Exhibit 2(a)
EXECUTION COPY
CONTRIBUTION AND EXCHANGE AGREEMENT
BY AND AMONG
GHS, INC.,
CHANGE YOUR ▇▇▇▇.▇▇▇, LLC ("CYL")
AND THE CYL MEMBERS
May 20, 1999
CONTRIBUTION AND EXCHANGE AGREEMENT dated as of May 20, 1999 (the
"Agreement"), by and among GHS, INC., a Delaware corporation ("GHS"), CHANGE
YOUR ▇▇▇▇.▇▇▇, LLC, a Delaware limited liability company ("CYL"), and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), ▇▇▇▇▇▇▇ Research International Inc., a Nevada corporation
("RRI" and together with ▇▇▇▇▇▇▇, the "▇▇▇▇▇▇▇ Group"), and CYL Development
Holdings, LLC ("Development Holdings" and collectively, with the ▇▇▇▇▇▇▇ Group,
the "CYL Members").
WHEREAS, CYL intends to harness the emotional and motivational power of
leaders in the personal and professional improvement industry and serve as the
hub and consistent interface for these personalities' online presence in order
to launch the world's first and leading site of personal and professional
improvement (the "Change Your Life Site");
WHEREAS, CYL has had discussions with GHS with a view towards
concluding an agreement by which CYL, through an exchange by its members of
units in CYL for securities in GHS, would become a wholly-owned subsidiary of
GHS;
WHEREAS, the parties hereto desire to reduce said arrangements to
written form;
WHEREAS, the respective Boards of Directors of GHS and CYL have each
determined that it is advisable and for the benefit and in the best interests of
their companies and their respective securityholders that CYL be acquired by GHS
by means of an exchange of CYL's membership units (the "Membership Units") for
shares of GHS's Series A Preferred Stock (the "GHS Preferred Stock"), par value
$.01 per share, having the terms for the Series A Preferred Stock described in
Exhibit 1.1 hereto (the "Preferred Stock Terms") and, subject to Section 2.1,
warrants (the "GHS Warrants") to acquire shares of GHS common stock, par value
$.01 per share (the "GHS Common Stock"), of like tenor (including cashless
exercise) with GHS's presently outstanding warrants, on the terms and conditions
hereinafter set forth (the "Exchange");
WHEREAS, GHS has entered into a letter of intent with Concept
Development, Inc. ("Concept") for the acquisition of Concept in exchange for
cash and GHS Common Stock;
WHEREAS, GHS shall sell certain of it voting equity securities to
private investors (the "Private Investors") in a private placement which
transaction will close at or prior to the closing of the Exchange;
WHEREAS, GHS, the CYL Members, Concept and the Private Investors
together have negotiated the terms of the resulting ownership of GHS and have
determined the rights of each party with respect to such ownership;
WHEREAS, for federal income tax purposes, it is intended that the
Exchange and the related private placement and acquisition of Concept be treated
as an integrated transaction
which qualifies as a tax-free transaction under the provisions of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Internal Revenue Code of 1986, as amended ("the "Code");
NOW, THEREFORE, in consideration of the premises, the mutual covenants,
representations and warranties herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto intending to be bound hereby agree as follows:
ARTICLE 1.
THE CONTRIBUTION AND EXCHANGE
SECTION 1.1. THE CONTRIBUTION AND EXCHANGE. Subject to the terms and
conditions hereof, on the Effective Date (as defined in Section 1.3), the
outstanding Membership Units shall be exchanged for shares of GHS Preferred
Stock and, subject to Section 2.1, into GHS Warrants in accordance with the
applicable provisions of this Agreement and the laws of the State of Delaware
("Delaware Law"). Following the Effective Date, CYL shall continue its limited
liability company existence under Delaware Law as a wholly-owned subsidiary of
GHS.
SECTION 1.2. BOARD OF DIRECTORS AND MEMBERS MEETING.
(a) CYL AND THE CYL MEMBERS. CYL and the CYL Members shall, as
soon as practicable, take all action necessary in accordance with applicable law
and its Certificate of Formation and Operating Agreement to approve the Exchange
and the transactions contemplated hereby.
(b) GHS. GHS shall, as soon as practicable, take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and By-laws to approve the Exchange and the transactions contemplated hereby.
SECTION 1.3. CONSUMMATION OF THE EXCHANGE; EFFECTIVE DATE. The Exchange
shall become effective at such time (the "Effective Time") as the Closing shall
have occurred in accordance with Section 2.3 (the date on which the Effective
Time occurs, the "Effective Date").
ARTICLE 2.
EXCHANGE AND CANCELLATION
OF SECURITIES
SECTION 2.1. CONVERSION OF MEMBERSHIP UNITS. As of the Effective Date,
the CYL Members shall exchange all Membership Units issued and outstanding
immediately prior to the Effective Date for shares of GHS Preferred Stock and
GHS Warrants in such amounts as determined below. The GHS Preferred Stock issued
to the CYL Members hereby
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shall be convertible into shares of GHS Common Stock in an aggregate amount
which would represent 80% of the shares of GHS Common Stock outstanding as of
the Effective Date after giving effect to the Exchange in a manner as shall be
mutually acceptable to GHS and the CYL Members. The GHS Warrants issued to the
CYL Members hereby shall be exercisable for shares of GHS Common Stock in an
aggregate amount which would represent 80% of the shares of GHS Common Stock
issuable upon the exercise of warrants and options of GHS outstanding as of the
Effective Date after giving effect to the Exchange in a manner as shall be
mutually acceptable to GHS and the CYL Members; PROVIDED, HOWEVER, that, at
their discretion, the CYL Members may elect to receive on the Effective Date in
lieu of such GHS Warrants a number of shares of GHS Preferred Stock which is
convertible into the number of shares of Common Stock for which the GHS Warrants
would have been exercisable on a cashless basis. The calculations in the
preceding two sentences shall exclude all securities issued in connection with
the New Financing referred to in Section 9.1(c) and the Concept Transactions
referred to in Section 8.4. As a result of the Exchange, GHS will become the
sole holder of Membership Units of CYL. The GHS Preferred Stock and any GHS
Warrants issuable hereunder are sometimes collectively referred to hereinafter
as the "Exchange Consideration." Each Membership Unit so exchanged shall be
entitled to receive its pro rata portion (the "Pro Rata Portion") of the
Exchange Consideration.
SECTION 2.2. PAYMENT. As of the Effective Date, each holder of
Membership Units issued and outstanding on the Effective Date shall receive the
Pro Rata Portion of the Exchange Consideration for each Membership Unit as
provided in Section 2.1 hereof. In connection with such payment, any certificate
representing a Membership Unit shall be surrendered by each CYL Member.
SECTION 2.3. CLOSING. Subject to the satisfaction or waiver of all of
the conditions to closing contained in Article 9 hereof, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place,
unless the parties shall otherwise agree, at 10:00 a.m., New York City time, on
a date to be specified by the parties, which shall be no later than the business
day after the satisfaction or waiver of the conditions to Closing contained in
Article 9 (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the fulfillment or waiver of those conditions) at
the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, unless another date or place is mutually agreed to by the parties
(the "Closing Date").
ARTICLE 3.
ORGANIZATIONAL DOCUMENTS
SECTION 3.1. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT OF CYL.
As of the Effective Date, the Certificate of Formation and Operating Agreement
of CYL shall be in the forms attached hereto as Exhibit 3.1.
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SECTION 3.2. CERTIFICATE OF INCORPORATION AND BY-LAWS OF GHS. As of the
Effective Date, the Certificate of Incorporation and By-laws of GHS shall be in
the forms attached hereto as Exhibit 3.2.
SECTION 3.3. BOARD OF DIRECTORS; CORPORATE GOVERNANCE. In connection
with the execution of this Agreement, certain parties will enter into a
Stockholders Agreement in substantially the form of Exhibit 3.3 hereto (the
"Stockholders Agreement"). The parties shall take such reasonable actions as are
necessary to effect the agreements set forth in the Stockholders Agreement and
this Section 3.3 as soon as practicable following the Closing, including the
appointment of a new Board of Directors of the Company as provided in the
Stockholders Agreement.
ARTICLE 4.
CERTAIN PROVISIONS RELATING TO SHARES
SECTION 4.1. FRACTIONAL SHARES. Fractional shares of GHS Preferred
Stock may be issued by GHS in the Exchange. The GHS Warrants shall not be
exercisable for fractional shares of GHS Common Stock but shall be rounded to
the nearest whole share. Each CYL Member's Pro Rata Portion of the Exchange
Consideration is set forth on Schedule 4.1 hereto.
SECTION 4.2. TAKING OF NECESSARY ACTION; FURTHER ACTION. GHS, CYL and
the CYL Members shall each take all such action as may be necessary or
appropriate in order to effectuate the Exchange as promptly as possible, subject
to all of the terms and conditions hereof. If, at any time after the Effective
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement GHS, CYL and the CYL Members agree to take, and shall take, all
such action.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF CYL AND THE CYL MEMBERS
Except as set forth in the Disclosure Schedule delivered by CYL to GHS
prior to the execution of this Agreement and attached hereto (the "CYL
Disclosure Schedule"), which shall identify exceptions by specific Section
references, CYL hereby represents and warrants to GHS that:
SECTION 5.1. ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. CYL is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware, has all requisite power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than
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where the failure to be so duly organized, validly existing and in good
standing, or to have such power and authority, or to be duly qualified and in
good standing, as the case may be, would not have a CYL Material Adverse Effect.
