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EXHIBIT 2.0
AGREEMENT AND PLAN OF MERGER
dated as of
June 1, 1999
among
CAFE ODYSSEY, INC.,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
▇▇▇▇▇▇▇.▇▇▇, INC.,
ALL OF THE HOLDERS OF COMMON STOCK OF ▇▇▇▇▇▇▇.▇▇▇, INC.
and
CAFE ODYSSEY ACQUISITION SUBSIDIARY, INC.
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TABLE OF CONTENTS
ARTICLE I
THE MERGER AND RELATED MATTERS...........................................................................1
1.01 The Merger......................................................................................1
1.02 Effective Time of the Merger....................................................................2
1.03 Conversion of Common Shares.....................................................................2
1.04 Exchange of Company Common Shares...............................................................3
1.05 Closing into Escrow; the Escrow Account.........................................................4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................5
2.01 Limitation on Representations and Warranties....................................................5
2.02 Incorporation and Corporate Power...............................................................6
2.03 Execution and Delivery; Valid and Binding Agreements............................................6
2.04 No Breach.......................................................................................6
2.05 Value of the Company............................................................................6
2.06 Governmental Authorities; Consents..............................................................6
2.07 Capital Stock...................................................................................7
2.08 Subsidiaries....................................................................................7
2.09 Financial Statements............................................................................7
2.10 Absence of Undisclosed Liabilities..............................................................7
2.11 No Material Adverse Changes.....................................................................8
2.12 Title to Property...............................................................................8
2.13 Tax Matters.....................................................................................8
2.14 Contracts and Commitments......................................................................10
2.15 Intellectual Property Rights...................................................................10
2.16 Litigation.....................................................................................10
2.17 Employees......................................................................................11
2.18 Employee Benefit Plans.........................................................................11
2.19 Insurance......................................................................................11
2.20 Affiliate Transactions.........................................................................12
2.21 Compliance with Laws; Permits..................................................................12
2.22 Tax-Free Reorganization Matters................................................................12
2.23 Brokerage......................................................................................13
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY...........................................13
3.01 Incorporation and Corporate Power..............................................................13
3.02 Execution, Delivery; Valid and Binding Agreement...............................................13
3.03 No Breach......................................................................................13
3.04 Value of the Company...........................................................................14
3.05 Governmental Authorities; Consents.............................................................14
3.06 Capital Stock..................................................................................14
3.07 Financial Statements...........................................................................14
3.08 Absence of Undisclosed Liabilities.............................................................14
3.09 No Material Adverse Changes....................................................................15
3.10 Tax Matters....................................................................................15
3.11 Litigation.....................................................................................16
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3.12 Employees......................................................................................16
3.13 Employee Benefit Plans.........................................................................16
3.14 Compliance with Laws; Permits..................................................................17
3.15 SEC Filings....................................................................................18
3.16 Brokerage......................................................................................18
3.17 Validity of Buyer Preferred and Common Shares and Buyer Warrant................................18
3.18 Tax-Free Reorganization Matters................................................................18
3.19 Investor Relations Firm........................................................................19
ARTICLE 4
COVENANTS OF THE COMPANY ...............................................................................19
4.01 Conduct of the Business........................................................................19
4.02 Access to Books and Records....................................................................20
4.03 Regulatory Filings.............................................................................21
4.04 Conditions.....................................................................................21
4.05 No Negotiations, etc...........................................................................21
ARTICLE 5
COVENANTS OF BUYER......................................................................................21
5.01 Conduct of the Business........................................................................21
5.02 Regulatory Filings.............................................................................23
5.03 Conditions.....................................................................................23
5.04 Repayment of Indebtedness......................................................................23
5.05 Nasdaq Listing.................................................................................23
5.06 Publicizing Merger.............................................................................23
5.07 Registration of Buyer Common Shares............................................................23
5.08 Tax-Free Reorganization........................................................................23
5.09 Employee and Employee Benefit Plan Matters.....................................................24
5.10 Indemnification................................................................................24
5.11 Performance by Merger Subsidiary...............................................................24
ARTICLE 6
CONDITIONS TO CLOSING...................................................................................24
6.01 Conditions to Buyer's Obligations..............................................................24
6.02 Conditions to the Company's Obligations........................................................26
ARTICLE 7
TERMINATION AND REMEDIES................................................................................28
7.01 Termination....................................................................................28
7.02 Effect of Termination..........................................................................29
7.03 Arbitration....................................................................................29
7.04 Remedies.......................................................................................29
7.05 Litigation Expense.............................................................................30
ARTICLE 8
ADDITIONAL AGREEMENTS...................................................................................30
8.01 Powers of Attorney.............................................................................30
8.02 Officers of Surviving Corporation..............................................................30
8.03 Options, etc. Issued by Buyer after May 3, 1999................................................30
8.04 The Company's Corporate Books..................................................................30
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8.05 Securities and Blue Sky Laws...................................................................30
8.06 Tax Matters....................................................................................30
8.07 Advance to the Company.........................................................................31
ARTICLE 9
SURVIVAL; INDEMNIFICATION...............................................................................31
9.01 Survival of Representations and Warranties.....................................................31
9.02 Indemnification of Company Indemnitees.........................................................31
9.03 Procedure for Indemnification of the Company Indemnitees.......................................31
9.04 Indemnification Threshold......................................................................32
9.05 Adjustment for Taxes and Insurance.............................................................32
ARTICLE 10
MISCELLANEOUS...........................................................................................32
10.01 Press Releases and Announcements...............................................................32
10.02 Expenses.......................................................................................32
10.03 Further Assurances.............................................................................32
10.04 Amendment and Waiver...........................................................................32
10.05 Notices........................................................................................33
10.06 Assignment.....................................................................................33
10.07 Severability...................................................................................33
10.08 Complete Agreement.............................................................................33
10.09 Counterparts...................................................................................34
10.10 Governing Law..................................................................................34
EXHIBIT A Certificate of Designation for Buyer's Series B Convertible Preferred Stock
EXHIBIT B Subscription Agreement and Letter of Investment Intent
EXHIBIT C Escrow Agreement
EXHIBIT D Company Disclosure Schedule
EXHIBIT E Buyer Disclosure Schedule
EXHIBIT F Opinion of Company Counsel
EXHIBIT G Form of LegacyMaker Indemnification Agreement
EXHIBIT H King Indemnification Agreement
EXHIBIT I King Employment Agreement
EXHIBIT J ▇▇▇▇▇▇▇▇ Consulting Agreement
EXHIBIT K Opinion of Counsel of Buyer
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 1, 1999 among Cafe
Odyssey, Inc., a Minnesota corporation ("BUYER"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ("King"),
▇▇▇▇▇▇▇.▇▇▇, inc., a Delaware corporation (the "COMPANY"), each of the holders
of common stock of the Company on the date hereof and Cafe Odyssey Acquisition
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of Buyer
("MERGER SUBSIDIARY").
A. The respective Boards of Directors of Buyer, the Company and Merger
Subsidiary have approved the acquisition of the Company pursuant to the terms of
this Agreement.
B. The respective Boards of Directors of Merger Subsidiary and the
Company have each duly approved the merger of Merger Subsidiary and the Company
(the "MERGER") in accordance with the Delaware General Corporation Law upon the
terms and subject to the conditions set forth below.
C. The Board of Directors of Buyer has determined to recommend to the
shareholders of Buyer that it is advisable and in the best interests of Buyer
and its shareholders to approve the Merger.
D. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
E. The parties intend that the Merger shall be treated for United
States federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986 (the "CODE") and that this
Agreement, as it relates to the Merger, shall constitute a "plan of
reorganization" within the meaning of Treasury Regulation ss. 1.368-3.
F. Each of the Company Shareholders (defined below) on the date hereof
approves of this Agreement and the Merger.
ARTICLE I
THE MERGER AND RELATED MATTERS
Accordingly, and in consideration of the representations, warranties,
agreements and conditions herein contained, the parties hereto agree as follows:
1.01 The Merger.
(a) Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereinafter defined), the Company shall be merged with
and into Merger Subsidiary, the separate existence of the Company shall cease
(except as may be continued by operation of law) and Merger Subsidiary shall
continue as the surviving corporation (the "SURVIVING CORPORATION").
(b) From and after the Effective Time, (i) the Certificate of
Incorporation of Merger Subsidiary, as in effect immediately prior to the
Effective Time and as amended in accordance with clause (iv) below, shall be the
Certificate of Incorporation of the Surviving Corporation (ii) the Bylaws of the
Surviving Corporation shall be the Bylaws of Merger Subsidiary as in effect
immediately prior to the Effective Time; (iii) the directors and officers of
Merger Subsidiary shall become the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office); and (iv) the Certificate of Incorporation of
Merger Subsidiary shall be amended as of the Effective
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Time so that the name of the Surviving Corporation shall be the name of the
Company immediately prior to the Effective Time.
1.02 Effective Time of the Merger. As soon as practicable after each of
the conditions set forth in Section 1.06(c) and Article 6 hereof (other than the
condition that articles of merger be filed and become effective) have been
satisfied or waived, the Company and Merger Subsidiary will file, or cause to be
filed, articles of merger with the Secretary of State of the State of Delaware,
which articles of merger shall be in the form required by and executed in
accordance with the applicable provisions of Delaware law (the "CERTIFICATE OF
MERGER"). The Merger shall become effective at the time the Certificate of
Merger is filed with the Secretary of State of the State of Delaware (the
"EFFECTIVE TIME").
1.03 Conversion of Common Shares.
(a) At the Effective Time, each share of common stock of the
Company, par value $.01 per share (a "COMPANY COMMON SHARE"), issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive from Buyer each of
(i) one (1) share of Buyer's Series B Convertible Preferred
Stock (the "BUYER PREFERRED SHARES"), and
(ii) a fraction of a warrant in a form mutually acceptable
to Buyer and the Company Shareholders (the "BUYER
WARRANT") to purchase Buyer's common stock, par value
$.01 per share ("BUYER COMMON SHARES"), providing the
economic equivalent of all options, warrants and other
securities exchangeable for, or convertible into, Buyer
Common Shares, which options, warrants or other
securities are outstanding on May 3, 1999 (excluding
Buyer's Redeemable Class A Warrants), such fraction
having a numerator equal to 1 (one) and a denominator
equal to the total number of Company Common Shares
outstanding at the Effective Time.
The sum of (i) and (ii) may be referred to herein as the "MERGER CONSIDERATION."
(b) At and as of the Effective Time, the holders of
certificates representing Company Common Shares at the Effective Time
(collectively, the "COMPANY SHAREHOLDERS") shall cease to have any rights as
shareholders of the Company, except such rights, if any, as they may have
pursuant to Delaware law. Except as provided above, until certificates
representing Company Common Shares are surrendered for exchange, each such
certificate shall, after the Effective Time, represent for all purposes only the
right to receive the Merger Consideration, as provided above.
(c) On the Closing Date (as defined in Section 1.05), the
Board of Directors of Buyer shall file a Certificate of Designation for the
Buyer Preferred Shares with the Secretary of State of the State of Delaware
setting forth the powers, preferences, rights, qualifications, limitations and
restrictions of the Buyer Preferred Shares in the form set forth as EXHIBIT A,
and shall reserve for issuance a sufficient number of shares of Buyer Preferred
Shares for the purpose of issuing such shares to the Company Shareholders in
accordance herewith and a sufficient number of Buyer Common Shares for the
purpose of issuing such shares upon conversion of the Buyer Preferred Shares.
Such Certificate of Designation shall provide that the Buyer Preferred Shares
are convertible, in the aggregate, into a number of Buyer Common Shares
determined by the following formula:
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Number of Buyer Preferred Number of Buyer Common Shares outstanding
Shares outstanding x immediately after the Effective Time
immediately ------------------------------------
after the Effective Time 2,024
(d) If, between the date of this Agreement and the Effective
Time, the outstanding number of Buyer Preferred Shares or Buyer Common Shares
shall have been changed into a different number of shares or a different class
by reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or stock dividend, the Merger Consideration shall be
appropriately adjusted.
