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EXHIBIT 10.7
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 11, 2000
AMONG
FRONTIER INSURANCE GROUP, INC.
▇▇▇▇▇▇▇.▇▇▇, INC.
SOLUTIONSAMERICA, INC.
AND
ONESTOP ACQUISITION CORP.
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND CONSTRUCTION...................................................1
1.1 Certain Definitions....................................................1
1.2 Additional Definitions.................................................3
1.3 Terms Generally........................................................4
ARTICLE II
THE MERGER.....................................................................5
2.1 The Merger.............................................................5
(a) Merger; Effective Time..........................................5
(b) Effects of the Merger...........................................5
(c) Certificate of Incorporation of Surviving Corporation...........5
(d) By-laws of the Surviving Corporation............................5
(e) Officers and Directors of the Surviving Corporation.............5
2.2 Closing................................................................6
(a) Closing Date and Location.......................................6
(b) Obligations of the Company and the Company Stockholder. .......6
(c) Obligations of Parent and Merger Sub............................7
(d) Proceedings Satisfactory to Counsel.............................7
2.3 Conversion of Securities...............................................7
(a) Conversion of Merger Sub Stock..................................7
(b) Conversion of Company Stock.....................................8
(c) No Future Ownership Rights in Surviving Corporation.............8
2.4 Changes in Parent Common Stock.........................................8
(a) Adjustments.....................................................8
(b) Consummation of Avenue Transaction..............................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY STOCKHOLDER AND COMPANY................................................8
3.1 Organization and Qualification.........................................8
3.2 Authorization and Validity of Agreement................................9
3.3 Capitalization.........................................................9
3.4 Financial Statements..................................................10
3.5 Debts, Obligations, and Liabilities...................................11
3.6 No Approvals or Notices Required; No Conflict with Instruments........11
3.7 Absence of Certain Changes or Events..................................12
3.8 Compliance with Law, Legal Proceedings................................12
3.9 Brokers or Finders....................................................12
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3.10 Tax Returns and Payments..............................................12
3.11 Employee Benefit Plans................................................12
3.12 Transaction Approval..................................................12
3.13 Vote Required.........................................................13
3.14 Real Property. ......................................................13
3.15 Tangible Personal Property. .........................................13
3.16 Accounts Receivable. ................................................13
3.17 Intellectual Property.................................................13
3.18 Company's Property. .................................................14
3.19 Permits, Licenses, and Franchises.....................................14
3.20 Full Disclosure.......................................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT......................................15
4.1 Organization and Qualification........................................15
4.2 Authorization and Validity of Agreement...............................15
4.3 Transaction Approval..................................................15
4.4 Vote Required.........................................................16
4.5 Capitalization........................................................16
4.6 Ownership of Merger Sub; No Prior Activities; Assets of Merger
Sub........................................................................16
4.7 No Approvals or Notices Required......................................17
4.8 Legal Proceedings.....................................................17
4.9 Parent Financial Statements. ........................................18
4.10 Absence of Certain Changes or Events..................................18
4.11 Other Merger Agreement................................................18
4.12 Brokers or Finders....................................................18
4.13 Tax Returns and Payments..............................................18
4.14 Employee Benefit Plans................................................19
4.15 Intellectual Property.................................................19
4.16 Full Disclosure.......................................................19
ARTICLE V
CERTAIN AGREEMENTS AND TRANSACTIONS PRIOR TO CLOSING..........................19
5.1 ▇▇▇▇▇▇ Equity Transaction.............................................19
5.2 Certain Covenants and Agreements......................................19
5.3 Access to Information Concerning Properties and Records...............20
5.4 Confidentiality.......................................................20
5.5 Public Announcements..................................................21
5.6 No Solicitation.......................................................21
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5.7 Certain Matters.......................................................22
5.8 Defense of Litigation.................................................22
5.9 Actions by Merger Sub.................................................22
5.10 Conduct of Company's (including all of its subsidiaries)
Business Pending the Effective Time........................................22
5.11 Rainbow Voice Release.................................................24
ARTICLE VI
POST-CLOSING COVENANTS........................................................24
6.1 Initial Registration..................................................24
6.2 Registration of Merger Consideration..................................24
6.3 Repurchase Obligation.................................................24
6.4 Company Stockholder as Provider of Choice......................25
6.5 Indemnifications......................................................25
(a) By the Company Stockholder.....................................25
(b) By Parent......................................................25
(c) Damages........................................................25
(d) Cooperation....................................................26
(e) Defense of Claims..............................................26
(f) Limitations....................................................27
6.6 Covenant Not To Compete...............................................27
(a) Covenant.......................................................27
(b) Time Limitations...............................................28
(c) Geographic Limitations.........................................28
6.7 License Prorations; Other Payments....................................28
6.8 Relocation and FF&E...................................................28
ARTICLE VII
CONDITIONS PRECEDENT..........................................................28
7.1 Conditions Precedent to the Obligations of Parent and Merger
Sub for the Benefit of Parent..............................................28
(a) Accuracy of Representations and Warranties.....................28
(b) Performance of Agreements......................................29
(c) Officers' Certificates.........................................29
(d) Opinion of Counsel for the Company Stockholder and
Company...............................................................29
(e) No Adverse Enactments..........................................29
(f) Absence of Injunctions and Proceedings.........................29
(g) Certain Agreements.............................................30
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7.2 Conditions Precedent to the Obligations of Company
Stockholder and the Company................................................30
(a) Accuracy of Representations and Warranties.....................30
(b) Performance of Agreements......................................30
(c) Officers' Certificate..........................................30
(d) Opinion of Counsel for Parent..................................30
(e) No Adverse Enactments..........................................31
(f) Absence of Injunctions and Proceedings.........................31
ARTICLE VIII
TERMINATION...................................................................31
8.1 Termination and Abandonment...........................................31
8.2 Effect of Termination.................................................32
ARTICLE IX
MISCELLANEOUS.................................................................32
9.1 Certain Tax Positions.................................................32
9.2 Notices...............................................................32
9.3 Entire Agreement......................................................33
9.4 Expenses..............................................................33
9.5 Assignment; Binding Effect, Benefit...................................33
9.6 Amendment.............................................................34
9.7 Extension; Waiver.....................................................34
9.8 Headings..............................................................34
9.9 Counterparts..........................................................34
9.10 Applicable Law........................................................34
9.11 Enforcement...........................................................34
9.12 Disclosure Schedule...................................................35
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of this
11th day of July, 2000, by and among SolutionsAmerica, Inc., a Delaware
corporation ("Parent"), OneStop Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), ▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware
corporation (the "Company") and Frontier Insurance Group, Inc., a Delaware
corporation ("Company Stockholder").
WHEREAS, Company Stockholder owns all of the capital stock of Company.
WHEREAS, the parties wish to provide for the terms and conditions upon
which Parent will acquire all of the capital stock in the Company by means of a
merger of Merger Sub, a direct wholly owned subsidiary of Parent, with and into
the Company (the "Merger"); and
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger qualify as a reorganization under Section 368(a) of the Internal Revenue
Code of 1986 (the "Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions.
As used in this Agreement, the following terms have the
corresponding meanings:
An "Affiliate" of any Person means any other Person that, directly
or indirectly, controls or is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any company stock plan). A Person shall be deemed to "control,"
be "controlled by" or be "under common control with" any other Person if such
other Person possesses, directly or indirectly, power to direct or cause the
direction of the management or policies of such Person whether through the
ownership of voting securities or partnership interests, by contract or
otherwise.
"Agreement" means this Agreement and Plan of Merger, including all
Exhibits and Schedules hereto.
"AMEX" means The American Stock Exchange.
"Closing" means the consummation of the transactions contemplated by
this Agreement.
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"Closing Date" means the date on which the Closing occurs pursuant
to Section 2.2(a).
"Commission" means the Securities and Exchange Commission.
"Company Common Stock" means the Common Stock par value $.01 per
share, of the Company.
"Company Financial Statements" means the unaudited, consolidated
financial statements of the Company for the periods ended December 31, 1999 and
May 31, 2000.
"Disclosure Schedule" means the Schedules constituting a part of
this Agreement as contemplated by Article III.
"Effective Time" means the time when the Merger becomes effective
under applicable law.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations thereunder.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time.
"Governmental Entity" means and includes any court, arbitrator,
administrative or other governmental department, agency, commission, authority
or instrumentality, domestic or foreign.
"Letter of Intent" means the letter of intent dated June 30, 2000,
by and among Parent, Company Stockholder and the Company.
"Material Adverse Effect" means (i) a material adverse effect on the
transactions contemplated hereby (including a material adverse effect on the
ability of any party hereto to consummate such transactions or perform its
material obligations hereunder) or (ii) an adverse effect on the business,
assets, liabilities, operations, results of operations, condition (financial or
otherwise) or prospects of the Company (or of the Surviving Corporation) or
Parent (or any of its subsidiaries) that is material to the Company (or the
Surviving Corporation), or Parent (and all of Parent's subsidiaries taken as a
whole). Without limiting the generality of the foregoing, for purposes of
Articles III and IV hereof, an adverse effect shall be deemed to be material for
purposes of clause (ii) of this definition if it involves an amount of $25,000
or more.
"Merger Consideration" means the Parent Common Stock into which
shares of Company Common Stock are converted pursuant to Section 2.3(b).
"Parent Common Stock" means the Common Stock, par value $.0001 per
share, of Parent.
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"Parent Financial Statements" means the financial statements of
Parent for the period from July 16, 1999 (inception) to May 31, 2000 as audited
by Grobstein, ▇▇▇▇▇▇▇ & Company LLP.
"Person" means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, association, or joint
venture or a government, agency, political subdivision, or instrumentality
thereof.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations thereunder.
"Surviving Corporation" means the Company as the surviving
corporation after the Merger as provided in Section 2.1(a).
"Surviving Corporation Common Stock" means the Common Stock, par
value $.01 per share, of the Surviving Corporation.