The term "CYL Material Adverse Effect" as used in this Agreement shall mean any
event, change or effect that, individually or when taken together with all other
such events, changes or effects, would be materially adverse to the condition
(financial or otherwise), prospects, business, properties, assets, or operations
of CYL. Except as disclosed in Section 5.1 of the CYL Disclosure Schedule, CYL
has no subsidiaries. Except as disclosed in Section 5.1 of CYL Disclosure
Schedule, there are no corporations, partnerships or joint venture arrangements
or other business entities in which CYL owns an equity interest.
SECTION 5.2. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT. CYL is
not in violation of any of the provisions of its Certificate of Formation or
Operating Agreement.
SECTION 5.3 CAPITALIZATION.
(a) There are 100 Membership Units issued and outstanding,
all of which are duly subscribed for and fully paid. Except as described in
this Section 5.3 or in Section 5.3 of CYL Disclosure Schedule, as of the date
of this Agreement, no Membership Units are reserved for any other purpose.
Except as set forth in Section 5.3 of the CYL Disclosure Schedule, CYL has
not granted any options in, or any other rights to purchase, Membership Units
and there are no such options or rights outstanding. Each CYL Member is the
owner of record and beneficially of the number of Membership Units set forth
in Schedule 4.1, which total amount equals all outstanding Membership Units.
Set forth in Section 5.3 of the CYL Disclosure Schedule is a schedule showing
in sufficient detail the amounts expended to date by Development Holdings in
the organization of CYL, including a description of the uses of such expended
amounts, which schedule shall also be updated through and delivered at the
Closing.
(b) Except as set forth in Section 5.3(a) above or otherwise
contemplated hereby, as of the date of this Agreement, there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which CYL is a party relating to
the issued or unissued Membership Units or other securities of CYL, or
obligating CYL to grant, issue or sell any Membership Units or other securities
of CYL, by sale, lease, license or otherwise. There are no obligations,
contingent or otherwise, of CYL to (x) repurchase, redeem or otherwise acquire
any Membership Units; or (y) provide funds to, or make any investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of CYL or any other person. As of the date of
this Agreement, CYL neither owns nor has agreed to purchase or otherwise
acquire, any capital stock of, or any interest convertible into or exchangeable
or exercisable for, any capital stock of any corporation, partnership, joint
venture or other business association or entity. Except as set forth in Section
5.3 of CYL Disclosure Schedule, there are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings, or calculated in accordance therewith, of CYL. There are no voting
trusts, proxies or other agreements or understandings to which CYL is a party or
relating to CYL with respect to the voting of Membership Units.
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SECTION 5.4. AUTHORITY. CYL has all requisite power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. Each CYL Member has the legal
right and capacity to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by CYL and the CYL Members and the consummation
by CYL of the transactions contemplated hereby have been duly authorized by all
necessary action and no other proceedings on the part of CYL are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
The holders of Membership Units have approved and adopted this Agreement and
have approved the Exchange. This Agreement has been duly executed and delivered
by CYL and the CYL Members and, assuming the due authorization, execution and
delivery thereof by GHS, constitutes the legal, valid and binding obligation of
CYL and the CYL Members, enforceable against CYL and the CYL Members in
accordance with its terms.
SECTION 5.5. NO CONFLICT; BUSINESS RELATIONSHIPS; REQUIRED FILINGS AND
CONSENTS.
(a) The execution and delivery of this Agreement by CYL
does not, and the performance of this Agreement by CYL and the CYL Members
will not (i) conflict with or violate the Certificate of Formation or
Operating Agreement, in each case as amended or restated, of CYL, (ii)
conflict with or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment, arbitration award or decree
(collectively, "Laws") or CYL Permit (as hereinafter defined) in effect as of
the date of this Agreement and applicable to CYL or any CYL Member or by
which any of their respective properties is bound or subject to or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or require
payment under, or result in the creation of a lien or encumbrance on any of
the properties or assets of CYL or any CYL Member pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
order, decree, franchise or other instrument or obligation to which CYL or
any CYL Member is a party or by which CYL or any CYL Member or any of their
respective properties is bound or is subject.
(b) No supplier, dealer or creditor of CYL (the "Business
Relationships") has notified CYL, either orally or in writing, that such
Business Relationships may take action which is reasonably likely to materially
and adversely affect the condition (financial or otherwise), business,
properties, assets, or operations, including sales, of CYL.
(c) The execution and delivery of this Agreement by CYL and
each CYL Member does not, and the performance of this Agreement by CYL and each
CYL Member will not require CYL or any CYL Member to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any governmental or regulatory authority ("Governmental Entities").
SECTION 5.6. PERMITS; COMPLIANCE. CYL is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents,
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certificates, approvals and orders required to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "CYL Permits"), and, to the knowledge of CYL, there is no
action, proceeding or investigation pending or threatened regarding suspension
or cancellation of any CYL Permits, except where the failure to possess, or the
suspension or cancellation of, such CYL Permits would not have a CYL Material
Adverse Effect. CYL is not in conflict with, or in default or violation of (a)
any Law, including but not limited to, Laws pertaining to the environment,
occupational safety, employment matters and licensing or (b) any of CYL Permits,
except for any such conflicts, defaults or violations which would not have a CYL
Material Adverse Effect. CYL has not received from any Governmental Entity any
written notification that CYL is in conflict with, or has defaulted or violated
any Law or CYL Permit. For purposes of Section 5.6, an event or state of facts
which would require CYL to pay for any purpose or incur as an obligation $25,000
(or $100,000 in the aggregate) is deemed to result in a "CYL Material Adverse
Effect."
SECTION 5.7. FINANCIAL STATEMENTS. CYL and its subsidiaries have not
prepared any financial statements.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Section 5.8 of the CYL Disclosure Schedule, during the period commencing
April 21, 1999 and ending on the date of this Agreement, CYL and its
subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been: (i)
any material damage, destruction or loss (not covered by insurance) with respect
to any material assets of CYL; (ii) any declaration, setting aside or payment of
any dividends or distributions in respect of Membership Units or any redemption,
purchase or other acquisition of, or issuance or sale of, any of CYL's
securities; (iii) any increase in the benefits under, or the establishment or
amendment of, any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan, or any increases in the compensation payable or to become payable
to directors, officers, employees or consultants of CYL (including the payment
of any bonuses), except for increases in salaries or wages payable or to become
payable in the ordinary course of business and consistent with past practice;
(iv) sale, assignment or transfer of any material portion of its assets, except
in the ordinary course of business, or cancellation of any material debts or
claims, (v) incurring of any capital expenditures or any commitment therefor
binding upon CYL which would cause the aggregate amount of all actual
expenditures for CYL to exceed $100,000; or (vi) a CYL Material Adverse Effect.
SECTION 5.9. ABSENCE OF LITIGATION. Except as disclosed in Section 5.9
of the CYL Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of CYL, investigation of any kind,
at law or in equity (including actions or proceedings seeking injunctive
relief), pending or, to the knowledge of CYL, threatened in writing against CYL
or any properties or rights of CYL (except for claims, actions, suits,
litigations, proceedings, arbitrations, or investigations which, individually or
in the aggregate, would not reasonably be expected to have a CYL Material
Adverse Effect) nor, to the knowledge of CYL, does there exist any basis
therefor, and CYL is not subject to any continuing order of, consent decree,
settlement agreement or other similar written continuing investigation by, or
any
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judgment, order, writ, injunction, decree or award of, any Governmental Entity,
court or arbitrator, including, without limitation, cease-and-desist or other
orders, except for matters which, individually or in the aggregate, would not
have a CYL Material Adverse Effect. For purposes of this Section 5.9, "CYL
Material Adverse Effect" is deemed to include any claim, action, suit,
litigation, proceeding, arbitration or investigation which if decided against
CYL would require the payment of $25,000 individually and $100,000 in the
aggregate.
SECTION 5.10. EMPLOYEE MATTERS.
(a) Except as set forth in Section 5.10 of the CYL Disclosure
Schedule, CYL is not a party to any collective bargaining agreement, employment
agreement, retirement plans (whether qualified or non-qualified), deferred
compensation or severance (except to the extent that accrued vacation and
accrued sick days may be deemed to be severance under applicable law) agreement,
consulting or advisory agreement, confidentiality agreement or covenant not to
compete (except as set forth in this Agreement) relating to its employees or
otherwise relating to its business.
(b) CYL has complied in all material respects with all
applicable laws, rules and regulations affecting the employment of labor,
including, but not limited to, those relating to wages, hours, discrimination
and the payment of social security, withholding and similar taxes, and is not
liable for any arrears of wages or any penalties for failure to comply with any
of the foregoing. There are no controversies pending or threatened between CYL
and any of its employees, or any labor unions or collective bargaining unit
representing or purporting to represent any of its employees.
