<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File No. 0-23444
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FROST HANNA CAPITAL GROUP, INC.
------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0701248
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
327 Plaza Real, Suite 319
Boca Raton, FL 33432
----------------------------------------------
(Address of principal executive offices)
(561) 367-1085
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Number of shares outstanding of each of the issuer's classes of common equity:
As of August 10, 1999, the Company had a total of 2,657,202 shares of
Common Stock, par value $.0001 per share (the "Common Stock"), outstanding.
Additionally, as of such date Underwriter Warrants to purchase 110,020 shares
of Common Stock (the "Underwriter Warrants") remained outstanding and
unexercised. Each Underwriter Warrant entitles the holder thereof to purchase
one share of Common Stock at a purchase price of $9.90 per share commencing
October 16, 1998 and for a period of four years thereafter.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE> 2
FROST HANNA CAPITAL GROUP, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I ...............................................................................1
ITEM 1. FINANCIAL STATEMENTS...........................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................1
PART II ...............................................................................5
ITEM 1. LEGAL PROCEEDINGS..............................................................5
ITEM 2. CHANGES IN SECURITIES..........................................................5
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................5
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS..............................5
ITEM 5. OTHER INFORMATION..............................................................6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................6
SIGNATURES..............................................................................7
</TABLE>
(i)
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included
herein, commencing at page F-1, have been prepared in accordance with the
requirements of Regulation S-B and supplementary financial information included
herein, if any, has been prepared in accordance with Item 310(b) of Regulation
S-B and, therefore, omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the financial information for the interim periods reported have
been made. Results of operations for the three months ended June 30, 1999 and
from inception (February 2, 1996) to the period ended June 30, 1999, are not
necessarily indicative of the results for the year ending December 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
The statements contained herein that are not historical are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and
uncertainties. Management of the Company wish to caution the reader that the
forward-looking statements referred to above and contained herein regarding
matters that are not historical facts involve predictions. No assurance can be
given that the future results will be achieved as actual events or results may
differ materially as a result of risks facing the Company.
Frost Hanna Capital Group, Inc. (the "Company") was formed in
February 1996 to seek to effect a merger, exchange of capital stock, asset
acquisition or similar business combination (a "Business Combination") with an
acquired business (an "Acquired Business"). In connection with its initial
capitalization, the Company issued 1,557,000 shares of its Common Stock to its
officers, directors and other shareholders for an aggregate sum of $216,613. On
September 22, 1997, the Company's Registration Statement on Form SB-2
(the"Registration Statement") was declared effective by the U.S. Securities and
Exchange Commission. Pursuant to the Registration Statement, the Company, in
its initial public offering of securities, offered and sold 1,100,202 shares of
Common Stock, (sometimes referred to as, the "Public Shares"), at a purchase
price of $6.00 per share (the "Offering"), and received net proceeds of
approximately $5,875,079 (which amount, less estimated expenses of the
Offering, is referred to herein as the "Net Proceeds"). In addition, the
Company issued Underwriter Options to purchase 110,020 shares of Common Stock.
The Offering was a "blank check" offering.
On May 27, 1999, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with FHGB Acquisition Corporation, a
New York corporation and wholly-owned subsidiary of the Company, Gaines,
Berland Inc., a New York corporation ("Gaines Berland"), GBI Trading Corp., a
New York corporation and wholly-owned subsidiary of Gaines Berland, and Gaines
Berland Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of
Gaines Berland, which provided, among other things, (i) for the merger of FHGB
Acquisition Corporation with and into Gaines Berland ("Merger") with Gaines
Berland surviving the merger and becoming a wholly-owned subsidiary of the
Company and (ii) that each share of common stock, par value $.01 per share, of
Gaines Berland that is issued and outstanding at the effective time of the
Merger will be canceled and extinguished and automatically converted (subject
to certain adjustments) into the right to receive 21,917 shares of Common Stock
of the Company. As a result of the Merger, the holders of Gaines Berland common
stock will be issued an aggregate of up to 16,000,000 shares of the Company's
Common Stock and, as a consequence, will then hold up to approximately 85% of
the then issued and outstanding shares of the Company's Common Stock. A copy of
the Merger Agreement is attached hereto as an exhibit. The meeting of Frost
Hanna shareholders to consider the Merger is presently scheduled for August 23,
1999.
Approval and adoption of the Merger Agreement requires (i)
the affirmative vote of the holders of a majority of the issued and outstanding
shares of the Company's Common Stock and (ii) that holders of less than 30% of
the
1
<PAGE> 4
Public Shares issued in the Company's Offering vote against the approval and
adoption of the Merger Agreement. Holders of the Public Shares issued in the
Company's Offering are sometimes referred to as "Non-Affiliated Company
Shareholders."
On July 30, 1999, the Company filed a proxy statement with
the Securities and Exchange Commission relating to the Merger transaction (the
"Proxy Statement"). The Company has convened a special meeting of shareholders
of the Company to be held on August 23, 1999 (the "Special Meeting") for the
purpose of considering and voting upon (i) a proposal to approve and adopt the
Merger Agreement; (ii) a proposal to amend the Company's Articles of
Incorporation to change the Company's name to "GBI Capital Management Corp.";
(iii) a proposal to amend the Company's Articles of Incorporation to provide
for an authorized class of preferred stock consisting of 2,000,000 shares, par
value $.0001 per share (the "Preferred Stock"), with rights, preferences and
designations of such shares to be determined by the Company's board of
directors; (iv) a proposal to elect six members of the Company's board of
directors, such members to hold office commencing on the effective date of the
Merger and until the next annual meeting of shareholders; (v) a proposal to
approve the Company's 1999 Performance Equity Plan; (vi) a proposal to approve
the Company's Annual Incentive Bonus Plan; (vii) a proposal to approve the
Company's Special Performance Incentive Plan and (viii) to transact any other
business that may properly come before the Special Meeting, or any adjournment
or postponement thereof. Approval of the aforesaid proposals (ii) through (vii)
will only be deemed to be effective if the Merger Agreement is approved and
adopted. The plans referred to in proposals (v), (vi) and (vii) above will only
apply to those persons who are Gaines Berland employees and will not apply to
any of the officers or employees of the Company as of the date of the Proxy
Statement.
The Company's board of directors has unanimously approved the
Merger Agreement and recommended that the shareholders of the Company vote
their shares for approval and adoption of the Merger Agreement, the other
proposals listed above and for the election of the six persons nominated to be
new directors of the Company. The Company's directors (including a former
director) and executive officers who presently own, in the aggregate,
approximately 49.8% of the issued and outstanding shares of the Company's
Common Stock have agreed, with respect to the proposal to approve and adopt the
Merger Agreement, to vote their respective shares of the Company's Common Stock
in accordance with the vote of the majority of the Public Shares issued in the
Company's Offering. As of the record date for the Special Meeting, July 22,
1999, there were 2,657,202 issued and outstanding shares of the Company's
Common Stock, of which 1,182,536 Public Shares are held by Non-Affiliated
Company Shareholders.
If a majority of the Company's Common Stock held and voted by
Non-Affiliated Company Shareholders is voted in favor of the Merger, the
Company's directors (including a former director) and officers who presently
own 49.8%, will vote their shares of the Company's Common Stock in favor of the
Merger and the other proposals described in the Proxy Statement and such
proposals would be approved, including the election of the nominees to be the
new directors of the Company. If the Merger is not approved by the affirmative
vote of the holders of at least a majority of the Company's Common Stock
entitled to vote at the Special Meeting, or if so approved, 30% or more in
interest of all Public Shares are actually voted against approval of the
Merger, the Merger Agreement will be terminated and the proposed Merger
abandoned.
Each Non-Affiliated Company Shareholder as of July 22, 1999,
the record date for the Special Meeting, will have the right (collectively, the
"Redemption Rights") until the time of the vote on the proposal to adopt and
approve the Merger Agreement to offer his or her shares of the Company's Common
Stock for redemption (the "Redemption") at a price equal to the Company's
liquidation value divided by the number of shares of the Company's Common Stock
held by all Non-Affiliated Company Shareholders, calculated as of the record
date (the "Redemption Value"). The Redemption Value is equal to its book value,
as determined by the Company and audited by its independent public accountants,
calculated as of the record date. The Redemption Value as of June 30, 1999 was
approximately $4.00 per share, based on the expenses incurred by the Company
subsequent to March 31, 1999, which consist primarily of legal and accounting
fees of approximately $350,000 in connection with the preparation of the Merger
Agreement, the Proxy Statement and other matters. Company shareholders who
abstain or otherwise do not actually vote against the proposal to approve and
adopt the Merger (including any broker non-votes) will not be entitled to
exercise the Redemption Rights. If less than 30% of the shares of the Company's
Common Stock held by Non-Affiliated Company Shareholders are voted against
approval of the Merger and if such Non-Affiliated Company Shareholders also
elect to have their shares of the Company's Common Stock redeemed, then, if the
Merger is consummated, the Company will, utilizing funds held in escrow, redeem
shares of the
2
<PAGE> 5
Company's Common Stock at the Redemption Value from those Company shareholders
who affirmatively requested such redemption and who actually voted against
approval of the Merger. If 30% or more in interest of the Company's Common
Stock held by Non-Affiliated Company Shareholders vote against approval of the
Merger, the proposed Merger will be terminated, the Company will not proceed
with the Merger and will not redeem such shares.
Liquidity and Capital Resources/Plan of Operation
As of June 30, 1999 and December 31, 1998, respectively, the
Company had cash and cash equivalents of $147,802 and $358,499, restricted
short-term investments of $4,913,016 and $4,816,700, property and equipment of
$14,019 and $17,669 and prepaid expenses of $3,870 and $17,725. As of June 30,
1999 and December 31, 1998, respectively, the Company had total liabilities of
$364,950 and $17,878 and total stockholders' equity of $4,713,757 and
$5,192,715. Following the consummation of the Offering, eighty percent (80%) of
the Net Proceeds ($4,560,069) (the "Escrow Fund"), were delivered to Fiduciary
Trust International of the South, as Escrow Agent, to be held in escrow by such
firm, until the earlier of (i) written notification by the Company of its need
for all or substantially all of the Escrow Fund for the purpose of implementing
a Business Combination; or (ii) the exercise by certain shareholders of
redemption rights which will be offered at the time the Company seeks
shareholder approval of any potential Business Combination. As of June 30,
1999, there was $4,913,740 in the Escrow Fund. The Escrow Fund is currently
invested in United States government-backed short-term securities.
Other than the Escrow Fund, the Company, as of June 30, 1999
and December 31, 1998, respectively, had $147,802 and $358,499 in cash,
substantially all of which was received from the Offering (other than interest
income earned thereon) (the "Operating Funds"). The Company believes that the
Operating Funds will be sufficient for its cash requirements for at least the
next twelve months. However, in the event that the Merger is not consummated,
the Company would be required to obtain additional debt or equity financing in
order to continue its operations. There is no assurance that such financing
would be available to the Company on satisfactory terms, if at all.
Pursuant to employment agreements, the Company pays to each
of Mr. Richard Frost, Chief Executive Officer and Chairman of the Board of the
Company, and Mr. Mark Hanna, President of the Company, $10,000 monthly for
salary and $1,000 monthly each for Messrs. Frost's and Hanna's non-accountable
expense allowance. In the event the Company requires in excess of 20% of the
Net Proceeds for operations, Messrs. Frost and Hanna have undertaken to defer
their salaries and expense allowances, prospectively, until the consummation by
the Company of a Business Combination.
Key Man Insurance
The Company has obtained $1,000,000 "key man" term policies
insuring each of the lives of Messrs. Frost and Hanna. There can be no
assurances that such"key man" insurance will be maintained at reasonable rates,
if at all. The loss, incapacity or unavailability of any of Messrs. Frost or
Hanna at the present time or in the foreseeable future, before a qualified
replacement was obtained, could have a material adverse effect on the Company's
operations. In connection with the purchase by the Company of such policies,
the Marshal E. Rosenberg Organization, Inc., a firm in which Dr. Rosenberg, a
director of the Company, is an officer, director and sole shareholder, received
a commission of approximately $5,624 in 1998, $4,464 in 1997 and $2,700 in
1996. No further commissions are contemplated to be earned in connection with
the purchase of such "key man" life insurance policies. Pursuant to the terms
of the Merger Agreement, these "key man" life insurance policies will be
terminated or transferred to Messrs. Frost and Hanna prior to the consummation
of the Merger, and the Company would have no obligations to make premium
payments thereunder after the effective time of the Merger.
Conflicts of Interest
None of the Company's key personnel are required to commit
their full time to the affairs of the Company and, accordingly, such personnel
may have conflicts of interest in allocating management time among various
business activities. Certain of these key personnel may in the future become
affiliated with entities, including other "blank check" companies, engaged in
business activities similar to those intended to be conducted by the Company.
Dr. Rosenberg is an
3
<PAGE> 6
investor in numerous private enterprises that are engaged in, among other
things, real estate development and retail sales, which business interests may
conflict with those of an Acquired Business. Mr. Donald Baxter, a director of
the Company, is the President of Baxter Financial Corporation, an investment
advisory firm, and the President and Chairman of the Philadelphia Fund and
Eagle Growth Shares, mutual funds registered under the Investment Company Act
of 1940. Mr. Robert Escobio, Jr., a director of the Company, is the Senior Vice
President and Managing Director of Cardinal Capital Management, Inc. (f/k/a
Community Investment Services, Inc.) ("Cardinal") and serves as a member of
Cardinal's Board of Directors. Mr. Alan Freeman, a director of the Company, is
a partner in the accounting firm of Freeman, Buzyner & Gero and serves as a
member of the Board of Directors and the Chairman of the Audit Committee for
Allstate Financial Corporation (Nasdaq: ASFN).
In the course of their other business activities, including
private investment activities, Messrs. Frost, Hanna, Baxter, Rosenberg, Escobio
and Freeman may become aware of investment and business opportunities which may
be appropriate for presentation to the Company as well as the other entities
with which they are affiliated. Such persons may have conflicts of interest in
determining to which entity a particular business opportunity should be
presented. In general, officers and directors of corporations incorporated
under the laws of the State of Florida are required to present certain business
opportunities to such corporations. Accordingly, as a result of multiple
business affiliations, Messrs. Frost, Hanna, Baxter, Rosenberg, Escobio and
Freeman may have similar legal obligations relating to presenting certain
business opportunities to the various entities upon which they serve as
directors. In addition, conflicts of interest may arise in connection with
evaluations of a particular business opportunity by the Board of Directors with
respect to the foregoing criteria. There can be no assurances that any of the
foregoing conflicts will be resolved in favor of the Company. In order to
minimize potential conflicts of interest which may arise from multiple
corporate affiliations, each of Messrs. Frost, Hanna, Baxter and Rosenberg have
agreed to present to the Company for its consideration, prior to presentation
to any other entity, any prospective Acquired Business which is appropriate for
the Company to consider and which prospective Acquired Business participates in
an industry dissimilar to any of the industries to which such individuals have
corporate affiliations. It should be further noted that the Company shall not
consider Business Combinations with entities owned or controlled by officers,
directors, greater than 10% shareholders of the Company or any person who
directly or indirectly controls, is controlled by or is under common control
with the Company. The Company may consider Business Combinations with entities
owned or controlled by persons other than those persons described above. There
can be no assurances that any of the foregoing conflicts will be resolved in
favor of the Company.
Pursuant to an agreement among each of Messrs. Frost, Hanna,
Baxter, and Rosenberg and the Company, such persons will not (i) actively
negotiate for or otherwise consent to the disposition of any portion of their
Common Stock at a per share price different than that offered with respect to
the Public Shares as a condition to or in connection with a Business
Combination or (ii) cause any securities of the Company to be sold by any
officers, directors, greater than 10% shareholders or persons who may be deemed
promoters of the Company except as may otherwise be made in permitted market
transactions without affording all shareholders of the Company a similar
opportunity. Further, the Company shall not borrow funds to be used directly or
indirectly to (i) purchase any shares of the Company's Common Stock owned by
management of the Company or (ii) make payments to the Company's promoters,
management or their affiliates or associates.
Prior to the consummation of the Merger Agreement, the
Company will prepay through February 28, 2000 the rent for its executive
offices. After the consummation of the Merger Agreement, such offices would be
available for use by the current officers of the Company, even though they
would no longer be officers of the Company.
4
<PAGE> 7
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently a party to any material
litigation, nor to the knowledge of management, is any such litigation
presently threatened.
ITEM 2. CHANGES IN SECURITIES
(a) Not Applicable.
(b) The Company's board of directors is seeking the approval of the
Company's shareholders at the Special Meeting of an amendment to the Company's
Articles of Incorporation (the "Preferred Stock Amendment"), to provided for an
authorized class of preferred stock, consisting of 2,000,000 shares, par value
$.0001 per share ("Preferred Stock"). Even if the Company's shareholders
approve the Preferred Stock Amendment, the effectiveness of the Preferred Stock
Amendment is contingent upon the approval by the shareholders of the Merger
Agreement.
The Board of Directors approved the Preferred Stock Amendment
on May 27, 1999, subject to the approval of the Company's shareholders. The
proposed amendment would vest in the Company's board of directors the authority
to designate one or more series of up to a total of 2,000,000 outstanding
shares of Preferred Stock, and to determine the designations, preferences and
limitations of each such series, including, but not limited to, (i) the number
of shares, (ii) dividend rights, (iii) voting rights, (iv) conversion
privileges, (v) redemption provisions, (vi) sinking fund provisions and (vii)
rights upon liquidation, dissolution or winding up of the Company. Such
provisions are often referred to as a "blank check" provisions, as they give
the board of directors the flexibility, at any time or from time to time,
without further shareholder approval, to create one or more series of preferred
stock. If the proposed amendment is approved by the shareholders, it will
become effective upon filing and recording a certificate of amendment to the
Company's Articles of Incorporation.
No Preferred Stock currently is outstanding and neither the
current directors, nor the nominees for directors of the Company have any
present plans to issue any shares of Preferred Stock. If any series of
Preferred Stock authorized by the board of directors provides for dividends,
such dividends, when and as declared by the board of directors out of any funds
legally available therefore, may be cumulative and may have a preference over
the Company's Common Stock as to the payment of such dividends. In addition, if
any series of Preferred Stock authorized by the board of directors so provides,
in the event of any dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, the holders of each such series of the then
outstanding Preferred Stock may be entitled to receive, prior to the
distribution of any assets or funds to the holders of the Company's Common
Stock, a liquidation preference established by the board of Directors, together
with all accumulated and unpaid dividends. Depending upon the consideration
paid for Preferred Stock, the liquidation preference of Preferred Stock and
other matters, the issuance of Preferred Stock could therefore result in a
reduction in the assets available for distribution to the holders of the
Company's Common Stock in the event of liquidation of the Company. The
Company's shareholders do not have any preemptive rights to acquire Preferred
Stock or any other securities of the Company.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) A Special Meeting of the shareholders of the Company is scheduled
to be held on August 23, 1999.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
5
<PAGE> 8
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Ex. 2.1 Agreement and Plan of Merger, dated as of May 27, 1999.
(b) Reports on Form 8-K.
On June 23, 1999, the Company filed a Form 8-K to report that
the Company had entered into the Merger Agreement on May 27, 1999.
6
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FROST HANNA CAPITAL GROUP, INC.
Dated: August 16, 1999 By: /s/ Mark J. Hanna
-------------------------------
Mark J. Hanna, President
7
<PAGE> 10
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including interest
bearing amounts of $345,468 in 1998 and
$127,370 in 1999 $ 358,499 $ 147,802
Restricted short-term investments 4,816,700 4,913,016
Prepaid expenses 17,725 3,870
------------- -------------
Total current assets 5,192,924 5,064,688
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,239 in 1998 and $7,889 in 1999 17,669 14,019
------------- -------------
Total assets $ 5,210,593 $ 5,078,707
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 17,878 $ 364,950
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000
shares authorized, 2,657,202 shares
issued and outstanding in 1998 and 1999 266 266
Additional paid-in capital 5,803,400 5,803,400
Deficit accumulated during development stage (610,951) (1,089,909)
------------- -------------
Total stockholders' equity 5,192,715 4,713,757
------------- -------------
Total liabilities and stockholders' equity $ 5,210,593 $ 5,078,707
============= =============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
F-1
<PAGE> 11
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Period From
For the For the Inception
Three Months Ended Six Months Ended (February 2,
June 30, June 30, 1996) to
---------------------------- --------------------------- June 30,
1998 1999 1998 1999 1999
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
----------- ---------- ---------- ---------- -----------
EXPENSES:
Officers' salaries 66,000 66,000 132,000 132,000 583,000
General and administrative 50,466 407,225 89,362 462,200 940,893
----------- ---------- ---------- ---------- -----------
Total operating expenses 116,466 473,225 221,362 594,200 1,523,893
----------- ---------- ---------- ---------- -----------
INTEREST INCOME 67,874 60,613 133,467 115,242 433,984
----------- ---------- ---------- ---------- -----------
Net loss $ (48,592) $ (412,612) $ (87,895) $ (478,958) $(1,089,909)
=========== ========== ========== ========== ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (.02) $ (.16) $ (.03) $ (.18) $ (.52)
=========== ========== ========== ========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 2,657,202 2,657,202 2,657,202 2,657,202 2,090,585
========== ========== ========== ========== ===========
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
F-2
<PAGE> 12
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Period From
For the Inception
Six Months Ended (February 2,
June 30, 1996) to
---------------------------------- June 30,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (87,895) $ (478,958) $ (1,089,909)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation 3,651 3,650 8,286
Interest accretion on restricted short-term investments (115,389) (96,316) (352,947)
Write-off of deferred registration costs -- -- 35,000
Loss on disposal of fixed assets 1,589 -- 1,589
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses -- 13,855 (3,870)
(Decrease) increase in accrued expenses (5,107) 347,072 364,950
-------------- ------------ --------------
Net cash used in operating activities (203,151) (210,697) (1,036,901)
-------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of restricted short-term investments (13,874,584) -- (4,560,069)
Maturities of restricted short-term investments 13,884,993 -- --
Capital expenditures -- -- (23,894)
-------------- ------------ --------------
Net cash provided by (used in) investing activities 10,409 -- (4,583,963)
-------------- ------------ --------------
</TABLE>
(Continued)
F-3
<PAGE> 13
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
For the
Period From
For the Inception
Six Months Ended (February 2,
June 30, 1996) to
---------------------------------- June 30,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net $ -- $ -- $5,843,666
Redemption of common stock -- -- (40,000)
Proceeds from officer loans -- -- 75,000
Payment of officer loans -- -- (75,000)
Deferred registration costs -- -- (35,000)
------------ ------------ ----------
Net cash provided by financing activities -- -- 5,768,666
------------ ------------ ----------
Net (decrease) increase in cash (192,742) (210,697) 147,802
CASH AND CASH EQUIVALENTS, beginning of period 776,067 358,499 --
------------ ------------ ----------
CASH AND CASH EQUIVALENTS, end of period $ 583,325 $ 147,802 $ 147,802
============ ============ ==========
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
F-4
<PAGE> 14
FROST HANNA CAPITAL GROUP, INC.
