Exhibit 10.23
AGREEMENT AND PLAN OF MERGER
among
ACQUIROR:
iMALL, INC.
________________________
SUB:
PAYMENT SOLUTIONS, INC.
________________________
TARGET:
PURE PAYMENTS INCORPORATED
________________________
PRINCIPALS:
▇▇▇▇▇▇ ▇▇▇▇▇▇ AND ▇▇▇▇▇▇▇ ▇▇▇▇
March 8, 1999
TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS.................................................... 1
1.1. Defined Terms..................................................... 1
1.2. Other Defined Terms............................................... 4
ARTICLE II. THE MERGER.................................................... 5
2.1. Approval of Merger................................................ 5
2.2. The Merger........................................................ 5
2.3. Effect of the Merger.............................................. 5
2.4. Effect on Capital Stock........................................... 5
2.5. Assumption of Options............................................. 6
2.6. Charter Documents, Directors, Officers............................ 7
2.7. Escrow of Acquiror Common Stock................................... 7
2.8. Capital Stock of Sub.............................................. 7
2.9. Delivery of Certificates.......................................... 8
2.10. No Further Ownership Rights in Target Stock....................... 8
2.11. Lost, Stolen or Destroyed Certificates............................ 8
2.12. Tax Free Reorganization........................................... 8
2.13. Transfer Taxes.................................................... 9
ARTICLE III. THE CLOSING.................................................... 9
3.1. The Closing....................................................... 9
3.2. Deliveries at the Closing......................................... 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET........... 9
4.1. Organization, Qualification and Corporate Power................... 9
4.2. Authorization of Transaction...................................... 9
4.3. Noncontravention.................................................. 10
4.4. Brokers' Fees..................................................... 10
4.5. Investment........................................................ 10
4.6. Target Stock...................................................... 11
4.7. Capitalization.................................................... 11
4.8. Title to Assets................................................... 12
4.9. Financial Statements.............................................. 12
4.10. Events Subsequent to Target's Most Recent Fiscal Month End........ 12
4.11. Litigation; Compliance with Laws.................................. 13
4.12. Tax Matters....................................................... 13
4.13. Intellectual Property; Proprietary Information of Third parties... 14
4.14. Contracts......................................................... 15
4.15. Real Property..................................................... 16
4.16. Tangible Assets................................................... 17
4.17. Undisclosed Liabilities........................................... 17
4.18. Notes and Accounts Receivable..................................... 17
4.19. Powers of Attorney................................................ 17
i
4.20. Insurance......................................................... 17
4.21. Product Liability................................................. 18
4.22. Guaranties........................................................ 18
4.23. Environment, Health, and Safety................................... 18
4.24. Employees......................................................... 18
4.25. Employee Benefits................................................. 19
4.26. Transactions With the Target...................................... 20
4.27. Disclosure........................................................ 21
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND THE SUB..... 21
5.1. Organization, Qualification and Corporate Power................... 21
5.2. Authorization of Transaction...................................... 21
5.3. Noncontravention.................................................. 21
5.4. Brokers' Fees..................................................... 22
5.5. Investment........................................................ 22
5.6. Capitalization.................................................... 22
5.7. Title to Assets................................................... 23
5.8. SEC Documents..................................................... 23
5.9. Events Subsequent to September 30, 1998........................... 23
5.10. Litigation; Compliance With Laws.................................. 24
5.11. Tax Matters....................................................... 24
5.12. Intellectual Property; Proprietary Information of Third parties... 25
5.13. Contracts......................................................... 26
5.14. Employees......................................................... 26
5.15. Transactions With Affiliates...................................... 26
5.16. Disclosure........................................................ 27
ARTICLE VI. PRE-CLOSING COVENANTS.......................................... 27
6.1. General........................................................... 27
6.2. Shareholders' Consent............................................. 27
6.3. Notices and Consents.............................................. 27
6.4. Operation of Business............................................. 27
6.5. Preservation of Business.......................................... 28
6.6. Full Access....................................................... 28
6.7. Notice of Developments............................................ 28
6.8. Exclusivity....................................................... 28
ARTICLE VII. POST-CLOSING COVENANTS......................................... 29
7.1. General........................................................... 29
7.2. Litigation Support................................................ 29
7.3. Transition........................................................ 29
7.4. Confidentiality................................................... 29
7.5. Escrow Agreement.................................................. 30
7.6. Employment Agreements............................................. 30
7.7. Covenant Not to Compete........................................... 30
ii
7.8. Merger Shares..................................................... 31
ARTICLE VIII. CONDITIONS TO OBLIGATION TO CLOSE.............................. 32
8.1. Conditions to Obligation of the Acquiror and Sub.................. 32
8.2. Conditions to Obligation of the Principals........................ 33
ARTICLE IX. REMEDIES FOR BREACHES OF THIS AGREEMENT........................ 34
9.1. Survival of Representations and Warranties........................ 34
9.2. Indemnification Provisions for Benefit of the Acquiror............ 35
9.3. Indemnification Provisions for Benefit of the Principals.......... 36
9.4. Procedure for Claims between Parties.............................. 36
9.5. Matters Involving Third parties................................... 37
9.6. Determination of Adverse Consequences............................. 38
9.7. Other Indemnification Provisions.................................. 38
ARTICLE X. TAX MATTERS.................................................... 38
10.1. Tax Periods Ending on or Before the Closing Date.................. 38
10.2. Tax Periods Beginning Before and Ending After the Closing Date.... 38
10.3. Refunds and Tax Benefits.......................................... 39
10.4. Cooperation on Tax Matters........................................ 39
10.5. Tax Sharing Agreements............................................ 40
10.6. Certain Taxes..................................................... 40
ARTICLE XI. TERMINATION.................................................... 40
11.1. Termination of Agreement.......................................... 40
11.2. Effect of Termination............................................. 41
ARTICLE XII. MISCELLANEOUS.................................................. 41
12.1. No Third-party Beneficiaries...................................... 41
12.2. Entire Agreement.................................................. 41
12.3. Succession and Assignment......................................... 41
12.4. Counterparts...................................................... 41
12.5. Headings.......................................................... 41
12.6. Notices........................................................... 42
12.7. Governing Law..................................................... 42
12.8. Amendments and Waivers............................................ 42
12.9. Severability...................................................... 43
12.10. Expenses.......................................................... 43
12.11. Construction...................................................... 43
12.12. Incorporation of Exhibits and Schedules........................... 43
Exhibit A-Form of Escrow Agreement
Exhibit B-Target's Financial Statements
Exhibit C-Form of Employment
Exhibit D-Form of Opinion of Counsel to the Principals
Exhibit E-Form of Opinion of Counsel to the Acquiror
iii
Schedules-Exceptions to Representations and Warranties
iv
AGREEMENT AND PLAN OF MERGER
This Agreement is entered into on March 8, 1999, by and among (i) iMALL,
Inc., a Nevada corporation (the "Acquiror"), (ii) Payment Solutions, Inc., a
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Delaware corporation ("Sub"), (iii) Pure Payments Incorporated a Delaware
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corporation (the "Target"), and (iv) ▇▇▇▇▇▇ ▇▇▇▇▇▇, an individual and ▇▇▇▇▇▇▇
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▇▇▇▇, an individual (together, the "Principals")
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WHEREAS, the respective boards of directors of the Acquiror, the Sub and
the Target, and the requisite number of shareholders of the Target, have
approved the combination of the businesses of the Acquiror and the Target
pursuant to this Agreement; and
WHEREAS, in furtherance of such combination, the respective boards of
directors of the Acquiror, the Sub and the Target have approved the merger of
the Sub with and into the Target with the Target being the surviving corporation
(the "Merger") pursuant to the terms of this Agreement and in accordance with
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the applicable provisions of the Delaware General Corporation Law (the "DGCL");
----
and
WHEREAS, pursuant to the Merger, each outstanding share of capital stock of
the Target shall be converted into the right to receive shares of capital stock
of the Acquiror, upon the terms and subject to the conditions set forth herein;
and
WHEREAS, the parties intend that the transaction contemplated herein will
qualify as a reorganization within the meaning of Section 368(a) of the Code;
and
WHEREAS, in connection with the Merger, the parties desire to set forth
certain representations, warranties and covenants made by each to the other or
others as an inducement to the consummation of the Merger, upon the terms and
subject to the conditions contained herein; and
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties agree as follows.
ARTICLE I.
DEFINITIONS
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1.1. Defined Terms. As used herein, the terms below have the following
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meanings:
"Accredited Investor" has the meaning set forth in Regulation D promulgated
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under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, net Taxes (after taking
into account any Tax savings), liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
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promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
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(S)1504(a).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of a party that is not already generally available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code
--------------------------------
(S)1563.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
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retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
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"Environmental, Health and Safety Laws" means the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
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Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
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"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Knowledge" means actual knowledge of the officers, directors or
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individuals, as the case may be, provided that such individuals have not
intentionally avoided such knowledge.
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"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
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"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, an association,
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a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)406 and Code
----------------------
(S)4975.
"Reportable Event" has the meaning set forth in ERISA (S)4043.
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"SEC" means the Securities and Exchange Commission.
---
"SEC Documents" means all documents filed by the Acquiror with the SEC
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since January 1, 1996.
"Securities Act" means the Securities Act of 1933, as amended.
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"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (i) mechanic's, materialmen's, and
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similar liens, (ii) liens for Taxes not yet due and payable, (iii) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (iv) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Target's Most Recent Balance Sheet" means the balance sheet contained
----------------------------------
within the Target's Financial Statements.
"Tax" or "Taxes" shall mean any federal, state, local, foreign or other
--- -----
Tax, levy, impost, fee, assessment or other governmental charge, including
without limitation income, estimated income, gross receipts, business,
occupation, franchise, property, payroll, personal property, sales, transfer,
use, employment, commercial rent, occupancy, escheat or withholding Taxes, and
any premium, together with any interest, penalties and additions in connection
with the foregoing.
"Tax Return" shall mean any return (including any information return),
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declaration, report, estimate, statement, schedule, notice, form or other
document or information filed with or submitted to, or required to be filed with
or submitted to, any governmental body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of, or compliance with, any legal
requirement relating to any Tax.
