Agreement and Plan of Merger - National Syndications Inc. and Cross Media Marketing Corp.
AGREEMENT AND PLAN OF MERGER
AMONG
NATIONAL SYNDICATIONS, INC.
CROSS MEDIA MARKETING SYNDICATIONS CORPORATION,
CROSS MEDIA MARKETING CORPORATION
AND
THE STOCKHOLDER OF NATIONAL SYNDICATIONS, INC.
Dated as of January 4, 2002
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1. Definitions................................................................1
1.1 "Accounting Protocol"...............................................1
1.2 "Adjusted 2001 EBITDA"..............................................1
1.3 "Affiliate".........................................................2
1.4 "Apartment Lease"...................................................2
1.5 "Bank Account"......................................................2
1.6 "Business"..........................................................2
1.7 "Consentors"........................................................2
1.8 "Change of Control".................................................2
1.9 "Contracts".........................................................2
1.10 "Current Market Price"..............................................3
1.11 "Dividend Notes"....................................................3
1.12 "Dividend Note Amount"..............................................3
1.13 "Dividends Payable".................................................3
1.14 "Effective Date"....................................................3
1.15 "Effective Date Indebtedness".......................................3
1.16 "Effective Time"....................................................3
1.17 "Employment Agreements".............................................3
1.18 "Fleet Financing"...................................................3
1.19 "Government License"................................................4
1.20 "Intellectual Property Assets"......................................4
1.21 "Joint Ventures"....................................................4
1.22 "Joint Venture Agreement"...........................................4
1.23 "Joint Venture Period"..............................................4
1.24 "Joint Venture Project".............................................4
1.25 "Joint Ventures' 2001 EBITDA".......................................4
1.26 "Joint Ventures' 2002 EBITDA".......................................4
1.27 "Joint Venture Discontinued Project"................................4
1.28 "Joint Ventures' Income"............................................4
1.29 "Joint Venture Project Income"......................................5
1.30 "Joint Venture Unprofitable Project"................................5
1.31 "knowledge".........................................................5
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1.32 "Liens".............................................................5
1.33 "Material Adverse Effect"...........................................5
1.34 "Merger Deadline"...................................................5
1.35 "Negotiable Purchase Note"..........................................5
1.36 "NSI Common Stock"..................................................5
1.37 "NSI Disclosure Schedule"...........................................5
1.38 "NSI Surviving Corporation".........................................5
1.39 "Overage"...........................................................5
1.40 "Parent Common Stock"...............................................6
1.41 "Parent Disclosure Schedule"........................................6
1.42 "Parent Parties"....................................................6
1.43 "PCM"...............................................................6
1.44 "PCM Merger Agreement"..............................................6
1.45 "PCM Merger Sub"....................................................6
1.46 "PCM Surviving Corporation".........................................6
1.47 "Permitted Transferees".............................................6
1.48 "Permitted Liens"...................................................6
1.49 "Pironti Loan Amount"...............................................6
1.50 "Pironti Employment Agreement"......................................6
1.51 "Projected Discontinued Project Income".............................6
1.52 "Purchase Note".....................................................6
1.53 "Purchase Note Letter of Credit"....................................6
1.54 "Registration Rights Agreements"....................................6
1.55 "Return on Promotional Investment"..................................6
1.56 "SEC Reports".......................................................7
1.57 "Security Agreement"................................................7
1.58 "Stockholder".......................................................7
1.59 "Third Party Liabilities"...........................................7
1.60 "2001 EBITDA".......................................................7
1.61 "2002 EBITDA".......................................................7
1.62 "2001 EBITDA Distributions".........................................7
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1.63 Commonly used terms.................................................7
2. The NSI Merger.............................................................8
2.1 The NSI Merger......................................................8
2.2 Effective Time......................................................8
2.3 Effect of the NSI Merger............................................8
2.4 Articles of Incorporation; By-laws..................................9
2.5 Directors and Officers..............................................9
2.6 Effect on Securities, Etc...........................................9
2.7 Method of Payment...................................................9
2.8 Determination of NSI Merger Consideration..........................10
2.9 Joint Venture Payments.............................................11
2.10 Tax Treatment......................................................15
3. Representations and Warranties of NSI and the Stockholder.................15
3.1 Organization and Qualification; Absence of Subsidiaries............15
3.2 Articles of Incorporation and By-laws..............................15
3.3 Capitalization.....................................................15
3.4 Ownership of NSI Common Stock; Voting..............................15
3.5 Authorization; Binding Agreement...................................16
3.6 No Conflict; Required Filings and Consents.........................16
3.7 Compliance; Permits................................................17
3.8 Financial Statements...............................................17
3.9 Absence of Certain Changes or Events...............................18
3.10 Insolvency.........................................................20
3.11 Absence of Litigation..............................................21
3.12 Properties.........................................................21
3.13 Contracts, etc.....................................................21
3.14 Dealings with Officers, Directors, and Affiliates; Etc.............23
3.15 Bank Accounts and Powers of Attorney...............................23
3.16 Employees..........................................................23
3.17 Employee Benefit Plans.............................................25
3.18 Restrictions on Business Activities................................27
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3.19 Title to Property..................................................27
3.20 Taxes..............................................................28
3.21 Environmental Matters..............................................29
3.22 Intellectual Property..............................................30
3.23 Insurance..........................................................31
3.24 Brokers, etc.......................................................31
4. Representations and Warranties of Parent and NSI Merger Sub...............32
4.1 Organization and Good Standing.....................................32
4.2 Articles of Incorporation and By-laws..............................32
4.3 Capitalization.....................................................32
4.4 Authorization; Binding Agreement...................................33
4.5 Governmental Approvals.............................................33
4.6 No Violations......................................................33
4.7 Brokers, etc.......................................................33
4.8 Insolvency.........................................................34
4.9 Restriction on Business Activities.................................34
4.10 SEC Filings; Financial Statements..................................34
4.11 No Prior Activities................................................34
5. Covenants of NSI and the Stockholder......................................35
5.1 Access to Information..............................................35
5.2 Conduct of Business by NSI Pending the Effective Time..............35
5.3 Notification of Certain Matters....................................37
5.4 No Solicitation....................................................38
5.5 Reasonable Best Efforts............................................38
5.6 Non-competition....................................................38
5.7 Assignment of Apartment Lease and Assumption of Liabilities........41
6. Mutual Covenants..........................................................41
6.1 Consents; Approvals................................................41
6.2 Expenses...........................................................41
6.3 Public Announcements...............................................41
6.4 Conveyance Taxes, etc..............................................41
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6.5 Taxes and Cooperation on Tax Matters...............................41
6.6 Further Action.....................................................42
6.7 Tax Reporting of Transaction.......................................43
6.8 Purchase Note Letter of Credit.....................................43
7. Conditions to the Merger..................................................44
7.1 Conditions to Obligation of Each Party to Effect the Merger........44
7.2 Additional Conditions to Obligations of Parent and NSI
Merger Sub.........................................................45
7.3 Additional Conditions to Obligation of NSI and Pironti.............47
8. Termination...............................................................48
8.1 Termination........................................................48
8.2 Effect of Termination..............................................49
9. Indemnification...........................................................49
9.1 Indemnification by the Stockholder.................................49
9.2 Indemnification by Parent..........................................51
9.3 Assumption of Defense..............................................52
9.4 Non-Assumption of Defense..........................................53
9.5 Indemnified Party's Cooperation as to Proceedings..................53
9.6 Limitation on Losses...............................................53
9.7 Dispute Resolution Procedure.......................................55
9.8 Setoff.............................................................56
9.9 Option to Make Part Payment in Stock...............................56
9.10 Exclusive Remedies.................................................56
10. Miscellaneous.............................................................57
10.1 Representations, Warranties, Covenants, etc........................57
10.2 Disclosures........................................................57
10.3 Notices............................................................57
10.4 Amendment..........................................................58
10.5 Waiver.............................................................58
10.6 Headings...........................................................58
10.7 Severability.......................................................58
10.8 Entire Agreement...................................................59
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10.9 Assignment.........................................................59
10.10 Parties in Interest................................................59
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative..............59
10.12 Governing Law; Jurisdiction........................................59
10.13 WAIVER OF JURY TRIAL...............................................60
10.14 Execution and Delivery.............................................60
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of January
4, 2002 and is by and among CROSS MEDIA MARKETING SYNDICATIONS CORPORATION, a
Delaware corporation ("NSI Merger Sub"), CROSS MEDIA MARKETING CORPORATION, a
Delaware corporation, the parent of NSI Merger Sub ("Parent"), NATIONAL
SYNDICATIONS, INC., a New York corporation ("NSI"), and Anthony R. Pironti, the
stockholder of NSI (in his individual capacity, "Pironti" and in his capacity as
the stockholder of NSI, the "Stockholder"). Parent, NSI Merger Sub, NSI and the
Stockholder are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
RECITALS
A. NSI is engaged in the business of direct marketing of consumer goods and
services, whether through Sunday magazines, consumer magazines, free standing
inserts, direct response TV, credit card billing statements, direct mail
including electronic mail, package inserts, outbound telemarketing, catalogue
mailings or otherwise (the "Business");
B. Pursuant to the Merger, each outstanding share (each, a "Share") of NSI
Common Stock, $1.00 par value (the "NSI Common Stock"), shall be converted into
the right to receive a pro rata portion of the NSI Merger Consideration (as
defined in Section 2.6(a)), upon the terms and subject to the conditions set
forth herein;
C. The respective Boards of Directors of Parent, NSI Merger Sub and NSI
have each approved the merger (the "NSI Merger") of NSI with and into NSI Merger
Sub, upon the terms and subject to the conditions set forth herein and in
accordance with the applicable provisions of the New York Business Corporation
Law ("BCL");
D. The Board of Directors of NSI has approved and resolved to recommend
approval of the NSI Merger to the Stockholder, and has determined that the
consideration to be paid for each Share in the NSI Merger is fair to and in the
best interest of the Stockholder; and
E. Parent, NSI Merger Sub, the Stockholder and NSI desire that the NSI
Merger shall qualify as a tax-free reorganization pursuant to Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Parties hereby agree as follows:
1. Definitions
1.1 "Accounting Protocol" means those accounting conventions and practices
described in Schedule 1.1.
1.2 "Adjusted 2001 EBITDA" means the 2001 EBITDA reduced by the Joint
Ventures' 2001 EBITDA.
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1.3 "Affiliate" means, as to any Party, a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Party. For purposes of this definition,
"control" (including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly or as trustee or executor, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
1.4 "Apartment Lease" means that particular lease by and between 615 PCM as
Landlord and NSI as Tenant or the premises located at 800 Fifth Avenue,
Apartment 21F, New York, NY 10001.
1.5 "Bank Account" means any bank account at a bank located within the
United States, which Stockholder shall designate to Parent and NSI Surviving
Corporation.
1.6 "Business" has the meaning set forth in Recital A.
1.7 "Consentors" means USA Weekend, Inc. and Parade Publications, Inc.
1.8 "Change of Control" shall occur: (i) upon the consummation of a
Transfer by the Parent (or an Affiliate of the Parent, as applicable) of all or
substantially all of the Business, including by way of either (x) a Transfer of
all or substantially all of the assets in respect of the Business, or (y) a
Transfer of Voting Control of the Business Owners, or (ii) upon (x) a Transfer
of all or substantially all of the assets of the Parent on a consolidated basis,
or a Transfer of Voting Control of the Parent, or (iii) upon the consummation of
a merger or consolidation in which any person (other than any shareholder having
Voting Control as of the date hereof) will beneficially own immediately after
the effective time of the merger or consolidation Voting Control of the
Surviving Corporation. For the purposes hereof, (A) a "Transfer" shall mean a
direct or indirect sale, lease, exchange or other transfer or disposition;
provided, however, that the mortgage, pledge or hypothecation in connection with
a bona fide financing shall not constitute a Change of Control unless or until
the applicable transferee obtains actual ownership of the underlying assets or
shares, (B) the "Business Owners" means those Affiliates of Parent that own, or
possess the right to operate, the Business, (C) the "Surviving Corporation" is
any entity that is the survivor or resulting corporation in the case of a merger
or consolidation, (D) a Transfer of Voting Control shall be deemed to have
occurred when any "person," other than any shareholder having "Voting Control"
as of the date hereof, (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 but excluding any Company sponsored employee
benefit plan) becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934 as in effect on date hereof), directly or
indirectly, of Voting Control, and (E) "Voting Control" means owning more than
50% of the "voting power" of securities that have the right to elect the Board
of Directors of Parent, the Business Owners or Surviving Corporation, as the
case may be, and otherwise direct the governance of Parent or such other
corporation.
1.9 "Contracts" has the meaning set forth in Section 3.13.
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1.10 "Current Market Price" means the average of the daily market prices of
the Parent Common Stock for the twenty (20) consecutive trading days immediately
preceding the date hereof. The market price for each such trading day shall be:
(i) if the Parent Common Stock is listed or admitted to trading on any
securities exchange, the closing price, regular way, on such day, or if no sale
takes place on such day, the average of the closing bid and asked price on such
day; (ii) if the Parent Common Stock is not then listed or admitted to trading
on any securities exchange but is listed on The NASDAQ Stock Market, the last
reported sale price on such day on The NASDAQ Stock Market, or if no sale takes
place on such day, the average of the last reported bid and asked prices on such
day, as reported by The NASDAQ Stock Market; or (iii) if the Parent Common Stock
is not then listed or admitted to trading on any securities exchange or on The
NASDAQ Stock Market, the average of the reported high bid and low asked prices
on such day, as reported by the OTC Bulletin Board, (the "OTCBB") if the Common
Stock is quoted on the OTCBB, or a reputable quotation service, or a newspaper
of general circulation service in the Borough of Manhattan, City and State of
New York, customarily published on each business day, designated by the Company,
or if there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day (not more
than ten (10) days prior to the date in question) for which prices have been so
reported.
1.11 "Dividend Notes" mean the non-interest bearing promissory notes issued
by NSI and PCM in satisfaction of dividends declared by NSI and PCM
respectively, other than in respect of 2001 EBITDA or 2002 EBITDA.
1.12 "Dividend Note Amount" means the amounts owing in respect of the
Dividend Notes.
1.13 "Dividends Payable" means dividends declared by NSI and PCM, but
unpaid as of the Effective Date, in an amount up to the sum of (i) the extent to
which the 2001 EBITDA exceeds the 2001 EBITDA Distributions, (ii) the 2002
EBITDA, and (ii) $450,000, other than as reflected by the Dividend Notes.
1.14 "Effective Date" means the date on which the Effective Time occurs.
1.15 "Effective Date Indebtedness" means the aggregate amount of principal,
premium, if any, and accrued and unpaid interest on all outstanding indebtedness
of NSI and PCM to banks or other financial institutions as of the Effective
Date, reduced by all cash on hand, but, for the avoidance of doubt, excluding
(i) the Pironti Loan Amount, (ii) the Dividend Note Amount and (iii) the
Dividends Payable.
1.16 "Effective Time" has the meaning set forth in Section 2.2.
1.17 "Employment Agreements" means the employment agreements by and between
the NSI Surviving Corporation on the one hand and each of Pironti and the
Permitted Transferees on the other, in the forms set forth in Exhibit A hereto.
1.18 "Fleet Financing" means the financing arrangement to be provided by
Fleet National Bank on behalf of PCM Surviving Corporation and NSI Surviving
Corporation
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generally in accordance with the terms described on Schedule 1.18, but in any
event having a principal balance outstanding at any one time not in excess of $3
million.
1.19 "Government License" means any governmental right, privilege,
authority, franchise, license, permit or certificate of NSI necessary or useful
in connection with the conduct of the Business.
1.20 "Intellectual Property Assets" has the meaning set forth in Section
3.22.
1.21 "Joint Ventures" means those ventures listed on Schedule 1.20 hereto
entered into by NSI and the applicable joint venture partners to pursue Joint
Venture Projects.
1.22 "Joint Venture Agreement" means with respect to each Joint Venture,
the agreements listed on Schedule 1.22 hereto between NSI and the applicable
joint venture partner setting forth the terms and conditions upon which such
Joint Venture will be conducted.
1.23 "Joint Venture Period" means the period from January 1, 2002, and
continuing through December 31, 2004.
1.24 "Joint Venture Project" means a current or future project that is
entered into by a Joint Venture pursuant to the terms of the applicable Joint
Venture Agreement.
1.25 "Joint Ventures' 2001 EBITDA" means NSI's share (under the terms of
the Joint Venture Agreements) of the sum of (x) the combined net income of the
Joint Ventures for fiscal year ended December 31, 2001, plus (y) all amounts
deducted in computing such net income in respect of: (1) interest expense, (2)
corporate income tax expense, and (3) depreciation and amortization expense,
subject in all events to those further adjustments set forth on the Accounting
Protocol with respect to Joint Venture Projects.
1.26 "Joint Ventures' 2002 EBITDA" means NSI's share (under the terms of
the Joint Venture Agreements) of the sum of (x) the combined net income of the
Joint Ventures for the period from and including January 1, 2002 through and
including the Effective Date, plus (y) all amounts deducted in computing such
net income in respect of: (1) interest expense, (2) corporate income tax
expense, and (3) depreciation and amortization expense, subject in all events to
those further adjustments set forth on the Accounting Protocol with respect to
Joint Venture Projects.
1.27 "Joint Venture Discontinued Project" is a Joint Venture Project that
is discontinued, or otherwise not exploited in a commercially reasonable manner,
even though it is not a Joint Venture Unprofitable Project.
1.28 "Joint Ventures' Income" means, for any fiscal period, NSI Surviving
Corporation's share (under the Joint Venture Agreements) of the sum of the
combined net income of the Joint Ventures for such fiscal period, subject to
those adjustments set forth on the Accounting Protocol with respect to Joint
Ventures' Income; provided, however, that the Joint Ventures' Income for any
fiscal period shall be deemed increased by NSI Surviving Corporation's share
(under the Joint Venture Agreements) of (i) all amounts deducted in computing
such net income in respect of corporate income tax expense, (ii) the Projected
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Discontinued Project Income for such period, and (iii) any income of the Joint
Ventures derived by any Affiliate of the Parent Parties or any assignee of NSI's
rights in the Joint Ventures and not otherwise included in the Joint Ventures'
Income.
1.29 "Joint Venture Project Income" means, for any fiscal period, the
aggregate pre-tax net income of a Joint Venture in respect of a Joint Venture
Project for such fiscal period.
1.30 "Joint Venture Unprofitable Project" means a Joint Venture Project
that is discontinued, or otherwise not exploited in a commercially reasonable
manner, by reason of the fact that the Return on Promotional Investment for such
Joint Venture Project is less than 50%; provided, however, that no Joint Venture
Project shall be deemed to be a Joint Venture Discontinued Project unless such
Joint Venture Project shall have undergone at least 100 hours of test
telemarketing.