(A Development Stage Corporation)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL
Frost Hanna Capital Group, Inc. (the "Company") was formed on February 2, 1996
to seek to effect a merger, exchange of capital stock, asset acquisition or
similar business combination (a "Business Combination") with an operating or
development stage business (an "Acquired Business"). The Company is currently
in the development stage and all efforts of the Company to date have been
limited to organizational activities.
As further discussed in Note 3, on October 16, 1997, the Company consummated an
initial public offering of its securities (the "Offering").
The Offering was considered a "blank check" offering. Blank check offerings are
characterized by an absence of substantive disclosures related to the use of
the net proceeds of the offering. Although substantially all of the net
proceeds of the Offering are intended to be utilized to effect a Business
Combination, the net proceeds are not being designated for any one specific
purpose. The Company has identified an acquisition target (see Note 7).
Upon completion of the Offering, 80% of the net proceeds therefrom were placed
in an interest bearing escrow account (the "Escrow Fund"), subject to release
upon the earlier of (i) written notification by the Company of its need for all
or substantially all of the Escrow Fund for the purpose of implementing a
Business Combination, or (ii) the exercise by certain shareholders of the
Redemption Offer (as hereinafter defined). Any interest earned on the Escrow
Fund shall remain in escrow and be used by the Company either (i) following a
Business Combination in connection with the operations of an Acquired Business
or (ii) in connection with the distribution to the shareholders through the
exercise of the Redemption Offer or the liquidation of the Company. In the
event the Company requires in excess of 20% of the net proceeds for operations,
Messrs. Richard B. Frost, Chief Executive Officer and Chairman of the Board of
Directors; and Mark J. Hanna, President and Director, have undertaken to defer
their salaries and expense allowances prospectively until the consummation by
the Company of a Business Combination (see Note 5). Investors' funds may be
escrowed for an indefinite period of time following the consummation of the
Offering. Further, there can be no assurances that the Company will ever
consummate a Business Combination. In the event of the exercise of the
Redemption Offer, investors may only recoup a portion of their investment. The
Company currently has no expectation with regard to the Company's plans in the
event a Business Combination is not consummated by a certain date.
F-5
<PAGE> 15
The Company, prior to the consummation of any Business Combination, will submit
such transaction to the Company's shareholders for their approval. In the
event, however, that the holders of 30% or more of the shares of the Company's
common stock sold in the Offering which are outstanding vote against approval
of any Business Combination, the Company will not consummate such Business
Combination. The shares of common stock sold in the Offering may sometimes be
referred to as the "Public Shares" and the holders (whether current or future)
of the Public Shares are referred to as "Public Shareholders". All of the
officers and directors of the Company, who owned in the aggregate approximately
43.6% of the common stock outstanding prior to the Offering, have agreed to
vote their respective shares of common stock in accordance with the vote of the
majority of the Public Shares with respect to any such Business Combination.
At the time the Company seeks shareholder approval of any potential Business
Combination, the Company will offer (the "Redemption Offer") to each of the
Public Shareholders who vote against the proposed Business Combination and
affirmatively request redemption, to redeem all, but not a portion of, their
Public Shares, at a per share price equal to the Company's liquidation value on
the record date for determination of shareholders entitled to vote upon the
proposal to approve such Business Combination (the "Record Date") divided by the
number of Public Shares. The Company's liquidation value will be equal to the
Company's book value, as determined by the Company, calculated as of the Record
Date. In no event, however, will the Company's liquidation value be less than
the Escrow Fund, inclusive of any net interest income thereon. If the holders of
less than 30% of the Public Shares held by Public Shareholders elect to have
their shares redeemed, the Company may, but will not be required to, proceed
with such Business Combination. If the Company elects to so proceed, it will
redeem the Public Shares, based upon the Company's liquidation value, from those
Public Shareholders who affirmatively requested such redemption and who voted
against the Business Combination. However, if the holders of 30% or more of the
Public Shares held by Public Shareholders vote against approval of any potential
Business Combination, the Company will not proceed with such Business
Combination and will not redeem such Public Shares. If the Company determines
not to pursue a Business Combination, even if the Public Shareholders of less
than 30% of the Public Shares vote against approval of the potential Business
Combination, no Public Shares will be redeemed.
As a result of its limited resources, the Company will, in all likelihood, have
the ability to effect only a single Business Combination. Accordingly, the
prospects for the Company's success will be entirely dependent upon the future
performance of a single business.
The Company is in the development stage, has had no revenues to date and is
entirely dependent upon the proceeds of the Offering to commence operations
relating to selection of a prospective Acquired Business. The Company will not
receive any revenues, other than interest income, until, at the earliest, the
consummation of a Business Combination. In the event that the proceeds of the
Offering prove to be insufficient for purposes of effecting a Business
Combination, the Company will be required to seek additional financing. In the
event no Business Combination is identified, negotiations are incomplete or no
F-6
<PAGE> 16
Business Combination has been consummated, and all of the proceeds of the
Offering other than the Escrow Fund have been expended, the Company currently
has no plans or arrangements with respect to the possible acquisition of
additional financing which may be required to continue the operations of the
Company. Furthermore, there is no assurance that the Company will be able to
successfully effect a Business Combination.
The accompanying information has been prepared to conform with Rule 419 of the
Securities and Exchange Commission, which was adopted to strengthen the
regulation of securities offered by "blank check" companies. A blank check
company is defined as (a) a development stage company that has no specific
business plan or has indicated that its business plan is to engage in a merger
or acquisition with an unidentified company and (b) a company which issues
securities that, among other things, (i) are not quoted in the NASDAQ system,
or, (ii) in the case of a company which has been in continuous operation for
less than three years, has net tangible assets of less than $5,000,000.
Although the Company is a "blank check" company, it does not believe that Rule
419 is applicable to it in view of the fact that its net tangible assets
exceeded $5,000,000 at the offering date. Accordingly, investors in the
Offering did not and do not receive the substantive protection provided by Rule
419. Additionally, there can be no assurance that the United States Congress
will not enact legislation which will prohibit or restrict the sale of
securities of "blank check" companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
In management's opinion, the accompanying unaudited interim financial
statements of the Company contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of June 30, 1999, and the results of operations for the three
months ended June 30, 1999 and 1998 and cash flows for the three months ended
June 30, 1999 and 1998. The results of operations for the three months ended
June 30, 1999 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of 1999.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" which establishes standards to reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity during the financial reporting period of a business enterprise resulting
from nonowner sources. The Company has adopted SFAS 130. There is no impact
from SFAS 130 as net income is equal to comprehensive income for all years
presented.
F-7
<PAGE> 17
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments including, among other things, a measure of segment profit
or loss, certain specific revenue and expense items, and segment assets.
Adoption of this standard did not have a material impact or require additional
disclosure.
In February 1998, SFAS 132 was issued by the FASB establishing accounting and
reporting standards for pensions and other postretirement benefits. The Company
does not have any pensions or other postretirement benefits. Accordingly,
adoption of this standard will not affect the Company's financial position or
results of operations.
In June 1998, SFAS 133 was issued by the FASB establishing accounting and
reporting standards for derivative instruments and hedging activities. The
Company does not have any derivative instruments or use any hedging activities.
Accordingly, adoption of this standard will not affect the Company's financial
position or results of operations.
3. PUBLIC OFFERING OF SECURITIES
In the Offering, which closed on October 16, 1997, the Company sold to the
public 1,100,202 shares of its common stock, at a price of $6 per share. Net
proceeds totaled $5,587,053.
In connection with the Offering, the Company has sold to the underwriter, at an
aggregate price of $110, warrants (the "Underwriter Options") to purchase up to
110,020 shares of the Company's common stock at an exercise price of $9.90 per
share. The Underwriter Options are exercisable for a period of four years
commencing October 16, 1998.
The Company has accounted for the Underwriter Options issued in 1997 in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", which
applies to transactions with non-employees. In accordance with SFAS No. 123,
the issuance of the Underwriter Options was recorded as a cost of the Offering.
4. COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock. As of March 31, 1998, there is a minimum of 97,232,778
(unaudited) authorized but unissued shares of common stock available for
issuance (after appropriate reserves for the issuance of common stock upon full
exercise of the Underwriter Options). The Company's Board of Directors has the
power to issue any or all of the authorized but unissued common stock without
shareholder approval. The Company currently has no commitments to issue any
shares of common stock other than as described in the Offering; however, the
F-8
<PAGE> 18
Company will, in all likelihood, issue a substantial number of additional
shares in connection with a Business Combination. To the extent that additional
shares of common stock are issued, dilution of the interests of the Company's
shareholders participating in the Offering may occur.
In June 1997, the Company redeemed, at the original purchase price, 80,000
shares of its common stock from a third party.
5. COMMITMENTS AND CONTINGENCIES
The Company entered into employment agreements with Messrs. Frost and Hanna
commencing on September 15, 1996 and requiring monthly salaries of $10,000 each
plus monthly nonaccountable expense allowances of $1,000 each which are
routinely paid on the first of each month. In the event the Company requires in
excess of 20% of the net proceeds for operations, Messrs. Frost and Hanna, have
undertaken to defer their salaries and expense allowances prospectively until
the consummation by the Company of a Business Combination.
The Company shall reimburse its officers and directors for any accountable
reasonable expenses incurred in connection with activities on behalf of the
Company. There is no limit on the amount of such reimbursable expenses, and
there will be no review of the reasonableness of such expenses by anyone other
than the Board of Directors, all of the members of which are officers.
Commencing on January 15, 1997, the Company moved its executive offices to a
new location pursuant to a three-year lease agreement at an approximate cost
per month of $3,291.
6. PENDING MERGER
The Company is in proceedings to obtain stockholders approval to adopt an
Agreement and Plan of Merger dated as of May 27, 1999 (the "Merger Agreement")
among the Company, FHGB Acquisition Corporation ("FHGB"), a New York
corporation and wholly owned subsidiary of the Company and Gaines Berland,
Inc., a New York corporation, GBI Trading Corp., a New York corporation and
wholly owned subsidiary of Gaines Berland, and Gaines Berland Holdings, Inc., a
Delaware corporation and wholly owned subsidiary of Gaines Berland
(collectively, "Gaines Berland").
The Merger Agreement provides that FHGB will merge with and into Gaines
Berland, with Gaines Berland being the surviving corporation in the transaction
(the "Merger") as a wholly owned subsidiary of the Company, and the separate
existence of FHGB will cease. The Merger will become effective upon the filing
of a Certificate of Merger with the Secretary of State of the State of New
York. It is anticipated that such filing will be made within fifteen days after
all of the conditions precedent to the Merger Agreement have been satisfied or
waived.
F-9
<PAGE> 19
Under the terms of the Merger Agreement, Gaines Berland shareholders have the
right to receive (subject to certain adjustments) 21,917 shares of the
Company's common stock in exchange for each share of Gaines Berland common
stock held (the "Common Stock Conversions") by them at the effective date of
the Merger (the "Effective Date"), not to exceed 16,000,000 shares of the
Company's common stock. Each share of FHGB's common stock issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Merger, automatically be converted into one share of the Company's common
stock. None of the shares of the Company's common stock currently outstanding
will be converted or otherwise modified in the Merger and all of such shares
will continue to be outstanding capital stock of the Company after the
Effective Date.
The Merger Agreement may be terminated by the Company and/or Gaines Berland
under certain circumstances. If the Merger Agreement is terminated by Gaines
Berland because one or more of the representations made by the Company in the
Merger Agreement is not accurate or because the Company has breached any
covenant set forth in the Merger Agreement, then the Company must pay Gaines
Berland a fee equal to $250,000. If the Merger Agreement is terminated by the
Company because one or more of the representations made by Gaines Berland in
the Merger Agreement is not accurate or because Gaines Berland has breached any
covenant set forth in the Merger Agreement, then Gaines Berland must pay the
Company a fee equal to $250,000. If the Merger Agreement is terminated by
Gaines Berland because the Company fails to obtain the required shareholder
vote for the approval of the Merger due to the fact that the Company's Board of
Directors withdrew its recommendation for the Merger in order to satisfy its
fiduciary duty to its shareholders, the Company must pay Gaines Berland a fee
equal to $100,000.
In the event that the net Escrow Fund of the Company is less than $4,500,000 at
the Effective Date, then Gaines Berland may elect to (i) terminate the Merger
or (ii) determine a new Common Stock Conversion ration to be adjusted to the
nearest lower whole number by multiplying it by a fraction, the number of which
is $4,500,000 and the denominator of which is the net Escrow Fund.
F-10
<PAGE> 1
EXHIBIT "A"
AGREEMENT AND PLAN OF MERGER
As of May 27, 1999
among
FROST HANNA CAPITAL GROUP, INC.
and
FHGB ACQUISITION CORPORATION
and
GAINES, BERLAND INC.
and
G-TRADE CAPITAL CORP.
and
GAINES BERLAND HOLDINGS, INC.
<PAGE> 2
INDEX OF HEADINGS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I Definitions .......................................................... A - 1
II The Merger ........................................................... A - 4
2.1 The Merger ............................................... A - 4
2.2 Effect of the Merger ..................................... A - 5
2.3 Articles of Incorporation; Bylaws ........................ A - 5
2.4 Directors and Officers ................................... A - 5
2.5 Effect on Capital Stock .................................. A - 5
2.5.1 Conversion of Gaines Berland Common Stock ...... A - 5
2.5.2 Capital Stock of FHGB .......................... A - 5
2.5.3 Adjustments to Conversion Ratio ................ A - 6
2.6 Surrender of Certificates ................................ A - 6
2.6.1 Exchange Agent ................................. A - 6
2.6.2 Frost Hanna to Provide Frost Hanna Common Stock A - 6
2.6.3 Conversion Procedures .......................... A - 6
2.6.4 Distributions With Respect to Unexchanged Shares A - 6
2.6.5 Transfers of Ownership ......................... A - 7
2.6.6 Required Withholding ........................... A - 7
2.6.7 No Liability ................................... A - 7
2.7 No Further Ownership Rights in Gaines Berland Common Stock A - 7
2.8 Lost, Stolen or Destroyed Certificates ................... A - 7
2.9 Classes of Stock Entitled to Vote on Merger .............. A - 7
2.10 Former Name of Gaines Berland ............................ A - 7
III Representations and Warranties of Gaines Berland ..................... A - 7
3.1 Organization ............................................. A - 8
3.2 Authorization; Enforceability ............................ A - 8
3.3 No Violation or Conflict ................................. A - 8
3.4 Consent of Governmental Authorities ...................... A - 8
3.5 Financial Statements ..................................... A - 8
3.6 Compliance with Laws ..................................... A - 9
3.7 Legal Proceedings ........................................ A - 10
3.8 Brokers .................................................. A - 10
3.9 Absence of Material Adverse Changes ...................... A - 10
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
3.10 Articles of Incorporation, Bylaws and Minute Books ....... A - 10
3.11 Capitalization ........................................... A - 10
3.12 Rights, Warrants, Options ................................ A - 11
3.13 Properties ............................................... A - 11
3.14 Governmental Authorizations .............................. A - 12
3.15 Insurance ................................................ A - 12
3.16 Employment Matters ....................................... A - 12
(a) Labor Unions ...................................... A - 12
(b) Employment Policies ............................... A - 12
(c) Employment Agreements ............................. A - 13
(d) Employee Benefit Plans ............................ A - 13
(e) Personnel ......................................... A - 14
(f) Labor Practices ................................... A - 14
3.17 Material Agreements ...................................... A - 14
3.18 List of Accounts ......................................... A - 15
3.19 Inventory of Securities .................................. A - 15
3.20 Related Party Transactions ............................... A - 15
3.21 Tax Matters .............................................. A - 15
3.22 Guaranties ............................................... A - 16
3.23 Absence of Certain Business Practices .................... A - 16
3.24 Proxy Statement and Disclosure Documents ................. A - 16
3.25 Broker-Dealer Registration; Regulatory Issues ............ A - 17
3.26 Year 2000 Problems ....................................... A - 18
3.27 Investment Representations ............................... A - 19
3.28 Subscription Receivables; Energy Fund .................... A - 19
3.29 Disclosure ............................................... A - 19
IV Representations and Warranties of Frost Hanna and FHGB ............... A - 19
4.1 Organization ........................................... A - 19
4.2 Authorization; Enforceability .......................... A - 19
4.3 No Violation or Conflict ............................... A - 20
4.4 Consent of Governmental Authorities .................... A - 20
4.5 Financial Statements; Commission Reports ............... A - 20
4.6 Compliance with Laws ................................... A - 20
4.7 Legal Proceedings ...................................... A - 21
4.8 Brokers ................................................ A - 21
4.9 Absence of Material Adverse Changes .................... A - 21
4.10 Articles of Incorporation, Bylaws and Minute Books ..... A - 21
4.11 Capitalization ......................................... A - 21
4.12 Rights, Warrants, Options .............................. A - 22
4.13 Properties ............................................. A - 22
4.14 Governmental Authorizations ............................ A - 22
4.15 Insurance .............................................. A - 22
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
4.16 Employment Matters ..................................... A - 22
(a) Labor Unions .................................. A - 22
(b) Employment Policies ........................... A - 22
(c) Employment Agreements ......................... A - 23
(d) Employee Benefit Plans ........................ A - 23
(e) Personnel ..................................... A - 23
(f) Labor Practices ............................... A - 23
4.17 Material Agreements .................................... A - 23
4.18 List of Accounts ....................................... A - 24
4.19 Business ............................................... A - 24
4.20 Related Party Transactions ............................. A - 24
4.21 Tax Matters ............................................ A - 24
4.22 Guaranties ............................................. A - 25
4.23 Validity of Frost Hanna Common Stock ................... A - 25
4.24 Absence of Certain Business Practices .................. A - 25
4.25 Proxy Statements ....................................... A - 25
4.26 Disclosure ............................................. A - 25
V Covenants ............................................................ A - 26
5.1 Interim Operations of Frost Hanna and Gaines Berland ... A - 26
5.2 Access ................................................. A - 27
(a) Frost Hanna Access ............................ A - 27
(b) Gaines Berland Access ......................... A - 27
5.3 Confidentiality ........................................ A - 27
5.4 Notification ........................................... A - 28
5.5 Consent of Governmental Authorities and Others ......... A - 28
5.6 Reasonable Efforts ..................................... A - 28
5.7 No Other Negotiations .................................. A - 28
5.8 Cooperation ............................................ A - 28
5.9 Shareholder Approval ................................... A - 28
5.10 Public Statements ...................................... A - 29
5.11 Commission Filings ..................................... A - 29
5.12 Listing ................................................ A - 29
5.13 Employment Agreements .................................. A - 29
5.14 No Securities Transactions ............................. A - 29
5.15 Old Gaines Berland Plan ................................ A - 29
5.16 Investment Intent Letters .............................. A - 29
5.17 Name Change ............................................ A - 29
5.18 Resignations ........................................... A - 29
5.19 Shareholders' Agreements ................................ A - 30
5.20 Employment Agreements .................................. A - 30
5.21 Demand Registration Rights ............................. A - 30
5.22 Releases ............................................... A - 30
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
5.23 Life Insurance .......................................... A - 30
VI Additional Agreements ................................................. A - 30
6.1 Investigation; Notices .................................. A - 30
6.2 Survival of the Representations and Warranties .......... A - 30
6.3 Securities Activities ................................... A - 30
6.4 Voting Agreement ........................................ A - 30
6.5 Tax-Free Reorganization ................................. A - 30
6.6 Indemnification; Insurance .............................. A - 30
6.7 Further Assurances ...................................... A - 31
6.8 Frost Hanna Amendment to Articles of Incorporation ...... A - 31
6.9 Use of Name ............................................. A - 31
VII Closing; Conditions Precedent; Termination ............................ A - 31
7.1 Closing ................................................. A - 31
7.2 Mutual Conditions Precedent ............................. A - 32
(a) Governmental Consents .......................... A - 32
(b) No Litigation .................................. A - 32
(c) Shareholder Approval ........................... A - 32
(d) Releases ....................................... A - 32
7.3 Conditions Precedent to the Obligations of Gaines Berland A - 32
(a) Representations and Warranties True ............ A - 32
(b) Covenants Performed ............................ A - 32
(c) Consents ....................................... A - 33
(d) Opinion of Counsel ............................. A - 33
(e) Certificate of Frost Hanna ..................... A - 33
(f) Minimum Cash ................................... A - 33
(g) Resignations ................................... A - 33
(h) Records ........................................ A - 33
(i) Employment Agreements .......................... A - 33
7.4 Conditions Precedent to the Obligations of Frost Hanna
and FHGB .............................................. A - 33
(a) Representations and Warranties True ............ A - 33
(b) Covenants Performed ............................ A - 33
(c) No Material Adverse Change ..................... A - 33
(d) Consents ....................................... A - 33
(e) Opinion of Counsel ............................. A - 34
(f) Certificate of Gaines Berland, G-Trade and
Holdings ..................................... A - 34
(g) Auditor's Letters .............................. A - 34
(h) Shareholders' Agreements ........................ A - 34
(i) Employment Agreements .......................... A - 34
(j) Dissenters' Rights .............................. A - 34
(k) Investment Intent Letters ...................... A - 34
7.5 Termination; Termination Fee ............................ A - 34
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<S> <C>
VIII Miscellaneous ......................................................... A - 35
8.1 Notices ................................................. A - 35
8.2 Entire Agreement ........................................ A - 35
8.3 Assignment .............................................. A - 35
8.4 Waiver and Amendment .................................... A - 36
8.5 No Third Party Beneficiary .............................. A - 36
8.6 Severability ............................................ A - 36
8.7 Expenses ................................................ A - 36
8.8 Headings ................................................ A - 36
8.9 Counterparts; Construction .............................. A - 36
8.10 Litigation; Prevailing Party ............................ A - 36
8.11 Injunctive Relief ....................................... A - 36
8.12 Remedies Cumulative ..................................... A - 36
8.13 Participation of Parties; Construction: Independent
Counsel ............................................... A - 36
8.14 Governing Law ........................................... A - 37
8.15 Jurisdiction and Venue .................................. A - 37
LIST OF SCHEDULES .......................................................... A - 40
LIST OF EXHIBITS ........................................................... A - 42
</TABLE>
- v -
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into as of
May 27, 1999, among Frost Hanna Capital Group, Inc., a Florida corporation
("Frost Hanna"), FHGB Acquisition Corporation, a New York corporation ("FHGB'),
Gaines, Berland Inc., a New York corporation ("Gaines Berland"), G-Trade Capital
Corp., a New York corporation ("G-Trade"), and Gaines Berland Holdings, Inc., a
Delaware corporation which is a wholly-owned subsidiary of Gaines Berland
("Holdings").