3
1.2. Other Defined Terms. As used herein, the terms below have the
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meanings defined for such terms in the following sections:
Term Section
---- -------
Acquiror Preface
Acquiror Indemnified Party................ 9.2.1
Acquiror Common Stock..................... 2.4
Acquiror's Most Recent Balance Sheet...... 5.7
Acquiror's Series A Preferred Stock....... 5.6
Certificate of Designation................ 5.6
Certificates.............................. 2.9
Change of Control......................... 7.8.3
Claim Notice.............................. 9.4.1
Closing................................... 3.1
Closing Date.............................. 3.1
DGCL...................................... Preface
Effective Time............................ 2.2
Effective Date............................ 2.2
Escrow Agreement.......................... 2.7
Holdback Amount........................... 2.7
Indemnified Party......................... 9.5.1
Indemnifying Party........................ 9.5.1
Indemnification Termination Date.......... 2.7
Indemnitor................................ 9.4.1
Intellectual Property..................... 4.13.1
Material Adverse Effect................... 4.1
Merger.................................... Preface
Merger Shares............................. 2.4
Principals................................ Preface
Proposed Acquisition
Transaction............................. 6.8
Right of First Refusal.................... 7.8.4
Sellers................................... 2.7
Series A Agreements....................... 4.7
Shareholders.............................. 2.1
Shareholders' Consent..................... 2.1
Sub....................................... Preface
Surviving Corporation..................... 2.2
Target.................................... Preface
Target Stock............................. 2.9
Target's Financial Statements............. 4.9
Target's Most Recent Fiscal
Month End............................... 4.9
Target's Series A Preferred
4
Term Section
---- -------
Stock................................... 4.7
Third party Claim......................... 9.5.1
ARTICLE II.
THE MERGER
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2.1. Approval of Merger. The Merger shall be submitted for adoption and
------------------
approval to the shareholders of the Target (the "Shareholders") in a manner
------------
allowed under the DGCL (the "Shareholders' Consent"). The Acquiror, the Sub and
---------------------
the Target shall coordinate and cooperate with respect to the timing of the
Shareholders' Consent and the Principals agree that they shall vote in favor of
and approve this Agreement and the Merger.
2.2. The Merger. Promptly following the execution of this Agreement and
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as soon as is practicable after the satisfaction or waiver of the other
conditions contained herein, the parties hereto will cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware the
Certificate of Merger, in such form or forms as are required by, and executed in
accordance with, the relevant provisions of the DGCL (the time of such filing
being the "Effective Time" and the date upon which the Effective Time occurs,
--------------
being the "Effective Date"). At the Effective Time, in accordance with this
--------------
Agreement and the DGCL, the Sub shall be merged with and into the Target, the
separate existence of the Sub shall cease and the Target shall continue as the
surviving corporation under the corporate name it possesses immediately prior to
the Effective Time. The Target, as the surviving corporation after the Merger,
is sometimes referred to herein as the "Surviving Corporation."
---------------------
2.3. Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchise of Sub and Target shall vest in the Surviving
Corporation. As of the Effective Time, the Surviving Corporation will be a
wholly-owned subsidiary of the Acquiror.
2.4. Effect on Capital Stock. The number of shares of Acquiror common
-----------------------
stock, par value $.008 (the "Acquiror Common Stock") to be issued (including
---------------------
Acquiror Common Stock to be reserved for issuance upon exercise of any of the
Target's options to be assumed by Acquiror pursuant to Section 2.5) in exchange
for the acquisition by Acquiror of all outstanding capital stock of Target and
all outstanding unexpired and unexercised options to acquire capital stock (as
set forth on Schedule 1 hereto and collectively referred to as the "Options") of
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the Target shall be Four Hundred and Fifty Thousand (450,000) (the "Merger
------
Shares").
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2.4.1. Conversion of Target Common Stock. Each share of Target
---------------------------------
Common Stock issued and outstanding immediately prior to the Effective Time
shall be converted, subject to Section 2.4.3 and Section 2.4.4, into the right
to receive .05863746 of a share of Acquiror Common Stock. All such shares of
Target Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the shares of Acquiror
Common Stock into
5
which such Target Common Stock has been converted. Certificates previously
representing shares of Target Common Stock shall be exchanged for certificates
representing whole shares of Acquiror Common Stock issued in consideration
therefor upon the surrender of such certificates in accordance with Section 2.7
(or in the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 2.9).
2.4.2. Conversion of Target Preferred Stock. Each share of Target
------------------------------------
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall be converted, subject to Section 2.4.3 and Section 2.4.4, into the right
to receive .05863746 of a share of Acquiror Common Stock. All such shares of
Target Preferred Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the shares of Acquiror
Common Stock into which such Target Preferred Stock has been converted.
Certificates previously representing shares of Target Preferred Stock shall be
exchanged for certificates representing whole shares of Acquiror Common Stock
issued in consideration therefor upon the surrender of such certificates in
accordance with Section 2.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 2.9).
2.4.3. Canceled Shares. Each share of capital stock of the Target
---------------
held in the treasury of the Target shall automatically cease to be outstanding,
be canceled and retired and no payment or conversion into Acquiror Common Stock
will be made with respect thereto.
2.4.4. Fractional Shares. No certificates or scrip representing
-----------------
fractional shares of Acquiror shall be issued in connection with the Merger, and
such fractional share interests will be canceled and thereafter will not entitle
the owner thereof to vote or to any rights as a stockholder of Acquiror.
2.5. Assumption of Options.
---------------------
2.5.1. At the Effective Time, each outstanding Option, whether vested
or unvested, shall be assumed by Acquiror and constitute an option to acquire,
on the same terms and conditions as were applicable under such Option prior to
the Effective Time, the number (rounded down to the nearest whole number) of
shares of Acquiror Common Stock as the holder of such Option would have been
entitled to receive pursuant to the Merger had such holder exercised such Option
in full immediately prior to the Effective Time (not taking into account whether
or not such Option was in fact exercisable), at a price per share equal to (x)
the aggregate exercise price for the Target Common Stock purchasable pursuant to
such Option (not taking into account whether or not such Option was in fact
exercisable) divided by (y) the number of shares of Acquiror Common Stock deemed
purchasable pursuant to such assumed Option (rounded to the nearest whole
number). At and after the Effective Time, Acquiror will honor all obligations
with respect to such Options under the terms of such Options as in effect on the
date hereof.
2.5.2. As soon as practicable after the Closing Date, Acquiror shall
deliver to each holder of an outstanding Option an appropriate notice setting
forth such holder's rights pursuant thereto, and such Option shall otherwise
continue in effect on the same terms and conditions as were in effect prior to
the Effective Time.
6
2.5.3. It is the intention of the parties that the Options assumed by
the Acquiror qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent the Options qualified as
incentive stock options immediately prior to the Effective Time.
2.6. Charter Documents, Directors, Officers. At and as of the Effective
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Time, (i) the Certificate of Incorporation and the By-laws of the Target shall
be the Certificate of Incorporation and By-laws of the Surviving Corporation
until thereafter amended as provided by the DGCL, (ii) the directors of the Sub
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation, until their successors are elected and qualified and
(iii) the officers of the Sub immediately prior to the Effective Time will be
the initial officers of the Surviving Corporation, until their successors are
elected and qualified.
2.7. Escrow of Acquiror Common Stock. Notwithstanding the provisions of
-------------------------------
this Article 2, Target shall place in escrow pursuant to the terms of the escrow
agreement (the "Escrow Agreement") in form and substance as set forth on Exhibit
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A hereto that number of Acquiror Common Stock equal to 25% of the total Merger
-
Shares of the Principals (the "Holdback Amount") allocated on a pro rata basis
---------------
between both Principals. On the date eighteen (18) months after the Closing Date
(or the first business day thereafter) (the "Indemnification Termination Date"),
--------------------------------
the escrow agent will distribute all shares of Merger Shares remaining in the
escrow account from the Holdback Amount after the escrow agent's application of
amounts held pursuant to the Escrow Agreement in payment of the Target and
Principals' indemnification obligations to Acquiror and Sub to an account in the
United States designated by the Stockholder Representative (as defined in the
Escrow Agreement) to the escrow agent in writing at least ten (10) business days
prior to the Indemnification Termination Date. The escrow agent may withhold
from the payment any amounts then in dispute relating to indemnification
obligations of the indemnifying shareholders (the "Sellers") arising under this
Agreement and the Escrow Agreement.
2.8. Capital Stock of Sub. At the Effective Time, each share of Common
--------------------
Stock of Sub issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive one (1) validly issued, fully paid
and nonassessable share of Common Stock of Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
2.9. Delivery of Certificates. At the Effective Time, Acquiror shall make
------------------------
available, and each holder of Target Common Stock or Target Preferred Stock
(together with the Target Common Stock, the "Target Stock") shall be entitled to
------------
receive upon surrender to Acquiror or its representatives of any certificate or
certificates evidencing such Target Stock (the "Certificates") for cancellation
------------
together with any reasonable supporting documentation requested by Acquiror,
including a tax identification number, the aggregate number of Merger Shares to
be issued pursuant to Section 2.4 into which such Target Stock shall have been
converted in the Merger, and upon such surrender of each Certificate and
delivery by Acquiror of the aggregate number of Merger Shares in exchange
therefor, such Certificates shall forthwith be canceled. Until so surrendered,
each Certificate shall be deemed for all corporate purposes to evidence only the
right to receive upon such surrender the aggregate number of Merger Shares into
which the Target Stock represented thereby shall have been converted.
7
2.10. No Further Ownership Rights in Target Stock. All shares of Acquiror
-------------------------------------------
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article 2 shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the shares of Target
Stock theretofore represented by such Certificates, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Target Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article 2, except as otherwise provided by
law.
2.11. Lost, Stolen or Destroyed Certificates. In the event that any
--------------------------------------
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Acquiror, the posting by such Person of
a bond in such reasonable amount as Acquiror may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate the
Acquiror Common Stock and any unpaid dividends or distributions with respect to
Acquiror Common Stock, to which they are entitled pursuant hereto.