1.31 "knowledge" means the actual knowledge of, in the case of NSI, Pironti
or either of the Permitted Transferees or, in the case of Parent and/or NSI
Merger Sub, Richard Kaufman or Ronald Altbach.
1.32 "Liens" means any and all mortgages, pledges, security interests,
liens, claims, charges or other restrictions or encumbrances of every nature and
description whatsoever.
1.33 "Material Adverse Effect" means any change, effect, or circumstance
that is or would reasonably be expected to be materially adverse to the
business, assets (including intangible assets), financial condition, results of
operations, or prospects of a given person; provided that none of the foregoing
shall constitute a Material Adverse Effect unless it is specific to NSI and, by
way of example, not generally applicable to the economy as a whole or to the
industry in which the Business operates as a whole. For purposes of this
Agreement, the term "prospects" shall mean, at any time, results of future
operations which are reasonably foreseeable based upon the facts and
circumstances in existence at such time.
1.34 "Merger Deadline" means January 25, 2002.
1.35 "Negotiable Purchase Note" means the promissory note in the form of
Exhibit B, which shall be identical in form to the Purchase Note (including
being secured by the Purchase Note Letter of Credit and the Security Agreement),
except that it shall not be subject to the offset provisions of Section 9.8
below or of Section 9.8 of the PCM Merger Agreement.
1.36 "NSI Common Stock" has the meaning set forth in Recital B.
1.37 "NSI Disclosure Schedule" means the written disclosure schedule
delivered by NSI and the Stockholder to Parent and NSI Merger Sub concurrently
with the execution hereof.
1.38 "NSI Surviving Corporation" has the meaning set forth in Section 2.1.
1.39 "Overage" means an amount equal to the sum of (i) 2001 EBITDA and (ii)
2002 EBITDA, reduced by the amount of any 2001 EBITDA Distributions and, for the
avoidance of doubt, reduced by the Dividends Payable. The Overage may be a
positive or a negative number.
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1.40 "Parent Common Stock" means the common stock of Parent, par value
$.001 per share.
1.41 "Parent Disclosure Schedule" means the written disclosure schedule
heretofore delivered by Parent and NSI Merger Sub to NSI and the Stockholder.
1.42 "Parent Parties" means Parent, PCM Surviving Corporation and NSI
Surviving Corporation.
1.43 "PCM" means Preferred Consumer Marketing, Inc., a Florida corporation.
1.44 "PCM Merger Agreement" means the Agreement and Plan of Merger dated as
of the date hereof by and among Parent, PCM, PCM Merger Sub, and the
Stockholder.
1.45 "PCM Merger Sub" means Cross Media Consumer Marketing Corporation, a
Delaware corporation that is a direct, wholly-owned subsidiary of Parent.
1.46 "PCM Surviving Corporation" has the meaning assigned to such term in
PCM Merger Agreement.
1.47 "Permitted Transferees" means Jess Joseph and Randall Gouse.
1.48 "Permitted Liens" means all liens specifically set forth in Schedule
1.48.
1.49 "Pironti Loan Amount" means the lesser of: (a) the principal, accrued
and unpaid interest and premium, if any, on outstanding indebtedness of NSI and
PCM to Pironti as of the Effective Date and (b) $1,500,000; provided that the
Pironti Loan Amount shall not include the Dividend Note Amount or the Dividends
Payable.
1.50 "Pironti Employment Agreement" means the employment agreement by and
between the NSI Surviving Corporation and Pironti, dated as of the Effective
Date.
1.51 "Projected Discontinued Project Income" for any period, means NSI's
share (under the Joint Venture Agreements) of the reasonably projected Joint
Venture Project Income in respect of a Joint Venture Discontinued Project for
such period.
1.52 "Purchase Note" has the meaning assigned to such term in the PCM
Merger Agreement.
1.53 "Purchase Note Letter of Credit" shall be a letter of credit in the
form of Exhibit C to be issued by a bank reasonably satisfactory to Stockholder.
1.54 "Registration Rights Agreements" means the Registration Rights
Agreements by and between Parent on the one hand and each of the Stockholders on
the other, in the form set forth in Exhibit D hereto.
1.55 "Return on Promotional Investment" means the amount, expressed as a
percentage, derived by dividing (x) the Joint Venture Project Income with
respect to a Joint
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Venture Project by (y) the promotional expenditures incurred by the Joint
Venture in respect of such Joint Venture Project.
1.56 "SEC Reports" has the meaning set forth in Section 4.10(a).
1.57 "Security Agreement" means a security agreement in form reasonably
satisfactory to the Stockholder and Parent pursuant to which the Stockholder is
granted a security interest in all tangible and intangible assets of PCM
Surviving Corporation and NSI Surviving Corporation (as well as all other assets
associated with the conduct following the Effective Date of the businesses
previously conducted by PCM and NSI as security for the obligations under the
Purchase Note and the Negotiable Purchase Note, junior in priority only to
security interests held therein in connection with, and subject to such
subordination agreements as may be reasonably required in respect of, the Fleet
Financing. The Security Agreement shall provide that the Stockholder shall
release his security interests contained therein upon delivery of the Purchase
Note Letter of Credit in the Full Note Amount.
1.58 "Stockholder" means Pironti.
1.59 "Third Party Liabilities" means liabilities of NSI and PCM to third
parties arising on account of acts, events or omissions occurring prior to the
Effective Time (i) the amounts of which were not deducted in arriving at 2001
EBITDA, and (ii) that were not disclosed as such in the Financial Statements or
in this Agreement or the PCM Merger Agreement.
1.60 "2001 EBITDA" means the sum of (x) the combined net income of NSI and
PCM for the fiscal year ended December 31, 2001, plus (y) all amounts deducted
in computing such net income in respect of: (1) interest expense, (2) corporate
income tax expense, and (3) depreciation and amortization expense, subject in
all events to those adjustments set forth on the Accounting Protocol with
respect to 2001 EBITDA, including the Joint Ventures' 2001 EBITDA.
1.61 "2002 EBITDA" means the sum of (x) the combined net income of NSI and
PCM for the period from and including January 1, 2002 through and including the
Effective Date, plus (y) all amounts deducted in computing such net income in
respect of: (1) interest expense, (2) corporate income tax expense, and (3)
depreciation and amortization expense, all as determined in accordance with the
Accounting Protocol, including the Joint Ventures' 2002 EBITDA.
1.62 "2001 EBITDA Distributions" means any distributions by NSI and PCM on
account of 2001 EBITDA.
1.63 Commonly used terms. Unless the context clearly indicates otherwise,
the terms below mean the following:
(a) "business day" means any day other than a day on which banks in
New York are required or authorized to be closed;
(b) "dollars" or "$" means United States dollars;
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(c) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended);
(d) "subsidiary" or "subsidiaries" of a person means any corporation,
partnership, limited liability company, or other legal entity of which such
person (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% 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 legal
entity;
(e) "hereof", "herein" and "hereinafter" refer to this Agreement;
(f) "including" means including, without limitation (whether or not so
expressed);
(g) references to Sections, Recitals, Exhibits, and Schedules mean,
respectively, Sections, Recitals, Exhibits, and Schedules of this
Agreement;
(h) words denoting the singular include the plural and vice versa; and
(i) "it" or "its" or words denoting any gender include all genders.
2. The NSI Merger
2.1 The NSI Merger. At the Effective Time, and subject to and upon the
terms and conditions of this Agreement and the BCL, NSI shall be merged with and
into NSI Merger Sub (the "NSI Merger"), the separate corporate existence of NSI
shall cease, and NSI Merger Sub shall continue as the surviving corporation
(hereinafter sometimes referred to as the "NSI Surviving Corporation") and the
separate corporate existence of NSI Merger Sub with all of its rights,
privileges, immunities and franchises shall continue unaffected by the NSI
Merger. The NSI Merger shall have the effect specified in Section 906 of the
BCL.
2.2 Effective Time. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8, on January 11, 2002, or as promptly as practicable thereafter as the
conditions set forth in Section 7 have been satisfied or waived, the parties
hereto shall cause the NSI Merger to be consummated by filing a certificate of
merger as contemplated by the BCL in substantially the form of Exhibit E (the
"Certificate of Merger"), together with any required related certificates, with
the Secretary of State of New York as provided in Sections 904 and 907 of the
BCL; provided that if the Closing does not occur on January 11, 2002, it shall
take place on such business day on or prior to the Merger Deadline following
satisfaction or waiver of the foregoing conditions as specified by the
Stockholder. The NSI Merger shall become effective at the time specified in the
Certificate of Merger (the "Effective Time"). Prior to such filing a closing
(the "Closing") shall be held at the offices of Kramer Levin Naftalis & Frankel
LLP, 919 Third Avenue, New York, New York unless another time or place is agreed
to in writing by the parties hereto.
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2.3 Effect of the NSI Merger. At the Effective Time, the effect of the NSI
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the BCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of NSI and NSI Merger Sub shall vest in the
NSI Surviving Corporation, and all debts, liabilities and duties of NSI and NSI
Merger Sub shall become the debts, liabilities and duties of the NSI Surviving
Corporation.
2.4 Articles of Incorporation; By-laws.
(a) Articles of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time, the Articles of
Incorporation of NSI Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the NSI Surviving
Corporation until thereafter amended as provided by the BCL and such
Articles of Incorporation.
(b) By-laws. Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the By-laws of NSI Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-laws of the
NSI Surviving Corporation until thereafter amended as provided in the BCL,
the Articles of Incorporation of the NSI Surviving Corporation and such
By-laws.
2.5 Directors and Officers. The directors of NSI Merger Sub immediately
prior to the Effective Time shall be the initial directors of the NSI Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the NSI Surviving Corporation, and the initial
officers of the NSI Surviving Corporation shall be as set forth on Schedule 2.5,
in each case until their respective successors are duly elected or appointed and
qualified.
2.6 Effect on Securities, Etc. At the Effective Time, by virtue of the NSI
Merger and without any action on the part of Parent, NSI Merger Sub, NSI or
Pironti:
(a) Conversion of Securities. Each Share issued and outstanding
immediately prior to the Effective Time shall be converted into the right
to receive a pro rata portion of the NSI Merger Consideration and the
Stockholder JV Entitlement. As used herein, "NSI Merger Consideration"
means an amount equal to twenty three percent (23%) of the extent to which
(1) 3.6 times Adjusted 2001 EBITDA, exceeds (2) the Effective Date
Indebtedness.
(b) Cancellation. Each Share held in the treasury of NSI immediately
prior to the Effective Time shall cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.
(c) Capital Stock of NSI Merger Sub. Each share of common stock, $.001
par value per share, of NSI Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock, $0.001
par value, of the NSI Surviving Corporation.
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2.7 Method of Payment. One hundred percent (100%) of the NSI Merger
Consideration shall be paid in the form of Parent Shares, determined on the
basis of the Current Market Price; provided, however, if the calculation thereof
does not result in a whole number of Parent Shares, any fraction thereof shall
be paid in cash.
2.8 Determination of NSI Merger Consideration.
(a) Initial determination of NSI Merger Consideration. The Parties
will confer in advance of the Effective Date to estimate in good faith the
amount of the NSI Merger Consideration and the Overage (the "Estimated NSI
Merger Consideration") and the various components thereof. Such estimates
will be the basis for the payments to be made to Pironti and the
Stockholder on the Effective Date pursuant to Sections 2.7 and 7.3(f)
hereof and Sections 2.7 and 7.3(g) of the PCM Merger Agreement and shall be
subject to subsequent adjustment as provided in the further provisions of
this Section 2.8.
(b) Determination of NSI Merger Consideration. The final determination
of the NSI Merger Consideration shall be made in accordance with Section
2.8(b) and, if applicable, Section 2.9, of the PCM Merger Agreement.
(c) Adjustments. If it is necessary to adjust the payment made to the
Stockholder or Pironti on the Effective Date pursuant to Sections 2.8 (b)
or 7.3(g) of the PCM Merger Agreement or Section 7.3(f) hereof any such
required adjustment (the "Adjustment") shall be made not later than five
(5) days following the final determination thereof, as the same may be
extended pursuant to Section 2.9 of the PCM Merger Agreement (such day, the
"Adjustment Date"), as follows, but without duplication to the adjustments
set forth in the PCM Merger Agreement:
(i) If the sum of the NSI Merger Consideration and the PCM Merger
Consideration, as set forth in the PCM Merger Agreement (together, the
"Aggregate Merger Consideration"), is greater than the sum of the
Estimated NSI Merger Consideration and the Estimated PCM Merger
Consideration, as set forth in the PCM Merger Agreement (together, the
"Aggregate Estimated Merger Consideration"), (A) the Purchase Note
shall be amended and restated by increasing the principal amount
thereof by forty six percent (46%) of such Adjustment, (B) the
Negotiable Purchase Note shall be amended and restated by increasing
the principal amount thereof by fifty four percent (54%) of such
Adjustment and (C) PCM Surviving Corporation shall make a cash payment
to the Stockholder in the amount of the extent to which payments on
such Notes by PCM Surviving Corporation to the Stockholder between the
Effective Date and the Adjustment Date were lower than they should
have been, retroactive to the Effective Date.
(ii) If the Aggregate Merger Consideration is less than the
Aggregate Estimated Merger Consideration, (A) the Purchase Note shall
be amended and restated by reducing the principal amount thereof by
forty six percent (46%) of such Adjustment, (B) the Negotiable
Purchase Note shall be amended and restated by reducing the principal
amount thereof by fifty four percent (54%) of
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such Adjustment and (C) the Stockholder shall make a cash payment to
PCM Surviving Corporation in the amount of the extent to which
payments by PCM Surviving Corporation to the Stockholder between the
Effective Date and the Adjustment Date were higher than they should
have been, retroactive to the Effective Date. In the event that the
net amount of any downward adjustment exceeds the outstanding
principal balance of the Purchase Note or the Negotiable Purchase
Note, as the case may, as of the Adjustment Date, then such excess
shall be applied as a reduction to the other Note, in the fashion
described above, and the Stockholder shall, on the Adjustment Date,
surrender the applicable Note to PCM Surviving Corporation for
cancellation. In the event such downward adjustment also exceeds the
principal balance of such other Note, the Stockholder shall, on the
Adjustment Date, surrender such other Note to PCM Surviving
Corporation for cancellation and shall pay PCM Surviving Corporation
an amount equal to the amount by which the net amount of such downward
adjustment exceeds such outstanding principal balance. In addition,
the Stockholder shall make a cash payment to PCM Surviving Corporation
in the amount of the extent to which payments on such Notes by PCM
Surviving Corporation to the Stockholder between the Effective Date
and the Adjustment Date were higher than they should have been,
retroactive to the Effective Date, together with interest on such
amount computed at an annual rate of 7% per annum to the date of such
payment.
(iii) If the aggregate amount of the payment made to Pironti and
Stockholder on the Effective Date pursuant to Section 7.3(f) hereof
and Section 7.3(g) of the PCM Merger Agreement is greater or lesser
than the amount of such payment as determined in accordance with
Section 2.8(b), the Negotiable Purchase Note shall be amended, or
further amended, and restated in the manner described in paragraph (i)
or (ii) above, as applicable (and if applicable a further cash payment
of principal and interest shall be made to give effect to such
adjustment).
2.9 Joint Venture Payments.
(a) Stockholder's JV Entitlement. In addition to the NSI Merger
Consideration, the Stockholder shall be paid the Stockholder JV
Entitlement, defined and payable as set forth in this Section 2.9. The
"Stockholder JV Entitlement" shall be equal to the lesser of:
(i) the Joint Ventures' 2001 EBITDA multiplied by 3, and
(ii) the aggregate Joint Ventures' Income during the Joint
Venture Period.
(b) Annual Entitlement. In respect of the Stockholder JV Entitlement,
the Stockholder will be entitled to receive an annual payment (the "Annual
JV Entitlement") as follows:
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(i) for calendar year 2002, Stockholder's Annual JV Entitlement
shall equal to the lesser of: (A) $1,000,000, and (B) the Joint
Ventures' Income for such calendar year;
(ii) for calendar year 2003, Stockholder's Annual JV Entitlement
shall be equal to the lesser of: (A) $2,000,000 minus the Annual JV
Entitlement respecting calendar year 2002, and (B) the sum of (x) the
Joint Ventures' Income for calendar year 2003 and (y) to the extent
not theretofore paid pursuant to subsection (d)(ii) below, the excess
of (q) the Joint Ventures' Income for calendar year 2002 over (r)
$1,000,000 (such excess being the "2002 Carried Forward Amount"; and
(iii) for calendar year 2004, Stockholder's Annual JV Entitlement
shall equal to the lesser of: (A) $3,000,000 minus the aggregate
Annual JV Entitlements for calendar years 2002 and 2003, and (B) the
sum of (x) the Joint Ventures' Income for fiscal year 2004 and (y) to
the extent not theretofore paid pursuant to subsection (d)(ii) below,
the sum of (q) the extent to which the 2002 Carried Forward Amount was
not paid pursuant to subsection (ii) above, and (r) the excess of (m)
the Joint Ventures' Income for calendar year 2003 over (n) $1,000,000
(the amounts set forth in subsection (ii)(B)(y) above and this
subsection (iii)(B)(r), to the extent not paid at any time, shall be
referred to as the "Carried Forward JV Amounts").
(c) Payment of the Stockholder Annual JV Entitlement.
(i) The Annual JV Entitlement shall be paid in quarterly
payments, subject to an annual reconciliation. Within forty five (45)
days following the end of the first three calendar quarters of each
year during the Joint Venture Period, NSI Surviving Corporation shall
pay the Stockholder a quarterly payment (the "Quarterly Payment") in
respect of the Annual JV Entitlement for such year, such payment to be
based upon an estimate of the Joint Ventures' Income for such calendar
quarter. Each such payment shall be accompanied by a statement setting
forth in reasonable detail the basis for the calculation of such
Quarterly Payment.
(ii) Within 60 days following the end of each calendar year, NSI
Surviving Corporation shall deliver to the Stockholder a statement of
the Annual JV Entitlement for such calendar year, together with (x) a
statement setting forth in reasonable detail the Joint Ventures'
Income for such calendar year (the "JV Income Statement"), to be
derived from the financial statements of the Joint Ventures and NSI
Surviving Corporation, and (y) payment equal to the Annual JV
Entitlement for such calendar year reduced by the aggregate payments
made during the first three calendar quarters; provided that if the
Annual JV Entitlement for such calendar year is less than the amount
of the aggregate payments made during the first three calendar
quarters, the Stockholder shall make payment of such shortfall to NSI
Surviving Corporation. NSI Surviving Corporation shall permit the
Stockholder and his designees reasonable access to its auditors and to
the books and records of the Joint Ventures and NSI Surviving
Corporation to the
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extent utilized in the preparation of the JV Income Statement and to
all working papers relating to the JV Income Statement, and shall
direct such accountants to respond to any inquiries of the Stockholder
or such designees relating thereto. In the event the Stockholder has
any dispute with respect to the JV Income Statement, he shall follow
the procedures set forth in subparagraph (iii) below.
