AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
AUTOINFO, INC.
SUNTECK TRANSPORT CO., INC.,
AND
TARGET SHAREHOLDER
JUNE 22, 2000
1. The Merger.............................................................. 1
1.1 The Merger........................................................... 1
1.2 Closing; Effective Time.............................................. 2
1.3 Effect of the Merger................................................. 2
1.4 Certificate of Incorporation; Bylaws................................. 2
1.5 Directors and Officers............................................... 2
1.6 Effect on Capital Stock.............................................. 2
1.7 Payment of Merger Consideration; Holdback............................ 3
1.8 No Further Ownership Rights in Target Common Stock................... 4
1.9 Tax and Accounting Consequences...................................... 4
1.10 Taking of Necessary Action; Further Action........................... 4
2. Representations and Warranties of Target and Target Shareholder......... 4
2.1 Organization, Standing and Power..................................... 4
2.2 Authority............................................................ 5
2.3 Governmental Authorization........................................... 5
2.4 Financial Statements................................................. 6
2.5 Capital Structure.................................................... 6
2.6 Absence of Certain Changes........................................... 6
2.7 Absence of Undisclosed Liabilities................................... 7
2.8 Litigation........................................................... 7
2.9 Restrictions on Business Activities.................................. 7
2.10 INTENTIONALLY OMITTED................................................ 7
2.11 Proprietary Rights and Warranty Claims............................... 7
2.12 Interested Party Transactions........................................ 9
2.13 Minute Books......................................................... 9
2.14 Complete Copies of Materials......................................... 9
2.15 Material Contracts................................................... 9
2.16 Accounts Receivable..................................................10
2.17 Customers and Suppliers..............................................10
2.18 Employees and Consultants............................................10
2.19 Title to Property....................................................11
2.20 Environmental Matters................................................11
2.21 Taxes................................................................11
2.22 Employee Benefit Plans...............................................13
2.23 Employee Matters.....................................................14
2.24 Insurance............................................................14
2.25 Compliance With Laws.................................................15
2.26 Brokers' and Finders' Fee............................................15
2.27 Representations Complete.............................................15
3. Representations and Warranties of Acquiror and Merger Sub...............15
3.1 Organization, Standing and Power.....................................15
3.2 Authority............................................................16
3.3 SEC Documents: Financial Statements..................................16
3.4 Capital Structure....................................................17
3.5 Interim Operations of Merger Sub.....................................18
3.6 Absence of Certain Changes...........................................18
3.7 Absence of Undisclosed Liabilities...................................18
3.8 Litigation...........................................................19
3.9 Restrictions on Business Activities..................................19
3.10 Plan of Reorganization...............................................19
3.11 Representations Complete.............................................19
4. Conduct Prior To The Effective Time.....................................20
4.1 Conduct of Business..................................................20
4.2 No Solicitation......................................................23
5. Additional Agreements...................................................23
5.1 Approval of Shareholders.............................................23
5.2 Sale of Shares Pursuant to Regulation D..............................24
5.3 Access to Information................................................24
5.4 Confidentiality......................................................24
5.5 Public Disclosure....................................................24
5.6 Regulatory Approval: Further Assurances..............................24
5.7 Legal Requirements...................................................25
5.8 Blue Sky Laws........................................................26
5.9 Nonaccredited Stockholders...........................................26
5.10 Employees............................................................26
5.11 Expenses.............................................................26
5.12 Audited Financial Statements.........................................26
5.13 Relocation...........................................................26
6. Conditions to the Merger................................................27
6.1 Conditions to Obligations of Each Party to Effect the Merger.........27
6.2 Additional Conditions to the Obligations of Acquiror and Merger Sub..27
6.3 Additional Conditions to Obligations of Target.......................29
7. Termination, Amendment and Waiver.......................................31
7.1 Termination..........................................................31
7.2 Effect of Termination................................................32
7.3 Amendment............................................................32
7.4 Extension; Waiver....................................................32
8. Holdback and Indemnification............................................32
8.1 Holdback.............................................................32
8.2 Indemnification......................................................34
8.3 Claims; Payment Procedures...........................................35
8.4 Resolution of Conflicts and Arbitration..............................36
8.5 Third-Party Claims...................................................37
8.6 Limitation of the Holdback Agent's Liability.........................38
9. General Provisions......................................................38
9.1 Notices..............................................................38
9.2 Definitions..........................................................39
9.3 Counterparts.........................................................39
9.4 Entire Agreement; Nonassignability; Parties in Interest..............40
9.5 Severability.........................................................40
9.6 Remedies Cumulative..................................................40
9.7 Governing Law........................................................40
9.8 Rules of Construction................................................40
9.9 Expenses.............................................................40
10. Bankruptcy Proceeding and Reorganization Plan...........................41
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 22, 2000 by and among AutoInfo, Inc., a Delaware
corporation ("Acquiror"), Sunteck Transport Co., Inc. a Florida corporation
("Target") and its wholly owned subsidiary ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. a Delaware
corporation ("UbidFreight") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ the sole shareholder of Target
("Target Shareholder"). Target and UbidFreight are sometimes collectively
referred to herein as the "Corporation."
RECITALS
A. The Boards of Directors of Target, Acquiror and the Target Shareholder
believe it is in the best interests of their respective companies and the
shareholders of their respective companies that Target and a wholly owned
subsidiary to be organized by Acquiror prior to the Closing (the "Merger Sub")
combine into a single company through the statutory merger of Merger Sub with
and into Target (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock ("Target Common Stock") shall be converted into the right to
receive the Merger Consideration (as defined in Section 1.6(a)) upon the terms
and subject to the conditions set forth herein.
C. Target, the Target Shareholder and Acquiror desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
1. The Merger.
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, a
Certificate of Merger to be filed with the Secretary of State of the State
of Delaware pertaining to the Merger (the "Certificate of Merger") and the
applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Articles of Merger to be filed with the Secretary of State of the
State of Florida pertaining to the Merger ("Articles of Merger") and the
applicable provisions of the Florida Business Corporation Act ("Florida
Law"), Merger Sub shall be merged with and into Target, the separate
corporate existence of Merger Sub shall cease and Target shall continue as
the surviving corporation. Target as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
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1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as
practicable, but no later than two (2) business days after the satisfaction
or waiver of each of the conditions set forth in Section 6 hereof, or at
such other time as the parties hereto agree (the "Closing Date"). The
Closing shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP,
or at such other location as the parties hereto agree. In connection with
the Closing, the parties hereto shall cause the Merger to be consummated by
filing the Agreement of Merger, together with any required certificates,
with the Secretaries of State of the States of Delaware and Florida, in
accordance with the relevant provisions of Delaware Law and Florida Law
(the time of such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions
of Florida Law and Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Target and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
Target and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws. At the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect immediately prior
to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation and the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors and
officers of Surviving Corporation shall be reasonably satisfactory to
Target.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Target or the
holders of any of the following securities:
(a) Merger Consideration. Each share of Target Common Stock
issued and outstanding immediately prior to the Effective Time shall
be converted and exchanged ("Exchange Ratio"), without any action on
the part of the holders thereof, into the right to receive that number
of validly issued, fully paid and nonassessable shares of the Common
Stock of Acquiror ("Acquiror Common Stock") which equal the amount
obtained by dividing ten million (10,000,000) by the number of shares
of Target Common Stock issued and outstanding immediately prior to the
Effective Time (the "Acquiror Shares"). The Acquiror Shares are
sometimes referred to herein as the "Merger Consideration."
(b) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock of 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
of the Surviving Corporation. Each stock certificate of
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Merger Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving
Corporation.
(c) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of
securities convertible into Acquiror Common Stock or Target Common
Stock), reorganization, recapitalization or other like change with
respect to Acquiror Common Stock or Target Common Stock occurring
after the date hereof and prior to the Effective Time.
(d) Fractional Shares. The Acquiror Shares to be issued to Target
Shareholder shall be rounded down to the nearest share, and Target
Shareholder waives any rights to receive fractional shares or cash or
other consideration in lieu thereof.
(e) Dissenters' Rights. The Target Shareholder hereby waives his
rights to have his shares of Target Common Stock treated as
"Dissenting Shares" in accordance with Florida Law following the
Merger.
(f) Certificate Legends. The Acquiror Shares to be issued
pursuant to this Section 1 shall not have been registered and shall be
characterized as "restricted securities" under the federal securities
laws, and under such laws such shares may be resold without
registration under the Securities Act of 1933, as amended (the
"Securities Act"), only in certain limited circumstances. Each
certificate evidencing Acquiror Shares to be issued pursuant to this
Section 1 shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN
EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
and any legends required by state securities laws.
1.7 Payment of Merger Consideration; Holdback.
(a) Exchange Procedures. At the Closing, the Target Shareholder
shall deliver to Acquiror certificates (the "Certificates")
representing all outstanding shares of Target Common Stock immediately
prior to the Effective Time, together with such other customary
documents as Acquiror may request, duly completed and validly executed
in accordance with the instructions thereto. Promptly after the
Effective Time, Acquiror shall deliver to Target Shareholder: (A) a
certificate representing the number of whole Acquiror
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Shares less the number of Acquiror Shares to be retained in the
Holdback Fund pursuant to Section 1.7(b) hereof.
(b) Holdback Fund. Following the Closing, and subject to and in
accordance with the provisions of Section 8 hereof, Acquiror shall not
distribute to the Target Shareholder but shall retain in the Holdback
Fund (as defined in Section 8.1) one million two hundred fifty
thousand (1,250,000) shares of the Acquiror Shares (the "Holdback
Shares").
1.8 No Further Ownership Rights in Target Common Stock. The Merger
Consideration delivered upon the surrender for exchange of shares of Target
Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Target
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section 1.
1.9 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning
of Section 368(a) of the Code.
1.10 Taking of Necessary Action; Further Action. Each of Acquiror,
Merger Sub, Target and Target Shareholder will take all such reasonable and
lawful action as may be necessary or desirable in order to effectuate the
Merger in accordance with this Agreement as promptly as possible. If, at
any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Target and Merger
Sub, the officers and directors of Target and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
2. Representations and Warranties of Target and Target Shareholder. Target
and the Target Shareholder represent and warrant to Acquiror that the statements
contained in this Section 2 are true and correct, except as disclosed in a
document of even date herewith and delivered by Target to Acquiror referring to
the representations and warranties in this Agreement (the "Target Disclosure
Schedule"). The Target Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
2, and the disclosure in any such numbered and lettered section of the Target
Disclosure Schedule shall qualify only the corresponding subsection in this
Section 2 (except to the extent disclosure in any numbered and lettered section
of the Target Disclosure Schedule is specifically cross referenced in another
numbered and lettered section of the Target Disclosure Schedule).
