AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
OMNET TECHNOLOGY CORP., INC.,
and
DIRECT CONNECT INTERNATIONAL, INC.,
D-C MERGER SUB, INC.
August 20, 1998
TABLE OF CONTENTS
Page
I. THE MERGER...............................................................2
1.1 Terms of the Merger.................................................2
1.2 Effective Time......................................................2
1.3 Closing.............................................................3
1.4 Certificate of Incorporation and By-laws of the Surviving
Corporation.......................................................3
1.5 Directors of the Surviving Corporation and Direct Connect...........3
1.6 Effects of the Merger...............................................4
II. STATUS AND CONVERSION OF SECURITIES......................................4
2.1 Stock of the Company................................................4
2.2 Assumption of Omnet Options and Warrants............................7
2.3 Stock of Merging Subsidiary.........................................8
2.4 Notes...............................................................9
III.COVENANTS................................................... ............10
3.1 Covenants of The Company............................................10
3.2 Covenants of Direct Connect and Sub.................................15
3.3 Preparation of Registration Statement and Proxy Statement...........22
3.4 Approval of Stockholders............................................25
3.5 Conduct of Business of Sub..........................................26
3.6 Notice of Breach....................................................26
3.7 HSR Act and Related Matters.........................................27
3.8 Additional Agreements...............................................27
3.9 Additional Actions..................................................28
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................28
4.1 Organization and Qualification......................................28
4.2 Capitalization......................................................28
4.3 Subsidiaries........................................................29
4.4 Authority Relative to this Agreement................................29
4.5 Financial Statements................................................30
4.6 Litigation..........................................................31
4.7 Employee Benefit Plans..............................................31
4.8 ERISA...............................................................32
4.9 Financial Advisor...................................................33
4.10 Compliance with Applicable Laws.....................................33
4.11 Intellectual Property...............................................34
4.12 Insurance...........................................................36
4.13 Taxes...............................................................37
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Page
4.14 Environmental Matters.... ..........................................40
4.15 Labor Matters.......................................................40
V. REPRESENTATIONS AND WARRANTIES OF DIRECT CONNECT.........................41
5.1 Organization and Qualification......................................41
5.2 Capitalization......................................................41
5.3 Subsidiaries........................................................42
5.4 Authority Relative to this Agreement................................43
5.5 Reports and Financial Statements; Outstanding Obligations...........44
5.6 Litigation..........................................................45
5.7 Employee Benefit Plans..............................................46
5.8 ERISA...............................................................47
5.9 Financial Advisor...................................................47
5.10 Compliance with Applicable Laws.....................................48
5.11 Intellectual Property...............................................48
5.12 Insurance...........................................................51
5.13 Taxes...............................................................51
5.14 Environmental Matters...............................................54
5.15 Labor Matters.......................................................55
5.16 Material Contracts, Assets, Employment Agreements...................56
VI. REPRESENTATIONS AND WARRANTIES REGARDING SUB.............................56
6.1 Organization........................................................56
6.2 Capitalization......................................................56
6.3 Authority Relative to this Agreement................................56
VII.CONDITIONS PRECEDENT.....................................................57
7.1 Conditions to Each Party's Obligation to Effect the Merger..........57
7.2 Conditions to Obligation of the Company to Effect the Merger........58
7.3 Conditions to Obligations of Direct Connect and Sub to Effect the
Merger............................................................61
VIII.TERMINATION, AMENDMENT AND WAIVER.......................................63
8.1 Termination.........................................................63
8.2 Effect of Termination...............................................64
8.3 Amendment...........................................................64
8.4 Waiver..............................................................64
8.5 Indemnification.....................................................65
IX. GENERAL PROVISIONS.......................................................66
9.1 Non-Survival of Representations, Warranties and Agreements..........66
9.2 Notices.............................................................66
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Page
9.3 Fees and Expenses................................................67
9.4 Publicity........................................................67
9.5 Specific Performance.............................................67
9.6 Miscellaneous....................................................68
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement"), dated as
of August 20, 1998 by and among, OMNET TECHNOLOGY CORP., INC., a Rhode Island
corporation having an office at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ (the
"Company"), DIRECT CONNECT INTERNATIONAL, INC., a Delaware corporation with a
principal office at ▇.▇. ▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ("Direct Connect"),
and D-C MERGER SUB, INC., a Delaware corporation with an office c/o Direct
Connect ("Sub"). Sub in its capacity as the surviving corporation is herein
sometimes called the "Surviving Corporation".
W I T N E S S E T H:
--------------------
WHEREAS, the Board of Directors of the Company, in accordance with the
Rhode Island Business Corporation Act (the "RIBCA"), has determined that it is
advisable and in the best interests of their stockholders to consummate, and
have approved, the business combination transaction provided for herein in which
the Company would merge with and into Sub (the "Merger");
WHEREAS, the Board of Directors of Direct Connect, in accordance with
the Delaware General Corporation Law (the "DCCL"), has determined that it is
advisable and in the best interests of their stockholders to consummate, and
have approved, the Merger, subject to the receipt from a qualified investment
banking or financial institution an opinion stating that the Merger is fair to
the holders of the capital stock of Direct Connect from a financial point of
view (the "Fairness Opinion");
WHEREAS, the Company, Direct Connect and Sub desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger; and
WHEREAS, it is the express intention of the Company, Direct Connect and
Sub that this Agreement constitute a plan of reorganization intended to qualify
for federal income tax purposes as a "reorganization" within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute thereto (the "Code").
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
I. THE MERGER.
1.1 Terms of the Merger.
At the Effective Time (as defined in Section 1.2), upon the terms and
subject to the conditions of this Agreement, the Company shall be merged with
and into Sub in accordance with the DGCL. Sub shall be the surviving corporation
in the Merger. As a result of the Merger, the outstanding shares of capital
stock of the Company shall be exercised to purchase or cancelled in the manner
provided in Article II hereof.
1.2 Effective Time.
At the Closing (as defined in Section 1.3), a certificate of merger
(the "Certificate of Merger") shall be duly prepared and executed by Surviving
Corporation and thereafter delivered to the Secretary of State of the State of
Delaware (the "Secretary") for filing on, or as soon as practicable after, the
Closing Date (as defined in Section 1.3). The Merger shall become effective at
the time of the filing of the Certificate of Merger with the Secretary (the date
and time of such filing being referred to herein as the "Effective Time"). At
the Effective Time, the Surviving Corporation shall file with the Secretary of
State of the State of Rhode Island all necessary documentation to effectuate the
Merger.
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1.3 Closing.
The closing of the Merger (the "Closing") will take place at the
offices of Camhy Karlinsky & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇-▇▇▇▇, on or about December 1, 1998 or at such other time or place as the
parties hereto mutually agree (the "Closing Date"), on a date and at a time to
be specified by the parties, which shall in no event be later than December 30,
1998, provided that the closing conditions set forth in Article VII have been
satisfied or, if permissible, waived in accordance with this Agreement.
1.4 Certificate of Incorporation and By-laws of the Surviving
Corporation.
At the Effective Time, (i) the Certificate of Incorporation of Sub as
in effect immediately prior to the Effective Time shall be amended to change the
name of Sub to "Omnet Technology Corporation" and shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such certificate of incorporation, and (ii) the By-laws of Sub as in
effect immediately prior to the Effective Time shall be the By-laws of the
Surviving Corporation and thereafter may be amended as provided therein and
under the DGCL, the certificate of incorporation of the Surviving Corporation,
and such By-laws.
1.5 Directors of the Surviving Corporation and Direct Connect.
(a) From and after the Effective Time, the directors of Sub
immediately prior to the Closing Date shall resign and be replaced by the
directors designated by the Company. The new directors of the Surviving
Corporation shall serve until their successors shall have been duly elected or
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appointed and qualified or until the earlier of their death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws.
(b) From and after the Effective Time, the directors of Direct
Connect shall resign and be replaced by directors designated by the Company.
The new directors of Direct Connect shall serve until their successors shall
have been duly elected or appointed and qualified or until the earlier of their
death, resignation or removal in accordance with Direct Connect's Certificate
of Incorporation and By-laws.
1.6 Effects of the Merger.
Subject to the foregoing, the effects of the Merger shall be as
provided in the applicable provisions of the RIBCA and DGCL.
II. STATUS AND CONVERSION OF SECURITIES.
2.1 Stock of the Company.
(a) Each share of common stock of the Company, par value $.01
per share, (the "Omnet Common Stock") issued and outstanding at the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holders thereof, be converted into the right to receive (i) $2.336 in
cash (the "Cash Consideration"), (ii) $3.505 in principal amount of notes of
Direct Connect (the "Notes"), and (iii) the pro-rata share of 60% of the issued
and outstanding Direct Connect Common Stock at the Effective Time, on a fully
diluted basis,(the "Stock Consideration," together with the Cash Consideration
and the Notes, the "Merger Consideration"). In calculating the Stock
Consideration the following amounts of Direct Connect Common Stock shall not
be included when determining the number of fully diluted shares: (i) the
12,977,034 shares of Direct Connect Common Stock issuable pursuant to the terms
of the Series A Warrants and the Series B Warrants, which Direct Connect has
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represented is the maximum number of shares of Direct Connect Common Stock
issuable under such warrants, (ii) three percent (3%) of the total number of
outstanding shares of Direct Connect as determined on the Closing Date and (iii)
the number of shares of Direct Connect Common Stock which may be issued upon
conversion of the Substituted Options/Warrants (as defined in Section 2.2(b)),
which the Company has represented may be exercised to purchase to a maximum of
350,000 shares of Omnet Common Stock. Other than as set forth in the preceding
sentence, all additional shares of Direct Connect Common Stock issued or
issuable, including, but not limited to, the Placement Shares (as defined in
Section 3.2(n)), shall be included in determining the number of fully diluted
shares of Direct Connect Common Stock. The total Cash Consideration shall not
exceed $5,000,000 and the total principal amount of all of the Notes shall not
exceed $7,500,000. The total Stock Consideration shall in no event be less than
$12,500,000 in total value of Direct Connect Common Stock, based on a valuation
of Direct Connect Common Stock of $.20 per share, as determined on the Closing
Date. The Cash Consideration due each owner of Omnet Common Stock may be
reduced, at the discretion of the Company, to repay debt of the Company owed to
existing stockholders of the Company and the Cash Consideration paid for each
share Omnet Common Stock shall be adjusted accordingly.
(b) Exchange of Omnet Common Stock.
(i) Direct Connect shall authorize, subject to the approval
of the Company, one person to act as trustee (the "Trustee") for the holders of
the Notes (the "Noteholders") pursuant to an agreement or agreements
satisfactory to Direct Connect and the Company. At the Closing, Direct Connect
shall pay the Merger Consideration in the following manner: (A) to each holder
of Omnet Common Stock who tenders their shares in connection with the terms of
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this MergerAgreement (each a "Tendering Stockholder") a certified check or a
bank check in an amount equal to the number of shares of Omnet Common Stock
converted into Cash Consideration pursuant to Section 2.1(a)(i), (B) to each
Tendering Stockholder, number of shares of Direct Connect Common Stock converted
to Stock Consideration pursuant to Section 2.1(a)(iii), registered in the name
of such Tendering Stockholder, and (C) to the Trustee, the Trustee Note (as
defined in Section 2.4) in the principal amount equal to the total principal
amount of the Notes issued to all of the Tendering Stockholders pursuant to
Section 2.1(a)(ii).
(ii) All Merger Consideration consisting of Cash
Consideration, Notes and Stock Consideration issued upon the surrender for
exchange of Omnet Common Stock in accordance with the terms hereof shall be
deemed to have been paid or issued, as applicable, in full satisfaction of all
rights pertaining to such shares of Omnet Common Stock.
(iii) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Omnet Common Stock that were outstanding
immediately prior to the Effective Time. As of the Effective Time, the holders
of certificates representing shares of Omnet Common Stock shall cease to have
any rights as shareholders of the Company except such rights, if any, as they
may have pursuant to Rhode Island law.
