<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JULY 28, 1999
------------------
FRAGRANCENET.COM, INC.
(F/K/A NATIONAL CAPITAL MANAGEMENT CORPORATION)
(Exact name of Registrant as specified in its charter)
DELAWARE 0-16819 94-3054267
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2070 DEER PARK AVENUE
DEER PARK, NEW YORK 11729
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 242-3205
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<PAGE>
ITEMS 1, 2 AND 5. CHANGES IN CONTROL OF REGISTRANT; ACQUISITION OR DISPOSITION
OF ASSETS; OTHER EVENTS.
On July 28, 1999, National Capital Management Corporation (the "Company")
entered into an Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, FAC, Inc., a Delaware corporation and wholly-owned subsidiary
of the Company ("Merger Sub"), TeleScents, Inc., a New York corporation
("TeleScents"), and Dennis M. Apfel, Jason S. Apfel and Growth Capital Partners,
L.L.C. ("Growth Capital"), the holders of all of the outstanding capital stock
of TeleScents (the "Shareholders"). Pursuant to the terms of the Merger
Agreement, Merger Sub merged with and into TeleScents (the "Merger") in
accordance with the provisions of the Delaware General Corporation Law ("DGCL")
and the New York Business Corporation Law ("NYBCL") effective as of July 28,
1999 (the "Effective Date"), whereupon the separate corporate existence of
Merger Sub ceased and TeleScents continued as the surviving corporation (the
"Surviving Corporation"). Pursuant to the Merger Agreement, the Company issued
to the Shareholders an aggregate of 4,900,000 shares of the Company's common
stock (the Common Stock") and an aggregate of 1,029,514 shares of the Company's
Series A Preferred Stock (the "Preferred Stock"). The Preferred Stock is
convertible into Common Stock on a 1-for-10 basis at such time as the
Certificate of Incorporation of the Company is amended to increase the
authorized shares of Common Stock to a number of shares of Common Stock
sufficient to effect the conversion. In accordance with the Post-Closing
Agreement (defined below), the Company anticipates that the Preferred Stock will
be converted into 10,295,140 shares of Common Stock following a meeting of
stockholders of the Company to be held as soon as practicable. The Board of
Directors of the Company intends to recommend to the stockholders of the Company
the adoption of the amendment to the Certificate of Incorporation of the Company
to increase the authorized shares of Common Stock to allow for the foregoing
conversion. The Preferred Stock carries voting privileges on an "as converted"
basis. Accordingly, the Shareholders, in the aggregate, hold approximately
89.55% of the total voting power of the Company's voting stock.
In connection with the Merger, the Company, TeleScents and the Shareholders
entered into an Agreement Regarding Certain Closing and Post-Closing Matters
(the "Post-Closing Agreement") which provides, among other things, that the
Company will hold a meeting of its stockholders as soon as practicable to (i)
elect new directors, (ii) amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock, (iii) adopt a Stock
Option Plan and (iv) ratify the Board of Directors' selection of the independent
auditor for the Company for the current fiscal year. The Post-Closing Agreement
also provides for the maintenance of an account for payment, among other things,
of expenses of the Company incurred prior to the Merger.
2
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As of the Effective Date of the Merger, Jason S. Apfel, the President of
TeleScents, will serve as the Chief Executive Officer and President of the
Company and the Surviving Corporation and Dennis M. Apfel, the Chief Financial
Officer of TeleScents, will serve as the Chief Financial Officer and Secretary
of the Company and the Surviving Corporation. As of the Effective Date of the
Merger, John C. Shaw, David Faulkner and Herbert J. Jaffe resigned as Directors
of the Company, and Jason S. Apfel, Dennis M. Apfel and Philip D. Gunn, who is a
principal of Growth Capital, have been appointed to fill the vacancies created
by the resignations. James J. Pinto continues to serve on the Board of Directors
of the Company. In connection with the Merger, the Company has also changed its
name to Frangrancenet.com, Inc. and has changed its ticker symbol to "FRGN".
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
The Company is filing with this Report the audited Financial
Statements for TeleScents for the fiscal years ended March 31, 1999
and 1998.
(b) Pro Forma Financial Information
The required pro forma financial information will be filed as soon as
practicable, but no later than 60 days after the date that this
Report must be filed.
(c) EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of July 28, 1999 by and
among National Capital Management Corporation, FAC, Inc.,
TeleScents, Inc. and Dennis M. Apfel, Jason Apfel, and Growth
Capital Partners, L.L.C.
4.1 Certificate of Designations - Series A Preferred Stock.
10.1 Agreement Regarding Certain Closing and Post-Closing Matters
dated as of July 28, 1999.
99.1 Press Release dated July 28, 1999.
</TABLE>
SIGNATURE
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 hereunto duly authorized.
FRAGRANCENET.COM, INC.
Date: August 10, 1999
/s/ Jason S. Apfel
-------------------------------------
Jason S. Apfel
President and Chief Executive Officer
3
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TELESCENTS, INC.
-------------------------------------------------------
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999 AND 1998
<PAGE>
TELESCENTS, INC.
CONTENTS
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REPORT OF INDEPENDENT ACCOUNTANTS 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations and Retained Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders
Telescents, Inc.
Deer Park, New York
We have audited the accompanying balance sheets of Telescents, Inc. as of March
31, 1999 and 1998, and the related statements of operations and retained deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telescents, Inc. as of March
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
May 19, 1999, except for
Note 5, as to which the
date is July 28, 1999
1
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TELESCENTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
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MARCH 31, 1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 85,095 $ 110,902
Inventory (Note 2) 6,500 -
Prepaid expenses 396 5,769
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TOTAL CURRENT ASSETS 91,991 116,671
PROPERTY AND EQUIPMENT - NET OF ACCUMULATED
DEPRECIATION OF $11,541 AND $2,992 (NOTES 2 AND 3) 28,965 7,759
INTANGIBLE ASSET - NET OF ACCUMULATED AMORTIZATION
OF $125 (NOTE 2) 7,375 -
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TOTAL ASSETS $ 128,331 $ 124,430
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 99,047 $ 35,540
Loans payable - stockholders (Note 4) 25,000 -
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TOTAL LIABILITIES 124,047 35,540
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STOCKHOLDERS' EQUITY:
Common stock - no par value;
200 shares authorized,
100 shares issued and outstanding 100,000 100,000
Retained deficit (95,716) (11,110)
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TOTAL STOCKHOLDERS' EQUITY 4,284 88,890
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 128,331 $ 124,430
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
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TELESCENTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
<TABLE>
<CAPTION>
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YEARS ENDED MARCH 31, 1999 1998
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<S> <C> <C>
NET SALES $ 985,982 $ 328,017
COST OF GOODS SOLD 644,665 198,187
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GROSS PROFIT 341,317 129,830
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OPERATING EXPENSES:
Salaries 121,124 16,375
Consulting fees (Note 4) 1,120 19,250
Payroll taxes 16,422 1,944
Advertising (Note 2) 57,163 26,460
Credit card charges 36,748 12,233
Shipping and handling charges 64,863 13,749
Website costs 29,758 22,418
Office expense and supplies 38,659 13,397
Telephone 18,666 6,902
Rent 3,400 2,400
Insurance 4,371 -
Professional fees 13,444 1,500
Depreciation and amortization 8,674 2,992
Interest expense (Note 4) 403 -
Travel and entertainment 139 -
Other 10,589 940
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Total Operating Expenses 425,543 140,560
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LOSS BEFORE INCOME TAXES (84,226) (10,730)
PROVISION FOR INCOME TAXES (NOTE 2) 380 380
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NET LOSS (84,606) (11,110)
RETAINED DEFICIT - BEGINNING OF YEAR (11,110) -
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RETAINED DEFICIT - END OF YEAR $ (95,716) $ (11,110)
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
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TELESCENTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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YEARS ENDED MARCH 31, 1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (84,606) $ (11,110)
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Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 8,674 2,992
Decrease (increase) in:
Inventory (6,500) -
Prepaid expenses 5,373 (5,769)
Intangible asset (7,500) -
Increase in accounts payable and accrued expenses 63,104 35,540
Accrued interest on loans payable - stockholders 403 -
------------------ ------------------
Total adjustments 63,554 32,763
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Net Cash (Used in) Provided by Operating Activities (21,052) 21,653
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CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (29,755) (10,751)
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Net Cash Used in Investing Activities (29,755) (10,751)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock - 100,000
Proceeds - loans payable stockholders 25,000 -
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Net Cash Provided by Financing Activities 25,000 100,000
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NET (DECREASE) INCREASE IN CASH (25,807) 110,902
CASH - BEGINNING OF YEAR 110,902 -
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CASH - END OF YEAR $ 85,095 $ 110,902
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 380 $ -
Interest - -
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
TELESCENTS, INC.
NOTES TO FINANCIAL STATEMENTS
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1. NATURE OF Telescents, Inc. (the Company) was incorporated in the
BUSINESS State of New York on April 2, 1997. The Company is
engaged in the retail sale of brand name fragrances over
the internet.
2. SUMMARY OF INVENTORY - Inventory, consisting of finished goods, is
SIGNIFICANT valued at the lower of cost (first-in, first-out) or
ACCOUNTING market. The Company purchases a majority of its products
POLICIES from two major vendors. The Company does not have
long-term contracts or arrangements with either of its
vendors to guarantee the availability of merchandise,
particular payment terms or the extension of credit
limits. The Company's current vendors may stop selling
merchandise to the Company on acceptable terms. However,
the Company is confident that in the event of
termination of the relationship with its current
vendors, the Company would be able to acquire
merchandise from other suppliers in a timely and
efficient manner and on acceptable terms without a
significant disruption to its operations.
PROPERTY AND EQUIPMENT - Property and equipment are
stated at cost less accumulated depreciation.
Depreciation is computed utilizing accelerated methods
over the estimated useful lives of the related assets.
The estimated useful lives are as follows:
Office equipment 5 years
Computer software 5 years
INTANGIBLE ASSET - Intangible asset, consisting of a
purchased trade name is amortized using the
straight-line method at a rate adequate to allocate the
cost of the applicable asset over its expected useful
life of fifteen years.
REVENUE RECOGNITION - The Company recognizes revenue
from product sales, net of any discounts, when the
products are shipped to customers. The Company provides
an allowance for sales returns, which has been
insignificant, based on historical experience.
ADVERTISING COSTS - Advertising costs are expensed as
incurred. Advertising costs were $57,163 and $26,460 for
the years ended March 31, 1999 and 1998, respectively.
INCOME TAXES - Deferred tax provisions are calculated
for certain transactions and events because of different
treatment under generally accepted accounting principles
and currently enacted tax laws. The results of these
differences on a cumulative basis, known as temporary
differences, together with the tax effect of
carryforwards, result in the recognition and measurement
of deferred tax assets and liabilities. Valuation
allowances are established to reduce deferred tax asset
accounts to the amounts that will more likely than not
be realized. The Company has a deferred tax asset of
approximately $38,258 and $4,444
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5
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at March 31, 1999 and 1998, respectively. A valuation
allowance in the amount of $38,258, including $33,814
and $4,444 recorded for the years ended March 31, 1999
and 1998, respectively, has been established due to the
uncertainty of realizing the deferred tax asset.
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 revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
3. PROPERTY AND Property and equipment consist of the following as of
EQUIPMENT March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Office equipment $ 31,936 $ 7,561
Computer software 8,570 3,190
---------- ----------
40,506 10,751
Less accumulated depreciation 11,541 2,992
---------- ----------
$ 28,965 $ 7,759
---------- ----------
---------- ----------
</TABLE>
4. RELATED PARTY LOANS PAYABLE - STOCKHOLDERS - At March 31, 1999 the
TRANSACTIONS Company has borrowed funds from its stockholders
aggregating $25,000, which are repayable upon demand.
All loans due to stockholders bear interest at a rate of
7% per annum. Interest expense relating to these loans
was $403 for the year ended March 31, 1999.
CONSULTING FEES - During the year ended March 31, 1998
the Company paid $19,500 to an individual related to a
stockholder for consulting services. Beginning in
February 1998, the individual became an employee of the
Company.
STOCKHOLDER SERVICES - One of the stockholders, who is
not an employee, is involved with the day to day
operations of the Company. The stockholder does not
receive any compensation for his services.
5. SUBSEQUENT During July 1999 the Company merged into a publicly
EVENT traded corporation. The corporation has no assets or
liabilities other than $500,000 cash. As
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6
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a result of the merger the shareholders of Telescents
received common stock and convertible preferred shares
of the public corporation in exchange for their 100
shares of Telescents common stock. Conversion of the
preferred shares would give the shareholders of
Telescents 90% of the outstanding shares of the publicly
traded corporation. At this time the Company believes
the transaction will be accounted for as a
recapitalization of Telescents and the issuance of stock
by Telescents for the net assets of the public
corporation.
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7
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL CAPITAL MANAGEMENT CORPORATION,
FAC, INC.,
TELESCENTS, INC.,
AND
DENNIS M. APFEL
JASON APFEL
GROWTH CAPITAL PARTNERS, L.L.C.
JULY 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I THE MERGER; CONVERSION OF SHARES.......................................1
1.1 The Merger.............................................................1
1.2 Effective Time.........................................................1
1.3 Conversion of Shares...................................................2
1.4 No Appraisal Rights....................................................2
1.5 Exchange of Company Common Stock.......................................2
1.6 Exchange of Merger Sub Common Stock....................................3
1.7 Stock Options..........................................................4
1.8 Certificate of Incorporation of the Surviving Corporation..............4
1.9 Bylaws of the Surviving Corporation....................................4
1.10 Directors and Officers of the Surviving Corporation
and the Parent.........................................................4
ARTICLE II CLOSING................................................................4
2.1 Time and Place.........................................................4
2.2 Filings at the Closing.................................................5
2.3 Deliveries at the Closing..............................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS...........................................7
3.1 Duly Organized.........................................................7
3.2 Qualification..........................................................7
3.3 Investments............................................................7
3.4 Capital Stock..........................................................7
3.5 Due Authorization......................................................8
3.6 No Conflicts...........................................................8
3.7 Good Title.............................................................9
3.8 Real Property..........................................................9
3.9 Litigation.............................................................9
3.10 Compliance with Laws...................................................9
3.11 Labor Matters..........................................................9
3.12 Financial Statements..................................................10
3.13 Undisclosed Balance Sheet Liabilities.................................10
3.14 Absence of Certain Changes............................................10
3.15 Contracts.............................................................11
3.16 Intellectual Property.................................................11
3.17 Taxes.................................................................11
3.18 Employee Plans........................................................12
3.19 Insurance.............................................................13
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3.20 Restrictions on Subsequent Dispositions...............................13
3.21 Condition of Assets...................................................13
3.22 Transactions with Affiliates..........................................13
3.23 Products..............................................................14
3.24 Product Warranties....................................................14
3.25 Employees.............................................................14
3.26 Compliance with Environmental Laws....................................14
3.27 Licenses; Permits.....................................................16
3.28 Accounts; Safe Deposit Boxes..........................................16
3.29 Brokerage.............................................................16
3.30 Compensation and Employment Agreements................................16
3.31 Consents..............................................................16
3.32 Year 2000.............................................................17
3.33 No Dividends, Loans, etc..............................................17
3.34 Books and Records.....................................................17
3.35 Warranties True and Correct...........................................17
3.36 Certain Definitions...................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB..............................................19
4.1 Duly Organized........................................................19
4.2 Qualification.........................................................19
4.3 Investments...........................................................19
4.4 Capital Stock.........................................................19
4.5 Due Authorization.....................................................20
4.6 No Conflicts..........................................................20
4.7 Litigation............................................................21
4.8 Compliance with Laws..................................................21
4.9 Financial Statements..................................................21
4.10 Undisclosed Balance Sheet Liabilities.................................21
4.11 Absence of Certain Changes............................................22
4.12 Contracts.............................................................22
4.13 Taxes.................................................................22
4.14 Brokerage.............................................................23
4.15 Reports...............................................................23
4.16 Employee Benefit Plans................................................24
4.17 Environmental.........................................................24
4.18 Consents..............................................................25
4.19 Insurance.............................................................26
4.20 Labor Relations.......................................................26
4.21 Intellectual Property.................................................26
4.22 Transactions with Affiliates..........................................26
4.23 Compensation and Employment Agreements................................26
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4.24 No Dividends, Loans, etc..............................................27
4.25 Title to Assets; Condition of Property................................27
4.26 Power of Attorney; Bank Accounts......................................27
4.27 Books and Records.....................................................28
4.28 Permits; Authorizations...............................................28
4.29 Real Property.........................................................28
4.30 Warranties True and Correct...........................................28
4.31 Certain Definitions...................................................28
ARTICLE V CLOSING CONDITIONS....................................................30
5.1 Conditions to Obligations of Parent, Merger Sub, and the Company......30
5.2 Conditions to Obligations of Parent and Merger Sub....................30
5.3 Conditions to Obligation of the Company...............................31
ARTICLE VI ADDITIONAL AGREEMENTS.................................................33
6.1 Meeting of the Shareholders of Parent.................................33
6.2 Directors and Officers Insurance......................................33
6.3 [intentionally deleted]
6.4 Agreement Regarding Closing and Post Closing Matters..................33
ARTICLE VII MISCELLANEOUS.........................................................33
7.1 Amendment and Modification............................................33
7.2 Waiver of Compliance; Consents........................................34
7.3 Investigation; Survival of Representations and Warranties.............34
7.4 Notices...............................................................34
7.5 Assignment............................................................35
7.6 Governing Law.........................................................35
7.7 Counterparts..........................................................35
7.8 Interpretation........................................................35
7.9 Publicity. ...........................................................36
7.10 Entire Agreement......................................................36
7.11 Severability..........................................................36
7.12 Specific Performance..................................................36
7.13 Expenses..............................................................36
7.14 Reasonable Best Efforts...............................................36
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS:
<S> <C>
Exhibit A: Certificate of Merger for Delaware
Exhibit B: Certificate of Merger for New York
Exhibit C: Conversion of Shares
Exhibit D: Certificate of Designation
Exhibit E: Certificate of Incorporation of Surviving Corporation
Exhibit F: Opinion of Counsel for Parent and Merger Sub
Exhibit G: [intentionally deleted]
Exhibit H: Opinion of Counsel for Company and Shareholders
Exhibit I: Agreement Regarding Certain Closing and Post Closing Matters
Exhibit J: Exchange Agreement
Exhibit K: Certificate of Merger to Effect Change of Name of Parent
</TABLE>
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<PAGE>
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT is dated as of July 28, 1999, by and among National
Capital Management Corporation, a Delaware corporation ("Parent"), FAC, Inc., a
Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"),
TeleScents, Inc., a New York corporation (the "Company"), and Dennis M. Apfel,
Jason Apfel and Growth Capital Partners, L.L.C., a Delaware limited liability
company (collectively, the "Shareholders").
