditions......................................................................86
Section 7.1 Conditions to Obligations of Each Party Under This Agreement..............86
Section 7.2 Additional Conditions to Obligations of Parent and Merger Sub.............86
Section 7.3 Additional Conditions to Obligations of the Company.......................90
Article VIII. Survival of Representations, Warranties and Covenants; Indemnification.................92
Section 8.1 Survival of Representations, Warranties and Covenants.....................92
Section 8.2 Indemnification; Escrow Account...........................................93
Section 8.3 Limitation on Indemnification.............................................93
Section 8.4 Indemnification Procedures................................................94
Section 8.5 Stockholder Agent.........................................................96
Section 8.6 Resolution of Conflicts...................................................98
Section 8.7 No Contribution...........................................................99
Section 8.8 Fraud; Willful Misrepresentation..........................................99
Section 8.9 Exclusive Remedies........................................................99
Section 8.10 Purchase Price Adjustment.................................................99
Article IX. Termination, Amendment and Waiver........................................................99
Section 9.1 Termination...............................................................99
Section 9.2 Effect of Termination....................................................101
Section 9.3 Termination Fees.........................................................101
Section 9.4 Amendment................................................................101
Section 9.5 Waiver...................................................................101
Section 9.6 Fees and Expenses........................................................102
Article X. General Provisions.......................................................................102
Section 10.1 Notices..................................................................102
Section 10.2 Headings.................................................................103
Section 10.3 Severability.............................................................103
Section 10.4 Entire Agreement.........................................................103
Section 10.5 Assignment...............................................................104
Section 10.6 Parties in Interest......................................................104
Section 10.7 Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury..........104
Section 10.8 Disclosure...............................................................105
Section 10.9 Counterparts.............................................................105
Section 10.10 Facsimile Execution......................................................105
Section 10.11 Remedies Cumulative......................................................105
Section 10.12 Specific Performance.....................................................105
Section 10.13 Time.....................................................................105
Section 10.14 Certain Taxes............................................................106
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TABLE OF EXHIBITS AND SCHEDULES
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Exhibit A....Form of Certificate of Merger
Exhibit B....Form of Letter of Transmittal
Exhibit C....Form of Escrow Agreement
Exhibit D....Form of Amended and Restated Commercial Loan and Security Agreement
Exhibit E....Form of Conversion and Exchange Agreement
Exhibit F....Form of Termination and Release Agreement
Exhibit G....Form of Registration Rights Agreement
Exhibit H....Form of Company Officers' Certificate
Exhibit I....Form of Corporate Governance Agreement
Exhibit J....Form of Stanford Officers' Certificate
Exhibit K....Form of Company Legal Opinion
Exhibit L....Form of Stanford Legal Opinion
Exhibit M....Form of Parent Officers' Certificate
Exhibit N....Form of Parent Legal Opinion
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INDEX OF DEFINED TERMS
----------------------
401(k) Plan..................................83 Company FY 2006 Financial Statements.........84
A Warrants....................................1 Company Group................................45
Acquisition Proposal..........................2 Company Information...........................4
Actions.......................................2 Company Insider..............................22
Actual Knowledge..............................2 Company IP...................................41
Affiliate.....................................2 Company Material Contract....................38
Affiliate Letter.............................81 Company Option................................4
Agreement.....................................1 Company Permits..............................30
Amend.........................................2 Company Preferred Shares.....................26
Amended and Restated Stanford LOC............84 Company Products.............................42
Applicable Time...............................3 Company SEC Reports...........................4
Authorized Stock Increase....................77 Company Stock Option Plan.....................5
B Warrants....................................3 Company Stockholder Approval.................29
Basket Amount................................93 Company Stockholders Equity...................5
beneficial owner..............................3 Company Stockholders Meeting.................29
beneficial ownership..........................3 Company Subsidiaries.........................26
beneficially own..............................3 Company Subsidiary...........................26
beneficially owning...........................3 Company Warrant...............................5
Best Efforts..................................3 Company-Owned IP.............................42
Blue Sky Laws.................................3 Confidentiality Agreement....................80
Board Recommendation..........................3 Consent.......................................5
Breach........................................3 Continuing Employees.........................82
Business Day..................................3 Contract......................................5
Capitalization Adjustment.....................3 Control.......................................5
Certificate of Merger........................16 controlled by.................................5
Certificates..................................3 Conversion and Exchange Agreement............84
Claim Notice.................................92 D&O Insurance................................85
Closing......................................16 Defending Party..............................98
Closing Company Common Shares.................4 DGCL..........................................1
Closing Date.................................16 ▇▇▇▇▇▇▇▇.....................................84
Closing Price.................................4 ▇▇▇▇▇▇▇▇ Note................................84
COBRA........................................35 Dissenting Shares............................23
Code..........................................4 Dissenting Stockholders.......................5
Commitment....................................4 Effective Time...............................16
Company.......................................1 Employment Agreements........................88
Company Affiliate............................81 Encumber......................................5
Company Balance Sheet.........................4 Encumbrance...................................5
Company Balance Sheet Date....................4 Entity........................................5
Company Benefit Plans........................34 Environment...................................5
Company Board.................................1 Environmental Claims..........................5
Company Board Recommendation..................4 Environmental Laws............................6
Company Bylaws...............................26 Environmental Release.........................6
Company Certificate of Incorporation.........26 Environmentally Released......................6
Company Common Share..........................4 Equity Interest...............................6
Company Common Stock..........................4 ERISA.........................................6
Company Disclosure Schedules.................25 ERISA Affiliate...............................6
Company Financial Advisor....................47 Escrow Account...............................24
Company Financial Statements.................31 Escrow Agent..................................6
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Escrow Agreement.............................24 Ordinary Course of Business..................10
Escrow Assets................................96 Organizational Documents.....................10
Escrow Period................................24 Original Company Disclosure Schedule.........25
Escrow Stock.................................24 Original Parent Disclosure Schedule..........48
Escrow Termination Date.......................6 OTCBB........................................10
Event.........................................6 Other Filings................................10
Exchange Act..................................6 Other Merger Filings.........................76
Exchange Agent...............................19 Outside Date.................................99
Exchange Ratio...............................17 Parent........................................1
Expenses......................................7 Parent Balance Sheet.........................11
Facilities....................................7 Parent Balance Sheet Date....................11
Foreign Plan.................................36 Parent Benefit Plans.........................56
Form S-4......................................7 Parent Board..................................1
GAAP..........................................7 Parent Board Recommendation..................11
Governmental Entity...........................7 Parent Bylaws................................49
Governmental Permit...........................7 Parent Certificate of Incorporation..........49
Group.........................................7 Parent Closing Price.........................11
Hazardous Materials...........................7 Parent Common Share..........................11
Indebtedness..................................7 Parent Disclosure Schedules..................48
Indemnified Parties..........................93 Parent Financial Advisor.....................68
Indemnifying Parties.........................93 Parent Financial Statements..................53
Insured Parties..............................85 Parent Group.................................66
Intellectual Property.........................8 Parent Information...........................11
IRS...........................................8 Parent IP....................................63
JAMS.........................................98 Parent Material Contract.....................60
Key Employee..................................8 Parent Option................................11
Knowledge.....................................8 Parent Permits...............................52
Law...........................................8 Parent Products..............................63
Lease.........................................8 Parent SEC Reports...........................11
Letters of Transmittal.......................18 Parent Stock Option Plan.....................11
Liability.....................................9 Parent Stockholder Approval..................51
Liable........................................9 Parent Stockholders Equity...................11
Lien..........................................9 Parent Stockholders Meeting..................51
Limited ▇▇▇▇▇▇▇ Agreement.....................1 Parent Subsidiaries..........................48
Lock-Up Agreement............................89 Parent Subsidiary............................48
Made Available................................9 Parent Warrant...............................11
Material......................................9 Parent-Owned IP..............................63
Material Adverse Effect.......................9 PCAOB........................................11
Materially....................................9 Person.......................................11
Materials of Environmental Concern...........10 Post-Merger Parent Board.....................83
Maximum Amount...............................85 Principal Market.............................11
Merger........................................1 Property.....................................12
Merger Sub....................................1 Prosecuting Party............................98
Minimum Company Stockholders Equity..........10 Proxy Statement..............................12
Minimum Parent Stockholders Equity...........10 Registered Intellectual Property.............12
Minute Books.................................10 Related Agreement............................12
New Option...................................21 Representative...............................12
NPCA..........................................1 Repurchase Rights............................12
Open Source Materials........................10 SEC..........................................12
Option Exchange Ratio........................10 SEC Reports..................................12
Order........................................10 SEC Rules....................................12
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Securities...................................12 Tangible Personal Property...................14
Securities Act...............................12 Tax Authority................................14
Security Interest............................13 Tax Return...................................14
SFG..........................................84 Taxes........................................14
Shared Expenses Agreement....................02 Termination and Release Agreement............88
Significant Company Customer.................38 Third Party Intellectual Property Rights.....14
Significant Parent Customer..................60 Trading Day..................................14
SOX..........................................13 Transaction..................................14
Specified Consents...........................29 Transaction Document.........................14
Stanford......................................1 Transfer.....................................14
Stanford LOC.................................84 Transferred..................................14
Stockholder Agent.............................1 Transferring.................................14
Stockholder Agent Expense Cap................24 Twenty Day VWAP..............................14
Stockholders.................................13 U.S. Export and Import Laws..................15
Stockholders Equity Date.....................13 under common control with.....................5
Subsidiary...................................13 Unvested Company Shares......................22
Superior......................................1 Updated Company Disclosure Schedule..........25
Superior Offer...............................13 Updated Parent Disclosure Schedule...........48
Surviving Corporation........................16 WARN Act.....................................38
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Execution Copy
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and
entered into as of July 12, 2006 (together with all schedules and exhibits
hereto, this "Agreement"), by and among (i) DGSE Companies, Inc., a Nevada
corporation (together with its successors and permitted assigns, "Parent"), (ii)
DGSE Merger Corp., a Delaware corporation and a direct wholly-owned subsidiary
of Parent (together with its successors and permitted assigns, "Merger Sub"),
(iii) Superior Galleries, Inc., a Delaware corporation (f/k/a Tangible Asset
Galleries, Inc., a Nevada corporation) (together with its successors, the
"Company" or "Superior"), and (iv) Stanford International Bank, Ltd., a company
organized under the laws of Antigua and Barbuda (together with its successors,
"Stanford"), as agent, attorney-in-fact and representative for the stockholders
of the Company (together with its successors in such capacity, the "Stockholder
Agent"). Stanford is not a signatory to this Agreement but is joining, and
becoming a party to, this Agreement in its individual capacity and as
Stockholder Agent to the limited extent provided in that certain Limited Joinder
Agreement, made and entered into as of even date herewith (the "Limited Joinder
Agreement"), by and among the parties hereto (including Stanford).
R E C I T A L S
---------------
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable this Agreement and the merger
of Merger Sub with and into the Company (the "Merger"), with the Company being
the surviving corporation;
WHEREAS, in the Merger, one hundred percent (100%) of the issued and
outstanding shares of capital stock of the Company will be converted into the
right to receive shares of Common Stock of Parent (as set forth in Article III),
on the terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and Chapters 78 and 92A of Title 7 of the Nevada Revised Statutes (the
"NPCA"); and
WHEREAS, the Board of Directors of the Company (the "Company Board")
and the Board of Directors of Parent (the "Parent Board") has each resolved to
recommend to its stockholders the adoption and approval of this Agreement and
the Merger.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I.
DEFINED TERMS; CONSTRUCTION
Section 1.1 Certain Definitions. Unless otherwise expressly
provided herein, the following terms, whenever used in this Agreement, shall
have the meanings ascribed to them below or in the referenced Sections of this
Agreement:
"A Warrants" means the A Warrants, substantially in the form of Exhibit
A to the Conversion and Exchange Agreement, which the Company is obligated to
issue pursuant to the Conversion and Exchange Agreement.
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"Acquisition Proposal" means, (A) with respect to the Company, any
agreement, offer, proposal or indication of interest (other than this Agreement,
the Merger or any other offer, proposal or indication of interest by Parent), or
any public announcement of intention to enter into any such agreement or of any
intention to make any offer, proposal or indication of interest, relating to or
involving (i) the purchase from the Company or any Company Subsidiary or any
acquisition by any Person of more than a 10% interest (or, with respect to any
Person holding more than a 10% interest on the date hereof, of an additional
interest) in the total outstanding voting securities of the Company or any
Company Subsidiary (other than acquisitions of voting securities of a Company
Subsidiary by the Company) or any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 10% or more of the
total outstanding voting securities of the Company or any Company Subsidiary,
(ii) any merger, consolidation, business combination or similar transaction
involving the Company or any Company Subsidiary, or (iii) any sale (other than
in the Ordinary Course of Business) or disposition of the assets of the Company
and the Company Subsidiaries in any single transaction or series of related
transactions that constitute or represent 10% or more of the total revenue or
operating assets of the Company and the Company Subsidiaries taken as a whole,
in each case other than (x) the Merger, (y) the exercise of Company Options, or
(z) the conversion or exchange of Company Preferred Shares or Company
Indebtedness by Stanford, as contemplated by Article VII; and (B) with respect
to Parent, any agreement, offer, proposal or indication of interest (other than
this Agreement, the Merger or any other offer, proposal or indication of
interest by the Company), or any public announcement of intention to enter into
any such agreement or of any intention to make any offer, proposal or indication
of interest, relating to or involving (i) the purchase from the Parent or any
Parent Subsidiary or any acquisition by any Person of more than a 10% interest
(or, with respect to any Person holding more than a 10% interest on the date
hereof, of an additional interest) in the total outstanding voting securities of
Parent or any Parent Subsidiary (other than acquisitions of voting securities of
a Parent Subsidiary by Parent) or any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 10% or more of the
total outstanding voting securities of Parent or any Parent Subsidiary, (ii) any
merger, consolidation, business combination or similar transaction involving the
Parent or any Parent Subsidiary, or (iii) any sale (other than in the Ordinary
Course of Business) or disposition of the assets of Parent and the Parent
Subsidiaries in any single transaction or series of related transactions that
constitute or represent 10% or more of the total revenue or operating assets of
Parent and the Parent Subsidiaries taken as a whole, in each case other than the
Merger and the exercise of Parent Options.
"Actions" means any action, appeal, petition, plea, charge, complaint,
claim, suit (whether civil, criminal, administrative, judicial or investigative,
whether formal or informal, whether public, private or otherwise, whether at law
or in equity), demand, litigation, arbitration, mediation, hearing, inquiry,
investigation, audit or similar event, occurrence, or proceeding, in each case
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Entity, arbitrator or mediator.
"Actual Knowledge" means, with respect to a particular fact or other
matter, (i) with respect to an individual, that such individual is actually
aware of such fact or other matter, and (ii) with respect to an Entity, that any
Person who is serving, or who has at any time served, as a director, officer,
management-level employee, partner, executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's business or operations, has, or at any time had, Actual
Knowledge of such fact or other matter.
"Affiliate" shall have the meaning ascribed to such term in Rule 144
promulgated under the Securities Act.
"Amend" means, with respect to any Contract, Law, filing or
Organizational Document, to amend, supplement, extend, waive a provision of or
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otherwise modify such Contract, Law, filing or Organizational Document. The
related terms "Amended" and "Amendment" shall have the correlative meanings.
"Applicable Time" means (i) with respect to the Form S-4, the time the
Form S-4, or any amendment or supplement thereto, is filed with the SEC, the
time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, (ii) with respect to the Proxy Statement, the date the Proxy
Statement, or any amendment or supplement thereto, is first mailed to the
stockholders of Parent or the Company, at the times of the Parent Stockholder
Meeting and the Company Stockholder Meeting, and at the Effective Time, or (iii)
with respect to any Other Filing, the date such Other Filing, or any amendment
or supplement thereto, is filed with the applicable Governmental Entity.
"B Warrants" means the B Warrants, substantially in the form of Exhibit
B to the Conversion and Exchange Agreement, which the Company may be obligated
to issue pursuant to the Conversion and Exchange Agreement.
"beneficial owner" shall have the meaning ascribed to such term in Rule
13d-3 under the Exchange Act. The related terms "beneficially own",
"beneficially owning" and "beneficial ownership" shall have the correlative
meanings.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve that result as
expeditiously and effectively as possible.
"Board Recommendation" means the Company Board Recommendation or the
Parent Board Recommendation.
"Blue Sky Laws" means state securities or "blue sky" laws.
"Breach" means (a) any breach of, or inaccuracy in, any representation
or warranty, (b) any breach or violation of, default under (including any
designated "event of default"), failure to perform, failure to comply with or
failure to notify, or noncompliance with, any covenant, agreement or obligation,
or (c) any one or more other Events the existence of which, individually or
together, whether unconditionally or with the passing of time or the giving of
notice, or both, would (i) constitute a breach, violation, default, failure or
noncompliance referred to in clauses (a) and (b) next above, (ii) result in the
acceleration of, or permit any Person to accelerate, any monetary obligation,
(iii) result in the abridgement, modification, acceleration, termination,
revocation, rescission, redemption, cancellation or vesting of, or permit any
Person to abridge, modify, accelerate, delay, condition, terminate, revoke,
rescind, redeem or cancel, any right, license, liability, benefit, debt, power,
authority, privilege or obligation, or (iv) require, or permit any Person to
require, the payment of a monetary penalty or liquidated damages.
"Business Day" means any day other than (i) a Saturday or Sunday, and
(ii) any day on which the SEC shall be closed for business.
"Capitalization Adjustment" means, with respect to any class of shares,
an adjustment based on any stock split, reverse stock split, combination,
consolidation, reorganization or reclassification of, or any stock dividend
(including any dividend or distribution of Securities convertible into capital
stock) on, such class of shares, the recapitalization of the issuer thereof, or
any like change.
"Certificates" means, collectively, the stock certificates representing
Company Common Shares immediately before the Effective Time.
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"Closing Price" means the lesser of (A) $3.25 and (B) the greater of
(1) the Twenty Day VWAP as of the Closing Date, and (2) $1.90.
"Closing Company Common Shares" means the Company Common Shares
outstanding immediately at the Effective Time, including any Company Common
Shares issued or issuable upon the exercise or conversion, before or at the
Effective Time, of any Company Options, Company Warrants or other Commitments
therefor, including the conversions and exchanges contemplated by the Conversion
and Exchange Agreement, but, for avoidance of doubt, excluding Company Common
Shares (i) to be cancelled pursuant to Section 3.1(b), or (ii) issuable upon the
exercise of any Company Options or Company Warrants being assumed by Parent
pursuant to Section 3.7 and Section 3.9, respectively.
"Code" means the United States Internal Revenue Code of 1986, as
Amended.
"Commitment" means (a) options, warrants, convertible securities,
exchangeable securities, subscription rights, purchase or acquisition rights,
conversion rights, exchange rights, or other Contracts that require an Entity to
issue any of its Equity Interests, (b) any other securities convertible into,
exchangeable or exercisable for, or representing the right to subscribe for, in
each case with or without consideration, any Equity Interest of an Entity, (c)
statutory pre-emptive rights or pre-emptive rights granted under an Entity's
Organizational Documents, (d) rights of first refusal, tag-along rights, co-sale
rights, drag-along rights, registration rights, piggyback rights, buy-sell
arrangements, or voting agreements, or (e) stock appreciation rights, phantom
stock, profit participation, or other similar rights with respect to an Entity.
"Company Balance Sheet" means the balance sheet of the Company as of
the Company Balance Sheet Date, as contained in the Company SEC Reports.
"Company Balance Sheet Date" means (i) as of the date hereof, March 31,
2006, and (ii) as of the Closing Date, June 30, 2006.
"Company Board Recommendation" means the unanimous recommendation by
the Company Board that the Company's stockholders vote in favor of (i) the
adoption and approval of this Agreement and the Merger, and (ii) the Stockholder
Agent Appointment.
"Company Common Share" means a share of Company Common Stock.
"Company Common Stock" means the common stock, par value $0.001 per
share, of the Company.
"Company Information" means the statements regarding the Company, its
operations, business, directors, officers, Subsidiaries and stockholders
contained in the Form S-4, Proxy Statement or Other Filings.
"Company Option" means any option granted, to the extent not exercised,
expired or terminated, to a current or former employee, director, officer or
consultant of the Company or any Company Subsidiary, or any predecessor of any
of the foregoing, to purchase Company Common Shares pursuant to any Company
Stock Option Plan.
"Company SEC Reports" means all SEC Reports filed by the Company with
the SEC, including those that the Company may file subsequent to the date
hereof.
-4-
"Company Stock Option Plan" means any equity incentive, stock option,
stock bonus, stock award or stock purchase plan, program or arrangement, as
amended to date, of the Company or any Company Subsidiary, or any predecessor of
any of the foregoing, including the Company's 2003 Omnibus Stock Option Plan and
2000 Omnibus Stock Option Plan.
"Company Stockholders Equity" shall have the meaning ascribed to such
term in the Conversion and Exchange Agreement.
"Company Warrant" means a warrant or similar right to purchase any
Company Common Shares.
"Consent" means any consent, approval, authorization, permit,
ratification, favorable vote, authorization, waiver, or other similar action.
"Contract" means any agreement, contract, subcontract, lease, sublease,
power of attorney, note, loan, evidence of indebtedness, letter of credit,
binding undertaking, covenant not to compete, license, instrument, obligation,
binding commitment, binding understanding, indenture, option or warranty; in
each case whether oral or written, express or implied.
"Control" means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise. The related terms
"controlled by" and "under common control with" shall have the correlative
meanings.
"Dissenting Stockholders" means stockholders of the Company who have
perfected their appraisal rights pursuant to Section 262 of the DGCL, or are
otherwise duly exercising dissenters' or appraisal rights under applicable Law,
in respect of the Merger.
"Encumbrance" means, with respect to any Property, any Order, Lien,
easement, right of way, encroachment, servitude, right of first option, right of
first refusal or similar restriction, drag-along or similar rights, community or
other marital property interest, condition, equitable interest, license,
encumbrance or other binding restriction of any kind (including restrictions on
use, Transfer, receipt of income or exercise of any other attribute or indicia
of ownership) on such Property or any interest therein or right thereto, whether
directly or indirectly (through one or more intermediary Persons or otherwise),
whether voluntarily, involuntarily or by operation of law, and, where
applicable, any restriction on voting thereof or receipt of income thereon and
any Commitments in respect thereof; provided that Transfer restrictions under
federal securities and Blue Sky Laws and regulations shall be deemed not to be
an Encumbrance. The term "Encumber" shall have the correlative meaning.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm, labor organization, unincorporated organization, or
other enterprise, association, organization or business entity.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters and ocean waters), groundwaters, drinking
water supply, stream sediments, ambient air (including indoor air), plant and
animal life and any other environmental medium or natural resource.
"Environmental Claims" means, with respect to any Person, all
accusations, allegations, notices of violation, Encumbrances, claims, demands,
suits or causes of action for any damage, arising out of or related to the
-5-
presence or Release of, or exposure to, any Hazardous Substances at any of such
Person's Facilities, or the material failure by such Person to comply with any
applicable Environmental Laws.
"Environmental Laws" means any Law that requires or relates to (i)
advising appropriate authorities, employees or the public of intended,
threatened or actual Environmental Releases of Materials of Environmental
Concern, violations of discharge limits or other prohibitions and the
commencement of activities, such as resource extraction or construction, that
could have significant impact on the Environment, (ii) preventing or reducing to
acceptable levels the Environmental Release of Materials of Environmental
Concern into the Environment, (iii) reducing the quantities, preventing the
Environmental Release or minimizing the hazardous characteristics of wastes that
are generated, (iv) assuring that products are designed, formulated, packaged
and used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of, (v) protecting the Environment, resources,
species or ecological amenities, (vi) reducing to acceptable levels the risks
inherent in the transportation of Materials of Environmental Concern, (vii)
cleaning up Materials of Environmental Concern that have been Environmentally
Released, preventing the threat of Environmental Release or paying the costs of
such clean up or prevention, (viii) making responsible parties pay private
parties, or groups of them, for damages done to their health or the Environment
or permitting self-appointed representatives of the public interest to recover
for injuries done to public assets, or (ix) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern or the protection of human health or the
Environment.
"Environmental Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the Environment or into or out of
any property. The related term "Environmentally Released" shall have the
correlative meaning.
"Equity Interest" means (a) with respect to any corporation, any and
all shares of capital stock and any Commitments with respect thereto, (b) with
respect to any general or limited partnership, limited liability company, trust
or similar Entity, any and all units, interests or other partnership/limited
liability company interests, and any Commitments with respect thereto, and (c)
with respect to any other Entity, any other direct or indirect equity ownership,
participation or interest therein and any Commitments with respect thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
Amended, and the regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any Entity or
trade or business (whether or not incorporated), other than such Person, that
together with such Person is considered under common control and treated as a
single employer under Sections 414(b), (c), (m) or (o) of the Code.
"Event" means any act, omission, occurrence, circumstance, development,
change, condition or other event or effect.
"Escrow Agent" means the escrow agent appointed by ▇▇▇▇▇▇ to act as
escrow agent under the Escrow Agreement, together with its successors as escrow
agent thereunder.
"Escrow Termination Date" means the last day of the Escrow Period.
"Exchange Act" means the Securities Exchange Act of 1934, as Amended,
and the rules and regulations promulgated thereunder.
-6-
"Expenses" includes all reasonable out-of-pocket expenses (including
all reasonable fees and expenses of legal counsel, accountants, investment
bankers, experts and consultants to a party hereto and its Affiliates) incurred
by a party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
Transactions, including the preparation, printing, filing and mailing of the
Form S-4 and Proxy Statement and the solicitation of stockholder approvals and
all other matters related to the Transactions.
"Facilities" means (i) plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and real property and related
facilities, and (ii) with respect to any Person, all Facilities owned, leased,
operated or occupied at any time by such Person or any of such Person's
Subsidiaries.
"Form S-4" means the registration statement on Form S-4 to be filed by
Parent with the SEC in connection with the issuance of the Parent Common Shares
constituting the Merger Consideration in the Merger, including the joint proxy
statement/prospectus forming a part thereof.
"GAAP" means generally accepted accounting principles for financial
reporting, as applied in the United States and in effect from time to time.
"Governmental Entity" means any (i) nation, state, county, city, town,
borough, village, district or other jurisdiction, (ii) supranational, national,
federal, state, local, municipal, foreign or other government, (iii)
governmental or quasi-governmental authority of any nature (including any
legislature, agency, board, bureau, branch, department, division, commission,
instrumentality, court, tribunal, magistrate, justice or other entity exercising
governmental or quasi-governmental powers), (iv) multi-national organization or
body, (v) any body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, military, regulatory or taxing
authority or power, (v) any stock exchange or similar self-regulatory
organization or any quasi-governmental or private body exercising any
regulatory, taxing or any other governmental or quasi-governmental authority, or
(vi) any official of any of the foregoing.
"Governmental Permit" means any permit, license, certificate, Consent,
clearance, certificate, registration, approval, accreditation, or other similar
authorization required by any Law or Governmental Entity.
"Group" has the meaning ascribed to such term in Section 13 of the
Exchange Act.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other infectious, toxic or otherwise hazardous substances or
materials (whether solids, liquids or gases) subject to regulation, control or
remediation under applicable Environmental Laws, including any material,
substance or waste which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste," "restricted
hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law, and including radioactive materials, petroleum,
petroleum products, asbestos, presumed asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money, or with respect to
deposits or advances of any kind to such Person, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person upon which interest charges are customarily paid,
(iv) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (v) all
obligations of such Person issued or assumed as the deferred purchase price of
Property or services (excluding obligations of such Person to creditors for raw
-7-
materials, inventory, services and supplies incurred in the ordinary course of
such Person's business), (vi) all capitalized lease obligations of such Person,
(vii) all obligations of others secured by any Encumbrance on Property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (viii) all obligations of such Person under interest rate or
currency swap transactions (valued at the termination value thereof), (ix) all
letters of credit issued for the account of such Person (excluding letters of
credit issued for the benefit of suppliers to support accounts payable to
suppliers incurred in the ordinary course of business), (x) all obligations of
such Person to purchase Securities (or other Property) that arise out of or in
connection with the sale of the same or substantially similar Securities or
Property, and (xi) all guarantees and arrangements having the economic effect of
a guarantee of such Person of any Indebtedness of any other Person.
"Intellectual Property" means any and all worldwide intellectual
property and intellectual property rights, including all patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof; all inventions
(whether patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, proprietary
processes and formulae, algorithms, specifications, customer lists and supplier
lists; all designs and any registrations and applications therefor; all trade
names, logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor; Internet domain names and
toll-free numbers; all copyrights, copyright registrations and applications
therefor; all computer software, including all source code, object code,
firmware, and development tools, game engines, game rules, scripts, voice-overs,
characters, images, drawings, graphics, files, records and data; all rights in
prototypes; all databases and data collections and all rights therein; all moral
and economic rights of authors and inventors; and all other intellectual
property of any kind or nature.
"IRS" means the United States Internal Revenue Service and, to the
extent relevant, the United States Department of the Treasury.
"Key Employee" means, with respect to any Entity, any employee at the
vice president level or higher, or who is otherwise material to such Entity and
such Entity's Subsidiaries taken as a whole.
"Knowledge" means, with respect to a particular fact or other matter,
(a) in the case of an individual, (i) that such individual is actually aware of
such fact or other matter, or (ii) a prudent individual could be expected to
have discovered or otherwise have become aware of such fact or other matter in
the course of conducting a comprehensive investigation concerning the existence
of such fact or other matter, and (b) in the case of an Entity, that any Person
who is serving, or who has at any time served, as a director, officer,
management-level employee, partner, executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's business or operations, has, or at any time had, Knowledge of
such fact or other matter.
"Law" means any federal, state, local, domestic, foreign, international
or multi national law (statutory, common, or otherwise), constitution, treaty,
statute, code, order, writ, injunction, decree, award, stipulation, ordinance or
administrative doctrine, ordinance, equitable principle, code, rule, regulation,
executive order, request, or other similar authority enacted, adopted,
promulgated, or applied by any Governmental Entity, each as Amended.
"Lease" means any lease of real or personal property or any lease or
rental agreement, license, right to use or installment and conditional sale
agreement to which the Company is a party or subject, and any other Contract of
the Company pertaining to the leasing or use of any Tangible Personal Property.
The related terms "Lease" and "Leased" used as a verb shall have the correlative
meanings.
-8-
"Liability" or "Liable" means any liability or obligation of any kind,
character or description, whether known or unknown, absolute or contingent,
matured or unmatured, disputed or undisputed, secured or unsecured, conditional
or unconditional, accrued or unaccrued, liquidated or unliquidated, vested or
unvested, joint or several, due or to become due, executory, determined,
determinable or otherwise, and whether or not the same is required to be accrued
on financial statements.
"Lien" means, in respect of any Property, any security interest, deed
of trust, mortgage, pledge, lien, statutory liens of any kind or nature,
hypothecation, charge, claim, lease or other similar interest or right in
respect of such Property.
"Made Available" means (a) in the case of Parent, that either (i) the
Company or its Representatives has delivered such materials to Parent or its
designated representatives via email or otherwise on or before July 7, 2006 (or
such later date as Parent and the Company may agree in writing), or (ii) such
material constitutes part of the Parent SEC Reports filed with the SEC prior to
the date of this Agreement which are currently available through the SEC's ▇▇▇▇▇
system, and (b) in the case of the Company, that either (i) Parent or its
Representatives has delivered such materials to the Company or its designated
representatives via email or otherwise on or before July 7, 2006 (or such later
date as Parent and the Company may agree in writing), or (ii) such material
constitutes part of the Company SEC Reports filed with the SEC prior to the date
of this Agreement which are currently available through the SEC's ▇▇▇▇▇ system.
"Material" or "Materially" means, with respect to any Person and any
Event, violation or Breach, any of the foregoing which, alone or in combination
with any other Events, violations or Breaches, is reasonably likely to result in
or have a Material Adverse Effect, taken as a whole, on such Person and its
Subsidiaries, taken as a whole.
"Material Adverse Effect" means, with respect to any Person and any
Events, that such Events, taken individually or in the aggregate, (i) have had,
or are reasonably likely to have, a materially adverse effect on the assets
(including intangible assets), Properties, business, financial condition or
results of operations of such Person and its Subsidiaries, taken as a whole, or
(ii) materially impede or delays, or are reasonably likely materially to impede
or delay, the ability of such Person or its Subsidiaries to perform its
obligations under this Agreement or any Related Agreements to which it is a
signatory, or to consummate the Transactions, in accordance with the terms
hereof and thereof and applicable Laws; provided, however, that no such Events
to the extent resulting from or arising out of any of the following shall be
deemed to constitute, in and of itself, a Material Adverse Effect, nor shall it
be taken into consideration when determining whether there has occurred a
Material Adverse Effect: (i) any change in applicable Laws, GAAP, regulations or
application or interpretations of such Laws, GAAP or regulations, but only to
the extent that such changes do not adversely affect such Person and its
Subsidiaries in a disproportionate manner from others in the industry or market
generally, (ii) the negotiation, execution, delivery, pendency or announcement
of this Agreement, the Related Agreements or the consummation of the
Transactions, including any loss of or adverse impact on relationships with
employees, customers, suppliers, licensors, licensees, or distributors of such
Person or its Subsidiaries as a result thereof, (iii) any Events affecting the
industry in which such Person operates generally, but only to the extent that
such Events do not adversely affect such Person and its Subsidiaries in a
disproportionate manner, (iv) changes in United States or world general
political, economic or capital market conditions, but only to the extent that
such changes do not adversely affect such Person and its Subsidiaries in a
disproportionate manner, (v) actual or threatened stockholder litigation arising
from allegations of breach of fiduciary duty relating to this Agreement or the
Related Agreements, including related claims with respect to disclosure of the
Merger or this Agreement, or (vi) any delay in the mailing of the Form S-4 or
Proxy Statement due to the SEC or Blue Sky Laws review process related thereto.
-9-
"Materials of Environmental Concern" means chemicals, pollutants,
pollution, contaminants, wastes, Hazardous Substances and any other substance
that is now or hereafter regulated by any applicable Environmental Law or that
is otherwise a danger to health, reproduction or the Environment.
"Merger Consideration" means a number of Parent Common Shares equal to
the quotient of $14,000,000 divided by the Closing Price.
"Minimum Company Stockholders Equity" means $5,751,000.
"Minimum Parent Stockholders Equity" means $6,071,128.
"Minute Books" means, (i) with respect to any corporation, minute books
of such corporation containing records of all proceedings, consents, actions and
meetings of the Board of Directors, committees of the Board of Directors,
stockholders and committees of stockholders of such corporation, or (ii) with
respect to any other Entity, minutes or similar books and records of such Entity
containing records of all proceedings, consents, actions and meetings of the
equivalent governing bodies, including managing members in the case of a limited
liability company or general partners in case of a partnership, and owners of
such Entity.
"Option Exchange Ratio" means a fraction, the numerator of which equals
the number of Parent Common Shares equal to the quotient of $14,000,000 divided
by the Twenty Day VWAP as of the Closing Date, and the denominator of which
equals the number of Closing Company Common Shares.
"Order" means any order, ruling, decision, verdict, decree, writ,
subpoena, award, judgment, injunction, assessment, or other similar
determination or finding by, before, or under the supervision of any
Governmental Entity, arbitrator or mediator.
"Ordinary Course of Business" means, with respect to any action by any
Person, that such action (i) is consistent in nature, scope, quality, frequency
and magnitude with the past customs and practices of such Person, to the extent
practicable if such Person has a rapidly growing business, and is taken in the
ordinary course of the normal, day-to-day operations of such Person, and (ii)
does not require authorization by (1) such Person's board of directors (or any
committee thereof), (2) such Person's stockholders (or by any Person or group of
Persons exercising similar authority), or (3) more than one of such Person's (A)
principal executive officer, (B) principal operating officer, (C) principal
financial officer, and (D) other officer performing substantially similar
functions.
"Organizational Documents" means, with respect to any Entity, (i) if a
corporation, its articles or certificate of incorporation and its bylaws, or
(ii) if another type of Entity, any other charter, regulations or similar
document, including Contracts, adopted or filed in connection with the creation,
formation or organization of such Entity; in each case as Amended.
"OTCBB" means the OTC Bulletin Board.
"Other Filings" means all filings made by, or required to be made by,
the Company or Parent, as the case may be, with the SEC in connection with the
Transactions, other than the Form S-4 and Proxy Statement.
"Open Source Materials" means all software or other copyrightable work
that is distributed as "free software" or "open source software" or under
substantially similar licensing or distribution terms, including any software
licensed under a license approved as "Open Source" by the Open Source
-10-
Initiative, ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇.▇▇▇/, or as "Free Software" by The Free
Software Foundation, ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇/.
"Parent Balance Sheet" means the balance sheet of Parent as of the
Parent Balance Sheet Date, as contained in the Parent SEC Reports.
"Parent Balance Sheet Date" means (i) as of the date hereof, March 31,
2006, and (ii) as of the Closing Date, June 30, 2006.
"Parent Board Recommendation" means the unanimous recommendation by the
Parent Board that the Parent's stockholders vote in favor of (i) the adoption
and approval of this Agreement and the Merger, and (ii) the Authorized Stock
Increase.
"Parent Closing Price" means the arithmetic mean of the closing bid
price of one Parent Common Share on the thirty Trading Days immediately
preceding the Effective Time (which shall include the Trading Day that occurs on
the day of the Effective Time if (but only if) the Effective Time is after the
close of trading on such Trading Day), as quoted on the Parent's Principal
Market.
"Parent Common Share" means a share of common stock, par value $0.01
per share, of Parent.
"Parent Information" means the statements regarding Parent, its
operations, business, directors, officers, Subsidiaries and stockholders
contained in the Form S-4, Proxy Statement or Other Filings.
"Parent Option" means any option granted, to the extent not exercised,
expired or terminated, to a current or former employee, director, officer or
consultant of Parent or any Parent Subsidiary, or any predecessor of any of the
foregoing, to purchase Parent Common Shares pursuant to any Parent Stock Option
Plan.
"Parent SEC Reports" means all SEC Reports filed by Parent with the
SEC, including those that Parent may file subsequent to the date hereof.
"Parent Stock Option Plan" means any equity incentive, stock option,
stock bonus, stock award or stock purchase plan, program or arrangement, as
amended to date, of Parent or any Parent Subsidiary, or any predecessor of any
of the foregoing, including Parent's Stock Option Plan, effective as of January
1, 2004 and, if approved at Parent's 2006 annual meeting of its stockholders,
Parent's 2006 Equity Incentive Plan (as such plan is described in Parent's proxy
statement filed with the SEC on April 27, 2006).
"Parent Stockholders Equity" shall have the meaning ascribed to such
term in the Conversion and Exchange Agreement.
"Parent Warrant" means a warrant or similar right to purchase any
Parent Common Shares.
"PCAOB" means the United States Public Company Accounting Oversight
Board.
"Person" means any individual, Group, Governmental Entity or Entity.
"Principal Market" means, with respect to any Entity, the Nasdaq
Capital Market, the New York Stock Exchange, the Nasdaq National Market, the
American Stock Exchange, the OTCBB or any other national securities exchange
registered under Section 6 of the Exchange Act, whichever is at the time the
-11-
principal trading exchange, market or inter-dealer or automated quotation system
for the shares of common stock of such Entity.
"Property" means any present or future, legal or equitable, vested or
contingent right to or interest in any fixture, real property, personal property
or any other property or asset, including goods, leases, securities (whether or
not certificated), commercial paper, financial assets, commodities, accounts,
equipment, chattel paper, derivatives, instruments, money, claims, licenses,
Contracts, Intellectual Property, royalties and general intangibles, and any
proceeds of any of the foregoing.
"Proxy Statement" means the proxy materials constituting part of the
joint proxy statement/prospectus forming part of the Form S-4 or otherwise
communicated to Parent or Company stockholders in connection with the Merger or
relating to the Company Stockholders Meeting or the Parent Stockholders Meeting.
"Registered Intellectual Property" means, with respect to any Person,
all United States, international and foreign (i) patents and patent applications
(including provisional applications), (ii) registered trademarks or service
marks, applications to register trademarks or service marks, intent-to-use
applications, or other registrations or applications related to trademarks or
service marks, (iii) registered Internet domain names or toll-free numbers, and
(iv) registered copyrights and applications for copyright registration, in each
case of clauses (i) through (iv) next preceding, that is owned by, registered or
filed in the name of, such Person or any Subsidiary of such Person.
"Related Agreements" means the Confidentiality Agreement, the Shared
Expenses Agreement, the Escrow Agreement, the Limited Joinder Agreement, the
Certificate of Merger, the Employment Agreements, the A Warrants, the B Warrants
(if any), the Registration Rights Agreement, the Termination and Release
Agreement, the Conversion and Exchange Agreement, the Lock-Up Agreement, and any
other agreement delivered at or in connection with the Closing.
"Representatives" means, with respect to any Person, such Person's
officers, directors, employees, managers, consultants, contractors, agents,
investment bankers, brokers, agents, and other financial, banking and legal
advisors or other representatives.
"Repurchase Rights" means, with respect to any Entity, outstanding
rights held by such Entity to repurchase or redeem Equity Interests in such
Entity, or similar restrictions in such Entity's favor with respect to any of
its Equity Interests.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" means any forms, statements, schedules, requests, reports
and documents (including items incorporated by reference) required or authorized
to be filed with the SEC pursuant to the Securities Act or the Exchange Act or
the rule and regulations promulgated by the SEC thereunder.
"SEC Rules" means the rules and regulations promulgated by the SEC
under the Securities Act, the Exchange Act or SOX.
"Securities Act" means the Securities Act of 1933, as Amended, and the
rules and regulations promulgated thereunder.
"Securities" means any stock, capital stock or similar security,
shares, partnership (general or limited) interests, membership or limited
liability company interests or units, interests in a joint venture, voting trust
certificates, certificates of interest or participation in any profit sharing
-12-
agreement or arrangement or business trust, voting trust certificate, investment
contract, bonds, debentures, notes, or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities", or any certificates of interest or
participations in, temporary or interim certificates for, receipt for,
guarantees of, warrants or rights to subscribe to, purchase or otherwise
acquire, or any other Commitments, puts or other options, futures, or
certificate of deposit for, any of the foregoing.
"Security Interest" means any Lien, except for (i) liens for taxes,
assessments, governmental charges, or claims that are being contested in good
faith by appropriate Actions promptly instituted and diligently conducted and
only to the extent that a reserve or other appropriate provision, if any, has
been made on the face of the Company Financial Statements in an amount equal to
the Liability for which the lien is asserted, (ii) statutory liens of landlords
and warehousemen's, carriers', mechanics', suppliers', materialmen's,
repairmen's or other like liens (including contractual landlords' liens) arising
in the Ordinary Course of Business and with respect to amounts not yet
delinquent, or with respect to amounts being contested in good faith by
appropriate proceedings, and (iii) liens incurred or deposits made in the
Ordinary Course of Business in connection with workers' compensation,
unemployment insurance and other similar types of social security.
"SOX" means the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as Amended, and the rules
and regulations promulgated thereunder.
"Stockholders" means all of the stockholders of the Company from time
to time, other than stockholders who do not hold any Company Common Shares other
than Dissenting Shares.
"Stockholders Equity Date" means the date 30 calendar days (or, at the
election of Parent and the Company, such fewer number of days, not less than
three Business Days prior to the Closing Date, as they shall notify Stanford in
writing) prior to the Closing Date.
"Subsidiary" means, with respect to any Person, (a) any corporation in
which a controlling interest in the total voting power of all classes of the
Equity Interests entitled (without regard to the occurrence of any contingency)
to vote in the election of directors of such corporation is owned by such Person
directly or through one or more other Subsidiaries of such Person, and (b) any
Person other than a corporation of which at least a controlling interest of the
Equity Interests (however designated) entitled (without regard to the occurrence
of any contingency) to vote in the election of the governing body, partners,
managers, or others that will control the management of such Entity is owned by
such Person directly or through one or more other Subsidiaries of such Person.
"Superior Offer" means, with respect to the party receiving an offer,
any bona fide written offer, not solicited after the date of this Agreement by
the party or on behalf of the party by any of its Representatives, made by a
Person to acquire, directly or indirectly, pursuant to a tender offer, exchange
offer, merger, consolidation or other business combination (including by means
of a tender offer followed promptly by a back-end merger), all or substantially
all of the assets of the party receiving the offer or all of the total
outstanding voting securities of such party and as a result of which (i) Equity
Interests held by stockholders of such party immediately preceding such
transaction would represent or be converted into less than 50% of the Equity
Interests in the surviving or resulting Entity of such transaction or any direct
or indirect parent or Subsidiary thereof, or (ii) such third party acquiring,
directly or indirectly, all or substantially all of the assets of the party
receiving the offer and such party's Subsidiaries, taken as a whole, in each
case for consideration consisting exclusively of cash or publicly-traded equity
securities, on terms that such party's Board of Directors has in good faith
determined (after consulting with such party's legal counsel and financial
advisors), to be more favorable to its stockholders than the terms of the Merger
and taking into consideration whether such offer is reasonably capable of being
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consummated, and whether financing to the extent required by the Person making
such offer, is then fully committed and available, and is not contingent.
"Tangible Personal Property" means, with respect to any Person, all
machinery, equipment, tools, furniture, office equipment, computer hardware,
supplies, materials, vehicles and other items of tangible personal property
(other than inventories) of every kind owned or leased by such Person, wherever
located and whether or not carried on such Person's books.
"Taxes" means (i) all taxes, levies, assessments, duties, imposts or
other like assessments, charges or fees (including estimated taxes, charges and
fees), including income, profits, corporations, advance corporation, gross
receipts, transfer, excise, property, sales, use value-added, ad valorem,
license, capital, wage, employment, payroll, withholding, social security,
severance, occupation, import, custom, stamp, alternative, add-on minimum,
environmental, franchise or other governmental taxes or charges, imposed by any
Governmental Entity responsible for the imposition of any such tax (each, a "Tax
Authority"), including any interest, penalties or additions to tax applicable or
related thereto, (ii) all liability for the payment of any amounts of the type
described in clause (i) as the result of being (or ceasing to be) a member of an
affiliated, consolidated, combined or unitary group (or being included (or
required to be included) in any Tax Return related thereto), and (iii) all
liability for the payment of any amounts as a result of an express or implied
obligation to indemnify or otherwise assume or succeed to the liability of any
other person with respect to the payment of any amounts of the type described in
clause (i) or clause (ii).
"Tax Return" means any report, return, statement, declaration, claim
for refund, information return or other written information (including any
related or supporting schedules, statements or information and amended returns)
filed or required to be filed in connection with any Taxes, including the
administration of any Laws, regulations or administrative requirements relating
to any Taxes.
"Third Party Intellectual Property Rights" means, with respect to any
Person, any Intellectual Property owned by, or exclusively licensed by, another
Person (other than a Subsidiary of such first Person).
"Trading Day" means any day other than a Saturday or a Sunday on which
the Parent's Principal Market is open for trading in equity securities.
"Transaction Documents" means this Agreement, the Related Agreements
and any certificates, instruments or documents delivered pursuant to or in
connection with this Agreement, any Related Agreement or any Transaction.
"Transactions" means all of the transactions contemplated by this
Agreement, including the Merger.
"Transfer" means, with respect to any Property, to sell, deed,
dividend, distribute (including upon liquidation or distribution), exchange,
convey, consign, negotiate, gift, devise, bequeath, pass by intestate
succession, assign, issue, or otherwise alienate, transfer or dispose of such
Property or any interest therein or right thereto, whether directly or
indirectly (through another Person or otherwise), whether voluntarily,
involuntarily or by operation of law, and whether with or without consideration.
The related terms "Transferred" and "Transferring" shall have the correlative
meanings.
"Twenty Day VWAP" means, with respect to any date of determination, the
volume-weighted closing sales price of the Parent Common Shares on Parent's
Principal Market for the most recent twenty Trading Days on such Principal
Market prior to or on such date of determination (or, if such date is not a
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Trading Day or if trading has not closed for the day on such date, the next
preceding Trading Day) on which trading occurred in the Parent Common Shares,
which price shall, for the avoidance of doubt, be equal to a fraction, (x) the
numerator of which equals the sum, for each of such twenty Trading Days, of the
product of (1) the closing sales price of the Parent Common Shares on such
Trading Day on such Principal Market, times (2) the number of Parent Common
Shares traded during such Trading Day on such Principal Market, and (y) the
denominator of which equals the sum of the number of Parent Common Shares traded
during each of such twenty Trading Days on such Principal Market.
"U.S. Export and Import Laws" means all United States export and import
Laws and controls, including the Arms Export Control Act (22 U.S.C. ss. 2778),
the International Traffic in Arms Regulations (ITAR) (22 C.F.R. Subchapter M),
the Export Administration Act of 1979, as amended (50 U.S.C. ▇▇.▇▇. 2401-2420),
the Export Administration Regulations (EAR) (15 C.F.R. 730-774), and all other
laws and regulations of the United States Government regulating the provision of
services to non-U.S. parties or the export and import of articles or information
from and to the United States of America and non-U.S. parties.
Section 1.2 Other Definitions. All other capitalized terms used in
this Agreement and not defined in Section 1.1 shall have the meanings ascribed
to such terms elsewhere in this Agreement.
Section 1.3 Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement with the assistance of
legal counsel, and any rule of construction or interpretation otherwise
requiring this Agreement to be construed or interpreted against any party shall
not apply to any construction or interpretation hereof. If an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party because of the authorship of
any provision of this Agreement. The parties intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party has Breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to a similar subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in Breach of the first
representation, warranty, or covenant. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions, or to designated "Exhibits," "Schedules" or
"Appendices," are to the designated Articles, Sections and other subdivisions
of, or the designated Exhibits, Schedules or Appendices to, this Agreement;
(b) references to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;
(c) references to any agreement, document or instrument means such
agreement, document or instrument as Amended and in effect from time to time in
accordance with the terms thereof, and shall be deemed to refer as well to all
addenda, annexes, appendices, exhibits, schedules and other attachments thereto;
(d) reference to any Law means such Law as Amended, codified,
replaced or reenacted, in whole or in part, and in effect from time to time,
including rules and regulations promulgated thereunder, and reference to any
section or other provision of any Law means that provision of such Law from time
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to time in effect and constituting the substantive Amendment, codification,
replacement or reenactment of such section or other provision;
(e) references to "dollars" or "cash", and the "$" symbol, are
references to the lawful money of the United States of America;
(f) with respect to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding";
(g) the words "include," "includes," and "including" shall be
deemed to be followed by "without limitation";
(h) the term "or" shall not be exclusive;
(i) pronouns in masculine, feminine, and neuter genders shall be
construed to include any other gender;
(j) whenever the singular number is used, if required by the
context, the same shall include the plural, and vice versa;
(k) the words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(l) all accounting terms shall be interpreted, and all accounting
determinations hereunder shall be made, in accordance with GAAP.
ARTICLE II.
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to satisfaction
or waiver of the conditions set forth in this Agreement, and in accordance with
the DGCL, Merger Sub, at the Effective Time, shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (together with its successors, the "Surviving Corporation") and as a
wholly-owned subsidiary of Parent.
Section 2.2 The Closing. The closing of the Merger (the "Closing")
shall take place (i) on the second Business Day after the satisfaction or waiver
of each of the conditions set forth in Article VII, or (ii) at such other time
as Parent and the Company shall agree in writing (the date of the Closing, the
"Closing Date"). The Closing shall take place at the offices of Sheppard,
Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, High ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇-▇▇▇▇, or at such other location as Parent and the Company
agree in writing.
Section 2.3 Effective Time. On the Closing Date, or on such other
date as may be mutually agreed by Parent and the Company, the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger in
substantially the form of Exhibit A (the "Certificate of Merger") with the
Office of the Secretary of State of the State of Delaware, executed and
otherwise filed in accordance with the relevant provisions of the DGCL (the date
and time of such filing, or if another date and time is specified in the
Certificate of Merger, such specified date and time, the "Effective Time").
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Section 2.4 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in this Agreement, the Certificate of Merger
and the applicable provisions of the DGCL. Without limiting the generality of
the foregoing, at the Effective Time, except as otherwise provided herein, all
the Property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all Debts, Liabilities
and duties of the Company and Merger Sub shall become the Debts, Liabilities and
duties of the Surviving Corporation.
Section 2.5 Certificate of Incorporation; Bylaws. The certificate
of incorporation and bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall constitute the certificate of incorporation and bylaws of
the Surviving Corporation at and after the Effective Time; provided, however,
that Article I of the certificate of incorporation of the Surviving Corporation
will be amended at the Effective Time to read "The name of the corporation is
Superior Galleries, Inc." (or as Parent and the Company may otherwise agree
prior to the filing of the Certificate of Merger) until thereafter amended.
Section 2.6 Directors and Officers. Unless otherwise determined by
Parent prior to the Effective Time, the directors and officers of Merger Sub
immediately prior to the Effective Time shall be the sole directors and officers
of the Surviving Corporation effective as of the Effective Time, each to hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until their successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal.
ARTICLE III.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holders of any of the following securities:
(a) Company Common Shares. Each Closing Company Common Share issued
and outstanding immediately prior to the Effective Time (exclusive of Dissenting
Shares referred to in Section 3.10) shall be automatically be cancelled and
retired and shall cease to exist, and the holder of a stock certificate that,
immediately prior to the Effective Time, represented issued and outstanding
Closing Company Common Shares shall cease to have any rights with respect
thereto, except the right to receive, upon the surrender of such certificates
(or delivery of the affidavit and bond, if any, specified in Section 3.4(i)) and
upon the terms and subject to the conditions set forth in this Article III and
elsewhere in this Agreement, for each Company Common Share an amount of Parent
Common Shares equal to a fraction (such fraction, the "Exchange Ratio"), the
numerator of which equals the number of Parent Common Shares constituting the
Merger Consideration and the denominator of which equals the number of Closing
Company Common Shares.
(b) Cancellation of Certain Shares. Each Company Common Share held
immediately prior to the Effective Time by the Company, Parent, Merger Sub or
any Subsidiary of the Company, Parent or Merger Sub, and each share of any class
of capital stock of the Company other than the Company Common Stock (including
each series of preferred stock of the Company), shall be automatically cancelled
and retired and shall cease to exist, without any conversion thereof or
consideration therefor, and no payment shall be made with respect thereto.
(c) Capital Stock of Merger Sub. Each share of capital stock of
Merger Sub that is issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without further action on the part of
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the sole stockholder of Merger Sub, be converted into and become one validly
issued, fully paid and non-assessable share of common stock of the Surviving
Corporation (and the shares of Surviving Corporation into which the shares of
Merger Sub capital stock are so converted shall be the only shares of the
Surviving Corporation's capital stock that are issued and outstanding
immediately after the Effective Time). Each certificate evidencing ownership of
shares of Merger Sub common stock will evidence ownership of such shares of
common stock of the Surviving Corporation.
Section 3.2 Capitalization Adjustments to Shares. In the event of
any Capitalization Adjustment with respect to the Company Common Shares or
Parent Common Shares occurring after the date of this Agreement and prior to the
Effective Time, or with respect to Parent Common Shares being held in the Escrow
Account pursuant to the Escrow Agreement after the Effective Time for so long as
held therein, all references in this Agreement to specified numbers of shares of
any class or series affected thereby, and all calculations provided for that are
based upon numbers of shares of any class or series (or trading prices therefor)
affected thereby, shall be equitably adjusted to the extent necessary to provide
the parties the same economic effect as contemplated by this Agreement prior to
such Capitalization Adjustment.
Section 3.3 Allocation and Distribution of Merger Consideration.
Subject to Section 3.1(b), Section 3.5, Section 3.14 and other provisions of
this Article III, the Merger Consideration shall be allocated among all
pre-Closing Stockholders pro rata according to the respective number of Closing
Company Common Shares held by each such stockholder. Parent (and, to the extent
applicable, the Stockholder Agent) shall deliver the Merger Consideration to the
Exchange Agent for distribution to such stockholders, provided that Parent may
retain any consideration in respect of any Dissenting Stockholders for
distribution pursuant to Section 3.10 or for paying any settlement, award or
judgment of any Actions relating to such stockholder's Dissenting Shares.
Section 3.4 Surrender of Certificates; Payment.
(a) Exchange Procedures.
(1) Promptly after the Effective Time, Parent shall
instruct the Exchange Agent to mail to each holder of record of
Closing Company Common Shares (i) a letter of transmittal,
substantially in the form of Exhibit B (collectively, the "Letters
of Transmittal"), and (ii) instructions for use in effecting
surrender by such holder of its Certificates to the Exchange Agent
in exchange for the Merger Consideration.
(2) The holder of each Certificate, upon the surrender
of such Certificate by such holder to the Exchange Agent (or the
delivery of the affidavit and bond, if any, specified in Section
3.4(i)), together with a Letter of Transmittal duly completed and
validly executed by such holder in accordance with the instructions
thereto, and such other documents as may reasonably be required by
the Exchange Agent, shall, subject to Section 3.4(e) and Section
3.14, be entitled to receive in exchange for such Certificate a
certificate representing the number of Parent Common Shares for
which the Company Common Shares theretofore represented by such
Certificate may be exchanged pursuant to Section 3.1, and such
surrendered Certificate shall forthwith thereafter be cancelled and
retired.
(3) Each Certificate shall be deemed at all times from
and after the Effective Time to represent only the right to
receive, upon exchange as contemplated in this Section 3.4, the
Merger Consideration to which the holder of the Company Common
Shares formerly represented by such Certificate is entitled to
receive in the Merger.
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(b) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Shares with a record date thirty or more days after the Effective
Time but prior to the surrender of a Certificate (or the delivery of the
affidavit and bond, if any, specified in Section 3.4(i)) will be paid or due to
the holder of such Certificate in respect of the Parent Common Shares
exchangeable therefor.
(c) Transfers of Ownership. In the event of a transfer of ownership
of Company Common Shares that is not registered on the transfer records of the
Company, the Merger Consideration payable hereunder with respect to such Company
Common Shares may be paid to a Person other than the Person in whose name the
Certificate so surrendered is registered, but only if (i) such Certificate shall
be properly endorsed and otherwise be in proper form for transfer, and (ii) that
the Person requesting such exchange shall have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for Parent Common Shares in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(d) Exchange Agent. Prior to the Effective Time, Parent or a direct
or indirect Subsidiary of Parent shall make available to Registrar & Transfer
Company (or such other transfer agent which Parent may appoint to act as the
exchange agent hereunder from time to time), as exchange agent hereunder (in
such capacity, together with its successors in such capacity, the "Exchange
Agent"), for distribution by the Exchange Agent in accordance with this Article
III, certificates representing Parent Common Shares to deliver to the holders of
outstanding Company Common Shares (other than any Company Common Shares to be
canceled pursuant to Section 3.1(b) and Dissenting Shares referred to in Section
3.10), as the aggregate Merger Consideration payable to such holders pursuant to
Section 3.1 in exchange for such Company Common Shares. Parent shall deliver
irrevocable instructions to the Exchange Agent to cause the Exchange Agent to
deliver the Merger Consideration contemplated to be issued pursuant to Section
3.1 as promptly as reasonably practicable upon receipt of the documents,
including Letters of Transmittal and Certificates, described above. Upon
surrender of a Certificate to the Exchange Agent for exchange, together with a
duly executed Letter of Transmittal and such other documents as may be
reasonably required by the Exchange Agent, the Exchange Agent shall (i) deliver
to the holder of such Certificate a certificate representing the number of
Parent Common Shares that such holder has the right to receive as Merger
Consideration pursuant to this Article III, and (ii) deliver to the Escrow Agent
under the Escrow Agreement on behalf of such holder a certificate in the name of
the Escrow Agent with respect to the portion of the Escrow Shares that such
holder has placed in escrow pursuant to this Article III.
(e) No Fractional Shares. No certificate or scrip representing
fractional Parent Common Shares shall be issued upon the surrender of
certificates formerly representing Company Common Shares or otherwise in the
Merger, and in lieu thereof, any fractional Parent Common Share shall be rounded
up to the nearest whole Parent Common Share; provided that, prior to applying
the sentence next preceding with respect to any holder of Company Common Shares,
all Company Common Shares held by such holder shall be aggregated, taking into
account all certificates formerly representing Company Common Shares delivered
by such holder and the aggregate number of Company Common Shares represented
thereby, and after giving effect to the exercise of any Company Options or
Company Warrants to be exercised by such holder in connection with the Closing.
(f) Further Rights in Company Common Shares. All Merger
Consideration issued and paid upon conversion of the Company Common Shares in
accordance with the terms hereof shall be deemed to have been issued and paid in
full satisfaction of all rights pertaining to such Company Common Shares.
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(g) Unclaimed Merger Consideration. The Exchange Agent shall upon
demand promptly return any portion of the Merger Consideration that remains
undistributed six months after the Effective Time, and any holders of Company
Common Shares immediately prior to the Effective Time who have not theretofore
complied with this Article III shall thereafter look only to Parent (subject to
applicable abandoned property, escheat and similar Laws) for the Merger
Consideration. Notwithstanding anything to the contrary contained herein, if any
Certificate has not been surrendered within three years of the Effective Time,
subject to applicable Law, any amounts payable in respect of such Certificate
shall, to the extent permitted by applicable Laws, become the property of the
Parent, free and clear of all claims or interests of any Person previously
entitled thereto.
(h) No Liability. None of Parent, the Company, Merger Sub or the
Surviving Corporation shall be liable to any Person for any Merger Consideration
delivered to a public official pursuant to any abandoned property, escheat or
similar Law.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon (i) the making of an affidavit of that fact by holder
thereof claiming such Certificate to be lost, stolen or destroyed, and (ii) if
required by Parent or the Exchange Agent in their respective discretion, the
posting by such holder of a bond, in such reasonable amount as Parent or the
Exchange Agent may direct, as indemnity against any claim that may be made
against it with respect to such Certificate; the Exchange Agent or Parent, as
applicable, shall deliver to such holder the appropriate Merger Consideration in
exchange for the Company Common Shares represented by such lost, stolen or
destroyed Certificate.
Section 3.5 Withholding Rights. Each of Parent, Merger Sub, the
Surviving Corporation and the Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Shares or Company Options such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code and the rules and regulations promulgated thereunder, or
any provision of a Tax Law, or pursuant to other applicable Orders. To the
extent that amounts are so withheld from the Merger Consideration, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of Company Common Shares or Company Options in respect of whom
such deduction and withholding was made.
Section 3.6 Share Transfer Books. At the Effective Time, the share
transfer books of the Company shall be closed, and, thereafter, there shall be
no further registration of Transfers of Company Common Shares theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of certificates representing Company Common Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Company Common Shares, except as otherwise provided herein or by
applicable Laws. On and after the Effective Time, any certificates presented to
the Exchange Agent or Parent for any reason shall be cancelled and retired, and
the holder thereof shall only have the right to receive the Merger
Consideration, without interest, upon the terms and subject to the conditions
hereof.
Section 3.7 Company Options.
(a) Before the Effective Time, the Company shall take all action
necessary such that each Company Option that is outstanding and unexercised
immediately prior to the Effective Time and that is not surrendered to Parent as
provided in Section 3.7(b) within 30 days of the Closing Date shall be
cancelled. As soon as practicable following the date hereof, the Company Board
(or, if appropriate, any committee thereof administering the Company Stock
Option Plans) shall adopt such resolutions or take such other actions as may be
required to effect the provisions of this Section 3.7, including making the
appropriate election under Section 8.3 of the Company's 2003 Omnibus Stock
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Option Plan or 2000 Omnibus Stock Option Plan. The Company shall use its Best
Efforts to prevent the acceleration of any Company Option in connection with the
Merger or other Transactions.
(b) After the Effective Time, promptly upon the surrender by the
optionee for exchange of a Company Option granted pursuant to any Company Stock
Option Plan, Parent shall grant the optionee thereof a new option (each, a "New
Option") under a Parent Stock Option Plan to purchase Parent Common Shares
subject to, and exercisable upon, the terms and conditions of the Contracts
evidencing such Company Option previously Made Available to Parent, except:
(1) from and after the Effective Time, Parent and the
Parent Board or the Compensation Committee of the Parent Board, as
the case may be, shall be substituted for the Company and the
Company Subsidiaries and their respective Boards of Directors and
committees thereof for the purpose of administering the terms and
conditions of the substituted New Option;
(2) all references to the Company (or any Company
Subsidiary) shall be replaced by references to Parent;
(3) all references to the Company (or any Company
Subsidiary) or its state of incorporation, address and similar
information shall be replaced by references to Parent and its state
of incorporation, address and other corresponding information;
(4) all references to Company Common Shares shall be
replaced by references to Parent Common Shares;
(5) the number of Parent Common Shares subject to the
substituted New Option shall equal the product of the number of
Company Common Shares subject to the surrendered Company Option
times the Option Exchange Ratio (with such product being rounded to
the nearest whole number of Parent Common Shares);
(6) the exercise price per Parent Common Share under
the substituted New Option shall be equal to the quotient of
exercise price per Company Common Share under the surrendered
Company Option divided by the Option Exchange Ratio (with such
exercise price not to be less than the par value per Parent Common
Share); and
(7) any other changes required by Section 3.7(c) shall
be made.
Upon such surrender of a Company Option and the grant of a New Option, such
Company Option shall terminate and be of no further force or effect.
(c) The adjustments provided in this Section 3.7 with respect to
any Company Options that are "incentive stock options" (as defined in Section
422 of the Code) shall be effected in a manner that complies with Code Section
424(a). Except as otherwise provided in this Section 3.7, the duration and other
terms of each substituted New Option shall, to the extent permitted by Law and
otherwise reasonably practicable, be the same as the corresponding surrendered
Company Option (taking into account any changes thereto, including acceleration
thereof, provided for in the Company Stock Option Plan by reason of this
Agreement or the Transactions).
(d) Prior to the Effective Time, the Board of Directors of Parent,
or an appropriate committee of non-employee directors thereof, shall adopt a
resolution consistent with the interpretive guidance of the SEC so that the
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assumption of the Company Options held by Company Insiders pursuant to Section
3.7(a) shall be an exempt transaction for purposes of Section 16 of the Exchange
Act by any officer or director of the Company who becomes subject to the
provisions of Section 16 of the Exchange Act in respect of Parent (a "Company
Insider").
(e) The Company and Parent shall take all commercially reasonable
actions that are necessary in order to effect the foregoing provisions of this
Section 3.7 as of the Effective Time.
(f) The total number of Parent Common Shares issuable under all
Parent Stock Option Plans immediately after the Effective Time shall not exceed
2,450,000.
Section 3.8 Unvested Company Shares. Parent Common Shares delivered
as Merger Consideration pursuant to this Article III in exchange for Company
Common Shares that immediately prior to the Effective Time were restricted, not
fully vested or subject to Repurchase Rights ("Unvested Company Shares") shall
be subject to the same terms, conditions, restrictions, vesting arrangements or
Repurchase Rights, including rights to dividends and voting rights, that were
applicable to such Unvested Company Shares immediately prior to or at the
Effective Time (and, except as set forth in Section 3.8 of the Company
Disclosure Schedules, no vesting, acceleration, or lapse of Repurchase Rights,
shall occur with respect to such Unvested Company Shares by reason of the
Merger), and, notwithstanding any other provision of this Article III, Parent
shall be entitled to place or have placed appropriate legends or other
restrictions on the certificates representing such Parent Common Shares or to
delay the delivery or release of such Parent Common Shares to the holder of such
Unvested Company Shares. By virtue of this Agreement, all outstanding Repurchase
Rights with respect to Unvested Company Shares that the Company may hold
immediately prior to the Effective Time shall be assigned to Parent in the
Merger and shall thereafter be exercisable by Parent upon the same terms and
subject to the same conditions that were in effect immediately prior to the
Effective Time, except that Repurchase Rights may be exercised by Parent for
each Unvested Company Share by paying to the former holder thereof the
repurchase price in effect for such Unvested Company Share immediately prior to
the Effective Time divided by the Exchange Ratio and retaining the Parent Common
Shares for which such Unvested Company Share may have otherwise been exchanged.