2.12. Tax Free Reorganization. The Merger is intended to be a
-----------------------
reorganization within the meaning of Section 368(a) of the Code and this
Agreement is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the Code, and the Acquiror will not
take any action contrary to such intention.
2.13. Transfer Taxes. Each holder of shares of Target Stock shall be
--------------
responsible for any stock transfer taxes and any sales, use or other taxes
imposed by reason of the exchange by such holder of shares of Target Stock for
the Merger Shares as provided hereunder and any deficiency, interest or penalty
asserted with respect thereto.
ARTICLE III.
THE CLOSING
3.1. The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
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▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, commencing at 9:00
a.m. local time, on the business day following the satisfaction or waiver of
the conditions contained herein (other than conditions with respect to actions
the respective parties will take at the Closing itself) (the "Closing Date");
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provided, however, that the Closing Date shall be no later than March 16, 1999.
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3.2. Deliveries at the Closing. At the Closing, (i) the Principals will
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deliver to the Acquiror the various certificates, instruments, and documents
referred to in Section 8.1 below and (ii) the Acquiror will deliver to the
Principals the various certificates, instruments, and documents referred to in
Section 8.2 below.
8
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
CONCERNING THE TARGET
---------------------
Each of the Principals and Target represent and warrant to the Acquiror and
the Sub that the statements contained in this Article 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4), except as
set forth in the Disclosure Schedules attached hereto as of the date hereof.
4.1. Organization, Qualification and Corporate Power. The Target is a
-----------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the business,
financial condition, operations, results of operations or future prospects
("Material Adverse Effect") of the Target. The Target has full corporate power
-----------------------
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. Schedule 4.1 hereto lists the directors
------------
and officers of the Target.
4.2. Authorization of Transaction. The Target and the Principals have
----------------------------
full power and authority to execute and deliver this Agreement and to perform
its or their obligations hereunder. Assuming the due authorization, execution
and delivery by the Acquiror and the Sub, this Agreement constitutes the valid
and legally binding obligation of the Target and the Principals, enforceable in
accordance with its terms and conditions, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability. Other than the filings pursuant to the Merger, neither the Target
nor the Principals need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
4.3. Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target or either of the Principals is
subject or any provision of the charter or bylaws of the Target or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Target or either of the Principals
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets),
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect on the Target or either of the
Principals or impede the ability of the parties to consummate the transactions
contemplated by this Agreement. Other than the filings pursuant to the Merger,
neither the Target nor the Principals need give any notice to, make any filing
with, or
9
obtain any authorization, consent, or approval of any government or governmental
agency in order for the parties to consummate the transactions contemplated by
this Agreement, except where the failure to give notice, to file, or to obtain
any authorization, consent, or approval would not have a Material Adverse Effect
on the Target or the Principals, as the case may be, or impede the ability of
the parties to consummate the transactions contemplated by this Agreement.
4.4. Brokers' Fees. Neither of the Principals nor the Target has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Acquiror could become liable or obligated.
4.5. Investment.
----------
4.5.1. Each of the Sellers of Target Stock understands that (i) the
Merger Shares have not been registered under the Securities Act, nor qualified
under the securities laws of any other jurisdiction, (ii) the Merger Shares
cannot be resold unless it subsequently is registered under the Securities Act
and qualified under applicable state securities laws or foreign securities laws,
unless exemptions from such registration and qualification requirements are
available, and (iii) the Seller has no right to require such registration or
qualification.
4.5.2. The Merger Shares to be received by the Sellers pursuant to
this Agreement will be acquired for each Seller's own account and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, any applicable state securities laws or foreign securities laws, and the
Merger Shares will not be disposed of in contravention of the Securities Act or
any applicable state securities laws or foreign securities laws.
4.5.3. Each Seller is an accredited investor as such term is defined
in Section 501 of Regulation D of the Securities Act, has substantial knowledge
and experience in financial and business matters, has specific experience making
investment decisions of a similar nature, and is capable, without the use of a
financial advisor, of utilizing and analyzing the information made available in
connection with the acquisition of the Merger Shares under this Agreement and of
evaluating the merits and risks of an investment in the Merger Shares. Each
Seller will provide the Acquiror with such information concerning any prior
investment experience, business or professional experience and other information
as the Acquiror may deem necessary to further evaluate the foregoing
representations.
4.5.4. Each Seller has carefully reviewed and understands the risks
of, and other considerations relating to, an investment in the Merger Shares.
4.5.5. Each Seller is able to bear the economic risk of his
investment in the Merger Shares for an indefinite period of time because the
Merger Shares have not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act or an
exemption from such registration is available and are subject to additional
restrictions, including without limitation, rights of repurchase, rights of
first refusal and restrictions on transfer as provided in this Agreement.
10
4.5.6. Each Seller has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Merger Shares, has had full access to such other information concerning the
Acquiror as the Shareholder has requested and has not received and is not
relying upon any written offering literature or prospectus.
4.6. Target Stock. Each Seller holds of record and owns beneficially the
------------
Target Stock set forth next to his name in Schedule 1 hereto, free and clear of
----------
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands. None of
the Sellers is a party to any option, warrant, purchase right, or other contract
or commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Target (other than this Agreement). None of
the Sellers is not a party to any voting trusts or agreements, proxy, or other
agreement or understanding with respect to the voting of any capital stock of
the Target.
4.7. Capitalization. The authorized capital stock of the Target consists
--------------
of 15,500,000 shares of common stock, par value $.0001 ("Target's Common Stock")
---------------------
and 1,500,000 shares of preferred stock, par value $.0001 per share, all of
which shares have been designated Series A Preferred Stock ("Target's Series A
-----------------
Preferred Stock"). As of the Closing Date, 5,630,458 shares of the Target's
---------------
Common Stock and 1,499,600 shares of the Target's Series A Preferred Stock will
be validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof. The Target's Series A Preferred
Stock is the only series of preferred stock of the Target issued and
outstanding. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Target are as set forth in its charter and the Series A
Preferred Stock Purchase Agreement and the Investor Rights Agreement
(collectively, the "Series A Agreements"), and all such designations, powers,
-------------------
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. Except as
set forth in the charter or the Series A Agreements, (i) the capital stock of
the Target is free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands and (ii) the Target is not a party to any option,
warrant, purchase right, or other contract or commitment that could require the
Target to sell, transfer, or otherwise dispose of any of its capital stock. The
Target has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof. Except for this
Agreement, there are no voting trusts or agreements, stockholders agreements,
pledge agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of the Target.
4.8. Title to Assets. The Target has good and marketable title to, or a
---------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Target's Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the
Target's Balance Sheet.
11
4.9. Financial Statements. Attached hereto as Exhibit A are the following
-------------------- ---------
financial statements (collectively the "Target's Financial Statements"): (i)
-----------------------------
unaudited consolidated balance sheets and statements of income as of and for the
3 months ended February 28, 1999 (the "Target's Most Recent Fiscal Month End")
-------------------------------------
for the Target. The Target's Financial Statements fairly reflect the financial
condition of the Target as of such dates and the results of operations of the
Target for such periods; provided, however, that the Target's Financial
-----------------
Statements are prepared on a cash basis, have not been prepared in accordance
with GAAP, and do not include reserves or other such entries in accordance with
GAAP.
4.10. Events Subsequent to Target's Most Recent Fiscal Month End. Since
----------------------------------------------------------
Since the Target's Most Recent Fiscal Month End, there has been no change in the
assets, liabilities or financial condition of the Target, except for changes in
the Ordinary Course of Business which individually or in the aggregate have not
had a Materially Adverse Effect on the Target, and there has not been a Material
Adverse Effect on the Target by any occurrence, state of facts or development,
individually or in the aggregate, whether or not insured against. Without
limiting the generality of the foregoing, since that date the Target has not:
(i) issued any stock, bond or other security (except shares issued in connection
with the exercise of employee stock options), (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred in the Ordinary Course of Business and
liabilities under contracts entered into in the Ordinary Course of Business,
(iii) declared or made any payment or distribution to equity holders or
purchased or redeemed any share of its capital stock or other security, (iv)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current Taxes not yet due and payable, except
for mortgages, pledges or liens that do not exceed $50,000 in the aggregate, (v)
sold, assigned or transferred any of its assets except in the Ordinary Course of
Business, or canceled any debt or claim, (vi) suffered any material loss of
property or waived any right of substantial value whether or not in the Ordinary
Course of Business, (vii) made any material change to the Target's employee
benefit plans, (viii) made any change in the Target's accounting principles and
practices, (ix) made any material change in the manner of business or
operations, (x) entered into any material transaction except in the Ordinary
Course of Business or as otherwise contemplated hereby or (xi) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
4.11. Litigation; Compliance with Laws. There is no (i) action, suit,
--------------------------------
claim, proceeding or investigation pending or, to the Knowledge of the Target
and the Principals, threatened against the Target or its assets, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Target or (iii)
governmental inquiry pending or threatened against or affecting the Target
(including, without limitation, any inquiry as to the qualification of the
Target to hold or receive any license or permit), and, to the Knowledge of the
Target and the Principals, there is no basis for any of the foregoing which, in
each case, could reasonably be expected to have a Material Adverse Effect on the
Target. The Target is not in default with respect to any order, writ, injunction
or decree known to or served upon the Target of any court or of any federal
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign. There is no action or suit by
the Target pending or threatened against others. The Target has complied with
all laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, except for
12
such failures to comply which, individually and in the aggregate, would not have
a Material Adverse Effect on the Target, and the Target has all necessary
permits, licenses and other authorizations required to conduct its business in
all material respects as conducted. To the Knowledge of the Target and the
Principals, there is no existing rule, regulation or order, whether federal or
state, which would prohibit or restrict the Target from, or otherwise materially
adversely affect the Target in, conducting its business in any jurisdiction in
which it is now conducting business or in which it proposes to conduct business.