2.1 Organization, Standing and Power. Target and UbidFreight are
corporations duly organized, validly existing and in good standing under
the laws of their
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respective jurisdictions of organization. Target and UbidFreight have the
corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and are duly qualified to
do business and are in good standing in each jurisdiction in which the
failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. The Companies have delivered a true and correct
copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target and UbidFreight, each as amended to
date, to Acquiror. Neither Target nor UbidFreight is in violation of any of
the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Target is the owner of all outstanding shares of
UbidFreight, its only subsidiary, and all such shares are duly authorized,
validly issued, fully paid and nonassessable. Neither Target nor
UbidFreight directly or indirectly own any equity or similar interest in,
or any interest convertible or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Authority. Target has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate and shareholder action on the part of
Target subject only to the approval of the Merger by Target's shareholder
as contemplated by Section 6.1(a). This Agreement has been duly executed
and delivered by Target and constitutes the valid and binding obligation of
Target enforceable against Target in accordance with its terms, except that
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally,
and is subject to general principles of equity. The execution and delivery
of this Agreement by Target does not, and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration
of any material obligation or loss of any material benefit under (i) any
provision of the Articles of Incorporation or Bylaws of Target or
UbidFreight, as amended, or (ii) any mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Target or UbidFreight or any of their properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality ("Governmental Entity")
is required by or with respect to Target in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger
and Articles of Merger; and (ii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would
not have a Material Adverse Effect on Target and would not prevent, or
materially alter or delay any of the transactions contemplated by this
Agreement.
2.3 Governmental Authorization. Target and UbidFreight have obtained
each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target or UbidFreight currently operates or holds any
interest in any of its properties or (ii) that is required for the
operation of
5
Target's or UbidFreight's business or the holding of any such interest and
all of such authorizations are in full force and effect except where the
failure to obtain or have any such authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.
2.4 Financial Statements. Target has delivered to Acquiror its
unaudited consolidated financial statements (balance sheet, statement of
operations and statement of cash flows) for the period beginning January 1,
1998 and ending December 31, 1999, and for the four-month period ended
April 30, 2000 (collectively, the "Financial Statements"). The Financial
Statements are complete and correct in all material respects and have been
prepared in accordance with generally accepted accounting principles
(except for the absence of footnotes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Financial
Statements fairly present in all material respects the financial condition
and operating results of Target as of the dates, and for the periods,
indicated therein.
2.5 Capital Structure. The authorized capital stock of Target consists
of 1,000 shares of Target Common Stock, of which there were issued and
outstanding as of the date hereof, 100 shares all of which are held of
record and beneficially by Target Shareholder. All outstanding shares of
Target Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holder thereof, and
are not subject to preemptive rights or rights of first refusal created by
statute, the Articles of Incorporation or Bylaws of Target or any agreement
to which Target is a party or by which it is bound. Except for the rights
created pursuant to this Agreement, there are no other options, warrants,
calls, rights, commitments or agreements of any character to which Target
is a party or by which it is bound obligating Target to issue, deliver,
sell, repurchase or redeem or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of Target Common Stock or obligating
Target to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no other contracts, commitments or
agreements relating to voting, purchase or sale of Target's capital stock
between or among Target and Target Shareholder. All shares of outstanding
Target Common Stock and rights to acquire Target capital stock were issued
in compliance with all applicable federal and state securities laws.
2.6 Absence of Certain Changes. Since April 30, 2000 (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary
course consistent with past practice and there has not occurred with
respect to Target or its business: (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or might
reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target or
UbidFreight other than in the ordinary course of business and consistent
with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its or UbidFreight's assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Target or any direct or indirect
redemption, purchase or other acquisition by Target of any of its shares of
capital stock; (v) any material contract entered into by Target or
UbidFreight, other than in the
6
ordinary course of business and as provided to Acquiror, or any material
amendment or termination of, or default under, any material contract to
which Target or UbidFreight is a party or by which it is bound; (vi) any
amendment or change to the Articles of Incorporation or Bylaws of Target;
(vii) any increase in or modification of the compensation or benefits
payable or to become payable by Target to any of its or UbidFreight's
directors or employees; or (viii) any negotiation or agreement by Target or
UbidFreight to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
At the Effective Time, there will be no accrued but unpaid dividends on
shares of Target's capital stock.
2.7 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in
the Financial Statements, (ii) those incurred in the ordinary course of
business and not required to be set forth in the Financial Statements under
generally accepted accounting principles, (iii) those incurred in the
ordinary course of business since the Financial Statements date and
consistent with past practice; and (iv) those incurred in connection with
the execution of this Agreement.
2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any
Governmental Entity, foreign or domestic, or, to the knowledge of Target or
UbidFreight, threatened in writing against Target or UbidFreight or any of
their respective properties or any of their respective officers or
directors (in their capacities as such). There is no judgment, decree or
order against Target or UbidFreight, or, to the knowledge of Target and
UbidFreight, any of their respective directors or officers (in their
capacities as such). All litigation to which Target is a party (or
threatened in writing to become a party) is disclosed in the Target
Disclosure Schedule.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or UbidFreight
which has or could reasonably be expected to have the effect of prohibiting
or materially impairing any current or future business practice of Target
or UbidFreight, any acquisition of property by Target or any of its
subsidiaries or the conduct of business by Target or UbidFreight as
currently conducted or as proposed to be conducted by Target or
UbidFreight.
2.10 [INTENTIONALLY OMITTED].
2.11 Proprietary Rights and Warranty Claims.
(a) "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered, trademark
application, trade name, fictitious business name, service ▇▇▇▇
(whether registered or unregistered), service ▇▇▇▇ application,
copyright (whether registered or unregistered), copyright application,
maskwork, maskwork application, trade secret, know-how, customer list,
franchise, system, computer software, computer program, URL,
invention, design, blueprint, engineering drawing, proprietary
product, technology, proprietary right or other intellectual property
right; and (b)
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the right to use or exploit any of the foregoing including rights
granted by third parties under license agreements. Section 2.11(a)(i)
of the Disclosure Schedule sets forth, with respect to each
Proprietary Asset owned by the Corporation (each a "Target Proprietary
Asset" and collectively, the "Target Proprietary Assets"), registered
with any governmental body or for which an application has been filed
with any governmental body, (i) a brief description of such Target
Proprietary Asset, and (ii) the names of the jurisdictions covered by
the applicable registration or application. Section 2.11(a)(ii) of the
Target Disclosure Schedule identifies and provides a brief description
of all other Target Proprietary Assets owned by Target. Section
2.11(a)(iii) of the Target Disclosure Schedule identifies and provides
a brief description of each Proprietary Asset licensed to Target by
any Person (except for any Proprietary Asset that is licensed to
Target under any third party software license generally available to
the public at a per unit cost of less than One Thousand Dollars
($1,000)), and identifies the license agreement under which such
Proprietary Asset is being licensed to Target. Except as set forth in
Section 2.11(a)(iv) of the Target Disclosure Schedule, Target has
good, valid and marketable title to all Target Proprietary Assets
identified in Sections 2.11(a)(i) and 2.11(a)(ii) of the Target
Disclosure Schedule, free and clear of all liens and other
encumbrances, and, except as disclosed in Section 2.11 of the Target
Disclosure Schedule, Target has a valid right to use all Proprietary
Assets identified in Section 2.11(a)(iii) of the Target Disclosure
Schedule in its business as it is currently conducted. Except as set
forth in Section 2.11(a)(v) of the Target Disclosure Schedule, Target
is not obligated to make any payment to any person for the use of any
Proprietary Asset. Except as set forth in Section 2.11(a)(vi) of the
Target Disclosure Schedule, Target has not developed jointly with any
other person any Target Proprietary Asset with respect to which such
other person has any rights.
(b) Target has taken reasonable and customary measures and
precautions necessary to protect and maintain the confidentiality and
secrecy of all Target Proprietary Assets (except Target Proprietary
Assets whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the value of all Target Proprietary
Assets. Except as set forth in the Target Disclosure Schedule, Target
has not disclosed or delivered to any Person, or permitted the
disclosure or delivery to any person of any of the Target Proprietary
Assets used in or necessary for the conduct of business by Target as
currently conducted by Target (except Target Proprietary Assets whose
value would be unimpaired by public disclosure).
(c) Target, to its knowledge, is not infringing, misappropriating
or making any unlawful use of, and Target has not at any time
infringed, misappropriated or made any unlawful use of, or received
any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation
or unlawful use of, any Proprietary Asset owned or used by any other
person ("Third Party Proprietary Asset"). To Target's knowledge no
other person is infringing, misappropriating or making any unlawful
use of, and no Third Party Proprietary Asset owned or used by any
other Person infringes or conflicts with, any Target Proprietary
Asset.
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(d) (i) Each Target Proprietary Asset conforms with any
specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of
Target; and (ii) there has not been any claim made against Target by
any customer or other person alleging that any Target Proprietary
Asset (including each version thereof that has ever been licensed or
otherwise made available by Target to any person) does not conform
with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of
Target, and there is no basis for any such claim.
Target's Proprietary Assets constitute all the proprietary assets necessary
to enable Target to conduct its business in the manner in which such business
has been and is being conducted. Target has not (i) licensed any of the Target
Proprietary Assets to any Person or (ii) entered into any covenant not to
compete or contract limiting its ability to exploit fully any of the Target
Proprietary Assets or to transact business in any market or geographical area or
with any Person.
2.12 Interested Party Transactions. Except as set forth in Section
2.12 of the Target Disclosure Schedule, neither Target nor UbidFreight is
indebted to any director, officer, employee or agent of Target or
UbidFreight (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to
Target or UbidFreight. There have been no transactions since Target's
inception that would require disclosure if Target were subject to
disclosure under Item 404 of Regulation S-K under the Securities Act.
2.13 Minute Books. The minute books of Target and UbidFreight provided
to Acquiror contain a complete and accurate summary of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of Target and UbidFreight through the date of this Agreement,
and reflect all transactions referred to in such minutes accurately in all
material respects.
2.14 Complete Copies of Materials. Target has delivered true and
complete copies of each document which has been requested by Acquiror or
its counsel in connection with their legal and accounting review of Target
and UbidFreight.