PRELIMINARY STATEMENTS
Gaines Berland is a privately-held securities brokerage and trading
firm which provides investment banking and research services and is engaged in
the institutional and retail sale of securities, G-Trade is a wholly-owned
subsidiary of Gaines Berland which is a broker in formation and Holdings is a
newly-formed subsidiary of Gaines Berland which has not conducted any
operations.
Frost Hanna is a public company that was formed to seek to effect a
merger or other business combination with an operating or development-stage
company.
Frost Hanna, Gaines Berland, G-Trade and Holdings believe that it is in
their respective best interests and in the best interests of their respective
shareholders for FHGB to merge with and into Gaines Berland, all upon the terms
and subject to the conditions of this Agreement.
AGREEMENT
In consideration of the preliminary statements and the respective
covenants, representations and warranties contained in this Agreement, the
parties agree as set forth below.
I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"Affiliate" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"Agreement" means this Agreement and Plan of Merger, together with all
exhibits and
A-1
<PAGE> 8
schedules referred to herein.
"Certificate of Merger" has the meaning set forth in Section 2.1.
"CERCLA" has the meaning set forth in Section 3.6(b) of this Agreement.
"Certificates" has the meaning set forth in Section 2.6.3.
"Closing" has the meaning set forth in Section 7.1 of this Agreement.
"Closing Date" has the meaning set forth in Section 7.1 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Consent" means any consent, approval, waiver or authorization of, or
any registration, qualification, designation, declaration or filing with any
Person.
"Conversion Ratio" has the meaning set forth in Section 2.5.1.
"Effective Date" has the meaning set forth in Section 7.1.
"Effective Time" has the meaning set forth in Section 7.1.
"Employment Agreements" has the meaning specified in Section 5.13.
"Environmental Laws" means all Laws relating to pollution or protection
of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, Laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or industrial, toxic
or hazardous substances or wastes into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
"ERISA" has the meaning set forth in Section 3.16(d) of this Agreement.
"Exchange Agent" has the meaning set forth in Section 2.6.1.
"Florida BCA" means the Business Corporation Act of the State of
Florida, as amended.
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"FHGB Common Stock" means the common stock of FHGB, par value, $.0001
per share.
"Frost Hanna Common Stock" means the common stock of Frost Hanna, par
value $.0001 per share.
"Frost Hanna Commission Reports" has the meaning specified in Section
4.5.
"Frost Hanna Financial Statements" has the meaning specified in Section
4.5.
"Frost Hanna Material Adverse Effect" has the meaning set forth in
Section 4.1 of this Agreement.
"Frost Hanna Material Agreements" has the meaning set forth in Section
4.17 of this Agreement.
"Frost Hanna Proxy Statement" means the proxy statement to be provided
to the shareholders of Frost Hanna in connection with the meeting of its
shareholders contemplated hereby.
"Frost Hanna Related Party" and "Frost Hanna Related Parties" have the
meanings set forth in Section 4.20 of this Agreement.
"G-Trade Common Stock" means the common stock of G-Trade, no par value.
"Gaines Berland Common Stock" means the common stock of Gaines Berland,
par value $.01 per share.
"Gaines Berland Disclosure Document" means the disclosure materials to
be provided to the shareholders of Gaines Berland in connection with the meeting
of its shareholders contemplated hereby.
"Gaines Berland Financial Statements" has the meaning set forth in
Section 3.5 of this Agreement.
"Gaines Berland Intellectual Property" has the meaning set forth in
Section 3.13(b) of this Agreement.
"Gaines Berland Material Adverse Effect" has the meaning set forth in
Section 3.1 of this Agreement.
"Gaines Berland Material Agreements" has the meaning set forth in
Section 3.17 of this Agreement.
"Gaines Berland Pension Plan" has the meaning set forth in Section
3.16(d) of this Agreement.
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"Gaines Berland Plans" has the meaning set forth in Section 3.16(d) of
this Agreement.
"Gaines Berland Related Party" and "Gaines Berland Related Parties"
have the meanings set forth in Section 3.20.
"Gaines Berland Welfare Plan" has the meaning set forth in Section 3.16
of this Agreement.
"Governmental Authority" means any federal, state, municipal, local,
foreign or other judicial, arbitral, governmental or regulatory authority or
organization, body, entity, agency or instrumentality, or any political
subdivision thereof.
"Guaranty" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such indebtedness, liabilities or
obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, liabilities or obligations
against loss, or any "keep well" or similar arrangement.
"Holdings Common Stock" means the common stock of Holdings, par value
$.001 per share.
"Holdings Preferred Stock" means the preferred stock of Holdings, par
value $.001 per share.
"Intangible Property" means, as to any Person, all foreign and domestic
trademarks, trademark rights, trade names, trade dress, trade name rights,
service marks, brands and copyrights (or pending registrations and applications
therefor) owned, used or controlled by such Person, and all other intellectual
property and proprietary rights, including trade secrets, technology, know-how
and other information owned, held or used by such Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Knowledge" or "known" means, with respect to any representation or
warranty or other statement in this Agreement qualified by the knowledge of any
party, that such party has made a reasonable investigation as to the matters
that are the subject of such representation, warranty or other statement. Where
reference is made to the knowledge of any party, such reference shall mean the
knowledge of the officers and directors of such party and their respective
Subsidiaries, all of whom shall be deemed to have conducted the investigation
required by this definition. The "knowledge" of all of the Principal
Shareholders shall be imputed to Gaines Berland.
"Law" means each and every law, ordinance, statute, common law,
regulation, judgment, directive, ruling, order and other legal requirement of
any Governmental Authority, self-regulatory organization or other entity,
including, but not limited to, those relating to securities and broker-dealers.
"Merger" has the meaning set forth in Article II of this Agreement.
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"NASD" means National Association of Securities Dealers, Inc.
"New York BCL" mean the New York Business Corporation Law, as amended.
"Old Gaines Berland Plan" has the meaning specified in Section 5.15.
"Order" means any judgment, injunction, notice, suit, decree or order
of any Governmental Authority, court, ordinance, entity, arbitral entity or
self-regulatory organization.
"PBGC" has the meaning set forth in Section 3.16(d) of this Agreement.
"Permit" means any consent, authorization, approval registration,
qualification, filing, franchise, certificate, license or permit of any
Governmental Authority, self-regulatory organization or other Person.
"Person" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or Governmental Authority or any other entity.
"Principal Shareholders" shall mean the individuals whose names are set
forth on Schedule 1.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SRO Reports" means, as to a Person, all forms, reports, statements and
documents required to be filed by a Person with NASD, any stock exchange or any
other self-regulatory organizations since January 1, 1995.
"Subsidiary" of any Person means any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of 50% or more, or any Person which may be controlled, directly or
indirectly, by such Person, whether through the ownership of voting securities,
by contract, or otherwise.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, transportation, transportation excise, registration, value added,
documentary stamp, excise, natural resources, severance, stamp, occupation,
premium, windfall profit, environmental, customs, duties, real property,
personal property, capital stock, social security, unemployment, disability,
payroll, license, employee or other withholding, or other tax or governmental
charge, of any kind whatsoever, including any interest, penalties or additions
to tax or additional amounts in respect of the foregoing; the foregoing shall
include any transferee or secondary liability for a Tax and any liability
assumed by agreement or
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arising as a result of being (or ceasing to be) a member of any affiliated group
(or being included (or required to be included) in any tax return relating
thereto).
"Termination Date" has the meaning set forth in Section 7.5 of this
Agreement.
"Voting Agreement" has the meaning set forth in Section 6.4 of this
Agreement.
II
THE MERGER
2.1 THE MERGER. At the Effective Time and subject to and upon
the terms and conditions of this Agreement and the applicable provisions of
applicable Law, FHGB shall be merged with and into Gaines Berland (the
"Merger"), the separate corporate existence of FHGB shall cease and Gaines
Berland shall continue as the surviving corporation. Gaines Berland as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation". Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger, substantially in the form of Exhibit G, with the Secretary of State
of the State of New York in accordance with the relevant provisions of the New
York BCL ("Certificate of Merger").
2.2 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of New York Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Gaines Berland and FHGB shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Gaines Berland and FHGB shall become
the debts, liabilities and duties of the Surviving Corporation.
2.3 ARTICLES OF INCORPORATION: BYLAWS.
2.3.1 At the Effective Time, the Articles of
Incorporation of Gaines Berland, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by Law and such
Articles of Incorporation of the Surviving Corporation.
2.3.2 The Bylaws of Gaines Berland, as in effect
immediately prior to the Effective Time, shall be, at the Effective
Time, the Bylaws of the Surviving Corporation until thereafter amended.
2.4 DIRECTORS AND OFFICERS. The initial directors of the
Surviving Corporation shall be the directors of Gaines Berland immediately prior
to the Effective Time, until their respective successors are duly elected or
appointed and qualified. The initial officers of the Surviving Corporation shall
be the officers of Gaines Berland immediately prior to the Effective Time, until
their respective successors are duly appointed.
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2.5 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the parties, or the holders
of any of the following securities, the following shall occur:
2.5.1 Conversion of Gaines Berland Common Stock. Each
share of Gaines Berland Common Stock issued and outstanding immediately
prior to the Effective Time, will be canceled and extinguished and
automatically converted (subject to Section 2.5.3) into the right to
receive 21,917 shares of Frost Hanna Common Stock ("Conversion Ratio")
upon surrender of the certificate representing such share of the Gaines
Berland Common Stock in the manner provided herein (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit
(or other indemnity required by the Exchange Agent) in the manner
provided herein); provided, however, that in the event that shares of
Gaines Berland Common Stock are redeemed after the date hereof pursuant
to the terms of agreements with shareholders in effect on the date
hereof or Frost Hanna consents to the issuance of additional shares of
Gaines Berland Common Stock pursuant to Section 5.1(ii), then the
Conversion Ratio shall be deemed automatically modified to the nearest
lower whole number equal to the product of (i) 21,917 and (ii) a
fraction, the numerator of which is 730 and the denominator of which is
equal to the number of shares of Gaines Berland Common Stock
outstanding immediately prior to the Effective Time, assuming that none
of Gaines Berland's shareholders had exercised dissenters' rights;
provided, further, notwithstanding anything to the contrary set forth
herein, in no event shall the aggregate number of shares issuable under
this Section 2.5.1 exceed 16,000,000, less the number of shares of
Frost Hanna Common Stock into which Gaines Berland Common Stock would
be converted into but for the exercise of dissenters' rights by the
holders of Gaines Berland Common Stock. Subject to applicable terms, if
any shares of Gaines Berland Common Stock outstanding immediately prior
to the Effective Time are unvested or are subject to a repurchase
option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with Gaines
Berland , then the shares of Frost Hanna Common Stock issued in
exchange for such shares of Gaines Berland Common Stock will also be
unvested to the same extent and subject to the same repurchase option,
risk of forfeiture or other condition, as applicable, and the
certificates representing such shares of Frost Hanna Common Stock may
accordingly be marked with appropriate legends.
2.5.2 Capital Stock of FHGB. Each share of FHGB
Common Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, automatically be converted into
one validly issued, fully paid and nonassessable share of Common Stock
of the Surviving Corporation. Each certificate evidencing ownership of
shares of FHGB Common Stock shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
2.5.3 Adjustments to Conversion Ratio. Subject to
Section 7.3(f), notwithstanding anything to the contrary set forth
herein, if the amount of cash and cash equivalents of Frost Hanna less
the amount of liabilities of Frost Hanna plus any amounts paid
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or payable to NASDAQ for Small Cap listing fees by Frost Hanna plus any
director's and officer's insurance premiums paid or payable by Frost
Hanna (all calculated in accordance with generally accepted accounting
principles) at the Effective Time ("Net Cash Assets") is less than
$4,500,000, then the Conversion Ratio shall be automatically adjusted
to the nearest lower whole number by multiplying it by a fraction, the
numerator of which is 4,500,000 and the denominator of which is the Net
Cash Assets.
2.6 SURRENDER OF CERTIFICATES.
2.6.1 Exchange Agent. American Stock Transfer & Trust
Company, Frost Hanna's transfer agent, shall act as the exchange agent
(the "Exchange Agent") in the Merger.
2.6.2 Frost Hanna to Provide Frost Hanna Common
Stock. Promptly after the Effective Time, Frost Hanna shall make
available to the Exchange Agent for exchange in accordance with this
Article II, the shares of Frost Hanna Common Stock issuable pursuant
hereto in exchange for outstanding shares of Gaines Berland Common
Stock.
2.6.3 Conversion Procedures. Promptly after the
Effective Time, Frost Hanna shall cause the Exchange Agent to mail to
each holder of record (as of the Effective Time) a certificate or
certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Gaines Berland Common
Stock whose shares were converted into the right to receive shares of
Frost Hanna Common Stock in the Merger, (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Frost Hanna may reasonably
specify ) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of
Frost Hanna Common Stock. Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as
may be appointed by Frost Hanna, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be
entitled to receive in exchange therefor certificates representing the
number of whole shares of Frost Hanna Common Stock into which their
shares of Gaines Berland Common Stock were converted at the Effective
Time in accordance with the Conversion Ratio, and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered,
outstanding Certificates will be deemed from and after the Effective
Time, for all corporate purposes to evidence only the ownership of the
number of full shares of Frost Hanna Common Stock into which such
shares of Gaines Berland Common Stock shall have been so converted. All
certificates issued as a result of the conversion of Gaines Berland
Common Stock in the Merger representing Frost Hanna Common Stock will
bear restrictive legends to the effect that the shares represented by
such certificates have not been registered under the Securities Act and
can only be transferred in compliance therewith.
2.6.4 Distributions With Respect to Unexchanged
Shares. No dividends or
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other distributions declared or made after the date of this Agreement
with respect to Frost Hanna Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered
Certificates with respect to the shares of Frost Hanna Common Stock
represented thereby (subject to Section 2.8) until the holders of
record of such Certificates shall surrender such Certificates in
accordance with this Section 2.6 (subject to Section 2.8). Subject to
applicable Law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without
interest, certificates representing whole shares of Frost Hanna Common
Stock issued in exchange therefor.
2.6.5 Transfers of Ownership. If certificates
representing shares of Frost Hanna Common Stock are to be issued in a
name other than that in which the Certificates surrendered in exchange
therefor are registered, it will be a condition of the issuance thereof
that the Certificates so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the persons requesting
such exchange will have paid to Frost Hanna or any agent designated by
it any transfer or other taxes required by reason of the issuance of
certificates representing shares of Frost Hanna Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Frost Hanna or any
agent designated by it that such tax has been paid or is not payable.
2.6.6 Required Withholding. Each of the Exchange
Agent, Frost Hanna and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder
of Gaines Berland Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable Law. To
the extent such amounts are so deducted or withheld, such amounts shall
be treated for all purposes under this Agreement as having been paid to
the person to whom such amounts would otherwise have been paid.
2.6.7 No Liability. Notwithstanding anything to the
contrary, neither the Exchange Agent, Frost Hanna, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares
of Frost Hanna Common Stock or Gaines Berland Common Stock for any
amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.7 NO FURTHER OWNERSHIP RIGHTS IN GAINES BERLAND COMMON
STOCK. All shares of Frost Hanna Common Stock issued upon the surrender for
exchange of shares of Gaines Berland Common Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Gaines Berland Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Gaines Berland Common Stock which were outstanding immediately prior
to the Effective Time. If after the Effective Time Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article II.
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2.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Frost Hanna Common Stock into which the shares of
Gaines Berland Common Stock represented by such Certificates were converted;
provided, however, that Frost Hanna may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Frost
Hanna Common Stock, require the owner of such lost, stolen or destroyed
Certificates to indemnify Frost Hanna against any claim that may be made against
Frost Hanna, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
2.9 CLASSES OF STOCK ENTITLED TO VOTE ON MERGER. With respect to both
FHGB and Gaines Berland, the only class of stock of the constituent corporations
entitled to vote on the Merger is FHGB Common Stock and Gaines Berland Common
Stock.
2.10 FORMER NAME OF GAINES BERLAND. Gaines Berland was incorporated in
the State New York on September 23, 1983 under the name "Gaines, Berland,
Shaffer & Silvershein Inc." On May 25, 1984, Gaines Berland filed a certificate
of amendment to its certificate of incorporation to change its name to "Gaines,
Berland Inc."
III
REPRESENTATIONS AND WARRANTIES OF GAINES BERLAND
In order to induce Frost Hanna and FHGB to enter into this Agreement
and to consummate the transactions contemplated hereby, Gaines Berland, makes
the representations and warranties set forth below to Frost Hanna and FHGB.
3.1 ORGANIZATION. Each of Gaines Berland, and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
Laws of its state of incorporation. Each of Gaines Berland and its Subsidiaries
is duly qualified to transact business as a foreign corporation in all
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
results of operations, assets, liabilities, prospects or business of Gaines
Berland and its Subsidiaries on a consolidated basis (a "Gaines Berland Material
Adverse Effect"). Each jurisdiction in which Gaines Berland or any of its
Subsidiaries is qualified to transact business as a foreign corporation or
licensed to do business as a broker-dealer is listed on Schedule 3.1. Each of
Gaines Berland and its Subsidiaries has the corporate authority to (i) own or
lease and operate its properties and (ii) conduct its business as presently
conducted. Each of Gaines Berland and its Subsidiaries has the corporate
authority to execute, deliver and perform this Agreement. G-Trade is a broker in
formation, which has filed (or will file) all necessary items with the
Commission, NASD and other Governmental Authorities and self-regulatory
organizations for it to become a licensed broker-dealer. G-Trade is an
newly-formed company, which has never engaged in any business activity other
than seeking to obtain all necessary Consents and Permits to
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become a registered broker-dealer. Holdings is a newly formed company, which has
never engaged in any business activity.
3.2 AUTHORIZATION; ENFORCEABILITY. Subject to the receipt of
shareholder approval by the shareholders of Gaines Berland, the execution,
delivery and performance of this Agreement by Gaines Berland and its
Subsidiaries and the consummation by them of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action
on the part of Gaines Berland and its Subsidiaries. This Agreement has been duly
executed and delivered by Gaines Berland and its Subsidiaries, and constitutes
the legal, valid and binding obligations of Gaines Berland and its Subsidiaries,
enforceable against them in accordance with their terms, except to the extent
that their enforcement is limited by bankruptcy, insolvency, reorganization or
other Laws relating to or affecting the enforcement of creditors' rights
generally or by general principles of equity.
3.3 NO VIOLATION OR CONFLICT. The execution, delivery and
performance of this Agreement by Gaines Berland and its Subsidiaries and the
consummation by them of the transactions contemplated hereby and thereby: (i) do
not and will not violate or conflict with any provision of Law or any Order
specifically naming Gaines Berland, or any of its Subsidiaries or any Principal
Shareholder, or any provision of Gaines Berland's or any of its Subsidiaries'
Articles or Certificate of Incorporation or Bylaws; and (ii) do not and will
not, with or without the passage of time or the giving of notice, (a) result in
the breach of, or constitute a default, cause the acceleration of performance,
permit the unilateral modification or termination of, or require any Consent
under, or result in the creation of any lien, charge or encumbrance upon any
property or assets of Gaines Berland or any of its Subsidiaries or pursuant to,
any material instrument or agreement to which any of them is a party or by which
any of them or their respective properties may be bound or affected; or (b)
result in any violation, suspension, revocation, impairment, forfeiture or
nonrenewal of any Permit or Consent.