1.04 Exchange of Company Common Shares.
(a) After the Effective Time, each Company Shareholder shall
be entitled, upon surrender of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Company Common Shares (the
"CERTIFICATES"), along with a fully executed Subscription Agreement and Letter
of Investment Intent in the form of EXHIBIT B (the "SUBSCRIPTION DOCUMENTS"), to
receive the Merger Consideration from Buyer through such reasonable procedures
as Buyer may adopt.
(b) At the Closing, each Company Shareholder shall deposit
with the Escrow Agent (as defined below) in accordance with Section 1.05 each
Certificate for outstanding Company Common Shares, together with the
Subscription Documents and a letter of transmittal ("LETTER OF TRANSMITTAL")
(which shall specify that delivery of the Certificates shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to Buyer, and shall also authorize and instruct Buyer to deliver to
the Escrow Agent that number of Buyer Preferred Shares to which the holder
thereof would otherwise be entitled pursuant to Section 1.03 for deposit into
the Escrow Account pursuant to Section 1.05), duly completed and validly
executed in accordance with the instructions thereto. Upon deposit of the
Certificate with the Escrow Agent, together with the Subscription Documents and
the Letter of Transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a pro rata portion of the Merger
Consideration to be deposited with the Escrow Agent, including a certificate
representing that number of Buyer Preferred Shares into which the Company Common
Shares represented by the Certificate so surrendered shall be converted by the
Merger.
(c) All Merger Consideration issued upon the surrender for
exchange of Company Common Shares in accordance with the above terms and
conditions shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Company Common Shares.
(d) In the event any Certificates shall have been lost, stolen
or destroyed, Buyer shall deliver to the Escrow Agent to be held in escrow in
accordance with Section 1.05 in exchange for such lost, stolen or destroyed
Certificate, upon the making of an affidavit of that fact by the holder thereof,
Buyer Preferred Shares; provided, however, that Buyer may, in its discretion and
as a condition precedent to the issuance of any Buyer Preferred Shares, require
the owner of such lost, stolen or destroyed Certificate to deliver a bond in
such reasonable sum as it may direct as indemnity against any claim that may be
made against Buyer, Merger Subsidiary, the Company, or any other party with
respect to the Certificate alleged to have been lost, stolen or destroyed.
(e) After the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of Company Common Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented to the
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Surviving Corporation, they shall be canceled and exchanged for Merger
Consideration as provided in Section 1.03.
1.05 Closing into Escrow; the Escrow Account.
(a) On or before the later to occur of (i) 5:00 p.m. on June
17, 1999 and (ii) 5:00 p.m. on the fifth day after the date on which the Company
delivers to Buyer the Company's Annual Financial Statements (as defined below),
a closing into escrow of the transactions contemplated by this Agreement (the
"CLOSING," and the date upon which the Closing shall occur, the "CLOSING DATE")
shall occur and the following property shall be placed in an escrow account (the
"ESCROW ACCOUNT") pursuant to the terms of an escrow agreement to be entered
into by and among Buyer, the Company, the Attorney-in-Fact, on behalf of the
Company Shareholders, and the escrow agent (the "ESCROW AGENT"), to be mutually
acceptable to the Escrow Agent, the Attorney-in-Fact, the Company and Buyer, in
form and substance substantially as set forth in EXHIBIT C (the "ESCROW
AGREEMENT"):
(i) by Buyer, the Company and Merger Subsidiary, the
executed Certificate of Merger;
(ii) by Buyer, certificates representing each Company
Shareholder's pro rata portion of the aggregate number
of Buyer Preferred Shares issuable pursuant to Section
1.03(a)(i) based on the number of Company Common Shares
outstanding on the Closing Date;
(iii) by Buyer, the Buyer Warrant; and
(iv) by the Company Shareholders, the Company Common Shares
held by the Company Shareholders, together with stock
powers executed in blank, an executed Letter of
Transmittal and executed Subscription Documents.
(b) Prior to the Effective Time, the Buyer Preferred Shares
shall not be deemed to be issued and outstanding, but shall be held in escrow
pending the Effective Time. At the Effective Time, each Company Shareholder
shall become a shareholder of Buyer with respect to such Company Shareholder's
pro rata portion of the Buyer Preferred Shares and shall have all of the rights
of a shareholder with respect to all such Shares, including the right to vote
such Buyer Preferred Shares and to receive all dividends and other distributions
paid with respect thereto; provided, however, that until the Effective Time,
neither any Company Shareholder, Buyer nor any other person may sell, transfer,
pledge, hypothecate or otherwise encumber any escrowed Buyer Preferred Shares,
Company Common Shares or any other escrowed security. At the Effective Time, the
Company Common Shares then outstanding shall be deemed canceled.
(c) Upon satisfaction of all of the following:
(i) Buyer shall have paid into the Escrow Account an amount
(the "LEGACYMAKER FUNDS") necessary to pay all of the
Company's secured indebtedness to LegacyMaker, Inc.
(the "LEGACYMAKER NOTE");
(ii) The sale price of a Buyer Common Share at the close of
business on the last business day preceding the
Effective Time shall then be at least $2.50 as quoted
on Nasdaq;
(iii) Buyer's shareholders shall have approved the Merger;
and
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(iv) If applicable, Buyer shall have paid in full the
Liquidated Damages and any Extension Payments then
payable pursuant to Section 7.01(b);
then all of the escrowed Buyer Preferred Shares and the Buyer Warrant will be
released to the Company Shareholders, all of the Company Common Shares,
Subscription Documents, Letters of Transmittal and executed stock powers will be
released to Buyer, the Escrow Agent will file, or cause to be filed, the
executed Certificate of Merger with the Secretary of State of the State of
Delaware, and Buyer will issue as additional Merger Consideration one (1) Buyer
Preferred Share for each Company Common Share issued by the Company (and not in
contravention of Section 4.01(b)) after the Closing but prior to the Effective
Time to the holder of record of each such Company Common share as of the
Effective Time.
(d) Upon any surrender and exchange of Certificates, there
shall be paid to the holders of the Certificates issued in exchange therefor the
amount, without interest thereon, of dividends and other distributions, if any,
that theretofore were declared and became payable after the Effective Time with
respect to the number of whole shares of Buyer Preferred Shares issued to such
holder.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that, except as set forth
in the Company Disclosure Schedule attached hereto as EXHIBIT D (the "COMPANY
DISCLOSURE SCHEDULE") (which Company Disclosure Schedule sets forth the
exceptions to the representations and warranties contained in this Article 2
under captions referencing the Sections to which such exceptions apply):
2.01 Limitation on Representations and Warranties.
(a) Except as and to the extent expressly set forth in this
Article 2, the Company makes no other representations or warranties, either
express or implied, and disclaims all liability and responsibility for any
representation, warranty, statement or information made or communicated (orally
or in writing) to Buyer or any of its affiliates, employees, agents, consultants
or representatives (including, without limitation, any opinion, information,
projection or advice that may have been provided to Buyer by any officer,
director, employee, agent, consultant or representative of the Company or any
affiliate thereof, or by any other agent, consultant or representative of the
Company).
(b) Notwithstanding anything to the contrary contained herein,
to the extent that any of the representations and warranties contained in this
Article 2 concern assets or properties that are operated by persons other than
the Company, such representations and warranties are limited to the best
knowledge of the Company, without any further investigation. All of such assets
and properties are disclosed on the Company Disclosure Schedule.
(c) Without limiting the generality of the foregoing, the
Company makes no representation or warranty, either express or implied, as to
the design, function, value or marketability of the Company's assets or
properties or the probable success or profitability of the business of the
Company.
(d) "To the knowledge" or "to the best knowledge" of the
Company (or similar references to the Company's knowledge) means that the only
information to be attributed to the Company is information actually known to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇. Unless otherwise specifically provided
in this Agreement, no such person is represented to have undertaken a separate
investigation in connection with the transactions contemplated hereby to
determine the existence of absence of facts in any statement qualified by
"knowledge."
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2.02 Incorporation and Corporate Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority and all
authorizations, licenses, permits and certifications necessary to own and
operate its properties and to carry on its business as now conducted and
presently proposed to be conducted. The copies of the Company's Certificate of
Incorporation and Bylaws which have been furnished by the Company to Buyer prior
to the date hereof reflect all amendments made thereto and are correct and
complete as of the date hereof. The Company is qualified to do business as a
foreign corporation in Texas, which is the only state in which the nature of its
business or its ownership of property requires it to be so qualified except for
those jurisdictions in which the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
Company's business, prospects or results of operations (a "MATERIAL ADVERSE
EFFECT").
2.03 Execution and Delivery; Valid and Binding Agreements. The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on its part are necessary to authorize the execution, delivery and performance
of this Agreement. This Agreement has been and the other agreements to be
executed pursuant hereto will be at Closing and at the Effective Time duly
executed and delivered by the Company and constitute (or at Closing and at the
Effective Time will constitute) the valid and binding obligations of the
Company, enforceable in accordance with their respective terms. Each
Attorney-in-Fact will have at the Closing the absolute and unrestricted right,
power and authority to carry out the terms of this Agreement and the
transactions contemplated hereby on behalf of each Company Shareholder on whose
behalf it has been authorized to act, including on behalf of persons or entities
who become Company Shareholders after the date hereof or after the Closing Date.
2.04 No Breach. The execution, delivery and performance of this
Agreement and each of the other agreements attached as exhibits hereto
(collectively, the "RELATED AGREEMENTS") to be executed by the Company in
connection herewith and the consummation by the Company of the transactions
contemplated hereby do not (i) conflict with or result in a violation of any
provision of the charter or bylaws of the Company, (ii) constitute a default
under, or give rise to any right of termination, cancellation, or acceleration
under any material bond, debenture, note, mortgage, indenture, lease, contract,
agreement, or other instrument or obligation to which the Company is a party or
by which the Company or any of its properties may be bound, (iii) result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon the properties of the Company, or (iv) violate any applicable law binding
upon the Company except, in the case of clauses (ii), (iii), and (iv) above, for
any such conflicts, violations, defaults, terminations, cancellations,
accelerations or encumbrances which would not, individually or in the aggregate,
have a Material Adverse Effect.
2.05 Value of the Company. Buyer acknowledges that it has had access to
adequate information to assess the value of the Company and its strategic fit
with Buyer. Buyer and Merger Subsidiary expressly waive any and all claims
against the Company or its directors, officers or shareholders relating to the
valuation of the Company or its assets or any representations as to such value
made by the Company or any of its directors, officers or shareholders with
respect to such valuation.
2.06 Governmental Authorities; Consents. The Company is not required to
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any governmental or regulatory authority or any other party or
person is required to be obtained by the Company in connection with its
execution, delivery and performance of this Agreement or the transactions
contemplated hereby, except for such consents, approvals and authorizations
which, if not obtained, would not have a Material Adverse Effect.
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2.07 Capital Stock. The authorized capital stock of the Company
consists of 1,000,000 shares of common stock, par value $.01 per share,
consisting of 1,000 shares of Class A Common Stock ("Class A Common") and
999,000 shares of Class B Common Stock ("Class B Common"), of which, as of the
date hereof, 10 shares of Class A Common and 2,014 shares of Class B Common
(collectively, the "Company Common Shares") are issued and outstanding, all of
which are owned beneficially and of record by the Company Shareholders, free and
clear of any security interests, claims, liens, pledges, options, encumbrances,
charges, agreements, voting trusts, proxies or other arrangements, restrictions
or other legal or equitable limitations of any kind, other than liens or
encumbrances in favor of LegacyMaker, Inc. ("LEGACYMAKER"), which liens or
encumbrances will be released upon payment in full of the LegacyMaker Note. All
of the Company Common Shares have been duly authorized and are validly issued,
fully paid and nonassessable. The Company has no other equity securities or
securities containing any equity features authorized, issued or outstanding.