Following the Effective Time, no Unvested Company Share, or right thereto, may
be Encumbered or Transferred by any Person, other than Parent, or be taken or
reached by any legal or equitable process in satisfaction of any Debt or other
Liability of such Person, prior to the distribution to such Person of the Parent
Common Shares exchangeable therefor in accordance with this Agreement.
Section 3.9 Company Warrants. At the Effective Time, each
then-outstanding Company Warrant disclosed in Section 4.3(d) of the Company
Disclosure Schedules shall be assumed by Parent (and the Company covenants and
agrees to Amend each Company Warrant to provide for such assumption if necessary
to ensure that no Commitment to acquire any Company Common Shares or any other
Equity Interests of the Company will remain outstanding after the Effective
Time), subject to, and exercisable upon, the same terms and conditions as under
the applicable Company Warrant (as Amended and made available to Parent prior to
the date hereof), except:
(1) all references to the Company shall be replaced by
references to Parent;
(2) all references to the Company or its state of
incorporation, address and similar information shall be replaced by
references to Parent and its state of incorporation, address and
other corresponding information;
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(3) all references to Company Common Shares shall be
replaced by references to Parent Common Shares;
(4) the number of Parent Common Shares subject to the
Company Warrant, as assumed, shall equal the product of the number
of Company Common Shares subject to such Company Warrant times the
Exchange Ratio (with such product being rounded to the nearest
whole number of Parent Common Shares);
(5) the exercise price per Parent Common Share under
the Company Warrant, as assumed, shall be equal to the quotient of
exercise price per Company Common Share under such Company Warrant
divided by the Exchange Ratio (with such exercise price not to be
less than the par value per Parent Common Share); and
(6) the anti-dilution provisions, if any, of such
Company Warrant shall not apply to, and the exercise price of such
Company Warrant shall not be effected by, the issuance of the
Merger Consideration or the issuance or exercise of the A Warrants
or the B Warrants.
Upon surrender of a Company Warrant to Parent for exchange, Parent shall issue
to the registered holder thereof a new warrant of like tenor, subject to the
changes and other provisions specified in this Section 3.9.
Section 3.10 Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, Company Common Shares that are outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Company Common Shares in accordance with Section 262 of the
DGCL ("Dissenting Shares") shall not be cancelled and retired or be exchangeable
for the Merger Consideration and will be paid for by the Surviving Corporation
in accordance with Section 262 of the DGCL; provided, however, that if any such
holder shall fail to perfect or otherwise shall waive, withdraw or lose the
right to appraisal and payment under the DGCL, the right of such holder to such
appraisal of its Company Common Shares shall cease, and such Company Common
Shares shall be deemed cancelled and retired as of the Effective Time and the
holder thereof shall have the right to receive the Merger Consideration as
provided in this Article III. The Company shall give Parent (i) prompt notice of
any written demands (or purported demands) for appraisal received by the Company
with respect to shares of capital stock of the Company, withdrawals (or
attempted withdrawals) of such demands, and any other written instruments served
pursuant to Section 262 of the DGCL or other applicable Law and received by the
Company relating to stockholder appraisal rights, and (ii) the opportunity to
direct, in its reasonable business judgment, all negotiations and proceedings
with respect to exercise of such appraisal rights. The Company shall not, except
with ▇▇▇▇▇▇'s prior written consent, (1) voluntarily make any payment with
respect to any demands for appraisal for Dissenting Shares, (2) offer to settle,
or settle, any such demands, (3) waive any failure to timely deliver a written
demand for appraisal in accordance with the DGCL, or (4) agree to do any of the
foregoing.
Section 3.11 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any such further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title, and possession to all Contracts, Property,
rights, privileges and powers of the Company and Merger Sub, the officers and
directors of the Company, Parent and Merger Sub are fully authorized in the name
of their respective corporations or otherwise to take, and the Company and
Parent shall cause them to take, all such lawful and necessary action.
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Section 3.12 Tax Consequences. For federal income tax purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368 of the Code. Nothing in this Section 3.12 shall be interpreted as requiring
any change in the amount or kind of Merger Consideration payable to any Company
stockholder in connection with the Merger.
Section 3.13 Accounting Treatment. For accounting purposes, the
Merger is intended to be treated as a "purchase."
Section 3.14 Escrow Agreement; Escrow Account.
(a) At the Closing, Parent shall deliver to the Escrow Agent, on
behalf of the pre-Merger stockholders of the Company, stock certificates
evidencing a number of shares equal to 15% of the number of Parent Common Shares
issuable at Closing pursuant to Section 3.1(a) (the "Escrow Stock"). Parent
shall cause the Escrow Agent to deposit the Escrow Stock into an escrow account
with the Escrow Agent (the "Escrow Account") for the purpose of (i) securing the
indemnification obligations set forth in Article VIII, and (ii) reimbursing the
Stockholder Agent for the out-of-pocket fees and expenses, including reasonable
attorneys' fees, reasonably incurred by the Stockholder Agent in connection with
performing and exercising its rights, authorities, powers, duties and
obligations on behalf of the Stockholders under this Agreement and the Escrow
Agreement up to (but not exceeding) an aggregate amount of $100,000, or such
greater amount as Parent may in its sole discretion agree at the request of the
Stockholder Agent (such amount, the "Stockholder Agent Expense Cap"), with each
Parent Common Shares being valued at the Closing Price, subject to equitable
adjustment in the event of any post-Closing Capitalization Adjustment of Parent
Common Shares. The Escrow Agent shall maintain the Escrow Account for such
purposes until the date one calendar year after the Effective Time (the "Escrow
Period"); provided, however, that in the event any Indemnified Parties have made
any claims under Article VIII prior to the end of the Escrow Period, the Escrow
Period and the release of any Escrow Assets shall be tolled, and a number of
Parent Common Shares having an aggregate value up to the sum of (i) the maximum
aggregate amount of such claims, plus (ii) the Stockholder Agent's maximum
claims for fees and expenses (subject to the Stockholder Agent Expense Cap)
which are either unresolved or associated therewith; shall remain in the Escrow
Account as security and not be released to the pre-Merger Stockholders, until
all such claims shall have been fully and finally resolved and settled, as
provided in the Escrow Agreement. The Escrow Account shall be subject to the
terms and provisions of Section 8.2 and the Escrow Agreement.
(b) Releases of Escrow Stock from the Escrow Account shall be
subject to the terms and conditions of an Escrow Agreement substantially in the
form of Exhibit C (with such amendments thereto as DGSE and the Escrow Agent may
agree with the consent of the Stockholder Agent, such consent not to be
unreasonably withheld, conditioned or delayed, the "Escrow Agreement") and
Section 3.4(e). Without limiting the generality of the foregoing, the
Stockholder Agent may withdraw funds from the Escrow Account only upon the
presentation of invoices and receipts for the amount requested and upon
certification that (i) such invoices and receipts are true and correct, (ii)
such amount has been and shall be used strictly in accordance with the terms and
provisions of this Section 3.14, Article VIII and the Escrow Agreement, and
(iii) such amount, together with (x) all amounts theretofore paid to the
Stockholder Agent from the Escrow Account and (y) all amounts theretofore
requested by the Stockholder Agent from the Escrow Account and not withdrawn or
finally denied; do not exceed the Stockholder Agent Expense Cap.
(c) In the event that this Agreement is adopted by the stockholders
of the Company, then all such stockholders shall, without further act of any
such stockholder, be deemed to have consented to and approved (i) the terms and
conditions of the Escrow Agreement, (ii) the use of the Escrow Account as
collateral to secure the rights of the Indemnified Parties under Article VIII
and to reimburse the Stockholder Agent for certain out-of-pocket costs and
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expenses, not to exceed the Stockholder Agent Expense Cap, reasonably incurred
by the Stockholder Agent in the manner set forth herein and in the Escrow
Agreement, and (iii) the appointment by the Stockholders receiving Parent Common
Shares in the Merger of the Stockholder Agent as their exclusive agent,
attorney-in-fact and representative for and on behalf of each such Person (other
than holders of Dissenting Shares) under this Agreement and the Escrow
Agreement.
(d) In the event of any inconsistency between this Agreement and
the Escrow Agreement regarding the powers, authorities, rights, duties,
obligations or liabilities of the Escrow Agent, the terms and provisions of the
Escrow Agreement shall control.
Section 3.15 Transfer Of Contingent Rights.
(a) The Merger Consideration and the interests in the Escrow
Account, and the provisions of this Article III and the Escrow Agreement related
thereto, are intended solely for the benefit of the Persons who immediately
prior to the Effective Time were Stockholders. Without limiting the generality
of Section 10.5, except as expressly provided in Section 3.15(b), no Person may
sell, assign or otherwise Transfer (whether in connection with any sale,
assignment or other Transfer of any Parent Common Shares or otherwise) to any
other Person (i) any interest in any Merger Consideration not distributed to
such first Person, including any interest in the Escrow Account, or in any
portion thereof, or (ii) any right to participate, in whole or in part, in the
distribution of any Merger Consideration or to obtain any proceeds or shares
from the Escrow Account pursuant to Section 3.14 or the Escrow Agreement; and
any attempt to do so shall be null and void ab initio and of no force or effect.
In no event shall the right to receive contingent shares be evidenced by a
negotiable instrument or certificated security, or be readily marketable.
(b) Notwithstanding Section 3.15(a) and Section 10.5, an interest
in Merger Consideration may be assigned or Transferred involuntarily pursuant to
bequest, the laws of intestate succession or the order of a court in connection
with a settlement of property rights incident to divorce.
ARTICLE IV.
COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article IV are true, correct and complete as of the
date of this Agreement and as of the Closing Date, except as set forth, with
respect to any specific Section or subsection in this Article IV, in the
corresponding section or subsection of the schedules the Company has delivered
to Parent concurrently with the execution and delivery hereof (the "Original
Company Disclosure Schedule") and as of the Closing Date (the "Updated Company
Disclosure Schedule" and, together with the Original Company Disclosure
Schedules, the "Company Disclosure Schedules") as follows (it being understood
that the disclosure of any matter or item in the Company Disclosure Schedule or
the Updated Company Disclosure Schedule shall not be deemed to constitute an
acknowledgement that such matter or item is required to be disclosed therein or
is material to a representation or warranty set forth in this Agreement and
shall not be used as a basis for interpreting the terms "material,"
"materially," "materiality" or "Material Adverse Effect" or any word or phrase
of similar import, and does not mean that such matter or item would, with any
other matter or item, have or be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company):
Section 4.1 Organization and Qualification; Subsidiaries.
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(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each Subsidiary of
the Company (each a "Company Subsidiary" and, collectively, the "Company
Subsidiaries") has been duly organized, and is validly existing and in good
standing, under the laws of the jurisdiction of its incorporation or
organization, as the case may be. Each of the Company and each Company
Subsidiary has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted and as currently proposed by it to be conducted.
Each of the Company and each Company Subsidiary is duly qualified or licensed to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification, licensing or good standing necessary other than in
such jurisdictions where the failure to be so qualified individually or in the
aggregate would not have a Material Adverse Effect on the Company.
(b) Section 4.1(b) of the Company Disclosure Schedules sets forth a
true, correct and complete list of all of the Company Subsidiaries and the
jurisdictions of their organization. Except as set forth on Section 4.1(b) of
the Company Disclosure Schedules, none of the Company and the Company
Subsidiaries holds an Equity Interest in any other Entity. The Company directly,
or indirectly through the ownership of a Company Subsidiary, is the owner of all
of the issued and outstanding Equity Interests in each Company Subsidiary, and
all such Equity Interests are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.1(b) of the Company Disclosure
Schedules, all of the issued and outstanding Equity Interests of each Company
Subsidiary are owned directly by the Company, or indirectly through the
ownership of a Company Subsidiary, free and clear of all Encumbrances and are
not subject to any preemptive right or right of first refusal created by Law or
the Organizational Documents of such Company Subsidiary or any Contract to which
such Company Subsidiary is a party or by which it is bound. There are no
outstanding Commitments or other Contracts of any character relating to the
issued or unissued Equity Interests or other Securities of any Company
Subsidiary, or otherwise obligating the Company or any Company Subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire or sell any such
Equity Interests or Securities.
Section 4.2 Certificate of Incorporation and Bylaws; Corporate
Books and Records. The Company has Made Available to Parent a true, correct and
complete copy of the Company's Certificate of Incorporation, as Amended (the
"Company Certificate of Incorporation"), and the Company's Bylaws, as Amended
(the "Company Bylaws"), in each case as now in effect. The Company has Made
Available to Parent a true, correct and complete copy of the Organizational
Documents of each Company Subsidiary, in each case as Amended and now in effect.
Neither the Company nor any Company Subsidiary is in material violation of any
of the provisions of its Organizational Documents. Except as set forth in
Section 4.2 of the Company Disclosure Schedules, (i) true, correct and complete
copies of all Minute Books of the Company and the Company Subsidiaries have been
Made Available to Parent, and (ii) the Minute Books of the Company and each
Company Subsidiary Made Available to Parent contain accurate summaries of all
meetings of directors and stockholders (or equivalent managers and owners) or
actions by written consent of the directors and stockholders (or equivalent
managers and owners) of the Company and the respective Company Subsidiaries
through the date of this Agreement or the Closing Date, as the case may be.
Section 4.3 Capitalization.
(a) The authorized capital shares of the Company consist of
12,500,000 Company Common Shares and 10,000,000 shares of preferred stock, par
value $0.001 per share (the "Company Preferred Shares"). As of June 30, 2006,
4,808,280 Company Common Shares (other than treasury shares) were issued and
outstanding, all of which are validly issued and fully paid, nonassessable and
free of preemptive rights (excluding shares held in the treasury of the
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Company). As of June 30, 2006, the following (and only the following) Company
Preferred Shares were (i) authorized and (ii) issued and outstanding (all of
which issued and outstanding shares were validly issued and are fully paid,
nonassessable and free of preemptive rights, excluding shares held in the
treasury of the Company):
Shares of Series Shares of Series
Issued and Issued and
Shares of Series Outstanding on Date Outstanding on
Designation of Series of Company Preferred Shares Authorized Hereof Closing Date
Series A $5.00 Redeemable 8%
Convertible Preferred Stock 125,000 0 0
Series B $1.00 Convertible Preferred Stock 3,400,000 3,400,000 0
Series D $1.00 Convertible Preferred Stock 2,000,000 2,000,000 0
Series E $1.00 Convertible Preferred Stock 2,500,000 2,500,000 0
(b) Except for the Company Common Shares reserved for issuance as
set forth in this Section 4.3 or in Section 4.3 of the Company Disclosure
Schedules, there are no Commitments or other rights or Contracts obligating the
Company or any Company Subsidiary to issue or sell any Equity Interests, or
Securities convertible into or exchangeable for Equity Interests, in the Company
or any Company Subsidiary. Since the Company Balance Sheet Date, the Company has
not issued any Equity Interests, or Securities convertible into or exchangeable
for such Equity Interests, other than those Company Common Shares reserved for
issuance as set forth in this Section 4.3 or in Section 4.3 of the Company
Disclosure Schedules. All issued and outstanding Company Common Shares and all
outstanding Company Options were issued, and all repurchases of Company Common
Shares were made, in material compliance with all applicable Laws.
(c) As of June 30, 2006, the Company has reserved 1,200,000 Company
Common Shares for issuance to employees, non-employee directors and consultants
pursuant to the Company Stock Option Plans, of which 565,000 shares are subject
to outstanding and unexercised Company Options and 631,400 shares remain
available for issuance thereunder, and 3,600 Company Common Shares for Company
Options granted outside the Company Stock Option Plans. As of June 30, 2006, no
outstanding Company Common Shares were subject to Repurchase Rights. Section
4.3(c)(1) of the Company Disclosure Schedules identifies (i) the name and full
address of each Person who held Company Options or Company Common Shares subject
to a Repurchase Right as of June 30, 2006, (ii) the particular Company Stock
Option Plan pursuant to which such Company Option was granted or such Company
Common Shares were issued, (iii) the date on which such Company Option was
granted or such Company Common Shares were issued, (iv) the exercise or base
price of such Company Option or the repurchase price of such Company Common
Shares, (v) the number of Company Common Shares subject to such Company Option
or Repurchase Right or value covered thereby, (vi) the number of Company Common
Shares as to which such Company Option had vested (or such Repurchase Right had
lapsed) at such date, (vii) the applicable vesting schedule for such Company
Option or such Company Common Shares and whether the exercisability or vesting
of such Company Option, or lapsing of the Repurchase Right, will be accelerated
or affected in any way by the Merger or the transactions contemplated hereby
(whether alone or in combination with any other event or condition, such as
termination of employment), (viii) the date on which such Company Option or
Repurchase Right expires, and (ix) in the case of shares subject to a Repurchase
Right, the material terms of any promissory note delivered in payment of the
purchase price for such Company Common Shares (including limitations on
recourse). All Company Options are nonqualified options under the Code. Section
4.3(c)(2) of the Company Disclosure Schedules sets forth a true, correct and
complete list of all holders of outstanding Company Options that are held by
Persons that are not employees of the Company or any Company Subsidiary
(including non-employee directors, consultants, advisory board members, vendors,
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service providers or other similar Persons). All of the Company Common Shares
subject to issuance under the Company Stock Option Plans, upon issuance prior to
the Effective Time on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. The terms of each of
the Company Stock Option Plans and the applicable stock option agreements permit
(or, pursuant to action taken or to be taken by the Company prior to the Closing
Date, will permit) the assumption by Parent of all outstanding Company Options,
whether vested or unvested, as provided in this Agreement, without the consent
or approval of the holders of such securities or any other party. True, correct
and complete copies of each of the Company Stock Option Plans and the standard
form of all agreements and instruments relating to or issued under each Company
Stock Option Plan and all agreements and instruments relating to or issued under
the Company Stock Option Plans or Company Options that differ in any material
respect from such standard form agreements have been Made Available to Parent,
and such agreements and instruments have not been Amended since being Made
Available to Parent, and there are no agreements, understandings or commitments
to Amend such agreements or instruments in any case from those Made Available to
Parent.
(d) Section 4.3(d) of the Company Disclosure Schedules sets forth
all outstanding Company Warrants and other Commitments (other than Company
Options disclosed in Section 4.3(c) of the Company Disclosure Schedules). The
Company has Made Available to Parent complete and correct copies of all Company
Warrants and Contracts governing such other Commitments, in each case as Amended
to date. At the Effective Time, no Company Options, Company Warrants or other
Commitments to acquire any Equity Interests of the Company shall be outstanding,
except for (i) Company Options disclosed in Section 4.3(c) of the Original
Company Disclosure Schedule and to be assumed by Parent pursuant to Section 3.7,
and (ii) Company Warrants disclosed in Section 4.3(d) of the Original Company
Disclosure Schedule and to be assumed by Parent pursuant to Section 3.9.
(e) Section 4.3(e) of the Company Disclosure Schedules sets forth
all outstanding Contractual obligations of the Company or any Company Subsidiary
(i) restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, or (iv) granting any
preemptive or anti-dilutive right with respect to; any Company Common Shares or
any other Equity Interests in the Company or any Company Subsidiary.
Section 4.4 Authority.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and each Related Agreement to which it is a
signatory, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby (other than, on the date
hereof, the Company Stockholder Approval), including the filing of the
Certificate of Merger pursuant to the DGCL. The execution and delivery of this
Agreement and each Related Agreement to which it is a signatory by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including said filing of the Certificate of Merger, have been duly and
validly authorized by all necessary corporate action (other than, on the date
hereof, the Company Stockholder Approval). Assuming the due authorization,
execution and delivery by ▇▇▇▇▇▇ and Merger Sub of this Agreement, this
Agreement and each Related Agreement to which the Company is a signatory has
been duly authorized and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms, subject only to
the effect, if any, of (i) applicable bankruptcy and other similar Laws
affecting the rights of creditors generally, and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies. The
Company Board has unanimously (A) approved and declared advisable this
Agreement, each Related Agreement to which the Company is a signatory, the
Merger and the other Transactions applicable to it, (B) determined that this
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Agreement and each Related Agreement to which it is a signatory and the terms
and conditions of the Merger and other Transactions are fair to, advisable and
in the best interests of the Company and its stockholders, and (C) directed that
the adoption of this Agreement and the approval of this Agreement, the Merger
and the Stockholder Agent Appointment be submitted to the Company's stockholders
for approval at a meeting of such stockholders and recommended that all of the
Company's stockholders adopt and approve this Agreement and approve the Merger
and the Stockholder Agent Appointment; provided, however, that after the date
hereof the Company Board acting in good faith may withdraw its recommendation.
The affirmative vote of the holders of a majority of the voting power of all
Company Common Shares and Company Preferred Shares issued and outstanding on the
record date set for the meeting of the Company's stockholders to adopt and
approve this Agreement and approve the Merger (the "Company Stockholders
Meeting") is the only vote of the holders of capital stock of the Company
necessary to adopt this Agreement under applicable Law and the Company's
Organizational Documents (the "Company Stockholder Approval").
(b) Assuming the representation set forth in Section 5.24 is true
and correct, the Company has taken all appropriate actions so that the
restrictions on "business combinations" contained in Section 203 of the DGCL
will not apply with respect to or as a result of this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby, including the
Merger, without any further action on the part of the Company's stockholders or
the Company Board.
Section 4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements to which the Company is a signatory by the Company do not, and the
performance of this Agreement and such Related Agreements by the Company will
not, (i) conflict with or violate any provision of the Organizational Documents
of the Company or any Company Subsidiary, (ii) subject to obtaining the Company
Stockholder Approval and assuming that all Consents described in Section 4.5(b)
have been obtained and all filings and notifications described in Section 4.5(b)
have been made and any waiting periods thereunder have terminated or expired,
conflict with or violate any Law applicable to the Company or any Company
Subsidiary, or by which any Property of the Company or any Company Subsidiary is
bound or affected, (iii) result in the creation of any Encumbrance on any of the
Properties of the Company or any Company Subsidiary, or (iv) require any Consent
under, or result in any Breach of, any Company Material Contract or Company
Permit, in each case except as set forth in Section 4.5 of the Company
Disclosure Schedules.
(b) The execution and delivery of this Agreement and the Related
Agreements to which the Company is a signatory by the Company do not, and the
performance of this Agreement and such Related Agreements by the Company and
then consummation of the Transactions will not, require any Consent of, or
filing with or notification to, any Governmental Entity, except under or in
relation to (i) the Exchange Act, (ii) the Securities Act, (iii) any applicable
Blue Sky Laws, (iv) the rules and regulations of Parent's Principal Market, (v)
the filing and recordation of the Certificate of Merger as required by the DGCL
(together with the Consents, filings and notifications enumerated in clauses (i)
through (iv) next preceding, the "Specified Consents"), and (vi) such other
Consents and filings with or notifications to Governmental Entities the failures
of which to make or obtain, individually or in the aggregate, would not have a
Material Adverse Effect on the Company or Parent.
Section 4.6 Permits; Compliance With Law.
(a) Each of the Company and each Company Subsidiary is in
possession of all material Governmental Permits, and has made all material
filings, applications and registrations with any Governmental Entity, in each
case that are necessary for the Company and each Company Subsidiary to own,
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lease or operate its Properties, or to carry on its respective businesses
substantially in the manner described in the Company SEC Reports filed prior to
the date hereof or the Closing Date, as the case may be, and substantially as it
is being conducted as of the date hereof (the "Company Permits"), and all such
Company Permits are valid and in full force and effect, except where the failure
to have, or the suspension or cancellation of, or failure to be valid or in full
force and effect of, any of the Company Permits would not, individually or in
the aggregate, reasonably be expected to (i) prevent or materially delay
consummation of the Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance by the Company
of any of its material obligations under this Agreement or any Related Agreement
to which it is a signatory, or (iii) have a Material Adverse Effect on the
Company.
(b) None of the Company and the Company Subsidiaries is in conflict
with, or in default or violation of, (A) in any material respect, any Law
applicable to the Company or any Company Subsidiary or by which any Property of
the Company or any Company Subsidiary is bound or affected, or (B) any Company
Permit, except, with respect to clause (A) next preceding, for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, reasonably be expected to (i) prevent or materially delay
consummation of the Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance by the Company
of any of its material obligations under this Agreement or any Related Agreement
to which it is a signatory, or (iii) have a Material Adverse Effect on the
Company. None of the Company Permits will be terminated or impaired or will
become terminable, in whole or in part, as a result of the transactions
contemplated by this Agreement or any Related Agreement to which it is a
signatory.
(c) Neither the Company nor any Company Subsidiary has, within the
last three years, received any warning, notice, notice of violation or probable
violation, notice of revocation or other communication from or on behalf of any
Governmental Entity, alleging (x) any conflict with, or default or violation of,
any Company Permit, or (y) that the Company or any Company Subsidiary requires
any Company Permit for its business as currently conducted that is not currently
held by it. Except as set forth in Section 4.6 of the Company Disclosure
Schedules, to the Company's Actual Knowledge, no investigation or inquiry by any
Governmental Entity with respect to the Company or any Company Subsidiary is
pending or threatened, in each case with respect to any alleged or claimed
violation of Law applicable to the Company or any Company Subsidiary or by which
any Property of the Company or any Company Subsidiary is bound or affected.
(d) Neither the Company nor any of the Company Subsidiaries, nor to
the Company's Actual Knowledge, any director, officer, Affiliate or employee
thereof, has on behalf of or with respect to the Company engaged in any conduct
constituting a violation of the Foreign Corrupt Practices Act of 1977, as
amended.
Section 4.7 SEC Filings; Financial Statements.
(a) The Company has filed all SEC Reports required under applicable
Law to be filed by it with the SEC since the effective date of the filing of the
initial Form 10-SB by the Company. All of the Company SEC Reports have been Made
Available to Parent.
(b) As of their respective dates, each Company SEC Report (i)
complied as to form in all material respects with the requirements of the
Securities Act, the Exchange Act and the SEC Rules applicable to such Company
SEC Report, and (ii) did not at the time it was filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except to
the extent corrected (A) in the case of a Company SEC Report filed prior to the
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date of this Agreement that was amended or superseded prior to the date of this
Agreement, by the filing of such amending or superseding Company SEC Report, and
(B) in the case of a Company SEC Report filed after the date of this Agreement
that is amended or superseded prior to the Effective Time, by the filing of such
amending or superseding Company SEC Report. None of the Company Subsidiaries is
required to file any SEC Reports with the SEC.
(c) As of their respective dates, each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports (the "Company Financial Statements"), (i)
complied as to form in all material respects with the SEC Rules applicable
thereto, (ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of unaudited interim financial statements, as may be permitted
by the SEC on Form 10-Q, Form 8-K or any successor form under the Exchange Act),
and (iii) fairly presented in all material respects the consolidated financial
position of the Company and the Company Subsidiaries as at the respective dates
thereof and the consolidated results of Company's and the Company Subsidiaries'
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements may not contain footnotes and were or are subject
to normal and recurring year-end adjustments in accordance with GAAP and any
other exceptions noted therein. Neither the Company nor any Company Subsidiary
has any liabilities (absolute, accrued, contingent or otherwise) required under
GAAP to be set forth on a balance sheet that are, individually or in the
aggregate, material to the business, results of operations or financial
condition of the Company and the Company Subsidiaries taken as a whole, except
for (A) liabilities incurred since the Company Balance Sheet Date in the
Ordinary Course of Business which are of the type that typically recur and which
do not result from any Breach of Contract, tort or default or violation of any
Law, (B) those specifically set forth or specifically and adequately reserved
against in the Company Balance Sheet, and (C) the fees and expenses of
investment bankers, attorneys and accountants incurred in connection with this
Agreement and the Transactions. Except as reflected in the Company Financial
Statements, neither the Company nor any Company Subsidiary is a party to any
material off-balance sheet arrangements (as defined in Item 303 of Regulation
S-K promulgated by the SEC). The Company has not had any disagreement with any
of its auditors regarding accounting matters or policies during any of its past
three full fiscal years or to date during the current fiscal year. The books and
records of the Company and each Company Subsidiary have been maintained, and are
being maintained, in all material respects in accordance with applicable legal
and accounting requirements, and the Company Financial Statements are consistent
in all material respects with such books and records.
(d) No investigation by the SEC with respect to the Company or any
Company Subsidiary is pending or, to the Knowledge of the Company, threatened.
(e) The Company has established and maintains "disclosure controls
and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under
the Exchange Act) that are reasonably designed to ensure that material
information (both financial and non-financial) relating to the Company and the
Company Subsidiaries required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is communicated to the Company's
principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal executive
officer and the principal financial officer of the Company required by Section
302 of SOX, with respect to such reports. For purposes of this Section 4.7(e),
"principal executive officer" and "principal financial officer" shall have the
meanings ascribed to such terms in SOX. Each of the principal executive officer
and the principal financial officer of the Company (or each former principal
executive officer and each former principal financial officer of the Company, as
applicable) has made all certifications required by Sections 302 and 906 of SOX
and the rules and regulations promulgated by the SEC thereunder with respect to
the Company SEC Reports.
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(f) The Company maintains a system of internal accounting controls
designed to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has Made Available to
Parent accurate and complete copies of all material policies, manuals and other
documents promulgating such internal accounting controls. Except as set forth in
Section 4.7(f) of the Company Disclosure Schedules, to the Company's Knowledge,
there are no "material weaknesses" (as defined by the PCAOB) and there are no
series of multiple "significant deficiencies" (as defined by the PCAOB) that are
reasonably likely to collectively represent a "material weakness" in the design
or operation of the Company's internal controls and procedures, and to the
Company's Knowledge, there are no significant deficiencies in the design or
operation of the Company's internal controls and procedures. To the Company's
Knowledge, since the date of the filing of its initial Form 10-SB, there has
been no fraud that involves management or other employees who have a significant
role in the Company's internal controls and procedures.
(g) To the Company's Knowledge, each of (A) Singer Lewak Greenbaum
& ▇▇▇▇▇▇▇▇▇ LLP, which has expressed its opinion with respect to the Company
Financial Statements as of June 30, 2004 and June 30, 2005 and for each of the
Company's fiscal years in the two-year period ended June 30, 2005, and (B)
▇▇▇▇▇▇▇ & White LLP, which has expressed its opinion with respect to the Company
Financial Statements for the Company's fiscal year in the one-year period ended
June 30, 2003; in each case included in the Company SEC Reports (including the
related notes), is "independent" with respect to the Company and the Company
Subsidiaries within the meaning of Regulation S-X and has been "independent"
within such meaning at all times since January 1, 2002. The Company has made
such disclosure of non-audit services performed by Singer Lewak Greenbaum &
▇▇▇▇▇▇▇▇▇ LLP or ▇▇▇▇▇▇▇ & White LLP in its proxy statements with respect to its
annual meetings of its stockholders as is required under the Exchange Act,
Securities Act and SEC Rules, and all such non-audit services have been approved
in advance by the audit committee of the Company Board. The Company is in
compliance with the applicable criteria for continued listing of the Company
Common Shares on the OTCBB.
Section 4.8 Disclosure Documents.
(a) The Company Information included in, or incorporated by
reference into, the Form S-4, Proxy Statement and any Other Filings, and any
amendments or supplements thereto, will, at the Applicable Times, comply as to
form in all material respects with the applicable requirements of the Securities
Act, the Exchange Act, the SEC Rules and other applicable Laws.
(b) The information supplied or to be supplied by or on behalf of
the Company or any of its officers, directors or stockholders for inclusion or
use, or incorporation by reference, in (i) the Form S-4, (ii) the Proxy
Statement, or (iii) any other document (including any report filed by the
Company or Parent under the Exchange Act) filed with any Governmental Entity in
connection with the Transactions, or in each case any amendment or supplement
thereto; in each case do not and will not, at the Applicable Times, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein regarding the
Company Information, in light of the circumstances under which they are made,
not misleading. The Company Information provides all information relating to the
Company or its operations, business, directors, officers, Subsidiaries and
stockholders required to be provided by the provisions of the Securities Act,
the Exchange Act and the SEC Rules, including form S-4 and Regulation 14A.
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(c) Notwithstanding the foregoing provisions of this Section 4.8,
the Company makes no representation or warranty, and assumes no responsibility,
with respect to statements made or incorporated by reference in the Form S-4,
the Proxy Statement or any Other Filings, or in each case any amendment or
supplement thereto, supplied by Parent (other than Company Information so
supplied) for inclusion or incorporation by reference therein.
Section 4.9 Absence of Certain Changes or Events. Since the Company
Balance Sheet Date, except as specifically disclosed in the Company SEC Reports
filed thereafter or as set forth in Section 4.9 of the Company Disclosure
Schedules, the Company and each Company Subsidiary has conducted its business
only in the Ordinary Course of Business and, since such date:
(a) no Events have caused a Material Adverse Effect on the Company;
(b) there has not been any declaration, setting aside or payment of
any dividend on, or other distribution (whether in cash, Securities or Property)
in respect of, any of the Company's Equity Interests, or any purchase,
redemption or other acquisition by the Company of any of the Company's Equity
Interests or any other Securities of the Company or any Commitments for any such
Equity Interests of Securities, other than repurchases from employees or
consultants following their termination pursuant to the terms of existing
Repurchase Rights;
(c) there has not been any Capitalization Adjustment of any of the
Company's Equity Interests;
(d) there has not been any increase in compensation or fringe
benefits paid or payable to any of the officers, directors or managers or
employees of the Company or any Company Subsidiary at the vice president or
director level or higher, or who earn base salary of more than $75,000 per year,
or any payment by the Company or any of the Company Subsidiaries of any bonus to
any of their officers, directors or managers or employees at the vice president
or director level or higher, or who earn base salary of more than $75,000 per
year, or any granting by the Company or any of the Company Subsidiaries of any
increase in severance or termination pay, or any entry by the Company or any of
the Company Subsidiaries into, or material Amendment of, any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company of the
nature of any Transactions, or any subsequent event, other than increases in the
Ordinary Course of Business in base salary and target bonuses for employees who
are not officers of the Company, in an amount that does not exceed 50% of such
base salary, in connection with periodic compensation or performance reviews or
for ordinary course severance and release agreements as made in connection with
the termination of employment that do not provide severance in excess of the
Company's standard policies;
(e) there has not been any change by the Company or any of the
Company Subsidiaries in its accounting methods, principles or practices
(including any material change in depreciation or amortization policies or rates
or revenue recognition policies), except as required by concurrent changes in
GAAP;
(f) there has not been any sale, transfer, or other disposition of
any Company IP Rights or any other Properties by the Company or any of the
Company Subsidiaries, except in the Ordinary Course of Business;
(g) neither the Company nor any Company Subsidiary has made any
loan, advance or capital contribution to, or investment in, any Person,
including any director, officer or Affiliate of the Company, other than (i)
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loans, advances or capital contributions to or investments in wholly-owned
Subsidiaries or Entities that became wholly-owned Subsidiaries made in the
Ordinary Course of Business, (ii) investments made in accordance with the
Company's investment guidelines, a copy of which has been Made Available to
Parent, in the Ordinary Course of Business, (iii) routine travel and
entertainment expense advances in the Ordinary Course of Business and in
accordance with the Company's travel and expense policy, a copy of which has
been Made Available to Parent, and (iv) loans and advances to third party
customers made in the Ordinary Course of Business;
(h) there has not been any material change with respect to the
management or other key personnel of the Company, any termination of employment
of any such employees or a material number of employees, or any material labor
dispute or material claim of unfair labor practices involving the Company or any
Company Subsidiary; and
(i) neither the Company nor any Company Subsidiary has agreed,
whether in writing or otherwise, to take any action described in this Section
4.9.
Section 4.10 Employee Benefit Plans.
(a) Section 4.10(a) of the Company Disclosure Schedules lists as of
the date of this Agreement, with respect to the Company and the Company
Subsidiaries and their respective ERISA Affiliates, (i) all employee benefit
plans within the meaning of Section 3(3) of ERISA, (ii) each loan from the
Company, any Company Subsidiary or any such ERISA Affiliate to an employee in
excess of $10,000, (iii) all stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, salary continuation,
sabbatical, employee relocation, cafeteria benefit (Section 125 of the Code),
dependent care (Section 129 of the Code), life insurance or accident insurance
plans, programs or arrangements, (iv) all bonus, pension, profit sharing,
savings, retirement, deferred compensation or incentive plans, programs or
arrangements, whether written or oral, qualified or nonqualified, funded or
unfunded, currently effective or terminated, (v) other fringe or employee
benefit plans, programs or arrangements that apply to senior management and that
do not generally apply to all employees, and (vi) any employment or service
agreements (except for offer letters providing for at-will employment that do
not provide for severance, acceleration or post-termination benefits),
compensation agreements or severance agreements, written or otherwise, for the
benefit of, or relating to, any present or former director, officer, employee,
or consultant (provided that, for (1) former and current consultants, and (2)
former directors, officers and employees; such arrangements need only be listed
if unsatisfied obligations of the Company or any Company Subsidiary of greater
than $10,000 remain thereunder) of the Company or any Company Subsidiary (all of
the foregoing described in clauses (i) through (vi) next preceding,
collectively, the "Company Benefit Plans"). The Company has no liability with
respect to any plan, arrangement or practice of the type described in the
preceding sentence other than the Company Benefit Plans. The Company has not,
since July 30, 2002, extended credit, arranged for the extension of credit, or
renewed, modified or forgiven an extension of credit made prior to such date, in
the form of a personal loan to or for any person who was, at any time since such
date, an officer or director of the Company.
(b) Prior to the date of this Agreement, the Company has Made
Available to Parent a true, correct and complete copy of each Company Benefit
Plan and all current and prior related plan documents (including adoption
agreements, vendor contracts and administrative services agreements, trust
documents, insurance policies or contracts (including policies relating to
fiduciary liability insurance covering the fiduciaries of such Company Benefit
Plans), bonds required by ERISA, employee booklets, summary plan descriptions
and other authorizing documents, summaries of material modifications and any
material written employee communications relating thereto) and has, with respect
to each Company Benefit Plan that is subject to ERISA reporting requirements,
Made Available to Parent true, correct and complete copies of the Form 5500
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reports filed for the last three plan years (including all audits, financial
statements, schedules and attachments thereto, where applicable). Any Company
Benefit Plan intended to be qualified under Section 401(a) of the Code has (i)
obtained from the IRS a current favorable determination letter as to its
qualified status under the Code and as to the exemption from tax under the
provisions of Code Section 501(a) of each trust created thereunder, or (ii) has
been established under a standardized master and prototype or volume submitter
plan for which a favorable Internal Revenue Service advisory letter or opinion
letter has been obtained by the plan sponsor and is valid as to the adopting
employer. The Company has also Made Available to Parent a true, correct and
complete copy of the most recent such Internal Revenue Service determination
letter, advisory letter or opinion letter issued with respect to each Company
Benefit Plan, and, to the Company's Knowledge, nothing has occurred since the
issuance of each such letter that could reasonably be expected to cause the loss
of the tax-qualified status of any Company Benefit Plan subject to Section
401(a) of the Code. The Company has also Made Available to Parent all
registration statements and prospectuses and investment policy statements
prepared in connection with each Company Benefit Plan, where applicable. All
individuals who, pursuant to the terms of any Company Benefit Plan, are entitled
to participate in such Company Benefit Plan, are currently participating in such
Company Benefit Plan or have been offered an opportunity to do so. None of the
Company and the Company Subsidiaries and their respective ERISA Affiliates
sponsors or maintains any self-funded employee benefit plan, including any plan
to which a stop-loss policy applies.
(c) None of the Company Benefit Plans promises or provides retiree
medical or other retiree welfare benefits to any person other than as required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as Amended
("COBRA"), or applicable state law. There has been no prohibited transaction
(within the meaning of Section 406 of ERISA and Section 4975 of the Code) with
respect to any Company Benefit Plan that is not exempt under Section 408 of
ERISA. To the Company's Actual Knowledge, each Company Benefit Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by applicable Law (including ERISA and the Code), and
the Company and the Company Subsidiaries, and their respective ERISA Affiliates,
each has performed all obligations required to be performed by it under, is not
in any material respect in default under or in violation of, and has no Actual
Knowledge of any material default or in violation by any other party to, any of
the Company Benefit Plans. None of the Company and the Company Subsidiaries and
their respective ERISA Affiliates is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Company Benefit Plans. All contributions required to be made by the
Company or any Company Subsidiary or any of their respective ERISA Affiliates to
any Company Benefit Plan have been made on or before their due dates and, to the
extent required by GAAP, all amounts have been accrued for the current plan year
(and no further contributions will be due or will have accrued thereunder as of
the Closing Date, other than contributions accrued in the Ordinary Course of
Business after the Company Balance Sheet Date as a result of the operations of
the Company and the Company Subsidiaries after the Company Balance Sheet Date).
In addition, with respect to each Company Benefit Plan intended to include a
Code Section 401(k) arrangement, the Company and each Company Subsidiary and
their respective ERISA Affiliates have at all times made timely deposits of
employee salary reduction contributions and participant loan repayments, as
determined pursuant to regulations issued by the United States Department of
Labor. No Company Benefit Plan that is an employee welfare benefit plan as
defined in Section 3(1) of ERISA is a self-insured plan. No Company Benefit Plan
is covered by, and none of the Company and the Company Subsidiaries and their
respective ERISA Affiliates has incurred or expects to incur any liability under
Title IV of ERISA or Section 412 of the Code. With respect to each Company
Benefit Plan subject to ERISA as either an employee pension benefit plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(1) of ERISA, the Company has prepared in good faith and
timely filed all requisite governmental reports (which were true, correct and
complete as of the date filed), including any required audit reports, and has
properly and timely filed and distributed or posted all notices and reports to
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employees required to be filed, distributed or posted with respect to each such
Company Benefit Plan. No Action has been brought, or to the Actual Knowledge of
the Company or any Company Subsidiary, is threatened, against the Company or any
Company Subsidiary or with respect to any such Company Benefit Plan, including
any audit or inquiry by the IRS or United States Department of Labor.
(d) None of the Company and the Company Subsidiaries and their
respective ERISA Affiliates is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multiemployer plan" as such term
is defined in Section 3(37) of ERISA or any "multiple employer plan" as such
term is defined in Section 413(c) of the Code. There has been no termination or
partial termination of any Company Benefit Plan within the meaning of Section
411(d)(3) of the Code.
(e) Each compensation and benefit plan required by Law or
applicable custom or rule of the relevant jurisdiction to be maintained or
contributed to outside of the United States (each such plan, a "Foreign Plan")
by the Company or any Company Subsidiary is listed in Section 4.10(e) of the
Company Disclosure Schedules, except for plans maintained by Governmental
Entities. As regards each such Foreign Plan, (i) such Foreign Plan is in
compliance with the provisions of the laws of each jurisdiction in which such
Foreign Plan is maintained, to the extent those laws are applicable to such
Foreign Plan, (ii) the Company and each Company Subsidiary, and each of their
respective ERISA Affiliates, has complied with all applicable reporting and
notice requirements, and such Foreign Plan has obtained from the Governmental
Entity having jurisdiction with respect to such Foreign Plan any required
determinations, if any, that such Foreign Plan is in compliance with the laws of
the relevant jurisdiction if such determinations are required in order to give
effect to such Foreign Plan, and (iii) such Foreign Plan has been administered
in accordance with its terms and applicable Law.
(f) Section 4.10(f) of the Company Disclosure Schedules lists each
person who the Company reasonably believes is, with respect to the Company or
any Company Subsidiary or any of their respective ERISA Affiliates, a
"disqualified individual" (within the meaning of Section 280G of the Code and
the regulations promulgated thereunder) determined as of the date hereof.
(g) Section 4.10(g) of the Company Disclosure Schedules lists as of
the date of this Agreement each employee of the Company or any Company
Subsidiary who is not fully available to perform work because of disability or
other leave and also lists, with respect to each such employee, the basis of
such disability or leave and the anticipated date of return to full service.
(h) Except as set forth in Section 4.10(h) of the Company
Disclosure Schedules, none of the execution and delivery of this Agreement or
the consummation of the Transactions (or the Transactions in combination with
any subsequent transactions or events, other than transactions or events
initiated solely by Parent) will (i) result in any employee, director or
consultant of the Company or any Company Subsidiary becoming entitled to any
deferred compensation, bonus or severance pay or materially increase or
otherwise enhance any benefits otherwise payable by the Company or any Company
Subsidiary, (ii) result in the acceleration of the time of payment or vesting,
or an increase in the amount of any compensation due to any employee, director
or consultant of the Company or any Company Subsidiary, except as may be
required under Section 411(d)(3) of the Code, (iii) result in forgiveness in
whole or in part of any outstanding loans made by the Company or any Company
Subsidiary to any of their employees, directors or consultants, or (iv) result
in a payment that would be considered an "excess parachute payment" and treated
as nondeductible under Section 280G of the Code or subject to the excise Tax
under Section 4999 of the Code.
(i) To the Company's Knowledge, the Company has neither granted,
nor is a party to, any Contract that grants any compensation, equity award, or
bonus, that fails to comply in good faith with the provisions of Section 409A of
the Code.
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(j) Each of the Company and the Company Subsidiaries is in
compliance in all material respects with all currently applicable Laws
respecting employment, discrimination in employment, terms and conditions of
employment, worker classification (including the proper classification of
workers as independent contractors and consultants), wages, hours and
occupational safety and health and employment practices, including the
Immigration Reform and Control Act. The Company and each Company Subsidiary has
paid in full to all employees, independent contractors and consultants all
wages, salaries, commissions, bonuses, benefits, and other compensation due to
or on behalf of such employees, independent contractors or consultants. Neither
the Company nor any Company Subsidiary is liable for any payment to any trust or
other fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the Ordinary Course of
Business). There are no controversies pending or, to the Actual Knowledge of the
Company, threatened, between the Company or any Company Subsidiary and any of
their respective employees, which controversies have or could reasonably be
expected to result in an Action before any Governmental Entity.
(k) Neither the Company nor any of the Company Subsidiaries has any
obligation to pay any amount or provide any benefit to any former employee or
officer, other than obligations (i) for which the Company has established a
reserve for such amount on the Company Balance Sheet in accordance with GAAP,
and (ii) pursuant to Contracts entered into after the Company Balance Sheet Date
and disclosed on Section 4.10(k) of the Company Disclosure Schedules. Neither
the Company nor any Company Subsidiary is a party to or bound by any collective
bargaining agreement or other labor union contract, no collective bargaining
agreement is being negotiated by the Company or any Company Subsidiary and
neither the Company nor any Company Subsidiary has any duty to bargain with any
labor organization. There is no pending demand for recognition or any other
request or demand from a labor organization for representative status with
respect to any person employed by the Company or any Company Subsidiary. The
Company has no Actual Knowledge of any activities or proceedings of any labor
union to organize the employees of the Company or any Company Subsidiary. There
is no labor dispute, strike or group work stoppage against the Company or any
Company Subsidiary pending or to the Actual Knowledge of the Company threatened
that may interfere with the respective business activities of the Company or any
Company Subsidiary.
(l) To the Knowledge of the Company, no employee of the Company or
any Company Subsidiary is in violation of any term of any employment agreement,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by the Company or any Company Subsidiary because of the nature of the
business conducted or presently proposed to be conducted by the Company or any
Company Subsidiary or to the use of trade secrets or proprietary information of
others. No Key Employee of the Company or any Company Subsidiary has given
notice of termination or resignation to the Company or any Company Subsidiary,
nor does the Company otherwise have Actual Knowledge that any such Key Employee
intends to terminate his or her employment with the Company or any Company
Subsidiary. The employment of each of the employees of the Company or any
Company Subsidiary is "at will" and the Company and each Company Subsidiary does
not have any obligation to provide any particular form or period of notice prior
to terminating the employment of any of their respective employees, and the
employment of each employee of the Company and each Company Subsidiary may be
terminated without prior notice and without financial liability to the Company
or any Company Subsidiary (other than as provided under applicable Law or as set
forth in Section 4.10(a) of the Company Disclosure Schedule).
(m) The Company has Made Available to Parent a true, correct and
complete list of the names of all current officers, directors, consultants and
employees of the Company and each Company Subsidiary showing each such person's
name, position, rate of annual remuneration, status as exempt/non-exempt and
bonuses for the current fiscal year and the most recently completed fiscal year.
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(n) The Company has Made Available to Parent, with respect to the
Company and the Company Subsidiaries, true, correct and complete copies of each
of the following: (i) all forms of offer letters, (ii) all forms of employment
agreements and severance agreements, (iii) all forms of services agreements and
forms of agreements with current and former consultants or advisory board
members, (iv) all forms of confidentiality, non-competition or invention
agreements by and between current and former employees, consultants or others
and the Company or any Company Subsidiary (and a true, correct and complete list
of employees, consultants or others not subject thereto), (v) all management
organization charts, (vi) all agreements or insurance policies providing for the
indemnification of any officers or directors of the Company or any Company
Subsidiary, (vii) a summary of the Company's standard severance policy, (viii) a
summary of outstanding liability for termination payments and benefits to
current and former directors, officers, employees and consultants of the Company
or any Company Subsidiary, and (ix) a schedule of bonus commitments made to
employees of the Company or any Company Subsidiary.
(o) The Company and each Company Subsidiary is in compliance in all
material respects with the Worker Adjustment Retraining Notification Act of
1988, as Amended ("WARN Act"), or any similar Law. In the past two years (i) the
Company has not effectuated a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of its business, (ii) there has not
occurred a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company of any Company Subsidiary, and (iii) the
Company has not been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation. The Company has not caused
any of its employees to suffer an "employment loss" (as defined in the WARN Act)
during the 90-day period prior to the date of this Agreement.
Section 4.11 Customers. Neither the Company nor any of the Company
Subsidiaries has any outstanding material dispute concerning its goods or
services with any coin or jewelry dealer, auction house, third party website,
independent sales agent or other customer, retailer or distributor who, in the
twelve months ending June 30, 2006, was one of the 20 largest sources of
consolidated revenue for the Company and the Company Subsidiaries, based on
amounts paid or payable during such periods (each, a "Significant Company
Customer"). Each Significant Company Customer is listed on Section 4.11 of the
Company Disclosure Schedules. Neither the Company nor any of the Company
Subsidiaries has received any written notice from any Significant Company
Customer that such Person (i) will not continue as a customer or distributor of
the Company or any Company Subsidiary after the Merger, (ii) intends to
terminate or materially modify existing Contracts or relationships with the
Company or any Company Subsidiary, or (iii) intends to materially reduce the
amount of business conducted with the Company and the Company Subsidiaries.
Section 4.12 Contracts. Section 4.12 of the Company Disclosure
Schedules specifically identifies (by the applicable subsection set forth below
in this Section 4.12) each Company Material Contract (other than this Agreement
or any Related Agreement). The term "Company Material Contract" shall include
each of the following Contracts to which the Company or any Company Subsidiary
is a party to or by which the Company or any Company Subsidiary is bound (in
each case, other than this Agreement or any Related Agreement):
(a) any Contract with any Significant Company Customer;
(b) any Contract generating, or that is reasonably likely to
generate, more than 5% of revenues for the Company and the Company Subsidiaries
over the twelve month period from the date of this Agreement, other than those
set forth on Section 4.12(j) of the Company Disclosure Schedules;
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(c) any Contract with any director, officer, employee or consultant
that would require the Company or any Company Subsidiary to make any payments in
connection with the Merger, or upon termination of employment, but excluding any
Contract (i) that is terminable at-will or, in the case of consultants, with 30
or fewer days of notice by the Company or any of the Company Subsidiaries
without cost, liability or financial obligations (other than accrued regular
compensation and benefits through the date of termination, including any such
notice period), or (ii) under which the Company and the Company Subsidiaries
collectively have paid or are obligated to pay less than $10,000;
(d) any Contract for indemnification (other than standard
indemnification provisions in Contracts entered into by the Company or any
Company Subsidiary in the Ordinary Course of Business) or any guaranty;
(e) any Contract containing any covenant limiting in any respect
the right of the Company or any of the Company Subsidiaries to (i) engage,
participate or compete in any line of business, market or geographic area, (ii)
develop, market or distribute products or services, (iii) conduct business with
any Person, (iv) solicit the employment of, or hire, any Person, or (v) compete
with any Person; or granting any exclusive sales, distribution, marketing or
other exclusive rights, rights of first refusal, "most favored nation" rights,
rights of first negotiation or other exclusive rights or similar terms to any
Person, but in each case excluding Contracts containing limitations that (A) are
not material to the Company or any Company Subsidiary, and (B) do not limit the
ability of the Company or any Company Subsidiary to develop or market additional
products or services;
(f) any Lease for real or personal property in which the amount of
payments that the Company or any of the Company Subsidiaries is required to make
on an annual basis exceeds $25,000;
(g) any Contract pursuant to the express terms of which the Company
or any of the Company Subsidiaries is currently obligated to pay in excess of
$25,000 (or, in the case of a Contract for the purchase of inventory made in the
Ordinary Course of Business, $50,000) in any one year period that is not
terminable by the Company or the Company Subsidiaries without penalty upon
notice of ninety (90) days or less;
(h) any Contract currently in force relating to the disposition or
acquisition by the Company or any of the Company Subsidiaries after the date
hereof of (i) assets with a book value exceeding $25,000 (or, in the case of the
sale of inventory made in the Ordinary Course of Business, $50,000) , or (ii)
Equity Interests in an Entity;
(i) any Contract pursuant to which the Company or any Company
Subsidiary is a licensor of Intellectual Property or agrees to Encumber, not
assert, Transfer or sell rights in or with respect to any Intellectual Property,
except for distribution contracts with retail outlets, independent sales agents,
other distributors and end users entered into by the Company or any Company
Subsidiary in the Ordinary Course of Business;
(j) any joint venture Contract or any other Contract that involves
a sharing of revenues in excess of $10,000, or involves a sharing of profits,
cash flows, expenses or losses, with other Persons, or the payment of royalties
to any other Person, other than Contracts identified in Section 4.12(a) of the
applicable Company Disclosure Schedule;
(k) any Contract currently required to be filed as an exhibit
pursuant to Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act, other than those currently on file with the SEC (including any Amendments
to Contracts filed as of the Company Balance Sheet Date that are required to be
filed);
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(l) any Contract containing a "standstill" provision with respect
to any Equity Interests of the Company;
(m) any Contract in effect on the date of this Agreement, including
any Company Stock Option Plan, relating to the sale, issuance, grant, exercise,
award, purchase, repurchase or redemption of any Company Common Shares or any
other Equity Interests or Securities of the Company or any of the Company
Subsidiaries, or any Commitments to purchase or otherwise acquire any such
Company Common Shares, Equity Interests or Securities, except for the Company
Stock Option Plans, the Company Options and Company Warrants disclosed in
Section 4.3 of the applicable Company Disclosure Schedule;
(n) any Contract under which the Company or any Company Subsidiary
is obligated to provide consulting services, development services, professional
services or support services (other than maintenance and support customer
contracts on the Company's standard, unmodified forms), in each case excluding
(i) Contracts that are terminable by the Company or Company Subsidiary on notice
of thirty (30) days or less without penalty in excess of $25,000, individually
or in the aggregate, and without any ongoing material obligations, and (ii)
Contracts that generated less than $25,000 in revenue to the Company during the
12 months preceding the date of this Agreement;
(o) any Contract with any investment banker, broker, advisor or
similar Person, or any accountant, legal counsel or other Person retained by the
Company, in connection with this Agreement and the Transactions, other than (i)
the Company Engagement Letter, and (ii) Contracts with service providers entered
into in the Company's Ordinary Course of Business with fees to be paid based on
the provider's customary hourly rates;
(p) any Contract pursuant to which the Company or any of the
Company Subsidiaries has acquired a business or Entity, or assets of a business
or Entity, whether by way of merger, consolidation, purchase of stock, purchase
of assets, license or otherwise, or any Contract pursuant to which it has any
material ownership interest in any other Entity (other than the Company
Subsidiaries), in either case which was entered into within the three years
preceding the date hereof or under which any Liabilities exist;
(q) all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
Indebtedness of the Company or any of the Company Subsidiaries in an aggregate
principal amount in excess of $25,000 is outstanding or may be incurred on the
terms thereof, and the respective principal amounts currently outstanding
thereunder as of the date hereof; or
(r) any other Contract not listed in subsections (a)-(q) next
preceding that individually provides for payments to or by the Company or any
Company Subsidiary in excess of $50,000, or pursuant to which the Company or any
Company Subsidiary have been paid, or expects to be paid, more than $50,000 in
any consecutive 12-month period, or that individually provides for payments by
the Company or any Company Subsidiary in excess of $50,000 or is otherwise
material to the Company or the Company Subsidiaries or their respective
businesses, operations, financial condition, properties or assets (other than
employee offer letters in the Ordinary Course of Business).
Except as set forth on Section 4.12 of the Company Disclosure Schedules, all
Company Material Contracts are in written form. The Company has Made Available
to Parent true, correct and complete copies of each Company Material Contract,
as Amended to date. Each Company Material Contract is (i) valid and binding on
the Company and each Company Subsidiary party thereto and, to the Company's
Knowledge, each other party thereto, and (ii) in full force and effect. The
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Company and each Company Subsidiary has in all material respects performed all
material obligations required to be performed by it to the date hereof under
each Company Material Contract and, to the Company's Knowledge, each other party
to each Company Material Contract has in all material respects performed all
obligations required to be performed by it under such Company Material Contract.
As of the date hereof, none of the Company and the Company Subsidiaries has
Knowledge of, or has received notice from the other contracting party of, any
actual or alleged material Breach of any Company Material Contract. There exists
no Breach with respect to the Company or any Company Subsidiary or, to the
Knowledge of the Company, with respect to any other contracting party, which,
with the giving of notice or the lapse of time or both, would reasonably be
expected to constitute a material Breach of such Company Material Contract.
Section 4.13 Litigation. Except as set forth in Section 4.13 of the
Company Disclosure Schedules, (i) there is no Action pending or, to the
Company's Actual Knowledge, threatened against the Company or any Company
Subsidiary or, to the Company's Actual Knowledge, for which the Company or any
Company Subsidiary is obligated to indemnify a third party, (ii) none of the
Company and the Company Subsidiaries is subject to any outstanding Order, and
(iii) to the Company's Knowledge, there has been no refusal to indemnify or
denial of indemnification and no intention to refuse indemnification, by any
third party in connection with any past, pending or threatened Action with
respect to which the Company or any Company Subsidiary is or may be entitled to
indemnification from any third party. Except as set forth in Section 4.13 of the
Company Disclosure Schedules, neither the Company nor any Company Subsidiary has
any Action pending against any other Person. There has not been since June 30,
2005, nor are there currently, any internal investigations or inquiries being
conducted by the Company, the Company Board (or any committee thereof) or any
third party at the request of any of the foregoing concerning any financial,
accounting, tax, conflict of interest, illegal activity, fraudulent or deceptive
conduct, violation of Company policy or other misfeasance or malfeasance issues.
Section 4.14 Environmental Matters.
(a) The Company and each Company Subsidiary is in material
compliance with all Environmental Laws.
(b) Neither the Company nor any Company Subsidiary has received
notification regarding any existing or potential Environmental Claims against
the Company or any Company Subsidiary, nor have any of them received any written
notification of any allegation of any actual or potential responsibility for, or
any Action regarding, (i) any violation of Environmental Laws, or (ii) any
Environmental Release or threatened Environmental Release at any Facilities of
any Materials of Environmental Concern generated or transported by the Company
or any Company Subsidiary.
(c) There has been no Environmental Release at any Facilities of
the Company or any Company Subsidiary of any Materials of Environmental Concern
in quantities that could trigger the need for investigation or remediation
pursuant to any Environmental Laws.
Section 4.15 Intellectual Property.
(a) Unless otherwise expressly provided herein, the following
terms, whenever used in this Agreement, shall have the meanings ascribed to them
in this Section 4.15(a):
(1) "Company IP" means (i) all Intellectual Property
used in the conduct of the business of the Company or any Company
Subsidiary as currently conducted by the Company and the Company
Subsidiaries, and (ii) all other Company-Owned IP.
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(2) "Company-Owned IP" means all Intellectual Property
owned by the Company or any Company Subsidiary.
(3) "Company Products" means, collectively, (i) all
products and services that are currently being published, marketed,
licensed, sold, leased, auctioned, distributed or performed, or
offered for publication, licensing, sale, lease, distribution or
performance or at auction, by or on behalf of the Company or any
Company Subsidiary, and (ii) all products or services currently
under development by the Company or any Company Subsidiary or that
the Company or any of the Company Subsidiaries are Contractually
obligated to develop.
(b) The Company and the Company Subsidiaries (i) own and have
independently developed or acquired, or (ii) have the valid right or license
(exclusive or non-exclusive, as applicable) to, all Company IP. The Company IP
is sufficient for the conduct of the business of the Company and the Company
Subsidiaries as currently conducted and to the Company's Knowledge as currently
proposed to be conducted by the Company or any Company Subsidiary.
(c) Neither the Company nor any of the Company Subsidiaries has (i)
transferred ownership of any material Company-Owned IP to any third party, (ii)
knowingly permitted any material Company-Owned IP to enter the public domain, or
(iii) permitted any material Company Registered Intellectual Property or
application therefor to lapse (other than through the expiration of Registered
Intellectual Property at the end of its maximum statutory term or the
abandonment of trademarks or service marks in the Ordinary Course of Business
using reasonable business judgment).
(d) Except as set forth in Section 4.15(d) of the Company
Disclosure Schedules, the Company and the Company Subsidiaries own and have good
and exclusive title to all Company-Owned IP and all Company Registered
Intellectual Property, free and clear of any Encumbrances. Except as set forth
in Section 4.15(d) of the Company Disclosure Schedules, the right, license and
interest of the Company and the Company Subsidiaries in and to all Third Party
Intellectual Property Rights licensed by the Company or a Company Subsidiary are
free and clear of all Encumbrances (excluding restrictions contained in the
applicable license agreements with such third parties).
(e) Except as set forth in Section 4.15(e) of the Company
Disclosure Schedules, none of the execution and delivery or effectiveness of
this Agreement, the consummation of the Transactions and the performance by the
Company of its obligations under this Agreement or the Related Agreements to
which it is a signatory, will cause the forfeiture or termination of, or give
rise to a right of forfeiture or termination of, any Company-Owned IP, or impair
the right of the Company, any Company Subsidiary or Parent to use, possess, sell
or license any Company-Owned IP or any portion thereof. After the Closing, all
Company-Owned IP will be fully transferable, alienable or licensable by the
Surviving Corporation without restriction and without payment of any kind to any
third party subject to any existing license and distribution agreements with
third parties.
(f) Section 4.15(f) of the Company Disclosure Schedule lists all
Company Registered Intellectual Property, and for each item of such Registered
Intellectual Property, (i) the jurisdictions in which such Registered
Intellectual Property has been issued or registered or in which any application
for such issuance and registration has been filed, and (ii) the legal counsel
(if any) assisting in the initial registration or the maintenance of such
Registered Intellectual Property.
(g) Each item of Company Registered Intellectual Property is
subsisting (or, in the case of applications, applied for), all registration,
maintenance and renewal fees currently due in connection with such Registered
Intellectual Property have been or will be timely paid, and all documents,
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recordations and certificates in connection with such Registered Intellectual
Property currently required to be filed have been or will be timely submitted to
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
prosecuting, maintaining and perfecting such Registered Intellectual Property
and recording the Company's and the Company Subsidiaries' ownership interests
therein.
(h) Except as set forth in Section 4.15(h) of the Company
Disclosure Schedules, to the Company's Actual Knowledge, there is no
unauthorized use, unauthorized disclosure, infringement or misappropriation of
any Company-Owned IP by any third party, including any employee or former
employee of the Company or any Company Subsidiary. Except as set forth in
Section 4.15(h) of the Company Disclosure Schedules, neither the Company nor any
Company Subsidiary has initiated any lawsuit, mediation or arbitration for
infringement or misappropriation of any Intellectual Property.
(i) Except as set forth in Section 4.15(i) of the Company
Disclosure Schedules, neither the Company nor any Company Subsidiary has (i)
been sued in any Action (or received any written notice or, to the Actual
Knowledge of the Company, threat) that involves a claim of infringement or
misappropriation of any Third Party Intellectual Property Right or which
contests the validity, ownership or right of the Company or any Company
Subsidiary to exercise any Intellectual Property right, or (ii) received any
written communication that puts the Company or any Company Subsidiary on notice
of or involves an offer to license or grant any Third Party Intellectual
Property Right or immunities in respect thereof.
(j) The operation of the business of the Company and the Company
Subsidiaries as such business is currently conducted and, to the Actual
Knowledge of the Company, as currently proposed to be conducted by the Company
or any Company Subsidiary, including (i) the design, development, manufacturing,
reproduction, marketing, licensing, sale, offer for sale, importation,
distribution, provision or use of any Company Product, and (ii) the Company's or
any Company Subsidiary's use of any product, device or process used in the
business of the Company or the Company Subsidiaries as currently conducted and,
to the Actual Knowledge of the Company, as currently proposed to be conducted by
the Company or any Company Subsidiary, does not and will not infringe or
misappropriate any Third Party Intellectual Property Rights and does not and, to
the Actual Knowledge of the Company, will not constitute unfair competition or
unfair trade practices under the Laws of any jurisdiction in which the Company
or any of the Company Subsidiaries conducts business.
(k) None of the Company-Owned IP, the Company Products, the Company
and the Company Subsidiaries is subject to any judicial or governmental Action
or outstanding Order (A) restricting in any manner the use, transfer, or
licensing by the Company or any Company Subsidiary of any Company-Owned IP or
any Company Product, or which may affect the validity, use or enforceability of
any such Company-Owned IP or Company Product, or (B) restricting the conduct of
the business of the Company or any Company Subsidiary in order to accommodate
Third Party Intellectual Property Rights.
(l) Neither the Company nor any Company Subsidiary has received any
written opinion of legal counsel that any Company Product or the operation of
the business of the Company or any Company Subsidiary, as previously or
currently conducted, infringes or misappropriates any Third Party Intellectual
Property Rights.
(m) Except as set forth in Section 4.15(m) of the Company
Disclosure Schedules, each of the Company and the Company Subsidiaries has
secured from all of its consultants, employees and independent contractors who
independently or jointly contributed to the conception, reduction to practice,
creation or development of any material Company-Owned IP, an assignment of
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inventions and ownership agreement, in the form Made Available to Parent,
assigning all such third party's Intellectual Property in such contribution that
the Company or any Company Subsidiary does not already own by operation of Law,
and no such third party has retained any rights or licenses with respect
thereto.
(n) To the Company's Knowledge, no current or former employee,
consultant or independent contractor of the Company or any Company Subsidiary
(i) is in violation of any term or covenant of any Contract relating to
employment, invention disclosure, invention assignment, non-disclosure or
non-competition or any other Contract with any other party by virtue of such
employee's, consultant's or independent contractor's being employed by, or
performing services for, the Company or any Company Subsidiary or using trade
secrets or proprietary information of others without permission, or (ii) has
developed any technology, software or other copyrightable, patentable or
otherwise proprietary work for the Company or any Company Subsidiary that is
subject to any Contract under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including Intellectual Property rights) in or to such technology, software or
other copyrightable, patentable or otherwise proprietary work.
