MERGER AGREEMENT
MERGER
AGREEMENT, dated May 15, 2006 (this “Agreement”), by and among a21, Inc., a
Texas corporation (“Parent”), AE Acquisition Corp., a Delaware corporation
(“Acquisition Corp.”), ArtSelect, Inc., a Delaware corporation (the “Company”),
and the common and preferred stockholders of the Company listed on Schedule
I
hereto (each, a “Stockholder” and collectively, the “Stockholders”) and Xxx
Xxxxxxxx (the “Stockholder Representative”).
W
I T N E
S S E T H :
WHEREAS,
the Company is in the business of supplying home and office framed and unframed
wall décor to retailers, catalogers, membership organizations and consumers
through both online and traditional retail and wholesale distribution channels
(the “Business”);
WHEREAS,
Stockholders constitute owners of at least 95% of the issued and outstanding
shares of stock of the Company;
WHEREAS,
Parent owns all of the issued and outstanding shares of capital stock of
Acquisition Corp.; and
WHEREAS,
Parent and Acquisition Corp. desire that Acquisition Corp. merge with and
into
the Company and, to realize the benefits thereof, the Company and the
Stockholders also desire that Acquisition Corp. merge with and into the Company,
upon the terms and subject to the conditions set forth herein and in accordance
with the General Corporation Law of Delaware, and that the outstanding shares
of
preferred stock (Series A and B), par value $.001 per share (the “Company
Preferred Stock”), of the Company, and the outstanding shares of common stock,
par value $.001 per share, of the Company (“Company Common Stock”), excluding
any such shares held in the treasury of the Company, be converted upon such
merger (the “Merger”) into the right to receive such amount of consideration, as
is provided herein.
NOW,
THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE
I
DEFINITIONS
1.1. Definitions.
The
following terms, as used herein, have the following meanings:
“Accounts
Receivable” has the meaning set forth in Section 3.11.
“Act”
has
the meaning set forth in Section 3.30(a).
“Action”
means any action, suit, investigation, hearing or proceeding, including any
audit for taxes or otherwise.
“Additional
Agreements” means each of the Escrow Agreement and the Intercreditor
Agreement.
“Affiliate”
means, with respect to any Person, any Person directly or indirectly
controlling, controlled by, or under common control with such other Person.
With
respect to any natural person, the term Affiliate shall also include any
member
of said person’s immediate family, any family limited partnership, limited
liability company or other entity for said person and any trust, voting or
otherwise, of which said person is a trustee or of which said person or any
of
said person’s immediate family is a beneficiary.
“Agreement”
has the meaning set forth in the Preamble.
“Approved
Image” has the meaning set forth in Section 3.16(d)(iii).
“Acquisition
Corp.” has the meaning set forth in the preamble.
“Arbitrator”
has the meaning set forth in Section 11.1(a).
“Assigned
Receivables” has the meaning set forth in Section 7.4.
“Assumed
Liabilities” has the meaning set forth in Section 2.3.
“Authority”
shall mean any governmental, regulatory or administrative body, agency or
authority, any court or judicial authority, any arbitrator, or any public,
private or industry regulatory authority, whether international, national,
Federal, state, or local.
“Books
and Records” means all books and records, ledgers, employee records, customer
lists, files, correspondence, and other records of every kind (whether written,
electronic, or otherwise embodied) owned or used by the Company or in which
the
Company’s assets, business, or transactions are otherwise
reflected.
“Business”
has the meaning set forth in the Recitals.
“Business
Day” means any day other than a Saturday, Sunday or a legal holiday on which
commercial banking institutions in New York are not open for
business.
“Certificate
of Merger” has the meaning set forth in Section 2.3.
“Charter
Documents” has the meaning set forth in Section 3.3.
“Closing
Balance Sheet” is the balance sheet of the Company prepared as of immediately
before the Effective Time in accordance with GAAP.
“Closing
Date” has the meaning set forth in Section 2.10.
“Closing”
has the meaning set forth in Section 2.10.
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“Closing
Payment” has the meaning set forth in Section 2.6(b).
