1
EXHIBIT 2.1
MERGER AGREEMENT
among
NASHVILLE COUNTRY CLUB, INC.,
AVALON ACQUISITION CORP., INC.,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇
and
AVALON ENTERTAINMENT GROUP, INC.
April 21, 1997
2
TABLE OF CONTENTS
Page
----
ARTICLE 1 - The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Charter and Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Consideration for Merger; Conversion of Securities; Issuance of NCCI Shares . . . . . . . . . . . . 2
1.6 Adjustment of Merger Consideration; Post-Closing Escrow . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Closing of Avalon's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Mechanics of Exchange of Avalon Common Stock Certificates . . . . . . . . . . . . . . . . . . . . . 5
1.9 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.11 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2 - Representations and Warranties of NCCI and Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 NCCI Stock and NCCI SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Liabilities of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Certain Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Investments in or Acquisitions of NCCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 3 - Representations and Warranties of Avalon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Organization, Qualification and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Events Subsequent to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Tax Returns and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.11 Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.12 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 Notes; Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Condition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.19 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-i-
3
TABLE OF CONTENTS
(Continued)
Page
----
3.20 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.22 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.23 Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.24 Certain Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.25 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.27 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 4 - Representations and Warranties of the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Representations Regarding Shares of Avalon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 5 - Conduct of Business Pending The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Conduct of Business by Avalon Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 No Other Bids for Avalon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Lines of Business and Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.5 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.6 Conduct of Business by Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 6 - Additional Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Action of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.5 Shareholder Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.6 Taking of Necessary Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.7 Notice of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.8 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.9 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 7 - Conditions to Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Conditions to Obligations of Each Party to Effect the Merger . . . . . . . . . . . . . . . . . . . . 28
7.2 Additional Conditions to NCCI's and Merger Sub's Obligations . . . . . . . . . . . . . . . . . . . . 28
7.3 Additional Conditions to the Obligations of Avalon and the Shareholders . . . . . . . . . . . . . . 31
ARTICLE 8 - Termination, Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-ii-
4
TABLE OF CONTENTS
(Continued)
Page
----
8.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9 - Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1 By NCCI, Merger Sub, Avalon and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.2 Claims for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Defense by Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.4 Payment of Indemnification Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 - General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Effect of Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.7 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.8 Material Adverse Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.9 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SCHEDULE 1 Disclosure Schedule
SCHEDULE 1.5 Allocation of Consideration
ANNEX I List of NCCI SEC Documents
ANNEX II Shareholders of Avalon
EXHIBIT A Form of Plan of Merger
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Escrow Agreement
EXHIBIT D Form of Spousal Consent
EXHIBIT E Form of Employment Agreements
EXHIBIT F Form of Consulting Agreements
EXHIBIT G Form of Opinion of Counsel to NCCI
EXHIBIT H Form of Promissory Notes
-iii-
5
MERGER AGREEMENT
This MERGER AGREEMENT, dated as of April 21, 1997 (this "Agreement"),
is by and among Nashville Country Club, Inc., a Tennessee corporation ("NCCI"),
Avalon Acquisition Corp., Inc., a Tennessee corporation and wholly owned
subsidiary of NCCI (the "Merger Sub"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇ ▇.
▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇▇▇"), ▇▇▇▇ ▇. ▇▇▇▇▇▇
("▇▇▇▇▇▇") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), all individuals and shareholders of
Avalon (as defined below) (individually, a "Shareholder" and collectively, the
"Shareholders"), and Avalon Entertainment Group, Inc., a Tennessee corporation
("Avalon").
RECITALS
WHEREAS, Avalon is in the business of providing corporate
entertainment, entertainment marketing, entertainment programming, artist
management and concert promotion services; and
WHEREAS, NCCI, Merger Sub and Avalon each desire for NCCI to acquire
all the outstanding shares of Avalon's capital stock pursuant to the Merger
described below in Article 1, as a result of which Avalon will become a wholly
owned subsidiary of NCCI; and
WHEREAS, the parties hereto intend for the Merger to qualify as a
"reorganization" pursuant to the provisions of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
constitutes the plan of reorganization;
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties
hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3),
in accordance with this Agreement and the Tennessee Business Corporation Act
(the "TBCA"), Avalon shall be merged with and into Merger Sub (the "Merger"),
the separate existence of Avalon (except as may be continued by operation of
law) shall cease and Merger Sub shall continue as the surviving corporation
under the name "Avalon Entertainment Group, Inc." Merger Sub, in its capacity
as the corporation surviving the Merger, sometimes is referred to herein
following the Effective Time as the "Surviving Corporation" or "Avalon."
6
1.2 Effect of the Merger. The Surviving Corporation shall possess
all the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each of Merger Sub and Avalon (collectively, the
"Constituent Corporations"), and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares and all
other choses in action, and every other interest of or belonging to or due to
each of the Constituent Corporations shall be deemed to be transferred to and
vested in the Surviving Corporation without reversion or impairment and without
any further act or deed; and without any transfer or assignment having
occurred, but subject to any existing liens or other encumbrances thereon, and
all liabilities and obligations of each of the Constituent Corporations shall
thenceforth attach to the Surviving Corporation and the Surviving Corporation
shall be the primary obligor therefor, all with the effect set forth in Section
▇▇-▇▇-▇▇▇ of the TBCA.
1.3 Consummation of the Merger. As soon as is practicable after
the satisfaction or waiver of the conditions set forth in Article 7 of this
Agreement, and in no event later than the earlier of (a) five business days
after such satisfaction or waiver or (b) April 30, 1997, if all such conditions
have been satisfied or waived, the parties hereto will cause Articles of
Merger, in such form as may be required by, and executed, acknowledged and
certified in accordance with, the relevant provisions of the TBCA to be filed
with the Secretary of State of the State of Tennessee, which shall include, as
an exhibit, a Plan of Merger substantially in the form attached hereto as
Exhibit A (the "Plan of Merger"). The Merger shall be effective upon the filing
of the Articles of Merger with the Secretary of State of the State of Tennessee
(the "Effective Time"). For the purposes of this Agreement, the term "Closing
Date" shall mean the date on which all of the terms and conditions to the
closing (the "Closing") of the Merger have been satisfied or waived in
accordance with the terms of this Agreement. At the Closing (a) Avalon and the
Shareholders shall deliver to NCCI and Merger Sub the various certificates,
instruments and documents referred to in Section 7.2; (b) NCCI and Merger Sub
shall deliver to Avalon and the Shareholders the various certificates,
instruments and documents referred to in Section 7.3; (c) NCCI shall deliver
the Merger Consideration to the Escrow Agent (as defined below) and the
Shareholders; and (d) NCCI shall file the Articles of Merger with the Secretary
of State of the State of Tennessee.
1.4 Charter and Bylaws; Directors and Officers. The charter (as
amended as of the Effective Time to reflect the change of name) and bylaws of
Merger Sub shall be the charter and bylaws of the Surviving Corporation
immediately after the Effective Time and shall thereafter continue to be its
charter and bylaws until further amended. The directors of Merger Sub holding
office immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately after the Effective Time and shall serve
until their successors are duly elected and shall qualify. The officers of
Merger Sub holding office immediately prior to the Effective Time shall be the
officers (holding the same offices as they held with Merger Sub) of the
Surviving Corporation immediately after the Effective Time and shall serve
until their successors are duly elected and shall qualify.
-2-
7
1.5 Consideration for Merger; Conversion of Securities; Issuance
of NCCI Shares. The total consideration payable to the Shareholders in respect
of the Merger (the "Merger Consideration") shall be equal to Seven Million Two
Hundred Thousand Dollars ($7,200,000), subject to adjustment as provided in
Section 1.6 below, and shall be paid or delivered to the Shareholders, or to
the Escrow Agent for the benefit of the Shareholders, at the Closing as
follows:
(a) NCCI shall issue and deliver to an escrow agent
mutually acceptable to NCCI and the Shareholders (the "Escrow Agent"),
to hold in escrow for the benefit of the Shareholders, certificates
registered in the Shareholders' names representing the number of
fully-paid and nonassessable shares of NCCI common stock, no par value
per share ("NCCI Common Stock"), equal to the amount set forth
opposite such Shareholder's name on Schedule 1.5 divided by the
Average Price (as defined below) (the "Common Stock Portion"), subject
to possible adjustment as provided in Section 1.6 below. The total
value of the Common Stock Portion shall initially equal an aggregate
total of Four Million Three Hundred Twenty Thousand Dollars
($4,320,000); and
(b) NCCI shall deliver to the Shareholders by wire
transfer to one or more accounts designated in writing by the
Shareholders to NCCI prior to the Closing cash in an amount equal to
Four Hundred Thousand Dollars ($400,000) (the "Cash Portion"). The
Cash Portion shall be allocated among the Shareholders as specified in
Schedule 1.5.
(c) NCCI shall deliver to the Shareholders promissory
notes (the "Notes") in the aggregate principal amount of Two Million
Four Hundred Eighty Thousand Dollars ($2,480,000) (the "Note
Portion"), each Note substantially in the form of Exhibit H attached
hereto, allocated among the Shareholders as specified in Schedule 1.5.
(d) The term "Average Price" shall mean the average of
the closing sale prices of NCCI Common Stock reported by The Nasdaq
Stock Market for each of the thirty (30) trading days ending five (5)
trading days preceding the Closing Date.
(e) Schedule 1.5 may be amended unilaterally by the
Shareholders at any time prior to the Closing so as to change the
allocation of the total Merger Consideration among the Shareholders.
Such amended Schedule must be signed by all of the Shareholders to be
effective.
(f) No fraction of a share of NCCI Common Stock will be
issued to the Shareholders but in lieu thereof each Shareholder who
would otherwise be entitled to receive fractional shares will be paid
an amount in cash equal to the product of (A) the number of fractional
shares to which such holder is otherwise entitled and (B) the Average
Price. No interest shall be paid on such amount.
-3-
8
(g) Each share of Avalon Common Stock (as defined below)
held in the treasury of Avalon shall automatically be cancelled and no
shares of NCCI Common Stock will be issued with respect thereto.