2.15 Material Contracts. All the Material Contracts (as hereinafter
defined) and agreements to which the Corporation is a party are listed in
Section 2.15 of the Target Disclosure Schedule. With respect to each
agreement so listed: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect with respect to the Corporation,
and to the Corporation's knowledge is legal, valid, binding, enforceable
and in full force and effect with respect to each other party thereto, in
either case subject to the effect of bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and except as the availability of equitable remedies may be limited by
general principles of equity; (ii) the agreement will continue to be legal,
valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
prior to the Closing, subject to the effect of bankruptcy, insolvency,
9
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and except as the availability of equitable remedies may
be limited by general principles of equity; and (iii) neither the
Corporation or, to the Corporation's knowledge, any other party, is in
breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach of default by the Corporation or, to the
Corporation's knowledge, by any such other party, or permit termination,
modification or acceleration, under the agreement. The Corporation is not a
party to any oral contract, agreement or other arrangement. "Material
Contract" means any contract, agreement or commitment to which Target is a
party (i) with expected receipts or expenditures in excess of five thousand
dollars ($5,000), (ii) requiring the Corporation to indemnify any Person,
(iv) granting any exclusive rights to any party, (iv) evidencing
indebtedness for borrowed or loaned money of five thousand dollars ($5,000)
or more, including guarantees of such indebtedness, or (v) which, if
breached by the Corporation in such a manner as would (A) permit any other
party to cancel or terminate the same (with or without notice of passage of
time) or (B) provide a basis for any other party to claim money damages
(either individually or in the aggregate with all other such claims under
that contract) from the Corporation or (C) give rise to a right of
acceleration of any material obligation or loss of any material benefit
under any such contract, agreement or commitment, would reasonably be
expected to have a Material Adverse Effect on Target.
2.16 Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial
Statements are valid and genuine, have arisen solely out of bona fide sales
and deliveries of goods, performance of services, and other business
transactions in the ordinary course of business consistent with past
practices in each case with persons other than affiliates, are not subject
to any prior assignment, lien or security interest and are not subject to
valid defenses, set- offs or counter claims. The accounts receivable will
be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for doubtful accounts on the Financial
Statements.
2.17 Customers and Suppliers. As of the date hereof, no customer and
no supplier of the Corporation, has canceled or otherwise terminated, or
made any written threat to the Corporation to cancel or otherwise terminate
its relationship with Target or has at any time on or after the Target
Balance Sheet, decreased materially its services or supplies to the
Corporation in the case of any such supplier, or its usage of the services
or products of the Corporation in the case of such customer, and to the
Corporation's knowledge, no such supplier or customer has indicated either
orally or in writing that it will cancel or otherwise terminate its
relationship with Target or to decrease materially its services or supplies
to the Corporation or its usage of the services or products of Target, as
the case may be. The Corporation has not knowingly breached, so as to
provide a benefit to the Corporation that was not intended by the parties,
any agreement with, or engaged in any fraudulent conduct with respect to,
any customer or supplier of the Corporation.
2.18 Employees and Consultants. Section 2.18 of the Target Disclosure
Schedule contains a list of the names of all employees (including, without
limitation part-time employees and temporary employees), leased employees,
independent contractors and
10
consultants of Target and UbidFreight, their respective salaries or wages,
other compensation and dates of employment and positions.
2.19 Title to Property. Target and UbidFreight have good and
marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Financial
Statements or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed
of since the Financial Statements date in the ordinary course of business),
or with respect to leased properties and assets, valid leasehold interests
therein, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii)
liens securing debt which is reflected on the Financial Statements. The
plants, property and equipment of Target and UbidFreight that are used in
the operations of their businesses are in all material respects in good
operating condition and repair, subject to normal wear and tear. All
properties used in the operations of Target and UbidFreight are reflected
in the Financial Statements to the extent generally accepted accounting
principles require the same to be reflected. Except as set forth in Section
2.19 of the Target Disclosure Schedule, all leases to which the Corporation
is a party are in full force and effect and are valid, binding and
enforceable in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law.
True and correct copies of all such leases have been provided to Acquiror.
The Corporation owns no real property.
2.20 Environmental Matters. To the knowledge of Target, each of Target
and UbidFreight is and at all times has been in compliance with all
federal, state and local laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, or hazardous or toxic
materials or waste.
2.21 Taxes. As used in this Agreement, the terms "Tax" and,
collectively, "Taxes" mean any and all federal, state and local taxes of
any country, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, stamp transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and
any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(a) Target has prepared and timely filed all returns, estimates,
information statements and reports required to be filed with any
taxing authority ("Returns") relating to any and all Taxes concerning
or attributable to Target or its operations with respect to Taxes for
any period ending on or before the Closing Date and such Returns are
true and correct in all material respects and have been completed in
accordance with applicable law.
11
(b) Target, as of the Closing Date: (i) will have paid all Taxes
shown to be payable on such Returns covered by Section 2.21(a) and
(ii) will have withheld with respect to its employees all Taxes
required to be withheld.
(c) There is no Tax deficiency outstanding or assessed or, to
Target's knowledge, proposed against Target that is not reflected as a
liability on the Financial Statements nor has Target executed any
agreements or waivers extending any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(d) Target has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the Financial Statements, whether asserted
or unasserted, contingent or otherwise and Target has no knowledge of
any basis for the assertion of any such liability attributable to
Target, its assets or operations.
(e) Target is not a party to any tax-sharing agreement or similar
arrangement with any other party, and Target has not assumed to pay
any Tax obligations of, or with respect to any transaction relating
to, any other person or agreed to indemnify any other person with
respect to any Tax.
(f) Target's Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and
Target has not been notified of any request for such an audit or other
examination.
(g) Target has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return.
(h) Target has disclosed to Acquiror (i) any Tax exemption, Tax
holiday or other Tax sparing arrangement that Target has in any
jurisdiction, including the nature, amount and lengths of such Tax
exemption, Tax holiday or other Tax-sparing arrangement and (ii) any
expatriate tax programs or policies affecting Target. Target is in
compliance with all terms and conditions required to maintain such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of
any Governmental Entity and the consummation of the transactions
contemplated hereby will not have any adverse effect on the continuing
validity and effectiveness of any such Tax exemption, Tax holiday or
other Tax-sparing arrangement or order.
(i) Target has made available to Acquiror copies of all Returns
filed for the periods ended December 31, 1998 and 1999.
(j) Target has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) apply to any
disposition of assets owned by Target.
(k) Target has not been at any time a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the
Code.
12
(l) Target is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of Target that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or
162(m) of the Code by Target as an expense under applicable law.
2.22 Employee Benefit Plans.
(a) Target has no plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation,
relocation, repatriation, expatriation, visas, work permits,
termination pay, performance awards, bonus, incentive, stock option,
stock purchase, stock bonus, phantom stock, stock appreciation right,
supplemental retirement, fringe benefits, cafeteria benefits, or other
benefits, whether written or unwritten, including, without limitation,
each "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
which is or has been sponsored, maintained, contributed to, or
required to be contributed to by Target, any subsidiary of Target and,
with respect to any such plans which are subject to Code Section
401(a), any trade or business (whether or not incorporated) which is
or, at any relevant time, was treated as a single employer with Target
within the meaning of Section 414(b), (c),(m) or (o) of the Code, (an
"ERISA Affiliate") for the benefit of any person who performs or who
has performed services for Target or with respect to which Target, any
subsidiary, or ERISA Affiliate has or may have any liability
(including, without limitation, contingent liability) or obligation.
(b) No Title IV or Multiemployer Plan None of Target, or
UbidFreight or any ERISA Affiliate has ever maintained, established,
sponsored, participated in, contributed to, or is obligated to
contribute to, or otherwise incurred any obligation or liability
(including, without limitation, any contingent liability) under any
"multiemployer plan" (as defined in Section 3(37) of ERISA) or to any
"pension plan" (as defined in Section 3(2) of ERISA) subject to Title
IV of ERISA or Section 412 of the Code. None of Target, any subsidiary
or any ERISA Affiliate has any actual or potential withdrawal
liability (including, without limitation, any contingent liability)
for any complete or partial withdrawal (as defined in Sections 4203
and 4205 of ERISA) from any multiemployer plan.
(c) COBRA, FMLA, HIPAA, CANCER RIGHTS To its knowledge, Target
has complied with (i) the applicable health care continuation and
notice provisions of the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA") and the regulations thereunder or any state law
governing health care coverage extension or continuation; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993
and the regulations thereunder; (iii) the applicable requirements of
the Health Insurance Portability and Accountability Act of 1996
("HIPAA"); and (iv) the applicable requirements of the Cancer Rights
Act of 1998, except to the extent that such failure to comply would
not in the aggregate have a Material Adverse Effect. Target has no
material unsatisfied obligations to
13
any employees, former employees, or qualified beneficiaries pursuant
to COBRA, HIPAA, or any state law governing health care coverage
extension or continuation.
(d) Effect of Transaction The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of Target, any subsidiary or
any ERISA Affiliate to severance benefits or any other payment
(including, without limitation, unemployment compensation, golden
parachute or bonus, except as expressly provided in this Agreement or
(ii) accelerate the time of payment or vesting of any such benefits or
increase the amount of compensation due any such employee or service
provider. No benefit payable or which may become payable by Target as
a result of or arising under this Agreement shall constitute an
"excess parachute payment" (as defined in Section 280G(b)(1) of the
Code) which is subject to the imposition of an excise Tax under
Section 4999 of the Code or the deduction for which would be
disallowed by reason of Section 280G of the Code.
2.23 Employee Matters. To its knowledge, the Corporation is in
compliance with all currently applicable laws and regulations respecting
terms and conditions of employment including, without limitation, applicant
and employee background checking, immigration laws, discrimination laws,
verification of employment eligibility, employee leave laws, classification
of workers as employees and independent contractors, wage and hour laws,
and occupational safety and health laws. There are no proceedings pending
or threatened in writing, between the Corporation, on the one hand, and any
or all of its current or former employees, on the other hand, including,
but not limited to, any claims for actual or alleged harassment or
discrimination based on race, national origin, age, sex, sexual
orientation, religion, disability, or similar tortious conduct, breach of
contract, wrongful termination, defamation, intentional or negligent
infliction of emotional distress, interference with contract or
interference with actual or prospective economic disadvantage. There are no
claims pending, or threatened in writing, against Target under any workers'
compensation or long term disability plan or policy. The Corporation has no
material unsatisfied obligations to any employees, former employees, or
qualified beneficiaries pursuant to COBRA, HIPAA, or any state law
governing health care coverage extension or continuation. Target is not a
party to any collective bargaining agreement or other labor union contract,
nor does the Corporation know of any activities or proceedings of any labor
union to organize its employees. The Corporation has provided all employees
with all wages, benefits, relocation benefits, stock options, bonuses and
incentives, and all other compensation which became due and payable through
the date of this Agreement.
2.24 Insurance. Target has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and Target are otherwise in compliance with the terms of such
policies and bonds. Target has no knowledge of any threatened termination
of, or material premium increase with respect to, any
14
of such policies. Section 2.24 of the Target Disclosure Schedule contains a
summary of each such policy or bond.
2.25 Compliance With Laws. To its knowledge, Target has complied with,
is not in violation of and has not received any notices of violation with
respect to, any federal state, local or foreign statute, law or regulation
with respect to the conduct of its business, or the ownership or operation
of its business such that the failure to so comply would have a Material
Adverse Effect on Target.
2.26 Brokers' and Finders' Fee. No broker, finder or investment banker
is entitled to brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with the
Merger, this Agreement or any transaction contemplated hereby.