A. The Boards of Directors of Parent, Merger Sub, and
the Company have approved the merger of Merger Sub with and into the
Company (the "Merger") upon the terms and subject to the conditions set
forth herein.
B. For federal income tax purposes, it is intended that
the Merger shall qualify as a tax free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. The parties hereto desire to make certain
representations, warranties, and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
THE MERGER; CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined in SECTION 1.2 hereof), Merger
Sub shall be merged with and into the Company in accordance with the provisions
of the Delaware General Corporation Law (the "DGCL") and the New York Business
Corporation Law (the "NYBCL"), whereupon the separate corporate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). From and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers, and
franchises and be subject to all the restrictions, disabilities, and duties of
the Company and Merger Sub, all as more fully described in the DGCL and the
NYBCL.
1.2 EFFECTIVE TIME. As soon as practicable after each of
the conditions set forth in ARTICLE 6 has been satisfied or waived on the
Closing Date (as defined in SECTION 2.1), the Company will file, or cause to be
filed, with the Secretaries of State of Delaware and New York Certificates of
Merger for the Merger, which Certificates shall be substantially in the form
attached as EXHIBITS
1
<PAGE>
A AND B, respectively, and executed in accordance with the applicable provisions
of the DGCL and the NYBCL. The Merger shall become effective at the time such
filing is made or, if agreed to by Parent and the Company, such later time or
date set forth in the Certificates of Merger (the "Effective Time").
1.3 CONVERSION OF SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of the Company, Parent,
Merger Sub or any holder of any share of capital stock of the Company or Merger
Sub:
(a) Each share of common stock of the Company, no par
value per share ("Company Common Stock"), issued and outstanding
immediately prior thereto (except for shares referred to in SECTION
1.3(b) hereof) shall be converted into the right to receive a number of
shares of (i) the common stock of the Parent, par value $.01 per share
("Parent Common Stock"), and (ii) Series A Preferred Stock of Parent,
par value $.01 per share (the "Parent Preferred Stock") as reflected on
attached EXHIBIT C. Parent Preferred Stock shall have such rights and
preferences as specified in the Certificate of Designation as filed
with the Delaware Secretary of State and in the form attached hereto as
EXHIBIT D.
(b) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time that is held in the
treasury of the Company or is then owned beneficially or of record by
Parent, Merger Sub, or any direct or indirect wholly owned subsidiary
of Parent or the Company shall be canceled in accordance with
applicable laws without payment of any consideration therefor and
without any conversion thereof.
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) shall be canceled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of common stock of Merger Sub, par value
$.01 per share ("Merger Sub Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted into one
share of the common stock of the Surviving Corporation, par value $.01
per share ("Surviving Corporation Common Stock").
1.4 NO APPRAISAL RIGHTS. The Shareholders hereby waive
any rights they may have in connection with the Merger pursuant to Section 910
of NYBCL.
1.5 EXCHANGE OF COMPANY COMMON STOCK.
(a) At the Effective Time, Parent or such person as
Parent shall have appointed to act as exchange agent (the "Exchange
Agent") shall distribute to holders of shares of Company Common Stock,
upon surrender to the Exchange Agent of one or more Company stock
certificates for cancellation, (i) one or more certificates
representing the number of whole shares of Parent Common Stock into
which the shares represented by the Company
2
<PAGE>
certificate(s) shall have been converted pursuant to SECTION 1.3(a),
and (ii) one or more certificates representing the number of whole
shares of Parent Preferred Stock into which the shares represented by
the Company Certificate(s) shall have been converted pursuant to
SECTION 1.3(a), and the Company Certificate(s) so surrendered shall be
canceled. In the event of a transfer of ownership of Company Common
Stock that is not registered in the transfer records of the Company, it
shall be a condition to the issuance of shares of Parent Common Stock
and Parent Preferred Stock that the Company Certificate(s) so
surrendered shall be properly endorsed or be otherwise in proper form
for transfer and that such transferee shall (i) pay to the Exchange
Agent any transfer or other taxes required or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is
not payable.
(b) All certificates evidencing shares of Parent Common
Stock and Parent Preferred Stock that are issued upon the surrender for
exchange of Company Certificates in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Company Common Stock represented by the
surrendered Company Certificates.
(c) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Company Certificates representing such shares are presented to the
Surviving Corporation, they shall be canceled and exchanged as provided
in this ARTICLE 1. As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock shall cease to
have any rights as stockholders of the Company, except such rights, if
any, as they may have pursuant to the DGCL, NYBCL or this Agreement.
Except as provided above, until such Company Certificates are
surrendered for exchange, each such Company Certificate shall, after
the Effective Time, represent for all purposes only the right to
receive a certificate or certificates evidencing the number of whole
shares of Parent Common Stock or Parent Preferred Stock into which the
shares of Company Common Stock shall have been converted pursuant to
the Merger as provided in SECTION 1.3(a) hereof.
(d) In the event any Company Certificates shall have been
lost, stolen, or destroyed, the Exchange Agent shall issue in respect
of such lost, stolen, or destroyed Company Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares
of Parent Common Stock or Parent Preferred Stock as may be required
pursuant to this ARTICLE 1; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed Company
Certificate to deliver a bond in such sum as Parent may reasonably
direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to such Company Certificate alleged
to have been lost, stolen, or destroyed.
1.6 EXCHANGE OF MERGER SUB COMMON STOCK. From and after
the Effective Time, each outstanding certificate previously representing shares
of Merger Sub Common Stock shall
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be deemed for all purposes to evidence ownership of and to represent the number
of shares of Surviving Corporation Common Stock into which such shares of Merger
Sub Common Stock shall have been converted. Promptly after the Effective Time,
the Surviving Corporation shall issue to Parent a stock certificate or
certificates representing such shares of Surviving Corporation Common Stock in
exchange for the certificate or certificates that formerly represented shares of
Merger Sub Common Stock, which shall be canceled.
1.7 STOCK OPTIONS. At the Effective Time, each issued and
outstanding stock option, warrant, right or other agreement to purchase or sell
any capital stock of the Company granted by the Company shall be canceled by the
holder and the Company. At the Effective Time, the holders of options granted by
the Company shall cease to have any rights with respect to shares of Company
Common Stock and will only have rights with respect to Parent Preferred Stock as
set forth in this Section. The Company shall take such actions as are necessary
to ensure that from and after the date hereof the Company shall not grant any
rights to purchase any capital stock of the Company.
1.8 CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law, a copy of which is set forth on EXHIBIT E to
this Agreement.
1.9 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of
the Company, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.10 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
AND THE PARENT. The directors and officers of the Company immediately prior to
the Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors shall be duly elected
and qualified. The directors and officers of the Parent commencing with the
Effective Time shall be those persons listed in Section 6 of the Agreement
Regarding Certain Closing and Post Closing Matters of even date.
ARTICLE II
CLOSING
2.1 TIME AND PLACE. Subject to the satisfaction or waiver
of the provisions of ARTICLE 6, the closing of the Merger (the "Closing") shall
take place on July ___, 1999, or on such other date as Parent and the Company
may mutually agree. The date on which the Closing actually occurs is herein
referred to as the "Closing Date." The Closing shall take place at 520 Madison
Avenue (40th Floor), New York, New York 10022 or at such other place or in such
other manner (e.g., by telecopy exchange of signature pages with originals to
follow by overnight delivery) as the parties hereto may agree.
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2.2 FILINGS AT THE CLOSING. At the Closing:
(a) Parent, Merger Sub, and the Company shall cause the
Certificates of Merger in the form attached as EXHIBITS A AND B to be
filed in accordance with the provisions of Section 252 of the DGCL and
Section 904 of the NYBCL, and take any and all other lawful actions and
do any and all other lawful things necessary to cause the Merger to
become effective.
(b) The Parent shall cause a Certificate of Merger of
Parent with TEL NC Corp., a wholly-owned subsidiary of Parent in the
form attached hereto as EXHIBIT K to be filed in accordance with the
provisions of Section 252 of the DGCL pursuant to which the Parent will
effect a corporate name change to "Fragrancenet.com, Inc."
2.3 DELIVERIES AT THE CLOSING. At the Closing:
(a) Parent and Merger Sub shall execute and/or deliver,
and/or cause to be executed and delivered, to the Company and the
Shareholders the following:
(i) the certificates and other documents and
instruments referred to in SECTION 5.3 hereof;
(ii) a true and complete copy of the Certificates
of Incorporation of each of Parent and Merger Sub, including
all amendments thereto, as certified to by an appropriate
governmental official and a true and complete copy of the
By-laws of each of Parent and Merger Sub, as amended to date,
as certified to by the Secretary of the Parent and the
Secretary of Merger Sub, respectively;
(iii) a copy of the resolutions adopted by the
Board of Directors of each of Parent and Merger Sub
authorizing the execution and delivery of this Agreement and
the consummation of the Merger and other transactions
contemplated hereby, as certified to by the Secretary of
Parent and the Secretary of Merger Sub, respectively;
(iv) an opinion of counsel for Parent and Merger
Sub in the form of EXHIBIT F attached hereto;
(v) [intentionally deleted]
(vi) an Agreement Regarding Certain Closing and
Post Closing Matters in the form of EXHIBIT I attached hereto;
and
(vii) such other documents as the Company may
request.
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(b) The Company shall, and shall cause the Shareholders
to, execute and/or deliver to Parent the following:
(i) the certificates and other documents and
instruments referred to in SECTION 5.2 hereof;
(ii) a true and complete copy of the Certificate
of Incorporation of the Company, including all amendments
thereto, as certified to by an appropriate governmental
official, and a true and complete copy of the By-Laws of the
Company, as certified to by the Secretary of the Company;
(iii) a true and complete copy of each material
contract, agreement, commitment or plan described on any
Schedule hereto;
(iv) a copy of the resolutions adopted by the
Board of Directors of the Company authorizing the execution
and delivery of this Agreement and the Plan of Merger by the
Company and the consummation of the Merger and other
transactions contemplated hereby, as certified to by the
Secretary of the Company;
(v) a copy of the resolutions adopted by the
Shareholders of the Company approving this Agreement and the
Certificate of Merger by the Company and the consummation of
the Merger and other transactions contemplated hereby, as
certified to by the Secretary of the Company;
(vi) an opinion of counsel for the Company and
Shareholders in the form of EXHIBIT H attached hereto;
(vii) an Exchange Agreement executed by each of
the Shareholders in the form of EXHIBIT J attached hereto;
(viii) [intentionally deleted]
(ix) Cancellation of all stock options, warrants
and other rights to acquire the Company Capital Stock to which
the Company is a party;
(x) an Agreement Regarding Certain Closing and
Post Closing Matters in substantially the form of EXHIBIT I
attached hereto; and
(xi) such other documents as Parent may request.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and the Shareholders jointly and severally warrant and
represent to and covenant with Parent and Merger Sub, except as set forth in the
Company Disclosure Schedule, as follows:
3.1 DULY ORGANIZED. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of New York.
The Company has the corporate power and holds all rights, privileges,
franchises, immunities, licenses, permits, authorizations and approvals
(governmental or otherwise) necessary to own and operate its properties and to
conduct its business as presently conducted, the failure of which to hold would
have a Material Adverse Effect. The Company is authorized to enter into and
consummate the transactions contemplated under this Agreement and under each
other instrument and document required to be executed and delivered by the
Company pursuant hereto. Each of Dennis Apfel and Jason Apfel has the legal
capacity to execute and deliver this Agreement, to perform his obligations
hereunder and to consummate the transactions contemplated hereby. Growth Capital
Partners, L.L.C. is authorized to enter into and consummate the transactions
contemplated under this Agreement and under each other document required to be
executed and delivered by Growth Capital Partners, L.L.C. pursuant hereto.
3.2 QUALIFICATION. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the nature or location of the Company's business or properties requires
such qualification, except such jurisdictions in which the failure so to qualify
is not likely to have a Material Adverse Effect on the financial condition or
operations of the Company. SCHEDULE 3.2 sets forth all jurisdictions in which
the Company is qualified to do business as a foreign corporation.
3.3 INVESTMENTS. Set forth on SCHEDULE 3.3 is a list of
all direct or indirect subsidiaries of the Company. The Company does not own,
and on the Closing Date will not own, any securities or any other direct or
indirect interest in any corporation, association, trust, partnership, joint
venture, limited liability company or other entity nor is the Company bound by
any agreement to acquire such securities other than as contemplated by this
Agreement.
3.4 CAPITAL STOCK.
(a) The total number of shares of capital stock and the
par value thereof which the Company is authorized to issue, the number
of such shares which are issued and outstanding, and the number of
treasury shares are set forth on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company's Common Stock are now, and will on
the Closing Date, be owned by the Shareholders and will be transferred
to the Parent free and clear of all
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mortgages, pledges, liens, security interests, restrictions, adverse
claims or charges or third party rights of any kind.
(b) There are no outstanding options, warrants,
convertible or exchangeable securities or other rights in existence to
acquire from the Company any of its shares of capital stock.