1.6 Adjustment of Merger Consideration; Post-Closing Escrow.
(a) On or before February 15, 1998, Avalon shall prepare
and deliver to NCCI an income statement (the "Avalon Income
Statement"), prepared in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied, setting
forth the net income before taxes of Avalon (the "Pre-Tax Net Income")
for the fiscal year ended December 31, 1997 ("Fiscal 1997"). In
determining the Pre-Tax Net Income of Avalon for Fiscal 1997, (i) all
compensation and consulting fees paid and payable to the Shareholders
by Avalon with respect to Fiscal 1997 and all incentive bonuses,
partial participating bonuses and full participating bonuses paid or
payable to Messrs. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ with respect to Fiscal 1997 shall
constitute a reduction to Pre-Tax Net Income and (ii) all costs and
expenses incurred by Avalon, Merger Sub and NCCI in connection with
the Merger shall not constitute a reduction to Pre-Tax Net Income. For
purposes of this subsection, the parties agree that from the Closing
Date through December 31, 1997, Avalon will continue to be operated in
substantially the same manner as it has been operated during the three
year period ending on the Closing Date and any material change in the
operation of Avalon during such period shall require the approval of
the Board of Directors of Avalon. Within thirty (30) days of its
receipt of the Avalon Income Statement, NCCI shall notify Avalon of
its objections, if any, to the Avalon Income Statement and to Avalon's
calculation of Pre-Tax Net Income for Fiscal 1997. NCCI's failure to
object to Avalon's calculation of Pre-Tax Net Income for Fiscal 1997
within such 30-day period shall constitute acceptance thereof. If
Avalon and NCCI are unable to resolve the disputed items and agree
upon the Pre-Tax Net Income of Avalon for Fiscal 1997 within fifteen
(15) days of NCCI's notification to the Shareholders of its
objections, such dispute shall be referred to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or
other independent accountants (the "Independent Accountants") mutually
acceptable to NCCI and the Shareholders. The Independent Accountants
shall, within thirty (30) days following its selection, deliver to
NCCI and the Shareholders a written report determining the Pre-Tax Net
Income for Fiscal 1997 for Avalon, which determination will be
conclusive and binding on NCCI and the Shareholders for the purpose of
any adjustment to the Merger Consideration.
(b) If the Pre-Tax Net Income for Avalon for Fiscal 1997
as determined in accordance with Section 1.6(a) (the "Final Pre-Tax
Net Income") is equal to or greater than One Million Two Hundred
Thousand Dollars ($1,200,000), the Merger Consideration as set forth
in Section 1.5 shall not be adjusted and shall be final and binding on
the parties. If the Final Pre-Tax Net Income for Avalon is less than
One Million Two Hundred Thousand Dollars ($1,200,000), the Merger
Consideration shall be adjusted downward in an amount equal to the
product of (A) the difference between the Final Pre-Tax Net Income and
One Million Two Hundred Thousand Dollars ($1,200,000) and
-4-
9
(B) 6. The Merger Consideration as adjusted as set forth above is
referred to as the "Adjusted Merger Consideration." Any reduction in
the Merger Consideration shall be allocated among the Shareholders pro
rata based on the amounts set forth in the column headed "Total" on
Schedule 1.5.
(c) Within three (3) days of the determination of the
Final Pre-Tax Net Income for Avalon for Fiscal 1997 (the
"Determination Date"), NCCI and the Shareholders shall instruct the
Escrow Agent to deliver the escrowed certificates representing shares
of NCCI Common Stock (i) to the Shareholders if the Final Pre-Tax Net
Income equals or exceeds One Million Two Hundred Thousand Dollars
($1,200,000) or (ii) to NCCI if the Final Pre-Tax Net Income is less
than One Million Two Hundred Thousand Dollars ($1,200,000), in which
case NCCI shall cancel the original certificates and issue and deliver
new certificates to the Shareholders representing the Common Stock
Portion of the Adjusted Merger Consideration proportionately reduced
(the "Merger Consideration Reduction") based on the pro rata reduction
in the Merger Consideration for each Shareholder divided by the
average of the closing sale prices of NCCI common stock reported by
The Nasdaq Stock Market for each of the thirty (30) trading days
ending five (5) trading days preceding the Determination Date;
provided, however, that each Shareholder may elect, by providing
notice to NCCI within three (3) days of the Determination Date, to pay
his proportionate share of the Merger Consideration Reduction by any
combination of NCCI Common Stock and cash. In such case, the electing
Shareholder shall (i) receive from NCCI the number of shares of NCCI
Common Stock registered in the Shareholder's name and escrowed with
the Escrow Agent specified in such notice and deliver to the Company
cash in an amount equal to the balance of such Shareholder's pro rata
portion of the Merger Consideration Reduction.
1.7 Closing of Avalon's Transfer Books. At the Effective Time, the
stock transfer books of Avalon shall be closed with respect to shares of Avalon
Common Stock issued and outstanding immediately prior to the Effective Time and
no further transfer of such shares shall thereafter be made on such stock
transfer books. If, after the Effective Time, valid certificates previously
representing such shares are presented to the Surviving Corporation, such
certificates shall be exchanged as provided in Section 1.8 of this Agreement.
1.8 Mechanics of Exchange of Avalon Common Stock Certificates.
(a) After the Effective Time, each holder of an
outstanding certificate that prior thereto represented shares of
common stock, no par value per share (the "Avalon Common Stock"), of
Avalon shall be entitled, upon surrender thereof to NCCI, to receive
such Shareholder's pro rata portion of the Cash Portion and the Note
Portion of the Merger Consideration and to have escrowed with the
Escrow Agent in exchange therefor (i) a certificate or certificates
representing the number of whole shares of NCCI Common Stock into
which the shares of Avalon Common Stock so surrendered shall have been
converted and exchanged as aforesaid, in such denominations and
registered in such names as such holder may request and (ii) any cash
to which such holder may be entitled
-5-
10
pursuant to Section 1.5(e). Until so surrendered, each such
outstanding certificate that, prior to the Effective Time, represented
shares of Avalon Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of
NCCI Common Stock into which such shares of Avalon Common Stock shall
have been so converted and exchanged pursuant to Section 1.5 of this
Agreement and the right to receive an amount in cash in lieu of the
issuance of any fractional share of NCCI Common Stock in accordance
with Section 1.5(e) of this Agreement.
(b) All cash and shares of NCCI Common Stock into which
shares of Avalon Common Stock shall have been converted and exchanged
pursuant to Section 1.5 of this Agreement, including any cash paid in
lieu of any fractional shares of NCCI Common Stock in accordance with
Section 1.5(e) of this Agreement, will be issued and delivered in full
satisfaction of all rights pertaining to such exchanged shares and
shall be fully-paid and nonassessable.
(c) If any certificate for shares of NCCI Common Stock is
to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition
of the issuance thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that
the person requesting such conversion and exchange will have paid to
NCCI any transfer or other taxes required by reason of the issuance of
a certificate for shares of NCCI Common Stock in any name other than
that of the registered holder of the certificate surrendered, or
established to the satisfaction of NCCI that such tax has been paid or
is not payable. Prior to the issuance of such certificate(s), the
registered holder(s) thereof will be required to demonstrate to NCCI's
satisfaction that such transfer will be made in compliance with all
applicable securities laws and will not adversely impact any exemption
from the registration/qualification requirements of applicable
securities laws to be relied upon in connection with the transactions
contemplated hereby.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Avalon Common Stock shall have been lost,
stolen or destroyed, NCCI shall issue in exchange for such lost, stolen or
destroyed certificate(s), upon the making of an affidavit of that fact by the
holder thereof, such shares of NCCI Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.5 of this Agreement;
provided, however, that NCCI may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate(s) to deliver a bond in such sum as NCCI may reasonably
direct as indemnity against any claim that may be made against NCCI with
respect to the certificate(s) alleged to have been lost, stolen or destroyed.
1.10 Registration Rights. Each Shareholder who will receive NCCI
Common Stock shall execute a Registration Rights Agreement in the form attached
hereto as Exhibit B and shall have the registration and other rights provided
in such Registration Rights Agreement, which Registration Rights Agreement is
hereby incorporated herein by this reference as if set forth in
-6-
11
full in this Agreement. The parties hereto stipulate and agree that the
execution and delivery of the Registration Rights Agreement is intended to
provide the Shareholders with flexibility in liquidating their investment in
NCCI Common Stock and does not evidence any present intention to dispose of
such investment.
1.11 Further Action. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, immunities and
franchises of either or both of the Constituent Corporations, the officers and
directors of the Surviving Corporation are fully authorized in the name of
either or both of the Constituent Corporations or otherwise to take, and shall
take, all such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF NCCI AND MERGER SUB
NCCI and Merger Sub hereby represent and warrant to Avalon as follows:
2.1 Organization and Qualification. NCCI has been duly
incorporated and is validly existing as a corporation and in good standing
under the laws of the State of Tennessee and has the requisite corporate power
to carry on its business as now conducted. Merger Sub has been duly
incorporated and is validly existing as a corporation and in good standing
under the laws of the State of Tennessee and has the requisite corporate power
to carry on its business as now conducted.
2.2 Authority Relative to this Agreement. Each of NCCI and Merger
Sub has the requisite corporate power and authority to enter into this
Agreement and to carry out its respective obligations hereunder. The execution
and delivery of this Agreement by NCCI and Merger Sub and the consummation by
NCCI and Merger Sub of the transactions contemplated hereby have been duly
authorized by the respective Boards of Directors of NCCI and Merger Sub and by
NCCI as the sole shareholder of Merger Sub, and no other corporate proceedings
on the part of NCCI or Merger Sub are necessary to authorize this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by NCCI and Merger Sub and constitutes the valid and binding
obligation of each such company, enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity. None of the execution and delivery of this
Agreement by NCCI or Merger Sub, the performance by NCCI or Merger Sub of its
obligations hereunder or the consummation of the transactions contemplated
hereby by NCCI or Merger Sub will require any consent, approval or notice
under, or violate, breach, be in conflict with or constitute a default (or an
event that, with notice or lapse of time or both, would constitute a default)
under, or permit the termination of, or result in the creation or imposition of
any lien upon any properties, assets or business of NCCI or Merger Sub under
any note, bond, indenture, mortgage, deed of
-7-
12
trust, lease, franchise, permit, authorization, license, contract, instrument
or other agreement or commitment or any order, judgment or decree to which NCCI
or Merger Sub is a party or by which NCCI or Merger Sub or any of their
respective assets or properties is bound or encumbered, except those that have
already been given, obtained or filed. Other than in connection with filing
Articles of Merger with the Secretary of State of the State of Tennessee,
filings under the Securities Act of 1933, as amended (the "Securities Act"), if
any, necessary to perfect an exemption from registration under the Securities
Act and to effect the registrations contemplated by the Registration Rights
Agreement, filings made with the National Association of Securities Dealers,
Inc. to list the shares of NCCI Common Stock to be issued in connection with
the Merger in the National Market System of The Nasdaq Stock Market and filings
to be made with state securities regulatory agencies, no authorization, consent
or approval of, or filing with, any public body, court or authority is
necessary on the part of NCCI or Merger Sub for the consummation by NCCI and
Merger Sub of the transactions contemplated by this Agreement.
2.3 NCCI Stock and NCCI SEC Documents. The NCCI Common Stock is
listed for trading on the National Market System of The Nasdaq Stock Market.