1.2 Additional Definitions.
The following additional terms are used as defined in the indicated
Sections:
Defined Term Section Defined In
------------ ------------------
Certificate of Merger 2.1(a)
Claim 6.5(e)
Claim Notice 6.5(e)
Code Recitals
Company Preamble
Company Charter 3.1(b)
Company Stockholder Preamble
Company Subsidiaries 3.1(c)
Confidential Information 5.4
Damages 6.5(a)
DGCL 2.1
Disclosing Party 5.4
Effective Time 2.1(a)
Extraordinary Transaction 5.6(a)
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Defined Term Section Defined In
------------ ------------------
Governmental Consents and Filings 3.5(b)
Leases 3.14
Merger Recitals
Merger Sub Preamble
Parent Preamble
Parent Board 4.3
Receiving Party 5.4
Representative(s) 5.4
▇▇▇▇▇▇ 5.1
▇▇▇▇▇▇ Equity Line Agreement 5.1
▇▇▇▇▇▇ Equity Line Transaction 5.1
Terminated Employees 5.2(b)
Violation 3.6(d)
1.3 Terms Generally. The definitions in Sections 1.1 and 1.2 apply
equally to both the singular and plural forms of the terms defined. Whenever the
context requires, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be construed as if followed by the words "without limitation." The words
"herein," "hereof" and "hereunder" and words of similar import refer to this
Agreement (including the Exhibits and Schedules) in its entirety and not to any
part hereof, unless the context otherwise requires. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context otherwise requires. Unless the context otherwise requires, any
references to any agreement or other instrument or statute or regulation are to
such agreement, instrument, statute or regulation as amended and supplemented
from time to time (and, in the case of a statute or regulation, to any successor
provisions). Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "business") shall mean a calendar day or
number of calendar days. If any action or notice is to be taken or given on or
by a particular day, and such day is not a business day, then such action or
notice shall be deferred until, or may be taken or given on, the next business
day under California law.
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ARTICLE II
THE MERGER
2.1 The Merger.
(a) Merger; Effective Time. At the "Effective Time" (as
hereinafter defined) and subject to and upon the terms and conditions of this
Agreement, Merger Sub shall be merged with and into the Company in accordance
with the provisions of the Delaware General Corporation Law ("DGCL"), the
separate corporate existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation. The Effective Time shall occur upon the
filing with the Delaware Secretary of State of a certificate of merger (the
"Certificate of Merger") in form and substance reasonably satisfactory to Parent
and Company Stockholder and executed in accordance with the applicable
provisions of the DGCL, or at such later time as may be agreed to by Parent and
Company Stockholder and specified in the Certificate of Merger. Provided that
this Agreement has not been terminated pursuant to Article VIII, the parties
will cause the Certificate of Merger to be filed with the Delaware Secretary of
State on the Closing Date, at, or as soon as practicable after, the Closing.
(b) Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
(c) Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Company in effect immediately prior to the
Effective Time shall be amended by virtue of the Merger, so as to read in its
entirety in form and substance satisfactory to Parent, and as so amended shall,
from and after the Effective Time, be the Certificate of Incorporation of the
Surviving Corporation until thereafter further amended as provided by law.
(d) By-laws of the Surviving Corporation. The Bylaws of the
Company in effect immediately prior to the Effective Time shall be amended by
virtue of the Merger, so as to read in their entirety in form and substance
satisfactory to Parent, and as so amended shall, from and after the Effective
Time, be the Bylaws of the Surviving Corporation until thereafter further
amended as provided by law.
(e) Officers and Directors of the Surviving Corporation. From and
after the Effective Time, until their successors are duly elected or appointed
and qualified, the officers and directors, respectively, of the Surviving
Corporation shall be such persons as are so designated by Parent.
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2.2 Closing.
(a) Closing Date and Location. The Closing shall take place (i) at
10:00 a.m. (Pacific Time) at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Fields Claman &
Machtinger LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, on
the first business day following the date on which the last of the conditions
set forth in Article VII (other than the filing of the Certificate of Merger and
other than any such conditions which by their terms are not capable of being
satisfied until the Closing Date) is satisfied or, to the extent permissible,
waived, or (ii) on such other date and at such other time or place as is
mutually agreed by the parties hereto.
(b) Obligations of the Company and the Company Stockholder. At the
Closing, the Company and the Company Stockholder shall deliver to Parent the
following documents:
(i) a certificate of good standing from the State of
Delaware dated as of a date not more than two (2) business days prior to the
Closing Date and certifying that the Company is duly qualified and in good
standing as of the date of such certificate;
(ii) the officers' certificates provided for in Section
7.1(c);
(iii) the opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP or other
counsel reasonably acceptable to Parent, as counsel for the Company and Company
Stockholder, pursuant to Section 7.1(d);
(iv) any consents and approvals required to be obtained at or
prior to the Closing which have not been previously delivered;
(v) the executed Certificate of Merger;
(vi) written resignations from the directors and officers of
the Company effective immediately prior to the Effective Time;
(vii) evidence that Company Stockholder shall have converted
prior to the Closing Date all of the existing intercompany indebtedness of
Company into shares of Common Stock of Company owned by Company Stockholder or
otherwise contributed such indebtedness to capital;
(viii) evidence that Company has terminated all of the
Terminated Employees without any continuing liability or obligation to Company,
except as noted in Section 2.2(d)(viii) of the Disclosure Schedule;
(ix) evidence that all existing options, warrants,
convertible securities or other rights to subscribe for or acquire Company
Common Stock, have been canceled or converted into shares of Common Stock of
Company prior to the Closing Date;
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(x) evidence of the assignment and assumption of, and
release of Company and Company Subsidiaries from liability for, all Leases.
(xi) stock certificates representing all outstanding shares
of Company Common Stock.
(c) Obligations of Parent and Merger Sub. At the Closing, Parent
and Merger Sub shall deliver to the Company and Company stockholder the
following documents:
(i) a certificate of good standing from the State of
Delaware dated as of a date not more than two (2) business days prior to the
Closing Date and certifying that Parent and Merger Sub are duly qualified and in
good standing as of the date of such certificates;
(ii) the officers' certificate provided for in Section
7.2(c);
(iii) the opinion of ▇▇▇▇▇▇▇▇▇ Glusker Fields Claman &
Machtinger LLP or other counsel reasonably acceptable to the Company
Stockholder, as counsel for Parent and Merger Sub pursuant to Section 7.2(d);
(iv) any consents and approvals required to be obtained at or
prior to the Closing and which have not been previously delivered;
(v) evidence that a formal understanding has been reached
between Parent and Rainbow Voice, Inc., a Georgia corporation ("Rainbow Voice")
which understanding releases Company Stockholder from any liability to Rainbow
Voice as provided in Section 5.11;
(vi) the executed Certificate of Merger; and
(vii) stock certificates representing the Merger Consideration
registered in the name of Company Stockholder.
(d) Proceedings Satisfactory to Counsel. It shall be a condition
to the effectiveness of all deliveries at the Closing that the actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement to be effected at the Closing, and related legal
matters be reasonably satisfactory to and approved by counsel for each party and
such counsel shall have been furnished with such certified or other copies of
such actions and proceedings and such other instruments and documents as it
shall reasonably have requested. All deliveries at the Closing shall be deemed
to occur simultaneously unless the parties otherwise agree or the context
otherwise requires.
2.3 Conversion of Securities.
(a) Conversion of Merger Sub Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holders of any of their securities, each share of Merger Sub
Common Stock outstanding immediately prior to the
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Effective Time shall be converted into and become one (1) fully paid and
non-assessable share of Common Stock, par value $.01 per share of the Surviving
Corporation.
(b) Conversion of Company Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company or the holders of any of their securities, all of the shares of capital
stock of Company outstanding immediately prior to the Effective Time shall be
converted into and represent the right to receive, and shall be exchangeable
for, in the aggregate, One Million (1,000,000) shares of Parent Common Stock.
(c) No Future Ownership Rights in Surviving Corporation. All
shares of Company Common Stock that are converted into the right to receive the
Merger Consideration shall, after the Effective Time, no longer be outstanding
and shall automatically be canceled and retired.
2.4 Changes in Parent Common Stock.
(a) Adjustments. If prior to the Effective Time, the Parent Common
Stock shall be recapitalized or reclassified or Parent shall effect any stock
dividend, stock split, or reverse stock split of Parent Common Stock, then the
shares of Parent Common Stock to be issued as Merger Consideration under this
Agreement shall be proportionately and equitably adjusted to reflect any
increase or decrease in the number of shares of Parent Common Stock resulting
from such corporate event.
(b) Consummation of Avenue Transaction. If the transaction with
Avenue described in Section 4.11 hereof is consummated prior to the consummation
of the Merger, Company Stockholder shall have the right to receive the same
consideration received by all other holders of Parent Common Stock pursuant to
the terms of such transaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY STOCKHOLDER AND COMPANY
The Company Stockholder and Company, jointly and severally, make the
representations and warranties set forth below, except as expressly set forth in
the Disclosure Schedule. Each exception to the representations and warranties
set forth in the Disclosure Schedule shall reference by Section number the
representation and warranty to which it applies, and shall be deemed to be
disclosed for any other Section where such disclosure would be deemed
appropriate. For purposes of this Article III, an item shall be deemed to be
material if it involves an amount of $25,000 or more.
3.1 Organization and Qualification.
(a) The Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and (ii)
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being
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conducted. The Company is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of its activities makes such qualification necessary, except
in such jurisdictions where the failure to be so duly qualified or in good
standing has not had and is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.
(b) The Company has delivered to Parent true and complete copies
of the Company's Certificate of Incorporation (the "Company Charter") and
Bylaws, as amended through and in effect on the date hereof. The Company's
minute books, true and complete copies of which have been made available to
Parent, contain the minutes of all meetings and actions by written consent of
incorporators, directors and stockholders of the Company since its inception and
such minutes completely and correctly reflect all of their respective actions in
all material respects.
(c) Except as set forth on Schedule 3.1(c), the Company does not
currently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The companies identified on
Schedule 3.1(c) are referred to herein as "Company Subsidiaries." Company
Subsidiaries are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdiction of their incorporation; have all
necessary corporate power to own the properties and to carry on the business as
now owned and operated by them; and are duly qualified to do intrastate business
and are licensed and in good standing in each jurisdiction in which the nature
of Company Subsidiaries' businesses or of their properties make such licensing
and qualifications necessary, except where failure to be so licensed and
qualified would not have a Material Adverse Effect on Company or Company
Subsidiaries. All the issued and outstanding shares of capital stock of Company
Subsidiaries are validly issued, fully paid and nonassessable, and are owned by
Company, free and clear of all liens, encumbrances, security agreements, adverse
interests, equities, options, claims, charges, and restrictions. Company has
full power to transfer their shares without obtaining the consent or approval of
any other person or Governmental Entity. There are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements or
commitments obligating Company Subsidiaries to issue or to transfer from
treasury any additional shares of their capital stock of any class.