(iv) No fractional shares of Direct Connect Common Stock
and no certificates or scrip therefor, or other evidence of ownership thereof,
shall be issued upon the surrender for exchange of Omnet Common Stock. All
fractional shares of Direct Connect Common Stock to which Tendering Stockholder
immediately prior to the Effective Time would otherwise be entitled, at the
Effective Time, shall be aggregated. If a fractional share results from such
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aggregation, such fractional share shall be rounded up to the nearest whole
number and that number of shares of Direct Connect Common Stock shall be issued
to such holder.
(c) Dissenters' Rights. If any holder of Omnet Common stock
dissents from the consummation of this Agreement in accordance with the RIBCA,
and if such holder has complied with the requirements of Section 7-1.1-75 of the
RIBCA (an "Omnet Dissenting Shareholder"), notwithstanding anything contained in
this Agreement to the contrary, each share of Omnet Common Stock held by a Omnet
Dissenting Shareholder shall not be converted into or represent the right to
receive the Merger Consideration pursuant to Section 2.1, but an Omnet
Dissenting Shareholder shall be entitled to the rights specified in the RIBCA;
provided, however, if an Omnet Dissenting Shareholder withdraws his, her or its
dissent (or if a person ceases to be an Omnet Dissenting Shareholder because
such person fails to comply with the requirements of Section 7-1.1-75 of the
RIBCA), the Omnet Common Stock held by such person shall be deemed to be
converted as of the Effective Time, into the Merger Consideration as set forth
in Section 2.1, without any interest thereon.
2.2 Assumption of Omnet Options and Warrants.
(a) Schedule 2.2 sets forth a true, correct and complete list
of all outstanding options to acquire Omnet Common Stock ("Omnet Options"),
warrants to acquire Omnet Common Stock (the "Omnet Warrants") and all other
securities granting the holder the right to acquire Omnet Common Stock. Omnet
agrees to use its best efforts to obtain and deliver to Direct Connect and Sub,
prior to the effective date of the Registration Statement (as defined in Section
3.3), executed consents (the "Option/Warrant Consents"), reflecting the terms of
this Section 2.2 and otherwise in form and substance reasonably satisfactory to
the Company and Direct Connect, from the holders of the Omnet Options and Omnet
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Warrants (other than the holders of any Omnet Options which, by its terms, will
expire prior to the Effective Time). Direct Connect agrees to execute and
deliver each such Option Consent delivered to it by the Company.
(b) At the Effective Time, each outstanding Omnet Option and
Omnet Warrant held by persons who have executed the Option/Warrant Consents,
whether vested or unvested, shall be canceled and replaced with a fully vested
option (the "Substituted Option/Warrant") to acquire, on the same terms and
conditions as were applicable under such Omnet Option or Omnet Warrant, a number
of shares of Direct Connect Common Stock equal to such number of shares which
would be issued if the Omnet Options or Omnet Warrants had been exercised
immediately prior to the Effective Time. The option exercise price per share of
Direct Connect Common Stock at which a Substituted Option/Warrant is exercisable
shall equal the result of $5.00 divided by the number of shares of Direct
Connect Common Stock issued for one (1) share of Omnet Common Stock pursuant to
the terms of this Agreement, and all Omnet Options shall qualify under the terms
of the Direct Connect Stock Option Plan.
(c) Direct Connect shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Direct Connect Common
Stock for delivery under the Substituted Option/Warrants.
2.3 Stock of Merging Subsidiary.
Each share of common stock, par value $.01 per share of Sub shall, by
virtue of the Merger and without any action on the part of the holder thereof
continue unchanged and remain outstanding as a share of common stock of the
Surviving Corporation.
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2.4 Notes.
All of the Notes issued pursuant to Section 2.1(a)(ii) will be
represented by a note, in global form (the "Trustee Note") held by the Trustee
for the benefit of the Noteholders. The rights of the Noteholders, the Trustee
and Direct Connect shall be governed by the terms of a trust agreement (the
"Trust Agreement"), the terms of which shall be acceptable to the Company. The
Trust Agreement shall provide, in part, that the Trustee shall mail or deposit
interest due on the Trustee Note to the Noteholders within three business days
after receipt from Direct Connect. Each Tendering Stockholder shall receive a
note certificate ("Note Certificate") representing such holder's interest in the
Trustee Note. The Trustee Note shall mature 18 months from the Closing Date with
interest payable at the rate of 7% per annum. The Trustee Note shall be secured
by the assets of the Surviving Corporation and the common stock of Sub and in
the case of such assets subject to a Security Agreement (the "Security
Agreement") by and among the Trustee, Direct Connect, and the Surviving
Corporation for the benefit of the Noteholders, on terms acceptable to the
Company, dated the Closing Date. On the Closing Date, the Trustee's security
interest in the assets shall be perfected by the filing of UCC-1's with the
proper government agencies in Massachusetts and Delaware. The Trustee's security
interest in the common stock of the Surviving Corporation shall be evidenced by
a Pledge and Security Agreement, dated the Closing Date, between the Trustee,
Camhy ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ LLP, as escrow agent (the "Escrow Agent"), and the
Surviving Corporation, whereby the Escrow Agent shall hold the common stock of
the Surviving Corporation in escrow for the benefit of the Trustee and the
Noteholders.
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III. COVENANTS
3.1 Covenants of The Company.
The Company agrees that, unless Direct Connect otherwise agrees in
writing:
(a) Articles of Incorporation and By-laws. Until the earlier of
the Effective Time or the termination of this Agreement pursuant to Article VIII
(the "Release Time"), no amendment will be made to the articles of incorporation
or By-laws of the Company.
(b) Shares and Options. Until the Release Time, no share of
capital stock of the Company, option or warrant for any such share, right to
subscribe to or purchase any such share, or security convertible into or
exchangeable for any such share, shall be authorized, issued or sold by the
Company nor shall the Company enter into any agreement or commitment to effect
any such issuance or sale, except as set forth in Schedule 3.1(b) hereto, or as
may be required upon the exercise of the Omnet Stock Options by persons who do
not execute the Option/Warrant Consents.
(c) Dividends and Purchases of Stock. Until the Release Time, no
cash or non- cash dividend or liquidating or other distribution or stock split
shall be authorized, declared, paid, or effected by the Company in respect of
the outstanding shares of Omnet Common Stock. Until the Release Time, no direct
or indirect redemption, purchase, or other acquisition shall be made by the
Company of shares of Omnet Common Stock.
(d) Leases and Indebtedness. Until the Release time, the Company
shall not (A) acquire, lease or dispose or agree to acquire, lease or dispose of
any material capital assets or any other assets other than in the ordinary
course of business; (B) incur additional indebtedness or encumber or grant a
security interest in any asset other than in each case in the ordinary course of
business or in connection with the refinancing of indebtedness outstanding on
the date of this Agreement; (C) acquire or agree to acquire by merging or
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consolidating with, or by purchasing a substantial equity interest in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof; or (D) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing.
(e) Benefits. Except as set forth in Schedule 3.1(e), until the
Release Time, the Company shall not except as may be required to comply with
applicable law or regulation and except as provided in hereof, (A) adopt, enter
into, terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other Company Benefit Plan (as defined in Section 4.7), agreement,
trust, fund or other arrangement for the benefit or welfare of any director,
officer or current or former employee, (B) increase in any manner the
compensation or fringe benefit of any director or officer, (C) pay any benefit
not provided under any existing plan or arrangement, or (D) grant any awards
under any bonus, incentive, performance or other compensation plan or
arrangement or Company Benefit Plan.
(f) Access. Until the Release Time, the Company will afford the
officers, directors, employees, counsel, agents, investment bankers,
accountants, and other representatives of Direct Connect reasonable access to
the plants, properties, books, and records of the Company and the Company
Subsidiaries, will permit them to make extracts from and copies of such books
and records, and will from time to time furnish Direct Connect with such
additional financial and operating data and other information as to the
financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of the Company and the Company Subsidiaries as
Direct Connect from time to time may reasonably request. As soon as practicable,
the Company shall provide to Direct Connect the audited financial statements of
Omni Multimedia, Inc. for the periods ended March 30, 1996, March 29, 1997 and
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March 23, 1998, or as otherwise requested by the Securities and Exchange
Commission (the "SEC"), and the Company's audited consolidated financial
statements for the interim period ended March 28, 1998 and its unaudited
consolidated financial statements for the three month period ended June 30,
1998, and the most recent quarter of the Company prior to the Closing. All
information furnished by or on behalf of the Company pursuant to this Section
3.1(f) or otherwise obtained from the Company as contemplated by this Section
3.1(f) shall be held as confidential by Direct Connect and its representatives.
(g) Conduct of Business. Except as otherwise contemplated or
permitted hereby, until the Release Time, the Company shall not take any action
that would or is reasonably likely to result in any of the representations or
warranties of the Company set forth in this Agreement being untrue at the
Closing Date or in any of the conditions to the Merger set forth in Article VII
not being satisfied. The Company shall carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, and shall, and shall cause its subsidiaries to, use
reasonable efforts to preserve intact their present business organizations, keep
available the services of their employees and preserve their relationships with
customers, suppliers and others having business dealings with them. The Company
shall (i) maintain insurance coverages and its books, accounts and records in
the usual manner consistent with prior practices; (ii) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities (as
defined in Section 4.10) applicable to the Company; and (iii) perform in all
material respects its obligations under all contracts and commitments to which
it is a party or by which it is bound, in each case referred to in this Section
3.1(g) other than where the failure to so maintain, comply or perform, either
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individually or in the aggregate, would not result in a Company Material Adverse
Effect (as defined in Section 4.1).
(h) Advice of Changes. Until the Release Time, the Company will
promptly advise Direct Connect in a reasonably detailed written notice of any
fact or occurrence or any pending or threatened occurrence of which it obtains
knowledge and which (if existing and known at the date of the execution of this
Agreement) would have been required to be set forth or disclosed in or pursuant
to the Agreement, which (if existing and known at any time prior to or at the
Effective Time) would make the performance by any party of a covenant contained
in this Agreement impossible or make such performance materially more difficult
than in the absence of such fact or occurrence, or which (if existing and known
at the time of the Effective Time) would cause a condition to any party's
obligations under this Agreement not to be fully satisfied.
(i) Public Statements. Before the Company releases any
information concerning this Agreement, the Merger or any of the other
transactions contemplated by this Agreement which is intended for or is
reasonably expected to result in public dissemination thereof, the Company shall
cooperate with Direct Connect, shall furnish drafts of all documents or proposed
oral statements to Direct Connect for comments, and shall not release any such
information without the prior consent of Direct Connect; provided, however, that
the foregoing shall not be deemed to prevent the Company from releasing any
information or making any disclosure to the extent that the Company reasonably
determines that it is required to do so by law.
(j) Other Proposals. Until the Release Time, the Company shall
not, and shall not authorize or permit any officer, director, employee, counsel,
agent, investment banker, accountant, or other representative of the Company,
directly or indirectly, to: (i) initiate contact with any person or entity in an
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effort to solicit any Takeover Proposal (as defined below); (ii) cooperate with,
or furnish or cause to be furnished any non-public information concerning the
financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of the Company to any person or entity in
connection with any Company Takeover Proposal; (iii) negotiate with any person
or entity with respect to any Company Takeover Proposal; or (iv) enter into any
agreement or understanding with the intent to effect a Company Takeover
Proposal; provided, however, that the Company shall be entitled to take any
action described in the foregoing clauses (ii)- (iv) if and to the extent that
the Board of Directors of the Company determines in good faith, based on the
advice of its counsel, that the failure to take any such action would violate
its fiduciary duties to the Company's shareholders. The Company will immediately
give written notice to Direct Connect of the details of any Company Takeover
Proposal of which the Company becomes aware. As used in this Section 3.1(j),
"Company Takeover Proposal" shall mean any proposal, other than as contemplated
by this Agreement, for a merger, consolidation, reorganization, other business
combination, or recapitalization involving the Company, for the acquistion of a
5% or greater interest in the equity or in any class or series of capital stock
of the Company, for the acquisition of the right to cast 5% or more of the votes
on any matter with respect to the Company or any Company Subsidiary, or for the
acquisition of one of its divisions or of a substantial portion of any of their
respective assets, other than in the ordinary course of their respective
businesses, the effect of which may be to prohibit, restrict, or delay the
consummation of the Merger or any of the other transactions contemplated by this
Agreement or impair the contemplated benefits to Direct Connect or Sub of the
Merger or any of the other transactions contemplated by this Agreement.