SECTION 5.11. TAXES. CYL has accurately prepared and timely filed all
Returns (as defined in Section 12.3) which are required to be filed, except
where the time to file has been extended and has paid, or made provision for the
payment of, all Taxes (as defined in Section 12.3) which have become due
pursuant to said Returns or pursuant to any assessment which has been received
by it and except where the failure to do so would not have a CYL Material
Adverse Effect. All such Returns are true and correct in all material respects.
No Tax deficiency is outstanding against CYL.
SECTION 5.12. TAX MATTERS. Neither CYL nor, to the knowledge of CYL,
any of its affiliates has taken or agreed to take any action that would prevent
the Exchange from qualifying under the provisions of Section 351 of the Code.
SECTION 5.13. NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 5.13 of the CYL Disclosure Schedule, neither CYL nor any of its
subsidiaries has any obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due) involving
in excess of $25,000 in the aggregate, except liabilities under contracts or
commitments described in Section 5.15 of the CYL Disclosure Schedule (but not
liabilities for breaches thereof involving in excess of $25,000 in the
aggregate).
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SECTION 5.14. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of CYL.
SECTION 5.15. MATERIAL CONTRACT AND ABSENCE OF DEFAULTS. Except as
listed in Section 5.15 of the CYL Disclosure Schedule ("Material Contracts"),
CYL does not have outstanding:
(a) Any single contract providing for an expenditure by CYL in
excess of $10,000 for the purchase of any real property, machinery, equipment or
other items which are in the nature of capital investment or for the purchase of
raw materials, supplies, component parts or other items which are in the nature
of inventory;
(b) Any contract, bid or offer to sell products or to provide
services to third parties which (A) is pursuant to terms or conditions that CYL
does not reasonably expect to satisfy or fulfill in its entirety, or (B) which
involves more than $10,000, or which, together with all other contracts, bids or
offers to or with the same party or any affiliates parties involves more than
$25,000;
(c) Any lease of any personal property under which CYL is
lessor requiring aggregate annual payments in excess of $10,000;
(d) Any revocable or irrevocable power of attorney to any
person, firm or corporation for any purpose whatsoever;
(e) Any loan agreement, indenture, promissory note,
conditional sales agreement, guarantee or other similar type of agreement that
involves $10,000 or more; or
(f) Any other material contract or commitment which is not
cancelable on thirty (30) or less days' notice without further obligation on
the part of CYL.
CYL has provided to GHS true, correct and complete copies of all
Material Contracts. CYL is not, nor has it received any notice that it is, or
has any knowledge that any other party is, in default in any respect under any
such Material Contract; and there has not occurred any event that with the lapse
of time or the giving of notice or both would constitute such a default. CYL's
Material Contracts comply with all applicable Laws.
SECTION 5.16. CORPORATE AND MEMBERS APPROVAL. The Board of Directors of
CYL, at a meeting duly called and held, has by unanimous vote of those directors
present (who constituted 100% of the Directors then in office) or by unanimous
written consent thereof, and the CYL Members, have approved the terms of this
Agreement and the transactions contemplated hereby, including the Exchange.
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SECTION 5.17. BOOKS AND RECORDS. The books of account and other
financial records of CYL are in all material respects complete and correct, are
maintained in accordance with good business practices and all Laws applicable to
CYL. The minute books of CYL contain accurate records of all meetings, and
accurately reflect all other corporate action of the shareholders and directors
of CYL.
SECTION 5.18. PROPERTIES. Except as disclosed in Section 5.18 of the
CYL Disclosure Schedule, CYL (i) has good, clear and marketable title to all of
its properties and assets which are, individually or in the aggregate, material
to CYL's business (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of all liens
except statutory liens securing payments of Taxes or other liens as do not
materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties and (ii) is the lessee of all leasehold estates reflected in Section
5.18 of the CYL Disclosure Schedule or acquired after the date thereof which are
material to its business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to CYL's knowledge, the lessor and
no event has occurred or fact exists which permit a lessor, now or with the
passage of time, notice or an opportunity to cure, to seek a remedy under a
lease and CYL is entitled to quiet enjoyment to its premises. CYL does not own
any real property.
SECTION 5.19 ENVIRONMENTAL MATTERS. There has been no (a) release or
threatened release of any hazardous substance, pollutant or contaminant as each
such term presently is defined by the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, resulting from any activity by or on
behalf of CYL, including but not limited to, the generation, handling, storage,
treatment, transportation or disposal of any hazardous substance, pollutant or
contaminant from any location operated by CYL; (b) to the knowledge of CYL, past
or future action taken or to be taken by any federal, state or local entity or
by any private party under any federal, state or local statute, rule, regulation
or guideline concerning the release of any hazardous substance, pollutant or
contaminant into the soil, air, surface or subsurface waters or the environment
in general from any location operated by CYL; and (c) claims or actions brought
or which may be brought by any third party for damages occurring at or outside
of any location operated by CYL resulting from the alleged release or threatened
release of any hazardous substance, pollutant or contaminant by CYL or any
predecessor in interest, including but not limited to, claims for health effects
to persons, property damage and/or damage to natural resources; nor does CYL
have any knowledge of any basis for any of the foregoing.
SECTION 5.20. INTELLECTUAL PROPERTY. Except as disclosed in Section
5.20 of the CYL Disclosure Schedule, CYL has sufficient title and ownership or
other rights to all patents, trademarks, trade names, service marks, copyrights,
trade secrets and other proprietary rights ("Intellectual Property Rights")
necessary for or used in the conduct of its business as it is presently
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. CYL has not received any communication
alleging that
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the Company has violated Intellectual Property Rights of any other person or
entity. CYL and each CYL Member has no knowledge of any conflicting use of any
of such Intellectual Property Rights.
SECTION 5.21. DEALINGS WITH AFFILIATES. Section 5.21 of the CYL
Disclosure Schedule sets forth a complete list, including the parties of all
oral or written agreements and arrangements to which CYL is, will be or has been
a party, at any time prior to the Effective Time, and to which any affiliate is
also a party ("Related Party Transaction"). All Related Party Transactions are
on terms no less favorable to CYL than what CYL could obtain on an arms' length
basis from an unrelated party.
SECTION 5.22. INSURANCE. Through the Closing Date, CYL will have
adequate insurance contracts or policies in full force and effect which provide
for coverages that are usual and customary as to the amount and scope in the
business of CYL, except where failure to have such insurance policies or
contracts would not have a CYL Material Adverse Effect.
SECTION 5.23. DISCLOSURE. No representation or warranty of CYL in this
Agreement or any document, certificate or statement issued in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein and
therein, in the light of the circumstances in which they were made, not
misleading.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF GHS
Except as set forth in the Disclosure Schedule delivered by GHS to CYL
prior to the execution of this Agreement and attached hereto (the "GHS
Disclosure Schedule"), which shall identify exceptions by specific Section
references, GHS hereby represents and warrants to CYL that:
SECTION 6.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of GHS
and its subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and GHS
and each subsidiary is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where the failure to be so duly organized, validly existing and in good
standing, or to have such power and authority, or to be duly qualified and in
good standing, as the case may be, would not have an GHS Material Adverse
Effect. The term "GHS Material Adverse Effect" as used in this Agreement shall
mean any event, change or effect that, individually or when taken together with
all other such events, changes or effects, would be materially adverse to the
condition (financial or otherwise),
11
prospects, business, properties, assets or operations of GHS and its
subsidiaries, taken as a whole. Disclosed in Section 6.1 of GHS Disclosure
Schedule are all corporations, partnerships or joint venture arrangements or
other business entities in which GHS owns an equity interest.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. GHS has
heretofore furnished to CYL complete and correct copies of the Certificate of
Incorporation and By-Laws, as amended or restated, of GHS. GHS is not in
violation of any of the provisions of its Certificate of Incorporation or
By-Laws.
SECTION 6.3. CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of GHS consists of (a) 25,000,000 shares of GHS Common
Stock and (b) 1,000,000 shares of preferred stock, par value $.01 per share
("GHS Preferred Shares"). As of date hereof: (i) 6,979,160 shares of GHS Common
Stock were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, GHS's Certificate of Incorporation or By-Laws or any
agreement to which GHS is a party or is bound; (ii) no shares of GHS Common
Stock were held in treasury and (iii) 659,000 shares of GHS Common Stock were
reserved for future issuance pursuant to outstanding stock options and warrants
issued to certain officers, employees, directors and other persons. Except as
set forth in Section 6.3 of the GHS Disclosure Schedule, as of the date of this
Agreement, there are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which GHS is a party relating to the issued or unissued capital stock or
other securities of GHS, or obligating GHS to grant, issue or sell any capital
stock or other securities of GHS, by sale, lease, license or otherwise. As of
the date of this Agreement, no GHS Preferred Shares were issued and outstanding.
Each of the outstanding shares of capital stock of, or other equity interests
in, each of GHS's subsidiaries is duly authorized and validly issued and, if
applicable, fully paid and nonassessable. The shares of GHS Preferred Stock to
be issued pursuant to the Exchange have been duly authorized and, when issued in
accordance with the Exchange, will be validly issued, fully paid and
nonassessable, provided that GHS and CYL are aware that GHS does not have
sufficient number of authorized unissued shares of GHS Common Stock for issuance
upon the conversion of all of the GHS Preferred Stock. The GHS Warrants to be
issued pursuant to the Exchange will, prior to the Closing, have been duly
authorized and, when the GHS Warrants are exercised in accordance with the terms
thereof, the shares of Common Stock issuable upon exercise thereof will be
validly issued, fully paid and nonassessable.