4.12. Tax Matters. (i) The Target has timely filed all federal, state,
-----------
county, local and foreign Tax returns required to be filed by it; (ii) all such
Tax returns are complete and accurate; (iii) the Target has paid all Taxes shown
to be due by such returns as well as all other Taxes, assessments and
governmental charges that have become due or payable; (iv) the Target has
withheld and collected all amounts required to be withheld from amounts owing to
employees, creditors and third parties; (v) adequate reserves have been
established for all Taxes accrued but not yet payable; (vi) no deficiency or
adjustment of the Target's federal, state, county, local or foreign Taxes has
been asserted or proposed, or is pending or threatened; (vii) there are no Tax
liens outstanding against the assets, properties or business of the Target other
than liens for current Taxes not yet due and payable; (viii) the Target has
never been a member of any Affiliated Group, or any similar group for Tax
purposes, other than the group of which it is currently a member; (ix) the
Target is not a party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Code (S)280G.
4.13. Intellectual Property; Proprietary Information of Third parties.
---------------------------------------------------------------
4.13.1. Intellectual Property. The Target owns or possesses all
---------------------
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service ▇▇▇▇ applications, Internet
domain names, trade names, trade dress, logos, trade secrets, software,
copyrights, manufacturing processes, formulae, trade secrets and know how
(collectively, "Intellectual Property") necessary to the conduct of its business
---------------------
as conducted and, to the Knowledge of the Target and the Principals, as proposed
to be conducted, and no claim is pending or, to the Knowledge of the Target,
threatened to the effect that the operations of the Target infringe upon,
misappropriate, violate or conflict with the asserted rights of any other Person
under any Intellectual Property and there is no valid basis for any such claim
(whether or not pending or threatened). No claim is pending or, to the
Knowledge of the Target and the Principals, threatened to the effect that any
such Intellectual Property owned or licensed by the Target, or which the Target
otherwise has the right to use, is invalid or unenforceable by the Target, and,
to the Knowledge of the Target and the Principals, there is no basis for any
such claim (whether or not pending or threatened). The Target has not granted
or assigned to any other Person any right to license or sell the software,
trademarks, service marks, Internet domain names, trade names, trade dress,
logos or trade secrets of the Target. Schedule 4.13.1 hereto sets forth (i) all
---------------
Intellectual Property necessary to the conduct of Target's business as currently
conducted and (ii) all licenses granted to any Person for the use of the
software, trademarks, service marks, Internet domain names, trade names, trade
dress, logos or trade secrets of the Target.
13
4.13.2. Proprietary Information of Third parties. No third party has
----------------------------------------
claimed in writing or has a valid basis to claim that any Person employed by or
affiliated with the Target has (i) violated or is violating any of the terms or
conditions of such Person's employment, non-competition or nondisclosure
agreement with such third party, (ii) disclosed or is disclosing or utilized or
is utilizing any trade secret or proprietary information or documentation of
such third party or (iii) interfered or is interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested in writing information from the Target
which could reasonably be interpreted to suggest that such a claim might be
contemplated. No Person employed by the Target has employed or proposes to
employ, any trade secret or any information or documentation in violation of the
proprietary rights of any former employer, and, to the Knowledge of the Target
and the Principals, no Person employed by the Target has violated any
confidential relationship which such Person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Target and there is no reason to believe there will be any such
employment or violation. None of the execution, delivery or performance of this
Agreement, or the carrying on of the business of the Target as officers,
employees or agents by any officer, director or key employee of the Target or
the conduct of the business of the Target will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any such Person is obligated.
Schedule 4.13.2 hereto sets forth all employment, non-competition or
---------------
nondisclosure agreements currently in effect to which any Person employed by is
a party.
4.14. Contracts. Schedule 4.14 hereto lists the following contracts
--------- -------------
and other agreements to which the Target is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $10,000 per year;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year or involve consideration in
excess of $10,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation, in excess of $10,000 or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement with any of the Principals and their
Affiliates (other than the Target);
14
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in excess of
$50,000 or providing material severance benefits;
(j) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course of
Business;
(k) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Target;
or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Principals have delivered to the Acquiror a correct and complete copy
of each written agreement listed in Schedule 4.14 hereto. With respect to each
-------------
such agreement: (i) the agreement is legal, valid, binding, enforceable, and in
full force and effect in all material respects; (ii) no party is in material
breach or default, and no event has occurred which with notice or lapse of time
would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; and (iii) no party has
repudiated any material provision of the agreement.
4.15. Real Property. Schedule 4.15 hereto lists and describes briefly
------------- -------------
all real property pleased or subleased to the Target. The Principals have
delivered to the Acquiror correct and complete copies of the leases and
subleases listed in Schedule 4.15 hereto. With respect to each material lease
-------------
and sublease listed in Schedule 4.15 hereto:
-------------
(a) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect in all material respects;
(b) no party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
(c) no party to the lease or sublease has repudiated any material
provision thereof;
(d) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(e) the Target has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or subleasehold;
and
15
(f) all facilities leased or subleased thereunder have received, to
the Knowledge of the Target and the Principals, all approvals of governmental
authorities (including material licenses and permits) required in connection
with the operation thereof, and have been operated and maintained in accordance
with applicable laws, rules, and regulations in all material respects.
4.16. Tangible Assets. The buildings, equipment, and other tangible
---------------
assets that the Target owns and leases are free from material defects (patent
and latent), have been maintained in accordance with normal industry practice,
and are in good operating condition and repair (subject to normal wear and
tear).
4.17. Undisclosed Liabilities. The Target has no material liability
-----------------------
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for Taxes), except for
(i) liabilities set forth on the face of the Target's Most Recent Balance Sheet
(rather than in any notes thereto) and (ii) liabilities which have arisen after
the Target's Most Recent Fiscal Month End in the Ordinary Course of Business.
4.18. Notes and Accounts Receivable. All notes and accounts receivable of
-----------------------------
the Target are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the potential for bad debts which is not reflected on the face
of the Target's Most Recent Balance Sheet.
4.19. Powers of Attorney. To the Knowledge of the Target and the
------------------
Principals, there are no material outstanding powers of attorney executed on
behalf of any of the Target.
4.20. Insurance. Schedule 4.20 hereto sets forth the following information
--------- -------------
with respect to each material insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) with respect to which the Target is a party, a named
insured, or otherwise the beneficiary of coverage: (i) the name and telephone
number of the agent; (ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured; (iii) the period of coverage; (iv) the
scope (including an indication of whether the coverage is on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and a
description of any retroactive premium adjustments or other material loss-
sharing arrangements. With respect to each such insurance policy: (a) the policy
is legal, valid, binding, enforceable, and in full force and effect in all
material respects; (b) neither the Target nor any other party to the policy is
in material breach or default (including with respect to the payment of premiums
or the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a material breach or default, or permit
termination, modification, or acceleration, under the policy; and (c) no party
to the policy has repudiated any material provision thereof. Schedule 4.20
-------------
hereto describes any material self-insurance arrangements affecting the Target.
4.21. Product Liability. The Target has no material liability (whether
-----------------
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued,
16
whether liquidated or unliquidated, and whether due or to become due) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product sold, licensed and delivered by the Target.
4.22. Guaranties. The Target is not a guarantor or otherwise is
----------
responsible for any liability or obligation (including indebtedness) of any
other Person.
4.23. Environment, Health, and Safety.
-------------------------------
4.23.1. Each of the Target and its predecessors and Affiliates (i)
has complied with the Environmental, Health and Safety Laws in all material
respects (and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any such failure to comply), (ii) has obtained and been in
substantial compliance with all of the terms and conditions of all material
permits, licenses, and other authorizations which are required under the
Environmental, Health and Safety Laws, and (iii) has complied in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in the Environmental, Health and Safety Laws.
4.23.2. The Target has no material liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), and none of the Target and its predecessors and Affiliates has
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could give rise to any material liability, for damage to any site, location, or
body of water (surface or subsurface), for any illness of or personal injury to
any employee or other individual, or for any reason under any Environmental,
Health and Safety Law.
4.23.3. All properties and equipment used in the business of the
Target and its respective predecessors and Affiliates have been free of
asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-
transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
4.24. Employees. To the Knowledge of the Target and the Principals, no
---------
executive, key employee, or significant group of employees plans to terminate
employment with the Target during the next 12 months. The Target is not a party
to or bound by any collective bargaining agreement, nor has any of them
experienced any strike or material grievance, claim of unfair labor practices,
or other collective bargaining dispute. The Target has not committed any
material unfair labor practice. Neither of the Principals and none of the
directors and officers of the Target has any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of the Target. The Target has complied in all material
respects with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity and collective
bargaining, and with ERISA, except for such failures to comply which,
individually and in the aggregate, would not have a Material Adverse Effect on
the Target.
17
4.25. Employee Benefits.
-----------------
4.25.1. Schedule 4.25.1 hereto lists each Employee Benefit Plan that
---------------
the Target maintains or to which the Target contributes.
(a) Each such Employee Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all material respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(b) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-l's, and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code (S)4980B have been met in all material respects with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(c) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Target. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(d) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code (S)401(a)
and has received, within the last two years, a favorable determination letter
from the Internal Revenue Service.
(e) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan)
equals or exceeds the present value of all vested and nonvested liabilities
thereunder determined in accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on the date for
determination.
(f) The Principals have delivered to the Acquiror correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
4.25.2. With respect to each Employee Benefit Plan that the Target
and the Controlled Group of Corporations which includes the Target maintains or
ever has maintained or to which any of them contributes, ever has contributed,
or ever has been required to contribute:
(a) No such Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other
18
than any Multiemployer Plan) has been instituted or, to the Knowledge of the
Target and the Principals, threatened.
(b) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any liability for material breach
of fiduciary duty or any other material failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to
the administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or, to the Knowledge of
the Target and the Principals, threatened.
(c) The Target has not incurred any material liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due) to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
4.25.3. None of the Target and the other members of the Controlled
Group of Corporations that includes the Target contributes to, ever has
contributed to, or ever has been required to contribute to any Multiemployer
Plan or has any material liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any withdrawal liability, under any Multiemployer Plan.
4.25.4. The Target does not maintain or ever has maintained or
contributes, ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code (S)4980B).
4.26. Transactions With the Target. None of the Principals and their
----------------------------
Affiliates owns any material asset, tangible or intangible, which is used in the
business of the Target.