3.2 Authorization and Validity of Agreement. The Company Stockholder and
Company have all requisite corporate power and authority to enter into this
Agreement and to perform their obligations hereunder and consummate the
transactions contemplated hereby. The execution, delivery and performance by the
Company Stockholder and Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Company Stockholder's Board of Directors and by the Company's Board of Directors
and by all other corporate action on the part of the Company Stockholder and the
Company. This Agreement has been duly executed and delivered by the Company
Stockholder and the Company and is a legal, valid and binding obligation of the
Company Stockholder and by the Company, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
3.3 Capitalization.
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(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock. As of the close of business on the business
day immediately preceding the date of this Agreement, 16,000,000 shares of
Company Common Stock were issued and outstanding, no shares of preferred stock
are issued and outstanding, and no shares of Company Common Stock were reserved
for issuance upon exercise of stock options, warrants, subscription rights,
convertible securities, or other rights or commitments.
(b) All issued and outstanding shares of Company Common Stock have
been validly issued and are fully paid and non-assessable, are not subject to
and have not been issued in violation of any preemptive rights and have not been
issued in violation of any federal or state securities laws.
(c) Company Stockholder is the owner, beneficially and of record,
of all the shares of Company Common Stock, free and clear of all liens,
encumbrances, adverse interests, security agreements, equities, options, claims,
charges, and restrictions.
(d) Except for this Agreement, there are no outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or other
agreements or instruments of any kind or character, to or by which the Company
or any of its Company Subsidiaries is a party or is bound, that directly or
indirectly (i) obligate the Company or any of its Company Subsidiaries
(conditionally or unconditionally) to issue, deliver or sell or cause to be
issued, delivered or sold, (ii) entitle any Person (conditionally or
unconditionally) to purchase or otherwise acquire, or (iii) otherwise represent
or evidence: (A) any additional shares of Company Common Stock or any other
capital stock or equity interest of the Company or its Company Subsidiaries, (B)
any securities convertible into, or exercisable or exchangeable for, any such
shares or interests, or (C) any phantom shares, phantom equity interests or
stock or equity appreciation rights.
(e) The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock.
(f) Neither the Company nor Company Subsidiaries are under any
obligation to contribute any additional capital to, or to acquire any additional
interest in, any other Person.
3.4 Financial Statements. The Company Financial Statements (a) are in
accordance with the books and records of the Company, (b) except as set forth in
Section 3.4 of the Disclosure Schedule or in the notes to the Company Financial
Statements, have been prepared in accordance with GAAP and (c) fairly and
accurately present the assets, liabilities (including all reserves) and
financial position of the Company as of the respective dates thereof and the
results of operations and changes in cash flows for the periods then ended. At
the respective dates of the Company Financial Statements, there were no
liabilities of the Company and its Company Subsidiaries, which, in accordance
with GAAP, should have been shown or reflected in the Company Financial
Statements or the notes thereto, which are not shown or reflected in the Company
Financial Statements or the notes thereto.
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3.5 Debts, Obligations, and Liabilities. The Company Financial
Statements contain a complete and accurate schedule of all liabilities and
obligations of Company and Company Subsidiaries other than those liabilities and
obligations which have arisen in the ordinary course of business since May 31,
2000. Neither the Company nor Company Subsidiaries have any debts, liabilities
or obligations of any nature, whether accrued absolute, contingent or otherwise
and whether due or to become due, that are not set forth in the Company
Financial Statements or in Section 3.5 of the Disclosure Schedule.
3.6 No Approvals or Notices Required; No Conflict with Instruments. The
execution and delivery by the Company Stockholder and the Company of this
Agreement does not and the performance by the Company Stockholder and the
Company of their obligations hereunder and the consummation of the transactions
contemplated hereby will not:
(a) conflict with or violate the Company Charter or Bylaws or the
Company Stockholder's Certificate of Incorporation or Bylaws;
(b) require any consent, approval, order or authorization of or
other action by, or any registration, qualification, declaration or filing with
or notice to, any Governmental Entity (collectively, "Governmental Consents and
Filings"), with respect to the Company, except (i) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, and (ii) any
other filings the absence of which would not, individually or in the aggregate,
result in a Material Adverse Effect;
(c) require, on the part of the Company Stockholder or the
Company, any consent by or approval or authorization of or notice to any Person
(other than a Governmental Entity), whether under any contract or otherwise,
except as set forth in Section 3.6(c) of the Disclosure Schedule and except for
any other consents, approvals, authorizations and notices the absence of which
would not, individually or in the aggregate, result in a Material Adverse
Effect;
(d) assuming that the consents and notices described in Section
3.6(c) of the Disclosure Schedule are obtained and given, conflict with or
result in any violation or breach of or default under, or give rise to a right
of termination, cancellation, suspension, modification or acceleration of any
obligation or any increase in any payment required by or the impairment, loss or
forfeiture of any benefit, rights or privileges under or the creation of a lien
or other encumbrance on any assets pursuant to (any of the foregoing, a
"Violation") any contract to which the Company Stockholder, the Company or
Company Subsidiaries is a party, by which the Company Stockholder, the Company
or Company Subsidiaries or any of Company's or Company Subsidiaries' assets or
properties are bound or affected, or pursuant to which the Company or Company
Subsidiaries is entitled to any rights or benefits (in any such case, with or
without notice or lapse of time, or both), other than any Violations that would
not, individually or in the aggregate, result in a Material Adverse Effect; or
(e) assuming that the Governmental Consents and Filings specified
in Section 3.6(b) are obtained, made and given, result in a Violation of any
law, rule, regulation, order, judgment or decree applicable to the Company or
Company Subsidiaries or by which any of their
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properties or assets are bound or affected, other than any such Violations that
would not, individually or in the aggregate, result in a Material Adverse
Effect.
3.7 Absence of Certain Changes or Events. Since May 31, 2000 there has
not been any material adverse change in the business, assets, liabilities,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and Company Subsidiaries, and no event has occurred and
no condition exists that, individually or together with any other events or
conditions, has had or is reasonably likely to have a Material Adverse Effect.
3.8 Compliance with Law, Legal Proceedings. Company and Company
Subsidiaries have complied in all material respects with all federal, state and
local laws and regulations. Except as set forth in Section 3.8 of the Disclosure
Schedule, (i) there is no suit, action or proceeding pending or, to the best
knowledge of the Company Stockholder and Company, any investigation pending or
any suit, action, proceeding or investigation threatened, against, involving or
affecting the Company or Company Subsidiaries, that is, if adversely determined,
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect; (ii) to the best knowledge of the Company Stockholder and
Company there is no judgment, decree, injunction, rule or order of any
Governmental Entity applicable to the Company or Company Subsidiaries that has
or is reasonably likely to have, either individually or in the aggregate, any
such effect; and (iii) to the best knowledge of the Company Stockholder and
Company, there is no action, suit, proceeding or investigation pending or
threatened against the Company Stockholder and Company that seeks to restrain,
enjoin or delay the consummation of the Merger or any of the other transactions
contemplated hereby.
3.9 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other Person is or will be entitled, by reason of any agreement, act
or statement by the Company Stockholder or Company or any of its directors,
officers, employees or agents, to any financial advisory, broker's, finder's or
similar fee or commission, to reimbursement of expenses or to indemnification or
contribution in connection with any of the transactions contemplated by this
Agreement.
3.10 Tax Returns and Payments. The Company and Company Subsidiaries have
filed all tax returns and reports as required by law as part of the consolidated
tax return of the Company Stockholder. These returns and reports are true and
correct in all material respects. The Company and Company Subsidiaries have paid
all taxes and other assessments due. The provisions for taxes reflected in
Company's consolidated balance sheet as of May 31, 2000 are adequate for
federal, state, county, and local taxes for the period ending on the date of
that balance sheet and for all prior periods, disputed or undisputed. There are
no present disputes about taxes of any nature payable by Company or Company
Subsidiaries.
3.11 Employee Benefit Plans. The Company does not have any "employee
benefit plans" as defined in the Employee Retirement Income Security Act of
1974.
3.12 Transaction Approval. This Agreement and the Merger have been
approved by the Company Board, the Company Stockholder and the Company
Stockholder's Board of Directors.
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3.13 Vote Required. The only vote of stockholders of the Company required
under the Company Charter, the Company's Bylaws and applicable law in order to
approve and adopt the Merger, is the affirmative vote of a majority of the
aggregate voting power of the issued and outstanding shares of Company Common
Stock voting together as a single class, and no other vote or approval of or
other action by the holders of any capital stock of the Company is required.
3.14 Real Property. Section 3.14 of the Disclosure Schedule sets forth a
complete list of all real property leased to Company or Subsidiaries (the
"Leases"). Company and Company Subsidiaries do not own any real property.
3.15 Tangible Personal Property. Section 3.15 of the Disclosure Schedule
contains a complete and accurate schedule describing and specifying the location
of all machinery, equipment, furniture, supplies, tools, and all other tangible
personal property having a value of greater than $300 owned by, in the
possession of, or used by Company or Company Subsidiaries in connection with
their respective businesses. The property listed in Section 3.15 constitutes all
such tangible personal property necessary for the conduct by Company and Company
Subsidiaries of their respective businesses as now conducted. All such tangible
personal property is in good operating condition and repair. Except as stated in
Section 3.15, no personal property used by either Company or Company
Subsidiaries in connection with their businesses is held under any lease,
security agreement, conditional sales contract, or other title retention or
security arrangement, or is located other than in the possession of Company or
Company Subsidiaries.
3.16 Accounts Receivable. All accounts receivable of Company and Company
Subsidiaries shown on the consolidated balance sheet of Company as of May 31,
2000, and all accounts receivable of Company and Company Subsidiaries created
after that date arose from valid sales in the ordinary course of business. These
accounts have been collected in full since that date or are collectible at their
full amounts less (i) any reserve for doubtful accounts and trade discounts
shown on that balance sheet, and (ii) a reserve of $400,000 for a known note
receivable.