2.27 Representations Complete. None of the representations or
warranties made by Target or Shareholder herein or in any Schedule or
Exhibit hereto, including the Target Disclosure Schedule or any certificate
furnished by Target pursuant to this Agreement or any written statement
furnished to Acquiror pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together
in their entirety, contain, or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which
made, not misleading; provided, however, that for purposes of this
representation, any document attached hereto and any document specifically
referenced in the Target Disclosure Schedule as a "Superseding Document"
(even if not attached hereto) that provides information inconsistent with
or in addition to any other written statement furnished to Acquiror in
connection with the transaction contemplated hereby, shall be deemed to
supersede any other document or written statement furnished to Acquiror
with respect to such inconsistent or additional information.
3. Representations and Warranties of Acquiror and Merger Sub. Acquiror
represents and warrants to Target and the Target Shareholder that the statements
contained in this Section 3 are true and correct, except as disclosed in a
document of even date herewith and delivered by Acquiror to Target on the date
hereof referring to the representations and warranties in this Agreement (the
"Acquiror Disclosure Schedule"). The Acquiror Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3, and the disclosure in any such numbered and
lettered section of the Acquiror Disclosure Schedule shall qualify only the
corresponding subsection in this Section 3 (except to the extend disclosure in
any numbered and lettered section of the Acquiror Disclosure Schedule is
specifically cross-referenced in another numbered and lettered section of the
Acquiror Disclosure Schedule.
3.1 Organization, Standing and Power. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Acquiror has the corporate power to own its
properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do
15
business and is in good standing in each jurisdiction in which the failure
to be so qualified and in good standing would have a Material Adverse
Effect on Acquiror. Acquiror has delivered a true and correct copy of the
Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of Acquiror as amended to date, to Target. Acquiror is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents.
3.2 Authority. Acquiror has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action
on the part of Acquiror. This Agreement has been duly executed and
delivered by Acquiror and constitutes the valid and binding obligation of
Acquiror. The execution and delivery of this Agreement do not and the
consummation of the transactions contemplated hereby will not conflict
with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any material obligation or loss of a
material benefit under (i) any provision of the Certificate of
Incorporation or Bylaws of Acquiror or any of its subsidiaries, as amended,
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Acquiror
or any of its subsidiaries or their properties or assets. No consent,
approval, order or authorization of or registration, declaration or filing
with, any Governmental Entity, is required by or with respect to Acquiror
or any of its subsidiaries in connection with the execution and delivery of
this Agreement by Acquiror or the consummation by Acquiror of the
transactions contemplated hereby, except for (i) the filing of the
Agreement of Merger, together with the required officers' certificates, as
provided in Section 1.2, (ii) the filing of a Form D with the Securities
and Exchange Commission in accordance with Regulation D following the
Effective Time, (iii) the filing of a Form 8-K with the Securities and
Exchange Commission ("SEC") within 15 days after the Closing Date, (iv) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (v) the approval of the Bankruptcy
Court (as herein defined), and (vi) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would
not have a Material Adverse Effect on Acquiror and would not prevent,
materially alter or delay any of the transactions contemplated by this
Agreement.
3.3 SEC Documents: Financial Statements. Acquiror has made available
to Target or its counsel through ▇▇▇▇▇ a true and complete copy of each
statement, report, registration statement (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filing filed with the SEC by Acquiror since January 1,
1999, and, prior to the Effective Time, Acquiror will have made available
to Target or its counsel through ▇▇▇▇▇ true and complete copies of any
additional documents and Exhibits thereto filed with the SEC by Acquiror
prior to the Effective Time (collectively, the "Acquiror SEC Documents").
All documents required to be filed as Exhibits to the Acquiror SEC
Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except as otherwise disclosed in or
contemplated by the Plan of
16
Reorganization and Disclosure Statement (as hereinafter defined) and those
that have expired or been terminated in accordance with their terms and
Acquiror is not in material default under such contracts. As of their
respective filing dates, the Acquiror SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the Securities Act and none of
the Acquiror SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document prior to the date
hereof. The financial statements of Acquiror, including the notes thereto,
included in the Acquiror SEC Documents (the "Acquiror Financial
Statements") were complete and correct in all material respects as at their
respective dates, complied in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto as of their respective dates, and have been
prepared in accordance with generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto
or, in the case of unaudited statements included in Quarterly Reports on
Form 10-Qs, as permitted by Form 10-Q of the SEC). The Acquiror Financial
Statements fairly present in all material respects the consolidated
financial condition and operating results of Acquiror and its subsidiaries
at the dates and during the periods indicated therein (subject, in the case
of unaudited statements, to normal, recurring year-end adjustments). There
has been no change in Acquiror accounting policies except as described in
the notes to the Acquiror Financial Statements.
3.4 Capital Structure. (a) The authorized capital stock of Acquiror
presently consists of 20,000,000 shares of Common Stock, $.01 par value of which
there were issued and outstanding as of the date of this Agreement 7,756,953
shares of Common Stock. Upon the confirmation of the Reorganization Plan, the
authorized capital stock will consist of 100,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock of which it is currently contemplated,
without giving effect to the transactions contemplated hereby, there will be
issued and outstanding 17,297,923 shares of Common Stock and no shares of
Preferred Stock.
(b) As of May 31, 2000 Acquiror has reserved 1,360,000 shares of
Acquiror Common Stock for issuance to employees, directors and
independent contractors pursuant to the Acquiror's stock option Plans,
of which 995,000 shares are subject to outstanding, unexercised
options. Since May 31, 2000, Acquiror has not issued or granted, nor
will Acquiror from that date through the Closing Date, issue or grant,
additional options to purchase shares of capital stock of Acquiror
under or outside any Acquiror stock option plan. Except for the rights
created pursuant to this Agreement or disclosed in the SEC Documents
or the Disclosure Statement, there are no other options, warrants,
calls, rights, commitments or agreements or any character to which
Acquiror is a party or by which it is bound obligating Acquiror to
issue, deliver, sell, repurchase or redeem or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of capital stock
of Acquiror or obligating Acquiror to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any
such option, warrant, call, right, commitment or agreement. Except as
disclosed in the
17
SEC Documents, there are no contracts, commitments or agreements
relating to voting, registration, purchase or sale of Acquiror's
capital stock (i) between or among Acquiror and any of its
stockholders or (ii) to Acquiror's knowledge, between or among any of
Acquiror's stockholders. All outstanding shares of Acquiror have been
duly authorized, validly issued, fully paid and are nonassessable. The
shares of Acquiror Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and nonassessable
and not subject to any preemptive rights, lien or encumbrances.
(c) Prior to the Closing, Acquiror will organize Merger Sub, a
wholly-owned subsidiary organized under Delaware Law. The authorized
capital stock of Merger Sub will, as of the Closing Date, consist of
1,000 shares of Common Stock, all of which will be issued and
outstanding and held by Acquiror. Merger Sub shall be in good standing
and shall have all requisite corporate power and authority to
consummate the transactions contemplated hereby.
3.5 Interim Operations of Merger Sub. Merger Sub will be formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement, will not have engaged in any other business activities and will
only have conducted its operations only as contemplated by this Agreement.
3.6 Absence of Certain Changes. Since March 31, 2000, except as
contemplated by the Disclosure Schedule, Acquiror has conducted its
business in the ordinary course consistent with past practice and there has
not occurred: (i) any change, event or condition in the business or
condition of Acquiror (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material
Adverse Effect to Acquiror; (ii) any acquisition, sale or transfer of any
material asset of Acquiror other than in the ordinary course of business
and consistent with past practice; (iii) any change in accounting methods
or practices (including any change in depreciation or amortization policies
or rates) by Acquiror or any revaluation by Acquiror of any of its assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Acquiror or any direct or
indirect redemption, purchase or other acquisition by Acquiror of any of
its shares of capital stock; (v) any material contract entered into by
Acquiror or any of its subsidiaries, or any material amendment or
termination of, or default under, any material contract to which Acquiror
or any of its subsidiaries is a party or by which it is bound; (vi) any
amendment or change to the Certificate of Incorporation or Bylaws of
Acquiror; (vii) any increase in or modification of the compensation or
benefits payable or to become payable by Acquiror to any of its directors
or employees; or (viii) any negotiation or agreement by Acquiror or any of
its subsidiaries to do any of the things described in the preceding clauses
(i) through (vii) (other than negotiations with Target and its
representatives regarding the transactions contemplated by this Agreement).
At the Effective Time, there will be no accrued but unpaid dividends on
shares of Acquiror's capital stock.
3.7 Absence of Undisclosed Liabilities. Neither Acquiror nor any of
its subsidiaries has any material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth
or adequately provided for in Acquiror's ▇▇▇
▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and the Plan of Reorganization, (ii)
those incurred in the ordinary course of business and not required to be
set forth in the Acquiror's SEC Documents under generally accepted
accounting principles, (iii) those incurred in the ordinary course of
business since March 31, 2000 and consistent with past practice; and (iv)
those incurred in connection with the execution of this Agreement.
3.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any
Governmental Entity, foreign or domestic, or, to the knowledge of Acquiror,
threatened in writing against Acquiror or any of its properties or any of
its officers or directors (in their capacities as such). There is no
judgment, decree or order against Acquiror, or, to the knowledge of
Acquiror, any of its directors or officers (in their capacities as such).
All litigation to which Acquiror is a party (or threatened in writing to
become a party) is disclosed in the Acquiror Disclosure Schedule.
3.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Acquiror which has or
could reasonably be expected to have the effect of prohibiting or
materially impairing any current or future business practice of Acquiror,
any acquisition of property by Acquiror or any of its subsidiaries or the
conduct of business by Acquiror as currently conducted or as proposed to be
conducted by Acquiror.
3.10 Plan of Reorganization. On February 2, 2000, Acquiror filed a
disclosure statement and reorganization plan pursuant to Chapter 11 of
Title 11 of the United States Bankruptcy Code. The Plan provides for the
issuance of one share of Acquiror Common Stock and a cash payment of $ 0.03
for each dollar of approximately $9.5 million of unsecured debt. A
Disclosure Statement has been filed upon which parties in interest and the
Bankruptcy Court have commented. In furtherance thereof and the
transactions contemplated by this Agreement, a revised Reorganization Plan
(the "Reorganization Plan") and Disclosure Statement (the "Disclosure
Statement"), copies of which have been provided to Target and Target
Shareholder, have been prepared and circulated for review to the Court and
certain interested parties. A hearing to consider the Disclosure Statement
and compliance with the disclosure requirements is currently scheduled for
June 27, 2000. All documents on file in the bankruptcy proceeding, case no.