3.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Except as set forth
on Schedule 3.4, and other than in connection with the New York BCL, no Consent
or Permit from, of or with any Governmental Authority or self-regulatory
organization is required to be made or obtained by Gaines Berland or any of its
Subsidiaries or any Principal Shareholder in connection with the execution,
delivery or performance by them of this Agreement or the consummation by them of
the transactions contemplated hereby. There is no unresolved objection to the
Merger made by any Governmental Authority or self-regulatory organization.
3.5 FINANCIAL STATEMENTS. Gaines Berland has previously
delivered to Frost Hanna, a true and complete copy of the balance sheets of
Gaines Berland for the fiscal years ended August 31, 1998, 1997, 1996, 1995 and
1994, and the statements of income, cash flows and retained earnings of Gaines
Berland for the fiscal years then ended, including any related notes, audited
for the 1998, 1997, 1996, 1995 and 1994 fiscal years by Gaines Berland's
independent certified public accountants pursuant to their audit of the
financial records of Gaines Berland, and the balance sheets of Gaines Berland as
of February 28, 1999, and the statements of income, cash flows and retained
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earnings of Gaines Berland for the three-month period ended February 28, 1999
(collectively, the "Gaines Berland Financial Statements"). Except as indicated
on Schedule 3.5, the Gaines Berland Financial Statements: (i) have been prepared
in accordance with the books of account and records of Gaines Berland, which
books and records have been maintained in a consistent manner; (ii) fairly
present in all material respects Gaines Berland's and its Subsidiaries'
financial condition, assets, liabilities, equity and the results of their
operations at the dates and for the periods specified in those statements; and
(iii) have been prepared in accordance with generally accepted accounting
principles (except for a lack of footnotes with respect to unaudited financial
statements) consistently applied with prior periods. Other than as disclosed by
the Gaines Berland Financial Statements dated February 28, 1999 or specifically
noted on Schedule 3.17, neither Gaines Berland nor any of its Subsidiaries has
any liabilities, commitments or obligations (which reasonably could be expected
to be material to Gaines Berland and its Subsidiaries on a consolidated basis)
of any nature whatsoever, whether accrued, contingent or otherwise (other than
nonmaterial liabilities, commitments or obligations incurred since February 28,
1999 in the ordinary course of business consistent with past practices to
Persons other than Affiliates of Gaines Berland) or any unrealized or
anticipated losses (which reasonably could be expected to be material to Gaines
Berland and its Subsidiaries on a consolidated basis) from any commitments of
Gaines Berland or any of its Subsidiaries, and, to Gaines Berland's knowledge,
there is no reasonable basis for assertion against Gaines Berland or any of its
Subsidiaries of any such liability, commitment, obligation or loss. Except as
set forth on Schedule 3.5, to Gaines Berland's knowledge, there is no basis for
assertion against Gaines Berland any of its Subsidiaries of any claim,
liability, commitment or obligation of any nature, whether absolute, accrued or
contingent, and whether due or to become due, which is not included, disclosed
or noted in the Gaines Berland Financial Statements which could be, individually
or in the aggregate, material. G-Trade and Holdings have no liabilities of any
nature, whether accrued, contingent or otherwise, except for liabilities not
exceeding $100,000 in the aggregate. Except as set forth on Schedule 3.5,
G-Trade and Holdings have no assets in excess of $100,000 in the aggregate.
3.6 COMPLIANCE WITH LAWS.
(a) Except as previously disclosed in
writing, each of Gaines Berland and its Subsidiaries and their
respective officers, directors and employees and the Principal
Shareholders are, and during the past six years have been, in
compliance with all Laws and Orders applicable to Gaines
Berland and its Subsidiaries and their respective businesses
and properties. Except as previously disclosed in writing,
neither Gaines Berland nor any of its Subsidiaries nor any of
the Principal Shareholders nor any of there Affiliates has
received notification from any Governmental Authority or
self-regulatory organization asserting that any of them may
not (or questioning or investigating whether any of them may
not) be in material compliance with or may have violated any
Law or Order, or threatening to revoke any Consent or Permit,
and neither Gaines Berland nor any of its Subsidiaries nor any
of their respective officers, directors or employees is
subject to any agreement or consent decree or Order with any
Governmental Authority or self-regulatory organization arising
out of previously asserted violations nor is there any factual
basis for any of
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the foregoing. Frost Hanna has been furnished with true and
correct copies of all records of inspections, audits and
reports of any of Gaines Berland's or its Subsidiaries'
businesses or and properties during the last three years under
applicable Laws or conducted by insurance companies,
self-regulatory organizations, consultants or other Persons;
and all deficiencies noted therein have been corrected. Frost
Hanna has been furnished with true and correct copies of all
correspondence and other filings made to or received from any
Governmental Authority or self-regulatory organization
regarding Gaines Berland or any of its Subsidiaries within the
last three years.
(b) Without limiting the generality of
Section 3.6(a), there are, with respect to Gaines Berland and
its Subsidiaries, no past or present material violations of
any Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions,
events, incidents or contractual obligations which may give
rise to any common law or other legal liability, including,
without limitation, liability under the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, and the rules and regulations promulgated
thereunder ("CERCLA"), or similar Laws.
3.7 LEGAL PROCEEDINGS. Except as previously disclosed in
writing, neither Gaines Berland nor any of its Subsidiaries (and to Gaines
Berland's knowledge none of its officers, directors or employees) nor any of the
Principal Shareholders is, a party to any pending or, to the knowledge of Gaines
Berland, threatened, legal, administrative or other proceeding, arbitration or
investigation relating to Gaines Berland's or any of its Subsidiaries'
businesses or the securities business, and Gaines Berland has no knowledge of
any set of facts which could reasonably be expected to result in any legal,
administrative or other proceeding, arbitration or investigation involving any
of them. Except as previously disclosed in writing, neither Gaines Berland nor
any of its Subsidiaries (and to Gaines Berland's knowledge, none of its
officers, directors or employees) is subject to any Order of any court, judicial
entity, arbitral entity, self-regulatory organization or Governmental Authority.
Each of Gaines Berland and its Subsidiaries and their respective officers,
directors and employees is in compliance with the terms of each Order set forth
on Schedule 3.7. None of the items set forth on Schedule 3.7 could, individually
or in the aggregate, reasonably be expected to have a Gaines Berland Material
Adverse Effect. Gaines Berland is of the reasonable belief, after consultation
with counsel, and based upon Gaines Berland's reasonable belief as to how a
court would apply the law to the facts, that the final resolution of the
arbitration matter styled Gaines v. Gaines Berland et al. will not result in any
material liability to Gaines Berland.
3.8 BROKERS. Except as otherwise set forth on Schedule 3.8,
neither Gaines Berland nor any of its Subsidiaries has employed any financial
advisor, broker or finder and none has incurred and none will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses
to any other party in connection with the transactions contemplated by this
Agreement.
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3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth
on Schedule 3.9, or otherwise expressly disclosed herein, from August 31, 1998
to the date hereof: (i) each of Gaines Berland and its Subsidiaries has
conducted its businesses in the ordinary and usual course consistent with past
practices; (ii) there has been no occurrence which could reasonably be expected
to cause or have a Gaines Berland Material Adverse Effect; (iii) neither Gaines
Berland nor any of its Subsidiaries has engaged or agreed to engage in any of
the actions described in Section 5.1 (except subsections (xiii) and (xvi)
thereof).
3.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True
and complete copies of the Articles or Certificates of Incorporation, as amended
to date, Bylaws, as amended to date, and minute books of Gaines Berland and its
Subsidiaries have been delivered by Gaines Berland to Frost Hanna. Such
documents contain complete and accurate records in all material respects and
have embodied therein copies of minutes of all meetings and actions by written
consent of the incorporators, boards of directors (and committees thereof) and
shareholders of such entities from the date of incorporation to the date hereof;
and such items accurately reflect all material actions taken by such Persons.
3.11 CAPITALIZATION. The authorized capital stock of Gaines
Berland consists solely of 1,000 shares of Gaines Berland Common Stock and
100,000 shares of preferred stock, par value $10.00 per share. The authorized
capital stock of G-Trade consists of 200 shares of G-Trade Common Stock. The
authorized capital stock of Holdings consists of 1,000,000 shares of Holdings
Common Stock and 1,000,000 shares of Holding Preferred Stock. None of such
preferred stock is issued and outstanding. There are 730 shares of Gaines
Berland Common Stock issued and outstanding, which are legally and beneficially
owned by the parties set forth on Schedule 3.11 hereto. There are 100 shares and
100 shares, respectively, of G-Trade Common Stock and Holdings Common Stock
issued and outstanding, all of which are legally and beneficially owned by
Gaines Berland. The Principal Shareholders own in the aggregate 567 shares of
Gaines Berland Common Stock, and Gaines Berland owns 100 and 100 shares of
G-Trade Common Stock and Holdings Common Stock, respectively, free and clear of
any liens, charges, encumbrances, shareholders' agreements (except those
referenced on Schedule 3.11, which shall be terminated prior to the Effective
Time), voting agreements, rights of first refusal, voting trusts or other
restrictions of any nature whatsoever, and a vote of such shares in favor of the
Merger and the transactions contemplated hereby would be sufficient for
shareholder approval thereof. Except as set forth on Schedule 3.11, to Gaines
Berland's knowledge, no Gaines Berland Common Stock owned by any Person other
than a Principal Shareholder is subject to any lien, charge, encumbrance,
shareholders' agreement, voting agreement, right of first refusal, voting trust
or other restriction. All shares of Gaines Berland's and each of its
Subsidiaries' outstanding capital stock have been duly authorized, are validly
issued and outstanding, and are fully paid and nonassessable. No securities
issued by Gaines Berland or any of its Subsidiaries from the date of
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of Gaines Berland or any of its
Subsidiaries. All Taxes (including documentary stamp taxes) required to be paid
in connection with the issuance by Gaines Berland or any of its Subsidiaries of
their capital stock have been paid. All
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authorizations required to be obtained from or registrations required to be
effected with any Person in connection with the issuances of securities by
Gaines Berland, and each of its Subsidiaries from their respective dates of
incorporation to the date hereof have been obtained or effected and all
securities of Gaines Berland and its Subsidiaries have been issued in accordance
with the provisions of all applicable securities and other Laws. G-Trade and
Holdings are Gaines Berland's only Subsidiaries; and neither Holdings nor
G-Trade has any Subsidiaries. Except as set forth on Schedule 3.11, neither
Gaines Berland nor any of its Subsidiaries has any equity investment in any
other corporation, association, partnership, joint venture or other entity,
except for marketable securities of publicly-held companies held in the ordinary
course of its brokerage business.
3.12 RIGHTS, WARRANTS, OPTIONS. There are no outstanding: (i)
securities or instruments convertible into or exercisable for any of the capital
stock or other equity interests of Gaines Berland or any of its Subsidiaries or
to which Gaines Berland or any of its Subsidiaries is a party; (ii) options,
warrants, subscriptions or other rights to acquire capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries issued by Gaines Berland
or any of its Subsidiaries or any other Person; or (iii) commitments, agreements
or understandings of any kind to which Gaines Berland or any of its Subsidiaries
is a party, including employee benefit arrangements, relating to the issuance or
repurchase (except pursuant to existing agreements with shareholders) by Gaines
Berland or any of its Subsidiaries of any capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries, any such securities or
instruments convertible into or exchangeable for capital stock or other equity
interests of Gaines Berland or any of its Subsidiaries or any such options,
warrants or rights.
3.13 PROPERTIES.
(a) Gaines Berland has valid title to all
properties, interests in properties and assets (real and
personal) as reflected in the balance sheets of Gaines Berland
as of February 28, 1999 or acquired after February 28, 1999
(except properties, interests in properties and assets sold or
otherwise disposed of since February 28, 1999, in the ordinary
course of business to Persons other than Affiliates of Gaines
Berland), and all of its other properties, interests in
properties and assets (real and personal), free and clear of
all mortgages, liens, pledges, charges or encumbrances of any
kind or character, except the lien of current Taxes not yet
due and payable and liens which are not in the aggregate
material. Schedule 3.13(a) lists all such liens and the
properties and assets encumbered. None of Gaines Berland or
its Subsidiaries own any real property. Schedule 3.13(a) lists
each piece of real property leased or utilized by Gaines
Berland or any its Subsidiaries, including the owner or lessee
thereof, the location thereof and the use to which it is put
by Gaines Berland and/or any of its Subsidiaries. The
facilities and equipment of Gaines Berland and its
Subsidiaries necessary to the operations of their business are
in good operating condition and repair sufficient for the
operation of their businesses as presently conducted. Gaines
Berland has delivered to Frost Hanna a true and correct copy
of all leases under which it or its Subsidiaries occupy real
property. All of such leases
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are valid, subsisting and in full force and effect and all
amounts due thereunder have been paid. There has been no
material default under any such lease or any waiver,
indulgence or postponement of performance. Gaines Berland and
its Subsidiaries enjoy peaceful and undisturbed possession
under such leases, none of which contain provisions which
would materially impair or adversely affect their ability to
operate their businesses as operated in the past or
contemplated to be operated in the future. The continuation,
validity and effectiveness of such leases will not be
materially adversely effected by the transactions contemplated
hereby. Except for those assets leased or licensed by Gaines
Berland or its Subsidiaries and listed on Schedule 3.13(a),
Gaines Berland or its Subsidiaries own all assets used in
their business.
(b) Gaines Berland or one of its
Subsidiaries owns, is licensed to use or is otherwise entitled
to use, all material patents, trademarks, trade names, service
marks, copyrights and applications for any of the foregoing,
together with all other technology, know-how, tangible or
intangible proprietary information or material and formulae
used in or necessary to their businesses (the "Gaines Berland
Intellectual Property"). Except as set forth on Schedule
3.13(b), no royalties, license fees or similar payments are
payable in connection with the use of the Gaines Berland
Intellectual Property. Schedule 3.13(b) lists all patents,
trademarks, trade names, service marks, copyrights and
applications included in the Gaines Berland Intellectual
Property. Except as disclosed on Schedule 3.13(b), no claims
have been asserted in writing to Gaines Berland or any of its
Subsidiaries or, to the knowledge of Gaines Berland, otherwise
asserted or threatened, by any Person (i) to the effect that
the Gaines Berland Intellectual Property associated or
utilized in connection with the provision of services or the
sale or use of any product or process as now used or offered
by Gaines Berland or any of its Subsidiaries infringes on any
intellectual property rights of any other Person, (ii) against
the use by Gaines Berland or any of its Subsidiaries of any of
the Gaines Berland Intellectual Property or (iii) challenging
or questioning the validity or effectiveness of any of the
Gaines Berland Intellectual Property. All granted and issued
patents and all registered trademarks and copyrights listed on
Schedule 3.13(b) are valid and subsisting.
3.14 GOVERNMENTAL AUTHORIZATIONS. Gaines Berland and its
Subsidiaries and their respective officers, directors and employees have in full
force and effect, and have in the past at all times had in full force and
effect, all Consents and Permits required under applicable Law or by
self-regulatory organizations for the ownership of their properties and
operation of their businesses, free from unreasonable restrictions, including,
but not limited to, those Consents and Permits necessary to enable them to sell
securities in any jurisdiction in which any of them operates. Except as set
forth on Schedule 3.14, none of the transactions contemplated hereby could
reasonably be expected to have an adverse effect on the status of any such
Permit or Consent or require Gaines Berland or any of its Subsidiaries or their
Affiliates to obtain any additional Consent or Permit to continue to operate the
business of Gaines Berland and its Subsidiaries as presently conducted. True and
complete copies of all correspondence between Gaines Berland and its
Subsidiaries and the Commission and all self-
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regulatory organizations since January 1, 1996 has been made available to Frost
Hanna. A true and complete list of all such Consents and Permits is set forth on
Schedule 3.14. There has at all times been compliance with all such Permits and
Consents, except for non-compliance which has been, or is in the process of
being, cured at a cost which is not material and without restrictions which are
material.
3.15 INSURANCE. Schedule 3.15 sets forth a list and
description of all insurance policies existing as of the date hereof providing
insurance coverage of any nature to Gaines Berland or any of its Subsidiaries.
All such policies are in full force and effect and are enforceable in accordance
with their terms, free of any right of termination on the part of any insurance
carrier. Except as set forth on Schedule 3.15, no claims have been made under
any such policy.
3.16 EMPLOYMENT MATTERS.
(a) Labor Unions. None of the employees of
Gaines Berland or any of its Subsidiaries is represented by
any labor union, and neither Gaines Berland nor any of its
Subsidiaries is subject to any labor or collective bargaining
agreement. None of the employees of Gaines Berland or any of
its Subsidiaries is known by Gaines Berland to be engaged in
organizing any labor union or other employee group that is
seeking recognition as a bargaining unit. Gaines Berland and
its Subsidiaries have not experienced any strike, work
stoppage or labor disturbance with any group of employees, and
to Gaines Berland's knowledge, no set of facts exists which
could reasonably be expected to lead to any of the foregoing
events.
(b) Employment Policies. Except as set forth
on Schedule 3.16(b), Gaines Berland has provided to Frost
Hanna, and FHGB, all of Gaines Berland's and its Subsidiaries'
employee policies (written or otherwise), employee manuals or
other written statements of rules or policies concerning
employment.
(c) Employment Agreements. Except as set
forth on Schedule 3.16(c), there are no employment,
consulting, severance or indemnification arrangements,
agreements, or understandings between Gaines Berland or any of
its Subsidiaries and any officer, director, consultant or
employee. Except as set forth on Schedule 3.16(c), the terms
of employment or engagement of all employees, agents,
consultants and professional advisors of Gaines Berland or any
of its Subsidiaries are such that their employment or
engagement may be terminated by not more than two weeks'
notice given at any time without liability for payment of
compensation or damages and neither Gaines Berland nor any of
its Subsidiaries has entered into any agreement or arrangement
for the management of its business or any part thereof other
than with its directors or employees.
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(d) Employee Benefit Plans. Schedule 3.16(d)
sets forth a complete list of all pension, retirement, stock
purchase, stock bonus, stock ownership, stock option, profit
sharing, savings, medical, disability, hospitalization,
insurance, deferred compensation, bonus, incentive, welfare or
any other employee benefit plan, policy, agreement,
commitment, arrangement or practice currently or previously
maintained by Gaines Berland or its Subsidiaries for any of
their directors, officers, consultants, employees, former
employees, or spouses or dependents of employees or former
employees (the "Gaines Berland Plans"). Schedule 3.16(d) also
identifies each Gaines Berland Plan which constitutes an
"employee pension benefit plan" ("Gaines Berland Pension
Plan") or an "employee welfare benefit plan" ("Gaines Berland
Welfare Plan"), as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended, and the
rules and regulations promulgated thereunder ("ERISA"). True
and accurate copies of all Gaines Berland Plans, together with
the most recent annual reports and summary plan descriptions,
have been furnished to Frost Hanna and in the case of any
unwritten Gaines Berland Plan, a written description has been
furnished to Frost Hanna. No Gaines Berland Plans is a
"multiemployer plan," as such term is defined in ERISA, or is
subject to Title IV of ERISA. No Gaines Berland Plan is or was
a defined benefit plan as defined in Section 3(35) of ERISA or
a pension plan subject to the funding standards of Section 302
of ERISA or Section 412 of the Code. Gaines Berland has the
right to amend or terminate, without the consent of any other
person, each Gaines Berland Plan, except as proscribed by law.
The termination of the Old Gaines Berland Plan has not and
will not result in any cost, expense or liability to Gaines
Berland in excess of $10,000 in the aggregate.
Each Gaines Berland Pension Plan has been determined by the IRS to be
qualified under Section 401(a) of the Code, and each such plan remains so
qualified; and, no facts or circumstances exist which could result in the
revocation of such qualification. Each Gaines Berland Welfare Plan which is
intended to meet the requirements for tax-favored treatment under Subchapter B
of Chapter 1 of the Code to Gaines Berland's knowledge meets such requirements.
Each Gaines Berland Plan has been administered in accordance with its terms and
the Code, and each Gaines Berland Pension Plan and Gaines Berland Welfare Plan
has been administered in accordance with ERISA. With respect to each Gaines
Berland Plan, all reports, returns and similar documents required to be filed
with any governmental agency or distributed to any participant have been duly or
timely filed or distributed. No facts or circumstances exist which might give
rise to any liability of Gaines Berland or any of its Subsidiaries to the
Pension Benefit Guaranty Corporation or any successor agency (the "PBGC") or
which could reasonably be anticipated to result in any claims being made against
Gaines Berland, Frost Hanna or any Subsidiary thereof by the PBGC. No facts or
circumstances exist which might give rise to any liability of any Gaines Berland
Plan, Gaines Berland, Frost Hanna or any Subsidiary thereof to any other Person.