(c) The issued and outstanding shares of capital stock of
the Company as of the date hereof and as of the Closing Date have been
and will be duly and validly issued and are fully paid and
nonassessable and have not been issued in violation of, and are not
subject to, any preemptive rights, and there are no voting trust
agreements or other contracts, agreements or arrangements to which
either the Company or, to the Company's best knowledge, any of the
Shareholders is a party restricting voting or dividend rights or
transferability with respect to the outstanding shares of capital stock
of the Company.
3.5 DUE AUTHORIZATION. The Company has all right, power
and authority required for it to enter into, and, subject to the requisite
approval of the Shareholders, to perform its obligations under this Agreement
and the other Transaction Documents to which it is a party. Subject to
Shareholder approval, the Company has taken all corporate actions on its part
necessary or appropriate to execute, deliver and perform this Agreement and the
other Transaction Documents to which it is a party and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents.
This Agreement and the other Transaction Documents have been duly authorized,
executed and delivered by the Company and is binding upon and enforceable
against the Company in accordance with its terms and conditions; and, when
executed and delivered by the Company, the Certificate of Merger will be duly
authorized, executed and delivered by the Company and will be binding upon, and
enforceable against, the Company in accordance with its terms and conditions.
This Agreement has been duly and validly executed and delivered by each of the
Shareholders and constitutes a binding obligation of each Shareholder,
enforceable against each Shareholder in accordance with its terms.
3.6 NO CONFLICTS. Neither the execution nor delivery by
the Company or the Shareholders of this Agreement or the other Transaction
Documents to which it or they are a party, nor the performance by the Company or
the Shareholders of its or their obligations hereunder or thereunder, does or
will, after the giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a
default under, (i) the Certificate of Incorporation or By-Laws of the
Company or (ii) any federal, state or local law, statute, code,
ordinance, rule or regulation applicable to it, (iii) any federal,
state or local court or administrative order or process to which the
Company is a party or is bound, or (iv) any material contract,
agreement, arrangement, commitment, or plan to which the Company is a
party, or under which the Company may be obligated, or by which the
Company or any of its material rights, properties or assets may be
subject or bound;
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(b) result in the creation of any mortgage, pledge, lien,
claim, charge, encumbrance or assessment upon any of the material
rights, properties or assets of the Company; or
(c) terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform or
comply with, any material contract, agreement, arrangement, commitment
or plan to which the Company is a party, or under which the Company may
be obligated, or by which the Company or any of the rights, properties
or assets of the Company may be subject or bound.
3.7 GOOD TITLE. On March 31, 1999 (the "Balance Sheet
Date"), the Company had, and on the date hereof has, and on the Closing Date
will have, good and marketable title to all the properties and assets reflected
on the Balance Sheet, subject to no mortgages, pledges, security interests,
liens, encumbrances or other charges of any kind, except (a) as to personal
property sold or otherwise disposed of after the Balance Sheet Date in the
ordinary course of business; (b) mechanics', carriers', workmens', repairmens'
or other like liens arising or incurred in the ordinary course of business; (c)
liens for taxes, assessments and other governmental charges which are not yet
due and payable; and (d) other imperfections of title or encumbrances which do
not materially impair the use and operations of the Company's assets or
properties to which they relate in the operation of the Company's business as
presently conducted.
3.8 REAL PROPERTY. SCHEDULE 3.8 contains a true and
complete list and brief description of all real property owned or leased by the
Company, either as lessor or lessee.
3.9 LITIGATION. Set forth on SCHEDULE 3.9 is a list of
all claims, disputes, investigations, actions, suits or proceedings pending, or
threatened against or affecting the Company, or in respect of any Environmental
Claim, at law or in equity, before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. To the Knowledge of the Company, there is no reasonable
basis for any such claim, dispute, investigation, action, suit or proceeding.
The Company is not operating under, or subject to, any governmental order, writ,
injunction or decree.
3.10 COMPLIANCE WITH LAWS. The Company is not conducting
its business or affairs in violation of any applicable federal, state or local
law, statute, ordinance, rule, permit or regulation except for violations which
individually or in the aggregate would not have a material adverse effect on the
financial condition or operations of the Company.
3.11 LABOR MATTERS. There have been no violations, such as
would have a Material Adverse Effect, of any Federal, state or local statutes,
laws, ordinances, rules, regulations, orders or directives with respect to the
employment of individuals by, or the employment practices or work conditions of,
the Company, or the terms and conditions of employment, wages and hours. There
is no labor dispute, grievance, strike or request for union representation
affecting any of the Company's employees generally pending, or threatened
against the Company. The Company is not
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a party to any collective bargaining agreement and no such contract is currently
being negotiated with the Company. No representation question exists or has been
raised respecting the employees of the Company, nor are there any campaigns
being conducted to solicit cards from the employees of the Company to authorize
representation by any labor organization.
3.12 FINANCIAL STATEMENTS. The financial statements
attached hereto as SCHEDULE 3.12 are true and correct copies of (a) the audited
balance sheet of the Company as of March 31, 1998 and 1999 and statements of
income for the periods then ended and (b) the audited balance sheet of the
Company as of May 31, 1999 and statement of income for the period then ended.
Such financial statements are true and correct copies of (a) the unaudited
balance sheet of the Company as of March 31, 1999 (the "Balance Sheet") and
statements of income for the period then ended, and (b) the unaudited balance
sheet of the Company as of May 31, 1999 and statement of income for the period
then ended. Such financial statements were prepared from the Company's books and
records in accordance with generally accepted accounting principles, subject, in
the case of the interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and present fairly in all material respects the financial
position, results of operations and changes in cash flows of the Company at the
dates and for the periods indicated therein. The accounts receivable reflected
in the Financial Statements were generated in the ordinary course and are
collectible, subject to the reserves in the financial statements for doubtful
accounts. Except for indebtedness for borrowed money to be canceled or otherwise
eliminated prior to the Closing, the Company does not have any indebtedness for
borrowed money.
3.13 UNDISCLOSED BALANCE SHEET LIABILITIES.
(a) On the Balance Sheet Date, the Company did not have
any material liability of a nature required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles, which was not disclosed, reflected or reserved against in
the Company's Balance Sheet; and
(b) except to the extent set forth in or reserved against
in the Company's latest balance sheet and except for liabilities which
have been incurred in the ordinary course of business consistent with
past practice, since the Company's Balance Sheet Date, the Company has
not incurred any liability of any nature which would be required to be
reflected on a balance sheet prepared in accordance with generally
accepted accounting principles.
3.14 ABSENCE OF CERTAIN CHANGES. Since May 31, 1999, there
has not been any (a) adverse change in the assets, properties, results of
operations or financial condition of the Company which has resulted or is likely
to result in a Material Adverse Effect; (b) material damage to or destruction of
the assets or properties of the Company, whether or not insured; (c) material
changes in the Company's customary methods of operations or the manner in which
their business is conducted; or (d) except in the ordinary course of business,
sale or transfer of material tangible or intangible assets of the Company, or
mortgage, pledge or imposition of any lien on such assets.
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3.15 CONTRACTS.
(a) All contracts and agreements to which the Company is
a party or is otherwise bound (collectively, "Contracts") are set forth
on SCHEDULE 3.15, except for the following contracts and agreements
which are not required to be set forth on SCHEDULE 3.15: (i) any
Contract that involves an aggregate payment or commitment of less than
$10,000 per year; and (ii) any Contract which is terminable by the
Company by notice of not more than 30 days without penalty or payment.
All contracts of indemnification by or in favor of the Company, all
contracts relating to indebtedness for borrowed money and all
guarantees are listed on SCHEDULE 3.15 (regardless of amount involved).
(b) Each Contract listed on SCHEDULE 3.15 is in full
force and effect. The Company has performed in all material respects
all obligations required to be performed by it to date under the
Contracts and it is not (with or without the lapse of time or the
giving of notice, or both) in breach or default thereunder.
3.16 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.16 sets forth all patents, trademarks,
trade names, service marks and copyrights (whether or not such
trademarks, trade names, service marks and copyrights are registered),
and all pending applications therefor, owned by the Company, or in
which the Company has any interest, which are material to the business
of the Company.
(b) There is not any claimed or actual infringement or
misappropriation by the Company of any valid patent, trademark, trade
name, service mark or copyright which relates to the business of the
Company and which is owned by any third party, and which will have a
material adverse effect on the financial condition or operations of the
Company.
(c) There is no pending or threatened claim asserted in
writing by the Company against others for infringement or
misappropriation of any patent, trademark, trade name, service mark or
copyright owned by the Company.
(d) All applications to register patents, trademarks,
trade names, service marks or copyrights which have been filed by or on
behalf of the Company, and any resulting registrations are owned by the
Company, free and clear of any security interest, lien, encumbrance or
any interest of any nature of any third party.
3.17 TAXES. The Company has filed or caused to be filed on
a timely basis all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by it and
has paid all taxes, including, but not limited to, income, gross receipts,
capital stock, profits, stamp, occupation, transfer, value added, excise,
franchise, sales, use, property (whether real, personal or mixed), employment,
unemployment, disability, withholding, social security and workers' compensation
taxes and estimated income and franchise tax payments,
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and interest, penalties, fines, costs and assessments (collectively, "Taxes"),
due and payable with respect to the periods covered by such Tax Returns (whether
or not reflected thereon). All Tax Returns filed by or on behalf of the Company
are true and correct in all material respects except where the failure to be so
would not have, individually or in the aggregate, a Material Adverse Effect.
There are no tax liens on any of the properties or assets, real, personal or
mixed, tangible or intangible, of the Company. No deficiency in Taxes of the
Company or for any period has been asserted by any taxing authority which
remains unpaid at the date hereof. There are no audits of the Company currently
open. No written inquiries or notices have been received by the Company from a
taxing authority with respect to possible claims for Taxes which have not been
resolved prior to the date hereof, and the Company does not have any reason to
believe that such an inquiry or notice is pending or, to the Knowledge of the
Parent, threatened, and, to the Knowledge of the Parent, there is no basis for
any additional claims or assessments for Taxes. The Company has not agreed to
the extension of the statute of limitations with respect to any Tax Returns or
tax periods. There are no assessments relating to the Company's Tax Returns
pending or, to the Knowledge of the Parent, threatened. The Company has
delivered to the Purchaser copies of the federal and state income (or franchise)
Tax Returns filed by the Company for the past three years. The Company has never
elected, pursuant to Section 1362 of the Code, to be treated as an S corporation
as that term is defined in Section 1361 of the Code, for federal and any
applicable state and local tax purposes.
3.18 EMPLOYEE PLANS. Set forth in SCHEDULE 3.18 of the
Company Disclosure Schedule is a list of all pension, profit-sharing, savings,
bonus, incentive or deferred compensation, severance pay, medical, life
insurance, welfare or other employee benefit plans which the Company maintains
or sponsors or to which the Company contributes.
(a) The Company does not maintain or sponsor, nor is it
required to make contributions to, any pension, profit-sharing, bonus,
incentive, welfare or other employee benefit plan within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (such plans and related trusts, insurance and annuity contracts,
funding media and related agreements and arrangements, other than any
"multiemployer plan" (within the meaning of Section 3(37) or Section 4001(a)(3)
of ERISA), being hereinafter referred to as the "Benefit Plans" and such
multiemployer plans being hereinafter referred to as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all respects with all
requirements of ERISA and the Code except where the failure to so comply would
not have a Material Adverse Effect;
(c) Each Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to such qualification within the period of
time prescribed by law;
(d) The Company does not maintain, sponsor or contribute
to (or is required to contribute to), nor has the Company maintained, sponsored
or contributed to or withdrawn from any "defined benefit plan" (within the
meaning of Section 3(35) of ERISA) or Multiemployer Plan;
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(e) The Company has not engaged in, and the Company has
no knowledge of any fiduciary or other "disqualified person or party in
interest" of any Benefit Plan of the Company that has engaged in, any
"prohibited transaction" (within the meaning of Section 406 of ERISA or Section
4975(c) of the Code);
(f) Each Benefit Plan that is intended to be qualified
under Section 501(a) of the Code as an organization described in Code Section
501(c)(9) has received a favorable determination letter from the Internal
Revenue Service as to the tax-exempt status of the organization, within the
period of time prescribed by law.
3.19 INSURANCE. Set forth on SCHEDULE 3.19 hereto is a
list as of the date hereof of the insurance policies maintained by the Company,
the coverages of such policies, the annual premium amounts, any unpaid premium
amounts, the dates of renewal and expiration, and the dates, if any, of any gaps
or lapses in such insurance coverage.
3.20 RESTRICTIONS ON SUBSEQUENT DISPOSITIONS. Each of the
Shareholders receiving shares of Parent Common Stock in the Merger shall agree
not to dispose of any shares in a manner that would cause the Merger to violate
the continuity of shareholder interest requirements set forth in Treasury
Regulation ss. 1.368-1. Each of the Shareholders receiving shares of Parent
Common Stock in the Merger shall represent that such shares are being purchased
for his or her own account and for investment and without the intention of
reselling or redistributing the same; each such Shareholder shall further
acknowledge that the shares to be received in the Merger have not been
registered under the Securities Act of 1933 or relevant state securities laws
and are, therefore, restricted.
3.21 CONDITION OF ASSETS. All of the tangible personal
property of the Company is (i) in good operating condition and repair, ordinary
wear and tear excepted and (ii) maintained in accordance with sound maintenance
practices. The Company's assets are sufficient for the operation of its business
in the ordinary course and are suitable for the purpose for which they are being
used. The amount of the Company's inventory and supplies currently on hand (i)
is sufficient for the operation of the Company's business in the ordinary course
based on current levels of operation adjusted for any increased level of
operations anticipated by the Company; (ii) has been purchased in the ordinary
course of business; (iii) is consistent in quality and quantity with past
practices of the Company; and (iv) is not obsolete and is of a quality and
quantity usable and salable in the ordinary course of business within twelve
(12) months subsequent to the Closing. All property leased by the Company is in
the condition required of such property by the terms of the lease applicable
thereto during the term of the lease and upon the expiration thereof. Except as
set forth in SCHEDULE 3.21, none of the Shareholders has any direct or indirect
interest in any right, property or asset used or required by the Company in the
conduct of its business.
3.22 TRANSACTIONS WITH AFFILIATES. Since the inception of
the Company, no stockholder, director, officer or employee of the Company, nor
any ancestor, sibling, descendent or spouse (an "Affiliate") of any such person,
or any trust, partnership or corporation in which any of such persons or their
Affiliates have a material interest, has had: (i) except for passive
investments, any interest in any entity which has purchased, sold or furnished
to the Company any goods or services; (ii) a beneficial
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interest in any lease, contract, commitment or understanding to which the
Company is a party or by which it is bound or affected; (iii) except for salary
and bonuses in the ordinary course of business consistent with past practices,
any interest or claim against the Company or any assets of the Company; or (iv)
any interest in any assets used in the business of the Company.
3.23 PRODUCTS. No claim for product liability has ever
been asserted against the Company and, to the Company's best knowledge, no event
has occurred which might give rise to the assertion of any such claim. To the
Company's best knowledge, there is no deficiency or inadequacy in the
manufacture, design or formulation of any of the Company's products which may
hereafter give rise to any such failure or result in any such claim.
3.24 PRODUCT WARRANTIES. To the Company's best knowledge,
all products sold and services provided by the Company (and the delivery
thereof) have been in conformity with all applicable contractual commitments and
all express or implied warranties by the Company and its suppliers. To the
Company's best knowledge, no liability for any warranty claims exist for the
repair or replacement thereof or other damages in connection with such services,
sales or deliveries, except for any such claims incurred in the ordinary course
of business consistent in amount and character with past experience of the
Company. Copies of the standard terms and conditions of sale of the Company
(including, without limitation, all warranty provisions) are attached hereto as
SCHEDULE 3.24.
3.25 EMPLOYEES. Attached SCHEDULE 3.25 lists:
(a) all employee handbooks and/or manuals relating to the
employees of the Company, true and correct copies of which have been
delivered to Parent; and
(b) all employees of the Company, together with their job
descriptions, rates of salary or wages, vacation benefits, and each
bonus, deferred compensation, stock option, incentive compensation,
severance or termination pay agreement or employment benefit applicable
to each such employee, whether formal or informal and whether legally
binding or not.