NCCI has furnished Avalon with a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by NCCI
with the Securities and Exchange Commission ("SEC") since January 1, 1996 (the
"NCCI SEC Documents"), which are all the documents (other than preliminary
materials) that NCCI was required to file with the SEC since such date and all
of which documents are listed on Annex I attached hereto. As of its date, each
NCCI SEC Document was in compliance, in all material respects, with the
requirements of its form. The financial statements of NCCI included in the
NCCI SEC Documents complied, at the time of filing with the SEC, as to form, in
all material respects, with applicable accounting requirements and published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis during the periods involved, and fairly presented, in all
material respects (subject, in the case of unaudited statements, to normal,
recurring year-end audit adjustments) the financial position of NCCI as at the
dates thereof and the results of its operations and changes in financial
position for the periods then ended.
2.4 Liabilities of Merger Sub. Prior to the date hereof, Merger
Sub has conducted no business operations and has incurred no liabilities.
2.5 Certain Corporate Matters. Each of NCCI and Merger Sub is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership of its properties, the employment of
its personnel or the conduct of its business requires it to be so qualified.
NCCI has full corporate power and authority and all authorizations, licenses
and permits necessary to carry on the business in which it engages or in which
it proposes presently to engage and to own and use the properties owned and
used by it. NCCI and Merger Sub have each delivered to Avalon true, accurate
and complete copies of its charter documents and bylaws which reflect all
amendments made thereto at any time prior to the date of this Agreement. The
minute books containing the records of meetings of the shareholders and board
of directors of NCCI and Merger Sub are accurate and complete in all material
respects.
-8-
13
All material corporate actions taken by NCCI and Merger Sub since their
respective dates of incorporation have been duly authorized and/or subsequently
ratified, as necessary. Neither NCCI nor Merger Sub is in default under or in
violation of any provision of its charter or bylaws.
2.6 Investments in or Acquisitions of NCCI. Except as contemplated
by this Agreement or as otherwise publicly disclosed by NCCI in the NCCI SEC
Documents or in a national press release or disclosed to Avalon, there are
currently no discussions to which NCCI is a party relating to (a) a material
investment in NCCI, (b) a sale of a material portion of NCCI's assets, (c) any
merger, consolidation, liquidation, dissolution or similar transaction
involving NCCI or (d) any offer to acquire a material number of shares of NCCI
Common Stock.
2.7 Broker's Fees. Neither NCCI nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger or any similar transaction.
2.8 Disclosure. The representations and warranties and statements
of fact made by NCCI in this Agreement and in certificates and other written
statements or agreements delivered or to be delivered pursuant to this
Agreement are accurate, correct and complete on the date of this Agreement and
will, except as contemplated hereby, be accurate, correct and complete at the
Effective Time and do not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AVALON
Except as set forth in the correspondingly numbered section of the
disclosure schedule attached hereto as Schedule 1 and incorporated herein by
this reference (the "Disclosure Schedule"), Avalon hereby represents and
warrants to NCCI and Merger Sub as follows:
3.1 Organization, Qualification and Corporate Power. Avalon is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Avalon is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
specified in Section 3.1 of the Disclosure Schedule, which are the
jurisdictions in which the ownership of its properties, the employment of its
personnel or the conduct of its business requires that it be so qualified or
where a failure to be so qualified or licensed would have a material adverse
effect on its financial condition, results of operation or business. Avalon has
full corporate power and authority and all authorizations, licenses and permits
necessary to carry on the business in which it is engaged or in which it
proposes presently to engage and to own and use the properties owned and used
by it. Avalon has delivered to NCCI true, accurate and complete copies of its
charter and bylaws which reflect all
-9-
14
amendments made thereto at any time prior to the date of this Agreement. The
minute books containing the records of meetings of the shareholders and Board
of Directors of Avalon, the stock certificate books and the stock record books
of Avalon are complete and correct in all material respects. The stock record
books of Avalon and the shareholder lists of Avalon which Avalon has previously
furnished to NCCI are complete and correct in all respects and accurately
reflect the record ownership and, to the knowledge of Avalon, the beneficial
ownership of all the outstanding shares of Avalon's capital stock and all other
outstanding securities issued by Avalon. All material corporate actions taken
by Avalon since incorporation has been duly authorized and/or subsequently
ratified as necessary. Avalon is not in default under or in violation of any
provision of its charter or bylaws. Avalon is not in default or in violation of
any restriction, lien, encumbrance, indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability by which it is bound or to
which any of its assets is subject.
3.2 Capitalization. Avalon's entire authorized capital stock
consists of 2,000 shares of Common Stock, of which 1,333-1/3 shares are issued
and outstanding and 1,333-1/3 shares will be issued and outstanding immediately
prior to the Effective Time. All of the issued and outstanding shares of Avalon
Common Stock have been and, as of the Effective Time, will be duly authorized
and are and, as of the Effective Time, will be validly issued, fully paid and
nonassessable and have not been and, as of the Effective Time, will not be
issued in violation of any pre-emptive rights. There are no outstanding or
authorized options, rights, warrants, calls, convertible securities, rights to
subscribe, conversion rights or other agreements or commitments to which Avalon
is a party or which are binding upon Avalon providing for the issuance or
transfer by Avalon of additional shares of its capital stock and Avalon has not
reserved any shares of its capital stock for issuance, nor are there any
outstanding stock option rights, phantom equity or similar rights, contracts,
arrangements or commitments based upon the book value, income or other
attribute of Avalon. There are no voting trusts or any other agreements or
understandings with respect to the voting of Avalon's capital stock. Upon
consummation of the Merger, NCCI will own the entire equity interest in Avalon
and Avalon will not have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock, nor have outstanding any
rights, options, agreements or arrangements to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock. Annex II attached hereto sets forth a true accurate and
complete list of all holders of capital stock of Avalon, the number of shares
of capital stock held by each such person and the address of each such person.
All capital stock, options, warrants and other securities issued by Avalon were
issued in compliance, in all respects, with all applicable federal and state
securities laws.
3.3 Authorization of Transaction. Avalon has the requisite
corporate power and authority to enter into this Agreement and perform its
obligations hereunder. The execution, delivery and performance of this
Agreement and the transactions contemplated by this Agreement have been duly
authorized by the Board of Directors of Avalon. No other corporate approval on
the part of Avalon (other than shareholder approval) will be necessary to
authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Avalon and, upon approval hereof by the shareholders of Avalon,
will constitute the valid and binding obligation of Avalon, enforceable
-10-
15
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity. None of the
execution and delivery of this Agreement by Avalon, the performance by Avalon
of its obligations hereunder or the consummation of the transactions
contemplated hereby by Avalon will require any consent, approval or notice
under, or violate, breach, be in conflict with or constitute a default (or an
event that, with notice or lapse of time or both, would constitute a default)
under, or permit the termination of, or result in the creation or imposition of
any lien upon any properties, assets or business of Avalon under any note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment
or any order, judgment or decree to which Avalon is a party or by which Avalon
or any of their respective assets or properties is bound or encumbered, except
those that have already been given, obtained or filed, all as set forth in
Section 3.3 of the Disclosure Schedule. Other than in connection with filing
Articles of Merger with the Secretary of State of the State of Tennessee, no
notice to, filing with or authorization, consent or approval of any public body
or authority is necessary for the consummation by Avalon of the transactions
contemplated by this Agreement.
3.4 Subsidiaries. Avalon does not own and is not obligated to
purchase any equity interest in or any other interest convertible into or
exchangeable for an equity interest in any entity.
3.5 Financial Statements. Avalon has delivered to NCCI (a) its
unaudited balance sheets as of December 31, 1996, 1995 and 1994, and (b) its
unaudited statements of operations and statements of cash flows for each of the
years in the three-year period ended December 31, 1996 (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby and present fairly the financial
condition of Avalon as of such dates and the results of its operations and
changes in financial position for such periods. Since December 31, 1993, there
have been no changes in Avalon's method of accounting for tax purposes.
3.6 Events Subsequent to Financial Statements. Except as disclosed
in the Financial Statements, since December 31, 1996, there has not been:
(a) any materially adverse change in the consolidated
financial condition, results of operations or business of Avalon;
(b) any sale, lease, transfer, license or assignment of
any material assets, tangible or intangible, of Avalon, other than in
the ordinary course of business;
(c) any damage, destruction or property loss, whether or
not covered by insurance, affecting materially adversely the
properties or business of Avalon;
-11-
16
(d) any declaration or setting aside or payment of any
dividend or distribution with respect to the shares of capital stock
of Avalon or any redemption, purchase or other acquisition of any such
shares;
(e) any mortgage or pledge of, or subjection to any
material lien, charge, security interest or encumbrance of any kind
on, any of the assets, tangible or intangible, of Avalon (other than
liens arising by operation of law which secure obligations which are
not yet due and payable);
(f) any incurrence of indebtedness or liability or
assumption of obligations by Avalon other than (i) those incurred in
the ordinary course of business, (ii) those which do not exceed
$100,000 in the aggregate, and (iii) those incurred in the course of
negotiating, documenting and consummating the transactions
contemplated by this Agreement;
(g) any cancellation or compromise by Avalon of any
material debt or claim, except for adjustments made in the ordinary
course of business which, in the aggregate, are not material;
(h) any waiver or release by Avalon of any right of any
material value;
(i) except licenses of software made in the ordinary
course of business, consistently with past practice, any sale,
assignment, transfer or grant by Avalon of any rights under any
concessions, leases, licenses, agreements, patents, inventions,
trademarks, trade names or copyrights or with respect to any know- how
or other intangible assets;
(j) any material arrangement, agreement or undertaking
entered into by Avalon not terminable on 30 days or less notice
without cost or liability (including, without limitation, any payment
of or promise to pay any bonus or special compensation) with employees
or any increase in compensation or benefits to officers or directors
of Avalon, other than in the ordinary course of business;
(k) any change made or authorized in the charter or
bylaws of Avalon;
(l) any issuance, sale or other disposition by Avalon of
any shares of its capital stock or other equity securities, or any
grant of any options, warrants or other rights to purchase or obtain
(including upon conversion or exercise) shares of its capital stock or
other equity securities;
(m) any loan to or other transaction with any officer,
director or shareholder of Avalon giving rise to any claim or right of
Avalon against any such person or of such person against Avalon;
-12-
17
(n) any payment to or other transaction with any officer,
director or shareholder of Avalon involving an amount in excess of
$20,000, individually or in the aggregate, other than the payment of
monthly compensation consistent with customary practice;
(o) any acceleration, termination, modification or
cancellation or threat thereof by any party of any contract, lease or
other agreement or instrument to which Avalon is a party or by which
it is bound so as to affect, materially and adversely, the properties
or business of Avalon; or
(p) any other material transaction or commitment entered
into other than in the ordinary course of business by Avalon.
3.7 Undisclosed Liabilities. Avalon has no material liability or
obligation whatsoever, known or unknown, either accrued, absolute, contingent
or otherwise, except to the extent shown on the Financial Statements, incurred
in the normal and ordinary course of business of Avalon since January 1, 1997
(provided that, liabilities or obligations incurred in connection with the
termination of employees shall not be considered liabilities incurred in the
ordinary course of business), or incurred in the course of negotiating,
documenting and consummating the transactions contemplated by this Agreement.