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(k) Transfer Taxes. The Company shall timely prepare and file
any declaration or filing necessary to comply with any transfer tax statutes
that require any such filing before the Effective Time.
3.2 Covenants of Direct Connect and Sub.
Direct Connect and Sub each agree that, unless the Company otherwise
agrees in writing:
(a) Certificate of Incorporation and By-laws. Until the Release
Time, no amendment will be made to the Certificate of Incorporation or By-laws
of Direct Connect; except for an amendment to Direct Connect's Certificate of
Incorporation (i) increasing the number of authorized shares of Direct Connect
Common Stock in an amount at least sufficient to meet the requirements of the
issuance of shares for: (A) the Stock Consideration, (B) the Substituted
Option/Warrants, (C) any outstanding warrants, Convertible Preferred Stock (as
defined in Section 3.4), and options issued on or before the date hereof, and
(D) the Placement Shares and (ii) authorizing Direct Connect to change its name
to: "Omnet Technology Holding, Inc." at the Effective Time.
(b) Shares and Options. Until the Release Time, no share of
capital stock of Direct Connect, option or warrant for any such share, right to
subscribe to or purchase any such share, or security convertible into or
exchangeable for any such share, shall be issued or amended in any way or sold
by Direct Connect, except as provided herein, nor shall Direct Connect enter
into any agreement or commitment or amend an existing agreement to effect any
such issuance or sale, otherwise than as may be required upon the exercise of
stock options, related stock appreciation rights, or warrants now outstanding or
hereafter granted pursuant to any Direct Connect employee benefit plan which was
or is now in effect.
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(c) Dividends and Purchases of Stock. Until the Release Time, no
cash or non- cash dividend or liquidating or other distribution or stock split
shall be authorized, declared, paid, or effected by Direct Connect in respect of
the outstanding shares of Direct Connect Common Stock. Until the Release Time,
no direct or indirect redemption, purchase, or other acquisition shall be made
by Direct Connect or any Direct Connect subsidiary of shares of Direct Connect
Common Stock.
(d) Leases and Indebtedness. Direct Connect shall not, nor shall
it permit any Direct Connect subsidiary to, (A) acquire, lease or dispose or
agree to acquire, lease or dispose of any material capital assets or any other
assets other than in the ordinary course of business; (B) incur additional
indebtedness or encumber or grant a security interest in any asset other than in
each case in the ordinary course of business or in connection with the
refinancing of indebtedness outstanding on the date of this Agreement; (C)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corpora-tion, partnership, association or other business organization or
division thereof; or (E) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(e) Benefits. Direct Connect shall not, nor shall it permit any
of its subsidiaries to, except as may be required to comply with applicable law
or regulation and except as provided in hereof, (A) adopt, enter into, terminate
or amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or Direct Connect
Benefit Plans (as defined in Section 5.7), agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation or fringe benefit
of any director or officer, (C) pay any benefit not provided under any existing
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plan or arrangement, or (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Direct Connect Benefit
Plan.
(f) Access. Until the Release Time, Direct Connect and Sub will
afford the officers, directors, employees, counsel, agents, investment bankers,
accountants, and other representatives of the Company reasonable access to the
plants, properties, books, and records of Direct Connect, will permit them to
make extracts from and copies of such books and records, and will from time to
time furnish the Company with such additional financial and operating data and
other information as to the financial condition, results of operations,
businesses, properties, assets, liabilities, or future prospects of Direct
Connect and the Direct Connect Subsidiaries as the Company from time to time may
reasonably request. All information furnished by or on behalf of Direct Connect
pursuant to this Section 3.2(f) or otherwise obtained from Direct Connect as
contemplated by this Section 3.2(f) shall be held as confidential.
(g) Conduct of Business. Until the Release Time, Direct Connect
and Sub shall not, nor shall Direct Connect cause or permit any of the Direct
Connect subsidiaries to, take any action that would or is reasonably likely to
result in any of the representations and warranties of Direct Connect set forth
in this Agreement being untrue at the Closing Date or to any of the conditions
to the Merger set forth in Article VII not being satisfied. Direct Connect
shall, and shall cause the Direct Connect subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, and shall, and shall cause its
subsidiaries to, use reasonable efforts to preserve intact their present
business organizations, keep available the services of their employees and
preserve their relationships with customers, suppliers and others having
business dealings with them and refrain from selling any warrants to purchase
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the common stock of Datatec Systems; provided, however, that neither (i) the
resignation of one or more executive officers of the Company in connection with
the Merger nor (ii) the sale of Datatec Systems, Inc. common stock by Direct
Connect shall be deemed a breach of the foregoing requirement. Direct Connect
shall, and shall cause any Direct Connect subsidiaries to, (i) maintain
insurance coverages and its books, accounts and records in the usual manner
consistent with prior practices; (ii) comply in all material respects with all
laws, ordinances and regulations of Governmental Entities applicable to Direct
Connect and its subsidiaries; and (iii) perform in all material respects its
obligations under all contracts and commitments to which it is a party or by
which it is bound, in each case referred to in this subsection (g) other than
where the failure to so maintain, comply or perform, either individually or in
the aggregate, would not result in a Direct Connect Material Adverse Effect (as
defined in Section 5.1). Except as otherwise contemplated or permitted hereby,
until the Release Time, Direct Connect and Sub will conduct no other material
business except in connection with this Agreement, the Merger, or any of the
other transactions contemplated by this Agreement.
(h) Advice of Changes. Except as otherwise contemplated or
permitted hereby, until the Release Time, neither Direct Connect nor Sub shall,
nor shall it cause or permit any subsidiaries to, take any action that would or
is reasonably likely to result in any of the representations or warranties of
Direct Connect set forth in this Agreement being untrue at the Closing Date or
in any of the conditions to the Merger set forth in Article VII not being
satisfied. Until the Release Time, Direct Connect will promptly advise the
Company in a reasonably detailed written notice of any fact or occurrence or any
pending or threatened occurrence of which it obtains knowledge and which (if
existing and known at the date of the execution of this Agreement) would have
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been required to be set forth or disclosed in or pursuant to this Agreement,
which (if existing and known at any time prior to or at the Effective Time)
would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(i) Public Statements. Before Direct Connect or Sub releases any
information concerning this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement which is intended for or is
reasonably expected to result in public dissemination thereof, Direct Connect
and Sub shall cooperate with the Company, shall furnish drafts of all documents
or proposed oral statements to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Senior Vice President of
Strategic Planning of the Company for comments, and shall not release any such
information without the prior consent of the Company; provided, however, that
the foregoing shall not be deemed to prevent Direct Connect or Sub from
releasing any information or making any disclosure to the extent that Direct
Connect reasonably determines that it is required to do so by law.
(j) Consents Without Any Condition. Neither Direct Connect nor
Sub shall make any agreement or reach any understanding, not approved in writing
by the Company, as a condition for obtaining any consent, authorization,
approval, order, license, certificate, or permit required for the consummation
of the transactions contemplated by this Agreement.
(k) Loan. Concurrently with the execution of this Agreement,
Direct Connect shall loan $300,000 to the Company at an interest rate of 6 1/2%
per annum, interest and principal due the earlier of: (i) one year from the date
hereof or (ii) upon an acquisition of all of the issued and outstanding Omnet
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Common Stock by another corporation. The parties shall execute a note (the
"Omnet Note"), on the date hereof, in the form annexed hereto as Exhibit A. The
Omnet Note shall be guaranteed by certain shareholders of the Company in a form
attached hereto.
(l) Board Action. The Board of Directors of Direct Connect shall
duly call and hold a meeting, as soon as reasonably possible after the execution
of this Agreement, whereby the requisite vote of all directors present (a)
determine that the Merger is advisable and fair and in the best interests of
Direct Connect and its stockholders, subject to the receipt of the Fairness
Opinion, (b) approve the Merger in accordance with the applicable provisions of
the DGCL, (c) recommend the approval of this Agreement and the Merger, and the
transactions contemplated thereby, by the holders of Direct Connect Common Stock
and direct that the Merger be submitted for consideration by Direct Connect's
stockholders at Direct Connect Stockholders' Meeting (as defined in Section
3.4), (d) recommend the increase of authorized shares of Direct Connect Common
Stock, (e) recommend an amendment to the 1998 Incentive Stock Option Plan to
provide for the issuance of Direct Connect options for the Omnet Options as
contemplated by this Agreement and (f) recommend that upon the Effective Time
Direct Connect change its name to "Omnet Technology Holdings Corp." and submit
such recommendation for approval by the stockholders of Direct Connect at the
Direct Connect Stockholders' Meeting.
(m) Working Capital. At the Effective Time, Direct Connect shall
have at least $2,000,000 in consolidated working capital which shall be
unrestricted free cash and exclude all Merger Consideration. For the purpose of
this Section "consolidated working capital" means the excess of the current
assets over the current liabilities of Direct Connect and its subsidiaries on a
consolidated basis as determined in accordance with GAAP on the Closing Date;
provided, that such liabilities shall include the sum of $240,000, as a
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consulting fee, and all of the other fees, expenses and payments of Direct
Connect associated with this transaction, including but not limited to legal
fees, commissions, SEC fees or NASDR fees, or the expenses associated with
financing of the transaction contemplated by this Agreement by Direct Connect;
provided, further, that the $2,000,000 in consolidated working capital shall be
reduced by the payment of the Omnet Note in the amount of $300,000. On the
Closing Date there shall be no outstanding payments due any Direct Connect
director, officer or affiliate. "Unrestricted free cash" shall mean cash or
marketable U.S. Government Securities with a maturity date of no more than 15
days.
(n) Private Placement; Registration of Stock. On the Effective
Time, Direct Connect shall issue a sufficient number of shares (the "Placement
Shares") of Direct Connect Common Stock in a private placement exempt from
registration under applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act") or registered with the SEC pursuant to a
registration statement on Form S-1 (the "S-1 Registration Statement") whereby
Direct Connect shall receive proceeds sufficient to meet its obligations under
this Agreement, net of all commissions, expenses, taxes and fees (the "Net
Proceeds"). The Net Proceeds and the stock certificates issued shall be released
at the Closing. Prior to the Closing Date, Direct Connect will cause the holders
of such shares to execute agreements which shall prohibit the sale of the
Placement Shares for a period of 12 months from the Closing Date.
(o) Financing. On the Closing Date, Direct Connect shall have
sufficient cash and/or commitments (and has provided the Company with
satisfactory evidence thereof prior to the Closing Date upon request by the
Company) to pay the Cash Consideration, the consolidated working capital
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referred to in Section 3.2(m), and all other necessary payments of fees and
expenses in connection with the transactions contemplated by this Agreement.
(p) Direct Connect shall grant three (3) demand registrations to
the holders of Omnet Common Stock and unlimited piggyback registrations pursuant
to a Registration Rights Agreement to be executed on the Closing Date.
(q) Continuity of Business. After the Merger, Sub will either
continue the Company's business or will continue to use in a business at least a
significant portion of Company's business assets, within the meaning of Treasury
Regulations section 1.368-1d.