There are no agreements or other rights or arrangements existing which provide
for the sale or issuance of capital stock by the Company and there are no
rights, subscriptions, warrants, options, conversion rights or agreements of any
kind outstanding to purchase or otherwise acquire from the Company any shares of
capital stock or other securities of the Company of any kind. There are no
agreements or other obligations (contingent or otherwise) which may require the
Company to repurchase or otherwise acquire any shares of its capital stock.
2.08 Subsidiaries. The Company does not own any stock, partnership
interest, joint venture interest or any other security or ownership interest
issued by any other corporation, organization or entity. The Company may form
subsidiaries in order to conduct acquisitions in accordance with Section 4.05.
2.09 Financial Statements. The Company shall deliver to Buyer copies of
(a) the unaudited balance sheet, as of April 30, 1999, of the Company (the
"COMPANY'S INTERIM BALANCE SHEET") and the unaudited statement of operations of
the Company for the four-month period ended April 30, 1999 (such statement and
the Company's Interim Balance Sheet being herein referred to as the "COMPANY'S
INTERIM FINANCIAL STATEMENTS") within five (5) days after the date hereof and
(b) the audited balance sheets, as of December 31, 1998 and December 31, 1997,
of the Company and the audited statement of operations of the Company for each
of the years ended December 31, 1998 and December 31, 1997 (collectively, the
"COMPANY'S ANNUAL FINANCIAL STATEMENTS") within 45 days after the date hereof.
The Company's Interim Financial Statements and the Company's Annual Financial
Statements are true and correct in all material respects, are based upon the
information contained in the books and records of the Company and fairly present
in all material respects the financial condition of the Company as of the dates
thereof and results of operations, shareholders' equity and cash flows for the
periods referred to therein. The Company's Annual Financial Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods indicated. The Company's Interim
Financial Statements have been prepared in accordance with generally accepted
accounting principles applicable to unaudited interim financial statements (and
thus may not contain all notes which are required to be prepared in accordance
with generally accepted accounting principles) consistent with the Company's
Annual Financial Statements and reflect all adjustments necessary to fairly
present the financial position, results of operations and cash flows for the
interim period(s) presented.
2.10 Absence of Undisclosed Liabilities. Except as reflected in the
Company's Interim Balance Sheet, the Company has no material liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due, whether known or unknown, and regardless of when asserted)
arising out of transactions or events heretofore entered into, or any action or
inaction, or any state of facts existing, with respect to or based upon
transactions or events heretofore occurring, except liabilities which have
arisen after the date of the Company's Interim Balance Sheet in the ordinary
course of business (none of which is a material uninsured liability for breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and other
liabilities which, in the aggregate, are not material to the Company.
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2.11 No Material Adverse Changes. Since December 31, 1998, there has
not been any material adverse change in, or any event or condition that might
reasonably be expected to result in any material adverse change in, the assets,
financial condition, operating results, customer, employee or supplier
relations, business condition or prospects of the Company.
2.12 Title to Property.
(a) The Company does not own any real property and is not a
party to any lease of real property.
(b) The Company owns good and marketable title to each of the
material tangible properties and tangible assets reflected on the Company's
Interim Balance Sheet or acquired since the date thereof, free and clear of all
liens and encumbrances, except for (i) liens for current taxes not yet due and
payable, (ii) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers and
materialmen, (iii) liens securing the LegacyMaker Note, which liens will be
released upon payment in full of such Note, and (iv) liens which individually or
in the aggregate would not have a Material Adverse Effect.
(c) All of the material equipment and other material tangible
assets necessary for the conduct of the Company's business are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business. There are no defects in such assets or other conditions
relating thereto which, in the aggregate, materially adversely affect the
operation or value of such assets. The Company owns, or leases under valid
leases, all equipment and other tangible assets necessary for the conduct of its
business as currently conducted.
2.13 Tax Matters. Except as set forth on the Company Disclosure
Schedule:
(a) Each of the Company and any affiliated, combined or
unitary group of which the Company is or was a member for purposes of any Taxes
(as defined below) has timely filed, been included in or sent, and will, prior
to the Closing, timely file, be included in or send all returns, declarations
and reports and information returns and statements required to be filed or sent
by or relating to any of them prior to the Closing relating to any Taxes with
respect to any income, properties or operations of the Company prior to the
Effective Time (collectively, the "RETURNS");
(b) as of the time of filing, the Returns:
(i) correctly reflected (and, as to any Returns not
filed as of the date hereof, will correctly reflect) in all material
respects the facts regarding the income, business, assets, operations,
activities and status of the Company and any other information required
to be shown therein;
(ii) constitute (and, as to any Returns not filed as
of the date hereof, will constitute) complete and accurate
representations of the Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent
required to be included or reflected in the Returns) relevant to future
Tax liabilities, including the Tax bases of properties and assets;
(c) the Company has timely paid all Taxes that have been shown
as due and payable on the Returns that have been filed;
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(d) the Company has established a reserve (in accordance with
generally accepted principles) on the Company's Interim Balance Sheet for any
Taxes that relate to past periods but are not yet due; and will establish such a
reserve for all other Taxes payable for any periods that end before the Closing
for which no Returns have yet been filed and for any periods that begin before
the Closing and end after the Closing to the extent such Taxes are attributable
to the portion of any such period ending at the Closing;
(e) the charges, accruals and reserves for Taxes reflected on
the Company's Interim Balance Sheet are adequate to cover the Tax liabilities
accruing or payable by the Company in respect of periods prior to the date
hereof;
(f) the Company is not delinquent in the payment of any Taxes
and has not requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent;
(g) to the Company's knowledge, no deficiency for any Taxes
has been proposed, asserted or assessed against the Company (or any member of
any affiliated or combined group of which the Company is or has been a member
for which the Company could be liable for Taxes);
(h) the Company has not granted any extension of the
limitation period applicable to any Tax claims and the Company has not waived
any such limitation period;
(i) the Company is not and has not been a party to any tax
sharing agreement with any corporation which, as of the Closing, is not a member
of the affiliated group of which the Company is a member;
(j) the Company has not made any election under Section
341(f) of the Code;
(k) no Tax is required to be withheld pursuant to Section 1445
of the Code as a result of the transactions contemplated in this Agreement;
(l) neither the Company nor any affiliate is a party to any
agreement, contract plan or arrangement that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code and the consummation of
the transactions contemplated by this Agreement will not be a factor causing
payments to be made by the Company that are not deductible (in whole or in part)
under Section 280G of the Code;
(m) to the Company's knowledge, no examinations of the Returns
of the Company is currently in progress or, to the best knowledge of the
Company, threatened and no deficiencies have been asserted or assessed against
either the Company as a result of any audit by the Internal Revenue Service or
any other taxing authority and no such deficiency has been proposed or
threatened;
(n) there are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company; and
(o) the Company is treated as an S corporation for federal
income tax purposes.
"TAX" (and with the corresponding meaning "Taxes" and "Taxable") shall include
(i) any net income, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profit tax, custom
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) and
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(ii) any liability for the payment of any amount of the type described in clause
(i) as a result of being a member of an affiliated or combined group.
2.14 Contracts and Commitments.
(a) The Company is not a party to any: (i) collective
bargaining agreements or contracts with any labor union; (ii) bonus, pension,
profit sharing, retirement or other form of deferred compensation plans; (iii)
hospitalization insurance or other welfare benefit plan or practice, whether
formal or informal; or (iv) stock purchase or stock option plans.
(b) The Company Disclosure Schedule lists all material
contracts (within the meaning of paragraph (b)(10) of Item 601 of Regulation
S-K, applied as if the Company were the "registrant" as used therein), oral or
written, to which the Company is a party.
(c) The Company has performed all material obligations
required to be performed by it in connection with the contracts or commitments
required to be disclosed in the Company Disclosure Schedule and is not in
receipt of any claim of default under any contract or commitment required to be
disclosed under such caption and the Company has no present expectation or
intention of not fully performing any material obligation pursuant to any
contract or commitment required to be disclosed under such caption; and the
Company has no knowledge of any breach or anticipated breach by any other party
to any contract or commitment required to be disclosed under such caption.
(d) Prior to the date of this Agreement, Buyer has been
provided access to each written contract or commitment, and a written
description of each oral contract or commitment, referred to in the Company
Disclosure Schedule, together with all amendments, waivers or other changes
thereto.
2.15 Intellectual Property Rights. The Company Disclosure Schedule
describes all material rights in patents, patent applications, trademarks,
service marks, trade names, corporate names, copyrights, trade secrets, know-how
or other intellectual property rights owned by, licensed to or otherwise
controlled by the Company or used in, developed for use in or necessary to the
conduct of the Company's business as now conducted. The Company owns and
possesses all right, title and interest, or holds a valid license, in and to the
rights set forth under such caption. The Company Disclosure Schedule describes
all intellectual property rights which have been licensed to third parties and
those intellectual property rights which are licensed from third parties. The
Company has not received any notice of, nor are there any facts known to it
which indicate a likelihood of, any infringement or misappropriation by, or
conflict from, any third party with respect to the material intellectual
property rights which are listed; no claim by any third party contesting the
validity of any intellectual property rights listed in the Company Disclosure
Schedule has been made, is currently outstanding or, to the best knowledge of
the Company, is threatened; the Company has not received any notice of any
infringement, misappropriation or violation by the Company of any intellectual
property rights of any third parties and to its knowledge the Company has not
infringed, misappropriated or otherwise violated any such intellectual property
rights; and to the knowledge of the Company no infringement, illicit copying,
misappropriation or violation has occurred or will occur with respect to
products currently being sold by the Company or with respect to the conduct of
the Company's business as now conducted.
2.16 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of the Company, threatened
against the Company, at law or in equity, or before or by any federal, state or
municipal court or other governmental department, commission, board, bureau,
agency or instrumentality.
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2.17 Employees. (a) No executive employee of the Company and, to the
best knowledge of the Company, no group of the Company's employees has any plans
to terminate his, her or its employment; (b) the Company has complied in all
material respects with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes; (c) the Company
has no material labor relations problem pending and its labor relations are
satisfactory; (d) there are no workers' compensation claims pending against the
Company nor is the Company aware of any facts that would give rise to such a
claim; (e) to the Company's knowledge, no employee of the Company is subject to
any secrecy or noncompetition agreement or any other agreement or restriction of
any kind that would impede in any way the ability of such employee to carry out
fully all activities of such employee in furtherance of the business of the
Company or, after the Effective Time, the Surviving Corporation; (f) no employee
or former employee of the Company has any claim with respect to any intellectual
property rights of the Company set forth in the Company Disclosure Schedule; and
(g) the Company has furnished to Buyer copies of all noncompetition agreements
between the Company and any of its directors or employees.
2.18 Employee Benefit Plans.
(a) There are no employee welfare benefit plans or employee
pension benefit plans within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") maintained or contributed to by the
Company (collectively, "PLANS"), and no trust funds are so maintained in
connection with any employee welfare benefit plan.
(b) The Company does not now maintain or contribute to, nor
has the Company at any time maintained or contributed to, any employee benefit
plan which is subject to Title IV of ERISA.
(c) The Company has not engaged in, nor entered into any
arrangement pursuant to which any person or entity is contractually bound to
enter into, any transaction which could result in imposition upon either the
Company or Buyer of any excise tax under Sections 4971 through 4980B, inclusive,
and Section 5000 of the Code or civil liability under Section 502(i) or 502(l)
of ERISA or otherwise incurred a liability for any excise tax, other than excise
taxes which have heretofore been paid or have been accrued on the Company's
Interim Balance Sheet.