3.17 Intellectual Property.
(a) The Company and Company Subsidiaries own or have adequate
rights to use all patents, trademarks, trade names, service marks, brands,
logos, copyrights, trade secrets, computer software and applications, customer
lists and other proprietary intellectual property rights required for, used in
or incidental to the business of the Company and Company Subsidiaries as now
conducted or proposed to be conducted. Section 3.17 of the Disclosure Schedule
is a schedule of all trade names, trademarks, service marks, computer software
and applications, copyrights (other than common law copyrights) and their
registrations and other intellectual property rights subject to government
filings owned by Company or Company Subsidiaries, or in which they have any
rights or licenses, together with a brief description of each. Neither Company
Stockholder, nor Company have any knowledge of any infringement or alleged
infringement by others of any such trade names, trademarks, service marks, trade
secrets, copyrights, or other intellectual property rights. Company and Company
Subsidiaries have not infringed, and are not now infringing, on any trade name,
trademark, service ▇▇▇▇, copyright or other intellectual property rights,
belonging to any other person, firm, or corporation. Except as set forth in
Section 3.17 of the Disclosure Schedule,
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neither Company nor Company Subsidiaries is a party to any license, agreement,
or arrangement, whether as licensor, licensee, franchisee, or otherwise, with
respect to any copyrights or any trademarks, service marks, trade names, or
applications for them. Company and Company Subsidiaries own, or hold adequate
licenses or other rights to use, all trademarks, service marks, trade names, and
copyrights necessary for their respective businesses as now conducted by them.
(b) The Company's software, systems and information technology and
all updates thereto are designed to correctly handle the change of the century,
including the year 2000 and beyond as well as the leap year and the absence of
leap year, and have and will operate accurately before, during and after the
year 2000 with respect to date/time related operations. Without limiting the
foregoing, Company' software, systems and information technology will operate
and correctly process data such that (i) calculations using dates are executed
utilizing a four digit year, (ii) the software functionality, including, but not
limited to, entry, inquiry, maintenance, update and display (whether on-line,
batch or otherwise) shall support four digit year processing, (iii) reports and
interfaces with other Company software as well as third party year 2000
compliant software with which Company's software currently interfaces shall
support four digit year processing and shall otherwise meet the requirements of
this subsection, (iv) use of the correct system date shall occur without human
intervention, (v) processing with a four digit year shall occur without human
intervention, (vi) all leap years shall be calculated correctly, and (vii)
correct results shall be produced in forward and backward date calculations
spanning century boundaries, including the conversion of previous years
currently stored as two digits. Company's software, systems and information
technology have full functionality to operate Company's business as now being
conducted or proposed to be conducted.
3.18 Company's Property. Except as may be disclosed in Section 3.18 of
the Disclosure Schedule, and except for the lien for any current taxes or
assessments not yet delinquent, Company and Company Subsidiaries own free and
clear of any liens, claims, charges, options, encumbrances or adverse interests
all the tangible and intangible property owned by them, whether reflected on
Company's and Company Subsidiaries' books at the balance sheet date or property
acquired since that date, except such property as has been disposed of in the
ordinary course of business consistent with prior practices of Company and
Company Subsidiaries or with Parent's written consent. For purposes of this
Section 3.18, a disposition of any single asset carried on the books of Company
and Company Subsidiaries at more than $10,000 will be considered to be
disposition not in the ordinary course of business.
3.19 Permits, Licenses, and Franchises. Company and Company Subsidiaries
have obtained all necessary permits, licenses, franchises, and other
authorizations and have complied with all laws applicable to the conduct of
their businesses in the manner and in the areas in which business is presently
being conducted; and all such permits, licenses, franchises, and authorizations
are valid and in full force and effect. Neither Company nor Company Subsidiaries
has engaged in any activity that would cause revocation or suspension of any
such permits, licenses, franchises, or authorizations; no action or proceeding
contemplating the revocation or suspension of any of them is pending or
threatened; and no approvals or authorizations will be required after the
consummation of the Merger to permit Surviving Company to continue each of
Company's and Company Subsidiaries' business as presently conducted.
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3.20 Full Disclosure. No statement in this Agreement (including without
limitation the Schedules and Exhibits thereto) or in any certificate delivered
pursuant to the requirements of this Agreement by or on behalf of the Company
Stockholder or the Company to Parent or Merger Sub contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company and the Company
Stockholder as follows:
4.1 Organization and Qualification. Each of Parent (and Parent's
subsidiaries) and Merger Sub (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and (iii) is duly qualified or licensed and is in good standing to do
business in each jurisdiction in which the properties owned, leased or operated
by it or the nature of its activities makes such qualification necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing has not had and is not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect. Except as set forth in the
Parent Financial Statements, Parent does not currently own or control, directly
or indirectly, an interest in any other corporation, association or other
business entity.
4.2 Authorization and Validity of Agreement. This Agreement has been
duly executed and delivered by each of Parent and Merger Sub. Each of Parent and
Merger Sub has all requisite power and authority to enter into this Agreement
and each of Parent and Merger Sub has all requisite power and authority to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Parent and
Merger Sub of this Agreement and the consummation by each of Parent and Merger
Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of each of Parent and Merger Sub.
This Agreement is a legal, valid and binding obligation of Parent and Merger
Sub, enforceable in accordance with its terms (except insofar as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting rights generally, or by principles governing the
availability of equitable remedies). The shares of Parent Common Stock to be
issued and delivered by Parent pursuant to this Agreement will be, when the
Merger has become effective and such shares are issued and delivered, duly
authorized, validly issued, fully paid and non-assessable and no stockholder of
Parent will have any preemptive right of subscription or purchase in respect
thereof.
4.3 Transaction Approval. The Board of Directors of Parent ("Parent
Board") and stockholders of Parent have approved this Agreement and the Merger.
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4.4 Vote Required. The only vote of stockholders of Parent required to
approve and adopt the Merger is the affirmative vote of a majority of the
aggregate voting power of the issued and outstanding shares of Parent Common
Stock voting together as a single class, and no other vote or approval of or
other action by the holders of any capital stock of Parent is required.
4.5 Capitalization.
(a) The authorized capital stock of Parent consists of 50,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock. As of the close
of business on the business day immediately preceding the date of this
Agreement, 8,959,670 shares of Parent Common Stock were issued and outstanding,
no shares of Preferred Stock were issued and outstanding and 12,431,775 shares
of Parent Common Stock were reserved for issuance upon exercise of outstanding
options, warrants or other derivative securities.
(b) All issued and outstanding shares of Parent Common Stock have
been validly issued and are fully paid and non-assessable, are not subject to
and have not been issued in violation of any preemptive rights and have not been
issued in violation of any federal or state securities laws.
(c) Except as otherwise provided in this Agreement, Parent is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock.
4.6 Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub.
(a) Merger Sub was formed by Parent solely for the purpose of
engaging in the transactions contemplated hereby.
(b) As of the date hereof and the Effective Time, the capital
stock of Merger Sub is and will be owned 100% by Parent directly. Except as
contemplated by this Agreement, there are not as of the date hereof, and there
will not be at the Effective Time, any outstanding or authorized options,
warrants, calls, rights, commitments or any other agreements of any character to
or by which Merger Sub is a party or may be bound requiring it to issue,
transfer, sell, purchase, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the right
to subscribe for or acquire, any shares of capital stock of Merger Sub. Parent
owns and at all times prior to the Effective Time shall own 100% of the issued
and outstanding capital stock of Merger Sub.
(c) As of the date hereof and immediately prior to the Effective
Time, except for agreements, obligations or liabilities entered into or incurred
in connection with its incorporation or organization and the transactions
contemplated hereby, Merger Sub has not and will not have incurred, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person.
(d) Parent will take all actions necessary to ensure that Merger
Sub at no time prior to the Effective Time owns any material assets other than
an amount of cash necessary to
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incorporate Merger Sub and to pay the expenses of the Merger attributable to
Merger Sub if the Merger is consummated. If, notwithstanding the foregoing
sentence, any assets are contributed to Merger Sub, Parent will take all actions
necessary to ensure that no assets will be withdrawn from Merger Sub at any time
prior to the Effective Time.
(e) Neither Parent, nor Merger Sub, nor any of Parent's
subsidiaries is a party to any agreement, whether or not in writing, that
requires Parent, Merger Sub or any of Parent's subsidiaries to effect a merger
of the Company or the Surviving Corporation with and into any other corporation,
other than the Merger, or that provides for Parent, Merger Sub or any of
Parent's subsidiaries or Affiliates to suffer or incur any damage, cost,
liability or other penalty or onerous condition if such a Merger is not
effected.
4.7 No Approvals or Notices Required. The execution and delivery by each
of Parent and Merger Sub of this Agreement do not and the performance by each of
Parent and Merger Sub of its obligations hereunder and the consummation of the
transactions contemplated hereby will not:
(a) conflict with or violate the Certificate of Incorporation or
Bylaws of Parent or Merger Sub as in effect on the date hereof;
(b) require any consent, approval, order or authorization of or
other action by, or any registration, qualification, declaration or filing with
or notice to, any Governmental Entity, with respect to Parent or Merger Sub,
except (i) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, (ii) such consents and filings as may be required in
connection with the issuance of Parent Common Stock as contemplated hereby
pursuant to state securities and blue sky laws, and (iii) any other filings the
absence of which would not, individually or in the aggregate, result in a
Material Adverse Effect;
(c) require, on the part of Parent, any consent by or approval or
authorization of or notice to any Person (other than a Governmental Entity),
whether under any contract or otherwise, except as set forth in Schedule 4.7(c)
and except for any other consents, approvals, authorizations and notices the
absence of which would not, individually or in the aggregate, result in a
Material Adverse Effect;
(d) conflict with or result in any Violation of any contract to
which Parent or any of its subsidiaries, including Merger Sub, is a party, other
than any Violations that would not, individually or in the aggregate, result in
a Material Adverse Effect; or
(e) assuming that the Governmental Consents and Filings specified
in Section 4.7(c) are obtained, made and given, result in a Violation of any
law, rule, regulation, order, judgment or decree applicable to Parent or Merger
Sub, other than any such Violations that would not, individually or in the
aggregate, result in a Material Adverse Effect.
4.8 Legal Proceedings. Except as provided on Schedule 4.8, (i) there is
no suit, action or proceeding pending or, to the best knowledge of Parent, any
investigation pending or any suit, action, proceeding or investigation
threatened, against, involving or affecting Parent (or any of its
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subsidiaries) or Merger Sub, that is, if adversely determined, reasonably likely
to have, either individually or in the aggregate, a Material Adverse Effect;
(ii) to the best knowledge of Parent there is no judgment, decree, injunction,
rule or order of any Governmental Entity applicable to Parent (or any of its
subsidiaries) or Merger Sub that has or is reasonably likely to have, either
individually or in the aggregate, any such effect; and (iii) to the best
knowledge of Parent, there is no action, suit, proceeding or investigation
pending or threatened against Parent (or any of its subsidiaries) or Merger Sub
that seeks to restrain, enjoin or delay the consummation of the Merger or any of
the other transactions contemplated hereby.