3.3 Preparation of Registration Statement and Proxy Statement.
The Direct Connect shall prepare and file with the SEC as soon as
reasonably practicable after the date hereof the proxy statement of Direct
Connect required to be mailed to the shareholder's of Direct Connect in
connection with the Merger (the "Proxy Statement") and Direct Connect shall
prepare and file with the SEC as soon as reasonably practicable after the date
hereof a registration statement on Form S-4 in connection with the issuance of
the Direct Connect Common Stock in the Merger, as amended or supplemented from
time to time (as so amended and supplemented, the "Registration Statement"), in
which the Proxy Statement will be included as part of the prospectus. If
required by mutual agreement of the parties respective counsel, Direct Connect
shall also file the S-1 Registration Statement. The Company and Direct Connect
shall use their best efforts to have the Registration Statement, or the S-1
Registration Statement, if necessary, declared effective by the SEC as promptly
as practicable after such filing. Direct Connect shall also take any action
(other than qualifying as a foreign corporation or taking any action which would
subject it to service of process in any jurisdiction where Direct Connect is not
now so qualified or subject) required to be
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taken under applicable state blue sky or securities laws in connection with the
issuance of Direct Connect Common Stock in connection with the Merger. If at any
time prior to the Effective Time any event shall occur that should be set forth
in an amendment of or a supplement to the Registration Statement, Direct Connect
shall prepare and file with the SEC such amendment or supplement as soon
thereafter as is reasonably practicable. Direct Connect, Sub and the Company
shall cooperate with each other in the preparation of the Registration
Statement, the S-1 Registration Statement, if necessary, and the Proxy Statement
and any amendment or supplement thereto, and each shall notify the other of the
receipt of any comments from the SEC with respect to the Registration Statement,
the S-1 Registration Statement, if necessary, or the Proxy Statement and of any
requests by the SEC for any amendment or supplement thereto or for additional
information, and shall provide to the other promptly copies of all
correspondence between the SEC and Direct Connect or the Company, as the case
may be, or any of its representatives with respect to the Registration
Statement, the S-1 Registration Statement, if necessary, or the Proxy Statement.
Direct Connect shall give the Company and its counsel the opportunity to review
the Registration Statement, the S-1 Registration Statement, if necessary, and
all responses to requests for additional information by and replies to comments
of the SEC before their being filed with, or sent to, the SEC. Each of the
Company, Direct Connect and Sub agrees to use its best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Registration Statement to
be declared effective by the SEC, and the Proxy Statement to be mailed to the
holders of Direct Connect Common Stock entitled to vote at the Direct Connect
Stockholder's Meeting at the earliest practicable time.
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None of the information supplied by the Company for inclusion in (i)
the Registration Statement (ii) the S-1 Registration Statement, if necessary,
and (iii) the Proxy Statement will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of the
Direct Connect Stockholders' Meeting, or, in the case of the Registration
Statement or the S-1 Registration Statement, at the time each becomes effective
and at the Effective Time in regard to the Company will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
None of the information with respect to Direct Connect or its
subsidiaries to be included or incorporated by reference in the Proxy Statement,
the Registration Statement or the S-1 Registration Statement will, in the case
of the Proxy Statement or any amendments or supplements thereto, at the time of
the mailing of the Proxy Statement and any amendments or supplements thereto,
and at the time of the Direct Connect Stockholders' Meeting, or, in the case of
the Registration Statement or the S-1 Registration Statement, at the time each
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Securities Exchange Act of 1934 as amended, and the rules and regulations
thereunder (the "Exchange Act").
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3.4 Approval of Stockholders.
(a) Direct Connect shall, through it Board of Directors, duly
call, give notice of, convene and hold a special meeting of the holders of
Direct Connect Common Stock and the holders of Direct Connect convertible
preferred stock, par value, $.001 per share (the "Convertible Preferred Stock")
each of whom shall vote as a separate class (the "Direct Connect Stockholders'
Meeting") for the purpose of voting on the (i) adoption of an amendment to
Direct Connect's Certificate of Incorporation to (A) increase the number of
authorized shares of Direct Connect Common Stock as contemplated by this
Agreement, and (B) change the name of Direct Connect to Omnet Technology
Holding, Inc., be effective on the Effective Time (the "Direct Connect
Amendment"), (ii) ratify and approve of this Agreement and any transactions
contemplated by this Agreement (the "Direct Connect Merger Proposal"), (iii)
elect new directors nominated by the Board of Directors, whose election shall be
effective as soon as reasonably practicable following the Effective Time and
(iv) amending the 1988 Incentive Stock Option Plan of Direct Connect or adopting
a new stock option plan consistent with the terms of the Company's 1998
Incentive Stock Option Plan. Subject to the exercise of fiduciary obligations
under applicable law as advised by independent legal counsel and the Fairness
Opinion, Direct Connect shall, through its Board of Directors, include in the
Proxy Statement the recommendation of the Board of Directors of Direct Connect
that the stockholders of Direct Connect vote in favor of the Direct Connect
Amendment, the Direct Connect Merger Proposal and the members of the Board of
Directors (the "Direct Connect Stockholders' Approval") and shall use its best
efforts to obtain such adoption and approval.
(b) Subject to the exercise of fiduciary obligations under
applicable law as advised by independent counsel: (i) the Company shall, through
its Board of Directors, duly call, give notice of, convene and hold a meeting
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of its stockholders (the "Company Stockholders' Meetings" and, together with the
Direct Connect Stockholder's Meeting, the "Stockholders' Meetings") for the
purpose of approving this Agreement and the approval of the Merger (the "The
Company Merger Proposal") as soon as reasonably practicable after the date
hereof; and (ii) the Company shall, through its Board of Directors, recommend
that the stockholders of the Company vote in favor of the Company Merger
Proposal (the "Company Stockholders' Approval"), and shall use its best efforts
to obtain such approval. In lieu of a meeting, the Company may obtain the
written consent of the shareholders of the Company to approve the Company Merger
Proposal.
(c) Direct Connect and the Company shall coordinate and cooperate
with respect to the timing of the Stockholders' Meetings and shall use their
best efforts to cause the Stockholders' Meetings to be held on the same day and
as soon as practicable after the date hereof.
3.5 Conduct of Business of Sub.
During the period from the date of this Agreement to the Effective
Time, Sub shall not engage in any activities of any nature except as provided in
or contemplated by this Agreement.
3.6 Notice of Breach.
Each party shall promptly give written notice to the other party upon
becoming aware of the occurrence of any event which would cause or constitute a
breach of any of its representations, warranties or covenants contained or
referenced in this Agreement and will use its best efforts to prevent or
promptly remedy the same. Any such notification shall not be deemed an amendment
of the Company Disclosure Schedule (as defined in Article III) or Direct Connect
Disclosure Schedule (as defined in Article IV).
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3.7 HSR Act and Related Matters.
The Company and Direct Connect shall file as soon as practicable, if
required, but in no event later than 10 days after the date hereof,
notifications under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act") in connection with the Merger and the transactions
contemplated hereby, and shall respond as promptly as practicable to any
inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation and to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters. Direct Connect shall take all actions,
including without limitation sales, transfers, divestitures or other
dispositions of businesses, product lines or assets of Direct Connect, or, after
the Merger, of the Company as shall be necessary to obtain timely governmental
or regulatory action or non-action, consent or approval of the Merger by the
FTC, the Antitrust Division and any other Governmental Entity in connection with
antitrust matters.
3.8 Additional Agreements.
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including using best efforts to
obtain all necessary permits, waivers, consents and approvals, to effect all
necessary registrations and filings (including, but not limited to, filings
under the HSR Act and with all applicable Governmental Entities) and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
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the Merger as expeditiously as possible), subject, however, in the case of this
Agreement, to the appropriate vote of the stockholders of Direct Connect.
3.9 Additional Actions.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Direct Connect, the Company and the Surviving
Corporation shall take all such necessary action at Direct Connect's expense and
at times and locations reasonably satisfactory to such respective officers.
IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Direct Connect that, except as
disclosed in the Company Disclosure Schedule attached hereto(the "Company
Disclosure Schedule"):
4.1 Organization and Qualification.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Rhode Island and has the corporate
power to carry on its business as it is now being conducted. Except as set forth
in Schedule 4.1 hereto, the Company is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not, individually or in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Company
Material Adverse Effect").
4.2 Capitalization.
The authorized capital stock of the Company consists of 2,500,000
shares of Omnet Common Stock, of which 2,140,000 shares are issued and
outstanding. Except as set forth in Schedule 4.2, there are no options,
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warrants, calls or other rights, agreements or commitments presently outstanding
obligating the Company to issue, deliver or sell shares of its capital stock or
debt securities, or obligating the Company to grant, extend or enter into any
such option, warrant, call or other such right, agreement or commitment. All of
the shares of Omnet Common Stock issuable in accordance with this Agreement in
exchange for Direct Connect Common Stock (including options or warrants to
purchase Company Common Stock) at the Effective Time in accordance with this
Agreement will be duly authorized, validly issued, fully paid and nonassessable.
4.3 Subsidiaries.
The Company has no subsidiaries.
4.4 Authority Relative to this Agreement.
The Company has the corporate power to enter into this Agreement and,
subject to the Company Stockholders' Approval, to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Company's Board of Directors. This Agreement constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms. The Company is not subject to or obligated under (i) any charter or
By-law provision or (ii) any indenture or other loan document provision, any
other contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable to
the Company or any of its subsidiaries or their respective properties or assets,
which would be breached or violated, or under which there would be a default
(with or without notice or lapse of time, or both), or under which there would
arise a right of termination, cancellation or acceleration of any obligation or
the loss of a material benefit, by its executing and carrying out this Agreement
-29-
other than, in the case of clause (ii) only, (A) any breaches, violations,
defaults, terminations, cancellations, accelerations or losses which, either
singly or in the aggregate, will not have a Company Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby or thereby and
(B) the laws and regulations referred to in the next sentence. Except as
disclosed in Schedule 4.4 hereto or in connection, or in compliance, with the
provisions of the HSR Act, the Securities Act, the Exchange Act, and the
environmental, corporation, securities or blue sky laws or regulations of the
various states, no filing or registration with, or authorization, consent or
approval of, any public body or authority is necessary for the consummation by
the Company of the Merger or the other transactions contemplated by this
Agreement, other than filings, registrations, authorizations, consents or
approvals the failure of which to make or obtain would not have a Company
Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby or thereby.
4.5 Financial Statements.
As soon as practicable, the Company will furnish Direct Connect with
true and complete copies of the audited financial statements of Omni Multimedia,
Inc. for the years ended March 30, 1996, March 29, 1997, March 23, 1998 or as
otherwise required by the SEC, and the Company's audited consolidated financial
statements for initial period of operations ended March 28, 1998 and its
unaudited statements for the three month period ended June 30, 1998 and the most
recent quarter of the Company prior to the Closing Date ("Company Financial
Statements"). The audited consolidated financial statements and unaudited
interim financial statements of the Company have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
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present the financial position of the Company and its subsidiaries as at the
dates thereof and the results of their operations and changes in financial
position for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
4.6 Litigation.
Except as disclosed in Schedule 4.6 hereto, as of the date hereof,
there is no suit, action or proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its subsidiaries
which, alone or in the aggregate, is likely, insofar as the Company reasonably
foresees, to have a Company Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company or any of its subsidiaries having, or which, insofar as the Company
reasonably foresees, in the future could have, either alone or in the aggregate,
any such Company Material Adverse Effect.
4.7 Employee Benefit Plans.
Except as disclosed in Schedule 4.7, there are no material employee
benefit or compensation plans, agreements or arrangements, including "employee
benefit plans," as defined in the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and including, but not limited to, plans, agreements
or arrangements relating to former employees, including, but not limited to,
retiree medical plans maintained by the Company or any of its subsidiaries or
material collective bargaining agreements to which the Company or any of its
subsidiaries is a party (together, the "Company Benefit Plans"). No default
exists with respect to the obligations of the Company or any of its subsidiaries
under any such Company Benefit Plan, which default, alone or in the aggregate,
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would have a Company Material Adverse Effect. There are no pending disputes or
grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation under such Company Benefit Plans, which
have not been finally resolved, settled or otherwise disposed of, nor is there
any default, or any condition which, with notice or lapse of time or both, would
constitute such a default, under any such Company Benefit Plans, by the Company
or its subsidiaries or, to the best knowledge of the Company and its
subsidiaries, any other party thereto, which failure to resolve, settle or
otherwise dispose of or default, alone or in the aggregate, would have a Company
Material Adverse Effect. There are no pending strikes, lockouts or work
stoppages or slowdowns, or to the best knowledge of the Company and its
subsidiaries, jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of the Company or its
subsidiaries which have had or would have a Company Material Adverse Effect.