(o) To the Company's Knowledge, the employment of any employee of
the Company or any Company Subsidiary or the use by the Company or any Company
Subsidiary of the services of any consultant or independent contractor does not
subject the Company or any Company Subsidiary to any liability to any third
party for improperly soliciting such employee, consultant or independent
contractor to work for the Company or any Company Subsidiary, whether such
liability is based on contractual or other legal obligations to such third
party.
(p) Except as set forth in Section 4.15(p) of the Company
Disclosure Schedules, to the Company's Knowledge, no current or former employee,
consultant or independent contractor of the Company or any Company Subsidiary
has any right, license, claim or interest whatsoever in or with respect to any
Company-Owned IP.
(q) The Company and the Company Subsidiaries have taken
commercially reasonable steps to protect and preserve the confidentiality of all
material confidential or non-public information included in the Company IP
Rights. All use, disclosure or appropriation of such information owned by the
Company or any Company Subsidiary by or to a third party has been pursuant to
the terms of a written agreement or other legal binding arrangement between the
Company or a Company Subsidiary and such third party. All use, disclosure or
appropriation of such information by the Company and the Company Subsidiaries
not owned by the Company or any Company Subsidiary has been pursuant to the
terms of a written agreement between the Company or such Company Subsidiary and
the owner of such information, or is otherwise lawful.
(r) Except as set forth in Section 4.15(r) of the Company
Disclosure Schedules, to the Company's Knowledge, neither the Company nor any
Company Subsidiary has (i) incorporated Open Source Materials into, or combined
Open Source Materials with, Company IP, or (ii) distributed Open Source
Materials in conjunction with any Company IP.
(s) To the Company's Knowledge, no (i) government funding, (ii)
facilities of a university, college, other educational institution or research
center, or (iii) funding from any Person (other than funds received in
consideration for the Company Equity Interests or Indebtedness incurred on
commercially reasonable terms) was used in the development of the Company-Owned
IP.
Section 4.16 Taxes.
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(a) The Company and the Company Subsidiaries and each affiliated,
combined, consolidated or unitary group of which the Company or any Company
Subsidiary is or has been a member (each, a "Company Group") have timely filed
all material federal, state, local, and foreign Tax Returns required to be filed
by it in the manner prescribed by applicable Laws and all such Tax Returns were
true, complete and correct in all material respects. Except with respect to
Taxes that are immaterial in amount, all Taxes of the Company and the Company
Subsidiaries (whether or not shown or required to be shown on any Tax Return)
that are due and payable have been timely paid in full and the accruals and
reserves for Taxes (rather than any reserve for deferred Taxes established to
reflect timing difference between book and Tax income) reflected in the Company
Balance Sheet (rather than any notes thereto) are adequate in accordance with
GAAP to cover all unpaid Taxes of the Company and the Company Subsidiaries.
Except with respect to Taxes that are immaterial in amount, all reserves for
Taxes as adjusted for operations and transactions and the passage of time
through the Effective Time in accordance with past custom and practice of the
Company and the Company Subsidiaries are adequate in accordance with GAAP to
cover all unpaid Taxes of the Company and the Company Subsidiaries accruing
through the Effective Time.
(b) The Company and the Company Subsidiaries have withheld and paid
over all material Taxes required to have been withheld and paid over, and to the
Knowledge of the Company, the Company and the Company Subsidiaries have withheld
and paid over all other Taxes required to have been withheld and paid over, and
the Company and the Company Subsidiaries have complied with all material
information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in each case in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. There are no Encumbrances on any of the Properties of the
Company or any Company Subsidiary with respect to Taxes.
(c) Except as set forth in Section 4.16(c) of the Company
Disclosure Schedules, no audit of material Tax Returns or other examination of
the Company, any Company Subsidiary or any member of any Company Group is
pending or threatened in writing. No deficiencies have been asserted against the
Company or any Company Subsidiary as a result of examinations by any Tax
Authority and no issue has been raised by any examination conducted by any Tax
Authority that, by application of the same principles, might result in a
proposed deficiency for any other period not so examined. Each deficiency
resulting from any audit or examination relating to Taxes of the Company or any
Company Subsidiary by any Tax Authority has been paid or is being contested in
good faith and in accordance with the Law and is fully reserved for on the
Company Balance Sheet in accordance with GAAP. No claim has ever been made by an
authority in a jurisdiction where the Company or any of the Company Subsidiaries
does not file Tax Returns that the Company or any Company Subsidiary, as the
case may be, is or may be subject to Tax in such jurisdiction. Neither the
Company nor any Company Subsidiary is subject to any private letter ruling of
the IRS or comparable rulings of other Tax Authorities that will be binding on
the Company or any Company Subsidiary with respect to any period following the
Effective Time. Neither the Company nor any of the Company Subsidiaries has
granted any power of attorney that is currently in force with respect to any
material Taxes or Tax Returns.
(d) Neither the Company nor any Company Subsidiary has requested
any extension of time within which to file any material Tax Return which Tax
Return has not yet been filed. There are no agreements, waivers of statutes of
limitations, or other arrangements providing for extensions of time in respect
of the assessment or collection of any unpaid Taxes against the Company or any
Company Subsidiary.
(e) The Company and each Company Subsidiary have disclosed on their
federal income tax returns all material positions taken therein that could, if
not so disclosed, give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code. Neither the Company nor any Company
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Subsidiary has been a party to or participated in any way in a transaction that
would be defined as a "reportable transaction" within the meaning of Treasury
Regulation Section 1.6011-4(b) (including any "listed transaction") or any
confidential corporate tax shelter within the meaning of Treasury Regulation
Section 1.6111-2.
(f) Except as set forth in Section 4.16(f) of the Company
Disclosure Schedules, neither the Company nor any Company Subsidiary has been a
member of any Company Group other than the Company Group of which the Company is
the parent. None of the Company or any Company Subsidiary has any liability for,
or any indemnification or reimbursement obligation with respect to, (i) Taxes of
any Person under Treasury Regulation Section 1.1502-6 (or any similar provision
under foreign, state or local Law), (ii) material Taxes of any Person as
transferee or successor, or (iii) material Taxes of any Person by contract for
Taxes. Neither the Company nor any Company Subsidiary is a party to any Tax
sharing agreement, Tax indemnity obligation or similar Contract or practice with
respect to Taxes (including any advance pricing agreement, closing agreement or
other agreement relating to Taxes with any Tax Authority).
(g) Except as set forth in Section 4.16(g) of the Company
Disclosure Schedules, neither the Company nor any Company Subsidiary (nor any
officer of the Company or any Company Subsidiary) is a party to any Contract
(including this Agreement, the Related Agreement and the arrangements
contemplated hereby and thereby) that, individually or collectively, could give
rise to the payment of any amount (whether in cash or property, including shares
of capital stock) that would not be deductible pursuant to the terms of Sections
162(a)(1), 162(m) or 162(n) of the Code.
(h) Neither the Company nor any Company Subsidiary has agreed or is
required to make any adjustment under Code Section 481(a) or Section 482 (or an
analogous provision of state, local or foreign Law) by reason of a change in
accounting method or otherwise. Neither the Company nor any Company Subsidiary
will be required to include in income, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any "closing agreement" as described in Code Section
7121 (or any corresponding or similar provision of state, local or foreign
income Tax Law).
(i) Neither the Company nor any Company Subsidiary is or has been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code).
(j) Neither the Company nor any Company Subsidiary has had or
maintained a permanent establishment other than in its country of organization.
(k) Section 4.16(k) of the Company Disclosure Schedule sets forth
information with respect to each of the Company and the Company Subsidiaries as
of the most recent practicable date regarding any material Tax holidays or
foreign rulings to which the Company or any Company Subsidiary (as the case may
be) is subject.
(l) Neither the Company nor any Company Subsidiary has incurred,
and no state of affairs exist that could result in the Company or any Company
Subsidiary incurring, any penalty under Section 6662(e) of the Code.
Section 4.17 Insurance. Section 4.17 of the Company Disclosure
Schedules contains a true, correct and complete list of policies and bonds of
insurance maintained by the Company and each Company Subsidiary, and the Company
has Made Available to Parent true, correct and complete copies of such policies
and bonds of insurance. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
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under all such policies and bonds have been paid, and the Company and each
Company Subsidiary is otherwise in compliance in all material respects with the
terms of such policies and bonds. To the Knowledge of the Company, neither the
Company nor any Company Subsidiary has received written notification of any
threatened termination of, or material premium increase with respect to, any
such policies or bonds.
Section 4.18 Opinion of Financial Advisor. The Company Board has
received the written opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Valuation Group, Inc. (the
"Company Financial Advisor") addressed to the Company Board, to the effect that
the Merger Consideration is fair from a financial point of view to the holders
of Company Common Shares (other than Affiliates of the Company), and the Company
has delivered to Parent a true, correct and complete copy of such opinion solely
for informational purposes.
Section 4.19 Brokers. Except for any fees set forth in Section 4.19
of the Company Disclosure Schedules, neither the Company nor any Affiliate of
the Company is obligated for the payment of any fees or expenses of any
investment banker, broker, advisor or similar party in connection with the
origin, negotiation or execution of this Agreement or in connection with the
Merger or any other Transaction. The Company is not obligated to continue to use
the services of the Company Financial Advisor following the Merger or to pay the
fees or expenses of the Company Financial Advisor in connection with any
transaction other than the Merger following consummation of the Merger.
Section 4.20 Properties. Neither the Company nor Company Subsidiary
owns any real property interests. Section 4.12 of the Company Disclosure
Schedules lists all material real property Leases to which the Company or any
Company Subsidiary is a party and each Amendment thereto that is now in effect.
All such current Leases are in full force and effect, are valid and effective in
accordance with their respective terms, and, except as set forth in Section 4.20
of the Company Disclosure Schedules, none of the Company and the Company
Subsidiaries and, to the Actual Knowledge of the Company, no other party, is in
Breach of any such Lease that would give rise to a material claim against the
Company or any Company Subsidiary.
Section 4.21 Interested Party Transactions. Except as disclosed in
the Company SEC Reports, since December 31, 2005, no event has occurred and no
relationship exists that would be required to be reported by the Company
pursuant to Item 404 of Regulation S-K.
Section 4.22 Export and Import Laws. The Company and each Company
Subsidiary has conducted its export transactions in accordance in all material
respects with applicable provisions of U.S. Export and Import Laws. Without
limiting the generality of the foregoing, (i) the Company and each Company
Subsidiary has obtained all export licenses and other approvals required for its
exports of products, Intellectual Property, software and technologies from the
United States, (ii) the Company and each Company Subsidiary is in material
compliance with the terms of all applicable export licenses or other approvals,
(iii) there are no pending or, to the Company's Actual Knowledge, threatened
claims against the Company or any Company Subsidiary with respect to such export
licenses or other approvals, (iv) to the Company's Knowledge, there are no
conditions or circumstances pertaining to the Company's or any Company
Subsidiary's export transactions that may give rise to any future claims, and
(v) no Consents in respect of any export licenses of the Company are required in
connection with the Merger or the change in control of the Company, or such
Consents can be obtained expeditiously without material cost.
Section 4.23 Pseudo-Foreign Corporation. The Company is not as of
the date hereof, and will not be as of the date of the Company Stockholder
Meeting, the Closing Date or the Effective Time, a "foreign corporation" subject
to the requirements of Section 2115(b) of the California General Corporation
Law.
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Section 4.24 Representations Complete. Except as set forth in
Section 4.24 of the Company Disclosure Schedules, none of the representations or
warranties made by the Company, and no financial statement, other written
financial information or statements made in any exhibit, schedule or certificate
Made Available or furnished by the Company to Parent pursuant to this Agreement
or any Related Agreement, or furnished by the Company in or in connection with
documents mailed or delivered to the stockholders of the Company or Parent for
use in soliciting their approval of this Agreement and the Merger, contains or
will contain at the Closing Date any untrue statement of a material fact or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each jointly and severally represents and
warrants to the Company that the statements contained in this Article V (or,
with respect to Merger Sub, the statements contained in Section 5.1(a), Section
5.4, Section 5.5 and Section 5.23, to the extent applicable to it) are true,
correct and complete as of the date of this Agreement and as of the Closing
Date, except as set forth, with respect to any specific Section or subsection in
this Article V, in the corresponding section or subsection of the schedules
Parent (on behalf of itself and Merger Sub) has delivered to the Company
concurrently with the execution and delivery hereof (the "Original Parent
Disclosure Schedule") and as of the Closing Date (the "Updated Parent Disclosure
Schedule" and, together with the Original Parent Disclosure Schedules, the
"Parent Disclosure Schedules") as follows (it being understood that the
disclosure of any matter or item in the Parent Disclosure Schedule or the
Updated Parent Disclosure Schedule shall not be deemed to constitute an
acknowledgement that such matter or item is required to be disclosed therein or
is material to a representation or warranty set forth in this Agreement and
shall not be used as a basis for interpreting the terms "material,"
"materially," "materiality" or "Material Adverse Effect" or any word or phrase
of similar import, and does not mean that such matter or item would, with any
other matter or item, have or be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent):
Section 5.1 Organization and Qualification; Subsidiaries.
(a) Parent is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each Subsidiary of Parent (each a "Parent Subsidiary"
and, collectively, the "Parent Subsidiaries") has been duly organized, and is
validly existing and in good standing, under the laws of the jurisdiction of its
incorporation or organization, as the case may be. Each of Parent and each
Parent Subsidiary has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted and as currently proposed by it to be
conducted. Each of Parent and each Parent Subsidiary is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification, licensing or good standing necessary other
than in such jurisdictions where the failure to be so qualified individually or
in the aggregate would not have a Material Adverse Effect on Parent.
(b) Section 5.1(b) of the Parent Disclosure Schedules sets forth a
true, correct and complete list of all of the Parent Subsidiaries and the
jurisdictions of their organization. Except as set forth on Section 5.1(b) of
the Parent Disclosure Schedules, none of the Parent or any Parent Subsidiary
holds an Equity Interest in any other Entity. Parent directly, or indirectly
through the ownership of a Parent Subsidiary, is the owner of all of the issued
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and outstanding Equity Interests in each Parent Subsidiary, and all such Equity
Interests are duly authorized, validly issued, fully paid and nonassessable.
Except as set forth in Section 5.1(b) of the Parent Disclosure Schedules, all of
the issued and outstanding Equity Interests of each Parent Subsidiary are owned
directly by Parent, or indirectly through the ownership of a Parent Subsidiary,
free and clear of all Encumbrances and are not subject to any preemptive right
or right of first refusal created by Law or the Organizational Documents of such
Parent Subsidiary or any Contract to which such Parent Subsidiary is a party or
by which it is bound. There are no outstanding Commitments or other Contracts of
any character relating to the issued or unissued Equity Interests or other
Securities of any Parent Subsidiary, or otherwise obligating Parent or any
Parent Subsidiary to issue, transfer, sell, purchase, redeem or otherwise
acquire or sell any such Equity Interests or Securities.
Section 5.2 Certificate of Incorporation and Bylaws; Corporate
Books and Records. Parent has Made Available to the Company a true, correct and
complete copy of Parent's Articles of Incorporation, as Amended (the "Parent
Certificate of Incorporation"), and the Parent's Bylaws, as Amended (the "Parent
Bylaws"), in each case as now in effect. Parent has Made Available to the
Company a true, correct and complete copy of the Organizational Documents of
each Parent Subsidiary, in each case as Amended and now in effect. Neither
Parent nor any Parent Subsidiary is in material violation of any of the
provisions of its Organizational Documents. Except as set forth in Section 5.2
of the Parent Disclosure Schedules, (i) true, correct and complete copies of all
Minute Books of Parent and the Parent Subsidiaries have been Made Available to
the Company, and (ii) the Minute Books of Parent and each Parent Subsidiary Made
Available to the Company contain accurate summaries of all meetings of directors
and stockholders (or equivalent managers and owners) or actions by written
consent of the directors and stockholders (or equivalent managers and owners) of
Parent and the respective Parent Subsidiaries through the date of this Agreement
or the Closing Date, as the case may be.
Section 5.3 Capitalization.
(a) The authorized capital shares of Parent consist of 10,000,000
Parent Common Shares. As of June 30, 2006, 4,913,290 Parent Common Shares (other
than treasury shares) were issued and outstanding, all of which are validly
issued and fully paid, nonassessable and free of preemptive rights (excluding
shares held in the treasury of Parent).
(b) Except for (i) Parent Common Shares reserved for issuance as
set forth in this Section 5.3 or in Section 5.3 of the Parent Disclosure
Schedules, and (ii) Commitments under the Transaction Documents; there are no
Commitments or other rights or Contracts obligating Parent or any Parent
Subsidiary to issue or sell any Equity Interests, or Securities convertible into
or exchangeable for Equity Interests, in Parent or any Parent Subsidiary. Since
the Parent Balance Sheet Date, Parent has not issued any Equity Interests, or
Securities convertible into or exchangeable for such Equity Interests, other
than those Parent Common Shares reserved for issuance as set forth in this
Section 5.3 or in Section 5.3 of the Parent Disclosure Schedules. All issued and
outstanding Parent Common Shares and all outstanding Parent Options were issued,
and all repurchases of Parent Common Shares were made, in material compliance
with all applicable Laws.
(c) As of June 30, 2006, Parent has reserved 2,450,000 Parent
Common Shares for issuance to employees, non-employee directors and consultants
pursuant to Parent Stock Option Plans, of which 1,435,634 shares are subject to
outstanding and unexercised Parent Options and 1,014,366 shares remain available
for issuance thereunder. As of June 30, 2006, no outstanding Parent Common
Shares were subject to Repurchase Rights. Section 5.3(c)(1) of the Parent
Disclosure Schedules identifies (i) the name and full address of each Person who
held Parent Options or Parent Common Shares subject to a Repurchase Right as of
June 30, 2006, (ii) the particular Parent Stock Option Plan pursuant to which
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such Parent Option was granted or such Parent Common Shares were issued, (iii)
the date on which such Parent Option was granted or such Parent Common Shares
were issued, (iv) the exercise or base price of such Parent Option or the
repurchase price of such Parent Common Shares, (v) the number of Parent Common
Shares subject to such Parent Option or Repurchase Right or value covered
thereby, (vi) the number of Parent Common Shares as to which such Parent Option
had vested (or such Repurchase Right had lapsed) at such date, (vii) the
applicable vesting schedule for such Parent Option or such Parent Common Shares
and whether the exercisability or vesting of such Parent Option, or lapsing of
the Repurchase Right, will be accelerated or affected in any way by the Merger
or the transactions contemplated hereby (whether alone or in combination with
any other event or condition, such as termination of employment), (viii) the
date on which such Parent Option or Repurchase Right expires, and (ix) in the
case of shares subject to a Repurchase Right, the material terms of any
promissory note delivered in payment of the purchase price for such Parent
Common Shares (including limitations on recourse). Section 5.3(c)(2) of the
Parent Disclosure Schedules sets forth a true, correct and complete list of all
holders of outstanding Parent Options that are held by Persons that are not
employees of Parent or any Parent Subsidiary (including non-employee directors,
consultants, advisory board members, vendors, service providers or other similar
Persons). All of the Parent Common Shares subject to issuance under Parent Stock
Option Plans, upon issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. True, correct and complete copies of each of Parent Stock
Option Plans and the standard form of all agreements and instruments relating to
or issued under each Parent Stock Option Plan and all agreements and instruments
relating to or issued under Parent Stock Option Plans or Parent Options that
differ in any material respect from such standard form agreements have been Made
Available to the Company, and such agreements and instruments have not been
Amended since being Made Available to the Company, and there are no agreements,
understandings or commitments to Amend such agreements or instruments in any
case from those Made Available to the Company.
(d) Section 5.3(d) of the Parent Disclosure Schedules sets forth
all outstanding Parent Warrants and other Commitments (other than Parent Options
disclosed in Section 5.3(c) of the Parent Disclosure Schedules). Parent has Made
Available to the Company complete and correct copies of all Parent Warrants and
Contracts governing such other Commitments, in each case as Amended to date.
(e) Section 5.3(e) of the Parent Disclosure Schedules sets forth
all outstanding Contractual obligations of Parent or any Parent Subsidiary (i)
restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, or (iv) granting any
preemptive or anti-dilutive right with respect to; any Parent Common Shares or
any other Equity Interests in Parent or any Parent Subsidiary.
Section 5.4 Authority. Each of Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement
and each Related Agreement to which it is a signatory, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby (other than, on the date hereof, the Parent
Stockholder Approval), including, with respect to Merger Sub, the filing of the
Certificate of Merger pursuant to the DGCL. The execution and delivery of this
Agreement and each Related Agreement to which Parent or Merger Sub is a
signatory by Parent or Merger Sub, as the case may be, and the consummation by
▇▇▇▇▇▇ and Merger Sub of the transactions contemplated hereby and thereby,
including, in the case of Merger Sub, said filing of the Certificate of Merger,
have been duly and validly authorized by all necessary corporate action (other
than, on the date hereof, the Parent Stockholder Approval). Assuming the due
authorization, execution and delivery by the Company of this Agreement, this
Agreement and each Related Agreement to which Parent or Merger Sub is a
signatory has been duly authorized and validly executed and delivered by Parent
or Merger Sub, as the case may be, and constitutes its legal, valid and binding
obligation, enforceable against Parent or Merger Sub, as the case may be, in
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accordance with their respective terms, subject only to the effect, if any, of
(i) applicable bankruptcy and other similar Laws affecting the rights of
creditors generally, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. The Parent Board and the Board
of Directors of Merger Sub each has unanimously (A) approved and declared
advisable this Agreement, each Related Agreement to which Parent or Merger Sub,
as the case may be, is a signatory, the Merger and the other Transactions
applicable to it, (B) determined that this Agreement and each Related Agreement
to which Parent or Merger Sub, as the case may be, is a signatory and the terms
and conditions of the Merger and other Transactions are fair to, advisable and
in the best interests of Parent or Merger Sub, as the case may be, and its
stockholders, and (C) directed that the adoption of this Agreement and the
approval of this Agreement, the Merger and the Authorized Stock Increase be
submitted to Parent's or Merger Sub's, as the case may be, stockholders for
approval at a meeting of such stockholders and recommended that all of Parent's
or Merger Sub's, as the case may be, stockholders adopt and approve this
Agreement and approve the Merger and the Authorized Stock Increase; provided,
however, that after the date hereof the Parent Board acting in good faith may
withdraw its recommendation. The affirmative vote of the holders of a majority
of all Parent Common Shares present in person or by proxy and voting at the
meeting of Parent's stockholders to adopt and approve this Agreement and approve
the Merger (the "Parent Stockholders Meeting") is the only vote of the holders
of capital stock of Parent necessary to adopt this Agreement under applicable
Law, including the NPCA, the Nasdaq Marketplace Rules and Parent's
Organizational Documents (the "Parent Stockholder Approval").
Section 5.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements to which Parent or Merger Sub is a signatory by Parent or Merger Sub,
as the case may be, do not, and the performance of this Agreement and such
Related Agreements by Parent or Merger Sub, as the case may be, will not, (i)
subject to obtaining approval by Parent's stockholders for the Authorized Stock
Increase, conflict with or violate any provision of the Organizational Documents
of Parent or any Parent Subsidiary, (ii) subject to obtaining the Parent
Stockholder Approval and approval of the sole stockholder of Merger Sub and
assuming that all Consents described in Section 5.5(b) have been obtained and
all filings and notifications described in Section 5.5(b) have been made and any
waiting periods thereunder have terminated or expired, conflict with or violate
any Law applicable to Parent or any Parent Subsidiary, or by which any Property
of Parent or any Parent Subsidiary is bound or affected, (iii) result in the
creation of any Encumbrance on any of the Properties of Parent or any Parent
Subsidiary, or (iv) require any Consent under, or result in any Breach of, any
Parent Material Contract or Parent Permit, in each case except as set forth in
Section 5.5 of the Parent Disclosure Schedules.
(b) The execution and delivery of this Agreement and the Related
Agreements to which Parent or Merger Sub is a signatory by Parent or Merger Sub,
as the case may be, do not, and the performance of this Agreement and such
Related Agreements by Parent or Merger Sub, as the case may be, and then
consummation of the Transactions will not, require any Consent of, or filing
with or notification to, any Governmental Entity, except for the Specified
Consents and such other Consents and filings with or notifications to
Governmental Entities the failures of which to make or obtain, individually or
in the aggregate, would not have a Material Adverse Effect on Parent.
Section 5.6 Permits; Compliance With Law.
(a) Each of Parent and each Parent Subsidiary is in possession of
all material Governmental Permits, and has made all material filings,
applications and registrations with any Governmental Entity, in each case that
are necessary for Parent and each Parent Subsidiary to own, lease or operate its
Properties, or to carry on its respective businesses substantially in the manner
described in Parent SEC Reports filed prior to the date hereof or the Closing
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Date, as the case may be, and substantially as it is being conducted as of the
date hereof (the "Parent Permits"), and all such Parent Permits are valid and in
full force and effect, except where the failure to have, or the suspension or
cancellation of, or failure to be valid or in full force and effect of, any of
Parent Permits would not, individually or in the aggregate, reasonably be
expected to (i) prevent or materially delay consummation of the Merger or any
other transactions contemplated by this Agreement, (ii) otherwise prevent or
materially delay performance by Parent of any of its material obligations under
this Agreement or any Related Agreement to which it or Merger Sub is a
signatory, or (iii) have a Material Adverse Effect on Parent.
(b) None of Parent and the Parent Subsidiaries is in conflict
with, or in default or violation of, (A) in any material respect, any Law
applicable to Parent or any Parent Subsidiary or by which any Property of Parent
or any Parent Subsidiary is bound or affected, or (B) any Parent Permit, except,
with respect to clause (B) next preceding, for any such conflicts, defaults or
violations that would not, individually or in the aggregate, reasonably be
expected to (i) prevent or materially delay consummation of the Merger or any
other transactions contemplated by this Agreement, (ii) otherwise prevent or
materially delay performance by Parent of any of its material obligations under
this Agreement or any Related Agreement to which it or Merger Sub is a
signatory, or (iii) have a Material Adverse Effect on Parent. None of the Parent
Permits will be terminated or impaired or will become terminable, in whole or in
part, as a result of the transactions contemplated by this Agreement or any
Related Agreement to which it or Merger Sub is a signatory.
(c) Neither Parent nor any Parent Subsidiary has, within the last
three years, received any warning, notice, notice of violation or probable
violation, notice of revocation or other communication from or on behalf of any
Governmental Entity, alleging (x) any conflict with, or default or violation of,
any Parent Permit, or (y) that Parent or any Parent Subsidiary requires any
Parent Permit for its business as currently conducted that is not currently held
by it. Except as set forth in Section 5.6 of Parent Disclosure Schedules, to
Parent's Actual Knowledge, no investigation or inquiry by any Governmental
Entity with respect to Parent or any Parent Subsidiary is pending or threatened,
in each case with respect to any alleged or claimed violation of Law applicable
to Parent or any Parent Subsidiary or by which any Property of Parent or any
Parent Subsidiary is bound or affected.
(d) Neither Parent nor any of Parent Subsidiaries, nor to Parent's
Actual Knowledge, any director, officer, Affiliate or employee thereof, has on
behalf of or with respect to Parent engaged in any conduct constituting a
violation of the Foreign Corrupt Practices Act of 1977, as amended.
Section 5.7 SEC Filings; Financial Statements.
(a) Parent has filed all SEC Reports required under applicable Law
to be filed by it with the SEC in the last five years. All of the Parent SEC
Reports have been Made Available to the Company.
(b) As of their respective dates, each Parent SEC Report (i)
complied as to form in all material respects with the requirements of the
Securities Act, the Exchange Act and the SEC Rules applicable to such Parent SEC
Report, and (ii) did not at the time it was filed contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except to the
extent corrected (A) in the case of a Parent SEC Report filed prior to the date
of this Agreement that was amended or superseded prior to the date of this
Agreement, by the filing of such amending or superseding Parent SEC Report, and
(B) in the case of a Parent SEC Report filed after the date of this Agreement
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that is amended or superseded prior to the Effective Time, by the filing of such
amending or superseding Parent SEC Report. None of the Parent Subsidiaries is
required to file any SEC Reports with the SEC.
(c) As of their respective dates, each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Parent SEC Reports (the "Parent Financial Statements"), (i)
complied as to form in all material respects with the published SEC Rules
applicable thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q, Form 8-K or any successor form under
the Exchange Act), and (iii) fairly presented in all material respects the
consolidated financial position of Parent and the Parent Subsidiaries as at the
respective dates thereof and the consolidated results of Parent's and the Parent
Subsidiaries' operations and cash flows for the periods indicated, except that
the unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments in accordance with GAAP
and any other exceptions noted therein. Neither Parent nor any Parent Subsidiary
has any liabilities (absolute, accrued, contingent or otherwise) required under
GAAP to be set forth on a balance sheet that are, individually or in the
aggregate, material to the business, results of operations or financial
condition of Parent and the Parent Subsidiaries taken as a whole, except for (A)
liabilities incurred since the Parent Balance Sheet Date in the Ordinary Course
of Business which are of the type that typically recur and which do not result
from any Breach of Contract, tort or default or violation of any Law, (B) those
specifically set forth or specifically and adequately reserved against in the
Parent Balance Sheet, and (C) the fees and expenses of investment bankers,
attorneys and accountants incurred in connection with this Agreement and the
Transactions. Except as reflected in the Parent Financial Statements, neither
Parent nor any Parent Subsidiary is a party to any material off-balance sheet
arrangements (as defined in Item 303 of Regulation S-K promulgated by the SEC).
Except as set forth in the Parent SEC Reports, Parent has not had any
disagreement with any of its auditors regarding accounting matters or policies
during any of its past three full fiscal years or to date during the current
fiscal year. The books and records of Parent and each Parent Subsidiary have
been maintained, and are being maintained, in all material respects in
accordance with applicable legal and accounting requirements, and the Parent
Financial Statements are consistent in all material respects with such books and
records.
(d) No investigation by the SEC with respect to Parent or any
Parent Subsidiary is pending or, to the Knowledge of Parent, threatened.
(e) Parent has established and maintains "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) that are reasonably designed to ensure that material information
(both financial and non-financial) relating to Parent and the Parent
Subsidiaries required to be disclosed by Parent in the reports that it files or
submits under the Exchange Act is communicated to the Parent's principal
executive officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of the principal executive officer and
the principal financial officer of Parent required by Section 302 of SOX, with
respect to such reports. For purposes of this Section 5.7(e), "principal
executive officer" and "principal financial officer" shall have the meanings
ascribed to such terms in SOX. Each of the principal executive officer and the
principal financial officer of Parent (or each former principal executive
officer and each former principal financial officer of Parent, as applicable)
has made all certifications required by Sections 302 and 906 of SOX and the
rules and regulations promulgated by the SEC thereunder with respect to the
Parent SEC Reports.
(f) Parent maintains a system of internal accounting controls
designed to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
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statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Parent has Made Available to the
Company accurate and complete copies of all material policies, manuals and other
documents promulgating such internal accounting controls. Except as set forth in
Section 5.7(f) of the Parent Disclosure Schedules, to Parent's Knowledge, there
are no "material weaknesses" (as defined by the PCAOB) and there are no series
of multiple "significant deficiencies" (as defined by the PCAOB) that are
reasonably likely to collectively represent a "material weakness" in the design
or operation of Parent's internal controls and procedures, and to Parent's
Knowledge, there are no significant deficiencies in the design or operation of
Parent's internal controls and procedures. To Parent's Knowledge, in the last
five years, there has been no fraud that involves management or other employees
who have a significant role in Parent's internal controls and procedures.
(g) To Parent's Knowledge, (A) BKR ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, which has
expressed its opinion with respect to the Parent Financial Statements as of
December 31, 2004 and as of December 31, 2005, and for each of Parent's fiscal
years in the two-year period ended December 31, 2005, and (B) CF & Co., L.L.P.,
which has expressed its opinion with respect to the Parent Financial Statements
as of December 31, 2003 and for Parent's fiscal year in the one-year period
ended December 31, 2003; in each case included in the Parent SEC Reports
(including the related notes), is "independent" with respect to Parent and the
Parent Subsidiaries within the meaning of Regulation S-X and has been
"independent" within such meaning at all times since January 1, 2002. Parent has
made such disclosure of non-audit services performed by BKR ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or
CF & Co., L.L.P. in its proxy statements with respect to its annual meetings of
its stockholders as is required under the Exchange Act, Securities Act and SEC
Rules, and all such non-audit services have been approved in advance by the
audit committee of the Parent Board. Parent is in compliance with the applicable
criteria for continued listing of the Parent Common Shares on the Parent's
Principal Market.
Section 5.8 Disclosure Documents.
(a) The Parent Information included in, or incorporated by
reference into, the Form S-4, Proxy Statement and any Other Filings, and any
amendments or supplements thereto, will, at the Applicable Times, comply as to
form in all material respects with the applicable requirements of the Securities
Act, the Exchange Act, the SEC Rules and other applicable Laws.
(b) The information supplied or to be supplied by or on behalf of
Parent or any of its officers, directors or stockholders for inclusion or use,
or incorporation by reference, in (i) the Form S-4, (ii) the Proxy Statement, or
(iii) any other document (including any report filed by the Company or Parent
under the Exchange Act) filed with any Governmental Entity in connection with
the Transactions, or in each case any amendment or supplement thereto; in each
case do not and will not, at the Applicable Times, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein regarding the Parent
Information, in light of the circumstances under which they are made, not
misleading. The Parent Information provides all information relating to Parent
or its operations, business, directors, officers, Subsidiaries and stockholders
required to be provided by the provisions of the Securities Act, the Exchange
Act and the SEC Rules, including form S-4 and Regulation 14A.
(c) Notwithstanding the foregoing provisions of this Section 5.8,
Parent makes no representation or warranty, and assumes no responsibility, with
respect to statements made or incorporated by reference in the Form S-4, the
Proxy Statement or any Other Filings, or in each case any amendment or
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supplement thereto, supplied by the Company (other than Parent Information so
supplied) for inclusion or incorporation by reference therein.
Section 5.9 Absence of Certain Changes or Events. Since the Parent
Balance Sheet Date, except as specifically disclosed in the Parent SEC Reports
filed thereafter, as contemplated hereby or as set forth in Section 5.9 of the
Parent Disclosure Schedules, Parent and each Parent Subsidiary has conducted its
business only in the Ordinary Course of Business and, since such date:
(a) no Events have caused a Material Adverse Effect on Parent;
(b) there has not been any declaration, setting aside or payment
of any dividend on, or other distribution (whether in cash, Securities or
Property) in respect of, any of Parent's Equity Interests, or any purchase,
redemption or other acquisition by Parent of any of Parent's Equity Interests or
any other Securities of Parent or any Commitments for any such Equity Interests
of Securities, other than repurchases from employees or consultants following
their termination pursuant to the terms of existing Repurchase Rights;
(c) there has not been any Capitalization Adjustment of any of
Parent's Equity Interests;
(d) there has not been any increase in compensation or fringe
benefits paid or payable to any of the officers, directors or managers or
employees of Parent or any Parent Subsidiary at the vice president or director
level or higher, or who earn base salary of more than $100,000 per year, or any
payment by Parent or any of the Parent Subsidiaries of any bonus to any of their
officers, directors or managers or employees at the vice president or director
level or higher, or who earn base salary of more than $100,000 per year, or any
granting by Parent or any of the Parent Subsidiaries of any increase in
severance or termination pay, or any entry by Parent or any of the Parent
Subsidiaries into, or material Amendment of, any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Parent of the nature of any
Transactions, or any subsequent event, other than increases in the Ordinary
Course of Business in base salary and target bonuses for employees who are not
officers of Parent, in an amount that does not exceed 50% of such base salary,
in connection with periodic compensation or performance reviews or for ordinary
course severance and release agreements as made in connection with the
termination of employment that do not provide severance in excess of Parent's
standard policies;
(e) there has not been any change by Parent or any of the Parent
Subsidiaries in its accounting methods, principles or practices (including any
material change in depreciation or amortization policies or rates or revenue
recognition policies), except as required by concurrent changes in GAAP;
(f) there has not been any sale, transfer, or other disposition of
any Parent IP Rights or any other Properties by Parent or any of the Parent
Subsidiaries, except in the Ordinary Course of Business;
(g) neither Parent nor any Parent Subsidiary has made any loan,
advance or capital contribution to, or investment in, any Person, including any
director, officer or Affiliate of Parent, other than (i) loans, advances or
capital contributions to or investments in wholly-owned Subsidiaries or Entities
that became wholly-owned Subsidiaries made in the Ordinary Course of Business,
(ii) investments made in accordance with Parent's investment guidelines, a copy
of which has been Made Available to the Company, in the Ordinary Course of
Business, (iii) routine travel and entertainment expense advances in the
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Ordinary Course of Business and in accordance with Parent's travel and expense
policy, a copy of which has been Made Available to the Company, and (iv) loans
and advances to third party customers in the Ordinary Course of Business;
(h) there has not been any material change with respect to the
management or other key personnel of Parent, any termination of employment of
any such employees or a material number of employees, or any material labor
dispute or material claim of unfair labor practices involving Parent or any
Parent Subsidiary; and
(i) neither Parent nor any Parent Subsidiary has agreed, whether
in writing or otherwise, to take any action described in this Section 5.9.
Section 5.10 Employee Benefit Plans.
(a) Section 5.10(a) of the Parent Disclosure Schedules lists as of
the date of this Agreement, with respect to Parent and the Parent Subsidiaries
and their respective ERISA Affiliates, (i) all employee benefit plans within the
meaning of Section 3(3) of ERISA, (ii) each loan from Parent, any Parent
Subsidiary or any such ERISA Affiliate to an employee in excess of $5,000, (iii)
all stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, salary continuation, sabbatical, employee
relocation, cafeteria benefit (Section 125 of the Code), dependent care (Section
129 of the Code), life insurance or accident insurance plans, programs or
arrangements, (iv) all bonus, pension, profit sharing, savings, retirement,
deferred compensation or incentive plans, programs or arrangements, whether
written or oral, qualified or nonqualified, funded or unfunded, currently
effective or terminated, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management and that do not generally apply to
all employees, and (vi) any employment or service agreements (except for offer
letters providing for at-will employment that do not provide for severance,
acceleration or post-termination benefits), compensation agreements or severance
agreements, written or otherwise, for the benefit of, or relating to, any
present or former director, officer, employee, or consultant (provided that, for
(1) former and current consultants, and (2) former directors, officers and
employees; such arrangements need only be listed if unsatisfied obligations of
Parent or any Parent Subsidiary of greater than $5,000 remain thereunder) of
Parent or any Parent Subsidiary (all of the foregoing described in clauses (i)
through (vi) next preceding, collectively, the "Parent Benefit Plans"). Parent
has no liability with respect to any plan, arrangement or practice of the type
described in the preceding sentence other than the Parent Benefit Plans. Parent
has not, since July 30, 2002, extended credit, arranged for the extension of
credit, or renewed, modified or forgiven an extension of credit made prior to
such date, in the form of a personal loan to or for any person who was, at any
time since such date, an officer or director of Parent.
(b) Prior to the date of this Agreement, Parent has Made Available
to the Company a true, correct and complete copy of each Parent Benefit Plan and
all current and prior related plan documents (including adoption agreements,
vendor contracts and administrative services agreements, trust documents,
insurance policies or contracts (including policies relating to fiduciary
liability insurance covering the fiduciaries of such Parent Benefit Plans),
bonds required by ERISA, employee booklets, summary plan descriptions and other
authorizing documents, summaries of material modifications and any material
written employee communications relating thereto) and has, with respect to each
Parent Benefit Plan that is subject to ERISA reporting requirements, Made
Available to the Company true, correct and complete copies of the Form 5500
reports filed for the last three plan years (including all audits, financial
statements, schedules and attachments thereto, where applicable). Any Parent
Benefit Plan intended to be qualified under Section 401(a) of the Code has (i)
obtained from the IRS a current favorable determination letter as to its
qualified status under the Code and as to the exemption from tax under the
provisions of Code Section 501(a) of each trust created thereunder, or (ii) has
been established under a standardized master and prototype or volume submitter
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plan for which a favorable Internal Revenue Service advisory letter or opinion
letter has been obtained by the plan sponsor and is valid as to the adopting
employer. Parent has also Made Available to the Company a true, correct and
complete copy of the most recent such Internal Revenue Service determination
letter, advisory letter or opinion letter issued with respect to each Parent
Benefit Plan, and, to Parent's Knowledge, nothing has occurred since the
issuance of each such letter that could reasonably be expected to cause the loss
of the tax-qualified status of any Parent Benefit Plan subject to Section 401(a)
of the Code. Parent has also Made Available to the Company all registration
statements and prospectuses and investment policy statements prepared in
connection with each Parent Benefit Plan, where applicable. All individuals who,
pursuant to the terms of any Parent Benefit Plan, are entitled to participate in
such Parent Benefit Plan, are currently participating in such Parent Benefit
Plan or have been offered an opportunity to do so. None of Parent and the Parent
Subsidiaries and their respective ERISA Affiliates sponsors or maintains any
self-funded employee benefit plan, including any plan to which a stop-loss
policy applies.
(c) Except as set forth in Section 5.10(c) of the Parent
Disclosure Schedules, none of the Parent Benefit Plans promises or provides
retiree medical or other retiree welfare benefits to any person other than as
required under COBRA, or applicable state law. There has been no prohibited
transaction (within the meaning of Section 406 of ERISA and Section 4975 of the
Code) with respect to any Parent Benefit Plan that is not exempt under Section
408 of ERISA. To Parent's Actual Knowledge, each Parent Benefit Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by applicable Law (including ERISA and the Code), and
Parent and the Parent Subsidiaries, and their respective ERISA Affiliates, each
has performed all obligations required to be performed by it under, is not in
any material respect in default under or in violation of, and has no Actual
Knowledge of any material default or in violation by any other party to, any of
the Parent Benefit Plans. None of Parent and the Parent Subsidiaries and their
respective ERISA Affiliates is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Parent Benefit Plans. All contributions required to be made by Parent or
any Parent Subsidiary or any of their respective ERISA Affiliates to any Parent
Benefit Plan have been made on or before their due dates and, to the extent
required by GAAP, all amounts have been accrued for the current plan year (and
no further contributions will be due or will have accrued thereunder as of the
Closing Date, other than contributions accrued in the Ordinary Course of
Business after the Parent Balance Sheet Date as a result of the operations of
Parent and the Parent Subsidiaries after the Parent Balance Sheet Date). In
addition, with respect to each Parent Benefit Plan intended to include a Code
Section 401(k) arrangement, the Parent and each Parent Subsidiary and their
respective ERISA Affiliates have at all times made timely deposits of employee
salary reduction contributions and participant loan repayments, as determined
pursuant to regulations issued by the United States Department of Labor. No
Parent Benefit Plan that is an employee welfare benefit plan as defined in
Section 3(1) of ERISA is a self-insured plan. No Parent Benefit Plan is covered
by, and none of Parent and the Parent Subsidiaries and their respective ERISA
Affiliates has incurred or expects to incur any liability under Title IV of
ERISA or Section 412 of the Code. With respect to each Parent Benefit Plan
subject to ERISA as either an employee pension benefit plan within the meaning
of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning
of Section 3(1) of ERISA, Parent has prepared in good faith and timely filed all
requisite governmental reports (which were true, correct and complete as of the
date filed), including any required audit reports, and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Parent Benefit Plan.
No Action has been brought, or to the Actual Knowledge of Parent or any Parent
Subsidiary, is threatened, against Parent or any Parent Subsidiary or with
respect to any such Parent Benefit Plan, including any audit or inquiry by the
IRS or United States Department of Labor.
(d) None of Parent and the Parent Subsidiaries and their
respective ERISA Affiliates is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multiemployer plan" as such term
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is defined in Section 3(37) of ERISA or any "multiple employer plan" as such
term is defined in Section 413(c) of the Code. There has been no termination or
partial termination of any Parent Benefit Plan within the meaning of Section
411(d)(3) of the Code.
(e) Each Foreign Plan of Parent or any Parent Subsidiary is listed
in Section 5.10(e) of the Parent Disclosure Schedules, except for plans
maintained by Governmental Entities. As regards each such Foreign Plan, (i) such
Foreign Plan is in compliance with the provisions of the laws of each
jurisdiction in which such Foreign Plan is maintained, to the extent those laws
are applicable to such Foreign Plan, (ii) Parent and each Parent Subsidiary, and
each of their respective ERISA Affiliates, has complied with all applicable
reporting and notice requirements, and such Foreign Plan has obtained from the
Governmental Entity having jurisdiction with respect to such Foreign Plan any
required determinations, if any, that such Foreign Plan is in compliance with
the laws of the relevant jurisdiction if such determinations are required in
order to give effect to such Foreign Plan, and (iii) such Foreign Plan has been
administered in accordance with its terms and applicable Law.
(f) Section 5.10(f) of the Parent Disclosure Schedules lists each
person who Parent reasonably believes is, with respect to Parent or any Parent
Subsidiary or any of their respective ERISA Affiliates, a "disqualified
individual" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder) determined as of the date hereof.
(g) Section 5.10(g) of the Parent Disclosure Schedules lists as of
the date of this Agreement each employee of Parent or any Parent Subsidiary who
is not fully available to perform work because of disability or other leave and
also lists, with respect to each such employee, the basis of such disability or
leave and the anticipated date of return to full service.
(h) Except as set forth in Section 5.10(h) of the Parent
Disclosure Schedules, none of the execution and delivery of this Agreement or
the consummation of the Transactions (or the Transactions in combination with
any subsequent transactions or events, other than transactions or events
initiated solely by the Company) will (i) result in any employee, director or
consultant of Parent or any Parent Subsidiary becoming entitled to any deferred
compensation, bonus or severance pay or materially increase or otherwise enhance
any benefits otherwise payable by Parent or any Parent Subsidiary, (ii) result
in the acceleration of the time of payment or vesting, or an increase in the
amount of any compensation due to any employee, director or consultant of Parent
or any Parent Subsidiary, except as may be required under Section 411(d)(3) of
the Code, (iii) result in forgiveness in whole or in part of any outstanding
loans made by Parent or any Parent Subsidiary to any of their employees,
directors or consultants, or (iv) result in a payment that would be considered
an "excess parachute payment" and treated as nondeductible under Section 280G of
the Code or subject to the excise Tax under Section 4999 of the Code.
(i) To Parent's Knowledge, Parent has neither granted, nor is a
party to, any Contract that grants any compensation, equity award, or bonus,
that fails to comply in good faith with the provisions of Section 409A of the
Code.
(j) Each of Parent and the Parent Subsidiaries is in compliance in
all material respects with all currently applicable Laws respecting employment,
discrimination in employment, terms and conditions of employment, worker
classification (including the proper classification of workers as independent
contractors and consultants), wages, hours and occupational safety and health
and employment practices, including the Immigration Reform and Control Act.
Parent and each Parent Subsidiary has paid in full to all employees, independent
contractors and consultants all wages, salaries, commissions, bonuses, benefits,
and other compensation due to or on behalf of such employees, independent
contractors or consultants. Neither Parent nor any Parent Subsidiary is liable
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for any payment to any trust or other fund or to any Governmental Entity, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for employees (other than routine payments to be made in the
Ordinary Course of Business). There are no controversies pending or, to the
Actual Knowledge of Parent, threatened, between Parent or any Parent Subsidiary
and any of their respective employees, which controversies have or could
reasonably be expected to result in an Action before any Governmental Entity.
(k) Neither Parent nor any of the Parent Subsidiaries has any
obligation to pay any amount or provide any benefit to any former employee or
officer, other than obligations (i) for which Parent has established a reserve
for such amount on the Parent Balance Sheet in accordance with GAAP, and (ii)
pursuant to Contracts entered into after the Parent Balance Sheet Date and
disclosed on Section 5.10(k) of the Parent Disclosure Schedules. Neither Parent
nor any Parent Subsidiary is a party to or bound by any collective bargaining
agreement or other labor union contract, no collective bargaining agreement is
being negotiated by Parent or any Parent Subsidiary and neither Parent nor any
Parent Subsidiary has any duty to bargain with any labor organization. There is
no pending demand for recognition or any other request or demand from a labor
organization for representative status with respect to any person employed by
Parent or any Parent Subsidiary. Parent has no Actual Knowledge of any
activities or proceedings of any labor union to organize the employees of Parent
or any Parent Subsidiary. There is no labor dispute, strike or group work
stoppage against Parent or any Parent Subsidiary pending or to the Actual
Knowledge of Parent threatened that may interfere with the respective business
activities of Parent or any Parent Subsidiary.
(l) To the Knowledge of Parent, no employee of Parent or any
Parent Subsidiary is in violation of any term of any employment agreement,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by Parent or any Parent Subsidiary because of the nature of the
business conducted or presently proposed to be conducted by Parent or any Parent
Subsidiary or to the use of trade secrets or proprietary information of others.
No Key Employee of Parent or any Parent Subsidiary has given notice of
termination or resignation to Parent or any Parent Subsidiary, nor does Parent
otherwise have Actual Knowledge that any such Key Employee intends to terminate
his or her employment with Parent or any Parent Subsidiary. The employment of
each of the employees of Parent or any Parent Subsidiary is "at will" and Parent
and each Parent Subsidiary does not have any obligation to provide any
particular form or period of notice prior to terminating the employment of any
of their respective employees, and the employment of each employee of Parent and
each Parent Subsidiary may be terminated without prior notice and without
financial liability to the Parent or any Parent Subsidiary (other than as
provided under applicable Law or as set forth in Section 5.10(a) of the Parent
Disclosure Schedules).
(m) Parent has Made Available to the Company a true, correct and
complete list of the names of all current officers, directors, consultants and
employees of Parent and each Parent Subsidiary showing each such person's name,
position, rate of annual remuneration, status as exempt/non-exempt and bonuses
for the current fiscal year and the most recently completed fiscal year.
(n) Parent has Made Available to the Company, with respect to
Parent and the Parent Subsidiaries, true, correct and complete copies of each of
the following: (i) all forms of offer letters, (ii) all forms of employment
agreements and severance agreements, (iii) all forms of services agreements and
forms of agreements with current and former consultants or advisory board
members, (iv) all forms of confidentiality, non-competition or invention
agreements by and between current and former employees, consultants or others
and Parent or any Parent Subsidiary (and a true, correct and complete list of
employees, consultants or others not subject thereto), (v) all management
organization charts, (vi) all agreements or insurance policies providing for the
indemnification of any officers or directors of Parent or any Parent Subsidiary,
(vii) a summary of Parent's standard severance policy, (viii) a summary of
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outstanding liability for termination payments and benefits to current and
former directors, officers, employees and consultants of Parent or any Parent
Subsidiary, and (ix) a schedule of bonus commitments made to employees of Parent
or any Parent Subsidiary.
(o) Parent and each Parent Subsidiary is in compliance in all
material respects with the WARN Act or any similar Law. In the past two years
(i) Parent has not effectuated a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of its business, (ii) there has not
occurred a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of Parent of any Parent Subsidiary, and (iii) Parent has
not been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state,
local or foreign law or regulation. Parent has not caused any of its employees
to suffer an "employment loss" (as defined in the WARN Act) during the 90-day
period prior to the date of this Agreement.
Section 5.11 Customers. Neither Parent nor any of the Parent
Subsidiaries has any outstanding material dispute concerning its goods or
services with any jewelry dealer or other wholesale customer or distributor who,
in the six months ending June 30, 2006, was one of the 20 largest sources of
consolidated revenue for Parent and the Parent Subsidiaries, based on amounts
paid or payable during such periods (each, a "Significant Parent Customer").
Each Significant Parent Customer is listed on Section 5.11 of the Parent
Disclosure Schedules. Neither Parent nor any of the Parent Subsidiaries has
received any written notice from any Significant Parent Customer that such
Person (i) will not continue as a customer or distributor of Parent or any
Parent Subsidiary after the Merger, (ii) intends to terminate or materially
modify existing Contracts or relationships with Parent or any Parent Subsidiary,
or (iii) intends to materially reduce the amount of business conducted with
Parent and the Parent Subsidiaries.
Section 5.12 Contracts. Section 5.12 of the Parent Disclosure
Schedules specifically identifies (by the applicable subsection set forth below
in this Section 5.12) each Parent Material Contract (other than this Agreement
or any Related Agreement). The term "Parent Material Contract" shall include
each of the following Contracts to which Parent or any Parent Subsidiary is a
party to or by which Parent or any Parent Subsidiary is bound (in each case,
other than this Agreement or any Related Agreement):
(a) any Contract with any Significant Parent Customer;
(b) any Contract generating, or that is reasonably likely to
generate, more than $100,000 in revenues for Parent and the Parent Subsidiaries
over the twelve month period from the date of this Agreement, other than those
set forth on Section 5.12(i) of the Parent Disclosure Schedules;
(c) any Contract with any director, officer, employee or
consultant that would require Parent or any Parent Subsidiary to make any
payments in connection with the Merger, or upon termination of employment, but
excluding any Contract (i) that is terminable at-will or, in the case of
consultants, with 30 or fewer days of notice by Parent or any of the Parent
Subsidiaries without cost, liability or financial obligations (other than
accrued regular compensation and benefits through the date of termination,
including any such notice period), or (ii) under which Parent and the Parent
Subsidiaries collectively have paid or are obligated to pay less than $100,000;
(d) any Contract for indemnification (other than standard
indemnification provisions in Contracts entered into by Parent or any Parent
Subsidiary in the Ordinary Course of Business) or any guaranty;
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(e) any Contract containing any covenant limiting in any respect
the right of Parent or any of the Parent Subsidiaries to (i) engage, participate
or compete in any line of business, market or geographic area, (ii) develop,
market or distribute products or services, (iii) conduct business with any
Person, (iv) solicit the employment of, or hire, any Person, or (v) compete with
any Person; or granting any exclusive sales, distribution, marketing or other
exclusive rights, rights of first refusal, "most favored nation" rights, rights
of first negotiation or other exclusive rights or similar terms to any Person,
but in each case excluding Contracts containing limitations that (A) are not
material to Parent or any Parent Subsidiary, and (B) do not limit the ability of
Parent or any Parent Subsidiary to develop or market additional products or
services;
(f) any Lease for real or personal property in which the amount of
payments that Parent or any of the Parent Subsidiaries is required to make on an
annual basis exceeds $25,000;
(g) any Contract pursuant to the express terms of which Parent or
any of the Parent Subsidiaries is currently obligated to pay in excess of
$25,000 in any one year period that is not terminable by Parent or the Parent
Subsidiaries without penalty upon notice of ninety (90) days or less;
(h) any Contract currently in force relating to the disposition or
acquisition by Parent or any of the Parent Subsidiaries after the date hereof of
(i) assets with a book value exceeding $25,000; or (ii) Equity Interests in an
Entity;
(i) any Contract pursuant to which Parent or any Parent Subsidiary
is a licensor of Intellectual Property or agrees to Encumber, not assert,
Transfer or sell rights in or with respect to any Intellectual Property, except
for distribution contracts with retail outlets, independent sales agents, other
distributors and end users entered into by Parent or any Parent Subsidiary in
the Ordinary Course of Business;
(j) any joint venture Contract or any other Contract that involves
a sharing of revenues in excess of $25,000, or involves a sharing of profits,
cash flows, expenses or losses, with other Persons, or the payment of royalties
to any other Person, other than Contracts identified in Section 5.12(a) of the
applicable Parent Disclosure Schedule;
(k) any Contract currently required to be filed as an exhibit
pursuant to Item 601(b)(10) of Regulation S-K promulgated under the Securities
Act, other than those currently on file with the SEC (including any Amendments
to Contracts filed as of the Parent Balance Sheet Date that are required to be
filed);
(l) any Contract containing a "standstill" provision with respect
to any Equity Interests of Parent;
(m) any Contract in effect on the date of this Agreement,
including any Parent Stock Option Plan, relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any Parent Common Shares
or any other Equity Interests or Securities of Parent or any of the Parent
Subsidiaries, or any Commitments to purchase or otherwise acquire any such
Parent Common Shares, Equity Interests or Securities, except for the Parent
Stock Option Plans, the Parent Options and Parent Warrants disclosed in Section
5.3 of the applicable Parent Disclosure Schedule;
(n) any Contract under which Parent or any Parent Subsidiary is
obligated to provide consulting services, development services, professional
services or support services (other than maintenance and support customer
contracts on Parent's standard, unmodified forms), in each case excluding (i)
Contracts that are terminable by Parent or the Parent Subsidiary on notice of
thirty (30) days or less without penalty in excess of $25,000, individually or
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in the aggregate, and without any ongoing material obligations, and (ii)
Contracts that generated less than $25,000 in revenue to Parent during the 12
months preceding the date of this Agreement;
(o) any Contract with any investment banker, broker, advisor or
similar Person, or any accountant, legal counsel or other Person retained by
Parent, in connection with this Agreement and the Transactions, other than
Contracts with service providers entered into in Parent's Ordinary Course of
Business with fees to be paid based on the provider's customary hourly rates;
(p) any Contract pursuant to which Parent or any of the Parent
Subsidiaries has acquired a business or Entity, or assets of a business or
Entity, whether by way of merger, consolidation, purchase of stock, purchase of
assets, license or otherwise, or any Contract pursuant to which it has any
material ownership interest in any other Entity (other than the Parent
Subsidiaries), in either case which was entered into within the three years
preceding the date hereof or under which any Liabilities exist;
(q) all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
Indebtedness of Parent or any of the Parent Subsidiaries in an aggregate
principal amount in excess of $100,000 is outstanding or may be incurred on the
terms thereof, and the respective principal amounts currently outstanding
thereunder as of the date hereof; or
(r) any other Contract not listed in subsections (a)-(q) next
preceding that individually provides for payments to or by Parent or any Parent
Subsidiary in excess of $50,000, or pursuant to which Parent or any Parent
Subsidiary have been paid, or expects to be paid, more than $50,000 in any
consecutive 12-month period, or that individually provides for payments by
Parent or any Parent Subsidiary in excess of $50,000 or is otherwise material to
Parent or the Parent Subsidiaries or their respective businesses, operations,
financial condition, properties or assets (other than employee offer letters in
the Ordinary Course of Business).
Except as set forth on Section 5.12 of the Parent Disclosure Schedules, all
Parent Material Contracts are in written form. Parent has Made Available to the
Company true, correct and complete copies of each Parent Material Contract, as
Amended to date. Each Parent Material Contract is (i) valid and binding on
Parent and each Parent Subsidiary party thereto and, to the Parent's Knowledge,
each other party thereto, and (ii) in full force and effect. Parent and each
Parent Subsidiary has in all material respects performed all material
obligations required to be performed by it to the date hereof under each Parent
Material Contract and, to Parent's Knowledge, each other party to each Parent
Material Contract has in all material respects performed all obligations
required to be performed by it under such Parent Material Contract. As of the
date hereof, none of Parent and the Parent Subsidiaries has Knowledge of, or has
received notice from the other contracting party of, any actual or alleged
material Breach of any Parent Material Contract. There exists no Breach with
respect to Parent or any Parent Subsidiary or, to the Knowledge of Parent, with
respect to any other contracting party, which, with the giving of notice or the
lapse of time or both, would reasonably be expected to constitute a material
Breach of such Parent Material Contract.
Section 5.13 Litigation. Except as set forth in Section 5.13 of
the Parent Disclosure Schedules, (i) there is no Action pending or, to Parent's
Actual Knowledge, threatened against Parent or any Parent Subsidiary or, to
Parent's Actual Knowledge, for which Parent or any Parent Subsidiary is
obligated to indemnify a third party, (ii) none of Parent and the Parent
Subsidiaries is subject to any outstanding Order, and (iii) to Parent's
Knowledge, there has been no refusal to indemnify or denial of indemnification
and no intention to refuse indemnification, by any third party in connection
with any past, pending or threatened Action with respect to which Parent or any
Parent Subsidiary is or may be entitled to indemnification from any third party.
Except as set forth in Section 5.13 of the Parent Disclosure Schedules, neither
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Parent nor any Parent Subsidiary has any Action pending against any other
Person. There has not been since December 31, 2005, nor are there currently, any
internal investigations or inquiries being conducted by Parent, the Parent Board
(or any committee thereof) or any third party at the request of any of the
foregoing concerning any financial, accounting, tax, conflict of interest,
illegal activity, fraudulent or deceptive conduct, violation of Parent policy or
other misfeasance or malfeasance issues.
Section 5.14 Environmental Matters.
(a) Parent and each Parent Subsidiary is in material compliance
with all Environmental Laws.
(b) Neither Parent nor any Parent Subsidiary has received
notification regarding any existing or potential Environmental Claims against
Parent or any Parent Subsidiary, nor have any of them received any written
notification of any allegation of any actual or potential responsibility for, or
any Action regarding, (i) any violation of Environmental Laws, or (ii) any
Environmental Release or threatened Environmental Release at any Facilities of
any Materials of Environmental Concern generated or transported by Parent or any
Parent Subsidiary.
(c) There has been no Environmental Release at any Facilities of
Parent or any Parent Subsidiary of any Materials of Environmental Concern in
quantities that could trigger the need for investigation or remediation pursuant
to any Environmental Laws.
Section 5.15 Intellectual Property.
(a) Unless otherwise expressly provided herein, the following
terms, whenever used in this Agreement, shall have the meanings ascribed to them
in this Section 5.15(a):
(1) "Parent IP" means (i) all Intellectual Property
used in the conduct of the business of Parent or any Parent
Subsidiary as currently conducted by Parent and the Parent
Subsidiaries, and (ii) all other Parent-Owned IP.
(2) "Parent-Owned IP" means all Intellectual
Property owned by Parent or any Parent Subsidiary.
(3) "Parent Products" means, collectively, (i) all
products and services that are currently being published,
marketed, licensed, sold, leased, auctioned, distributed or
performed, or offered for publication, licensing, sale, lease,
distribution or performance or at auction, by or on behalf of
Parent or any Parent Subsidiary, and (ii) all products or services
currently under development by Parent or any Parent Subsidiary or
that Parent or any of the Parent Subsidiaries are Contractually
obligated to develop.
(b) Parent and the Parent Subsidiaries (i) own and have
independently developed or acquired, or (ii) have the valid right or license
(exclusive or non-exclusive, as applicable) to, all Parent IP. The Parent IP is
sufficient for the conduct of the business of Parent and the Parent Subsidiaries
as currently conducted and to Parent's Knowledge as currently proposed to be
conducted by Parent or any Parent Subsidiary.
(c) Neither Parent nor any of the Parent Subsidiaries has (i)
transferred ownership of any material Parent-Owned IP to any third party, (ii)
knowingly permitted any material Parent-Owned IP to enter the public domain, or
(iii) permitted any material Parent Registered Intellectual Property or
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application therefor to lapse (other than through the expiration of Registered
Intellectual Property at the end of its maximum statutory term or the
abandonment of trademarks or service marks in the Ordinary Course of Business
using reasonable business judgment).
(d) Except as set forth in Section 5.15(d) of the Parent
Disclosure Schedules, Parent and the Parent Subsidiaries own and have good and
exclusive title to all Parent-Owned IP and all Parent Registered Intellectual
Property, free and clear of any Encumbrances. Except as set forth in Section
5.15(d) of the Parent Disclosure Schedules, the right, license and interest of
Parent and the Parent Subsidiaries in and to all Third Party Intellectual
Property Rights licensed by Parent or a Parent Subsidiary are free and clear of
all Encumbrances (excluding restrictions contained in the applicable license
agreements with such third parties).
(e) Except as set forth in Section 5.15(e) of the Parent
Disclosure Schedules, none of the execution and delivery or effectiveness of
this Agreement, the consummation of the Transactions and the performance by
Parent of its obligations under this Agreement or the Related Agreements to
which it is a signatory, will cause the forfeiture or termination of, or give
rise to a right of forfeiture or termination of, any Parent-Owned IP, or impair
the right of Parent or any Parent Subsidiary to use, possess, sell or license
any Parent-Owned IP or any portion thereof.
(f) Section 5.15(f) of the Parent Disclosure Schedule lists all
Parent Registered Intellectual Property, and for each item of such Registered
Intellectual Property, (i) the jurisdictions in which such Registered
Intellectual Property has been issued or registered or in which any application
for such issuance and registration has been filed, and (ii) the legal counsel
(if any) assisting in the initial registration or the maintenance of such
Registered Intellectual Property.
(g) Each item of Parent Registered Intellectual Property is
subsisting (or, in the case of applications, applied for), all registration,
maintenance and renewal fees currently due in connection with such Registered
Intellectual Property have been or will be timely paid, and all documents,
recordations and certificates in connection with such Registered Intellectual
Property currently required to be filed have been or will be timely submitted to
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
prosecuting, maintaining and perfecting such Registered Intellectual Property
and recording Parent's and the Parent Subsidiaries' ownership interests therein.
(h) Except as set forth in Section 5.15(h) of the Parent
Disclosure Schedules, to Parent's Actual Knowledge, there is no unauthorized
use, unauthorized disclosure, infringement or misappropriation of any
Parent-Owned IP by any third party, including any employee or former employee of
Parent or any Parent Subsidiary. Except as set forth in Section 5.15(h) of the
Parent Disclosure Schedules, neither Parent nor any Parent Subsidiary has
initiated any lawsuit, mediation or arbitration for infringement or
misappropriation of any Intellectual Property.
(i) Except as set forth in Section 5.15(i) of the Parent
Disclosure Schedules, neither Parent nor any Parent Subsidiary has (i) been sued
in any Action (or received any written notice or, to the Actual Knowledge of
Parent, threat) that involves a claim of infringement or misappropriation of any
Third Party Intellectual Property Right or which contests the validity,
ownership or right of Parent or any Parent Subsidiary to exercise any
Intellectual Property right, or (ii) received any written communication that
puts Parent or any Parent Subsidiary on notice of or involves an offer to
license or grant any Third Party Intellectual Property Right or immunities in
respect thereof.
(j) The operation of the business of Parent and the Parent
Subsidiaries as such business is currently conducted and, to the Actual
Knowledge of Parent, as currently proposed to be conducted by Parent or any
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Parent Subsidiary, including (i) the design, development, manufacturing,
reproduction, marketing, licensing, sale, offer for sale, importation,
distribution, provision or use of any Parent Product, and (ii) Parent's or any
Parent Subsidiary's use of any product, device or process used in the business
of Parent or the Parent Subsidiaries as currently conducted and, to the Actual
Knowledge of Parent, as currently proposed to be conducted by Parent or any
Parent Subsidiary, does not and will not infringe or misappropriate any Third
Party Intellectual Property Rights and does not and, to the Actual Knowledge of
Parent, will not constitute unfair competition or unfair trade practices under
the Laws of any jurisdiction in which Parent or any of the Parent Subsidiaries
conducts business.
(k) None of the Parent-Owned IP, the Parent Products, Parent and
the Parent Subsidiaries is subject to any judicial or governmental Action or
outstanding Order (A) restricting in any manner the use, transfer, or licensing
by Parent or any Parent Subsidiary of any Parent-Owned IP or any Parent Product,
or which may affect the validity, use or enforceability of any such Parent-Owned
IP or Parent Product, or (B) restricting the conduct of the business of Parent
or any Parent Subsidiary in order to accommodate Third Party Intellectual
Property Rights.
(l) Neither Parent nor any Parent Subsidiary has received any
written opinion of legal counsel that any Parent Product or the operation of the
business of Parent or any Parent Subsidiary, as previously or currently
conducted, infringes or misappropriates any Third Party Intellectual Property
Rights.