Avalon is not indebted, directly or indirectly, to any person who is an
officer, director or shareholder of Avalon or any affiliate of any such person
in any amount whatsoever other than for salaries for services rendered or
reimbursable business expenses, and no such officer, director, shareholder or
affiliate is indebted to Avalon, except for advances made to employees of
Avalon in the ordinary course of business to meet reimbursable business
expenses anticipated to be incurred by such obligor.
3.8 Tax Returns and Audits. The taxable year of Avalon ends
December 31. Avalon has duly and timely filed or caused to be filed all tax
returns (the "Tax Returns") required to be filed on behalf of itself and has
paid in full or fully reserved against in the Financial Statements all taxes,
interest, penalties, assessments and deficiencies due or claimed to be due on
behalf of itself to foreign, federal, state or local taxing authorities
(including taxes on properties, income, franchises, licenses, sales, use and
payrolls). Such Tax Returns are correct in all material respects, and Avalon is
not required to pay any other taxes for such periods except as shown in such
Tax Returns. The income tax returns filed by Avalon have not been, and are not
being, to the knowledge of Avalon, examined by the Internal Revenue Service or
other applicable taxing authorities for any period. All taxes or estimates
thereof that are due, or are claimed or asserted by any taxing authority to be
due, have been timely and appropriately paid so as to avoid penalties for
underpayment. Except for amounts not yet due and payable, all tax liabilities
to which the properties of Avalon may be subject have been paid and discharged.
The provisions for income and other taxes payable reflected in the Financial
Statements make adequate provision for all then accrued and unpaid taxes of
Avalon. There are no tax liens (other than liens for taxes which are not yet
due and payable) on any of the property of Avalon, nor are there any pending or
threatened examinations or tax claims asserted. Avalon has not granted any
extensions of limitation periods applicable to tax claims or filed a consent
under Section 341(f)
-13-
18
of the Code relating to collapsible corporations. Except in jurisdictions in
which Avalon voluntarily files tax returns, no claim has ever been made by a
taxing authority that either Avalon is or may be subject to taxation by that
jurisdiction. True and correct copies of all federal, foreign, state and local
income and other tax returns, notices from foreign, federal, state and local
taxing authorities, tax examination reports and statements of deficiencies
assessed against or agreed to by Avalon since January 1, 1994, have been
delivered to NCCI, and the same are listed in Section 3.8 of the Disclosure
Schedule. Avalon is not a party to, or bound by, any tax indemnity, tax sharing
or tax allocation agreement. Avalon is not a party to any agreement that has
resulted or would result in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code. Avalon has never been a member
of an "affiliated group," as defined in Section 1504(a) of the Code (other than
a group of which Avalon is the common parent). All positions taken on federal
Tax Returns that could give rise to a penalty for substantial understatement
pursuant to Section 6662(d) of the Code have been disclosed on such Tax
Returns. Avalon is not a United States real property holding corporation as
defined in Section 897 of the Code. No shareholder of Avalon is a foreign
person within the meaning of Section 1445(b)(2) of the Code. Avalon has not
made any tax elections under any section of the Code, including, without
limitation under any of Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or
4977 of the Code (or any predecessor thereof). None of the assets and
properties of Avalon is an asset or property that NCCI or any of its affiliates
is or will be required to treat as being (i) owned by any other Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as
amended, and in effect immediately before the enactment of the Tax Reform Act
of 1986, or (ii) tax-exempt use property within the meaning of Section
168(h)(1) of the Code. No closing agreement pursuant to Section 7121 of the
Code (or any predecessor provision) or any similar provision of any state,
local, or foreign law has been entered into by or with respect to Avalon or any
assets thereof. Avalon has not agreed to or is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of Avalon, Avalon
has no applications pending with any taxing authority requesting permission for
any changes in any accounting method of Avalon, and the I.R.S. has not proposed
any such adjustment or change in accounting method therefor. Avalon has not
been or is in violation (or with notice or lapse of time or both, would be in
violation) of any applicable law relating to the payment of withholding of
taxes. Avalon has duly and timely withheld from salaries, wages and other
compensation and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws.
3.9 Books and Records. The general ledgers and books of account of
Avalon, all federal, state and local income, franchise, property and other tax
returns filed by Avalon, with respect to its assets, and all other books and
records of Avalon are in all material respects complete and correct and have
been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations in all material
respects.
3.10 Real Property. Set forth in Section 3.10 of the Disclosure
Schedule is a complete and accurate list and a brief description of all real
property owned or leased by Avalon. With
-14-
19
respect to each lease so set forth, except as contemplated by this Agreement:
(a) the lease has been validly executed and delivered by Avalon, as applicable,
and, to the knowledge of Avalon, by the other party or parties thereto and is
in full force and effect; (b) neither Avalon, as applicable, and, to the
knowledge of Avalon, any other party to the lease is in material breach or
default, and no event has occurred on the part of Avalon, as applicable or, to
the knowledge of Avalon, on the part of any other party which, with notice or
lapse of time, would constitute such a breach or default or permit termination,
modification or acceleration under the lease; (c) the lease will continue to be
binding in accordance with its terms following the consummation of the Merger;
(d) Avalon has not repudiated and, to the knowledge of Avalon, no other party
to the lease has repudiated any provision thereof; (e) there are no disputes,
oral agreements or delayed payment programs in effect as to the lease; and (f)
all facilities leased thereunder have been approved by all necessary
governmental authorities, have been maintained in accordance with normal
industry practice and are in good condition, working order and repair.
3.11 Tangible Property. Avalon has good and marketable title to, or
a valid leasehold interest in, each item of tangible property, whether real,
personal or mixed, reflected on its books and records as owned or used by it,
subject to no material encumbrances, loans, security interests, mortgages or
pledges.
3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedule sets
forth a list of intellectual property owned by Avalon including all
patents, patent applications, trademarks, service marks, trade dress,
trade names, trade secrets, corporate names, customer lists,
copyrights, mask works, technology or intellectual property that are
material to the business of Avalon and registrations or applications
to register any of the foregoing and a list of all licenses or other
contracts related thereto (collectively, the "Intellectual Property").
With respect to each such item of Intellectual Property:
(i) Avalon is the sole and exclusive owner and
has the sole and exclusive right to use the item in the
conduct of its business;
(ii) no proceedings have been instituted, are
pending or are threatened which challenge the validity,
enforceability, use or ownership thereof;
(iii) the item (A) does not infringe upon or
otherwise violate the rights of others, (B) to the knowledge
of Avalon, is not being infringed upon by others and (C) is
not subject to any outstanding order, decree, judgment,
stipulation or charge;
(iv) no license, sublicense or agreement
pertaining to the item has been granted by Avalon;
-15-
20
(v) Avalon has not received any charge of
interference or infringement with respect to the item;
(vi) except in the ordinary course of business,
Avalon has not agreed to indemnify any person or entity for or
against any infringement with respect to the item;
(vii) the transactions contemplated by this
Agreement will have no material adverse effect on the right,
title and interest of Avalon in the item;
(viii) Avalon has taken all steps which are
commercially reasonable to protect the rights set forth in
Section 3.12(a) of the Disclosure Schedule and will continue
to use commercially reasonable efforts to maintain those
rights prior to the Effective Time so as to not materially
adversely affect the validity or enforcement of such rights;
and
(ix) Avalon has supplied NCCI with true and
complete copies of all written documentation evidencing its
ownership of the item and of all licenses and other contracts
related thereto.
(b) Section 3.12(b) of the Disclosure Schedule sets
forth a list describing all patents, trademarks, trade names, service
marks, copyrights, trade secrets and mask works of others which Avalon
practices or uses that are material to Avalon. With respect to each
such item of intellectual property:
(i) any license agreement covering the item is a
valid and binding agreement, has been validly executed and
delivered by Avalon and, to the knowledge of Avalon, by the
other parties thereto and is in full force and effect;
(ii) no event has occurred which constitutes a
breach of such license agreement, Avalon has not repudiated
and, to the knowledge of Avalon, no other party thereto has
repudiated any provision thereof and there are no disputes,
oral arrangements or delayed payment programs in effect as to
any such license agreement;
(iii) Avalon has supplied NCCI with a true and
complete copy of the license agreement;
(iv) the transactions contemplated by this
Agreement will have no material adverse effect on the ability
of Avalon to continue using or practicing each such item; and
-16-
21
(v) Avalon is not aware of any claim that the
exercise of the rights granted to Avalon with respect to such
item infringes upon the intellectual property rights of any
third party.
(c) Avalon has not infringed, misappropriated or
otherwise violated any intellectual property rights of any third
party. Avalon is not aware of any infringement, misappropriation or
violation with respect to intellectual property which will occur as a
result of the continued operation of the business of Avalon as now
conducted or as presently proposed to be conducted.
(d) Avalon has taken commercially reasonable security
measures to protect the security, confidentiality and value of all the
material intellectual property owned by it.
3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the
following contracts and written arrangements, true and complete copies of which
have been delivered to NCCI, to which Avalon is a party:
(a) any contract for the lease of personal property from
or to third parties providing for lease payments in excess of
$10,000.00 per annum;
(b) any contract for the purchase or sale of supplies,
products manufactured by Avalon or other personal property or for the
furnishing or receipt of services which contract calls for performance
over a period of more than one year or which involves more than the
sum of $10,000.00, except no license agreement need be disclosed
pursuant to this Section 3.13 unless it calls for performance over a
period of more than one year and involves more than the sum of
$15,000.00;
(c) any joint venture agreement;
(d) any agreement or instrument under which Avalon is or
may become indebted for borrowed money;
(e) any noncompetition agreement;
(f) any other contract in which the consequences of a
default or termination would have a materially adverse effect on the
financial condition of Avalon or on the prospects or the conduct of
the business of Avalon;
(g) any standard form of license agreement; and
(h) any other contract or arrangement not entered into in
the ordinary course of business.
-17-
22
All contracts and arrangements listed in Section 3.13 of the Disclosure
Schedule are valid and binding agreements of Avalon. Avalon is not and, to the
knowledge of Avalon, no other party is in breach or default, and no event has
occurred on the part of Avalon or, to the knowledge of Avalon, on the part of
any other party to any such contract or arrangement which with notice or lapse
of time would constitute a breach or default or permit termination under any
such contract or arrangement. None of such contracts or arrangements will be
terminated or modified by the consummation of the Merger. Avalon has
previously made available to NCCI all of the material service agreements of
Avalon with its customers. Avalon is not a party to any verbal contract or
arrangement which, if reduced to written form, would be required to be listed
in Section 3.13 of the Disclosure Schedule under the terms of subsections
(a)-(h) of this Section 3.13.