4.27. Disclosure. The representations and warranties contained in this
----------
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF THE ACQUIROR AND THE SUB
---------------------------
The Acquiror represents and warrants to the Principals that the statements
contained in this Article 5 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 5), except as set forth in the Disclosure
Schedules attached hereto on the date hereof.
19
5.1. Organization, Qualification and Corporate Power. Each of the
-----------------------------------------------
Acquiror and the Sub is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Acquiror and the Sub is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect on the Acquiror or the Sub, as the case may be. Each of the
Acquiror and the Sub has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
5.2. Authorization of Transaction. Each of the Acquiror and the Sub has
----------------------------
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder and
to issue, sell and deliver the Merger Shares. Assuming the due authorization,
execution and delivery by the Target and the Principals, this Agreement
constitutes the valid and legally binding obligation of the Acquiror and the
Sub, enforceable in accordance with its terms and conditions, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. Other than filings with respect to the Merger, neither
the Acquiror nor the Sub need give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.
5.3. Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Acquiror or the Sub is subject or any
provision of its charter or bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Acquiror or the Sub is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a Material Adverse Effect on the
Acquiror or the Sub or impede the ability of the parties to consummate the
transactions contemplated by this Agreement. Other than filings with respect to
the Merger, neither the Acquiror nor the Sub needs to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a Material Adverse Effect on the Acquiror or the Sub, as the case may be,
or impede the ability of the parties to consummate the transactions contemplated
by this Agreement.
5.4. Brokers' Fees. Neither the Acquiror nor the Sub has any liability
-------------
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which either
of the Principals could become liable or obligated.
20
5.5. Investment. The Acquiror is not acquiring the Target Stock with a
----------
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
5.6. Capitalization. The authorized capital stock of the Acquiror consists
--------------
of 37,500,000 shares of Acquiror's Common Stock and 10,000,000 shares of
preferred stock, par value $.001 per share, of which 5,250,000 shares have been
designated Series A 9% Convertible Preferred Stock ("Acquiror's Series A
-------------------
Preferred Stock"). As of the Closing Date, 15,029,744 shares of Acquiror's
---------------
Common Stock and 1,765,432 shares of Acquiror's Series A Preferred Stock will be
validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof. Acquiror's Series A Preferred
Stock is the only series of preferred stock of the Acquiror issued and
outstanding. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Acquiror are as set forth in its charter and the
Certificate of Designation of Acquiror's Series A Preferred Stock and amendments
thereto (the "Certificate of Designation"), and all such designations, powers,
--------------------------
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. Except as
set forth in the charter, Certificate of Designation or SEC Documents, (i) the
capital stock of the Acquiror is free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands and (ii) the Acquiror is not a party
to any option, warrant, purchase right, or other contract or commitment that
could require the Acquiror to sell, transfer, or otherwise dispose of any of its
capital stock. Except as provided for in the charter or the Certificate of
Designation or as set forth in the SEC Documents, the Acquiror has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except for this Agreement and as set forth on
Schedule 5.6 hereto, the Acquiror does not know of any voting trusts or
------------
agreements, stockholders agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any capital
stock of the Acquiror or any of its subsidiaries (whether or not any of them is
a party thereto). All of the outstanding securities of the Acquiror have been
issued in compliance in all material respects with all applicable federal and
state securities laws. Except as set forth in Schedule 5.6 hereto, there are no
------------
agreements or understandings granting to any Person any right to cause the
Acquiror to effect the registration under the Securities Act of any shares of
its capital stock.
5.7. Title to Assets. The Acquiror has good and marketable title to, or a
---------------
valid leasehold interest in, the properties and assets used by them, located on
their premises, or shown on the Acquiror's 10-QSB for the quarter ended
September 30, 1998 ("Acquiror's Most Recent Balance Sheet") or acquired after
------------------------------------
the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Acquiror's Most Recent Balance Sheet.
5.8. SEC Documents. Except as set forth in Schedule 5.8 hereto, the
------------- ------------
Acquiror has filed all documents required to be filed by it with the SEC since
January 1, 1996. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and none of the SEC Documents included an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the
21
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Acquiror
included in the SEC Documents complied as to form in all material respects with
the applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of the Acquiror and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein).
5.9. Events Subsequent to September 30, 1998. Except as set forth in the
---------------------------------------
SEC Documents and Schedule 5.9 hereto, since September 30, 1998, there has been
------------
no change in the business, assets, liabilities or financial condition of the
Acquiror, except for changes in the Ordinary Course of Business which
individually or in the aggregate have not had a Material Adverse Effect on the
Acquiror and there has not been a Material Adverse Effect on the Target by any
occurrence, state of facts or development, individually or in the aggregate,
whether or not insured against. Without limiting the generality of the
foregoing, since that date the Acquiror has not: (i) issued any stock, bond or
other security (except shares issued in connection with the exercise of employee
stock options), (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
in the Ordinary Course of Business and liabilities under contracts entered into
in the Ordinary Course of Business, (iii) declared or made any payment or
distribution to equity holders or purchased or redeemed any share of its capital
stock or other security, (iv) mortgaged, pledged or subjected to lien any of its
assets, tangible or intangible, other than liens for current Taxes not yet due
and payable, except for mortgages, pledges or liens that do not exceed $50,000
in the aggregate, (v) sold, assigned or transferred any of its assets except in
the Ordinary Course of Business, or canceled any debt or claim, (vi) suffered
any material loss of property or waived any right of substantial value whether
or not in the Ordinary Course of Business, (vii) made any material change to the
Acquiror's employee benefit plans, (viii) made any change in the Acquiror's
accounting principles and practices, (ix) made any material change in the manner
of business or operations, (x) entered into any material transaction except in
the Ordinary Course of Business or as otherwise contemplated hereby or (xi)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
5.10. Litigation; Compliance With Laws. Except as set forth in the SEC
--------------------------------
Documents and in Schedule 5.10 hereto, there is no (i) action, suit, claim,
-------------
proceeding or investigation pending or, to the Knowledge of the Acquiror,
threatened against the Acquiror or its assets, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Acquiror or (iii) governmental inquiry pending or, to
the Knowledge of the Acquiror, threatened against or affecting the Acquiror
(including, without limitation, any inquiry as to the qualification of the
Acquiror to hold or receive any license or permit), and there is no basis for
any of the foregoing which, in each case, could reasonably be expected to have a
Material Adverse Effect on the Acquiror. The Acquiror is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Acquiror of any court or of any federal, state, municipal or other
22
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Acquiror pending or
threatened against others. The Acquiror has complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, except for such failures to comply which,
individually and in the aggregate, would not have a Material Adverse Effect on
the Acquiror, and the Acquiror has all necessary permits, licenses and other
authorizations required to conduct its business in all material respects as
conducted. To the Knowledge of the Acquiror, there is no existing rule,
regulation or order, whether federal or state, which would prohibit or restrict
the Acquiror from, or otherwise materially adversely affect the Acquiror in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
5.11. Tax Matters. (i) The Acquiror has timely filed all federal, state,
-----------
county, local and foreign Tax returns required to be filed by it except where
failures to file such Tax returns would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Acquiror; (ii)
all such Tax returns are complete and accurate except where failures of such Tax
returns to be complete and accurate would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Acquiror; (iii)
the Acquiror has paid all Taxes shown to be due by such returns as well as all
other Taxes, assessments and governmental charges that have become due or
payable except where failures to pay such Taxes would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Acquiror; (iv) the Acquiror has withheld and collected all amounts required to
be withheld from amounts owing to employees, creditors and third parties except
where failures to withhold and collect such Taxes would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Acquiror; (v) adequate reserves have been established for all Taxes accrued but
not yet payable except where failures to establish such reserves would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Acquiror; (vi) no deficiency or adjustment of the
Acquiror's federal, state, county, local or foreign Taxes has been asserted or
proposed, or is pending or threatened except where such deficiencies or
adjustments did not or would not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect on the Acquiror; (vii) there are
no Tax liens outstanding against the assets, properties or business of the
Acquiror other than liens for current Taxes not yet due and payable except where
such liens would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Acquiror; and (viii) the Acquiror has
never been a member of any Affiliated Group, or any similar group for Tax
purposes, other than the group of which it is currently a member.
5.12. Intellectual Property; Proprietary Information of Third parties.
5.12.1. Intellectual Property. The Acquiror owns or possesses all
---------------------
licenses or other rights to use all Intellectual Property necessary to the
conduct of its business as conducted and, to the Knowledge of the Acquiror, as
proposed to be conducted, and no claim is pending or, to the Knowledge of the
Acquiror, threatened to the effect that the operations of the Acquiror infringe
upon, misappropriate, violate or conflict with the asserted rights of any other
Person under any Intellectual Property. To the Knowledge of the Acquiror there
is no valid basis for any such claim (whether or not pending or threatened). No
claim is pending or, to the Knowledge of the Acquiror, threatened to the effect
that any such Intellectual Property owned or licensed by the Acquiror, or
23
which the Acquiror otherwise has the right to use, is invalid or unenforceable
by the Acquiror, and, to the Knowledge of the Acquiror, there is no basis for
any such claim (whether or not pending or threatened). The Acquiror has not
granted or assigned to any other Person any right to license or sell the
software, trademarks, service marks, Internet domain names, trade names, trade
dress, logos or trade secrets of the Acquiror. Except as set forth in Schedule
--------
5.12.1 hereto, the Acquiror has not granted or assigned to any other Person any
------
right to license or sell its software.
5.12.2. Proprietary Information of Third parties. No third party has
----------------------------------------
claimed in writing or, to the Knowledge of the Acquiror, has a valid basis to
claim that any Person employed by or affiliated with the Acquiror has (i)
violated or is violating any of the terms or conditions of such Person's
employment, non-competition or nondisclosure agreement with such third party,
(ii) disclosed or is disclosing or utilized or is utilizing any trade secret or
proprietary information or documentation of such third party or (iii) interfered
or is interfering in the employment relationship between such third party and
any of its present or former employees. No third party has requested in writing
information from the Acquiror which could reasonably be interpreted to suggest
that such a claim might be contemplated. To the Knowledge of the Acquiror, no
Person employed by or affiliated with the Acquiror has employed or proposes to
employ, any trade secret or any information or documentation in violation of the
proprietary rights of any former employer, and, to the Knowledge of the
Acquiror, no Person employed by the Acquiror has violated any confidential
relationship which such Person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Acquiror and
there is no reason to believe there will be any such employment or violation.