SECTION 6.4. AUTHORITY. GHS has all requisite corporate power and
authority to execute and deliver this Agreement to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by GHS and the consummation by GHS of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no other corporate proceedings on the part of GHS are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by GHS
and, assuming the due authorization, execution and delivery thereof by CYL,
constitutes a legal, valid and binding obligation of GHS enforceable against GHS
in accordance with its terms.
12
SECTION 6.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by GHS
does not, and the performance of this Agreement by GHS and the consummation
of the transactions contemplated hereby will not (i) conflict with or violate
the Certificate of Incorporation or By-Laws, or the equivalent organizational
documents, in each case as amended or restated, of GHS or any of GHS's
subsidiaries, (ii) conflict with or violate any Laws or GHS Permits (as
hereafter defined) applicable to GHS or any of GHS's subsidiaries or by which
any of their respective properties is bound or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of GHS
or any of GHS's subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, order, decree,
franchise or other instrument or obligation to which GHS, or any of GHS's
subsidiaries is a party or by which GHS or any of GHS's subsidiaries or any
of their respective properties is bound or subject to, except for any such
conflicts or violations described in clause (ii) or breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation or
liens or encumbrances described in clause (iii) that would not have an GHS
Material Adverse Effect.
(b) The execution and delivery of this Agreement by GHS and
the consummation by GHS of the transactions contemplated hereby do not, and the
performance of this Agreement by GHS will not require GHS to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any Governmental Entities, except, with respect to the USN Spin-off
contemplated by Section 7.3(c) and the change in the members of the Board of
Directors pursuant to Section 3.3, for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities or blue
sky laws ("Blue Sky Laws").
SECTION 6.6. PERMITS; COMPLIANCE. Each of GHS and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, identification
numbers, approvals and orders (collectively, the "GHS Permits") necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and there is no action, proceeding or investigation pending or,
to the knowledge of GHS, threatened regarding suspension or cancellation of any
of the GHS Permits, except where the failure to possess, or the suspension or
cancellation of, such GHS Permits would not have an GHS Material Adverse Effect.
Neither GHS nor any of its subsidiaries is, or has been since January 1, 1996,
in conflict with, or in default or violation of (a) any Law by which any of them
or any of their respective properties is bound or subject to or (b) any of the
GHS Permits, except for any such conflicts, defaults or violations which would
not have an GHS Material Adverse Effect.
SECTION 6.7. GHS REPORTS; FINANCIAL STATEMENTS.
(a) Since January 1, 1996, GHS and its subsidiaries have
timely filed (i) all forms, reports, statements and other documents required to
be filed with (A)
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the SEC, including, without limitation (1) all Annual Reports on Form 10-K, (2)
all Quarterly Reports on Form 10-Q, (3) all proxy statements relating to
meetings of stockholders (whether annual or special), (4) all Current Reports on
Form 8-K, (5) all other reports or registration statements and (6) all
amendments and supplements to all such reports and registration statements
(collectively, the "GHS SEC Reports") and (B) any other applicable state
securities authorities and (ii) all forms, reports, statements and other
documents required to be filed with any other applicable federal or state
regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not have an GHS Material Adverse
Effect (all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 6.7(a) being referred to herein, collectively, as the
"GHS Reports"). The GHS Reports, including all GHS Reports filed after the date
of this Agreement and prior to the Effective Date (x) were or will be prepared
in all material respects in accordance with the requirements of applicable Law
(including, with respect to the GHS SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the
Securities and Exchange Commission ("SEC") thereunder applicable to such GHS SEC
Reports) and (y) did not at the time they were filed, or will not at the time
they are 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.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the GHS SEC Reports filed
prior to, on or after the date of this Agreement (i) have been or will be
prepared in accordance with the published rules and regulations of the SEC and
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except, with respect to GHS SEC Reports filed
prior to the date of this Agreement, as may be indicated in the notes thereto)
and (ii) fairly present or will fairly present the consolidated financial
position of GHS and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated,
except that any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments.
(c) Except as disclosed in the GHS SEC Reports filed prior to
the date of this Agreement, as contemplated by this Agreement and as disclosed
in Section 6.8 of the GHS Disclosure Schedule, since December 31, 1998, GHS and
its subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been: (i)
any material damage, destruction or loss (not covered by insurance) with respect
to any material assets of GHS or any subsidiary; (ii) any declaration, setting
aside or payment of any dividends or distributions in respect of GHS Common
Stock or any redemption, purchase or other acquisition of, or issuance or sale
of, any of GHS's securities; (iii) any increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase
or other employee benefit plan, or any increases in the compensation payable or
to become payable to directors, officers, employees or consultants of GHS
(including the payment of any bonuses), except for increases in salaries or
wages payable or to become payable in the ordinary course of business and
consistent with past practice; (iv) sale, assignment or
14
transfer of any material portion of its assets, except in the ordinary course of
business, or cancellation of any material debts or claims; or (v) a GHS Material
Adverse Effect
SECTION 6.8. ABSENCE OF LITIGATION. Except as disclosed in the GHS SEC
Reports filed prior to the date of this Agreement, there is no claim, action,
suit, litigation, proceeding, arbitration or, to the knowledge of GHS,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of GHS, threatened in
writing against GHS or any of its subsidiaries or any properties or rights of
GHS or any of its subsidiaries (except for claims, actions, suits, litigations,
proceedings, arbitrations or investigations which, individually or in the
aggregate, would not reasonably be expected to have an GHS Material Adverse
Effect), and neither GHS nor any of its subsidiaries is subject to any
continuing order of, consent decree, or, to the knowledge of GHS, continuing
investigation by, or any judgment, order, writ, injunction, decree or award of,
any Governmental Entity, court or arbitrator, including, without limitation,
cease-and-desist or other orders, except for such matters which would not
reasonably be expected to have an GHS Material Adverse Effect.
SECTION 6.9. TAX MATTERS. To the knowledge of GHS, neither GHS nor any
of its affiliates has taken or agreed to take any action that would prevent the
Exchange from constituting a tax free transaction qualifying under the
provisions of Section 351 of the Code.
SECTION 6.10. TAXES. Except for such matters that would not have an GHS
Material Adverse Effect and except as disclosed in Section 6.10 of the GHS
Disclosure Schedule, (a) GHS and its subsidiaries have timely filed or will
timely file all Returns or reports required to be filed by any of them with any
taxing authority with respect to Taxes for any period ending on or before the
Effective Date, taking into account any extension of time to file, granted to or
obtained on behalf of GHS or its subsidiaries, (b) such Returns and reports are
true and correct, (c) all Taxes shown to be payable on such Returns or reports
and all other Taxes of GHS or any of its subsidiaries that are due prior to the
Effective Date have been paid or will be paid when due, (d) as of the date
hereof, no deficiency for any Tax of a material amount has been asserted or
assessed by a taxing authority against GHS or its subsidiaries, (e) all
liability for Taxes of GHS or its subsidiaries that are or will become due or
payable with respect to periods or partial periods covered by the financial
statements referred to in Section 6.7(b) hereof have been timely paid or are
being contested in good faith and are adequately reserved for on such financial
statements and (f) no Tax Return or reports of GHS or any of its subsidiaries
have been or are under current or pending examination and neither GHS nor any of
its subsidiaries has received notice of any threatened examination. GHS has been
with its subsidiaries a member of a group filing consolidated or combined
Returns. Neither GHS nor any subsidiary has any liability for Taxes of any other
person under Treasury regulations section 1.1502-6, as a transferee or
successor, by contract or otherwise.
SECTION 6.11. BROKERS. Except as set forth in Section 6.11 of the GHS
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of GHS.
15
SECTION 6.12. BOOKS AND RECORDS. The books of account and other
financial records of GHS and its subsidiaries are in all material respects
complete and correct, are maintained in accordance with good business practices
and all Laws applicable to GHS, and are accurately reflected in the consolidated
financial statements of GHS contained in the GHS SEC Reports. The minute books
of GHS contain accurate records of all meetings, and accurately reflect all
other corporate action of the shareholders and directors of GHS.
SECTION 6.13. NO UNDISCLOSED LIABILITIES. To the knowledge of GHS,
there are no liabilities of GHS or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) Liabilities disclosed or provided for in the consolidated
financial statements contained in the GHS SEC Reports; and
(b) Liabilities incurred in the ordinary course of business
consistent with past practice since December 31, 1998.
SECTION 6.14. RELATED PARTY TRANSACTIONS. Except as disclosed in the
GHS SEC Reports filed prior to the date of this Agreement, since January 1, 1996
there have been no oral or written agreements, arrangements or transactions
between GHS or any of its subsidiaries on the one hand, and any affiliate of GHS
or any of its subsidiaries on the other hand ("GHS Related Party Transactions").