(d) The Company is not and has never been a member of a
controlled group of corporations, an unincorporated trade or business under
common control, or a member of an affiliated service group (as such terms are
defined in Sections 414(b), 414(c) and 414(m) of the Code), involving any other
entity.
(e) The Company does not maintain any employee benefit plan
providing benefits to former employees or directors, other than health coverage
mandated by applicable law.
(f) The Company has complied in all respects with the "COBRA"
requirements of Section 4980B of the Code.
2.19 Insurance. The Company Disclosure Schedule lists and briefly
describes (i) each insurance policy maintained by the Company with respect to
the Company's properties, assets and operations, (ii) sets forth the date of
expiration of each such insurance policy and (iii) briefly summarizes all
material claims currently outstanding under each such policy. All of such
insurance policies are in full force and effect. The Company is not in default
with respect to its obligations under any of such insurance policies. To the
best knowledge of the Company, there has been no threatened termination of, or
premium increase whether retrospective or prospective with respect to any of
such policies.
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2.20 Affiliate Transactions. Other than pursuant to this Agreement or
as disclosed on the Company Disclosure Schedule, no officer, director or
employee of the Company or any member of the immediate family of any such
officer, director or employee, or any entity in which any of such persons owns
any beneficial interest (other than any publicly-held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than one percent of the stock of which is beneficially owned by any of such
persons) (collectively "Insiders"), has any agreement with the Company (other
than normal employment arrangements) or any interest in any property, real,
personal or mixed, tangible or intangible, used in or pertaining to the business
of the Company (other than ownership of capital stock of the Company). To the
Company's knowledge, none of the Insiders has any direct or indirect material
interest in any competitor, supplier or customer of the Company or in any
person, firm or entity from whom or to whom the Company leases any material
property. For purposes of this Section, the members of the immediate family of
an officer, director or employee shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer, director or employee.
2.21 Compliance with Laws; Permits.
(a) The Company and, to the Company's knowledge, its officers,
directors, agents and employees, have complied in all material respects with all
applicable laws, regulations and other requirements which materially affect the
business of the Company and to which the Company may be subject, and no claims
have been filed against the Company alleging a violation of any such laws,
regulations or other requirements. The Company has no knowledge of any such
action. The Company is not relying on any exemption from or deferral of any such
applicable law, regulation or other requirement that would not be available to
the Surviving Corporation after the Effective Time.
(b) The Company has, in full force and effect, all material
licenses, permits and certificates, from federal, state and local authorities
(including, without limitation, federal and state agencies regulating
occupational health and safety) necessary to conduct its business and own and
operate its properties (collectively, the "PERMITS"), except for Permits that
the absence of which has not and will not have a Material Adverse Effect. A
true, correct and complete list of all the Permits maintained by the Company is
set forth in the Company Disclosure Schedule. The Company has conducted its
business in all material respects in compliance with all material terms and
conditions of the Permits.
2.22 Tax-Free Reorganization Matters.
(a) Following the Merger, Surviving Corporation will hold at
least 90 per cent of the fair market value of the Company's net assets and at
least 70 percent of the fair market value of the Company's gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
paid by the Company or Merger Subsidiary to Company Shareholders who receive
cash or other property, amounts used by the Company or Merger Subsidiary to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company will be included as assets of the
Company or Merger Subsidiary, respectively, immediately prior to the Merger.
(b) Following the Merger, Surviving Corporation will continue
the Company's historic business or use a significant portion of its historic
business assets in a business.
(c) There is no intercorporate indebtedness existing between
Buyer and the Company or between Merger Subsidiary and the Company that was
issued, acquired or will be settled at a discount.
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(d) Buyer is paying no consideration for outstanding stock of
the Company other than the Merger Consideration. Buyer will acquire at least 50%
of the Company's outstanding stock solely in exchange for voting stock of Buyer.
For purposes of the preceding sentence, shares of Company Common Stock exchanged
for cash or other property originating with Buyer will be treated as outstanding
stock of the Company.
2.23 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Company Shareholders or the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary hereby represent and warrant to the Company
that, except as set forth in the Buyer Disclosure Schedule attached hereto as
EXHIBIT E (the "BUYER DISCLOSURE SCHEDULE") (which Buyer Disclosure Schedule
sets forth the exceptions to the representations and warranties contained in
this Article 3 under captions referencing the Sections to which such exceptions
apply):
3.01 Incorporation and Corporate Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation and has the corporate
power and authority and all authorizations, licenses, permits and certifications
necessary to own and operate its properties and to carry on its business as now
conducted and presently proposed to be conducted. The copies of the Articles or
Certificate of Incorporation and Bylaws of each of Buyer and Merger Subsidiary
which have been furnished to the Company prior to the date hereof reflect all
amendments made thereto and are correct and complete as of the date hereof.
Buyer is qualified to do business as a foreign corporation in Ohio and Colorado,
which are the only states in which the nature of its business or its ownership
of property requires it to be so qualified except for those jurisdictions in
which the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on Buyer's business, prospects or
results of operations.
3.02 Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement by each of Merger Subsidiary and
Buyer and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action, and no other
corporate proceedings are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement has been, and each of the Related
Agreements to be executed by the Company or Merger Subsidiary at Closing will
be, duly executed and delivered by each of Merger Subsidiary and Buyer and
constitute the valid and binding obligation of each, enforceable in accordance
with their respective terms.
3.03 No Breach. The execution, delivery and performance of this
Agreement by each of Merger Subsidiary and Buyer and the consummation by them of
the transactions contemplated hereby do not (i) conflict with or result in a
violation of any provision of the charter or bylaws of either Merger Subsidiary
or Buyer, (ii) constitute a default under, or give rise to any right of
termination, cancellation, or acceleration under any material bond, debenture,
note, mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Merger Subsidiary or Buyer is a party or by which either of
them or any of their properties may be bound, (iii) result in the creation or
imposition of any lien, security interest, charge or encumbrance upon the
properties of Merger Subsidiary or Buyer, or (iv) violate any applicable law
binding upon Merger Subsidiary or Buyer except, in the case of clauses (ii),
(iii), and (iv) above, for any such
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conflicts, violations, defaults, terminations, cancellations, accelerations or
encumbrances which would not, individually or in the aggregate, have a Material
Adverse Effect.
3.04 Value of the Company. Buyer acknowledges that it has had access to
adequate information to assess the value of the Company and its strategic fit
with Buyer. Buyer expressly waives any and all claims against the Company or its
directors, officers or shareholders relating to the valuation of the Company or
its assets or any representations as to such value that may be deemed to have
been made by the Company or any of its directors, officers or shareholders with
respect to such valuation.
3.05 Governmental Authorities; Consents. Other than with respect to any
Buyer or Merger Subsidiary securities law reporting obligation, neither Merger
Subsidiary nor Buyer is required to submit any notice, report or other filing
with any governmental authority in connection with their respective execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby, and no consent, approval or authorization of any governmental or
regulatory authority or any other party or person, other than Buyer's
shareholders, is required to be obtained by either Merger Subsidiary or Buyer in
connection with their respective execution, delivery and performance of this
Agreement or the transactions contemplated hereby and except for such consents,
approvals and authorizations which, if not obtained, would not have a Material
Adverse Effect.
3.06 Capital Stock. The authorized capital stock of Buyer consists of
100,000,000 shares of undesignated capital stock, of which 2,000 shares have
been designated as Series A 8% Convertible Preferred Stock. As of May 25, 1999,
8,313,435 Buyer Common Shares and 2,000 shares of Series A 8% Convertible
Preferred Stock were issued and outstanding. Buyer has not designated any other
class or series of preferred stock. All of the Buyer Common Shares and shares of
Series A 8% Convertible Preferred Stock have been duly authorized and are
validly issued, fully paid and nonassessable. The Buyer Disclosure Schedule
lists all warrants, options, conversion rights and agreements to purchase or
otherwise acquire from Buyer any shares of capital stock or other securities of
Buyer outstanding on May 3, 1999 and on the Closing Date. All of the outstanding
shares of capital stock of Merger Subsidiary are owned directly by Buyer.
3.07 Financial Statements. Within five days after the date hereof,
Buyer shall deliver to the Company copies of its unaudited balance sheet, as of
April 30, 1999 and its unaudited statement of operations for the four-month
period ended April 30, 1999 ("BUYER'S INTERIM FINANCIAL STATEMENTS"). Buyer's
Interim Financial Statements and its balance sheet as of January 3, 1999 and
statement of operations for the year ended January 3, 1999 ("BUYER'S 1998
FINANCIAL STATEMENTS"), as well as the other audited financial statements and
unaudited interim financial statements of Buyer included in Buyer's filings with
the Securities and Exchange Commission are true and correct, are based upon the
information contained in the books and records of Buyer and fairly present the
financial condition of Buyer as of the dates thereof and results of operations,
shareholders' equity and cash flows for the periods referred to therein. Buyer's
1998 Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the periods
indicated. Buyer's Interim Financial Statements have been prepared in accordance
with generally accepted accounting principles applicable to unaudited interim
financial statements (and thus may not contain all notes which are required to
be prepared in accordance with generally accepted accounting principles)
consistent with Buyer's 1998 Financial Statements and reflect all adjustments
necessary to fairly present the financial position, results of operations and
cash flows for the interim period(s) presented.
3.08 Absence of Undisclosed Liabilities. Except as disclosed in its
balance sheet for the fiscal year ended January 3, 1999, Buyer has no material
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, whether known or unknown, and regardless of when
asserted) arising out of transactions or events heretofore entered into, or any
action or inaction, or any
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state of facts existing, with respect to or based upon transactions or events
heretofore occurring, except liabilities which have arisen after January 3, 1999
in the ordinary course of business (none of which is a material uninsured
liability for breach of contract, breach of warranty, tort, infringement, claim
or lawsuit) and other liabilities which, in the aggregate, are not material to
Buyer.
3.09 No Material Adverse Changes. Since January 3, 1999, there has not
been any material adverse change in, or any event or condition that might
reasonably be expected to result in any material adverse change in, the assets,
financial condition, operating results, customer, employee or supplier
relations, business condition or prospects of Buyer.
3.10 Tax Matters. Except as set forth on the Buyer Disclosure Schedule:
(a) Each of Buyer and any affiliated, combined or unitary
group of which Buyer is or was a member for purposes of any Taxes has timely
filed, been included in or sent, and will, prior to the Closing, timely file, be
included in or send all Returns required to be filed or sent by or relating to
any of them prior to the Closing relating to any Taxes with respect to any
income, properties or operations of Buyer prior to the Effective Time;
(b) as of the time of filing, the Returns:
(i) correctly reflected (and, as to any Returns not
filed as of the date hereof, will correctly reflect) in all material
respects the facts regarding the income, business, assets, operations,
activities and status of Buyer and any other information required to be
shown therein;
(ii) constitute (and, as to any Returns not filed as
of the date hereof, will constitute) complete and accurate
representations of the Tax liabilities for the periods covered; and
(iii) accurately set forth all items (to the extent
required to be included or reflected in the Returns) relevant to future
Tax liabilities, including the Tax bases of properties and assets;
(c) Buyer has timely paid all Taxes that have been shown as
due and payable on the Returns that have been filed;
(d) Buyer has established a reserve (in accordance with
generally accepted principles) on Buyer's Interim Financial Statements for any
Taxes that relate to past periods but are not yet due; and will establish such a
reserve for all other Taxes payable for any periods that end before the Closing
for which no Returns have yet been filed and for any periods that begin before
the Closing and end after the Closing to the extent such Taxes are attributable
to the portion of any such period ending at the Closing;
(e) the charges, accruals and reserves for Taxes reflected on
Buyer's Interim Financial Statements are adequate to cover the Tax liabilities
accruing or payable by Buyer in respect of periods prior to the date hereof;
(f) Buyer is not delinquent in the payment of any Taxes and
has not requested any extension of time within which to file or send any Return,
which Return has not since been filed or sent;
(g) to Buyer's knowledge, no deficiency for any Taxes has been
proposed, asserted or assessed against Buyer (or any member of any affiliated or
combined group of which Buyer is or has been a member for which Buyer could be
liable for Taxes);
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(h) Buyer has not granted any extension of the limitation
period applicable to any Tax claims and Buyer has not waived any such limitation
period;
(i) Buyer is not and has not been a party to any tax sharing
agreement with any corporation which, as of Buyer, is not a member of the
affiliated group of which Buyer is a member;
(j) Buyer has not made any election under Section 341(f) or
Section 1362(a) of the Code;
(k) no Tax is required to be withheld pursuant to Section 1445
of the Code as a result of the transactions contemplated in this Agreement;
(l) neither Buyer nor any affiliate is a party to any
agreement, contract plan or arrangement that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code and the consummation of
the transactions contemplated by this Agreement will not be a factor causing
payments to be made by Buyer that are not deductible (in whole or in part) under
Section 280G of the Code;
(m) to Buyer's knowledge, no examinations of the Returns of
Buyer is currently in progress or, to the best knowledge of Buyer, threatened
and no deficiencies have been asserted or assessed against either Buyer as a
result of any audit by the Internal Revenue Service or any other taxing
authority and no such deficiency has been proposed or threatened; and
(n) there are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of Buyer.