(iii) If the Stockholder disagrees with any matter set forth in
the JV Income Statement, he shall provide NSI Surviving Corporation
with notice of such disagreement setting forth in reasonable detail
the nature and basis of such disagreement and his view as to the
correct amount of any Annual Entitlement (each such notice, a "Dispute
Notice"). The Stockholder shall provide such Dispute Notice, if
applicable, within twenty (20) days after delivery of the JV Income
Statement; provided, that the foregoing twenty (20) day notice may be
extended as the Stockholder may reasonably request if he or his
designees have been denied the access described in subsection (ii)
above. If the Stockholder does not deliver a Dispute Notice within
such twenty (20) day (or extended) period, the Stockholder shall be
deemed to have agreed with the matters set forth in the JV Income
Statement. If the Stockholder timely provides a Dispute Notice to the
Parent, then: (a) the representatives of NSI Surviving Corporation and
the Stockholder ("Representatives") shall meet promptly and attempt in
good faith to resolve any differences. If the Representatives cannot
mutually resolve such disagreement within ten (10) days after the
delivery of the Dispute Notice, such dispute promptly shall be
submitted for resolution to a recognizable and reputable certified
public accounting firm that is mutually acceptable to the
Representatives. Such accounting firm promptly shall resolve the
matters that are in disagreement among the Parties as set forth in the
Dispute Notice in accordance with the terms of this Agreement, and
promptly shall deliver its determination in writing to NSI Surviving
Corporation and the Stockholder (the "Accountants' Determination").
The fees and expenses of such accounting firm in respect of each
dispute shall be shared pro rata as between the Parent and the
Stockholder on the basis of the percentage difference between such
accounting firm's conclusion and the amount set forth in the JV Income
Statement and the amount set forth in the Dispute Notice. The
determination of such accounting firm shall be final and binding upon
all of the Parties to this Agreement.
(iv) In the event of a dispute respecting the amount of the
Annual JV Entitlement pursuant to subsection (iii) above, if the JV
Income Statement, as ultimately determined, is different than the
statement issued by NSI Surviving Corporation pursuant to subsection
(ii) above, the Stockholder, or NSI Surviving Corporation, as the case
may be, shall make a payment to the other party, to account for any
excess or shortfall, as the case may be, in the payments previously
made pursuant to subsections (i) and (ii) above; such payment shall be
made within five days following the final determination as aforesaid.
(v) All payments of the Stockholder JV Entitlement paid to the
Stockholder hereunder shall be made together with interest from the
Effective Date until the date of such payment at the rate of 7% per
annum, compounded
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annually. Any payment required to be made by the Stockholder pursuant
to subsection (iv) above shall be made together with interest from the
actual payment date(s) of the excess amount paid to the Stockholder
until the date of such payment by the Stockholder, at the rate of 7%
per annum, compounded annually.
(vi) Each payment due the Stockholder (or, in case of payments
that may be due from the Stockholder to NSI Surviving Corporation
pursuant to subsection (iv) above, due NSI Surviving Corporation)
shall be made by wire transfer of immediately available funds to such
account designated by the Stockholder (or NSI Surviving Corporation,
as the case may be).
(d) Acceleration.
(i) In the event Parent fails to make any payment pursuant to
Sections (c)(i), (ii) or (iv) above, when and as such payment is due
hereunder, and such failure to pay shall have continued for the later
of (A) thirty (30) days from the due date thereof, or (B) ten (10)
days following notice thereof from the Stockholder, NSI Surviving
Corporation shall be obligated to pay, and the Stockholder will be
entitled, in lieu of any other payment required pursuant to this
Section 2.9, to immediate payment of (x) the Joint Ventures' 2001
EBITDA multiplied by 3, minus (y) the sum of all payments previously
made in respect of the Stockholder JV Entitlement, (together with
interest as aforesaid).
(ii) In the event of a Change of Control, NSI Surviving
Corporation shall be obligated to pay, and the Stockholder will be
entitled to immediate payment of, any then outstanding Carried Forward
JV Amounts.
(e) Additional Payments. In the event the Joint Ventures' 2001 EBITDA
is less than $750,000, within twenty (20) days after receipt of the JV
Financial Statement, for each of the calendar years 2002, 2003 and 2004,
Parent shall pay the Stockholder:
(i) for calendar year 2002, 20% of the excess of (x) the Joint
Ventures' Income for calendar year 2002 over (y) $1,500,000;
(ii) for calendar year 2003, 20% of the excess of (x) the Joint
Ventures' Income for fiscal year 2003 over (y) $2,000,000; and
(iii) for calendar year 2004, 20% of the excess of (x) the Joint
Ventures' Income for calendar year 2004 over (y) $2,500,000.
(f) Operation of Joint Ventures.
(i) NSI Surviving Corporation shall, during the Joint Venture
Period, operate the Joint Ventures in a commercially reasonable manner
consistent with the industry practice and shall use their commercially
reasonable efforts to exploit each of the Joint Venture Projects;
provided, that NSI Surviving Corporation shall have no obligation to
pursue any Joint Venture Unprofitable Project.
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(ii) NSI Surviving Corporation may cause (or permit) any Joint
Venture to use an Affiliate of the Parent or the NSI Surviving
Corporation as a membership club for any Joint Venture Project, but
only if the terms thereof are no less favorable than those that would
be available to such Joint Venture from unrelated third parties.
2.10 Tax Treatment. It is the intention of each Party that the NSI Merger
shall qualify as a tax-free reorganization as described in Recital F.
3. Representations and Warranties of NSI and the Stockholder. NSI and the
Stockholder hereby, jointly and severally, represent and warrant to Parent and
NSI Merger Sub as follows:
3.1 Organization and Qualification; Absence of Subsidiaries. NSI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York and has the requisite corporate power and authority
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on the Business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power or authority would not reasonably be expected to have a Material Adverse
Effect. NSI is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary. Except for its interest in the
Joint Ventures, NSI does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
3.2 Articles of Incorporation and By-laws. NSI has heretofore made
available to Parent a complete and correct copy of its Articles of Incorporation
and By-laws as amended to date (the "NSI Charter Documents"). Such NSI Charter
Documents are in full force and effect. NSI is not in violation of any of the
provisions of its Articles of Incorporation or By-laws or equivalent
organizational documents, except for violations of the documents which do not
and are not reasonably likely to materially interfere with the operations of
such entity.
3.3 Capitalization. The authorized capital stock of NSI consists solely of
20,000 shares of NSI Common Stock, 100 shares of which are issued and
outstanding, all of which are validly issued, fully paid, and nonassessable.
Except as set forth on Section 3.3 of the NSI Disclosure Schedule, there are no
options, warrants, or other rights, agreements, arrangements or commitments of
any character binding on NSI relating to the issued or unissued capital stock of
NSI or obligating NSI to issue or sell any shares of capital stock of, or other
equity interests in, NSI. There are no obligations, contingent or otherwise, of
NSI to repurchase, redeem, or otherwise acquire any shares of NSI Common Stock.
3.4 Ownership of NSI Common Stock; Voting. Except as set forth in Section
3.4 of the NSI Disclosure Schedule, the Stockholder is the sole holder of record
of and has good and valid title to all issued and outstanding shares of NSI
Common Stock, free and clear of all Liens. Except as set forth in Section 3.4 of
the NSI Disclosure Schedule, there are no agreements or understandings in effect
with the Stockholder or with any other person with respect to the voting,
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transfer, disposition or registration under the Securities Act of 1933, as
amended, of any shares of NSI Common Stock.
3.5 Authorization; Binding Agreement. NSI has all necessary corporate power
and authority, and the Stockholder has the legal capacity, to execute and
deliver this Agreement and to perform its and his obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by NSI and the consummation by NSI of the transactions
contemplated hereby (including the NSI Merger) have been duly and validly
authorized by all necessary corporate action, including stockholder approval,
and no other corporate proceedings on the part of NSI are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than the
filing of the appropriate documents with respect to the NSI Merger in accordance
with the BCL and the Delaware General Corporation Law (the "DGCL"). As of the
date hereof, the Board of Directors of NSI has determined that it is advisable
and in the best interest of the Stockholder for NSI to enter into this Agreement
and to consummate the NSI Merger upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by NSI and the Stockholder and, assuming the due authorization, execution and
delivery hereof by Parent and NSI Merger Sub, constitutes a legal, valid and
binding obligation of NSI and the Stockholder, enforceable against NSI and the
Stockholder in accordance with its terms.
3.6 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 3.6(a) of the NSI Disclosure
Schedule, the execution and delivery of this Agreement by NSI does not, and
the performance of this Agreement by NSI will not, (i) conflict with or
violate the Articles of Incorporation or By-laws of NSI, (ii) conflict with
or violate any law, rule, regulation, order, judgment or decree applicable
to NSI or by which its or properties are bound or affected, or (iii) result
in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default), or impair NSI's rights or
alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on (including a right to
purchase) any of the properties or assets of NSI pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which NSI is a party or by
which NSI or its properties is bound or affected, except, in the case of
clauses (ii) or (iii), for any such conflicts, violations, breaches,
defaults or other occurrences that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(b) Except as set forth in Section 3.6(b) of the NSI Disclosure
Schedule, the execution and delivery of this Agreement by NSI does not, and
the performance of this Agreement by NSI will not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, domestic or foreign (each, a
"Governmental Authority"), except (i) for applicable requirements, if any,
of the Exchange Act and state securities laws ("Blue Sky Laws") and the
filing and recordation of appropriate merger or other documents as required
by the BCL, (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or materially delay consummation of the NSI
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Merger, or otherwise prevent or materially delay NSI from performing its
material obligations under this Agreement, or would not otherwise
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, or (iii) as to which any necessary consents,
approvals, authorizations, permits, filings or notifications have
heretofore been obtained or filed, as the case may be, by NSI; provided,
however, that no representation or warranty is made under this Section
3.6(b) as to the requirement to make any filing pursuant to the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act, as amended, and the rules and regulations thereunder (the "HSR Act").
(c) The "acquired person" (as defined in the HSR Act) that includes
NSI with respect to the transactions contemplated under the Merger
Agreement does not have total assets or annual net sales of $100,000,000 as
determined in accordance with the HSR Act.
3.7 Compliance; Permits.
(a) Except as disclosed in Section 3.7(a) of the NSI Disclosure
Schedule, NSI is not in conflict with, or in default or violation of, (i)
any law, rule, regulation, order, judgment or decree applicable to NSI or
by which its properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which NSI is a party or by which NSI
or its respective properties is bound or affected.
(b) Except as disclosed in Section 3.7(b) of the NSI Disclosure
Schedule, NSI holds all permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are material to the operation of the Business as it is
now being conducted (collectively, the "NSI Permits"). NSI is in compliance
with the terms of NSI Permits.
3.8 Financial Statements. NSI has heretofore delivered to Parent complete
and correct copies of the following financial statements (collectively, the
"Financial Statements"), all of which have been prepared from the books and
records of NSI and, to NSI's knowledge, the Financial Statements fairly present
in all material respects the financial condition of NSI as at their respective
dates and the results of NSI's operations for the periods covered thereby: (x)
an audited balance sheet at December 31, 1999 and audited statements of income,
cash flow and shareholders' equity of NSI for the fiscal year then ended; (y) an
audited balance sheet at December 31, 2000 (the "Last Audited Balance Sheet")
and audited statements of income, cash flow and shareholders' equity of NSI for
the fiscal year then ended; and (z) an unaudited balance sheet (the "Interim
Balance Sheet") of NSI as at September 30, 2001 (the "Interim Balance Sheet
Date") and statements of income and cash flow for the nine months then ended. To
the knowledge of NSI and the Stockholder, and except as disclosed in Section 3.8
of the NSI Disclosure Schedule:
(a) No such statements of income contain any items of special or
nonrecurring revenue or income or any revenue or income generated other
than in connection with the
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Business or other than in the ordinary course of business, except as
expressly specified therein;
(b) Except as and to the extent reflected or reserved against on Last
Audited Balance Sheet or the Interim Balance Sheet or specifically set
forth on Section 3.8(b) of the NSI Disclosure Schedule and except for
liabilities incurred since the Interim Balance Sheet Date in the ordinary
course of NSI's business, NSI does not have any liabilities, debts or
obligations (whether absolute, accrued, contingent or otherwise) of the
type required to be included on a balance sheet prepared in accordance with
GAAP. Section 3.8(b) of the NSI Disclosure Schedule lists, for each item
identified, the lender or other obligee and, in the case of guarantees and
other contingent liabilities, the beneficiary of such obligations;
(c) All receivables of NSI (including accounts receivable, loans
receivable and advances that are reflected in the Interim Balance Sheet,
and all such receivables that arose or arise thereafter and on or prior to
the Effective Time), have arisen or will have arisen only from bona fide
transactions in the ordinary course of business and shall be fully
collectible at the aggregate recorded amounts thereof (except to the extent
of appropriate reserves established in accordance with GAAP and the
Accounting Protocol) and are not and will not be subject to defense,
counterclaim, or offset; and
(d) All items of supplies and other consumables reflected on the
Interim Balance Sheet, and all such items of supplies and other consumables
that are acquired thereafter and prior to the Effective Time, are or will
be useable in the ordinary course of business. NSI has and will through the
Effective Time maintain a sufficient but not an excessive quantity of each
type of such supplies and other consumables in order to meet the normal
requirements of its business and operations.
3.9 Absence of Certain Changes or Events. Except as set forth in Section
3.9 of the NSI Disclosure Schedule, since December 31, 2000, NSI has conducted
its business in the ordinary course and NSI has not:
(a) amended or otherwise modified its Articles of Incorporation or
By-Laws;
(b) made any material change in its accounting methods, principles, or
practices (other than changes required by GAAP after the date of this
Agreement);
(c) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in the ordinary
course of business and consistent with prior practice;
(d) subjected to any Lien (other than Permitted Liens) or other
restriction any of its properties, business or assets;
(e) discharged or satisfied any Lien, discharged, satisfied or paid
any obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, other than current liabilities shown on the
Interim Balance Sheet and current
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liabilities incurred since December 31, 2000 in the ordinary course of
business and consistent with prior practice (in each case other than for
the benefit of any Affiliate);
(f) sold, transferred, leased to others or otherwise disposed of any
properties or assets or purchased, leased from others or otherwise acquired
any properties or assets except in the ordinary course of business;
(g) cancelled or compromised any debt or claim or waived or released
any right of substantial value;
(h) terminated or received any notice of termination of any contract,
lease, license, or other agreement or any Governmental License, or suffered
any damage, destruction or loss (whether or not covered by insurance), or
otherwise become aware of any event that, in any case or in the aggregate,
has had or is reasonably likely to result in a Material Adverse Effect;
(i) had any material change in its relations with its employees or
agents or any material customer or supplier or terminated services to any
customer other than in the ordinary course of business consistent with past
practice;
(j) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any United States or
foreign license, patent, copyright, trademark, trade name, service mark,
brand mark, brand name, invention or similar rights or with respect to any
know-how, or modified any existing rights with respect thereto;
(k) made any change in the rate of compensation, commission, bonus, or
other remuneration payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation, pension, or
severance or vacation pay, to any shareholder, director, officer, employee,
distributor, or agent of NSI except in the ordinary course of business (and
except with respect to the Stockholder and the Permitted Transferees)
consistent with prior practice and not in contemplation of the transactions
contemplated by this Agreement;
(l) made any increase in or commitment to increase any employee
benefits, adopted or made any commitment to adopt any additional employee
benefit plan or made any contribution, other than regularly scheduled
contributions, to any employee benefit plan;
(m) engaged in any transaction with any shareholder, director,
officer, employee, salesman, distributor or agent of NSI, other than (i)
normal compensation and other fees earned in their capacity as such in
accordance with past practice, (ii) transactions in the ordinary course of
business not involving an expenditure in excess of an aggregate of $1,000
per individual, (iii) transactions in accordance with the provisions of
Contracts or made any loans or advances to any director, officer, employee,
salesman, distributor or agent other than travel and entertainment advances
in the ordinary course of business consistent with prior practice, and (iv)
transactions with the Stockholder and the
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Permitted Transferees expressly contemplated by this Agreement and the PCM
Merger Agreement;
(n) made any capital expenditures or capital additions or betterments
in excess of $20,000 in any individual case, or in excess of $100,000 in
the aggregate;
(o) lost the employment services of any key employees of NSI;
(p) made any loan or advance to any person other than travel and other
similar routine advances in the ordinary course of business consistent with
past practice, or acquired any capital stock or other securities of any
other corporation or any ownership interest in any other business
enterprise;
(q) changed its banking or safe deposit arrangements;
(r) instituted, settled or agreed to settle any litigation, action or
proceeding before any court or governmental body relating to NSI or its
properties or assets;
(s) failed to replenish its consumables, supplies or inventory in a
normal and customary manner consistent with its prior practice and prudent
business practices prevailing in the industry, or made any purchase
commitment in excess of the normal, ordinary and usual requirements of its
business or at any price in excess of the then current market price or upon
terms and conditions more onerous than those usual and customary in the
industry, or made any change in its selling, pricing, receivables
collection, advertising or personnel practices;
(t) entered into any transaction, contract or commitment other than in
the ordinary course of business consistent with its prior practice;
(u) made any new elections or changed any current elections with
respect to Taxes or compromised any United States federal, state, local or
non United States Tax liability;
(v) changed any accounting practices or principles utilized in the
preparation of the Financial Statements, including, without limitation, any
changes or modifications relating to the general ledger accounts of NSI, as
presently maintained;
(w) suffered any change, event or condition that, in any case or in
the aggregate, has had or is reasonably likely to result in a Material
Adverse Effect; or
(x) entered into any agreement or made any commitment to take any of
the types of action described in subparagraphs (a) through (w) above.
For purposes of this Section 3.9, no action by NSI involving, or for the direct
or indirect benefit of any Affiliate other than PCM shall be considered an
action in the ordinary course of business.
3.10 Insolvency. NSI is not insolvent, and as of the Effective Time NSI
will not, by virtue of consummation of the transactions contemplated by this
Agreement or otherwise, be or
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be rendered insolvent, as such term is defined under bankruptcy law (including
Title 11 of the United States Code) or the fraudulent conveyances statutes or
laws of any of the jurisdictions in which NSI does business or in which any of
its assets are located.
3.11 Absence of Litigation. Except as set forth in Section 3.11 of the NSI
Disclosure Schedule or arising out of transactions contemplated by this
Agreement, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of NSI, overtly threatened against NSI, or any
properties or rights of NSI, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign.
3.12 Properties.
(a) Section 3.12(a) of the NSI Disclosure Schedule contains a complete
and correct list of all real property owned, leased or licensed by NSI,
together with a copy of each lease, sublease, license or any other
instrument under which NSI claims or holds such leasehold or other interest
or the right to the use thereof or pursuant to which NSI has assigned,
sublet or granted any rights therein.