All GHS Related Party Transactions are on terms no less favorable to GHS than
what GHS could obtain on an arms' length basis from an unrelated party
SECTION 6.15. DISCLOSURE. To the knowledge of GHS, no representation or
warranty of GHS in this Agreement or in any document, certificate or statement
issued in connection herewith contains any untrue statement of a material fact,
or omits to state any material fact necessary in order to make the statements
contained herein and therein in light of the circumstances in which they were
made, not misleading.
ARTICLE 7.
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF CYL.
(a) CYL hereby covenants and agrees that, during the period
commencing on the date hereof and continuing until the Effective Time unless
otherwise expressly contemplated by this Agreement or consented to in writing by
GHS, it will:
(i) operate its business only in the usual and ordinary course
consistent with past practices;
16
(ii) use its best efforts to preserve substantially intact its
business organizations, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers, and
otherwise operate its business in a manner that breaches no Material
Contract (as defined);
(iii) use its best efforts to maintain and keep its business
relationships intact and unimpaired, and its properties and assets in
as good repair and condition as at present, ordinary wear and tear
excepted;
(iv) use its best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage that is usual and
customary for businesses of the type in which CYL is engaged, except
where failure to have such insurance would not have a CYL Material
Adverse Effect; PROVIDED, HOWEVER, that in the event CYL deems it
necessary to take certain actions that would otherwise be proscribed by
clauses (i) - (iv) of this Section 7.1, CYL shall consult with GHS
which shall consider in good faith CYL's request to take such action
and not unreasonably withhold its consent for such action; and
(v) promptly advise GHS of the commencement or threat (to the
extent that such threat comes to its knowledge) of any claim, action,
suit, proceeding or investigation against, relating to or involving it
or any of its directors, officers, employees, agents or consultants in
connection with its business or the transactions contemplated hereby.
(b) CYL will make its membership records and lists available
to the extent reasonably necessary to effectuate the intent of this Agreement.
SECTION 7.2. NEGATIVE COVENANTS OF CYL. Except as expressly
contemplated by this Agreement, or otherwise consented to in writing by GHS,
from the date of this Agreement until the Effective Date, CYL will not do any of
the following:
(a) (i) Increase the compensation payable to or to become
payable to any director or officer (by making a bonus payment or otherwise),
(ii) grant any severance or termination pay (other than pursuant to the normal
severance policy of CYL or its subsidiaries as in effect on the date of this
Agreement and disclosed in writing to GHS) to, or enter into any employment or
severance agreement with, any director, officer or employee (other than on a
case by case basis with a limited number of employees who are not directors or
officers and in no event with employees generally and other than employment
agreements entered into with the consent of GHS, which consent shall not be
unreasonably withheld); or (iii) establish, adopt, enter into or amend any
employee benefit plan or arrangement except as may be required by applicable
Law;
(b) Declare or pay any distribution in respect of outstanding
Membership Units;
17
(c) (i) Redeem, purchase or otherwise acquire any Membership
Units or any securities or obligations convertible into or exchangeable for any
Membership Units, or any options, warrants or conversion or other rights to
acquire any Membership Units or any such securities or obligations; (ii) effect
any reorganization or recapitalization; or (iii) split, combine or reclassify
any of its or its respective subsidiaries' securities or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for, its securities;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any Membership Units or other securities, any
securities convertible into or exercisable or exchangeable for any such shares,
or any rights, warrants or options to acquire, any such Membership Units; or
(ii) amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the holders
thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of assets
from suppliers or vendors in the ordinary course of business and consistent with
past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the ordinary
course of business;
(g) propose or adopt any amendments to its Certificate of
Formation or, as to its Operating Agreement, any amendments except as
contemplated hereby;
(h) change any of its methods of accounting in effect, or make
or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the amount
of such settlements or controversies, individually or in the aggregate, does not
exceed $25,000);
(i) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except in the ordinary course of business consistent with past
practice, provided that CYL informs GHS promptly of any increases in borrowings;
(j) enter into any material arrangement, agreement or contract
with any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on CYL or
18
substantially less advantageous to CYL than arrangements, agreements or
contracts existing on the date hereof; or
(k) agree in writing or otherwise to do any of the foregoing.
SECTION 7.3. AFFIRMATIVE COVENANTS OF GHS.
(a) GHS hereby covenants and agrees that, during the period
commencing on the date hereof and continuing until the Effective Time unless
otherwise expressly contemplated by this Agreement or consented to in writing by
CYL, it will:
(i) operate its business and otherwise take any actions only
in the usual and ordinary course consistent with past practices;
(ii) use its best efforts to preserve substantially intact its
business organizations, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers, and
otherwise operate its business in a manner that breaches no Material
Contract (as defined);
(iii) use its best efforts to maintain and keep its business
relationships intact and unimpaired, and its properties and assets in
as good repair and condition as at present, ordinary wear and tear
excepted;
(iv) use its best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to that currently
maintained; PROVIDED, HOWEVER, that in the event GHS deems it necessary
to take certain actions that would otherwise be proscribed by clauses
(i) - (iv) of this Section 7.3, GHS shall consult with CYL which shall
consider in good faith GHS's request to take such action and not
unreasonably withhold its consent for such action; and
(v) promptly advise CYL of the commencement or threat (to the
extent that such threat comes to its knowledge) of any claim, action,
suit, proceeding or investigation against, relating to or involving it
or any of its directors, officers, employees, agents or consultants in
connection with its business or the transactions contemplated hereby.
(b) GHS will make its stock transfer records and stockholder
lists available to the extent reasonably necessary to effectuate the intent of
this Agreement.
(c) GHS will effect the spin-off to its stockholders of the
assets and liabilities of its gamma-knife stereotactic radiosurgery business
presently conducted by its wholly-owned subsidiary, U.S. NeuroSurgical, Inc.
("USN", and such spin-off, the "USN Spin-off"). GHS expects that the USN
Spin-off will be effected with a record date prior to the Effective Time. The
USN Spin-off will be effected in the form of a dividend of GHS's shares in
19
USN or shares of another wholly owned subsidiary of GHS into which USN will be
transferred (the "USN Spin-off Shares"). As promptly as practicable after the
execution of this Agreement, GHS shall prepare and file with the SEC a
Registration Statement relating to the USN Spin-off registering the issuance of
the USN Spin-off Shares under the Securities Act (or, if permitted under
applicable law, an Information Statement and Form 10 under the Exchange Act) and
such other documents required pursuant to the Securities Act, the Exchange Act
and the rules and regulations thereunder to effect the USN Spin-off
(collectively, the "Spin-off SEC Filings"). GHS (i) shall cause the Spin-off SEC
Filings to comply as to form in all material respects with the applicable
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder, (ii) shall use commercially reasonable efforts to have the USN
Spin-off effected as promptly as practicable, and (iii) shall take all or any
action required under any applicable federal or state securities laws in
connection with the USN Spin-off. GHS, CYL and the CYL Members shall furnish to
the other all information concerning GHS, CYL and the CYL Members as may be
reasonably required in connection with the preparation of the documents referred
to herein.
(d) In connection with the USN Spin-off and prior to the
Effective Time, GHS will obtain the release of GHS from the corporate guaranties
(the "Guaranties") delivered by GHS (and any security interest thereby created)
in favor of DVI Financial Services, Inc. originally issued in connection with
equipment financings by USN.
SECTION 7.4. NEGATIVE COVENANTS OF GHS. Except as disclosed in Section
7.4 of the GHS Disclosure Schedule, expressly contemplated by this Agreement or
otherwise consented to in writing by CYL, from the date of this Agreement until
the Effective Time, GHS will not do, and will not permit any of its subsidiaries
to do, any of the following:
(a) (i) Increase the compensation payable to or to become
payable to any director or officer (by making a bonus payment or otherwise),
(ii) grant any severance or termination pay (other than pursuant to the normal
severance policy of GHS or its subsidiaries as in effect on the date of this
Agreement and disclosed in writing to CYL) to, or enter into any employment or
severance agreement with, any director, officer or employee (other than on a
case by case basis with a limited number of employees who are not directors or
officers and in no event with employees generally and other than employment
agreements entered into with the consent of CYL, which consent shall not be
unreasonably withheld); or (iii) establish, adopt, enter into or amend any
employee benefit plan or arrangement except as may be required by applicable
Law;
(b) amend any of the material terms or provisions of the GHS
Preferred Stock;
(c) declare or pay any cash dividend on outstanding shares of
its capital stock;
(d) (i) Redeem, purchase or otherwise acquire any shares of
its capital stock or equity interest or any securities or obligations
convertible into or exchangeable for any shares of its capital stock or equity
interest, or any options, warrants or conversion or
20
other rights to acquire any shares of its capital stock or any such securities
or obligations; (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its or its respective subsidiaries' capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock;
(e) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its capital stock
or other securities (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire, any such shares, except for issuance
pursuant to options, warrants or other commitments outstanding on the date
hereof; or (ii) amend or otherwise modify the terms of any such rights, warrants
or options the effect of which shall be to make such terms more favorable to the
holders thereof;
(f) acquire or agree to acquire or be acquired, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets of any other person (other than the
purchase of assets from suppliers or vendors in the ordinary course of business
and consistent with past practice and other than the Concept Transactions
described in Section 8.4 hereof);
(g) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the ordinary
course of business and in connection with the USN Spin-off;
(h) propose or adopt any amendments to its Certificate of
Incorporation or, as to its By-Laws, any amendments except as contemplated
hereby;
(i) change any of its methods of accounting in effect, or make
or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the amount
of such settlements or controversies, individually or in the aggregate, does not
exceed $25,000) ;
(j) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except in the ordinary course of business consistent with past
practice, provided that GHS informs CYL promptly of any increases in borrowings;
(k) enter into any material arrangement, agreement or contract
with any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on GHS or
21
substantially less advantageous to GHS than arrangements, agreements or
contracts existing on the date hereof; or
(l) agree in writing or otherwise to do any of the foregoing.