3.26 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Neither the Company, or to the knowledge of the
Company any other user or owner of the Company's owned or leased real
property (the "REAL ESTATE") has violated or been threatened with or
received a notice, directive, violation report or charge asserting any
violation of the Federal Solid Waste Disposal Act, the Federal Clean
Air Act, the Federal Clean Water Act, the Federal Resource Conservation
Recovery Act of 1976 ("RCRA"), the Federal Comprehensive Environmental
Responsibility, Cleanup and Liability Act of 1980 ("CERCLA"), the Toxic
Substance Control Act of 1976, or any other laws, codes and regulations
regulating or otherwise affecting or relating to the environment
(collectively, the "ENVIRONMENTAL LAWS"), as the same may have been
amended. No action has been taken against the Company or, to the
Knowledge of the Company, the Real Estate or any other user or owner of
the Real Estate by any federal, state or local department or agency
concerning any Environmental Laws. The Company is, and to the
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Knowledge of the Company at all times in the past has been, in
compliance with all Environmental Laws. To the Knowledge of the
Company, no asbestos, urea formaldehyde or polychlorinated biphenyls or
any other hazardous substances are present in, on or under any of the
Real Estate. No assets of the Company are required to be upgraded,
modified or replaced to be in compliance with Environmental Laws. The
Company has duly complied with, and has conducted its business in
compliance with, all Environmental Laws.
(b) The Company is in compliance with the Environmental
Laws, including with respect to the real property leased by the Company
listed on SCHEDULE 3.26 hereto and the improvements thereon (all such
leased real property and improvements thereon hereinafter referred to
collectively as the "Premises"), except where the failure to be in
compliance would not have a Material Adverse Effect.
(c) The Company has obtained all required Federal, state
and local permits, licenses, certificates and approvals (the
"Environmental Permits") relating to (i) air emissions, (ii) discharges
to surface water or ground water, (iii) noise emissions, (iv) solid or
liquid waste disposal, and (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials
listed in any Environmental Law, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound, material or
substance that is defined, listed in, or otherwise classified pursuant
to, any of the Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "toxic substance" or "toxic
pollutant" and (2) petroleum, natural gas, natural gas liquids,
liquified natural gas, and synthetic gas) (collectively, "Hazardous
Substances")), except where the failure to have obtained or maintained
any such Environmental Permit would not have a Material Adverse Effect.
(d) To the Knowledge of the Company, no violation of any
Environmental Law exists, and the Company has not received any written
notice of violations of any Environmental Law which have not been
cured, relating to the use, ownership or occupancy of any of the
Premises, except for any violations which would not have a Material
Adverse Effect.
(e) To the Knowledge of the Company, it has not engaged
in the generation, storage, treatment, recycling, transportation or
disposal of any Hazardous Substance, except in compliance with
applicable Environmental Laws, except where the failure to be in
compliance would not have a Material Adverse Effect.
(f) Neither Company nor any subsidiary (or any former
subsidiary) has received notice of, nor does the Company or any
subsidiary know of any facts which may give rise to, any Environmental
Claim made or threatened against or affecting the Company or any
subsidiary.
(g) None of the Premises, nor, to the Knowledge of the
Company, any real property to which the Company has, directly or
indirectly, transported or arranged for the transportation of any
Hazardous Substances, is listed on the National Priorities List
promulgated pursuant to
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CERCLA, on CERCLIS (as defined in CERCLA) or on any similar Federal,
state or foreign list of sites requiring investigation or clean-up.
3.27 LICENSES; PERMITS. The Company is in compliance with
and has all permits, registrations and authorizations required by all applicable
laws in the operation of the Company's business except where noncompliance would
not have a material adverse effect on the financial condition or operations of
the Company. Attached hereto as SCHEDULE 3.27 is a true and complete list of all
licenses, permits, registrations and authorities issued or granted to the
Company by local, state or federal government authorities or agencies. The
Company is not in breach or violation of any applicable law relating thereto and
all such licenses, registrations, permits and authorizations are current and
effective except where a breach or violation or the absence of such licenses,
registrations, permits or authorizations would not have a material adverse
effect on the financial condition or operations of the Company. All of the
permits set forth on SCHEDULE 3.27 are in full force and effect and the Company
has not engaged in any activity which would cause or permit revocation or
suspension of any such permit, and no action or proceeding looking to or
contemplating the revocation or suspension of any such permit is pending or
threatened.
3.28 ACCOUNTS; SAFE DEPOSIT BOXES. Attached hereto as
SCHEDULE 3.28 is a true and complete list of the bank and savings accounts,
certificates of deposit and safe deposit boxes of the Company and those persons
authorized to sign thereon.
3.29 BROKERAGE. No broker, investment banker or other
person is entitled to any brokerage commissions, finders fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company.
3.30 COMPENSATION AND EMPLOYMENT AGREEMENTS. Set forth in
SCHEDULE 3.30 of the Company Disclosure Schedule is a complete and accurate list
of (a) all agreements, plans, arrangements or commitments with employees,
shareholders, consultants, independent contractors, sales representatives,
agents or any family members of any employee, shareholder, consultant or agent,
with regard to compensation, benefits or perquisites and (b) all full-time and
part-time employees and their respective positions, job categories and salaries.
All bonuses heretofore granted to employees have been paid in full to such
employees. Neither the execution of this Agreement nor the transactions
contemplated by this Agreement will result in any liability for severance pay or
similar payment requirements to any employee, sales representative, independent
contractor, consultant, distributor, agent or affiliate of the Company. Set
forth in SCHEDULE 3.30 is a list of all of the directors and officers of the
Company since December 31, 1998.
3.31 CONSENTS. No consents, approvals or authorizations
of, or filings with, any governmental authority or any other person or entity
are required in connection with the execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby to be
consummated by the Company, except where the failure to obtain such consents,
approvals, or authorizations, or make such filings, would not have a Material
Adverse Effect.
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3.32 YEAR 2000. All items, products, software,
components and systems used in the operation of the business of the Company,
which incorporate the processing of dates or date-related data (including,
but not limited to, representing, calculating, comparing and sequencing),
including, but not limited to, computer systems, infrastructure items,
software applications, hardware and related equipment and utilities
("Components"), developed, in whole or part, by the Company and its
Subsidiaries are currently Y2K-compliant, except as set forth in SCHEDULE
3.32 and except for such non-compliance as would not have a Material Adverse
Effect. The Company has used commercially reasonable efforts to obtain (i)
commitments that all its vendors are or will be Y2K-compliant by November 30,
1999, and (ii) enforceable agreements with each such vendor setting forth
details of plans and schedules to achieve Y2K- compliance and agreed-upon
penalties for failure to achieve full compliance pursuant to such schedules.
"Y2K-compliant" shall mean able to provide specific dates and calculate spans
of dates, and to record, store, process and provide true and accurate dates
and calculations for dates and spans of dates within and between the
twentieth and twenty-first centuries prior to, including and following
January 1, 2000, including by: (i) correctly processing day and date
calculations; (ii) recognizing September 9, 1999 and January 1, 2001 as valid
dates; (iii) recognizing the year 2000 as a leap year having 366 days, and
correctly processing February 29, 2000 as a valid leap year date; (iv)
employing only four-digit year representations in software, components and
systems owned or operated in connection with the Company and its
Subsidiaries; and (v) incorporating interface programs sufficient to
translate accurately to four-digit format (without any burden of
interpretation) any two-digit year representations included in software,
components or systems, including but not limited to external databases, data
warehouses, software systems and user interfaces that send data to or receive
data from software, components or systems used in the Business.
3.33 NO DIVIDENDS, LOANS, ETC. Subsequent to December 31,
1998, the Company has not (i) declared or paid any dividend (whether in cash, in
property or otherwise) or made any other distribution of any kind in respect of
its capital stock, and the Company has no obligation (contingent or otherwise)
to pay any dividends or make any other distribution of any kind, or (ii)
purchased, redeemed or otherwise acquired or disposed of or issued any shares of
capital stock or any notes, bonds or other securities of any kind and has no
obligation (contingent or otherwise) to do any of the foregoing. The Company has
paid on a timely basis (i) all amounts due and payable under Company
indebtedness, leases and other contractual obligations and (ii) all other
amounts due and payable to any persons or entities. The Company does not have
any outstanding loans or advances to any of the Shareholders or to any family
member of any of the Shareholders or to any affiliate of any such Shareholder.
3.34 BOOKS AND RECORDS. The books and records of the
Company are true and correct in all material respects, have been maintained in
accordance with GAAP consistently applied and in accordance with good business
practices and accurately reflect the basis for the financial position and
results of operations of the Company set forth in the Financial Statements. True
and complete copies of all of such books and records have been made available
for inspection by the Parent and its representatives.
3.35 WARRANTIES TRUE AND CORRECT. No warranty or
representation by the Company contained in this Agreement or in any writing to
be furnished pursuant hereto contains or will contain any
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untrue statement of fact or omits or will omit to state any material fact
required to make the warranties or representations herein or therein contained
not misleading. The Company has disclosed to Parent in the Schedules attached
hereto all material adverse facts known to the Company relating to the Company,
its assets or business.
3.36 CERTAIN DEFINITIONS. The following terms when used in
this Article III shall have the meanings assigned to them below:
"Environmental Claim" means any notice or claim by any person
or entity alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (i) the generation, treatment, storage,
transportation or recycling of any Hazardous Substance or the presence, or
release, discharge, disposal or emission into the environment, of any Hazardous
Substances at the Premises or any other real property, whether or not presently
or formerly owned or leased by the Parent or a subsidiary or (ii) any violation,
or alleged violation, of any Environmental Laws.
"Knowledge of the Company" shall mean, with respect to a
particular fact or other matter, that (i) any individual who is a director or
executive officer of the Company is actually aware of such fact or other matter
or (ii) any such individual in the satisfaction of his duties as a director or
executive officer of the Company would be reasonably expected to discover or
otherwise to be or to become aware of such fact or other matter in the course of
conducting the operations and business of the Company.
"Material Adverse Effect" shall mean a material adverse effect
on the assets, properties, businesses, results of operations or financial
condition of the Company, taken as a whole, and in any case after application of
the proceeds of any insurance or indemnity under any contract or agreement to
which the Company is a party or, a material adverse effect on the ability of the
Company to consummate the Merger as provided in Article I of this Agreement;
provided that the term "Material Adverse Effect" as used herein shall not
include any effect attributable to changes in the economy (of the United States
or any other country) generally, changes in the industries in which the Company
engages, or seasonality of the businesses of the Company.
"Transaction Documents" shall mean this Agreement, the
Certificate of Merger and the documents to be delivered pursuant to Section 2.3
or contemplated thereunder.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
The Parent and Merger Sub hereby jointly and severally warrant and
represent to and covenant with the Company and the Shareholders, except as set
forth in the Parent Disclosure Schedule, as follows:
4.1 DULY ORGANIZED. Each Group Member is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware. Each Group Member has the corporate power and holds all rights,
privileges, franchises, immunities, licenses, permits, authorizations and
approvals (governmental or otherwise) necessary to own and operate its
properties and to conduct its business as presently conducted, the failure of
which to hold would have a Material Adverse Effect. Each Group Member is
authorized to enter into and consummate the transactions contemplated under this
Agreement and under each other instrument and document required to be executed
and delivered by the Parent or Merger Sub pursuant hereto.
4.2 QUALIFICATION. Each Group Member is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the nature or location of the business or properties of such Group
Member requires such qualification, except such jurisdictions in which the
failure so to qualify is not likely to have a material adverse effect on the
financial condition or operations of such Group Member. SCHEDULE 4.2 sets forth
all jurisdictions in which the Group Members are qualified to do business as a
foreign corporation.
4.3 INVESTMENTS. Set forth on SCHEDULE 4.3 is a list of
all direct or indirect Subsidiaries of the Parent. Neither the Parent nor any
other Group Member owns, and on the Closing Date will not own, any securities or
any other direct or indirect interest in any corporation, association, trust,
partnership, joint venture, limited liability company or other entity nor is the
Parent nor any Group Member bound by any agreement to acquire such securities or
interests other than as contemplated by this Agreement.
4.4 CAPITAL STOCK.
(a) The total number of shares of capital stock and the
par value thereof which the Parent and each Group Member is authorized
to issue, the number of such shares which are issued and outstanding,
and the number of treasury shares are set forth on SCHEDULE 4.4.
(b) Except as set forth on SCHEDULE 4.4, there are no
other outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of capital stock of any
Group Member.
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(c) The shares of Parent Common Stock and Parent
Preferred Stock to be issued to the Shareholders of the Company in the
Merger will be at the Effective Time duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Except as set
forth on SCHEDULE 4.4, there are no voting trust agreements or other
contracts, agreements or arrangements to which either the Parent or, to
the best of its knowledge, its shareholders is a party restricting
voting or dividend rights or transferability with respect to the
outstanding shares of capital stock of the Parent.
(d) All of the outstanding shares of capital stock of
each Group Member have been duly and validly authorized and issued and
are fully paid and non-assessable and all of the outstanding shares of
FAC, Inc. and Tel NC Corporation are owned of record by Parent.
4.5 DUE AUTHORIZATION. Each of Parent and Merger Sub has
all right, power and authority required for it to enter into and perform its
obligations under this Agreement and the other Transaction Documents to which it
is a party. Each of Parent and Merger Sub has taken all corporate actions on its
part necessary or appropriate to execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents,
and each of this Agreement and the other Transaction Documents to which it is a
party has been duly authorized, executed and delivered by each of Parent and
Merger Sub and is binding upon, and enforceable against each in accordance with
its terms and conditions.
4.6 NO CONFLICTS. Neither the execution and delivery of
this Agreement and the other Transaction Documents by Parent or Merger Sub, nor
the performance of their respective obligations hereunder or thereunder, does or
will, after the giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a
default under (i) the Articles of Incorporation or By-Laws of Parent or
Merger Sub, or (ii) any federal, state or local law, statute, code,
ordinance, rule or regulation applicable to any Group Member, (iii) any
federal, state or local court or administrative order or process to
which any Group Member is a party or is bound, or (iv) any material
contract, agreement, note, debt instrument, security agreement,
mortgage, arrangement, commitment or plan to which any Group Member is
a party, or under which any Group Member may be obligated, or by which
any Group Member or any of its material rights, properties or assets
may be subject or bound;
(b) result in the creation of any mortgage, pledge, lien,
claim, charge, encumbrance or assessment upon any of the material
rights, properties or assets of any Group Member; or
(c) terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform or
comply with, any material contract, agreement, arrangement, commitment
or plan to which any Group Member is a party, or under which any
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Group Member may be obligated, or by which any Group Member or any of
the rights, properties or assets of any Group Member may be subject or
bound.
4.7 LITIGATION. Set forth on SCHEDULE 4.7 is a list of
all claims, disputes, investigations, actions, suits or proceedings pending, or
to the Knowledge of Parent, threatened against or affecting any Group Member, or
in respect of any Environmental Claim. To the Knowledge of the Parent, there is
no reasonable basis for any such claim, dispute, investigation, action, suit or
proceeding or Environmental Claim. No Group Member is operating under or subject
to, any governmental order, writ, injunction or decree.
4.8 COMPLIANCE WITH LAWS. Neither Parent nor any Group
Member is conducting its business or affairs in violation of any applicable
federal, state or local law, statute, ordinance, rule, permit or regulation
except for violations which individually and in the aggregate would not have a
Material Adverse Effect.
4.9 FINANCIAL STATEMENTS. The financial statements
attached hereto as SCHEDULE 4.9 are true and correct copies of (a) the audited
balance sheet of the Parent as of December 31, 1997 and 1998 and statements of
income for the periods then ended and (b) the unaudited balance sheet of the
Parent as of June 30, 1999 and statement of income for the period then ended.