3.11 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of Buyer, threatened against
Buyer, at law or in equity, or before or by any federal, state or municipal
court or other governmental department, commission, board, bureau, agency or
instrumentality.
3.12 Employees. (a) No executive employee of Buyer and, to the best
knowledge of Buyer, no group of Buyer's employees has any plans to terminate
his, her or its employment; (b) Buyer has complied in all material respects with
all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes; (c) Buyer has no material labor
relations problem pending and its labor relations are satisfactory; (d) there
are no workers' compensation claims pending against Buyer nor is Buyer aware of
any facts that would give rise to such a claim; and (e) no employee of Buyer is
subject to any secrecy or noncompetition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business of Buyer.
3.13 Employee Benefit Plans.
(a) Buyer has listed all Plans on the Buyer Disclosure
Schedule, and no trust funds are so maintained in connection with any employee
welfare benefit plan. Buyer has delivered or made available to the Company a
true, correct and complete copy of each of the Plans identified on such list. As
to each of such Plans that is funded, Buyer has delivered or made available to
the Company a true, correct and complete copy of the most recent annual
financial report with respect to such Plan, and any subsequent interim report.
There have been no adverse changes in the financial status of any such Plans
since the date of the most recent report provided with respect thereto.
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(b) Buyer has also specifically identified on the Buyer
Disclosure Schedule each of the Plans that is represented to be a qualified plan
under Section 401(a) of the Code. With respect to each of the Plans so
identified, the following are true: (i) the plan, in form and operation,
currently satisfies, and for all years subsequent to the establishment of, such
plan has satisfied, the qualification requirements of Section 401(a) or 403(a)
of the Code, as applicable; and (ii) except as identified on the Buyer
Disclosure Schedule, the IRS has issued a favorable letter of determination with
respect to the Plan as amended to date, and all amendments required by the Code
as a condition of retention of such qualified status as of the date hereof have
been or will be adopted within time limits required to maintain such status.
Each of such Plans is and has been operating in compliance with all amendments
required by the Tax Reform Act of 1986 and subsequent legislation and
regulations.
(c) Buyer and each subsidiary does not now maintain or
contribute to, nor, except as set forth on the Buyer Disclosure Schedule, has
Buyer or any subsidiary at any time maintained or contributed to, any employee
benefit plan which is subject to Title IV of ERISA. Except as set forth in the
Buyer Disclosure Schedule, all contributions payable to any of the Plans for any
plan year ending prior to the date hereof have been paid in full on a timely
basis and no accumulated funding deficiency (as defined in Section 302(a)(2) of
ERISA) has been incurred.
(d) Buyer has not engaged in, nor entered into any arrangement
pursuant to which any person or entity is contractually bound to enter into, any
transaction which could result in imposition upon either the Company or Buyer of
any excise tax under Sections 4971 through 4980B, inclusive, and Section 5000 of
the Code or civil liability under Section 502(i) or 502(l) of ERISA or otherwise
incurred a liability for any excise tax, other than excise taxes which have
heretofore been paid or have been accrued on the Buyer's Interim Financial
Statements.
(e) Buyer and each subsidiary has (i) filed or caused to be
filed on a timely basis each and every return, report, statement, notice,
declaration and other document required to be filed with any governmental agency
(including, without limitation, the IRS, the Department of Labor, the Pension
Benefit Guaranty Corporation and the SEC) with respect to each of the Plans;
(ii) timely complied with all applicable participant disclosure requirements of
ERISA; and (iii) has maintained in full force and effect any bond required under
ERISA in connection with such Plans.
(f) Buyer is not and has never been a member of a controlled
group of corporations, an unincorporated trade or business under common control,
or a member of an affiliated service group (as such terms are defined in
Sections 414(b), 414(c) and 414(m) of the Code), involving any other entity.
(g) Buyer does not maintain any employee benefit plan
providing benefits to former employees or directors, other than health coverage
mandated by applicable law.
(h) Buyer has complied in all respects with the "COBRA"
requirements of Section 4980B of the Code.
3.14 Compliance with Laws; Permits.
(a) Buyer and its officers, directors, agents and employees
have complied in all material respects with all applicable laws, regulations and
other requirements which materially affect the business of Buyer and to which
Buyer may be subject, and no claims have been filed against Buyer alleging a
violation of any such laws, regulations or other requirements. Buyer has no
knowledge of any such action.
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(b) Buyer has, in full force and effect, all Permits necessary
to conduct its business and own and operate its properties. A true, correct and
complete list of all the Permits is set forth in the Buyer Disclosure Schedule.
Buyer has conducted its business in all material respects in compliance with all
material terms and conditions of the Permits.
3.15 SEC Filings. Buyer is current with respect to reports required to
be filed under the Securities Exchange Act of 1934. None of Buyer's filings with
the Securities and Exchange Commission, at the time of their filing, contained
any untrue statement of a material fact regarding the Company or its business or
omitted to state any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they were made, not
misleading.
3.16 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Buyer or
Merger Subsidiary.
3.17 Validity of Buyer Preferred and Common Shares and Buyer Warrant.
The Buyer Preferred Shares to be issued to the Company Shareholders pursuant to
Section 1.03, and the Buyer Common Shares to be issued upon conversion of the
Buyer Preferred Shares, have been duly authorized and, upon issuance, delivery
and payment therefor, will be validly issued, fully paid and nonassessable. The
Buyer Warrant to be issued to be Company Shareholders pursuant to Section
1.03(a)(ii) and the warrant, if any, to be issued to LegacyMaker pursuant to
Section 8.03 (the "LEGACYMAKER WARRANT") have been duly authorized and, upon
issuance, delivery and payment therefor, will be validly issued, fully paid and
nonassessable and will constitute valid and legally binding obligations of Buyer
enforceable against Buyer in accordance with their terms. The Buyer Common
Shares to be issued upon exercise of all such warrants have been duly authorized
and, upon issuance, delivery and payment therefor, will be validly issued,
enforceable, fully paid and nonassessable.
3.18 Tax-Free Reorganization Matters.
(a) Immediately prior to the Merger, Buyer will be in control
of Merger Subsidiary within the meaning of Section 368(c) of the Code.
(b) Buyer does not own, nor has it owned during the past five
years, any shares of stock of the Company.
(c) Immediately following the Merger, Surviving Corporation
will hold at least 90 per cent of the fair market value of Merger Subsidiary's
net assets, at and least 70 per cent of the fair market value of Merger
Subsidiary's gross assets, held immediately prior to the Merger. For purposes of
this representation, amounts paid by the Company or Merger Subsidiary to Company
Shareholders who receive cash or other property, amounts used by the Company or
Merger Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the Company will be
assumed to be included as assets of the Company or Merger Subsidiary,
respectively, immediately prior to the merger.
(d) Following the Merger, Surviving Corporation will continue
the Company's historic business or use a significant portion of its historic
business assets in a business.
(e) Buyer has no plan or intention to cause Surviving
Corporation to issue after the Effective Time additional shares of Surviving
Corporation's stock that would result in Buyer losing control
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of surviving Corporation within the meaning of Section 368(c) of the Code or any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Surviving Corporation that, if
exercise or converted, would affect Buyer's acquisition or retention of control
of Surviving corporation, as defined in Section 368(c) of the Code.
(f) Neither Buyer nor any of its affiliates has any plan or
intention to reacquire, directly or indirectly, any of the Buyer Preferred
Shares issued pursuant to the Merger.
(g) Buyer has no plan or intention to liquidate Surviving
Corporation, to merge Surviving Corporation with or into another corporation, to
sell or otherwise dispose of Surviving Corporation Stock or to cause Surviving
Corporation to sell or otherwise dispose of its assets, except for dispositions
made in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
(h) There is no intercorporate indebtedness existing between
Buyer and the Company or between Merger Subsidiary and the Company that was
issued, acquired or will be settled at a discount.
(i) Buyer and Merger Subsidiary have taken no action that
would jeopardize the characterization of the Merger as a reorganization within
the meaning of Section 368 of the Code.
(j) Buyer is paying no consideration for outstanding stock of
the Company other than the Merger Consideration. Buyer will acquire at least 50%
of the Company's outstanding stock solely in exchange for voting stock of Buyer.
For purposes of the preceding sentence, shares of Company Common Stock exchanged
for cash or other property originating with Buyer will be treated as outstanding
stock of the Company.
(k) No capital stock of Merger Subsidiary will be issued in
the Merger.
3.19 Investor Relations Firm. Buyer has retained an investor
relations firm with substantial Internet experience.
ARTICLE 4
COVENANTS OF THE COMPANY
4.01 Conduct of the Business. The Company covenants and agrees that,
from the date hereof until the Effective Time, unless otherwise consented to by
Buyer in writing:
(a) The business of the Company shall be conducted only in,
and the Company shall not take any action except in, the ordinary course of its
business, on an arm's-length basis and in accordance in all material respects
with all applicable laws, rules and regulations and the Company's past custom
and practice;
(b) The Company shall not issue or sell any additional shares
of its capital stock, except (i) as consideration for acquisitions by the
Company prior to the Effective Time, or (ii) with Buyer's consent.