4.8 ERISA.
All Company Benefit Plans are in compliance with the applicable
provisions of ERISA, except where such failures to comply would not have a
Company Material Adverse Effect. Each of the Company Benefit Plans which is
intended to meet the requirements of the Code has been determined by the
Internal Revenue Service to be "qualified," within the meaning of such section
of the Code, and the Company knows of no fact which is likely to have an adverse
affect on the qualified status of such plans. There is no "accumulated funding
deficiency" (whether or not waived) as that term is defined in of the Code for
any of the Company Benefit Plans which are defined benefit pension plans and the
fair market value of the assets of each such plan equals or exceeds the accrued
liabilities of such plan. There are no non-exempt "prohibited transactions," as
such term is defined in of the Code or of ERISA, involving a Company Benefit
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Plan which could subject the Company or any of its subsidiaries to the penalty
or tax imposed under (i) of ERISA or of the Code. No Company Benefit Plan which
is subject to Title IV of ERISA has been completely or partially terminated; no
proceedings to completely or partially terminate any Company Benefit Plan have
been instituted within the meaning of Subtitle C of said Title IV of ERISA; and
no reportable event within the meaning of 3(b) of said Subtitle C of ERISA has
occurred with respect to any Company Benefit Plan. Neither the Company nor any
of its subsidiaries has made a complete or partial withdrawal, within the
meaning of ERISA, from any multiemployer plan which has resulted in, or is
reasonably expected to result in, any withdrawal liability to the Company or any
of its subsidiaries except for any such liability which would not have a Company
Material Adverse Effect.
4.9 Financial Advisor.
The Company represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
4.10 Compliance with Applicable Laws.
Except as set forth in Schedule 4.10 hereto, the Company hold all
permits, licenses, variances, exemptions, orders and approvals of all courts,
administrative agencies (including the Food and Drug Administration) or
commissions or other governmental authorities or instrumentalities, domestic or
foreign (each, a "Governmental Entity"), except for such permits, licenses,
variances, exemptions, orders and approvals the failure of which to hold would
not have a Company Material Adverse Effect (the "Company Permits"). To the best
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knowledge of the Company, the Company and its subsidiaries are in compliance
with the terms of the Company Permits, except for such failures to comply, which
singly or in the aggregate, would not have a Company Material Adverse Effect. To
the best knowledge of the Company, the business operations of the Company and
its subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not and would not have a Company Material
Adverse Effect.
4.11 Intellectual Property.
(a) Schedule 4.11 hereto sets forth a complete list and
description of the following:
(i) all trademarks, service marks, trade names,
label filings, patents, copyrights, royalty
rights, logos, applications therefor and
registrations thereof and inventions owned
or used (pursuant to license agreements or
otherwise) by the Company or any of its
subsidiaries in or applicable to the
businesses of the Company and its
subsidiaries (collectively, the "Proprietary
Rights"), and the jurisdictions in which the
Proprietary Rights have been registered,
filed or issued;
(ii) contracts, agreements or understandings
pursuant to which the Company or any of its
subsidiaries has authorized any person to
use any of the Proprietary Rights; and
(iii) all research and development results,
records of experiments, scientific,
technical, engineering and marketing data
and literature and other know-how, formulae
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and techniques, recorded or available in any
form whatsoever which are used in connection
with the operation of the businesses of the
Company and its subsidiaries (collectively,
the "Trade Secrets").
(b) The Proprietary Rights have been properly registered, filed
or issued in the offices and jurisdictions in which such registration, filing or
issuance is necessary to protect the rights therein of the Company and its
subsidiaries for the conduct of their businesses, and all applicable fees due
and payable have been paid. Except as otherwise indicated in Schedule 4.11, the
Company and its subsidiaries are the sole and exclusive owners of the
Proprietary Rights and the Trade Secrets and all rights related thereto, free
and clear of any obligation to pay royalties or any similar obligation and free
and clear of all mortgages, liens or other encumbrances.
(c) None of the Proprietary Rights will be adversely affected by
the consummation of the transactions contemplated by this Agreement.
(d) Except as set forth in Schedule 4.11, to the best of the
Company's knowledge after due investigation, there are no claims or demands of
any person pertaining to the Proprietary Rights or the Trade Secrets or the
rights of the Company or its subsidiaries thereunder, and no proceedings have
been instituted or are pending or, to the knowledge of the Company, threatened
which challenge the rights of the Company in respect thereof, and none of the
issued trademarks, service marks, trade names, label filings, patents,
copyrights, logos, registrations thereof, or, as the case may be, the rights
granted to the Company in respect thereof and to be listed in Schedule 4.11,
infringes on or is being infringed upon by others, and none is subject to any
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outstanding order, decree, judgment, stipulation, injunction, restriction or
agreement restricting the scope of the use by Company.
(e) Except as disclosed in Schedule 4.11, to the best of the
Company's knowledge after due investigation, the Company is not infringing or
violating, and during the past five years, the Company has not infringed or
violated, any Proprietary Rights of others, nor used any confidential
information or trade secrets or patentable or unpatentable inventions of any
former employer of any employee of the Company.
(f) Except as is disclosed in Schedule 4.11, the Company has no
knowledge of any patented device or application therefor which could materially
and adversely affect the operation of the businesses of the Company, as now
conducted.
(g) Except as indicated in Schedule 4.11, the Trade Secrets have
been, and will not be, disclosed by the Company to any person other than Direct
Connect and its agents and representatives, and comprise all of the same
necessary to permit the continued operation of the businesses of the Company and
its subsidiaries.
4.12 Insurance.
(a) The Company maintains, and, at all times has maintained,
insurance with financially sound and reputable insurance companies insuring
against such risks and in such amounts as reasonably prudent and appropriate
considering its size, business and operations.
(b) The Company is not in default with respect to any provision
of any policy of fire, liability, products liability, workers compensation,
title or other form of insurance held by it.
(c) The Company has not failed to give any notice or to submit
any claim under any policy of insurance in a proper and timely fashion.
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4.13 Taxes.
Except as specifically set forth on the attached schedules:
(a) The Company and any combined, consolidated, unitary or
affiliated group of which the Company is or has been a member on or prior to the
Closing Date (i) has paid all Taxes, as defined in Section 4.13(o), required to
be paid on or prior to the Closing Date (including, without limitation,
estimated Taxes) for which the Company could be held liable; (ii) has accurately
and timely filed (or timely filed an extension for), all federal, state, local
and foreign Tax Returns (as defined in Section 4.13(o), with respect to such
Taxes required to be filed by them on or before the Closing Date and (iii) has
established an adequate accrual or reserve for the payment of all Taxes payable
in respect of the period, including portions and contingent portions thereof,
subsequent to the period covered by such returns up to and including the Closing
Date.
(b) No deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed, asserted,
or assessed by any taxing authority against, or with respect to the activities
of the Company or any member of any combined, consolidated, unitary or
affiliated group of which the Company is or has been a member on or prior to the
Closing Date.
(c) The Company has not consented to extend the time within
which any Taxes may be assessed or collected.
(d) The Company has not requested or been granted an extension
of time for the filing any Tax Return to a date later than the Closing Date.
(e) There is no action, suit, tax authority proceeding, or audit
now in progress, pending, or threatened against or with respect to the Company
with respect to any Taxes.
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(f) The Company has not been a member of an affiliated group or
filed or been included in a combined, consolidated, or unitary Tax Return.
(g) No claim has ever been made by a taxing authority in a
jurisdiction where the Company does not pay Taxes or file Tax Returns that the
Company may be subject to the Taxes assessed by such jurisdiction.
(h) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other party pursuant to the Federal
Insurance Contributions Act, the Federal Unemployment Tax Act, or Chapter 24 of
the Code, with respect to the withholding of income tax at the source on wages.
(i) The Company has disclosed on the Tax Returns of the Company
or its subsidiaries and any combined, consolidated, unitary or affiliated group
of which the Company is or has been a member on or prior to the Closing Date has
disclosed on their Tax Returns all positions taken therein which could give rise
to a substantial understatement of federal Tax.
(j) There is no material dispute or claim concerning any
liability for Taxes of the Company either (i) claimed or raised by any authority
in writing or (ii) as to which the Company has knowledge based upon personal
contact with any agent of such authority.
(k) The Company (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) has not made any payments, nor
is it obligated to make any payments, nor is it a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Section 280G; (iii) will not have any liability after
the Closing Date pursuant to any tax allocation or sharing agreement; and (iv)
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does not have any liability for the Taxes of any person as a transferee or
successor, by contract, or otherwise, including pursuant to any tax allocation
or sharing agreement.
(l) Schedule 4.13(l) contains a list setting forth all the
states, territories, jurisdictions in which the Company is required to file a
Tax Return relating to its operations and the Taxes to which the Company is
subject in such jurisdictions.
(m) The Company has no liability outstanding, contingent, or
proposed and will not have any liability outstanding, contingent, or proposed
resulting from the operation of Treasury Regulations ss. 1.1502-6, or any
similar state, local, or foreign provision, arising from an obligation for Taxes
of a corporation which is or was a member of any combined, consolidated, unitary
or affiliated group of which the Company is or has been a member on or prior to
the Closing Date.
(n) Any allocation or sharing agreement of the Company with
respect to Taxes shall be cancelled as of the date of the Closing Date.
(o) For purposes of this Agreement, (i) Taxes means all federal,
state or local taxes and foreign taxes and other government fees, charges,
levies, and assessments, including but not limited to, income, property,
franchise, sales, use, ad valorem, profits, gross receipts, payroll, employment,
and excise taxes, which are payable or remittable by the Company or levied on
its property, income or assets by any federal, state, local or foreign
government or governmental or quasi-governmental agency or instrumentality, and
all additions to tax, penalties and interest relating thereto; and (ii) Tax
Return means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including interest and penalties.
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4.14 Environmental Matters.
(a) The Company has no liability under, and there is no fact
currently known to the Company that could hereafter give rise to any liability
of the Company under, any federal, state, foreign, provincial or local laws,
statutes, ordinances, regulations, rules and orders pertaining to the
environment, pollution and/or the health and safety of human beings
(collectively, "Environmental Laws").
(b) To the Company's knowledge, there is no, and has been no,
discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste
(including without limitation all inks and oils) on-site at the Company's
premises. All hazardous waste on-site at the premises of the Company has been
and shall continue to be disposed of in compliance with all Environmental Laws
and other applicable laws, and is being managed in accordance with all
Environmental Laws and other applicable laws.
(c) Except as disclosed on Schedule 4.14, the Company has not
received a notice or claim relating to the exposure of employees to hazardous
waste, in the course and scope of their respective employments with Company or
its predecessors.
4.15 Labor Matters.
Except as set forth in Schedule 4.15, the Company is not a party to any
collective bargaining agreement and there are no material or formal complaints,
charges, cases or controversies or any conciliation agreement, consent or decree
pending or threatened Company and any of its employees acting individually or in
concert and/or any administrative agency of the United States government and no
organization is presently attempting to gain, petitioning for or asserting
representational status with respect to any group or groups of employees of
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Company, and Company is in material compliance with Federal and state laws
respecting employment practices, terms and conditions of employment, wages and
hours, and is not presently engaged in any unfair labor practice, There is no
labor strike or other labor dispute and there is no complaint, proceeding or
other action instituted under the Equal Opportunity Act pending, threatened
against Company. No key employee of Company has indicated that he is considering
terminating his employment.
v. REPRESENTATIONS AND WARRANTIES OF DIRECT CONNECT.
Direct Connect and Sub represent and warrant to the Company that,
except as disclosed in the Direct Connect and Sub Disclosure Schedules attached
hereto (the "Direct Connect Disclosure Schedule"):
5.1 Organization and Qualification.
Direct Connect is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power to carry on its business as it is now being conducted. Except as set forth
in Schedule 5.1 hereof, Direct Connect is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect on the business or financial
condition of Direct Connect (a "Direct Connect Material Adverse Effect").