(b) Except as set forth in Section 3.12(b) of the NSI Disclosure
Schedule, the material personal property owned or leased by NSI or used in
its business, taken in the aggregate, is in good operating condition and
repair, normal wear and tear excepted, and is suitable for the purpose for
which it is utilized, and there does not exist any condition that
materially interferes with the economic value or use of such personal
property.
3.13 Contracts, etc.
(a) Set forth on Section 3.13(a) of the NSI Disclosure Schedule is a
complete and correct list of each of the following written or oral
contracts, agreements, Government Licenses and other instruments or
documents to which NSI is a party or by which NSI or its properties or
assets are bound:
(i) each service or other similar type of agreement under which
services are provided by any other person to NSI calling for payments
in excess of $10,000 per year (except for agreements having a term of
less than 12 months or cancelable without penalty on less than 60 days
notice);
(ii) each agreement that restricts the operation of the business
of NSI as presently conducted and each agreement that restricts the
ability of NSI to retain agents or distributors or to solicit
customers or employees;
(iii) each agreement with an Affiliate;
(iv) each lease (as lessor, lessee, sublessor or sublessee) of
any real property;
(v) each lease (as lessor, lessee, sublessor or sublessee) of any
tangible personal property or assets (except for leases calling for
payments of less than
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$10,000 per year or having a term of less than 12 months or cancelable
without penalty on less than 60 days notice);
(vi) each agreement under which services are provided by NSI to
any material customer calling for payments in excess of $10,000 per
year (except for agreements having a term of less than 12 months or
cancelable without penalty on less than 60 days notice);
(vii) each written agreement for the purchase of supplies or
products which calls for performance by NSI over a period of more than
90 days or with respect to which there exists an aggregate future
liability of NSI in excess of $20,000 (except for agreements
cancelable without penalty on less than 90 days notice);
(viii) each agreement under which any money has been or may be
borrowed or loaned or any note, bond, indenture or other evidence of
indebtedness has been issued or assumed (other than those under which
there remain no ongoing obligations of NSI), and each guaranty of any
evidence of indebtedness or other obligation, or of the net worth, of
any person (other than endorsements for the purpose of collection in
the ordinary course of business);
(ix) each mortgage, deed of trust, security agreement, purchase
money agreement, conditional sales contract or capital lease;
(x) each partnership, joint venture or similar agreement;
(xi) each agreement of which NSI has knowledge that restricts the
competitive activities of NSI's employees;
(xii) each agreement to make unpaid capital expenditures in
excess of $20,000; and
(xiii) each other agreement having an indefinite term or a term
of more than one (1) year (other than those that are terminable at
will or upon not more than 30 days' notice by NSI without penalty) or
requiring payments by NSI of more than $10,000 per year.
(b) A complete and correct copy of each written agreement, lease,
license, mortgage, deed of trust, instrument, contract or other type of
document and descriptions of the material terms of each oral agreement,
license, contract, or other type of document required to be disclosed
pursuant to Section 3.13(a) has been delivered to Parent.
(c) Each agreement, lease, license, mortgage, deed of trust,
instrument, contract or other type of document required to be disclosed
pursuant to Sections 3.12(a), 3.13(a), 3.16(b), or 3.22(e) to which NSI is
a party or by which NSI or its properties or assets are bound
(collectively, the "Contracts") is valid, binding, and in full force and
effect, is enforceable by NSI in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting
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creditors' rights generally and by general principles of equity, and will
be enforceable in accordance with its terms by the NSI Surviving
Corporation after the Effective Time. NSI is not (with or without the lapse
of time or the giving of notice, or both) in material breach of or in
material default under any of the Contracts, and, to the knowledge of NSI,
no other party to any of the Contracts is (with or without the lapse of
time or the giving of notice, or both) in material breach of or in material
default under any of the Contracts. For the purposes of this Section
3.13(c), the terms "material breach" and "material default" include any
breach or default which would give the other party to a Contract the right
to terminate such Contract (including the right to terminate following
notice and the opportunity to cure).
3.14 Dealings with Officers, Directors, and Affiliates; Etc. Except as set
forth in Section 3.14 of the NSI Disclosure Schedule, (a) no Affiliate has any
interest in any property or assets (whether real or personal, tangible or
intangible) owned or leased by NSI or otherwise utilized by NSI in the conduct
of its business; (b) has any direct or indirect interest of any nature whatever
in any person that competes with, conducts any business similar to, has any
present (or contemplated) arrangement or agreement (including, without
limitation, arrangements regarding the shared use of personnel or facilities)
with (whether as a customer or supplier or otherwise), or is involved in any way
with, NSI; (c) NSI owes no amount to any Affiliate; and (d) no Affiliate owes
any amount to NSI.
3.15 Bank Accounts and Powers of Attorney. Set forth in Section 3.15 of the
NSI Disclosure Schedule is an accurate and complete list showing (a) the name
and address of each bank or other financial institution in which NSI has an
account, the number of any such account and the names of all persons authorized
to draw thereon, identifying each such account to which any customer of NSI has
been directed to make payment, including "lockbox" accounts and (b) the names of
all persons, if any, holding powers of attorney from NSI and a summary statement
of the terms thereof.
3.16 Employees.
(a) Except as set forth in Section 3.16 of the NSI Disclosure Schedule
hereto:
(i) To the knowledge of NSI, no employee, distributor, or sales
agent of NSI on the date hereof intends to terminate its relationship
with NSI or does not intend to continue such relationship with NSI
after the Effective Time.
(ii) NSI is in compliance with all applicable laws, agreements
and contracts relating to employment, employment practices, wages,
hours, collective bargaining, immigration, disability, civil rights,
safety and health, workers' compensation and pay equity, or otherwise
relating to the terms and conditions of employment, including, but not
limited to, any obligation to engage in affirmative action, all laws
relating to employee compensation matters, and NSI has filed all
appropriate forms (including Immigration and Naturalization Service
Form I-9) required by any relevant governmental authority.
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(iii) No collective bargaining agreement with respect to the
business of NSI is currently in effect or being negotiated. NSI has no
obligation to negotiate any such collective bargaining agreement, and
NSI has no knowledge that the employees of NSI desire to be covered by
a collective bargaining agreement.
(iv) There are no strikes, slowdowns or work stoppages pending
or, to the knowledge of NSI, threatened with respect to the employees
of NSI, nor has any such strike, slowdown or work stoppage occurred
or, to the knowledge of NSI, been threatened. There is no
representation claim or petition pending before the National Labor
Relations Board or any state or local labor agency and, to the
knowledge of NSI, no question concerning representation has been
raised or threatened respecting the employees of NSI.
(v) To NSI's knowledge, there are no complaints or charges
against NSI pending before the National Labor Relations Board or any
state or local labor agency and, to the knowledge of NSI, no person
has threatened to file any complaint or charge against NSI with any
such board or agency.
(vi) To the knowledge of NSI, no charges with respect to or
relating to the business of NSI or any Affiliate are pending before
the Equal Employment Opportunity Commission, or any state or local
agency responsible for the prevention of unlawful employment
practices.
(vii) Neither NSI nor any Affiliate has received notice of the
intent of any federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws to conduct an
investigation of NSI, and, to the knowledge of NSI, no such
investigation is in progress.
(viii) Section 3.16(a)(viii) of the NSI Disclosure Schedule
accurately sets forth all unpaid severance which, as of the date of
this Agreement, is due or claimed in writing to be due from NSI to any
person whose employment with NSI was terminated.
(ix) Schedule 3.16(a)(ix) accurately sets forth a salary review
schedule listing as of September 30, 2001 the name, annual base salary
or annualized wages and a brief job description of each employee of
NSI. No such employee renders services for the benefit of any
Affiliate. No employee of any Affiliate renders services to NSI.
(b) Section 3.16(b) of the NSI Disclosure Schedule contains (i) a
complete and correct list of all written or oral employment, management,
consulting or other agreements with any persons employed or retained by NSI
(including independent consultants and commission agents); (ii) the names
of all employees or former employees of NSI who are receiving or are
entitled to receive at any time continuing payments of any kind after
termination of employment, together with the annual amounts payable to each
of such employees and the duration of such payments; (iii) all officers of
NSI who have executed a non-competition agreement with NSI; and (iv) all
plans, programs,
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agreements and other arrangements of NSI respecting its employees that
contain change of control provisions. Complete and correct copies of all
written documents and descriptions of the material terms and conditions of
oral agreements required to be disclosed under this Section 3.16(b) have
been delivered to Parent.
3.17 Employee Benefit Plans.
(a) Section 3.17(a) of the NSI Disclosure Schedule sets forth all
"employee pension benefit plans" (as defined in Section 3(2) of ERISA), all
medical, disability, life insurance and other "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA), and all other employee
benefit plans, programs or arrangements, including, without limitation, any
bonus, stock option, stock purchase or other equity-based compensation
arrangements, incentive, deferred compensation, supplemental retirement,
severance, disability, vacation, cafeteria and other similar employee
benefit plans, policies, programs, agreements or arrangements (whether
written or otherwise), including those which contain change of control
provisions or pending change of control provisions, in any case that (i)
are maintained or contributed to (or to which there was an obligation to
contribute) by NSI, or (ii) were formerly maintained or contributed to (or
to which there was an obligation to contribute), by either NSI or any
subsidiary, as well each plan with respect to which NSI, a subsidiary or
any other entity (whether or not incorporated), which is a member of a
controlled group including NSI or which is under common control with NSI
within the meaning of Section 414(b), (c) or (m) of the Code (a "NSI ERISA
Affiliate"), if NSI or any NSI ERISA Affiliate has or could have any
liability with respect to any such plan, whether direct or indirect or
actual or contingent (including, without limitation, any liability arising
out of an indemnification, guarantee, hold harmless or similar agreement)
("NSI Employee Plans").
(b) NSI has made available to Parent, prior to the date of this
Agreement, copies of (i) each such written NSI Employee Plan (or a written
description of any NSI Employee Plan which is not written) and all related
trust agreements, insurance and other contracts (including policies),
summary plan descriptions, summaries of material modifications and
communications distributed to plan participants, (ii) the three most recent
annual reports on Form 5500 series, with accompanying schedules and
attachments, filed with respect to each NSI Employee Plan required to make
such a filing, (iii) the latest reports which have been filed with the
Department of Labor with respect to each NSI Employee Plan required to make
such filing and (iv) the most recent favorable determination letters issued
for each NSI Employee Plan and related trust which is intended to be
qualified under Section 401(a) of the Code (and, if an application for such
determination is pending, a copy of the application for such
determination).
(c) None of the NSI Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person (except as
necessary to comply with Section 4980B of the Code ("COBRA")).
(d) (i) No party in interest or disqualified person (as defined in
Section 3(14) of ERISA and Section 4975 of the Code) has at any time
engaged in a transaction with respect to any NSI Employee Plan which could
subject NSI or any NSI ERISA Affiliate,
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directly or indirectly, to a tax, penalty, or other liability for
prohibited transactions under ERISA or Section 4975 of the Code; (ii) no
fiduciary (as defined in Section 3(21) of ERISA) with respect to any NSI
Employee Plan, or for whose conduct NSI could have any liability (by reason
of indemnities or otherwise), has breached any of the responsibilities or
obligations imposed upon the fiduciary under Title I of ERISA; and (iii) no
fiduciary of any NSI Employee Plan has breached any of the responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA, which
breach would reasonably be expected to result in any liability to NSI or
any NSI ERISA Affiliate.
(e) (i) All NSI Employee Plans have been established and maintained
substantially in accordance with their terms and have operated in
compliance with the requirements of applicable law (including but not
limited to the applicable notification and other requirements of COBRA, the
Health Insurance Portability and Accountability Act of 1996, the Newborns'
and Mothers' Health Protection Act of 1996, the Mental Health Parity Act of
1996, and the Women's Health and Cancer Rights Act of 1998), and may by
their terms be amended and/or terminated at any time to the greatest extent
permitted by applicable law, and NSI has performed all obligations required
to be performed by it under, is not in default under or violation of, and
has no knowledge of any default or violation by any other party to, any of
the NSI Employee Plans; (ii) each NSI Employee Plan which is intended to be
qualified under Section 401(a) of the Code is the subject of a favorable
determination letter from the IRS, and, to NSI's knowledge, nothing has
occurred which may reasonably be expected to impair such determination; and
(iii) all contributions required to be made with respect to any NSI
Employee Plan have been made on or before their due dates (including any
extensions thereof) and all such amounts accrued but not yet paid have been
properly recorded in the books of NSI and reflected in the financial books
of NSI.
(f) (i) Other than routine claims for benefits made in the ordinary
course of the operation of the NSI Employee Plans, there are no pending,
nor to NSI's knowledge any threatened, claims, investigations or causes of
action with respect to any NSI Employee Plan, whether made by a participant
or beneficiary of such a plan, a governmental agency or otherwise, against
NSI, any NSI director, officer or employee, any NSI Employee Plan or any
fiduciary of a NSI Employee Plan; and (ii) there are no communications to
any employee, former employee or any other person who may be entitled to
benefits under any NSI Employee Plan that are inconsistent with any
provision of any NSI Employee Plan.
(g) No NSI Employee Plan is or ever was subject to Section 302 of
ERISA, Section 412 of the Code or Title IV of ERISA and no NSI Employee
Plan is or ever was a "multiemployer plan" as defined in Section 3(37) of
ERISA or a "multiple employer plan" as defined in Section 3(40) of ERISA.
With respect to any NSI Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the 30
day notice requirement has been waived under the regulations to Section
4043 of ERISA) has occurred nor would the consummation of the transactions
contemplated hereby (including the execution of this Agreement) constitute
a reportable event for which the 30-day requirement has not been waived.
Neither NSI nor any NSI ERISA Affiliate has incurred or reasonably expects
to incur and no facts or conditions
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exist as a result of which NSI or a NSI ERISA Affiliate could incur any
liability under Title IV of ERISA including, without limitation, with
respect to an event described in Section 4201, 4204 or 4212 of ERISA (or
under any agreement, instrument, statute, rule of law or regulation
pursuant to or under which NSI or a NSI ERISA Affiliate has agreed or is
required to indemnify any person against such liability). The Pension
Benefit Guaranty Corporation has not instituted proceedings to terminate
any such NSI Employee Plan, and no such plan has incurred any "accumulated
funding deficiency" as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, and no extensions of any amortization
period within the meaning of Section 412 of the Code or Section 302 of
ERISA been applied for with respect thereto. With respect to each
multiemployer plan, Section 3.17(g) of the Disclosure Schedule specifies
the "withdrawal liability" within the meaning of Section 4201 of ERISA that
NSI or a NSI ERISA Affiliate would have incurred had NSI or such NSI ERISA
Affiliate effected a "complete withdrawal" (within the meaning of Section
4203 of ERISA) as of a recent date specified in Section 3.17(g) of the
Disclosure Schedule.
(h) NSI has never maintained an employee stock ownership plan (within
the meaning of Section 4975(e)(7) of the Code) or any other NSI Employee
Plan that invests in NSI stock.
(i) Since December 31, 1999, NSI has not proposed nor agreed to any
increase in benefits under any NSI Employee Plan (or the creation of new
benefits) or change in employee coverage which would materially increase
the benefits under or the expense of maintaining any NSI Employee Plan.
(j) NSI has no current liability based upon, arising out of or
relating to the classification of any individual as an independent
contractor or "leased employee" (within the meaning of Section 414(n) of
the Code) rather than as an employee, and no facts exist as a result of
which NSI could have any such liability.
(k) The consummation of the transactions contemplated hereby, either
alone or in combination with another event, will not result in (i) any
payment (including, without limitation, severance, unemployment
compensation or bonus payments) becoming due to any director, officer,
employee or consultant of NSI, (ii) any increase in the amount of
compensation or benefits payable in respect of any director, officer,
employee or consultant of NSI, (iii) any acceleration of the vesting or
timing of payment of any benefits or compensation payable in respect of any
director, officer, employee or consultant of NSI or (iv) any "parachute
payment" within the meaning of Section 280G of the Code in respect of any
director, officer, employee or consultant of NSI. No NSI Employee Plan
provides benefits or payments contingent upon, triggered by, or increased
as a result of a change in the ownership or effective control of NSI.
3.18 Restrictions on Business Activities. Except for this Agreement or as
set forth in Section 3.18 of the NSI Disclosure Schedule, to NSI's knowledge,
there is no agreement, judgment, injunction, order or decree binding upon NSI
which has or would reasonably be expected to have the effect of prohibiting or
impairing the conduct of business by NSI as
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currently conducted by NSI, except for any prohibition or impairment as would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
3.19 Title to Property. Except as set forth in Section 3.19 of the NSI
Disclosure Schedule, NSI has good title to all of its real properties and other
assets, free and clear of all liens, charges and encumbrances, except for
Permitted Liens and liens for taxes not yet due and payable and Liens which
secure indebtedness reflected in the Interim Balance Sheet; and, all leases
pursuant to which NSI leases from others amounts of real or personal property,
are in good standing, valid and effective in accordance with their respective
terms, and there is not, to the best knowledge of NSI, under any of such leases,
any existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default).