3.14 Suppliers and Customers. Section 3.14 of the Disclosure
Schedule is a true and correct list of all suppliers of Avalon to whom Avalon
made payments, during the fiscal year ended December 31, 1996, in excess of
five percent of Avalon's gross revenues as reflected in the Financial
Statements for such year and all customers of Avalon that paid Avalon, during
the fiscal year ended December 31, 1996, more than five percent of the gross
revenues of Avalon as reflected in the Financial Statements for such year.
Since December 31, 1996, no material customer of Avalon has notified Avalon
that it will substantially decrease or cease doing business with Avalon.
3.15 Notes; Accounts Receivable. As of the Effective Time, all
notes payable to and accounts receivable of Avalon will be properly reflected
on its books and records and will be valid receivables subject to no setoffs or
counterclaims.
3.16 Powers of Attorney. There are no outstanding material powers
of attorney or similar instruments executed by Avalon.
3.17 Condition of Property. Each building, fixture, machine and
piece of equipment (having a net book value of $5,000.00 or more) owned or used
by Avalon is in good operating condition and repair, subject to normal wear and
tear, and is in compliance with all zoning, building and fire codes in all
material respects. Avalon owns or leases under valid lease all buildings,
machinery, equipment and other tangible assets used in the conduct of its
business as presently conducted.
3.18 Insurance. Avalon is insured under the policies listed in
Section 3.18 of the Disclosure Schedule (the "Insurance Policies"). The
Insurance Policies are in full force and effect. All premiums due on the
Insurance Policies or renewals thereof have been paid and there is no default
by Avalon under any of the Insurance Policies.
3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth
any instances in which (a) Avalon is subject to any judgment or order (other
than orders of general applicability) of any court or quasi-judicial or
administrative agency of any jurisdiction, domestic or foreign, or where there
is any charge, complaint, lawsuit or governmental investigation pending or
threatened against Avalon ; or (b) Avalon is a plaintiff in any action,
domestic or foreign, judicial
-18-
23
or administrative, or any such action exists in which a counterclaim against
Avalon is pending or might be brought. None of the actions, suits, proceedings
or investigations set forth in Section 3.19 of the Disclosure Schedule could
result in any adverse change in the condition, financial or otherwise, of
Avalon, the same being fully reserved against in the Financial Statements.
There are no unsatisfied judgments, orders (other than orders of general
applicability), decrees or stipulations affecting Avalon or to which Avalon is
a party and there is no reason to believe that any such action, suit,
proceeding or investigation may be brought or threatened against Avalon.
3.20 Employees. Avalon has listed in Section 3.20 of the Disclosure
Schedule and has furnished to NCCI true and complete copies of: (a) any written
employment agreements with officers and directors of Avalon; and (b) any
written employment agreements with its employees which by their terms may not
be terminated by Avalon, as applicable, at will or which ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
payments. Avalon has not entered into any similar oral employment agreements.
To Avalon's knowledge, no key employee or group of employees has any plans to
terminate employment with Avalon. Avalon is not a party to or bound by any
collective bargaining agreement. There are no loans or other obligations
payable or owing by Avalon to any shareholder, officer, director or employee of
Avalon (except salaries and wages incurred and accrued in the ordinary course
of business), nor are there any loans or debts payable or owing by any of such
persons to Avalon or any guarantees by Avalon of any loan or obligation of any
nature to which any such person is a party. Avalon has complied in all material
respects with all laws and regulations which relate to the employment of labor,
employee civil rights or equal employment opportunities.
3.21 Employee Benefit Plans. Avalon has listed in Section 3.21 of
the Disclosure Schedule and has furnished to NCCI true and complete copies of
(a) any nonqualified deferred or incentive compensation or retirement plans or
arrangements, (b) any qualified retirement plans or arrangements, (c) any other
employee compensation, severance or termination pay or welfare benefit plans,
programs or arrangements and (d) any related trusts, insurance contracts or
other funding arrangements maintained, established or contributed to by Avalon
or to which Avalon is a party or otherwise is bound ("Avalon Employee Benefit
Plans"). Avalon is not a member of a "controlled group" or an "affiliated
service group" as both of such terms are defined in Section 414 of the Code.
Except as required by law, Avalon does not maintain or contribute or has never
maintained or contributed to any funded or unfunded medical, health or life
insurance plan or arrangement for retirees or terminated employees. Avalon does
not contribute or has any obligation to make and has never contributed or had
any obligation to make any payment or contribution to a "multiemployer plan,"
as that term is defined in Section 3(37) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and Avalon does not have any actual
or potential liability under Section 4201 of ERISA for any complete or partial
withdrawal from a multiemployer plan. Avalon does not maintain, contribute to
or have any liability with respect to any employee pension benefit plan (as
defined in Section 3(2) of ERISA) which is intended to meet the requirements of
a qualified plan under Section 401(a) of the Code. Avalon does not maintain,
contribute to or have any liability with respect to a plan which is subject to
Title IV of ERISA or Section 412 of the Code. With respect to the employee
benefit plans listed
-19-
24
in Section 3.21 of the Disclosure Schedule, Avalon has furnished to NCCI true
and complete copies of (i) any summary plan description or other employee
communication materials, (ii) the latest financial statements and annual
reports and (iii) all documents filed with the Internal Revenue Service or the
Department of Labor since December 31, 1994. All employee benefit plans and
related trusts listed in Section 3.21 of the Disclosure Schedule and maintained
or contributed to by Avalon or with respect to which Avalon now has or has ever
had any liability or potential liability comply in form and in operation with
all requirements of ERISA and the Code. All required reports with respect to
such plans required by applicable law have been filed and all contributions or
payments presently anticipated hereunder have been made or properly accrued. No
applications for rulings, determination letters, advisory opinions or
prohibited transaction exemptions are currently pending before Internal Revenue
Service, the Department of Labor or the Pension Benefit Guaranty Corporation
with respect to any such employee benefit plans or arrangements or any related
trusts. None of such employee benefit plans or arrangements, any related
trusts, the trustees of any related trusts or the directors, officers and
employees of Avalon is the subject of any lawsuit, arbitration or other
proceeding concerning any benefit claim or other benefit-related matter (other
than routine claims in the ordinary course of business), and there have been no
prohibited transactions as described in Section 406 of ERISA or as defined in
Section 4975 of the Code with respect to any such plan. Neither Avalon, its
directors, officers and employees nor any other fiduciary, as such term is
defined in Section 3 of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law which would subject
Avalon, or its directors, officers and employees to liability under ERISA or
any applicable law.
3.22 Guarantees. Avalon is not a guarantor or otherwise liable for
any material indebtedness of any other person, firm or corporation other than
endorsements for collection in the ordinary course of business.
3.23 Legal Compliance. Avalon and each of its directors, officers
and employees (the individuals only in their capacities as representatives of
Avalon) has complied in all material respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof, and no claim has been filed against Avalon alleging a violation of any
such laws or regulations. Avalon holds all of the material permits, licenses,
certificates or other authorizations of foreign, federal, state or local
governmental agencies required for the conduct of its business as presently
conducted or proposed to be conducted.
3.24 Certain Business Relationships. To the knowledge of Avalon,
none of the present or former shareholders, directors, officers or employees of
Avalon owns, directly or indirectly, any interest in any business, corporation
or other entity (other than investments in publicly held companies) which, on
the date hereof or within the past 12 months, has been involved in any manner
in any business arrangement or relationship with Avalon, and none of the
foregoing persons owns any property or rights, tangible or intangible, which
are used in the business of Avalon.
-20-
25
3.25 Broker's Fees. Avalon nor anyone on its behalf has any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger or any similar transaction.
3.26 Disclosure. The representations and warranties and statements
of fact made by Avalon in this Agreement, in the Disclosure Schedule and in
certificates and other written statements or agreements delivered or to be
delivered pursuant to this Agreement are accurate, correct and complete in all
material respects on the date of this Agreement and will, except as
contemplated hereby, be accurate, correct and complete in all material respects
at the Effective Time and do not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
3.27 Knowledge. Where the foregoing representations and warranties
are qualified "to Avalon's knowledge" or words of similar import, such terms
shall mean matters of which any Shareholder has actual knowledge.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as set forth in the correspondingly numbered section of the
Disclosure Schedule, each Shareholder severally represents and warrants to NCCI
as to himself only and not with respect to any other Shareholder as follows:
4.1 Representations Regarding Shares of Avalon.
(a) Such Shareholder is the record and beneficial owner of and has
good title to the shares of Avalon Common Stock set forth opposite his name on
Annex II attached hereto, free and clear of any and all restrictions, voting
rights or agreements, liens, charges, encumbrances, options and adverse claims
or rights whatsoever. Annex II attached hereto sets forth the number of all
shares of capital stock of Avalon owned by each of the Shareholders, and all
such shares collectively represent all the issued and outstanding shares of
Avalon.
(b) Such Shareholder has the full right, power and authority to
enter into this Agreement.
(c) Such Shareholder is not a party to, subject to or bound by any
agreement or any judgment, order, writ, prohibition, injunction or decree of
any court or other governmental body which would prevent the execution or
delivery of this Agreement by such Shareholder.
(d) No broker or finder has acted for such Shareholder in
connection with this agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any
-21-
26
brokerage or finder's fee or other commissions in respect of such transactions
based upon agreements, arrangements or understandings made by or on behalf of
such Shareholder.
4.2 Investment Representations.
(a) Such Shareholder is acquiring NCCI Common Stock in
the Merger for his own account for investment and not with a view to,
or for sale in connection with, any distribution thereof, nor with any
present intent of distributing or selling his shares.
(b) Such Shareholder has reviewed the representations
concerning NCCI contained in this Agreement and has made or has had
the opportunity to make inquiry concerning NCCI. Such Shareholder has
sufficient knowledge and experience so as to be able to evaluate the
risks and merits of his investment in NCCI, and he is able financially
to bear the risks thereof. Such Shareholder is entering into the
transactions contemplated herein based on his own assessments of the
merits and risks, upon his own experience as an officer and
shareholder of Avalon and is not relying on any business plan,
projections, valuations or other financial information provided to
such Shareholder by NCCI (other than the NCCI SEC Documents). Such
Shareholder further acknowledges and agrees that NCCI and Merger Sub
have made no assurances of any nature whatsoever regarding the future
operations of NCCI and Merger Sub and have made no guarantees as to
the profitability of an investment therein. Shareholder further
acknowledges that he is an accredited investor as defined in Rule 501
of Regulation D of the Securities Act.
(c) Such Shareholder acknowledges that Surviving
Subsidiary is a newly-formed entity with no history of operations.
(d) Such Shareholder understands that the certificates of
NCCI Common Stock to be issued to him pursuant to this Agreement will
bear a restrictive legend in substantially the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to NCCI is
obtained to the effect that such registration is not
required."
The foregoing legend shall be removed from the certificates, at the
request of the holder thereof, at such time as they become registered for
resale or eligible for resale pursuant to Rule 144(k) under the Securities Act.