5.2 Capitalization.
The authorized capital stock of Direct Connect consists of 15,000,000
shares of Company Common Stock and 5,000,000 shares of Preferred Stock. As of
April 30, 1998, 9,062,066 shares of Direct Connect Common Stock were validly
issued and outstanding, fully paid and nonassessable. As of April 30, 1998,
5,000,000 shares of Convertible Preferred Stock were issued and outstanding and
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are convertible into 15,000,000 shares of Direct Connect Common Stock. As of the
date hereof, there are no bonds, debentures, notes or other indebtedness issued
or outstanding having the right to vote on any matters on which Direct Connect's
stockholders may vote. Schedule 5.2 sets forth all options, warrants, calls,
convertible securities or other rights, agreements or commitments presently
outstanding obligating Direct Connect to issue, deliver or sell shares of its
capital stock or debt securities, or obligating Direct Connect to grant, extend
or enter into any such option, warrant, call or other such right, agreement or
commitment and the amount of Direct Connect Common Stock for which they may
converted or exchanged. All of the shares of Direct Connect Common Stock
issuable in accordance with this Agreement in exchange for Omnet Common Stock
(including options or warrants to purchase Direct Connect Common Stock) at the
Effective Time in accordance with this Agreement will be when so issued, duly
authorized, validly issued, fully paid and nonassessable.
5.3 Subsidiaries.
The only subsidiaries of Direct Connect are those set forth in Schedule
5.3 Except as set forth in Schedule 5.3, each subsidiary of Direct Connect is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being conducted or currently proposed to be conducted.
Except as set forth in Schedule 5.3, each subsidiary of Direct Connect is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary except
where the failure to be so qualified will not have a Direct Connect Material
Adverse Effect. Except as set forth in Schedule 5.3, all the outstanding shares
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of capital stock of each subsidiary are validly issued, fully paid and
nonassessable and owned by Direct Connect or by a wholly owned subsidiary of
Direct Connect, free and clear of any liens, claims or encumbrances. Except as
set forth in Schedule 5.3, there are no existing options, warrants, calls or
other rights, agreements or commitments of any character relating to the issued
or unissued capital stock or other securities of any of the subsidiaries of
Direct Connect.
5.4 Authority Relative to this Agreement.
Direct Connect has the corporate power to enter into this Agreement
and, subject to approval of this Agreement by the holders of Direct Connect
Common Stock, to carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Direct Connect's Board of Directors. This Agreement
constitutes a valid and binding obligation of Direct Connect enforceable in
accordance with its terms. Direct Connect is not subject to or obligated under
(i) any charter or by-law provision or (ii) any indenture or other loan document
provision, any other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to Direct Connect or any of its subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit, by its
executing and carrying out this Agreement, other than, in the case of clause
(ii) only, (A) any breaches, violations, defaults, terminations, cancellations,
accelerations or losses which, either singly or in the aggregate, will not have
a Direct Connect Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby and (B) the laws and regulations referred to in
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the next sentence. Except as disclosed in the Direct Connect Disclosure Schedule
or, with respect to the Merger or the transactions contemplated thereby, in
connection, or in compliance, with the provisions of the HSR Act, the Securities
Act, the Exchange Act, and the environmental, corporation, securities or blue
sky laws or regulations of the various states, no filing or registration with,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Direct Connect of the Merger or the other
transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Direct Connect Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby.
5.5 Reports and Financial Statements; Outstanding Obligations.
(a) Direct Connect has duly complied and is complying, in all
material respects, with all federal and State securities laws, including all
periodic reporting requirements, and to Direct Connect's knowledge there is no
pending or threatened investigation by the SEC or any state securities
regulatory agency concerning Direct Connect, Sub or any officer or director
thereof.
(b) Direct Connect has previously furnished Omnet with true and
complete copies of its (i) Annual Reports on Form 10-K for the three years ended
April 30, 1997, as filed with the Commission, and (ii) Quarterly Report on Form
10-Q for the quarter ended July 31, 1997, October 31, 1997 and January 31, 1998
as filed with the SEC, and (iii) Current Reports on Form 8-K relating to events
occurring after December 31, 1995, as filed with the SEC, (clauses (i) through
(iii) being referred to herein collectively as the "Direct Connect SEC
Reports"). As of their respective dates, Direct Connect SEC Reports complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC thereunder applicable to such Direct Connect SEC
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Reports. As of their respective dates, Direct Connect SEC Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Direct Connect included in Direct Connect SEC Reports comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, and the
financial statements included in Direct Connect SEC Reports have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Direct Connect and its subsidiaries
as at the dates thereof and the results of their operations and changes in
financial position for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit adjustments and
any other adjustments described therein.
5.6 Litigation.
Except as disclosed in Schedule 5.6, as of the date hereof, there is no
suit, action or proceeding pending or, to the knowledge of Direct Connect,
threatened against or affecting Direct Connect or any of its subsidiaries which,
either alone or in the aggregate, is likely, insofar as Direct Connect
reasonably foresees, to have a Direct Connect Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Direct Connect or any of its subsidiaries having, or which, insofar as
Direct Connect reasonably foresees, in the future could have, either alone or in
the aggregate, any such Direct Connect Material Adverse Effect.
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5.7 Employee Benefit Plans.
Except as disclosed in Direct Connect SEC Reports and Schedule 5.7,
there are no employee benefit or compensation plans, agreements or arrangements,
including "employee benefit plans," as defined in ) of ERISA, and including, but
not limited to, plans, agreements or arrangements relating to former employees,
including, but not limited to, retiree medical plans, maintained by Direct
Connect or any of its subsidiaries or material collective bargaining agreements
to which Direct Connect or any of its subsidiaries is a party (together, the
"Direct Connect Benefit Plans"). No default exists with respect to the
obligations of Direct Connect or any of its subsidiaries under such Direct
Connect Benefit Plan, which default, alone or in the aggregate, would have a
Direct Connect Material Adverse Effect. There are no pending disputes or
grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation under such Direct Connect Benefit Plans,
which have not been finally resolved, settled or otherwise disposed of, nor is
there any default, or any condition which, with notice or lapse of time or both,
would constitute such a default, under any such Direct Connect Benefit Plans, by
Direct Connect or its subsidiaries or, to the best knowledge of Direct Connect
and its subsidiaries, any other party thereto, which failure to settle or
otherwise dispose of or default, alone or in the aggregate, would have a Direct
Connect Material Adverse Effect. There are no pending strikes, lockouts or work
stoppages or slowdowns, or to the best knowledge of Direct Connect and its
subsidiaries, jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of Direct Connect or its
subsidiaries which have had or would have a Direct Connect Material Adverse
Effect.
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5.8 ERISA.
All Direct Connect Benefit Plans are in compliance with the applicable
provisions of ERISA, except where such failures to comply would not have a
Direct Connect Material Adverse Effect. Each of Direct Connect Benefit Plans
which is intended to meet the requirements of the Code has been determined by
the Internal Revenue Service to be "qualified," within the meaning of such
section of the Code, and Direct Connect knows of no fact which is likely to have
an adverse effect on the qualified status of such plans. No Direct Connect
Benefit Plan is subject to Title IV of ERISA or of the Code, other than
multiemployer pension plans disclosed in Direct Connect Disclosure Schedule.
There are no non-exempt "prohibited transactions," as such term is defined in of
the Code or of ERISA, involving Direct Connect's Benefit Plans which could
subject Direct Connect, its subsidiaries or the Company to the penalty or tax
imposed under (i) of ERISA or of the Code. Neither Direct Connect nor any of its
subsidiaries has made a complete or partial withdrawal, within the meaning of
3(b) of said Subtitle C of ERISA, from any multiemployer plan which has resulted
in, or is reasonably expected to result in, any withdrawal liability to Direct
Connect or any of its subsidiaries except for any such liability which would not
have a Direct Connect Material Adverse Effect.
5.9 Financial Advisor.
Except as set forth in Schedule 5.9, Direct Connect represents and
warrants that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Direct Connect.
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5.10 Compliance with Applicable Laws.
To the best knowledge of Direct Connect, Direct Connect and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities, except for such permits, licenses,
variances, exemptions, orders and approvals the failure of which to hold would
not have a Direct Connect Material Adverse Effect (the "Direct Connect
Permits"). To the best knowledge of Direct Connect, Direct Connect and its
subsidiaries are in compliance with the terms of Direct Connect Permits, except
for such failures to comply, which singly or in the aggregate, would not have a
Direct Connect Material Adverse Effect. To the best knowledge of Direct Connect,
except as disclosed in Direct Connect SEC Reports filed prior to the date of
this Agreement, the business operations of Direct Connect and its subsidiaries
are not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which individually or in the
aggregate do not and would not have a Direct Connect Material Adverse Effect.
5.11 Intellectual Property.
(a) Schedule 5.11 sets forth a complete list and description
of thefollowing:
(i) all trademarks, service marks, trade names,
label filings, patents, copyrights, royalty
rights, logos, applications therefor and
registrations thereof and inventions owned
or used (pursuant to license agreements or
otherwise) by Direct Connect or any of its
Subsidiaries in or applicable to the
businesses of Direct Connect and its
subsidiaries (collectively, the "Direct
Connect Proprietary Rights"), and the
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jurisdictions in which the Direct Connect
Proprietary Rights have been registered,
filed or issued;
(ii) contracts, agreements or understandings
pursuant to which Direct Connect or any of
its subsidiaries has authorized any person
to use any of the Direct Connect Proprietary
Rights;
(iii) and all research and development results,
records of experiments, scientific,
technical, engineering and marketing data
and literature and other know-how, formulae
and techniques, recorded or available in any
form whatsoever which are used in connection
with the operation of the businesses of
Direct Connect and its subsidiaries
(collectively, the "Direct Connect Trade
Secrets").
(b) The Direct Connect Proprietary Rights have been properly
registered, filed or issued in the offices and jurisdictions in which such
registration, filing or issuance is necessary to protect the rights therein of
Direct Connect and its subsidiaries for the conduct of their businesses, and all
applicable fees due and payable have been paid. Except as otherwise indicated in
the Schedule 5.11, Direct Connect and its subsidiaries are the sole and
exclusive owners of the Proprietary Rights and the Direct Connect Trade Secrets
and all rights related thereto, free and clear of any obligation to pay
royalties or any similar obligation and free and clear of all mortgages, liens
or other encumbrances.
(c) None of the Direct Connect Proprietary Rights will be
adversely affected by the consummation of the transactions contemplated by this
Agreement.
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(d) Except as set forth in Schedule 5.11, there are no claims or
demands of any person pertaining to the Direct Connect Proprietary Rights or the
Direct Connect Trade Secrets or the rights of Direct Connect and its
subsidiaries thereunder, and no proceedings have been instituted or are pending
or, to the knowledge of Direct Connect, threatened which challenge the rights of
Direct Connect in respect thereof, and none of the issued trademarks, service
marks, trade names, label filings, patents, copyrights, logos, registrations
thereof, or, as the case may be, the rights granted to Direct Connect in respect
thereof and to be listed in Schedule 5.11, infringes on or is being infringed
upon by others, and none is subject to any outstanding order, decree, judgment,
stipulation, injunction, restriction or agreement restricting the scope of the
use by Direct Connect.
(e) Except as disclosed in Schedule 5.11, Direct Connect is not
infringing or violating, and during the past five years, Direct Connect has not
infringed or violated, any Direct Connect Proprietary Rights of others, nor used
any confidential information or trade secrets or patentable or unpatentable
inventions of any former employer of any employee of Direct Connect.
(f) Except as is disclosed in Schedule 5.11, Direct Connect has
no knowledge of any patented device or application therefor which could
materially and adversely affect the operation of the businesses of Direct
Connect, as now conducted.
(g) Except as indicated in Schedule 5.11, the Direct Connect
Trade Secrets have been, and will not be, disclosed by Direct Connect to any
person other than Direct Connect and its agents and representatives, and
comprise all of the same necessary to permit the continued operation of the
businesses of Direct Connect and its subsidiaries.
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5.12 Insurance.
(a) Except as indicated in Schedule 5.12(a), Direct Connect
maintains, and, at all times has maintained, insurance with financially sound
and reputable insurance companies insuring against such risks and in such
amounts as reasonably prudent and appropriate considering its size, business and
operations.