(m) Except as set forth in Section 5.15(m) of the Parent
Disclosure Schedules, each of Parent and the Parent Subsidiaries has secured
from all of its consultants, employees and independent contractors who
independently or jointly contributed to the conception, reduction to practice,
creation or development of any material Parent-Owned IP, an assignment of
inventions and ownership agreement, in the form Made Available to the Company,
assigning all such third party's Intellectual Property in such contribution that
Parent or any Parent Subsidiary does not already own by operation of Law, and no
such third party has retained any rights or licenses with respect thereto.
(n) To Parent's Knowledge, no current or former employee,
consultant or independent contractor of Parent or any Parent Subsidiary (i) is
in violation of any term or covenant of any Contract relating to employment,
invention disclosure, invention assignment, non-disclosure or non-competition or
any other Contract with any other party by virtue of such employee's,
consultant's or independent contractor's being employed by, or performing
services for, Parent or any Parent Subsidiary or using trade secrets or
proprietary information of others without permission, or (ii) has developed any
technology, software or other copyrightable, patentable or otherwise proprietary
work for Parent or any Parent Subsidiary that is subject to any Contract under
which such employee, consultant or independent contractor has assigned or
otherwise granted to any third party any rights (including Intellectual Property
rights) in or to such technology, software or other copyrightable, patentable or
otherwise proprietary work.
(o) To Parent's Knowledge, the employment of any employee of
Parent or any Parent Subsidiary or the use by Parent or any Parent Subsidiary of
the services of any consultant or independent contractor does not subject Parent
or any Parent Subsidiary to any liability to any third party for improperly
soliciting such employee, consultant or independent contractor to work for
Parent or any Parent Subsidiary, whether such liability is based on contractual
or other legal obligations to such third party.
(p) Except as set forth in Section 5.15(p) of the Parent
Disclosure Schedules, to Parent's Knowledge, no current or former employee,
consultant or independent contractor of Parent or any Parent Subsidiary has any
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right, license, claim or interest whatsoever in or with respect to any
Parent-Owned IP.
(q) Parent and the Parent Subsidiaries have taken commercially
reasonable steps to protect and preserve the confidentiality of all material
confidential or non-public information included in the Parent IP Rights. All
use, disclosure or appropriation of such information owned by Parent or any
Parent Subsidiary by or to a third party has been pursuant to the terms of a
written agreement or other legal binding arrangement between Parent or a Parent
Subsidiary and such third party. All use, disclosure or appropriation of such
information by Parent and the Parent Subsidiaries not owned by Parent or any
Parent Subsidiary has been pursuant to the terms of a written agreement between
Parent or such Parent Subsidiary and the owner of such information, or is
otherwise lawful.
(r) Except as set forth in Section 5.15(r) of the Parent
Disclosure Schedules, to Parent's Knowledge, neither Parent nor any Parent
Subsidiary has (i) incorporated Open Source Materials into, or combined Open
Source Materials with, Parent IP, or (ii) distributed Open Source Materials in
conjunction with any Parent IP.
(s) To Parent's Knowledge, no (i) government funding, (ii)
facilities of a university, college, other educational institution or research
center, or (iii) funding from any Person (other than funds received in
consideration for the Parent Equity Interests or Indebtedness incurred on
commercially reasonable terms) was used in the development of the Parent-Owned
IP.
Section 5.16 Taxes.
(a) Parent and the Parent Subsidiaries and each affiliated,
combined, consolidated or unitary group of which Parent or any Parent Subsidiary
is or has been a member (each, a "Parent Group") have timely filed all material
federal, state, local, and foreign Tax Returns required to be filed by it in the
manner prescribed by applicable Laws and all such Tax Returns were true,
complete and correct in all material respects. Except with respect to Taxes that
are immaterial in amount, all Taxes of Parent and the Parent Subsidiaries
(whether or not shown or required to be shown on any Tax Return) that are due
and payable have been timely paid in full and the accruals and reserves for
Taxes (rather than any reserve for deferred Taxes established to reflect timing
difference between book and Tax income) reflected in the Parent Balance Sheet
(rather than any notes thereto) are adequate in accordance with GAAP to cover
all unpaid Taxes of Parent and the Parent Subsidiaries. Except with respect to
Taxes that are immaterial in amount, all reserves for Taxes as adjusted for
operations and transactions and the passage of time through the Effective Time
in accordance with past custom and practice of Parent and the Parent
Subsidiaries are adequate in accordance with GAAP to cover all unpaid Taxes of
Parent and the Parent Subsidiaries accruing through the Effective Time.
(b) Parent and the Parent Subsidiaries have withheld and paid over
all material Taxes required to have been withheld and paid over, and to the
Knowledge of Parent, Parent and the Parent Subsidiaries have withheld and paid
over all other Taxes required to have been withheld and paid over, and Parent
and the Parent Subsidiaries have complied with all material information
reporting and backup withholding requirements, including the maintenance of
required records with respect thereto, in each case in connection with amounts
paid or owing to any employee, creditor, independent contractor or other third
party. There are no Encumbrances on any of the Properties of Parent or any
Parent Subsidiary with respect to Taxes.
(c) Except as set forth in Section 5.16(c) of the Parent
Disclosure Schedules, no audit of material Tax Returns or other examination of
Parent, any Parent Subsidiary or any member of any Parent Group is pending or
threatened in writing. No deficiencies have been asserted against Parent or any
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Parent Subsidiary as a result of examinations by any Tax Authority and no issue
has been raised by any examination conducted by any Tax Authority that, by
application of the same principles, might result in a proposed deficiency for
any other period not so examined. Each deficiency resulting from any audit or
examination relating to Taxes of Parent or any Parent Subsidiary by any Tax
Authority has been paid or is being contested in good faith and in accordance
with the Law and is fully reserved for on the Parent Balance Sheet in accordance
with GAAP. No claim has ever been made by an authority in a jurisdiction where
Parent or any of the Parent Subsidiaries does not file Tax Returns that Parent
or any Parent Subsidiary, as the case may be, is or may be subject to Tax in
such jurisdiction. Neither Parent nor any Parent Subsidiary is subject to any
private letter ruling of the IRS or comparable rulings of other Tax Authorities
that will be binding on Parent or any Parent Subsidiary with respect to any
period following the Effective Time.
(d) Neither Parent nor any Parent Subsidiary has requested any
extension of time within which to file any material Tax Return which Tax Return
has not yet been filed. There are no agreements, waivers of statutes of
limitations, or other arrangements providing for extensions of time in respect
of the assessment or collection of any unpaid Taxes against Parent or any Parent
Subsidiary.
(e) Parent and each Parent Subsidiary have disclosed on their
federal income tax returns all material positions taken therein that could, if
not so disclosed, give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code. Neither Parent nor any Parent Subsidiary
has been a party to or participated in any way in a transaction that would be
defined as a "reportable transaction" within the meaning of Treasury Regulation
Section 1.6011-4(b) (including any "listed transaction") or any confidential
corporate tax shelter within the meaning of Treasury Regulation Section
1.6111-2.
(f) Except as set forth in Section 5.16(f) of the Parent
Disclosure Schedules, neither Parent nor any Parent Subsidiary has been a member
of any Parent Group other than the Parent Group of which Parent is the parent.
None of Parent or any Parent Subsidiary has any liability for, or any
indemnification or reimbursement obligation with respect to, (i) Taxes of any
Person under Treasury Regulation Section 1.1502-6 (or any similar provision
under foreign, state or local Law), (ii) material Taxes of any Person as
transferee or successor, or (iii) material Taxes of any Person by contract for
Taxes. Neither Parent nor any Parent Subsidiary is a party to any Tax sharing
agreement, Tax indemnity obligation or similar Contract or practice with respect
to Taxes (including any advance pricing agreement, closing agreement or other
agreement relating to Taxes with any Tax Authority).
(g) Except as set forth in Section 5.16(g) of the Parent
Disclosure Schedules, neither Parent nor any Parent Subsidiary (nor any officer
of Parent or any Parent Subsidiary) is a party to any Contract (including this
Agreement, the Related Agreement and the arrangements contemplated hereby and
thereby) that, individually or collectively, could give rise to the payment of
any amount (whether in cash or property, including shares of capital stock) that
would not be deductible pursuant to the terms of Sections 162(a)(1), 162(m) or
162(n) of the Code.
(h) Neither Parent nor any Parent Subsidiary has agreed or is
required to make any adjustment under Code Section 481(a) or Section 482 (or an
analogous provision of state, local or foreign Law) by reason of a change in
accounting method or otherwise. Neither Parent nor any Parent Subsidiary will be
required to include in income, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any "closing agreement" as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income Tax Law).
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(i) Neither Parent nor any Parent Subsidiary is or has been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code).
(j) Neither Parent nor any Parent Subsidiary has had or maintained
a permanent establishment other than in its country of organization.
(k) Section 5.16(k) of Parent Disclosure Schedule sets forth
information with respect to each of Parent and the Parent Subsidiaries as of the
most recent practicable date regarding any material Tax holidays or foreign
rulings to which Parent or any Parent Subsidiary (as the case may be) is
subject.
(l) Neither Parent nor any Parent Subsidiary has incurred, and no
state of affairs exist that could result in Parent or any Parent Subsidiary
incurring, any penalty under Section 6662(e) of the Code.
Section 5.17 Insurance. Section 5.17 of the Parent Disclosure
Schedule contains a true, correct and complete list of policies and bonds of
insurance maintained by Parent and each Parent Subsidiary, and the Parent has
Made Available to the Company true, correct and complete copies of such policies
and bonds of insurance. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid, and Parent and each Parent
Subsidiary is otherwise in compliance in all material respects with the terms of
such policies and bonds. To the Knowledge of Parent, neither Parent nor any
Parent Subsidiary has received written notification of any threatened
termination of, or material premium increase with respect to, any such policies
or bonds.
Section 5.18 Opinion of Financial Advisor. In the event that the
Parent Board has resolved to retain a financial advisor and a fairness opinion
in connection with the Merger, the Parent Board has received the written opinion
of such financial advisor (the "Parent Financial Advisor") addressed to the
Parent Board, to the effect that the Merger Consideration is fair from a
financial point of view to the holders of Parent Common Shares, and Parent has
delivered to the Company a true, correct and complete copy of such opinion
solely for informational purposes.
Section 5.19 Brokers. Neither Parent nor any Affiliate of Parent
is obligated for the payment of any fees or expenses of any investment banker,
broker, advisor or similar party in connection with the origin, negotiation or
execution of this Agreement or in connection with the Merger or any other
Transaction.
Section 5.20 Properties.
(a) Section 5.20(a) of the Parent Disclosure Schedules lists all
real property owned by Parent or any Parent Subsidiary.
(b) Section 5.20(b) of the Parent Disclosure Schedules lists all
material real property Leases to which Parent or any Parent Subsidiary is a
party and each Amendment thereto that is now in effect. All such current Leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and, except as set forth in Section 5.20(b) of the Parent
Disclosure Schedules, none of Parent and the Parent Subsidiaries and, to the
Actual Knowledge of Parent, no other party, is in Breach of any such Lease that
would give rise to a material claim against Parent or any Parent Subsidiary.
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Section 5.21 Interested Party Transactions. Except as disclosed in
the Parent SEC Reports, since December 31, 2005, no event has occurred and no
relationship exists that would be required to be reported by Parent pursuant to
Item 404 of Regulation S-K.
Section 5.22 Export and Import Laws. Parent and each Parent
Subsidiary has conducted its export transactions in accordance in all material
respects with applicable provisions of U.S. Export and Import Laws. Without
limiting the generality of the foregoing, (i) Parent and each Parent Subsidiary
has obtained all export licenses and other approvals required for its exports of
products, Intellectual Property, software and technologies from the United
States, (ii) Parent and each Parent Subsidiary is in material compliance with
the terms of all applicable export licenses or other approvals, (iii) there are
no pending or, to Parent's Actual Knowledge, threatened claims against Parent or
any Parent Subsidiary with respect to such export licenses or other approvals,
and (iv) to Parent's Knowledge, there are no conditions or circumstances
pertaining to Parent's or any Parent Subsidiary's export transactions that may
give rise to any future claims.
Section 5.23 Capitalization, Ownership and Prior Activities of
Merger Sub.
(a) The authorized capital shares of Merger Sub consist of 1,000
shares of common stock, par value $0.0001 per share. As of the date hereof, all
of such shares were issued and outstanding, all of which are held and owned
directly by Parent and are validly issued and fully paid, nonassessable and free
of preemptive rights. There are no Commitments or other rights or Contracts
obligating Parent or Merger Sub to issue or sell any Equity Interests, or
Securities convertible into or exchangeable for Equity Interests, in Merger Sub.
(b) Except for obligations or liabilities incurred in connection
with its incorporation or organization, the execution and deliver of this
Agreement and the Related Agreement to which it is a signatory and the
Transactions, Merger Sub has not and, prior to the Effective Time, will not have
(i) incurred, directly or indirectly through any Subsidiary or Affiliate, any
Liabilities, (ii) engaged in any business activities, or (iii) entered into any
Contracts with any Person.
Section 5.24 Interested Stockholders. None of Parent or any of its
Affiliates is an "interested stockholder" (as defined in Section 203 of the
DGCL) of the Company.
Section 5.25 Representations Complete. Except as set forth in
Section 5.25 of the Parent Disclosure Schedules, none of the representations or
warranties made by Parent, and no financial statement, other written financial
information or statements made in any exhibit, schedule or certificate Made
Available or furnished by Parent to the Company pursuant to this Agreement or
any Related Agreement, or furnished by Parent in or in connection with documents
mailed or delivered to the stockholders of Parent or the Company for use in
soliciting their approval of this Agreement and the Merger, contains or will
contain at the Closing Date any untrue statement of a material fact or omits or
will omit at the Closing Date to state any material fact necessary in order to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE VI.
COVENANTS
Section 6.1 Conduct of Business by the Company Pending the
Closing. The Company agrees that, from the date of this Agreement to the
Effective Time, except as specifically permitted, required or contemplated by
any other provision of this Agreement (exclusive of the schedules hereto), as
specifically set forth in a closing condition in Article VII or with ▇▇▇▇▇▇'s
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prior written consent (such consent not to be unreasonably withheld), the
Company shall, and shall cause each Company Subsidiary to: (i) conduct its
operations only in the Ordinary Course of Business, and not to take any action
inconsistent therewith or with this Agreement, (ii) use its reasonable best
efforts to keep available the services of the current officers, employees and
consultants of the Company and each Company Subsidiary (subject to terminations
for cause or performance reasons) and to preserve the current relationships of
the Company and each Company Subsidiary with their respective customers,
suppliers, distributors, business partners and other Persons with which the
Company or any Company Subsidiary has business relations, (iii) use its Best
Efforts to have in effect and maintain at all times insurance of the kinds, in
the amounts and with the insurers as is in effect as of the date of this
Agreement, (iv) keep in working condition and good order and repair all of its
assets and other properties, normal wear and tear excepted, and (v) protect the
Company's Intellectual Property. Without limiting the foregoing, and as an
extension thereof, except as specifically permitted, required or contemplated by
any other provision of this Agreement (exclusive of the schedules hereto), the
Company shall not, and shall not permit any Company Subsidiary to, from the date
of this Agreement to the Effective Time, directly or indirectly, do, or agree to
do, any of the following without Parent's prior written consent (such consent
not to be unreasonably withheld):
(a) acquire by merging or consolidating with or by purchasing a
substantial Equity Interest in or a substantial portion of the assets of, or by
any other manner, any business, Entity or division thereof other than a Company
Subsidiary, or enter into any agreement providing for any merger, consolidation,
acquisition, divestiture or similar transaction;
(b) sell, Lease, license or otherwise dispose of any of its
Property, other than in the Ordinary Course of Business;
(c) Amend or propose to Amend the Organizational Documents of it
or any Company Subsidiary;
(d) declare, set aside or pay any dividend or other distribution
payable in cash, capital stock, Property or otherwise with respect to any shares
of its capital stock, or purchase, redeem or otherwise acquire, or offer to
purchase, redeem or otherwise acquire, any shares of its capital stock, other
equity Securities, other ownership interests or any Commitments for any such
stock, Securities or interests (except for repurchases of Company Common Shares
from former employees pursuant to Repurchase Rights and Company purchases of
Equity Interests of Company Subsidiaries in the Ordinary Course of Business
related to intra-company financings);
(e) cause or permit any Capitalization Adjustments to any Equity
Interests of the Company;
(f) issue, sell, authorize, or agree to the issuance or sale of,
or enter into any Commitments for, any Equity Interests of the Company or any
Company Subsidiary, except for (i) the Company Common Shares issuable upon
exercise of (A) Company Options outstanding on the date hereof, or (B) Company
Warrants outstanding on the date hereof, and (ii) Company acquisitions of Equity
Interests of Company Subsidiaries in the Ordinary Course of Business related to
intra-company financings;
(g) grant, Amend or change the terms of any Company Options, or
accelerate or change the period of exercisability or vesting of any Company
Options, or Amend any Repurchase Rights or accelerate or change the period of
vesting of any Company Common Shares subject to Repurchase Rights or the lapsing
of such Repurchase Rights, or authorize cash payments in exchange for any
Company Options;
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(h) (i) take any action with respect to the grant or availability
of, qualification for or increase in any severance or termination pay to any
current or former director, executive officer or employee of the Company or any
Company Subsidiary, (ii) execute any employment, deferred compensation or other
similar Contract (or any Amendment to any such existing Contract) with any
director, executive officer or employee of the Company or any Company Subsidiary
(other than immaterial agreements entered into in the Ordinary Course of
Business with non-U.S. employees on customary terms), (iii) increase the
benefits payable under any existing severance or termination pay policies or
employment Contracts, (iv) increase the compensation, bonus or other benefits of
current or former directors, executive officers or employees of the Company or
any Company Subsidiary, (v) pay any bonuses to employees in excess of the amount
set forth in Section 6.1(h) of the Original Company Disclosure Schedules, (vi)
adopt or establish any new Company Benefit Plan or Amend any existing Company
Benefit Plan, (vii) pay any benefit to a current or former director, executive
officer or employee of the Company or any Company Subsidiary not required by any
existing Contract or employee benefit plan, or (viii) take any action that would
result in the Company or any Company Subsidiary incurring any obligation for any
payments or benefits described in clauses (i)-(viii) next preceding except to
the extent required in a written contract or agreement in existence as of the
date of this Agreement and described in Section 6.1(h) of the Original Company
Disclosure Schedules;
(i) hire any employees at the vice president or equivalent level
or above, or enter into, Amend or extend the term of, any employment or
consulting Contract with any officer, employee, consultant or independent
contractor (other than offer letters to new employees using the Company's
standard, unmodified form of offer letter Made Available to Parent, which
provides for at-will employment and which does not provide for severance,
acceleration or post-termination benefits, and statements of work for
consultants in the Ordinary Course of Business using the Company's standard,
unmodified form Made Available to Parent which provides for not more than 30
days' notice of termination, and does not provide for any severance,
acceleration or post-termination benefits or similar payments upon termination),
or enter into any collective bargaining agreement (unless required by applicable
Law);
(j) make any material changes in its reporting for Taxes or
accounting methods or policies; make or rescind any Tax election; make any
change to its method or adopt any method of reporting income, deductions, or
other Tax items for Tax purposes that is inconsistent with positions taken,
elections made or methods used in reporting such Tax items in prior periods (all
except as may be required by applicable Law); or settle or compromise any Tax
liability;
(k) except as set forth on Section 6.1(k) of the Original Company
Disclosure Schedules, commence any legal proceeding, or settle, compromise or
otherwise resolve any litigation or other legal proceedings, involving (i)
Intellectual Property that is used in the development or distribution of, or
that is incorporated into, any of the Company Products or (ii) a payment of more
than $25,000 in any one case by or to the Company or any Company Subsidiary;
(l) except as set forth on Section 6.1(l) of the Original Company
Disclosure Schedules, (i) incur, or permit or suffer any Company Subsidiary to
incur, any Indebtedness other than (A) short-term borrowings incurred in the
Ordinary Course of Business not to exceed $100,000 in the aggregate, and (B)
borrowings incurred on commercially reasonable terms to refinance Indebtedness
existing on the date of this Agreement, in an aggregate principal amount of no
more than the principal amount of such refinanced Indebtedness; provided that
the Company or the Company Subsidiary, as the case may be, shall be entitled to
prepay such Indebtedness without penalty or more than one Business Day advance
notice, or (ii) Amend the terms of any existing Indebtedness of the Company or
any Company Subsidiary;
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(m) assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other Person, or make any loans
or advances, except (i) to or for the benefit of the Company Subsidiaries in the
Ordinary Course of Business, or (ii) for those not in excess of $50,000 in the
aggregate;
(n) create or assume any material Encumbrance on any Property
owned by the Company or any Company Subsidiary;
(o) pay or discharge any claims or Liabilities other than the
payment in the Ordinary Course of Business of claims or Liabilities that were
reflected on the Company Balance Sheet or that were incurred after the date of
the Company Balance Sheet in the Ordinary Course of Business;
(p) write off any accounts or notes receivable in excess of
$25,000 in the aggregate;
(q) make or commit to make capital expenditures in excess of
$25,000 in any three month period after the date of this Agreement;
(r) (i) make any loans or advances to any Person (including any
officer, director, employee or consultant of the Company or any Company
Subsidiary), other than (A) routine travel advances and sales commission draws
to employees of the Company or any Company Subsidiary in the Ordinary Course of
Business, and (B) auction or customer advances secured by jewelry or rare coins
in the Ordinary Course of Business and on standard terms, or (ii) forgive or
discharge in whole or in part any outstanding loans or advances, or otherwise
materially Amend any loan or advance previously made other than loans or
advances by the Company to any Company Subsidiary in the Ordinary Course of
Business related to inter-company financings;
(s) make any investments in, purchase any Securities of or make
any capital contributions to any Person, other than a wholly-owned Company
Subsidiary;
(t) enter into any Contract that limits or otherwise restricts the
Company or any Company Subsidiary, or that, after the Effective Time, would be
reasonably expected to limit or restrict Company or any Company Subsidiary or
any of their respective Affiliates or any successors thereto, from engaging or
competing in any line of business or in any geographic area, or which provides
exclusive rights or "most favored nation" rights of any kind or scope to any
party;
(u) terminate, Amend or waive any provision of any standstill
agreement to which it is a party, or any confidentiality agreement not entered
into in the Ordinary Course of Business, or fail to enforce, to the fullest
extent permitted by Law, the provisions of such an agreement;
(v) terminate, or Amend in any material respect, any Company
Material Contract, or enter into any Contract that would have been a Company
Material Contract if it were in effect on the date hereof, except for agreements
with auction houses, distributors and customers on standard forms entered into
or Amended in its Ordinary Course of Business;
(w) intentionally take any action or willfully omit to take any
required action that would make any representation or warranty of the Company
contained in Article IV or in any Related Agreement to which it is a signatory
inaccurate in any material respect at, or as of any time prior to, the Effective
Time, or fail to cure such action or inaction within thirty (30) days after
notice thereof, except as expressly permitted by this Agreement; or
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(x) take or agree to take any of the actions described in
subsections (a)-(w) of this Section 6.1 or which prevents the Company from
performing, or causes the Company not to perform, one or more of the covenants
required hereunder to be performed by the Company.
Notwithstanding the foregoing, to the extent that the Company cannot, despite
using its Best Efforts, both comply with the covenants of this Section 6.1 and
mandatory provisions of applicable Law, then the Company shall be entitled to
take action, or refuse to take action, required by this Section 6.1 without the
prior written consent by Parent, provided the Company provides written notice
thereof to Parent as promptly as practicable and provided further that this
sentence shall not be given effect for purposes of Section 7.2.
Section 6.2 Conduct of Business by Parent Pending the Closing.
Parent agrees that, from the date of this Agreement to the Effective Time,
except as specifically permitted, required or contemplated by any other
provision of this Agreement (exclusive of the schedules hereto), as specifically
set forth in a closing condition in Article VII or with the Company's prior
written consent (such consent not to be unreasonably withheld), Parent shall,
and shall cause each Parent Subsidiary to: (i) conduct its operations only in
the Ordinary Course of Business, and not to take any action inconsistent
therewith or with this Agreement, (ii) use its reasonable best efforts to keep
available the services of the current officers, employees and consultants of
Parent and each Parent Subsidiary (subject to terminations for cause or
performance reasons) and to preserve the current relationships of Parent and
each Parent Subsidiary with their respective customers, suppliers, distributors,
business partners and other Persons with which Parent or any Parent Subsidiary
has business relations, (iii) use its Best Efforts to have in effect and
maintain at all times insurance of the kinds, in the amounts and with the
insurers as is in effect as of the date of this Agreement, (iv) keep in working
condition and good order and repair all of its assets and other properties,
normal wear and tear excepted, and (v) protect Parent's Intellectual Property.
Without limiting the foregoing, and as an extension thereof, except as
specifically permitted, required or contemplated by any other provision of this
Agreement (exclusive of the schedules hereto), Parent shall not, and shall not
permit any Parent Subsidiary to, from the date of this Agreement to the
Effective Time, directly or indirectly, do, or agree to do, any of the following
without the Company's prior written consent (such consent not to be unreasonably
withheld):
(a) acquire by merging or consolidating with or by purchasing a
substantial Equity Interest in or a substantial portion of the assets of, or by
any other manner, any business, Entity or division thereof other than a Parent
Subsidiary, or enter into any agreement providing for any merger, consolidation,
acquisition, divestiture or similar transaction;
(b) sell, Lease, license or otherwise dispose of any of its
Property, other than in the Ordinary Course of Business;
(c) Amend or propose to Amend the Organizational Documents of it
or any Parent Subsidiary;
(d) declare, set aside or pay any dividend or other distribution
payable in cash, capital stock, Property or otherwise with respect to any shares
of its capital stock, or purchase, redeem or otherwise acquire, or offer to
purchase, redeem or otherwise acquire, any shares of its capital stock, other
equity Securities, other ownership interests or any Commitments for any such
stock, Securities or interests (except for repurchases of Parent Common Shares
from former employees pursuant to Repurchase Rights and Parent purchases of
Equity Interests of Parent Subsidiaries in the Ordinary Course of Business
related to intra-company financings);
(e) cause or permit any Capitalization Adjustments to any Equity
Interests of Parent;
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(f) issue, sell, authorize, or agree to the issuance or sale of,
or enter into any Commitments for, any Equity Interests of Parent or any Parent
Subsidiary, except for (i) the Parent Common Shares issuable upon exercise of
(A) Parent Options outstanding on the date hereof, or (B) Parent Warrants
outstanding on the date hereof, (ii) the Parent Common Shares issuable upon the
exercise of the A Warrant or the B Warrant, and (iii) Parent acquisitions of
Equity Interests of Parent Subsidiaries in the Ordinary Course of Business
related to intra-company financings;
(g) grant, Amend or change the terms of any Parent Options, or
accelerate or change the period of exercisability or vesting of any Parent
Options, or Amend any Repurchase Rights or accelerate or change the period of
vesting of any Parent Common Shares subject to Repurchase Rights or the lapsing
of such Repurchase Rights, or authorize cash payments in exchange for any Parent
Options;
(h) (i) take any action with respect to the grant or availability
of, qualification for or increase in any severance or termination pay to any
current or former director, executive officer or employee of Parent or any
Parent Subsidiary, (ii) execute any employment, deferred compensation or other
similar Contract (or any Amendment to any such existing Contract) with any
director, executive officer or employee of Parent or any Parent Subsidiary
(other than immaterial agreements entered into in the Ordinary Course of
Business with non-U.S. employees on customary terms), (iii) increase the
benefits payable under any existing severance or termination pay policies or
employment Contracts, (iv) increase the compensation, bonus or other benefits of
current or former directors, executive officers or employees of Parent or any
Parent Subsidiary, (v) pay any bonuses to employees in excess of the amount set
forth in Section 6.2(h) of the Original Parent Disclosure Schedules, (vi) adopt
or establish any new Parent Benefit Plan or Amend any existing Parent Benefit
Plan, (vii) pay any benefit to a current or former director, executive officer
or employee of Parent or any Parent Subsidiary not required by any existing
Contract or employee benefit plan, or (viii) take any action that would result
in Parent or any Parent Subsidiary incurring any obligation for any payments or
benefits described in clauses (i)-(viii) next preceding except to the extent
required in a written contract or agreement in existence as of the date of this
Agreement and described in Section 6.2(h) of the Original Parent Disclosure
Schedules;
(i) hire any employees at the vice president or equivalent level
or above, or enter into, Amend or extend the term of, any employment or
consulting Contract with any officer, employee, consultant or independent
contractor (other than (i) offer letters to new employees using Parent's
standard, unmodified form of offer letter Made Available to the Company, which
provides for at-will employment and which does not provide for severance,
acceleration or post-termination benefits, and (ii) statements of work for
consultants in the Ordinary Course of Business using Parent's standard,
unmodified form Made Available to the Company which provides for not more than
30 days' notice of termination, and does not provide for any severance,
acceleration or post-termination benefits or similar payments upon termination),
or enter into any collective bargaining agreement (unless required by applicable
Law);
(j) make any material changes in its reporting for Taxes or
accounting methods; make or rescind any Tax election; make any change to its
method or adopt any method of reporting income, deductions, or other Tax items
for Tax purposes that is inconsistent with positions taken, elections made or
methods used in reporting such Tax items in prior periods (all except as may be
required by applicable Law); or settle or compromise any Tax liability;
(k) except as set forth on Section 6.2(k) of the Original Parent
Disclosure Schedules, commence any legal proceeding, or settle, compromise or
otherwise resolve any litigation or other legal proceedings, involving (i)
Intellectual Property that is used in the development or distribution of, or
that is incorporated into, any of the Parent Products or (ii) a payment of more
than $25,000 in any one case by or to Parent or any Parent Subsidiary;
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(l) except as set forth on Section 6.2(l) of the Original Parent
Disclosure Schedules, (i) incur, or permit or suffer any Parent Subsidiary to
incur, any Indebtedness other than (A) short-term borrowings incurred in the
Ordinary Course of Business not to exceed $100,000 in the aggregate, and (B)
borrowings incurred on commercially reasonable terms to refinance Indebtedness
existing on the date of this Agreement, in an aggregate principal amount of no
more than the principal amount of such refinanced Indebtedness; provided that
Parent or the Parent Subsidiary, as the case may be, shall be entitled to prepay
such Indebtedness without penalty or more than one Business Day advance notice,
or (ii) Amend the terms of any existing Indebtedness of Parent or any Parent
Subsidiary;
(m) assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other Person, or make any loans
or advances, except (i) to or for the benefit of the Parent Subsidiaries in the
Ordinary Course of Business, or (ii) for those not in excess of $50,000 in the
aggregate;
(n) create or assume any material Encumbrance on any Property
owned by Parent or any Parent Subsidiary;
(o) pay or discharge any claims or Liabilities other than the
payment in the Ordinary Course of Business of claims or Liabilities that were
reflected on the Parent Balance Sheet or that were incurred after the date of
the Parent Balance Sheet in the Ordinary Course of Business;
(p) write off any accounts or notes receivable in excess of
$25,000 in the aggregate;
(q) make or commit to make capital expenditures in excess of
$25,000 in any three month period after the date of this Agreement;
(r) (i) make any loans or advances to any Person (including any
officer, director, employee or consultant of Parent or any Parent Subsidiary),
other than (A) routine travel advances and sales commission draws to employees
of Parent or any Parent Subsidiary in the Ordinary Course of Business, (B) pawn
loans secured by tangible personal property made in the Ordinary Course of
Business and on standard terms, and (C) unsecured payday loans made in the
Ordinary Course of Business by a Parent Subsidiary and on standard terms, or
(ii) forgive or discharge in whole or in part any outstanding loans or advances,
or otherwise materially Amend any loan or advance previously made other than
loans or advances by Parent to any Parent Subsidiary in the Ordinary Course of
Business related to inter-company financings;
(s) make any investments in, purchase any Securities of or make
any capital contributions to any Person, other than a wholly-owned Parent
Subsidiary;
(t) enter into any Contract that limits or otherwise restricts
Parent or any Parent Subsidiary from engaging or competing in any line of
business or in any geographic area, or which provides exclusive rights or "most
favored nation" rights of any kind or scope to any party;
(u) terminate, Amend or waive any provision of any standstill
agreement to which it is a party, or any confidentiality agreement not entered
into in the Ordinary Course of Business, or fail to enforce, to the fullest
extent permitted by Law, the provisions of such an agreement;
(v) terminate, or Amend in any material respect, any Parent
Material Contract, or enter into any Contract that would have been a Parent
Material Contract if it were in effect on the date hereof, except for agreements
with auction houses, distributors and customers on standard forms entered into
or Amended in its Ordinary Course of Business;
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(w) intentionally take any action or willfully omit to take any
required action that would make any representation or warranty of Parent or
Merger Sub contained in Article V or in any Related Agreement to which Parent or
Merger Sub, as the case may be, is a signatory inaccurate in any material
respect at, or as of any time prior to, the Effective Time, or fail to cure or
cause Merger Sub to cure, as the case may be, such action or inaction within
thirty (30) days after notice thereof, except as expressly permitted by this
Agreement; or
(x) take or agree to take any of the actions described in
subsections (a)-(w) of this Section 6.2 or which prevents Parent from
performing, or causes Parent not to perform, one or more of the covenants
required hereunder to be performed by ▇▇▇▇▇▇.
Notwithstanding the foregoing, to the extent that Parent cannot, despite using
its Best Efforts, both comply with the covenants of this Section 6.2 and
mandatory provisions of applicable Law, then Parent shall be entitled to take
action, or refuse to take action, required by this Section 6.2 without the prior
written consent by the Company, provided Parent provides written notice thereof
to the Company as promptly as practicable and provided further that this
sentence shall not be given effect for purposes of Section 7.3.
Section 6.3 SEC Reports; Preparation of Form S-4 and Proxy
Statement.
(a) Subject to the strict satisfaction by the Company of the terms
and provisions of Section 6.21, the agreement of the applicable parties to the
terms and conditions of the Escrow Agreement as provided in Section 3.14(b),
and, with respect to requesting the effectiveness of the Form S-4, Parent's
satisfaction with the asset valuations contained in the Company FY 2006
Financial Statements, as promptly as practicable after the execution of this
Agreement, Parent shall, subject to the full and prompt assistance of the
Company and Stanford, prepare and file with the SEC the Proxy Statement, and
Parent shall prepare and file with the SEC the Form S-4, in which the Proxy
Statement shall be included as a prospectus (it being understood by the parties
that Parent intends to file a post-effective amendment to the Form S-4 to
include the Company FY 2006 Financial Statements and updated Parent and pro
forma financial statements therein prior to requesting the effectiveness of the
Form S-4). The Company shall promptly provide, and shall use its Best Efforts to
cause the other stockholders of the Company promptly to supply, to Parent and
its Representatives any and all information in writing concerning the Company,
its business, operations, directors, officers, Subsidiaries, stockholders or any
other matters which may in Parent's reasonable discretion be required for
inclusion in the Form S-4 or Proxy Statement, or to respond to any comments from
the SEC thereon, or reasonably requested by Parent in connection therewith. The
Company and Stanford shall promptly provide to Parent and its Representatives
any and all information in writing concerning Stanford's business, controlling
persons or any other matters which may in Parent's reasonable discretion be
required for inclusion in the Form S-4 or Proxy Statement, or to respond to any
comments from the SEC thereon, or reasonably requested by Parent in connection
therewith. Parent and the Company shall additionally prepare and file with the
SEC any Other Filings as and when required or requested by the SEC in connection
with this Agreement, the Related Agreements or the Transactions (the "Other
Merger Filings"). Prior to filing the Proxy Statement or any Other Merger Filing
with the SEC or any other Governmental Entity, Parent and the Company shall
provide the other of them with reasonable opportunity to review and comment on
each such filing in advance.
(b) Each of Parent and the Company shall use its reasonable Best
Efforts to have the Form S-4 declared effective under the Securities Act by the
SEC as promptly as practicable after the filing thereof with the SEC. Each of
Parent and the Company shall advise the other of them promptly after it receives
notice of any SEC request for an amendment or supplement to the Form S-4, the
Proxy Statement or any Other Merger Filing or comments thereon and responses
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thereto or requests by the SEC for additional information. Parent and the
Company shall use their respective Best Efforts to promptly respond to any
comments from the SEC on the Form S-4, Proxy Statement or any Other Merger
Filing.
(c) The Proxy Statement shall solicit proxies for the approval by
the stockholders of Parent of (i) this Agreement and the Merger, (ii) an
increase in the number of Parent Common Shares authorized in the Parent
Certificate of Incorporation to 30,000,000 Parent Common Shares (or such other
number as Parent in its discretion deems will provide sufficient reserve
authorized shares for the issuance of the Merger Consideration, the issuance of
Parent Common Shares upon the exercise of Company Warrants assumed pursuant to
Section 3.9, and such additional shares as the Parent Board in its sole
discretion deems prudent to have authorized) (the "Authorized Stock Increase"),
and (iii) subject to the consent of the Company (which consent shall not be
unreasonably withheld, conditioned or delayed), such other matters as Parent
deems appropriate for approval of its stockholders in furtherance of the
Transactions.
(d) The Proxy Statement shall solicit proxies for the approval by
the stockholders of the Company of (i) this Agreement and the Merger, (ii) the
irrevocable appointment and constitution of the Stockholder Agent (for avoidance
of doubt, including its successors hereunder) as the exclusive agent,
attorney-in-fact and representative of the Stockholders in relation to or in
connection with this Agreement, the Escrow Agreement and the Transactions
contemplated hereby and thereby, and (iii) subject to the consent of Parent
(which consent shall not be unreasonably withheld, conditioned or delayed), such
other matters as the Company deems appropriate for approval of its stockholders
in furtherance of the Transactions.
(e) Parent and the Company shall each use its reasonable Best
Efforts to cause the Proxy Statement to be mailed to its stockholders as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Parent shall promptly provide the Proxy Statement, as amended or
supplemented from time to time, to the Company for use in connection with the
meeting of the stockholders of the Company to approve, among other matters, this
Agreement and the Merger.
(f) Parent shall use its Best Efforts to take any action (other
than qualifying to do business or registering as a broker-dealer in any
jurisdiction in which it is not now so qualified or registered) required to be
taken under any applicable Blue Sky Laws in connection with the issuance of
Parent Common Shares in the Merger, and the Company shall furnish all
information concerning the Company and its stockholders as may be reasonably
requested in connection with any such action.
(g) Parent agrees that the Form S-4 and the Proxy Statement (other
than with respect to Company Information) shall not, at any Applicable Time,
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
Company agrees that the Form S-4 and the Proxy Statement (other than with
respect to Parent Information) shall not, at any Applicable Time, 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. If at any time prior
to the final conclusion of the Parent Stockholders Meeting or Company
Stockholders Meeting any Events occur relating to Parent or the Company, or any
of their respective officers, directors, stockholders or Subsidiaries, is
discovered or learned by Parent, the Company or Stanford which, individually or
together, (i) should be set forth in an amendment or supplement to the Form S-4,
the Proxy Statement or any Other Merger Filing, so that the Form S-4, Proxy
Statement or Other Merger Filing would not include 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, (ii) cause the Form S-4, Proxy Statement
or Other Merger Filing to become incorrect, incomplete or misleading in any
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material respect, or (iii) under the Securities Act, the Exchange Act or the SEC
Rules, are otherwise required to be set forth in an amendment or supplement to
the Form S-4, Proxy Statement or Other Merger Filing; then in each such case,
the Person which discovers or learns of such Events shall promptly inform the
other of them of such Events in writing, and Parent and the Company shall
cooperate with each other, including by providing each other with any necessary
or desirable corrected, updated or supplemental information, in promptly filing
with the SEC or its staff or any other Governmental Entities or officials
thereof, and, to the extent required by the Securities Act, the Exchange Act,
the SEC Rules or other applicable Law, Parent and the Company shall cooperate
with each other in mailing to the their respective stockholders, any appropriate
amendment or supplement to the Form S-4, the Proxy Statement or Other Merger
Filing in order to cause the Form S-4, the Proxy Statement and Other Merger
Filing to comply with the Securities Act, the Exchange Act, the SEC Rules and
other applicable Law, and not to 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.
(h) The parties shall notify each other promptly of the time when
the Form S-4 has become effective, of the issuance of any stop order or
suspension of the qualification or registration of the Parent Common Shares
issuable in connection with the Merger for offering or sale in any jurisdiction,
or of the receipt of any comments from the SEC or the staff of the SEC for
amendments or supplements to the Proxy Statement or the Form S-4 or for
additional information and shall supply each other with copies of (i) all
correspondence between it or any of its Representatives, on the one hand, and
the SEC or staff of the SEC, on the other hand, with respect to the Proxy
Statement, the Form S-4 or any Other Merger Filing, and (ii) all orders of the
SEC relating to the Form S-4.
Section 6.4 Parent Stockholders Meeting.
(a) Promptly after the date on which the Form S-4 is declared
effective by the SEC and mailed to Parent's stockholders, Parent shall take all
lawful and commercially reasonable action necessary in accordance with the NPCA,
the rules and regulations of its Principal Market and its Organizational
Documents to call, notice, convene and hold the Parent Stockholders Meeting.
Parent shall use its Best Efforts to hold the Parent Stockholders Meeting within
forty-five days of the date the SEC declares the Form S-4 effective. In
connection with the Parent Stockholders Meeting, Parent shall (i) subject to
applicable Laws, use its Best Efforts (including postponing or adjourning the
Parent Stockholders Meeting to obtain a quorum or to solicit additional proxies)
to obtain the Parent Stockholder Approval, and (ii) otherwise comply with all
applicable Law pertaining to the Parent Stockholders Meeting. Notwithstanding
anything to the contrary contained in this Agreement, Parent may adjourn, delay
or postpone the Parent Stockholders Meeting (i) to the extent necessary to
ensure that any required supplement or amendment to the Form S-4 or Proxy
Statement is provided to its stockholders, or (ii) if as of the time for which
the Parent Stockholders Meeting is originally scheduled (as set forth in the
Proxy Statement) there are insufficient Parent Common Shares represented (either
in person or by proxy) to constitute a quorum necessary to conduct the business
of the Parent Stockholders Meeting.
(b) Until the termination of this Agreement in accordance with its
terms, Parent's obligation to call, give notice or convene and hold the Parent
Stockholders Meeting in accordance with this Section 6.4 shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
to the Company of any Acquisition Proposal or Superior Offer, or by any
withholding, withdrawal or modification of the recommendation of the Company
Board in favor of the Company Stockholder Approval.
(c) Prior to the Closing Date, Parent shall take all necessary
action as the sole stockholder of Merger Sub to effect the due authorization and
approval of this Agreement and the approval of the Merger by the Board of
Directors and the stockholders of Merger Sub.
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Section 6.5 Company Stockholders Meeting.
(a) Promptly after the date on which the Form S-4 is declared
effective by the SEC and mailed to the Company's stockholders, the Company shall
take all lawful and commercially reasonable action necessary in accordance with
the DGCL, the rules and regulations of its Principal Market and its
Organizational Documents to call, notice, convene and hold the Company
Stockholders Meeting. The Company shall use its Best Efforts to hold the Company
Stockholders Meeting within forty-five days of the date the SEC declares the
Form S-4 effective. In connection with the Company Stockholders Meeting, the
Company shall (i) subject to applicable Laws, use its Best Efforts (including
postponing or adjourning the Company Stockholders Meeting to obtain a quorum or
to solicit additional proxies) to obtain the Company Stockholder Approval and
Stockholder Agent Appointment, and (ii) otherwise comply with all applicable Law
pertaining to the Company Stockholders Meeting. Notwithstanding anything to the
contrary contained in this Agreement, the Company may adjourn, delay or postpone
the Company Stockholders Meeting (i) to the extent necessary to ensure that any
required supplement or amendment to the Form S-4 or Proxy Statement is provided
to its stockholders, (ii) at Parent's request to permit Parent to register or
qualify the Parent Common Shares to be issued as Merger Consideration under
applicable Blue Sky Laws, or (iii) if as of the time for which the Company
Stockholders Meeting is originally scheduled (as set forth in the Proxy
Statement) there are insufficient the Company Common Shares represented (either
in person or by proxy) to constitute a quorum necessary to conduct the business
of the Company Stockholders Meeting.
(b) Until the termination of this Agreement in accordance with its
terms, the Company's obligation to call, give notice or convene and hold the
Company Stockholders Meeting in accordance with this Section 6.5 shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission to the Company of any Acquisition Proposal or Superior Offer, or by
any withholding, withdrawal or modification of the recommendation of the Company
Board in favor of the Company Stockholder Approval.
Section 6.6 Access to Information; Confidentiality.
(a) From the date of this Agreement to the Effective Time, the
Company shall, and shall cause each Company Subsidiary and each of its and each
Company Subsidiary's Representatives to, (i) provide to Parent and Parent's
Representatives access, at reasonable times upon prior notice, to the officers,
employees, agents, properties, offices and other facilities and books and
records of the Company and the Company Subsidiaries, and (ii) furnish promptly
such information concerning the business, properties, insurance, Contracts,
prospects, Property, Liabilities, Tax Returns, Tax elections and all other
workpapers and studies relating to Taxes, personnel, internal financial
statements and other aspects of the Company and the Company Subsidiaries as
Parent or Parent's Representatives may reasonably request. Notwithstanding the
foregoing, the Company may restrict the foregoing access to the extent that (A)
any Law of any Governmental Entity applicable to the Company requires the
Company or any Company Subsidiary to restrict or prohibit such access to any
such Properties or information, (B) Parent's access to the information would
breach the Company's confidentiality obligations to a third party (provided that
upon Parent's reasonable request the Company shall use its reasonable efforts to
obtain such third party's consent to permit Parent access to such information,
subject to appropriate confidentiality protections), or (C) disclosure of any
such information or document would result in the loss of the Company's or any
Company Subsidiary's attorney-client privilege. Subject to compliance with
applicable Laws, from the date of this Agreement until the earlier of the
termination of this Agreement and the Effective Time, the Company shall confer
from time to time as reasonably requested by Parent to meet with one or more
Representatives of Parent to discuss any material changes or developments in the
operational matters of the Company and each Company Subsidiary and the general
status of the ongoing operations of the Company and the Company Subsidiaries.
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(b) From the date of this Agreement to the Effective Time, Parent
shall, and shall cause each Parent Subsidiary and each of its and each Parent
Subsidiary's Representatives to, (i) provide to the Company and the Company's
Representatives access, at reasonable times upon prior notice, to the officers,
employees, agents, properties, offices and other facilities and books and
records of Parent and Parent Subsidiaries, and (ii) furnish promptly such
information concerning the business, properties, insurance, Contracts,
prospects, Property, Liabilities, Tax Returns, Tax elections and all other
workpapers and studies relating to Taxes, personnel, internal financial
statements and other aspects of Parent and the Parent Subsidiaries as the
Company or the Company's Representatives may reasonably request. Notwithstanding
the foregoing, Parent may restrict the foregoing access to the extent that (A)
any Law of any Governmental Entity applicable to Parent requires Parent or any
Parent Subsidiary to restrict or prohibit such access to any such Properties or
information, (B) the Company's access to the information would breach Parent's
confidentiality obligations to a third party (provided that upon the Company's
reasonable request Parent shall use its reasonable efforts to obtain such third
party's consent to permit the Company access to such information, subject to
appropriate confidentiality protections), or (C) disclosure of any such
information or document would result in the loss of Parent's or any Parent
Subsidiary's attorney-client privilege. Subject to compliance with applicable
Laws, from the date of this Agreement until the earlier of the termination of
this Agreement and the Effective Time, Parent shall confer from time to time as
reasonably requested by the Company to meet with one or more Representatives of
the Company to discuss any material changes or developments in the operational
matters of Parent and each Parent Subsidiary and the general status of the
ongoing operations of Parent and the Parent Subsidiaries.
(c) The parties hereto acknowledge that Parent, the Company and
Stanford have previously executed that certain Mutual Confidentiality Agreement,
effective April 1, 2006 (as Amended from time to time, the "Confidentiality
Agreement"), which shall continue in full force and effect in accordance with
its terms.
(d) The Company shall deliver to Parent a draft of Section
4.3(c)(1) and Section 4.3(c)(2) of the Updated Company Disclosure Schedules no
later than five (5) Business Days prior to the proposed Closing Date.
(e) Until the Effective Time, the Company shall consult and
reasonably cooperate with Parent regarding the Company's implementation of
procedures for review and attestation of its internal controls, shall provide
Parent and its Representatives with reasonable access to the Company's policies
and plans with regard to such review and attestation, and the results of any
review and analysis of its internal control systems, and shall reasonably
consider in good faith the views of Parent in connection with the
implementation, review and analysis of the Company's internal controls , and
with respect to Parent's preparation of its purchase price allocation in
connection with the Merger.
Section 6.7 Notice of Acquisition Proposals. Each of Parent and
the Company agrees that, as promptly as practicable (but in no event more than
twenty-four hours after receipt), it shall advise the other of them orally and
in writing of (i) an Acquisition Proposal, (ii) any inquiry, expression of
interest, proposal or offer that constitutes, or could reasonably be expected to
lead to, an Acquisition Proposal, (iii) any request for non-public information
that could reasonably be expected to lead to an Acquisition Proposal, including,
in each such case, (1) the material terms and conditions of such Acquisition
Proposal, inquiry, expression of interest, proposal, offer, notice or request,
and (2) the identity of the Person making any such Acquisition Proposal,
inquiry, expression of interest, proposal, offer, notice or request. Each of
Parent and the Company shall (x) keep the other of them informed, as promptly as
practicable, of the status and details (including any Amendments or proposed
Amendments) of any such Acquisition Proposal, inquiry, expression of interest,
proposal, offer, notice or request, and (y) provide to the other of them, as
promptly as practicable, a copy of all written materials and other information
provided to it in connection with any such Acquisition Proposal, inquiry,
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expression of interest, proposal, offer, notice or request. Parent and the
Company each shall provide the other of them with at least three (3) Business
Days prior written notice (or such lesser prior notice as provided to the
members of its Board of Directors but in no event less than twenty-four (24)
hours) of any meeting of its Board of Directors at which the its Board of
Directors is reasonably expected to discuss any Acquisition Proposal, including
to determine whether such Acquisition Proposal is a Superior Offer.
Section 6.8 Affiliate Letters. At least 30 days prior to the
Closing Date, the Company shall deliver to Parent a list of names and addresses
of those Persons who were, in the Company's reasonable judgment at the record
date for the Company Stockholders Meeting, "affiliates" (each such Person, a
"Company Affiliate") of the Company within the meaning of Rule 145 of the rules
and regulations promulgated under the Securities Act. The Company shall use its
Best Efforts to deliver or cause to be delivered to Parent, prior to the Closing
Date, from each Company Affiliate, and Stanford agrees to deliver, an affiliate
letter (an "Affiliate Letter") in a customary form reasonably satisfactory to
Parent. Parent shall be entitled to place legends as specified in such
Affiliates Letters on the certificates representing any Parent Common Shares to
be received by such Company Affiliates pursuant to the Merger, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Shares, consistent with the terms of such Affiliate Letters.
Section 6.9 State Takeover Statutes. Parent and the Company and
their respective Boards of Directors shall (i) take all reasonable action
necessary to ensure that no state takeover statute, control share statute,
business combination statute or similar Law is or becomes applicable to this
Agreement, the Merger or the other Transactions on the terms set forth herein,
and (ii) if any such statute or similar Law becomes applicable to this
Agreement, the Merger or any other Transaction on the terms set forth herein,
use its Best Efforts to ensure that the Transactions on the terms set forth
herein may be consummated as promptly as practicable on the terms set forth
herein and otherwise to minimize the effect of such statute or similar Law on
this Agreement and the Transactions on the terms set forth herein.
Section 6.10 Certain Notices. Parent and the Company shall notify
the other of them in writing promptly after learning of (i) any notice or other
communication from any Person alleging that the Consent of such Person is or may
be required in connection with the Merger or any other Transaction, (ii) any
notice or other communication from any Governmental Entity in connection with
the Merger or any other Transaction, (iii) any Action by or before any
Governmental Entity initiated by or against it or any of its Subsidiaries, or
known by it or any of its Subsidiaries to be threatened against it or any such
Subsidiary or any of their respective directors, officers, employees or
stockholders in their capacity as such, or of any verbal or written
correspondence from any Person asserting or implying a claim against it or any
of its Subsidiaries or with respect to any of its Properties (including
Intellectual Property), (iv) any Event not in the Ordinary Course of Business of
it or any of its Subsidiaries that, individually or in the aggregate with any
other such Events, (A) have a Material Adverse Effect on it, or (B) is
reasonably likely to cause any of the conditions to closing set forth in Article
VII not to be satisfied, or (v) any claim, or any verbal or written inquiry by
any Tax Authority regarding Taxes payable by it or any of its Subsidiaries.
Parent and the Company shall give prompt notice to the other of them of any
representation or warranty made by it contained in this Agreement or any Related
Agreement to which it is a signatory becoming untrue or inaccurate, or its
failure to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any Related Agreement to which it is a signatory, provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
Section 6.11 Public Announcements. Parent and the Company shall
use their respective Best Efforts to agree to the text of the press release
announcing the execution and delivery of this Agreement. Parent and the Company
shall provide to each other any subsequent press releases and public written
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statements or filings related to this Agreement, the Related Agreements, the
Merger or the other Transactions and shall consult with each other before
issuing or making any such release or written public statement or filing.
Neither the Company nor the Parent shall issue any such press release or make
any such public written statement or filing without the prior written consent of
the other of them (such consent not to be unreasonably withheld, delayed or
conditioned); provided that either Parent of the Company may, without obtaining
the prior consent of the other of them, issue such press release or make such
public statements or filings, including the filing of SEC Reports, as such party
determines in good faith, following consultation with legal counsel, are
required by applicable Law or the rules and regulations of its Principal Market,
if it has used reasonable efforts under the circumstances to first consult and
reach agreement with the other of them. The Company and Parent shall cause their
respective employees, officers and directors to comply with this Section 6.11.
Section 6.12 Certain Litigation. Parent and the Company shall
promptly advise the other of them orally and in writing of any Action commenced
after the date hereof against it or any of its directors by any of its
stockholders relating to this Agreement, any Related Agreement, the Merger or
the other Transactions, and shall keep the other of them reasonably informed
regarding any such Action. Parent and the Company shall give the other of them
the opportunity to consult with it regarding the defense or settlement of any
such Action and shall consider the views of the other of them with respect to
such Action and shall not settle any such Action without the prior written
consent of the other of them (which consent shall not be unreasonably withheld).
Section 6.13 Employees.
(a) From and after the Effective Time, Parent and the Merger Sub
shall have the rights and obligations described in this Section 6.13 regarding
the individuals who were employees of the Company immediately prior to the
Effective Time and who continue employment with the Company, a Parent Subsidiary
or Parent following the Effective Time ("Continuing Employees"). With respect to
any potential Continuing Employee (i) Parent and the Company shall confer and
work together in good faith to determine appropriate employment terms, and (ii)
the Company shall, in good faith, cooperate with Parent and assist Parent with
its efforts to enter into offer letters, assignment of invention agreements and
related documents after the date of this Agreement and in any event prior to the
Closing Date.
(b) Within a reasonable period of time after the last Business Day
of each calendar month after the date of this Agreement and on or about the date
that is five Business Days prior to the expected Closing Date, if there shall
have been any change in the information required to be set forth in Section
4.10(f) of the Original Company Disclosure Schedules, the Company shall, deliver
to Parent a revised Section 4.10(f) of the Updated Company Disclosure Schedules,
which sets forth each person who the Company reasonably believes is, with
respect to the Company or any of its ERISA Affiliates, a "disqualified
individual" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder), as of the date such revised Section 4.10(f) is
delivered to Parent.
(c) Parent, in the event it does not continue the employee welfare
benefit plans sponsored and maintained by the Company, will take commercially
reasonable efforts after the Effective Time to cause Continuing Employees to be
eligible for employee welfare benefits that are substantially similar in the
aggregate to the benefits provided to similarly situated employees of Parent or
its Subsidiaries. To the extent Parent elects to have Continuing Employees, and
their eligible dependents where applicable, participate in Parent's employee
benefit plans, programs or policies following the Effective Time, (i) Parent
shall allow such Continuing Employees, and their eligible dependents where
applicable, to participate in such plans, programs and policies on terms
substantially similar to those provided to similarly situated employees of
Parent or its Subsidiaries, (ii) each Continuing Employee will, to the extent
reasonably practicable, receive credit for purposes of eligibility to
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participate and vesting under such plans, programs and policies for years of
service with the Company or any Company Subsidiary prior to the Effective Time,
provided such credit does not result in duplication of benefits, and (iii)
Parent, to the extent required by applicable Law and as permitted by the terms
of the applicable group health plans, shall give credit for any co-payments or
deductibles paid during the year in which the Closing Date occurs and shall use
is commercially reasonable efforts to cause any pre-existing condition
limitations, eligibility waiting periods and evidence of insurability
requirements under any group health plans of Parent in which Continuing
Employees and their eligible dependents will participate to be waived.
Section 6.14 Termination of Benefit Plans. Unless Parent provides
contrary written notice to the Company, effective as of the day immediately
preceding the Closing Date, the Company shall terminate any and all Company
Benefit Plans intended to include a Code Section 401(k) arrangement (each, a
"401(k) Plan"). The Company shall provide Parent with a reasonable opportunity
to review and comment on the resolutions to be adopted by the Company's Board of
Directors and other action to be taken to effect the termination of the 401(k)
Plans.
Section 6.15 Parent Board Subject to the applicable fiduciary
duties of the Parent Board, or any applicable committee thereof, and compliance
by Parent and the Parent Board, or such committee, in good faith with applicable
Law, including the SEC Rules and the listing rules of Parent's Principal Market,
Parent shall recommend the following directors to constitute the Parent Board
upon the consummation of the Merger (the "Post-Merger Parent Board"): ▇▇. ▇.▇.
▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇; a current director of the Company Board designated by
the Company prior to the filing of the Form S-4; two current Independent
directors of the Parent Board; and two Independent nominees to be designated by
Stanford prior to the filing of the Form S-4. Effective as of the Effective
Time, (i) the Parent Board, if necessary, shall resolve to change the number of
directors to serve on the Parent Board, within the range permitted by Parent's
Organizational Documents, to effectuate the Post-Merger Parent Board, (ii) each
director of the Parent Board not included in the Post-Merger Parent Board shall
resign, and (iii) the remaining directors of the Parent Board shall fill any
vacancies on the Parent Board as necessary to effectuate the Post-Merger Parent
Board.
Section 6.16 Tax Matters. None of Parent, Merger Sub and the
Company shall, and none of them shall permit any of their respective
Subsidiaries to, take any action prior to or following the Closing that would
reasonably be expected to cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a) of the Code.
Section 6.17 Third Party Consents.
(a) The Company shall use its reasonable Best Efforts to obtain
and deliver to Parent at or prior to the Closing all Consents and waivers under
each Contract listed or described (or required to be listed or described) in
Section 4.5 of the Company Disclosure Schedule.
(b) Parent shall use its reasonable Best Efforts to obtain and
deliver to the Company at or prior to the Closing all Consents and waivers under
each Contract listed or described (or required to be listed or described) in
Section 5.5 of the Parent Disclosure Schedule.
Section 6.18 Reasonable Efforts. Subject to Article IX, Parent and
the Company each agrees to use its Best Efforts, and to cooperate with the other
of them, to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, appropriate or desirable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other Transactions, including (i) taking all reasonable actions to satisfy
the respective conditions set forth in Article VII, and (ii) executing and
delivering such other instruments and doing and performing such other acts and
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things as may be necessary or reasonably desirable to effect completely the
consummation of the Merger and the other Transactions.
Section 6.19 Refinancings.
(a) The Company and Stanford shall use their respective Best
Efforts to amend and restate that certain Commercial Loan and Security
Agreement, dated October 13, 2003 (as Amended, the "Stanford LOC"), with
Stanford Financial Group Company ("SFG"), an Affiliate of Stanford, as lender,
subject to and effective immediately prior to the consummation of the Merger, in
the form attached hereto as Exhibit D (the "Amended and Restated Stanford LOC").
The Company shall not, and Stanford shall cause SFG not to, Amend the terms and
provisions of the Amended and Restated Stanford LOC without the written consent
of Parent.
(b) The Company shall amend and restate that certain Promissory
Note, dated April 10, 2002, in the original principal amount of $1,000,000,
issued to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") (as Amended, the "▇▇▇▇▇▇▇▇ Note"),
subject to and effective upon the consummation of the Merger and subject to the
written approval by Parent of the terms and provisions thereof, to (i) set the
principal amount thereof to the current aggregate outstanding principal amount
of $500,000, (ii) extend the maturity thereof to December 31, 2007, payable in
five equal quarterly installments of principal commencing on September 30, 2006,
(iii) set the rate of interest on the outstanding principal amount thereof at a
rate per annum equal to the daily average of the prime rate, as reported in the
Wall Street Journal, plus 1%, and (iv) permit prepayment by Parent or the
Surviving Corporation without penalty.
(c) Parent shall use its Best Efforts to amend and restate that
certain Loan Agreement, dated as of December 22, 2005, by and between Parent and
Texas Capital Bank, National Association, and any applicable Loan Documents (as
such term is defined in such Loan Agreement), to permit (i) the Merger, and (ii)
the Surviving Corporation to grant to SFG under the Amended and Restated
Stanford LOC a security interest in and other Liens on all of the Properties of
the Surviving Corporation and its Subsidiaries, including all Equity Interests
of the Subsidiaries of the Surviving Corporation, and to take all reasonable
further action as required by Stanford to perfect such security interest and
Liens (including the delivery of any stock certificates to SFG and the amendment
of UCC-1 financing statements).
Section 6.20 Conversion and Exchange Agreement; Minimum
Stockholders Equity. The Company, Stanford, SFG and ▇▇▇▇▇▇▇▇ shall enter into
that certain Conversion and Exchange Agreement, substantially in the form of
Exhibit E (the "Conversion and Exchange Agreement"), in connection with the
Closing. The Company and Stanford each agrees not to Amend the terms and
provisions of the Conversion and Exchange Agreement (including the exhibits
thereto) without the prior written consent of Parent.
Section 6.21 Preparation of Company Financial Statements. The
Company shall prepare (i) its financial statements for its fiscal year ending
June 30, 2006 (the "Company FY 2006 Financial Statements"), including its
balance sheet as of June 30, 2006 and its statements of cash flows and
operations for its fiscal year ending June 30, 2006, and (ii) if the
Stockholders Equity Date is not June 30, 2006, its balance sheet, including a
statement of shareholders' equity, as of the Stockholders Equity Date; in each
case in close consultation and cooperation with Parent and, at Parent's request,
▇▇▇▇▇▇'s independent public accounting firm; provided, however, that, without
prejudice to Section 7.2(r), all decisions regarding the Company's financial
statements shall be made exclusively by the Company in consultation with its
auditors. The Company shall deliver the unaudited Company FY 2006 Financial
Statements to Parent by August 15, 2006 and, if applicable, the unaudited
balance sheet as of the Stockholders Equity Date not later than the earlier of
(x) 21 days after such date, and (y) three Business Days prior to the Closing
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Date; in each case, together with a certificate duly executed by the principal
executive officer and principal financial officer of the Company certifying,
representing and warranting that the balance sheet and, if applicable,
statements of cash flows and operations included therein (A) are correct in all
Material respects and have been prepared in accordance with GAAP, consistently
applied throughout the periods indicated and with each other, except as may be
disclosed in notes thereto, subject in the case of interim statements to normal
year-end adjustments, and (B) fairly and accurately present the financial
condition, operating results (if applicable) and changes in shareholders' equity
and cash flows (if applicable) of the Company as of the respective dates and
during the respective periods indicated therein. The Company shall continue
through the Closing Date to maintain a standard system of accounting established
and administered in accordance with GAAP and to consult closely and cooperate
with Parent in its asset valuation.
Section 6.22 Indemnification.
(a) For four years after the Effective Time, Parent shall cause to
be maintained directors' and officers' liability insurance policies ("D&O
Insurance") in respect of acts or omissions occurring prior to the Effective
Time covering each individual who is an officer or director of the Company and
is listed on Section 6.22 of the Original Company Disclosure Schedules (the
"Insured Parties") and is covered as of the date hereof or hereafter by the
Company's D&O Insurance on terms with respect to coverage and amounts, to the
extent reasonably available to Parent, no less favorable than those of such
policy in effect on the date hereof; provided, however, that in no event shall
Parent or the Surviving Corporation be required to expend more than an amount
per annum equal to 150% of the current annual premiums paid by the Company for
such insurance (the "Maximum Amount") to maintain or procure insurance coverage
pursuant hereto; provided, further, that if the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, Parent and the Surviving Corporation shall procure and maintain for such
four-year period as much coverage as is reasonably practicable for the Maximum
Amount; and, provided, further, that Parent and the Surviving Corporation shall
have the right (and prior to the Effective Time the Company shall take any
action reasonably requested by Parent to perfect such right) to cause coverage
to be extended under the Company's D&O Insurance by obtaining a four-year "tail"
policy on terms and conditions no less advantageous, to the extent reasonably
available to Parent, than the Company's existing D&O Insurance provided by one
or more commercial insurance providers, and such "tail" policy shall satisfy in
full the obligations of Parent and the Surviving Corporation under this Section
6.22.
(b) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Entity and
shall not be the continuing or surviving Entity of such consolidation or merger,
or (ii) transfers all or substantially all of its Properties to any Person; then
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation, or at Parent's option, Parent, shall
assume, fulfill and honor in all respects the obligations set forth in this
Section 6.22.
(c) This Section 6.22 shall survive the consummation of the
Merger, is intended to benefit each of the Insured Parties, shall be binding on
all successors and assigns of the Surviving Corporation and Parent, shall be
enforceable by each Insured Party and his or her heirs and representatives, and
may not be amended, altered or repealed with respect to any Insured Party after
the Effective Time without the prior written consent of such Insured Party;
provided that until the Effective Time, any Amendment of this Agreement shall be
exclusively governed by Section 9.4.
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ARTICLE VII.
CLOSING CONDITIONS
Section 7.1 Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of Parent, Merger Sub and the Company to
consummate the Merger and the other Transactions shall be subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any or all of which may be waived in writing by Parent (on behalf of itself and
Merger Sub) or the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Company Stockholder Approval. (i) The Company Stockholder
Approval shall have been obtained, and (ii) the Stockholders shall have approved
the Stockholder Agent Appointment.
(b) Parent Stockholder Approval. (i) Either the Parent Stockholder
Approval shall have been obtained, or such approval shall not be required either
under the NPCA or for continued listing by the rules and regulations of Parent's
Principal Market, and (ii) the stockholders of Parent shall have approved the
Authorized Stock Increase.
(c) No Adverse Law or Order. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) which is in effect and prevents or
prohibits consummation of any Transaction.
(d) Registration and Qualification of Parent Common Shares. The
SEC shall (i) have declared the Form S-4 effective under the Securities Act,
(ii) not have issued a stop order suspending the effectiveness of the Form S-4,
and not have initiated or threatened to initiate any proceedings for that
purpose. Any material Blue Sky Laws applicable to the issuance of the Parent
Common Shares constituting Merger Consideration shall have been complied with
and no stop order or similar Order shall have been issued or threatened in
respect of any Parent Common Shares constituting Merger Consideration by any
applicable state securities commissioner or court of competent jurisdiction.