SECTION 7.5. ACCESS AND INFORMATION. Each of CYL and GHS shall: (i)
afford to other party and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the
"Representatives") access upon reasonable prior notice to its officers,
employees, agents, properties, offices and other facilities and its subsidiaries
and to the books and records thereof; and (ii) furnish promptly to the other
party and its Representatives such information concerning the business,
properties, contracts, records and personnel of it and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be requested, from time to time, by the other party.
SECTION 7.6 CONFIDENTIALITY.
(a) Except as may be necessary to carry out this Agreement and
the transactions contemplated hereby, each of GHS and CYL shall, and shall
require their respective officers, directors, employees and authorized
representatives to, hold in confidence prior to the Effective Time and for two
years from any termination of this Agreement all data and information obtained
by them from the other party (unless required to disclose such information by
judicial or administrative process, as otherwise required by Law, or unless such
information (i) is or becomes generally available to the public other than as a
result of a disclosure by such party, any subsidiary of such party or any of
their authorized representatives, (ii) is independently acquired or developed by
such party, any subsidiary of such party or any of their representatives, or
(iii) is or becomes available to such party, any subsidiary of such party or any
of their authorized representatives from a source other than the other party,
provided that such source is not known to be bound by a confidentiality
agreement with the other party or by any other legal, contractual or fiduciary
duty not to disclose such information) and shall not, and shall use reasonable
efforts to cause such officers, directors, employees and authorized
representatives not to, disclose such information to others without the prior
written consent of the other party.
(b) If this Agreement is terminated, each of GHS and CYL
shall, if so requested by the other party, promptly return every document
furnished to them or their affiliates in connection with the transactions
contemplated hereby and any copies of such documents that may have been made
and shall use reasonable efforts to cause the representatives to whom such
documents were furnished promptly to return such documents and any copies of
such documents, other than documents filed with the SEC or otherwise publicly
available.
ARTICLE 8.
ADDITIONAL AGREEMENTS
SECTION 8.1. APPROPRIATE ACTION; CONSENTS; FILINGS.
22
(a) CYL and GHS shall each use their best efforts to: (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, (ii) obtain from any Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by GHS or CYL or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated herein, including, without
limitation, the Exchange, (iii) make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement and the Exchange
(including the USN Spin-off required by Section 7.3(c)) required under (A) the
Securities Act and the Exchange Act and the rules and regulations thereunder,
and any other applicable federal or state securities laws, (B) the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act ("HSR Act") and (C) any other applicable Law; PROVIDED
that GHS and CYL shall cooperate with each other in connection with the making
of all such filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if requested, to accept
all reasonable additions, deletions or changes suggested in connection
therewith. CYL and GHS shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law in connection with the transactions contemplated by this
Agreement.
(b) Each of CYL and GHS agree to cooperate and use their best
efforts vigorously to contest and resist any action, including administrative or
judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that is in effect and that restricts, prevents or
prohibits the consummation of the Exchange or any other transactions
contemplated by this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal; PROVIDED,
HOWEVER, that in no event shall either party take, or be required to take, any
action that would have a CYL or an GHS Material Adverse Effect.
(c) Each of CYL and GHS shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, its best efforts to obtain any third
party consents: (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement; (ii) disclosed or required to be
disclosed in the CYL Disclosure Schedule or the GHS Disclosure Schedule, as the
case may be; (iii) otherwise required under any contracts, licenses, leases or
other agreements in connection with the consummation of the transactions
contemplated herein; or (iv) required to prevent a CYL Material Adverse Effect
from occurring prior to or after the Effective Time or an GHS Material Adverse
Effect from occurring prior to or after the Effective Time.
(d) In the event that either party shall fail to obtain any
third party consent described in subsection (c) above, such party shall use its
best efforts, and shall take any such actions reasonably requested by the other
party hereto, to minimize any adverse effect upon CYL and GHS, their respective
subsidiaries, and their respective businesses
23
resulting, or which could reasonably be expected to result, after the Effective
Date, from the failure to obtain such consent.
SECTION 8.2. STOCKHOLDERS; TAX TREATMENT. CYL will advise its members
of the resale restrictions imposed by federal securities laws on the shares of
GHS Preferred Stock and any GHS Warrants received by them pursuant to the
Exchange, and the shares of GHS Common Stock issuable upon conversion of the GHS
Preferred Stock or exercise of the GHS Warrants. Each party hereto shall use its
best efforts to cause the Exchange to qualify, and will not take any actions
which could prevent the Exchange from qualifying under the provisions of Section
351 of the Code.
SECTION 8.3. PUBLIC ANNOUNCEMENTS. Unless otherwise required by
applicable Law or stock exchange requirements (and in that event only if time
does not permit), GHS and CYL shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
Exchange and the transactions contemplated thereby and shall not issue any such
press release or make any such public statement prior to such consultation.
SECTION 8.4. TRANSACTIONS WITH CONCEPT DEVELOPMENT, ETC. GHS and CYL
acknowledge that GHS had entered into two Letters of Intent (the "LOI's") each
dated April 13, 1999 with Concept and with ▇▇▇▇▇▇▇▇/▇▇▇▇▇ Communication
Resources, Inc. each attached as Exhibit 8.4 hereto relating, among other
things, to the proposed acquisition by GHS of Concept on the terms and
conditions set forth therein. Notwithstanding anything contained in this
Agreement, GHS shall be permitted to consummate the transactions contemplated in
the LOI's on substantially the terms described in the LOI's (the "Concept
Transactions") without the consent of CYL. The consummation of the Concept
Transactions shall not be deemed to result in a GHS Material Adverse Effect.
SECTION 8.5. ▇▇▇▇▇▇▇' APPROVAL RIGHTS. Following the Effective Time,
the parties agree to the following:
(a) During the term of the Content Provider Agreement and
License referred to in Section 9.1(f) and notwithstanding the terms thereof,
▇▇▇▇▇▇▇ will have the right to approve the general look, feel and functionality
of the Change Your Life Site and any substantial modifications thereto; PROVIDED
that such approval is timely given in accordance with the production policies
and schedules reasonably established by CYL. CYL will submit to ▇▇▇▇▇▇▇ a
request in writing for approval of the initial general look, feel and
functionality of the Change Your Life Site and any modifications thereto. Said
decision shall be communicated directly by ▇▇▇▇▇▇▇ in writing, and not through
his intermediaries, to CYL's Chief Executive Officer, Chief Operating Officer or
their designee. If ▇▇▇▇▇▇▇ elects not to approve said request, then ▇▇▇▇▇▇▇ will
indicate in writing the specific reasons why said approval is denied. If ▇▇▇▇▇▇▇
is unable to respond to approval requests presented to him under this Section
8.5 in accordance with the production policies and schedules reasonably
established by CYL, the CYL Chief Executive Officer, Chief Operating Officer or
their designee may proceed with such look, feel and functionality of the Change
Your Life Site and any modifications thereto.
24
(b) (i) Prior to offering or soliciting any offers, or
accepting any unsolicited offers, with respect to any new or any extensions of
existing non-Internet marketing or distribution agreements or arrangements
(other than the existing arrangements with ▇▇▇▇▇-▇▇▇▇▇▇ and successors thereto
with respect to infomercials and the QVC channel) for ▇▇▇▇▇▇▇ Group Content or
▇▇▇▇▇▇▇ Group Products, as those terms are defined in the Content Provider
Agreement and License Agreement referred in Section 9.1(f) ("Distribution
Rights") which agreements or arrangements can reasonably be anticipated by the
▇▇▇▇▇▇▇ Group to generate annual gross revenues of at least $1,500,000, the
▇▇▇▇▇▇▇ Group shall give prior written notice of such offers to CYL, together
with such additional information as is necessary, or reasonably requested by
CYL, to evaluate such proposed offers (the "Offer Notice"). The Offer Notice
shall constitute an invitation to CYL to submit a proposal to obtain the
Distribution Rights that are the subject of the Offer Notice.
(ii) Upon receipt of an Offer Notice pursuant to Section 6(a)
above, CYL shall have a period of 10 business days (the "Offer Period") within
which to submit a proposal (each, a "Proposal") to the ▇▇▇▇▇▇▇ Group to acquire
the Distribution Rights that are the subject of such Offer Notice. The ▇▇▇▇▇▇▇
Group shall give due consideration to evaluate the Proposal in light of its
economic terms and conditions and the ability of CYL to perform the tasks
envisioned and respond promptly to the Proposal.
(iii) If the ▇▇▇▇▇▇▇ Group accepts the Proposal, the ▇▇▇▇▇▇▇
Group and CYL shall each use commercially reasonable efforts to consummate the
transaction in accordance with such Proposal as promptly as practicable.