(b) Direct Connect is not in default with respect to any
provision of any policy of fire, liability, products liability, workers
compensation, title or other form of insurance held by it.
(c) Direct Connect has not failed to give any notice or to
submit any claim under any policy of insurance in a proper and timely fashion.
5.13 Taxes.
Except as specifically set forth on the attached schedules:
(a) Direct Connect, Sub and any combined, consolidated, unitary
or affiliated group of which Direct Connect or Sub is or has been a member on or
prior to the Closing Date (i) has paid all Taxes, required to be paid on or
prior to the Closing Date (including, without limitation, estimated Taxes) for
which Direct Connect or Sub could be held liable; (ii) has accurately and timely
filed (or timely filed an extension for), all federal, state, local and foreign
Tax Returns with respect to such Taxes required to be filed by them on or before
the Closing Date and (iii) has established an adequate accrual or reserve for
the payment of all Taxes payable in respect of the period, including portions
and contingent portions thereof, subsequent to the period covered by such
returns up to and including the Closing Date.
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(b) Direct Connect and Sub have delivered to the Company correct
and complete copies of all Tax Returns and information statements, schedules,
and worksheets which relate to Direct Connect or Sub contained within the Tax
Returns, filed with respect to Direct Connect or Sub for taxable periods ending
on or after December 31, 1993, and all examination reports and statements of
deficiencies assessed against or agreed to by Direct Connect or Sub with respect
to such taxable periods.
(c) No deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed, asserted,
or assessed by any taxing authority against, or with respect to the activities
of Direct Connect or Sub or any member of any combined, consolidated, unitary or
affiliated group of which Direct Connect or Sub is or has been a member on or
prior to the Closing Date.
(d) Neither Direct Connect nor Sub has not consented to extend
the time within which any Taxes may be assessed or collected.
(e) Neither Direct Connect nor Sub has not requested or been
granted an extension of time for the filing any Tax Return to a date later than
the Closing Date.
(f) There is no action, suit, tax authority proceeding, or audit
now in progress, pending, or threatened against or with respect to Direct
Connect or Sub with respect to any Taxes.
(g) Neither Direct Connect nor Sub has been a member of an
affiliated group or filed or been included in a combined, consolidated, or
unitary Tax Return, except for the current consolidation with its Hong Kong
subsidiary know as Amerawell Products, Limited.
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(h) No claim has ever been made by a taxing authority in a
jurisdiction where Direct Connect or Sub does not pay Taxes or file Tax Returns
that Direct Connect or Sub may be subject to the Taxes assessed by such
jurisdiction.
(i) Except as indicated in Schedule 5.13, Direct Connect has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other party pursuant to the Federal Insurance Contributions Act,
the Federal Unemployment Tax Act, or Chapter 24 of the Internal Revenue Code of
1986, as amended (the "Code"), with respect to the withholding of income tax at
the source on wages.
(j) Direct Connect and Sub have disclosed on their respective
Tax Returns or their subsidiaries and any combined, consolidated, unitary or
affiliated group of which Direct Connect or Sub is or has been a member on or
prior to the Closing Date has disclosed on their Tax Returns all positions taken
therein which could give rise to a substantial understatement of federal Tax.
(k) There is no material dispute or claim concerning any
liability for Taxes of Direct Connect or Sub either (i) claimed or raised by any
authority in writing or (ii) as to which Direct Connect or Sub has knowledge
based upon personal contact with any agent of such authority.
(l) Neither Direct Connect nor Sub (i) has filed a consent under
Code Section 341(f) concerning collapsible corporations; (ii) has made any
payments, nor is obligated to make any payments, nor is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Code Section 280G; (iii) will not have any
liability after the Closing Date pursuant to any tax allocation or sharing
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agreement; and (iv) does not have any liability for the Taxes of any person as a
transferee or successor, by contract, or otherwise, including pursuant to any
tax allocation or sharing agreement.
(m) Schedule 5.13(m) contains a list setting forth all the
states, territories, jurisdictions in which Direct Connect or Sub is required to
file a Tax Return relating to its operations and the Taxes to which Direct
Connect and Sub is subject in such jurisdictions.
(n) Neither Direct Connect nor Sub has any liability
outstanding , contingent, or proposed and will not have any liability
outstanding, contingent, or proposed resulting from the operation of Treasury
Regulations Sections 1.1502-6, or any similar state, local, or foreign
provision, arising from an obligation for Taxes of a corporation which is or was
a member of any combined, consolidated, unitary or affiliated group of which
Direct Connect or Sub is or has been a member on or prior to the Closing Date.
(o) Any allocation or sharing agreement of Direct Connect or Sub
with respect to Taxes shall be cancelled as of the date of the Closing Date.
(p) Neither Direct Connect nor Sub will recognize income or gain
as a result of the Merger pursuant to Treasury Regulation Sections 1.1502-13
or 19.
5.14 Environmental Matters.
(a) Direct Connect has no liability under, and there is no fact
currently existing that could hereafter give rise to any liability of Direct
Connect under the Environmental Laws.
(b) There is no, and has been no, discharge, spillage,
uncontrolled loss, seepage or filtration of hazardous waste (including without
limitation all inks and oils) on-site at Direct Connect's premises. All
hazardous waste on-site at the premises of Direct Connect has been and shall
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continue to be disposed of in compliance with all Environmental Laws and other
applicable laws, and is being managed in accordance with all Environmental Laws
and other applicable laws.
(c) Direct Connect has not used, and there has not been
generated, stored, disposed of, or located on its property or on premises which
it occupies, any hazardous, toxic or illegal waste or substance, including
without limitation those defined in the Resource Conservation and Recovery Act,
as amended, or any other of the Environmental Laws, nor has there been any other
pollution, contamination or similar harm to its property or on premises which it
occupies.
(d) Except as disclosed on Schedule 5.14, Direct Connect has not
received a notice or claim relating to the exposure of employees to hazardous
waste, in the course and scope of their respective employments with Direct
Connect or its predecessors.
5.15 Labor Matters.
Except as set forth in Schedule 5.15, Direct Connect is not a party to
any collective bargaining agreement and there are no material or formal
complaints, charges, cases or controversies or any conciliation agreement,
consent or decree pending or threatened against Direct Connect and any of its
employees acting individually or in concert and/or any administrative agency of
the United States government and no organization is presently attempting to
gain, petitioning for or asserting representational status with respect to any
group or groups of employees of Direct Connect, and Direct Connect is in
material compliance with Federal and state laws respecting employment practices,
terms and conditions of employment, wages and hours, and is not presently
engaged in any unfair labor practice, There is no labor strike or other labor
dispute and there is no complaint, proceeding or other action instituted under
the Equal Opportunity Act pending, threatened against Direct Connect. No key
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employee of Direct Connect has indicated that he is considering terminating his
employment.
5.16 Material Contracts, Assets, Employment Agreements
Except as disclosed in Schedule 5.16, Direct Connect has no employment
agreements or material assets, leases or contracts.
VI REPRESENTATIONS AND WARRANTIES REGARDING SUB.
Direct Connect and Sub jointly and severally represent and warrant to
the Company as follows:
6.1 Organization.
Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sub has not engaged in any
business (other than certain organizational matters) since it was incorporated.
6.2 Capitalization.
The authorized capital stock of Sub consists of 100 shares of common
stock, no par value per share, 100 shares of which are validly issued and
outstanding, fully paid and nonassessable and are owned by Direct Connect free
and clear of all liens, claims and encumbrances.
6.3 Authority Relative to this Agreement.
Sub has the corporate power to enter into this Agreement and to carry
out its obligations hereunder and thereunder, respectively. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors and sole
stockholder of Sub, respectively, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
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contemplated hereby and thereby, respectively. Except as referred to herein or
in connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act and the environmental, corporation, securities
or blue sky laws or regulations of the various states, no filing or registration
with, or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Sub of the Merger or the transactions
contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain would not
prevent the consummation of the transactions contemplated hereby or thereby.
VII. CONDITIONS PRECEDENT.
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the holders of
Direct Connect Common Stock and the Company.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) The Registration Statement and the S-1 Registration
Statement, if necessary, shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and remain in
effect.
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(d) No litigation shall be in process or pending or threatened
which challenges the validity or the propriety of the Merger, or if any federal
or state investigations is commenced with respect to any party to this Agreement
or the Merger.
7.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Direct Connect and Sub shall have performed their agreements
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Direct Connect and Sub
contained in this Agreement shall be true when made on and as of the Effective
Time as if made on and as of such date, except as contemplated by this Agreement
and except for such failures to perform agreements and such inaccuracies in
representations and warranties that in the aggregate do not constitute a Direct
Connect Material Adverse Effect; and the Company shall have received a
certificate of the Chief Executive Officer of Direct Connect and Sub to the
foregoing effect; and
(b) The Registration Statement provided for in this Agreement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order suspending the effectiveness of such registration
statement shall have been issued by the Commission and remain in effect.
(c) On the Closing Date, Direct Connect shall have at least
$1,700,000 in working capital which shall be unrestricted free cash, after
giving effect to the payment of the Omnet Note and as otherwise contemplated by
this Agreement.
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(d) On the Closing Date, Direct Connect shall have issued
the Placement Shares. The holders of the Placement Shares shall agree not to
sell or transfer such shares for a period of 12 months from the Effective Time
as evidenced by lock-up agreements dated the Closing Date.
(e) The Registration Rights Agreement, dated the Closing Date,
shall be executed by Direct Connect and the Omnet stockholders.
(f) The Global Note, the Trustee Agreement, the Pledge and
Security Agreement and the Security Agreement shall be executed by Direct
Connect and the parties thereto.
(g) The Company shall have received at the Closing Date an
opinion of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLP, counsel for Direct Connect ("▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇"), dated as of such date, addressed to the Company, in form and substance
reasonably satisfactory to the Company regarding customary corporate matters.
(h) Direct Connect shall have delivered to the Company at or
prior to the Closing Date such other documents as the Company may reasonably
request in order to enable the Company to determine whether the conditions to
their obligations under this Agreement have been met and otherwise to carry out
the provisions of this Agreement.
(i) All actions, proceedings, instruments, and documents
required by Direct Connect to carry out this Agreement or incidental thereto and
all other related legal matters shall be subject to the reasonable approval of
Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel to the Company, and Direct Connect shall
have furnished such counsel such documents as such counsel may have reasonably
requested for the purpose of enabling them to pass upon such matters.
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(j) There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
(k) There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, enforced,
or deemed applicable to the transactions contemplated by this Agreement by any
federal, state, local, or other governmental authority or by any court or other
tribunal, including the entry of a preliminary or permanent injunction, which,
in the reasonable judgment of the Company, (i) makes this Agreement, the Merger,
or any of the other transactions contemplated by this Agreement illegal, (ii)
results in a material delay in the ability of the Company, Direct Connect or Sub
to consummate the Merger or any of the other transactions contemplated by this
Agreement, or (iii) otherwise materially prohibits, restricts, or delays
consummation of the Merger or any of the other transactions contemplated by this
Agreement or materially impairs the contemplated benefits to the Company, and
the stockholders of the Company of this Agreement, the Merger or any of the
other transactions contemplated by this Agreement.
(l) There shall not have been change in the business of Direct
Connect which constitutes a Direct Connect Material Adverse Effect.
(m) Direct Connect shall reduce the contingent liabilities set
forth in Schedule 5.6 to a sum certain, pay such amount in full and obtain the
release of the party making such claim. The Direct Connect shall pay all of the
outstanding withholding taxes set forth in Schedule 5.13.
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(n) The exercise price of the (i) Series A Warrants shall have
not been adjusted to less than $.40 per share, and Series B Warrant shall have
not been adjusted to less than $.57 per share.
7.3 Conditions to Obligations of Direct Connect and Sub to Effect the
Merger.