4.9 Parent Financial Statements. The Parent Financial Statements (a) are
in accordance with the books and records of Parent Financial Statements, (b)
except as set forth in the notes to the Parent Financial Statements, have been
prepared in accordance with GAAP and (c) fairly and accurately present the
assets, liabilities (including all reserves) and financial position of the
Company as of the respective dates thereof and the results of operations and
changes in cash flows for the periods then ended. Parent Financial Statements
have been audited by Grobstein, ▇▇▇▇▇▇▇ & Company LLP, independent certified
public accountants. At the respective dates of the Financial Statements, there
were no liabilities of the Parent and its subsidiaries, which, in accordance
with GAAP, should have been shown or reflected in the Parent Financial
Statements or the notes thereto, which are not shown or reflected in the Parent
Financial Statements or the notes thereto.
4.10 Absence of Certain Changes or Events. Since May 31, 2000, there has
not been any material adverse change in the business, assets, liabilities,
operations, results of operations, condition (financial or otherwise) or
prospects of Parent (or any of its subsidiaries), and no event has occurred and
no condition exists that, individually or together with any other events or
conditions, has had or is reasonably likely to have a Material Adverse Effect.
4.11 Other Merger Agreement. Parent and Avenue Entertainment Group, Inc.
("Avenue"), a Delaware corporation whose Common Stock is currently listed on the
AMEX have executed and delivered a Letter of Intent dated July 12, 2000, and are
currently negotiating an Agreement and Plan of Merger dated July ____ 2000,
pursuant to which Parent will become a wholly-owned subsidiary of Avenue and the
stockholders of Parent will receive Shares of Common Stock, of Avenue in
exchange for 100% of their shares of Parent Common Stock. A copy of such Letter
of Intent has been provided to Company and Company Stockholder, and a copy of
the executed Agreement and Plan of Merger will be provided to Company and
Company Stockholder on execution and delivery of such Agreement.
4.12 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other Person is or will be entitled, by reason of any agreement, act
or statement by Parent (or any of its subsidiaries) or any of its directors,
officers, employees or agents, to any financial advisory, broker's, finder's or
similar fee or commission, to reimbursement of expenses or to indemnification or
contribution in connection with any of the transactions contemplated by this
Agreement.
4.13 Tax Returns and Payments. Parent (and each of its subsidiaries) has
filed all tax returns and reports as required by law. These returns and reports
are true and correct in all material respects. Parent (including all of its
subsidiaries) has paid all taxes and other assessments due.
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4.14 Employee Benefit Plans. Parent (and each of its subsidiaries) does
not have any "employee benefit plans" as defined in the Employee Retirement
Income Security Act of 1974.
4.15 Intellectual Property. Parent (and each of its subsidiaries) owns or
has adequate rights to use all patents, trademarks, trade names, service marks,
brands, logos, copyrights, trade secrets, customer lists and other proprietary
intellectual property rights required for, used in or incident to the business
of Parent (or any of its subsidiaries) as now conducted or proposed to be
conducted.
4.16 Full Disclosure. No statement in this Agreement (including without
limitation the Schedules and Exhibits thereto) or in any certificate delivered
pursuant to the requirements of this Agreement by or on behalf of Parent or
Merger Sub to the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
CERTAIN AGREEMENTS AND TRANSACTIONS PRIOR TO CLOSING
5.1 ▇▇▇▇▇▇ Equity Transaction. Prior to the Closing, Parent shall have
entered into an agreement for the commitment of an equity line from ▇▇▇▇▇▇
Private Equity, LLC ("▇▇▇▇▇▇") in the amount of Thirty Million Dollars
($30,000,000) on substantially the same terms and conditions as set forth in the
letter of agreement (the "▇▇▇▇▇▇ Equity Line Agreement"), dated May 3, 2000, by
and between ▇▇▇▇▇▇ and Parent, a copy of which has previously been provided to
Company Stockholder (the "▇▇▇▇▇▇ Equity Line Transaction").
5.2 Certain Covenants and Agreements. On or before the Closing Date,
Company Stockholder and Company shall:
(a) execute and deliver an exchange agreement pursuant to which
all outstanding intercompany indebtedness of Company is converted into Shares of
Common Stock of Company owned by Company Stockholder or otherwise contributed to
the capital of Company;
(b) terminate all of its employees and consultants (the
"Terminated Employees"), and Company Stockholder shall have assumed in writing
all obligations (financial or otherwise) with respect to each Terminated
Employee and all former employees, including without limitation, payments due
for accrued vacation, accrued and unpaid bonuses, reimbursement of expenses and
benefits, taxes or any amounts due under an employee retirement plan or an
employment or consultant agreement;
(c) cause all options, warrants, subscription rights or other
convertible securities or other agreements or commitments to acquire Company
Common Stock to be canceled or converted into Company Common Stock; and
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(d) execute and deliver assignment and assumption agreements and
secure written landlords' consents and estoppel certificates to same pursuant to
which Company Stockholder shall have assumed any and all obligations and
liabilities with respect to each Lease to which Company is a party, and Company
shall be released therefrom.
5.3 Access to Information Concerning Properties and Records. Upon
reasonable notice, the Company shall afford to the officers, employees, counsel,
accountants and other authorized representatives of Parent full access during
normal business hours to all its personnel, books and records and furnish
promptly to such Persons such financial and operating data and other information
concerning its business, operations, results of operation, personnel, assets,
liabilities, condition and prospects as such Persons shall from time to time
reasonably request, and instruct the officers, directors, employees, counsel and
financial advisors of the Company to discuss the same and otherwise fully
cooperate with the other party in its investigation of the Company and its
business. No investigation pursuant to this Section 5.3 will affect any
representation or warranty given by the Company Stockholder or Company to Parent
hereunder.
5.4 Confidentiality. Each of the parties hereto (the "Receiving Party")
agrees, except as otherwise provided in this Section 5.4, that it will keep
confidential in accordance with this Section 5.4 and not disclose to any person
other than its officers, directors, employees, accountants, counsel, financial
advisors and other representatives (collectively, "Representative(s)") or use
for any purpose other than the performance by the Receiving Party of its
obligations under this Agreement and compliance with, and enforcement of, the
terms and conditions hereof, and the Receiving Party's due diligence review and
business evaluations relating to the Disclosing Party and the transactions
contemplated hereby, all proprietary and/or confidential information provided to
the Receiving Party or any of its Representatives by any other party hereto (the
"Disclosing Party") or any of its Representatives ("Confidential Information").
In addition, the Receiving Party agrees not to contact any of the Disclosing
Party's customers or vendors for any reason related to this Agreement or the
transactions contemplated hereby without the Disclosing Party's consent. All
information provided to the Receiving Party or its Representatives by the
Disclosing Party in connection with the Merger shall be presumed to constitute
"Confidential Information" unless (i) the Disclosing Party indicates otherwise
in writing, (ii) the information was or becomes generally available to the
public other than as a result of a disclosure in violation of this Section by
the Receiving Party or its Representatives, (iii) the information was or becomes
available to the Receiving Party or its Representatives on a non-confidential
basis from a source other than the Disclosing Party or (iv) the information was
within the possession of the Receiving Party or any of its Representatives prior
to being furnished by or on behalf of the Disclosing Party, provided that in
each case the source of such information was not bound by a confidentiality
agreement in respect thereof. Notwithstanding the foregoing, if the Receiving
Party is required in any judicial or administrative proceeding or by any
regulatory or judicial authority or pursuant to any applicable law or regulation
to disclose any Confidential Information, then any disclosure of such
information to the extent so required shall not be prohibited by this paragraph.
The Receiving Party shall give the Disclosing Party prompt written notice of any
disclosure of Confidential Information pursuant to the immediately preceding
sentence, including the circumstances requiring such disclosure, which notice
shall be (to the extent permitted by law) sufficiently prior to such disclosure
to permit the Disclosing Party to seek an appropriate protective order or other
relief.
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5.5 Public Announcements. No party shall (and each party shall use its
reasonable efforts to cause its Affiliates, directors, officers, employees,
agents and representatives not to) issue any press release, make any public
announcement or furnish any written statement to its employees or stockholders
generally concerning the transactions contemplated by this Agreement without the
consent of the other party (which consent shall not be unreasonably withheld),
except to the extent required by applicable law, including the rules and
regulations of the Commission, the applicable requirements of the AMEX or by any
securities exchange or association on which the Parent Common Stock or Avenue
Common Stock is traded (including pursuant to any listing agreement) (and in
such case such party shall, to the extent consistent with timely compliance with
such requirement, consult with the other party prior to making the required
release, announcement or statement).
5.6 No Solicitation.
(a) during the term of this Agreement, Company shall not, directly
or indirectly, through any Representative or otherwise (i) engage in any
Extraordinary Transaction (as defined below), (ii) enter into any agreement or
understanding with any person other than the Parent with respect to any
Extraordinary Transaction, (iii) participate or engage in any discussions or
negotiations with any Person other than the Parent relating to any of the
foregoing (whether or not initiated by Company or any Representative), or (iv)
provide any material non-public information regarding Company or any Company
Subsidiaries or any of Company's securities to any Person other than the Parent
in connection with any of the foregoing. If Company receives any inquiry or
proposal regarding the possibility of an Extraordinary Transaction, or regarding
any of the matters described in clauses (ii) through (iv) of the immediately
preceding sentence, it shall promptly notify Parent thereof in writing and shall
provide the Parent with such information regarding such inquiry or proposal and
the person making the same as the Parent shall reasonably request, to the full
extent such information is reasonably available to Company. "Extraordinary
Transaction" means any investment in, acquisition of, business combination with
or other extraordinary transaction regarding Company or any direct or indirect
subsidiary or division thereof, including, without limitation, any merger,
purchase or sale of securities or purchase or sale of assets outside the
ordinary course of business.