(iv) If the ▇▇▇▇▇▇▇ Group in its sole discretion rejects the
Proposal or if CYL fails to submit a Proposal during the Offer Period, the
▇▇▇▇▇▇▇ Group shall be free to enter into an agreement for the Distribution
Rights that are the subject of the Offer Notice in any manner and with any
Person.
SECTION 8.6. GHS CHARTER AMENDMENT. Promptly following the Effective
Time, GHS shall take such action as is necessary to amend its Certificate of
Incorporation in order to increase the number of authorized shares of GHS Common
Stock to allow the conversion of all of the issued GHS Preferred Stock and
exercise of all of the GHS Warrants. The parties acknowledge that there is
currently an insufficient number of authorized unissued shares of GHS Common
Stock to allow such conversion and exercise and that such amendment to the GHS
Certificate of Incorporation is not a condition to Closing.
SECTION 8.7. GHS BOARD OF DIRECTORS. Promptly following the Effective
Time, GHS shall take all actions that are necessary to reconfigure the GHS Board
of Directors in accordance with the provisions of the By-laws attached hereto as
Exhibit 3.2 and in accordance with the Stockholders Agreement as provided in
Section 3.3 and, in connection therewith, shall take all actions required to be
taken pursuant to Rule 14f-1 of the Exchange Act.
25
ARTICLE 9.
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Exchange and
the other transactions contemplated herein shall be 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, to the extent permitted by applicable
Law:
(a) CONSENTS AND APPROVALS. All material consents, approvals
and authorizations legally required to be obtained to consummate the Exchange
shall have been obtained from and made with all required Governmental Entities
or any other third party.
(b) NO ORDER. No Governmental Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which has the effect of making the Exchange illegal or otherwise prohibiting
consummation of the Exchange.
(c) NEW EQUITY FINANCING. GHS shall have closed a new equity
financing resulting in net proceeds to GHS of at least $7,000,000 on terms
reasonably satisfactory to GHS and the CYL Members (the "New Financing").
(d) LITIGATION SETTLEMENT. The litigation presently pending in
the United District Court for the District of Maryland, Southern Division
bearing Case No. AW-97-1791 involving GHS shall have been settled on the terms
set forth in that certain Agreement of Settlement attached hereto as Exhibit
9.1(d).
(e) HSR ACT. Any applicable waiting period under the HSR Act
shall have expired or been terminated.
(f) CONTENT PROVIDER AGREEMENT. CYL will have entered into a
Content Provider Agreement and License pursuant to which the ▇▇▇▇▇▇▇ Group will
provide an exclusive, perpetual arrangement regarding internet programming,
promotion, products and services. The terms and provisions of such arrangement
are set forth in the Content Provider Agreement and License attached hereto as
Exhibit 9.1(f) (the "Content Provider Agreement").
(g) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall
have been executed and delivered by the parties thereto.
26
(h) LETTER AGREEMENT. A letter agreement pertaining to the
reimbursement of certain business expenses incurred by ▇▇▇▇▇▇▇ shall be executed
in a form mutually acceptable to GHS and the ▇▇▇▇▇▇▇ Group.
(i) REGISTRATION RIGHTS AGREEMENT. GHS and the CYL Members
will have entered into a Registration Rights Agreement in the form attached
hereto as Exhibit 9.1(i).
SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF GHS. The
obligations of GHS to effect the Exchange and the other transactions
contemplated herein are also subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be waived by
GHS in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of CYL contained in this Agreement shall be true
and correct as of the Effective Date (without regard to any materiality, CYL
Material Adverse Effect or similar qualifications thereto), as though made on
and as of the Effective Date, except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date, PROVIDED that if the aggregate effect of breaches of such
representations and warranties of CYL does not result in a CYL Material Adverse
Effect or materially adversely affect the transactions contemplated hereby, this
condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. CYL shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it, in all material respects, on or prior to the
Effective Date.
(c) NO LIABILITIES OF CYL. A the Effective Time, there shall
be no liabilities at CYL, other than its obligations under the Content Provider
Agreement or for Expenses which shall be borne by Development Holdings pursuant
to Section 10.5(a) and except as otherwise agreed to by GHS.
(d) CERTIFICATES. GHS shall have received such certificates
from officers and representatives of CYL as it shall have reasonably requested.
SECTION 9.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CYL. The
obligations of CYL to effect the Exchange and the other transactions
contemplated in this Agreement are also subject to the satisfaction, on or prior
to the Closing Date, of each of the following conditions (any of which may be
waived by CYL in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of GHS contained in this Agreement shall be true
and correct as of the Effective Date (without regard to any materiality, GHS
Material Adverse Effect or similar qualifications thereto), as though made on
and as of the Effective Date, except that those
27
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, PROVIDED that if the
aggregate effect of breaches of such representations and warranties of GHS does
not result in a GHS Material Adverse Effect or materially adversely affect the
transactions contemplated hereby, this condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. GHS shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it, in all material respects, on or prior to the
Effective Date.
(c) RELEASES FROM GUARANTIES. GHS shall have been released
from the Guaranties and all security interests or other liens therefor.
(d) GHS WORKING CAPITAL. At the Effective Time, GHS shall have
at least $3,000,000 in cash or cash equivalents in its bank or other accounts
(less amounts advanced relating to CYL's operations, including amounts paid
relating to a new New York City rental property, and less the expenses,
including legal fees, and consideration payable in connection with the
acquisition and funding contemplated by the Concept Transactions), free and
clear of all liens or encumbrances, PROVIDED that such $3,000,000 amount, as the
same may be reduced, shall be exclusive of the net proceeds to the Company from
the New Financing.
(e) USN SPIN-OFF. GHS shall have authorized the USN Spin-off
in accordance with the provisions of Section 7.3(c). In addition, all operating
assets and all liabilities of any type of GHS and its subsidiaries (other than
USN) shall have been transferred to USN in anticipation of the USN Spin-off, and
at the Effective Time there shall be no other liabilities at GHS or its
subsidiaries (other than USN) except liabilities contemplated by this Agreement,
including any fees and expenses payable by GHS in consummating the transactions
contemplated by this Agreement, liabilities resulting from Concept Transactions
and as otherwise agreed to by the CYL Members. GHS and USN shall have entered
into such agreements concerning the allocation of assets and liabilities between
them, indemnification and such other matters as shall be reasonably acceptable
to GHS and the CYL Members.
(f) TAX MATTERS. The CYL Members shall be satisfied, in their
reasonable judgment, that the transactions contemplated hereby in their entirety
would qualify as a tax-free transaction under Section 351 or other relevant
sections of the Code.
(g) AMENDMENT TO GHS'S BY-LAWS. GHS shall take such actions as
are necessary to amend and restate its By-Laws in the form referred to in
Section 3.2.
(h) CERTIFICATES. CYL shall have received such certificates
from officers and representatives of GHS as it shall have reasonably requested.
28
ARTICLE 10.
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Exchange by the stockholders of each of GHS and members of CYL:
(a) by mutual consent of GHS and the CYL Members;
(b) by GHS, upon a breach of any representation, warranty,
covenant or agreement on the part of CYL or the CYL Members set forth in this
Agreement, or if any representation or warranty of CYL or the CYL Members shall
have become untrue, in either case such that the conditions set forth in Section
9.2(a) or Section 9.2(b) would not be satisfied;
(c) by the CYL Members, upon breach of any representation,
warranty, covenant or agreement on the part of GHS set forth in this Agreement,
or if any representation or warranty of GHS shall have become untrue, in either
case such that the conditions set forth in Section 9.3(a) or Section 9.3(b)
would not be satisfied;
(d) by either GHS or the CYL Members, if there shall be any
Order which is final and nonappealable preventing the consummation of the
Exchange, except if the party relying on such Order has not complied with its
obligations under Section 8.1(b);
(e) by either GHS or the CYL Members, if the Exchange shall
not have been consummated before May 31, 1999; and
(f) by GHS or the CYL Members at any time prior to the
Effective Date if (i) in the case of termination by GHS, any of the conditions
specified in Section 9.2 shall not have been met in all material respects or
waived prior to such time as such condition can no longer be satisfied or (ii)
in the case of termination by the CYL Members, any of the conditions specified
in Section 9.3 shall not have been met in all material respects or waived prior
to such time as such condition can no longer be satisfied.
The right of any party hereto to terminate this Agreement pursuant to
this Section 10.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 10.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 10.1, this Agreement shall forthwith become
void, there shall be no liability on the part of GHS or CYL or any of their
respective officers, directors or members to the other and all rights and
obligations of any party hereto shall cease, and except that nothing herein
shall relieve any party of liability for any willful breach of any
representation or warranty or failure to perform or comply with any obligation
under this Agreement prior to
29
the termination hereof and except that Section 7.6, 10.2, 10.5 and Articles 12
shall survive such termination.
SECTION 10.3. AMENDMENT. This Agreement may be amended by the parties
hereto, in the case of GHS or CYL by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 10.4. 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 the other party hereto; (ii) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto; and (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. 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.
SECTION 10.5. FEES, EXPENSES AND OTHER PAYMENTS.