(e) No Adverse Action. No Action shall be pending or threatened
which (i) challenges or seeks to prohibit, restrain or substantially interfere
with the consummation of the Merger or any other Transaction; (ii) seeks to
cause the rescission of any Transaction following the consummation thereof;
(iii) relates to any Transaction and seeks to obtain from Parent, Merger Sub or
the Company damages that may be material to Parent, Merger Sub or the Company;
(iv) seeks to prohibit or limit in any respect Parent's right, power or ability
to vote, receive dividends with respect to or otherwise exercise ownership
rights with respect to any Equity Interests in the Surviving Corporation or to
own, operate or control the Surviving Corporation or any material portion of the
business or Property of Parent or the Surviving Corporation; or (v) would have a
Material Adverse Effect on the Company or on Parent's ability to operate the
Surviving Corporation's business, or to own, use and enjoy the Property of the
Surviving Corporation, after consummation of the Transactions; and no Order to
such effect shall be in effect.
(f) National Securities Exchange Listing. Parent shall (i) not
have received any written notice from Nasdaq that, in connection with the
Merger, it has determined, or is reasonably like to determine, to delist the
Parent Common Shares from the Nasdaq Capital Market, or (ii) have obtained
approval to list the Parent Common Shares on the American Stock Exchange.
Section 7.2 Additional Conditions to Obligations of Parent and
Merger Sub. The obligations of Parent and Merger Sub to effect the Merger and
the other transactions contemplated herein are also subject to the satisfaction,
at or prior to the Effective Time, of the following conditions, any or all of
which may be waived, in whole or in part:
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(a) Representations and Warranties - General. Each of the
representations and warranties of or in respect of the Company contained in
Article IV or elsewhere in this Agreement shall be true and correct as of the
date of this Agreement and shall be true and correct as of the Closing Date,
except for representations and warranties which address matters only as of a
particular date, which representations and warranties shall be true and correct
as of such date, except for failures of representations and warranties to be
true and correct as and as of the dates as aforesaid which are not Material. For
the purpose of determining the truth and correctness of such representations and
warranties, the Updated Company Disclosure Schedules, and any other update or
modification to the Original Company Disclosure Schedules made or purported to
have been made after the date of this Agreement, shall be disregarded.
(b) Representations and Warranties - Qualified. Each of the
representations and warranties of or in respect of the Company contained in
Section 4.1, Section 4.3(b), Section 4.5(b), Section 4.6, Section 4.7(c),
Section 4.8(b), Section 4.9, Section 4.14 and Section 4.16, and each of the
other representations and warranties of or in respect of the Company contained
in Article IV or elsewhere in this Agreement, which expressly includes a
Knowledge, Actual Knowledge, Material Adverse Effect, or other materiality
qualification, shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Closing Date, except for representations and
warranties which address matters only as of a particular date, which
representations and warranties shall be true and correct as of such date. For
the purpose of determining the truth and correctness of such representations and
warranties, the Updated Company Disclosure Schedules, and any other update or
modification to the Original Company Disclosure Schedules made or purported to
have been made after the date of this Agreement, shall be disregarded.
(c) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time.
(d) Material Adverse Effect. No Events, violations or Breaches
shall have occurred since the date hereof which have had a Material Adverse
Effect on the Company.
(e) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Certifications. With respect to any Company SEC
Reports filed with the SEC after the date of this Agreement, neither the
principal executive officer nor the principal financial officer of the Company
shall have failed to provide the necessary certifications in the form required
under Section 302 and Section 906 of SOX.
(f) Preferred Stock Conversions. All issued and outstanding
Company Preferred Shares shall have been converted into Company Common Shares
and no Company Preferred Shares shall be issued and outstanding.
(g) Conversion and Exchange Agreement. The Company, Stanford and
SFG shall each be in compliance with the Conversion and Exchange Agreement,
which shall be in full force and effect, and SFG shall have tendered for
conversion an amount of outstanding Company debt for Company Common Shares as
provided therein. SFG shall have tendered to the Company all Company notes
evidencing debt, and Stanford shall have tendered to the Company all stock
certificates evidencing its Preferred Shares, in each case being converted
pursuant to the Conversion and Exchange Agreement, and the Company shall have
tendered to Stanford and SFG stock certificates evidencing the Company Common
Shares to be issued in respect of such conversions pursuant to the Conversion
and Exchange Agreement.
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(h) Warrants. The Company shall have duly executed and delivered
the A Warrants and the B Warrants to Stanford pursuant to the Conversion and
Exchange Agreement, and Stanford shall have tendered such warrants for
cancellation and exchange as contemplated by Section 3.9.
(i) Stanford LOC Refinancings. The Company and Stanford shall have
executed and delivered the Amended and Restated Stanford LOC, as contemplated by
Section 6.19(a).
(j) Termination and Release. Stanford, SFG, Stanford Venture
Capital Holdings, Inc., ▇▇▇▇▇▇▇▇ and the Company shall have executed and
delivered that certain Termination and Release Agreement, substantially in the
form of Exhibit F (the "Termination and Release Agreement").
(k) Third Party Consents. The Company shall have obtained written
consents to the Merger and, to the extent applicable, this Agreement, the
Related Agreements and other Transactions, from the landlord to each of the
Company's Beverly Hills, California offices (including a consent for the Company
to conduct auctions at such offices), which consents shall be in full force and
effect.
(l) ▇▇▇▇▇▇▇▇ Note Refinancings. The Company and ▇▇▇▇▇▇▇▇ shall
have executed and delivered an amendment to and restatement of the ▇▇▇▇▇▇▇▇
Note, as contemplated by Section 6.19(b), in form and substance reasonably
satisfactory to Parent.
(m) Company Stockholders Equity. The Company Stockholders Equity
as of the Stockholders Equity Date shall be not less than the Minimum Company
Stockholders Equity.
(n) No Commitments or Preferred Shares. No Company Options,
Company Warrants or other Commitments for Equity Interests in the Company or any
Company Subsidiary shall be outstanding or in effect, other than Company Options
and Company Warrants to be surrendered to Parent for exchange or assumed
pursuant to Section 3.7(b) and Section 3.9, respectively, and no Company
Preferred Shares shall be outstanding.
(o) Termination of 401(k) Plan. The Company shall have terminated
its 401(k) Plan in accordance with Section 6.14.
(p) Dissenting Shares. The maximum number of Dissenting Shares
shall not exceed 1% of the outstanding Company Common Shares.
(q) Company Officers' Certificate. The Company shall have
delivered to Parent an executed officers' certificate, substantially in the form
of Exhibit H, dated the Closing Date, signed by the Chief Executive Officer, the
Chief Financial Officer and the Chief Operations Officer of the Company,
certifying the fulfillment of the conditions specified in Section 7.2(a) through
Section 7.2(p), inclusive.
(r) Company Financial Statements. Parent shall in good faith be
satisfied with the valuations of the Company's inventory, accounts receivable
and other assets reflected in the Company FY 2006 Financial Statements and, if
applicable, the Company's balance sheet as of the Stockholder's Equity Date (as
provided in Section 6.21), and any amendments thereto or restatements thereof,
and in each case with the notes, if any, thereto, and the Company shall have
filed its audited Company FY 2006 Financial Statements with the SEC on a Form
10-K.
(s) Parent Employment Agreements. Parent shall have entered into
executive employment agreements with ▇▇. ▇.▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and
▇▇▇▇▇▇▇▇ shall have executed and delivered a consulting employment agreement,
(collectively, the "Employment Agreements") each in form and substance approved
by the Parent Board and satisfactory to Stanford.
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(t) Escrow Agreement. The Escrow Agent and the Stockholder Agent
shall have entered into the Escrow Agreement, which shall be in full force and
effect as of the Closing Date.
(u) Corporate Governance Agreement. Stanford shall have executed
and delivered the Corporate Governance Agreement, substantially in the form of
Exhibit I, which shall be in full force and effect as of the Closing Date.
(v) Lock-Up Agreement. ▇▇▇▇▇▇▇▇ shall have executed and delivered
a lock-up agreement (the "Lock-Up Agreement") agreeing not to Transfer any
Parent Common Shares for a period of one calendar year after the Closing Date,
in form and substance satisfactory to Parent.
(w) Stanford Officers' Certificate. Stanford shall have delivered
to Parent an executed officers' certificate, substantially in the form of
Exhibit J, dated the Closing Date, signed by the Chief Executive Officer or the
Chief Financial Officer of Stanford, certifying the fulfillment of certain
conditions specified therein.
(x) Other Deliverables. The Company shall have delivered or caused
to be delivered to Parent all of the agreements, instruments and documents
required to be delivered to Parent pursuant to the foregoing provisions of this
Section 7.2, together with:
(1) the written and, other than with reference to
the consummation of the Merger, unconditional resignations of all
of the current members of the Company Board and of the current
officers of the Company (other than those offices to which ▇▇▇▇▇▇
Sub has appointed such current officer), effective as of the
Effective Time;
(2) a legal opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel
to the Company, in substantially the form of Exhibit K, with such
standard and customary procedures, qualifications and limitations
as are in form and substance reasonably satisfactory to DGSE and
its counsel;
(3) a legal opinion of ▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to
Stanford, in substantially the form of Exhibit L, with such
standard and customary procedures, qualifications and limitations
as are in form and substance reasonably satisfactory to DGSE and
its counsel;
(4) evidence of the termination of all registration
rights agreements to which the Company is a party or by which it
is bound;
(5) evidence of the termination of all indemnity
agreements to which the Company and any of its current or former
officers, directors or other fiduciaries are parties;
(6) with respect to each of the Company's stock
options identified in Section 4.3(c)(1) of the Company Disclosure
Schedules as having been granted on April 30, 1999, evidence that
such option has been (i) terminated, or (ii) amended, in form and
substance reasonably satisfactory to Parent, to provide for the
assumption by Parent of such Option pursuant to the terms and
provisions of Section 3.7;
(7) an Affiliate Letter from each Company Affiliate
(after giving effect to any conversion and exchanges contemplated
by Section 6.20);
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(8) certificates dated as of a date within a
reasonable period of time prior to the Closing Date as to the good
standing of the Company and each material Company Subsidiary,
executed by the appropriate officials of the applicable state of
incorporation, organization or formation, and each other
jurisdiction in which the Company or each material Company
Subsidiary is licensed or qualified to do business as a foreign
corporation; and
(9) a certificate executed by the secretary of the
Company certifying, as complete and accurate as of the Closing
Date, (i) the complete Organizational Documents of the Company and
each material Company Subsidiary, and (ii) the resolutions or
actions of each of the stockholders of the Company and the Board
of Directors of the Company approving this Agreement or the
Merger.
Section 7.3 Additional Conditions to Obligations of the Company.
The obligation of the Company to effect the Merger and the other transactions
contemplated herein are also subject to the satisfaction, at or prior to the
Effective Time, of the following conditions, any or all of which may be waived,
in whole or in part:
(a) Representations and Warranties - General. Each of the
representations and warranties of or in respect of Parent or Merger Sub
contained in Article V or elsewhere in this Agreement shall be true and correct
as of the date of this Agreement and shall be true and correct as of the Closing
Date, except for representations and warranties which address matters only as of
a particular date, which representations and warranties shall be true and
correct as of such date, except for failures of representations and warranties
to be true and correct as and as of the dates as aforesaid which are not
Material. For the purpose of determining the truth and correctness of such
representations and warranties, the Updated Parent Disclosure Schedules, and any
other update or modification to the Original Parent Disclosure Schedules made or
purported to have been made after the date of this Agreement, shall be
disregarded.
(b) Representations and Warranties - Qualified. Each of the
representations and warranties of or in respect of Parent or Merger Sub
contained in Section 5.1, Section 5.3(b), Section 5.5(b), Section 5.6, Section
5.7(c), Section 5.8(b), Section 5.9, Section 5.14 and Section 5.16, and each of
the other representations and warranties of or in respect of the Company
contained in Article V or elsewhere in this Agreement, which expressly includes
a Knowledge, Actual Knowledge, Material Adverse Effect, or other materiality
qualification, shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Closing Date, except for representations and
warranties which address matters only as of a particular date, which
representations and warranties shall be true and correct as of such date. For
the purpose of determining the truth and correctness of such representations and
warranties, the Updated Parent Disclosure Schedules, and any other update or
modification to the Original Parent Disclosure Schedules made or purported to
have been made after the date of this Agreement, shall be disregarded.
(c) Agreements and Covenants. Parent and Merger Sub shall each
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Effective Time.
(d) Material Adverse Effect. No Events, violations or Breaches
shall have occurred since the date hereof which have had a Material Adverse
Effect on Parent.
(e) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Certifications. With respect to any Parent SEC
Reports filed with the SEC after the date of this Agreement, neither the
principal executive officer nor the principal financial officer of Parent shall
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have failed to provide the necessary certifications in the form required under
Section 302 and Section 906 of SOX.
(f) Parent Line of Credit Modifications. Parent shall have
executed and delivered an amendment to its loan agreement and related documents,
as contemplated by Section 6.19(c), in form and substance reasonably
satisfactory to the Company.
(g) Registration Rights Agreement. Parent shall have duly executed
and delivered a registration rights agreement, substantially in the form of
Exhibit G, in respect of the Parent Common Shares issuable upon the exercise of
the A Warrant and the B Warrant (if any).
(h) Parent Officers' Certificate. Parent shall have delivered to
the Company an executed officers' certificate, substantially in the form of
Exhibit M, dated the Closing Date, signed by the Chief Executive Officer, the
Chief Financial Officer and the Chief Operations Officer of Parent, certifying
the fulfillment of the conditions specified in Section 7.3(a) through Section
7.3(g), inclusive.
(i) Warrants. Parent shall have duly executed and delivered
warrants to exchange for the A Warrant and the B Warrant tendered for
cancellation and exchange as contemplated by Section 3.9 and Section 7.2(h).
(j) Parent Employment Agreements. Parent shall have duly executed
and delivered ▇▇▇▇▇▇▇▇'▇ Employment Agreement.
(k) Other Deliverables. Parent shall have delivered or caused to
be delivered to the Company all of the agreements, instruments and documents
required to be delivered to the Company pursuant to the foregoing provisions of
this Section 7.3, together with:
(1) a legal opinion of ▇▇▇▇▇▇▇▇, Mullin, ▇▇▇▇▇▇▇ &
Hampton, LLP, special counsel to the Company, in substantially the
form attached hereto as Exhibit N, with such standard and
customary procedures, qualifications and limitations as are in
form and substance reasonably satisfactory to Superior and its
counsel;
(2) certificates dated as of a date within a
reasonable period of time prior to the Closing Date as to the good
standing of Parent, Merger Sub and each material Parent
Subsidiary, executed by the appropriate officials of the
applicable state of incorporation, organization or formation, and
each other jurisdiction in which Parent or each material Parent
Subsidiary is licensed or qualified to do business as a foreign
corporation;
(3) a certificate executed by the secretary of
Parent certifying, as complete and accurate as of the Closing
Date, (i) the complete Organizational Documents of Parent and each
material Parent Subsidiary, and (ii) the resolutions or actions of
each of the stockholders of Parent and the Board of Directors of
Parent approving this Agreement or the Merger; and
(4) the written resignations of directors of the
Parent Board, if any, as required by Section 6.15.
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ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
Section 8.1 Survival of Representations, Warranties and Covenants.
(a) The representations, warranties and certifications of Parent,
Merger Sub and the Company contained in this Agreement, or in any certificate or
other instrument delivered pursuant to this Agreement by such Person or on its
behalf, shall remain in effect until, and shall expire on, the Closing Date,
except that:
(1) the representations and warranties contained in
Section 4.3 (Capitalization) and, to the extent relating thereto,
contained in the certificates contemplated by Section 7.2(q)
(Company Officers' Certificate), shall survive until the date one
calendar year after the Closing Date;
(2) neither the Escrow Termination Date nor any of
the other foregoing time limits shall apply to claims based upon
fraud or willful misrepresentation; and
(3) the representation, warranty, covenant or
obligation that is the subject matter of a Claim Notice made in
accordance with Section 8.1(c) on or before the Escrow Termination
Date, or such later date as applies to the survival of such
representation, warranty, covenant or obligation pursuant to this
Section 8.1(a), shall not so expire with respect to such Claim
Notice or any subsequent Claim Notice that is reasonably related
to the subject matter of such initial Claim Notice, but rather
shall remain in full force and effect until such time as each and
every claim that is based upon the claims or alleged facts or
circumstances of such initial Claim Notice has been fully and
finally resolved, either by means of a written settlement
agreement or by the dispute resolution procedure set forth in
Section 8.6.
(b) The representations, warranties, certifications, covenants and
obligations of Parent, Merger Sub and the Company, and the rights and remedies
that may be exercised by any Person having a right to indemnification pursuant
to this Article VIII, shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or any
Knowledge of, any of the Indemnified Parties or any of their Representatives.
(c) For purposes of this Agreement, a "Claim Notice" relating to a
particular representation, warranty, covenant or obligation shall be deemed to
have been delivered if any Indemnified Party, acting in good faith, delivers to
the Stockholder Agent (with a copy to the Escrow Agent) a written notice stating
that such Indemnified Party believes that there is or has been a possible breach
of such representation, warranty, covenant or obligation and containing (i) a
brief description of the circumstances supporting such Indemnified Party's
belief that there is or has been such a possible breach; and (ii) a non-binding,
preliminary estimate of the aggregate dollar amount of the actual and potential
Losses that have arisen and may arise as a direct or indirect result of such
possible breach.
(d) It is the intent of the parties hereto that all
indemnification obligations under this Article VIII shall apply without regard
to whether or not (x) any Indemnifying Party was negligent or otherwise at fault
in any respect with regard to the existence or occurrence of any of the matters
covered by any such indemnification obligation, or (y) any Indemnifying Party
otherwise caused or created, or is claimed to have caused or created, the
existence or occurrence of any of the matters covered by any such
indemnification obligation, whether through its own acts or omissions or
otherwise. Notwithstanding the foregoing, the indemnification obligation of the
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Indemnifying Parties shall be reduced to the extent that an Indemnified Party
receives insurance proceeds or other payment from a third party that
specifically covers the Losses for which the Indemnifying Parties otherwise
would be required to indemnify such Indemnified Party pursuant to this Article
VIII. If an Indemnified Party receives insurance proceeds or other payment from
a third party that specifically covers Losses for which one or more of the
Indemnifying Parties previously paid such Indemnified Party pursuant to this
Article VIII, then such Indemnified Party shall refund to the Indemnifying
Parties an amount equal to the lesser of (i) the amount that the Indemnifying
Parties previously paid to such Indemnified Party relating to such Losses, and
(ii) the amount of such insurance proceeds or other payment.
Section 8.2 Indemnification; Escrow Account.
(a) From and after the Closing Date, the Stockholders entitled to
Merger Consideration (the "Indemnifying Parties") shall, subject to Section 8.3
(including the limitations on recourse), defend, indemnify and hold Parent and
its Representatives and Affiliates (including the Surviving Corporation)
(collectively, the "Indemnified Parties") harmless against all Losses incurred
by the Indemnified Parties directly or indirectly as a result of any inaccuracy
or Breach of any representation, warranty or certification of the Company
specified in Section 8.1(a)(1) (without giving effect to (i) any Updated
Disclosure Schedules, or (ii) to any sections of the Disclosure Schedules, or
portions thereof, identified in Section 8.2 of the Original Parent Disclosure
Schedules delivered on or prior to the date hereof); provided that the
Indemnifying Parties shall have no obligation to defend, indemnify or hold the
Indemnified Parties harmless against Losses (A) to the extent accrued for in the
Closing Balance Sheet, or (B) for avoidance of doubt, for any inaccuracy or
Breach of any representation, warranty or certification of the Company not
specified in Section 8.1(a)(1).
(b) As security for the indemnity provided to the Indemnified
Parties in this Article VIII and by virtue of this Agreement and the Certificate
of Merger, Parent shall deposit the Escrow Stock into the Escrow Account
pursuant to the terms set forth in Section 3.14 and the Escrow Agreement.
Section 8.3 Limitation on Indemnification.
(a) Notwithstanding any provision of this Agreement to the
contrary, after the Closing Date, the Indemnifying Parties shall have no
obligation to indemnify any Indemnified Parties until the aggregate of all
Losses suffered by the Indemnified Parties exceeds $100,000 (the "Basket
Amount"), in which case the Indemnified Parties shall be entitled to recover all
Losses including the Basket Amount; provided, however, that any Losses resulting
from a willful or intentional Breach of this Agreement or any Transaction
Document or fraud by any party hereto shall not be subject to such Basket
Amount.
(b) Notwithstanding any provision of this Agreement to the
contrary, in the event any Indemnified Party shall suffer any Losses for which
such Indemnified Party is entitled to indemnification under this Article VIII,
such Indemnified Party shall be entitled to recover such Losses solely from the
Escrow Account pursuant to the terms and conditions set forth in the Escrow
Agreement, until no additional amounts remain in the Escrow Account. Subject to
Section 8.8, the Indemnifying Parties shall have no liability for Losses in
excess of the Escrow Stock deposited in the Escrow Account under Section 3.14(a)
and the Escrow Agreement, and the Indemnified Parties shall have recourse solely
against the Escrow Stock and the other Escrow Assets.
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(c) Subject to Section 8.8 and any claim based on the enumerated
representations set forth in Section 8.1(a), no claim for indemnification
hereunder or otherwise with respect to a breach of this Agreement may be made by
any Indemnified Party after the Escrow Termination Date.
Section 8.4 Indemnification Procedures. All claims for
indemnification under this Article VIII shall be asserted and resolved as
follows:
(a) Third Party Claims.
(1) Notice. In the event an Indemnified Party
becomes aware of a third-party claim that such Indemnified Party
believes may result in a demand against the Escrow Account, such
Indemnified Party (or Parent on its behalf) shall promptly notify
the Stockholder Agent of such claim; provided that the failure to
so notify the Stockholder Agent shall not relieve any Indemnifying
Party of any liability that it may have to any Indemnified Party,
except to the extent that the Indemnifying Party demonstrates that
the defense of such third-party claim is prejudiced by the failure
to give such notice.
(2) Defense. If an Indemnified Party (or Parent on
its behalf) provides notice to the Stockholder Agent pursuant to
Section 8.4(a)(1) of the assertion of a third-party claim, the
Stockholder Agent shall be entitled to participate in the defense
of such third-party claim and, to the extent that it wishes
(unless (i) the Stockholder Agent is also a Person against whom
the third-party claim is made and the Indemnified Party determines
in good faith that joint representation would be inappropriate, or
(ii) the Stockholder Agent fails to provide reasonable assurance
to the Indemnified Party of both (x) its financial capacity to
defend such third-party claim, and (y) its ability to provide
indemnification, including against the Escrow Account, with
respect to such third-party claim), to assume the defense of such
third-party claim with counsel satisfactory to the Indemnified
Party. After notice from the Stockholder Agent to the Indemnified
Party of its election to assume the defense of such third-party
claim, the Stockholder Agent shall not, so long as it diligently
conducts such defense, be liable to the Indemnified Party under
Article VIII for any fees of other counsel or any other expenses
with respect to the defense of such third-party claim, in each
case subsequently incurred by the Indemnified Party in connection
with the defense of such third-party claim, other than reasonable
costs of investigation. If the Stockholder Agent assumes the
defense of a third-party claim, (A) such assumption shall
establish conclusively for purposes of this Agreement that the
claims made in that third-party claim are within the scope of and
subject to indemnification, and (B) no compromise or settlement of
such third-party claims may be effected by the Stockholder Agent
without the Indemnified Party's written consent unless (1) there
is no finding or admission of any violation of Law or any
violation of the rights of any Person, (2) the sole relief
provided is monetary damages that are paid in full by the
Stockholder Agent (including with Escrow Stock from the Escrow
Account), and (3) the Indemnified Party shall have no liability
with respect to any compromise or settlement of such third-party
claims effected without its written consent. If notice is given to
a Stockholder Agent of the assertion of any third-party claim and
the Stockholder Agent does not, within ten days after the
Indemnified Party's notice is provided, provide notice to the
Indemnified Party of its election to assume the defense of such
third-party claim, the Stockholder Agent and Indemnifying Parties
shall be bound by any determination made in such third-party claim
or any compromise or settlement effected by the Indemnified Party.
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(3) Exception. Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a
reasonable probability that a third-party claim may adversely
affect it or its Related Persons other than as a result of
monetary damages for which it would be entitled to indemnification
under this Agreement, the Indemnified Party may, by notice to the
Stockholder Agent, assume the exclusive right to defend,
compromise or settle such third-party claim, but the Stockholder
Agent shall not be bound by any determination of any third-party
claim (including the Losses incurred in connection therewith) so
defended for the purposes of this Agreement or any compromise or
settlement effected without its written consent.
(4) Disputes. Any dispute between any Indemnified
Party and the Stockholder Agent under this Section 8.4(a) shall be
resolved pursuant to the dispute resolution procedures described
in Section 8.4(b) and Section 8.6.
(5) Finality. In the event that the Stockholder
Agent has conducted any defense or consented to any settlement
under this Section 8.4(a), neither the Stockholder Agent nor any
of the Indemnifying Parties shall have the right, power or
authority to object to the amount of any claim by any Indemnified
Party against the Escrow Account or otherwise with respect to and
in accordance with such settlement.
(b) Non-Third Party Claims.
(1) In the event an Indemnified Party has a claim
hereunder that does not involve a claim being asserted against or
sought to be collected by a third party, such Indemnified Party
shall with reasonable promptness deliver a Claim Notice with
respect to such claim to the Stockholder Agent (with a copy to the
Escrow Agent). If the Stockholder Agent does not notify such
Indemnified Party within thirty (30) calendar days from the date
of receipt of such Claim Notice that the Stockholder Agent
disputes such claim, the amount of such claim shall be
conclusively deemed a liability of the Indemnifying Parties
hereunder. In case the Stockholder Agent shall object in writing
to any claim made in accordance with this Section 8.4(b)(1), the
Indemnified Party shall have fifteen (15) calendar days to respond
in a written statement to the objection of the Stockholder Agent.
If after such fifteen (15) calendar day period there remains a
dispute as to any claim, the Indemnified Party and Stockholder
Agent shall attempt in good faith for sixty (60) calendar days to
agree upon the rights of the respective parties with respect to
each of such claims. If the Indemnified Party and Stockholder
Agent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties. If such parties do
not so agree, the Indemnified Party and Stockholder Agent shall
resolve such dispute pursuant to Section 8.6.
(2) If Parent or any Indemnified Party is making a
claim against the Escrow Account, the Escrow Agent shall refrain
from disbursing any portion of the Escrow Account until resolution
of such dispute pursuant to this Section 8.4 (including, if
applicable, Section 8.6).
(c) Failure to Provide Notice. An Indemnified Party's failure to
give reasonably prompt notice to the Stockholder Agent of any actual, threatened
or possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Parties of any liability which the
Indemnifying Parties may have to such Indemnified Party, unless the failure to
give such notice materially and adversely prejudiced the Indemnifying Parties.
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Section 8.5 Stockholder Agent.
(a) Appointment. By adopting and approving this Agreement,
approving the Merger, and appointing and constituting the Stockholder Agent as
their exclusive agent, attorney-in-fact and representative for purposes of this
Agreement, the Escrow Agreement and the Transactions contemplated hereby and
thereby at the Company Stockholder Meeting, the stockholders of the Company
shall have (i) appointed and constituted the Stockholder Agent their exclusive
agent, attorney-in-fact and representative in relation to or in connection with
this Agreement, the Escrow Agreement and the Transactions contemplated hereby
and thereby, (ii) consented to and authorized the Stockholder Agent to take or
omit to take any and all actions and to make or omit to make any and all
decisions required or permitted to be taken by it under this Agreement or the
Escrow Agreement, and (iii) consented to and approved the terms and provisions
of the Escrow Agreement; in each case without any further action on the part of
any such stockholder. As evidenced by the execution of the Limited Joinder
Agreement or by countersigning the Escrow Agreement, as applicable, the
Stockholder Agent accepts such appointment as stockholder agent to act on behalf
of the Stockholders with respect to the matters contemplated by this Agreement
and the Escrow Agreement.
(b) Rights and Duties. The Stockholder Agent shall serve as the
exclusive agent, attorney-in-fact and representative for the Stockholders in
relation to or in connection with this Agreement, the Merger Agreement and the
Transactions, including the following rights, authorities, powers, duties and
obligations:
(1) to provide and receive notices and other
communications;
(2) to agree to, negotiate, enter into settlements
and compromises of, make claims and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to
claims made or any other action to be taken by or on behalf of any
Indemnifying Parties, or on its own behalf in its capacity as
Stockholder Agent, under this Article VIII or under the Escrow
Agreement, and to take all actions necessary or appropriate in the
judgment of the Stockholder Agent for the accomplishment of the
foregoing;
(3) to use the Escrow Stock, cash, investments and
other assets held from time to time in the Escrow Account (the
"Escrow Assets") as collateral to secure the rights, and to demand
and withdraw Escrow Assets to satisfy the claims, of the
Indemnified Parties under this Article VIII and the Escrow
Agreement;
(4) to demand, withdraw and use the Escrow Assets to
reimburse certain reasonable out-of-pocket fees and expenses of
the Stockholder Agent as provided in Section 3.14(b) and in the
Escrow Agreement; and
(5) to take all actions necessary or appropriate in
the judgment of the Stockholder Agent for the accomplishment of
any of the foregoing.
(c) Actions of the Stockholder Agent. A decision, act, omission,
agreement, settlement, claim, consent or instruction of the Stockholder Agent in
relation to any matter referred to in Section 3.14(b) or this Article VIII or in
the Escrow Agreement shall constitute a decision, act, omission, agreement,
settlement, claim, consent or instruction, as the case may be, for all of the
Stockholders, and shall be final, binding and conclusive upon each and every
Stockholder, and Parent and the Escrow Agent may, without further inquiry,
conclusively rely upon any such decision, act, omission, agreement, settlement,
claim, consent or instruction of the Stockholder Agent as being the decision,
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act, omission, agreement, settlement, claim, consent or instruction, as the case
may be, of each and every Stockholder. Parent and the Escrow Agent each is
hereby relieved from any liability to any Person for any acts done by them in
accordance with or in reliance upon any decision, act, omission, agreement,
settlement, claim, consent or instruction of the Stockholder Agent; provided,
however, that if Parent has in fact received a valid written notice of the
appointment of a successor Stockholder Agent, upon the effectiveness of such
appointment, Parent, and upon notification of such successor Stockholder Agent
from Parent, the Escrow Agent, and the Stockholders shall be obligated to
recognize, and shall be able to so rely only upon the decisions, acts,
omissions, agreements, settlements, claims, consents and instructions of, such
successor Stockholder Agent as the Stockholder Agent for all purposes under this
Agreement and the Escrow Agreement. Neither Parent nor the Escrow Agent shall
incur any liability to any Person with respect to any action taken or suffered
by it in good faith in reliance on the Stockholder Agent as aforesaid.
(d) Resignation and Removal. The Stockholder Agent may resign at
any time by written notice to Parent and the Escrow Agent effective not earlier
than twenty days after receipt thereof by DGSE and the Escrow Agent, and the
Stockholder Agent may be removed at any time by written notice signed by
Stockholders holding not less than a majority of the Closing Company Common
Shares (exclusive of Dissenting Shares), as conclusively evidenced by Exhibit A
to the Escrow Agreement, effective not earlier than ten days after receipt
thereof by ▇▇▇▇▇▇ and the Escrow Agent.
(e) Successors. The Stockholders shall have the sole right, power
and authority to appoint a successor Stockholder Agent. The Stockholders may
appoint a new or substitute Stockholder Agent in a written instrument delivered
to Parent and the Escrow Agent; provided that such successor Stockholder Agent
(A) was an Affiliate of the Company immediately preceding the Merger, (B) was or
is a director or officer of the Company or the Surviving Corporation, or (C) is
reasonably acceptable to Parent. Such instrument shall (1) represent and warrant
that (i) it is signed by Stockholders holding not less than a majority of the
Closing Company Common Shares, exclusive of Dissenting Shares, and (B) the
successor Stockholder Agent is qualified to act as such pursuant to the proviso
next preceding, (2) irrevocably appoint and constitute the successor Stockholder
Agent (for avoidance of doubt, including its successors hereunder) as the
exclusive agent, attorney-in-fact and representative of the Stockholders in
relation to or in connection with this Agreement, the Escrow Agreement and the
Transactions contemplated hereby and thereby, (3) be countersigned by such
successor Stockholder Agent, accepting such appointments and agreeing to be
fully bound by the duties and obligations, and to exercise the rights, powers
and authorities, of the Stockholder Agent under this Agreement and the Escrow
Agreement, and (4) otherwise be in form and substance reasonably satisfactory to
Parent. Parent shall be under no obligation whatsoever to investigate the
accuracy of any representation made in such written instrument and shall be
fully protected in relying on the accuracy thereof in good faith, irrespective
of any notice by any Person other than the Stockholder Agent to the contrary. If
the Stockholders shall have failed to appoint a successor Stockholder Agent
within ten days of the resignation or removal of the Stockholder Agent as
provided in this Section 8.5(e), Parent may petition any court of competent
jurisdiction for the appointment of a successor Stockholder Agent or for other
appropriate relief, with due regard to the qualifications for a successor
Stockholder Agent specified in the proviso to the first sentence of this Section
8.5(e), and any such resulting appointment shall be binding upon all
Stockholders, all parties hereto and all beneficiaries hereof. Upon such an
appointment of a successor Stockholder Agent, the Stockholder Agent shall accept
such appointment, and thereby be effectively constituted the Stockholder Agent
for all purposes of this Agreement and the Escrow Agreement, by (i)
countersigning this Agreement and the Escrow Agreement, agreeing to be bound by
and subject hereto and thereto, or (ii) executing a joinder agreement in form
and substance satisfactory to Parent.
(f) Vacancy. If at any time there is no Stockholder Agent, Parent
or the Escrow Agent may in its sole discretion, but shall not be obligated to,
serve notices on all Stockholders at the address of such Stockholders appearing
on Exhibit A to the Escrow Agreement, and such service shall be deemed notice
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for all purposes hereof, but shall under no circumstances be obligated to accept
any notices from, or to negotiate with, any Stockholder.
(g) Exculpation. The Stockholder Agent shall not be liable for any
act done or omitted under this Agreement or the Escrow Agreement as Stockholder
Agent while acting in good faith, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith.
(h) No Bond or Compensation. No bond shall be required of the
Stockholder Agent, and the Stockholder Agent shall receive no compensation for
its services.
(i) Expenses. The Stockholder Agent shall be entitled to
reimbursement for the reasonable out-of-pocket fees and expenses incurred by the
Stockholder Agent on behalf of the Stockholders in connection with the exercise
and performance of its powers, rights, authorities, duties and obligations under
the agency granted and appointments made, or deemed granted or made, in this
Section 8.5 from the Escrow Account in accordance with Section 3.14(b) and the
Escrow Agreement. Notwithstanding anything to the contrary in this Agreement or
the Escrow Agreement, the Stockholder Agent shall have no right to claim Escrow
Assets having an aggregate value (as calculated pursuant to the Escrow
Agreement) greater than the Stockholder Agent Expense Cap. Any dispute between
Parent and the Stockholder Agent regarding a claim by the Stockholder Agent for
reimbursement of its fees and expenses, whether arising under this Agreement,
the Escrow Agreement or otherwise, shall be resolved pursuant to the dispute
resolution procedures described in Section 8.6.
Section 8.6 Resolution of Conflicts.
(a) Arbitration. If no agreement can be reached after good faith
negotiation between the Indemnified Parties and the Stockholder Agent pursuant
to Section 8.4(b)(1), or if a dispute arises concerning the reimbursement of
Stockholder Agent fees and expenses, the Person defending the claim (the
"Defending Party"), may, by written notice to the Person asserting the claim
(the "Prosecuting Party"), demand arbitration of the matter, which arbitration
shall be conducted by a single arbitrator. The Prosecuting Party and the
Defending Party shall use their respective Best Efforts to agree on the
arbitrator, provided that if they cannot so agree within ten (10) Business Days
(or such longer period as they may agree), either the Prosecuting Party or the
Defending Party can request that Judicial Arbitration and Mediation Services
("JAMS") select the arbitrator. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the Defending Party and Prosecuting Party an opportunity,
adequate in the sole judgment of the arbitrator, to discover relevant
information from the other of them about the subject matter of the dispute. The
arbitrator shall rule upon motions to compel or limit discovery and shall have
the authority to impose sanctions, including attorneys' fees and costs, to the
same extent as a court of competent law or equity, should the arbitrator
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator shall be written, shall be in accordance with
applicable Law and with this Agreement, and shall be supported by written
findings of fact and conclusions of law, which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in a Claim Notice shall be binding and conclusive upon
the Prosecuting Party, the Defending Party, the parties hereto, the
Stockholders, the Indemnified Parties, the Indemnifying Parties, and,
notwithstanding any other provision of this Article VIII, the Escrow Agent, if
applicable, and each of such Persons shall be entitled to act in accordance with
such decision and the Escrow Agent, if applicable, shall be entitled to make or
withhold payments out of the Escrow Account in accordance therewith.
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(b) Judgment; Venue; Arbitration Expenses. Judgment upon any award
rendered by the arbitrator may be entered in any court having jurisdiction. Any
such arbitration shall be held in Dallas, Texas under the commercial rules then
in effect for JAMS. The non-prevailing party to an arbitration shall pay its own
expenses, the fees of the arbitrator, any administrative fee of JAMS, and the
expenses, including attorneys' fees and costs, reasonably incurred by the other
party to the arbitration.
Section 8.7 No Contribution. The Stockholder Agent herby
irrevocably waives, and acknowledges and agrees that it shall not, on behalf of
the Indemnifying Parties, or otherwise, have and shall not exercise or assert
(or attempt to exercise or assert), any right of contribution, right of
indemnity or other right or remedy against the Surviving Corporation in
connection with any indemnification or other rights any Indemnified Party may
have under or in connection with this Agreement.
Section 8.8 Fraud; Willful Misrepresentation. Notwithstanding any
provision in this Agreement to the contrary, the liability of any party for
fraud or willful misrepresentation on the part of such party shall not be
subject to any limitations set forth in this Article VIII. Without limiting the
generality of the foregoing, any claim with respect to such liability need not
be presented within the time limits set forth in Section 8.1(a)(1) and shall be
subject only to the applicable statutes of limitation, and notwithstanding
Section 8.9, any such claim shall be cumulative to any remedies provided in this
Article VIII.
Section 8.9 Exclusive Remedies. Except as set forth in Section
8.8, the remedies set forth in this Article VIII and elsewhere in this Agreement
shall be the sole and exclusive remedies of the parties hereto and the
Indemnified Parties against any Indemnifying Party, Stockholder or any party
hereto with respect to any claim relating to this Agreement or the Merger and
the facts and circumstances relating and pertaining thereto.
Section 8.10 Purchase Price Adjustment. Any payments made pursuant
to this Article VIII shall be treated for tax purposes as an adjustment to the
Merger Consideration.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated, and the
Merger and the other transactions contemplated by this Agreement may be
abandoned, at any time prior to the Effective Time, by written notice explaining
the reason for such termination (without prejudice to other remedies which may
be available to the Parties under this Agreement, at law or in equity):
(a) by the mutual written consent of Parent and the Company,
pursuant to resolutions adopted by their respective Boards of Directors;
(b) by either Parent or the Company:
(1) if (i) the Merger shall not have been
consummated prior to October 31, 2006 or, if Parent has received
notice from the SEC that the SEC will review the Form S-4 or any
other Parent SEC Report or Company SEC Report which review is
responsible for a delay in the SEC declaring the Form S-4
effective, November 31, 2006 (such earlier date, as it may be so
extended, shall be referred to herein as the "Outside Date"), (ii)
the terminating party is not, on the date of termination, in
Material Breach of this Agreement, and (iii) the terminating party
has not Breached this Agreement in a manner which is responsible
for delaying the Closing;
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(2) if (i) any Governmental Entity of competent
jurisdiction shall have issued an Order or taken any other action
(including the failure to take action) permanently restraining,
enjoining or otherwise prohibiting any Transaction, and such Order
or other action shall have become final and nonappealable, (ii)
the terminating party is not, on the date of termination, in
Material Breach of this Agreement; and (iii) the terminating party
has not Breached this Agreement in a manner which is responsible
for such Order having been issued or such action having been
taken;
(3) if (i) the Company Stockholder Approval or
Stockholder Agent Appointment shall not have been obtained at the
Company Stockholders Meeting or at any adjournment or postponement
thereof, (ii) the terminating party is not, on the date of
termination, in Material Breach of this Agreement, and (iii) the
terminating party has not Breached this Agreement in a manner
which is responsible for the failure to obtain the Company
Stockholder Approval or Stockholder Agent Appointment, as the case
may be;
(4) if (i) since the date of this Agreement, there
shall have occurred any Material Adverse Effect in respect of the
other party that shall be continuing for a period of 15 days after
notice by the terminating party; (ii) such Material Adverse
Effect, if curable, shall not have been cured within twenty
Business Days after written notice thereof; (iii) the terminating
party is not, on the date of termination, in Material Breach of
this Agreement, and (iv) the terminating party has not Breached
this Agreement in a manner which is responsible for such Material
Adverse Effect;
(5) if (i) (A) the other party shall have breached
any of its covenants or agreements set forth in this Agreement, or
(B) any representation or warranty of the other party set forth in
this Agreement shall have become untrue or incorrect; (ii) such
breach or misrepresentation, if curable, is not cured within
twenty Business Days after written notice thereof, (iii) such
breach or misrepresentation would cause the conditions set forth
in Section 7.2(a), Section 7.2(b) or Section 7.2(c), or in Section
7.3(a), Section 7.3(b) or Section 7.3(c), as the case may be, not
to be satisfied; (iv) the terminating party is not, on the date of
termination, in Material Breach of this Agreement; and (v) the
terminating party has not Breached this Agreement in a manner
causing such breach or misrepresentation;
(6) if (i) the satisfaction of a closing condition
of the terminating party in Article VII is impossible; (ii) the
terminating party is not, on the date of termination, in Material
Breach of this Agreement; and (iii) the terminating party has not
Breached this Agreement in a manner causing the impossibility of
satisfying such closing condition; or
(7) in its sole discretion (subject to Section 9.3);
(c) by Parent if (i) the Company Stockholder Approval or
Stockholder Agent Appointment shall not have been obtained by the Outside Date
or the number of Dissenting Shares exceeds 1% of outstanding Company Common
Shares; (ii) the Parent Stockholder Approval and Authorized Stock Increase shall
have been obtained; (iii) Parent is not, on the date of termination, in Material
Breach of this Agreement; and (iv) Parent has not Breached this Agreement in a
manner causing such failure to obtain the Company Stockholder Approval, the
Stockholder Agent Appointment or such excess of Dissenting Shares; or
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(d) by the Company if (i) the Parent Stockholder Approval or
Authorized Stock Increase shall not have been obtained by the Outside Date; (ii)
the Company Stockholder Approval and Stockholder Agent Appointment shall have
been obtained and the number of Dissenting Shares does not exceed 1% of
outstanding Company Common Shares; (iii) the Company is not, on the date of
termination, in Material Breach of this Agreement; and (iv) the Company has not
Breached this Agreement in a manner causing such failure to obtain the Parent
Stockholder Approval or Authorized Stock Increase.
Section 9.2 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 9.1, all
obligations and Liabilities of the parties hereto under this Agreement shall
forthwith terminate and become void and there shall be no Liability or
obligation on the part of any party hereto or their respective Subsidiaries,
officers, directors or stockholders, except (i) with respect to any breaches of
Section 6.6 or Section 6.11, (ii) for the terms and provisions of the
Confidentiality Agreement or Section 9.6, (iii) with respect to any Liabilities
or damages incurred or suffered by a party as a result of the willful breach by
any other party of any of its representations, warranties, covenants or other
agreements set forth in this Agreement, (iv) for any termination fees owed under
Section 9.3 and, for avoidance of doubt, amounts owed under the Shared Expenses
Agreement, and (v) the provisions of Article I and Article X, to the extent
applicable to clauses (i)-(iv) next preceding.
Section 9.3 Termination Fees.
(a) In the event that the Company terminates this Agreement
pursuant to Section 9.1(b)(7) or Parent terminates this Agreement pursuant to
Section 9.1(c), the Company shall pay to Parent a termination fee of $100,000.
(b) In the event that Parent terminates this Agreement pursuant to
Section 9.1(b)(7) or the Company terminates this Agreement pursuant to Section
9.1(d), Parent shall pay to the Company a termination fee of $100,000.
(c) All payments under this Section 9.3 shall be made by wire
transfer of same day funds to an account designated in writing by the party
entitled to payment. The parties acknowledges that the agreements contained in
this Section 9.3 are an integral part of the Transactions and that, without
these agreements, Parent would not enter into this Agreement. Accordingly, if a
party fails promptly to pay any amount due to the other party pursuant to this
Section 9.3 and, in order to obtain such payment, the other party commences a
suit that results in a judgment against the first party for all or any portion
of the amounts set forth in this Section 9.3, such first party shall pay to the
other party its costs and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with such suit, together with interest on the
aggregate amount of the fees and expenses at a rate equal to the prime rate
reported in The Wall Street Journal in the "Money Rates" column (or any
successor column) on the date such payment was required to be made.
Section 9.4 Amendment. This Agreement may be amended, supplemented
or otherwise modified at any time prior to the Effective Time upon the execution
and delivery of a written instrument executed by each of the parties hereto;
provided, however, that, after the Company Stockholder Approval or the Parent
Stockholder Approval has been obtained, if required by applicable Law or the
rules and regulations of the applicable party's Principal Market, such amendment
shall require an additional Company Stockholder Approval or Parent Stockholder
Approval, as the case may be.
Section 9.5 Waiver. At any time prior to the Effective Time, any
party hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (ii) waive any inaccuracies
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in the representations and warranties of any other party contained herein or in
any document delivered pursuant hereto, (iii) waive compliance by any other
party with any of its agreements and covenants set forth herein, or (iv) waive
the satisfaction of any conditions to its obligations contained herein;
provided, however, that, after the Company Stockholder Approval or the Parent
Stockholder Approval has been obtained, if required by applicable Law or the
rules and regulations of the applicable party's Principal Market, such extension
or waiver shall require an additional Company Stockholder Approval or Parent
Stockholder Approval, as the case may be. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby, but neither such a written extension or waiver, nor
the failure to insist on strict compliance with an obligation, covenant,
agreement or condition, shall operate as a waiver of, or estoppel with respect
to, any subsequent or other failure.
Section 9.6 Fees and Expenses. Subject to Section 9.3 and the
terms and provisions of that certain letter agreement, dated April 3, 2006 (the
"Shared Expenses Agreement"), by and among Parent, the Company and Stanford,
regarding the sharing of certain expenses related to the exploration of a
possible business combination between Parent and the Company, which agreement
shall remain and continue in full force and effect in accordance with its terms,
all Expenses incurred by the parties hereto shall be borne solely and entirely
by the party that has incurred the same.
ARTICLE X.
GENERAL PROVISIONS
Section 10.1 Notices. All notices, requests, instructions or other
documents to be given or delivered under this Agreement shall be in writing and
shall be deemed given: (i) five Business Days following the deposit of
registered or certified mail in the United States mails, postage prepaid, (ii)
when confirmed by telephone confirmation, if sent by facsimile (but only if
followed by transmittal by reputable national courier service or hand delivery
on the next Business Day), (iii) when delivered, if delivered personally to the
intended recipient, and (iv) one Business Day following delivery to a reputable
national courier service for overnight delivery, postage prepaid; and in each
case, addressed to a party at the following address for such party:
If to Parent, Merger Sub or the Surviving Corporation, addressed to it
at:
DGSE Companies, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice and which shall not be
required for delivery to be effective) to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, addressed to it at:
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Superior Galleries, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies (which shall not constitute notice and which shall not be
required for delivery to be effective) to Stanford and to:
▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-1931
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Stanford, addressed to it at:
Stanford International Bank Ltd.
c/o Stanford Financial Group
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice and which shall not be
required for delivery to be effective) to:
▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto may change its address or fax number for purposes hereof to
such other address or fax number as such party may have previously furnished to
the other parties hereto in writing in accordance with this Section 10.1.
Section 10.2 Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.3 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 10.4 Entire Agreement. This Agreement (together with the
Exhibits, Schedules, Company Disclosure Schedules, Parent Disclosure Schedule
and the other documents delivered pursuant hereto) and the Related Agreements,
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and any certificates, schedules and proxies delivered pursuant hereto or
thereto, constitute the entire agreement and understanding of the parties hereto
in respect of its and their subject matter and supersede all prior agreements
and undertakings by or among the parties, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof or thereof.
Section 10.5 Assignment. Neither this Agreement nor any of the
rights, interests, Liabilities or obligations hereunder or under the Escrow
Agreement shall be assigned by any of the parties hereto, in whole or in part,
by operation of Law or otherwise, without the prior written consent of the other
parties hereto, and any attempt to make any such assignment without such consent
shall be null and void and of no force or effect. Notwithstanding the foregoing,
Merger Sub may, in its sole discretion, assign any and all rights, interests and
obligations under this Agreement or under the Escrow Agreement to any
wholly-owned Subsidiary of Parent.
Section 10.6 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except as
provided in (i) Section 6.22 with respect to Insured Parties, (ii) Article VIII
with respect to Indemnified Parties, and (iii) Section 8.5 with respect to the
Escrow Agent.
Section 10.7 Governing Law; Consent to Jurisdiction; Waiver of
Trial by Jury.
(a) This Agreement and the performance of the obligations of the
parties hereunder shall be governed by, and construed in accordance with, the
laws of the State of Texas applicable to contracts negotiated, executed and to
be performed entirely within such State, except that the Merger shall be
governed by, and construed in accordance with, the laws of the State of
Delaware.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction and venue of any Texas district court and any state appellate court
therefrom within the County of Dallas in the State of Texas (or, if the Texas
district court declines to accept jurisdiction over a particular matter, any
state or federal court within said County) in any action or proceeding arising
out of or relating to this Agreement or the Transactions or for recognition or
enforcement of any judgment relating hereto, and each of the parties hereto
hereby irrevocably and unconditionally (i) agrees not to commence any such
action or proceeding except in such courts, (ii) agrees that any claim in
respect of any such action or proceeding may be heard and determined in such
Texas state court or, to the extent permitted by law, in such federal court,
(iii) waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any such
action or proceeding in any such Texas state or federal court, and (iv) waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such Texas state or federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 10.1. Nothing in this
Agreement shall affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(d) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
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IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (1) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE EITHER OF SUCH WAIVERS, (2) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (3) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (4) IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS Section 10.7(d).
Section 10.8 Disclosure. Any matter set forth in any section of a
party's disclosure schedule shall be considered disclosed for other sections of
such disclosure schedule, but only to the extent that it would be readily
apparent that such matter on its face would apply to a particular other section
of such disclosure schedule. The provision of monetary or other quantitative
thresholds for disclosure does not and shall not be deemed to create or imply a
standard of materiality hereunder.
Section 10.9 Counterparts. This Agreement may be executed in two
or more original or facsimile counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute but one and the same
agreement.
Section 10.10 Facsimile Execution. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
Section 10.11 Remedies Cumulative. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party hereto
shall be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party hereto
of any one remedy shall not preclude the exercise of any other remedy and
nothing in this Agreement shall be deemed a waiver by any party of any right to
specific performance or injunctive relief.
Section 10.12 Specific Performance. Each of the parties hereto acknowledges and
agrees that any breach or non-performance of, or default under, any of the terms
and provisions hereof would cause substantial and irreparable damage to the
other parties hereto, and that money damages would be an inadequate remedy
therefor. Accordingly, each of the parties hereto agrees that each of them shall
be entitled to seek equitable relief, including specific performance and
injunctive relief, in the event of any such breach, non-performance or default
in any action, suit or proceeding instituted in any court of the United States
or any State having competent jurisdiction, or before any arbitrator or referee,
in addition to any other remedy to which such party may be entitled, at law or
in equity. Each party hereto agrees to waive any requirement for the posting of,
or securing of, a bond in connection with any such remedy.
Section 10.13 Time. Time is of the essence in the performance of
this Agreement.
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Section 10.14 Certain Taxes. All transfer, documentary, sales,
use, stamp, registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with the Merger, if any, shall be paid by
the stockholders of the Company.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK ]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
DGSE COMPANIES, INC.
By: /s/ ▇▇. ▇.▇. ▇▇▇▇▇
------------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chairman and Chief Executive Officer
DGSE MERGER CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
SUPERIOR GALLERIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
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EXHIBIT C.
FORM OF ESCROW AGREEMENT
------------------------
THIS ESCROW AGREEMENT is made and entered into as of ___________ ____,
2006 (this "Agreement"), by and among (i) DGSE Companies, Inc., a Nevada
corporation (together with its successors and permitted assigns, "DGSE"), (ii)
Stanford International Bank, Ltd., a company organized under the laws of Antigua
and Barbuda, as agent and representative for the stockholders of Superior
Galleries, Inc., a Delaware corporation (f/k/a Tangible Asset Galleries, Inc., a
Nevada corporation) ("Superior") listed from time to time on Exhibit A hereto
(the "Stockholders") (in such capacity, together with any successors in such
capacity, the "Stockholder Agent"), and (iii) ________________, a _________
_______, as securities intermediary and escrow agent (in such capacity, the
"Escrow Agent"). Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to them in the Merger Agreement (as defined in the
recitals below).
R E C I T A L S
---------------
WHEREAS, DGSE, its wholly-owned subsidiary, DGSE Merger Corp., a
Delaware corporation ("Merger Sub"), Superior and the Stockholder Agent made and
entered into that certain Agreement and Plan of Merger and Reorganization as of
July 12, 2006 (as amended, modified or supplemented from time to time, the
"Merger Agreement");
WHEREAS, the Merger Agreement provides for the merger of Superior with
and into Merger Sub, with Superior as the surviving company and a wholly-owned
subsidiary of DGSE (the "Merger");
WHEREAS, pursuant to the Merger, all outstanding capital stock of
Superior may be exchanged for shares of common stock, par value $0.01 per share,
of DGSE (the "DGSE Common Stock"), subject to the terms and conditions set forth
in the Merger Agreement;
WHEREAS, Section 3.14 and ARTICLE VIII of the Merger Agreement provide
that a separate escrow account (the "Escrow Account") shall be established for
the purpose of (i) securing the indemnification obligations of the Stockholders
set forth in Article VIII of the Merger Agreement, and (ii) the payment of
certain reasonable fees and expenses of the Stockholder Agent as further
provided herein;
WHEREAS, the Stockholders have adopted and approved the Merger
Agreement and irrevocably appointed and constituted the Stockholder Agent as
their exclusive agent and representative for purposes of the Merger Agreement
and this Agreement;
WHEREAS, simultaneously with the effectiveness of this Agreement, DGSE
shall deliver to the Escrow Agent, on behalf of the Stockholders, shares of DGSE
Common Stock as provided in Section 1, which shares shall be deposited in the
Escrow Account;
WHEREAS, the Escrow Agent desires to act as the escrow agent as
provided in this Agreement; and
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which the Escrow Account shall be established and
maintained.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
1. Commencement of Duties; Escrow Account.
1.1 Commencement of Duties. Upon receipt by the Escrow Agent of the
shares of DGSE Common Stock provided in Section 1.2, (i) the Escrow Agent shall
deliver a notice to DGSE and to the Stockholder Agent acknowledging such
receipt, and (ii) the Escrow Agent shall hold any Escrow Cash (defined below)
the Escrow Shares (defined below) and any proceeds of the foregoing in escrow
pursuant to the terms of this Agreement. The Escrow Agent shall hold and
safeguard the Escrow Account during the Escrow Period (defined below), shall
treat such accounts as trust funds in accordance with the terms of this
Agreement and not as the property of the Escrow Agent, DGSE, the Stockholders or
the Stockholder Agent and shall hold and dispose of the cash and shares in the
Escrow Account only in accordance with the terms set forth in this Agreement.
1.2 Initial Share Deposits. Simultaneously with the effectiveness
of this Agreement, DGSE shall deliver to the Escrow Agent, on behalf of the
Stockholders and for the benefit of the Indemnified Parties, including as
beneficiaries and secured parties, stock certificates evidencing the number of
shares of DGSE Common Stock as determined in accordance with Section 3.14(a) of
the Merger Agreement, issued in the name of the Escrow Agent, in its capacity as
escrow agent hereunder, or its nominee, and containing the restrictive legend
set forth on Exhibit C, for deposit in the Escrow Account as security for the
Indemnified Parties and for the payment of certain fees and expenses of the
Stockholder Agent, as further provided herein. The shares of DGSE Common Stock
held in the Escrow Account from time to time shall collectively be referred to
as the "Escrow Shares".
1.3 Investment of Escrow Cash. Upon receipt of any cash, including
upon the sale or liquidation of, or the declaration of any cash dividend or
distribution in respect of, any Escrow Shares (any such cash, the "Escrow
Cash"), the Escrow Agent shall invest and re-invest such cash (i) solely at the
risk of the beneficiaries of the Escrow Account; (ii) in the name of the Escrow
Agent or its nominee; and (iii) in such amounts and in such Permitted
Investments (as defined below) as DGSE may designate in writing from time to
time. Income, if any, resulting from the investment of the Escrow Cash or the
liquidation of Permitted Investments shall be retained by the Escrow Agent and
will be considered, for all purposes of this Agreement, to be part of the Escrow
Cash deposited in the Escrow Account. "Permitted Investments" means an
investment in any of the following accounts, securities and instruments: (i)
demand deposits, certificates of deposit, bankers acceptances, time deposits and
other deposit accounts with commercial banks organized under the laws of the
United States of American, or any State thereof, having an aggregate capital and
surplus in excess of $100,000,000 and, to the extent applicable, having a
maturity of not more than 180 days from the date of investment therein; (ii)
investments in marketable direct obligations of, or obligations unconditionally
and fully guaranteed by, the United States of America (or by any agency thereof
to the extent such obligations are backed by the full faith and credit of the
United States of America) and maturing not more than one year from the date of
investment therein; (iii) open market commercial paper rated at least "A1" or
"P1" or better by a nationally recognized statistical rating organization and
maturing not more than one year from the issuance thereof; (iv) money market and
other mutual funds invested solely in (A) the types of Permitted Investments
described in clauses (i) through (iii), inclusive, of this definition of
Permitted Investments, and (B) investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course of
business. Any interest earnings from any Permitted Investment shall be credited
upon receipt by the Escrow Agent to the Escrow Fund. [ DGSE and the Stockholder
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Agent each hereby acknowledges that pursuant to national banking regulations, it
has been informed that it is entitled to receive separate written notification
of every security transaction effected for the Escrow Account and wishes to
waive receipt of such notification in view of the inclusion of such information
in the transaction statements to be provided to it by the Escrow Agent. ]
1.4 Share Dividends, Etc. Any shares of DGSE Common Stock or other
equity securities issued or distributed by DGSE (including shares issued in
connection with a stock split or other reclassification) ("New Shares") in
respect of Escrow Shares that have not been released from the Escrow Account
shall be added to the Escrow Account and become a part thereof, and shall be
considered Escrow Shares for all purposes of this Agreement. New Shares issued
in respect of shares of DGSE Common Stock that have been paid or released from
the Escrow Account shall not be added to the Escrow Account, but shall be
distributed to the respective record holders of such paid or released shares.
1.5 Voting of Shares. The Stockholders shall be entitled to vote
their respective pro rata portion of Escrow Shares, based on their respective
percentage interest as set forth on Exhibit A. DGSE shall deliver any
communications it distributes to its stockholders qua stockholders, including
notices of meetings, annual reports and proxy statements, to the Stockholder
Agent at the time such communications are delivered to its other stockholders.
The Stockholder Agent shall deliver such communications to the respective
Stockholders and, in accordance with the instructions received from the
Stockholders, direct the Escrow Agent in writing as to the exercise of voting
rights pertaining to the Escrow Shares as to which such voting instructions have
been received, and not to act with respect to any Escrow Shares for which no or
invalid instructions have been received from any Stockholders, and the Escrow
Agent shall comply with any such written instructions from the Stockholder
Agent. To the extent of the absence of such instructions from the Stockholder
Agent, the Escrow Agent shall vote the Escrow Shares in the same manner,
including abstaining from voting, as broker non-votes with respect to each
matter being acted upon. Beyond the delivery of DGSE proxies or consents to the
Stockholders as aforesaid, the Stockholder Agent shall have no obligation to
solicit consents or proxies from the Stockholders for purposes of any such vote.
1.6 Issued and Outstanding. The Escrow Shares shall appear as
issued and outstanding shares on the books and records of DGSE.
1.7 Transferability of Interests by Stockholders. The interests of
the Stockholders in the Escrow Account, or the Escrow Cash, Escrow Shares,
Permitted Investments and other assets from time to time held in the Escrow
Account (collectively, the "Escrow Assets"), may not be sold, assigned or
otherwise Transferred, other than strictly in accordance with the limited
exceptions provided in Section 3.15 of the Merger Agreement. The applicable
Stockholder effecting, or any party hereto who has actual notice of, any such
permitted sale, assignment or other Transfer shall promptly provide notice to
the Escrow Agent, Stockholder Agent and DGSE thereof, and no such sale,
assignment or other Transfer shall be valid or effective until such notice has
been duly provided.
2. Escrow Account.
2.1 Escrow Period. The Escrow Agent shall establish the Escrow
Account immediately upon the effectiveness of this Agreement, and will terminate
the Escrow Account at 5:00 p.m., Pacific time, on the date (as adjusted pursuant
hereto, the "Expiration Date") that is one calendar year after the Effective
Time (such period of time, as adjusted pursuant hereto, the "Escrow Period");
provided, however, that in the event DGSE notifies the Escrow Agent that any
Indemnified Party has made a claim under Article VIII of the Merger Agreement
prior to the Expiration Date which claim has not yet been fully and finally
resolved and settled on the Expiration Date (an "Unresolved Claim"), the Escrow
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Period shall be extended, the Expiration Date, the termination of the Escrow
Account, and the release of shares of DGSE Common Stock having an aggregate
value up to the sum of (A) the maximum aggregate amount of all Unresolved
Claims, plus (B) the Stockholder Agent's maximum claims for fees and expenses
(subject to the Stockholder Agent Expense Cap) associated therewith; shall be
delayed, until the earlier to occur of (i) ten Business Days after DGSE notifies
the Escrow Agent and the Stockholder Agent that it has determined that each
Unresolved Claim has been fully and finally resolved, settled and satisfied, and
(ii) the date no Escrow Assets remain in or are due to the Escrow Account.
2.2 Funding. The Escrow Agent shall deposit cash (if any) and
shares of DGSE Common Stock in the Escrow Account as provided in Section 1.
2.3 Use of Account.
(a) Indemnified Party Claims. The Stockholders have agreed to
indemnify, defend and hold harmless DGSE and its Representatives and Affiliates
(including the Surviving Corporation) (collectively, the "Indemnified Parties")
in Section 8.2 of the Merger Agreement from and against any Losses, as set forth
in Article VIII of the Merger Agreement. The Stockholder Agent, on behalf of the
Stockholders, expressly agrees, and by virtue of the approval of the Merger and
the Merger Agreement each Stockholder has agreed and consented, that the Escrow
Assets (i) shall be available to satisfy, including as security for, such
indemnity obligations, subject to the limitations and in the manner provided for
in this Agreement, and (ii) are subject to release and payment to DGSE or other
Indemnified Parties upon the terms and subject to the conditions set forth
herein and in the Merger Agreement.
(b) Stockholder Agent Costs and Expenses. The Stockholders have
agreed to reimburse the Stockholder Agent for certain reasonable out-of-pocket
costs and expenses incurred by the Stockholder Agent in Section 3.14 and Section
8.5(a) of the Merger Agreement, up to (but not exceeding) the Stockholder Agent
Expense Cap. By virtue of the approval of the Merger Agreement, the Stockholders
have agreed and consented that the Escrow Assets (i) may be used for such
payment obligations, subject to the Stockholder Agent Expense Cap and other
limitations and in the manner provided for in this Agreement, and (ii) are
subject to release and payment to the Stockholder Agent upon the terms and
subject to the Stockholder Agent Expense Cap and other limitations and
conditions set forth herein.
(c) Distributions. The Escrow Agent shall establish and
maintain the Escrow Account solely for the purposes of (i) satisfying the
indemnification obligations of the stockholders of Superior under the Merger
Agreement, (ii) paying the out-of-pocket fees and expenses, including reasonable
attorneys' fees, reasonably incurred by the Stockholder Agent in connection with
performing and exercising its rights, authorities, powers, duties and
obligations under this Agreement and the Merger Agreement on behalf of the
Stockholders, up to the maximum aggregate amount of the Stockholder Agent
Expense Cap, and (iii) distributing any assets remaining in the Escrow Account
upon the expiration of the Escrow Period as provided in Section 2.7.
2.4 Claims.
(a) Indemnified Party. The Escrow Agent shall distribute assets
from the Escrow Account to satisfy the claim of an Indemnified Party only upon
receipt of: (i) joint instructions executed by DGSE and the Stockholder Agent;
(ii) a final written decision of an arbitrator submitted by DGSE on behalf of
the applicable Indemnified Party, or (iii) a final non-appealable order of a
court of competent jurisdiction submitted by DGSE on behalf of the applicable
Indemnified Party; in each case containing instructions to the Escrow Agent
concerning the release of assets from the Escrow Account (including the name of
the payee and the amount of the payment). Upon payment in full of a claim so
received pursuant to Section 2.5, the Escrow Agent shall deem such claim finally
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resolved, settled and satisfied for purposes of this Agreement. In the event
there are insufficient assets to pay the claims of all Indemnified Parties, the
claims made by DGSE shall be satisfied first and all other claims shall be
satisfied on a pro rata basis from the remaining assets.
(b) Stockholder Agent. The Escrow Agent shall distribute assets
from the Escrow Account to satisfy a claim of the Stockholder Agent only upon
receipt of a certification from the Stockholder Agent that (i) such funds shall
be used strictly in accordance with the terms and provisions of this Agreement
and Section 3.14 of the Merger Agreement, and (ii) the requested amount,
together with all amounts theretofore paid to the Stockholder Agent from the
Escrow Account and all amounts theretofore requested by the Stockholder Agent
from the Escrow Account and not finally denied, do not exceed the Stockholder
Agent Expense Cap.
2.5 Payments from Escrow Account. In the event any Indemnified
Party or the Stockholder Agent is entitled to payment on a claim from the Escrow
Account, the Escrow Agent shall make such payment:
(a) first, out of any Escrow Cash then held in the Escrow
Account,
(b) second, if commercially reasonable or upon the written
request of DGSE, out of cash received upon the liquidation of any Permitted
Investments or other assets (other than Escrow Shares) then held in the Escrow
Account; and
(c) finally, out of the Escrow Shares by delivering to such
Indemnified Party or the Stockholder Agent, as the case may be, a number of
Escrow Shares from the Escrow Account having a value equal to the remaining
amount of the payment due, with such shares being valued at the per-share value
equal to the Closing Price (the "Share Value"); provided, however, that in the
event of any Capitalization Adjustment with respect to the DGSE Common Stock
occurring after the Effective Time, the Share Value shall be equitably adjusted
to the extent necessary to provide the parties the same economic effect as
contemplated by this Section 2.5(c) prior to such Capitalization Adjustment.
Any distribution of Escrow Assets to an Indemnified Party or to the Stockholder
Agent pursuant to this Section 2 shall be deemed paid by the Stockholders on a
pro rata basis. calculated in accordance with the percentages set forth opposite
the respective Stockholder names on Exhibit A.