00-10368, are posted on the Bankruptcy Court's Internet site at:
▇▇▇▇://▇▇▇.▇▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇▇.▇▇▇▇
3.11 Representations Complete. None of the representations or
warranties made by Acquiror herein or in any Schedule or Exhibit hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by
Acquiror or Merger Sub pursuant to this Agreement, the Acquiror SEC
Documents, the Reorganization Plan, the Disclosure Statement, or any
written statement furnished to Target pursuant hereto or in connection with
the transactions contemplated hereby, when all such documents are read
together in their entirety, contains or will contain at the Effective Time
any untrue statement of a material fact or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances
under which made, not misleading; provided, however, that for purposes of
this representation, any document attached hereto and any document
specifically referenced in the Acquiror Disclosure Schedule as a
"Superseding Document" (even if not attached hereto) that provides
information inconsistent
19
with or in addition to any other written statement furnished to Target in
connection with the transactions contemplated hereby, shall be deemed to
supersede any other document or written statement furnished to Target with
respect to such inconsistent or additional information.
4. Conduct Prior To The Effective Time.
4.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of Acquiror and Target agree (except
to the extent expressly contemplated by this Agreement, the Reorganization
Plan, the Disclosure Statement or as consented to in writing by the other),
to carry on its and its subsidiaries' business in the usual regular and
ordinary course in substantially the same manner as heretofore conducted;
to pay and to cause its subsidiaries to pay debts and taxes when due
subject (i) to good faith disputes over such debts or taxes, and (ii) to
pay or perform other obligations when due, and to use all reasonable
efforts to preserve intact its present business organizations, keep
available the services of its and its subsidiaries' present officers and
key employees and preserve its and its subsidiaries' relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it or its subsidiaries, to the end that its and its
subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Each of Target and Acquiror agrees to promptly notify the
other of (x) any event or occurrence not in the ordinary course of its or
its subsidiaries' business, and of any event which could have a Material
Adverse Effect, and (y) any change in its capitalization as set forth in
Sections 2.5 and 3.4, respectively. Without limiting the foregoing, except
as expressly contemplated by this Agreement, the Target Disclosure
Schedule, the Acquiror Disclosure Schedule or Acquiror's Reorganization
Plan neither Target nor Acquiror shall do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause
or permit any of the following, without the prior written consent of the
other party, which consent shall not be unreasonably withheld:
(a) Charter Documents. Cause or permit any amendments to its
Articles or Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock
or property) in respect of any of its capital stock, or split, combine
or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service to it or its subsidiaries;
(c) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted
under its stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such plans;
20
(d) Material Contracts. Enter into any Material Contract or
commitment, or violate, amend or otherwise modify or waive any of the
terms of any of its Material Contracts, other than in the ordinary
course of business consistent with past practice;
(e) Issuance of Securities. Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities
other than the issuance of shares of its Common Stock pursuant to the
exercise of stock options, warrants or other rights therefore
outstanding as of the date of this Agreement;
(f) Proprietary Assets. Transfer to any person or entity any
rights to its Proprietary Assets other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target
products, services or Target Proprietary Assets;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material
individually or in the aggregate, to its and its
parent's/subsidiaries' business, taken as a whole, except in the
ordinary course of business, consistent with past practice;
(i) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities
or guarantee any debt securities of others;
(j) Agreements. Enter into, terminate or amend, in a manner which
will adversely affect the business of Target or Acquiror, as the case
may be, (i) any agreement involving an obligation to pay or the right
to receive $5,000 or more, (ii) any agreement relating to the license,
transfer or other disposition or acquisition of Proprietary Assets or
rights to market or sell Target Products, or (iii) any other agreement
which is material to the business or prospects of such party or which
is or would be a Material Contract;
(k) Payment of Obligations. Pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in the respective parties
financial statements;
(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of
business and consistent with past practice;
21
(m) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Amend or
adopt any employee benefit plan or hire any new officer level
employee, pay any special bonus, special remuneration or special
noncash benefit (except payments and benefits made pursuant to written
agreements outstanding on the date hereof), or increase the benefits,
salaries or wage rates of its employees except in the ordinary course
of business in accordance with its standard past practice;
(p) Severance Arrangements. Grant any severance or termination
pay or benefits (i) to any director or officer or (ii) to any other
employee except payments made pursuant to written agreements
outstanding on the date hereof and/or, with respect to Target,
disclosed on the Target Disclosure Schedule;
(q) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it
consults with the other party prior to the filing of such a suit, or
(iii) for a breach of this Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets which are
material individually or in the aggregate, to its business, taken as a
whole;
(s) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, file any material tax return or
any amendment to a material tax return, enter into any closing
agreement, settle any material claim or assessment in respect of
taxes, or consent to any extension or waiver of the limitation period
applicable to any material claim or assessment in respect of taxes;
(t) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(u) Tax Free Reorganization. Take or cause to be taken any action
that would disqualify the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
22
(v) Net Operating Losses. Take or cause to be taken any action
that would cause the elimination of Acquiror's net operating loss
carryforward.
(w) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (v) above, or any
action which would cause a material breach of its representations or
warranties contained in this Agreement or prevent it from materially
performing or cause it not to materially perform its covenants
hereunder.
4.2 No Solicitation.
(a) From and after the date of this Agreement until the earlier
of (i) the Effective Time, (ii) the date that is six months from the
date hereof, or (iii) the date of termination of this Agreement
pursuant to Section 7 hereof, Target shall not, directly or indirectly
through any officer, director, employee, representative or agent of
Target or otherwise, (i) solicit, initiate, or encourage any inquiries
or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, share exchange,
business combination, sale of all or substantially all assets, sale of
shares of capital stock or similar transactions involving Target other
than the transactions contemplated by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement
as an "Acquisition Proposal"), (ii) engage or participate in
negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, enter into, accept, approve or recommend
any Acquisition Proposal. Target represents and warrants that it has
the legal right to terminate any pending discussions or negotiations
relating to an Acquisition Proposal without payment of any fee or
other penalty.
(b) From and after the date of this Agreement until the earlier
of (i) the Effective Time, (ii) the date that is six months from the
date hereof, or (iii) the date of termination of this Agreement
pursuant to Section 7 hereof, Acquiror will not, directly or
indirectly, through any shareholder, officer, director, employee,
affiliate or agent of Acquiror, or otherwise, take an action to
solicit, initiate, seek, entertain, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in
any discussions or negotiations with, any third party regarding any
acquisition of the assets, businesses, capital stock of a company in a
similar industry to Target or any merger, consolidation or business
combination with or involving a company in a similar industry to
Target. Acquiror agrees that any such discussions or negotiations
(other than discussions or negotiations with Target) in process as of
the date of this Agreement will be suspended during such period and
that, in no event, will Acquiror accept or enter into an agreement
concerning any such third-party transaction during such period.
5. Additional Agreements.
5.1 Approval of Shareholders. Target Shareholder agrees, upon Target's
request, to execute a written consent of shareholders approving the Merger.
23
5.2 Sale of Shares Pursuant to Regulation D. The parties hereto
acknowledge and agree that the shares of Acquiror Common Stock issuable to
the Target Shareholder pursuant to Section 1.6 hereof, shall constitute
"restricted securities" within the Securities Act. The certificates of
Acquiror Common Stock shall bear the legends set forth in Section 1.6(f).
It is acknowledged and understood that Acquiror is relying on certain
written representations made by Target Shareholder.
5.3 Access to Information. Target shall afford Acquiror and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (i)
all of Target's properties, personnel books, contracts, commitments and
records, and (ii) all other information concerning the business, properties
and personnel of Target as Acquiror may reasonably request.
(a) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall
confer on a regular and frequent basis with one or more
representatives of the other party to report operational matters of
materiality and the general status of ongoing operations.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and Target
have previously executed a non-disclosure agreement, which is hereby
incorporated herein by reference and shall continue in full force and
effect in accordance with its terms.
5.5 Public Disclosure. Acquiror and Target shall consult with each
other before issuing any press release or otherwise making any public
statement or making any other public (or non- confidential) disclosure
(whether or not in response to an inquiry) regarding the terms of this
Agreement and the transactions contemplated hereby, and neither shall issue
any such press release or make any such statement or disclosure without the
prior approval of the other (which approval shall not be unreasonably
withheld), except as may be required by law.
5.6 Regulatory Approval: Further Assurances.
(a) Each party shall use all reasonable efforts to file, as
promptly as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed by such party with
any Governmental Entity with respect to the Merger and the other
transactions contemplated by this Agreement, and to submit promptly
any additional information requested by any such Governmental Entity.
Acquiror and Target shall respond as promptly as practicable to any
inquiries or requests received from any state attorney general or
other Governmental Entity in connection with antitrust or related
matters. Each of Acquiror and Target shall (1) give the other party
prompt notice of the commencement of any legal proceeding by or before
any Governmental Entity with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) keep the other party
informed as to the status of any such legal proceeding, and (3)
promptly inform the other party of any
24
communication to or from any Governmental Entity regarding the Merger.
Acquiror and Target will consult and cooperate with one another, and
will consider in good faith the views of one another, in connection
with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or submitted in connection with any
legal proceeding under any federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental
Entity, in connection with any legal proceeding under any federal or
state antitrust or fair trade law or any other similar legal
proceeding, each of Acquiror and Target will permit authorized
representatives of the other party to be present at each meeting or
conference relating to any such legal proceeding and to have access to
and be consulted in connection with any document, opinion or proposal
made or submitted to any Governmental Entity in connection with any
such legal proceeding.
(b) Subject to Section 5.6(c), Acquiror and Target shall use all
reasonable efforts to take, or cause to be taken, all actions
necessary to effectuate the Merger and make effective the other
transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, but subject to Section 5.6(c), each party
to this Agreement (i) shall make all filings (if any) and give all
notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by
this Agreement, (ii) shall use all reasonable efforts to obtain each
consent (if any) required to be obtained (pursuant to any applicable
legal requirement or contract, or otherwise) by such party in
connection with the Merger or any of the other transactions
contemplated by this Agreement, and (iii) shall use all reasonable
efforts to lift any restraint, injunction or other legal bar to the
Merger. Target shall promptly deliver to Acquiror a copy of each such
filing made, each such notice given and each such consent obtained by
Target during the period prior to the Effective Time. Each party
hereto, at the reasonable request of another party hereto, shall
execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting
completely the consummation of this Agreement and the transactions
contemplated hereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Acquiror shall not have any obligation under this
Agreement: (i) to dispose or transfer or cause any of its subsidiaries
to dispose of or transfer any assets, or to commit to cause Target to
dispose of any assets; (ii) to discontinue or cause any of its
subsidiaries to discontinue offering any product or service, or to
commit to cause Target to discontinue offering any product or service;
(iii) to license or otherwise make available, or cause any of its
subsidiaries to license or otherwise make available, to any person,
any technology, software or other Proprietary Rights, or to commit to
cause Target to license or otherwise make available to any person any
technology, software or other Proprietary Rights; (iv) to hold
separate or cause any of its subsidiaries to hold separate any assets
or operations (either before or after the Closing Date), or to commit
to cause Target to hold separate any assets or operations; or (v) to
make or cause any of its subsidiaries to make any commitment (to any
Governmental Entity or otherwise) regarding its future operations or
the future operations of Target.