3.20 Taxes.
(a) NSI has timely and accurately filed, or caused to be timely and
accurately filed, in all material respects, all Tax Returns (as hereinafter
defined) required to be filed by it, and has paid, collected or withheld,
or caused to be paid, collected or withheld, in all material respects, all
amounts of Taxes (as hereinafter defined) required to be paid, collected or
withheld, other than such Taxes for which adequate reserves in the Interim
Balance Sheet have been established or which are being contested in good
faith. NSI has made or will make provision for all Taxes payable by it with
respect to any pre-Effective Date period which have not been paid prior to
the Effective Date. Except as set forth in Section 3.20 of NSI Disclosure
Schedule, there are no claims or assessments pending against NSI for any
alleged deficiency in any Tax, there are no pending or, to NSI's knowledge,
threatened audits or investigations for or relating to any liability in
respect of any Taxes, and NSI has not been notified in writing of any
proposed Tax claims or assessments against NSI (other than in each case,
claims or assessments for which adequate reserves in the Interim Balance
Sheet have been established or which are being contested in good faith or
are immaterial in amount). NSI has not executed any waivers or extensions
of any applicable statute of limitations to assess any amount of Taxes. NSI
has not been audited by the IRS for any taxable year. There are no
outstanding requests by NSI for any extension of time within which to file
any Tax Return or within which to pay any amount of Taxes shown to be due
on any Tax Return. There are no liens for Taxes on the assets of NSI except
for statutory liens for current Taxes not yet due and payable. Except as
set forth in Section 3.20(a) of NSI Disclosure Schedule, (i) NSI is not
liable for Taxes of any other person, is not currently under any
contractual obligation to indemnify any person with respect to Taxes
(except for customary agreements to indemnify lenders or security holders
in respect of taxes other than income taxes), and is not a party to any tax
sharing agreement or any other agreement providing for payments by NSI with
respect to Taxes; (ii) NSI has never been a member of an affiliated group
within the meaning of Section 1504 of the Code or filed or been included in
a combined, consolidated or unitary Tax Return; (iii) NSI has not entered
into any sale leaseback or any leveraged lease transaction; (iv) NSI will
not be required to include any adjustment in taxable income for any period
ending after the Effective Date under Section 481 of the Code (or under any
similar provision of the Tax laws of any jurisdiction) as a result of a
change in method of accounting or otherwise; (v) except with respect to the
Joint Ventures, NSI is not a party to any joint venture, partnership or
other arrangement or
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contract which is or is reasonably likely to be treated as a partnership
for federal income tax purposes; (vi) none of NSI's property is treated as
owned by another person for federal income tax purposes or as "tax exempt
use property" within the meaning of Section 168 of the Code; (vii) there
are no private letter rulings in respect of any Tax pending between NSI and
any taxing authority; (viii) NSI is not a party to any agreement, contract,
arrangement or plan that would result (taking into account the transactions
contemplated by this Agreement), separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section
280G of the Code; (ix) NSI has qualified for and properly elected S
Corporation Status within the meaning of Section 1361(a)(1) of the Code
(and any corresponding provisions of applicable state law) since June 1,
1991, for federal and applicable state income tax purposes and shall
maintain such S Corporation Status until the Effective Time; (x) NSI is not
liable with respect to any indebtedness the interest of which is not
deductible for applicable federal, foreign, state or local income tax
purposes; (xi) NSI is not a "consenting corporation" under Section 341(f)
of the Code or any corresponding provision of state, local or foreign law;
and (xii) NSI is not, and has not been a United States real property
holding corporation as defined in Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(b) For purposes of this Agreement, the term "Tax" shall mean any
United States federal, state, local, non-United States or provincial
income, gross receipts, property, sales, use, license, excise, franchise,
employment, payroll, alternative or add-on minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge imposed by any Governmental Authority, together with
any interest, penalty, additions to tax, and additional amounts imposed
with respect thereto. The term "Tax Return" shall mean a report, return or
other information (including any attached schedules or any amendments to
such report, return or other information) required to be supplied to or
filed with a Governmental Authority with respect to any Tax, including an
information return, claim for refund, amended return or declaration or
estimated Tax.
3.21 Environmental Matters.
(a) Except as set forth in Section 3.21(a) to the Disclosure Schedule,
the operations of NSI are in compliance with applicable Environmental Laws
(as hereinafter defined), which compliance includes the possession by NSI
of all permits and governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof.
(b) Except as set forth in Section 3.21(b) of the NSI Disclosure
Schedule, there are no Environmental Claims (as hereinafter defined),
including claims based on "arranger liability," pending or, to the
knowledge of NSI, threatened in writing against NSI or against any person
or entity whose liability for any Environmental Claim NSI has retained or
assumed.
(c) Except as set forth on Section 3.21(c) of the NSI Disclosure
Schedule, there are no past or present actions, circumstances, conditions,
events or incidents,
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including the release, emission, discharge, presence or disposal of any
Materials of Environmental Concern (as hereinafter defined), that are
reasonably likely to form the basis of any Environmental Claim against NSI
or against any person or entity whose liability for any Environmental Claim
NSI has retained or assumed.
(d) Except as set forth in Section 3.21(d) of the NSI Disclosure
Schedule, there are no off-site locations where NSI has stored, disposed or
arranged for the disposal of Materials of Environmental Concern which have
been listed on the National Priority List, or any analogous state site
list, and NSI has not been notified that it is a potentially responsible
party at any such location.
(e) For purposes of this Agreement:
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or written notice by any person or entity
alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from the presence, or
release into the environment, of any Material of Environmental Concern
at any location, whether or not owned or operated by NSI.
(ii) "Environmental Laws" means all United States federal, state,
local and non-United States laws, regulations, codes and ordinances,
relating to pollution or protection of human health and the
environment (including ambient air, surface water, ground water, land
surface or sub-surface strata), including but not limited to CERCLA,
RCRA, TSCA, OSHA, the Clean Air Act, the Clean Water Act, each as
amended or supplemented, and any applicable transfer statutes or laws.
(iii) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, hazardous materials, hazardous substances
and hazardous wastes, medical waste, toxic substances, petroleum and
petroleum products, asbestos-containing materials, polychlorinated
biphenyls, and any other chemicals, pollutants or substances regulated
under any Environmental Law.
3.22 Intellectual Property.
(a) As used herein, the term "Intellectual Property Assets" shall mean
all worldwide intellectual property rights, including, without limitation,
patents, trademarks, service marks and copyrights, and registrations and
applications therefor, trade names, common law marks, know-how, trade
secrets, computer software programs and proprietary information. As used
herein, "NSI Intellectual Property Assets" shall mean the Intellectual
Property Assets used or owned by NSI.
(b) Except as set forth in Section 3.22(b) of the NSI Disclosure
Schedule, NSI owns, or is licensed or otherwise possesses legally
enforceable rights to use all
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Intellectual Property Assets that are used in the business of NSI as
currently conducted, without conflict with the rights of others.
(c) Except as disclosed in Section 3.22(c) of the NSI Disclosure
Schedule, no claims (i) are currently pending or, to the knowledge of NSI,
are threatened by any person with respect to NSI Intellectual Property
Assets, or (ii) are currently pending or, to the knowledge of NSI,
threatened by any person with respect to the Intellectual Property Assets
of a third party (the "Third Party Intellectual Property Assets") to the
extent arising out of any use, reproduction or distribution of such Third
Party Intellectual Property Assets by or through NSI.
(d) Except as disclosed in Section 3.22(d) of the NSI Disclosure
Schedule, NSI does not know of any valid grounds for any bona fide claim to
the effect that the manufacture, sale, licensing or use of any product now
used, sold or licensed or proposed for use, sale, license by NSI infringes
on any Third Party Intellectual Property Assets.
(e) Section 3.22(e) of the NSI Disclosure Schedule sets forth a list
of (i) all patents and patent applications owned by NSI worldwide; (ii) all
trademark and service mark registrations and all trademark and service mark
applications, common law trademarks, trade dress and slogans, and all trade
names owned by NSI worldwide; (iii) all copyright registrations and
copyright applications owned by NSI worldwide; and (iv) all licenses owned
by NSI in which NSI is (A) a licensor with respect to any of the patents,
trademarks, service marks, trade names or copyrights listed in Section
3.22(e) of the NSI Disclosure Schedule; or (B) a licensee of any other
person's patents, trade names, trademarks, service marks or copyrights
except for any licenses of software programs that are commercially
available "off the shelf." NSI has heretofore made available to Parent
complete and correct copies of all agreements required to be disclosed
pursuant to the preceding clause (iv). Except as disclosed in Section
3.22(e)(v) of the NSI Disclosure Schedule, NSI has made all necessary
filings and recordations to protect and maintain its interest in the
patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and
copyright applications and licenses set forth in Section 3.22(e) of the NSI
Disclosure Schedule.
(f) Except as set forth in Section 3.22(e)(v) or 3.22(f) of the NSI
Disclosure Schedule: (i) each patent, patent application, trademark or
service mark registration, and trademark or service mark application and
copyright registration or copyright application of NSI is valid and
subsisting and (ii) each license of NSI Intellectual Property Assets listed
on Section 3.22(e) of the NSI Disclosure Schedule is valid, subsisting and
enforceable.
(g) Except as set forth in Section 3.22(g) of the NSI Disclosure
Schedule, there is no unauthorized use, infringement or misappropriation of
any of NSI's Intellectual Property Assets by any third party, including any
employee, former employee, independent contractor or consultant of NSI.
3.23 Insurance. Except as disclosed in Section 3.23 of the NSI Disclosure
Schedule, all fire and casualty, general liability, business interruption,
product liability and sprinkler and
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water damage insurance policies maintained by NSI are with reputable insurance
carriers, provide coverage appropriate in character and amount for the
businesses of NSI and its properties and assets.
3.24 Brokers, etc. None of the Stockholder, NSI, and its officers or
directors has employed any broker, finder, or financial advisor or otherwise
incurred any liability for any brokerage fees, commissions or financial
advisors' or finders' fees in connection with the transactions contemplated
hereby.
4. Representations and Warranties of Parent and NSI Merger Sub. NSI Merger Sub
and Parent hereby jointly and severally represent and warrant to NSI and the
Stockholder as follows:
4.1 Organization and Good Standing. Each of Parent and NSI Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
4.2 Articles of Incorporation and By-laws. Parent has heretofore made
available to NSI a complete and correct copy of its Certificate of Incorporation
and By-laws as amended to date (the "Parent Charter Documents"). Such Parent
Charter Documents are in full force and effect. Parent is not in violation of
any of the provisions of its Articles of Incorporation or By-laws or equivalent
organizational documents, except for violations of the documents which do not
and are not reasonably likely to materially interfere with the operations of
such entity.
4.3 Capitalization. As of the date hereof, the authorized capital stock of
Parent consists of 40,000,000 shares of Common Stock, par value $.001 per share
("Parent Common Stock"), and 10,000,000 shares of Preferred Stock, par value
$.001 per share ("Preferred Stock"). As of December 17, 2001, 12,482,056 shares
of Parent Common Stock, all of which are validly issued, fully paid and
non-assessable, and no shares of Preferred Stock were issued and outstanding; as
of December 17, 2001, warrants to purchase 2,176,430 shares of Parent Common
Stock were outstanding or approved for issuance by Parent's Board of Directors;
and as of December 17, 2001, 1,839,400 shares of Parent Common Stock were
reserved for issuance upon exercise of stock options issued under Parent's stock
option plans. No material change in such capitalization has occurred since such
dates, respectively, other than as a result of the exercise of options or
warrants outstanding as of such dates. Except as set forth in Section 4.3 of the
Parent Disclosure Schedule or the SEC Reports or as contemplated by this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character binding on Parent or any of its
subsidiaries relating to the issued or unissued capital stock of Parent or any
of its subsidiaries or obligating Parent or any of its subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, Parent or any
of its subsidiaries. Except as set forth in Section 4.3 of the Parent Disclosure
Schedule, all of the outstanding shares of capital stock (other than directors'
qualifying shares) of each of Parent's subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and all such shares (other than directors'
qualifying shares and a de minimis number of shares owned by employees of such
subsidiaries) are owned by Parent or another subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Parent's
voting rights, charges or other encumbrances of any nature
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whatsoever. The authorized capital stock of NSI Merger Sub consists of 1,000
shares of common stock, par value $0.001 per share, all of which are duly
authorized, and of which 100 shares are issued. All such issued shares are
validly issued, fully paid and non-assessable and free of any preemptive rights
in respect thereof and all of the outstanding shares of which are owned by
Parent.
4.4 Authorization; Binding Agreement. Each of Parent and NSI Merger Sub has
all necessary corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement, and the consummation by NSI Merger Sub and
Parent of the transactions contemplated hereby, have been duly and validly
authorized by the Boards of Directors of NSI Merger Sub and Parent, and no other
corporate proceedings on the part of NSI Merger Sub or Parent are necessary to
authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by NSI Merger Sub and Parent and, assuming due
authorization, execution, and delivery by NSI and the Stockholder, constitute
the legal, valid and binding obligations of NSI Merger Sub and Parent,
enforceable against NSI Merger Sub and Parent in accordance with its terms.
4.5 Governmental Approvals. No Consent from or with any Governmental
Authority on the part of NSI Merger Sub or Parent is required in connection with
the execution or delivery by NSI Merger Sub and Parent of this Agreement or the
consummation by NSI Merger Sub and Parent of the transactions contemplated
hereby other than such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the NSI Merger or the
transactions contemplated by this Agreement, and the filing and recordation of
appropriate merger or other documents as required by the BCL; provided, however,
that no representation or warranty is made under this Section 4.5 as to the
requirement to make any filing pursuant to the pre-merger notification
requirements of the HSR Act.
4.6 No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, and compliance by NSI
Merger Sub and Parent with any of the provisions hereof will not (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or By-laws or other governing instruments of NSI Merger Sub and
Parent, (ii) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any material note, bond, mortgage,
indenture, contract, lease, license, agreement or instrument to which NSI Merger
Sub or Parent is a party or by which NSI Merger Sub or Parent or any of their
respective assets or properties are subject, (iii) result in the creation or
imposition of any material lien or encumbrance of any kind upon any of the
assets of NSI Merger Sub or Parent, [other than liens or encumbrances granted in
connection with the proposed financing of the transactions contemplated hereby
and by PCM Merger Agreement and the concurrent refinancing of existing senior
debt of Parent and its subsidiaries], or (iv) subject to obtaining the Consents
from Governmental Authorities referred to in Section 4.5, violate any Law to
which NSI Merger Sub or Parent or their respective assets or properties are
subject, except in any such case for any such conflicts, violations, breaches,
defaults or other occurrences that would not prevent or delay
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consummation of the transactions contemplated hereunder, or otherwise materially
and adversely affect the ability of NSI Merger Sub or Parent to perform their
respective obligations under this Agreement.
4.7 Brokers, etc. None of NSI Merger Sub, Parent or their respective
officers or directors has employed any broker, finder, or financial advisor or
otherwise incurred any liability for any brokerage fees, commissions or
financial advisors' or finders' fees in connection with the transactions
contemplated hereby.
4.8 Insolvency. Neither NSI Merger Sub nor Parent is insolvent, and as of
the Effective Date neither NSI Merger Sub nor Parent will, by virtue of
consummation of the transactions contemplated by this Agreement or otherwise, be
or be rendered insolvent, as such term is defined under bankruptcy law
(including Title 11 of the United States Code) or the fraudulent conveyances
statutes or laws of any of the jurisdictions in which NSI Merger Sub or Parent
does business or in which either of their respective assets are located.
4.9 Restriction on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon NSI Merger Sub or Parent that has or
would reasonably be expected to have the effect of prohibiting or impairing the
conduct of the Business following the Effective Date.
4.10 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC since January 1, 2000 through the date of this Agreement
(collectively, the "SEC Reports"). The SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the Securities Act
of 1933, as amended, or the Exchange Act of 1934, as amended, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports has been
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or in
the SEC Reports), and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) Except as set forth on Section 4.10(c) of the Parent Disclosure
Schedule (and any supplements thereto), since the date of the financial
statements contained in the last SEC Report filed by Parent there has been
no event or occurrence relating to Parent or any of its subsidiaries which,
in the reasonable judgment of Parent will be required to
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be disclosed in an SEC Report or which would have a Material Adverse Effect
on Parent and which has not been disclosed to NSI and the Stockholder
either in a Schedule to this Agreement (including supplements thereto) or
in an SEC Report.
4.11 No Prior Activities. Except for (a) obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing in connection therewith) and (b) obligations or
liabilities pursuant to the Asset Purchase Agreement, dated August 29, 2000,
among Parent, NSI Merger Sub, Pironti and NSI (which agreement was subsequently
terminated by the parties thereto) and related agreements, NSI Merger Sub has
not incurred any obligations or liabilities and has not engaged in any business
or activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity.
5. Covenants of NSI and the Stockholder. NSI and the Stockholder, jointly and
severally, hereby covenant and agree as follows:
5.1 Access to Information. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which NSI is subject
(from which it shall use reasonable efforts to be released), NSI shall furnish
promptly to Parent all information concerning its business, properties and
personnel as Parent may reasonably request, and it shall make available to
Parent the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of NSI's business, properties and personnel as
Parent may reasonably request; provided that prior to the Effective Time, (i)
Parent shall maintain the confidentiality of any and all information obtained in
accordance with [the Confidentiality Agreement dated January 14, 2000], and (ii)
in any event, all such activities shall be undertaken in a manner reasonably
acceptable to NSI so as not to interfere with the normal course operations of
the Business.
5.2 Conduct of Business by NSI Pending the Effective Time. NSI covenants
and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless Parent shall otherwise agree in writing, NSI shall
conduct the Business only in, and NSI shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
NSI shall use commercially reasonable efforts to preserve substantially intact
the business organization of NSI, to keep available the services of the present
officers, employees and consultants of NSI and to preserve the present
relationships of NSI with customers, suppliers and other persons with which NSI
has significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, NSI shall not, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, and except as set forth in Section 5.2
of the NSI Disclosure Schedule, directly or indirectly do, or propose to do, any
of the following without the prior written consent of Parent, which in the case
of clauses (c), (d)(iv), (e), (f), (h) or (i) will not be unreasonably withheld
or delayed:
(a) amend or otherwise change NSI's Articles of Incorporation or
By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any
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options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in NSI; provided,
however, that to allow NSI and Pironti to fulfill their obligations to the
Permitted Transferees under the Restated Disposition Participation
Agreements, dated as of May 15, 1997, with each Permitted Transferee,
Pironti may transfer 10% of his Shares to each Permitted Transferee or NSI
may issue to each Permitted Transferee 10% of the issued and outstanding
NSI Common Stock; provided, further, that NSI shall withhold and pay over
to the applicable taxing authority all amounts required to be withheld and
shall pay all Taxes required to be paid in connection with such transfer;
(c) sell, pledge, dispose of or encumber any assets of NSI (except for
(i) sales of assets in the ordinary course of business and in a manner
consistent with past practice, (ii) dispositions of obsolete or worthless
assets, (iii) sales of immaterial assets to non-Affiliates of NSI not in
excess of $100,000 in the aggregate; and (iv) as contemplated by Section
5.7 hereof;
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock other than (x) dividends or
other distributions paid out of available cash of NSI after giving effect
to reserves for accrued and unpaid Taxes as contemplated by Section
3.20(a), or (y) in respect of the Dividend Notes, and (z) in respect of the
Dividends Payable, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock, (iii) except as required by the terms of any security as in effect
on the date hereof and set forth in Section 5.2(d) of the NSI Disclosure
Schedule, amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise acquire, or permit any subsidiary
to amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, any of its securities including
shares of NSI Common Stock, or any option, warrant or right, directly or
indirectly, to acquire any such securities, or propose to do any of the
foregoing, or (iv) settle, pay or discharge any claim, suit or other action
brought or threatened against NSI with respect to or arising out of a
shareholder equity interest in NSI;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof other than those listed on Section 5.2(e) of the NSI
Disclosure Schedule; (ii) incur any indebtedness for borrowed money, or
issue any debt securities or assume, guarantee or endorse or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except in the ordinary course of business
consistent with past practice and in an aggregate amount not to exceed
$20,000 and except for indebtedness permitted pursuant to clause (v) below;
(iii) authorize any capital expenditures or purchases of fixed assets which
are, in the aggregate, in excess of $25,000; (iv) enter into or materially
amend any contract, agreement, commitment or arrangement to effect any of
the matters prohibited by this Section 5.2(e); (v) permit aggregate
outstanding indebtedness of NSI and PCM to Pironti at any time to exceed
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$1,500,000 and the Dividend Note Amount and Dividends Payable or aggregate
outstanding indebtedness of NSI and PCM to banks and other financial
institutions at any time to exceed $3,000,000;
(f) increase the compensation or severance payable or to become
payable to its directors, officers or employees, except for increases in
salary or wages of employees of NSI (who are not directors or executive
officers of NSI) in accordance with past practices and except for any
amounts payable to Pironti or the Permitted Transferees, or grant any
severance or termination pay (except to make payments required to be made
under obligations existing on the date hereof in accordance with the terms
of such obligations) to, or enter into any employment or severance
agreement with, any new employee of NSI, except for an agreement entered
into in the ordinary course of business and providing for annual base and
bonus compensation not to exceed $100,000, or establish, adopt, enter into
or amend any collective bargaining agreement, NSI Employee Plan, trust,
fund, policy or arrangement for the benefit of any current or former
directors, officers or employees or any of their beneficiaries, except, in
each case, as may be required by law or as would not result in a material
increase in the cost of maintaining such collective bargaining agreement,
NSI Employee Plan, trust, fund, policy or arrangement;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable), except as required by a change in GAAP occurring after the
date hereof;
(h) make any new election or change any current election with respect
to Taxes or settle or compromise any United States federal, state, local or
non-United States tax liability;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) in
excess of $10,000 in the aggregate, other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in NSI's financial
statements prior to the date of this Agreement or incurred in the ordinary
course of business and consistent with past practice;
(j) permit any accounts payable to remain unpaid for more than thirty
days past the date on which such accounts payable are due under NSI's
standard accounts payable payment practices with the applicable account
creditors; and
(k) take, or agree in writing or otherwise to take, any of the actions
described in clauses (a) through (j) above, or any action which would make
any of the representations or warranties of NSI contained in this Agreement
untrue or incorrect or prevent NSI from performing or cause NSI not to
perform its covenants hereunder.