To the Knowledge of the Acquiror, none of the execution, delivery or performance
of this Agreement, or the carrying on of the business of the Acquiror as
officers, employees or agents by any officer, director or key employee of the
Acquiror or the conduct or proposed conduct of the business of the Acquiror will
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such Person is obligated.
5.13. Contracts. With respect to any material lease, agreement or
---------
contract now in effect to which the Acquiror is a party or by which it or its
property may be bound, (i) the agreement is legal, valid, binding, enforceable,
and in full force and effect in all material respects; (ii) no party is in
material breach or default, and no event has occurred which with notice or lapse
of time would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; and (iii) no party has
repudiated any material provision of the agreement.
5.14. Employees. To the Knowledge of the directors and officers of the
---------
Acquiror, no executive, key employee, or significant group of employees plans to
terminate employment with the Acquiror during the next 12 months. The Acquiror
has complied in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity and collective bargaining, and with ERISA, except for such failures
to comply which, individually and in the aggregate, would not have a Material
Adverse Effect on the Acquiror.
5.15. Transactions With Affiliates. Except as disclosed in the SEC
----------------------------
Documents and Schedule 5.15 hereto, no director, officer, employee or
-------------
stockholder owning more than 5% of the
24
outstanding capital stock of the Acquiror, or member of the family of any such
Person, or any corporation, partnership, trust or other entity in which any such
Person, or any member of the family of any such Person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with the
Acquiror, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such Person, if in each
case such transaction was required to be disclosed in such SEC Documents.
5.16. Disclosure. The representations and warranties contained in
----------
this Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 5 not misleading.
ARTICLE VI.
PRE-CLOSING COVENANTS
---------------------
The parties agree as follows with respect to the period between the
execution of this Agreement and the earlier of the Closing or the termination of
this Agreement.
6.1. General. Each of the parties will use his or its reasonable
-------
best efforts to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article 7 below).
6.2. Shareholders' Consent. The Principals will cause the Target, as soon
---------------------
as practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of its shareholders or seek written consent for the
purpose of obtaining the Shareholders' Consent, and, the Target shall, through
its Board of Directors, recommend to its shareholders that they approve the
transactions contemplated by this Agreement.
6.3. Notices and Consents. The Principals will cause the Target to give
--------------------
any notices to third parties, and will cause the Target to use its reasonable
best efforts to obtain any third party consents, that the Acquiror reasonably
may request in connection with the matters referred to in Section 4.3 above.
Each of the parties will (and the Principals will cause the Target to) give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 4.2 above.
6.4. Operation of Business. The Principals will not cause or permit the
---------------------
Target to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business.
6.5. Preservation of Business. The Principals will cause the Target to
------------------------
keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
25
6.6. Full Access. Each of the parties will permit, and the Principals
-----------
will cause the Target to permit, representatives of the other party to have full
access at all reasonable times, and in a manner so as not to interfere with such
parties' normal business operations, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Acquiror or the Target, as appropriate. The parties will treat
and hold as such any Confidential Information it receives from any of the other
party in the course of the reviews contemplated by this Section 6.6, will not
use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever, will
return to the appropriate party all tangible embodiments (and all copies) of the
Confidential Information which are in its possession.
6.7. Notice of Developments. The Principals will give prompt written
----------------------
notice to the Acquiror of any material adverse development causing a breach of
any of the representations and warranties in Article 4 above. The Acquiror will
give prompt written notice to the Principals of any material adverse development
causing a breach of any of its own representations and warranties in Article 5
above. No disclosure by any party pursuant to this Section 6.7, however, shall
be deemed to amend or supplement any Schedule hereto or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
6.8. Exclusivity. Neither of the Principals will (and the
-----------
Principals will not cause or permit the Target to) (i) enter into any sale,
lease, pledge or other disposition of any securities of the Target or all or any
significant part of the assets of the Target or its business, or for a merger,
consolidation or other acquisition proposal involving the Target, or any
transaction similar to the foregoing in format or purpose with any party other
than the Acquiror; or (ii) issue, sell, lease, or otherwise transfer or dispose
of any securities in the Target to any other party other than the Acquiror,
except in the Ordinary Course of Business of the Target consistent with past
practice; or (iii) enter into any transaction outside the Ordinary Course of
Business of the Target consistent with past practice in contemplation of any
transaction described above with any party other than the Acquiror; or (iv)
encourage, solicit, provide information to or negotiate with any party, other
than the Acquiror, to do any of the foregoing (each such transaction, a
"Proposed Acquisition Transaction"). The Target will immediately notify the
--------------------------------
Acquiror if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any information is requested with respect to any
Proposed Acquisition Transaction.
ARTICLE VII.
POST-CLOSING COVENANTS
----------------------
The parties agree as follows with respect to the period following the
Closing.
7.1. General. In case at any time after the Closing any further
-------
action is necessary to carry out the purposes of this Agreement, each of the
parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other party reasonably may
request, all at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Article 9 below).
The Principals acknowledge and agree that from and after the Closing the
Acquiror and/or Sub will be entitled to
26
possession of all documents, books, records (including Tax records), agreements,
and financial data of any sort relating to the Target.
7.2. Litigation Support. In the event and for so long as any party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Target, each of the other parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor under
Article 9 below).
7.3. Transition. Neither Principal will take (and the Principals
----------
will not cause or permit the Target to take) any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Target from maintaining the same
business relationships with the Target after the Closing as it maintained with
the Target prior to the Closing.
7.4. Confidentiality. The parties will treat and hold as such
---------------
all of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the party whose Confidential Information is at issue or destroy, at the request
and option of such party, all tangible embodiments (and all copies) of the
Confidential Information which are in his or its possession. In the event that
any party is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information of another party, such party will notify the other party promptly of
the request or requirement so that the party whose Confidential Information is
at issue may seek an appropriate protective order or waive compliance with the
provisions of this Section 7.4. If, in the absence of a protective order or the
receipt of a waiver hereunder, any party is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, such party may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing party shall use his or its
reasonable best efforts to obtain, at the reasonable request of party whose
Confidential Information is at issue, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as such party shall designate.
7.5. Escrow Agreement. The appropriate parties shall have executed
----------------
and delivered the Escrow Agreement in form and substance as set forth on Exhibit
-------
A hereto and shall have taken such other action as is necessary so that 25% of
-
the Merger Shares of the Principals are placed in escrow pursuant to the Escrow
Agreement. The Merger Shares placed in escrow, subject to any claims asserted by
Acquiror, shall be released from escrow pursuant to the terms of the Escrow
Agreement on the date eighteen months following the Closing Date.
27
7.6. Employment Agreements. Each Principal shall enter into an employment
---------------------
agreement with the Acquiror (the "Employment Agreement") in form and substance
--------------------
as set forth on Exhibit C hereto.
7.7. Covenant Not to Compete. For a period of time the shorter of (i)
-----------------------
two years from and after the Closing Date or (ii) up to the date on which
Acquiror breaches the Principal's Employment Agreement, such Principal shall not
have any ownership interest (of record or beneficial) in, or have any interest
as an employee, salesman, consultant, officer or director in, or otherwise aid
or assist in any manner, any firm, corporation, partnership, proprietorship or
other business that engages in any county, city or part thereof in the United
States and/or any foreign country in a business which is similar to that in
which the Acquiror is engaged in such county, city or part thereof, so long as
the Acquiror, or any successor in interest of the Acquiror the business and
goodwill of the Acquiror, remains engaged in such business in such county, city
or part thereof or continues to solicit customers or potential customers
therein; provided, however, that Principal may own, directly or indirectly,
-----------------
solely as an investment, securities of any entity which are traded on any
national securities exchange if Principal (i) is not a controlling person of, or
a member of a group which controls, such entity or (ii) does not, directly or
indirectly, own one percent (1%) or more of any class of securities of any such
entity. If the final judgment of a court of competent jurisdiction declares that
any term or provision of this Section 6.6 is invalid or unenforceable, the
parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
7.8. Merger Shares
-------------
7.8.1. Stock Certificates. Each stock certificate evidencing a
------------------
portion of the Merger Shares will be imprinted with a legend substantially in
the following form:
This stock certificate was originally issued on March 8, 1999, and has
----------------------------------------------------------------------
not been registered under the Securities Act of 1933, as amended. The
----------------------------------------------------------------------
transfer of this stock certificate is subject to certain restrictions set
-------------------------------------------------------------------------
forth in the Agreement and Plan of Merger. The issuer of this stock
--------------------------------------------------------------------
certificate will furnish a copy of these provisions to the holder hereof
------------------------------------------------------------------------
without charge upon written request.
-----------------------------------
7.8.2. Transfer Restrictions. No shareholder of the Target receiving
---------------------
Merger Shares may transfer any Merger Shares except as provided in this Section
7.8.2.
(a) Each holder desiring to transfer a stock certificate evidencing a
portion of the Merger Shares first must furnish the Acquiror with (i) a written
opinion reasonably satisfactory to the Acquiror in form and substance from
counsel reasonably satisfactory to the Acquiror by reason of experience to the
effect that the holder may transfer the stock certificate as desired without
registration under the Securities Act and (ii) a written undertaking executed by
the
28
desired transferee reasonably satisfactory to the Acquiror in form and substance
agreeing to be bound by the restrictions on transfer contained herein.
(b) (i) For a period of one year from and after the Closing Date, the
Principals shall not sell or otherwise transfer their portion of the Merger
Shares; (ii) for a period of one year from and after the first year following
the Closing Date, neither Principal shall sell or otherwise transfer more than
one-third of the Merger Shares he received on the Closing Date; (iii) from and
after the second year following the Closing Date, the Principals may sell or
otherwise transfer their Merger Shares in accordance with Section 7.8.2(a);
provided, however, that if the Acquiror breaches the Employment Agreement of a
-----------------
Principal, such Principal may immediately sell or otherwise transfer his
respective Merger Shares in accordance with Section 7.8.2(a).