Such financial statements were prepared from the Parent's books and records in
accordance with generally accepted accounting principles, subject, in the case
of the interim financial statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes that, if presented, would not differ
materially from those included in the audited financial statements of the Parent
for the fiscal year ended December 31, 1998 consistently applied, and present
fairly in all material respects the financial position, results of operations
and changes in cash flows of the Parent at the dates and for the periods
indicated therein. Except for indebtedness for borrowed money to be canceled or
otherwise eliminated prior to Closing, no Group Member has any indebtedness for
borrowed money.
4.10 UNDISCLOSED BALANCE SHEET LIABILITIES.
(a) On June 30, 1998, Parent did not have any material
liability of a nature required to be reflected on a balance sheet
prepared in accordance with generally accepted accounting principles,
which was not disclosed, reflected or reserved against in the Parent's
balance sheet as of that date; and
(b) except to the extent set forth in or reserved against
in the Parent's latest balance sheet and except for liabilities which
have been incurred in the ordinary course of business consistent with
past practice, since December 31, 1998, the Parent has not incurred any
liability of any nature which would be required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles.
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4.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 1998
there has not been any (a) adverse change in the assets, properties, results of
operations or financial condition of the Group which has resulted or is likely
to result in a Material Adverse Effect; (b) material damage to or destruction of
the assets or properties of the Group, whether or not insured; (c) material
changes in the Group's customary methods of operations or the manner in which
their business is conducted; or (d) except in the ordinary course of business,
sale or transfer of material tangible or intangible assets of the Group, or
mortgage, pledge or imposition of any lien on such assets.
4.12 CONTRACTS.
(a) All contracts and agreements to which any Group
Member is a party or is otherwise bound (collectively, "Contracts") are
set forth on SCHEDULE 4.12, except for the following contracts and
agreements which are not required to be set forth on SCHEDULE 4.12: (i)
any Contract that involves an aggregate payment or commitment by the
Group of less than $5,000 per year and of $10,000 in the aggregate;
(ii) any Contract which is terminable by notice of not more than 30
days without penalty or other payment. All contracts of
indemnification, by or in favor of any Group Member, all documents or
agreements relating to indebtedness for borrowed money of any Group
Member and all guarantees by or in favor of any Group Member are listed
in SCHEDULE 4.12 (in each case regardless of amount involved).
(b) Each Contract listed on SCHEDULE 4.12 is in full
force and effect. The Group Member party to such Contract has performed
in all material respects all obligations required to be performed by it
to date under such Contract and it is not (with or without the lapse of
time or the giving of notice, or both) in breach or default thereunder.
4.13 TAXES. Each Group Member has filed or caused to be
filed on a timely basis all federal, state, local, foreign and other tax
returns, reports and declarations (other than returns for the current year for
which timely extensions have been filed) (collectively, "Tax Returns") required
to be filed by it and has paid all taxes, including, but not limited to, income,
gross receipts, capital stock, profits, stamp, occupation, transfer, value
added, excise, franchise, sales, use, property (whether real, personal or
mixed), employment, unemployment, disability, withholding, social security and
workers' compensation taxes and estimated income and franchise tax payments, and
interest, penalties, fines, costs and assessments (collectively, "Taxes"), due
and payable with respect to the periods covered by such Tax Returns (whether or
not reflected thereon). All Tax Returns filed by or on behalf of each Group
Member are true and correct in all material respects except where the failure to
be so would not have, individually or in the aggregate, a Material Adverse
Effect. There are no Tax Liens on any of the properties or assets, real,
personal or mixed, tangible or intangible, of any Group Member. No deficiency in
Taxes of any Group Member or for any period has been asserted by any taxing
authority which remains unpaid at the date hereof. There are no audits of any
Group Member currently open. No written inquiries or notices have been received
by any Group Member from a taxing authority with respect to possible claims for
Taxes which have not been resolved prior to the date hereof, and no Group Member
has any reason to believe that such an
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inquiry or notice is pending or, to the Knowledge of the Parent, threatened,
and, to the Knowledge of the Parent, there is no basis for any additional claims
or assessments for Taxes. No Group Member has agreed to the extension of the
statute of limitations with respect to any Tax Returns or tax periods. There are
no assessments relating to any Group Member's Tax Returns pending or, to the
Knowledge of the Parent, threatened. Each Group Member has delivered to the
Purchaser copies of the federal and state income (or franchise) Tax Returns
filed by each Group Member for the past three years. No Group Member has ever
elected, pursuant to Section 1362 of the Code, to be treated as an S corporation
as that term is defined in Section 1361 of the Code, for federal and any
applicable state and local tax purposes.
4.14 BROKERAGE. No broker, investment banker or other
person is entitled to any brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Parent or any
Group Member.
4.15 REPORTS. Parent has filed all forms, reports,
registration statements, and other documents required to be filed by it with the
Securities and Exchange Commission ("SEC") since [December 31, 1995] and to the
best of the Parent's actual knowledge without investigation, the Parent has
filed all forms, reports, registration statements, and other documents required
to be filed by it with the SEC since December 31, 1992 (all such forms, reports,
registration statements and other documents, together with any amendments
thereto, are referred to as the "Parent SEC Filings"). As of their respective
dates, the Parent SEC Filings (i) complied in all material respects with the
applicable requirements of the Securities Act of 1933 (the "1933 Act") and the
Exchange Act of 1934 (the "1934 Act"), as the case may be, and (ii) did not
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
audited financial statements included or incorporated by reference in the Parent
SEC Filings, including but not limited to Parent's audited financial statements
at and for the year ended December 31, 1998, and the unaudited interim financial
statements at and for the periods commencing on or after January 1, 1999
included or incorporated by reference in the forms, reports, registration
statements and other documents filed by the Parent with the SEC (i) were
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited financial statements, as permitted by Form 10- QSB filed
with the SEC) applied on a consistent basis during the periods involved (except
as may be indicated therein or in the notes thereto), subject, in the case of
unaudited interim financial statements, to the absence of notes and to year-end
adjustments, (ii) complied as of the respective dates in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, and (iii) fairly represent in all material
respects the consolidated financial position of the Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated income, cash flows,
and changes in the shareholders' equity of Parent and its consolidated
subsidiaries for the periods involved, except as otherwise noted therein and
subject, in the case of unaudited statements, to normal year-end audit
adjustments.
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4.16 EMPLOYEE BENEFIT PLANS. Set forth in SCHEDULE 4.16
of the Parent Disclosure Schedule is a list of all pension, profit-sharing,
savings, bonus, incentive or deferred compensation, severance pay, medical,
life insurance, welfare or other employee benefit plans which any Group
Member maintains or sponsors or to which any Group Member contributes.
(a) No Group Member maintains or sponsors, nor is it
required to make contributions to, any pension, profit-sharing, bonus,
incentive, welfare or other employee benefit plan within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (such plans and related trusts, insurance and annuity contracts,
funding media and related agreements and arrangements, other than any
"multiemployer plan" (within the meaning of Section 3(37) or Section 4001(a)(3)
of ERISA), being hereinafter referred to as the "Benefit Plans" and such
multiemployer plans being hereinafter referred to as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all respects with all
requirements of ERISA and the Code except where the failure to so comply would
not have a Material Adverse Effect;
(c) Each Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to such qualification within the period of
time prescribed by law;
(d) No Group Member maintains, sponsors or contributes to
(or is required to contribute to), nor since January 1, 1993 has any Group
Member or any direct or indirect subsidiary or former direct or indirect
subsidiary of Parent maintained, sponsored or contributed to or withdrawn from
any "defined benefit plan" (within the meaning of Section 3(35) of ERISA) or
Multiemployer Plan;
(e) None of the Parent, the Merger Sub or any Group
Member has engaged in, and the Parent has no knowledge of any fiduciary or other
"disqualified person or party in interest" of any Benefit Plan of any Group
Member that has engaged in, any "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code);
(f) Each Benefit Plan that is intended to be qualified
under Section 501(a) of the Code as an organization described in Code Section
501(c)(9) has received a favorable determination letter from the Internal
Revenue Service as to the tax-exempt status of the organization, within the
period of time prescribed by law.
4.17 ENVIRONMENTAL.
(a) Each Group Member is in compliance with the
Environmental Laws, including with respect to the real property leased by Group
Members listed on SCHEDULE 4.17 hereto and the improvements thereon (all such
leased real property and improvements thereon hereinafter referred to
collectively as the "Premises"), except where the failure to be in compliance
would not have a
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Material Adverse Effect. Each Group Member has duly complied with, and has
conducted its business in compliance with, all Environmental Laws.
(b) Each Group Member has obtained all required
Federal, state and local permits, licenses, certificates and approvals (the
"Environmental Permits") relating to (i) air emissions, (ii) discharges to
surface water or ground water, (iii) noise emissions, (iv) solid or liquid
waste disposal, and (v) the use, generation, storage, transportation or
disposal of toxic or hazardous substances or wastes (intended hereby and
hereafter to include any and all such materials listed in any Environmental
Law, as hazardous or potentially hazardous (including, without limitation,
(1) any chemical, compound, material or substance that is defined, listed in,
or otherwise classified pursuant to, any of the Environmental Laws as a
"hazardous substance", "hazardous material", "hazardous waste", "toxic
substance" or "toxic pollutant" and (2) petroleum, natural gas, natural gas
liquids, liquified natural gas, and synthetic gas) (collectively, "Hazardous
Substances")), except where the failure to have obtained or maintained any
such Environmental Permit would not have a Material Adverse Effect.
(c) To the Knowledge of the Parent, no violation of any
Environmental Law exists, and no Group Member or any former Group Member has
received any written notice of violations of any Environmental Law which have
not been cured, relating to the use, ownership or occupancy of any of the
Premises.
(d) To the Knowledge of the Parent, no Group Member or
former Group Member has engaged in the generation, storage, treatment,
recycling, transportation or disposal of any Hazardous Substance, except in
compliance with applicable Environmental Laws.
(e) Neither the Parent nor any subsidiary (or any former
subsidiary) has received notice of, nor to the Knowledge of Parent are there any
facts which may give rise to, any Environmental Claim made or threatened against
or affecting the Parent or a Group Member or former Group Member.
(f) None of the Premises, nor, to the Knowledge of the
Parent, any real property to which any Group Member or former Group Member has,
directly or indirectly, transported or arranged for the transportation of any
Hazardous Substances, is listed on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar Federal,
state or foreign list of sites requiring investigation or clean-up.
(g) To the Knowledge of the Parent, no polychlorinated
biphenyls, radioactive material, urea formaldehyde, lead, asbestos,
asbestos-containing material or underground storage tank (active or abandoned)
is or has been present at the Premises.
4.18 CONSENTS. No consents, approvals or authorizations
of, or filings with, any governmental authority or any other person or entity
are required in connection with the execution and delivery of this Agreement by
the Parent and the Merger Sub and the consummation of the
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transactions contemplated hereby, except where the failure to obtain such
consents, approvals, or authorizations, or make such filings, would not have a
Material Adverse Effect.
4.19 INSURANCE. Set forth on SCHEDULE 4.19 hereto is a
list as of the date hereof of the insurance policies maintained by each of the
Group Members, the coverages of such policies, the annual premium amounts, any
unpaid premium amounts, the dates of renewal and expiration, and the dates, if
any, of any gaps or lapses in such insurance coverage.
4.20 LABOR RELATIONS. There have been no violations,
such as would have a Material Adverse Effect, of any Federal, state or local
statutes, laws, ordinances, rules, regulations, orders or directives with
respect to the employment of individuals by, or the employment practices or
work conditions of, any Group Member, or the terms and conditions of
employment, wages and hours. No Group Member is subject to any labor strikes,
stoppages or lockouts and none of them is a party to any contract or
agreement with any labor organization or other representative of its
employees.
4.21 INTELLECTUAL PROPERTY. Neither the Parent nor the
Merger Sub own, in whole or in part, or has any rights to, any patents,
trademarks, trade names, service marks or copyrights (nor any registrations
or pending applications therefor) or other intellectual property rights
(collectively, "Intellectual Property"). There are no claims asserted or, to
the Knowledge of the Parent, threatened, nor is there a basis for any claim
that any Group Member is infringing upon, or otherwise violating, the rights
of any third party with respect to any Intellectual Property.
4.22 TRANSACTIONS WITH AFFILIATES. Set forth in Schedule
4.22 is a list of all transactions between the Parent and any Affiliate of
Parent occurring since December 31, 1996. Except as set forth on Schedule 4.22,
no Affiliate of the Parent or the Merger Sub is a party to any transaction or
arrangement with the Parent or any Group Member.
4.23 COMPENSATION AND EMPLOYMENT AGREEMENTS. Neither
the Parent nor any Group Member has any employees, other than John C. Shaw
who serves as Chief Executive Officer and Chief Financial Officer of the
Parent and the Merger Sub. Set forth in SCHEDULE 4.23 of the Parent
Disclosure Schedule is a complete and accurate list of (a) all agreements,
plans, arrangements or commitments with employees, shareholders, consultants,
independent contractors, sales representatives, agents or any family members
of any employee, shareholder, consultant or agent, with regard to
compensation, benefits or perquisites. All bonuses heretofore granted to
employees have been paid in full to such employees. Neither the execution of
this Agreement nor the transactions contemplated by this Agreement will
result in any liability for severance pay or similar payment requirements to
any employee, sales representative, independent contractor, consultant,
distributor, agent or affiliate of the Parent. Set forth in SCHEDULE 4.23 is
a list of the directors and officers of each Group Member in office at any
time since December 31, 1998.
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4.24 NO DIVIDENDS, LOANS, ETC. Subsequent to December 31,
1998, the Parent has not (i) declared or paid any dividend (whether in cash, in
property or otherwise) or made any other distribution of any kind in respect of
its capital stock, and the Parent has no obligation (contingent or otherwise) to
pay any dividends or make any other distribution of any kind, or (ii) purchased,
redeemed or otherwise acquired or disposed of or issued any shares of capital
stock or any notes, bonds or other securities of any kind and has no obligation
(contingent or otherwise) to do any of the foregoing. The Parent has paid on a
timely basis (i) all amounts due and payable under Parent indebtedness, leases
and other contractual obligations and (ii) all other amounts due and payable to
any persons or entities.
4.25 TITLE TO ASSETS; CONDITION OF PROPERTY.
(a) The Parent has good, valid and marketable title to
all of its properties and assets, real, personal and mixed, tangible
and intangible, including, without limitation, the properties and
assets reflected in the Balance Sheet (except for assets leased under
leases set forth in SCHEDULE 4.25(a) of the Parent Disclosure Schedule,
and except for accounts receivable collected upon and inventory
disposed of since the Balance Sheet Date in the ordinary course of
business consistent with past practices), free and clear of all liens
except for the liens listed on SCHEDULE 4.25(b) of the Parent
Disclosure Schedule securing certain equipment used by the Parent and
described thereon (the "Permitted Equipment Liens") and permitted
encumbrances (collectively, "Permitted Liens").
(b) The assets and properties (including, without
limitation, all equipment and the improvements, fixtures and
appurtenances on or to the Premises) owned or leased by the Parent
pursuant to written leases set forth in SCHEDULE 4.25(a) of the Parent
Disclosure Schedule are in good operating condition and repair, normal
wear and tear excepted, and have been maintained and serviced in
accordance with the prudent conduct of business, are suitable for the
purposes for which they presently are being used and constitute all of
the assets and properties used in the operations of, and necessary to
operate, the business as presently conducted. The Parent and the Group
Members presently do not conduct any business. None of the assets or
properties owned or leased by the Parent (or uses to which they are
put) fails to conform in any material respect with any applicable
agreement, law, ordinance or regulation. Except with respect to assets
leased pursuant to valid leases set forth in SCHEDULE 4.25(a) of the
Parent Disclosure Schedule, the Parent owns all of the properties and
assets located at or on the Premises and owns all of the properties and
assets necessary for the conduct of the business.