(b) during the term of this Agreement, Company Stockholder shall
not directly or indirectly (i) sell any of Company's securities, (ii) enter into
any agreement or understanding, or grant any option or other rights, with
respect to any purchase or sale of any of Company's securities, or offer or
solicit any offer to do any of the foregoing, (iii) participate or engage in any
discussions or negotiations with any Person other than Parent relating to any of
the foregoing (whether or not such discussions or negotiations are initiated by
Company Stockholder or Company) or (iv) provide any material non-public
information regarding Company or any of Company's securities to any Person in
connection with any of the foregoing, in each case other than to Parent. If
Company Stockholder receives any inquiry or proposal regarding the possibility
of any of the foregoing, Company Stockholder shall promptly notify Parent
thereof in writing and shall provide Parent with such information regarding such
inquiry or proposal and the person making the same as Parent shall reasonably
request, to the full extent such information is reasonably available to such
party.
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5.7 Certain Matters. Between the date hereof and the Effective Time,
each party will give prompt notice in writing to the other party of: (i) any
information that indicates that any of its representations or warranties
contained herein was not true and correct as of the date hereof or will not be
true and correct at and as of the Effective Time with the same force and effect
as if made at and as of the Effective Time (except for changes permitted or
contemplated by this Agreement), (ii) the occurrence of any event that will
result, or has a reasonable prospect of resulting, in the failure of any
condition specified in Article VII hereof to be satisfied, and (iii) any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement or that such transactions otherwise may violate
the rights of or confer remedies upon such third party.
5.8 Defense of Litigation. Each of the parties agrees to vigorously
defend against any and all actions, suits or proceedings in which such party is
named as a defendant that seek to enjoin, restrain or prohibit the transactions
contemplated hereby or seek damages with respect to such transactions. Neither
party shall settle any such action, suit or proceeding or fail to perfect on a
timely basis any right to appeal any judgment rendered or order entered against
such party therein without the consent of the other party (which consent shall
not unreasonably be withheld or delayed). Each of the parties further agrees to
use its reasonable efforts to cause each of its Affiliates, directors and
officers to vigorously defend any action, suit or proceeding in which such
Affiliate, director or officer is named as a defendant and which seeks any such
relief to comply with this Section to the same extent as if such person were a
party hereto.
5.9 Actions by Merger Sub. In its capacity as the sole stockholder of
Merger Sub and subject to the terms and conditions of this Agreement, Parent
shall cause Merger Sub to approve and adopt the Merger and to take all corporate
action necessary on its part to consummate the Merger and the transactions
contemplated hereby.
5.10 Conduct of Company's (including all of its subsidiaries) Business
Pending the Effective Time. Company shall, except (i) as permitted, required or
specifically contemplated by this Agreement or (ii) consented to or approved in
writing by the Parent (which consent or approval shall not be unreasonably
withheld), during the period commencing on the date hereof and ending at the
Effective Time:
(a) conduct its business only in, and not take any action except
in, the ordinary and usual course of its business and consistent with past
practice;
(b) use reasonable efforts, in the ordinary and usual course of
its business and consistent with past practice, to preserve intact its business
organization, preserve its licenses in full force and effect, and preserve the
good will of those having business relationships with it;
(c) not (i) make any change or amendments in its Charter or
Bylaws; (ii) issue, grant, sell or deliver any shares of its capital stock or
any of its other equity interests or securities, or any securities convertible
into, or options, warrants or rights of any kind to subscribe to or acquire, any
shares of its capital stock or any of its other equity interests or securities,
or any phantom shares, phantom equity interests or stock or equity appreciation
rights, other than as
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disclosed pursuant to this Agreement in accordance with their existing terms,
and issuances of capital stock or other equity interests by a direct or indirect
wholly owned subsidiary to its immediate parent; (iii) split, combine or
reclassify the outstanding shares of its capital stock or any of its other
outstanding equity interests or securities or issue any capital stock or other
equity interests or securities in exchange for any such shares or interests;
(iv) redeem, purchase or otherwise acquire, directly or indirectly, any shares
of capital stock or any other securities; (v) amend or modify any outstanding
options, warrants, or rights to acquire, or securities convertible into shares
of its capital stock or other equity interests or securities, or any phantom
shares, phantom equity interests or stock or equity appreciation rights, or
amend or modify any stock plan or adopt or authorize any other stock or equity
appreciation rights, restricted stock or equity, stock or equity purchase, stock
or equity bonus or similar plan, arrangement or agreement; (vi) make any other
changes in its capital structure; (vii) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash, property or
securities) with respect to its capital stock or other securities; (viii) sell
or pledge any stock equity or partnership interest owned by it or any Affiliate,
except in the ordinary course of business consistent with prior practice; or
(ix) enter into or assume any contract, agreement, obligation, commitment or
arrangement with respect to any of the foregoing;
(d) not (i) modify or change in any material respect any material
license or contract, other than in the ordinary course of business consistent
with past practice; (ii) enter into any new employment, consulting, agency or
commission agreement, make any amendment or modification to any existing such
agreement or grant any increases in compensation, (x) in each case other than in
the ordinary course of business consistent with past practice, and with or
granted to persons who are not officers or directors, and that do not, in the
aggregate, materially increase the compensation or benefit expense and (y) other
than the regular annual salary increase granted in the ordinary course of
business and consistent with past practice to officers and employees; (iii)
establish, amend or modify any employee benefit plan, except to the extent
required by any applicable law or the existing terms of such Company plan; (iv)
secure any of its outstanding unsecured indebtedness, provide additional
security for any of its outstanding secured indebtedness or grant, create or
suffer to exist any lien on or with respect to any property, assets or rights;
(v) pay, discharge or satisfy claims, liabilities or obligations (absolute,
accrued, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities; (vi) cancel any debts or waive any claims or rights,
except in the ordinary course of business and consistent with past practice;
(vii) make any capital expenditures in excess of $5,000 individually or $25,000
in the aggregate from the date hereof through the Closing Date; (viii)
accelerate the payment of, or otherwise prepay, any existing outstanding
indebtedness for borrowed money; (ix) other than the normal cash management
practices conducted in the ordinary and usual course of its business and
consistent with past practice, make any advance or loan to or engage in any
transaction with any director, officer, partner or Affiliate not required by the
terms of an existing contract; or (x) enter into or assume any contract,
agreement, obligation, commitment or arrangement with respect to any of the
foregoing;
(e) not acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to otherwise acquire any substantial assets;
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(f) not sell, lease, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets, except in the
ordinary course of business consistent with prior practice;
(g) not incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt security or obligation of any
other Person, other than in the ordinary course of business consistent with past
practice; and
(h) not take any action that would or is reasonably likely to
result in (i) any of the representations or warranties made in Articles III and
IV hereof being untrue on and as of the Closing Date as though made on and as of
the Closing Date (except for any changes expressly permitted or contemplated by
this Agreement) or (ii) any of the conditions set forth in Section 7.1 or 7.2
not being satisfied.
5.11 Rainbow Voice Release. Parent shall use its best efforts without
becoming personably liable therefor to negotiate a contractual relationship on
terms and conditions satisfactory to Parent with Rainbow Voice that will result
in the release of Company Stockholder and Company from any liability under the
common stock purchase agreement and all related documents between Company and
Rainbow Voice. The execution and delivery of an agreement with Rainbow Voice
releasing Company Stockholder and Company shall be a condition preceding to the
obligations hereunder of Parent and Merger Sub, on the one hand, and Company and
Company Stockholder, on the other hand.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 Initial Registration. If the proposed reorganization with Avenue
does not close by September 30, 2000, which time period may be extended as
Parent and Company Stockholder may agree, Parent shall file a registration
statement with the Commission for an initial public offering of Parent Common
Stock and shall use its reasonable commercial efforts to cause such registration
statement to be declared effective by the Commission.
6.2 Registration of Merger Consideration. On or before December 31,
2000, Parent shall file a registration statement with the Commission which
includes the Merger Consideration and subject to the effectiveness of such
registration statement shall use its reasonable efforts to cause the shares of
Parent Common Stock to be issued as Merger Consideration (or received in
exchange therefor in the Avenue transaction) to be listed on Parent's (or
Avenue; as applicable), principal securities exchange, automated quotation
system or bulletin board.
6.3 Repurchase Obligation. If the Merger Consideration is not included
in an effective registration statement on or before December 31, 2000, or if the
per share fair market value of Merger Consideration does not exceed $1.00 on
December 31, 2000, then Company Stockholder shall have the right to cause Parent
to repurchase 500,000 shares of Parent Common Stock which Company Stockholder
received as Merger Consideration for One Million Dollars ($1,000,000)
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payable within thirty (30) days of the written notice from Company Stockholder
to Parent that it is exercising its right to put such shares of Parent Common
Stock to Parent in accordance with this Section 6.3.
6.4 Company Stockholder as Provider of Choice. With respect to its needs
for insurance products provided by Company Stockholder and its subsidiaries,
Parent shall make Company Stockholder a non-exclusive preferred provider.
6.5 Indemnifications.
(a) By the Company Stockholder. The Company Stockholder shall
indemnify, save and hold harmless Parent and Surviving Corporation, their
Affiliates and subsidiaries, and their respective shareholders, directors,
officers and representatives, from and against any and all costs, losses
(including without limitation diminution in value), taxes, liabilities,
obligations, damages, lawsuits, deficiencies, claims, demands, and expenses
(whether or not arising out of third-party claims), reasonable attorneys' fees
and all amounts paid in investigation, defense or settlement of any of the
foregoing (herein, "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty
or the inaccuracy of any representation made by the Company or Company
Stockholder in or pursuant to this Agreement; or (ii) any breach of any covenant
or agreement made by the Company or Company Stockholder in or pursuant to this
Agreement; (iii) the employees or consultants of Company prior to the Closing
Date, including, without limitation, the Terminated Employees; (iv) the Leases
or (iv) any Person claiming to be owed fees, commissions or expenses as a result
of having been engaged or alleged to have been engaged, as a broker, finder or
similar agent by Company or Company Stockholder, provided, however, that Parent
and Surviving Corporation makes a written claim for indemnification against the
Company within the applicable survival period.
(b) By Parent. Parent shall defend, indemnify, save and hold
harmless the Company Stockholder, its Affiliates and subsidiaries, and their
respective shareholders, directors, officers and representatives from and
against any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty
or the inaccuracy of any representation, made by Parent or Merger Sub in or
pursuant to this Agreement, (ii) any breach of any covenant or agreement made by
Parent or Merger Sub in or pursuant to this Agreement; (iii) any Person claiming
to be owed fees, commissions or expenses as a result of having been engaged in
alleged to have been engaged as a broker, finder or similar agent by Parent or
Merger Sub; or (iv) Parent's ownership, operation and conduct of Company's
business from and after the Closing Dates provided, however, that the Company
Stockholder makes a written claim for indemnification against Parent or Merger
Sub within the applicable survival period; and provided, further that "Damages"
in this Section 6.6(b) shall not include any amounts owed to Company Stockholder
by Parent pursuant to Section 6.3.