5.3 Notification of Certain Matters. Between the date hereof and the
Effective Time, NSI shall give prompt written notice to Parent, and Parent shall
give prompt written notice to
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NSI, of (i) the occurrence or nonoccurrence subsequent to the date hereof of any
event the occurrence or nonoccurrence of which would reasonably be expected to
cause any representation or warranty of such party contained in this Agreement
to be materially untrue or inaccurate, (ii) any failure of (A) NSI or Pironti or
(B) NSI Merger Sub or Parent, as the case may be, materially to comply with or
satisfy, or the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would reasonably be expected to cause the failure by such
party materially to comply with or satisfy, any covenant, condition or agreement
to be complied with or satisfied by it hereunder. Should any of the foregoing
facts or conditions described in this Section 5.3 require any change in the NSI
Disclosure Schedule or Parent Disclosure Schedule if such Disclosure Schedule
were dated the date of the occurrence or discovery of any such fact or
condition, NSI and the Stockholder shall promptly deliver to Parent, or Parent
shall promptly deliver to NSI and the Stockholder, a supplement to the
applicable Disclosure Schedule specifying such change and stating specifically
which of the representations contained herein and which section of such
Disclosure Schedule such change relates to. If the NSI Merger occurs, then any
such changes disclosed in writing in accordance with this Section 5.3 shall be
deemed not to constitute a breach of the stated representation for purposes of
the indemnification provisions of Section 9.1 or 9.2, as the case may be.
5.4 No Solicitation.
(a) NSI shall not, directly or indirectly, through any officer,
director, employee, representative or agent of NSI, solicit or encourage
the initiation of (including by way of furnishing information) any
inquiries or proposals regarding any merger, sale of assets, sale of shares
of capital stock (including without limitation by way of a tender offer) or
similar transactions involving NSI.
(b) NSI shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent
and NSI Merger Sub) conducted heretofore with respect to any of the
foregoing. NSI agrees not to release any third party from the
confidentiality and standstill provisions of any agreement to which NSI is
a party.
(c) NSI shall ensure that the officers and directors of NSI and any
investment banker or other advisor or representative retained by NSI are
aware of the restrictions described in this Section 5.4.
5.5 Reasonable Best Efforts. Subject to and upon the terms and conditions
of this Agreement, during the period from the date hereof to the Effective Time,
NSI and the Stockholder shall use their reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things proper, necessary or advisable under applicable law and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, the obtaining of governmental and third party
consents. The Parties will provide to each other the necessary information to
effect the foregoing.
5.6 Non-competition. In addition to the other definitions set forth in this
Agreement, for purposes of this Section 5.6, the following terms shall have the
following meanings:
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"Competitive Activity" means any activity (whether undertaken or
engaged in as a proprietor, partner, shareholder, owner, member, employer,
employee, independent contractor, venturer or otherwise) which engages in
the business of buying so-called "filler space" from USA Weekend or Parade
magazine generally as described in the Company's contracts with such
companies.
"Competitor" means any Person, other than a member of the Company
Group, which at any time during the Restriction Period engages in any
Competitive Activity.
"Control" means, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such
Person or (ii) the power, directly or indirectly, by proxy, voting trust or
otherwise, to elect a majority of the outstanding directors, trustees or
other managing persons of such Person.
"Parent Company Group" means Parent, each Person that Parent directly
or indirectly Controls or that Controls Parent and each Person that any
such Person directly or indirectly Controls.
"Person" means an individual, partnership, corporation, trust, estate,
association, limited liability company, governmental authority or other
entity.
"Personnel" means any and all employees, contractors, agents,
consultants or other Persons rendering services to a member of the Company
Group, for compensation in any form.
"Restricted Area" means the United States, Canada, and their
respective territories and possessions, except that the Restricted Area
shall be worldwide with respect to any Competitive Activity involving the
Internet, the World Wide Web, telemarketing, telephony or other electronic
or similar media.
"Restriction Period" means the period of time (subject to extension
pursuant to Section 5.6(e) below), commencing on the Effective Date and
expiring on the earlier of (x) the fifth anniversary of the Effective Date
or (y) the second anniversary of the termination of Pironti's employment.
(a) During the Restriction Period, Pironti shall not, directly or
indirectly, whether as a sole practitioner, owner, partner, shareholder,
investor, employee, employer, venturer, independent contractor, consultant
or other participant, (i) own, manage, invest in or acquire any economic
stake or interest in any Person involved in a Competitive Activity, (ii)
derive economic benefit from or with respect to any Competitive Activity or
(iii) otherwise engage or participate in any manner whatsoever in any
Competitive Activity; provided, however, this Section 5.6 shall not
restrict Pironti from owning less than 2% of the publicly traded debt or
equity securities issued by a corporation or other entity or from having
any other passive investment that creates no conflict of loyalty or
interest with any duty owed to Parent Company Group. Pironti shall be
deemed to have derived economic benefit in violation of this Section 5.6
if, among other things, any of his compensation or income is in any way
related to any Competitive Activity conducted
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by any Person. Further, during the Restriction Period, Pironti shall not
directly or indirectly advance, cooperate in or help or aid any Competitor
in the conduct of any Competitive Activity.
(b) During the Restriction Period, Pironti shall not, directly or
indirectly, recruit, solicit or otherwise induce or influence any Personnel
of Parent Company Group to discontinue, reduce the extent of, discourage
the development of or otherwise harm such Personnel's relationship or
commitment to Parent Company Group. Conduct prohibited under this Section
5.6(c) shall include, without limitation, employing, seeking to employ or
causing, aiding, inducing or influencing a Competitor to employ or seek to
employ any Personnel of Parent Company Group.
(c) Each of the parties acknowledges that the provisions and
restrictions of this Section 5.6 are reasonable and necessary for the
protection of the legitimate interests of the Parent Company Group. Each of
the parties further acknowledges that the provisions and restrictions of
this Section 5.6 are unique and that any breach or threatened breach of any
of such provisions or restrictions will provide the Parent Company Group
with no adequate remedy at law, and the result will be irreparable harm to
the Parent Company Group. Therefore, the parties hereto agree that upon a
breach or threatened breach of the provisions or restrictions of this
Section 5.6, the Parent Company Group shall be entitled, in addition to any
other rights and remedies which may be available to it, to institute and
maintain proceedings at law or in equity, to recover damages, to obtain an
equitable accounting of all earnings, profits or other benefits resulting
from such breach or threatened breach and to obtain specific performance or
a temporary and permanent injunction.
(d) If Pironti violates any restrictive covenant contained herein and
a member of the Parent Company Group institutes action for equitable
relief, such member, as a result of the time involved in obtaining such
relief, shall not be deprived of the benefit of the full Restriction
Period. Accordingly, the Restriction Period shall be deemed to have the
duration specified in Section 5.6(a), computed from and commencing on the
date on which relief is granted by a final order from which there is no
appeal, but reduced, if applicable, by the length of time between the date
the Restriction Period commenced and the date of the first violation of any
restrictive covenant by Pironti.
(e) Each of the provisions hereof including, without limitation, the
periods of time, geographic areas and types and scopes of duties of, and
restrictions on the activities of, the parties hereto specified herein are
and are intended to be divisible, and if any portion thereof (including any
sentence, clause or word) shall be held contrary to law or invalid or
unenforceable in any respect in any jurisdiction, or as to one or more
periods of time, areas or business activities or any part thereof, the
remaining provisions shall not be affected but shall remain in full force
and effect, and any such invalid or unenforceable provision shall be
deemed, without further action on the part of any party hereto or other
Person, modified and amended to the minimum extent necessary to render the
same valid and enforceable in such jurisdiction.
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(f) Pironti acknowledges and agrees that (i) compliance with the
restrictive covenants set forth herein would not prevent him from earning a
living that involves his training and skills without relocating, but only
from engaging in unfair competition with, misappropriating a corporate
opportunity of, or otherwise unfairly harming the Parent Company Group and
(ii) the restrictive covenants set forth herein are intended to provide a
minimum level of protection necessary to protect the legitimate interests
of the Parent Company Group. In addition, the parties acknowledge that
nothing herein is intended to or shall, limit, replace or otherwise affect
any other rights or remedies at law or in equity for protection against
unfair competition with, misappropriation of corporate opportunities of, or
defamation of the Parent Company Group, or for protection of any other
rights or interest of the Parent Company Group.
5.7 Assignment of Apartment Lease and Assumption of Liabilities. Prior to
the Effective Time, NSI will assign the Apartment Lease to Pironti and Pironti
will assume all obligations and liabilities of NSI under the Apartment Lease
from and after the Effective Time will pay or otherwise discharge in full when
due all of such liabilities and obligations.
6. Mutual Covenants. Each of the Parties hereby covenants and agrees, as to
itself or himself, as follows:
6.1 Consents; Approvals. NSI and Parent shall each use their good faith
efforts to obtain all consents, waivers, approvals, authorizations or orders
(including without limitation, all governmental and regulatory rulings and
approvals), and NSI and Parent shall make all filings (including, without
limitation, all filings with governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
NSI and Parent and the consummation by them of the transactions contemplated
hereby (including, as to NSI, the consents of the Consentors to the NSI Merger).
6.2 Expenses. Except as set forth in Section 6.4, each Party shall pay all
costs and expenses incurred by such Party in connection with the transactions
contemplated by this Agreement, whether or not the transactions contemplated
hereby are consummated (provided that Pironti shall pay the expenses of NSI if
such transactions are consummated).
6.3 Public Announcements. The Parties shall consult with each other before
issuing any press release or making any written public statement or filing with
respect to the NSI Merger or this Agreement and shall not issue any such press
release or make any such public statement or filing without the prior consent of
the other Parties, which shall not be unreasonably withheld; provided, however,
that each Party may, without the prior consent of any other, issue such press
release or make such public statement or filing as may upon the advice of
counsel be required by law, but only after providing the other Parties with
notice of such intent promptly upon reaching the conclusion that any such
release, statement, or filing is required.
6.4 Conveyance Taxes, etc. All Taxes (other than Shareholder Taxes), and
all recording, registration, or other fees which become payable in connection
with the transactions contemplated hereby shall be paid one half by Parent and
one half by the Stockholder. Parent, NSI Surviving Corporation and Pironti shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any such Taxes or
fees.
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6.5 Taxes and Cooperation on Tax Matters.
(a) Parent shall permit Pironti to cause NSI Surviving Corporation to
prepare and timely file all Tax Returns and amendments thereto required to
be filed by or for NSI for all taxable periods ending on or before the
Effective Date. Parent shall be given a reasonable opportunity to review
and comment upon such Tax Returns and amendments thereto. Parent shall
cause NSI Surviving Corporation to file, and shall control, any Tax Returns
required to be filed by NSI Surviving Corporation for taxable periods
ending after the Effective Date. Parent shall not, without the prior
written consent of Pironti, which consent shall not be unreasonably
withheld or delayed, amend any income Tax Return of NSI for any taxable
period ending on or before the Effective Date.
(b) Stockholder shall be liable for all Shareholder Taxes of NSI for
any taxable year or taxable period ending on or prior to the Effective Date
or which includes the Effective Date. For the purposes hereof, "Shareholder
Taxes" means (i) any federal, state, local or foreign income, franchise,
capital stock, net worth, capital, profits or similar Tax (including, the
Tax imposed by Section 1374 of the Code or any corresponding or similar
provision of state, local or foreign Tax law) or assessment or deficiency
with respect thereto (including all interest and penalties thereon and
additional thereto) and (ii) any Taxes required to be paid or withheld in
connection with the transfer or issuance of shares to the Permitted
Transferees pursuant to Section 5.2 (b) hereof.
(c) Stockholder shall (i) duly include in his federal and state income
tax returns all items of income, gain, loss, deduction, or credit
attributable to the S Short Year (as hereinafter defined) in a manner
consistent with Federal Tax Form 1120S and the schedules thereto (and the
corresponding state income tax forms and schedules) to be filed by him with
respect to such period; and (ii) pay any and all Shareholder Taxes required
to be paid for all taxable years, including the taxable year that includes
the S Short Year, that are attributable to him. For purposes of this
provision, the "S Short Year" means the S Corporation tax year of NSI that
ends on the Effective Date as a result of the NSI Merger.
(d) Pironti and Parent shall provide each other with such cooperation
and information as any of them may reasonably request in connection with
tax matters, including the preparation of tax returns, tax audits, and
litigation. The requesting party shall reimburse the other party for all
direct out-of-pocket expenses incurred by such other party.
6.6 Further Action. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use all commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to the obligations of the other
Party under this Agreement. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the NSI Surviving Corporation with full right, title and
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possession to all assets, property, rights, privileges, powers and franchises of
NSI and NSI Merger Sub, the officers and directors of NSI and NSI Merger Sub
immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action. Nothing contained in this Agreement shall require
Parent to divest, abandon, or take similar action with respect to any assets
(tangible or intangible) of Parent, NSI Merger Sub, NSI, NSI Surviving
Corporation or any of Parent's subsidiaries.
6.7 Tax Reporting of Transaction. The Stockholder and the Parent shall
report the NSI Merger for all Tax purposes as a "reorganization' within the
meaning of Section 368(a)(1) of the Code. In addition, the Parent represents and
warrants that, following the Merger, it has no current plan or intention to: (i)
liquidate NSI Merger Sub, (ii) sell the stock of NSI Merger Sub or cause NSI
Merger Sub to issue stock in such a way as to cause Parent to no longer be in
"control" of NSI Merger Sub within the meaning of Section 368(c) of the Code,
(iii) merge NSI Merger Sub with or into another corporation, other than a
subsidiary controlled by Parent within the meaning of Section 368(c) of the
Code, or (iv) sell or otherwise dispose of NSI Merger Sub's assets other than
dispositions in the ordinary course of business or transfers of assets to
subsidiaries directly or indirectly controlled by NSI Merger Sub within the
meaning of Section 368(c) of the Code.
6.8 Purchase Note Letter of Credit. Notwithstanding anything contained
herein to the contrary, the parties hereto acknowledge that, at the Closing, the
Purchase Note Letter of Credit may only be in the face amount of $1 million,
i.e. less than the principal amounts of the Purchase Note and the Negotiable
Purchase Note. In recognition thereof, the parties have agreed to the following:
(a) Completion of Letter of Credit. Following the Closing, Parent
shall seek to increase the face amount of the Purchase Note Letter of
Credit to the full aggregate principal amounts of the Purchase Note and the
Negotiable Purchase Note (such aggregate amounts being the "Full Note
Amount").
(i) If for any reason the face amount of the Purchase Note Letter
of Credit shall not have been increased to the Full Note Amount on or
before the three month anniversary of the Effective Date, Parent shall
pay and deliver to the Stockholder 50,000 Parent Shares, which Shares
shall immediately and thereupon become subject to the Registration
Rights Agreement.
(ii) If for any reason the face amount of the Purchase Note
Letter of Credit shall not have been increased to the Full Note Amount
on or before the 6 month anniversary of the Effective Date, Parent
shall pay and deliver to the Stockholder $450,000 in cash.
(iii) If for any reason (x) the face amount of the Purchase Note
Letter of Credit shall not have been increased to the Full Note Amount
on or before one day after the 6 month anniversary of the Effective
Date or (y) Parent shall have failed to satisfy its obligations under
subsections (i) or (ii) above, the holders of the Purchase Note and of
the Negotiable Purchase Note, those having the
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Stockholder JV Entitlements and Pironti shall have the Acceleration
Rights set forth in subsection (c) below without the requirement for
any further notices or passage of time.
(b) Effect of Default prior to Delivery of Letter of Credit. If prior
to the delivery of a Purchase Note Letter of Credit having a face amount
equal to the Full Note Amount there shall occur an Event of Default under
either the Purchase Note or the Negotiable Purchase Note, the holders of
the Purchase Note and of the Negotiable Purchase Note, those having the
Stockholder JV Entitlements and Pironti shall have the Acceleration Rights
set forth in subsection (c) below without the requirement for any further
notices or passage of time.
(c) Acceleration Rights. The "Acceleration Rights" shall be the
following:
(i) An Event of Default shall be deemed to have occurred under
the Purchase Note and the Negotiable Purchase Note, and the holders
thereof shall have the rights thereunder set forth in Section 3
thereof;
(ii) Those having the Stockholder JV Entitlements shall have the
rights of acceleration thereto set forth in Section 2.9 (d)(i) hereof;
and
(iii) Good Reason shall be deemed to have occurred under Section
5(d) of the Pironti Employment Agreement and Pironti shall have the
right to terminate the Pironti Employment Agreement in accordance with
Section 4(f) thereof. If Pironti terminates the Pironti Employment
Agreement by reason hereof, the Non-competition provisions of Section
5.6 hereof and Section 5.6 of the PCM Merger Agreement shall
immediately terminate and be of no further force and effect; and there
shall be no further restrictions on Pironti's activities by reason
thereof or otherwise.