4.26 POWER OF ATTORNEY; BANK ACCOUNTS. The Parent has not
granted any power of attorney (revocable or irrevocable) to any person, firm or
corporation for any purpose whatsoever. Set forth in SCHEDULE 4.26 of the Parent
Disclosure Schedule is a complete and accurate list of (i) the name of each
institution in which any Group Member has a bank account, securities account,
safe-deposit box, lockbox account or any other account, the title and number of
such accounts and the names of all persons authorized to draw thereon or have
access thereto and (ii) all marketable
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securities and all other notes or other obligations evidenced by written
instruments and attributable to, or utilized in, any aspect of the business and
reflected in the Financial Statements or thereafter acquired by any Group
Member.
4.27 BOOKS AND RECORDS. The books and records of the Group
Members are true and complete in all material respects, have been maintained in
accordance with GAAP consistently applied and in accordance with good business
practices and accurately reflect the basis for the financial position and
results of operations of the Group Member set forth in the Financial Statements.
True and complete copies of all of such books and records have been made
available for inspection by the Company and its representatives.
4.28 PERMITS; AUTHORIZATIONS. Set forth in SCHEDULE 4.28
hereto is a complete and accurate list of all the permits, licenses, approvals,
franchises and authorizations (collectively the "Permits") held by each Group
Member. The Parent and the Group Members presently do not conduct any business.
The Permits set forth in SCHEDULE 4.28 hereto are all the Permits required for
the conduct of the business. All the Permits set forth in SCHEDULE 4.28 hereto
are in full force and effect and the Parent has not engaged in any activity
which would cause or permit revocation or suspension of any such Permit, and no
action or proceeding looking to or contemplating the revocation or suspension of
any such Permit is pending or, to the Knowledge of the Parent, threatened. There
are no existing defaults or events of default or events or states of fact which
with notice or lapse of time or both would constitute a default by the Parent.
4.29 REAL PROPERTY. SCHEDULE 4.29 contains a true and
complete list and brief description of all real property owned or leased by the
Parent and the Group Members, either as lessor or lessee.
4.30 WARRANTIES TRUE AND CORRECT. No warranty or
representation by the Parent and/or Merger Sub contained in this Agreement or in
any writing to be furnished pursuant hereto contains or will contain any untrue
statement of fact or omits or will omit to state any material fact required to
make the warranties or representations herein or therein contained not
misleading.
4.31 CERTAIN DEFINITIONS. The following terms when used in
this Agreement shall have the meanings assigned to them below:
"Affiliate" shall mean a person or entity who directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another person.
"Environmental Claim" means any notice or claim by any person
or entity alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (i) the generation, treatment, storage,
transportation or recycling of any Hazardous Substance or the presence, or
release, discharge, disposal or emission into the environment, of any Hazardous
Substances at any real property, presently or formerly owned or
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<PAGE>
leased by the Parent or any direct or indirect subsidiary of Parent or former
direct or indirect subsidiary of Parent or (ii) any violation, or alleged
violation, of any Environmental Laws (as defined in Section 3.26).
"Group" shall mean the Parent and its direct and indirect
subsidiaries, taken as a whole.
"Group Member" shall mean, individually, the Parent and each
of its direct and indirect subsidiaries.
"Knowledge of the Parent" shall mean, with respect to a
particular fact or other matter, that (i) any individual who is a director or
executive officer of the Parent, the Merger Sub or any Group Member is actually
aware of such fact or other matter or (ii) any such individual in the
satisfaction of his duties as a director or executive officer of the Parent, the
Merger Sub or any Group Member would be reasonably expected to discover or
otherwise to be or to become aware of such fact or other matter in the course of
conducting the operations and business of the Parent, Merger Sub or Group
Member.
"Material Adverse Effect" shall mean a material adverse effect
on the assets, properties, businesses, results of operations or financial
condition of the Group, taken as a whole, and in any case after application of
the proceeds of any insurance or indemnity under any contract or agreement to
which any Group Member is a party or, a material adverse effect on the ability
of the Parent or the Merger Sub to consummate the Merger as provided in Article
I of this Agreement; provided that the term "Material Adverse Effect" as used
herein shall not include any effect attributable to changes in the economy (of
the United States or any other country) generally, changes in the industries in
which any Group Member engages, or seasonality of the businesses of any Group
Member.
"Transaction Documents" shall mean this Agreement, the
Certificate of Merger and the documents to be delivered pursuant to Section 2.3
or contemplated thereunder.
"Subsidiary" (or its plural) as used in this Agreement with
respect to the Parent or any other person shall mean any corporation,
partnership, joint venture or other legal entity of which the Parent, or such
other person, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
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ARTICLE V
CLOSING CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF PARENT, MERGER SUB, AND
THE COMPANY. The respective obligations of each party to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) None of Parent, Merger Sub, TEL NC Corp. or the
Company shall be subject to any final order, decree, or injunction of a
court of competent jurisdiction within the United States that is then
in effect and (i) has the effect of making the Merger illegal or
otherwise prohibiting the consummation of the Merger, or (ii) would
impose any material limitation on the ability of Parent to effectively
exercise full rights of ownership of the stock of the Surviving
Corporation or of the Surviving Corporation to own and operate the
assets and business of the Company.
(b) The approval of the Shareholders of the Company
referred to in SECTION 2.3(b)(v) hereof shall have been obtained, in
accordance with the corporate laws of the state of New York and the
Company's Certificate of Incorporation and Bylaws.
5.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.
The respective obligations of Parent and Merger Sub to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions, any or all of which may be waived by Parent, in whole or
in part, to the extent permitted by applicable law:
(a) Neither the Company nor the Shareholders shall have
terminated this Agreement.
(b) The warranties and representations made by the
Company herein and by the Shareholders in the Exchange Agreements to
Parent and Merger Sub shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if such
warranties and representations had been made on and as of the Closing
Date, and the Company and the Shareholders shall have performed and
complied in all material respects with all agreements, covenants and
conditions on their respective parts required to be performed or
complied with on or prior to the Closing Date; and at the Closing,
Parent and Merger Sub shall have received a certificate executed by the
Company and the Shareholders to the foregoing effect.
(c) No court or other governmental Person shall have
issued an order which shall be in effect on the Closing Date
restraining or prohibiting the consummation of the transactions
contemplated hereby.
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(d) All proceedings to be taken in connection with the
consummation of the transactions contemplated by this Agreement
(including the approval of the Agreement by the Board of Directors of
the Company) and all documents incident thereto shall be reasonably
satisfactory in all material respects and in form and substance to
Parent and its counsel, and Parent shall have received copies of such
documents as Parent and its counsel may reasonably request in
connection with said transactions.
(e) The approval or consent of all United States agencies
and all state and local governmental bodies and agencies as may be
necessary to consummate the transactions contemplated hereunder shall
have been received.
(f) The Company shall have delivered on the date of the
Closing to Parent the Company's audited financial statements for fiscal
years ending March 31, 1998 and March 31, 1999 and the unaudited
financial statements for the period ended May 31, 1999.
(g) The Company shall have prepared and delivered to the
Parent all of the Schedules to this Agreement.
(h) In accordance with the Company's Certificate of
Incorporation and Bylaws and New York corporate law, the Company shall
have duly approved the transactions contemplated by this Agreement.
(i) All Shareholders of the Company shall have executed
Exchange Agreements for the benefit of Parent representing, among other
things, good title to the Company Common Stock owned by such
Shareholder and acknowledging the securities law restrictions
applicable to the Parent Common Stock that they will receive.
(j) There shall not have been since the date hereof any
termination of employment (excluding any termination due to death or
disability) involving the Chief Executive Officer or a majority of the
other executive officers of the Company as of the date hereof, or any
notice or announcement that such Chief Executive Officer or a majority
of such other executive officers of the Company as of the date hereof
will not continue their employment with the Surviving Corporation after
the Merger.
(k) The Shareholders of the Company shall have duly
approved the transactions contemplated by this Agreement.
(l) The Company and the Shareholders shall have delivered
to the Parent the items pursuant to Section 2.3(b).
5.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to consummate the Merger shall be subject to the
fulfillment at or prior to the Closing of the
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following additional conditions, any or all of which may be waived by the
Company, in whole or in part, to the extent permitted by applicable law:
(a) Neither Parent nor the Merger Sub shall have
terminated this Agreement.
(b) All warranties and representations made by Parent and
Merger Sub herein to the Company shall be true and correct in all
material respects on and as of the Closing Date with the same effect as
if such warranties and representations had been made on and as of the
Closing Date, and Parent and Merger Sub shall have performed and
complied in all material respects (except for the payment obligations
which shall be absolute) with all agreements, covenants and conditions
on their part required to be performed or complied with on or prior to
the Closing Date; and at the Closing, the Company shall have received a
certificate executed by the President or any Vice President of each of
Parent and Merger Sub to the foregoing effect.
(c) No court or other governmental Person shall have
issued an order which shall be in effect on the Closing Date
restraining or prohibiting the consummation of the transactions
contemplated hereby.
(d) All proceedings to be taken in connection with the
consummation of the transactions contemplated by this Agreement
(including the approval of this Agreement by the Board of Directors of
Parent and Merger Sub) and all documents incident thereto shall be
reasonably satisfactory in all material respects and in form and
substance to the Company, the Shareholders and their respective
counsel, and the Company, the Shareholders and such counsel shall have
received copies of such documents as they and counsel may reasonably
request in connection with the transactions.
(e) The approval or consent of all United States agencies
and all state and local governmental bodies and agencies as may be
necessary to consummate the transactions contemplated hereunder shall
have been received.
(f) Parent has delivered to the Company the audited
financial statements of the Parent for the fiscal years ended December
31, 1997 and December 31, 1998 and the unaudited financial statements
for the period ended June 30, 1999.
(g) The shareholder of Merger Sub shall has duly approved
the transactions contemplated by this Agreement.
(h) The Parent shall have prepared and delivered to the
Company all of the Schedules to this Agreement.
(i) Parent shall transfer to Merger Sub in immediately
available funds five hundred thousand dollars ($500,000) to the account
specified on SCHEDULE 5.3(i).
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(j) The Parent shall have delivered to the Company and
the Shareholders the items pursuant to Section 2.3(a).
(k) The Parent shall have paid expenses of the
transactions contemplated in this Agreement in accordance with Section
7.13 of this Agreement and Section 2 of the Agreement Regarding Certain
Closing and Post Closing Matters.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 MEETING OF THE SHAREHOLDERS OF PARENT. As promptly as
practicable after the Effective Time of the Merger, Parent shall duly give
notice of, convene and hold a meeting of its shareholders in accordance with the
DGCL for the purpose of (i) electing directors consisting of Philip Gunn, Dennis
Apfel, Jason Apfel and James J. Pinto, (ii) acting upon a proposal to increase
the number of authorized shares of common stock of Parent, and (iii) ratifying
the selection of Parent's independent accountants and (iv) adopting a 1999 Stock
Option Plan.
6.2 DIRECTORS AND OFFICERS INSURANCE. For a period of one
(1) year after the Effective Time, Parent shall maintain in effect the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance as amended to reflect the Merger as set forth in SCHEDULE 6.2 with
respect to claims arising from facts or events which occurred on or before the
Effective Time.
6.3 [INTENTIONALLY DELETED]
6.4 AGREEMENT REGARDING CLOSING AND POST CLOSING MATTERS.
The Shareholders and the other parties thereto shall execute and deliver to the
Parent the Agreement Regarding Closing and Post Closing Matters in the form of
EXHIBIT I attached hereto.
ARTICLE VII
MISCELLANEOUS
7.1 AMENDMENT AND MODIFICATION. Subject to applicable
law, this Agreement may be amended, modified, or supplemented only by written
agreement of Parent, Merger Sub, and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein; provided,
however, that, after the approval of this Agreement by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each share of Company Common Stock shall be
converted upon
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consummation of the Merger or which would otherwise require stockholder approval
under applicable law unless such stockholder approval shall have been obtained.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent
or Merger Sub on the one hand, or the Company on the other hand, to comply with
any obligation, covenant, agreement, or condition herein may be waived by the
Company or Parent, respectively, only by a written instrument signed by an
officer of the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement, or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing. Merger Sub
agrees that any consent or waiver of compliance given by Parent hereunder shall
be conclusively binding upon Merger Sub, whether or not given expressly on its
behalf.
7.3 INVESTIGATION; SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. The respective representations and warranties of Parent and the
Company contained herein or in any certificates or other documents delivered
prior to or at the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party hereto. The representations, warranties and
agreements in this Agreement and in any certificate delivered pursuant hereto
shall terminate at the Effective Time, except that the agreements set forth in
Articles I and II and Articles VI and VII shall survive the Effective Time.
7.4 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally by commercial courier service or otherwise, or by telecopier, or
three days after such notice is mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
TO THE COMPANY OR SHAREHOLDERS: TeleScents, Inc.
2070 Deer Park Avenue
Deer Park, New York 11729
Attention: Dennis M. Apfel
Phone: (516) 242-3205
Fax: (516) 586-1113
WITH A COPY TO: John J. Butler, Esq.
Haythe and Curley
237 Park Avenue
New York, NY 10017
Phone: (212) 880-6321
Fax: (212) 682-0200
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TO PARENT OR MERGER SUB: National Capital Management Corporation
520 Madison Avenue
New York, NY 10022
Attention: James J. Pinto
Phone: (212) 759-4410
Fax: (212) 935-3851
WITH A COPY TO: Kevin L. Crudden, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Ave.
Minneapolis, Minnesota 55402-2015
Phone: (612) 349-8475
Fax: (612) 339-4181
7.5 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. This Agreement is not intended to confer upon any other person, except
the parties hereto, any rights or remedies hereunder, and no third person shall
be a third party beneficiary of this Agreement.
7.6 GOVERNING LAW. This Agreement shall be governed by
the laws of the State of Delaware (regardless of the laws that might otherwise
govern under applicable Delaware principles of conflicts of law). The parties
hereby (i) agree and consent to be subject to the jurisdiction of any state or
federal court in the state of Delaware or in New York, New York, with respect to
all actions and proceedings arising out of or relating to this Agreement
(although each party reserves the right to bring such action or proceedings in
any other jurisdiction to which the other party is subject); (ii) agree that all
claims with respect to any such action or proceeding may be heard and determined
in such court; (iii) irrevocably waive any defense of an inconvenient forum to
the maintenance of any action or proceeding in such court; (iv) consent to
service of process by mailing or delivering such service to the party at its
respective principal business address; and (v) agree that a final judgment in
any such action or proceeding from which there is no further appeal shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any manner provided by law.
7.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
7.8 INTERPRETATION. The Table of Contents, article and
section headings contained in this Agreement are inserted for reference purposes
only and shall not affect the meaning or interpretation of this Agreement. This
Agreement shall be construed without regard to any
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presumption or other rule requiring the resolution of any ambiguity regarding
the interpretation or construction hereof against the party causing this
Agreement to be drafted.
7.9 PUBLICITY. Upon execution of this Agreement by
Parent, Merger Sub, and the Company, the parties shall jointly issue a press
release, as agreed upon by them.
7.10 ENTIRE AGREEMENT. This Agreement, including the
exhibits and schedules hereto referred to herein, embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement and the exhibits and schedules hereto supersede
all prior agreements and the understandings between the parties with respect to
such subject matter.
7.11 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
7.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
7.13 EXPENSES. All costs and expenses incurred by the
Parent, the Merger Sub and the Company in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby shall be paid by Parent; provided
however, Company will pay $10,000 of the attorney fees incurred by the Company
in connection with this Agreement.
7.14 REASONABLE BEST EFFORTS. Subject to the terms and
conditions herein provided and to applicable legal requirements, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, and to assist and cooperate
with the other parties hereto in doing, as promptly as practicable, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first above written.
NATIONAL CAPITAL MANAGEMENT
CORPORATION
By:
--------------------------------
Its:
--------------------------------
By:
--------------------------------
Its:
--------------------------------
FAC, INC.
By:
--------------------------------
Its:
--------------------------------
TELESCENTS, INC.