Gaines Berland has paid all amounts required under applicable Law, any Gaines
Berland Pension Plan and any Gaines Berland Welfare Plan to be paid as a
contribution to each Gaines Berland Pension Plan and Gaines Berland Welfare Plan
through the date hereof. Gaines Berland set aside adequate reserves to meet
contributions which are not yet due under
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any Gaines Berland Pension Plan or Gaines Berland Welfare Plan. Neither Gaines
Berland, any of its Subsidiaries nor any other Person has engaged in any
transaction or taken any other action with respect to any Gaines Berland Plan
which would subject Gaines Berland, Frost Hanna or any Subsidiary thereof to:
(i) any Tax, penalty or liability for prohibited transactions under ERISA or the
Code; (ii) any Tax under Code Sections 4971, 4972, 4976, 4977 or 4979; or (iii)
a penalty under ERISA Sections 502(c) or 502(l). None of Gaines Berland or any
of its Subsidiaries, or any director, officer or employee of Gaines Berland or
any of its Subsidiaries, to the extent it or he is a fiduciary with respect to
any Gaines Berland Pension Plan or Gaines Berland Welfare Plan, has breached any
of its or his responsibilities or obligations imposed upon fiduciaries under
ERISA or the Code or which could result in any claim being made under, by or on
behalf of any Gaines Berland Pension Plan or Gaines Berland Welfare Plan or any
participant or beneficiary thereof. Each Gaines Berland Welfare Plan which is a
group health plan within the meaning of Code Section 5000(b)(1) complies in all
material respects with and in each and every case has complied in all material
respects with the applicable requirements of Code Section 4980B and Part 6 of
Title I of ERISA and the Health Insurance Portability and Accountability Act of
1996. No Gaines Berland Welfare Plan is a multi-employer welfare arrangement as
defined in Section 3(40) of ERISA. The consummation of the transactions
contemplated by this Agreement will not entitle any individuals to severance,
separation or termination pay, or similar benefits, and will not accelerate the
time of payment or vesting or increase the amount of compensation due to any
individual.
(e) Personnel. Schedule 3.16(e) sets forth
the names of all directors and officers of Gaines Berland and
each of its Subsidiaries. Except as disclosed in the Gaines
Berland Financial Statements, there are no material sums due
to any of Gaines Berland's or any of its Subsidiary's
employees.
(f) Labor Practices. No unfair labor
practice complaints have been filed against Gaines Berland or
any of its Subsidiaries, and neither Gaines Berland nor any of
its Subsidiaries has received any notice or communication
reflecting any intention or threat to make or file such a
complaint. No person has made any claim, and to the knowledge
of Gaines Berland, there is no basis for any claim against
Gaines Berland or any of its Subsidiaries arising out of any
Law relating to discrimination, employment practices or
employee complaints of illegal activity. Neither Gaines
Berland nor either of its Subsidiaries has terminated any
employee nor does either have any plans to terminate any
employee which could give rise to liability under the Worker
Adjustment and Retraining Notification Act.
3.17 MATERIAL AGREEMENTS.
(a) Schedule 3.17 sets forth a list of all
written and oral agreements, arrangements or commitments
(collectively, the "Gaines Berland Material Agreements") to
which either Gaines Berland or any of its Subsidiaries is a
party or by which it or any of their respective assets are
bound which are material to the financial position or results
of operations of Gaines Berland and its Subsidiaries on a
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consolidated basis, including, but not limited to: (i)
contract, commitment, agreement or relationship resulting in a
commitment or potential commitment for expenditure or other
obligation or potential obligation, or which provides for the
receipt or potential receipt, involving in excess of $100,000,
or series of related contracts, commitments, agreements or
relationships that in the aggregate give rise to rights or
liabilities exceeding such amount; (ii) contract or commitment
for the employment or retention of any employee, consultant or
agent or any other type of contract with any employee,
consultant or agent providing for annual payments in excess of
$100,000; (iii) indenture, mortgage, promissory note, loan
agreement, guarantee or other agreement or commitment relating
to the borrowing of money, encumbrance of assets or guaranty
of any obligation; (iv) licensing or royalty agreements or
agreements providing for other similar rights or agreements
with third parties relating to the supply or use of products
or materials or any intellectual property; (v) any plan of a
type referenced in Section 3.16; (vi) agreements which
restrict Gaines Berland or any of its Subsidiaries from
engaging in any line of business or from competing with any
other Person anywhere in the world; (vii) arrangements for the
sale of any of the assets, property or rights of Gaines
Berland or any of its Subsidiaries, except for agreements to
sell products or services in the ordinary course of business
consistent with past practices; (viii) agreement, contract or
arrangement with any Affiliate of Gaines Berland or any of its
Subsidiaries or any Affiliate of any officer, director or
employee of Gaines Berland or any of its Subsidiaries; (ix)
guaranty of the obligations of any third party; (x) any
indemnification, contribution or similar agreement or
arrangement pursuant to which Gaines Berland or any of its
Subsidiaries may be required to make or is entitled to receive
any indemnification or contribution to or from any other
Person except to the extent provided in the Articles of
Incorporation or Bylaws of Gaines Berland; (xi) agreement with
any self-regulatory organization and clearing agreement; (xii)
contract regarding the purchase or sale of Gaines Berland or
any of its Subsidiaries' securities; or (xiii) any other
contract, agreement or instrument which cannot be terminated
without penalty to Gaines Berland and/or its Subsidiaries upon
the provision of not greater than 30 days notice. True and
complete copies of all Gaines Berland Material Agreements have
been delivered to Frost Hanna.
(b) Except as set forth on Schedule 3.17,
all Gaines Berland Material Agreements have been entered into
on an "arms-length" basis with parties who are not Affiliates
of Gaines Berland. The Gaines Berland Material Agreements are
each in full force and effect and are the valid and legally
binding obligations of Gaines Berland or the applicable
Subsidiary which is a party to same and, to Gaines Berland's
knowledge, have not been materially breached by any of the
other parties thereto and are valid and binding obligations of
the other parties thereto. Neither Gaines Berland nor any of
its Subsidiaries is in default under its Articles or
Certificate of Incorporation or Bylaws or in material default
or alleged material default under any Material Agreement to
which it is a party, and no event has occurred which with the
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giving of notice or lapse of time or both would constitute
such a default. Except as set forth on Schedule 3.17, the
continuation, validity and effectiveness of each Gaines
Berland Material Agreement under the current terms thereof
will in no way be affected by the consummation of the
transactions contemplated hereby and all of such items will
inure to the benefit of Frost Hanna (as the parent of the
surviving corporation in the Merger). Either Gaines Berland or
one of its Subsidiaries has performed all the obligations
required to be performed by it to date and is not in material
default or alleged to be in material default in any respect
under any agreement, lease, contract, commitment, instrument
or obligation required to be listed or described on any
schedule to this Agreement, and there exists no event,
condition or occurrence which, after notice or lapse of time,
or both, would constitute such a default by it or, to the best
of its knowledge, any other party to any of the foregoing.
3.18 LIST OF ACCOUNTS. Schedule 3.18 sets forth, as of the
date hereof: (i) the name and address of each bank or other institution in which
Gaines Berland or any of its Subsidiaries maintains an account (cash, securities
or other) or safe deposit box; (ii) the name and phone number of the contact
person at such bank or institution; (iii) the account number of the relevant
account and a description of the type of account; and (iv) the persons
authorized to transact business in such accounts.
3.19 INVENTORY OF SECURITIES. Except as set forth on Schedule
3.19, neither Gaines Berland nor its Subsidiaries, as of the date hereof, has
any ownership positions (long, short or otherwise) in the securities of any
publicly-held company valued in excess of $100,000.
3.20 RELATED PARTY TRANSACTIONS. Except as set forth on
Schedule 3.20, no director, officer, shareholder or employee of Gaines Berland
or any of its Subsidiaries or any Principal Shareholder (individually a "Gaines
Berland Related Party" and collectively the "Gaines Berland Related Parties") or
any Affiliate of any Gaines Berland Related Party: (i) owns (or during the past
three years has owned), directly or indirectly, any interest in any Person which
is a competitor or potential competitor of Gaines Berland, or a supplier or
potential supplier of Gaines Berland, except for the ownership of not more than
4.9% of the outstanding stock of any company listed by a national stock exchange
or the NASDAQ stock market or the OTC bulletin board, (ii) owns (or during the
past three years has owned), directly or indirectly, in whole or in part, any
material property, asset (other than cash) or right, real, personal or mixed,
tangible or intangible, which is associated with or necessary in the operation
of the business of Gaines Berland; or (iii) has (or during the past three years
has had) an interest in or is (or during the past three years has been),
directly or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to Gaines Berland.
3.21 TAX MATTERS.
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(a) Except as set forth on Schedule 3.21(a),
all federal, state, local and foreign Tax returns and Tax
reports, if any, required to be filed with respect to the
business or assets of Gaines Berland and its Subsidiaries have
been filed with the appropriate Governmental Authorities in
all jurisdictions in which such returns and reports are
required to be filed; all of the foregoing as filed are true,
correct and complete, and reflect accurately all liability for
Taxes of Gaines Berland and its Subsidiaries for the periods
for which such returns relate; and all amounts shown as owing
thereon have been paid. None of such returns or reports have
been audited by any Governmental Authority.
(b) All Taxes, if any, payable by Gaines
Berland or its Subsidiaries or relating to or chargeable
against any of their assets, revenues or income have been
fully paid by such date or provided for by adequate reserves
in the Gaines Berland Financial Statements, and available to
Gaines Berland and all similar items due through the Closing
will have been fully paid by that date or provided for by
adequate reserves on the books of Gaines Berland and its
Subsidiaries, which reserves shall remain available to Gaines
Berland, through the Closing.
(c) None of Gaines Berland or any of its
Subsidiaries will have any liability with respect to any such
Taxes including, but not limited to, interest and/or
penalties, in excess of the amount so paid or the reserves so
established on the books of Gaines Berland and its
Subsidiaries. Neither Gaines Berland nor any of its
Subsidiaries is delinquent in the payment of any Tax. No
deficiencies for any Tax have been asserted against Gaines
Berland or any of its Subsidiaries with respect to any Taxes
which have not been paid, settled or adequately provided for
and there exists no basis for the making of any such
deficiency, assessment or charge.
(d) Neither Gaines Berland nor any of its
Subsidiaries has waived any restrictions on assessment or
collection of taxes or consented to the extension of any
statute of limitations relating to federal, state, local or
foreign taxation.
3.22 GUARANTIES. Except as set forth on Schedule 3.22, neither
Gaines Berland nor any of its Subsidiaries is a party to any Guaranty.
3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. No employee or
agent of Gaines Berland or any of its Subsidiaries, and no officer or director
or Principal Shareholder of Gaines Berland or any of its Subsidiaries and no
other Person acting at the direction of any of the foregoing or associated or
Affiliated with Gaines Berland or any of its Subsidiaries, and no other Person
for whom Gaines Berland or any of its Subsidiaries may be responsible, acting
alone or together, has (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other Person with whom
Gaines Berland or any of its Subsidiaries has done business directly or
indirectly, or (ii) directly or indirectly, given or
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agreed to give any gift or similar benefit to any customer, supplier, trading
company, shipping company, governmental employee or other Person who is or may
be in a position to help or hinder the business of Gaines Berland and any of its
Subsidiaries (or assist Gaines Berland or any of its Subsidiaries in connection
with any actual or proposed transaction), in either event which (a) may subject
Gaines Berland or any of its Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, or (b) if not given, may have
an adverse effect on the results of operations, assets, business, operations or
prospects of Gaines Berland or any of its Subsidiaries or may lead to suit or
penalty in any private or governmental litigation or proceeding. None of the
foregoing Persons has, directly or indirectly, offered, paid, or agree to pay to
any Person or solicited, received or agreed to receive from any such Person,
directly or indirectly, any money or anything of value for the purpose or with
the intent of (i) obtaining or maintaining business for Gaines Berland or any of
its Subsidiaries, (ii) facilitating the purchase or sale of any product or
service, or (iii) avoiding the imposition of any fine or penalty, in any manner
which is in violation of any applicable Law.
3.24 PROXY STATEMENT AND DISCLOSURE DOCUMENTS. None of the
information relating to Gaines Berland or any of its Subsidiaries included in
the Frost Hanna Proxy Statement or the Gaines Berland Disclosure Document at the
respective times that they are mailed to Frost Hanna's and Gaines Berland's
shareholders and at the times the Frost Hanna and Gaines Berland shareholders'
meetings take place to approve the Merger (subject, if required, to a reasonable
period of time for the parties hereto to take such action necessary to
supplement or amend such documents), contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All information in such documents relating to Gaines Berland,
including any amendments thereto, will comply with, and the Gaines Berland
Disclosure Document shall be distributed to Gaines Berland's shareholders in
accordance with applicable Laws and Gaines Berland's Articles of Incorporation
and Bylaws.
3.25 BROKER-DEALER REGISTRATION; REGULATORY ISSUES.
(a) Except as set forth on Schedule 3.25,
Gaines Berland is registered as a broker-dealer with the
Commission and the New York Bureau of Securities, and is a
member in good standing of the NASD, and G-Trade has made (or
will make) all filings necessary to apply therefor.
(b) Gaines Berland has filed all Form BDs
(including all amendments thereto) required to be filed with
the Commission, each of which has complied with the Exchange
Act, as amended, each as in effect on the date so filed.
Gaines Berland has heretofore furnished to Frost Hanna correct
and complete copies of such Form BDs (including all amendments
thereto). None of such Form BDs contained, when filed, any
untrue statement of material fact required to be stated or
incorporated by reference therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Except to the
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extent amended or superseded by a subsequent filing with the
Commission (a copy of which has been provided to Frost Hanna
prior to the date hereof), none of the Form BDs (including all
amendments thereto) contains any untrue statement of a
material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading. All copies of such Form BDs
(including all amendments thereto) required to be filed with
any state have been filed in a timely manner. Gaines Berland
is not subject to the Investment Advisors Act of 1940.
(c) Gaines Berland has filed all SRO Reports
required to be filed with any self-regulatory organizations
since January 1, 1995, each of which has complied with the
rules of the self-regulatory organization, each as in effect
on the date so filed. Gaines Berland has heretofore furnished
to Frost Hanna correct and complete copies of the SRO Reports.
None of the SRO Reports contained, when filed, any untrue
statement of material fact required to be stated or
incorporated by reference therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent revised
or superseded by a subsequent filing with the self-regulatory
organization (a copy of which has been provided to Frost Hanna
prior to the date thereof), none of the SRO Reports contains
any untrue statement of a material fact or omits to state a
material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(d) Gaines Berland has registered as a
broker-dealer in each jurisdiction in which such registration
has been required since January 1, 1995. Gaines Berland has
filed or caused to be filed all forms, reports, statements,
and documents (including all Form U-4s on behalf of registered
representatives) required to be filed with any state since
January 1, 1995. Any such forms, reports, statements, and
documents are accurate in all material respects.
(e) True and correct copies of all DRP's
with respect to Gaines Berland personnel have been made
available to Frost Hanna. A true and correct copy of all
audits, inspections and reports of, and correspondence from
and to, all self regulatory organizations within the last
three years with respect to Gaines Berland have been made
available to Frost Hanna. A true and complete copy of Gaines
Berland's focus reports for the last three fiscal years has
been made available to Frost Hanna, as well as a true and
complete copy of the compliance manuals of Gaines Berland.
Such focus reports have been prepared and filed in compliance
with all NASD rules and regulations. True and complete copies
of Gaines Berland's clearing agreement, NASD restriction
letter, form of customer agreement, and agreements concerning
discretionary accounts have been made available to Frost
Hanna. Set forth on Schedule 3.25 is a list of all audits,
citations relating to the business of Gaines
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Berland, complaints and or pending disciplinary proceedings
and known regulatory proceedings relating to Gaines Berland or
its personnel. Schedule 3.25 also sets forth a true and
complete list of all branch offices of Gaines Berland and
their addresses and dates of commencement of operations.
Schedule 3.25 also sets forth a list of all SIPC claims since
January 1, 1996. Gaines Berland obtained all necessary Permits
and Consents from NASD and all Governmental Authorities to
operate such branch offices.
(f) All customer complaints reportable
pursuant to NASD Notice to Members 95-81 (including all
amendments thereto and NASD interpretations thereof) ("95-81")
which have been made against Gaines Berland or its registered
representatives in writing since January 1, 1996, have been
reported in accordance with 95-81, all such complaints are set
forth in Schedule 3.25, and copies of each such complaint have
been made available to Frost Hanna. Except as noted on
Schedule 3.25 none of such complaints which have been disposed
of currently requires any payment or other action to be made
by Gaines Berland. Gaines Berland is in compliance with all
net capital rules and all net capital regulations of NASD and
the Commission.
(g) To the best of Gaines Berland's
knowledge, the reserves set forth in the Gaines Berland
Financial Statements as of February 28, 1999, are reasonably
expected to be adequate and sufficient to satisfy all
liabilities, contingent or otherwise, with respect to any and
all filed, pending, known customer complaints ("Customer
Complaints"), including any and all regulatory proceedings,
investigations or actions, whether pending or known. There are
no known threatened Customer Complaint, regulatory
proceedings, investigations or actions which individually or
in the aggregate could reasonably be expected to have a
material impact on such reserves. Gaines Berland has no
current intention to cause Frost Hanna to go private, or to
have or cause its capital stock to become delisted from any
exchange or any inter-dealer quotation system, or to become
liquidated or dissolved after the Effective Time.
(h) To the best of Gaines Berland's
knowledge, Gaines Berland has complied with all material
restrictions on the operation of its business set forth in any
NASD restriction letter, as amended. To the best of Gaines
Berland's knowledge, Gaines Berland has complied with all the
material terms prescribed in its compliance manuals and
written supervisory manuals.
3.26 YEAR 2000 PROBLEMS. To Gaines Berland's knowledge, all
Year 2000 Problems (as defined below) with respect to the internal systems of
Gaines Berland and its Subsidiaries have been (or, prior to December 31, 1999,
will be) corrected, remediated and resolved, except where the failure to do so
could not reasonably be expected to have a Gaines Berland Material Adverse
Effect, individually or in the aggregate. "Year 2000 Problems" shall mean, with
respect to
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Gaines Berland and its Subsidiaries, limitations on the capacity or readiness of
any of their Year 2000 Date-Sensitive Systems/Components to accurately accept,
create, manipulate, short, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000
Date-Sensitive Systems/Components of Gaines Berland and its Subsidiaries and
exchanges of information among them and Year 2000 Date-Sensitive
Systems/Components of third parties and functionality of peripheral interfaces,
firmware and embedded microchips. "Year 2000 Date-Sensitive System/Component"
shall mean, as to any Person, any system software, network software,
applications software, data base, computer file, embedded microchip, firmware or
hardware that accepts, creates, manipulates, sorts, sequences, calculates,
compares or outputs calendar-related data accurately, such systems and
components shall include, without limitation, mainframe computers, file
server/client systems, computer workstations, routers, hubs, other
network-related hardware, and other computer-related software, firmware or
hardware and information processing and delivery systems of any kind and
telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems. Gaines Berland has completed its
Form BD-Y2K in accordance with NASD rules and regulations and the instructions
thereto, and filed such Form in a timely manner; the information contained
therein is true, correct and complete; and a true, correct and complete copy
thereof has been provided to Frost Hanna.
3.27 INVESTMENT REPRESENTATIONS. Each of the shareholders of
Gaines Berland has had (or prior to the meeting of Gaines Berland's shareholders
contemplated hereby will have) both the opportunity to ask questions of and
receive answers from the officers and directors of Gaines Berland, and Frost
Hanna with respect to the transactions contemplated hereby and the business of
the parties hereto, and to receive such additional information as they have
requested with respect thereto. Each shareholder of Gaines Berland has
represented that he is an "Accredited Investor" within the meaning of Regulation
D promulgated under the Securities Act and that he is a sophisticated investor;
and Gaines Berland has no reasonable basis to believe that any such
representation is not true. The name of each legal and beneficial owner of
interests in the shares of Gaines Berland is set forth on Schedule 3.27 and,
except as set forth on Schedule 3.27, each such owner is a bona fide resident of
the State of New York. Each shareholder of Gaines Berland has been provided with
a copy of this Agreement and the Commission filings referred to herein.
3.28 SUBSCRIPTION RECEIVABLES; ENERGY FUND. All subscription
receivables which have ever been reflected on any Gaines Berland Financial
Statement have subsequently been paid in full or otherwise satisfied to Gaines
Berland. Gaines Berland Energy Fund, L.P. will be terminated, liquidated and
dissolved, all at no cost, liability or expense to Gaines Berland or any
Subsidiary, and it is not engaged in any business activities.
3.29 DISCLOSURE. No representation or warranty of Gaines Berland
contained in this Agreement or the schedules hereto, and no certificate or
notice furnished by or on behalf of Gaines Berland or any of its Subsidiaries to
Frost Hanna or its agents pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits to state a material fact
necessary in
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order to make the statements contained herein or therein not misleading. None of
the Principal Shareholders or any executive officer or director of Gaines
Berland or any of its Subsidiaries has been the subject of any of the events
referenced in Section 401(f) of Regulation S-K.
IV
REPRESENTATIONS AND WARRANTIES OF FROST HANNA AND FHGB
In order to induce Gaines Berland to enter into this Agreement and to
consummate the transactions contemplated hereby, Frost Hanna and FHGB jointly
and severally make the representations and warranties set forth below to Gaines
Berland.
4.1 ORGANIZATION. Each of Frost Hanna and FHGB is a
corporation duly organized, validly existing and in good standing under the Laws
of its state of incorporation. Each of Frost Hanna and FHGB is duly qualified to
transact business as a foreign corporation in all jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the financial condition, results of operations,
assets, liabilities, prospects or business of Frost Hanna and FHGB on a
consolidated basis (a "Frost Hanna Material Adverse Effect"). Each jurisdiction
in which Frost Hanna or FHGB is qualified to transact business as a foreign
corporation is listed on Schedule 4.1. Each of Frost Hanna and FHGB has the
corporate authority to (i) own or lease and operate its properties and (ii)
conduct its business as presently conducted. Each of Frost Hanna and FHGB has
the corporate authority to execute, deliver and perform this Agreement.