7.8.3. Right to Repurchase. In the event that either Principal's
-------------------
Employment Agreement is terminated for any reason other than (i) the Principal's
death or disability or (ii) a material breach of the Employment Agreement by the
Acquiror, the Acquiror shall have the right to repurchase such proportion of the
Principal's Merger Shares for a price of $0.10 per share as determined by the
following formula:
24 - n
------
24
where n = the number of full months worked by the
respective Principal since the Closing Date
For the purposes of this caluculation, the Holdback Amount shall be counted as
part of the Principal's Merger Shares. The Acquiror's right to repurchase under
this Section 7.8.3 shall be a right to repurchase Principal's Merger Shares not
then held in escrow. In the event there is a sale of all or substantially all
of the Acquiror's assets or any merger, consolidation or stock sale that results
in the holders of the Acquiror's capital stock immediately prior to such
transaction owning less than 50% of the voting power of the Acquiror's capital
stock immediately after such transaction (a "Change of Control"), the Acquiror's
-----------------
right to repurchase the shares as set forth above shall only be applicable to
one-half of the Merger Shares which otherwise would have been subject to the
repurchase right under this Section 7.8.3 as of the date of such Change of
Control; provided, however, that in the event the acquiror in such a Change of
-----------------
Control transaction does not assume a Principal's Employment Agreement in full
or upon substantially the same or better terms, the Acquiror's right to
repurchase the shares as set forth above shall terminate with respect to all of
the Merger Shares.
7.8.4. Right of First Refusal. For a period of two years commencing
----------------------
upon the Closing Date, if either Principal proposes to sell or otherwise
transfer his Merger Shares at any time from and after the Closing Date, such
Principal shall notify the Acquiror in accordance with Section 12.7 hereof that
it proposes to complete a transfer of some or all, as the case may be, of its
Merger Shares prior to the consummation of such transfer. The notice shall
specify the number of Merger Shares to be transferred, the price at which such
shares are to be transferred and the other terms and conditions of such proposed
transfer. The Merger Shares proposed to be transferred as set forth in the
notice shall be subject to an option of the Acquiror ("Right of First Refusal")
----------------------
to purchase such Merger Shares at the same price and on the same terms and
conditions as are set forth in the notice. The Acquiror must exercise its Right
of First Refusal within a reasonable time period following
29
receipt of the notice of the proposed transfer by notifying the appropriate
Principal in accordance with Section 12.7 hereof.
ARTICLE VIII.
CONDITIONS TO OBLIGATION TO CLOSE
---------------------------------
8.1. Conditions to Obligation of the Acquiror and Sub. The obligation of
------------------------------------------------
the Acquiror and Sub to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
8.1.1. the representations and warranties set forth in Article 4
above shall be true and correct in all material respects at and as of the
Closing Date;
8.1.2. the Principals shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing;
8.1.3. the Target shall have procured the Shareholders' Consent and
all of the material third party consents specified in Section 6.2 above;
8.1.4. ▇▇▇▇▇▇▇ ▇▇▇▇ shall have assigned all rights, title and
interest in any trade name or trademark currently used by the Target;
8.1.5. there shall be no Material Adverse Effect on the business of
the Target, including, without limitation, the Target shall not be obligated to
pay any amounts with respect to any Tax imposed on "excess parachute payments"
within the meaning of Code (S)280G.
8.1.6. no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (iii) affect adversely the right of the Acquiror to own
the Target Stock and to control the Target, or (iv) affect materially and
adversely the right of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
8.1.7. the Principals shall have delivered to the Acquiror a
certificate to the effect that each of the conditions specified above in
Sections 8.1.1 - 8.1.5 is satisfied in all respects;
8.1.8. the Acquiror shall have completed to its reasonable
satisfaction a due diligence review of the assets, liabilities, business,
operations and prospects of the Target;
8.1.9. the transfer of the Merger Shares pursuant to the Merger shall
not violate any state or federal securities laws;
8.1.10. the relevant parties shall have entered into the Escrow
Agreement in form and substance as are set forth in Exhibit A attached hereto
---------
and the same shall be in full force and
30
effect and the relevant parties have taken such other action as is necessary so
that the Holdback Amount is placed in Escrow pursuant to the Escrow Agreement.
8.1.11. the relevant parties shall have entered into the Employment
Agreement in form and substance as set forth in Exhibit C attached hereto and
---------
the same shall be in full force and effect;
8.1.12. the Acquiror shall have received from counsel to the
Principals an opinion in form and substance as set forth in Exhibit D attached
---------
hereto, addressed to the Acquiror, and dated as of the Closing Date;
8.1.13. the Acquiror shall have received the resignations, effective
as of the Closing, of each director and officer of the Target; and
8.1.14. all actions to be taken by the Principals in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Acquiror.
The Acquiror may waive any condition specified in this Section 8.1 if it
executes a writing so stating at or prior to the Closing.
8.2. Conditions to Obligation of the Principals. The obligation of the
------------------------------------------
Principals to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
8.2.1. the representations and warranties set forth in Article 5
above shall be true and correct in all material respects at and as of the
Closing Date;
8.2.2. the Acquiror shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
8.2.3. no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement or (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
8.2.4. the Acquiror shall have delivered to the Principals a
certificate to the effect that each of the conditions specified above in Section
8.2.1 - 8.2.3 is satisfied in all respects;
8.2.5. the relevant parties shall have entered into the Employment
Agreement in form and substance as set forth in Exhibit B attached hereto and
---------
the same shall be in full force and effect; and
31
8.2.6. the Principals shall have received from counsel to the
Acquiror an opinion in form and substance as set forth in Exhibit E attached
---------
hereto, addressed to the Principals, and dated as of the Closing Date;
8.2.7. all actions to be taken by the Acquiror in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Principals.
The Principals may waive any condition specified in this Section 8.2 if
they execute a writing so stating at or prior to the Closing.
ARTICLE IX.
REMEDIES FOR BREACHES OF THIS AGREEMENT
---------------------------------------
9.1. Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties of the Principals and the Target contained in
Article 4 above (other than Section 4.6 above) and all of the representations
and warranties of the Acquiror contained in Article 5 and Section 2.12 above
shall survive the Closing hereunder (even if the damaged party knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of eighteen months
thereafter; provided, however, that the representations and warranties contained
-----------------
in Section 4.6 above shall survive the Closing hereunder until the expiration of
all relevant statutes of limitation (including any extensions thereof).
9.2. Indemnification Provisions for Benefit of the Acquiror.
------------------------------------------------------
9.2.1. In the event either of the Principals or the Target breaches
any of their representations, warranties and covenants contained herein (except
for the representations and warranties contained in Section 4.6), and, if there
is an applicable survival period pursuant to Section 9.1 above, provided that
the Acquiror Indemnified Party (as defined herein) makes a written claim for
indemnification against any of the Principals pursuant to Section 9.4 below
within the applicable time periods, then each of the Sellers shall indemnify
Acquiror and its partners, officers, directors, employees, stockholders and
agents ("Acquiror Indemnified Parties") from and against the entirety of any
----------------------------
Adverse Consequences the Acquiror Indemnified Party may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Acquiror Indemnified Party may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach; provided, however, that the Sellers shall not have any
-----------------
obligation to indemnify the Acquiror Indemnified Party from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature
of, or caused by the breach of any representation or warranty of the Principals
or the Target contained in Article 4 above until the Acquiror Indemnified Party
has suffered Adverse Consequences by reason of all such breaches in excess of a
$50,000 aggregate deductible (after which point the Sellers will be obligated
only to indemnify the Acquiror from and against further such Adverse
Consequences); provided further, however, that in no event shall such Sellers be
---------------- -------
liable pursuant to this Section 9.2.1 to the Acquiror Indemnified Parties, on
any claim or claims made by the Acquiror Indemnified
32
Parties, for any Adverse Consequences in excess of the aggregate value of the
shares (which value is to be determined in accordance with Section 9.2.4) then
held in escrow pursuant to Section 2.7.
9.2.2. In the event the Principals or Sellers breach their
representations and warranties contained in Section 4.6, and, if there is an
applicable survival period pursuant to Section 9.1 above, provided that the
Acquiror Indemnified Party makes a written claim for indemnification against any
of the Principals pursuant to Section 9.4 below, then each of the Principals
shall, jointly and severally, indemnify and hold harmless such Acquiror
Indemnified Party from and against the entirety of any Adverse Consequences the
Acquiror Indemnified Party may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Acquiror Indemnified
Party may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach;
provided, however, that the Principals shall not have any obligation to
-----------------
indemnify the Acquiror Indemnified Party from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of, or
caused by the breach of any representation or warranty of the Principals
contained in Section 4.6 above until the Acquiror Indemnified Party has suffered
Adverse Consequences by reason of all such breaches in excess of a $50,000
aggregate deductible (after which point the Sellers will be obligated only to
indemnify the Acquiror from and against further such Adverse Consequences).
9.2.3. Each of the Principals agrees to indemnify the Acquiror from
and against the entirety of any Adverse Consequences the Acquiror may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
liability of the Target (i) for any Taxes of the Target with respect to any Tax
year or portion thereof ending on or before the Closing Date (or for any Tax
year beginning before and ending after the Closing Date to the extent allocable
(determined in a manner consistent with Article 10) to the portion of such
period beginning before and ending on the Closing Date), to the extent such
income Taxes are not reflected in the reserve for Tax liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Target's Most Recent Balance Sheet
(rather than in any notes thereto), as such reserve is adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of the Target in filing their Tax Returns and (ii) for the unpaid Taxes of any
Person (other than the Target) under Reg. (S)1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
9.2.4. The indemnification obligations of the Principals or the
Target hereunder shall be satisfied by either the transfer of Merger Shares or
the payment of cash to the Acquiror Indemnified Party, at the election of the
party owning such obligation. In the event that the Seller Representatives (as
defined in the Escrow Agreement) elect to satisfy their indemnification
obligations by the transfer of Merger Shares, such shares shall be valued for
this purpose as the value of the closing trade price of the Acquiror's Common
Stock on the date of execution of this Agreement.