4.3 Authorization. This Agreement and all such other agreements
and obligations entered into and undertaken in connection with the transactions
contemplated hereby to which each of the Shareholders is a party constitute the
valid and legally binding obligations of such Shareholder, enforceable against
such Shareholder in accordance with their respective terms,
-22-
27
except as enforceability may be limited or affected by applicable bankruptcy,
insolvency, moratorium, reorganization or other laws of general application
relating to or affecting creditors' rights generally. Each Shareholder's spouse
has consented to the terms of this Agreement in all respects and has agreed to
execute and deliver to NCCI the form of Spousal Consent attached hereto as
Exhibit D.
The execution, delivery and performance by each of the Shareholders of
this Agreement and the agreements provided for herein, and the consummation by
each of the Shareholders of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to each of
the Shareholders; (b) violate any judgment, decree, order or award of any
court, governmental body or arbitrator; or (c) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of such Shareholder
pursuant to, any indenture, mortgage, deed of trust or other instrument or
agreement to which such Shareholder is a party or by which such Shareholder or
any of his properties is or, to the knowledge of such Shareholder, may be
bound, except for violations or conflicts which individually or in the
aggregate would not have a material adverse effect on Avalon's financial
condition or results of operation.
4.4 Investment Intent. The total value of all of the Common Stock
Portion paid to the Shareholders collectively represents not less than fifty
percent (50%) of the total Merger Consideration. Shareholders further represent
and warrant that they have no preconceived plan or intention to dispose of an
aggregate number of shares of NCCI Common Stock having a value, as of the
Effective Time, of more than fifty percent (50%) of the value of all of the
issued and outstanding capital stock of Avalon immediately prior to the
Effective Time.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Conduct of Business by Avalon Pending the Merger. Avalon
covenants and agrees that, prior to the Effective Time, unless NCCI shall
otherwise agree in writing or as otherwise expressly contemplated or permitted
by this Agreement:
(a) Avalon shall conduct its business and operations,
including its cash management practices, the collection of
receivables, maintenance of facilities and payment of payables, only
in the usual and ordinary course of business and consistent with past
custom and practice in all material respects;
(b) Avalon shall not directly or indirectly do any of
the following: (i) sell, pledge, dispose of or encumber any material
portion of its assets, except in the ordinary course of business; (ii)
amend or propose to amend its charter or bylaws; (iii) split, combine
or reclassify any outstanding shares of its capital stock, or declare,
set aside or
-23-
28
pay any dividend or other distribution payable in cash, stock,
property or otherwise with respect to shares of its capital stock;
(iv) redeem, purchase or acquire or offer to acquire any shares of its
capital stock or other securities; (v) create any subsidiaries; or
(vi) enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this
Section 5.1(b);
(c) Avalon shall not (i) issue, sell, pledge or dispose
of, or agree to issue, sell, pledge or dispose of, any additional
shares of, or any options, warrants, conversion privileges or rights
of any kind to acquire any shares of, its capital; (ii) acquire (by
merger, consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership or other business organization or
division or material assets thereof; (iii) incur any material
indebtedness for borrowed money, issue any debt securities or
guarantee any indebtedness to others; or (iv) enter into or modify any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(d) Avalon shall not (i) enter into or modify any
employment, severance or similar agreements or arrangements with, or
grant any bonus, salary increase, severance or termination pay to, any
officers or directors; or (ii) in the case of employees who are not
officers or directors, take any action other than in the ordinary
course of business and consistent in all material respects with past
practice (none of which shall be unreasonable or unusual) with respect
to the grant of any bonuses, salary increases, severance or
termination pay or with respect to any increase of benefits payable in
effect on January 1, 1996;
(e) Avalon shall not adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employee;
(f) except as otherwise required by its charter or
bylaws, by this Agreement or by applicable law, Avalon shall not call
any meeting of its shareholders and, with respect to any meeting of
its shareholders called by Avalon, Avalon shall provide to NCCI copies
of all written materials and other information given to the
shareholders prior to the time such materials and information are
given to the shareholders;
(g) Avalon shall use commercially reasonable efforts to
cause its current insurance (or reinsurance) policies not to be
cancelled or terminated or any of the coverage thereunder to lapse,
unless simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and reinsurance
companies of nationally recognized standing providing coverage equal
to or greater than the coverage under the cancelled, terminated or
lapsed policies for substantially similar premiums are in full force
and effect;
-24-
29
(h) Avalon shall (i) use commercially reasonable efforts
to preserve intact its business organization and goodwill, keep in
full force and effect all material rights, licenses, permits and
franchises relating to its business, 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 it; (ii) report on a regular and
frequent basis, at reasonable times, to representatives of NCCI
regarding operational matters and the general status of ongoing
operations; (iii) use commercially reasonable efforts not to 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 in any material respect at any time prior to the Effective Time
if then made; and (iv) notify NCCI of any emergency or other change in
the normal course of their respective business or in the operation of
its properties and of any tax audits, tax claims, governmental or
third party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency,
change, audit, claim, complaint, investigation or hearing would be
material, individually or in the aggregate, to the financial
condition, results of operations or business of Avalon, or to the
ability of Avalon, Merger Sub or NCCI to consummate the transactions
contemplated by this Agreement;
(i) Avalon shall deliver to NCCI promptly (but in any
event within two business days) after the discovery or receipt of
notice of any default under any material agreement to which it is a
party or any other material adverse event or circumstance affecting
Avalon (including the filing of any material litigation against Avalon
or the existence of any dispute with any person or entity which
involves a reasonable likelihood of such litigation being commenced),
a certificate of the President of Avalon specifying the nature and
period of the existence thereof and what actions Avalon has taken and
proposes to take with respect thereto;
(j) Avalon shall use commercially reasonable efforts to
maintain its assets in customary repair, order and condition, replace
in accordance with past practice its inoperable, worn out or obsolete
assets with assets of quality at least comparable to the original
quality of the assets being replaced and maintain in all material
respects its books, accounts and records in accordance with past
custom and practice as used in the preparation of the Financial
Statements;
(k) Avalon shall use commercially reasonable efforts to
maintain in full force and effect the existence of all material
patents, inventions, trademarks, service marks, trade dress, trade
names, corporate names, copyrights, mask works, trade secrets,
licenses, computer software, data and documentation and other
proprietary rights, which it uses or owns; and
(l) Avalon shall comply in all material respects with all
legal requirements and contractual obligations applicable to its
operations and business and pay all applicable taxes.
-25-
30
Notwithstanding any other provision of this Agreement, the amendment
or modification of the Disclosure Schedule by Avalon after the time NCCI has
signed this Agreement shall have no effect with respect to the agreements,
covenants and obligations of Avalon, NCCI and Merger Sub pursuant to this
Section 5.1 and Sections 7.2 and 7.3 of this Agreement.
5.2 No Other Bids for Avalon. Avalon shall not, nor either
authorize or knowingly permit any officer, director, shareholder or employee
of, or any investment banker, attorney, accountant or other representative
retained by, Avalon to, make, solicit, initiate, encourage or respond to a
submission of a proposal or offer from any person or entity (other than NCCI)
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, Avalon or other similar transaction or
business combination involving Avalon (hereinafter collectively referred to as
a "Third Party Offer"). Avalon will not participate in any negotiations
regarding, or furnish to any person or entity (other than NCCI) 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 person or
entity (other than NCCI) to do or seek any of the foregoing. Avalon will
immediately cease and cause to be terminated any contacts or negotiations
currently pending with respect to Third Party Offers, if any, and shall use its
best efforts to cause all reports, material, data and other written information
heretofore disseminated by it or on its behalf by any such officer, director or
employee or any investment banker, attorney, accountant or other representative
in connection with any such Third Party Offer or any inquiry or proposal
related thereto to be promptly returned to it. Avalon shall promptly notify
NCCI of the receipt of any Third Party Offer or any inquiry or communication
which might reasonably be expected to lead to any Third Party Offer and will
provide NCCI with all information that NCCI may reasonably request with respect
thereto.
5.3 Lines of Business and Capital Expenditures. Unless approved in
writing by NCCI, Avalon covenants that it will not (a) enter into any new
material line of business; (b) change its investment, liability management and
other material policies in any material respect; or (c) incur or commit to any
capital expenditures, obligations or liabilities in connection therewith.
5.4 Accounting Methods. Unless approved in writing by NCCI, Avalon
covenants that it will not change its methods of accounting in effect at
December 31, 1996, except as required by changes in generally accepted
accounting principles as concurred in by Avalon's independent accountants.
5.5 Other Actions. Unless approved in writing by NCCI, Avalon
covenants that it shall not take any action that would or might reasonably be
expected to result in any of the representations and warranties of Avalon set
forth in this Agreement becoming untrue in any material respect after the date
hereof or any of the conditions to the Merger set forth in Article 7 of this
Agreement not being satisfied.
-26-
31
5.6 Conduct of Business by Merger Sub. Prior to the Effective
Time, NCCI covenants that Merger Sub will not conduct any business activities
and will not incur any material liabilities.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Action of Shareholders. Avalon shall take all action in
accordance with the TBCA and its charter and bylaws to cause its shareholders
promptly to consider and vote upon this Agreement and the Plan of Merger and
the transactions contemplated hereby and thereby, and shall take all other
action necessary or, in the opinion of NCCI, helpful, to secure a vote of
Avalon's shareholders in favor of adoption of this Agreement and the Plan of
Merger and the transactions contemplated hereby and thereby.
6.2 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the other agreements
contemplated hereby and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expenses. All costs and expenses incurred
by NCCI and Merger Sub in connection with this Agreement shall be borne by
NCCI.
6.3 Notification of Certain Matters. Each party shall give prompt
notice to the others of (a) the occurrence or failure to occur of any event,
which occurrence or failure would result in any Material Adverse Breach (as
defined in Section 10.8 of this Agreement), and (b) any failure of such party,
or any officer, director, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied
hereunder.
6.4 Access to Information. From the date hereof to the Effective
Time, each of Avalon, Merger Sub and NCCI shall, and shall cause its respective
officers, directors, employees and agents to, afford the officers, employees,
agents and representatives of the other parties hereto (including the
Shareholders) complete access at all reasonable times to such officers,
employees and agents and its properties, books and records (all such access to
be arranged through the respective officers of the parties hereto so as not to
be unreasonably disruptive to any of the parties), and shall furnish each of
such parties all financial, operating, personnel, compensation, tax and other
data and information as such parties, through their respective officers,
employees, agents or representatives, may request.
6.5 Shareholder Claims. Avalon shall not settle or compromise any
claim brought by any present, former or purported holder of any securities of
Avalon in connection with the Merger prior to the Effective Time without the
prior written consent of NCCI.