4.2 AUTHORIZATION; ENFORCEABILITY. Subject to the receipt of
shareholder approval, the execution, delivery and performance of this Agreement
by Frost Hanna and FHGB and the consummation by Frost Hanna and FHGB of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Frost Hanna and FHGB. This Agreement has been
duly executed and delivered by Frost Hanna and FHGB and constitutes the legal,
valid and binding obligations of them, enforceable against them in accordance
with their terms, except to the extent that their enforcement is limited by
bankruptcy, insolvency, reorganization or other Laws relating to or affecting
the enforcement of creditors' rights generally or by general principles of
equity.
4.3 NO VIOLATION OR CONFLICT. Except as set forth on Schedule
4.3, the execution, delivery and performance by Frost Hanna and FHGB of this
Agreement and the consummation by Frost Hanna, and FHGB of the transactions
contemplated hereby; (i) do not and will not violate or conflict with any
provision of Law or any Order specifically naming Frost Hanna or any of its
Subsidiaries, or any provision of Frost Hanna's or FHGB's Articles of
Incorporation or Bylaws; and (ii) do not and will not, with or without the
passage of time or the giving of notice, (a) result in the breach of, or
constitute a default, cause the acceleration of performance, permit the
unilateral modification or termination of, or require any Consent under, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of Frost Hanna or any of its Subsidiaries pursuant
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to, any material instrument or agreement to which Frost Hanna or any of its
Subsidiaries is a party or by which Frost Hanna or any of its Subsidiaries or
their respective properties may be bound or affected; or (b) result in any
violation, suspension, revocation, impairment, forfeiture or nonrenewal of any
Permit or Consent.
4.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Other than in
connection with the Florida BCA, the New York BCL, the Exchange Act, the
Securities Act of 1933, as amended ("Securities Act"), and the state securities
Laws of any jurisdiction, no Consent or Permit from, of or with any Governmental
Authority is required to be made by Frost Hanna or FHGB in connection with the
execution, delivery or performance by Frost Hanna or FHGB of this Agreement or
the consummation by Frost Hanna or FHGB of the transactions contemplated hereby.
There is no unresolved objection to the Merger made by any Governmental
Authority or self-regulatory organization.
4.5 FINANCIAL STATEMENTS; COMMISSION REPORTS. Except as set
forth on Schedule 4.5, the financial statements of Frost Hanna included in the
Frost Hanna Commission Reports (the "Frost Hanna Financial Statements"), as of
the dates thereof, and for the periods covered thereby: (i) have been prepared
in accordance with the books of account and records of Frost Hanna; (ii) fairly
present in all material respects Frost Hanna's financial condition, assets,
liabilities and equity as of the dates thereof; and (iii) have been prepared in
accordance with generally accepted accounting principles consistently applied.
Other than as disclosed by the Frost Hanna Financial Statements dated March 31,
1999 or on Schedule 4.5, neither FHGB nor Frost Hanna has any liabilities,
commitments or obligations (which reasonably could be expected to be material to
Frost Hanna and FHGB on a consolidated basis) of any nature whatsoever, whether
accrued, contingent or otherwise (other than nonmaterial liabilities,
commitments or obligations incurred since March 31, 1999 in the ordinary course
of business consistent with past practices to Persons other than Affiliates of
Frost Hanna) or any unrealized or anticipated losses (which reasonably could be
expected to be material to Frost Hanna) from any commitments of Frost Hanna,
and, to Frost Hanna's knowledge, there is no reasonable basis for assertion
against Frost Hanna of any such liability, commitment, obligation or loss. Any
supporting schedules included in the Frost Hanna Commission Reports present
fairly, in all material respects, the information required to be stated therein.
Such Frost Hanna Financial Statements and supporting schedules: (i) were prepare
in accordance with Regulation S-X promulgated by the Commission; (ii) present
fairly in all material respects the financial condition of Frost Hanna and the
results of operations as at and for the respective periods then ended; and (iii)
except as otherwise noted in the Frost Hanna Commission Reports, were prepared
in conformity with generally accepted accounting principals applied on a
consistent basis. To the extent any such Frost Hanna Financial Statements and
supporting schedules are audited, they were audited by independent public
accountants within the meaning of the rules promulgated by the Commission. Frost
Hanna has heretofore furnished or made available to Gaines Berland entire and
complete copy of each report (the "Frost Hanna Commission Report") filed by
Frost Hanna with the Commission pursuant to the Securities Exchange Act of 1934,
as amended ("Exchange Act") since its inception. None of the Frost Hanna
Commission Reports, as of the dates they were respectively filed with the
Commission, contained any untrue statement of a Material fact or omitted to
state or material fact required to be
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stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.6 COMPLIANCE WITH LAWS.
(a) Each of Frost Hanna and FHGB is in
compliance with all Laws and Orders applicable to it or its
properties. Neither Frost Hanna nor FHGB has received
notification from any Governmental Authority asserting that it
may not be in compliance with or may have violated any of the
Laws which said Governmental Authority enforces, or
threatening to revoke any Consent or Permit, and neither Frost
Hanna nor FHGB is subject to any agreement or consent decree
with any Governmental Authority arising out of previously
asserted violations. Gaines Berland has been furnished with
true and correct copies of all records of inspections and
reports of any of Frost Hanna's or FHGB's businesses or
properties since incorporation under applicable Laws or
conducted by insurance companies, consultants or other
Persons; and all deficiencies noted therein have been
corrected. Gaines Berland has been furnished with true and
correct copies of all correspondence and other filings made to
or received from any Governmental Authority regarding Frost
Hanna or FHGB since their incorporation.
(b) There are, with respect to Frost Hanna
and FHGB, no past or present violations of any Environmental
Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents or
contractual obligations which may give rise to any common law
or other legal liability, including, without limitation, under
CERCLA or similar state or local laws.
4.7 LEGAL PROCEEDINGS. Except as set forth on Schedule 4.7,
neither Frost Hanna nor FHGB is, nor since incorporation has been, a party to
any pending or, to the knowledge of Frost Hanna, threatened, legal,
administrative or other proceeding, arbitration or investigation, and Frost
Hanna has no knowledge of any set of facts which could reasonably be expected to
result in any legal, administrative or other proceeding, arbitration or
investigation involving Frost Hanna or FHGB. Except as set forth on Schedule
4.7, neither Frost Hanna nor FHGB is subject to any Order of any court or
Governmental Authority. Each of Frost Hanna and FHGB is in compliance with the
terms of each Order set forth on Schedule 4.7. None of the items set forth on
Schedule 4.7 could, individually or in the aggregate, reasonably be expected to
have a Frost Hanna Material Adverse Effect.
4.8 BROKERS. Except as set forth on Schedule 4.8, neither
Frost Hanna nor FHGB has employed any financial advisor, broker or finder and
none has incurred and none will incur any broker's, finder's, investment banking
or similar fees, commissions or expenses to any other party in connection with
the transactions contemplated by this Agreement.
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4.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth
on Schedule 4.9, from March 31, 1999 to the date hereof: (i) each of Frost Hanna
and FHGB has conducted its businesses in the ordinary and usual course
consistent with past practices; (ii) there has been no occurrence which is
reasonably likely to cause Frost Hanna Material Adverse Effect; and (iii)
neither Frost Hanna nor FHGB has engaged or agreed to engage in any of the
actions described in Section 5.1 (except subsections (xiii) and (xvi) thereof).
4.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True
and complete copies of the Articles of Incorporation, as amended to date,
Bylaws, as amended to date, and minute books of Frost Hanna and FHGB have been
delivered by Frost Hanna to Gaines Berland. Such documents books contain
complete and accurate records in all material respects and have embodied therein
copies of minutes of all meetings and actions by written consent of the
incorporators, boards of directors (and committees thereof) and shareholders of
such entities from the date of incorporation to the date hereof; and such items
accurately reflect all material actions taken by such Persons.
4.11 CAPITALIZATION. As of the date hereof, the authorized
capital stock of Frost Hanna consists of 100,000,000 shares of Frost Hanna
Common Stock, of which 2,657,202 shares are issued and outstanding. All shares
of Frost Hanna's and FHGB's outstanding capital stock have been duly authorized,
are validly issued and outstanding, and are fully paid and nonassessable. No
securities issued by Frost Hanna or FHGB from the date of its incorporation to
the date hereof were issued in violation of any statutory or common law
preemptive rights. There are no dividends which have accrued or been declared
but are unpaid on the capital stock of Frost Hanna or FHGB. All Taxes (including
documentary stamp taxes) required to be paid in connection with the issuance by
Frost Hanna or FHGB of Frost Hanna's and FHGB's capital stock have been paid.
All authorizations required to be obtained from or registrations required to be
effected with any Person in connection with the issuances of securities by Frost
Hanna and FHGB from their respective dates of incorporation to the date hereof
have been obtained or effected and all securities of Frost Hanna and FHGB have
been issued in accordance with the provisions of all applicable securities and
other Laws. The authorized capital stock of FHGB consists of 100 shares of FHGB
Common Stock, all of which are issued and outstanding and owned by Frost Hanna,
free and clear of all liens, charges, claims or encumbrances. FHGB is Frost
Hanna's sole Subsidiary. Neither Frost Hanna nor FHGB has any equity investment
in any other corporation, association, partnership, joint venture or other
entity. Except as set forth on Schedule 4.11, Frost Hanna has granted no
registration rights with respect to Frost Hanna Common Stock.
4.12 RIGHTS, WARRANTS, OPTIONS. Except as set forth on
Schedule 4.12, there are no outstanding: (i) securities or instruments
convertible into or exercisable for any of the capital stock or other equity
interests of Frost Hanna or FHGB or any other Person issued by Frost Hanna or
FHGB or to which Frost Hanna or FHGB is a party; (ii) options, warrants,
subscriptions or other rights to acquire capital stock or other equity interests
of Frost Hanna or FHGB issued by Frost Hanna or FHGB; or (iii) commitments,
agreements or understandings of any kind to which Frost Hanna or FHGB is a
party, including employee benefit arrangements, relating to the issuance or
repurchase by Frost Hanna or FHGB of any capital stock or other equity interests
of Frost Hanna or
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FHGB, any such securities or instruments convertible into or exchangeable for
capital stock or other equity interests of Frost Hanna or any such options,
warrants or rights.
4.13 PROPERTIES. Frost Hanna and FHGB have valid title to all
properties, interests in properties and assets as reflected in the consolidated
balance sheet of Frost Hanna as of March 31, 1999 or acquired after March 31,
1999 (except properties, interests in properties and assets sold or otherwise
disposed of since March 31, 1999 in the ordinary course of business to Persons
other than Affiliates of Frost Hanna), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except the lien of
current Taxes not yet due and payable. Frost Hanna and FHGB own no real
property. Schedule 4.13 lists each piece of real property leased by Frost Hanna.
The facilities and equipment of Frost Hanna and FHGB necessary to the operations
of their business are in good operating condition and repair sufficient for the
operation of the business as presently conducted. Except for those assets leased
or licensed by Frost Hanna or FHGB and listed on Schedule 4.13, Frost Hanna or
FHGB own all assets used in their business.
4.14 GOVERNMENTAL AUTHORIZATIONS. Frost Hanna and FHGB have in
full force and effect all Consents and Permits required under applicable Law for
the ownership of their properties and operation of their businesses as presently
operated free from unreasonable restrictions. Except as set forth on Schedule
4.14, none of the transactions contemplated hereby could reasonably be expected
to have an adverse effect on the status of any such Permit. None of the
transactions contemplated hereby could reasonably be expected to have an adverse
effect on the status of any such Permit or Consent or require Frost Hanna or its
Affiliates to obtain any additional Consent or Permit to continue to operate its
business as previously conducted. A true and complete list of all such Consents
and Permits is set forth on Schedule 4.14. There has at all times been
compliance with all such Permits and Consents.
4.15 INSURANCE. Schedule 4.15 sets forth a list and
description of all insurance policies existing as of the date hereof providing
insurance coverage of any nature to Frost Hanna and FHGB. All such policies are
in full force and effect and are enforceable in accordance with their terms,
free of any right of termination on the part of any insurance carrier. No claims
have been made on any such policies.
4.16 EMPLOYMENT MATTERS.
(a) LABOR UNIONS. None of the employees of
Frost Hanna or FHGB is represented by any labor union, and
neither Frost Hanna or FHGB is subject to any labor or
collective bargaining agreement. None of the employees of
Frost Hanna or FHGB is known by Frost Hanna to be engaged in
organizing any labor union or other employee group that is
seeking recognition as a bargaining unit. Frost Hanna and FHGB
have not experienced any strike, work stoppage or labor
disturbance with any group of employees, and to Frost Hanna's
knowledge, no set of facts exists which could reasonably be
expected to lead to any of the foregoing events.
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(b) EMPLOYMENT POLICIES. Frost Hanna has
provided to Gaines Berland all of Frost Hanna's and FHGB's
employee policies (written or otherwise), employee manuals or
other written statements of rules or policies concerning
employment.
(c) EMPLOYMENT AGREEMENTS. Except as set
forth on Schedule 4.16(c), there are no employment,
consulting, severance or indemnification arrangements,
agreements, or understandings between Frost Hanna or FHGB and
any officer, director, consultant or employee. Except as set
forth on Schedule 4.16(c), the terms of employment or
engagement of all employees, agents, consultants and
professional advisors of Frost Hanna and FHGB are such that
their employment or engagement may be terminated by not more
than two weeks' notice given at any time without liability for
payment of compensation or damages and neither Frost Hanna nor
FHGB has entered into any agreement or arrangement for the
management of its business or any part thereof other than with
its directors or employees.
(d) EMPLOYEE BENEFIT PLANS. Frost Hanna has
no pension, retirement, stock purchase, stock bonus, stock
ownership, stock option, profit sharing, savings, medical,
disability, hospitalization, insurance, deferred compensation,
bonus, incentive, welfare or any other employee benefit plan,
policy, agreement, commitment, arrangement or practice
currently or previously maintained by Frost Hanna or FHGB for
any of their directors, officers, consultants, employees or
former employees. Frost Hanna has no plan which constitutes an
"employee pension benefit plan" or an "employee welfare
benefit plan", as such terms are defined in ERISA.
(e) PERSONNEL. Schedule 4.16(e) sets forth
the names of all directors and officers of Frost Hanna and
FHGB. Except as disclosed in the Frost Hanna Financial
Statements, there are no material sums due to any of Frost
Hanna or FHGB employees.
(f) LABOR PRACTICES. No unfair labor
practice complaints have been filed against Frost Hanna or
FHGB, and neither Frost Hanna nor FHGB has received any notice
or communication reflecting any intention to make or file such
a complaint. No person has made any claim, and to the
knowledge of Frost Hanna or FHGB, there is no basis for any
claim against Frost Hanna or FHGB arising out of any law
relating to discrimination or employment practices.
4.17 MATERIAL AGREEMENTS.
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(a) Schedule 4.17 sets forth a list of all
written and oral agreements, arrangements or commitments
(collectively, the "Frost Hanna Material Agreements") to which
either Frost Hanna or FHGB is a party or by which it or any of
their respective assets are bound which are material to the
financial position or results of operations of Frost Hanna and
FHGB on a consolidated basis including, but not limited to:
(i) contract, commitment, agreement or relationship resulting
in a commitment or potential commitment for expenditure or
other obligation or potential obligation, or which provides
for the receipt or potential receipt, involving in excess of
$25,000, or series of related contracts, commitments,
agreements or relationships that in the aggregate give rise to
rights or liabilities exceeding such amount; (ii) contract or
commitment for the employment or retention of any employee,
consultant or agent or any other type of contract with any
employee, consultant or agent providing for annual payments in
excess of $25,000; (iii) indenture, mortgage, promissory note,
loan agreement, guarantee or other agreement or commitment
relating to the borrowing of money, encumbrance of assets or
guaranty of any obligation; (iv) licensing or royalty
agreements or agreements providing for other similar rights or
agreements with third parties relating to the supply or use of
products or materials or any intellectual property; (v) any
plan of a type referenced in Section 4.16; (vi) agreements
which restrict Frost Hanna or FHGB from engaging in any line
of business or from competing with any other Person anywhere
in the world; (vii) agreements or arrangements for the sale of
any of the assets, property or rights of Frost Hanna or FHGB,
except for agreements to sell products or services in the
ordinary course of business consistent with past practices;
(viii) agreement, contract or arrangement with any Affiliate
of Frost Hanna or FHGB or any Affiliate of any officer,
director or employee of Frost Hanna or FHGB; (ix) guaranty of
the obligations of any third party; (x) any indemnification,
contribution or similar agreement or arrangement pursuant to
which Frost Hanna or FHGB may be required to make or is
entitled to receive any indemnification or contribution to or
from any other Person except to the extent provided in the
Articles of Incorporation or Bylaws of Frost Hanna; or (xi)
any other contract, agreement or instrument which cannot be
terminated without penalty to Gaines Berland and its
Subsidiaries, upon the provision of not greater than 30 days
notice.
(b) Except as set forth on Schedule 4.17,
all Frost Hanna Material Agreements have been entered into on
an "arms-length" basis with parties who are not Affiliates of
Frost Hanna. The Frost Hanna Material Agreements are each in
full force and effect and are the valid and legally binding
obligations of Frost Hanna or FHGB and, to Frost Hanna's
knowledge, have not been breached by any of the other parties
thereto and are valid and binding obligations of the other
parties thereto. Neither Frost Hanna nor FHGB is in default
under its Articles of Incorporation or Bylaws or in default or
alleged default under any Frost Hanna Material Agreement to
which it is a party, and no event has occurred which with the
giving of notice or lapse of time or both would constitute
such a default. Except as set forth on Schedule 4.17,
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the continuation, validity and effectiveness of each Frost
Hanna Material Agreement under the current terms thereof will
in no way be affected by the consummation of the transactions
contemplated hereby and all of such items will inure to the
benefit of Frost Hanna (as the parent of the surviving
corporation in the Merger). Frost Hanna has performed all the
obligations required to be performed by it to date and is not
in default or alleged to be in default in any respect under
any agreement, lease, contract, commitment, instrument or
obligation required to be listed or described on any schedule
to this Agreement, and there exists no event, condition or
occurrence which, after notice or lapse of time, or both,
would constitute such a default by it, or, to the best of its
knowledge, any other party to any of the foregoing.
4.18 LIST OF ACCOUNTS. Schedule 4.18 sets forth, as of the
date hereof: (i) the name and address of each bank or other institution in which
Frost Hanna or FHGB maintains an account (cash, securities or other) or safe
deposit box; (ii) the name and phone number of the contact person at such bank
or institution; (iii) the account number of the relevant account and a
description of the type of account; and (iv) the persons authorized to transact
business in such accounts.
4.19 BUSINESS. Frost Hanna and FHGB have not engaged in any
business other than to seek to effect a business combination.
4.20 RELATED PARTY TRANSACTIONS. Except as set forth on
Schedule 4.20, no director, officer, shareholder or employee of Frost Hanna or
FHGB (individually a "Frost Hanna Related Party" and collectively the "Frost
Hanna Related Parties") or any Affiliate of any Frost Hanna Related Party: (i)
owns, directly or indirectly, any interest in any Person which is a competitor
or potential competitor of Frost Hanna, or a supplier or potential supplier of
Frost Hanna, except for the ownership of not more than 2% of the outstanding
stock of any company listed by a national stock exchange or the NASDAQ stock
market; (ii) owns, directly or indirectly, in whole or in part, any material
property, asset (other than cash) or right, real, personal or mixed, tangible or
intangible, which is associated with or necessary in the operation of the
business of Frost Hanna, as presently conducted; or (iii) has an interest in or
is, directly or indirectly, a party to any contract, agreement, lease or
arrangement pertaining or relating to Frost Hanna.
4.21 TAX MATTERS.
(a) All federal, state, local and foreign
Tax returns and Tax reports, if any, required to be filed with
respect to the business or assets of Frost Hanna and FHGB have
been filed with the appropriate Governmental Authorities in
all jurisdictions in which such returns and reports are
required to be filed; all of the foregoing as filed are true,
correct and complete, and reflect accurately all liability for
Taxes of Frost Hanna and FHGB for the periods for which such
returns relate; and all amounts shown as owing thereon have
been paid. None of such returns or reports have been audited
by any Governmental Authority. Neither Frost Hanna nor FHGB
has filed any Tax extension.
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(b) All Taxes, if any, payable by Frost
Hanna and FHGB or relating to or chargeable against any of
their assets, revenues or income have been fully paid by such
date or provided for by adequate reserves in the Frost Hanna
Financial Statements and all similar items due through the
Closing will have been fully paid by that date or provided for
by adequate reserves on the books of Frost Hanna and FHGB,
which reserves shall remain available through the Closing.
(c) None of Frost Hanna or FHGB will have
any liability with respect to any such Taxes including, but
not limited to, interest and/or penalties, in excess of the
amount so paid or the reserves so established on the books of
Frost Hanna and FHGB. Neither Frost Hanna nor FHGB is
delinquent in the payment of any Tax. No deficiencies for any
Tax have been asserted against Frost Hanna or FHGB with
respect to any Taxes which have not been paid, settled or
adequately provided for and there exists no basis for the
making of any such deficiency, assessment or charge.
(d) Neither Frost Hanna nor FHGB has waived
any restrictions on assessment or collection of taxes or
consented to the extension of any statute of limitations
relating to federal, state, local or foreign taxation.
4.22 GUARANTIES. Neither Frost Hanna nor FHGB is a party to
any Guaranty.
4.23 VALIDITY OF FROST HANNA COMMON STOCK. The Frost Hanna
Common Stock to be issued in the Merger will, when issued in accordance with
this Agreement, be validly issued, fully paid and non-assessable.