5.7 Legal Requirements. Each of Acquiror and Target will, and Acquiror
will cause Merger Sub to, take all reasonable actions necessary to comply
promptly with all
25
legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other
party in connection with the consummation of the transactions contemplated
by this Agreement and will take or cause to be taken all reasonable actions
necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
5.8 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which
are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its commercially reasonable efforts to
assist Acquiror as may be necessary to comply with the securities and blue
sky laws of all jurisdictions which are applicable in connection with the
issuance of Acquiror Common Stock in connection with the Merger.
5.9 Nonaccredited Stockholders. Prior to the Closing, Target shall not
take any action, including the granting of employee stock options, that
would cause the number of Target stockholders who are not "accredited
investors" pursuant to Regulation D promulgated under the Securities Act of
1933, as amended, to increase to more than 35 during the term of this
Agreement.
5.10 Employees. Target will use reasonable commercial efforts in
consultation with Acquiror to retain existing employees of Target through
the Effective Time and following the Merger.
5.11 Expenses. Whether or not the Merger is consummated, except as
provided for in Section 10.3 hereof, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expense.
5.12 Audited Financial Statements. Target Financial Statements for the
period from January 31, 1998 through a date no earlier than 45 days prior
to the Effective Time shall be audited and reported on by a reputable
independent public accounting firm with standing to appear before the SEC
(the "Certifying Accountants") and such Target Financial Statements shall
be delivered to Acquiror within 60 days of the Closing. In furtherance
thereof Target and Target Shareholder shall use their respective best
efforts from and after the Effective Time to cause the Target Financial
Statements to be audited and Target Shareholder shall, in additional to
complying with any other reasonable requests, execute and deliver to the
Certifying Accountants such management representation letters, in customary
form, as may be requested by the Certifying Accountants.
5.13 Relocation. Within thirty days of the Effective Time, the
headquarters of the Acquiror and the Surviving Corporation shall be located
within a twenty-five mile radius of Boca Raton, Florida.
26
6. Conditions to the Merger.
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall be
approved and adopted by the written consent of the Target Shareholder
and Acquiror as the sole stockholder of Merger Sub.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
Merger shall be and remain in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending, nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the
Merger illegal; and no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint provision limiting
or restricting Acquiror's conduct or operation of the business of
Target and its subsidiary, following the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending. In the event of an injunction or other order
shall have been issued, each party agrees to use its reasonable
efforts to have such injunction or other order lifted.
(c) Governmental Approval. Acquiror, Target and Merger Sub and
their respective subsidiaries shall have timely obtained from each
Governmental Entity (as defined below) all approvals, waivers and
consents, if any, necessary for consummation of or in connection with
the Merger and the several transactions contemplated hereby, including
such approvals, waivers and consents as may be required by the United
States Bankruptcy Court under the Securities Act, and under state Blue
Sky laws other than filings and approvals relating to the Merger or
affecting Acquiror's ownership of Target or any of its properties if
failure to obtain such approval, waiver or consent would not have a
Material Adverse Effect on the Surviving Corporation and Acquiror
after the Effective Time.
(d) Registration Rights Agreement. Acquiror and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
shall have entered into a registration rights agreement covering the
Acquiror Shares providing for piggy-back registration rights on
customary terms and provisions commencing one year from the Effective
Date in form and substance satisfactory to Acquiror and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇.
6.2 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective
27
Time of each of the following conditions, any of which may be waived, in
writing, by Acquiror:
(a) Representations, Warranties and Covenants. The
representations and warranties of Target in this Agreement shall be
true and correct in all material respects (without regard to any
qualification as to materiality contained in such representation or
warranty) on and as of the date of this Agreement and on and as of the
Closing as though such representations and warranties were made on and
as of such time (except for such representations and warranties that
speak specifically as of the date hereof or as of another date, which
shall be true and correct as of such date).
(b) Performance of Obligations. Target shall have performed and
complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied
with by it as of the Closing.
(c) Certificate of Officers. Acquiror and Merger Sub shall have
received a certificate executed on behalf of Target by the President
of Target certifying that the conditions set forth in Section 6.2(a)
and Section 6.2(b) have been satisfied.
(d) Third Party Consents. All consents or approvals required to
be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be
in full force and effect.
(e) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Entity is or
is threatened to become a party or is otherwise involved, and neither
Acquiror nor Target shall have received any communication from any
Governmental Entity in which such Governmental Entity indicates the
probability of commencing any legal proceeding or taking any other
action: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger; (b) relating to the Merger and seeking to
obtain from Acquiror or any of its subsidiaries, or Target, any
damages or other relief that would be material to Acquiror; (c)
seeking to prohibit or limit in any material respect Acquiror's
ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of Target; or (d)
which would materially and adversely affect the right of Acquiror or
Target to own the assets or operate the business of Target.
(f) No Other Litigation. There shall not be pending any legal
proceeding: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions
contemplated by this Agreement; (b) relating to the Merger and seeking
to obtain from Acquiror or any of its subsidiaries, or Target, any
damages or other relief that would be material to Acquiror; (c)
seeking to prohibit or limit in any material respect Acquiror's
ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of Target; or (d)
which would affect adversely the right of Acquiror or Target to own
the assets or operate the business of Target.
28
(g) Employment Agreements. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall have entered
into the Employment Agreement, substantially in the form attached
hereto as Exhibit A.
(h) No Material Adverse Change. There shall not have occurred any
Material Adverse Effect of Target and its subsidiaries, taken as a
whole.
(i) Investor Representation Statement. Target Shareholder shall
have delivered to Acquiror a signed Investor Representation Statement
in form reasonably satisfactory to Acquiror and its counsel.
(j) Opinion. Counsel for Target shall have delivered to Acquiror
an opinion in a form and substance reasonably satisfactory to Acquiror
and its counsel.
(k) Stock Powers. The Target Shareholder shall have executed and
delivered to the Holdback Agent such executed stock powers, powers or
attorney, letters of instruction necessary or appropriate to enable
the Holdback Agent to effect releases, forfeitures, cancellations and
any other transfers of Holdback Shares and Additional Holdback Shares
in accordance with the terms of Section 8.
6.3 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, by Target:
(a) Representations, Warranties and Covenants. The
representations and warranties of Acquiror and Merger Sub in this
Agreement shall be true and correct in all material respects on and as
of the date of this Agreement and on and as of the Closing as though
such representations and warranties were made on and as of such time
(except for such representations and warranties that speak
specifically as of the date hereof or as of another date, which shall
be true and correct as of such date) and the Target shall have
received a certificate executed on behalf of Acquiror and Merger Sub
by the chief executive officer and chief financial officer of Acquiror
and Merger Sub, respectively.
(b) Performance of Obligations. Acquiror and Merger Sub shall
have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by them as of the Closing and Target.
(c) Certificate of Officers. Target shall have received a
certificate executed on behalf of Acquiror and Merger Sub by the chief
executive officer or chief financial officer of Acquiror and Merger
Sub, respectively, certifying that the conditions set forth in
Sections 6.3(a) and 6.3(b) have been satisfied.
(d) Acquiror Board Recomposition. Appropriate corporate action
shall have been effected such that, immediately upon consummation of
the transactions contemplated by this Agreement, the Board of
Directors of Acquiror shall consist of five
29
members comprised of two existing board members, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and one appointee of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(e) Third Party Consents. All consents or approvals required to
be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be
in full force and effect.
(f) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Entity is or
is threatened to become a party or is otherwise involved, and Acquiror
shall not received any communication from any Governmental Entity in
which such Governmental Entity indicates the probability of commencing
any legal proceeding or taking any other action: (a) challenging or
seeking to restrain or prohibit the consummation of the Merger; (b)
relating to the Merger and seeking to obtain from Acquiror or any of
its subsidiaries, or Target, any damages or other relief that would be
material to Acquiror; (c) seeking to prohibit or limit in any material
respect Target Shareholder's ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to the
stock of Acquiror; or (d) which would materially and adversely affect
the right of Acquiror or Target to own the assets or operate the
business of Target.
(g) No Other Litigation. There shall not be pending any legal
proceeding: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions
contemplated by this Agreement; (b) relating to the Merger and seeking
to obtain from Acquiror or any of its subsidiaries, or Target, any
damages or other relief that would be material to Acquiror; (c)
seeking to prohibit or limit in any material respect Target
Shareholder's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of
Acquiror; or (d) which would affect adversely the right of Acquiror or
Target to own the assets or operate the business of Target.
(h) Employment Agreements. Acquiror shall have entered into the
Employment Agreement, substantially in the form attached hereto as
Exhibit A.
(i) No Material Adverse Change. There shall not have occurred any
material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations,
results of operations or prospects of Acquiror and its subsidiaries,
taken as a whole.
(j) Opinion. Counsel for Acquiror shall have delivered to Target
an opinion in a form and substance reasonably satisfactory to Target
and its counsel.
(k) Approval of Acquiror's Plan of Reorganization. There shall
have been entered in Acquiror's Chapter 11 Reorganization proceeding
currently pending before the United States Bankruptcy Court for the
Southern District of New York (Case No. 00-10368) ("Bankruptcy
Proceeding") a final and nonappealable order confirming Acquiror's
Reorganization Plan, which order shall not be subject to any stay or
injunction. The Reorganization Plan and Confirmation Order shall be in
form and substance reasonably acceptable to Target. Target represents
and warrants that the Reorganization Plan delivered to
30
Target on the date hereof is acceptable in form and substance to
Target. In the event of confirmation of the Reorganization Plan,
Target shall have the right, in its sole and absolute discretion to
waive the requirement that the Confirmation Order be a final and
non-appealable order prior to the to the Closing. The Debtor shall not
amend or modify, or seek to amend or modify, the Reorganization Plan
or Confirmation Order in any material respect without the prior
written consent of the Target, which consent shall not be unreasonably
withheld.
(l) Discharge of Claims Against the Acquiror. The Acquiror shall
have been discharged from any debt that arose before the date of
confirmation of the Reorganization Plan, and any debt of a kind
specified in Section 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not: (i) a proof of the claim based on such debt is filed
or deemed filed under Section 501 of the Bankruptcy Code; (ii) such
claim is allowed under Section 502 of the Bankruptcy Code; or (iii)
the holder of such claim has accepted the Reorganization Plan.
(m) Payment of Cash Distributions and Administrative Expenses
Under Reorganization Plan. The Acquiror shall have paid or have
adequate funds to pay the maximum amount of cash distributions to be
made to creditors under the Reorganization Plan, plus all
administrative and priority claims against the Acquiror within the
meaning of Section 507 of the Bankruptcy Code, including, without
limitation, claims of professionals.