By:
--------------------------------
Its:
--------------------------------
/s/ Dennis M. Apfel
------------------------------------
Dennis M. Apfel
/s/ Jason Apfel
------------------------------------
Jason Apfel
GROWTH CAPITAL PARTNERS, L.L.C.
By:
--------------------------------
Its:
--------------------------------
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A PREFERRED STOCK
OF
NATIONAL CAPITAL MANAGEMENT CORPORATION
--------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
--------------------
National Capital Management Corporation, a Delaware
corporation (the "Company"), certifies that pursuant to the authority
contained in Article IV of its Certificate of Incorporation (the "Certificate
of Incorporation") and in accordance with the provisions of Section 151 of
the General Corporation Law of the State of Delaware, the Board of Directors
of the Company by unanimous written consent dated May 17, 1999, adopted the
following resolution which resolution remains in full force and effect on the
date hereof:
RESOLVED, that there is hereby established the following series of
authorized preferred stock having a par value of $.01 per share, which shall
be designated as "Series A Preferred Stock" (the "Series A Stock") and which
shall consist of 1,029,514 shares having the following voting powers, prefer-
ences and relative, participating, optional and other special rights, and qual-
ifications, limitations and restrictions thereof:
1. DIVIDENDS. In the event that the Company declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of
Series A Stock will be entitled to receive a dividend per share equal to the
aggregate dividend that would have been otherwise payable with respect to
such share if it had been converted into shares of Common Stock immediately
prior to the record date of such dividend.
2. VOTING. Each outstanding share of Series A Stock shall entitle
its holder to that number of votes on all matters submitted to the holders of
the Common Stock that is equal to the number of
<PAGE>
shares of Common Stock into which the shares of Series A Stock are then
convertible, as hereinafter provided (except that shares of Series A Stock
shall also have class voting rights as provided in paragraph 3 below and as
otherwise now or hereafter required by agreement or law).
3. ADDITIONAL CLASS VOTES BY SERIES A STOCK. Without the affirmative
vote or written consent of the holders (acting together as a class) of at
least a majority of the shares of Series A Stock at the time outstanding, the
Company shall not:
a. amend the Certificate of Incorporation of the Company in
any respect, including without limitation any certificate of
designation relating to the Series A Stock, so as to alter any existing
provision relating to Series A Stock or the holders thereof or waive
any of the rights granted to the holders of the Series A Stock by the
Certificate of Incorporation of the Company; or
b. increase the authorized number of shares of Series A Stock;
or
c. authorize or issue any shares of capital stock having
priority or preference over, or on parity with, Series A Stock as to
dividends or distributions in the event of the liquidation, dissolution
or winding up of the Company, provided that such prohibition shall not
prevent the Company from issuing any shares which may receive
distributions in such events on a PARI PASSU basis prorated, in the
event assets are insufficient to pay the original purchase price of all
such securities, to the original purchase price of each; or
d. declare or pay any dividend or make any other distribution
on any shares of capital stock of the Company at any time created and
issued ranking junior to Series A Stock with respect to the rights to
the distribution of assets upon liquidation, dissolution or winding up
of the Company, other than distributions payable solely in shares of
junior stock.
4. LIQUIDATION.
a. In the event of the liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of the
shares of Series A Stock shall be entitled to receive in cash, out of
the assets of the Company, before any payment shall be made or any
assets distributed to the holders of Common Stock with respect to the
payment of dividends or upon dissolution or liquidation of the Company,
an amount equal to the sum of (i) greater of (a) $4.00 per share
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter
effected), or (b) the amount which would have been received by the
holders of the Series A Stock if immediately prior to the liquidation,
dissolution or winding-up, such shares had been converted into shares
of Common Stock, and (ii) all dividends unpaid and accumulated or
accrued thereon to the date of such distribution, if any. If, upon any
liquidation or dissolution of this Company, the assets of the Company
shall be insufficient to pay such amount, the holders of such shares
shall share pro rata in any such distribution in proportion to the full
amounts to which they would otherwise be respectively entitled.
-2-
<PAGE>
b. After the payment of all preferential amounts required to
be paid pursuant to subparagraph a. above, any remaining assets and
funds of the Company available for distribution to its stockholders
upon the liquidation, dissolution or winding up of the Company shall be
distributed ratably among the holders of Common Stock. Thereafter, any
such remaining assets and funds shall be distributed.
c. The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 60% of the voting securities of the Company),
change in control of more than 60% of the voting securities of the
Company or the sale of all or substantially all the assets of the
Company, shall be deemed to be a liquidation, dissolution or winding up
of the Company for purposes of this paragraph, unless the holders of a
majority of the Series A Stock then outstanding vote otherwise. The
amount deemed distributed to the holders of Series A Stock upon any
such merger or consolidation shall be the cash or the value of the
property, rights and/or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property,
rights or other securities shall be determined in good faith by the
Board of Directors of the Company.
5. MANDATORY CONVERSION. The Series A Stock shall automatically be
converted into shares of Common Stock of the Company, without any act by the
holders of the Series A Stock at such time as the Company's Certificate of
Incorporation has been amended, and filed and effective with the Delaware
Secretary of State, to increase the number of authorized shares of capital stock
to effect in full the conversion of the Series A Stock into Common Stock. The
conversion rate at which shares of Common Stock shall be delivered upon
conversion of shares of Series A Stock shall be ten (10) shares of Common Stock
for each share of Series A Stock. In order to convert shares of Series A Stock
into shares of Common Stock of the Company, the holder thereof shall surrender
at any office hereinabove mentioned the certificate or certificates thereof,
duly endorsed to the Company or in blank, and give written notice to the Company
at such office that such holder elects to convert such shares. Shares of Series
A Stock shall be deemed to have been converted immediately prior to the close of
business on the day of the surrender of such shares for conversion as herein
provided, and the person entitled to receive the shares of Common Stock of the
Company issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock at such time. As promptly as
practicable on or after the conversion date, the Company shall issue and deliver
or cause to be issued and delivered at such office a certificate or certificates
for the number of shares of Common Stock of the Company issuable upon such
conversion.
6. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Stock shall be converted by the Company, the shares so converted shall not be
reissuable by the Company as Series A Stock but shall be designated
authorized shares of Common Stock and available for issuance by the Company
as Common Stock. At such time as all outstanding shares of Series A Stock
have been converted, (i) any theretofore authorized but unissued shares of
such series shall return to the
-3-
<PAGE>
status of undesignated shares of the Company, (ii) this Certificate of
Designation shall be deemed amended to eliminate all authorized Series A
Stock and the terms and provisions thereof, and (iii) the Board of Directors
and officers of the Company are authorized to take such action and execute
and file such instruments as may be necessary or appropriate to effect such
amendment.
7. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Series A Stock shall not have any voting powers, preferences
and relative, participating, optional or other special rights, other than those
specifically set forth in this Certificate of Designations (as such Certificate
of Designations may be amended from time to time) and in the Certificate of
Incorporation. The shares of Series A Stock shall have no preemptive or
subscription rights.
8. HEADINGS OF SUBDIVISIONS. The headings of the various
subdivisions hereof are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.
9. SEVERABILITY OF PROVISIONS. If any voting powers, preferences
and relative, participating, optional and other special rights of the Series
A Stock and qualifications, limitations and restrictions thereof set forth in
this Certificate of Designations (as such Certificate of Designations may be
amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other voting
powers, preferences and relative, participating, optional and other special
rights of Series A Stock and qualifications, limitations and restrictions
thereof set forth in this Certificate of Designations (as so amended) which
can be given effect without the invalid, unlawful or unenforceable voting
powers, preferences and relative, participating, optional and other special
rights of Series A Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Series A Stock and qualifications, limitations and restrictions
thereof herein set forth shall be deemed dependent upon any other such voting
powers, preferences and relative, participating, optional or other special
rights of Series A Stock and qualifications, limitations and restrictions
thereof unless so expressed herein.
* * * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be duly
executed by its Chairman and attested by its Secretary, this 23rd day of
July, 1999.
By: /s/ John C. Shaw
-------------------------------------
John C. Shaw
Its: Chief Executive Officer
By: /s/ James J. Pinto
-------------------------------------
James J. Pinto
Its: Chairman
ATTEST:
By:
--------------------------
Secretary
-5-
<PAGE>
EXHIBIT 10.1
AGREEMENT REGARDING CERTAIN CLOSING
AND POST CLOSING MATTERS
This Agreement is made and entered into as of the 28th day of July,
1999, by and among National Capital Management Corporation, a Delaware
corporation ("NCMC"), and the persons and entities set forth on the signature
page attached hereto (collectively, the "Shareholders" and individually a
"Shareholder").
RECITALS
A. Concurrently with the execution of this Agreement, NCMC, FAC,
Inc. ("FAC"), a Delaware corporation and wholly-owned subsidiary of NCMC,
TeleScents, Inc., a New York corporation ("TeleScents"), and the Shareholders
have entered into an Agreement and Plan of Merger dated as of the date hereof
(the "Merger Agreement") pursuant to which the parties have agreed that
TeleScents will merge with and into FAC with TeleScents continuing as the
surviving corporation (the "Surviving Corporation").
B. In connection with and as a condition to the consummation of
the transactions contemplated in the Merger Agreement, the parties wish to enter
into this Agreement to set forth certain agreements reached at Closing and to
evidence certain undertakings of the parties from and after Closing. All defined
terms used but not otherwise defined in this Agreement shall have the respective
meanings ascribed hereto in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties agree as follows:
1. SHAREHOLDERS ACTIONS. NCMC and the Shareholders agree NCMC
shall notice the Annual Meeting of the Shareholders (the "Annual Meeting") to be
held on such date as soon as practicable following the Effective Time (the
"Meeting Date") and the Board of Directors of NCMC shall recommend certain
proposals to be acted on by the NCMC shareholders at the Annual Meeting. Such
proposals and actions shall consist of the following matters:
a. ELECTION OF DIRECTORS: One of the proposals to be
acted on by the shareholders of NCMC shall be the election of nominees
to NCMC's Board of Directors (the "Board"). Such nominees shall be
Jason S. Apfel, Dennis M. Apfel, James J. Pinto and Philip Gunn and
shall be nominated to serve on NCMC's Board for one (1) year terms
subject to the terms and conditions of NCMC's Bylaws and Articles of
Incorporation. Such nominations shall be effective as of the Effective
Time. NCMC and the Shareholders agree that each shall support the
nominations of each of the nominees and that each shall use their best
efforts to ensure that such nominees are appointed to the Board and
elected by the shareholders of NCMC. The Shareholders further agree
that they shall take such other actions to assist NCMC in
<PAGE>
preparing materials to be distributed to NCMC's shareholders prior to
the Meeting Date, such as timely providing NCMC with information
regarding Shareholders' nominees as may be requested periodically by
NCMC.
b. RATIFICATION OF ACCOUNTANTS: One of the proposals to
be acted on by the NCMC shareholders shall be the ratification of
independent accountants for NCMC as jointly selected by the
Shareholders. Shareholders agree that they shall timely provide
information to NCMC and shall take such other actions as requested by
NCMC to assist NCMC in preparing materials to be distributed to NCMC's
shareholders prior to the Meeting Date.
c. AMENDMENT TO NCMC CERTIFICATE OF INCORPORATION: One
of the proposals to be acted on by the shareholders shall be the
amendment of NCMC's Certificate of Incorporation to increase the
authorized capital stock of NCMC to 50 million shares, of which 47
million shares shall be Common Stock and 3 million shares shall be
Preferred Stock. If such amendment is approved by the NCMC
shareholders, NCMC and the Shareholders agree that it and they shall
take such further actions and file such additional documents as may be
necessary to effect such amendments to NCMC's Certificate of
Incorporation.
d. ADOPTION OF 1999 STOCK OPTION PLAN: One of the
proposals to be acted on by the shareholders shall be the adoption of a
stock option plan substantially in the form attached hereto as Exhibit
A, pursuant to which 3 million shares of common stock shall be reserved
for issuance thereunder.
2. SHAREHOLDER APPROVAL. The Shareholders individually and
jointly agree that , at any meeting of the shareholders of the Company, however
called, including the Annual Meeting, and at every adjournment thereof, and in
any action by written consent of the shareholders of the Company, each of the
Shareholders shall (i) vote all of the shares of capital stock of NCMC then
owned by such Shareholder in favor of the proposals set forth in paragraph 1
above and each of the other transactions contemplated thereby and any action
required in furtherance thereof, (ii) vote all of the shares of capital stock of
NCMC then owned by such Shareholder against any action or agreement that would
result in a breach in any material respect of any covenant, representation or
warranty or any other obligation of NCMC under the Merger Agreement, and (iii)
vote all of the shares of capital stock of NCMC then owned by such Shareholder
against any other action or agreement that, directly or indirectly, is
inconsistent with or that would, or is reasonably likely to, directly or
indirectly, impede, interfere with or attempt to discourage the Merger or any
other transaction contemplated by the Merger Agreement or this Agreement. Each
of the Shareholders further agree to take all such other actions as shall be
reasonably requested by NCMC in order to assist in, and shall cooperate with
NCMC in connection with, the consummation of the transactions contemplated by
the Merger Agreement, including (i) participating in meetings with shareholders
of the NCMC, (ii) soliciting proxies and (iii) providing information concerning
the Company to third parties.
3. COSTS AND EXPENSES. NCMC agrees that, in addition to the cash
contribution described in paragraph 4 below, it shall contribute $15,000 to the
Surviving Corporation to be used
2
<PAGE>
for expenses related to the Annual Meeting or the preparation of an
Information Statement to be provided to all shareholders of NCMC the
foregoing $15,000 will be offset by the prepayment through August 15, 1999 of
$7,300 for the D&O insurance premium. Furthermore, NCMC shall pay such costs
and expenses reflected in the attached EXHIBIT A. The parties hereto agree
that, except as provided in this paragraph, paragraphs 4 and 5 below or
pursuant to Section 7.13 of the Merger Agreement, the Surviving Corporation
shall be solely responsible for all costs and expenses arising after the
Effective Time, including without limitation all fees, costs and expenses
related to, in connection with or arising out of the conversion of NCMC's
existing Director and Officer insurance policy (which are estimated to be
approximately $20,000).
4. CASH DISTRIBUTIONS; WAIVER. NCMC agrees that as of the
Effective Time, it shall have transferred or otherwise contributed Five Hundred
Thousand Dollars ($500,000) in immediately available funds to the Surviving
Corporation. The Shareholders jointly and severally acknowledge and agree that
neither the Shareholders, FAC, TeleScents nor the Surviving Corporation shall be
entitled to any amount in addition to the $500,000 following the Effective Time,
whether as Shareholders of NCMC, or by virtue of, in connection with, or related
to the Merger, this Agreement or otherwise, except as provided in paragraphs 3,
4 and 5 of this Agreement and Section 7.13 of the Merger Agreement. Accordingly,
the Shareholders, individually and jointly, hereby waive, release and agree not
to sue on any and all rights they currently, or in the future may, have to any
amounts of cash or other property of NCMC as of or after the Effective Time or
distributed by NCMC to its shareholders from time-to-time following the
Effective Time, whether such distribution is in the form of a dividend or
otherwise. The Shareholders hereby acknowledge and agree that prior to the
Effective Date, NCMC shall set a record date (the "Record Date") for one or more
distributions to all NCMC shareholders OTHER THAN THE SHAREHOLDERS, and that
from time-to-time thereafter, NCMC shall, in accordance with the Delaware
General Corporation Law, distribute cash to all NCMC shareholders as of the
Record Date in the form of a dividend or otherwise as contemplated in the
Resolutions of the Board of Directors of NCMC attached hereto as EXHIBIT B;
provided however that such distributions shall not reduce the Five Hundred
Thousand Dollars ($500,000) transferred or otherwise contributed to the
Surviving Corporation. As of the date of this Agreement, NCMC anticipates that
the aggregate amount of such cash distributions will be in the range of
$.58-$.63 per share, with the final amounts (whether within this range or not)
to be determined by James J. Pinto in his sole discretion. The parties hereto
agree that James J. Pinto shall have the sole power, authority and discretion to
effectuate a second cash distribution to the shareholders of NCMC as of the
Record Date as he determines is necessary or desirable.