4.24 ABSENCE OF CERTAIN BUSINESS PRACTICES. No employee or
agent of Frost Hanna or FHGB, and no officer or director of Frost Hanna or FHGB,
and no other Person acting at the direction of any of the foregoing or
associated or Affiliated with Frost Hanna or FHGB, and no other Person for whom
Frost Hanna or FHGB may be responsible, acting alone or together, has (i)
received, directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefits, regardless of their
nature or type, from any customer, supplier, trading company, shipping company,
governmental employee or other Person with whom Frost Hanna or FHGB has done
business directly or indirectly, or (ii) directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other Person who is or may be in a
position to help or hinder the business of Frost Hanna and FHGB (or assist Frost
Hanna or FHGB in connection with any actual or proposed transaction), in either
event which (a) may subject Frost Hanna or FHGB to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, or (b) if not given,
may have an adverse effect on the results of operations, assets, business,
operations or prospects of Frost Hanna or FHGB or may lead to suit or penalty in
any private or governmental litigation or proceeding.
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4.25 PROXY STATEMENTS; DISCLOSURE DOCUMENT. None of the
information relating to Frost Hanna and FHGB included in the Frost Hanna Proxy
Statement or the Gaines Berland Disclosure Document (except as to the extent
such information relates to Gaines Berland or any of its Subsidiaries) at the
respective times that such documents are mailed to Gaines Berland's and Frost
Hanna's shareholders and at the time the Gaines Berland and Frost Hanna
shareholders meetings take place (subject, if required, to a reasonable period
of time for the parties hereto to take such action necessary to supplement or
amend such documents), contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Such documents,
including any amendments thereto, with respect to information pertaining to
Frost Hanna, will comply with, and the Frost Hanna Proxy Statement will be
distributed to Frost Hanna's shareholders in accordance with all applicable Laws
and its Articles of Incorporation and Bylaws.
4.26 DISCLOSURE. No representation or warranty of Frost Hanna
or FHGB contained in this Agreement or the schedules hereto, and no certificate
or notice furnished by or on behalf of Frost Hanna to Gaines Berland or their
agents pursuant to this Agreement, contains or will contain any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
V
COVENANTS
During the period from the date of this Agreement to the Closing Date,
each of the parties, as applicable, agrees to perform the covenants set forth
below.
5.1 INTERIM OPERATIONS OF FROST HANNA AND GAINES BERLAND. Each
of Frost Hanna and Gaines Berland shall, and shall cause their respective
Subsidiaries to, operate their respective businesses only in the ordinary and
usual course consistent with past practices and shall use its reasonable efforts
to (a) preserve intact its business organization and the goodwill of its
customers, suppliers, employees and others having business relations with it and
(b) continuously maintain insurance coverage substantially equivalent to the
insurance coverage in existence on the date hereof. Except for entering into new
leases for real property and building and improving new offices at newly leased
premises, the sale of certain artwork owned by Gaines Berland, the distributions
of warrants to Principal Shareholders (which warrants were issued to Gaines
Berland from companies for which Gaines Berland acted as advisor, placement
agent or underwriter), and the funding of Gaines Berland's Subsidiaries'
operations in accordance with the terms hereof, or as otherwise expressly
contemplated herein or set forth on Schedule 5.1, without the written consent of
the other (which shall not be unreasonably withheld), neither Frost Hanna nor
Gaines Berland shall, or shall or cause or permit any of its respective
Subsidiaries to: (i) except as expressly contemplated hereby, amend its Articles
or Certificate of Incorporation or Bylaws; (ii) issue, sell or authorize for
issuance or sale, shares of any class of its securities (including, but not
limited to, by way of stock
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split or dividend) or any subscriptions, options, warrants, rights or
convertible securities, except the issuance of not more than 100 shares of
Common Stock to new employees of Gaines Berland who are accredited investors and
who are not currently Affiliates of Gaines Berland or any Principal Shareholder
in a manner which is lawful, does not adversely impact Frost Hanna's
shareholders and which could not result in liability to Gaines Berland or Frost
Hanna, and with the prior written consent of Frost Hanna (which consent shall
not be unreasonably withheld); (iii) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any option, warrant
or other right to purchase or acquire any such shares, except for redemptions of
Gaines Berland Common Stock pursuant to the terms of agreements with
shareholders existing on the date hereof; (iv) declare or pay any dividend or
other distribution (whether in cash, stock or other property) with respect to
its capital stock; (v) voluntarily sell, transfer, surrender, abandon or dispose
of any of its assets or property rights (tangible or intangible), other than in
the ordinary course of business on arms-length terms to non-Affiliates
consistent with past practices; (vi) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for Taxes not currently due or liens not
exceeding $100,000 in the aggregate; (vii) except for the use of margin credit
provided by its clearing broker in the case of Gaines Berland or its
Subsidiaries, create, incur or assume any liability or indebtedness for borrowed
money (including purchase money financing), except in the case of Gaines
Berland, in an amount not to exceed the amount reflected in the Gaines Berland
Financial Statements for February 28, 1999 in the aggregate; (viii) make or
commit to make any capital expenditures in excess of $100,000 in the aggregate;
(ix) grant any increase in the compensation payable or to become payable to
directors, officers or employees, other than merit increases to officers and
employees in the ordinary course of business consistent with past practices; (x)
enter into any agreement, arrangement or commitment that, if it existed on the
date hereof, would be a Frost Hanna Material Agreement or a Gaines Berland
Material Agreement, as the case may be, or amend or terminate any of same or any
existing Frost Hanna Material Agreement or Gaines Berland Material Agreement, as
the case may be; (xi) alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices therein reflected;
(xii) enter into any commitment or transaction other than in the ordinary course
of business consistent with past practices or acquire the stock or a substantial
part of the business of any other Person; (xiii) take or omit to take any action
which would render any of its representations or warranties untrue or misleading
or which would be a breach of any of its covenants; (xiv) cancel or waive any
material debts, claims or rights or write off the value of any assets or
accounts receivable or increase the reserve for uncollectible receivables,
except as required by generally accepted accounting principles or by Law; (xv)
make any loans, advances or capital contributions to any Person, except routine
advances to employees in the ordinary course of their business in non-material
amounts or enter into or modify any termination or severance arrangement with
any employee or consultant; (xvi) take any action (other than entering into this
Agreement and consummating the transactions contemplated hereby) which could
reasonably be expected to have a Frost Hanna Material Adverse Effect, in the
case of Frost Hanna and its Subsidiaries, or a Gaines Berland Material Adverse
Effect, in the case of Gaines Berland and its Subsidiaries; (xvii) make any
Guaranty; (xviii) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any Affiliate (except for salary and
benefits as currently in effect and except in accordance with existing
agreements and arrangements
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which have been disclosed to the other parties in writing); or (xix) waive any
stock repurchase rights, accelerate, amend or change the period of
exercisability of options or restricted stock, or reprice options granted under
any employee, consultant, director or other stock plans or authorize cash
payments in exchange for any options granted under any of such plans; (xx) grant
any severance or termination pay to any officer or employee except pursuant to
written agreements outstanding, or policies existing, on the date hereof and as
previously disclosed on a schedule hereto, or adopt any new severance plan;
(xxi) amend or adopt any Gaines Berland Pension Plan, Gaines Berland Plan, or
Gaines Berland Welfare Plan; or (xxii) agree, whether in writing or otherwise,
to do any of the foregoing.
5.2 ACCESS.
(a) Frost Hanna Access. Frost Hanna shall:
(i) afford to Gaines Berland and its agents and
representatives reasonable access to the properties, books,
records and other information of Frost Hanna and FHGB,
provided that such access shall be granted upon reasonable
notice and at reasonable times during normal business hours in
such a manner as to not unreasonably interfere with normal
business operations; (ii) use its reasonable efforts to cause
Frost Hanna's personnel, without unreasonable disruption of
normal business operations, to assist Gaines Berland in its
investigation of Frost Hanna and FHGB pursuant to this Section
5.2(a); and (iii) furnish promptly to Gaines Berland all
information and documents concerning the business, assets,
liabilities, properties and personnel of Frost Hanna and FHGB
as Gaines Berland may from time to time reasonably request. In
addition, from the date of this Agreement until the Closing
Date, Frost Hanna shall cause one or more of its officers to
confer on a regular basis with officers of Gaines Berland and
to report on the general status of its ongoing operations.
(b) Gaines Berland Access. Gaines Berland
shall: (i) afford to Frost Hanna and its agents and
representatives reasonable access to the properties, books,
records and other information of Gaines Berland and its
Subsidiaries, provided that such access shall be granted upon
reasonable notice and at reasonable times during normal
business hours in such a manner as to not unreasonably
interfere with normal business operations; (ii) use its
reasonable efforts to cause Gaines Berland's and its
Subsidiaries' personnel, without unreasonable disruption of
normal business operations, to assist Frost Hanna in its
investigation of Gaines Berland and its Subsidiaries pursuant
to this Section 5.2(b); and (iii) furnish promptly to Frost
Hanna all information and documents concerning the business,
assets, liabilities, properties and personnel of Gaines
Berland and its Subsidiaries as Frost Hanna may from time to
time reasonably request. In addition, from the date of this
Agreement until the Closing Date, Gaines Berland shall cause
one or more of its officers to confer on a regular basis with
officers of Frost Hanna and to report on the general status of
its ongoing operations. Every two weeks, Gaines Berland shall
provide Frost Hanna with a summary of all complaints
reportable under 95-81 against Gaines Berland or
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any of its Subsidiaries, or their respective officers,
directors or employees.
5.3 CONFIDENTIALITY. Except as otherwise required by Law or in
the performance of obligations under this Agreement, any confidential or
proprietary information received by a party or its advisors from any other party
shall be kept confidential and shall not be used or disclosed for any purpose
other than in furtherance of the transactions contemplated by this Agreement.
The obligation of confidentiality shall not extend to information which (i) is
or becomes generally available to the public other than as a result of a
disclosure by a party (or an Affiliate thereof) in violation of this Agreement,
(ii) was in the possession of a party prior to its receipt from such other
party, (iii) becomes available to a party on a nonconfidential basis from a
source other than a party to this Agreement, provided such source is not in
violation of a confidentiality agreement with the party providing such
information or (iv) is required to be disclosed by Law or any applicable rules
of any stock exchange or the NASDAQ stock market. Upon termination of this
Agreement, each party shall, upon request, promptly return or destroy any
confidential information received from the other party. The covenants of the
parties contained in this Section 5.3 shall survive any termination of this
Agreement.
5.4 NOTIFICATION. Each party to this Agreement shall promptly
notify the other parties in writing of the occurrence, or threatened occurrence,
of: (i) any event that, with the lapse of time or notice or both, would
constitute a breach of this Agreement by such party; (ii) any event that would
cause any representation or warranty made by such party in this Agreement to be
false or misleading in any respect; and (iii) any event which would have been
required to be disclosed herein had such event occurred on or prior to the date
of this Agreement. The updating of any schedule pursuant to this Section 5.4
shall not be deemed to release any party for the breach of any representation,
warranty or covenant hereunder or of any other liability arising hereunder. If
any event or circumstance with respect to Gaines Berland or any Principal
Shareholder should occur or exist which would be required to be described in an
amendment or supplement to the Frost Hanna Proxy Statement or the Gaines Berland
Disclosure Document, or which would cause either such document to contain any
untrue statement of a material fact or omit to state a fact necessary to make
the statements contained therein not misleading, Gaines Berland shall promptly
notify Frost Hanna of such event or circumstance.
5.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of
the parties agrees to file, submit or request (and to cause its Affiliates to
file, submit or request) promptly after the date of this Agreement and to
prosecute diligently any and all Consents, Permits and Orders required to be
filed or submitted to any Governmental Authorities and to seek to resolve any
objections raised by any Governmental Authorities or self-regulatory
organizations, including those specified in Sections 3.4 and 4.4. Each of Gaines
Berland, and Frost Hanna shall promptly make available to the other such
information as each of them may reasonably request relating to its business,
assets, liabilities, properties and personnel as may be required by each of them
to prepare and file or submit such applications and notices and any additional
information requested by any Governmental Authority, and shall update by
amendment or supplement any such information given in writing. Each of Gaines
Berland, and Frost Hanna represents and warrants to the other that such
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information, as amended or supplemented, shall be true and not misleading.
5.6 REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties shall use its reasonable efforts in good
faith to take or cause to be taken as promptly as practicable all reasonable
actions that are within its control to cause to be fulfilled: (i) those
conditions precedent to its obligations to consummate the Merger; and (ii) those
actions upon which the conditions precedent to the other party's obligations to
consummate the Merger are dependent. The parties shall use reasonable efforts to
obtain all Consents required in connection with the consummation of the
transactions contemplated by this Agreement.
5.7 NO OTHER NEGOTIATIONS. Except for the transactions
contemplated by this Agreement, unless and until this Agreement shall have been
terminated as provided herein, neither Gaines Berland nor any of its
Subsidiaries nor Frost Hanna shall (nor shall any of them permit any of their
officers, directors, agents, Subsidiaries or Affiliates to): directly or
indirectly solicit, encourage, initiate or participate in any negotiations or
discussions with respect to any offer or proposal to acquire all or any
significant portion of their business, properties or capital stock, whether by
merger, purchase of assets, strategic alliance or otherwise, or to sell any
capital stock or debt of them or their Subsidiaries in a public offering or
otherwise. In the event any party shall receive any such offer or proposal, it
shall promptly inform the others as to any such offer. In addition, none of such
parties shall provide other third parties with information to evaluate such a
proposed transaction, unless doing so is reasonably believed to be necessary to
satisfy the fiduciary duties of their respective Boards of Directors.
5.8 COOPERATION. The parties will cooperate with each other
and shall take all reasonable actions required to be taken under any applicable
state blue sky or securities laws to permit the issuance of the Frost Hanna
Common Stock pursuant to the Merger. The Frost Hanna Proxy Statement and the
Gaines Berland Disclosure Document shall be in form and substance reasonably
acceptable to the parties. The parties shall provide to one another written
information about themselves necessary for such documents to be prepared in
compliance with applicable law.
5.9 SHAREHOLDER APPROVAL. Each of Frost Hanna and Gaines
Berland agrees that it will take such action as may be necessary to duly and
lawfully call, notice, solicit proxies and convene as promptly as practicable a
special meeting of its respective shareholders for the purposes of (i) duly
obtaining any shareholder approvals required in connection with the transactions
contemplated hereby, (ii) in the case of Frost Hanna, amending Frost Hanna's
Articles of Incorporation to change its name to gbiNet, Inc., (iii) in the case
of Frost Hanna, electing the persons referenced on Schedule 5.9 as directors of
Frost Hanna, effective as of the Effective Time, (iv) in the case of Frost
Hanna, amending Frost Hanna's Articles of Incorporation to add blank check
preferred stock in accordance with the Articles of Amendment attached hereto as
Exhibit A, and (v) in the case of Frost Hanna, to adopt the 1999 Performance
Equity Plan, the Annual Incentive Bonus Plan and the Special Performance
Incentive Plan (substantially in the form of Exhibit J). Each of Frost Hanna and
Gaines Berland agrees that its Board of Directors shall recommend in the Frost
Hanna Proxy Statement and the Gaines Berland Disclosure Document, respectively,
and otherwise that its
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shareholders approve the transactions contemplated hereby and advise its
shareholders that it has approved the Merger and the transactions contemplated
hereby and otherwise use its best efforts to obtain such approvals. Each of
Frost Hanna and Gaines Berland agrees that its Board of Directors shall not
withdraw, modify or change any such recommendation or recommend any other
transaction to its shareholders for approval.
5.10 PUBLIC STATEMENTS. The parties have agreed to the form of
a press release to be issued on the date hereof, a copy of which is attached as
Exhibit H. None of the parties hereto will issue any other public announcement
and/or press release concerning this Agreement without the prior written consent
of the other parties, which consents shall not be unreasonably withheld, except
as required by Law or the rules and regulations of NASD.
5.11 COMMISSION FILINGS. Frost Hanna shall timely file all
reports and other documents required to be filed by it with the Commission under
the Exchange Act (including a Form 8-K) from the date of this Agreement to the
Effective Date.
5.12 LISTING. Frost Hanna shall use its reasonable efforts as
soon as reasonably practicable to obtain, prior to the Effective Time, approval
for listing with NASD electronic bulletin board, the shares of Frost Hanna
Common Stock to be issued in the Merger. To the extent Frost Hanna would meet
the requirements for inclusion of the Frost Hanna Common Stock on the NASDAQ
Small Cap Market immediately after the Effective Time, the parties shall use
their best efforts to file the appropriate listing application with NASDAQ as
soon as reasonably practicable; provided, however, that any fees paid to NASDAQ
shall not be counted against the $4,500,000 threshold.
5.13 EMPLOYMENT AGREEMENTS. Gaines Berland shall cause each of
the Principal Shareholders to execute an Employment Agreement (including a
non-compete provision), effective as of the Effective Time, in the form of
Exhibit B hereto ("Employment Agreements").
5.14 NO SECURITIES TRANSACTIONS. Neither Gaines Berland nor
any of its Subsidiaries nor any Principal Shareholder shall engage in any
transactions involving the securities of Frost Hanna prior to the consummation
of the Merger, except that, after full dissemination of the transactions
contemplated hereby, Gaines Berland may act as agent for customers who place
unsolicited orders for Frost Hanna Common Stock, and Gaines Berland shall use
its best efforts to cause each of its officers, directors and employees not to
engage in any such restricted transaction.
5.15 OLD GAINES BERLAND PLAN. The Gaines Berland Retirement
Trust Profit Sharing Plan ("Old Gaines Berland Plan") shall be terminated as
soon as possible without cost, expense or liability to Gaines Berland, in excess
of $10,000 in the aggregate.
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5.16 INVESTMENT INTENT LETTERS. Gaines Berland shall cause
each of its shareholders to execute and deliver to Frost Hanna an investment
intent letter in the form of Exhibit C.
5.17 NAME CHANGE. Immediately after the Effective Time, Frost
Hanna shall change its name to gbiNet, Inc.
5.18 RESIGNATIONS. Frost Hanna shall cause all of its officers
and directors to resign, effective the Effective Time.
5.19 SHAREHOLDERS' AGREEMENTS. Gaines Berland shall cause all
shareholders' agreements and similar arrangements with respect to Gaines Berland
Common Stock to be terminated prior to the Effective Time.
5.20 EMPLOYMENT AGREEMENTS. Frost Hanna shall cause all
employment agreements to which it is a party to be terminated.
5.21 DEMAND REGISTRATION RIGHTS. Frost Hanna shall use its
reasonable efforts to cause all demand registration rights with respect to its
securities to be terminated, if it can do so without cost or expense.
5.22 RELEASES. Gaines Berland shall cause the Principal
Shareholders and Frost Hanna shall cause its officers and directors to execute
the general releases ("Releases"), substantially in the form of Exhibit I.
5.23 LIFE INSURANCE. All insurance policies insuring the lives
of directors of Frost Hanna owned by Frost Hanna or as to which Frost Hanna is
the beneficiary shall be terminated or transferred to the designees of such
directors, so that Frost Hanna shall have no obligations to make premium
payments thereunder after the Effective Time.
VI
ADDITIONAL AGREEMENTS
6.1 INVESTIGATION; NOTICES. The representations, warranties,
covenants and agreements set forth in this Agreement shall not be affected or
diminished in any way by the receipt of any notice pursuant to Section 5.4 or by
any investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties, covenants were made.
All statements contained herein or in any schedule, certificate, exhibit, list
or other document delivered pursuant hereto shall be deemed to be
representations and warranties for purposes of this Agreement.
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6.2 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties set forth in this Agreement shall
terminate at the Effective Time and shall not survive the Closing. No Principal
Shareholder shall be liable for any breach of any representation or warranty
herein by Gaines Berland.
6.3 SECURITIES ACTIVITIES. Gaines Berland agrees that no party
to any Employment Agreement shall engage in any action to the extent such party
would be prohibited from doing so under such Employment Agreement.
6.4 VOTING AGREEMENT. Each of the Principal Shareholders are,
concurrently with the execution and delivery hereof, executing and delivering a
Voting Agreement (the "Voting Agreement"), in the form of Exhibit D, pursuant to
which they will vote their Gaines Berland Common Stock in favor of the Merger.
6.5 TAX-FREE REORGANIZATION. The parties intend that the
Merger be a tax-free plan of reorganization in accordance with Section 368 of
the Code, and shall not take any position on any tax return inconsistent
therewith.
6.6 INDEMNIFICATION; INSURANCE.
6.6.1 Frost Hanna shall, from and after the Effective
Time, indemnify, defend and hold harmless each person who is now, or
who becomes prior to the Effective Time, an officer or director of
Frost Hanna or FHGB against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amount that are paid
in settlement with the express written approval of the indemnifying
party (which approval shall not be withheld unreasonably) of or in
connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director, officer or employee of
Frost Hanna or FHGB, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or
in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transactions contemplated by this Agreement, in
each case to the full extent provided under the Articles of
Incorporation and Bylaws of Frost Hanna as in effect as of the date
hereof or permitted under the Florida BCA, to indemnify directors and
officers.
6.6.2 For a period of six years after the Effective
Date, Frost Hanna shall, subject to applicable law, keep in effect
provisions in its Articles of Incorporation and Bylaws providing for
exculpation of director and officer liability and indemnification of
the directors and officers of Frost Hanna to the fullest extent
permitted under the Florida BCA, which provision shall not be amended
except as required by applicable law or except to make changes
permitted by law that would enlarge the right of indemnification.
6.6.3 For a period of six years after the Effective
Time, Frost Hanna shall
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<PAGE> 50
cause to be maintained in effect one or more policies of directors' and
officers' liability insurance with respect to any claim, action, suit,
proceeding or investigation arising from facts or events which occurred
at or before the Effective Time, and such policy or policies shall be
with a carrier or carriers satisfactory to the parties intended to be
benefitted thereby, and with the limits, deductibles and other
characteristics no less favorable than those set forth on Schedule 6.6.