7. Conditions to the Merger.
7.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the NSI Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that is reasonably likely to result in such an action or
proceeding) by any governmental authority or administrative agency before
any governmental authority, administrative agency or court of competent
jurisdiction that is reasonably likely to result in an order, nor shall
there be in effect any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction, or any
other legal restraint, (i) preventing or seeking to prevent consummation of
the NSI Merger, (ii) prohibiting or seeking to prohibit or limiting or
seeking to limit, Parent from exercising all material rights and privileges
pertaining to its ownership of the NSI Surviving Corporation or the
ownership or operation by Parent or any of its subsidiaries of all or a
material portion of the business or assets of the NSI Surviving
Corporation, or (iii) compelling or seeking to compel Parent or any of its
subsidiaries to dispose of or hold separate all or any material portion of
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the business or assets of Parent or any of its subsidiaries (including the
NSI Surviving Corporation or any of its subsidiaries), as a result of the
NSI Merger or the transactions contemplated by this Agreement).
(b) Illegality. No statute, rule, regulation or order shall be
enacted, entered, enforced or deemed applicable to the NSI Merger which
makes the consummation of the NSI Merger illegal.
(c) PCM Merger. PCM Merger shall have occurred simultaneously with the
NSI Merger.
7.2 Additional Conditions to Obligations of Parent and NSI Merger Sub. The
obligations of Parent and NSI Merger Sub to effect the NSI Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of NSI and the Stockholder contained in this Agreement shall have been true
and correct in all material respects individually and in the aggregate
(without for this purpose giving effect to qualifications of materiality
contained in such representations and warranties and without giving effect
to matters disclosed on any supplements to the NSI Disclosure Schedule)
when made and shall be true and correct in all material respects
individually and in the aggregate (without for this purpose giving effect
to qualifications of materiality contained in such representations and
warranties and without giving effect to matters disclosed on any
supplements to the NSI Disclosure Schedule) on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective
Time, except for (i) changes contemplated by this Agreement and (ii) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date),
and Parent and NSI Merger Sub shall have received a certificate of NSI to
such effect signed by the Chief Executive Officer or Chief Financial
Officer of NSI and the Stockholder.
(b) Agreements and Covenants. NSI and the Stockholder shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and Parent and NSI Merger Sub shall
have received a certificate to such effect signed by the Chief Executive
Officer or Chief Financial Officer of NSI and the Stockholder.
(c) Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by NSI for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by NSI, including the consent of
the Consentors to the NSI Merger and to all of the other foregoing actions,
except where the failure to receive such consents, waivers, approvals,
authorizations or orders would not reasonably be expected, individually or
in the
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aggregate with all other such failures, to have a Material Adverse Effect
on NSI or the NSI Surviving Corporation; and Parent and NSI Merger Sub
shall have received a certificate to such effect signed by the Chief
Executive Officer or Chief Financial Officer of NSI with signed originals
of all such consents, waivers, approvals, authorizations, orders, and
filings attached as exhibits to such certificate. For purposes of this
Section 7.2(c): (i) the failure to receive such consents from either of the
Consentors shall be deemed to have a Material Adverse Effect on NSI and NSI
Surviving Corporation and (ii) any consent (other than the consent of the
landlord with respect to the premises located at 230 Fifth Avenue, New
York, NY) that is conditioned on any material change in the terms of the
agreement to which it relates is deemed to be a failure to consent unless
Parent expressly agrees in writing to such change.
(d) Secretary's Certificate. NSI shall have delivered to Parent a
certificate of the Secretary or an Assistant Secretary of NSI, dated as of
the Effective Date and in the form of Exhibit F, certifying: (i) that the
necessary corporate action by the Board of Directors and stockholders of
NSI has been taken to authorize the execution and delivery of this
Agreement by NSI, the performance by NSI of its obligations under this
Agreement and the consummation by NSI of the transactions contemplated by
this Agreement (with copies of all such resolutions attached as exhibits
thereto); (ii) that the Articles of Incorporation and By-laws of NSI
attached to the Secretary's certificate are true, complete, and correct and
are in full force and effect as of the Effective Date; and (iii) as to the
incumbency and specimen signature of the officers of NSI executing this
Agreement and other documents to be executed on behalf of NSI in connection
therewith, together with a certification by another officer of NSI as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary signing such certificate.
(e) Pironti Indebtedness. Pironti shall have taken such action as is
satisfactory to Parent, in its reasonable judgment, to contribute all
indebtedness owing to Pironti by NSI or PCM as of the Effective Time (other
than (i) in respect of the Pironti Loan Amount, (ii) the Dividend Notes,
(iii) the Dividends Payable, and (iv) amounts that are deducted in arriving
at 2001 EBITDA) to the applicable obligor, including without limitation,
the surrender of all promissory notes or other evidences of any such
indebtedness to the applicable obligor for cancellation.
(f) Releases. Pironti and each of the Permitted Transferees shall have
executed and delivered to NSI a release in the form of Exhibit G releasing
all claims of Pironti or such Transferee, as the case may be, against NSI
and the NSI Surviving Corporation other than claims arising under this
Agreement or pursuant to the Employment Agreement between Pironti or such
Transferee, as the case may be, and NSI Surviving Corporation.
(g) No Material Adverse Changes. No Material Adverse Effect shall have
occurred with respect to NSI following the date hereof.
(h) Cessation of Franchise Tax Report. NSI shall have filed a
Cessation of Franchise Tax Report with the New York Department of Taxation
and Finance and all
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Taxes required to be paid as of the Effective Date in connection with such
filing shall have been duly paid by Pironti.
(i) Completion of Fleet Financing. The Fleet Financing shall have been
completed.
7.3 Additional Conditions to Obligation of NSI and Pironti. The obligation
of NSI and Pironti to effect the NSI Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of NSI Merger Sub and Parent contained in this Agreement shall have been
true and correct in all material respects individually and in the aggregate
(without for this purpose giving effect to qualifications of materiality
contained in such representations and warranties and without giving effect
to matters disclosed on any supplements to the Parent Disclosure Schedule)
when made and shall be true and correct in all material respects
individually and in the aggregate (without for this purpose giving effect
to qualifications of materiality contained in such representations and
warranties and without giving effect to matters disclosed on any
supplements to the Parent Disclosure Schedule) on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective
Time, except for (i) changes contemplated by this Agreement and (ii) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date),
and NSI and Pironti shall have received a certificate to such effect signed
by the President or Chief Financial Officer of Parent.
(b) Agreements and Covenants. Parent and NSI Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and Pironti and NSI shall have
received a certificate to such effect signed by the President or Chief
Financial Officer of Parent.
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent or NSI Merger Sub for the authorization, execution
and delivery of this Agreement and the consummation by them of the
transactions contemplated hereby shall have been obtained and made by
Parent or NSI Merger Sub, except where the failure to receive such
consents, waivers, approvals, authorizations or orders would not reasonably
be expected, individually or in the aggregate with all other such failures,
to have a Material Adverse Effect on Pironti or NSI; and Pironti and NSI
shall have received a certificate of Parent to such effect signed by the
President or Chief Financial Officer of Parent with signed originals of all
such consents, waivers, approvals, authorizations, orders, and filings
attached as exhibits to such certificate.
(d) Employment Agreements. NSI shall have executed the Employment
Agreements with respect to each of Pironti and the Permitted Transferees.
(e) No Material Adverse Changes. No Material Adverse Effect shall have
occurred with respect to Parent and its subsidiaries taken as a whole.
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(f) Payments at Closing. Parent Parties shall have made the payments
specified in Section 7.3(g) of the PCM Merger Agreement.
(g) Release of Guaranty. Pironti's personal guaranty in respect of the
indebtedness of NSI and PCM to Fleet National Bank shall have been
released.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, notwithstanding approval thereof by the Stockholder:
(a) by mutual written consent of the Parties;
(b) by either Parent or NSI if the NSI Merger and the PCM Merger shall
not have been consummated by the Merger Deadline (other than for the
reasons set forth in Sections 8.1(d), (e), or (f)); provided, however, that
the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any Party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
NSI Merger to be consummated on or prior to such date;
(c) by either Parent or NSI if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other
nonappealable final action having the effect of permanently restraining,
enjoining or otherwise prohibiting the NSI Merger;
(d) by (i) Parent or (ii) by NSI, if any representation or warranty of
NSI or the Stockholder, or Parent or NSI Merger Sub, respectively, set
forth in this Agreement shall have been untrue when made, such that the
conditions set forth in Sections 7.2(a) or 7.3(a), as the case may be,
would not be satisfied (a "Terminating Misrepresentation"); provided, that,
if such Terminating Misrepresentation is curable through the exercise of
its commercially reasonable efforts and is cured prior to the date two (2)
days prior to the Effective Date by Parent or NSI, as the case may be,
neither Parent nor NSI, respectively, may terminate this Agreement under
this Section 8.1(d) (it being understood that if such Terminating
Misrepresentation consists of the omission of any information from a
disclosure schedule, then such Terminating Misrepresentation cannot be
cured by an amendment or supplement to such disclosure schedule unless the
other party agrees in writing to waive such Terminating Misrepresentation
for the purposes of this Section 8.1(d));
(e) by (i) Parent, if any representation or warranty of NSI or the
Stockholder shall have become untrue such that the condition set forth in
Section 7.2(a) would not be satisfied, or (ii) by NSI, if any
representation or warranty of Parent or NSI Merger Sub shall have become
untrue such that the condition set forth in Section 7.3(a), would not be
satisfied (in either case, a "Terminating Change"), in either case other
than by reason of a Terminating Breach (as hereinafter defined); provided,
that, if any such Terminating Change is curable through the exercise of its
commercially reasonable efforts and is cured prior to the date two (2) days
prior to the Effective Date by NSI or Parent, as the
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case may be, neither Parent nor NSI, respectively, may terminate this
Agreement under this Section 8.1(e);
(f) by (i) Parent or by (ii) NSI, upon a breach of any covenant or
agreement on the part of NSI or the Stockholder, or Parent or NSI Merger
Sub, respectively, set forth in this Agreement such that the conditions set
forth in Sections 7.2(b) or 7.3(b), as the case may be, would not be
satisfied (a "Terminating Breach"); provided, that, except for any breach
of NSI's obligations under Section 5.4, if such Terminating Breach is
curable through the exercise of its commercially reasonable efforts and is
cured prior to the date two (2) days prior to the Effective Date by NSI or
Parent, as the case may be, neither Parent nor NSI, respectively, may
terminate this Agreement under this Section 8.1(f); or
(g) by Parent or NSI, if Parent or PCM, respectively, has the right to
terminate PCM Merger Agreement pursuant to Section 8.1 thereof.
8.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to
Section 8.1, this Agreement shall forthwith become void and there shall be
no liability on the part of any Party or any Party's affiliates, directors,
officers or shareholders, except as set forth in Section 6.2, Section
8.2(b) or Section 9.6.
(b) In the event of the termination of this Agreement by NSI or Parent
(such party, the "Terminating Party"): (i) pursuant to Section 8.1(b) if
such termination results from the failure or refusal of the other party
(the "Breaching Party") to close on or prior to the Merger Deadline under
circumstances in which the Terminating Party is not in material breach of
its representations, warranties, covenants or obligations hereunder, (ii)
pursuant to Section 8.1(d) as a result of a Terminating Misrepresentation
by the Breaching Party, (iii) pursuant to Section 8.1(e) as a result of a
Terminating Change (but only if such Terminating Change resulted from any
willful action or willful failure to take action on the part of the
Breaching Party or any Affiliate of the Breaching Party, or (iv) pursuant
to Section 8.1(f) as a result of a Terminating Breach by the Breaching
Party, then within two business days following the date of termination, the
Breaching Party shall pay the Terminating Party the sum of $400,000 as
liquidated damages, and not as a penalty, in lieu of any and all other
remedies that the Terminating Party may have against the Breaching Party;
provided, however, that the aggregate amount payable pursuant to this
Section 8.2(b) and Section 8.2(b) of PCM Merger Agreement shall not exceed
$400,000.
9. Indemnification.
9.1 Indemnification by the Stockholder. The Stockholder shall indemnify and
hold harmless Parent, NSI Merger Sub and their respective officers, directors,
stockholders, employees, attorneys, accountants, affiliates and agents ("Parent
Indemnified Persons") from and against (and shall on demand reimburse them for)
any and all claims, demands, suits, causes of action, proceedings, judgments,
damages, losses, liabilities, royalties, costs and expenses (including, without
limitation, reasonable counsel fees and disbursements incurred in litigation or
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otherwise) (any of the foregoing, a "Loss") suffered or incurred, directly or
indirectly, by any Parent Indemnified Person, with respect to, resulting from or
arising out of:
(a) Any untrue representation or warranty made by NSI or the
Stockholder in this Agreement, the NSI Disclosure Schedule, the supplements
to the NSI Disclosure Schedule or any other certificate or document
delivered by NSI or the Stockholder pursuant to this Agreement (including
certificates of officers of NSI acting in their capacities as such), or the
failure, breach or nonfulfillment of any covenant, agreement or other
obligation of NSI or the Stockholder, hereunder or under the Exhibits
attached hereto or under the certificates and documents delivered pursuant
hereto (including certificates of officers of NSI acting in their
capacities as such), provided that, except with respect to the matters
described in Schedule 9.1(a) hereto (as to which this proviso shall not
apply), the Stockholder shall have no obligation to indemnify any Parent
Indemnified Person with respect to any such untrue representation or
warranty if Parent had knowledge that such representation and warranty was
untrue on the Effective Date, and the burden of proof shall be on the
Stockholder to prove that Parent had such knowledge;
(b) Any untrue representation or warranty made by PCM or the
Stockholder in PCM Merger Agreement, PCM Disclosure Schedule thereto, the
supplements to PCM Disclosure Schedule or any other certificate or document
delivered by PCM or the Stockholder pursuant to PCM Merger Agreement
(including certificates of officers of PCM acting in their capacities as
such), or the failure, breach or nonfulfillment of any covenant, agreement
or other obligation of PCM, the Stockholder or the Permitted Transferees,
under PCM Merger Agreement or under the Exhibits attached thereto or under
the certificates and documents delivered pursuant thereto (including
certificates of officers of PCM acting in their capacities as such),
provided that, except with respect to the matters described in Schedule
9.1(a) thereto (as to which this proviso shall not apply), the Stockholder
shall have no obligation to indemnify any Parent Indemnified Person with
respect to any such untrue representation or warranty if Parent had
knowledge that such representation and warranty was untrue on the Effective
Date, and the burden of proof shall be on the Stockholder to prove that
Parent had such knowledge;
(c) All Losses arising out of or relating to: (i) items specifically
set forth in Schedule 9.1(c); (ii) the Apartment Lease from and after the
Effective Date; and (iii) any obligation or liability whatsoever as to any
employee or former employee of NSI or any Affiliate with respect to any
matter arising on or prior to the Effective Time, including unpaid
compensation, pension, severance, retirement, employee welfare or other
benefits, collective state or local law designed to protect employees,
including equal employment laws, wrongful discharge laws or other rights,
except to the extent such obligation or liability is reflected on or
reserved against on the Interim Balance Sheet, incurred in the ordinary
course of NSI's business in accordance with past practice subsequent to the
date of the Interim Balance Sheet or is specifically disclosed as an
obligation or liability in this Agreement or in the NSI Disclosure
Schedule; provided, that, notwithstanding anything else to the contrary
contained in this Agreement, all obligations or liabilities existing or
arising in connection with the administration of NSI Employee Plans prior
to the Effective Time or the failure of such plans to comply with
applicable laws or
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regulations prior to the Effective Time ("Benefits Issues") shall be Losses
within the meaning of this clause (c);
(d) Third Party Liabilities;
(e) all Taxes for which Stockholder is responsible pursuant to
Sections 6.4 and 6.5 hereof;
(f) All Losses arising out of or relating to matters set forth on
Schedule 9.1(f) (the "Scheduled Losses");
(g) All Losses arising out of a draw made by Stockholder under the
letter of credit securing the Purchase Note and the Negotiable Note that is
based upon an untrue statement or misrepresentation by Stockholder to the
Bank; and
(h) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, reasonable legal
fees and expenses, incident to any of the foregoing referred to in clauses
(a) through (g) or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this indemnity.
If the NSI Merger occurs, (i) the Stockholder shall have no obligation to
indemnify the Parent Indemnified Persons: (x) for the first $400,000 (the
"General Deductible") of aggregate Losses described in clauses (a), (b),
(d) or (f) of this Section 9.1 or clauses (a), (b), (d) or (f) of Section
9.1 of PCM Merger Agreement and Losses referred to in clause (h) of this
Section 9.1 or clause (h) of Section 9.1 of PCM Merger Agreement incident
to Losses described in clauses (a), (b), (d) or (f) of this Section 9.1 or
clauses (a), (b), (d) or (f) of Section 9.1 of the PCM Merger Agreement, or
(y) for the first $150,000 of Losses resulting from a breach of the
representation in Section 3.8(d) hereof or of the PCM Merger Agreement (and
for the avoidance of doubt any Losses in excess of $150,000 resulting from
a breach of such representation will be subject to indemnification pursuant
to clause (a) of this Section 9.1 or clause (a) of Section 9.1 of the PCM
Merger Agreement) and will be subject to the application of the General
Deductible, and (ii) the obligation of the Stockholder with respect to
Losses relating to Benefits Issues shall not exceed an amount equal to the
sum of: (x) the amount that would be reasonably required solely to cause
Employee Plans to comply with legal and regulatory requirements applicable
thereto; (y) the amount required to satisfy any liabilities arising out of
or relating to the failure of any such Employee Plan so to comply,
including any fines, penalties, liabilities to any employee participating
or denied the opportunity to participate, taxes and the like; and (z)
including reasonable fees and disbursements of counsel specifically
allocable to the resolution of the Benefits Issues.
9.2 Indemnification by Parent. Parent agrees to indemnify and hold harmless
the Stockholder, NSI, and its officers, directors, stockholder, employees,
attorneys, accountants, affiliates and agents ("NSI Indemnified Persons") from
and against (and shall on demand reimburse them for):
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(a) any and all Losses suffered or incurred, directly or indirectly,
by a NSI Indemnified Person with respect to, resulting from or arising out
of any untrue representation or warranty made by Parent, or the failure,
breach or nonfulfillment of any representation, warranty, covenant,
agreement or other obligation of Parent, hereunder or under any other
agreement, document, certificate or instrument entered into pursuant
hereto; provided that Parent shall have no obligation to indemnify any NSI
Indemnified Person with respect to any such untrue representation or
warranty if the Stockholder had knowledge that such representation and
warranty was untrue on the Effective Date and the burden of proof shall be
on Parent to prove that NSI had such knowledge; or
(b) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, reasonable legal
fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing this indemnity.