9.3. Indemnification Provisions for Benefit of the Principals. In the event
--------------------------------------------------------
the Acquiror breaches any of its representations, warranties, and covenants
contained herein, and, if there is an applicable survival period pursuant to
Section 9.1 above, provided that a Principal makes a written claim for
indemnification against the Acquiror pursuant to Section 9.4 below within two
years, then
33
the Acquiror agrees to indemnify each of the Principals from and against the
entirety of any Adverse Consequences the Principal may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Principal may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach provided, however, that the Acquirors shall not have any obligation to
-----------------
indemnify the Principal from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by the breach of
any representation or warranty of the Principals or the Target contained in
Article 5 above until the Principal has suffered Adverse Consequences by reason
of all such breaches in excess of a $50,000 aggregate deductible (after which
point the Acquiror will be obligated only to indemnify the Principal from and
against further such Adverse Consequences); provided further, however, that in
-------------------------
no event shall the Acquiror be liable pursuant to this Article 9 to the
Principals, on any claim or claims made by Principals, for any Adverse
Consequences in excess of the aggregate value of the shares (which value is to
be determined in accordance with Section 9.2.4) then held in escrow pursuant to
Section 2.7.
9.4. Procedure for Claims between Parties
------------------------------------
9.4.1. Any Acquiror Indemnified Party or Seller Indemnified Party
seeking indemnification hereunder shall, within the relevant limitation period
provided for in Section 9.1 above, give to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a "Claim
---------- -----
Notice") describing in reasonable detail the facts giving rise to any claims for
------
indemnification hereunder and shall include in such Claim Notice (if then known)
the amount or the method of computation of the amount of such claim, and a
reference to the provision of this Agreement or any agreement, document or
instrument executed pursuant hereto or in connection herewith upon which such
claim is based provided that failure to give such notice shall not relieve the
Indemnitor of its obligations hereunder except to the extent it shall have been
prejudiced by such failure.
9.4.2. In the event that the indemnitee is an Acquiror Indemnified
Party, all provisions set forth in Article 9 regarding notices to, or consents
of, the Sellers shall be determined by the Seller Representative (as defined in
the Escrow Agreement) and shall be binding upon all Sellers.
9.5. Matters Involving Third parties
-------------------------------
9.5.1. If any third party shall notify any party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which may give rise
----- -----------------
to a claim for indemnification against any other party (the "Indemnifying
------------
Party") under this Section 9.1, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
-----------------
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
9.5.2. Any Indemnifying Party will have the right to assume the
defense of the Third Party Claim with counsel of his or its choice reasonably
satisfactory to the Indemnified Party at any time within 15 days after the
Indemnified Party has given notice of the Third Party Claim; provided, however,
-----------------
that the Indemnifying Party must conduct the defense of the Third Party Claim
actively and diligently thereafter in order to preserve its rights in this
regard; and provided further
----------------
34
that the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim.
9.5.3. So long as the Indemnifying Party has assumed and is
conducting the defense of the Third Party Claim in accordance with Section 9.4.2
above, (i) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld unreasonably)
unless the judgment or proposed settlement involves only the payment of money
damages by one or more of the Indemnifying Parties and does not impose an
injunction or other equitable relief upon the Indemnified Party and (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably).
9.5.4. In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with Section 9.5.2
above, however, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner he or it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith) and (ii) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this Article 9.
9.6. Determination of Adverse Consequences. The parties shall make
-------------------------------------
appropriate adjustments for Tax consequences and insurance coverage and take
into account the time cost of money (using a mutually agreed upon rate as the
discount rate) in determining Adverse Consequences for purposes of this Article
9.
9.7. Other Indemnification Provisions. The parties acknowledge and agree
--------------------------------
that the foregoing indemnification provisions in this Article 9 shall be the
exclusive remedy of the parties for any breach of the representations and
warranties contained herein. Each of the Principals hereby agrees that he or it
will not make any claim for indemnification against the Target by reason of the
fact that he or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by a party against
such other party (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
ARTICLE X.
TAX MATTERS
-----------
The following provisions shall govern the allocation of responsibility as
between Acquiror and Principals for certain Tax matters following the Closing
Date:
35
10.1. Tax Periods Ending on or Before the Closing Date. Acquiror shall
------------------------------------------------
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Target for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Acquiror shall permit the Principals to review and
comment on each such Tax Return described in the preceding sentence prior to
filing and shall make such revisions to such Tax Returns as are reasonably
requested by the Principals. The Principals shall reimburse Acquiror for Taxes
of the Target with respect to such periods within 15 days after payment by
Acquiror or the Target of such Taxes to the extent such Taxes are not reflected
in the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet.
10.2. Tax Periods Beginning Before and Ending After the Closing Date
--------------------------------------------------------------
Acquiror shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Target for Tax periods which begin before the Closing Date
and end after the Closing Date. The Principals shall pay to Acquiror within 15
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet. For purposes of this Section, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such taxable period ending on the
Closing Date shall (i) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and
(ii) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant taxable period
ended on the Closing Date. Any credits relating to a taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Target.
10.3. Refunds and Tax Benefits. Any Tax refunds that are received by
------------------------
Acquiror or the Target, and any amounts credited against Tax to which Acquiror
or the Target become entitled, that relate to Tax periods or portions thereof
ending on or before the Closing Date shall be for the account of the Principals,
and Acquiror shall pay over to the Principals any such refund or the amount of
any such credit within 15 days after receipt or entitlement thereto. In
addition, to the extent that a claim for refund or a proceeding results in a
payment or credit against Tax by a Taxing authority to the Acquiror or the
Target of any amount accrued on the Closing Balance Sheet, the Acquiror shall
pay such amount to the Principals within 15 days after receipt or entitlement
thereto.
10.4. Cooperation on Tax Matters.
--------------------------
10.4.1. The Acquiror, the Target and the Principals shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Agreement and any
audit, litigation or other proceeding with respect to Taxes.
36
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Target and the Principals agree (i) to
retain all books and records with respect to Tax matters pertinent to the Target
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by the
Acquiror or the Principals, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
Taxing authority, and (ii) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Target or the Principals, as the case may
be, shall allow the other party to take possession of such books and records.
10.4.2. The Acquiror and the Principals further agree, upon request,
to use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
10.4.3. The Acquiror and the Principals further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to (S)6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
10.5. Tax Sharing Agreements. All Tax sharing agreements or similar
----------------------
agreements with respect to or involving the Target shall be terminated as of the
Closing Date and, after the Closing Date, the Target shall not be bound thereby
or have any liability thereunder.
10.6. Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Principals when due, and the Principals will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Acquiror will, and will cause its Affiliates to,
join in the execution of any such Tax Returns and other documentation.
ARTICLE XI.
TERMINATION
-----------
11.1. Termination of Agreement. Certain of the parties may terminate
------------------------
this Agreement as provided below:
11.1.1. the Acquiror and the Principals may terminate this Agreement
by mutual written consent at any time prior to the Closing;
11.1.2. the Acquiror may terminate this Agreement by giving written
notice to the Principals at any time prior to the Closing (i) in the event that
either of the Principals has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Acquiror has
notified the Principals of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (ii) if the Closing
shall not have occurred on or before March 16, 1999, by reason of the failure of
any condition precedent under Section 8.1 hereof (unless the failure results
primarily from the Acquiror itself breaching any representation, warranty, or
covenant contained in this Agreement); and
11.1.3. the Principals may terminate this Agreement by giving written
notice to the Acquiror at any time prior to the Closing (i) in the event the
Acquiror has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, any of the Principals has
notified the Acquiror of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (ii) if the Closing shall
not have occurred on or before March 16, l999, by reason of the failure of any
condition precedent under Section 8.2 hereof (unless the failure results
primarily from any of the Principals themselves breaching any representation,
warranty, or covenant contained in this Agreement).
11.2. Effect of Termination. If any party terminates this Agreement
---------------------
pursuant to Section 11.1 above, all rights and obligations of the parties
hereunder shall terminate without any liability of any party to any other party
(except for any liability of any party then in breach); provided, however, that
-----------------
Sections 7.4, 7.7 and 9.1-9.6, inclusive, shall survive termination.
ARTICLE XII.
MISCELLANEOUS
-------------
12.1. No Third-party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
12.2. Entire Agreement. This Agreement (including the documents
----------------
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, to the extent they related in any way to the
subject matter hereof.
12.3. Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Acquiror and the Principals; provided, however, that the
Acquiror may (i) assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Acquiror
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
12.4. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.5. Headings. The section headings contained in this Agreement
--------
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
38
12.6. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Principals: With a copy to:
-------------------- --------------
iMALL, Inc. ▇▇▇▇▇▇▇ Coie LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ 250 ▇▇▇▇▇▇▇▇▇▇ Street, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
iMALL, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Acquiror: With a copy to:
------------------ --------------
iMALL, Inc. ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set forth.
12.7. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
12.8. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquiror and the Principals. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder,
39
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
12.9. Severability. Any term or provision of this Agreement that
------------
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
12.10. Expenses. The Acquiror agree that the Target will bear all
--------
of the Sellers' costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
12.11. Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
12.12. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
*****
40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
iMALL, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, an individual
By:
-----------------------------
Name:
-----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇, an individual
By:
-----------------------------
Name:
-----------------------------
PURE PAYMENTS
By:
-----------------------------
Name:
-----------------------------
Title:
----------------------------
S-1
EXHIBIT A
TARGET'S FINANCIAL STATEMENTS
-----------------------------
1
EXHIBIT B
FORM OF EMPLOYMENT AGREEMENT
----------------------------
2
EXHIBIT C
FORM OF ESCROW AGREEMENT
------------------------
3
SCHEDULE 1
SELLERS
-------
AMOUNT OF TARGET CAPITAL STOCK AMOUNT OF iMALL SHARES TO BE
SELLER TO BE TRANSFERRED RECEIVED
------------------------------ ------------------------------ ----------------------------
1.
2.
3.
4.
5.
6.
7.
8.
4