(c) Damages. The term "Damages" as used in this Section 6.5 is not
limited to matters asserted by third parties against the Company, the Company
Stockholder, Parent, Merger Sub or Surviving Corporation, but includes Damages
incurred or sustained by the Company, the
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Company Stockholder, Parent, Merger Sub or Surviving Corporation in the absence
of third party claims. Payments by Parent, Merger Sub or Surviving Corporation
of amounts for which Parent, Merger Sub or Surviving Corporation is indemnified
hereunder, and payments by the Company Stockholder of amounts for which the
Company Stockholder is indemnified, shall not be a condition precedent to
recovery. The Company Stockholder's obligation to indemnify Parent, Merger Sub
or Surviving Corporation, and Parent's or Merger Sub's obligation to indemnify
the Company Stockholder, shall not limit any other rights, including without
limitation rights of contribution which either party may have under statute or
common law.
(d) Cooperation. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(e) Defense of Claims. If a claim for Damages (a "Claim") is to be
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall give written notice (a
"Claim Notice") to the indemnifying party as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under this
Section 6.5. If any lawsuit or enforcement action is filed against any party
entitled to the benefit of indemnity hereunder, written notice thereof shall be
given to the indemnifying party as promptly as practicable (and in any event
within thirty (30) calendar days after the service of the citation or summons).
The failure of any indemnified party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the extent that the
indemnifying party demonstrates actual damage caused by such failure. After such
notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense unless the named parties to such
action or proceeding include both the indemnifying party and the indemnified
party and the indemnified party has been advised in writing by counsel that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party,
and (iii) to compromise or settle such claim, which compromise or settlement
shall be made only with the written consent of the indemnified party, such
consent not to be unreasonably withheld. If the indemnifying party fails to
assume the defense of such claim within fifteen (15) calendar days after receipt
of the Claim Notice, the indemnified party against which such claim has been
asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party. In the event the indemnified party assumes
the defense of the claim, the indemnified party will keep the indemnifying party
reasonably informed of the progress of any such defense, compromise or
settlement. The indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 6.5 and for any
final judgment (subject to any right of appeal), and the indemnifying party
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agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment.
(f) Limitations.
(i) Neither the Company Stockholder, Parent nor Merger Sub
or Surviving Corporation shall be liable to the other under this Section 6.5 for
any Damages due pursuant to a breach of a representation and warranty made by
such party in this Agreement unless and until, the aggregate amount of all
Claims for Damages due to such breaches under this Agreement exceeds, taking
into account the provisions of the next sentence of this Section 6.5, $100,000,
at which point, the party seeking indemnification shall be entitled to
indemnification for all such Damages beginning with the first dollar of Damages.
In calculating whether the $100,000 threshold referred to in the preceding
sentence has been reached, no Damages regarding a single course of conduct,
related set of circumstances, occurrences or event shall be taken into account
unless and until the Damage therefor exceed $5,000 (and such $5,000 minimum
amount shall not apply to any Claim after such $100,000 threshold has been
reached).
(ii) Neither (a) the Company Stockholder's aggregate
liability for any breach of a representation and warranty made by the Company or
Company Stockholder in this Agreement for all Claims for Damages incurred by
Parent, Merger Sub or Surviving Corporation nor (b) Parent, Merger Sub's
aggregate liability for any breach of a representation and warranty by Parent or
Merger Sub in this Agreement, for all Claims for Damages incurred by the Company
Stockholder, shall in any event exceed, in either case (a) or (b), 100% of the
market value of the Merger Consideration. The partners agree that the market
value of the Merger Consideration for purposes of this Section 6.5 shall be
$2,000,000.
(iii) All representations and warranties contained in this
Agreement shall survive the Closing for a period of two (2) years, except for
those representations and warranties relating to tax matters which shall
continue in full force and effect without limit as to time, subject to any
applicable statutes of limitation and any extensions or waivers thereof for
taxes.
6.6 Covenant Not To Compete.
(a) Covenant. Without Parent's prior written consent in each
instance which may be granted or withheld in Parent's sole, absolute and
arbitrary discretion, from and after the Closing Date, Company Stockholder
hereby covenants and agrees that Company Stockholder shall not directly or
indirectly anywhere in the world (i) engage in, or have any majority interest
in, any person, firm, corporation or business that is a business-to-business
application service provider; (ii) solicit or attempt to solicit any existing
customers of, or advertisers to, the Company, or (iii) solicit Parent or
Company's employees to terminate their employment with Parent or Company and
accept employment elsewhere (collectively the "Covenant Not To Compete") for a
period from the Closing Date until five (5) years from and after the Closing
Date. Notwithstanding the foregoing, this Covenant Not to Compete shall not
prevent Company Stockholder from offering insurance and related finance
products, goods or services or carrying out its business as presently conducted
or as proposed to be conducted.
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(b) Time Limitations. If, in any judicial proceeding, a court
shall refuse to enforce this Covenant Not To Compete because the term is too
long, all parties hereto expressly understand and agree that for the purpose of
such proceeding, such term shall be deemed reduced to the extent necessary to
permit the enforcement of said Covenant Not To Compete.
(c) Geographic Limitations. If, in any judicial proceeding, a
court shall refuse to enforce this Covenant Not To Compete, because it is more
extensive (whether as to geographic area, scope of business, or otherwise) than
necessary to effectuate the purposes of this Agreement, all parties expressly
understand and agree that for the purpose of such proceeding, such limitation
shall be deemed reduced to the extent necessary to permit the enforcement of
said Covenant Not To Compete.
6.7 License Prorations; Other Payments. Company Stockholder shall pay
Parent a pro rata portion of all unpaid license fees that are payable with
respect to any period of time prior to the Closing Date calculated by dividing
(i) the number of days from the prior renewal date to the Closing Date by (ii)
the total renewal term of the license. Such amounts shall be payable at the
Closing Date or if not then determined within five (5) business days after
written notice from Parent to Company Stockholder of the determination of such
proration. If and to the extent that the liabilities and obligations referred to
in the Company Financial Statements and Section 3.5 of the Disclosure Schedule
(excluding amounts due on the software licenses) exceed $20,000, then Company
Stockholder shall pay the amount of said excess to Parent at the Closing.
6.8 Relocation and FF&E. Company Stockholder shall afford Parent and
Surviving Corporation thirty (30) days following the Closing Date without rent
or other liability in which to vacate the leased premises currently occupied by
the Company and Company Subsidiaries and to relocate all of Company's and
Company Subsidiaries' property.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions Precedent to the Obligations of Parent and Merger Sub for
the Benefit of Parent. The obligations of Parent and Merger Sub to consummate
the Merger are subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, which conditions are solely for the benefit of
Parent, and any or all of which may be waived solely by Parent acting alone:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Company and Company Stockholder contained
in this Agreement shall, if specifically qualified by materiality, be true and
correct in all material respects and, if not so qualified, be true and correct
in each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified earlier date) on and as
of the Closing Date as though made on and as of the Closing Date, except for
changes permitted or contemplated by this Agreement.
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(b) Performance of Agreements. The Company Stockholder and Company
shall have performed in all material respects all obligations and agreements,
and complied in all material respects with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to or
on the Closing Date.
(c) Officers' Certificates. The Company and Company Stockholder
shall have delivered to Parent a certificate, dated the Closing Date, signed by
the President or any Vice President of the Company and Company Stockholder,
certifying on behalf of the Company and the Company Stockholder as to the
fulfillment of the conditions specified in Sections 7.1(a), 7.1(b) and 7.1(f).
(d) Opinion of Counsel for the Company Stockholder and Company.
Parent and Merger Sub shall have received a favorable opinion from ▇▇▇▇ ▇▇▇▇
▇▇▇▇ & Freidenrich LLP, dated the Closing Date, in form and substance reasonably
satisfactory to Parent and Merger Sub. In rendering its opinion, such counsel
may rely as to factual matters upon certificates or other documents furnished by
officers of the Company Stockholder and Company and by government officials, and
upon such other documents and data as such counsel deems appropriate as a basis
for the opinion. Such counsel may specify the jurisdiction or jurisdictions in
which the members or partners, as applicable, thereof are admitted to practice,
that they are not admitted to practice in any other jurisdiction or experts in
the law of any other jurisdiction and that, to the extent that such counsel is
unable to render any opinion because doing so would require such counsel to
address the laws of any other jurisdiction or matters beyond the scope of such
counsel's engagement, Company and Company Stockholder shall provide the opinion
of counsel admitted to practice in such other jurisdiction or knowledgeable
about such other matters, which additional opinion shall be delivered together
with the opinion of such counsel, which shall state that such counsel believes
that reliance thereon is justified.
(e) No Adverse Enactments. No statute, rule, regulation, law,
order, judgment or decree enacted, promulgated, entered, issued, enforced or
deemed applicable by any foreign or United States federal, state or local
Governmental Entity of competent jurisdiction shall be in effect which (i) makes
this Agreement or the Merger illegal or imposes or is reasonably likely to
impose material damages or penalties in connection therewith, (ii) imposes or is
reasonably likely to result in imposition of material limitations on the ability
of Parent effectively to exercise full rights of ownership of shares of capital
stock or other ownership interests of the Surviving Corporation (including the
right to vote such shares or other ownership interests on all matters properly
presented to the stockholders or other equity holders of the Surviving
Corporation), or makes the holding by Parent of any such shares or other
ownership interests illegal or subject to any materially burdensome requirement
or condition, or (iii) requires or is reasonably likely to require Parent or any
of its subsidiaries to cease or refrain from engaging in any material business,
whether or not such business is conducted by the Company, as a result of the
consummation of the Merger.
(f) Absence of Injunctions and Proceedings. No action or
proceeding by any Governmental Entity seeking a permanent or preliminary
injunction or restraining order or other order by any court or other
Governmental Entity of competent jurisdiction or other legal restraint or
prohibition shall be pending which, if determined in a manner adverse to the
Company or Parent,
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could have the effect of, and no such Injunction or other order, restraint or
prohibition in an action or proceeding (whether by a Governmental Entity or
otherwise) shall be in effect, preventing consummation of the transactions
contemplated hereby as provided herein, or permitting such consummation only
subject to any condition or restriction that has had or would have a material
adverse effect on this Agreement and the transactions contemplated hereby or a
Material Adverse Effect.