(c) The Company shall not, directly or indirectly, do or
permit to occur any of the following: (i) issue or sell any options, warrants,
conversion privileges or rights of any kind to acquire any shares of, any of its
capital stock; (ii) sell, pledge, dispose of or encumber any of its assets,
except in the ordinary course of business; (iii) amend or propose to amend its
Certificate of Incorporation or Bylaws; (iv) split, combine or reclassify any
outstanding Company Common Shares, or declare, set aside or pay any dividend or
other distribution payable in cash, stock, property or otherwise with respect to
Company
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Common Shares; (v) redeem, purchase or acquire or offer to acquire any Company
Common Shares or other securities of the Company; (vi) incur any indebtedness
for borrowed money or issue any debt securities except the borrowing of working
capital from LegacyMaker in amounts not to exceed $99,000 per month; or (vii)
enter into or propose to enter into, or modify or propose to modify, any
agreement, arrangement or understanding with respect to any of the matters set
forth in this Section 4.01(c);
(d) The Company shall not, directly or indirectly, (i) enter
into or modify any employment, severance or similar agreements or arrangements
with, or grant any bonuses, salary increases (except for increases in the
ordinary course of business, consistent with past practice), severance or
termination pay to, any officers or directors or consultants; or (ii) in the
case of employees, officers or consultants, take any action with respect to the
grant of any bonuses, salary increases (except for increases in the ordinary
course of business, consistent with past practice), severance or termination pay
or with respect to any increase of benefits payable in effect on the date
hereof;
(e) The Company shall not adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(f) The Company shall not cancel or terminate its current
insurance policies or cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums are
in full force and effect;
(g) The Company shall (i) use its best efforts to preserve
intact its business organization and goodwill, keep available the services of
its officers and employees as a group and maintain satisfactory relationships
with suppliers, distributors, customers and others having business relationships
with the Company; (ii) not intentionally take any action which would render, or
which reasonably may be expected to render, any representation or warranty made
by it in this Agreement untrue at the Closing; (iii) notify Buyer of any
governmental or third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated) if such complaint,
investigation or hearing would be material, individually or in the aggregate, to
the business, prospects, operations or financial condition of the Company or to
the Company's or Buyer's ability to consummate the transactions contemplated by
this Agreement; and (iv) promptly notify Buyer in writing if the Company shall
discover that any representation or warranty made in this Agreement was when
made, or has subsequently become, untrue in any respect;
(h) The Company shall (i) file any Returns, elections or
information statements with respect to any liabilities for Taxes of the Company
or other matters relating to Taxes of the Company which pursuant to applicable
law must be filed prior to the Effective Time; (ii) promptly upon filing provide
copies of any such Returns, elections or information statements to Buyer; (iii)
make any such Tax elections with respect to Taxes taken by or affecting the
Company only upon prior consultation with and consent of Buyer; and (iv) not
amend any Return except after prior consultation with and the consent of Buyer;
and
(i) The Company shall not permit (i) the amount of principal
owing under the LegacyMaker Note to increase by more than $99,000 per month or
(ii) the interest rate charged on any such increase to exceed 8% per annum.
4.02 Access to Books and Records. Between the date hereof and the
Closing Date, Buyer and its authorized representatives shall have full access at
all reasonable times and upon reasonable notice to the
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offices, properties, books, records, officers, employees and other items of the
Company, and the work papers of ▇▇▇▇▇ ▇▇▇▇▇▇ & Company, P.C., the Company's
independent accountants, relating to work done by ▇▇▇▇▇ ▇▇▇▇▇▇ & Company, P.C.
with respect to the Company for each of the fiscal years ended December 31, 1998
and 1997, and otherwise provide such assistance as is reasonably requested by
Buyer in order that Buyer may have a full opportunity to make such investigation
and evaluation as it shall reasonably desire to make of the business and affairs
of the Company; provided, that the Company shall have the right to have a
representative present at all times during any such access, and Buyer and Merger
Subsidiary shall hold in confidence all non-public information regarding the
Company.
4.03 Regulatory Filings. As promptly as practicable after the execution
of this Agreement, the Company shall make or cause to be made all filings and
submissions under any laws or regulations applicable to the Company for the
consummation of the transactions contemplated herein. The Company will
coordinate and cooperate with Buyer in exchanging such information, will not
make any such filing without providing to Buyer a final copy thereof at least
two full business days in advance of the proposed filing and will provide such
reasonable assistance as Buyer may request in connection with all of the
foregoing.
4.04 Conditions. The Company shall take all commercially reasonable
actions necessary or desirable to cause the conditions set forth in Section 6.01
to be satisfied and to consummate the transactions contemplated herein.
4.05 No Negotiations, etc. Subject to the last sentence of this Section
4.05, the Company shall not, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage submission of any
proposal or offer from any person or entity (including any of its or their
officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, the Company or
other similar transaction or business combination involving the Company, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. The Company shall promptly
notify Buyer if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made and shall promptly provide Buyer with
such information regarding such proposal, offer, inquiry or contact as Buyer may
request. Notwithstanding the foregoing, nothing contained herein shall restrict
the ability of the Company to enter into any acquisition transaction otherwise
permitted by this Agreement (including, without limitation, a merger) in which
the Company is the acquiring party or surviving corporation.
ARTICLE 5
COVENANTS OF BUYER
Buyer covenants and agrees with the Company as follows:
5.01 Conduct of the Business. Buyer covenants and agrees that, from the
date hereof until the Effective Time, unless otherwise consented to by the
Company in writing:
(a) The business of Buyer shall be conducted only in, and
Buyer shall not take any action except in, the ordinary course of its business,
on an arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and Buyer's past custom and practice;
(b) Buyer shall not issue or sell any additional shares of its
capital stock without the Company's consent, except pursuant to the exercise of
options or warrants or the conversion or exchange of securities convertible into
or exchangeable for capital stock, which options, warrants or other securities
are
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outstanding on the date hereof, all of which options, warrants or convertible
securities shall have been disclosed on the Buyer Disclosure Schedule.
(c) Buyer shall not, directly or indirectly, do or permit to
occur any of the following: (i) sell, pledge, dispose of or encumber any of its
assets, except in the ordinary course of business; (ii) amend or propose to
amend its Articles of Incorporation or Bylaws; (iii) split, combine or
reclassify any outstanding Buyer Common Shares, or declare, set aside or pay any
dividend or other distribution payable in cash, stock, property or otherwise
with respect to Buyer Common Shares; (iv) redeem, purchase or acquire or offer
to acquire any Buyer Common Shares or other securities of Buyer; (v) acquire (by
merger, exchange, consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership, joint venture or other business organization or
division or material assets thereof; (vi) incur any indebtedness for borrowed
money or issue any debt securities except the borrowing of working capital in
the ordinary course of business and consistent with past practice; or (vii)
enter into or propose to enter into, or modify or propose to modify, any
agreement, arrangement or understanding with respect to any of the matters set
forth in this Section 5.01(c);
(d) Buyer shall not, directly or indirectly, (i) enter into or
modify any employment, severance or similar agreements or arrangements with, or
grant any bonuses, salary increases (except for increases in the ordinary course
of business, consistent with past practice), severance or termination pay to,
any officers, directors or consultants; or (ii) in the case of employees,
officers or consultants, take any action with respect to the grant of any
bonuses, salary increases (except for increases in the ordinary course of
business, consistent with past practice), severance or termination pay or with
respect to any increase of benefits payable in effect on the date hereof;
(e) Buyer shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(f) Buyer shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the canceled, terminated or
lapsed policies for substantially similar premiums are in full force and effect;
(g) Buyer shall (i) use its best efforts to preserve intact
its business organization and goodwill, keep available the services of its
officers and employees as a group and maintain satisfactory relationships with
suppliers, distributors, customers and others having business relationships with
Buyer; (ii) not intentionally take any action which would render, or which
reasonably may be expected to render, any representation or warranty made by it
in this Agreement untrue at the Closing; (iii) notify the Company of any
governmental or third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated) if such complaint,
investigation or hearing would be material, individually or in the aggregate, to
the business, prospects, operations or financial condition of Buyer or to
Buyer's or the Company's ability to consummate the transactions contemplated by
this Agreement; and (v) promptly notify the Company in writing if Buyer shall
discover that any representation or warranty made in this Agreement was when
made, or has subsequently become, untrue in any respect;
(h) Buyer shall (i) file any Returns, elections or information
statements with respect to any liabilities for Taxes of Buyer or other matters
relating to Taxes of Buyer which pursuant to applicable law must be filed prior
to the Closing Date; (ii) promptly upon filing provide copies of any such
Returns, elections or information statements to the Company; (iii) make any such
Tax elections with respect to Taxes
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taken by or affecting Buyer only upon prior consultation with and consent of the
Company; and (iv) not amend any Return, except after prior consultation with and
the consent of the Company.
5.02 Regulatory Filings. As promptly as practicable after the execution
of the Agreement, Buyer shall make or cause to be made all filings and
submissions under any laws or regulations applicable to Buyer for the
consummation of the transactions contemplated herein, including the filing of
proxy materials with the Securities and Exchange Commission for shareholder
approval of the transactions contemplated hereby. Buyer will coordinate and
cooperate with the Company in exchanging such information, will not make any
such filing without providing the Company with a final copy thereof at least two
full business days in advance of the proposed filing and will provide such
reasonable assistance as the Company may request in connection with all of the
foregoing.
5.03 Conditions. Buyer shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Sections 1.05(c) and
6.02 to be satisfied and to consummate the transactions contemplated herein as
soon as reasonably possible after the satisfaction thereof (but in any event
within three business days of such date).
5.04 Repayment of Indebtedness. Buyer will take all reasonable steps to
raise the funds necessary to permit the Surviving Corporation to pay off the
LegacyMaker Note and all outstanding indebtedness of the Company. Merger
Subsidiary and Buyer agree that not later than the Effective Time, they will
pay, or cause or be paid, any amounts due to LegacyMaker under the LegacyMaker
Note.
5.05 Nasdaq Listing. Following the date hereof, Buyer will take all
reasonable steps necessary to maintain Nasdaq listing of the Buyer Common Shares
on the Nasdaq SmallCap Market.
5.06 Publicizing Merger. At the Effective Time, Buyer shall use its
best efforts to publicize the Merger and promote its Internet-related business
strategy.
5.07 Registration of Buyer Common Shares. As soon as practicable after
the Effective Time, Buyer agrees to file a registration statement on Form S-3
(the "REGISTRATION STATEMENT") to register the resale of the Buyer Common Shares
issuable upon conversion of the Buyer Preferred Shares under the Securities Act
of 1933 and the blue sky laws of such states as are reasonably selected by the
Company Shareholders. Buyer shall use its best efforts to have the Registration
Statement declared effective by the Securities and Exchange Commission and any
such state as soon as practicable. Buyer shall keep the Registration Statement
effective and current until the earlier to occur of (i) the date all such Buyer
Common Shares are sold or (ii) the date all such Buyer Common Shares may be sold
under Rule 144 under the Securities Act. Except as set forth in the following
sentence, Buyer shall bear all expenses and fees incurred in connection with the
preparation, filing, and amendment of the Registration Statement with the
Commission and any state reasonably selected by the Company Shareholders. The
Company Shareholders shall pay all fees, disbursements and expenses of any
counsel or expert retained by the Company Shareholders and all underwriting
discounts and commissions and any transfer or other taxes relating to the Buyer
Common Shares included in the Registration Statement.
5.08 Tax-Free Reorganization. Buyer shall take no action that would
jeopardize the characterization of the merger as a reorganization within the
meaning of Section 368 of the Code. Buyer will not liquidate the Surviving
Corporation, merge the Surviving Corporation with or into another corporation,
sell or otherwise dispose of the stock of the Surviving Corporation or cause the
Surviving Corporation to sell or otherwise dispose of its assets, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code, without first obtaining a legal opinion that
the taking of such action will not prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a)
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of the Code. Notwithstanding any other provision in this Agreement, the
covenants in this Section shall survive without limitation.
5.09 Employee and Employee Benefit Plan Matters.
(a) After the Effective Time, Buyer shall provide those
employees of the Company covered by the benefit plans of the Company with the
same benefits in respect of future service that accrue in respect of future
services to the employees of Buyer who are employed in comparable positions.
Buyer and the Company further agree that any present employees of the Company
shall be credited for their service with the Company for purposes of
eligibility, benefit entitlement and vesting in the benefit plans provided by
Buyer. If permitted under Buyer's benefit plans, those employees' benefits under
Buyer's medical plans shall not be subject to exclusions for any pre-existing
conditions, and credit shall be received for any deductibles or out-of-pocket
amounts previously paid during the current plan year.
(b) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each employee of
the Company covered by benefit plans of the Company.
5.10 Indemnification. All rights to indemnification and exculpation
existing in favor of the present or former directors, officers, employees,
fiduciaries, and agents of the Company as provided in the Company's charter or
bylaws as in effect as of the date hereof with respect to matters occurring
prior to the Effective Time shall survive the Merger and shall continue in full
force and effect for a period of not less than the applicable statute of
limitations.