2.6 Release. During the ten Business Days prior to the expiration
of the Escrow Period, the Escrow Agent shall use its commercially reasonable
efforts to liquidate all Escrow Assets (other than Escrow Shares and Escrow
Cash) held in the Escrow Account so that no Escrow Assets other than Escrow
Shares and Escrow Cash will remain in the Escrow Account upon the expiration of
the Escrow Period. Upon the expiration of the Escrow Period, or as soon as
reasonably practicable thereafter, subject to Section 4.11, the Escrow Agent
shall distribute all of the Escrow Assets then held in the Escrow Account to the
Stockholders pursuant to Section 2.7.
2.7 Distribution. Any distribution of all or a portion of the
Escrow Assets then held in the Escrow Account to the Stockholders pursuant to
Section 2.6 shall be distributed on a pro rata basis to the stockholders of
Superior immediately prior to the Merger in accordance with the percentages set
forth opposite such stockholders' respective names on Exhibit A; provided,
however, that the Escrow Agent shall withhold the distribution of the portion of
the Escrow Assets otherwise distributable to any stockholder who (i) is a
Dissenting Stockholder, or (ii) has not, according to a written notice provided
by DGSE to the Escrow Agent, prior to such distribution, surrendered pursuant to
the terms of the Merger Agreement its stock certificates formerly representing
Company Common Shares (or delivered the affidavit and bond, if any, specified in
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Section 3.4(i) of the Merger Agreement). Any such withheld Escrow Assets shall
be delivered to DGSE promptly after the expiration of the Escrow Period, and,
with respect to such stockholders other than Dissenting Stockholders, shall be
delivered by DGSE to the stockholders to whom such Escrow Assets would have
otherwise been distributed upon surrender of their certificates representing
Company Common Shares (or delivery of such affidavit and bond, if any). The
Escrow Agent shall distribute Escrow Assets to the respective Stockholders by
mailing a check representing the funds, or directing the transfer agent for the
DGSE Common Stock to deliver a stock certificate representing such Escrow
Shares, due to such Stockholder at its address shown on Exhibit A by certified
mail, return receipt requested. No fractional Escrow Shares shall be distributed
to the Stockholders pursuant to this Agreement and, upon notification of a
permitted distribution to the Stockholders, DGSE shall provide, or cause its
transfer agent to provide, stock certificates evidencing a number of shares that
each Stockholder shall receive rounded up to the nearest whole number of shares.
2.8 Securities Accounts. The Escrow Account shall be a "securities
account" (as defined in Section 8-501 of the Uniform Commercial Code).
2.9 Calculations. Notwithstanding anything herein to the contrary,
the Person requesting a distribution shall make any and all calculations
required to be made pursuant to this Section 2, including the value of the
Escrow Shares, and certify the same to the Escrow Agent.
3. Stockholder Agent. The parties hereto acknowledge and accept the
provisions of Section 8.5 of the Merger Agreement concerning the Stockholder
Agent, which are incorporated herein by reference. Any successor Stockholder
Agent under the Merger Agreement shall become the Stockholder Agent hereunder,
as provided in such Section 8.15.
4. Escrow Agent.
4.1 Appointment and Acceptance. DGSE and the Stockholder Agent
▇▇▇▇▇▇ appoint the Escrow Agent as escrow agent in relation to or in connection
with this Agreement and the Merger Agreement. The approval of the Merger and the
approval and adoption of the Merger Agreement by the stockholders of Superior
constitutes, without any further action on the part of any such stockholders,
the consent and authorization of each of such stockholders for the Escrow Agent
to act as the escrow agent pursuant to the terms and provisions hereof. The
Escrow Agent ▇▇▇▇▇▇ accepts such appointments.
4.2 Duties. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions that the Escrow Agent may
receive from DGSE and the Stockholder Agent from time to time as provided
herein, upon which instructions the Escrow Agent may conclusively rely.
4.3 Compliance with Orders, Etc. The Escrow Agent is authorized to
comply with and obey orders, awards, judgments or decrees of any court of law or
arbitration tribunal, notwithstanding any notices, warnings or other
communications from any party hereto or any other Person to the contrary. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court or arbitration tribunal, the Escrow Agent shall not be liable to
any of the parties hereto or to any other Person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
4.4 Additional Instructions. The Escrow Agent may from time to time
request further information, instructions or direction from DGSE or the
Stockholder Agent, as the case may be, as it reasonably deems necessary in the
performance of its duties hereunder, and DGSE or the Stockholder Agent, as
applicable, shall use their respective commercially reasonable efforts promptly
to provide such information, instructions or direction, upon which the Escrow
Agent may conclusively rely.
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4.5 Limitation of Liability. In performing any duties hereunder,
the Escrow Agent shall not be liable to any party hereto for damages, losses or
expenses, except for gross negligence or willful misconduct on the part of the
Escrow Agent. The Escrow Agent shall not incur any such liability for any action
taken or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement, that the Escrow Agent in
good faith believes to be genuine, nor will the Escrow Agent be liable or
responsible if acting in good faith for forgeries, fraud, impersonations or
determining the scope of any representative authority. In addition, the Escrow
Agent may consult with legal counsel (whether such counsel will be regularly
retained or specifically employed) in connection with the Escrow Agent's duties
under this Agreement and shall be fully protected in any act taken, suffered, or
permitted by it in good faith in accordance with the advice of counsel. The
Escrow Agent is not responsible for determining and verifying the authority of
any Person acting or purporting to act on behalf of any party hereto or
beneficiary hereof. The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent. IN NO EVENT SHALL THE ESCROW
AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (i) DAMAGES OR EXPENSES ARISING
OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES WHICH RESULT FROM THE
ESCROW AGENT'S FAILURE TO ACT IN ACCORDANCE WITH THE STANDARDS SET FORTH IN THIS
AGREEMENT, OR (ii) SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE ESCROW AGENT
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
4.6 Disputes. If any controversy arises between the parties to this
Agreement, or with any other Person, concerning the subject matter of this
Agreement, the Escrow Agent shall not be required to determine the controversy
or to take any action regarding it. Furthermore, the Escrow Agent may file an
action of interpleader requiring the parties hereto to answer and litigate any
claims and rights amongst themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and Escrow Assets; provided, however,
that all costs, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader action shall be reimbursed equally by the
Stockholders (subject to Section 4.12), on the one hand, and DGSE, on the other
hand, it being agreed and understood that the Escrow Agent shall have a prior
lien upon the Escrow Assets with respect to its costs, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action, superior to the interests of any other Person. Upon initiating such
action, the Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement, except for any
liability for obligations or acts or omissions that have already occurred, and
only to the extent set forth herein.
4.7 Indemnification. DGSE and the Stockholders (subject to Section
4.12), and their respective successors and assigns, shall jointly and severally
indemnify and hold the Escrow Agent harmless against any and all losses, claims,
damages, liabilities and expenses, including reasonable costs of investigation,
attorneys fees and disbursements, that may be imposed on the Escrow Agent or
incurred by the Escrow Agent in connection with the performance of its duties
under this Agreement. Such indemnification shall survive the resignation or
removal of the Escrow Agent, or the termination of this Agreement.
4.8 Resignation and Removal. The Escrow Agent may resign at any
time upon sixty days written notice to DGSE and the Stockholder Agent, and the
duties of the Escrow Agent shall terminate at the time specified in such notice
(but not less than sixty days after delivery to DGSE). The Escrow Agent may be
removed at any time by notice from DGSE, and the duties of the Escrow Agent
shall terminate at the time specified in such notice. Upon the termination of
its duties hereunder, the Escrow Agent shall promptly deliver the balance of the
Escrow Assets, and any documentation or notices or other communications relating
to the Escrow Account, the Escrow Assets or this Agreement, then in its
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possession to a successor escrow agent, as identified by a written notice
delivered by DGSE to the Escrow Agent.
4.9 Successors. DGSE may appoint the successor escrow agent (i)
without the consent of the Stockholder Agent if such successor is a commercial
bank organized under the laws of the United States of America, or any State
thereof, having an aggregate capital and surplus in excess of $50,000,000 and
being a "securities intermediary" for purposes of the applicable Uniform
Commercial Code, or (ii) with the consent of the Stockholder Agent (which the
Stockholder Agent may not unreasonably withhold, delay or condition). If DGSE
shall have failed to appoint a successor escrow agent prior to the termination
of the Escrow Agent's duties as provided in this Section 4.9, the Escrow Agent
may petition any court of competent jurisdiction for the appointment of a
successor escrow agent or for other appropriate relief, with due regard to the
qualifications for a successor escrow agent specified in clause (i) next
preceding, and any such resulting appointment shall be binding upon all of the
parties hereto and beneficiaries hereof. The successor escrow agent shall
execute and deliver an instrument accepting such appointment, and it shall,
without further acts, be vested with all the estates, properties, rights, powers
and duties (but not accrued liabilities) of the predecessor escrow agent as if
originally named as escrow agent. Upon resignation in accordance with this
Section 4.9, the Escrow Agent shall be discharged from any further duties and
liability under this Agreement, except for any liability for obligations or acts
or omissions that have already occurred, and only to the extent set forth
herein.
4.10 Fees. All fees of the Escrow Agent for performance of its
duties under this Agreement shall be paid one-half by DGSE and (subject to
Section 4.12) one-half by the Stockholders. Exhibit B sets forth the usual fees
and charges agreed upon for services of the Escrow Agent as contemplated by this
Agreement. In the event the Escrow Agent renders any service not provided for in
Exhibit B, or if the parties request a substantial modification of its terms, or
if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Account, the Escrow Agent's reasonable costs and
expenses shall be paid (i) in the case the Escrow Agent is made a party to any
litigation by DGSE or the Stockholder Agent, by DGSE or the Stockholders, as the
case may be, or (ii) otherwise, one-half by DGSE and (subject to Section 4.12)
one-half by the Stockholders.
4.11 Set-Off. In the event that the Escrow Agent is authorized to
make disbursements to any party to or beneficiary of this Agreement pursuant to
and in accordance with the terms of this Agreement, and fees and expenses are
due and payable to the Escrow Agent pursuant to the terms of this Agreement by
the party or beneficiary receiving such disbursement, the Escrow Agent is hereby
authorized to offset such amounts due and payable to it against such
disbursement to such party or beneficiary.
4.12 Limitations on Stockholder Payments. The obligations of the
Stockholders to make payments to the Escrow Agent hereunder, other than pursuant
to Section 5 (as to which the limitations of this Section 4.12 shall not apply),
shall be strictly and exclusively limited to the Escrow Assets. If the Escrow
Assets shall be insufficient to pay the fees of or other amounts due to the
Escrow Agent hereunder, DGSE shall make such payments on behalf of the
Stockholders (subject to reimbursement in the event any Escrow Assets thereafter
become available).
5. Tax Matters. The Escrow Agent shall be responsible for reporting any
interest earned, as of each calendar year-end, on the Escrow Cash or Permitted
Investments, or any cash dividends or other distributions made in respect of the
Escrow Shares, to the IRS, whether or not such income was distributed by the
Escrow Agent during any particular year. The Stockholder Agent shall provide a
completed IRS Form W-8 (an original W-8 is required) or Form W-9 to the Escrow
Agent upon the signing of this Agreement. The Escrow Agent may delay accepting
any Escrow Cash until the IRS forms shall have been provided. Notwithstanding
Section 4.12, each Stockholder, severally but not jointly, covenants and agrees
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to indemnify and hold the Escrow Agent harmless against all liability for tax
withholding or reporting for any payments made by the Escrow Agent to such
Stockholder pursuant to this Agreement. The Escrow Agent shall have no
responsibility for the preparation and/or filing of any tax or information
return, other than 1099-INT reporting, with respect to any transaction, whether
or not related to the Agreement or any Related Agreements, that occurs outside
of the Escrow Account.
6. Miscellaneous.
6.1 Construction. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions, or to designated "Exhibits," "Schedules" or
"Appendices," are to the designated Articles, Sections and other subdivisions
of, or the designated Exhibits, Schedules or Appendices to, this Agreement;
(b) references to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;
(c) references to any agreement, document or instrument means
such agreement, document or instrument as Amended and in effect from time to
time in accordance with the terms thereof, and shall be deemed to refer as well
to all addenda, annexes, appendices, exhibits, schedules and other attachments
thereto;
(d) references to "dollars" or "cash", and the "$" symbol, are
references to the lawful money of the United States of America;
(e) with respect to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding";
(f) the words "include," "includes," and "including" shall be
deemed to be followed by "without limitation";
(g) the term "or" shall not be exclusive;
(h) pronouns in masculine, feminine, and neuter genders shall
be construed to include any other gender;
(i) whenever the singular number is used, if required by the
context, the same shall include the plural, and vice versa; and
(j) the words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision.
6.2 Titles and Headings. The section and paragraph titles and
headings contained herein are inserted purely as a matter of convenience and for
ease of reference and shall be disregarded for all other purposes, including the
construction, interpretation or enforcement of this Agreement or any of its
terms or provisions.
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6.3 Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto. Each of the parties hereto acknowledges, represents and
warrants that (i) it has read and fully understood this Agreement and the
implications and consequences thereof; (ii) it has been represented in the
preparation, negotiation, and execution of this Agreement by legal counsel of
its own choice, or it has made a voluntary and informed decision to decline to
seek such counsel; and (iii) it is fully aware of the legal and binding effect
of this Agreement.
6.4 Assignment. DGSE may assign any or all of its rights under this
Agreement, in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person. Without
limiting the generality of Section 1.7, none of the Stockholders may assign any
of its rights or interests or delegate any of its duties or obligations under
this Agreement without the prior written consent of DGSE, which consent may be
withheld in DGSE's sole and absolute discretion. The Stockholder Agent may
assign and delegate its rights, powers, obligations and duties under this
Agreement only as provided in Section 8.5 of the Merger Agreement. The Escrow
Agent may assign and delegate its rights, powers, obligations and duties under
this Agreement only as provided in Section 4.9. Any purported assignment not in
full compliance with this Section 6.4 shall be null and void and of no force or
effect ab initio. Subject to the sentence next preceding, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and express beneficiaries hereof and their respective successors and
permitted assigns
6.5 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by DGSE, the Stockholder Agent and, if
adversely affected thereby, the Escrow Agent; provided, however, that DGSE shall
have the right to amend Exhibit A by written notice to the Escrow Agent and
Stockholder Agent to the extent (i) Exhibit A does not accurately or completely
list the Stockholders of Superior or their stock ownership immediately prior to
the Merger, (ii) any Stockholder changes its current mailing address (it being
agreed that the Stockholder Agent may certify to DGSE from time to time a new
address of any Stockholder), (iii) any Stockholder delivers the required stock
certificate or affidavit in lieu thereof, or (iv) a Stockholder sells, assigns
or otherwise Transfers its interests in the Escrow Account, or any Escrow Cash,
Escrow Stocks, Permitted Investments or other assets from time to time held
therein, as permitted by Section 1.7. Any modification, amendment, alteration or
supplement to the Merger Agreement which has or may have an adverse effect upon
the Escrow Agent shall not be effective for purposes of this Agreement absent
the written consent of the Escrow Agent, such consent not to be unreasonably
withheld.
6.6 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof; provided
that if any provision of this Agreement, as applied to any party or to any
circumstance, is adjudged by a court, tribunal or other governmental body,
arbitrator or mediator not to be enforceable in accordance with its terms, the
parties agree that such governmental body, arbitrator or mediator making such
determination shall have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced.
6.7 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, or any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance. No waiver by any party of any default, misrepresentation
or breach hereunder, whether intentional or not, shall be effective unless in
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writing and signed by the party against whom such ▇▇▇▇▇▇ is sought to be
enforced, and no such waiver shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach hereunder or affect in any way
any rights arising because of any prior or subsequent such occurrence.
6.8 Notices. All notices, requests, instructions or other documents
to be given under this Agreement shall be in writing and shall be deemed given,
(i) upon receipt if sent via registered or certified mail, return receipt
requested, in the U.S. mails, postage prepaid, (ii) when sent if sent by
facsimile; provided, however, that the facsimile is promptly confirmed by
telephone confirmation thereof, (iii) when delivered, if delivered personally to
the intended recipient, and (iv) one business day following delivery to a
reputable national courier service for overnight delivery; and in each case,
addressed to a party (1) with respect to DGSE or the Stockholder Agent, at the
address set forth for it in Section 10.1 (Notices) of the Merger Agreement, and
(2) with respect to the Escrow Agent, at the following address:
[ ESCROW AGENT ]
[address]
Tel:
Fax:
Or in each case to such other address or fax number as the party to whom the
notice, request, instruction or other document is given may have previously
furnished to the other parties in writing in the manner set forth in this
Section 6.8.
6.9 Governing Law. This Agreement and the performance of the
transactions and obligations of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts negotiated, executed and to be performed entirely within such State.
6.10 Entire Agreement. This Agreement, and to the extent of the
definitions defined in the Merger Agreement and used herein, the Merger
Agreement, constitute the entire agreement and understanding of the parties
hereto in respect of the subject matter hereof and supersedes all prior
understandings, agreements or representations by or among the parties hereto,
written or oral, to the extent they relate in any way to the subject matter
hereof or the transactions contemplated by this Agreement. In case of any
conflict between the Merger Agreement and this Agreement, the terms and
provisions of this Agreement shall prevail.
6.11 Third-Party Beneficiaries. This Agreement is made solely for
the benefit of the parties to this Agreement, the Indemnified Parties and the
Stockholders, and their respective permitted successors and assigns, and no
other Person shall have or acquire any right or remedy by virtue hereof except
as otherwise expressly provided herein.
6.12 Jurisdiction; No Jury Trial; Service of Process. The terms and
provisions of Section 10.7 (d) (Waiver of Trial by Jury) of the Merger Agreement
are hereby incorporated by reference herein and shall apply to this Agreement
mutatis mutandis, as if expressly set forth herein.
6.13 Submission to Jurisdiction; No Jury Trial. Any suit, action or
proceeding with respect to this Agreement shall be brought exclusively in any
court of competent jurisdiction in the County of Dallas, Texas. ALL PARTIES
HERETO AND EXPRESS BENEFICIARIES HEREOF HEREBY IRREVOCABLY WAIVE ANY OBJECTIONS
WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE PERSONAL JURISDICTION OR VENUE OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
BROUGHT IN ANY SUCH COURT AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
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INCONVENIENT FORUM. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HERETO
AND EXPRESS BENEFICIARIES HEREOF HEREBY FURTHER IRREVOCABLY WAIVE ANY RIGHT TO A
JURY TRIAL IN ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
6.14 Counterparts. This Agreement may be executed in two or more
original or facsimile counterparts, each of which shall be deemed an original
but all of which together shall constitute but one and the same instrument.
6.15 Facsimile Execution. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
[ THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK ]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
DGSE COMPANIES, INC.
By:
-------------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chief Executive Officer
STANFORD INTERNATIONAL BANK, LTD., as
Stockholder Agent
By:
-------------------------------------
Name:
Title:
[ ESCROW AGENT ]
By:
-------------------------------------
Name:
Title:
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EXHIBIT A
---------
SUPERIOR STOCKHOLDERS
Delivered Stock Certificates or
Stockholder Address Superior Share Ownership TIN Affidavit in Lieu Thereof
[_]
[_]
EXHIBIT B
---------
ESCROW AGENT FEES
EXHIBIT C
---------
RESTRICTIVE LEGEND
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE AND
OTHER ESCROW PROVISIONS SET FORTH IN: (1) AN AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION BY AND AMONG DGSE COMPANIES, INC., DGSE MERGER CORP., SUPERIOR
GALLERIES, INC., AND STANFORD INTERNATIONAL BANK, LTD., AS STOCKHOLDER AGENT
(TOGETHER WITH ITS SUCCESSOR IN SUCH CAPACITY, THE "STOCKHOLDER AGENT"), MADE
AND ENTERED INTO AS OF JULY 12, 2006; AND (2) AN ESCROW AGREEMENT, BY AND AMONG
DGSE COMPANIES, INC., [ESCROW AGENT], AND THE STOCKHOLDER AGENT, MADE AND
ENTERED INTO AS OF __________ __, 2006. COPIES OF THE AFORESAID AGREEMENTS ARE
ON FILE AT THE PRINCIPAL OFFICE OF DGSE COMPANIES, INC. AND SHALL BE PROVIDED TO
THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST.
EXHIBIT D.
AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT
THIS IS AN AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT
made this ____ day of ___________, 2006, by and between:
Stanford Financial Group Company, a Florida corporation having its
principal corporate office at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter
referred to as "Lender"), and Superior Galleries, Inc., a Delaware corporation
with a place of business at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (hereinafter referred to as "Borrower"), with reference to the following
facts:
RECITALS
--------
▇. ▇▇▇▇▇▇▇▇ and Lender are parties to a Commercial Loan and
Security Agreement dated October 1, 2003, as amended (collectively, the
"Existing Loan Agreement"), pursuant to which Lender provides Borrower a
revolving credit facility of up to Ten Million Dollars ($10,000,000).
B. Borrower and Lender wish to enter into this Agreement, which
shall amend and restate the Existing Loan Agreement in its entirety and which
hereinafter shall govern the terms and conditions under which Lender shall
provide credit facilities to Borrower.
NOW, THEREFORE, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS
(reference being hereby made to Section 10 below for the definition of certain
capitalized terms used herein):
Section 1. The Loans, Advances, Interest, Security Interest, Financing
Statements, Collateral, Subordinations.
1.1 Loan Authorization
(a) The First Revolving Loan
Subject to all the terms and conditions of this Agreement,
including the preconditions to loan advances as herein provided and so long as
there exists no Event of Default nor any event which with the passage of time,
the giving of notice or both would constitute an Event of Default, Lender will
make advances to Borrower (the "First Revolving Loan") in an aggregate principal
amount outstanding at any time not to exceed the lesser of (i) Five Million Five
Hundred Thousand Dollars ($5,500,000) or (ii) the Borrowing Base. Advances under
the First Revolving Loan shall be made in minimum amounts of One Hundred
Thousand Dollars ($100,000) for each advance. The First Revolving Loan shall be
evidenced by the First Revolving Loan Note in the form of Schedule "A-1"
attached hereto and made a part hereof (referred to herein as the "First
Revolving Loan Note"). The aforesaid First Revolving Loan Note and advances
thereunder may be continued or extended by mutual agreement of the parties;
provided, however, the parties acknowledge that Lender is under no obligation to
extend the term of the First Revolving Loan and whether or not to continue or
extend the term of the First Revolving Loan is in the Lender's sole and absolute
discretion. Notwithstanding the above provisions, the security interest granted
to Lender in the Collateral as herein defined shall not in any way be limited to
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such amount or be dependent upon the use to which such funds are put but shall
at all times fully secure the Obligations (as hereinafter defined).
(b) The Second Revolving Loan
Subject to all the terms and conditions of this Agreement,
including the preconditions to loan advances as herein provided and so long as
there exists no Event of Default nor any event which with the passage of time,
the giving of notice or both would constitute an Event of Default, Lender will
make advances to Borrower (the "Second Revolving Loan") in an aggregate
principal amount outstanding at any time not to exceed Six Million Dollars
($6,000,000). Advances under the Second Revolving Loan shall be made in minimum
amounts of One Hundred Thousand Dollars ($100,000) for each advance. The Second
Revolving Loan shall be evidenced by a Second Revolving Loan Note in the form of
Schedule "A-2" attached hereto and made a part hereof (referred to herein as the
"Second Revolving Loan Note"). The aforesaid Second Revolving Loan Note and
advances thereunder may be continued or extended by mutual agreement of the
parties; provided, however, the parties acknowledge that Lender is under no
obligation to extend the term of the Second Revolving Loan and whether or not to
continue or extend the term of the Second Revolving Loan is in the Lender's sole
and absolute discretion. Notwithstanding the above provisions, the security
interest granted to Lender in the Collateral (as hereinafter defined) shall not
in any way be limited to such amount or be dependent upon the use to which such
funds are put but shall at all times fully secure the Obligations (as
hereinafter defined). It is the specific intent of the parties that advances
under the Second Revolving Loan shall be made without regard to the Borrowing
Base and that the entire principal amount of the Second Revolving Loan shall be
available to Borrower.
1.2 Obligations
It is specifically agreed by ▇▇▇▇▇▇▇▇ and Lender that in the event
that further financial accommodations of any type, including, but not limited
to, letters of credit, coverage of overdrafts and the like, are now or hereafter
extended by Lender to Borrower, the parties intend that this Agreement shall
govern any and all such financial accommodations. An extension of the foregoing,
all advances now or hereafter made by Lender to Borrower pursuant to this
Agreement and/or any of the other Documents or any renewal or extensions thereof
or otherwise, whether or not evidenced by notes, and all liability whether now
existing or hereafter arising, absolute or contingent, direct or indirect with
respect to or under letters of credit, banker's acceptances or guarantees now or
hereafter established by Lender pursuant to this Agreement, together with all
other obligations and indebtedness of every kind and nature, whether now
existing or hereafter arising, absolute or contingent, direct or indirect, under
or pursuant to this Agreement or any of the other Documents or otherwise, of
Borrower to Lender, to the extent the same are outstanding from time to time,
are sometimes collectively referred to herein as the "Obligations".
1.3 Interest
All amounts outstanding from time to time under either of the Notes
shall bear interest at a per annum rate equal to a daily average of the Prime
Rate as reported in the Wall Street Journal. Upon the occurrence of an Event of
Default, interest shall accrue for the period of time for which any payment was
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due, during any applicable grace or cure period, and at all times while such
default shall continue at a rate of five percent (5%) per annum greater than the
rate then in effect. In the event that the total amount of any payment required
under either of the Notes is not received by Lender within fifteen (15) days
after its due date, Borrower shall pay to Lender a late charge equal to five
percent (5%) of any such late payment.
1.4 Repayment
(a) The First Revolving Loan Note and the Second Revolving Loan
Note shall provide that the payment of interest only for the actual number of
days elapsed in each payment period on the daily outstanding principal balance
of the First Revolving Loan and the Second Revolving Loan, respectively, shall
be due and payable in monthly payments in arrears on the 10th day of each month
commencing __________ 10, 2006 and continuing on the tenth (10th) day of each
month thereafter until the entire outstanding principal balance and accrued
interest has been paid in full.
(b) For all advances under the First Revolving Loan, Borrower shall
repay said advances in full upon disposition of the Collateral on the basis of
which such advances were made, with the understanding that "disposition" shall
be defined as follows: (i) for auctions, the settlement date for the auction or
whenever the Collateral is shipped, whichever is later, (ii) for dealer
inventory financing, when Borrower receives good funds from the dealer; (iii)
for loans to Borrower itself, as necessary to repay advances which are
outstanding in an aggregate amount in excess of the limitations set forth in the
first sentence of Section 1.1(a).
(c) Notwithstanding anything herein, the entire outstanding
principal balance of all advances under the First Revolving Loan and the Second
Revolving Loan and accrued and unpaid interest thereon shall be due and payable
on ____________, 2010 unless said maturity date shall be extended in writing by
Lender in accordance with this Agreement.
Payment of principal or interest shall be deemed received by Lender only upon
receipt of good funds as determined by ▇▇▇▇▇▇.
1.5 Limitation on Use of Funds
Borrower may use advances of proceeds of the Loan only for (a)
general corporate purposes of Borrower and (b) Permitted Inter-Company
Transactions. ▇▇▇▇▇▇▇▇ agrees that to the extent any funds are made available to
it under this Agreement, they shall be used in strict accordance with the
policies set forth in Schedule "B" hereof, and that a material violation by
Borrower of any such policy, which violation is not cured within ten (10) days
after written notice of same is given by ▇▇▇▇▇▇ to Borrower, shall be an Event
of Default hereunder. Borrower shall certify to Lender quarterly, on each of the
compliance certificates that Borrower delivers to Lender under clauses (i) and
(ii) of Section 3.5, that ▇▇▇▇▇▇▇▇ has used the proceeds of each advance made to
Borrower hereunder during the relevant fiscal quarter for purposes permitted
under this Section 1.5. In addition, ▇▇▇▇▇▇▇▇ hereby agrees that ▇▇▇▇▇▇, not
more frequently than once each year, following at least thirty (30) days notice
to Borrower, shall have the option to engage an independent accounting firm, at
Borrower's expense, to conduct an independent compliance audit with respect to
▇▇▇▇▇▇▇▇'s obligations hereunder.
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1.6 Security
As security for the performance of ▇▇▇▇▇▇▇▇'s Obligations pursuant
to this Agreement, and the other Documents, Borrower hereby mortgages, pledges
and assigns to Lender, and gives and grants to Lender a security interest in all
of its right, title and interest in and to the items and types of property
described or referred to below, whether now owned or hereafter acquired, and the
proceeds and products thereof (all of which property is herein collectively
called the "Collateral"), which security interest has and shall remain first and
prior to all other security interests therein and which Collateral shall remain
free and clear of all mortgages, pledges, security interests, liens and other
encumbrances and restrictions on the transfer thereof, except as specifically
set forth below and in Schedule "D" attached hereto:
(i) Accounts
All accounts (as such term is defined in the Uniform Commercial
Code) of Borrower.
(ii) Third-Party Owned Inventory
All inventories of every kind owned by third parties, presently
existing or hereafter acquired, wherever located, including all goods intended
for auction sale or owned by third parties, against which Borrower has loaned
funds and which serve as collateral therefor, and all contract rights with
respect to any of the same and all documents representing any of the same, all
whether now or hereafter in Borrower's possession or in which Borrower may now
have or may hereafter acquire any interest, all whether now existing or
hereafter arising (the "Third-Party-Owned Inventory"). (For the avoidance of
doubt, the Third-Party Owned Inventory shall not include inventory owned by
third parties and consigned to Borrower, as to which Borrower has not made any
loans to the consignor and with respect to which Borrower has no payment
obligation to the consignor prior to the sale of such consigned inventory.) The
security interest in the Third-Party-Owned Inventory shall continue in all
Collateral described in this paragraph (except goods sold as provided in Section
9-307(1) of the Uniform Commercial Code), notwithstanding the sale, exchange or
other disposition hereof by Borrower (sale, exchange or other disposition of any
of said Collateral is not authorized by Lender, other than sale in the ordinary
course of business).
(iii) Borrower-Owned Inventory
All items of Borrower's wholesale and retail inventory,
presently existing or hereafter acquired, wherever located, and all contract
rights with respect to any of the same and all documents representing any of the
same, all whether now owned or hereafter acquired by Borrower or in which
Borrower may now have or may hereafter acquire any ownership interest, all
whether now existing or hereafter arising (the "Borrower-Owned Inventory"). The
security interest in the Borrower-Owned Inventory shall continue in all
Collateral described in this paragraph (except goods sold as provided in Section
9-307(1) of the Uniform Commercial Code), notwithstanding the sale, exchange or
other disposition hereof by Borrower (sale, exchange or other disposition of any
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of said Collateral is not authorized by ▇▇▇▇▇▇, other than sale in the ordinary
course of business).
(iv) Notes and Liens
All promissory notes and related loan and security documents
relating to or evidencing any loans made by Borrower, whether presently existing
or hereafter acquired by Borrower, or in which Borrower may now have or may
hereafter acquire any interest, including without limitation, any ownership
interest or security or collateral interest, all whether now existing or
hereafter arising.
(v) Documents
All documents and instruments relating to any and all loans
made by Borrower, whether presently existing or hereafter acquired by Borrower,
or in which Borrower may now have or may hereafter acquire any interest,
including without limitation, any ownership interest or security or collateral
interest, all whether now existing or hereafter arising.
(vi) Records
All books, records and other documents of every nature relating
to the above described types of property, including, without limitation, all
tapes, cards, discs, cassettes, papers, documents and computer software in the
possession or control of Borrower, or any Affiliate of Borrower, all whether now
owned or hereafter acquired by Borrower or in which Borrower now has or may
hereafter acquire any interest, including without limitation, any ownership
interest or security or collateral interest, all whether now existing or
hereafter arising.
(vii) Insurance Policies
All rights in, to and under policies of insurance on said
Inventory, including claims or rights to payment and proceeds heretofore or
hereafter arising therefrom, with respect to the herein described types of
property, all whether now owned or hereafter acquired by Borrower or in which
Borrower may now have or may hereafter acquire any interest, including without
limitation, any ownership interest or security or collateral interest, all
whether now existing or hereafter arising.
(viii) Proceeds and Products
All proceeds and all products of all Collateral described
above.
1.7 Financing Statements
Borrower hereby authorizes Lender to file financing statements
pursuant to the provisions of the Uniform Commercial Code with respect to the
Collateral in which Lender has been granted a security interest by Borrower
pursuant to the provisions of this Agreement and the other Documents. ▇▇▇▇▇▇▇▇
hereby agrees to execute any and all further documents deemed necessary by
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Lender, in its sole discretion, to perfect its security interest in the
Collateral and authorizes the Lender to file any and all further documents
deemed necessary by Lender, in its sole discretion, to perfect its interest in
the Collateral, including without limitation, any UCC financing statements.
1.8 Subordination of ▇▇▇▇▇▇▇▇ Debt
Borrower shall cause its Chairman, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, to execute and
deliver to Lender at ▇▇▇▇▇▇'s request an Amended and Restated Subordination
Agreement (the "Subordination Agreement"), by which ▇▇. ▇▇▇▇▇▇▇▇ shall
subordinate to the Loan, and to the right of the Lender to receive payments
under the Loan, any and all indebtedness owed by Borrower to him. Said
Subordination Agreement may provide that so long as there shall be no Event of
Default, Borrower shall be authorized to pay the regular installment of interest
and principal payable on such subordinated debt in the ordinary course of
business.
1.9 Insurance on the Collateral
Borrower is contemporaneously with the execution hereof delivering
to Lender a Certificate or Certificates of Insurance (and shall deliver the
originals of the policies referred to herein upon request of Lender), respecting
hazard (including, but not limited to, fire and extended coverage including "
all risk"), liability, loss of rental and flood (if any of the Borrower's
tangible assets are located on premises in a special flood hazard area), with
coverage for the fair market value at the time of a loss of the Collateral and
in an amount of at least Two Million ($2,000,000) Dollars with no co-insurance.
Borrower shall further be required to provide evidence to Lender of adequate
property insurance for all Collateral, which shall list the Lender as loss payee
as its interests may appear.
Section 2. Representations and Warranties
Borrower hereby represents and warrants to Lender that:
2.1 Incorporation and Qualification
Borrower is a corporation duly organized and validly existing and
in good standing under the laws of Delaware, has the corporate power to own its
assets and conduct its business as it is now being conducted and is qualified to
do business in each jurisdiction wherein the nature of the business conducted by
it or the property owned or held under lease by it make such qualification
necessary.
2.2 Capitalization, Business and Subsidiaries
Except as disclosed on Schedule "F" attached hereto and made a part
hereof, as of the date of this Agreement, Borrower does not own stock of any
other corporation, active or inactive. The information set forth on Schedule "G"
attached hereto with respect to Borrower and as to Borrower's authorized, issued
and outstanding capital stock, all of which stock has been duly authorized and
validly issued and is fully paid and non-assessable, the holders of such stock,
the officers, the directors, the principal and other places of business, the
place where its Inventory, Equipment and Records of its Accounts are kept, and
Borrower's present business activities and status, is complete and accurate as
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of the date of this Agreement. As of the date of this Agreement, ▇▇▇▇▇▇▇▇
neither has a place of business nor maintains or stores any of the Collateral at
any location other than those set forth in Schedule "G "attached hereto.
2.3 Corporate Authorization
Borrower has the corporate power to execute, deliver, and carry out
the terms and provisions of this Agreement and the other Documents to which it
is a party and has taken all necessary corporate and legal action with respect
thereto (including, without limitation, obtaining any consent of stockholders
required by law or its Certificate of Incorporation or By-Laws), and this
Agreement and such other Documents to which it is a party have been duly
authorized, executed and delivered by it and constitute its valid, legal and
binding agreement and obligation in accordance with the terms thereof and Lender
is entitled to the benefits thereof in accordance with such terms.
2.4 Financial Statements
There have been furnished to Lender financial statements of
▇▇▇▇▇▇▇▇ described or referred to in Schedule "H" attached hereto and made a
part hereof. Each such financial statement, including the comments and notes
contained therein, fairly presents the financial position of the entity or
business to which such statement applies at the date thereof and the results of
its operations for the period purported to be covered thereby. Each such
financial statement has been prepared in conformity with Generally Accepted
Accounting Principles applied on a consistent basis throughout all periods
involved, subject, in the case of unaudited statements, to normal year-end audit
adjustments.
2.5 Indebtedness
As of the date of this Agreement, Borrower has no material
outstanding indebtedness except for liabilities reflected in said financial
statements and liabilities incurred since the date thereof to trade creditors in
the ordinary course of business and/or except as described or set forth in
Schedule "I" attached and made apart hereof and has performed and complied with
all of the terms of such Indebtedness and all instruments and agreements
relating thereto and no default exists as of the date hereof nor does there
exist any state of facts which would after notice or lapse of time, or both,
constitute a default under or with respect to any such Indebtedness, instruments
or agreements.
2.6 Title to Properties and Assets; Liens, etc.
Borrower has good and marketable title to its properties and
assets, including, but not limited to the Collateral, free and clear of any
mortgage, pledge, lien, lease, encumbrance or charge other than those set forth
on Schedule "J" attached hereto and made a part hereof, with respect to assets
(if any) other than the Collateral. No financing statement under the Uniform
Commercial Code which names Borrower as debtor has been filed in any state or
other jurisdiction which covers the Collateral and has not been terminated
except as set forth on Schedule "J". As of the date of this Agreement, ▇▇▇▇▇▇▇▇
has not signed any such financing statement or any security agreement
authorizing any mortgagee or secured party thereunder to file any such financing
statement on the Collateral or its assets except in connection herewith or as
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set forth on Schedule "J" attached hereto. As of the date of this Agreement,
Borrower is not a consignor or lessee under any consignment agreement or lease
agreement, except as described in Schedule "J" attached hereto.
2.7 Patents, Trademarks, etc.
Borrower owns or holds licenses for the use of or has the right to
use all patents, trademarks, service marks, trade names, copyrights and rights
necessary for the conduct of its business as now conducted and as contemplated,
including those identified in Schedule "K" attached hereto and made a part
hereof.
2.8 Litigation, etc.
Except as set forth in Schedule "L" attached hereto and made a part
hereof, as of the date of this Agreement, there are no actions, proceedings or
investigations pending or to the knowledge of Borrower threatened (or any basis
therefor known to it) which, either in any case or in the aggregate, might
result in any material adverse change in Borrower's business, prospects,
profits, properties, liabilities, operations, or conditions (financial or
otherwise), or which might affect its ability to perform this Agreement or any
other Documents executed by it.
2.9 Changes in Condition
Since the date of the financial statements referred to in Schedule
"H" there has been no material adverse change, by reason of any matter or cause
whatsoever, in Borrower's business, prospects, profits, properties, liabilities,
operations or condition (financial or otherwise). For the avoidance of doubt,
the removal of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ from his position as chief executive officer is
not a material adverse change.
2.10 Tax Returns and Payments
All tax returns and reports required by law to be filed by Borrower
have been duly filed or the time for filing has been extended and all taxes,
assessments, fees and other governmental charges (U.S., foreign, state or local
or other) upon Borrower or upon any of its properties, assets, income or
franchises, which are due and payable have been paid. To the best of ▇▇▇▇▇▇▇▇'s
knowledge the provisions on ▇▇▇▇▇▇▇▇'s books respectively, regarding income
taxes for all fiscal periods to date are adequate according to Generally
Accepted Accounting Principles.
2.11 Compliance With Instruments, Charter and Law
Borrower is in full compliance with and is not in-violation or
default of any term or provision of (a) its charter, Certificate of
Incorporation or by-laws, if a corporation, (b) any loan agreement, debt
instrument, mortgage or indenture, (c) any other material contract, agreement or
instrument, (d) any judgment, decree or order, nor has it, he or she been
notified of any violation of any statute, rule or regulation including but not
limited to the Occupational Safety and Health Act and the Employee Retirement
Income Security Act ("ERISA"), and the regulations issued by the Department of
Environmental Protection and (e) any licensing or governmental requirement. The
execution, delivery, performance of, and compliance with this Agreement or any
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of the other Documents will not result in any such violation or default or be in
conflict with any such term or provision or result in the creation of any
mortgage, lien, encumbrance or charge upon any of Borrower's properties or
assets except in favor of Lender and there is no such term or provision which
materially adversely affects or in the future may materially adversely affect
its business, prospects, profits, properties, liabilities, operations or
condition (financial or otherwise) or its ability to perform this Agreement or
any of the other Documents executed by Borrower. As of the date of this
Agreement, all material contracts, agreements, mortgages, indentures,
instruments, judgments, decrees and orders to which Borrower is a party or which
are effective against it are listed in Schedule "M" attached except entered into
in the normal course of business.
2.12 Governmental Consents, etc.
No consent, approval or authorization for designation, declaration
or filing with any governmental authority, federal, foreign or other is required
in connection with the execution and delivery of this Agreement or the Documents
or the consummation of any transaction contemplated hereby or thereby by
▇▇▇▇▇▇▇▇. While no consent is required by the Securities and Exchange
Commission, Borrower will be required to file a form 8-K, and will comply with
such requirements.
2.13 Solvency
Borrower is solvent, having assets of a value which exceeds the
amount of its liabilities and is able to and will be able to meet its debts as
they mature and has adequate capital to conduct the business in which it is
engaged and is about to engage.
2.14 Change of name, etc.
As of the date of this Agreement, except as set forth on Schedule
"N" attached hereto and made a part hereof, Borrower has not within five (5)
years changed its name, been a party to any consolidation or merger other than
the Merger, acquired all or a substantial portion of the assets of any Person or
purchased any of its or his assets included in the Collateral from a Person not
in the business of selling such assets.
2.15 Full Disclosure
The financial statements referred to in Section 2.4 hereof do not,
nor does this Agreement or any Schedule hereto or any other Document,
certificate or statement furnished to Lender by Borrower in connection with this
Agreement, contain any untrue statement of a material fact or omit to state a
fact necessary in order to make the statements contained therein and herein not
misleading. Borrower is not aware of any fact which materially adversely affects
or in the future may materially and adversely affect its business, prospects,
profits, properties, liabilities, operations or condition (financial or
otherwise), or its ability to perform this Agreement or any other Document
executed by it, which has not been set forth or referred to herein, in any
report or statement filed by Borrower or Parent with the Securities and Exchange
Commission or in a certificate or statement furnished by Borrower to Lender.
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2.16 No Event of Default
No Event of Default or event or condition that with the passage of
time or giving of notice or both might become an Event of Default has occurred
or exists.
Section 3. Affirmative Covenants
Except with the prior written consent of ▇▇▇▇▇▇, Borrower covenants
and agrees that so long as there is outstanding any portion of the First
Revolving Loan or the Second Revolving Loan, or any agreement of Lender to make
advances to Borrower, it will comply or cause compliance with the following
provisions:
3.1 Punctual Payment
Borrower will duly and punctually pay all principal, interest,
charges and other items included in the First Revolving Loan or the Second
Revolving Loan which is owing by it in accordance with the provisions hereof and
of the other Documents.
3.2 Prompt Payment of Taxes, Mortgages, Leases and Indebtedness
Borrower will promptly pay and discharge, or cause to be paid and
discharged, on the date due so as to prevent the accruing of interest thereon,
all lawful taxes, assessments, and governmental charges or levies imposed upon
items of the Collateral owned by it, or in which it has an interest or upon its
income, profits, property or business or of any of its Subsidiaries. Borrower
will promptly pay or cause to be paid when due (or in conformity with customary
trade terms) all of its other Indebtedness incident to its operations and will
promptly pay and perform all of its obligations under leases of real and
personal property and under material contracts and will promptly notify Lender
of any default or notice of alleged default received with respect to any such
Indebtedness, lease or contract.
3.3 Conduct of Business
Borrower will do all things necessary to preserve, renew and keep
in full force and effect and in good standing, its current corporate existence,
qualification and any franchises, licenses, patents, trademarks and items
necessary to continue its business. It will maintain its properties and assets
in good order and repair, all in compliance with applicable federal, state, and
local judgments, decrees, orders, statutes, rules and regulations, including but
not limited to state and federal environmental regulations and those of the
Occupational Safety and Health Administration.
3.4 Insurance
Borrower will maintain insurance in amounts, coverage and with
insurers satisfactory to Lender with respect to the Collateral owned by it, or
in which they have an interest and their other properties and business against
loss or damage to the extent that property of similar character is usually so
insured by other companies engaged in a similar business. Without limiting the
foregoing, such insurance shall include (a) liability insurance in such amounts
and covering such risks as Lender may reasonably require, (b) all worker's
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compensation and other employees' liability insurance as may be required by law,
and (c) property insurance with respect to the items of the Collateral
constituting tangible personal property and fixtures, and with respect to the
other properties both real and personal, including, if necessary, flood
insurance, to the full extent of the insurable value thereof, and covering such
risks as Lender may reasonably require. All of Borrower's property insurance
policies with respect to the Collateral shall contain loss payable and/or
mortgagee clauses in form and substance reasonably satisfactory to Lender,
naming Lender as loss payee as appropriate and providing (i) that all proceeds
thereunder shall be payable to Lender as its interests may appear, and (ii) that
such insurance shall not be affected by any act or neglect of the insured or
owner of the property described in said policy, and (iii) that such policy and
loss payable clause may not be canceled, amended or terminated unless ▇▇▇▇▇▇ has
received written notice thereof at least thirty (30) days' prior to the
effective date of such cancellation, amendment or termination. Borrower will
furnish a certificate with respect to the insurance at the time which is in
force pursuant to this Section 3.4, specifying the amount and character of
coverage, identifying the insurers and certifying as to no default in the
payment of current premiums thereon and will furnish Lender with original or
duplicate original copies of all policies. All insurance proceeds for any
occurrence or any series of related occurrences which exceed Ten Thousand
Dollars ($10,000) and which are subject to a security interest under this
Agreement may, upon ▇▇▇▇▇▇'s request, in ▇▇▇▇▇▇'s sole and absolute discretion,
be paid to Lender and shall be applied by Lender to the payment of any of the
principal, whether or not due, or interest or such other obligation or
Indebtedness which constitutes a part of the Loan as Lender may determine in its
sole discretion. Proceeds of Ten Thousand Dollars ($10,000) or less shall be
payable to Borrower for general corporate purposes. Borrower does hereby grant
Lender an Irrevocable Power of Attorney and appoint ▇▇▇▇▇▇ as its
attorney-in-fact (said power of Attorney being coupled with an interest) for the
sole purpose of executing, negotiating and signing any drafts, checks,
instruments or documents to carry out the terms hereof.
3.5 Accounting Financial Statements and Other Information
Borrower will maintain a system of accounts established and
administered in accordance with Generally Accepted Accounting Principles
consistently applied. Borrower will deliver or cause to be delivered to Lender:
Financial Reports
(i) as soon as available and in any event within forty-five
(45) days after the end of each of the first three (3) fiscal quarters of each
fiscal year of Parent, consolidated and consolidating financial statements of
Parent and its Subsidiaries (including, after the Merger, Borrower), including a
balance sheet as of the end of period, and statements of income for the
period(s) that have been included as part of the consolidated financial
statement disclosure of Parent's SEC Form 10-Q filing, which in the case only of
the consolidated financial statements of Parent, have been reviewed by ▇▇▇▇▇▇'s
appointed independent accounting firm, along with statements of cash flows for
that period. In connection with the delivery of such quarterly financial
statements, an officer, on behalf of ▇▇▇▇▇▇▇▇, will provide written
representation that there is no knowledge of an Event of Default or an event
that with notice or lapse of time or both could constitute and Even of Default,
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has occurred and is continuing or if in the opinion of said individual an Event
of Default or such an event has occurred and is continuing a statement as to the
nature thereof and the action which Borrower proposes to take with respect
thereto (the provision for such a statement herein shall in no way be construed
as a consent to the existence of such an Event of Default and of the granting of
time to cure);
(ii) as soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of Parent, consolidated and
consolidating financial statements of Parent (including, after the Merger,
Borrower), including a balance sheet as of the end of such fiscal year and
statements of income for the year(s) that have been included as part of the
consolidated financial statement disclosure of Parent's SEC Form 10-K filing,
which in the case only of the consolidated financial statements of Parent, have
been audited by ▇▇▇▇▇▇'s appointed independent accounting firm, and statements
of cash flow for that period. In connection with the delivery of such annual
financial statements, an officer, on behalf of ▇▇▇▇▇▇▇▇, will provide written
representation that there is no knowledge of an Event of Default or an event
that with notice or lapse of time or both could constitute an Event of Default,
has occurred and is continuing or if in the opinion of such accounting firm such
an Event of Default has occurred and is continuing, a statement as to the nature
thereof (the provisions for such a statement herein shall in no way be construed
as a consent to the existence of such an Event of Default or the granting of
time to cure).
(iii) within ten (10) days after filing thereof copies of all
federal and state income tax returns for Parent.
(iv) such financial information from Borrower as shall
reasonably be requested by ▇▇▇▇▇▇.
(v) as soon as reasonably practicable, upon reasonable request
of Lender such other data and information (financial and otherwise) bearing upon
or related to Borrower's financial condition, results of operations, assets
and/or Borrower's projections of cash flow and profit and loss, all as Lender
from time to time may reasonably request.
(vi) within fifteen (15) days after the end of each calendar
month, a list of the Borrower's aged accounts receivable and a complete list of
Borrower's inventory duly certified by the chief financial officer of Borrower
and such other information relating to Borrower's accounts receivable as Lender
shall request at such times as Lender shall request upon such forms and using
such procedures as Lender shall reasonably require.
3.6 Inspection
Borrower will permit Lender and any authorized representatives of
Lender, at ▇▇▇▇▇▇'s sole cost and expense and upon reasonable notice to
Borrower, to visit and inspect any of its offices or any of its or his
Affiliates, including all items of Collateral and its and their books and
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records, including books and records relating to accounts receivable (and to
make extracts therefrom), and to discuss its and their affairs, finances and
accounts, with its and their employees with ▇▇▇▇▇▇▇▇'s consent, all at such
times during normal business hours and as often and continuously as may be
reasonably requested by ▇▇▇▇▇▇.
3.7 Notice of Certain Events and Changes
As soon as reasonably practicable after becoming aware of any
condition, event or state of facts which constitutes an Event of Default under
this Agreement or which, after notice or lapse of time, or both, would
constitute an Event of Default, Borrower will give written notice to Lender
specifying the nature and period of existence thereof. Borrower will promptly
give Lender written notice of any condition, event or state of facts which
causes or may cause material loss or depreciation in the value of the Collateral
and of the commencement or threat of any action, proceeding or investigation, or
the occurrence or existence of any other event, matter or cause whatsoever,
which either in any case or in the aggregate results or might result in any
material adverse change in its business, prospects, profits, properties,
operations or condition (financial or otherwise). Borrower will give Lender
written notice of any change in its place or places of business, any change of
location of any item of the Collateral having a book value in excess of Fifty
Thousand Dollars ($50,000), except as items of Collateral may be moved in the
ordinary course of business.
3.8 Application of Proceeds
▇▇▇▇▇▇▇▇ agrees that it will apply the funds provided to it
pursuant to this Agreement in accordance with the terms of this Agreement.
Without limiting the generality of the foregoing, ▇▇▇▇▇▇▇▇ agrees that it will
not, directly or indirectly, apply any part of such proceeds to the purchasing
or carrying of any "margin stock" within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System, or for any use which will
cause a violation of any other regulation of the Board of Governors of the
Federal Reserve System or of any regulations, interpretations or rulings
thereunder.
3.9 Governmental Notices
As soon as reasonably practicable upon the issuance thereof,
Borrower will send to Lender a copy of all orders issued by any federal, state
or municipal regulatory authority under any laws or regulations adopted thereby,
which, if enforced, would have a material adverse effect upon its condition
whether financial, operating, or otherwise, and further, Borrower will as soon
as reasonably practicable send to Lender copies of all reports or other
materials filed by it with or issued to it by the U.S. Securities and Exchange
Commission, and all reports, notices or statements sent by Borrower to its
stockholders.
3.10 Maintenance of Property and Collateral
Borrower shall maintain its properties and the Collateral in good
repair, working order and condition and make all needed and proper repairs,
renewals, replacements, additions or improvements thereto and immediately notify
Lender of any event causing loss or depreciation in the value of the Collateral
and the amount of such loss or depreciation. ▇▇▇▇▇▇▇▇ shall defend the
Collateral against all claims and demands of all persons at any time claiming
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the same or any interest therein, and in the event ▇▇▇▇▇▇'s security interest in
the Collateral or a part thereof would be impaired by an adverse decision, allow
▇▇▇▇▇▇ to contest or defend any such claim or demand in ▇▇▇▇▇▇▇▇'s name, at
▇▇▇▇▇▇▇▇'s reasonable cost, charge and expenses, and pay to Lender upon demand
all costs and expenses, including without limitation, attorney's fees incurred
by ▇▇▇▇▇▇ in connection therewith.
3.11 Payment of Lender Expenses
Borrower shall pay to Lender on demand any and all reasonable
expenses including attorneys fees incurred or expended by ▇▇▇▇▇▇ in the
collection or attempted collection of the Obligations, in protecting and/or
enforcing the rights of Lender against ▇▇▇▇▇▇▇▇, and in sustaining and/or
enforcing the security interest and other liens, if any, granted to Lender
hereunder and under all related agreements, instruments and documents.
Section 4. Negative Covenants
Except with the prior express written consent of ▇▇▇▇▇▇, Borrower
covenants and agrees that so long as there is outstanding any portion of either
of the Loans, or so long as this Agreement has not been terminated if there is
no amount outstanding under either of the Loans, it will not:
4.1 Liens
Directly or indirectly, create, incur, assume or permit to exist
any mortgage, lien, charge or encumbrance on or pledge or deposit of or
conditional sale, lease or other title retention agreement with respect to any
Collateral, whether now owned or hereafter acquired, or be bound by or subject
to any agreement or option to do so, provided that the foregoing restrictions
shall not apply to:
(a) liens for taxes, assessments or governmental charges or levies
the payment of which is not at the time required by Section 3.2;
(b) liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation or unemployment insurance or
to secure the performance of tenders, statutory obligations, surety and appeal
bonds, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(c) liens, charges and encumbrances related to the conduct of its
business or the ownership of its or his properties or assets which are not
incurred in connection with the borrowing of money and which in the aggregate
are not material;
(d) statutory or common law possessory liens for charges incurred
in the ordinary course of business the payment of which is not yet due;
(e) the mortgages, liens and encumbrances referred to or described
in Schedules "D" and "J" attached hereto;
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(f) liens created hereunder;
4.2 Restrictions on Indebtedness
Directly or indirectly, create, incur, assume, guarantee, agree to
purchase or repurchase, pay or provide funds in respect of, or otherwise become
or be or remain liable, contingently, directly or indirectly, with respect to
any Indebtedness other than:
(a) Indebtedness hereunder;
(b) Current liabilities for trade and other obligations incurred in
the ordinary course of its business not as a result of borrowing;
(c) presently existing indebtedness specifically described in
Schedule "I" attached hereto, none of which shall be prepaid without ▇▇▇▇▇▇'s
prior written consent.
(d) Indebtedness in respect of endorsements made in connection with
the deposit of items for credit or collection in the normal and ordinary course
of business.
4.3 Restrictions on Investments, Loan, etc.
Purchase or otherwise acquire or own any stock or other securities
or Indebtedness of any other Person, or make or permit to be outstanding any
loan or advance or capital contribution to any other Person, other than:
(a) presently outstanding loans, advances and investments described
in Schedules "H" and "I" attached hereto;
(b) Indebtedness of customers for merchandise sold or services
rendered in the ordinary course of business;
(c) Indebtedness pursuant to Third Party Loans made in accordance
with the policies listed in Schedule B;
(d) investments in bills or bonds issued by the government of the
United States of America and/or Certificates of Deposit issued by a bank having
a net worth of at least Fifty Million Dollars ($50,000,000) and/or securities
issued by and purchased from Lender; and
(e) Permitted Inter-Company Transactions.
4.4 Stock Issuance, Dividends, Distributions, Redemptions and
Directors' Fees
Issue any additional shares of stock, directly or indirectly,
declare, order, pay, make or set apart any sum or property for the redemption,
retirement, purchase or other acquisition, direct or indirect, of any shares of
its stock of any class now or hereafter outstanding or for the payment of any
dividends on any of such stock, except for Permitted Inter-Company Transactions
and quarterly dividends payable concurrently with payments to Lender under
Section 9 hereof, or pay any directors' fees.
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4.5 Sale of Assets and Collateral, Consolidation, Merger or Acquisition
of Assets
Directly or indirectly, sell, abandon or otherwise dispose of the
Collateral or any part thereof, except for sales and consignments of Inventory
in the ordinary course of Borrower's business, or replacement with Collateral of
like value and quality, or directly or indirectly sell, abandon or otherwise
dispose of all or any portion of its properties or assets or, except pursuant to
the Merger, consolidate with or merge into any other corporation, or permit any
other corporation to consolidate with or merge into it or acquire all or a
substantial portion of the assets of another Person or form or acquire any
Subsidiary.
4.6 Transactions With Affiliates
Enter into any transaction with any Affiliate other than in the
ordinary course of business and on terms not less favorable to it than are at
the time available to it from any Non-Affiliate, except for Permitted
Inter-Company Transactions and as otherwise authorized by this Agreement.
4.7 Partnerships, Joint Ventures, Other Businesses
Create or participate in the creation of any partnership, joint
venture, corporation, or other entity (including but not limited to any
subsidiaries) or engage in any business other than the business presently
conducted by it, except in the ordinary course of business.
4.8 Subordinate Debt Payments
Pay principal or interest on Subordinate Debt (present or future)
except as authorized in this Agreement.
4.9 Expenditures for Capital Assets
Make any expenditure for capital assets (other than for routine
repairs and maintenance which are not required to be capitalized as hereinafter
set forth) unless, immediately after giving effect thereto the aggregate amount
expended or to be expended on account of all such expenditures by the Borrower
in any fiscal year commencing with the current fiscal year of Borrower would not
exceed the amount of One Hundred Thousand Dollars ($100,000). The following
shall be deemed to be expenditures for capital assets as subject to the
limitations of this Section 4.10:
(a) Expenditures for acquisition, major repairs and maintenance
which, in accordance with generally accepted accounting principles, are or
should be capitalized, and
(b) All lease rentals and other amounts payable under leases
entered into after the date hereof whether "true leases" or finance leases other
than renewals and extensions of leasing existing on the date hereof and all
amounts payable under contracts or arrangements for the purchase of property for
payment of the purchase price for such property as deferred in whole or in part.
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4.10 Changes in Locations, Name, etc.
Borrower shall give written notice as soon as practicable, and
shall take such steps as Lender may deem necessary or advisable to continue the
perfection and priority of the security interest granted pursuant hereto, prior
to taking any of the following actions: (i) changing the location of its chief
executive office; (ii) permitting any Inventory to be kept at a location other
than that specified in Schedule G; (iii) changing its name, existence as a
corporation, jurisdiction of incorporation or formation, or corporate structure
to such an extent that any financing statement filed by Lender in connection
with this Agreement would become seriously misleading.
Section 5. Events of Default
If any one or more of the following events ("Events of Default") shall
occur:
(a) If Borrower shall fail to make payment of any part or
installment of principal or interest on any advance made under either of the
Loans or on any other Obligations when any such payment shall be due and
payable, whether at any stated maturity or by demand, acceleration or otherwise;
or
(b) If Borrower shall be in default in the performance of or
compliance with any other term, covenant or condition applicable to it contained
in this Agreement or contained in any other Documents, and shall have failed to
cure such default for thirty (30) days after receipt of written notice from the
Lender.
(c) If any representation or warranty made by or on behalf of
Borrower in this Agreement or in the Schedules hereto, or in any of the other
Documents, or in connection with the transactions contemplated hereby and
thereby shall be false or incorrect in any material respect; or
(d) If Borrower shall default in the payment of any Indebtedness
for borrowed money, including, but not limited to, the indebtedness which is
referred to in Schedule "I" attached hereto or shall default with respect to any
of the terns of any evidence of such Indebtedness or of any indenture or other
agreement relating thereto, or if Borrower shall commit any material breach or
be in default under any contract set forth in Schedule "M" attached hereto; or
(e) If Borrower shall make an assignment for the benefit of
creditors, or shall admit in writing an inability to pay debts as they become
due, or shall file a voluntary petition in bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or shall fail to deny the
material allegations of a petition filed against it for any such relief, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of itself or of all or any substantial part of its
properties, or its directors or majority stockholders shall take any action
looking to its dissolution or liquidation, or it shall cease doing business as a
going concern; or
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(f) If, within ninety (90) days after the commencement of any
proceeding against Borrower seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed, or if, within ninety (90) days after the appointment, without
its consent or acquiescence of any trustee, receiver or liquidator of itself or
himself or of all or any substantial part of its properties, such appointment
shall not have been vacated;
(g) If an event of default shall occur under a Third Party Loan and
is continuing or an event which pursuant to the provisions of the Third Party
Loan Documents with the lapse of time and/or notice specified therein would
become such an event of default has occurred and is continuing;
then, and in any such event, in addition to its rights and remedies under this
Agreement, the other Documents and any other instruments, Lender may at its
option declare the Notes and the Obligations or any portion thereof to be
immediately due and payable, whereupon the same shall forthwith mature together
with interest accrued thereon and together with any and all costs of collection,
including, but not limited to, reasonable attorney's fees without notice and
without presentment, demand or protest, all of which are hereby waived.
Section 6. Payment Terms.
Payment of all sums due hereunder shall become due and shall be payable
on __________, 2010. Borrower shall make each payment of principal of, and
interest on, the Loans and of fees and all other amounts payable by Borrower
under this Agreement, in good funds no later than 5:00 p.m. (Eastern time) on
the date when due and payable, without condition or deduction for any
counterclaim, defense, recoupment or setoff, in Federal or other funds
immediately available to Lender at its address referred to herein and in the
Note. All payments received by Lender after 5:00 p.m. (Eastern time) shall be
deemed to have been received by ▇▇▇▇▇▇ on the next succeeding Business Day. If
the date for any payment of principal is extended by operation of law or
otherwise, interest thereon at the then applicable rate, shall be payable for
such extended time. Notwithstanding the foregoing, upon the occurrence and
continuance of an Event of Default, all sums due hereunder shall, at the option
of the Lender, become immediately due and payable upon written notice to
▇▇▇▇▇▇▇▇.
Section 7. Remedies, Provisions re: Collateral, etc.
In the event of an occurrence of an Event of Default which has not been
cured or waived within thirty (30) days after notice from Lender to Borrower of
such occurrence, Lender:
(a) may proceed to protect and enforce its rights if Lender deems
necessary to do so by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any agreement contained
herein or in any other Document, or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any right, power or
remedy granted thereby or by law, equity or otherwise.
(b) without limitation of any rights and remedies of Lender as a
secured party under the Uniform Commercial Code and any rights or remedies set
forth in any of the Documents, Lender shall have all of the following rights and
remedies with respect to the Collateral or any portion thereof:
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(i) Lender may, at any time and from time to time, with or
without judicial process and the aid or assistance of others, reasonably enter
upon any premises in which any of the Collateral may be located and, without
resistance or interference by Borrower, take possession of the Collateral and/or
dispose of any part or all of the Collateral on any such premises; and/or
require Borrower to assemble and make available to Lender at the expense of
Borrower any part or all of the Collateral at any place or time designated by
Lender which is reasonably convenient to Borrower and Lender; and/or remove any
part or all of the Collateral from any premises on which any part may be located
for the purpose of effecting sale or other disposition thereof and/or sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
or all of the Collateral in its then condition or following any commercially
reasonable preparation or processing, at public or private sale or proceedings,
by one or more contracts, in one or more parcels, at the same or different
times, with or without having the Collateral at the place of sale or other
disposition, for cash and/or credit and upon any reasonable and customary terms,
at such place(s) and time(s) and to such Persons as Lender shall deem best, all
without demand for performance or any notice or advertisement whatsoever, except
that the owner of the items to be sold shall be given fifteen (15) business
days' written notice of the place and time of any public sale or of the time
after which any private sale or other intended disposition is to be made, which
notice Borrower hereby agrees shall be reasonable notice thereof. If any of the
Collateral is sold by Lender upon credit or for future delivery, Lender shall
not be liable for the failure of the purchaser to pay for same and in such event
Lender may resell such Collateral. Lender may buy any part or all of the
Collateral at any public sale and if any part or all of the Collateral is of a
type customarily sold in a recognized market or is of the type which is the
subject of widely distributed in standard price quotations Lender may buy at
private sale and may make payment therefor by application of all or a part of
either Loan.
(ii) Lender shall apply the cash proceeds from any sale or
other disposition of the Collateral first, to the reasonable expenses of
retaking, holding, preparing for sale, selling, leasing and otherwise disposing
of such Collateral, and to reasonable attorneys' fees and all legal expenses,
travel and other expenses which are to be paid or reimbursed to Lender pursuant
hereto or pursuant to the other Documents, second, to all accrued interest, fees
and charges outstanding with respect to the Loans, third, to all other
outstanding portions of the Loans, fourth, if there is any surplus, to any other
secured parties having an interest in the Collateral known to Lender in
accordance with their interests, and fifth, if there is any surplus, to
▇▇▇▇▇▇▇▇; provided, however, that Borrower shall remain liable with respect to
unpaid portions of the Loans.
(iii) Any of the proceeds of the Collateral received by
Borrower after demand by ▇▇▇▇▇▇ for repayment of all or any part of the Loans,
shall not be commingled with any other of its property but shall be segregated,
held by Borrower in trust as the exclusive property of Lender, and it will
immediately deliver to Lender the identical checks, monies, or other proceeds of
Collateral.
(iv) At its option, Lender may pay for insurance on the
Collateral and taxes, assessments or other charges which Borrower fails to pay
in accordance with the provisions hereof or of any related agreement, instrument
or document and may discharge any security interest or lien upon the Collateral.
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No such payment or discharge of any such security interest or lien shall be
deemed to constitute a waiver by Lender of the violation of any covenant by
Borrower as a result of Borrower's failure to make any such payment or
Borrower's suffering of any such security interest or lien. Any payment made or
expense incurred by Lender pursuant to this or any other provisions of this
Agreement shall be added and become a part of the Obligations of Borrower to
Lender, shall bear interest at a rate per annum as provided for in the Notes,
and shall be payable on demand.
Section 8. Cumulative Remedies; No Waivers, etc.
No right, power or remedy granted to Lender in this Agreement or in the
other Documents is intended to be exclusive, but each shall be cumulative and in
addition to any other rights, powers or remedies referred to in this Agreement,
in the other Documents or otherwise available to Lender at law or in equity, and
the exercise or beginning of exercise by Lender of any one or more of such
rights, powers or remedies, shall not preclude the simultaneous or later
exercise by Lender of any or all of such other rights, powers or remedies. No
waiver by, nor any failure or delay on the part of Lender in any one or more
instances to insist upon strict performance or observance of one or more
covenants or conditions hereof, or of the other Documents shall in any way be,
or be construed to be, a waiver thereof or to prevent ▇▇▇▇▇▇'s rights to later
require the strict performance or observance of such covenants or conditions, or
otherwise prejudice Lender's rights, powers or remedies.