(n) Acquiror Financing. Acquiror shall have entered into a
definitive agreement or letter of intent, or received a firm
commitment for a financing transaction, the terms of which are
reasonably satisfactory to Target, for a debt or equity financing
resulting in gross proceeds to the Acquiror of at least $2.0 million,
such proceeds to be used for the development and implementation of the
business plan of UbidFreight, which financing will result in the
issuance of no more than 7.2 million shares of Acquiror Common Stock.
7. Termination, Amendment and Waiver.
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time (with respect to Section 7.1(b) through Section 7.1(g),
by written notice by the terminating party to the other party):
(a) by the mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target if the Effective Time shall not
have occurred by October 20, 2000, provided, however, that the right
to terminate this Agreement under this Section 7.1(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
Effective Time to occur on or before such date;
(c) by either Acquiror or Target if a court of competent
jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, except, if the party relying on
such order, decree or ruling or other action has not complied with its
obligations under this Agreement;
31
(d) by Acquiror or Target, if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the
other party set forth in this Agreement, which breach (i) causes the
conditions set forth in Section 6.1 or 6.2 (in the case of termination
by Acquiror) or Section 6.1 or 6.3 (in the case of termination by
Target) not to be satisfied and (ii) shall not have been cured within
ten (10) business days following receipt by the breaching party of
written notice of such breach from the other party.
(e) if an order is entered by a court of competent jurisdiction
(i) dismissing the Acquiror's pending Bankruptcy Proceeding; (ii)
converting the Acquiror's pending bankruptcy case to a case under
Chapter 7 of the Bankruptcy Code, or (iii) appointing a Trustee in the
Acquiror's pending Bankruptcy Proceeding.
(f) if a final order and nonappealable order confirming the
Acquiror's Reorganization Plan is not entered by October 20, 2000.
(g) if the Acquiror defaults on any of its material obligations
under the Reorganization Plan or under the Confirmation Order entered
in the Acquiror's pending bankruptcy case.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, there shall be no liability or
obligation on the part of Acquiror, Target, Target Shareholder or Merger
Sub or their respective officers, directors, or stockholders, except as
otherwise provided for herein or to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties or covenants set forth in this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf
of such party.
8. Holdback and Indemnification.
8.1 Holdback.
(a) Definitions. For purposes of this Section 8:
(i) "Additional Holdback Shares" means any dividends paid in
stock declared with respect to the Holdback Shares.
32
(ii) "Damages" refers to any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal
fees arising out of any misrepresentation or breach of or default
in connection with any of the representations, warranties,
covenants and agreements given or made by this Agreement or any
exhibit or schedule to this Agreement.
(iii) "Holdback Fund" means the Holdback Shares and any
Additional Holdback Shares relating thereto, held by Acquiror and
governed by the terms set forth herein.
(iv) "JAMS" refers to Judicial Arbitration and Mediation
Services.
(v) "Indemnification Certificate" refers to a certificate
signed by any indemnified party, or an officer or agent of such
party, with respect to the indemnification obligations of a party
hereto containing the information described in Section 8.3.
(b) Holdback Shares. The Holdback Shares shall be registered in
the name of the Target Shareholder, and shall be held by the Acquiror,
in its capacity as Holdback Agent, such shares and any Additional
Holdback Shares to constitute the Holdback Fund and to be governed by
the terms set forth herein. In the event Acquiror issues any
Additional Holdback Shares, such shares will be issued in the name of
the Target Shareholder and held by the Holdback Agent in the same
manner as the Holdback Shares delivered at the Closing. Once released
from the Holdback Fund, shares of Acquiror Common Stock shall cease to
be Holdback Shares and Additional Holdback Shares.
(c) Payment of Dividends; Voting. Except for Additional Holdback
Shares, which shall be treated as Holdback Shares pursuant to Section
8.1(a) hereof, any cash dividends, dividends payable in securities or
other distributions of any kind made in respect of the Holdback Shares
will be delivered to the Target Shareholder. The Target Shareholder
shall be entitled to designate how all shares in the Holdback Fund
will be voted on any matters to come before the shareholders of
Acquiror.
(d) Distribution of Holdback Shares. The Holdback Shares not used
to compensate Acquiror pursuant to the indemnification obligations of
the Target Shareholder shall be released to the Target Shareholder as
follows:
(i) All Holdback Shares and Additional Holdback Shares shall
be released and delivered to the Target Shareholder on the first
anniversary of the Closing Date.
(ii) All shares required to be released by Acquiror from the
Holdback Fund and delivered to the Target Shareholder shall be
registered in the name of the Target Shareholder.
(e) Assignability. No Holdback Shares or Additional Holdback
Shares or any beneficial interest therein may be pledged, sold,
assigned or transferred,
33
including by operation of law, by Target Shareholder or be taken or
reached by any legal or equitable process in satisfaction of any debt
or other liability.
8.2 Indemnification.
(a) Survival of Warranties. All representations and warranties
made by the parties herein, or in any certificate, schedule or exhibit
delivered pursuant hereto, shall survive the Closing and continue in
full force and effect until the first anniversary of the Closing Date
(sometimes referred to herein as the "Termination Date") except that
the representations made in Section 2.21 shall survive for the
applicable statute of limitations. If a notice of a Claim is given in
accordance with this Agreement before expiration of such period, then
(notwithstanding the expiration of such time period) the
representation or warranty applicable to such claim and the related
indemnification obligation in Section 8.2 shall survive until, but
only for purposes of, the resolution of such claim. The rights to
indemnification, reimbursement or other remedy set forth in this
Agreement will not be affected by any investigation conducted by an
Indemnified Person with respect to, or any knowledge acquired (or
capable of being acquired) by an Indemnified Person about, the
accuracy or inaccuracy of, or compliance with, any representation,
warranty, covenant or obligation.
(b) Indemnification.
(i) Subject to the limitations set forth in this Section 8,
the Target Shareholder will indemnify and hold harmless Acquiror
and the Surviving Corporation and its respective officers,
directors, agents, attorneys and employees, and each person, if
any, who controls or may control Acquiror or the Surviving
Corporation within the meaning of the Securities Act (hereinafter
referred to individually as an "Acquiror Indemnified Person" and
collectively as "Acquiror Indemnified Person") from and against
any Damages arising out of any misrepresentation or breach of or
default in connection with any of the representations,
warranties, covenants and agreements given or made by Target in
this Agreement, the Target Disclosure Schedules or any exhibit or
schedule to this Agreement. Acquiror Indemnified Persons shall
act in good faith and in a commercially reasonable manner to
mitigate any Damages they may suffer.
(ii) Subject to the limitations set forth in this Section 8,
Acquiror will indemnify and hold harmless Target Shareholder and
his executors and estate (a "Target Shareholder Indemnified
Person") from and against any Damages arising out of any
misrepresentation or breach of or default in connection with any
of the representations, warranties, covenants and agreements
given or made by Acquiror or Merger Sub in this Agreement, the
Acquiror Disclosure Schedules or any exhibit or schedule to this
Agreement. Target Shareholder Indemnified Person shall act in
good faith and in a commercially reasonable manner to mitigate
any Damages he may suffer.
(c) Limitations of Liability. The maximum liability of each of
the Target Shareholder and Acquiror under this Section 8 shall be
limited to one million dollars ($1,000,000) (the "Maximum
Indemnification Amount"); provided, further, that nothing in this
Agreement shall limit the liability in amount or otherwise (a) of
either party for any breach of any representation, warranty or
covenant if the Merger does not close, or (b) of Target
34
Shareholder in connection with any breach of any representation or
covenant in the Investor Representation Statement, or (c) of either
party with respect to fraud, criminal activity or intentional breach
of any covenant contained in this Agreement.
(d) Basket. Notwithstanding anything to the contrary herein, each
party shall only be liable under the indemnification provisions
contained in Section 8.2 for that portion of aggregate Damages which
exceed $25,000 (the "Basket Amount").
8.3 Claims; Payment Procedures.
(a) Claims Procedure. If either an Acquiror Indemnified Person or
a Target Shareholder Indemnified Person (an "Indemnified Person" as
applicable) asserts a claim for indemnification hereunder, such
Indemnified Person shall deliver to an indemnifying person on or
before the Termination Date an Indemnification Certificate stating
that, with respect to the indemnification obligations of an
indemnifying party set forth in Section 8.2, Damages exist or are
expected to exist and specifying in reasonable detail the individual
items of such Damages included in the amount so stated, the date each
such item was paid, or properly accrued or arose, or is reasonably
expected to be paid, accrue or arise, and the nature of the
misrepresentation, breach of warranty, covenant or claim to which such
item is related.
(b) Objections to Claims. Unless the indemnifying party shall
notify an Indemnified Person and the Holdback Agent in writing within
thirty (30) days of delivery of an Indemnification Certificate that
the indemnifying party objects to any claim or claims for Damages set
forth therein, which notice shall include a reasonable explanation of
the basis for such objection, upon the expiration of such thirty (30)
day period payment for the Damages shall be due and payable. If the
indemnifying party shall timely notify an Indemnified Person and the
Holdback Agent in writing that it objects to any claim or claims for
Damages made in an Indemnification Certificate, the Indemnified Person
shall have thirty (30) days from receipt of such notice to respond in
a written statement to the objection of the indemnifying party. If
after such thirty (30) day period there remains a dispute as to any
claims set forth in such Indemnification Certificate, the indemnifying
party and the Indemnified Person shall attempt in good faith for sixty
(60) days to agree upon the rights of the respective parties with
respect to each of such claims. If the indemnifying party and the
Indemnified Person should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(c) Payment of Indemnification Claims. Any Damages in excess of
the Basket Amount determined to be due and owing to an Indemnified
Party hereunder shall be immediately payable in cash. Notwithstanding
the foregoing, the Target Shareholder shall have the right to satisfy
his indemnification obligations by transmittal of Holdback Shares or
Acquiror Shares (in each case owned by him and unencumbered), or a
combination of Holdback Shares or Acquiror Shares and cash. For the
purposes of this provisions, the Holdback Shares and/or Acquiror
Shares shall be valued at the average of (a) the average closing price
of Acquiror Common Stock for the five trading day period ending on the
trading day immediately prior to the Effective Time (the "Closing
Price"), and (b) the average closing price of Acquiror Common Stock
for the five trading day period ending on the trading day immediately
prior to date that the Damages were paid or are determined to be due
and owing; but in no event shall the Holdback Shares and/or Acquiror
Shares be valued at less than the Closing Price. Notwithstanding
35
anything to the contrary contained in this Agreement, Target
Shareholder shall be deemed to have satisfied payment of the Maximum
Indemnification Amount upon delivery to Acquirer of an aggregate of
5,000,000 Holdback Shares or Acquiror Shares.