(a) Except as provided in Section 10.5(c), all Expenses (as
defined in paragraph (b) of this Section 10.5) incurred by the parties hereto
shall be borne solely and entirely by the party which has incurred such
Expenses, PROVIDED that the Expenses borne by CYL through the Closing shall be
borne solely by Development Holdings.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of 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 all other matters related to
the closing of the transactions contemplated herein.
(c) If this Agreement shall be terminated by the CYL Members
pursuant to Section 10.1(c) or by GHS pursuant to Section 10.1(b) (in each case,
the "Non-Breaching Party"), then the other party shall pay to the Non-Breaching
Party, in consideration of the time, effort and resources expended in connection
herewith, all of the Non-Breaching Party's Expenses. This shall be in addition
to any other rights the Non-Breaching Party shall have.
(d) Any payment required to be made pursuant to Section
10.5(c) shall be made to the Non-Breaching Party entitled to receive such
payment not later than two business days after delivery to the other party of
notice of demand for payment and an itemization setting forth in reasonable
detail all Expenses of the Non-Breaching Party, if any, and shall be made by
wire transfer of immediately available funds to an account designated by the
Non-Breaching Party in the notice of demand for payment delivered pursuant to
this Section 10.5(d).
30
ARTICLE 11.
INTENTIONALLY LEFT BLANK
ARTICLE 12.
GENERAL PROVISIONS
SECTION 12.1. EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of CYL and GHS in this Agreement shall expire at
the Effective Time.
SECTION 12.2. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to GHS:
GHS, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇ ▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to CYL:
Change Your ▇▇▇▇.▇▇▇, LLC
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ Polish, Chief Operating Officer
Telecopier No.(▇▇▇) ▇▇▇-▇▇▇▇
31
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the ▇▇▇▇▇▇▇ Group:
▇▇▇▇▇▇▇ Research International Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Loeb & Loeb, LLP
Suite 1800, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 12.3. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person and shall be deemed to include
directors and executive officers of a person;
(b) "business day" means any day other than a day on which
banks in the State of New York are authorized or obligated to be closed;
(c) "control" (including the terms "controlled", "controlled
by" and "under common control with") 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;
(d) "knowledge" shall mean, with respect to any matter in
question, with respect to CYL, if an executive officer of CYL or a CYL Member
or, with respect
32
to GHS, if an executive officer of GHS, as the case may be, has actual knowledge
of such matter, after due inquiry;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(f) "Returns" mean all tax returns, statements, reports, forms
(including estimated tax or information returns and reports, or filing
extensions with respect thereto) required to be filed with any taxing authority
in connection with the determination or administration of any tax;
(g) "subsidiary" or "subsidiaries" of CYL, GHS or any other
person, means any corporation, partnership, joint venture or other legal entity
of which CYL, GHS or such other person, as the case may be (either alone or
through or together with any other subsidiary), controls or owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity or, which by
contract or agreement, has the power to control such corporation or other legal
entity, or which otherwise constitutes a "subsidiary" as defined in Regulation
S-X Sections 210.1-02(w).
(h) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees or levies, payable to any federal, state, local or foreign taxing authority
or agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license, payroll,
withholding disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall profits,
transfer and gains taxes, (ii) customs duties, imposts, charges, levies or other
similar assessments of any kind, and (iii) interest, penalties and additions to
tax imposed with respect thereto.
SECTION 12.4. 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 12.5. 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 conditions 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.
33
SECTION 12.6. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits and Schedules hereto) constitute the entire agreement of the parties
and supersede all prior agreements and undertakings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
SECTION 12.7. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and 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.
SECTION 12.9. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 12.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 12.11. DISPUTE RESOLUTION. (a) In the event of any dispute,
controversy or claim arising out of or relating to this Agreement,
representatives of the parties shall meet in New York, NY, San Diego, CA or such
other city as may be mutually agreeable to the parties involved as soon as
reasonably possible (but not later than ten (10) days after written notice from
one party to the other of such dispute) and shall enter into good faith
negotiations aimed at resolving the dispute. If they are unable to resolve the
dispute in a mutually satisfactory manner within thirty (30) days from the date
of such notice, the matter may be submitted by any involved party to arbitration
as provided for below.
(b) Any dispute, controversy or claim between or among any of
the parties arising out of or relating to this Agreement or the breach,
termination or invalidity thereof, including any dispute as to whether any
dispute is subject to arbitration, which has not been resolved after good faith
negotiations pursuant to Section 12.11(a) hereof shall be settled by binding
arbitration administered by the American Arbitration Association in accordance
with its then current Commercial Arbitration Rules except as provided herein.
(c) Any arbitration shall be conducted by a three person
arbitration panel. The three person arbitration panel shall consist of one party
arbitrator selected by CYL, one party arbitrator selected by GHS, each of whom
shall be named within ten (10) days of the
34
demand for arbitration, and one neutral arbitrator selected by the first two
arbitrators. If the two party appointed arbitrators cannot agree on the neutral
arbitrator within ten (10) days of the selection of the last party appointed
arbitrator, the American Arbitration Association shall appoint the neutral
arbitrator, who shall act as chairperson. In the event of a vacancy with respect
to an arbitrator, the vacancy shall be filled within ten (10) days of notice of
the vacancy in the same manner and subject to the same requirements as are
provided for in the original appointment to that position. If the vacancy is not
filled within ten (10) days, the American Arbitration Association shall make the
appointment. Unless otherwise mutually agreed, the place of arbitration shall be
▇▇▇ ▇▇▇▇, ▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇, as selected by the party receiving the request
for arbitration.
(d) The law applicable to the validity of the arbitration
clause, the conduct of the arbitration, including the resort to a court for
interim relief, enforcement of the award or any other question of arbitration
law or procedure shall be the United States' Federal Arbitration Act, 9
U.S.C. Section 1 ET SEQ. The involved parties shall be entitled to engage in
reasonable discovery including requests for the production of all relevant
documents and a reasonable number of depositions. The arbitration panel shall
have the sole discretion to determine the reasonableness of any requested
document production or deposition. It is the intent of the parties that a
substantive hearing be held within sixty (60) days of the appointment of the
neutral arbitrator or the rejection of a challenge thereto, whichever shall
occur later. A stenographic record of every hearing shall be made. The
presentation of evidence shall be governed by the federal Rules of Evidence.
(e) Any award, including any interim award, made shall be made
by a majority of the arbitrators applying the substantive law of New York and
shall (i) be in writing and state the arbitration panel's findings of fact and
conclusions of law; (ii) be made promptly, and in any event within sixty (60)
days after the conclusion of the arbitration hearing; and (iii) be binding
against the parties involved and may be entered for enforcement in any court of
competent jurisdiction.
(f) The costs of any arbitration proceeding (e.g.,
arbitrators, court reporter and room rental fees) shall be equally divided
between CYL and GHS. However, each party shall pay its own expense, including
attorneys' and other professionals' fees and disbursements.
(g) The arbitration provision set forth in this Section 12.11
shall be a complete defense to any suit, action or proceeding instituted in any
court with respect to any matter arbitrable under this Agreement, except that
judicial intervention may be sought in accordance with Section 12.12 hereof.
SECTION 12.13. SPECIFIC PERFORMANCE. The parties acknowledge that the
failure of any party or its affiliates to substantially perform its material
obligations and covenants under this Agreement may result in a significant
frustration of the respective business objectives of the parties and that
remedies at law may be inadequate to protect the
35
rights and interests of the other party. Accordingly, the parties, in addition
to the remedies provided in this Agreement or otherwise available for the
enforcement of this Agreement, expressly consent to an order for specific
performance of such obligations and covenants of a party or its affiliates or an
order granting other substantially equivalent remedies calculated to require
performance of any such obligations or covenants.
SECTION 12.14. COUNTERPARTS. This Agreement may be executed in one or
more 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 one and the same agreement.
36
IN WITNESS WHEREOF, GHS, CYL and the CYL Members have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
GHS, INC. CHANGE YOUR ▇▇▇▇.▇▇▇, LLC
By:/s/ ▇▇▇▇ ▇▇▇▇ By:/s/ ▇▇▇▇▇ ▇▇▇
--------------------------- ----------------------------
Name: ▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇
Title: President Title: Vice President
CYL MEMBERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ RESEARCH
INTERNATIONAL INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman
CYL DEVELOPMENT
HOLDINGS, LLC
By:/s/ ▇▇▇▇▇ ▇▇▇
--------------------------
Name: ▇▇▇▇▇ ▇▇▇
Title: Manager
37
LIST OF EXHIBITS AND SCHEDULES TO
CONTRIBUTION AND EXCHANGE AGREEMENT
LIST OF EXHIBITS
1.1 GHS Preferred Stock Terms
3.1 CYL Certificate of Formation and Operating Agreement
3.2 GHS Certificate of Incorporation and By-Laws
3.3 Stockholders Agreement
8.4 Concept Development and ▇▇▇▇▇▇▇▇/▇▇▇▇▇ Letters of Intent
9.1(d) Settlement Agreement
9.1(f) CYL Content Provider Agreement and License
9.1(i) Registration Rights Agreement
LIST OF SCHEDULES
4.1 CYL Members and Pro Rata Portion
CYL Disclosure Schedule
GHS Disclosure Schedule