6.6 Taking of Necessary Action. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees, subject to
applicable laws, to use all reasonable
-27-
32
efforts promptly to take or cause to be taken all action and promptly to do or
cause to be done all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Without limiting the foregoing, Avalon, Merger
Sub and NCCI shall use their best efforts to maintain and make all filings with
and obtain all consents, approvals, and/or assurances from third parties and
appropriate governmental agencies and authorities necessary or, in the opinion
of Avalon or NCCI, advisable for the consummation of the transactions
contemplated by this Agreement. Each party shall cooperate with the other in
good faith to help the other satisfy its obligations in this Section 6.6.
6.7 Notice of Changes. Avalon and NCCI shall each promptly inform
the other in writing if any change shall have occurred or shall have been
threatened (or any development shall have occurred or shall have been
threatened involving a prospective change) in its financial condition, results
of operations or business that is or may reasonably be expected to have a
material adverse effect on its financial condition, results of operations or
business.
6.8 Press Releases. Avalon and NCCI shall consult with each other
as to the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby; provided, however, that nothing in this Section 6.8 shall be deemed to
prohibit any party hereto from making any disclosure that is required to
fulfill such party's disclosure obligations imposed by law, including, without
limitation, federal securities laws.
6.9 Employee Matters. NCCI and Avalon agree that all employees of
Avalon immediately prior to the Effective Time shall be employed by the
Surviving Corporation immediately after the Effective Time at such level of pay
which is mutually agreed upon between each employee and NCCI, it being
understood that NCCI shall not have any obligations to continue employing such
employees for any length of time or at any level of pay for any length of time
thereafter, except as set forth in binding agreements of employment. In the
event the Avalon Employee Benefit Plans are not continued after the Effective
Time, Avalon employees will be eligible to participate in comparable NCCI's
employee benefit plans, provided that employees of Avalon who remain employees
following the Effective Time shall be credited (for purposes of both
participation and vesting) with their periods of service with Avalon prior to
the Effective Time.
ARTICLE 7
CONDITIONS TO MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
-28-
33
(a) this Agreement and the Plan of Merger shall have been
adopted and approved by the Board of Directors of Avalon and by the
vote of the shareholders of Avalon holding at least a majority of the
outstanding shares of Avalon;
(b) no order shall have been entered and remain in effect
in any action or proceeding before any foreign, federal or state court
or governmental agency or other foreign, federal or state regulatory
or administrative agency or commission that would prevent or make
illegal the consummation of the transactions contemplated hereby; and
(c) the Shareholders shall have provided NCCI with
written agreements not to sell, assign, convey, encumber or otherwise
transfer shares of NCCI Common Stock acquired pursuant to this
Agreement for a period of one year following the Closing Date.
7.2 Additional Conditions to NCCI's and Merger Sub's Obligations.
The obligations of NCCI and Merger Sub to effect the Merger are subject to the
satisfaction of the following conditions on or before the Effective Time:
(a) Except for breaches which do not constitute a
Material Adverse Breach (as defined in Section 10.8 of this Agreement)
by Avalon or the Shareholders, the representations and warranties set
forth in Articles 3 and 4 of this Agreement (without regard to any
amendments or modifications of the Disclosure Schedule by Avalon after
the time NCCI has signed this Agreement) will be true and correct as
of the date hereof and at and as of the Effective Time, as though then
made and as though the Effective Time were substituted for the date of
this Agreement throughout such representations and warranties and with
appropriate modifications of tense with respect to representations and
warranties made as of a specified date;
(b) Avalon shall have performed, in all material
respects, each obligation and agreement and complied, in all material
respects, with each covenant to be performed and complied with by it
under this Agreement prior to the Effective Time, including, without
limitation, all of its agreements contained in Article 6 of this
Agreement;
(c) Except as otherwise disclosed on the Disclosure
Schedule, all consents by governmental or regulatory agencies or
otherwise that are required for the consummation of the transactions
contemplated hereby or that are required for NCCI to own, operate or
control Avalon or any portion of the assets of Avalon or to prevent a
breach of or a default under or a termination of any agreement
material to Avalon to which Avalon is a party or to which any material
portion of the assets of Avalon is subject, will have been obtained;
(d) No action or proceeding before any court or
governmental body will be pending or threatened wherein a judgment,
decree or order would prevent any of the transactions contemplated
hereby or cause such transactions to be declared unlawful or rescinded
or which might adversely affect the right of NCCI to own, operate or
control
-29-
34
Avalon or any material portion of the assets of Avalon or the value of
the assets of Avalon;
(e) On or prior to the Effective Time, ▇▇▇▇ ▇. ▇▇▇▇▇▇ and
▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into employment agreements with
Avalon substantially in the form of Exhibit E attached hereto dated as
of the Closing Date (the "Employment Agreements");
(f) On or prior to the Effective Time, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into Consulting Agreements
with NCCI substantially in the form of Exhibit F attached hereto dated
as of the Closing Date (the "Consulting Agreements");
(g) The Spousal Consents in the form of Exhibit D shall
have been executed and delivered by the Shareholders' spouses;
(h) At the Effective Time, Avalon will have delivered to
NCCI and Merger Sub the following:
(i) a certificate executed on behalf of Avalon by
its President stating that the conditions set forth in
Sections 7.2(a) through 7.2(d) of this Agreement have been
satisfied;
(ii) certified copies of the resolutions duly
adopted by Avalon's Board of Directors recommending the Merger
and the Plan of Merger, authorizing the execution, delivery
and performance of this Agreement, the Plan of Merger, and the
other agreements contemplated hereby and thereby;
(iii) certified copies of the resolutions duly
adopted by Avalon's shareholders approving the Merger and the
Plan of Merger and authorizing the execution, delivery and
performance of this Agreement and the Plan of Merger;
(iv) good standing or comparable certificates for
Avalon from the jurisdiction of its incorporation and from
every jurisdiction where a failure to be qualified or licensed
would have a material adverse effect on the consolidated
financial condition, results of operations or business of
Avalon, dated not earlier than 10 days prior to the Effective
Time;
(v) copies of all third party and governmental
consents (or other evidence satisfactory to NCCI) that Avalon
is required to obtain in order to effect the transactions
contemplated by this Agreement;
(vi) a copy of Avalon's charter certified by the
Secretary of State of the State of Tennessee;
-30-
35
(vii) two copies of the Plan of Merger executed by
the President of Avalon;
(viii) certificates evidencing the shares of Avalon
Common Stock owned by the Shareholders for cancellation in
connection with the Merger; and
(ix) such other documents as NCCI or Merger Sub
may reasonably request in connection with the transactions
contemplated hereby; and
(i) All proceedings to be taken by Avalon in connection
with the consummation of the Merger at the Effective Time and the
other transactions contemplated hereby and all documents required to
be delivered by Avalon in connection with the Merger and the other
transactions contemplated hereby will be reasonably satisfactory in
form and substance to NCCI and Merger Sub.
7.3 Additional Conditions to the Obligations of Avalon and the
Shareholders. The obligations of Avalon and the Shareholders to effect the
Merger are subject to the satisfaction of the following conditions on or before
the Effective Time;
(a) Except for breaches which do not constitute a
Material Adverse Breach (as defined in Section 10.8 of this Agreement)
by NCCI, the representations and warranties set forth in Article 2 of
this Agreement will be true and correct as of the date hereof and at
and as of the Effective Time, as though then made and as though the
Effective Time were substituted for the date of this Agreement
throughout such representations and warranties and with appropriate
modifications of tense with respect to representations and warranties
made as of a specified date;
(b) NCCI and Merger Sub shall have performed, in all
material respects, each obligation and agreement and complied, in all
material respects, with each covenant required to be performed and
complied with by them under this Agreement prior to the Effective
Time;
(c) No action or proceeding before any court or
government body will be pending or threatened wherein a judgment,
decree or order would prevent any of the transactions contemplated
hereby or cause such transactions to be declared unlawful or
rescinded;
(d) At the Effective Time, NCCI and Merger Sub will have
delivered to Avalon and the Shareholders the following:
(i) a certificate executed on behalf of each of
NCCI and Merger Sub by its President stating that the
conditions set forth in Sections 7.3(a) through (c) of this
Agreement have been satisfied;
-31-
36
(ii) certified copies of the resolutions duly
adopted by NCCI's and Merger Sub's respective boards of
directors recommending the Merger and the Plan of Merger and
authorizing the execution, delivery and performance of this
Agreement and the Plan of Merger;
(iii) certified copies of the resolutions duly
adopted by Merger Sub's sole shareholder approving the Merger
and the Plan of Merger and authorizing the execution, delivery
and performance of this Agreement and the Plan of Merger;
(iv) good standing certificates for Merger Sub and
for NCCI from the Secretary of State of the State of Tennessee
each dated not earlier than 5 days prior to the Effective
Time;
(v) copies of all third party and governmental or
regulatory consents (or other evidence satisfactory to Avalon)
that NCCI and Merger Sub are required to obtain in order to
effect the transactions contemplated by this Agreement;
(vi) copies of Merger Sub's and NCCI's charter
certified by the Secretary of State of the State of Tennessee;
(vii) two copies of the Plan of Merger executed by
the appropriate officer of Merger Sub;
(viii) an opinion of counsel to NCCI substantially
in the form of Exhibit G attached hereto; and
(ix) such other documents as Avalon or the
Shareholders may reasonably request in connection with the
transactions contemplated hereby;
(e) All proceedings to be taken by NCCI and Merger Sub in
connection with the consummation of the Merger at the effective Time
and all documents required to be delivered by NCCI and Merger Sub in
connection with the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Avalon and the
Shareholders;
(f) Except as otherwise disclosed to Avalon and the
Shareholders, all consents by governmental or regulatory agencies or
otherwise that are required for the consummation of the transactions
contemplated hereby or that are required for NCCI to own, operate or
control Avalon or any portion of the assets of Avalon or to prevent a
breach of or a default under or a termination of any agreement
material to Avalon to which Avalon is a party or to which any material
portion of the assets of Avalon is subject, will have been obtained;
-32-
37
(g) The Consulting Agreements, Employment Agreements and
Registration Rights Agreement will have been executed and delivered by
the Effective Time and there will not have been any changes,
amendments or modifications to, or terminations of, such agreements;
and
(h) As of the Effective Time, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ shall each have been elected to NCCI's Board of Directors.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether prior to or after approval by the
Shareholders of Avalon:
(a) by mutual consent of the Boards of Directors of NCCI,
Merger Sub and Avalon;
(b) by either NCCI or Avalon if the Merger shall not have
been consummated by April 30, 1997;
(c) by NCCI if there has been a misrepresentation or
breach of a representation or warranty or a failure to perform a
covenant on the part of Avalon or the Shareholders with respect to
their representations, warranties and covenants set forth in this
Agreement and any such breach or failure constitutes a Material
Adverse Breach; and
(d) by Avalon if there has been a misrepresentation or a
breach of a representation or warranty or a failure to perform a
covenant on the part of NCCI or Merger Sub with respect to their
representations, warranties and covenants set forth in this Agreement
and any such breach or failure constitutes a Material Adverse Breach.