5.11 Performance by Merger Subsidiary. Buyer shall cause Merger
Subsidiary to comply with all its obligations hereunder and, subject to the
terms and conditions hereof, to consummate the Merger.
ARTICLE 6
CONDITIONS TO CLOSING
6.01 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 2
shall be true and correct at and as of the Closing Date as though then made and
as though the Closing Date had been substituted for the date of this Agreement
throughout such representations and warranties (without taking into account any
disclosures by the Company of discoveries, events or occurrences arising on or
after the date hereof), except that any such representation or warranty made as
of a specified date (other than the date hereof) shall only need to have been
true on and as of such date;
(b) The Company shall have performed in all material respects
all of the covenants and agreements required to be performed and complied with
by it under this Agreement prior to the Closing;
(c) Each Company Shareholder entitled to vote on the matter
shall have approved the transactions contemplated hereby;
(d) The Company shall have obtained, or caused to be obtained,
each consent and approval necessary in order that the transactions contemplated
herein not constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of the
Company's
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assets pursuant to the provisions of, any agreement, arrangement or undertaking
of or affecting the Company or any license, franchise or permit of or affecting
the Company, except where any failure to do so could not reasonably be expected
to have a Material Adverse Effect;
(e) All material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained;
(f) There shall not be threatened, instituted or pending any
action or proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to prohibit direct or indirect ownership or
operation by Buyer of all or a material portion of the business or assets of the
Company, or to compel Buyer or any of its subsidiaries or the Company to dispose
of or to hold separately all or a material portion of the business or assets of
Buyer and its subsidiaries or of the Company, as a result of the transactions
contemplated hereby; (iii) seeking to invalidate or render unenforceable any
material provision of this Agreement or any of the Related Agreements, or (iv)
otherwise relating to and materially adversely affecting the transactions
contemplated hereby;
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal or state court, government or governmental authority or agency,
which would reasonably be expected to result, directly or indirectly, in any of
the consequences referred to in Section 6.01(f);
(h) Each of the Company Shareholders shall have signed a
lock-up agreement preventing it, him or her from selling any Buyer Common Shares
or securities convertible into or exercisable for Buyer Common Shares between
the date hereof and the Effective Time and preventing him thereafter from
selling more than 25% in the aggregate of the Buyer Preferred Shares received by
it, him or her as a part of the Merger Consideration, or more than 25% in the
aggregate of the Buyer Common Shares issuable upon conversion of such Buyer
Preferred Shares, for one year after the Effective Time and providing further
that any Buyer Common Shares sold by any such person shall be shares that are
obtained by such person after the Effective Time upon the exercise of options or
warrants of the Company.
(i) Buyer shall have received from counsel for the Company a
written opinion, dated as of the Closing Date, addressed to Buyer and in form
and substance substantially as set forth in EXHIBIT F;
(j) Buyer shall have received the agreement of LegacyMaker to
indemnify and hold Buyer harmless from and against any and all losses or
liabilities from and after the Effective Time through the expiration of any
relevant statute of limitations and related to or arising out of any breach by
the Company of its representations, warranties or covenants, as the same shall
be evidenced in an indemnification agreement, in form and substance
substantially as set forth in EXHIBIT G, to be executed and delivered into
escrow at Closing by LegacyMaker (the "LEGACYMAKER INDEMNIFICATION AGREEMENT");
(k) On the Closing Date, the Company shall have delivered to
Buyer all of the following:
(i) A certificate of the President of the Company,
dated the Closing Date, stating that the conditions precedent set forth
in subsections (a) and (b) above have been satisfied;
(ii) copies of the third party and governmental
consents and approvals referred to in subsections (d) and (e) above;
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(iii) a copy of the Certificate of Incorporation of
the Company, certified by the Secretary of State of the State of
Delaware, and a Certificate of Good Standing from the Secretary of
State of the State of Delaware evidencing the good standing of the
Company in such state;
(iv) a copy of the Bylaws of the Company, along with
a certificate executed on behalf of the Company by its corporate
secretary certifying to Buyer that such copy is a true, correct and
complete copy of such bylaws and that such bylaws were duly adopted and
have not been amended or rescinded;
(v) an executed copy of each of the Related
Agreements;
(vi) a copy of the text of the resolutions adopted by
the Board of Directors and Company Shareholders entitled to vote on the
matter authorizing the execution, delivery and performance of this
Agreement and the consummation of all of the transactions contemplated
by this Agreement, along with a certificate executed on behalf of the
Company by its corporate secretary certifying to Buyer that such copies
are true, correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded;
(vii) an incumbency certificate executed on behalf of
the Company by its corporate secretary certifying the signature and
office of each officer executing this Agreement; and
(viii) such other certificates, documents and
instruments as Buyer reasonably requests related to the transactions
contemplated hereby.
6.02 Conditions to the Company's Obligations. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) The representations and warranties set forth in Article 3
hereof will be true and correct at and as of the Closing Date as though then
made and as though the Closing Date had been substituted for the date of this
Agreement throughout such representations and warranties;
(b) Buyer shall have performed in all material respects all
the covenants and agreements required to be performed and complied with by it
under this Agreement prior to the Closing;
(c) The Company shall have obtained the approval of its Board
of Directors and the unanimous approval of its shareholders of the transactions
contemplated hereby;
(d) All material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained;
(e) There shall not be threatened, instituted or pending any
action or proceeding, before any court or governmental authority or agency, (i)
challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to invalidate or render unenforceable any
material provision of this Agreement or any of the Related Agreements, or (iii)
otherwise relating to and materially adversely affecting the transactions
contemplated hereby;
(f) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions
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contemplated hereby by any federal or state court, government or governmental
authority or agency, which would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in Section 6.02(d) hereof;
(g) There shall have been no damage, destruction or loss of or
to any property or properties owned or used by Buyer, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably likely to have,
a material adverse effect on Buyer;
(h) Each of King, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇ shall
have signed a lock-up agreement preventing him from selling any Buyer Common
Shares or securities convertible into or exercisable for Buyer Common Shares
between the date hereof and the Effective Time and preventing him thereafter
from selling more than 25% in the aggregate on a fully diluted basis of his
Buyer Common Shares for one year after the date hereof and providing further
that any Buyer Common Shares sold by any such person during such one-year period
shall be shares that are obtained by such person after the Effective Time upon
the exercise of options or warrants of the Company;
(i) The Company shall have received the individual agreement
of King to indemnify and hold the Company harmless from and against any and all
losses or liabilities from and after the Effective Time through the expiration
of any relevant statute of limitations and related to or arising out of any
breach by Buyer of its representations, warranties or covenants, and such other
matters agreed upon by the Company and King, as the same shall be evidenced in
an indemnification agreement, in form and substance substantially as set forth
in EXHIBIT H, to be delivered at Closing by King and to be executed by him in
his individual capacity (the "KING INDEMNIFICATION AGREEMENT");
(j) Messrs. King, ▇▇▇▇▇▇ and Ruyan shall have executed and
delivered an irrevocable voting proxy, in favor of such person as the
Attorney-in-Fact (defined in Section 8.01) shall designate, with respect to all
of their respective Buyer Common Shares;
(k) King shall have executed and delivered an Employment and
Non-competition Agreement with Buyer substantially in the form attached hereto
as EXHIBIT I, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall have entered into a Consulting
Agreement with Buyer substantially in the form attached hereto as EXHIBIT J;
(l) The Company shall have received from counsel for Buyer a
written opinion, dated as of the Closing Date, addressed to the Company, in form
and substance substantially as set forth in EXHIBIT K;
(m) The Company and the Company Shareholders shall have
received, at Buyer's expense, from ▇▇▇▇▇▇▇▇ & Knight, P.C., a written opinion,
dated as of the Closing Date, addressed to the Company and the Company
Shareholders, in form and substance reasonably acceptable to the Company to the
effect that (i) the Merger will be treated for U.S. federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, (ii) the
Company, Merger Subsidiary and Buyer will each be a party to that reorganization
within the meaning of Section 368(b) of the Code and (iii) the Company
Shareholders shall not recognize any gain or loss for U.S. federal income tax
purposes upon receipt of the Merger Consideration; and
(n) On the Closing Date, Buyer will have delivered to the
Company all of the following:
(i) a certificate of appropriate officer(s) of Buyer,
dated the Closing Date, stating that the conditions precedent set forth
in subsections (a) and (b) above have been satisfied;
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(ii) an executed copy of each of the Related
Agreements;
(iii) a copy of each of (x) the text of the
resolutions adopted by the Board of Directors of Buyer and Merger
Subsidiary authorizing the execution, delivery and performance of this
Agreement and the consummation of all of the transactions contemplated
by this Agreement, (y) the charter and bylaws of each of Buyer and
Merger Subsidiary, along with certificates executed on behalf of each
of them by their respective corporate secretaries certifying to the
Company that such copies are true, correct and complete copies of such
resolutions, charter and bylaws, respectively, and that such
resolutions, charter and bylaws were duly adopted and have not been
amended or rescinded;
(iv) Certificates of Existence and Good Standing for
each of Buyer and Merger Subsidiary issued by the Secretary of State of
each of their respective states of incorporation evidencing the good
standing of such corporation in such state;
(v) incumbency certificates executed on behalf of
Buyer and Merger Subsidiary by their respective corporate secretaries
certifying the signature and office of each officer executing this
Agreement or any of the Related Agreements; and
(vi) such other certificates, documents and
instruments as the Company reasonably requests related to the
transactions contemplated hereby.
ARTICLE 7
TERMINATION AND REMEDIES
7.01 Termination.
(a) This Agreement may be terminated at any time prior
to the Closing:
(i) by the mutual consent of Buyer and the Company;
(ii) by either Buyer or the Company if there has been
a material misrepresentation, breach of warranty or breach of covenant
on the part of the other in the representations, warranties and
covenants set forth in this Agreement;
(iii) by Buyer or the Company if Closing does not
occur by the later to occur of (A) 5:00 p.m., Central Time, on June 17,
1999 and (B) 5:00 p.m., Central Time, on the fifth day after the date
on which the Company delivers to Buyer the Company's Annual Financial
Statements; provided that (i) neither party will be entitled to
terminate this Agreement pursuant to this Section 7.01(a)(iii) if its
willful breach of this Agreement has prevented the consummation of the
Closing by such date;
(iv) by either party if, after the date hereof, there
shall have been a material adverse change in the assets, financial
condition, operating results, customer, employee or supplier relations,
business condition or prospects of the other party; and
(v) by Buyer if, between the Closing Date and the
Effective Time, the Company (without the prior approval of Buyer)
acquires another company or Company Shareholders exchange Company
Common Shares for securities of another entity and Buyer, acting in
good faith, does not approve of such acquisition or exchange.
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(b) (i) Except as otherwise provided in this Section
7.01(b), this Agreement will automatically terminate if the Effective
Time has not occurred on or before August 30, 1999 (the "Expiration
Date"), subject to Buyer's right to extend the Expiration Date pursuant
to subparagraph (iii) below.
(ii) If the Effective Time has not occurred by the
initial Expiration Date, Buyer shall on the day immediately following
the Expiration Date pay to LegacyMaker liquidated damages of $100,000
cash (the "Liquidated Damages"). The Liquidated Damages shall be paid
regardless of whether Buyer extends the Expiration Date pursuant to
subparagraph (iii) below.
(iii) Buyer shall have the option to extend the
Expiration Date for up to three consecutive 30-day periods (each an
"Extension Period"), the first to commence on the day immediately
following the initial Expiration Date and second and third Extension
Periods to commence upon the expiration of the preceding Extension
Period. Notwithstanding subparagraph (i) above, during any Extension
Period this Agreement shall remain in effect. Buyer's right to extend
the Expiration Date is exercisable by Buyer by payment to LegacyMaker
of $100,000 in cash no later than the first day of each such Extension
Period (each, an "Extension Payment"). The Extension Payment(s) shall
be in addition to, and not in lieu of, the payment of the Liquidated
Damages.