5. ADMINISTRATIVE ACCOUNT. From the date of this Agreement
through October 31, 1999, NCMC shall maintain an administrative account
funded in the amount of not less than $125,000 (the "Administrative Account"
or "Account"). The Administrative Account shall be administered by James J.
Pinto. The Account shall consist of an amount no less than $75,000 which
shall be used to pay the costs and expenses of NCMC arising prior to the
Effective Date (the "Pre- Merger Expenses") and an amount of $50,000 to be
used to indemnify and hold harmless NCMC, the Surviving Corporation and any
of the Shareholders against all damages, liabilities, costs and expenses,
including reasonable attorney's fees, in connection with a claim arising out
of (i) the disposition by NCMC of
3
<PAGE>
NCQ Realty, Inc. or (ii) the transfer by NCMC of the Jensen accounts
receivables and the Oerlemans' guaranty (a "Claim").
a. The Shareholders shall promptly present for payment
to Mr. Pinto any bills, invoices or costs for Pre-Merger Expenses. Mr.
Pinto shall either cause NCMC to pay such Pre-Merger Expense or provide
the Shareholders with written notice of his dispute that such is a
Pre-Merger Expense. The parties agree that they shall proceed in good
faith to resolve any disputes between them concerning the payment of
Pre-Merger Expenses; provided however, if they are not able to come to
a resolution, the parties hereto agree that Philip Gunn shall act as a
mediator for purposes of attempting to resolve such dispute. The
parties further agree that any tax rebates, credits or prepaid amounts
received or credited to NCMC after the Effective Date based on payments
made or events occurring prior to the Effective Date shall be provided
to James J. Pinto to be deposited into the Account. The parties further
agree that in connection with his administration of the Account, James
J. Pinto shall have the power, right and authority to engage in such
discussions regarding the use of the Account funds as he may deem
reasonable or appropriate (including, after October 31, 1999, (i) the
authority to pay to PFG Corp. and Resource Holdings Associates monies
out of the Account to support their respective indemnity obligations
and (ii) the power to negotiate with NCMC (and in such negotiations
NCMC shall be represented solely by Dennis or Jason Apfel) and PFG
Corp. and Resource Holdings Associates a release of the
indemnifications provided by PFG Corp. and Resource Holdings Associates
to NCMC) and shall further have the right, power and authority to
effectuate the same. The foregoing clause (ii) shall not imply any
obligation on behalf of NCMC to release such indemnifications.
b. In the event NCMC or the Surviving Corporation or any
of the Shareholders receive notice of any action, proceeding, claim or
potential claim (any of which is hereinafter referred to as a
"Circumstance"), which could give rise to the right to indemnification
pursuant to this paragraph 5, such parties shall give Mr. Pinto written
notice describing the Circumstance in reasonable detail. Pinto shall
have the right, at his option, to compromise or defend, at his own
expense and by his own counsel, any such matter involving the asserted
liability of the party seeking indemnification. Furthermore, the party
seeking indemnification agrees to cooperate fully with Mr. Pinto and
his counsel in the compromise of, or defense against, any such asserted
liability and, if he so elects to compromise or defend, the Surviving
Corporation, NCMC or any of the Shareholders shall have the right at
its own expense to participate in the defense of such asserted
liability. Under no circumstances shall NCMC, the Surviving Corporation
or the Shareholders compromise any asserted liability without the
written consent of Mr. Pinto.
c. Mr. Pinto, in his sole discretion and solely for the
purposes of winding up the Account may extend the maintenance of the
Account through December 15, 1999. Any amount remaining in the
Administrative Account after winding up the Account may be distributed
to the shareholders of NCMC as of the Record Date. After October 31,
1999, in furtherance of the administration of the Account, Mr. Pinto
shall be reimbursed out of such
4
<PAGE>
Account for any out-of-pocket costs or expenses he incurs.
6. OFFICERS AND DIRECTORS. The parties hereto agree that, to the
extent such individuals agree to serve in the capacities designated below, from
and after the Effective Date, the Directors and Officers of NCMC shall be as
follows:
<TABLE>
<S> <C>
Dennis M. Apfel......................... Director, Vice Chairman of the Board,
Chief Financial Officer and Secretary
Jason S. Apfel ......................... Director, President and Chief
Executive Officer
Philip Gunn............................. Director and Chairman
James J. Pinto.......................... Director
</TABLE>
7. COVENANTS. The Shareholders covenant and agree that for a
period commencing on the date of this Agreement and ending on December 31, 1999,
such Shareholders will not:
a. cause NCMC to issue or sell any shares of the common
stock of NCMC, or securities convertible into or exercisable for, any
shares of the common stock of NCMC to the Shareholders at a price less
than $0.40 per share without obtaining the prior written approval of
James J. Pinto; or
b. engage in any plan of action pursuant to which the
shareholders of NCMC (other than the Shareholders) are subject to a
"freeze-out" transaction whether by a short-form merger, a "going
private" transaction or otherwise; or
c. cause NCMC to issue or grant to any of the
Shareholders or their affiliates, any warrants, options or other rights
to the common or preferred stock of NCMC.
8. RELEASE; INDEMNIFICATION.
a. Each Shareholder, jointly and severally, (i) agrees
that NCMC and its officers and directors shall not have any liability
to Shareholder (sounding in tort, contract or otherwise) for losses
suffered by such Shareholder in connection with, arising out of, or in
any way related to taking the actions provided for in paragraphs 4 and
5 herein, unless it is determined that such loss is the result of acts
or omissions on the part of NCMC and its officers and directors
constituting willful misconduct or knowing violations of law and (ii)
waives, releases and agrees not to sue upon any claim against NCMC and
its officers and directors with respect to (i) above (whether sounding
tort, contract or otherwise), except a claim based upon willful
misconduct or knowing violations of law. The provisions of this release
shall survive the termination of this Agreement.
5
<PAGE>
b. PFG Corp., a Delaware corporation, and Resource
Holdings Associates, a Delaware limited partnership, each severally but
not jointly agree that, in the event there is a claim against NCMC or
the Surviving Corporation or any of the Shareholders arising out of the
disposition by NCMC of National Capital Benefits Corporation, each of
PFG Corp. and Resource Holdings Associates shall severally but not
jointly indemnify and hold harmless NCMC and the Surviving Corporation
against all damages, liabilities, costs and expenses, including
reasonable attorney's fees arising out of such a claim whether such
claim is covered by a Director and Officer insurance policy, PROVIDED
HOWEVER that such indemnification shall not exceed $37,500 for each of
PFG Corp. and Resource Holdings Associates. The parties further agree
that each of PFG Corp. and Resource Holdings Associates may use the
funds in the Administrative Account to pay the $37,500 each for the
indemnification required in this paragraph; PROVIDED HOWEVER, that if
either of PFG Corp. or Resource Holdings Associates, or both, use funds
from the Administrative Account to indemnify the Surviving Corporation
as required herein, PFG Corp. and Resource Holdings Associates each
severally but not jointly agree to contribute additional funds to the
Administrative Account as may be necessary to pay from the
Administrative Account, pursuant to paragraph 5 herein, up to an
aggregate of $75,000 of Pre-Merger Expenses on or before October 31,
1999. James J. Pinto and John C. Shaw each hereby severally but not
jointly guarantee the performance of PFG Corp. and Resource Holdings
Associates, respectively, pursuant to this paragraph.
c. In the event NCMC or the Surviving Corporation or any
of the Shareholders receive notice of any action, proceeding, claim or
potential claim (any of which is hereinafter referred to as a
"Circumstance"), which could give rise to the right to indemnification
pursuant to this paragraph 8, such parties shall give PFG Corp. and
Resource Holdings Associates written notice describing the Circumstance
in reasonable detail. Each of PFG Corp. and Resource Holdings
Associates shall have the right, at its option, to compromise or
defend, at its own expense and by its own counsel, any such matter
involving the asserted liability of the party seeking indemnification
and the Surviving Corporation, NCMC or any of the Shareholders shall
have the right at its own expense to participate in the defense of such
asserted liability. Furthermore, the party seeking indemnification
agrees to cooperate fully with PFG Corp. and Resource Holdings
Associates and its counsel in the compromise of, or defense against,
any such asserted liability. Under no circumstances shall NCMC, the
Surviving Corporation or the Shareholders compromise any asserted
liability without the written consent of PFG Corp. and Resource
Holdings Associates.
9. FURTHER ASSURANCES. Each Shareholder, jointly and
severally, agrees to execute and deliver further transfers, assignments,
endorsements, consents and other instruments, and to perform such further
acts, as NCMC may reasonable request for the purpose of effectively carrying
out the transactions contemplated by this Agreement and the Merger Agreement.
In addition, the parties acknowledge that in connection with the Merger
Agreement, NCMC has disposed of substantially all of its non-cash assets,
including the disposition of its subsidiary National Capital Benefits
Corporation. Each Shareholder, jointly and severally, agrees to execute and
deliver any additional
6
<PAGE>
instruments or agreements, and to perform such further acts as may be
necessary to effectuate the disposition of NCMC's non-cash assets.
10. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by cable, telecopy,
telegram or telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address as shall be specified by notice given in accordance with this
paragraph 9:
a. IF TO NCMC, PFG CORP. OR RESOURCE HOLDINGS ASSOCIATES:
520 Madison Ave., 40th Floor
New York, NY 10022
Attention: James J. Pinto and John C. Shaw
with a copy to:
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, MN 55402-2015
Attention: Kevin L. Crudden, Esq.
b. IF TO SHAREHOLDERS TO:
2070 Deer Park Avenue
Deer Park, New York 11729
Attention: Dennis M. Apfel and Jason Apfel
and
520 Madison Avenue, 40th Floor
New York, New York 10022
Attention: Growth Capital Partners, L.L.C.
with a copy to:
Haythe & Curley
237 Park Avenue, 20th Floor
New York, NY 10017
Attention: John J. Butler, Esq.
7
<PAGE>
11. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
14. BINDING AGREEMENT. The Shareholders, jointly and severally,
represent, warrant and agree that each Shareholder has the legal capacity, power
and authority to enter into and perform all of the Shareholder's obligations
under this Agreement; that this Agreement has been duly executed and delivered
by each of the Shareholders and constitutes a legal, valid and binding
obligation of each of the Shareholders, enforceable against any or all of the
Shareholders in accordance with its terms.
15. AMENDMENTS. This Agreement may be amended, modified, or
supplemented only by written agreement of the parties.
16. ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise.
17. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and their successors, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
18. INJUNCTIVE RELIEF. Shareholders agree, jointly and
severally, that in the event of a Shareholder's breach of any provision of
this Agreement, NCMC may be without any adequate remedy at law. Shareholders
therefore agree, jointly and severally, that in the event of a Shareholder's
breach of any provision of this Agreement, NCMC may elect to institute and
prosecute proceedings in any court of competent jurisdiction against the
Shareholders, jointly and severally, to enforce specific performance or to
enjoin the continuing breach of such provision, as well as to obtain damages
for breach of this Agreement. By seeking or obtaining any such relief, NCMC
will not be precluded from seeking or obtaining any other relief to which it
may be entitled.
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19. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court located in the State of New York.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
* * * * * *
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The parties hereto have executed this Agreement as of the day and year
first above written.
NATIONAL CAPITAL MANAGEMENT
CORPORATION
By: /s/ James J. Pinto
--------------------------------------
James J. Pinto
Its: Director
By: /s/ John C. Shaw
--------------------------------------
John C. Shaw
Its: Chief Executive Officer
SHAREHOLDERS:
By: /s/ Dennis M. Apfel
------------------------------
Dennis M. Apfel
By /s/ Jason S. Apfel
------------------------------
Jason S. Apfel
GROWTH CAPITAL PARTNERS, L.L.C.
By
------------------------------
Its:
--------------------
FOR PURPOSES OF AGREEMENT WITH PARAGRAPH 8 ONLY:
PFG CORP.
By:
---------------------------------
Its:
----------------------
RESOURCE HOLDINGS ASSOCIATES
By: Resource Holdings Limited, a New
York corporation, a partner
By:
---------------------------------
Its:
----------------------
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THE UNDERSIGNED GUARANTEES THE SPECIFIC OBLIGATIONS
SET FORTH FOR PFG CORP. UNDER PARAGRAPH 8.B. ONLY:
/s/ James J. Pinto
- --------------------------------
James J. Pinto
THE UNDERSIGNED GUARANTEES THE SPECIFIC OBLIGATIONS
SET FORTH FOR RESOURCE HOLDINGS ASSOCIATES UNDER PARAGRAPH 8.b. ONLY:
/s/ John C. Shaw
- --------------------------------
John C. Shaw
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EXHIBIT A
1. Costs of preparing and filing NCMC tax returns for fiscal year ended
December 31, 1998, and the stub period ending on the Closing Date.
2. Costs of the filing of the Form 8-K for NCMC in connection with the
announcement of the disposition of National Capital Benefits
Corporation.
3. Costs of the filing of the initial Form 8-K for NCMC in connection with
the execution of the Merger Agreement and consummation of the
transactions contemplated therein.
4. Costs and expenses incurred by Shareholders or the Surviving
Corporation to effectuate the transactions contemplated in the Merger
Agreement, other than legal costs and expenses of Shareholders or the
Surviving Corporation.
5. Costs of preparing and filing the Form 10-Q for NCMC for the period
ending June 30, 1999.
12
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EXHIBIT B
13
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EXHIBIT 99.1
NATIONAL CAPITAL MANAGEMENT CORPORATION AND TELESCENTS, INC. ANNOUNCE
COMPLETION OF MERGER
DEER PARK, N.Y., July 28/PRNewswire/ -- TeleScents, Inc.
(http://www.fragrancenet.com) and National Capital Management Corporation
(OTC Bulletin Board: NCMC - NEWS) today announced the completion of a merger
of TeleScents, Inc. with a wholly owned subsidiary of National Capital
Management Corporation. It was also announced that National Capital
Management Corporation has changed its name to FragranceNet.com, Inc.
Beginning August 3, 1999 shares of common stock of FragranceNet.com will
cease trading under the symbol "NCMC" and begin trading under the symbol
"FRGN".
Jason S. Apfel, President of TeleScents (www.fragrancenet.com), will serve as
the new CEO and President of FragranceNet.com. As a result of the merger the
board of directors of FragranceNet.com will consist of one current member of
the board of directors of National Capital Management Corporation and 3
current members of the board of directors of TeleScents, Inc. and a majority
of the voting power of FragranceNet.com, Inc. will be held by the former
shareholders of TeleScents, Inc.
Mr. Apfel stated that "The completion of the merger will help us expand upon
our leadership position in the booming online fragrance category and will
allow us to launch an aggressive marketing effort to increase awareness for
the FragranceNet.com brand."
About FragranceNet.com:
Founded in 1997, FragranceNet.com, Inc. operates www.fragrancenet.com, the
world's largest pure internet discount fragrance store offering more than
1,200 brand name fragrances at the lowest prices. By combining extensive
selection with free US shipping and handling, free gift wrapping and a free
gift with every order, FragranceNet.com customers are treated to a unique and
easy shopping experience.
About National Capital Management Corporation:
Headquartered in New York, N.Y., National Capital Management Corporation is a
holding company that previously operated through its primary subsidiary,
National Capital Benefits Corp., which purchased life insurance policies for
cash, on a discounted basis, from individuals having life threatening
illnesses. In December 1996, the Company made a determination to discontinue
this operation and on July 20, 1999 the Company announced it had sold this
operation.
This press release contains certain forward-looking statements, which may
involve known and unknown material risks, uncertainties and other factors not
under the Company's control including without limitation the need for
additional financing, the impact of competition, the management of growth,
compliance with applicable regulatory requirements, the Company's ability to
implement its long term business plan for acquiring complementary businesses,
the Company's ability to enter into agreements with marketing or distribution
partners, which may cause actual results, performance and achievements of the
Company to be materially different from the Company's expectations.