Section 9. Partial Invalidity, Waivers
(a) If any term or provision of this Agreement or any of the other
Documents or the application thereof to any Person or circumstance shall, to any
extent, be invalid or unenforceable by reason of any applicable law, the
remainder of this Agreement and the other Documents, or application of such term
or provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement and the other Documents shall be valid and be
enforced to the fullest extent permitted by law. To the full extent, however,
that the provisions of any such applicable law may be waived, they are hereby
waived by Borrower to the end that this Agreement and the other Documents shall
be deemed to be valid and binding obligations enforceable in accordance with
their terms.
(b) To the extent permitted by applicable law, Borrower hereby
waives presentment, demand, protest, notice of protest, notice of default or
dishonor, notice of payments and non-payments, or of any default.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE, JUDICIAL HEARING
OR PRIOR COURT ORDER TO WHICH IT MIGHT OTHERWISE HAVE THE RIGHT UNDER ANY
FEDERAL OR STATE STATUTE OR REGULATION IN CONNECTION WITH THE OBTAINING BY
LENDER OF ANY PREJUDGMENT REMEDY BY REASON OF THIS AGREEMENT, OR BY REASON OF
▇▇▇▇▇▇▇▇'S OBLIGATIONS OR ANY RENEWALS OR EXTENSIONS OF THE SAME. BORROWER ALSO
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WAIVES ANY AND ALL OBJECTION WHICH IT MIGHT OTHERWISE ASSERT, NOW OR IN THE
FUTURE, TO THE EXERCISE OR USE BY LENDER OF ANY RIGHT OF SET-OFF, REPOSSESSION
OR SELF HELP AS MAY PRESENTLY EXIST UNDER STATUTE OR COMMON LAW.
Section 10. Definitions
As used herein, the following terms have the following meanings:
Account Debtor: means a Person who is obligated on an account.
Agreement: this Amended and Restated Loan and Security Agreement, as it
may be amended, amended and restated, renewed or supplemented from time to time.
Affiliate: with reference to any Person, any director, officer or
employee of such Person, any corporation, association, firm or other entity in
which such Person has a direct or indirect substantial interest or by which such
Person is directly or indirectly controlled or is under direct or indirect
substantial common control with such Person. For purposes of this Agreement,
Borrower, Parent and the Parent Subsidiaries are Affiliates of one another.
Bankruptcy Code: Title 11 of the United States Code (11 U.S.C. Section
101 et seq.), as amended from time to time, or any successor statute.
Borrower: the meaning specified on page 1.
Borrowing Base: as of any date, an amount equal to the sum of: (a)
seventy percent (70%) of Eligible Accounts on such date, plus (b) seventy
percent (70%) of the value of Eligible Inventory, based upon the lower of cost
(computed on a first-in-first-out basis), fair market value or orderly
liquidation value as determined by Lender.
Borrowing Base Certificate: a certificate in the form of Schedule "O"
attached hereto.
Collateral: the meaning specified in Section 1.6.
Documents: this Agreement, the Notes, all collateral assignments of the
notes and liens described in Section 1.6(a)(iv), all UCC-1 Financing Statements,
the Subordination Agreement, and all other agreements, documents and instruments
heretofore, now or hereafter executed and delivered pursuant to this Agreement
or pursuant to any of the aforesaid documents.
Eligible Accounts: all accounts of Borrower that are deemed by Lender
in the exercise of its sole and absolute discretion to be eligible for inclusion
in the calculation of the Borrowing Base net of any and all interest, finance
charges, sales tax, fees, returns, discounts, claims, credits, charges, contra
accounts, exchange contracts or other allowances, offsets and rights of offset,
deductions, counterclaims, disputes, rejections, shortages or other defenses and
all credits owed or allowed by Borrower upon any of its accounts and further
reduced by the aggregate amount of all reserves, limits and deductions provided
for in this definition and elsewhere in this Agreement. Eligible Accounts shall
not include the following:
(a) accounts which remain unpaid more than ninety (90) days past their
invoice dates;
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(b) accounts which are not due and payable within sixty (60) days after
their invoice dates;
(c) accounts owing by a single Account Debtor if twenty percent (20%)
or more of the aggregate balance owing by said Account Debtor is ineligible
pursuant to clauses (a) or (b) above;
(d) accounts with respect to which the obligation of payment by the
Account Debtor is or may be conditional for any reason whatsoever including,
without limitation, accounts arising with respect to goods that were (i) not
sold on an absolute basis, (ii) sold on a bill and hold sale basis, (iii) sold
on a consignment sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a
sale or return basis, or (vi) sold on the basis of any other similar
understanding;
(e) accounts with respect to which the Account Debtor is not a resident
or citizen of, or otherwise located in, the continental United States of
America, or with respect to which the Account Debtor is not subject to service
of process in the continental United States of America, unless such accounts are
backed in full by irrevocable letters of credit or insurance in form and
substance satisfactory to Lender issued or confirmed by a domestic commercial
bank acceptable to Lender;
(f) accounts with respect to which the Account Debtor is the United
States of America or any other federal governmental body unless such accounts
are duly assigned to Lender in compliance with all applicable governmental
requirements (including, without limitation, the Federal Assignment of Claims
Act of 1940, as amended, if applicable);
(g) accounts with respect to which Borrower is or may be liable to the
Account Debtor for goods sold or services rendered by such Account Debtor, but
only to the extent of such liability to such Account Debtor;
(h) accounts with respect to which the goods giving rise thereto have
not been shipped and delivered to and accepted as satisfactory by the applicable
Account Debtor or with respect to which the services performed giving rise
thereto have not been completed and accepted as satisfactory by the Account
Debtor thereon;
(i) accounts which are not invoiced within thirty (30) days after the
shipment and delivery to and acceptance by said Account Debtor of the goods
giving rise thereto or the performance of the services giving rise thereto;
(j) accounts which are not subject to a first priority perfected
security interest in favor of ▇▇▇▇▇▇;
(k) that portion of an account balance owed by a single Account Debtor
which exceeds fifteen percent (15%) of total accounts otherwise deemed eligible
hereunder; and
(l) accounts with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit a Borrower to seek judicial enforcement in such state
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of payment of such account, unless such Borrower has qualified to do business in
such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year.
Eligible Inventory: as at any date of determination, all inventory
owned by and in the possession of Borrower and located in the United States of
America that Lender, in its sole and absolute discretion, deems to be eligible
for borrowing purposes. Without limiting the generality of the foregoing, unless
otherwise agreed by ▇▇▇▇▇▇, the following is not Eligible Inventory:
(a) work-in-process;
(b) finished goods which do not meet the specifications of the purchase
order for such goods;
(c) inventory with respect to which ▇▇▇▇▇▇ does not have a valid, first
priority and fully perfected security interest;
(d) inventory with respect to which there exists any security interest
or lien in favor of any Person other than ▇▇▇▇▇▇;
(e) packaging and shipping materials, products and labels;
(f) inventory that is obsolete;
(g) inventory produced in violation of the Fair Labor Standards Act, in
particular provisions contained in Title 29 U.S.C. 215 (a)(i); and
(h) inventory located at a location for which Lender does not have a
valid landlord's or warehouseman's waiver or subordination on terms and
conditions acceptable to Lender in its sole discretion and inventory located at
any location other than those listed on Schedule "G".
Financial Statements: the reports, statements and other information to
be delivered to Lender pursuant to Section 3.5.
First Revolving Loan: the meaning specified in Section 1.1(a).
First Revolving Loan Note: the meaning specified in Section 1.1(a).
Generally Accepted Accounting Principles: generally accepted accounting
principles and practices in the United States of America, consistently applied.
Indebtedness: as applied to a Person, (a) all items, except items of
capital stock or of surplus or of unappropriated retained earnings or of amounts
accrued for deferred income taxes if in compliance with Section 3.2, which in
accordance with Generally Accepted Accounting Principles would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such person as at the date of which Indebtedness is to be determined, (b) all
indebtedness secured by any mortgage, pledge, lease, lien or conditional sale or
other title retention agreement existing on any property or asset owned or held
by such person subject thereto, whether or not such indebtedness shall have been
assumed, and (c) all indebtedness of others which such Person has directly or
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indirectly guaranteed, endorsed, discounted or agreed contingently or otherwise
to purchase or repurchase or otherwise acquire, or in respect of which such
Person has agreed to supply or advance funds (whether by way of loan, stock
purchase, capital contribution or otherwise) or otherwise to become liable
directly or indirectly with respect thereto.
Lender: the meaning specified on page 1.
Loans: collectively, the First Revolving Loan and the Second Revolving
Loan.
Merger: the merger of DGSE Merger Corp., a Delaware corporation
("Merger Corp."), with and into Borrower, by which Borrower shall become a
wholly-owned Subsidiary of Parent, on the terms and conditions set forth in the
Agreement and Plan of Merger and Reorganization, dated as of July 12, 2006, by
and among Parent, Merger Corp., Borrower and the stockholder agent named
therein.
Notes: collectively, the First Revolving Loan Note and the Second
Revolving Loan Note.
Obligations: the meaning specified in Section 1.2.
Parent: DGSE Companies, Inc., a Nevada corporation and, following the
consummation of the Merger, the sole stockholder of Borrower.
Parent Subsidiary: a Subsidiary of Parent other than Borrower.
Permitted Inter-Company Transaction: a cash dividend or distribution
made by Borrower to Parent in accordance with any applicable restrictions of the
General Corporation Law of the State of Delaware or a loan by Borrower to Parent
or to a Parent Subsidiary, in each case with the proceeds of advances made by
Lender to Borrower under the First Revolving Loan or the Second Revolving Loan,
provided that:
(a) Parent has executed and delivered to Lender a limited
continuing guaranty of the Obligations, in form and substance reasonably
satisfactory to Lender, covering an amount of the Obligations not to exceed the
sum of (x) the aggregate amount of all such dividends or distributions to
Parent, less all amounts contributed by Parent to Borrower as capital in return
for such dividends or distributions, and (y) the aggregate outstanding principal
balance of all such inter-company loans to Parent or any Parent Subsidiary; and
(b) ▇▇▇▇▇▇ has executed and delivered to Lender a security
agreement in form and substance reasonably satisfactory to Lender, pursuant to
which Parent has granted Lender a second-priority security interest in all
Stanford Collateral (as defined in the Intercreditor Agreement, dated as of July
___, 2006, entered into by and between Texas Capital Bank, National Association,
a national banking association Lender ("TCB") subject only to the first-priority
security interest of TCB.
Person: a corporation, an association, a partnership, an organization,
a business, an individual or a government or political subdivision thereof or
any governmental agency.
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Second Revolving Loan: the meaning specified in Section 1.1(b).
Second Revolving Loan Note: the meaning specified in Section 1.1(b).
Subordination Agreement: the meaning specified in Section 1.8.
Subsidiary: with reference to any Person, a corporation, or similar
association or entity of which not less than a majority of the outstanding
shares of the class or classes of stock, have by the terms thereof ordinary
voting power to elect a majority of the directors, managers or trustees of such
corporation, association or entity, of which are at the time owned or
controlled, directly or indirectly, by such Person or by a Subsidiary of such
Person.
Third Party Loan Documents: all agreements, documents and instruments
heretofore, now or hereafter executed and delivered pursuant to any Third Party
Loans made by ▇▇▇▇▇▇▇▇.
Uniform Commercial Code: the Uniform Commercial Code as in effect from
time to time in the State of Texas, including, without limitation, any
amendments thereto which are effective after the date hereof.
Section 11. Expenses
▇▇▇▇▇▇▇▇ agrees to indemnify and save Lender harmless from, and to pay
or reimburse Lender for, all reasonable charges, costs, damages, liabilities and
expenses, including, without limitation, reasonable attorneys' fees, if any,
incurred by ▇▇▇▇▇▇ in defending or protecting the security interests and liens
granted pursuant to this Agreement or the other Documents, or the priority of
any thereof, or in the performance of any obligation of Borrower in connection
with the Collateral or in the attempted enforcement or enforcement of this
Agreement or the other Documents, or in the collection or attempted collection
of any of the obligations owing under any thereof, or in the realization or
attempted realization upon the Collateral.
Section 12. Further Assurances; Possession of Collateral; Custodians
Borrower will deliver to Lender such financing statements and other
instruments constituting or evidencing items of the Collateral as may be
reasonably requested by Lender to better assure it with respect to the security
interests granted to it pursuant to this Agreement and the other Documents. To
the extent permitted by applicable law, Borrower hereby authorizes Lender to
file, in the name of ▇▇▇▇▇▇▇▇, financing statements which Lender in its sole
discretion deems necessary to further perfect the security interests granted
under this Agreement and the other Documents.
Section 13. Survival of Agreements, Representations and Warranties etc.
All agreements, representations and warranties contained herein or made
in writing by or on behalf of ▇▇▇▇▇▇▇▇, in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement
and the other Documents shall survive any investigation at any time made by
▇▇▇▇▇▇ and any disposition of the Loans by ▇▇▇▇▇▇ and, to the extent applicable,
shall be deemed to be made a new by each of them each time an advance is made
pursuant hereto or pursuant to the other Documents. All statements contained in
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any certificate or other instrument delivered by or on behalf of Borrower
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed representations and warranties made hereunder.
Section 14. Failure to Perform
If Borrower shall fail to observe or perform any of the covenants
hereof, Lender may pay such reasonable amount or incur reasonable liabilities to
remedy or attempt to remedy any such failure, and all such payments made and
liabilities incurred shall be for the account of Borrower and shall be in
▇▇▇▇▇▇'s sole discretion or shall be withdrawn from Borrower's accounts
maintained with Lender.
Section 15. Notices, etc.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to be duly delivered upon actual receipt
if by facsimile or over night courier, and five (5) days after mailing if by
first class registered mail, return receipt requested
(a) if to Lender:
Lender: Stanford International Bank Ltd.
▇▇. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇. ▇▇▇▇'▇,
▇▇▇▇▇▇▇, ▇▇▇▇ Indies
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
Facsimile: _________________
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as may have been furnished in writing
by ▇▇▇▇▇▇ to Borrower; or
(b) if to Borrower:
Borrower: Superior Galleries, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇.
Beverly Hills, California 90212
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (310)__________________
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with a copy to:
DGSE Companies, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇.▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with an additional copy to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as may have been furnished in writing
by ▇▇▇▇▇▇▇▇ to Lender.
Section 16. Amendments and Waivers
Neither this Agreement nor any other Document nor any term hereof or
thereof may be changed, waived, discharged or terminated except by a writing
signed by the party to be charged.
Section 17. Term
The term of this Agreement and the other Documents shall be from the
date hereof and continue until all amounts due hereunder are paid in full. Any
expiration or termination of this Agreement shall not affect any rights of
Lender under this Agreement or under the other Documents and upon any such
expiration or termination Borrower shall be obligated to forthwith pay all of
the Loans and Borrower shall continue to be bound by all of the provisions of
this Agreement until all of the Loans shall have been paid in full.
Section 18. Conditions Precedent
18.1 The obligation of ▇▇▇▇▇▇ to make the Loans and advances to be made
by it hereunder is subject to the following conditions precedent;
(a) Approval of Lender Counsel
All legal matters incident to the transactions hereby contemplated
shall be satisfactory to counsel for ▇▇▇▇▇▇.
(b) Proof of Corporate Action
▇▇▇▇▇▇ shall have received certified copies of all corporate action
taken by Borrower to authorize the execution and delivery of this Agreement and
the Notes and Loans hereunder, and such other documents as Lender or its counsel
shall reasonably request.
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(c) Corporate Documents and Opinions
Borrower is furnishing to Lender a certificate of good standing of
the state of its incorporation, resolutions, incumbency certificates, and other
documents which Borrower acknowledges are being relied upon by ▇▇▇▇▇▇, and such
other documents are to be in the form and of the content as may be satisfactory
to Lender and its counsel.
(d) Loan Documents
Receipt by ▇▇▇▇▇▇ of the Notes fully executed by ▇▇▇▇▇▇▇▇, UCC-1
Financing Statements in form satisfactory for filing with the Delaware Secretary
of State and other material documents required by ▇▇▇▇▇▇.
(e) Insurance
Receipt by Lender of the policies of insurance in compliance with
Section 1.9.
(f) Opinion of Counsel
▇▇▇▇▇▇ shall have received from counsel to ▇▇▇▇▇▇▇▇ a written
opinion, reasonably satisfactory to Lender.
(g) Representations and Warranties
The Representations and Warranties contained in Section 2 herein
shall be true on and as of the date of closing.
(h) Collateral
Receipt by Lender of any of the Collateral where possession by
Lender is necessary to perfect its security interest therein.
(i) Merger
Lender shall have received satisfactory evidence that the Merger
has been consummated.
(j) Parent Approval
Lender shall have received satisfactory written approval by Parent
of the terms and provisions of this Agreement and the other Documents.
18.2 The obligation of the Lender to make each subsequent advance to be
made by it hereunder is subject to the conditions precedent that:
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(a) No Event of Default
No Event of Default specified in Section 5 hereof, and no event
which pursuant to the provisions of Section 5 with the lapse of time and/or
notice specified therein would become such an Event of Default, has occurred and
is continuing; and
(b) No Material Adverse Change
There has been no material adverse change in the consolidated
financial condition of Borrower and its consolidated subsidiaries; and
(c) Representations and Warranties
The Representations and Warranties contained in Section 2 are true
and correct.
Lender shall have received a certificate of the CEO and CFO of Borrower
certifying as of the date of the current advance that (i) no Event of Default
specified in Section 5 hereof exists or is continuing, (ii) no material change
has taken place with regard to its financial condition as represented to Lender
and (iii) the Representations and Warranties contained in Section 2 are still
true and correct.
18.3 By delivering the Notes and each other Document to ▇▇▇▇▇▇ and
receiving the Loans and advances, Borrower represents that no Event of Default
specified in Section 5 hereof exists or is continuing and no material adverse
change has taken place with regard to its financial condition as represented to
Lender.
18.4 Loan Administration.
Advances made under the Loans shall be as follows:
(a) A request for an advance shall be made by Borrower giving
Lender notice of its intention to borrow, in which notice Borrower shall specify
the amount of the proposed borrowing, whether such proposed borrowing will be a
borrowing under this First Revolving Loan or the Second Revolving Loan, and the
proposed borrowing date, not later than 2:00 p.m. Eastern time one (1) business
day prior to the proposed borrowing date; provided, however, that no such
request may be made at a time when there exists an Event of Default.
(b) In the case of each request for an advance under the First
Revolving Loan, Borrower shall deliver to Lender, concurrently with delivery of
the notice of borrowing required by clause (a) of this Section 18.4, a Borrowing
Base Certificate executed by Borrower and prepared as of a date not more than
thirty (30) business days prior to the date of such requested advance.
(c) Borrower hereby authorizes ▇▇▇▇▇▇ to disburse the proceeds of
each revolving credit advance requested by wire transfer to such bank account as
may be agreed upon by ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ from time to time or elsewhere if
pursuant to written direction from ▇▇▇▇▇▇▇▇.
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(d) All revolving credit advances and other extensions of credit to
or for the benefit of Borrower shall constitute one general Obligation of
Borrower and shall be secured by ▇▇▇▇▇▇'s lien upon all of the Collateral.
(e) ▇▇▇▇▇▇ shall enter all revolving credit advances as debits to a
loan account in the name of ▇▇▇▇▇▇▇▇ and shall also record in said loan account
all payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower. All payments and
collections shall be applied first to fees, costs and expenses due and owing
under the Documents, then to interest due and owing under the Documents, and
then to principal outstanding under the Loan.
(f) Lender will account to Borrower monthly with a statement of the
Loans, charges and payments made pursuant to this Agreement, and such accounting
rendered by Lender shall be deemed final, binding and conclusive upon Borrower
unless ▇▇▇▇▇▇ is notified by Borrower in writing to the contrary within thirty
(30) days of the date each accounting is mailed to Borrower. Such notices shall
be deemed an objection to those items specifically objected to therein.
(g) Borrower shall establish one or more bank accounts for deposits
of advances made under the Loans and for deposits of repayments of Third Party
Loans, and shall assign such accounts to Lender. Borrower shall not deposit
advances from Lender or repayments from borrowers under Third Party Loans into
any other accounts.
Section 19. Setoff.
Borrower hereby gives ▇▇▇▇▇▇ a security interest in, and a right of
set-off for the Loans upon or against, all the deposits, credits, Collateral,
and property of Borrower, now or hereafter in the possession or control of
Lender or in transit to it. Lender may at any time apply or set-off the same, or
any part thereof, to either of the Loans even though unmatured.
Section 20. Miscellaneous
(a) This Agreement and each other document granting Lender a
security interest in the Collateral is a security agreement within the meaning
of the Uniform Commercial Code. Where any provision in this Agreement refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person. To the extent there is any inconsistency between
the terms of this Agreement and any of the other Documents, this Agreement shall
control. All of the terms of this Agreement and the other Documents shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, successors and assigns of the parties hereto,
whether so expressed or not, and by any other holder or holders at the time of
the Loan or any part thereof. The headings in this Agreement are for the
purposes of reference only and shall not limit or otherwise affect any of the
terms hereof. This Agreement may be executed in two (2) or more counterparts,
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each of which shall be deemed an original, and by the several parties hereto in
separate counterparts, but all of which together shall constitute one and the
same instrument.
(b) This Agreement is between the Lender and the Borrower only and
shall not be relied upon by any third party. Without limiting the foregoing,
Lender shall have no liability to any third party whatever (including without
limitation Borrower or anyone conducting business with any of the foregoing) in
the event Lender for any reason and at any time determines not to advance sums
under the Notes and/or for any reason or otherwise exercises its rights under
this Agreement and/or the other Documents.
(c) Subject to Section 552(a) of the Bankruptcy Code, the security
interests granted hereby extends to the Collateral, whether acquired before or
after the commencement of a case under the Bankruptcy Code.
Section 21. CHOICE OF LAW; CONSENT TO JURISDICTION.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS
AGREEMENT OR THE NOTES IS COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE
OF TEXAS OR IN THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS,
BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH
ACTION AND TO THE LAYING OF VENUE IN THE STATE OF TEXAS. ANY PROCESS IN ANY SUCH
ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO
BORROWER AT THE ADDRESS DESCRIBED IN SECTION 15 HEREOF. ANY MATTERS AFFECTING
THE ENFORCEMENT OR INTERPRETATION OF ▇▇▇▇▇▇'S SECURITY INTEREST IN THE
COLLATERAL SHALL (TO THE EXTENT NOT GOVERNED BY TEXAS LAW PURSUANT TO THE
AGREEMENT SET FORTH HEREIN) BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE OR CALIFORNIA, AS APPLICABLE.
[Rest of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the day first above mentioned.
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF:
BORROWER:
Superior Galleries, Inc.
BY:
------------------------------------------ --------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its Chairman, Duly Authorized
LENDER
Stanford Financial Group Company
BY:
------------------------------------------ --------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Its Chief Financial Officer
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EXHIBIT E.
CONVERSION AND EXCHANGE AGREEMENT
THIS CONVERSION AND EXCHANGE AGREEMENT (this "Agreement") is dated as
of _______ __, 2006, by and among Superior Galleries, Inc., a Delaware
corporation (the "Company"), Stanford International Bank Ltd., a corporation
organized under the laws of Antigua and Barbuda ("SIBL"), Stanford Financial
Group Company, a Florida corporation ("SFG") and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇").
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to such terms in the Merger Agreement (as defined below).
RECITALS
WHEREAS, the Company, DGSE Companies, Inc., a Nevada corporation
("Parent"), DGSE Merger Corp., a Nevada corporation ("Merger Sub"), and SIBL, as
stockholder agent, have entered into that certain Agreement and Plan of Merger
and Reorganization, dated as of July 12, 2006 (the "Merger Agreement");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable the Merger Agreement and the
merger of Merger Sub with and into the Company (the "Merger"), with the Company
being the surviving corporation;
WHEREAS, the respective stockholders of Parent, Merger Sub and the
Company have approved the Merger Agreement;
WHEREAS, in the Merger, one hundred percent (100%) of the issued and
outstanding shares of capital stock of the Company will be converted into the
right to receive shares of Common Stock of Parent (as set forth in Article III
of the Merger Agreement), on the terms and subject to the conditions set forth
in the Merger Agreement and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL") and Chapters 78 and 92A of Title 7 of the
Nevada Revised Statutes (the "NPCA");
WHEREAS, pursuant to a Commercial Loan and Security Agreement
originally dated October 1, 2003, as amended as of March 29, 2005 and as further
amended as of March 31, 2006, SFG has provided certain credit facilities to the
Company. Such Commercial Loan and Security Agreement as amended to date, is
referred to herein as the "Loan Agreement;"
WHEREAS, the obligation of Parent and Merger Sub to consummate the
Merger is conditioned on SFG converting and exchanging $5,500,000 of the amount
outstanding under the Loan Agreement (such amount, as the same may be adjusted
pursuant to the terms and provisions of Section 6, the "Converted Debt") into
shares of the common stock of the Company (the "Common Shares") in accordance
with the terms and conditions set forth herein, and SFG is willing to agree to
do so subject to the satisfaction of the conditions herein and all conditions to
the obligations of the Company and Parent set forth in the Merger Agreement;
WHEREAS, SIBL is the holder of the following shares of the preferred
stock of the Company: (i) 3,000,000 shares of the Series B $1.00 Convertible
Preferred Stock; (ii) 2,000,000 shares of the Series D $1.00 Convertible
Preferred Stock; and (iii) 2,500,000 shares of the Series E $1.00 Convertible
Preferred Stock (collectively, the "Preferred Shares");
WHEREAS, ▇▇▇▇▇▇▇▇ is the holder of 400,000 shares of the Series B $1.00
Convertible Preferred Stock (the "▇▇▇▇▇▇▇▇ Shares");
WHEREAS, the obligation of Parent and Merger Sub to consummate the
Merger is conditioned on SIBL converting and exchanging all of the Preferred
Shares into 3,600,806 Common Shares in accordance with the terms and conditions
set forth herein and SIBL is willing to agree to do so subject to the
satisfaction of the conditions herein and all conditions to the obligations of
the Company and Parent set forth in the Merger Agreement;
WHEREAS, in consideration of SFG and SIBL entering into this Agreement
and certain amendments to the Loan Agreement, as contemplated in the Merger
Agreement, the Company has agreed to issue to SIBL and its assigns, immediately
prior to the Conversion Time (as defined below) and at the time of the
conversions and issuances of stock specified in Section 2 and Section 3 below,
certain A Warrants and B Warrants (as such terms are defined herein); and
WHEREAS, each of SFG and SIBL desires to convert and exchange the
Converted Debt and Preferred Shares into Common Shares so that the Merger and
other transactions contemplated by the Merger Agreement may be consummated.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Merger Agreement.
2. Conversion and Exchange.
a. SFG hereby agrees, subject to the issuance of the Common Shares
as provided in Section 3 below, the consummation of the Merger pursuant to the
Merger Agreement and the tendering by SFG of the notes evidencing the Converted
Debt, to convert the Converted Debt into a number of Common Shares equal to the
amount of Converted Debt divided by $2.00 (the "SFG Converted Shares"),
immediately prior to the Effective Time (the "Conversion Time") and
simultaneously with, and conditioned upon, the issuance of such Common Shares.
Upon the issuance of such Common Shares, the Converted Debt shall automatically
be cancelled and retired and shall cease to exist, and the holder of any note
that, immediately prior to the Conversion Time, represented issued and
outstanding Converted Debt shall cease to have any rights with respect thereto,
including any claims for any default occurring or other liability arising prior
to the Conversion Time, except the right to receive, upon the surrender of such
note, the certificates for the Common Shares contemplated by clause (iv) of
Section 3 below.
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b. SIBL hereby agrees, subject to the issuance of the Common Shares
as provided in Section 3 below, the consummation of the Merger pursuant to the
Merger Agreement and the tendering by SIBL of all stock certificates evidencing
the Preferred Shares, to convert the Preferred Shares into 3,600,806 Common
Shares (the "SIBL Converted Shares") at the Conversion Time and simultaneously
with, and conditioned upon, the issuance of such Common Shares. Upon the
issuance of such Common Shares, the Preferred Shares shall automatically be
cancelled and retired and shall cease to exist, and the holder of any stock
certificate that, immediately prior to the Conversion Time, represented issued
and outstanding Preferred Shares shall cease to have any rights with respect
thereto, including any claims for any default occurring or other liability
arising prior to the Conversion Time, except the right to receive, upon the
surrender of such certificates, the certificates for the Common Shares
contemplated by clause (iv) of Section 3 below.
▇. ▇▇▇▇▇▇▇▇ hereby agrees, subject to the issuance of the Common
Shares as provided in Section 3 below and the consummation of the Merger
pursuant to the Merger Agreement, to convert the ▇▇▇▇▇▇▇▇ Shares into 202,330
Common Shares (the "▇▇▇▇▇▇▇▇ Converted Shares") at the Conversion Time and
simultaneously with, and conditioned upon, the issuance of such Common Shares.
Upon the issuance of such Common Shares, the Preferred Shares shall
automatically be cancelled and retired and shall cease to exist, and the holder
of any stock certificate that, immediately prior to the Conversion Time,
represented issued and outstanding Preferred Shares shall cease to have any
rights with respect thereto, including any claims for any default occurring or
other liability arising prior to the Conversion Time, except the right to
receive, upon the surrender of such certificates, the certificates for the
Common Shares contemplated by clause (v) of Section 3 below.
3. Issuance of Shares. At the Conversion Time and simultaneously with
the conversions contemplated by Section 2(a) and 2(b) above, the Company shall,
and hereby agrees to, (i) issue to SFG the SFG Converted Shares in exchange for
the cancellation of the Converted Debt, (ii) issue to SIBL the SIBL Converted
Shares in exchange for the cancellation of the Preferred Shares, (iii) issue the
A Warrants and the B Warrants, (iv) subject to, and immediately upon, the
surrender of all notes or stock certificates evidencing such Converted Debt or
Preferred Shares, as the case may be, issue to SFG and SIBL, as the case may be,
one or more stock certificates representing the Common Shares to be issued
pursuant to clause (i) or (ii), as the case may be, above, and (v) issue to
▇▇▇▇▇▇▇▇ the ▇▇▇▇▇▇▇▇ Converted Shares in exchange for the cancellation of the
▇▇▇▇▇▇▇▇ Shares. All Common Shares issued and paid upon conversion of the
Converted Debt, Preferred Shares and ▇▇▇▇▇▇▇▇ Shares in accordance with the
terms hereof shall be deemed to have been issued and paid in full satisfaction
of all rights pertaining to the Converted Debt, Preferred Shares and ▇▇▇▇▇▇▇▇
Shares, as the case may be.
4. Waiver and Termination of Certain Rights.
a. Effective at the Conversion Time, SIBL and ▇▇▇▇▇▇▇▇ each hereby
irrevocably waives all rights that it or he may have pursuant to any shares of
preferred stock of the Company, and any agreement with the Company relating
thereto, including any securities purchase agreement, registration rights
agreement, shareholders agreement or otherwise, whether or not such agreement is
referenced herein, to acquire any equity interest in the Company, other than as
is to be issued to SIBL or ▇▇▇▇▇▇▇▇, as the case may be, hereunder. Without
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limitation of the generality of the foregoing, effective at the Conversion Time,
SIBL and ▇▇▇▇▇▇▇▇ each hereby irrevocably waives all of its preemptive rights,
participation rights, rights of co-sale or first refusal, registration rights,
or any other similar rights that SIBL or ▇▇▇▇▇▇▇▇, as the case may be, may have
pursuant to any Preferred Shares or ▇▇▇▇▇▇▇▇ Shares, as the case may be, or such
agreements, which rights (if any) shall, at such time, hereby be forever
terminated.
b. Each of SIBL and ▇▇▇▇▇▇▇▇ hereby irrevocably waives all
anti-dilution, conversion rate adjustment, conversion price adjustment, share
coverage adjustment or similar rights it may have pursuant to the Preferred
Shares or ▇▇▇▇▇▇▇▇ Shares, as the case may be, or any other Commitments of the
Company which it or he may have in connection with (i) the exchanges of shares,
conversions of debt, or issuances of warrants contemplated hereby, or (ii) the
issuance of shares or assumptions of options or warrants contemplated by Article
III of the Merger Agreement.
5. Issuance of Warrants. In consideration of SIBL entering into this
Agreement, the Company shall:
a. issue to SIBL immediately prior to the Effective Time a warrant,
substantially in the form of Exhibit A hereto, to purchase a number of Parent
Common Shares equal to the quotient of (x) 845,634 divided by (y) the Exchange
Ratio; at an exercise price per share equal to the product of (i) $1.89 times
(ii) the Exchange Ratio; and exercisable for a period of seven years after the
Closing (the "A Warrant"); and
b. if the Twenty Day VWAP as of the Closing Date is greater than or
equal to $1.90 per Parent Common Share, issue to SIBL immediately prior to the
Effective Time an additional warrant, substantially in the form of Exhibit B
hereto, to purchase a number of Parent Common Shares equal to the quotient of
(x) the number ("N") as calculated pursuant to the following table based on the
Twenty Day VWAP as of the Closing Date, divided by (y) the Exchange Ratio; at an
exercise price per share equal to $0.001; and exercisable for a period of seven
years after the Closing (the "B Warrant"):
Twenty Day VWAP as of Closing Number of Parent Common Shares ("N")
Date ("P")
P = $1.90 N = 0
$1.90 LT P LE $2.25 N = 0 + (P - $1.90) x 200,000
$2.25 LT P LE $2.50 N = 70,000 + (P - $2.25) x 792,000
$2.50 LT P LE $2.75 N = 268,000 + (P - $2.50) x 936,000
$2.75 LT P LE $3.00 N = 502,000 + (P - $2.75) x 784,000
$3.00 LT P LE $3.25 N = 698,000 + (P - $3.00) x 660,000
$3.25 LT P N = 863,000
6. Adjustment of Amount Converted. Notwithstanding anything herein to
the contrary, the amount of the Converted Debt converted and exchanged hereby
may be adjusted as follows:
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a. If, at the Stockholders Equity Date, the Company's stockholders
equity, calculated in accordance with GAAP, excluding any Expenses already
charged to the Company's earnings and giving pro forma effect to the conversion
of Company Preferred Shares and Company debt as required pursuant to Section 2
of this Agreement at the Closing (the "Company Stockholders Equity"), is less
than $5,751,000 (the "Minimum Company Stockholders Equity"), the amount of
Converted Debt required to be exchanged for Common Shares shall be increased by
the amount by which the Minimum Company Stockholders Equity exceeds the Company
Stockholders Equity (rounded upwards to the nearest multiple of $2). If the
Company Stockholders Equity is greater than the Minimum Company Stockholders
Equity, then no adjustment to the amount of Converted Debt converted hereunder
shall be made. For avoidance of doubt, any increase in the amount of the
Converted Debt under this Section 6(a) shall not reduce the amount of the
aggregate line of credit to be available to the Surviving Corporation under the
Amended and Restated Stanford LOC.
b. If, at the Stockholders Equity Date, Parent's stockholders
equity, calculated in accordance with GAAP, excluding any Expenses already
charged to Parent's earnings (the "Parent Stockholders Equity"), is less than
$6,071,128 (the "Minimum Parent Stockholders Equity"), the amount of Converted
Debt required to be exchanged for Common Shares shall be reduced by the amount
by which the Minimum Parent Stockholders Equity exceeds the Parent Stockholders
Equity. If the Parent Stockholders Equity is greater than the Minimum Parent
Stockholders Equity, then no adjustment to the amount of Converted Debt
converted hereunder shall be made.
7. Representations and Warranties of SIBL, SFG and ▇▇▇▇▇▇▇▇. SIBL, SFG
and ▇▇▇▇▇▇▇▇ each severally represents and warrants to the Company as follows:
a. Investment Purpose. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ is acquiring
the Common Shares issuable upon the conversion of the Converted Debt, Preferred
Shares or ▇▇▇▇▇▇▇▇ Shares, the A Warrants, the B Warrants, and the Common Shares
issuable upon the exercise of any A Warrants or B Warrants (collectively, the
"Securities"), for its or his own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the Securities
Act of 1933, as amended (the "Securities Act") and.
b. Accredited Investor Status. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act. SIBL and SFG has not been formed solely for the
purpose of acquiring the Common Shares or other Securities.
c. Reliance on Exemptions. SIBL, SFG and ▇▇▇▇▇▇▇▇ understands that
the Securities are being offered and sold to it or him in reliance on specific
exemptions from the registration requirements of the Securities Act and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and SIBL, SFG and ▇▇▇▇▇▇▇▇'▇ compliance with, the representations,
warranties, agreements, acknowledgments and understandings of SIBL, SFG and
▇▇▇▇▇▇▇▇ set forth herein in order to determine the availability of such
exemptions and the eligibility of SIBL, SFG and ▇▇▇▇▇▇▇▇ to acquire such Common
Shares.
-5-
d. Transfer or Resale. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ understands
that the Securities have not been registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned, pledged,
hypothecated or transferred unless (A) subsequently registered thereunder, (B)
SIBL, SFG and ▇▇▇▇▇▇▇▇ shall have delivered to the Company an opinion of
counsel, in a form reasonably satisfactory to the Company, to the effect that
such Securities may be sold, assigned or transferred pursuant to an exemption
from such registration, or (C) SIBL, SFG and ▇▇▇▇▇▇▇▇ provides the Company with
such documents and certificates as the Company may reasonably request to
demonstrate to its satisfaction that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the Securities Act (or a
successor rule thereto).
e. No General Solicitation. Neither SIBL, SFG nor ▇▇▇▇▇▇▇▇ is
acquiring the Securities as a result of any advertisement, article, notice or
other communication regarding any Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
f. Adequate Information. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ is aware of
the Company's business affairs and financial condition, and has acquired
information about the Company sufficient to reach an informed and knowledgeable
decision to acquire the Securities.
g. Sophistication and Experience. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇,
either alone or together with its or his representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities and has so evaluated the merits and risks of such investment.
h. Ability to Bear Risk. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
i. Legend. Each of SIBL, SFG and ▇▇▇▇▇▇▇▇ understands that the
stock certificates representing the Common Shares shall bear a restrictive
legend in substantially the following form (or another legend substantially in
such form as the transfer agent for the Company may from time to time use
generally on certificates evidencing restricted securities of the Company):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws. Such securities have
been acquired for investment and may not be offered for sale, sold,
transferred or assigned in the absence of an effective registration
statement or an opinion of counsel, in a form reasonably
satisfactory to the Issuer, that registration is not required under
said Act or applicable state securities laws."
8. Governing Law; Jurisdiction. This Agreement shall be governed in all
respects by the laws of the State of Texas. All suits, actions or proceedings
arising out of, or in connection with, this Agreement or the transactions
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contemplated by this Agreement shall be brought in any federal or state court of
competent subject matter jurisdiction sitting in Dallas County, Texas.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument. This Agreement may be delivered by facsimile, and facsimile
signatures shall be treated as original signatures for all applicable purposes.
10. Entire Agreement. This Agreement and the Merger Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof.
11. Amendment; Waiver. This Agreement and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought and by
Parent. This Agreement may be amended only by a writing executed by all parties
hereto and by ▇▇▇▇▇▇.
12. Further Assurances. At any time, and from time to time, after the
effective date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property interests transferred hereunder or otherwise to
carry out the intent and purposes of this Agreement.
[Signatures Begin on Following Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the date first
indicated above.
SUPERIOR GALLERIES, INC.
By:
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
STANFORD INTERNATIONAL BANK LTD.
By:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Financial Officer
STANFORD FINANCIAL GROUP COMPANY
By:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Treasurer
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
ACKNOWLEDGED AND ACCEPTED:
DGSE COMPANIES, INC.
By:
--------------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chairman and Chief Executive Officer
-8-
EXHIBIT A
---------
FORM OF "A" WARRANT
-------------------
NEITHER THIS WARRANT NOR THE WARRANT STOCK (AS HEREINAFTER DEFINED) HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THIS WARRANT AND THE WARRANT STOCK MAY BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED ONLY IN
COMPLIANCE WITH THE ACT AND SUCH LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY
WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
Warrant No. ____
WARRANT
For the Purchase of Common Stock of
SUPERIOR GALLERIES, INC.
a Delaware corporation
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME, ON ________, 2013.
_________ Shares _________, 2006
FOR VALUE RECEIVED, SUPERIOR GALLERIES, INC., a Delaware corporation
(the "Company"), hereby certifies that STANFORD INTERNATIONAL BANK LTD. (the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company up to ___________ shares of common stock (the "Common Shares"),
par value $0.001 per share ("Common Stock"), of the Company at an initial
exercise price per Common Share equal to $______ per Common Share (the "Exercise
Price"), during the period commencing ________, 2006 (the "Date of Issuance")
and expiring at 5:00 P.M., Eastern Standard time, on ________, 2013 (the
"Expiration Date").
The number of Common Shares to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The Common
Shares deliverable upon such exercise, or the entitlement thereto upon such
exercise, and as so adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Stock." The Warrants issued on the same date hereof
bearing the same terms and conditions as this Warrant shall be collectively
referred to as the "Warrants."
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. EXERCISE OF WARRANT
(a) By Payment of Cash. This Warrant may be exercised by its
presentation and surrender to the Company at its principal office (or such
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office or agency of the Company as it may designate in writing to the Holder
hereof), commencing on the Date of Issuance and expiring at 5:00 P.M., Eastern
Standard time, on the Expiration Date, with the Warrant Exercise Form attached
hereto duly completed and executed and accompanied by payment (either in cash or
by certified or official bank check or by wire transfer, payable to the order of
the Company) of the Exercise Price for the number of shares specified in such
form.
The Company agrees that the Holder hereof shall be deemed the record
owner of such Common Shares as of the close of business on the date on which
this Warrant shall have been presented and payment made for such Common Shares
as aforesaid whether or not the Company or its transfer agent is open for
business. Certificates for the Common Shares so purchased shall be delivered to
the Holder hereof within a reasonable time, not exceeding 15 days, after the
rights represented by this Warrant shall have been so exercised. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant of like tenor
evidencing the rights of the Holder hereof to purchase the balance of the shares
purchasable hereunder as soon as reasonably practicable.
Notwithstanding anything to the contrary set forth above, each exercise
of this Warrant shall cover at least the lesser of (i) 10,000 Common Shares (as
adjusted for stock splits, stock dividends, combinations and the like), and (ii)
the total number of Common Shares then subject to the Warrant.
(b) Cashless Exercise. In lieu of the payment method set forth in
Section 1(a) above, if the Common Stock is then traded or listed on a Principal
Market (as defined below), the Holder may elect to exchange all or some of this
Warrant for the Common Shares equal to the value of the amount of this Warrant
being exchanged on the date of exchange. If the Holder elects to exchange this
Warrant as provided in this Section 1(b), the Holder shall tender to the Company
this Warrant for the amount being exchanged, along with the Warrant Exercise
Form attached hereto duly completed and executed indicating the Holder's
election to exchange some or all of this Warrant, and the Company shall issue to
the Holder the number of Common Shares computed using the following formula:
X = Y (A-B)
--------
A
Where: X = The number of Common Shares to be issued to the Holder.
Y = The number of Common Shares for which this
Warrant is being exercised (as adjusted to
the date of such calculation).
A = The Market Price of one Common Share.
B = The Exercise Price (as adjusted to the date of
such calculation).
The Warrant exchange shall take place on the date specified in the form
of notice or if the date the notice is received by the Company is later than the
date specified in the notice, on the date the notice is received by the Company.
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As used herein, the term "Market Price" at any date shall be the
arithmetic mean of the last reported sale price or closing price for the most
recent five consecutive Trading Days ending on such date (or, if such date is
not a Trading Day, the next preceding Trading Day) on which trading occurred on
such Principal Market in the Common Stock; the term "Trading Day" means any day
other than a Saturday or a Sunday on which the Company's Principal Market is
open for trading in equity securities; and the term "Principal Market" means the
Nasdaq Capital Market, the New York Stock Exchange, the Nasdaq National Market,
the American Stock Exchange, the OTCBB or any other national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whichever is at the time the principal trading exchange,
market or inter-dealer or automated quotation system for the Common Stock.
(c) "Easy Sale" Exercise. In lieu of the payment method set forth
in Section 1(a) above, when permitted by law and applicable regulations
(including rules of Nasdaq and National Association of Securities Dealers
("NASD")), the Holder may pay the aggregate Exercise Price (the "Exercise
Amount") through a "same day sale" commitment from the Holder (and if applicable
a broker-dealer that is a member of the NASD (an "NASD Dealer")), whereby the
Holder irrevocably elects to exercise this Warrant and to sell a portion of the
shares so purchased to pay the Exercise Amount and the Holder (or, if
applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD
Dealer, upon receipt) of such shares to forward the Exercise Amount directly to
the Company.
2. COVENANTS BY THE COMPANY
The Company covenants and agrees as follows:
(a) Reservation of Shares. During the period within which the
rights represented by this Warrant may be exercised, the Company shall, at all
times, reserve and keep available out of its authorized capital stock, solely
for the purposes of issuance upon exercise of this Warrant, such number of its
Common Shares as shall be issuable upon the exercise of this Warrant. If at any
time the number of authorized Common Shares shall not be sufficient to effect
the exercise of this Warrant, the Company will take such corporate action as may
be necessary to increase its authorized but unissued Common Shares to such
number of shares as shall be sufficient for such purpose. The Company shall have
analogous obligations with respect to any other securities or property issuable
upon exercise of this Warrant.
(b) Valid Issuance, etc. All Common Shares which may be issued upon
exercise of the rights represented by this Warrant included herein will be, upon
payment in full thereof, validly issued, fully paid, non-assessable and free
from all liens.
(c) Taxes. All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant shall be borne by the Company, but in no event shall the Company be
responsible or liable for income taxes or transfer taxes upon the issuance or
transfer of this Warrant or the Warrant Stock. The Company shall not be required
to pay any tax or other charge imposed in connection with any transfer involved
in the issuance of any certificate for Common Shares in any name other than that
of the Holder of this Warrant, and in such case the Company shall not be
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required to issue or deliver any stock certificate or security until such tax or
other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
(d) Fractional Shares. The Company shall not be required to issue
certificates representing fractions of Common Shares. In lieu of any fractional
interests, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
3. EXCHANGE OR ASSIGNMENT OF WARRANT
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other Warrants
of like tenor but different denominations, entitling the Holder to purchase in
the aggregate the same number of Common Shares then purchasable hereunder.
Subject to the provisions of this Warrant and the receipt by the Company of any
required representations and agreements, upon surrender of this Warrant to the
Company with the Warrant Assignment Form annexed hereto duly completed and
executed and funds sufficient to pay any transfer tax or charge, the Company
shall, without additional charge, execute and deliver a new Warrant in the name
of the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. In the event of a partial assignment of this Warrant, the
new Warrants issued to the assignee and the Holder shall make reference to the
aggregate number of shares of Warrant Stock issuable upon exercise of this
Warrant.
4. RIGHTS OF THE HOLDER
The Holder shall not, by virtue hereof, be entitled to any voting or
other rights of a stockholder of the Company, either at law or in equity, and
the rights of the Holder are limited to those expressed in this Warrant.
5. ADJUSTMENT OF EXERCISE PRICE
(a) Common Stock Dividends; Common Stock Splits; Reclassification.
If the Company, at any time while this Warrant is outstanding, shall (a) pay a
stock dividend on its Common Stock, (b) split or subdivide outstanding shares of
Common Stock into a larger number of shares (or reverse split or combine the
outstanding shares of Common Stock into a smaller number of shares) or (c) issue
by reclassification of shares of Common Stock any shares of capital stock of the
Company, then (i) the Exercise Price shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding after such event and (ii) the number of shares of
the Warrant Stock shall be multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event. Any adjustment made pursuant to
this Section 5(a) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution or, in the case of a subdivision or re-classification, shall become
effective immediately after the effective date thereof.
(b) Rights; Options; Warrants or Other Securities. If the Company,
at any time while this Warrant is outstanding, shall fix a record date for the
issuance of rights, options, warrants or other securities to all the holders of
its Common Stock entitling them to subscribe for or purchase, convert to,
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exchange for or otherwise acquire shares of Common Stock for no consideration or
at a price per share less than the Exercise Price, the Exercise Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance or sale plus the
number of shares of Common Stock which the aggregate consideration received by
the Company (including the exercise price paid for Convertible Securities) would
purchase at the Exercise Price, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance date
plus the number of additional shares of Common Stock offered for subscription,
purchase, conversion, exchange or acquisition, as the case may be. Such
adjustment shall be made whenever such rights, options, warrants or other
securities are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
options, warrants or other securities.
(c) Subscription Rights. If the Company, at any time while this
Warrant is outstanding, shall fix a record date for the distribution to holders
of its Common Stock, evidence of its indebtedness or assets or rights, options,
warrants or other security (excluding those referred to in Sections 5(a) or 5(b)
above) entitling them to subscribe for or purchase, convert to, exchange for or
otherwise acquire any security, then in each such case the Exercise Price at
which this Warrant shall thereafter be exercisable shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the per-share Market Price on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board of Directors in
good faith, and the denominator of which shall be the per-share Market Price as
of such record date.
(d) Rounding. All calculations under this Section 5 shall be made
to the nearest 1/10th of a cent or the nearest l/100th of a share, as the case
may be.
(e) Notice of Adjustment. Whenever the Exercise Price is adjusted
pursuant to this Section 5, the Company shall promptly deliver to the Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. Such notice shall be
signed by the chairman, chief executive officer, chief operating officer or
chief financial officer of the Company.
(f) Treasury Shares. For purposes of this Section 5, the number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock by
the Company.
(g) Change of Control; Compulsory Share Exchange. In case of (A)
any Change of Control Transaction (as defined below) or (B) any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property (each, an "Event"), lawful provision shall be made (which may
be conditioned upon the surrender and exchange of this Warrant for a warrant of
like tenor, subject to such adjustments as may be reasonably necessary to
account for the applicable transaction, including proportionate adjustments to
the Exercise Price) so that the Holder shall have the right thereafter to
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exercise this Warrant for shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such Event, and the Holder shall be entitled upon such Event to
receive upon exercise hereof such amount of shares of stock and other
securities, cash or property as the shares of the Common Stock of the Company
into which this Warrant could have been exercised immediately prior to such
Event (without taking into account any limitations or restrictions on the
exercisability of this Warrant) would have been entitled. The terms of any such
Event shall include such terms so as to continue to give to the Holder the right
to receive the securities, cash or property set forth in this Section 5(g) upon
any exercise or redemption following such Event, and, in the case of an Event
specified in (A), above, the successor corporation or other entity (if other
than the Company) resulting from such reorganization, merger or consolidation,
or the person acquiring the properties and assets, or such other controlling
corporation or entity as may be appropriate, shall expressly assume the
obligation to deliver the securities or other assets which the Holder is
entitled to receive hereunder. The provisions of this Section 5(g) shall
similarly apply to successive Events. "Change of Control Transaction" means the
occurrence of any (i) merger or consolidation of the Company with or into
another entity, unless the holders of the Company's securities immediately prior
to such transaction or series of transactions continue to hold at least 50% of
such securities following such transaction or series of transactions, or (ii) a
sale, conveyance, lease, transfer or disposition of all or substantially all of
the assets of the Company in one or a series of related transactions.
(h) Issuances Below Exercise Price. Subject to the last paragraph
of this Section 5(h), if the Company, at any time while this Warrant is
outstanding:
(i) issues or sells, or is deemed to have issued or sold, any
Common Stock (other than any Excluded Securities (as defined below));
(ii) in any manner grants, issues or sells any rights, options,
warrants, options to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (other than
any Excluded Securities) (such rights, options or warrants being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") or reprices of any of the Company's issued and
outstanding Options or Convertible Securities (other than reprices triggered by
the issuance of this Warrant or any other warrants being issued on the date
hereof); or
(iii) in any manner issues or sells any Convertible Securities
(other than any Excluded Securities);
for (a) with respect to paragraph (i) above, a price per share, or (b) with
respect to paragraphs (ii) or (iii) above, a price per share for which Common
Stock is issuable upon the exercise of such Options (together with the price per
optioned share, if any, paid for the issuance of such Options) or upon
conversion or exchange of such Convertible Securities; in either case, which is
less than the Exercise Price in effect immediately prior to such issuance or
sale, then, immediately after such issuance, sale or grant, the Exercise Price
shall be adjusted by multiplying the Exercise Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
-6-
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such Common Stock or Convertible Securities,
together with any consideration receivable upon the exercise or conversion of
such Convertible Securities, then issued would purchase at the Exercise Price
then in effect; and (y) the denominator of which shall be the number of shares
of Common Stock of the Company outstanding immediately after such issue or sale
plus the number of shares of Common Stock then issued or issuable upon the
exercise of any Convertible Securities then issued. No modification of the
issuance terms shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Options or Convertible Securities.
"Excluded Securities" means (i) options to be granted pursuant to a
stock option plan approved by the stockholders of the Company or by Stanford
International Bank Ltd. ("Stanford"), (ii) shares of Common Stock issued upon
conversion or exercise of warrants, options or other securities convertible into
Common Stock which are or become outstanding on the date hereof, (iii) shares of
Common Stock or securities convertible into or exercisable for shares of Common
Stock issued or deemed to be issued by the Company in connection with a
strategic acquisition by the Company of the assets or business, or division
thereof, of another entity which acquisition has been approved by Stanford in
writing or by the stockholders of the Company, (iv) issuances of rights in
connection with the adoption of a shareholder rights plan, or (v) any other
issuance of securities referred to in Sections 5(a), 5(b) or 5(c) above;
provided, however, that the approval of Stanford required by subsections (i) and
(iii), above, shall only be required if at the time of issuance or grant of the
subject Common Stock or Convertible Securities, Stanford holds 25% or more of
the outstanding shares of Common Stock [ THIS PROVISO IS NOT NEEDED IF THE
APPROVAL OF THE COMPANY STOCKHOLDERS WILL SUFFICE FOR CLAUSES (I) AND (III) ].
Notwithstanding anything herein to the contrary, no adjustment shall be
made to the Exercise Price hereunder as a result of the first 100,000 shares of
Common Stock issued or issuable upon the exercise of Options or the conversion
or exchange of Convertible Securities issued during any fiscal year of the
Company while this Warrant is outstanding. If this amount is exceeded in any
such fiscal year, the Exercise Price shall be adjusted in accordance with the
provisions hereof based solely on the shares of Common Stock sold or the
exercise price or conversion price of the Options and Convertible Securities
issued, as applicable, thereafter, without any adjustment in respect of the
initial 100,000 shares of Common Stock, Options or Convertible Securities issued
in such fiscal year.
(i) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 5(h), the following shall
be applicable:
(i) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the gross amount received by the Company therefor, without deducting any
expenses paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or others
performing similar services in connection with such issue or sale. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
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where such consideration consists of securities listed or quoted on a national
securities exchange or national quotation system, in which case the amount of
consideration received by the Company will be the arithmetic average of the
closing sale price of such security for the five (5) consecutive trading days
immediately preceding the date of receipt thereof. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or such listed
or quoted securities will be determined in good faith by the board of directors
of the Company.
(ii) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for an aggregate consideration of $.002.
(iii) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(iv) Other Events. If any event occurs that would adversely
affect the rights of the Holder of this Warrant but is not expressly provided
for by this Section 5 (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price so as to protect the rights of the Holder; provided, however,
that no such adjustment will increase the Exercise Price.
(j) Notice of Certain Events. If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock;
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock;
(iii) the Company shall authorize the granting to the holders
of all of its Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights;
(iv) the approval of any stockholders of the Company shall be
required in connection with any capital reorganization, reclassification of the
Company's capital stock, any consolidation or merger to which the Company is a
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party, any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; or
(v) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of exercise of this Warrant, and shall cause to be
delivered to the Holder, at least 10 calendar days prior to the applicable
record or effective date hereinafter specified, a notice (provided the Company
may exclude any information which it deems to be material non-public
information) stating (a) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (b) the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Nothing herein shall
prohibit the Holder from exercising this Warrant during the 10-day period
commencing on the date of such notice.
(k) Increase in Exercise Price. In no event shall any provision in
this Section 5 cause the Exercise Price to be greater than the Exercise Price on
the date of issuance of this Warrant, except for a reverse split or other
combination of the outstanding shares of Common Stock into a smaller number of
shares as referenced in Section 5(a) above. Notwithstanding anything to the
contrary in this Section 5, in the event of any adjustment of the Exercise Price
or in the securities into which this Warrant may be exercised, the Exercise
Price shall be increased as necessary such that the Exercise Price shall be not
less than the par value of the shares of capital stock for which this Warrant
may be exercised.
6. INVESTMENT INTENT
Unless, prior to the exercise of the Warrant, the issuance of the
Warrant Stock has been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
Warrant Exercise Form shall be accompanied by a representation of the Holder to
the Company to the effect that such shares are being acquired for investment and
not with a view to the distribution thereof, and such other representations and
documentation as may be required by the Company, unless in the opinion of
counsel to the Company such representations or other documentation are not
necessary to comply with the Securities Act.
7. RESTRICTIONS ON TRANSFER
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(a) Transfer to Comply with the Securities Act. Holder understands
that, unless a registration statement relating to the resale of this Warrant and
the Warrant Stock shall then be effective under the Securities Act, this Warrant
and the Warrant Stock shall be "restricted securities" (as that term is defined
in Rule 144 promulgated under the Securities Act). Neither this Warrant nor any
Warrant Stock or other securities issuable upon exercise hereof may be sold,
assigned, pledged, transferred or otherwise disposed of except in compliance
with applicable state securities or "blue sky" laws and as follows: (1) to a
person who, in the opinion of counsel satisfactory to the Company, is a person
to whom this Warrant or the Warrant Stock may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 7 with
respect to any resale, assignment, pledge, transfer or other disposition of such
securities; or (2) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the offering
thereof for such sale, assignment, pledge, transfer or other disposition.
(b) Legend. Subject to the terms hereof, upon exercise of this
Warrant and the issuance of the Warrant Stock, all certificates representing
such Warrant Stock (or other securities issuable hereunder) shall bear on the
face or reverse thereof substantially the following legend (or another legend
substantially in such form as the transfer agent for the Company may from time
to time use generally on certificates evidencing restricted securities of the
Company):
"The securities which are represented by this certificate have not been
registered under the Securities Act of 1933, and may not be sold,
transferred, hypothecated or otherwise disposed of until a registration
statement with respect thereto is declared effective under such act, or
the Company receives an opinion of counsel for the Company that an
exemption from the registration requirements of such act is available."
8. REPRESENTATIONS AND WARRANTIES OF HOLDER
In connection with the issuance of this Warrant, Holder specifically
represents and warrants to the Company by acceptance of this Warrant as follows:
(a) If an entity, Holder is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or formation,
and has the requisite entity power and authority to exercise the Warrant and
purchase the Warrant Stock.
(b) Holder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act, and is not a registered broker-dealer
under Section 15 of the Exchange Act.
(c) ▇▇▇▇▇▇, either alone or together with its representatives, has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in this Warrant and, upon exercise hereof, the Warrant Stock, and has
so evaluated the merits and risks of such investment. The undersigned is able to
bear the economic risk of an investment in this Warrant and the Warrant Stock
and, at the present time, is able to afford a complete loss of such investment.
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(d) ▇▇▇▇▇▇ is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant.
(e) Holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof in violation of the Securities Act.
(f) Holder is not acquiring this Warrant or purchasing any Warrant
Stock as a result of any advertisement, article, notice or other communication
regarding this Warrant or the Warrant Stock published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(g) Holder understands that neither this Warrant nor the Warrant
Stock has been registered under the Securities Act and neither may be offered,
resold, pledged or otherwise transferred except (i) pursuant to an exemption
from registration under the Securities Act or pursuant to an effective
registration statement in compliance with Section 5 under the Securities Act, or
(ii) in accordance with all applicable securities and "blue sky" laws of the
states of the United States and other jurisdictions. ▇▇▇▇▇▇ is aware of the
provisions of Rule 144 promulgated under the Securities Act.
(h) To the extent a registration statement under the Securities is
not in effect, Holder understands and acknowledges that (i) this Warrant is, and
the Warrant Stock (if any) will be, issued and sold to it without registration
under the Securities in a private placement that is exempt from the registration
provisions of the Securities , and (ii) the availability of such exemption
depends in part on, and that the Company and its counsel is relying upon, the
accuracy and truthfulness of the foregoing representations and Holder hereby
consents to such reliance.
9. LOST, STOLEN OR DESTROYED WARRANTS
In the event that the Holder certifies to the Company that this Warrant
has been lost, stolen or destroyed and provides (a) a letter, in form reasonably
satisfactory to the Company, to the effect that it will indemnify the Company
from any loss incurred by it in connection therewith, and/or (b) an indemnity
bond in such amount as is reasonably required by the Company, the Company having
the option of electing either (a) or (b) or both, the Company may, in its sole
discretion, accept such letter and/or indemnity bond in lieu of the surrender of
this Warrant as required by Section 1 hereof.
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10. SUBSEQUENT HOLDERS
Every Holder hereof, by accepting the same, agrees with any subsequent
Holder hereof and with the Company that this Warrant and all rights hereunder
are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent, if any, may deem and treat the registered
holder of this Warrant as the absolute owner hereof for all purposes and shall
not be affected by any notice to the contrary.
11. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed the other party at the following address, or at such other addresses
as a party may designate by five days advance written notice to the other party
hereto.
Company: Superior Galleries, Inc.
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▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Holder: Stanford International Bank Ltd.
c/o Stanford Financial Group
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇-▇▇▇-▇▇▇▇
12. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL
-12-
This Warrant shall be governed by and interpreted in accordance with
the laws of the State of Texas, without regard to its principles of conflict of
laws. Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Warrant may be brought against any party in the
federal courts of Texas or the state courts of the State of Texas, and each of
the parties consents to the jurisdiction of such courts and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE
UNDER THIS WARRANT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (1) NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH
WAIVERS, (2) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS,
(3) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (4) IT HAS BEEN INDUCED TO ENTER INTO
THIS WARRANT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 12.
13. WAIVER
This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
(Signature on the following page)
-13-
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
SUPERIOR GALLERIES, INC.
------------------------
By:_____________________________
Name:
Title:
-14-
SUPERIOR GALLERIES, INC.
------------------------
WARRANT EXERCISE FORM
---------------------
The undersigned hereby irrevocably elects to exercise the attached
Warrant dated __________ _____, 200___ (the "Warrant"), pursuant to the
provisions of (SELECT ONE) [ Section 1(a) of the Warrant, to the extent of
purchasing _____________ shares (the "Shares") of the common stock, par value
$0.001 per share (the "Common Stock"), of Superior Galleries, Inc., a Delaware
corporation (the "Company"), and encloses herewith in cash or by certified or
official bank check or by wire transfer, payable to the order of the Company, a
payment of $_________ in payment therefor, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the Shares ] (OR) [ Section 1(b)
of the Warrant to the extent of _________ shares of the common stock, par value
$0.001 per share (the "Common Stock"), of Superior Galleries, Inc. (the
"Company"), which based on an estimated Market Price of $1.89 per share would
result in the issuance to the Holder of _______ shares (the "Shares") of Common
Stock ] .
As of the date hereof, the undersigned represents and warrants to the
Company as follows:
(a) If an entity, the undersigned is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or formation, and has the requisite entity power and authority to
exercise the Warrant and purchase the Warrant Stock.
(b) The undersigned is an "accredited investor" as defined in Rule
501(a) promulgated under the Securities Act of 1933, as amended (the "Act"), and
is not a registered broker-dealer under Section 15 of the Securities Exchange
Act of 1934, as amended.
(c) The undersigned, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Shares, and has so evaluated the merits and
risks of such investment. The undersigned is able to bear the economic risk of
an investment in the Shares and, at the present time, is able to afford a
complete loss of such investment.
(d) The undersigned is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant.
(e) The undersigned is acquiring the Shares for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof in violation of the Act.
(f) The undersigned is not purchasing the Shares as a result of any
advertisement, article, notice or other communication regarding the Common Stock
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.
-15-
(g) The undersigned understands that the Shares have not been
registered under the Act and may not be offered, resold, pledged or otherwise
transferred except (i) pursuant to an exemption from registration under the Act
or pursuant to an effective registration statement in compliance with Section 5
under the Act, or (ii) in accordance with all applicable securities and "blue
sky" laws of the states of the United States and other jurisdictions. The
undersigned is aware of the provisions of Rule 144 promulgated under the Act.
(h) To the extent a registration statement under the Act is not in
effect, the undersigned understands and acknowledges that (i) the Shares are
being issued and sold to it without registration under the Act in a private
placement that is exempt from the registration provisions of the Act, and (ii)
the availability of such exemption depends in part on, and that the Company and
its counsel is relying upon, the accuracy and truthfulness of the foregoing
representations and the undersigned hereby consents to such reliance.
Please issue a certificate or certificates representing the Shares in
the name of the undersigned or in the name of the undersigned's nominee as is
specified below. [ Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or the undersigned's nominee as
is specified below. ]
---------------------------------
Name of Holder
---------------------------------
Signature of Holder
or Authorized Representative
---------------------------------
Social Security Number or
Tax Identification Number
---------------------------------
Signature, if jointly held
---------------------------------
Name and Title of Authorized
Representative
---------------------------------
---------------------------------
Address of Holder
---------------------------------
Nominee of Holder (if applicable)
---------------------------------
Date
-16-
SUPERIOR GALLERIES, INC.
------------------------
WARRANT ASSIGNMENT FORM
-----------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ ("Assignee") the rights represented by the
within Warrant to purchase ____________ shares of common stock, par value $0.001
per share (the "Common Stock"), of Superior Galleries, Inc., a Delaware
corporation (the "Company"), to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of the Company
with full power of substitution in the premises. The undersigned has informed
Assignee that Assignee must make the representations and warranties contained in
this form in connection with said transfer, and the undersigned has no reason to
belief that Assignee cannot make such representations.
As of the date hereof, the Assignee represents and warrants to the
Company as follows:
(a) If an entity, Assignee is duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
formation, and has the requisite entity power and authority to exercise the
Warrant and purchase the Warrant Stock.
(b) Assignee is an "accredited investor" as defined in Rule 501(a)
promulgated under the Act, and is not a registered broker-dealer under Section
15 of the Securities Exchange Act of 1934, as amended.
(c) Assignee, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in this Warrant and, upon exercise hereof, the Common
Stock deliverable (the "Warrant Stock"), and has so evaluated the merits and
risks of such investment. The undersigned is able to bear the economic risk of
an investment in this Warrant and the Warrant Stock and, at the present time, is
able to afford a complete loss of such investment.
(d) Assignee is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant.
(e) Assignee is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof in violation of the Act.
(f) Assignee is not acquiring this Warrant or purchasing any
Warrant Stock as a result of any advertisement, article, notice or other
communication regarding this Warrant or the Warrant Stock published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
-17-
(g) Assignee understands that neither the Warrant nor the Warrant
Stock has been registered under the Act and neither may be offered, resold,
pledged or otherwise transferred except (i) pursuant to an exemption from
registration under the Act or pursuant to an effective registration statement in
compliance with Section 5 under the Act, or (ii) in accordance with all
applicable securities and "blue sky" laws of the states of the United States and
other jurisdictions. The Assignee is aware of the provisions of Rule 144
promulgated under the Act.
(h) To the extent a registration statement under the Act is not in
effect, Assignee understands and acknowledges that (i) the Warrant is, and the
Warrant Stock (if any) will be, issued and sold to it without registration under
the Act in a private placement that is exempt from the registration provisions
of the Act, and (ii) the availability of such exemption depends in part on, and
that the Company and its counsel is relying upon, the accuracy and truthfulness
of the foregoing representations and the Assignee hereby consents to such
reliance.