9.3 Assumption of Defense. An indemnified party shall promptly give notice
to each indemnifying party after obtaining knowledge of any matter as to which
recovery may be sought against such indemnifying party because of any indemnity
set forth in this Section 9 if such indemnity shall arise from the claim of a
third party and shall permit such indemnifying party to assume the defense of
any such claim or any proceeding resulting from such claim; provided, however,
that failure promptly to give any such notice shall not affect the
indemnification provided under this Section 9, except to the extent such
indemnifying party shall have been actually prejudiced as a result of such
failure (in which event the amount of any indemnity payment required to be made
by the indemnifying party shall be reduced by the amount of any losses sustained
by such party as a result of such failure). Notwithstanding the foregoing, an
indemnifying party may not assume the defense of any such third-party claim if
it does not demonstrate to the reasonable satisfaction of the indemnified party
that it has adequate financial resources to defend such claim and pay any and
all Losses that may result therefrom, or if the claim (a) is reasonably likely
to result in imprisonment of the indemnified party or (b) is reasonably likely
to result in an equitable remedy which would materially impair the indemnified
party's ability to exercise its rights under this Agreement, or impair Parent's
right or ability to conduct the Business as it is currently conducted. If an
indemnifying party assumes the defense of such third party claim, such
indemnifying party shall agree prior thereto, in writing, that it is liable
under this Section 9 to indemnify the indemnified party in accordance with the
terms contained herein in respect of such claim, shall conduct such defense
diligently, shall have full and complete control over the conduct of such
proceeding on behalf of the indemnified party and shall, in his, her or its sole
discretion, have the right to decide all matters of procedure, strategy,
substance and settlement relating to such proceeding; provided, however, that
any counsel chosen by such indemnifying party to conduct such defense shall be
reasonably satisfactory to the indemnified party. The indemnified party may
participate in such proceeding and retain separate co-counsel at its sole cost
and expense and the indemnifying party will not without the written consent of
the indemnified party consent to the entry of any judgment or enter into any
settlement with respect to the matter which does not include a provision whereby
the plaintiff or the claimant in the matter releases the indemnified party from
all liability with respect thereto. Failure by an indemnifying party to notify
the indemnified party of its election to defend any such claim or proceeding by
a third party within thirty (30) days after notice thereof shall have
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been given to such indemnifying party by the indemnified party shall be deemed a
waiver by such indemnifying party of its right to defend such claim or action.
9.4 Non-Assumption of Defense. If no indemnifying party is permitted or
elects to assume the defense of any such claim by a third party or proceeding
resulting therefrom, the indemnified party shall diligently defend against such
claim or litigation in such manner as it may deem appropriate and, in such
event, if such claim is one for which the indemnifying party is in fact
responsible, the indemnifying party or parties shall promptly reimburse the
indemnified party for all reasonable out-of-pocket costs and expenses, legal or
otherwise, incurred by the indemnified party and its affiliates in connection
with the defense against such claim or proceeding. Any counsel chosen by such
indemnified party to conduct such defense must be reasonably satisfactory to the
indemnifying party or parties, and only one counsel shall be retained to
represent all indemnified parties in an action (except that if litigation is
pending in more than one jurisdiction with respect to an action, one such
counsel may be retained in each jurisdiction in which such litigation is
pending). The indemnified party shall not settle or compromise any such claim
without the written consent of the indemnifying party, which shall not be
unreasonably withheld.
9.5 Indemnified Party's Cooperation as to Proceedings. The indemnified
party will cooperate in all reasonable respects with any indemnifying party in
the conduct of any proceeding as to which such indemnifying party assumes the
defense. For the cooperation of the indemnified party pursuant to this Section
9.5, if such claim is one for which the indemnifying party is in fact
responsible, the indemnifying party or parties shall promptly reimburse the
indemnified party for all reasonable out-of-pocket costs and expenses, legal or
otherwise, incurred by the indemnified party or its affiliates in connection
therewith as such costs and expenses are incurred.
9.6 Limitation on Losses.
(a) The amount of any Loss incurred or suffered by a person shall be
reduced by any insurance proceeds received by such person in connection
with the breach, failure or other event which gave rise to such Loss (net
of any costs incurred by such person in connection with the collection of
such insurance proceeds). In connection therewith, for so long as the
Stockholder has any obligations pursuant to this Section 9 or Section 9 of
the PCM Merger Agreement, Parent, NSI Surviving Corporation and/or PCM
Surviving Corporation will maintain or cause to be maintained with
financially sound and reputable insurers that have a rating of "A" or
better as established by Best's Rating Guide (or an equivalent rating with
such other publication of a similar nature as shall be in current use),
insurance coverage comparable or superior to the coverage described on
Schedule 9.6 (a) hereto with respect to NSI and PCM.
(b) The amount of any Loss incurred or suffered by any Indemnified
Party (i) shall be increased by any Tax incurred or reasonably expected to
be incurred as a result of or related to any such Loss, including any Tax
related to the inclusion in gross income of insurance proceeds or a
payment, (ii) shall be reduced by any Tax benefit realized or reasonably
expected to be realized as a result of or related to any such Loss, and
(iii) shall
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be increased by interest computed at the rate of 7% per annum from the date
such Loss is incurred or suffered to the date of payment.
(c) The breach of any representation and warranty or agreement by the
Stockholder or NSI set forth in Section 3.8, 3.9 or 5.2 hereof shall not be
deemed to have resulted in a Loss to the Parent Indemnified Parties if such
breach resulted in an overpayment of NSI Merger Consideration or PCM Merger
Consideration to the Stockholder and/or the Permitted Transferees or of the
Overage or any other amount payable to Pironti or the Stockholder and/or
such Permitted Transferees and such overpayment is in any such case
subsequently corrected pursuant to an adjustment in accordance with Section
2.8(c) hereof or Sections 2.8 (c) or 2.9 of the PCM Merger Agreement, as
the case may be; provided, however, that the foregoing exclusion shall not
apply to any Third Party Liability arising out of or relating to any such
breach. For avoidance of doubt, any adjustments pursuant to Section 2.8(c)
hereof or Sections 2.8(c) or 2.9 of the PCM Merger Agreement shall not be
counted toward satisfaction of the General Deductible in Section 9.1 hereof
and shall not be subject to the maximum liability provisions set forth in
Sections 9.6(d) and (e).
(d) The maximum aggregate amount for which the Stockholder shall be
liable hereunder and under PCM Merger Agreement shall be (in each case such
that Parent and NSI hereunder and Parent and PCM under PCM Merger Agreement
shall not under any circumstances have any recourse against the Stockholder
pursuant to this Agreement and PCM Merger Agreement in excess of the named
amount in the aggregate):
(i) If the NSI Merger does not occur, $400,000 (as provided in
Section 8.2(b) hereof); and
(ii) If the NSI Merger occurs, $7,500,000;
provided, however, that if the NSI Merger occurs, the foregoing
limitation shall not apply to Losses arising out of or relating to
third party claims, including proceedings brought by any governmental
entity.
(e) The maximum aggregate amount for which Parent hereunder and Parent
and under PCM Merger Agreement shall be liable shall be (in each case such
that the Stockholder hereunder and the Stockholder under PCM Merger
Agreement shall not under any circumstances have any recourse against
Parent, NSI Merger Sub and PCM Merger Sub pursuant to this Agreement and
PCM Merger Agreement in excess of the named amount in the aggregate):
(i) If the NSI Merger does not occur, $400,000 (as provided in
Section 8.2(b) hereof);
(ii) From and after the Effective Date and until the Purchase
Note and Negotiable Purchase Note have been paid, $6,600,000; and
(iii) From and after the date upon which the Purchase Note and
Negotiable Purchase Note have been paid, $3,000,000;
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provided, however, that if the NSI Merger occurs, the foregoing
limitation shall not apply to Losses arising out of or relating to
third party claims, including proceedings brought by any governmental
entity.
(f) No Parent Indemnified Person shall have recourse for
indemnification under Section 9.1(b) above and beyond the time frames set
forth in PCM Merger Agreement or for indemnification under Section 9.1(a)
above beyond the time frames set forth below:
(i) in the case of Sections 3.1, 3.3, 3.4 and 3.5, there shall be
no such time limit,
(ii) in the case of Sections 3.17, 3.20, 3.21 and 3.24, until
thirty (30) days following the expiration of the applicable statute of
limitations with respect to the matter to which the claim relates,
(iii) in the case of all other provisions of Section 3, until
June 30, 2002.
(g) No NSI Indemnified Person shall have recourse for indemnification
under Section 9.2(a) beyond the time frames set forth below:
(i) in the case of Sections 4.1, 4.3, 4.4 and 4.8, there shall be
no such time limit, and
(ii) in the case of all other provisions of Section 4, beyond the
third anniversary of the Effective Date.
9.7 Dispute Resolution Procedure. In the event that any of the Parent
Indemnified Person is seeking indemnification pursuant to Section 9.1 hereof or
Section 9.1 of the PCM Merger Agreement, such Parent Indemnified Person, (the
"Notifying Person") shall notify Stockholder thereof, which notice (the
"Indemnity Notice") shall set forth in reasonable detail the facts and
circumstances giving rise to the Losses for which indemnity is sought, the
amount thereof including the basis for the calculation of the Losses, including
without limitation the amount of costs and expenses incurred by such Parent
Indemnified Person, and, if then known, the amount of any adjustment to or
deduction from the amount of Losses subject to indemnification as a result of
the deductibles established pursuant to Section 9.1 hereof or Section 9.1 of the
NSI Merger Agreement or the provisions of Section 9.6 hereof or Section 9.6 of
the NSI Merger Agreement, as the case may be. If Stockholder disagrees with any
matter set forth in an Indemnity Notice, he shall provide the Notifying Person
with notice of such disagreement (the "Indemnity Dispute Notice") within thirty
(30) days following the date on which the applicable Indemnity Notice was given
to Stockholder. Such Indemnity Dispute Notice shall set forth in reasonable
detail the nature and basis of such disagreement together with Stockholder's
view, if any, of the amount of any indemnity payment to which the Parent
Indemnified Person should be entitled. If Stockholder does not deliver an
Indemnity Dispute Notice within such thirty (30) day period, Stockholder shall
be deemed to have agreed with the matters set forth in the Indemnity Notice. If
Stockholder timely provides a Dispute Notice, then (a) the representatives of
Stockholder and the Notifying Person shall meet promptly and attempt in good
faith to resolve such dispute. If such representatives cannot mutually resolve
such dispute within ten (10) days
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after the date on which the Indemnity Dispute Notice is given, either party may
submit such dispute for final and binding arbitration in The City of New York by
a panel of three (3) arbitrators (the "Arbitrators") pursuant to the commercial
arbitration rules then prevailing of the American Arbitration Association
("AAA"), as supplemented herein, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Pending
final award, Arbitrator compensation and expenses shall be advanced equally by
Stockholder on the one hand and the parties seeking indemnification, on the
other hand. The Parent Indemnified Person and Stockholder shall instruct the AAA
to hold an administrative conference with counsel for the parties within twenty
(20) days after the filing of the demand for arbitration. The parties and the
AAA shall thereafter cooperate in order to complete the appointment of the
Arbitrrators as quickly as possible. Within ten days after all three Arbitrators
have been appointed, the Parent Indemnified Person and Stockholder shall seek to
have an initial meeting among the Arbitrators and counsel for the parties shall
be held for the purpose of establishing a plan for administration of the
arbitration, including (a) scope, timing and types of discovery, which may at
the discretion of the Arbitrators include production of documents in the
possession of the parties, but may not without consent of all parties include
depositions; (c) exchange of documents and filing of detailed statement of claim
and prehearing memoranda; (c) schedule and place(s) of hearings; and (d) any
other matters that may promote the efficient, expeditious and cost-effective
conduct of the proceeding. The Arbitrators shall not be permitted to award
Losses in an amount in excess of those set forth in the Indemnity Notice or less
than the amount set forth in the Indemnity Dispute Notice, except in either case
with respect to amounts constituting adjustments or deductibles which were not
known at the time the applicable notice was given. The Arbitrators shall be
instructed to allocate and award all costs and fees (including costs incurred by
the Parent Indemnified Person and Stockholder) based upon their relative success
in arbitration).
9.8 Setoff. Parent or NSI Surviving Corporation may set off any amount
payable to it by the Stockholder pursuant to this Section 9 or Section 9 of PCM
Merger Agreement against the payment of any amount due under the Purchase Note;
provided, however, that no such setoff shall be permitted until the resolution
of any dispute respecting the obligation to pay any such amount by operation of
Section 9.7 above. Any failure by NSI Surviving Corporation to pay any principal
or interest otherwise due under the Purchase Note solely as a result of a setoff
effected in accordance with the provisions of this Section 9.8 shall not
constitute an Event of Default under the Purchase Note.
9.9 Option to Make Part Payment in Stock. Up to 35% of the aggregate of the
amount payable by the Stockholder pursuant to this Section 9 and pursuant to
Section 9 of PCM Merger Agreement may be paid in shares of Parent Common Stock,
with each share of Parent Common Stock valued at the Current Market Price.
9.10 Exclusive Remedies. Each Party's sole recourse against each of the
other Parties under this Agreement or in respect of the transactions
contemplated by this Agreement shall be pursuant to and under Section 8 and this
Section 9, and subject to the limitations and restrictions contained herein and
therein.
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10. Miscellaneous
10.1 Representations, Warranties, Covenants, etc. The representations,
warranties, covenants, and other agreements of each Party herein shall survive
the NSI Merger except as may be limited by Sections 9.6(f) and (g).
10.2 Disclosures. Any disclosure made with reference to one or more
Sections of the Company Disclosure Schedule or the Parent Disclosure Schedule,
as applicable, shall be deemed disclosed with respect to each other section
therein as to which such disclosure is relevant provided that such relevance is
reasonably apparent. No statement contained in any certificate or schedule
required to be furnished by any Party pursuant to this Agreement, including such
Party's Disclosure Schedule, shall contain any untrue statement of a material
fact or omit to state any material facts necessary under the circumstances, in
order to make the other statements contained therein not misleading.
10.3 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier to the parties at the
following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a Party as shall be specified by like notice):
(a) If to Parent or NSI Merger Sub:
c/o Cross Media Marketing Corporation
461 Fifth Avenue
19th Floor
New York, New York 10017
Attn: President
Telecopy: (212) 457-1202
Confirm: (212) 457-1200
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attn: Bonnie Podolsky, Esq.
Telecopy: (212) 715-8000
Confirm: (212) 715-9100
(b) If to NSI:
National Syndications, Inc.
230 Fifth Avenue, Suite 210
New York, New York 10001
Attn: Anthony R. Pironti
Telecopy: (212) 889-1146
Confirm: (212) 686-8680
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With a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020-1605
Attn: C. David Goldman, Esq.
Telecopy: (212) 547-5444
Confirm: (212) 547-5512
(c) If to the Stockholder:
National Syndications, Inc.
230 Fifth Avenue, Suite 210
New York, New York 10001
Attn: Anthony R. Pironti
Telecopy: (212) 889-1146
Confirm: (212) 686-8680
With a copy to:
Nims, Howes, Collison, Hansen & Lackert
605 Third Avenue, Suite 3500
New York, New York 10158
Attn: Bruce Grossman, Esq.
Telecopy: (212) 661-9213
Confirm: (212) 661-9700
Any such notice given hereunder shall be deemed given and received on
the date of hand delivery or transmission by facsimile or the day
after delivery to an overnight express service for next day delivery,
as the case may be.
10.4 Amendment. This Agreement may not be amended except by an instrument
in writing signed by the Parties.
10.5 Waiver. Any waiver of the provisions hereof shall be valid only if set
forth in an instrument in writing signed by the Party or Parties entitled to
make such waiver.
10.6 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.
10.7 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 adverse to
any party. Upon a 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 an
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acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
10.8 Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and undertakings, both written and oral, among
the Parties, or any of them, with respect to the subject matters hereof, except
as otherwise expressly provided herein.
10.9 Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the parties hereto. Neither
Party may assign any of its rights, or delegate any of its obligations under
this Agreement and the Joint Ventures to any person without the prior written
consent of the other Party, and any such purported assignment without the
written consent of the other Party shall be void and of no effect; provided,
that (i) all or any of the rights of the Parent Parties hereunder may be
assigned to any Affiliate of Parent or to any person who acquires all or a
substantial portion of the business of Parent, except that no such assignment
shall be permitted if, solely as a result of such assignment, the NSI Merger
would not qualify as a tax-free reorganization pursuant to Section 368(a)(1) of
the Code, (ii) all of any of the rights of the Parent Parties hereunder may be
assigned as collateral security to one or more persons which provide financing
for the transactions contemplated hereby and by the PCM Merger Agreement, and
(iii) if Pironti transfers any of the Shares of NSI or any shares of PCM to
either or both of the Permitted Transferees, such Permitted Transferee(s) shall
succeed to the rights of Pironti hereunder and under the PCM Agreement in
respect of such transferred Shares and/or shares; provided, that no such
assignment shall relieve the assigning Party of its obligations hereunder.
10.10 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each Party, 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,
including by way of subrogation.
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any Party in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty or agreement herein, nor shall any single
or partial exercise of any such right preclude other or further exercise thereof
or of any other right. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.12 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York applicable to contracts
executed and fully performed within the State of New York.
(b) Each Party submits to the non-exclusive jurisdiction of the state
and federal courts of the United States located in the City of New York,
Borough of Manhattan with respect to any claim or cause of action arising
out of this Agreement or the transactions contemplated hereby.
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10.13 WAIVER OF JURY TRIAL. EACH OF PARENT, NSI MERGER SUB, NSI, AND THE
STOCKHOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
10.14 Execution and Delivery. This Agreement may be executed in two or more
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. This
Agreement may be delivered by facsimile transmission with the same legal effect
as if delivery of an original were made in person.
[Signature page follows; remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date and year first mentioned above.
CROSS MEDIA MARKETING SYNDICATIONS
CORPORATION (a Delaware corporation)
By
------------------------------------
Name:
Title:
NATIONAL SYNDICATIONS, INC.
(a New York corporation)
By
------------------------------------
Name:
Title:
ANTHONY R. PIRONTI
in his individual capacity
--------------------------------------
CROSS MEDIA MARKETING CORPORATION
By
------------------------------------
Name:
Title:
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Schedule 2.5
Initial Officers of PCM Surviving Corporation
Ronald Altbach Chairman of the Board of Directors
Anthony R. Pironti President
Randall Gouse Senior Vice President and Chief Financial Officer
Jess Joseph Senior Vice President
Richard Kaufman Vice President and Secretary
Chet Borgida Vice President
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Exhibit A
Employment Agreements
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Exhibit B
Negotiable Purchase Note
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Exhibit C
Purchase Note Letter of Credit
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Exhibit D
Registration Rights Agreement
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Exhibit E
Certificate of Merger
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Exhibit F
Secretary's Certificate
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Exhibit G
Release
69