The obligations of Direct Connect and Sub to effect the Merger shall be
subject, unless waived by Direct Connect, to the fulfillment at or prior to the
Effective Time of the additional conditions that:
(a) The Company shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Effective Time and
the representations and warranties of the Company contained in this Agreement
shall be true when made on and as of the Effective Time as if made on and as of
such date as stated therein, except as contemplated by this Agreement and except
for such failures to perform agreements and such inaccuracies in representations
and warranties that in the aggregate do not constitute a Company Material
Adverse Effect; and Company and Sub shall have received a certificate of the
Chief Executive Officer of the Company to that effect;
(b) The Registration Statement provided for in this Agreement,
shall have become effective in accordance with the provisions of the
Securities Act, and no stop order suspending the effectiveness of such
registration statement shall have been issued by the Commission and remain in
effect;
(c) Direct Connect shall have received the Fairness Opinion;
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(d) Direct Connect shall have received on the Closing Date
opinions of Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel for the Company, dated as
of such date, addressed to Direct Connect, in form and substance reasonably
satisfactory to Direct Connect regarding customary corporate matters;
(e) The Company shall have delivered to Direct Connect at or
prior to the Closing Date such other documents as Direct Connect may reasonably
request in order to enable Direct Connect to determine whether the conditions to
its obligations under this Agreement have been met and otherwise to carry out
the provisions of this Agreement;
(f) All actions, proceedings, instruments, and documents
required by the Company to carry out this Agreement or incidental thereto and
all other related legal matters shall be subject to the reasonable approval of
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ and the Company shall have furnished such counsel such
documents as such counsel may have reasonably requested for the purpose of
enabling them to pass upon such matters;
(g) There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto;
(h) There shall not have been any action taken, or any law,
rule, regulation, order, judgment, or decree proposed, promulgated, enacted,
entered, enforced, or deemed applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the reasonable judgment of Direct Connect, (i) makes this
Agreement, the the Merger, or any of the other transactions contemplated by this
-62-
Agreement illegal, (ii) results in a material delay in the ability of the
Company, Direct Connect or Sub to consummate the Merger or any of the other
transactions contemplated by this Agreement, or (iii) otherwise materially
prohibits, restricts, or delays consummation of the Merger or any of the other
transactions contemplated by this Agreement or materially impairs the
contemplated benefits to Direct Connect or the stockholders of Direct Connect of
this Agreement, the Merger or any of the other transactions contemplated by this
Agreement;
(i) There shall not have been change in the business of the
Company which constitutes a Company Material Adverse Effect; and,
(j) Prior to the Effective Time, Direct Connect shall have
received Option/Warrant Consents from the holders of Omnet Options and the Omnet
Warrants.
VIII. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Direct Connect.
(a) by mutual consent of the Board of Directors of Company and
the Board of Directors of the Direct Connect;
(b) by either Direct Connect or the Company if the Merger shall
not have been consummated on or before the Release Time provided the terminating
party is not otherwise in material breach of its representations, warranties or
obligations under this Agreement;
(c) by either Direct Connect or the Company, if the Direct
Connect Meeting, or any adjournments thereof, shall have been concluded without
having obtained votes of the holders of Direct Connect Common Stock sufficient
for the required stockholder approval of the Direct Connect Merger Proposal, or
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if the Company Meeting, or any adjournments thereof, shall have been concluded
without having obtained votes of the holders of Company Common Stock sufficient
for the requisite stockholder approval of the Merger and adoption of this
Agreement (provided the terminating party is not otherwise in material breach of
its representations, warranties or obligations under this Agreement).
8.2 Effect of Termination.
In the event of termination of this Agreement by either Direct Connect
or the Company, as provided above, this Agreement shall forthwith become void
and there shall be no liability on the part of either the Company, Company or
Sub or their respective officers or directors, except for the payment of the
Omnet Note, and each party shall pay their respective expenses associated with
this Agreement or the transactions contemplated by this Agreement.
8.3 Amendment.
This Agreement may be amended by the parties hereto, by or pursuant to
action taken by their respective Boards of Directors, at any time before or
after approval hereof by the stockholders of the Company and Direct Connect,
but, after such approval, no amendment shall be made which changes the exchange
ratio at which Company Common Stock is to be converted into Direct Connect
Common Stock as provided in or which in any way materially adversely affects the
rights of such stockholders, without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.4 Waiver.
At any time prior to the Effective Time, the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, may (i) extend
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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 documents 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 an instrument in writing signed on
behalf of such party.
8.5 Indemnification.
(a) Direct Connect will provide each individual who served as a
director or officer of Direct Connect at any time prior to the Effective Time
with liability insurance for a period of 6 years after the Effective Time no
less favorable in coverage and amount than any applicable insurance in effect
immediately prior to the Effective Time.
(b) Direct Connect agrees that all rights to indemnification
existing in favor of the directors, officers or employees of the Company as
provided in the Company's Articles of Incorporation or By-laws or in
indemnification agreements with the Company, in each case as in effect as of the
date hereof, with respect to matters occurring on or prior to the Effective
Time, shall survive the Merger and shall continue in full force and effect
without limitation as to time.
indemnify each individual who served as a director or officer of Direct Connect
or the Company at any time prior to the Effective Time from and against any and
all actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including all court costs
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and reasonable attorneys' fees and expenses, resulting from, arising out of,
relating to, in the nature of, or caused by this Agreement or any of the
transactions contemplated herein.
IX GENERAL PROVISIONS.
9.1 Non-Survival of Representations, Warranties and Agreements.
The representations, warranties, covenants and agreements contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Merger for one year after the Effective Time.
9.2 Notices.
All notices or other communications under this Agreement shall be in
writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex, overnight courier or
other standard form of telecommunications, or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company: Omnet Technology Corporation
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: (508) 865-7762
(▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
(which copy shall not ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
constitute Notice) ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Direct Connect: ▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
General Counsel
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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With a copy to: ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
(which copy shall not ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor
constitute Notice) ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
9.3 Fees and Expenses.
Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
9.4 Publicity.
So long as this Agreement is in effect, Direct Connect, Sub and the
Company agree to consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with any
national securities exchange or NASDAQ.
9.5 Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
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injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.6 Miscellaneous.
This Agreement (including the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof, (b) is not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise, except that Sub shall have the
right to assign to Direct Connect or any direct wholly owned subsidiary of
Direct Connect any and all rights and obligations of Sub under this Agreement.
The rights of any third-party beneficiary hereunder are not subject to any
defense, offset or counterclaim. This Agreement, except to the extent that the
Delaware corporate law is mandatorily applicable to the Merger and the rights of
the stockholders of Direct Connect and the Company, shall be governed in all
respects by the laws of the State of New York (without giving effect to the
provisions thereof relating to conflicts of law). The exclusive venue for the
adjudication of any dispute or proceeding arising out of this Agreement or the
performance thereof shall be the federal or state courts located in the State of
New York, County of New York and the parties hereto and their affiliates each
consents to and hereby submits to the jurisdiction of any court located in the
State of New York. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
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IN WITNESS WHEREOF, Direct Connect, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
OMNET TECHNOLOGY CORP., INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title:President
DIRECT CONNECT INTERNATIONAL INC.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chairman
D-C MERGER SUB CORP.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chairman
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Schedule 3.1(e)
1998 Omnet Technology Corp. Incentive and Non-Qualified 401(k) Plan
for Omnet Technology Corp.
Schedule 3.16
See Schedule 4.2.
Schedule 4.2
The Company may issue options to purchase up to 300,000 shares of Omnet
Common Stock prior to the Closing pursuant to the terms of the 1998 Omnet
Technology Corp. Incentive and Non- Qualified Stock Option Plan.
The Company may issued Warrants to purchase 50,000 shares of Omnet
Common Stock.
Schedule 4.4
Schedule of Consents due prior to closing.
------------------------------------------
(Please note each individual contract needs to be researched to determine if an
actual consent is needed. That research will be completed, along with the
obtaining of the necessary consents, prior to the closing.)
Primary Lender
Mr. ▇▇▇▇ ▇▇▇▇▇▇
Coast Business Credit (a division of Southern Pacific Bank)
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Lessors:
Bombardier Capital Inc.
P. O. Box 991
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Prime Leasing Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
General Electric Capital Corporation
▇▇-▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
LeaseTec Corporation
P. O. ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gauss-M2 Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Textron Financial
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
BankVest\LeaseVest
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Coresates
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Finova
▇▇ ▇. ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ikon Capital
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
A T & T
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Execulease
▇▇▇ Farm Corp Park
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Associate Commercial
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
P. O. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Landlord:
AAA Mass Turnpike
Southbridge Street
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Swanwa
▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Schedule 4.7
The Company is implementing a 401(k) plan prior to closing.
Schedule 4.11
Service Marks
Mezzoman
▇▇▇▇.▇▇▇
Schedule 5.2
DIRECT CONNECT INTERNATIONAL (DCI)
I. Outstanding options to purchase shares of DCI common stock:
A. ISOP Options
422,809 - exercisable at $ .19 to $1.16 per share, expires
as extended through May 27, 2002, held by:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 136,304
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 86,505
▇▇▇▇ ▇▇▇▇▇▇ 86,000
▇▇▇▇▇ ▇▇▇▇▇▇ 71,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ 32,000
DCI employees 11,000
B. Other Options
200,000 - held by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ re Kidsview Management
Agreement, exercisable at $ .20 per share through July 2000.
II. Outstanding warrants to purchase shares of DCI common stock:
A. 38,890 held by private placement holders, exercisable at $ .20
per share, after filing of Certificate of Amendment to
increase capital stock.
▇▇▇▇▇ ▇▇▇▇▇▇▇ 33,334
▇▇▇▇▇ ▇▇▇▇▇▇ 5,556
B. 6,488,517 Class A Warrants - publicly held - exercisable
at $ .53 per share - holder will receive, upon exercise, (i)
1.8868 shares of DCI Common Stock for each $1.00 of exercise
price and (ii) one Class B Warrant (expires as extended on
March 31, 1999).
C. A maximum of 6,488,517 Class B Warrants - held by Class A
Warrant holders - exercisable at $ .75 per share - holder
will receive, upon exercise, one share of DCI Common Stock
(expires as extended on March 31, 1999).
D. 750,000 held by Noteholders, exercisable at $ .05 per share,
expires November 23, 1998.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 300,000
▇▇▇▇▇ ▇▇▇▇▇▇ 150,000
▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ 37,500
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 75,000
▇▇▇▇▇ ▇▇▇▇▇▇ 75,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ 75,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 37,500
E. 500,000 held by Noteholders, exercisable at $ .20 per share,
expires November 23, 1998.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 200,000
▇▇▇▇▇ ▇▇▇▇▇▇ 100,000
▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ 25,000
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 50,000
▇▇▇▇▇ ▇▇▇▇▇▇ 50,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ 50,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 25,000
F. 95,000 held by Capital Vision Group, exercisable at $ .20 per
share, expires November 23, 1998.
G. 100,000 held by Evolutions, Inc., exercisable at $ .10 per
share, expires 5 years after filing of Certificate of
Amendment to increase capital stock.
250,000 held by Evolutions, Inc., exercisable at $ .20 per
share, expires 5 years after filing of Certificate of
Amendment to increase capital stock.
Evolutions is currently in bankruptcy.
H. 100,000 held by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ exercisable at $ .20 per share,
expires in June 2002.
III. Miscellaneous.
A. Agreement between DCI and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, dated July 3,
1996, regarding issuance by DCI of an aggregate of 320,000
shares of DCI common stock in full payment of amount
outstanding for legal services.
Schedule 5.3
Amerawell Products, Limited
Schedule 5.6
There are no material legal proceedings pending or, to the knowledge of Direct
Connect, threatened to which the property of Direct Connect is subject or to
which Direct Connect is or may be a party except for a potential claim from a
customer of Kidsview, Inc. alleging Direct Connect's responsibility for a credit
balance of approximately $200,000.
Schedule 5.12(a)
Direct Connect has no product liability insurance.
Schedule 5.13
There are approximately $25,000 of withholding tax deficiencies.
Schedule 5.13(m)
Direct Connect:
- New Jersey
- Delaware
Amerawell:
- Hong Kong
Schedule 5.16
Datatec Stock beneficially owned by Direct Connect.