8.2 Amendment. This Agreement may not be amended except by an
instrument signed by each of the parties hereto.
8.3 Waiver. At any time prior to the Effective Time, (a) NCCI may
(i) extend the time for the performance of any of the obligations or other acts
of Avalon and/or the Shareholders or (ii) waive compliance with any of the
agreements of Avalon and/or the Shareholders or with any conditions to its own
obligations, and (b) Avalon and/or the Shareholders may (i) extend the time for
the performance of any of the obligations or other acts of NCCI and/or Merger
Sub or (ii) waive compliance with any of the agreements of NCCI and/or Merger
Sub or with any conditions to their own obligations in each case only to the
extent such obligations, agreements and conditions are intended for their
benefit.
-33-
38
8.4 Effect of Termination. If this Agreement is terminated as
provided in Section 8.1, this Agreement shall become void and there shall be no
liability or further obligation on the part of any party hereto or any of their
respective shareholders, officers or directors, except (a) that nothing herein
and no termination pursuant hereto will relieve any party from liability for
any breach of this Agreement and (b) the provisions of Section 6.8 and any
confidentiality agreements by and between NCCI and Avalon will survive such
termination.
ARTICLE 9
INDEMNIFICATION
9.1 By NCCI, Merger Sub, Avalon and the Shareholders. NCCI and
Merger Sub on the one hand and Avalon and the Shareholders on the other hand
each hereby agree to indemnify and hold harmless the other against all claims,
damages, losses, liabilities, costs and expenses (including, without
limitation, settlement costs and any legal, accounting or other expenses for
defending any actions or threatened actions) (collectively "Damages")
reasonably incurred by NCCI, Merger Sub, Avalon and the Shareholders in
connection with each and all of the matters set forth below to the extent they
constitute a Material Adverse Breach.
(a) Any breach by the Indemnifying Party (as defined
below) of any representation or warranty made by such Indemnifying
Party in this Agreement;
(b) Any breach of any covenant, agreement or obligation
of the Indemnifying Party contained in this Agreement or any other
agreement, instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the Indemnifying Party pursuant
to this Agreement or in connection with the transactions contemplated
by this Agreement.
The Shareholders severally, in proportion to their respective
interests in the Merger Consideration, agree to indemnify NCCI for any breaches
of any representation or warranty covenant, agreement or obligation of Avalon
made or contained, respectively, in this Agreement or any other agreement,
instrument or document contemplated by this Agreement, or any misrepresentation
by Avalon, as described in (a) through (c) above to the extent they constitute
a Material Adverse Breach.
9.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle
-34-
39
or compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control
of such suit after notification thereof as provided in Section 9.3 of this
Agreement in which case the Indemnified Party may settle or compromise such
claim without the prior consent of the Indemnifying Party. If the Indemnified
Party fails to give prompt notice of any claim and such failure prejudices the
Indemnifying Party's position or its ability to defend the claim, the
Indemnifying Party's liability to the Indemnified Party shall be reduced by the
amount, if any, demonstrated to be directly attributable to the failure to give
such notice in a timely manner.
9.3 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim
or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to
indemnify the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
9.4 Payment of Indemnification Obligation. All indemnification by
NCCI, Avalon or a Shareholder hereunder shall be effected by payment by wire
transfer or delivery of a cashier's or certified check in the amount of the
indemnification liability. In no event shall any Shareholder be required to pay
to NCCI in accordance with this Article 9 an aggregate amount greater than the
amount of the cash received by such Shareholder hereunder from NCCI on the
Closing Date.
ARTICLE 10
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The
representations and warranties set forth in this Agreement shall survive the
consummation of the Merger for a period of one (1) year. Notwithstanding the
above, claims resulting from any breach of any representation or
-35-
40
warranty concerning tax or Avalon Employee Benefit Plan matters shall expire
one hundred twenty (120) days after the expiration of any applicable statute of
limitations. Any litigation arising out of or attributable to a breach of any
representation, warranty or covenant contained herein must be commenced within
the applicable period described above. If not commenced within the applicable
period, any such claim will thereafter conclusively be deemed to be waived
regardless of when such claim is or should have been discovered.
10.2 Effect of Due Diligence. No investigation by NCCI or Avalon
into the business, operations and condition of the other shall diminish in any
way the effect of any representations or warranties made by either party in
this Agreement or shall relieve such party of any of its obligations under this
Agreement.
10.3 Specific Performance. NCCI and Avalon and the Shareholders
understand and agree that the covenants and undertakings on each of their parts
herein contained are uniquely related to the desire of NCCI and Avalon and the
Shareholders to consummate the Merger, that the Merger is a unique business
opportunity for Avalon, NCCI and Merger Sub and the Shareholders and that,
although monetary damages may be available for the breach of such covenants and
undertakings, monetary damages would be an inadequate remedy therefor.
Accordingly, Avalon, NCCI and Merger Sub and the Shareholders agree that NCCI
and Merger Sub shall be entitled to obtain specific performance by Avalon and
the Shareholders of every such covenant and undertaking contained herein to be
performed by Avalon and the Shareholders and that Avalon and the Shareholders
shall be entitled to obtain specific performance from NCCI and Merger Sub of
each and every covenant and undertaking herein contained to be observed or
performed by NCCI or Merger Sub.
10.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, sent by telex, telecopy, facsimile or overnight courier, or mailed
by registered or certified mail (postage prepaid and return receipt requested),
to the party to whom the same is so delivered, sent or mailed at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to NCCI or Merger Sub:
Nashville Country Club, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
-36-
41
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Avalon:
Avalon Entertainment Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
Suite 1500, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Shareholders:
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Avalon Entertainment Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
Suite 1500, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices delivered personally or by telex, telecopy or facsimile shall be deemed
delivered as of actual receipt, mailed notices shall be deemed delivered three
days after mailing and overnight courier notices shall be deemed delivered one
day after the date of sending.
-37-
42
10.5 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
10.6 Severability. If any term, provision, covenant or Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated and the parties shall negotiate in good faith
to modify the Agreement to preserve each party's anticipated benefits under the
Agreement.
10.7 Miscellaneous. This Agreement (together with all other
documents and instruments referred to herein): (a) except for any
confidentiality agreements executed in connection with the transactions
contemplated hereby, constitutes the entire agreement and supersedes all other
prior agreements and undertakings, both written and oral, among the parties
with respect to the subject matter hereof, including, without limitation, the
Letter of Intent dated December 5, 1996, as superseded by that certain Letter
of Intent dated January 29, 1997 among NCCI, the Shareholders and Avalon; (b)
except as expressly set forth herein, is not intended to confer upon any other
person any rights or remedies hereunder; (c) shall not be assigned by operation
of law or otherwise, except that NCCI and Merger Sub may assign all or any
portion of their rights under this Agreement to any wholly owned subsidiary but
no such assignment shall relieve NCCI and Merger Sub of their obligations
hereunder, and except that this Agreement may be assigned by operation of law
to any corporation with or into which NCCI may be merged; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the State of Tennessee, without giving effect to the
principles of conflict of laws thereof. Courts within the State of Tennessee
will have jurisdiction over any and all disputes between the parties hereto,
whether in law or equity, arising out of or relating to this Agreement. The
parties consent to and agree to submit to the jurisdiction of such courts. This
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement.
10.8 Material Adverse Breach. Breaches of representations,
warranties and covenants by either party hereto which (a) individually results
in damages to the other party in excess of $100,000 or (b) in the aggregate
result in damages to the other party in excess of $200,000, shall constitute,
for purposes of this Agreement, a "Material Adverse Breach."
10.9 Limitation of Liability. Neither NCCI, Avalon, the
Shareholders nor Merger Sub shall have any liability for breach of the
representations, warranties and covenants made by them and contained in this
Agreement unless such breach is a Material Adverse Breach.
10.10 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signature to each such counterpart
were upon the same instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
-38-
43
MERGER AGREEMENT
Signature Page
IN WITNESS WHEREOF, NCCI, Merger Sub, the Shareholders and Avalon have
caused this Agreement to be executed on the date first written above by their
respective officers duly authorized.
NASHVILLE COUNTRY CLUB, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-----------------------------------------
Its: Chief Executive Officer & President
------------------------------------
AVALON ACQUISITION CORP., INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-----------------------------------------
Its: President
------------------------------------
AVALON ENTERTAINMENT GROUP, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Its: President
------------------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
-39-
44
SCHEDULE 1.5
ALLOCATION OF MERGER CONSIDERATION AMONG SHAREHOLDERS
Common Stock Cash Note
Portion Portion Portion Total
------- ------- ------- -----
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $ 882,000 $105,000 $ 633,000 $1,620,000
▇▇▇▇ ▇. ▇▇▇▇▇▇ 1,080,000 100,000 620,000 1,800,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ 216,000 20,000 124,000 360,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 1,062,000 75,000 483,000 1,620,000
▇▇▇▇ ▇. ▇▇▇▇▇▇ 1,080,000 100,000 620,000 1,800,000
---------- -------- ---------- ----------
$4,320,000 $400,000 $2,480,000 $7,200,000
SCHEDULE 1.5 - Solo Page
45
ANNEX I
LIST OF NCCI SEC DOCUMENTS
1. Amendment No. 1 to Registration Statement on Form SB-2 filed on
February 14, 1996
2. Form 8-K filed on February 14, 1996
3. Registration Statement on Form 8-A filed on March 14, 1996
4. Amendment No. 2 to Registration Statement on Form SB-2 filed on March
15, 1996
5. Amendment No. 3 to Registration Statement on Form SB-2 filed on April
15, 1996
6. Amendment No. 4 to Registration Statement on Form SB-2 filed on April
18, 1996
7. Final Prospectus dated April 23, 1996
8. Form 10-KSB filed on March 29, 1996
9. Form 8-K filed on May 15, 1996
10. Form 10-QSB filed on May 15, 1996
11. Form 8-K filed on May 16, 1996
12. Form 8-K/A filed on May 29, 1996
13. Form 10-QSB/A filed on June 26, 1996
14. Form 10-QSB filed on August 14, 1996
15. Definitive Proxy Statement filed on September 4, 1996
16. Form 8-K filed on September 6, 1996
17. Form 8-K/A filed on September 19, 1996
18. Form 10-QSB filed on November 14, 1996
19. Form 10-KSB filed on April 14, 1997
ANNEX I - Solo Page
46
ANNEX II
SHAREHOLDERS OF AVALON ENTERTAINMENT GROUP, INC.
Number of Certificate(s)
Name Address Shares Number Date
---- ------- ------ ------ ----
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 17835 Ventura Boulevard 266-2/3 10 2/28/92
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ 333-1/3 5 (200) 8/15/89
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 7 (133-1/3) 2/28/92
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 66-2/3 11 2/28/92
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ 333-1/3 4 (200) 8/15/89
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 8 (133-1/3) 2/28/92
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 333-1/3 9 2/28/92
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ANNEX II - Solo Page