Such policies shall be no less favorable to the insureds than the
policies acquired after the date of this Agreement for the benefit of
officers and directors of Frost Hanna. Any and all such policies shall
be issued by reasonably satisfactory insurance carriers, shall have no
uncustomary exclusions, and shall otherwise be in form and substance
satisfactory to those persons who are officers and directors of Frost
Hanna as of the date hereof. The premiums for such six-year period
shall be paid immediately after Closing and shall not be subtracted or
counted in calculating the minimum cash or cash equivalents required to
be held as a condition to Gaines Berland's obligations to close the
transactions contemplated hereby pursuant to Section 7.3(f).
6.6.4 The provisions of this Section 6.6 are intended
for the benefit of, and shall be enforceable by, each party indemnified
pursuant to this Section 6.6 and his or her heirs and representatives.
6.7 FURTHER ASSURANCES. The parties hereto shall deliver any
and all other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement.
6.8 FROST HANNA AMENDMENT TO ARTICLES OF INCORPORATION.
Immediately after the Effective Time, Frost Hanna will amend its Articles of
Incorporation as contemplated hereby.
6.9 USE OF NAME. After the Effective Time, none of the
Principal Shareholders shall establish or otherwise be associated with, as
owner, partner, shareholder, employee or otherwise, any entity engaged in any
aspect of the securities business which utilizes the name "Gaines" or "Berland"
or any variation thereof, or grant any other Person the right to do so;
provided, however, notwithstanding anything to the contrary provided in this
Agreement or elsewhere, Joseph Berland will be permitted to us the name
"Berland" or any variation of "Berland" in connection with (i) the securities
business so long as it is in connection with Gaines Berland or so long as it is
in furtherance of the business of an organization with no more than five
employees or independent contractors or (ii) any business other than the
securities business.
VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
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7.1 CLOSING. Upon the terms and subject to the conditions
hereof, the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Gusrae, Kaplan & Bruno, 120 Wall
Street, New York, New York, as promptly as practicable and in any event within
15 days after the satisfaction or waiver of the conditions precedent to the
obligations of the parties set forth in this Article VII (the "Closing Date"),
or on such other date and at such other place as may be agreed to by the
parties. At the Closing, the parties shall deliver to each other such customary
documents as may be specified, or required to satisfy the conditions set forth,
in Sections 7.2, 7.3 and 7.4, and such other documents and instruments as each
party may reasonably request from the other parties. On the Closing Date, the
parties shall cause to be filed a Certificate of Merger with the Secretary of
State of the State of New York. The Closing shall be effective at 5:00 P.M.,
Eastern Time, on the date (the "Effective Date") such Certificate of Merger are
filed ("Effective Time"). All proceedings to be taken and all documents to be
executed at the Closing shall be deemed to have been taken, delivered and
executed simultaneously, and no proceeding shall be deemed taken nor documents
deemed executed or delivered until all have been taken, delivered and executed.
7.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of
the parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Governmental Consents. All Consents
required by Governmental Authorities and self-regulatory
organizations for the consummation of the transactions
contemplated by this Agreement shall have been obtained
without any material conditions, and neither the Commission
nor any self-regulatory organization shall have raised any
unresolved objection to the Merger. All of such Consents shall
have been obtained without the imposition of any conditions
which would materially adversely affect Frost Hanna's ability
to operate Gaines Berland or any of its Subsidiaries or
business units following the Closing.
(b) No Litigation. No litigation,
arbitration or other proceeding shall be pending or, to the
knowledge of the parties, threatened by or before any court,
arbitration panel or Governmental Authority; no Law shall have
been enacted after the date of this Agreement; and no judicial
or administrative decision shall have been rendered; in each
case, which enjoins, prohibits or materially restricts, or
seeks to enjoin, prohibit or materially restrict, the
consummation of the transactions contemplated by this
Agreement.
(c) Shareholder Approval. Each of Frost
Hanna and Gaines Berland shall have obtained the approval of
their respective shareholders required for the consummation of
the transactions contemplated therein; and the approval of
Frost Hanna's shareholders shall be the shareholder approval
required in Frost Hanna's prospectus, dated September 22,
1997.
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<PAGE> 52
(d) Releases. Each of the Releases shall
have been executed and delivered.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF GAINES BERLAND.
The obligations of Gaines Berland to consummate the transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Representations and Warranties True. The
representations and warranties of Frost Hanna and FHGB
contained in this Agreement or in any certificate or notice
delivered pursuant to this Agreement shall be true and correct
in all material respects (except for representations and
warranties which are by their terms qualified by materiality,
which shall be true and correct in all respects after giving
effect to the materiality qualifications contained in such
representations and warranties) as of the Closing Date with
the same force and effect as though made on and as of such
date, except to the extent that such representations and
warranties by their terms are specifically made as of an
earlier date.
(b) Covenants Performed. The covenants of
Frost Hanna and FHGB contained in this Agreement to be
performed or complied with on or prior to the Closing Date
shall have been duly performed or complied with in all
material respects.
(c) Consents. Frost Hanna shall have
received all Consents necessary to effectuate the transactions
contemplated herein, all of which shall have been obtained
without the imposition of any materially adverse terms or
conditions.
(d) Opinion of Counsel. Gaines Berland shall
have received from Akerman, Senterfitt & Eidson, P.A., legal
counsel to Frost Hanna, an opinion letter, dated the Closing
Date, in form and substance reasonably satisfactory to Gaines
Berland, with respect to the matters set forth on Exhibit E.
(e) Certificate of Frost Hanna. Frost Hanna
shall have delivered to Gaines Berland a certificate executed
by its President, dated the Closing Date, certifying in such
detail as Gaines Berland may reasonably request (i) that the
conditions specified in Sections 7.3(a), (b) and (c) above
have been fulfilled and (ii) as to such other matters as
Gaines Berland may reasonably request.
(f) Minimum Cash. Frost Hanna shall have
enough cash and cash equivalent so that no adjustment to the
Conversion Ratio shall be necessary under Section 2.5.3.
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<PAGE> 53
(g) Resignations. All of Frost Hanna's
officers and directors shall have resigned.
(h) Records. Frost Hanna shall have turned
over to Gaines Berland all of its books and records.
(i) Employment Agreements. All employment
agreements to which Frost Hanna is a party shall have been
terminated.
7.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FROST HANNA AND
FHGB. The obligations of Frost Hanna and FHGB to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) Representations and Warranties True. The
representations and warranties of Gaines Berland and the
Principal Shareholders contained in this Agreement or in any
certificate or notice delivered pursuant to this Agreement
shall be true and correct in all material respects (except for
representations and warranties which are by their terms
qualified by materiality, which shall be true and correct in
all respects after giving effect to the materiality
qualifications contained in such representations and
warranties) as of the Closing Date with the same force and
effect as though made on and as of such date, except to the
extent such representations and warranties by their terms are
specifically made as of an earlier date.
(b) Covenants Performed. The covenants of
Gaines Berland and the Principal Shareholders contained in
this Agreement to be performed or complied with on or prior to
the Closing Date shall have been duly performed or complied
with in all material respects.
(c) No Material Adverse Change. There has
been no Gaines Berland Material Adverse Effect since February
28, 1999 and no event or condition shall have occurred which
has adversely affected or may reasonably be expected to have a
Gaines Berland Material Adverse Effect.
(d) Consents. Gaines Berland shall have
obtained all Consents necessary to complete the transactions
contemplated herein, all of which shall have been obtained
without the imposition of any materially adverse terms or
conditions.
(e) Opinion of Counsel. Frost Hanna shall
have received from Gusrae, Kaplan & Bruno, Gaines Berland's
counsel, an opinion letter, dated the Closing Date, in form
and substance reasonably satisfactory to Frost Hanna, with
respect to the matters set forth in Exhibit F.
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<PAGE> 54
(f) Certificate of Gaines Berland, G-Trade
and Holdings. Gaines Berland, G-Trade and Holdings shall have
delivered to Frost Hanna a certificate executed by their
President, dated the Closing Date, certifying in such detail
as Frost Hanna may reasonably request, that the conditions
specified in Sections 7.4(a), (b) and (c) above have been
fulfilled, and certifying the number of outstanding shares of
Gaines Berland Common Stock immediately prior to the Effective
Time.
(g) Auditor's Letters. Frost Hanna shall
have received a letter dated as of the date not more than
three (3) days prior to the Effective Date, the date of
mailing of the Frost Hanna Proxy Statement and the Gaines
Berland Disclosure Document by Frost Hanna and Gaines Berland
as contemplated herein and the date of the shareholders'
meetings of Frost Hanna and Gaines Berland, from Goldstein
Golub Kessler LLP, auditors for Gaines Berland addressed to
Frost Hanna and in form and substance customary for
transactions of the type contemplated hereby and reasonably
satisfactory to Frost Hanna.
(h) Shareholders' Agreements. All
shareholders' agreements and similar arrangements with respect
to Gaines Berland Common Stock shall have been terminated.
(i) Employment Agreements. Each of the
Employment Agreements shall have been executed and delivered.
(j) Dissenters' Rights. The shareholders of
Gaines Berland shall not have duly exercised (and not
withdrawn) dissenters' rights with respect to 3% or more of
the outstanding Gaines Berland Common Stock .
(k) Investment Intent Letters. Each
Shareholder of Gaines Berland shall have executed and
delivered an investment intent letter in the form of Exhibit
C.
7.5 TERMINATION; TERMINATION FEE. This Agreement and the
transactions contemplated hereby may be terminated prior to the Closing: (i) at
any time by mutual consent of the parties; (ii) by Frost Hanna or Gaines Berland
if the Closing has not occurred on or prior to October 31, 1999 (the
"Termination Date"), provided the failure of the Closing to occur by such date
is not the result of the failure of the party seeking to terminate this
Agreement to perform or fulfill any of its obligations hereunder; (iii) by
Gaines Berland at any time in its sole discretion if any of the representations
or warranties of Frost Hanna or FHGB in this Agreement are not in all material
respects true and accurate or if Frost Hanna or FHGB breaches in any material
respect any covenant (including, but not limited to, covenants under Section
5.9) contained in this Agreement, provided that if such misrepresentation or
breach is curable, it is not cured prior to October 31, 1999, or such other date
as the parties may agree in writing; (iv) by Frost Hanna at any time in its sole
discretion if any of the representations or warranties of Gaines Berland in this
Agreement are not in all material respects true and accurate or if Gaines
Berland breaches in any material respect any covenant
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<PAGE> 55
(including, but not limited to, covenants under Section 5.9) contained in this
Agreement, provided that if such misrepresentation or breach is curable, it is
not cured prior to October 31, 1999, or such other date as the parties may agree
in writing; (v) by Frost Hanna if Gaines Berland fails to obtain the required
vote of its shareholders at a meeting of shareholders duly convened therefor or
at any adjournment thereof; or (vi) by Frost Hanna or Gaines Berland if Frost
Hanna fails to obtain the required vote of its shareholders at a meeting of
shareholders duly convened therefor or at any adjournment thereof; provided,
however, that the right to terminate this Agreement under subsections (v) and
(vi) shall not be available to Frost Hanna, Gaines Berland, Holdings or G-Trade
where the failure to obtain shareholder approval of such party was caused by the
act or failure to act of such party and such act or failure to act constitutes a
material breach by such party of this Agreement; provided, further, that the
right to terminate this Agreement under subsection (vi) shall not be available
to Gaines Berland if any Person signing a Voting Agreement fails to vote in
favor of the Merger and the transactions contemplated hereby at the meeting of
Gaines Berland's, Holdings' and G-Trade's shareholders. If this Agreement is
terminated pursuant to this Section 7.5, written notice thereof shall promptly
be given by the party electing such termination to the other party and, subject
to the expiration of the cure periods provided in clauses (iii) and (iv) above,
if any, this Agreement shall terminate without further actions by the parties
and, except as provided in this Section 7.5, no party shall have any further
obligations under this Agreement; provided that any termination of this
Agreement pursuant to this Section 7.5 shall not relieve any party from any
liability for any intentional or willful breach or violation hereof; provided,
further that a breach of Section 5.9 shall not be deemed an intentional or
willful breach if the Board of Directors believed in good faith and upon advise
of counsel that such a breach was necessary for it to fulfill its fiduciary
interests of its shareholders. In the event of a termination of this Agreement,
the exclusive remedy of the parties hereunder (except for willful or intentional
breaches) shall be as set forth in this Section 7.5. Notwithstanding the
termination of this Agreement, the respective obligations of the parties under
Sections 5.3, and Article VIII shall survive the termination of this Agreement.
In the event this Agreement is terminated by Gaines Berland pursuant to
Section 7.5(iii), Frost Hanna shall promptly, but in no event later than ten
business days after the date of such termination, pay to Gaines Berland,
Holdings and G-Trade a fee equal to $250,000 in immediately available funds. In
the event this Agreement is terminated by Frost Hanna pursuant to Section
7.5(iv), Gaines Berland, Holdings and G-Trade shall promptly, but in no event
later than ten business days after the date of such termination, pay to Frost
Hanna a fee equal to $250,000 in immediately available funds. In the event this
Agreement is terminated by Gaines Berland pursuant to Section 7.5(vi) after
Frost Hanna's Board of Directors withdrew its recommendation to its shareholders
to approve the Merger because it believed that it was required to do so to
satisfy its fiduciary duties to its shareholders, then Frost Hanna shall
promptly, but in no event later than 10 days after such termination, pay to
Gaines Berland a fee of $100,000 in immediately available funds. The parties
acknowledge that the provisions set forth in this Section 7.5 are an integral
part of the transactions contemplated by this Agreement, that without such
provisions the parties would not have entered into this Agreement and that the
above-referenced fees are liquidated damages and not penalties, are intended to,
among other things, compensate the parties for expenses incurred in connection
herewith.
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<PAGE> 56
VIII
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication under this
Agreement shall be in writing and shall be delivered personally or sent by
prepaid overnight courier with guaranteed next day delivery to the parties at
the addresses set forth below their names on the signature pages of this
Agreement (or at such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other communications shall be
deemed given when actually received or in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery. A copy of any notices delivered to Frost Hanna shall also be sent
to Teddy D. Klinghoffer, Esq., Akerman, Senterfitt & Eidson, P.A., One Southeast
Third Avenue, Miami, Florida 33131. A copy of any notices delivered to Gaines
Berland shall also be delivered to Martin Kaplan, Esq., Gusrae, Kaplan & Bruno,
120 Wall Street, New York, New York 10005.
8.2 ENTIRE AGREEMENT. This Agreement contains every obligation
and understanding among the parties relating to the subject matter hereof and
merge all prior discussions, negotiations and agreements, if any, between them,
and none of the parties shall be bound by any representations, warranties,
covenants, or other understandings, other than as expressly provided or referred
to herein.
8.3 ASSIGNMENT. This Agreement may not be assigned by any
party without the written consent of the other party. Subject to the preceding
sentence, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, personal representatives,
legal representatives, and permitted assigns.
8.4 WAIVER AND AMENDMENT. Any representation, warranty,
covenant, term or condition of this Agreement which may legally be waived, may
be waived, or the time of performance thereof extended, at any time by the party
hereto entitled to the benefit thereof, and any term, condition or covenant
hereof may be amended by the parties hereto at any time. Any such waiver,
extension or amendment shall be evidenced by an instrument in writing executed
on behalf of the appropriate party by a person who has been authorized by its
Board of Directors to execute waivers, extensions or amendments on its behalf.
No waiver by any party hereto, whether express or implied, of its rights under
any provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party hereto to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach or default by such other party.
A-50
<PAGE> 57
8.5 NO THIRD PARTY BENEFICIARY. Except as set forth in Section
6.6, nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any Person other than the parties hereto and
their respective successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
8.6 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement shall be declared invalid, void or
unenforceable, the remainder of the provisions of this Agreement shall remain in
full force and effect, and such invalid, void or unenforceable provision shall
be interpreted as closely as possible to the manner in which it was written.
8.7 EXPENSES. All expenses (including, without limitation,
legal fees and expenses, investment banking fees, fees and expenses of
accountants) incurred by Gaines Berland, Holdings and G-Trade in connection with
the transactions contemplated hereby will be borne by Gaines Berland, Holdings
and G-Trade and all expenses (including, without limitation, legal fees and
expenses, investment banking fees, fees and expenses of accountants) incurred by
Frost Hanna or FHGB in connection with the transactions contemplated hereby will
be borne by Frost Hanna, except that Harter Financial shall be issued 150,000
restricted shares of Frost Hanna Common Stock.
8.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.9 COUNTERPARTS; CONSTRUCTION. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. Any telecopied
version of any manually executed signature page shall be deemed a manually
executed original. Each provision of this Agreement shall be independent of all
other provisions, and no provision shall limit any other provision.
8.10 LITIGATION; PREVAILING PARTY. In the event of any
litigation with regard to this Agreement, the prevailing party shall be entitled
to receive from the non-prevailing party and the non-prevailing party shall pay
upon demand all reasonable fees and expenses of counsel for the prevailing
party.
8.11 INJUNCTIVE RELIEF. It is possible that remedies at law
may be inadequate and, therefore, the parties hereto shall be entitled to
equitable relief including, without limitation, injunctive relief, specific
performance or other equitable remedies in addition to all other remedies
provided hereunder or available to the parties hereto at law or in equity.
8.12 REMEDIES CUMULATIVE. No remedy made available by any of
the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity.
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<PAGE> 58
8.13 PARTICIPATION OF PARTIES; CONSTRUCTION: INDEPENDENT
COUNSEL. The parties hereto acknowledge that this Agreement and all matters
contemplated herein, have been negotiated among all parties hereto and their
respective legal counsel and that all such parties have participated in the
drafting and preparation of this Agreement from the commencement of negotiations
at all times through the execution hereof. This Agreement shall be construed and
interpreted without regard to presumption or other rule or interpretation
against the party who may have had primary responsibility for drafting this
Agreement. Each of the Principal Shareholders has been represented by his own
independent legal counsel in connection with the transactions contemplated
hereby.
8.14 GOVERNING LAW. This Agreement has been entered into and
shall be construed and enforced in accordance with the Laws of the State of New
York without reference to the choice of Law principles thereof.
8.15 JURISDICTION AND VENUE. This Agreement shall be subject
to the exclusive jurisdiction of the courts of the City, County and State of New
York which shall be the exclusive jurisdiction and venue for disputes, actions
or lawsuits arising out of or relating to this Agreement or the transactions
contemplated hereby. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the City, County and State of New York by virtue of a failure to perform an act
required to be performed in the City, County and State of New York and
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the City, County and State of New York for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions contemplated
hereby. The parties irrevocably waive, to the fullest extent permitted by Law,
any objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in the City, County and
State of New York, and further irrevocably waive any claim that any suit, action
or proceeding brought in the City, County and State of New York has been brought
in an inconvenient forum.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
FROST HANNA CAPITAL GROUP, INC.
By:
Name:
Title:
Address: 327 Plaza Real
Boca Raton, FL 33432
FHGB ACQUISITION CORPORATION
By:
Name:
Title:
Address: 327 Plaza Real
Boca Raton, FL 33432
GAINES, BERLAND INC.
By:
Name:
Title:
Address: 1055 Stewart Avenue
Beth Page, NY 11714
G-TRADE CAPITAL CORP.
By:
A-53
<PAGE> 60
Name:
Title:
Address: 1055 Stewart Avenue
Beth Page, NY 11714
A-54
<PAGE> 61
GAINES BERLAND HOLDINGS, INC.
By:
Name:
Title:
Address: 1055 Stewart Avenue
Beth Page, NY 11714
A-55
<PAGE> 62
LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
1 List of Principal Shareholders
3.1 Qualification
3.4 Consents of Governmental Authorities
3.5 Financial Statements
3.7 Legal Proceedings
3.8 Brokers
3.9 Material Adverse Changes
3.11 Capitalization
3.13(a) Liens
3.13(b) Intellectual Property
3.14 Governmental Authorizations
3.15 Insurance Policies
3.16(b) Employment
3.16(c) Employment
3.16(d) Plans
3.16(e) Personnel
3.17 Material Agreements
3.18 Accounts
3.19 Inventory of Securities
3.20 Related Party Transactions
3.21(a) Taxes
3.22 Guaranties
3.25 Broker-Dealer
</TABLE>
A-56
<PAGE> 63
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
3.27 Investment Intent
4.1 Qualification
4.3 No Violation or Conflict
4.5 Financial Statements
4.7 Legal Proceedings
4.8 Brokers
4.9 Material Adverse Changes
4.11 Capitalization
4.12 Options
4.13 Properties
4.14 Consents and Permits
4.15 Insurance
4.16(c) Employment Agreements
4.16(e) Directors and Officers
4.17 Material Agreements
4.18 Accounts
4.20 Related Party Transactions
5.1 Interim Operations
5.9 Directors
6.6 Indemnification and Insurance
</TABLE>
A-57
<PAGE> 64
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
A Articles of Amendment
B Form of Employment Agreement
C Form of an Investment Intent Letter
D Form of Voting Agreement
E Form of Opinion of Counsel from Akerman, Senterfitt & Eidson, P.A.
F Form of Opinion of Counsel from Gusrae, Kaplan & Bruno
G Certificate of Merger
H Form of a Press Release
I Form of General Releases
J Plans
</TABLE>
A-58
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,060,818
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,064,688
<PP&E> 21,908
<DEPRECIATION> 7,889
<TOTAL-ASSETS> 5,078,707
<CURRENT-LIABILITIES> 364,950
<BONDS> 0
0
0
<COMMON> 266
<OTHER-SE> 5,803,400
<TOTAL-LIABILITY-AND-EQUITY> 5,078,707
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 594,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (478,958)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