Please issue a new Warrant of like tenor for the assigned portion
of the attached Warrant in the name of the Assignee or the Assignee's nominee as
is specified below. [ Please issue a new Warrant of like tenor for the
unassigned portion of the attached Warrant in the name of the undersigned or the
undersigned's nominee as is specified below. ]
-------------------------------------
Name of Holder
-------------------------------------
Signature of Holder
or Authorized Representative
-------------------------------------
Social Security Number or
Tax Identification Number of Holder
-------------------------------------
Signature, if jointly held
-------------------------------------
Name and Title of Authorized
Representative
-------------------------------------
-------------------------------------
Address of Holder
-18-
-------------------------------------
Nominee of Holder (if applicable)
-------------------------------------
Date
-------------------------------------
Name of Assignee
-------------------------------------
Signature of Assignee
or Authorized Representative
-------------------------------------
Social Security Number or
Tax Identification Number of Assignee
-------------------------------------
Signature, if to be jointly held
-------------------------------------
Name and Title of Authorized
Representative
-------------------------------------
-------------------------------------
Address of Assignee
-------------------------------------
Nominee of Assignee (if applicable)
-19-
EXHIBIT B
---------
FORM OF "B" WARRANT
-------------------
EXHIBIT F.
TERMINATION AND RELEASE AGREEMENT
---------------------------------
THIS TERMINATION AND RELEASE AGREEMENT is made and entered into as of
_______ __, 2006 (this "Agreement"), by and among (i) DGSE Companies, Inc., a
Nevada corporation (together with its successors and permitted assigns,
"Parent"), (ii) DGSE Merger Corp., a Delaware corporation and a direct
wholly-owned subsidiary of Parent (together with its successors and permitted
assigns, "Merger Sub"), (iii) Superior Galleries, Inc., a Delaware corporation
(f/k/a Tangible Asset Galleries, Inc., a Nevada corporation) (together with its
predecessors and successors, the "Company" or "Superior"), (iv) Stanford
International Bank, Ltd., a company organized under the laws of Antigua and
Barbuda (together with its successors, "SIBL"), (v) Stanford Financial Group
Company, a corporation organized under the laws of the State of Florida
(together with its successors, "SFG"), (vi) Stanford Venture Capital Holdings,
Inc., a corporation organized under the laws of the State of Delaware (together
with its successors, "SVCH", and, together with SIBL and SFG, the "Stanford
Parties"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an individual resident of the State of
California (together with his heirs, "▇▇▇▇▇▇▇▇"). Capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in that
certain Agreement and Plan of Merger and Reorganization, made and entered into
as of July 12, 2006 (the "Merger Agreement"), by and among Parent, Merger Sub
and Superior.
R E C I T A L S
---------------
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable the Merger Agreement and the
merger of Merger Sub with and into the Company (the "Merger"), with the Company
being the surviving corporation;
WHEREAS, SIBL and ▇▇▇▇▇▇▇▇ are key stockholders of Superior, SFG is the
primary lender to Superior, ▇▇▇▇▇▇▇▇ is an officer and director of Superior, and
SVCH is a consultant to Superior;
WHEREAS, ▇▇▇▇▇▇ has requested various of the other parties hereto to
terminate various Contracts in place between and among them as a condition to
Parent consummating the Merger; and
WHEREAS, each of the Stanford Parties and ▇▇▇▇▇▇▇▇ desires to execute
and deliver this Agreement to induce Parent, Merger Sub and the Company to
consummate the Merger and the other Transactions; and
WHEREAS, the execution and delivery of this Agreement by the Stanford
Parties, ▇▇▇▇▇▇▇▇ and the Company is a condition precedent to the obligation of
▇▇▇▇▇▇ and ▇▇▇▇▇▇ Sub, and the execution and delivery of this Agreement by the
Stanford Parties, ▇▇▇▇▇▇ and ▇▇▇▇▇▇ Sub is a condition precedent to the
obligation of the Company, to consummate the Merger.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth in this Agreement, and intending to be
legally bound hereby, the parties hereto hereby agree, as of the Effective Time,
as follows:
Section 1. Release.
(a) Definitions. The following terms, whenever used in this
Agreement, shall have the meanings ascribed to them below:
-1-
"Immediate Family" means, with respect to any individual, such
individual's (i) children, stepchildren, grandchildren, parents,
stepparents, grandparents, spouse, former spouses, siblings, nieces,
nephews, or current or former mothers-in-law, fathers-in-law,
sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law,
including in each case by adoption, and (ii) any other individual
sharing such individual's household (other than a tenant or employee).
"Improper Conduct" means, with respect to any Person, acts
taken, or omissions made, by such Person (i) other than in good faith,
(ii) which are clearly inconsistent with, or outside the scope of, such
Person's employment, offices and duties, or (iii) which involve (A)
breach of any fiduciary duties, (B) ultra ▇▇▇▇▇ acts, (C) breach of any
Contract of such Person with the Company or any of its subsidiaries,
including any employment agreement, confidentiality agreement or
assignment of inventions agreement, (D) gross negligence, reckless
conduct or willful misconduct, (E) fraud or material misrepresentation,
(F) material, reckless or willful violation of applicable Law, (G)
self-dealing or any conflicting interest transaction, including a
transaction with any member of such Person's Affiliates or Immediate
Family, or (H) knowledge, or reckless disregard for the fact, that any
of the representations and warranties made by the Company in the Merger
Agreement on the date thereof (as modified by the Disclosure Schedules)
or at the Closing Date (as modified by the Updated Disclosure
Schedules), or any officer's or other certificate signed by such Person
(in whatever capacity) and delivered at the Closing, contained, on the
date thereof or at the Closing Date, any untrue statement of a material
fact, or omitted to state, on the date thereof or at the Closing Date,
any material fact necessary in order to make the statements,
representations and certifications contained in Article IV of the
Merger Agreement or in such certificate, as the case may be, in light
of the circumstances under which they were made, not misleading,
without properly reporting such untrue statement or material fact to
Parent in writing prior to the Closing.
(b) Release. Each of the Stanford Parties, on behalf of itself and
its Affiliates, and ▇▇▇▇▇▇▇▇, on behalf of himself and each member of his
Immediate Family, and the respective heirs, successors and assigns of each of
them, (all of the foregoing, individually, a "Releasor", and, collectively, the
"Releasors"), hereby irrevocably and forever releases and discharges the Company
and Merger Sub, and each of their respective individual, joint or mutual, past,
present and future stockholders, affiliates, controlling persons, directors,
officers, managers, employees, consultants, contractors, agents, financial,
banking and legal advisors and other representatives, and the respective
successors and assigns of each of them, (all of the foregoing, individually, a
"Releasee" and, collectively, the "Releasees") from any and all claims, demands,
actions, orders, obligations, contracts, debts, and Liabilities whatsoever,
whether absolute or contingent, matured or unmatured, disputed or undisputed,
secured or unsecured, conditional or unconditional, accrued or unaccrued,
liquidated or unliquidated, vested or unvested, joint or several, due or to
become due, executory, determined, determinable or otherwise, both at law and in
equity, (collectively, "Claims") which any Stanford Party, ▇▇▇▇▇▇▇▇ or any other
Releasor now has, has ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Effective Time or on
account of or arising out of any matter, cause or event occurring, whether in
any Stanford Party's, ▇▇▇▇▇▇▇▇'▇ or any other Releasor's capacity as a direct or
indirect stockholder of the Company, as a beneficial owner or record holder of
any Equity Interests of the Company, as an officer, employee, director,
consultant or adviser to the Company or in any other capacity or due to any
relationship with the Company or any of its Subsidiaries, contemporaneously with
or prior to the Effective Time, including (a) any dissenter's, appraisal or
similar rights under applicable Law, (b) any rights to bring any lawsuit or
claim action against any Person in the name or on behalf of the Company or
Merger Sub, (c) any right pursuant to any Contract or any Releasee's
Organizational Documents, (d) any claim pursuant to the Securities Act, Exchange
Act, the SEC Rules or other securities or "blue sky" Laws, (e) any rights to
indemnification or reimbursement from any Releasee, whether pursuant to their
respective Organizational Documents or pursuant to any Contracts, applicable Law
-2-
or otherwise, and whether or not relating to claims pending on, or asserted
after, the Closing Date; provided, however, that nothing contained herein shall
operate to release: (i) any indebtedness, together with interest thereon, of the
Company under the Stanford LOC; (ii) any obligations or Liabilities of the
Surviving Corporation under the Amended and Restated Stanford LOC or the
▇▇▇▇▇▇▇▇ Note; (iii) any obligations or Liabilities of Parent under the limited
guaranty and security agreement entered into in connection with the Amended and
Restated Stanford LOC; (iv) any Liabilities of Parent or Merger Sub under the
Merger Agreement or any Related Agreement; (v) any Liabilities of Parent or
Merger Sub under the Securities Act, Exchange Act or the SEC Rules in connection
with the Merger and other Transactions; (vi) any Claims arising under that
certain Loan and Security Agreement, dated as of April 3, 2002 (the "▇▇▇▇▇▇▇▇
Security Agreement"), by and between the Company and ▇▇▇▇▇▇▇▇; (vii) any Claims
arising under that certain replacement warrant, dated July 10, 2006 (the
"▇▇▇▇▇▇▇▇ Warrant"), issued by the Company to ▇▇▇▇▇▇▇▇ in replacement of a
warrant dated November 27, 2001 and certified by ▇▇▇▇▇▇▇▇ to be lost, and (viii)
any claims for indemnification by ▇▇▇▇▇▇▇▇ in his capacity as an officer or
director of the Company, but only to the extent such claims are not based on
Improper Conduct.
(c) No Actions. Upon the Closing, the Stanford Parties and ▇▇▇▇▇▇▇▇
each irrevocably covenants to refrain, and to cause its Affiliates and (if
applicable) Immediate Family to refrain, from, directly or indirectly, asserting
any claim or demand, or commencing, instituting or causing to be commenced, any
Action of any kind against any Releasee, based upon any matter purported to be
released by Section 1(b). Without limiting the generality of the foregoing,
▇▇▇▇▇▇▇▇ hereby agrees not to bring any action or make any claim for
indemnification against the Company or Merger Sub or any other Releasee by
reason of the fact that ▇▇▇▇▇▇▇▇ was a director, officer, manager, employee,
consultant, agent or other representative of the Company or any predecessor
thereto or any of their respective Subsidiaries or Affiliates or was serving at
the request of the Company or any such other Person as a partner, member,
manager, trustee, director, officer, manager, employee, consultant, agent or
other Representative of another Entity (whether such claim or action is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses or otherwise and whether such claim is pursuant to any law,
organizational document, contract or otherwise) with respect to any Action
brought by Parent or the Surviving Corporation against ▇▇▇▇▇▇▇▇ or his
successors or assigns (whether such action is pursuant to the Merger Agreement,
applicable law or otherwise), except to the extent ▇▇▇▇▇▇▇▇ proves in such
Action brought by Parent or the Surviving Corporation that ▇▇▇▇▇▇▇▇'▇ acts or
omissions in respect of which ▇▇▇▇▇▇▇▇ is seeking indemnification did not
constitute Improper Conduct. For avoidance of doubt, nothing in this Section 1
shall prevent or limit the right of Parent or any Releasee to seek indemnity
pursuant to the provisions of the Merger Agreement and Escrow Agreement in
respect of any claim or demand brought by ▇▇▇▇▇▇▇▇ against Parent or any
Releasee, or otherwise.
(d) Indemnity. Without in any way limiting any of the rights and
remedies otherwise available to any Releasee, the Stanford Parties shall jointly
and severally, and ▇▇▇▇▇▇▇▇ shall severally, indemnify and hold harmless each
Releasee from and against all losses, Liabilities, Claims, damages (including
incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney fees), whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of any Stanford Party or any
of their respective related Releasors (the "Stanford Releasors"), or ▇▇▇▇▇▇▇▇
and his related Releasors (the "▇▇▇▇▇▇▇▇ Releasors"), as the case may be, of any
claim or other matter sought to be released pursuant to Section 1(b), (ii) the
assertion by any third party of any claim or demand against any Releasee which
claim or demand arises directly or indirectly from, or in connection with, any
assertion by or on behalf of any Stanford Party or any other Stanford Releasor,
or ▇▇▇▇▇▇▇▇ or any other ▇▇▇▇▇▇▇▇ Releasor, as the case may be, against such
third party of any claims or other matters sought to be released pursuant to
Section 1(b), or (iii) the breach by any Stanford Releasor or ▇▇▇▇▇▇▇▇, as the
case may be, of the terms of Section 1(c).
-3-
(e) Unknown Claims. It is the intention of the parties hereto that
the release provisions in Section 1(b) and Section 1(c) shall be effective as a
bar to each and every claim, demand and action specified in Section 1(b) and
Section 1(c). In furtherance of this intention, the Stanford Parties and
▇▇▇▇▇▇▇▇ each hereby waives and relinquishes all rights and benefits under
Section 1542 of the Civil Code of the State of California, and any and all
statutes of other jurisdictions to the same or similar effect. Section 1542 of
the Civil Code of the State of California provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his or her favor at the time of
executing the release, which if known by him or her might have
materially affected his or her settlement with the debtor.
The Stanford Parties and ▇▇▇▇▇▇▇▇ each acknowledges that it may, after execution
of this Agreement, discover facts different from or in addition to those now
known or believed to be true with respect to such claims, demands or action, and
agrees that the release provisions in Section 1(b) and Section 1(c) shall be and
remain in full force and effective in all respects notwithstanding any such
differences or additional facts.
Section 2. Terminations. Without limitation of Section 1, the
parties hereto agree as follows:
(a) Consulting Agreement. SVCH and the Company hereby covenant and
agree (i) to terminate that certain Consulting Agreement, dated January 31, 2003
(as Amended from time to time, the "Consulting Agreement"), by and between the
Company and SVCH, in its entirety, including, notwithstanding anything to the
contrary in the Consulting Agreement, Sections 4 and 7 thereof, except for the
confidentiality obligations set forth in Sections 5(b), 5(c) and 5(d) thereof,
which shall survive, and (ii) that neither SVCH nor the Company has any
Liabilities to the other of them under the Consulting Agreement. SVCH hereby
warrants that it has complied with its obligations under Section 5 of the
Consulting Agreement.
(b) Shareholders' Agreement. SVCH, ▇▇▇▇▇▇▇▇ and the Company hereby
consent and agree (i) to terminate that certain Shareholders' Agreement, made
and entered into as of April 3, 2002 (as Amended from time to time, the
"Shareholders Agreement"), by and between ▇▇▇▇▇▇▇▇, SVCH and the Company, in its
entirety, (ii) to cancel and terminate any Liens or Encumbrance on any Company
Common Shares, Company Preferred Shares or any other "Covered Securities" (as
defined in the Shareholders Agreement) created by or based upon the Shareholders
Agreement, and (iii) that the Company has no Liabilities in respect of the
Shareholders Agreement to any other party thereto. Each of SVCH and ▇▇▇▇▇▇▇▇
represents and warrants that it or he has not Transferred any rights under the
Shareholders Agreement to any Person. SVCH hereby warrants that it has complied
with its obligations under Section 5 of the Consulting Agreement.
(c) Securities Purchase Agreements. (i) SIBL, SFG and the Company
hereby consent and agree to terminate that certain Series E Preferred Stock
Purchase Agreement, dated as of March 29, 2005, by and between the Company, SIBL
and SFG, in its entirety, including Section 11 thereof, (ii) SVCH, on behalf of
itself and the Stanford Assignees (as defined below), ▇▇▇▇▇▇▇▇ and the Company
hereby consent and agree to terminate that certain Series D Preferred Stock
Purchase and Warrant Exercise Agreement, dated as of January 31, 2003, by and
among the Company, SVCH, ▇▇▇▇▇▇▇▇ and the Stanford Assignees, in its entirety,
including Section 11 thereof, and SVCH represents and warrants that each
Stanford Assignee has granted it the right, power and authority to terminate
such agreement on his behalf, (iii) SVCH, ▇▇▇▇▇▇▇▇ and the Company hereby
consent and agree to terminate that certain Securities Purchase Agreement, dated
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as of April 3, 2002, by and among the Company, SVCH and ▇▇▇▇▇▇▇▇, in its
entirety, and (iv) the Company, each Stanford Party, on behalf of itself and its
Affiliates and assignees, and ▇▇▇▇▇▇▇▇, on behalf of himself and his Affiliates,
Immediate Family and assignees, hereby consents and agrees to terminate any
other securities purchase, subscription or similar Contract, including all its
or his rights thereunder, in effect between any such Person and the Company (all
of the foregoing agreements in this Section 2(c), collectively, each as Amended
from time to time, the "Securities Purchase Agreements"). The Stanford Parties
and ▇▇▇▇▇▇▇▇ each agrees that the Company has no Liabilities in respect of any
of the Securities Purchase Agreements to it or him or its or his respective
assignees or Affiliates. Each of the Stanford Parties and ▇▇▇▇▇▇▇▇ hereby
represents and warrants that it or he has not Transferred or assigned any rights
under any of the Securities Purchase Agreements to any Person.
(d) Registration Rights Agreements. (i) SIBL and the Company hereby
consent and agree to terminate that certain Registration Rights Agreement, dated
as of March 29, 2005, by and between the Company and SIBL, in its entirety, (ii)
SVCH, on behalf of itself and the Stanford Assignees, ▇▇▇▇▇▇▇▇ and the Company
hereby consent and agree to terminate (A) that certain Registration Rights
Agreement, dated as of January 31, 2003, by and among the Company, ▇▇▇▇▇▇▇▇,
SVCH and the Stanford Assignees, in its entirety, and (B) that certain
Registration Rights Agreement, dated as of April 3, 2002, by and among the
Company, ▇▇▇▇▇▇▇▇, SVCH and the Stanford Assignees, in its entirety; and SVCH
represents and warrants that each Stanford Assignee has granted it the right,
power and authority to terminate such Registration Rights Agreements on his
behalf, and (iii) the Company, each Stanford Party, on behalf of itself and its
Affiliates and assignees, and ▇▇▇▇▇▇▇▇, on behalf of himself and his Affiliates,
Immediate Family and assignees, hereby consents and agrees to terminate all of
its rights under any other registration rights or similar Contract, in effect
between any such Person and the Company (all of the foregoing agreements in this
Section 2(d), collectively, each as Amended from time to time, the "Registration
Rights Agreements"). The Company, each Stanford Party, on behalf of itself and
its Affiliates and assignees, and ▇▇▇▇▇▇▇▇, on behalf of himself and his
Affiliates, Immediate Family and assignees, hereby consents and agrees to
terminate, and to the extent such termination is ineffective hereby irrevocably
waives, all of its registration (whether demand, "piggyback" or otherwise)
rights contained in any other Contract. The Stanford Parties and ▇▇▇▇▇▇▇▇ each
agrees that the Company has no Liabilities in respect of any of the Registration
Rights Agreements to any other party thereto or their respective assignees or
Affiliates. Each of the Stanford Parties and ▇▇▇▇▇▇▇▇ hereby represents and
warrants that it has not Transferred or assigned any rights under any of the
Registration Rights Agreements to any Person, except for assignments by a
Stanford Party to any of the following individuals (collectively, the "Stanford
Assignees"): ▇▇▇▇▇▇ ▇. ▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇▇; and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇.
(e) Employment Agreement. ▇▇▇▇▇▇▇▇ and the Company hereby consent
and agree (i) to terminate that certain Employment Agreement, effective as of
June 1, 2001 (as Amended from time to time, the "Employment Agreement"), by and
between ▇▇▇▇▇▇▇▇ and the Company, in its entirety, and (ii) that the Company has
no Liabilities in respect of the Employment Agreement to ▇▇▇▇▇▇▇▇, including
under any severance or similar provisions, except for any claims for accrued
base salary, sick leave, vacation, comp time or similar wage claims.
(f) Security Agreements. ▇▇▇▇▇▇▇▇ and the Company hereby consent
and agree to terminate (i) that certain Loan and Security Agreement, dated as of
December 31, 2000, by and between the Company and ▇▇▇▇▇▇▇▇, in its entirety
(including the terms and provisions of Section 7 and Section 8 thereof), and
(ii) the Company and ▇▇▇▇▇▇▇▇, on behalf of himself and his Affiliates,
Immediate Family and assignees, hereby consents and agrees to terminate all
rights of ▇▇▇▇▇▇▇▇ and his assignees under any other security, guaranty, credit
support or similar Contract executed by the Company in favor of ▇▇▇▇▇▇▇▇, except
for the ▇▇▇▇▇▇▇▇ Security Agreement (all of the foregoing Contracts in this
Section 2(f), collectively, each as Amended from time to time, the "Security
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Agreements"). ▇▇▇▇▇▇▇▇ agrees that the Company has no Liabilities in respect of
any of the Security Agreements to any other party thereto or their respective
assignees or Affiliates. The Company and ▇▇▇▇▇▇▇▇, on behalf of himself and his
Affiliates, Immediate Family and assignees, hereby consents and agrees to
terminate, and to the extent such termination is ineffective hereby irrevocably
waives, all of security, pledge, hypothecation or other Encumbrances on any
Property of the Company contained in any other Contract. ▇▇▇▇▇▇▇▇ hereby
represents and warrants that he has not Transferred or assigned any rights under
any of the Security Agreements to any Person.
(g) Release of Collateral. ▇▇▇▇▇▇▇▇ hereby agrees, as promptly as
practicable, to:
(1) execute and deliver any UCC termination statements
that Parent or the Company may reasonably request to release, as of
record, any financing statements previously filed in respect of any
Security Agreement (and, upon repayment in full of the ▇▇▇▇▇▇▇▇
Note, the ▇▇▇▇▇▇▇▇ Security Agreement) or any other Indebtedness of
the Company to ▇▇▇▇▇▇▇▇ or any Liabilities in respect thereof
(other than, until the repayment in full thereof, the ▇▇▇▇▇▇▇▇
Note);
(2) execute and deliver any and all other lien
releases and other similar discharge or release documents (and if
applicable, in recordable form) that Parent or the Company
reasonably may request to release, as of record and without any
recourse, representation or warranty, the security interests and
other Encumbrances and all other notices of security interests and
other Encumbrances previously filed by ▇▇▇▇▇▇▇▇ or his assigns or
their respective Representatives, in respect of any Security
Agreements or such other Indebtedness (and, upon repayment in full
of the ▇▇▇▇▇▇▇▇ Note, the ▇▇▇▇▇▇▇▇ Note and ▇▇▇▇▇▇▇▇ Security
Agreement) or any Liabilities in respect thereof; and
(3) return (without recourse, representation or
warranty) to the Company any and all pledged stock certificates and
related stock powers previously delivered to ▇▇▇▇▇▇▇▇ or his
assignees or their respective Representatives in connection with
any Security Agreement (and, upon repayment in full of the ▇▇▇▇▇▇▇▇
Note, the ▇▇▇▇▇▇▇▇ Security Agreement).
▇▇▇▇▇▇▇▇ hereby irrevocably appoints the Company his true and lawful
attorney-in-fact for the purposes of carrying out any of the actions and
accomplishing any of the purposes specified in this Section 2(g) and taking any
action and executing any instruments that the Company may deem necessary or
advisable in connection therewith. The foregoing appointment is coupled with an
interest and may be exercised from time to time by the Company or its
Representatives.
Section 3. Representations. Each party hereto hereby represents and
warrants to each other party hereto that:
(a) It has the full power, capacity, authority and right to execute
and deliver this Agreement and to perform its obligations hereunder, and under
the Merger Agreement as affected hereby.
(1) This Agreement has been duly authorized by all
necessary action and constitutes such party's valid and binding
agreement, enforceable against such party in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
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(2) No approval, authorization, consent or filing
(other than any obligation to file certain information pursuant to
the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder) is required in connection with
its execution, delivery and performance of this Agreement which has
not heretofore been obtained or made.
Section 4. Effectiveness. Notwithstanding any provision hereof to
the contrary, it is the intention of the parties hereto that this Agreement
shall become effective at the Effective Time, and the terms and provisions of
Section 1 and Section 2 shall apply as of the Effective Time. If the Merger
Agreement is terminated prior to the consummation of the Merger, the covenants
contained herein shall be deemed abandoned and this Agreement shall forthwith
become null and void and without force or effect.
Section 5. Miscellaneous.i The terms and provisions of Section 1.3
and Article X of the Merger Agreement are hereby incorporated by reference
herein and shall apply to this Agreement mutatis mutandis, as if expressly set
forth herein.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK ]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
DGSE COMPANIES, INC.
By:
---------------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chairman and Chief Executive Officer
DGSE MERGER CORP.
By:
---------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
SUPERIOR GALLERIES, INC.
By:
---------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
STANFORD INTERNATIONAL BANK, LTD.
By:
---------------------------------------
Name:
Title:
STANFORD FINANCIAL GROUP COMPANY
By:
---------------------------------------
Name:
Title:
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By:
---------------------------------------
Name:
Title:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------
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EXHIBIT G.
DGSE COMPANIES, INC.
A Nevada Corporation
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of _________, 2006 (the
"Agreement"), is entered into by and between DGSE COMPANIES, INC, a Nevada
corporation (the "Company"), and STANFORD INTERNATIONAL BANK LTD. and its
successors ("SIBL") as the proposed purchaser of certain shares of the Company's
capital stock, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ ("Fusselmann"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇") and ▇▇▇▇▇▇▇ ▇▇ ("Pi" and
together with ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ each an "Assignee" and
collectively the "Assignees").
WHEREAS, the Company, Superior Galleries, Inc. ("Superior"), DGSE
Merger Corp. ("Merger Sub") and SIBL, as stockholder agent, have entered into
that certain Agreement and Plan of Merger and Reorganization, dated as of July
12, 2006 (the "Merger Agreement");
WHEREAS, the respective Boards of Directors of the Company, Merger Sub
and Superior have approved and declared advisable the Merger Agreement and the
merger of Merger Sub with and into Superior (the "Merger"), with Superior being
the surviving corporation;
WHEREAS, in the Merger, one hundred percent (100%) of the issued and
outstanding shares of capital stock of Superior will be converted into the right
to receive shares of Common Stock of the Company (as set forth in Article III of
the Merger Agreement), on the terms and subject to the conditions set forth in
the Merger Agreement and in accordance with the General Corporation Law of the
State of Delaware (the "DGCL") and Chapters 78 and 92A of Title 7 of the Nevada
Revised Statutes (the "NPCA");
WHEREAS, the Board of Directors of the Company has resolved to
recommend to its stockholders the adoption and approval of the Merger Agreement;
WHEREAS, ▇▇▇▇▇▇▇▇ has informed the Company that the affirmative vote of
the holders of a majority of all issued and outstanding shares of common stock
of Superior entitled to vote on the Merger has been obtained with respect to the
adoption of the Merger Agreement and approval of the Merger;
WHEREAS, pursuant to that certain Conversion and Exchange Agreement,
dated June __, 2006 (the "Conversion and Exchange Agreement"), by and among
Superior, SIBL, Stanford Financial Group Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, SIBL has
agreed to convert and exchange all of the shares of preferred stock of Superior
previously held by SIBL into 3,600,806 shares of the common stock of Superior;
WHEREAS, pursuant to a Commercial Loan and Security Agreement
originally dated October 1, 2003, as amended as of March 29, 2005 and as further
amended as of March 31, 2006, SIBL has provided certain credit facilities to the
Company. Such Commercial Loan and Security Agreement as amended to date, is
referred to herein as the "Loan Agreement;"
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WHEREAS, pursuant to the Conversion and Exchange Agreement, SIBL has
agreed to convert $___________ of the amount outstanding under the Loan
Agreement into ____________ shares of the common stock of Superior;
WHEREAS, in connection with the Merger, all shares of the common stock
of Superior held by SIBL (including the shares of common stock of Superior
received upon conversion of the preferred shares and debt described above) will
be converted into and exchanged for shares of the Company's common stock, $0.001
par value per share (the "Common Stock");
WHEREAS, pursuant to an amendment and restatement of the Loan
Agreement, to be made effective immediately prior to the Merger (as so amended
and restated, the "New Loan Agreement"), SIBL has agreed to provide certain
credit facilities to Superior;
WHEREAS, in connection with the transactions contemplated by the
Conversion and Exchange Agreement, Superior has granted to SIBL and its assigns
warrants to purchase an aggregate of _________ shares of Common Stock (the
"Warrants");
WHEREAS, the shares of Common Stock issuable upon the exercise of the
Warrants are collectively referred to herein as the "SIBL Shares;"
WHEREAS, SIBL has assigned to the Assignees an aggregate of _______
Warrants (the "Assignee Warrants;" the shares of Common Stock issuable upon the
exercise of the Assignee Warrants are referred to herein as the "Assignee
Shares");
WHEREAS, the Company desires to grant to SIBL and to each of the
Assignees, as applicable, the registration rights set forth herein with respect
to the SIBL Shares, the Assignee Shares, the shares of Common Stock issuable
upon the exercise of the warrants issuable in the event of a registration
default pursuant to Section 5(f) hereof (the "Default Warrant Shares") and the
shares of Common Stock issued as a dividend or other distribution with respect
to the SIBL Shares or the Assignee Shares (the "Distribution Shares") (the SIBL
Shares, the Assignee Shares, the Default Warrant Shares and the Distribution
Shares, collectively and interchangeably, are referred to herein as the
"Securities").
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. RECITALS
The foregoing recitals are true and accurate and hereby incorporated
into this Agreement.
2. CERTAIN DEFINITIONS
As used herein the term "Registrable Security" means collectively, the
SIBL Shares, the Assignee Shares, the Default Warrant Shares and the
Distribution Shares. In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be deemed to be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement. As used herein the
-2-
term "Commission" means the Securities and Exchange Commission. As used herein,
the term "Rule 144" means Rule 144 (or any similar provision then in force)
under the Securities Act of 1933, as amended (the "Securities Act"). As used
herein the term "Holder" means any Person owning or having the right to acquire
Registrable Securities or any assignee thereof in accordance with Section 11
hereof. As used herein "Trading Day" shall mean any business day on which the
primary market on which the Common Stock trades is open for business.
3. RESTRICTIONS ON TRANSFER
SIBL acknowledges and understands that prior to the registration of the
Securities as provided herein, and upon the expiration of the registration
period provided for herein, the Securities are and will be, as the case may be,
"restricted securities" as defined in Rule 144. SIBL understands that no
disposition or transfer of the Securities may be made by SIBL in the absence of
(i) an opinion of counsel to SIBL, in form and substance reasonably satisfactory
to the Company, that such transfer may be made without registration under the
Securities Act or (ii) such registration.
4. COMPLIANCE WITH REPORTING REQUIREMENTS
As long as SIBL or any Assignee owns any Securities, until the seventh
anniversary of the date hereof, (i) if the Company is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company covenants to use its commercially reasonable
efforts to timely file (or obtain extensions in respect thereof and file within
the applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act which are required to be
filed in order to satisfy the current public information requirements of Rule
144(c)(1), or (ii) otherwise, if Rule 144(k) is not available to SIBL or any
Assignee with respect to any Securities then held, the Company will prepare and
furnish to SIBL or any Assignee, as applicable, and make publicly available in
accordance with Rule 144(c)(2), such information as is required for SIBL or any
Assignee to sell such Registrable Securities under Rule 144.
5. REGISTRATION RIGHTS
(a) With respect to Registrable Securities held by SIBL and the
Assignees, if not theretofore filed with the Commission, the Company shall
within, five (5) calendars days of the Effective Time (as such term is defined
in the Merger Agreement), prepare and file with the Commission a registration
statement on Form S-3 under the Securities Act to register the resale of the
Registrable Securities (or such other form under the Securities Act as the
Company shall then be entitled to use). Such registration statement filed
pursuant to this Section 5(a), including the prospectus included therein and as
amended or supplemented from time to time, being hereinafter referred to as the
"Registration Statement."
(b) The Company shall use its commercially reasonable efforts to
cause the Registration Statement to become effective within 90 calendar days
following such Effective Time. The Company will notify the Holders and its
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transfer agent of the declaration by the Commission of the effectiveness of the
Registration Statement within a reasonable time thereafter.
(c) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 5 effective under the
Securities Act until the earlier of (i) the date that none of the Registrable
Securities covered by such Registration Statement are or may become issued and
outstanding, (ii) the date that all of the Registrable Securities have been sold
pursuant to such Registration Statement, (iii) the date that the Registrable
Securities may be sold under the provisions of Rule 144 without limitation as to
volume, (iv) the date all Registrable Securities have been otherwise transferred
to persons who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend, or (v) three
years from the date the Registration Statement became effective. Thereafter, if
SIBL or any Assignee owns any Securities, the Company may in its discretion, if
it continues to be eligible to use a Form S-3 and at the expense of SIBL and
such Assignees, maintain the Registration Statement effective under the
Securities Act to register the resale of Registrable Securities.
(d) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under this Section 5 and in complying with applicable
securities and blue sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Holders shall bear the cost
of underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Registrable Securities being registered. The Holders and their
counsel shall have a reasonable period, not to exceed 7 Trading Days, to review
the proposed Registration Statement or any amendment thereto, prior to filing
with the Commission, and the Company shall provide the Holders with copies of
any comment letters received from the Commission with respect thereto within a
reasonable time following receipt thereof, if in the Company's judgment it is
lawful to do so without requiring public disclosure of the same under Regulation
FD or breaching any of its obligations under any agreement with SIBL or its
affiliates. The Company shall qualify any of the Registrable Securities for sale
in such states as the Holders reasonably designate and shall furnish
indemnification in the manner provided in Section 8 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the Holders, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply SIBL or the Assignees, as applicable, with copies of
the Registration Statement and the prospectus included therein and other related
documents in such quantities as may be reasonably requested by SIBL or the
Assignees.
(e) The Company shall not be required by this Section 5 to include
the Registrable Securities in the Registration Statement which is to be filed
if, in the opinion of counsel for both the Holders and the Company (or, should
they not agree, in the opinion of another counsel experienced in securities law
matters acceptable to counsel for the Holders and the Company) the proposed
offering or other transfer as to which such registration is requested is exempt
from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144.
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(f) Subject to Section 5(h) hereof, in the event that (i) a
Registration Statement is not filed by the Company in a timely manner as set
forth in this Section 5, (ii) such Registration Statement is not declared
effective by the Commission in the period set forth in Section 5(b) hereof, or
(iii) such Registration Statement is not maintained as effective by the Company
for the applicable period set forth in Section 5(c) hereof (each a "Registration
Default"), then the Company will issue to each Holder as of the first day of
such Registration Default and for every consecutive quarter in which such
Registration Default is occurring, as liquidated damages, and not as a penalty,
warrants to purchase five percent (5%) of the aggregate number of shares of
Common Stock of the Company issuable upon the exercise in full of the A Warrants
then held by such Holder upon the same terms and conditions therein stated
("Default Warrants") until such corresponding Registration Default no longer
exists ("Liquidated Damages"); provided, however, that the issuance of such
Default Warrants shall not relieve the Company from its obligations to register
the Registrable Securities pursuant to this Section 5(f). As used herein, the "A
Warrants" means the seven-year warrants, exercisable at $1.89 per share, issued
to SIBL pursuant to the Conversion and Exchange Agreement.
If the Company does not issue the Default Warrants to the Holders as
set forth above, the Company will pay any Holder's reasonable costs of any
action in a court of law to cause compliance with this Section 5(f), including
reasonable attorneys' fees, in addition to the Default Warrants. The
registration of the Registrable Securities pursuant to this Section 5 shall not
affect or limit a Holder's other rights or remedies as set forth in this
Agreement.
(g) If, at any time any Registrable Securities that are required to
be included in an effective Registration Statement hereunder are not at the time
covered by any effective Registration Statement, the Company shall determine to
register under the Securities Act (including pursuant to a demand of any
stockholder of the Company exercising registration rights) any of its shares of
the Common Stock (other than in connection with a merger or other business
combination transaction, or pursuant to Form S-8), it shall send to each Holder
written notice of such determination and, if within 20 days after receipt of
such notice, such Holder shall so request in writing, the Company shall its
commercially reasonable efforts to include in such registration statement all or
any part of such Registrable Securities that such Holder requests to be
registered. Notwithstanding the foregoing, if, in connection with any offering
involving an underwriting of the Common Stock to be issued by the Company, the
managing underwriter shall impose a limitation on the number of shares of the
Common Stock included in any such registration statement because, in such
underwriter's judgment, such limitation is necessary based on market conditions:
(a) if the registration statement is for a public offering of common stock on a
"firm commitment" basis with gross proceeds to the Company of at least
$15,000,000 (a "Qualified Public Offering"), the Company may exclude, to the
extent so advised by the underwriters, the Registrable Securities from the
underwriting; provided, however, that if the underwriters do not entirely
exclude the Registrable Securities from such Qualified Public Offering, the
Company shall be obligated to include in such registration statement, with
respect to the requesting Holder, only an amount of Registrable Securities equal
to the product of (i) the total number of Registrable Securities that remain
available for registration after the underwriter's cutback and (ii) such
Holder's percentage of ownership of all the Registrable Securities then
outstanding (on an as-converted basis) (the "Registrable Percentage"); and (b)
if the registration statement is not for a Qualified Public Offering, the
Company shall be obligated to include in such registration statement, with
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respect to the requesting Holder, only an amount of Registrable Securities equal
to the product of (i) the number of Registrable Securities that remain available
for registration after the underwriter's cutback and (ii) such Holder's
Registrable Percentage. If any Holder disapproves of the terms of any
underwriting referred to in this paragraph, it may elect to withdraw therefrom
by written notice to the Company and the underwriter. No incidental right under
this paragraph shall be construed to limit any registration required under the
other provisions of this Agreement.
(h) Notwithstanding the foregoing provisions of this Section 5, if
in the good faith judgment of the Company, following consultation with legal
counsel, the Company (i) delivers a Blackout Notice (as defined below) to the
Holders, or determine that it would be detrimental to the Company or its
stockholders for the Registration Statement (or any amendment or supplement
thereto) to be filed or for resales of Registrable Securities to be made
pursuant to the Registration Statement due to the existence of a material
development or potential material development involving the Company that the
Company would be obligated to disclose in the Registration Statement, which
disclosure (i) would be premature or otherwise inadvisable at such time, (ii)
cannot then be made by the Company despites its commercially reasonable efforts,
or (iii) is reasonably likely to have a material adverse effect on the Company
or its stockholders; then in each such case, the Company shall have the right to
(A) immediately defer such filing for a period of not more than sixty (60) days
beyond the date by which the Registration Statement was otherwise required
hereunder to be filed, or (B) suspend use of the Registration Statement for a
period of not more than thirty (30) consecutive days (any such deferral or
suspension period, a "Blackout Period"). Each Holder acknowledges that it would
be seriously detrimental to the Company and its stockholders for the
Registration Statement to be filed (or remain in effect) during a Blackout
Period and therefore essential to defer such filing (or suspend the use thereof)
during such Blackout Period and agrees to cease any disposition of the
Registrable Securities during such Blackout Period. The Company may not
designate more than two Blackout Periods in any twelve (12) month period.
6. COVENANTS OF HOLDERS
(a) Each Holder will cooperate with the Company in all respects in
connection with this Agreement, including timely supplying all information
(including a Registration Statement Questionnaire) reasonably requested by the
Company from time to time (which shall include all information regarding such
Holder and proposed manner of sale of the Registrable Securities required to be
disclosed in any Registration Statement) and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities and entering into and performing its obligations
under any underwriting agreement, if the offering is an underwritten offering,
in usual and customary form, with the managing underwriter or underwriters of
such underwritten offering, including any confirmation of, or additional or
supplemental, information or documents the Company may request for purposes of
filing amendments to such registration statement or amendments or supplements to
the prospectus contained therein. Nothing in this Agreement shall obligate any
Holder to consent to be named as an underwriter in any Registration Statement
unless required by the Commission (in which case the applicable Holder may
withdraw its Registrable Securities from the Registration Statement).
Notwithstanding anything to the contrary herein, (i) any delay or delays caused
by a Holder by failure to cooperate as required hereunder shall not constitute a
breach of the terms hereof as to such Holder, and (ii) the Company shall have no
obligation to register, or to maintain the registration, of any Registrable
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Securities of any Holder on any registration statement if such Holder has not
timely provided any such information or documents to the Company in connection
with such registration statement.
(b) Each Holder shall comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to any registration statement.
(c) Upon receipt of a notice from the Company of the occurrence of
any event or passage of time that (i) makes the financial statements included in
a registration statement ineligible for inclusion therein, (ii) makes any
statement made in a registration statement or any prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect, or (iii) requires any revisions to a registration statement,
any prospectus contained therein or any other documents so that, in the case of
such registration statement or such prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (each
such notice, a "Blackout Notice"); each Holder who has Registrable Securities
registered under such registration statement shall forthwith discontinue
disposition of such Registrable Securities under such registration statement
until such ▇▇▇▇▇▇'s receipt of the copies of the supplemented prospectus or
amended registration statement or until it is advised in writing (the "Advice")
by the Company that the use of the applicable prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such prospectus or
registration statement. The Company may provide appropriate stop orders to
enforce the provisions of this Section 6(c).
(d) Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to any registration statement which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
7. REGISTRATION PROCEDURES
If and whenever the Company is required by any of the provisions of
this Agreement to effect the registration of any of the Registrable Securities
under the Securities Act, the Company shall (except as otherwise provided in
this Agreement), use commercially reasonable efforts to, subject to the Holders'
assistance and cooperation as reasonably required with respect to the
Registration Statement:
(a) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act during the applicable period
with respect to the sale or other disposition of all Registrable Securities
covered by such Registration Statement in accordance with the intended methods
of distribution by the Holders thereof set forth in the Registration Statement
or prospectus (including prospectus supplements with respect to the sales of
Registrable Securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Securities Act) and (ii)
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take all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, and any prospectus or
prospectus supplement thereafter filed, contain an 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.
(b) (i) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the Holders as required by Section 5(d) hereof and reflect in such documents
all such comments as the Holders (and their counsel) reasonably may propose;
(ii) furnish to each of the Holders such numbers of copies of a prospectus
including a preliminary prospectus or any amendment or supplement to any
prospectus, as applicable, in conformity with the requirements of the Securities
Act, and such other documents, as any of the Holders may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by such Holder; and (iii) provide to the Holders copies of any
comments and communications from the Commission relating to the Registration
Statement, if in the Company's judgment it is lawful to do so without requiring
public disclosure of the same under Regulation FD or breaching any of its
obligations under any agreement with SIBL or its affiliates;
(c) register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as any of the Holders shall reasonably request (subject to the
limitations set forth in Section 5(d) hereof), and do any and all other acts and
things which may be necessary or advisable to enable such Holder to consummate
the public sale or other disposition in such jurisdiction of the Registrable
Securities owned by such Holder;
(d) list such Registrable Securities on the primary trading market
where the Common Stock of the Company is listed as of the effective date of the
Registration Statement, if the listing of such Registrable Securities is then
permitted under the rules of such market;
(e) notify the Holders at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and the
Company shall prepare and use is commercially reasonable efforts to file a
curative amendment under Section 7(a) hereof as soon as reasonably practicable
and during such period, the Holders shall not make any sales of Registrable
Securities pursuant to the Registration Statement;
(f) after becoming aware of such event, notify each of the Holders
who holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the Commission of any
stop order or other suspension of the effectiveness of the Registration
Statement as soon as reasonably practicable and take all reasonable action to
effect the withdrawal, rescission or removal of such stop order or other
suspension;
-8-
(g) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts, as the case may
be, as any of the Holders reasonably may request and registered in such names as
any of the Holders may request; and, within three Trading Days after a
Registration Statement which includes Registrable Securities is declared
effective by the Commission, deliver and cause legal counsel selected by the
Company to deliver to the transfer agent for the Registrable Securities (with
copies to the Holders) an appropriate instruction and, to the extent necessary,
an opinion of such counsel;
(h) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such prospectus supplement or post-effective amendment
as soon as reasonably practicable after it is notified of the matters to be
included or incorporated in such prospectus supplement or post-effective
amendment; and
(i) maintain a transfer agent and registrar for the Common Stock.
8. INDEMNIFICATION
(a) To the maximum extent permitted by law, the Company agrees to
indemnify and hold harmless each of the Holders, each person, if any, who
controls any of the Holders within the meaning of the Securities Act, and each
director, officer, shareholder, employee or agent of the foregoing (each of such
indemnified parties, a "Distributing Investor") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses), to which the
Distributing Investor may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, or any
related final prospectus or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent, and only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by any Distributing Investor, its counsel, affiliates or agents,
specifically for use in the preparation thereof or by any Distributing
Investor's failure to deliver to a purchaser a copy of the most recent
prospectus (including any amendments or supplements thereto). This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) To the maximum extent permitted by law, each Distributing
Investor agrees that it will indemnify and hold harmless the Company, and each
officer, director, employee or agent of the Company or person, if any, who
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controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director, employee, agent or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such Registration Statement, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Investor, its counsel or affiliates, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Investor may otherwise have under this
Agreement. Notwithstanding anything to the contrary herein, the Distributing
Investor shall be liable under this Section 8(b) for only that amount as does
not exceed the net proceeds to such Distributing Investor as a result of the
sale of Registrable Securities pursuant to a Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action against such indemnified
party, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent the failure of
the indemnified party to provide such written notification actually prejudices
the ability of the indemnifying party to defend such action. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties shall have
the right to employ one or more separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any interpleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
-10-
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld so long
as such settlement includes a full release of claims against the indemnified
party.
All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section 8 and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within 10 Trading Days of written notice thereof
to the indemnifying party; provided, that the indemnifying party may require
such indemnified party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such indemnified party is
not entitled to indemnification hereunder.
9. CONTRIBUTION
In order to provide for just and equitable contribution under the
Securities Act in any case in which (i) the indemnified party makes a claim for
indemnification pursuant to Section 8 hereof but is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 8 hereof provide for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any indemnified party, then the Company and the applicable Distributing
Investor shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses), in either such
case (after contribution from others) on the basis of relative fault as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Investor on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Investor
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 9. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 9 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
-11-
Notwithstanding any other provision of this Section 9, in no event
shall (i) any of the Distributing Investors be required to undertake liability
to any person under this Section 9 for any amounts in excess of the dollar
amount of the proceeds received by such Distributing Investor from the sale of
such Distributing Investor's Registrable Securities (after deducting any fees,
discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are registered under the
Securities Act and (ii) any underwriter be required to undertake liability to
any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to such
Registration Statement.
10. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
Company: DGSE Companies, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇. ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
SIBL: Stanford International Bank Ltd.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇,
Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Assignees: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., #▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
11. ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned without the prior written consent of (i) the
Company, in the case of an assignment by a Holder, or (ii) Holders owning a
majority of the shares of Company common stock constituting the outstanding
Registrable Securities from time to time (a "Majority of Holders"), in the case
of an assignment by the Company. Any assignment in violation of the preceding
sentence shall be null and void and of no force or effect.
12. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Texas, without regard to its principles of conflict of
laws. Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any party in the
federal courts of Texas or the state courts of the State of Texas, and each of
the parties consents to the jurisdiction of such courts and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
13. NO DELAY OF REGISTRATION
No Holder shall have any right, and each Holder covenants and agrees
not to commence any action or proceeding, to obtain or seek an injunction
restraining or otherwise delaying any registration by the Company as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
14. TERMINATION OF REGISTRATION RIGHTS
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A Holder shall not be entitled to exercise any rights provided herein
after the first date on which all Registrable Securities then held by such
Holder may immediately be sold under Rule 144 during any 90-day period taking
into consideration the volume restrictions specified in Rule 144.
15. MISCELLANEOUS
(a) Entire Agreement. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to their terms,
constitutes the entire agreement among the parties hereto with respect to the
subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters.
(b) Amendments. This Agreement may not be amended except by an
instrument in writing signed by the Company and a Majority of Holders.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
certain Holders and that does not directly or indirectly affect the rights of
other Holders must be given by Holders of all of the Registrable Securities
which such waiver or consent affects.
(c) Waiver. No waiver of any provision of this Agreement shall be
deemed a waiver of any other provisions or shall a waiver of the performance of
a provision in one or more instances be deemed a waiver of future performance
thereof. No waiver by any party of any default, misrepresentation or breach
hereunder, whether intentional or not, shall be effective unless in writing and
signed by (i) the Company, if the waiver is sought to be enforced by any Holder,
or (ii) a Majority of Holders, if the waiver is sought to be enforced by the
Company.
(d) Construction. This Agreement has been entered into freely by
each of the parties, following consultation with their respective counsel, and
shall be interpreted fairly in accordance with its respective terms, without any
construction in favor of or against either party.
(e) Binding Effect of Agreement. This Agreement shall inure to the
benefit of, and be binding upon the successors and permitted assigns of each of
the parties hereto.
(f) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction.
(g) Attorneys' Fees. If any action should arise between the parties
hereto to enforce or interpret the provisions of this Agreement, the prevailing
party in such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
(h) Third-Party Beneficiaries. This Agreement is made solely for
the benefit of the parties to this Agreement and their respective successors and
permitted assigns, and no other person or entity shall have or acquire any right
or remedy by virtue hereof except as otherwise expressly provided herein.
-14-
(i) Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of this
Agreement.
(j) Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, will be deemed to constitute one and the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, as of this _____ day of ________, 2006.
DGSE COMPANIES, INC
By:
------------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chairman and Chief Executive Officer
STANFORD INTERNATIONAL BANK LTD.
By:
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Financial Officer
ASSIGNEES:
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-16-
EXHIBIT I.
CORPORATE GOVERNANCE AGREEMENT
------------------------------
THIS CORPORATE GOVERNANCE AGREEMENT is made and entered into as of
__________ __, 2006 (this "Agreement"), by and among (i) DGSE Companies, Inc., a
Nevada corporation (together with its successors and permitted assigns, "DGSE"),
(ii) Stanford International Bank, Ltd., a company organized under the laws of
Antigua and Barbuda (together with its successors and permitted assigns,
"SIBL"), and (iii) ▇▇. ▇.▇. ▇▇▇▇▇, an individual resident of the State of Texas
(together with his heirs and assigns, "▇▇▇▇▇" and, together with SIBL, the
"Stockholders").
R E C I T A L S
---------------
WHEREAS, DGSE, its wholly-owned subsidiary, DGSE Merger Corp., a
Delaware corporation ("Merger Sub"), Superior Galleries, Inc., a Delaware
corporation (f/k/a Tangible Asset Galleries, Inc., a Nevada corporation)
("Superior"), and SIBL, as stockholder agent, made and entered into that certain
Agreement and Plan of Merger and Reorganization as of July 12, 2006 (as amended,
modified or supplemented from time to time, the "Merger Agreement");
WHEREAS, the Merger Agreement provides for the merger of Superior with
and into Merger Sub, with Superior as the surviving company and a wholly-owned
subsidiary of DGSE (the "Merger");
WHEREAS, pursuant to the Merger, all outstanding capital stock of
Superior may be exchanged for shares of common stock, par value $0.01 per share,
of DGSE (the "DGSE Common Stock"), subject to the terms and conditions set forth
in the Merger Agreement;
WHEREAS, SIBL is currently the largest stockholder of Superior and
▇▇▇▇▇ is currently the largest stockholder of DGSE;
WHEREAS, the stockholders of Superior and DGSE need to approve the
Merger Agreement in order for the Merger to be consummated and ▇▇▇▇▇ and SIBL
desire to induce each other to support and approve the Merger Agreement; and
WHEREAS, ▇▇▇▇▇ and SIBL desire to establish in this Agreement certain
terms and conditions concerning the post-Merger board of directors of DGSE (the
"DGSE Board").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
1. Certain Definitions. Unless otherwise expressly provided herein, the
following terms, whenever used in this Agreement, shall have the meanings
ascribed to them below or in the referenced Sections of this Agreement:
"Affiliate" means, with respect to any specified Person, (1) any other
Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer, managing member or general partner or
is, directly or indirectly, the Beneficial Owner of ten percent (10%) or more of
any class of equity securities, of the specified Person or a Person described in
clause (1) next above, (3) another Person of whom the specified Person is a
director, officer or partner or is, directly or indirectly, the Beneficial Owner
of ten percent (10%) or more of any class of equity securities, (4) another
Person in whom the specified Person has a substantial beneficial interest or as
to whom the specified Person serves as trustee or in a similar capacity, or (5)
if applicable, any member of the Immediate Family of the specified Person. As
used in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act (or any successor regulation thereto).
"Beneficially Own" means, with respect to any Person, any securities:
(a) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants, options or
otherwise;
(b) which such Person or any such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act as such rule is in effect on the date of this Agreement),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing; provided, however, that a Person shall not be deemed to
"Beneficially Own" any security under this subparagraph (b) as a result of an
agreement, arrangement or understanding to vote such security if such agreement,
arrangement or understanding arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made by DGSE pursuant to, and
in accordance with, the applicable provisions of the General Rules and
Regulations promulgated under the Exchange Act; or
(c) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has an agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the
proviso to subparagraph (b) next above) or disposing of any voting securities of
DGSE; provided, however, that nothing in this subparagraph (c) shall cause a
person engaged in business as an underwriter of securities to "Beneficially Own"
any securities acquired through such Person's participation in good faith in a
firm commitment underwriting under the Securities Act until the expiration of
forty days after the date of such acquisition.
The related term "Beneficial Owner" shall have the correlative meaning.
"Common Stock" means the common stock, par value $0.001 per share, of
DGSE, or any capital stock into which such common stock may be converted or
exchanged.
"DGSE Shares" means, with respect to any Stockholder, all shares of
DGSE capital stock (or any capital stock into which such capital stock may be
converted or exchanged) Beneficially Owned by such Stockholder
"Director" means any director on the DGSE Board.
"Effective Time" means the time of the consummation of the Merger.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
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joint stock company), firm, labor organization, unincorporated organization, or
other enterprise, association, organization or business entity.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Executive Officer" means an "officer" (as such term is defined in Rule
16a-1(f) promulgated under the Exchange Act on the date hereof) of DGSE.
"Immediate Family" means, with respect to any individual, such
individual's (i) children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, former spouses, siblings, nieces, nephews, or current or
former mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law,
brothers-in-law or sisters-in-law, including in each case by adoption, and (ii)
any other individual sharing such individual's household (other than a tenant or
employee).
"Independent Director" means a Director or Nominee (i) who is not and
has never been an officer or employee of DGSE, Superior or SIBL or their
respective Affiliates or Associates, or of any Entity that derived 5% or more of
its revenues or earnings in any of its three most recent fiscal years from
transactions involving DGSE, Superior, SIBL or any Affiliate or Associate of any
of them, (ii) who has no affiliation, compensation, consulting or contracting
arrangement with DGSE, Superior or SIBL or their respective Affiliates or
Associates or any other Entity such that a reasonable person would regard such
individual as likely to be unduly influenced by management of DGSE, Superior or
SIBL, respectively, or their respective Affiliates or Associates, and (iii) who
is a Director the DGSE Board has determined, or a Nominee the DGSE Board is
reasonably likely to determine, to be "independent" within the meaning of the
applicable listing rules of DGSE's principal trading market from time to time
and Section 10A(m)(3) of the Exchange Act and Rule 10A-3(b)(1) promulgated
thereunder.
"Person" means any (i) individual, (ii) group (within the meaning of
Section 13 of the Exchange Act), (iii) supranational, national, federal, state,
local, municipal, foreign or other governmental or quasi-governmental authority
of any nature (including any legislature, agency, board, body, bureau, branch,
department, division, commission, instrumentality, court, tribunal, magistrate,
justice or other entity exercising governmental or quasi-governmental powers, or
(iv) any Entity.
"SEC" means the United States Securities and Exchange Commission.
"SEC Rules" means the rules and regulations promulgated by the SEC
under the Securities Act, the Exchange Act or SOX.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SOX" means the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended, and the rules
and regulations promulgated thereunder.
2. Board of Directors.
2.1 Nominations. From and after the Effective Time, (i) for so long
as SIBL shall Beneficially Own at least 15% of the outstanding shares of Common
Stock as of the record date for the applicable meeting at which directors are to
be elected to the DGSE Board, SIBL shall have the right to nominate up to two
Independent Directors for election to the DGSE Board, (ii) for so long as ▇▇▇▇▇
shall Beneficially Own at least 10% of the outstanding shares of Common Stock as
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of the record date for the applicable meeting at which directors are to be
elected to the DGSE Board, ▇▇▇▇▇ shall have the right to nominate up to two
Independent Directors for election to the DGSE Board, (iii) for so long as ▇▇▇▇▇
is an executive officer of DGSE, ▇▇▇▇▇ shall have the right to be nominated for
election to the DGSE Board, and (iv) as long as ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("Oyster") is
an executive officer of DGSE, Oyster shall have the right to be nominated for
election to the DGSE Board (all of the foregoing six nominees, collectively, the
"Nominees"). All Nominees shall be individuals at least 18 years of age.
2.2 Audit Committee Financial Expert. The Stockholders shall use
their reasonable efforts to nominate at least one Independent Director who is
qualified as an "audit committee financial expert", as such term is defined for
purposes of Item 401(h)(2) of Regulation S-K of the SEC Rules (or satisfies the
applicable requirements of any successor rule or regulation thereto).
2.3 Notice of Elections, Etc. DGSE shall provide to each
Stockholder entitled to nominate Nominees hereunder and to each executive
officer entitled to be nominated as a Nominee hereunder 15 days prior written
notice of any intended mailing of notice to its stockholders for a meeting at
which directors are to be elected, and any such Stockholder or executive
officer, as the case may be, shall notify DGSE in writing, prior to such
mailing, of each Nominee nominated by such Stockholder or whether such executive
officer requests to be nominated, as the case may be. If any such Stockholder or
executive officer fails to give notice to DGSE as set forth in this Section 2.3,
it shall be deemed that the Nominee of such Stockholder then serving as a
Director shall be its Nominees for reelection or that such executive officer
requests to be nominated, as the case may be.
2.4 DGSE Solicitation and Voting of Shares. Subject to the
applicable fiduciary duties of the DGSE Board, or any applicable committee
thereof, and compliance by DGSE and the DGSE Board, or such committee, in good
faith with applicable law, including the SEC Rules and the listing rules of
DGSE's principal trading market, DGSE and the DGSE Board shall, in connection
with any vote or meeting of DGSE stockholders at which directors to the DGSE
Board are to be elected, (i) cause each Nominee to be included in the slate of
nominees recommended by the DGSE Board to DGSE's stockholders for election as
directors, and (ii) use its reasonable efforts to cause the election of each
Nominee, including (A) including each Nominee in DGSE's proxy statement
(provided such Nominee promptly provides any information DGSE reasonably
requests in connection with the preparation of its proxy statement, including a
duly completed director's questionnaire in such form as DGSE may reasonably
provide to such Nominee), (B) recommending a vote for each Nominee, and (C)
soliciting proxies in favor of each Nominee's election to the DGSE Board.
2.5 SIBL Voting. As long as SIBL Beneficially Owns any Common Stock
of DGSE, SIBL shall, in its capacity as a stockholder of DGSE, take all
reasonable actions, including voting all DGSE Shares which are Beneficially
Owned by SIBL in person or by proxy at any annual or special meeting of DGSE
stockholders called for the purpose of voting on the election of directors, or
executing a written consent in lieu thereof in respect of such DGSE Shares, to
elect (i) ▇▇▇▇▇ as a Director if nominated and then an Executive Officer, and
(ii) ▇▇▇▇▇▇ as a Director if nominated and then an Executive Officer. SIBL shall
take all such other actions, including providing instructions to its nominated
Directors and causing its Affiliates and Associates to vote all DGSE ▇▇▇▇▇▇
respectively owned or controlled by them, as may be required to effectuate the
intents and purposes of the foregoing.
2.6 Non-Qualified Nominees. If the DGSE Board determines in good
faith that a Nominee elected as a Director who is required to be an Independent
Director is not an Independent Director or is otherwise not qualified to serve
as a Director pursuant to Section 2.1, the nominating Stockholder shall take all
action necessary to cause such Director to resign from office and the DGSE Board
may, in compliance with DGSE's Bylaws as in effect from time to time, remove
such Director from office.
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2.7 Replacement of Directors. If (i) any Nominee shall fail to be
elected as a Director, or (ii) any Nominee elected as a Director shall cease to
serve as a Director, whether by virtue of death, resignation (including because
such Nominee is required to resign pursuant to the last sentence of Section
2.1), removal or otherwise, before his or her successor has been duly elected
and qualified at a meeting of DGSE stockholders at which Directors are to be
elected; and in either case a vacancy exists on the DGSE Board, then the
Stockholder who had nominated such Nominee or former Director, as the case may
be, shall have the right to nominate a replacement Nominee who satisfies the
applicable qualifications of such unelected Nominee or former Director, as the
case may be, to fill such vacancy within 30 days of the date of such vacancy. In
any such case, subject to the applicable fiduciary duties of the DGSE Board, or
any applicable committee thereof, and compliance by DGSE and the DGSE Board, or
such committee, in good faith with applicable law, including the SEC Rules and
the listing rules of DGSE's principal trading market, the remaining Directors
shall act to elect such replacement Nominee to fill such vacancy.
3. Miscellaneous.
3.1 Construction. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions, or to designated "Exhibits," "Schedules" or
"Appendices," are to the designated Articles, Sections and other subdivisions
of, or the designated Exhibits, Schedules or Appendices to, this Agreement;
(b) references to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;
(c) the words "include," "includes," and "including" shall be
deemed to be followed by "without limitation";
(d) the term "or" shall not be exclusive;
(e) pronouns in masculine, feminine, and neuter genders shall
be construed to include any other gender;
(f) whenever the singular number is used, if required by the
context, the same shall include the plural, and vice versa; and
(g) the words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision.
3.2 Titles and Headings. The section and paragraph titles and
headings contained herein are inserted purely as a matter of convenience and for
ease of reference and shall be disregarded for all other purposes, including the
construction, interpretation or enforcement of this Agreement or any of its
terms or provisions.
3.3 Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto. Each of the parties hereto acknowledges, represents and
warrants that (i) it has read and fully understood this Agreement and the
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implications and consequences thereof; (ii) it has been represented in the
preparation, negotiation, and execution of this Agreement by legal counsel of
its own choice, or it has made a voluntary and informed decision to decline to
seek such counsel; and (iii) it is fully aware of the legal and binding effect
of this Agreement.
3.4 Assignment. None of the parties hereto may assign any of its
rights or interests or delegate any of its duties or obligations under this
Agreement without the prior written consent of the other parties hereto, which
consent may be withheld in each party's sole discretion. Any purported
assignment not in full compliance with this Section 3.4 shall be null and void
and of no force or effect ab initio. Subject to the sentence next preceding,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and express beneficiaries hereof and their
respective heirs, executors, administrators, successors and permitted assigns
3.5 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by each of the parties hereto.
3.6 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof; provided
that if any provision of this Agreement, as applied to any party or to any
circumstance, is adjudged by a court, tribunal or other governmental body,
arbitrator or mediator not to be enforceable in accordance with its terms, the
parties agree that such governmental body, arbitrator or mediator making such
determination shall have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced.
3.7 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, or any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance. No waiver by any party of any default, misrepresentation
or breach hereunder, whether intentional or not, shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced, and no such waiver shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach hereunder or affect in any way
any rights arising because of any prior or subsequent such occurrence.
3.8 Arbitration. Any dispute, claim or controversy arising out of
or relating to this Agreement or the breach, termination, enforcement,
interpretation or validity thereof, including the determination of the scope or
applicability of this agreement to arbitrate, shall be determined by arbitration
in Dallas, Texas before one arbitrator. The arbitration shall be administered by
the Judicial Arbitration and Mediation Services ("JAMS") pursuant to its
Streamlined Arbitration Rules and Procedures. Judgment on any award may be
entered in any court having jurisdiction. This clause shall not preclude parties
from seeking provisional remedies in aid of arbitration from a court of
appropriate jurisdiction. The arbitrator may, in the award, allocate all or part
of the costs of the arbitration, including the fees of the arbitrator and the
reasonable attorneys' fees of the prevailing party.
3.9 Specific Performance. The parties declare that it is impossible
to measure in money the damages that would accrue to a party by reason of
another party's failure to perform any of the obligations hereunder. Each party
hereto therefore consents to an order of specific performance with respect to
any of its obligations hereunder. Any party against whom an order for specific
performance is sought hereby waives any claim or defense therein that the moving
party has an adequate remedy at law or that money damages would provide an
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adequate remedy. It shall, however, be the election of the moving party as to
whether or not to seek specific performance. An order for specific performance
shall be among the remedies that can be granted pursuant to an arbitration
instituted under Section 3.8 and enforced by any court of competent
jurisdiction. Additionally, solely for the purpose of provisional relief prior
to the commencement of the arbitration process provided for in Section 3.8 or
pending a determination on the merits pursuant to such arbitration process, any
party hereto may seek from an appropriate court injunctive relief, trustee
process, attachments, equitable attachments or similar relief.
3.10 Notices. All notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
deemed given, (i) upon receipt if sent via registered or certified mail, return
receipt requested, in the U.S. mails, postage prepaid, (ii) when sent if sent by
facsimile; provided, however, that the facsimile is promptly confirmed by
telephone confirmation thereof, (iii) when delivered, if delivered personally to
the intended recipient, and (iv) one business day following delivery to a
reputable national courier service for overnight delivery; and in each case,
addressed to a party at the following address for such party:
(a) If to DGSE, addressed to it at:
DGSE Companies, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice and which
shall not be required for delivery to be effective) to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to ▇▇▇▇▇, addressed to him at:
---------------------------------
---------------------------------
(c) If to SIBL, addressed to it at:
Stanford International Bank Ltd.
c/o Stanford Financial Group
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice and which
shall not be required for delivery to be effective) to:
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▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Or in each case to such other address or fax number as the party to whom the
notice, request, instruction or other document is given may have previously
furnished to the other parties in writing in the manner set forth in this
Section 3.10.
3.11 Governing Law. This Agreement and the performance of the
transactions and obligations of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts negotiated, executed and to be performed entirely within such State by
residents thereof.
3.12 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and supersedes all prior understandings, agreements or
representations by or among the parties hereto, written or oral, to the extent
they relate in any way to the subject matter hereof or the transactions
contemplated by this Agreement.
3.13 Third-Party Beneficiaries. This Agreement is made solely for
the benefit of the parties to this Agreement and their respective permitted
successors and assigns, and, except to the extent provided in Section 2
regarding Oyster, no other Person shall have or acquire any right or remedy by
virtue hereof except as otherwise expressly provided herein.
3.14 Submission to Jurisdiction; No Jury Trial. Any suit, action or
proceeding with respect to this Agreement shall be brought exclusively in any
court of competent jurisdiction in the County of Dallas, Texas. ALL PARTIES
HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTIONS WHICH THEY MAY NOW OR HEREAFTER
HAVE TO THE PERSONAL JURISDICTION OR VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT AND
HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
MAXIMUM EXTENT PERMITTED BY LAW, THE PARTIES HERETO HEREBY FURTHER IRREVOCABLY
WAIVE ANY RIGHT TO A JURY TRIAL IN ANY ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT.
3.15 Counterparts. This Agreement may be executed in two or more
original or facsimile counterparts, each of which shall be deemed an original
but all of which together shall constitute but one and the same instrument.
3.16 Facsimile Execution. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
DGSE COMPANIES, INC.
By:
------------------------------
▇▇. ▇.▇. ▇▇▇▇▇
Chief Executive Officer
STANFORD INTERNATIONAL BANK, LTD.
By:
------------------------------
Name:
Title:
▇▇. ▇.▇. ▇▇▇▇▇
----------------------------------
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