(g) Certain Agreements. The Company shall not be a party to any
contract, agreement or understanding that would at the Effective Time be legally
enforceable against Parent or any of its subsidiaries, except as would not have
a Material Adverse Effect.
7.2 Conditions Precedent to the Obligations of Company Stockholder and
the Company. The obligation of the Company Stockholder and the Company to
consummate the transactions contemplated by this Agreement is also subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by the Company:
(a) Accuracy of Representations and Warranties. All
representations and warranties of each of Parent and Merger Sub contained in
this Agreement shall, if specifically qualified by materiality, be true and
correct in all material respects and, if not so qualified, be true and correct
in each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified earlier date) on and as
of the Closing Date as though made on and as of the Closing Date, except for
changes permitted or contemplated by this Agreement.
(b) Performance of Agreements. Each of Merger Sub and Parent shall
have performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants and conditions, contained
in this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(c) Officers' Certificate. Parent shall have delivered to the
Company Stockholder and the Company a certificate, dated the Closing Date,
signed by the President or any Vice President of Parent certifying on behalf of
Parent as to the fulfillment of the conditions specified in Sections 7.2(a),
7.2(b) and 7.2(f) (insofar as each relates to Parent and Merger Sub).
(d) Opinion of Counsel for Parent. The Company and Company
Stockholder shall have received a favorable opinion from ▇▇▇▇▇▇▇▇▇ Glusker
Fields Claman & Machtinger LLP, dated the Closing Date, in form and substance
reasonably satisfactory to Company Stockholder and Company. In rendering its
opinion, such counsel may rely as to factual matters upon certificates or other
documents furnished by officers of Parent and by government officials, and upon
such other documents and data as such counsel deems appropriate as a basis for
the opinion. Such counsel may specify the jurisdiction or jurisdictions in which
the members or partners, as applicable, thereof are admitted to practice, that
they are not admitted to practice in any other jurisdiction or experts in the
law of any other jurisdiction and that, to the extent the foregoing opinion
concerns the laws of any other jurisdiction or pertains to matters beyond the
scope of such counsel's engagement, such
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counsel may rely upon the opinion of counsel admitted to practice in such other
jurisdiction. Any opinion relied upon by such counsel shall be delivered
together with the opinion of such counsel, which shall state that such counsel
believes that reliance thereon is justified.
(e) No Adverse Enactments. No statute, rule or regulation enacted,
promulgated, entered, issued, enforced or deemed applicable by any foreign or
United States federal, state or local Governmental Entity of competent
jurisdiction shall be in effect, and there shall be no action, suit or
proceeding brought by any such Governmental Entity and pending which has or is
reasonably likely to have a Material Adverse Effect with respect to Parent or
any of its subsidiaries.
(f) Absence of Injunctions and Proceedings. No action or
proceeding by any Governmental Entity seeking a permanent or preliminary
injunction or restraining order or other order by any court or other
Governmental Entity of competent jurisdiction or other legal restraint or
prohibition shall be pending which, if determined in a manner adverse to the
Company or Parent, could have the effect of, and no such injunction or other
order, restraint or prohibition in an action or proceeding (whether by a
Governmental Entity or otherwise) shall be in effect, preventing consummation of
the transactions contemplated hereby as provided herein, or permitting such
consummation only subject to any condition or restriction that has had or would
have a material adverse effect on this Agreement and the transactions
contemplated hereby or a Material Adverse Effect.
ARTICLE VIII
TERMINATION
8.1 Termination and Abandonment. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of Parent, on the one hand, and the
Company and the Company Stockholder, on the other hand; and
(b) by Company Stockholder and the Company, on the one hand, or
Parent, on the other hand: (i) if the Merger shall not have been consummated on
or before July 31, 2000, provided that the right to terminate this Agreement
pursuant to this clause (b)(i) shall not be available to any party whose failure
to perform any of its obligations under this Agreement resulted in, or has been
the cause or a substantial cause of, the failure of the Merger to be consummated
on or before such date, and provided further that if the Merger has not been
consummated on or before July 31, 2000, solely or primarily as a result of the
failure of the conditions set forth in Sections 7.1(f) or 7.2(f) to be satisfied
or waived, any party, by written notice to each other party, may extend such
date up to September 31, 2000, or (ii) if there has been a material breach of
any representation, warranty, covenant or agreement on the part of any other
party contained in this Agreement, in each case that is not curable, such that
the conditions set forth in Sections 7.1(a) or (b), in the case of such a breach
by Company Stockholder or the Company, or Sections 7.2(a) or (b), in the case of
such a breach by Parent or Merger Sub, cannot be satisfied.
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8.2 Effect of Termination.
If this Agreement is terminated by the Company, Company Stockholder
or Parent pursuant to Section 8.1, this Agreement forthwith shall become void
and there shall be no liability or obligation on the part of Parent, Merger Sub,
the Company Stockholder or the Company or any of their respective Affiliates,
stockholders, directors, officers, agents, employees or representatives except
(i) as provided in Sections 5.4, 5.5, 6.5 and 9.4, which shall survive such
termination; and (ii) subject to Section 9.11, to the extent such termination
results from the willful breach by Parent, Merger Sub, Company Stockholder or
the Company of any of its representations, warranties, covenants or agreements
contained in this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Certain Tax Positions. The parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code. Each of Company Stockholder,
the Company, Parent and Merger Sub covenants and agrees with each other party
that it shall not take, and that it shall cause its respective subsidiaries not
to take any action that would cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code.
9.2 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
telegram or confirmed telex or telecopier, as follows:
(a) If to Company Stockholder or Company:
▇▇▇▇▇▇▇.▇▇▇, Inc.
Frontier Insurance Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: 678/320-4885
with a copy to:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: 858/677-1477
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(b) If to Parent or Merger Sub [or Surviving Corporation]:
SolutionsAmerica, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman and CEO
Facsimile: 310/665-7606
with a copy to:
▇▇▇▇▇▇▇▇▇ Glusker Fields Claman & Machtinger LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: 310/553-0687
or to such other Person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
9.3 Entire Agreement. This Agreement (including the Disclosure Schedule
and other Schedules, Exhibits and other documents referred to herein) and that
certain Agreement of Restricted Use of Proprietary Information of even date
herewith constitutes the entire agreement between the parties and supersedes all
prior agreements and understandings, oral and written, between the parties with
respect to the subject matter hereof.
9.4 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense. Company Stockholder shall be responsible for all
broker or finder fees incurred by or agreed to by Company Stockholder or Company
or which are alleged to have been incurred by or agreed to by Company
Stockholder or Company, in connection with this transaction. For the avoidance
of doubt Company Stockholder shall pay all fees, commissions and expenses due
▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ in connection with this transaction. Parent and
Merger Sub shall be responsible for all broker or finder fees incurred by or
agreed to by Parent and Merger Sub or which are alleged to have been incurred by
or agreed to by Parent and Merger Sub, in connection with this transaction.
9.5 Assignment; Binding Effect, Benefit. Neither this Agreement nor any
of the rights, benefits or obligations hereunder may be assigned by any party
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the immediately preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
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9.6 Amendment. This Agreement may be amended by Parent, Company
Stockholder and the Company, at any time before or after approval of any matters
presented in connection with the Merger by the stockholders of Parent, but,
after any such approval by the stockholders of Parent, no amendment shall be
made that by law requires further approval by such stockholders of Parent
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of Parent, Company Stockholder
and the Company.
9.7 Extension; Waiver. At any time prior to the Effective Time, either
the Company Stockholder and the Company, on the one hand, or Parent, on the
other hand, may, unless prohibited by law, (i) extend the time specified herein
for the performance of any of the obligations of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto, (iii) waive compliance by
the other party with any of the agreements or covenants of such other party
contained herein or (iv) waive any condition to such waiving party's obligation
to consummate the transactions contemplated hereby or to any of such waiving
party's other obligations hereunder. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. No such waiver shall constitute a
waiver of, or estoppel with respect to, any subsequent or other breach or
failure to strictly comply with the provisions of this Agreement. Any failure of
a party to insist on strict compliance with this Agreement or to assert any of
its rights or remedies hereunder or with respect hereto shall not constitute a
waiver of such rights or remedies. Whenever this Agreement requires or permits
consent or approval by any party, such consent or approval shall be effective if
given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 9.7.
9.8 Headings. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.9 Counterparts. This Agreement may be executed in counterparts, and on
separate counterparts, each of which shall be deemed to be an original, and all
of which together shall constitute one and the same agreement.
9.10 Applicable Law. The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company, Parent, Merger
Sub and their respective stockholders. All other questions concerning this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to the conflict of laws rules thereof.
9.11 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
in California state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the non-exclusive jurisdiction of any Federal
court located in the State of California or any California state court in the
event of a dispute arising out of this Agreement or any of the transactions
contemplated by this Agreement, and (b) agrees that
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it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court.
9.12 Disclosure Schedule. The parties acknowledge that the Disclosure
Schedule (i) relates to certain matters concerning the disclosures required and
transactions contemplated by this Agreement, (ii) is qualified in its entirety
by reference to specific provisions of this Agreement and (iii) is not intended
to constitute and shall not be construed as indicating that such matter is
required to be disclosed, nor shall such disclosure be construed as an admission
that such information is material with respect to the Company, or will have or
is likely to have a Material Adverse Effect. Disclosure of the information
contained in one Section or part of the Disclosure Schedule shall be deemed as
proper disclosure for other sections or parts of the Disclosure Schedule where
such disclosure would be appropriate.
[Signatures on the following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and Plan of Merger as of the date first above written.
"COMPANY"
▇▇▇▇▇▇▇.▇▇▇, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Title: Vice President
-----------------------------------
"COMPANY STOCKHOLDER"
FRONTIER INSURANCE GROUP, INC.
By: /s/ [Signature Illegible]
--------------------------------------
Name: [Name Illegible]
------------------------------------
Title: EVP
-----------------------------------
"PARENT"
SOLUTIONSAMERICA, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: Chairman & CEO
-----------------------------------
"MERGER SUB"
ONESTOP ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: Chairman & CEO
-----------------------------------
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