(d) Release of Holdback Shares. Within three (3) business days
after the Termination Date (the "Release Date"), Acquiror shall
release from the Holdback Fund a number of Holdback Shares and
Additional Holdback Shares determined as set forth in Section 8.1
above, less the number of Holdback Shares and Additional Holdback
Shares with a value (as determined pursuant to Section 8.3(c)) equal
to (A) the Damages determined to be due and owing to Acquiror in
accordance with this Section 8.3 in satisfaction of indemnification
claims by an Indemnified Person (if Holdback Shares or Additional
Holdback Shares are used to satisfy such indemnification obligation),
and (B) any Damages with respect to any pending but unresolved
indemnification claims of an Indemnified Person. Any Holdback Shares
and Additional Holdback Shares held as a result of clause (B) shall be
released to the Target Shareholder or released to Acquiror (as
appropriate) promptly upon resolution of each specific indemnification
claim involved.
8.4 Resolution of Conflicts and Arbitration.
(a) If no agreement can be reached after good faith negotiation
between the parties pursuant to Section 8.3, either the indemnifying
party or the Indemnified Person may, by written notice to the other,
demand arbitration of the matter unless the amount of the Damages is
at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter
shall be settled by arbitration conducted by one arbitrator. The
indemnifying party and the Indemnified Person shall agree on the
arbitrator, provided that if the indemnifying party and the
Indemnified Person cannot agree on such arbitrator, either the
indemnifying party or the Indemnified Person can request that JAMS
select the arbitrator. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator, to discover relevant information from
the opposing parties about the subject matter of the dispute. The
arbitrator shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator determine that discovery was sought
without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the
arbitrator shall be written, shall be in accordance with applicable
law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis
for the decision of the arbitrator. The decision of the arbitrator as
to the validity and amount of any claim in such Indemnification
Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in to the contrary in this
Section 8, the Holdback Agent shall be entitled to act in accordance
with such decision and distribute Holdback Shares from the Holdback
Fund in accordance with the terms thereof.
36
(b) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall
be held in Palm Beach County, Florida under the commercial rules then
in effect of the American Arbitration Association. For purposes of
this Section 8.4(b), in any arbitration hereunder in which any claim
or the amount thereof stated in the Indemnification Certificate is at
issue, the party seeking indemnification shall be deemed to be the
Non- Prevailing Party unless the arbitrators award the party seeking
indemnification more than one-half (1/2) of the amount in dispute,
plus any amounts not in dispute; otherwise, the person against whom
indemnification is sought shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own
expenses, the fees of the arbitrator, any administrative fee of JAMS,
and the expenses, including attorneys' fees and costs, reasonably
incurred by the other party to the arbitration.
(c) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall
be held in Palm Beach County, Florida, under the commercial rules then
in effect of the American Arbitration Association. For purposes of
this Section 8.4(c), in any arbitration hereunder in which any claim
or the amount thereof stated in the Indemnification Certificate is at
issue, the party seeking indemnification shall be deemed to be the
Non- Prevailing Party unless the arbitrators award the party seeking
indemnification more than one-half (1/2) of the amount in dispute,
plus any amounts not in dispute; otherwise, the person against whom
indemnification is sought shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own
expenses, the fees of the arbitrator, any administrative fee of JAMS,
and the expenses, including attorneys' fees and costs, reasonably
incurred by the other party to the arbitration.
8.5 Third-Party Claims. An Indemnified Person (a) shall give the party
required to make such payment ("Indemnifying Party") prompt notice of any
claim, demand, suit, proceeding or action ("Claim") by any person against
the Indemnified Person, (b) shall consult with the Indemnifying Party as to
the procedure to be followed in defending, settling, or compromising the
Claim, (c) shall not consent to any settlement or compromise of the Claim
without the written consent of the Indemnifying Party (which consent,
unless the Indemnifying Party has elected to assume the exclusive defense
of such Claim, shall not be unreasonably withheld or delayed), and (d)
shall permit the Indemnifying Party, if he or it so elects, to assume the
exclusive defense of such Claim, all at the cost and expense of the
Indemnifying Party. If the Indemnified Person shall (i) fail to notify or
to consult with the Indemnifying Party with respect to any Claim in
accordance with subparagraph (a) or (b) above or (ii) consent to the
settlement or compromise of any Claim without having received the written
consent of the Indemnifying Party (unless, if the Indemnifying Party has
not elected to assume the exclusive defense of such Claim or the consent of
the Indemnifying Party is unreasonably withheld or delayed), the
Indemnifying Party shall be relieved of its indemnification obligation with
respect to such Claim. If the Indemnifying Party shall elect to assume the
exclusive defense of any Claim, it shall notify the Indemnified Person in
writing of such election, and the Indemnifying Party shall not be liable
hereunder for any fees or expenses of the Indemnified Person's counsel
relating to such Claim after the date of delivery to the Indemnified Person
of such notice of election. In the event of such election, the
37
Indemnified Person shall cooperate with the Indemnifying Party and provide
it with access to all books and records of the Indemnified Person relevant
to the Claim. The Indemnifying Party will not compromise or settle any
Claim without the written consent of the Indemnified Person (which consent
shall not be unreasonably withheld or delayed) if the relief provided is
other than monetary damages and such relief would materially and adversely
affect the Indemnified Person. Notwithstanding the foregoing, the party
which defends any Claim shall, to the extent required by applicable
insurance policies, share or give control thereof to any insurer with
respect to such Claim.
8.6 Limitation of the Holdback Agent's Liability. For purposes of this
Section 8 (the "Holdback Provisions"), references to the Holdback Agent
shall be deemed to apply to it in its capacity as Holdback Agent and not in
its capacity as Acquiror. The parties acknowledge and agree that Acquiror
has agreed to act as the Holdback Agent for the convenience of the parties,
and that Acquiror's liability hereunder shall not be increased by reason of
Acquiror agreeing to so act. Acquiror, when acting as the Holdback Agent
pursuant to this Agreement, will incur no liability with respect to any
action taken or suffered by it pursuant to this Agreement in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and to have been signed by the proper person
other than on its own behalf (and shall have no responsibility to determine
the authenticity or accuracy thereof), nor for any other action or
inaction, except its own willful misconduct, bad faith or gross negligence.
In no event shall the Holdback Agent be liable for indirect or
consequential damages. The Holdback Agent will not be responsible for the
validity or sufficiency of the Holdback Provisions, including the amount of
Holdback Fund. In all questions arising under the Holdback Provisions, the
Holdback Agent may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Holdback Agent based on such
advice, the Holdback Agent will not be liable to anyone.
9. General Provisions.
9.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1)
business day after it is sent by commercial overnight courier service, or
upon transmission, if sent via facsimile (with confirmation of receipt) to
the parties at the following address (or at such other address for a party
as shall be specified by like notice):
(a) if to Acquiror or Merger Sub, to:
AutoInfo, Inc.
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
38
With a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Target or Target Shareholder, to:
Sunteck Transport Co., Inc.
▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Target's and Target Shareholder's Counsel
Meltzer, Lippe, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 Definitions. In this Agreement any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to
the financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity
or group of entities. In this Agreement any reference to a "Material
Adverse Effect" with respect to any entity or group of entities means any
event, change or effect that is materially adverse to the financial
condition, properties, assets, liabilities, business, operations, results
of operations of such entity and its subsidiaries, taken as a whole. In
this Agreement any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of officers, directors and other
employees of such party reasonably believed to have knowledge of such
matters.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
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9.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Target Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive
any termination of this Agreement or the Closing, in accordance with its
terms; (b) are not intended to confer upon any other person any rights or
remedies hereunder, and shall not be assigned by operation of law or
otherwise without the written consent of the other party.
9.5 Severability. In the event that any provision of this Agreement,
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement
with a valid and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such void or
unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or
by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of New York applicable to parties
residing in New York, without regard applicable principles of conflicts of
law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within New York in connection with any
matter based upon or arising out of this Agreement or the matters
contemplated hereby and it agrees that process may be served upon it in any
manner authorized by the laws of the State of New York for such persons and
waives and covenants not to assert or plead any objection which it might
otherwise have to such jurisdiction and such process.
9.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any
law, regulation, holding or rule of construction providing that ambiguities
in an agreement or other document will be construed against the party
drafting such agreement or document.
9.9 Expenses. Each party shall pay its own costs and expenses incurred
in the negotiation and consummation of the Merger; provided, however, that
any costs and expenses of Target in excess of twenty-five thousand dollars
($25,000) shall be borne by the Target ▇▇▇▇▇▇▇▇▇▇▇.
▇▇
▇▇. Bankruptcy Proceeding and Reorganization Plan.
10.1 Acquiror shall use its diligent efforts to comply with all
requirements imposed by the Bankruptcy Code and the Bankruptcy Court in
connection with the approval of the Reorganization Plan and the Disclosure
Statement in connection therewith, including, without limitation, providing
such notice as may be required by order of the Bankruptcy Court. Acquiror
shall oppose any objections to the issuance or entry of, requests for
reconsideration or review of, or appeals from, the Confirmation Order
unless and until this Agreement is terminated in accordance with the terms
hereof.
10.2 Acquiror shall immediately provide Target with copies of all
judgments, decisions or orders issued by the Bankruptcy Court after the
date hereof in the Bankruptcy Proceeding and all pleadings or other
documents filed by any party after the date hereof in the Bankruptcy
Proceeding which have or may have any effect upon the Target or this
Agreement, or which are reasonably requested by Target, and shall
immediately notify Target in writing of all material developments in the
Bankruptcy Proceeding.
10.3 In the event that (a) the Merger is not consummated as a result
of Acquiror's failure to fulfill a condition to closing set forth in
Article 6 hereof, or (b) the Bankruptcy Court shall (i) have granted the
Acquiror the right to merge or consolidate with an entity other than
Target, or (ii) permit the Acquiror to acquire the assets of an entity
other than Target, or (iii) permit the Acquiror to enter into a share
exchange or business combination with an entity other than Target, or (iv)
permit the Acquiror to sell capital shares in the Acquiror, then in any of
such events, the Acquiror shall immediately pay to Target, in consideration
of the expenses incurred by Target in pursuing the transactions
contemplated by this Agreement, a topping fee of $15,000 in immediately
available funds. Nothing in this Section 10.3 of the Agreement shall
abrogate the Acquiror's obligations under Section 4.2 of this Agreement.
10.4 This Agreement shall be incorporated into a Reorganization Plan
filed with the Bankruptcy Court in the Acquirer's pending Bankruptcy
Proceeding.
10.5 No later than 7 days after execution of this Agreement, Acquirer
shall file an order to show cause and a motion seeking entry of an order
from the Bankruptcy Court approving sections 4.2 and 10.3 of this
Agreement, and shall use its best efforts to (i) obtain an expedited
hearing on such motion; and (ii) obtain entry of such an order from the
Bankruptcy Court.
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub and Target Shareholder
have caused this Agreement to be executed and delivered by each of them or their
respective officers thereunto duly authorized, all as of the date first written
above.
AUTOINFO, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: President
SUNTECK TRANSPORT CO., INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
TARGET SHAREHOLDER
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
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