(iv) The Company may terminate this Agreement at any
time prior to the Effective Time (including during any Extension
Period) if Buyer loses the Nasdaq SmallCap listing of the Buyer Common
Shares. In the event of such termination, the Liquidated Damages shall
immediately become due and payable to LegacyMaker if not previously
paid. Furthermore, any Extension Payment previously paid to LegacyMaker
shall be retained by LegacyMaker as additional liquidated damages and
not as a penalty.
7.02 Effect of Termination. In the event of termination of this
Agreement by either Buyer or the Company as provided in Section 7.01, this
Agreement shall become void and, except as provided in Section 7.01(f), there
shall be no liability on the part of either Buyer or the Company or their
respective shareholders, officers, or directors except that Section 9.01 shall
survive indefinitely and except with respect to willful breaches of this
Agreement prior to the time of such termination.
7.03 Arbitration. Any dispute among Merger Subsidiary, Buyer and the
Company under this Agreement shall be resolved by arbitration by an arbitrator
selected under the rules of the American Arbitration Association (located in
Dallas, Texas) and the arbitration shall be conducted in that same location
under the rules of said Association. Merger Subsidiary, Buyer and the Company
shall each be entitled to present evidence and argument to the arbitrator. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change any of its provisions. The arbitrator shall
permit reasonable pre-hearing discovery of facts, to the extent necessary to
establish a claim or a defense to a claim, subject to supervision by the
arbitrator. The determination of the arbitrator shall be conclusive and binding
upon the parties and judgment upon the same may be entered in any court having
jurisdiction thereof. The arbitrator shall give written notice to the parties
stating his determination, and shall furnish to each party a signed copy of such
determination.
7.04 Remedies. It is understood that, in the event of any party's
breach of its respective agreements as herein provided or any party's failure to
perform the covenants set forth in this Agreement or any of the Related
Agreements required to be performed by it, the measure of damages at law to the
affected party will be difficult to ascertain and the remedy at law may be
inadequate. Accordingly, it is specifically
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agreed that either Merger Subsidiary, Buyer or the Company, as the case may be,
shall be entitled to the remedy of specific performance to enforce the terms and
conditions of this Agreement.
7.05 Litigation Expense. In the event any party hereto is made or shall
become a party to any litigation (including arbitration) commenced by or against
the other involving the enforcement of any of the rights or remedies of such
party, or arising on account of a default of the other party in its performance
of any of the other party's obligations hereunder, then each party shall pay and
be solely responsible for any and all costs incurred by it in connection with
such litigation, including the costs, fees and expenses of any and all
attorneys' fees.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.01 Powers of Attorney. The Letter of Transmittal provides for the
appointment by each Company Shareholder (including those who become Company
Shareholders after the date hereof) of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ as his, her or its
agent and attorney-in-fact (the "ATTORNEY-IN-FACT"), to take all action required
or permitted under the Escrow Agreement or herein with respect to the interests
and rights of such Company Shareholder. Buyer may, for all purposes of this
Agreement, assume and treat every notice or other action directed to or
performed by the Attorney-in-Fact as if such notice or other action has been
directed to or performed by each Company Shareholder.
8.02 Officers of Surviving Corporation. As of the Effective Time,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall be elected the Chairman of the Board, and King the
Chief Executive Officer, of Buyer.
8.03 Options, etc. Issued by Buyer after May 3, 1999. If Buyer issues
any options, warrants or other securities exchangeable for, or convertible into,
Buyer Common Shares after May 3, 1999 and prior to the Effective Time, then upon
payment by LegacyMaker to Buyer of the same consideration paid to Buyer by the
recipient(s) of such options, warrants or other securities, Buyer agrees to
issue at the Effective Time securities, with substantially identical material
terms and in the same aggregate amount to LegacyMaker.
8.04 The Company's Corporate Books. At the Effective Time, the Company
shall deliver to Buyer the Company's minute books, stock transfer records,
corporate seal and other materials related to the Company's corporate
administration.
8.05 Securities and Blue Sky Laws. Buyer shall take such steps as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of Buyer Preferred Shares
hereunder and Buyer Common Shares upon conversion of the Buyer Preferred Shares.
8.06 Tax Matters.
(a) Buyer and the Company and each Company Shareholder (by
virtue of the approval of this Agreement by the requisite vote of the Company
Shareholders) shall, and the Company shall cause each person or entity who
becomes a Company Shareholder after the date hereof to, cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns and any audit, litigation or other proceedings with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
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(b) For federal income tax purposes, the parties agree to take
all actions necessary to allocate each item of income, gain, loss, deduction and
credit of the Company for the calendar year 1999 based on an interim closing of
the books as of the Effective Time. Buyer agrees to cooperate with the Company
Shareholders and make available to them all information and documents necessary
for the preparation of the Form 1120-S with respect to the Company for the
period ending on the Effective Time.
8.07 Advance to the Company. Within three business days after the date
hereof, Buyer shall pay to the Company $150,000 in cash. In the event that the
Merger is not consummated, for whatever reason, then this payment shall be
retained by the Company as compensation to the Company for the expenditures made
by it in anticipation of combining its operations with the operations of Buyer.
This payment shall not reduce or offset the Liquidated Damages or Extension
Payments (if payable) otherwise due to LegacyMaker hereunder. If the Merger is
consummated, then this amount shall be retained by the Surviving Corporation and
shall be deemed to be a capital contribution by Buyer to the Surviving
Corporation.
ARTICLE 9
SURVIVAL; INDEMNIFICATION
9.01 Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party in
the Closing, the representations and warranties contained in Article 2 and
Article 3 shall survive the Closing for a period of two (2) years following the
Closing Date, except with respect to claims specifically raised by the aggrieved
party or parties in one or more written notices given to the allegedly offending
party or parties prior to the second anniversary of the Closing Date, and such
claims may continue to be asserted by the aggrieved party or parties after that
date, provided that claims based upon any alleged breach of a representation or
warranty contained in any of Sections 2.13, 2.22, 3.10 or 3.18 may be brought at
any time on or prior to the expiration of any relevant statute of limitations
governing the underlying claim.
9.02 Indemnification of Company Indemnitees. Buyer hereby agrees to
defend, indemnify and hold the Company and its directors and officers and each
Company Shareholder (the "COMPANY INDEMNITEES") harmless from, against and in
respect of: (i) any and all losses, damages or deficiencies (whether as a result
of a direct claim by the Company Indemnitees against Buyer, a third party claim
against the Company Indemnitees or otherwise) resulting from any and all
breaches of representations, warranties, covenants or other terms of this
Agreement by Buyer or Merger Subsidiary made or contained in this Agreement or
in any certification, list, document or exhibit delivered by Buyer under or in
connection with this Agreement or the transactions contemplated herein; (ii) all
costs, damages, liabilities, obligations and reasonable expenses related to or
arising out of Buyer's operation of the Surviving Corporation on or after the
Effective Time; and (iii) all costs and expenses incident to any and all
actions, suits, proceedings, claims, demands, assessments or judgments in
respect of sections (i) and (ii) of this Section, regardless of the merit
thereof, including the Company Indemnitees' reasonable legal and accounting fees
and expenses (whether incident to the foregoing or to the Company Indemnitees'
enforcement of said rights of defense and indemnity).
9.03 Procedure for Indemnification of the Company Indemnitees. If any
such action, suit or proceeding shall be commenced against the Company
Indemnitees or any such claim, demand or assessment be asserted against the
Company Indemnitees in respect of which any of the Company Indemnitees proposes
to demand defense and indemnification, Buyer shall be notified to that effect
with reasonable promptness and shall thereafter have the right, but not the
obligation, to assume the entire control of the defense, compromise or
settlement thereof, including, at its own expense, employment of counsel
satisfactory to the Company Indemnitees and, in connection therewith, each of
the Company Indemnitees shall cooperate fully to make
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available to Buyer all pertinent information under its control. If Buyer does
not promptly notify the Company Indemnitees that Buyer will assume the entire
control of such defense, Buyer shall thereafter reimburse each of the Company
Indemnitees for all of its reasonable expenses (as described herein) for such
defense, as and when they are incurred.
9.04 Indemnification Threshold. Neither LegacyMaker on the one hand,
nor Buyer or King on the other hand, shall have any indemnification obligation
under this Agreement, the LegacyMaker Indemnification Agreement or the King
Indemnification Agreement, as the case may be, unless and until the aggregate
amount of all losses, damages, costs, expenses and deficiencies incurred by the
aggrieved party or like situated parties reaches $100,000 (the "THRESHOLD
AMOUNT"), at which time the offending party or parties shall be liable in full
for all losses, damages, costs, expenses and deficiencies in excess of the
Threshold Amount.
9.05 Adjustment for Taxes and Insurance. The amount of any liabilities
for which an indemnitor may be liable under this Article 9, the LegacyMaker
Indemnification Agreement or the King Indemnification Agreement shall be
calculated net of any Tax Benefit inuring to the indemnitee on account of such
liabilities. "Tax Benefit" shall mean any refund of Taxes paid or reduction in
the amount of Taxes which would otherwise be paid currently or in the future, in
each case computed assuming that income taxes are paid at the highest United
States federal marginal rate applicable to the indemnitee. The indemnitee will
not be entitled to any recovery from the indemnitor for any liabilities to the
extent of the amount of insurance proceeds actually paid to the indemnitee with
respect to such liabilities.
ARTICLE 10
MISCELLANEOUS
10.01 Press Releases and Announcements. Prior to the Effective Time, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the Company
or Buyer without prior written approval of the other party, except as may be
necessary, in the opinion of counsel to the party seeking to make disclosure, to
comply with applicable law. If any such press release or public announcement is
so required, the party making such disclosure shall consult with the other party
prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to both parties.
10.02 Expenses. Except as otherwise expressly provided for herein, each
of the Company and Buyer will pay all of its own expenses (including attorneys'
and accountants' fees) in connection with the negotiation of this Agreement, the
performance of their respective obligations hereunder and the consummation of
the transactions contemplated by this Agreement (whether consummated or not).
10.03 Further Assurances. Each party agrees that, on and after the
Effective Time, it shall take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof.
10.04 Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
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10.05 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when receipt is
acknowledged, if sent by facsimile, telecopy, e-mail or other electronic
transmission device. Notices, demands and communications to Buyer and the
Company will, unless another address is specified in writing, be sent to the
address indicated below:
Notices to Buyer: with a copy to:
---------------- --------------
Cafe Odyssey, Inc. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
E-mail: ▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇ E-mail: ▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Company: with a copy to:
▇▇▇▇▇▇▇.▇▇▇, inc. ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, a Professional Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Business Manager Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
E-mail: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notice to the Company Shareholders: with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Attorney-in-Fact ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, a Professional Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
E-mail: ▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
10.06 Assignment. This Agreement and all of the provisions hereof will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto,
except that Buyer may assign any and all rights it has under this Agreement or
any Related Agreement to a wholly owned subsidiary of Buyer without the consent
of any other party.
10.07 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.08 Complete Agreement. This Agreement and the Related Agreements and
other exhibits hereto, the Disclosure Schedules and the other documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
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10.09 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.10 Governing Law. The internal law, without regard to conflicts of
laws principles, of the State of Delaware will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"BUYER"
CAFE ODYSSEY, INC.
By: s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Chairman of the Board and Chief
Executive Officer
"MERGER SUBSIDIARY"
CAFE ODYSSEY ACQUISITION
SUBSIDIARY, INC.
By:
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THE "COMPANY"
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Chairman, Chief Executive Officer
and President
THE "COMPANY SHAREHOLDERS"
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Trustee
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▇▇▇▇▇▇▇▇▇ CHILDREN'S TRUST NO. 2
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Trustee
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