“Code”
means the Internal Revenue Code of 1986.
“Company”
has the meaning set forth in the Preamble.
“Company
Common Stock” has the meaning set forth in the Recitals.
“Company
Consent” has the meaning set forth in Section 3.9.
“Company
Indemnitees” has the meaning set forth in Section 11.3.
“Company
Merger Costs” shall mean the aggregate of all accounting (which shall not
include regular audit fees), legal, printing, filing, financial advisory
(including finders’ or investment banking fees), commitments by the Company to
employees of the Company in the form of stay bonuses, severance, phantom
stock
or deemed participation in proceeds from the transactions contemplated hereby
and other fees and expenses of the Company and Taxes (as hereinafter defined)
of
the Company, in each case incurred or anticipated to be incurred in connection
with the transactions contemplated hereby, all estimated and agreed to by
the
parties two business days prior to the Effective Time.
“Company
Preferred Stock” has the meaning set forth in the Recitals.
“Company
Securities” means, collectively, the Company Common Stock and the Company
Preferred Stock.
“Constituent
Corporations” has the meaning set forth in Section 2.1(a).
“Contracts”
has the meaning set forth in Section 2.1(e).
“Conversion
Shares” has the meaning set forth in Section 5.16.
“December
Balance Sheet” has the meaning set forth in Section 3.10(a).
“Defaulted
Contract” has the meaning set forth in Section 2.3.
“Effective
Time” has the meaning set forth in Section 2.4.
“Employment
Agreements” means the agreements between the Company and each of the persons
listed on Exhibit 9.3(c).
“ERISA”
means the Employment Retirement Income Security Act of 1974.
“Escrow
Fund” has the meaning set forth in Section 2.7.
“Excess
Net Worth” has the meaning set forth in section 2.8(b).
“Exchange
Act” means the Securities Exchange Act of 1934.
3
“Exchange
Act Filings” means filings under the Exchange Act made by the Parent prior to
the Closing Date.
“Exchange
Agent” means Loeb & Loeb LLP,
a
California limited liability partnership.
“Financial
Statements” has the meaning set forth in Section 3.10(a).
“GAAP”
means U.S. generally accepted accounting principles, consistently applied
and
interpreted.
“Guaranty”
means the guaranty of Parent given to the holders of the Notes as security
for
the payment and performance of all obligations of the Company under the
Notes.
“Image”
has the meaning set forth in Section 3.16(d)(ii).
“Indebtedness”
includes with respect to any Person, (a) all obligations of such Person for
borrowed money, or with respect to deposits or advances of any kind (including
amounts by reason of overdrafts and amounts owed by reason of letter of credit
reimbursement agreements) including with respect thereto, all interests,
fees
and costs, (b) all obligations of such Person evidenced by bonds, debentures,
notes, liens, mortgages or similar instruments, (c) all obligations of such
Person under conditional sale or other title retention agreements relating
to
property purchased by such Person, (d) all obligations of such Person issued
or
assumed as the deferred purchase price of property or services (other than
accounts payable to creditors for goods and services incurred in the ordinary
course of business), (e) all Indebtedness of others secured by (or for which
the
holder of such Indebtedness has an existing right, contingent or otherwise,
to
be secured by) any lien or security interest on property owned or acquired
by
such Person, whether or not the obligations secured thereby have been assumed,
(f) all obligations of such Person under leases required to be accounted
for as
capital leases under GAAP, and (g) all guarantees by such Person.
“Indemnification
Notice” has the meaning set forth in Section 11.3(a).
“Indemnified
Parties” has the meaning set forth in Section 11.3(a).
“Indemnifying
Party” has the meaning set forth in Section 11.3.
“Intellectual
Property” has the meaning set forth in Section 3.16(d)(i).
“Intercreditor
Agreement” means the agreement between Queequeg Partners L.P., as agent and Xxx
Xxxxxxxx, as agent, specifying the respective priorities of the parties thereto
in collateral given by the Company as security for its obligations to such
parties.
“Labor
Agreements” has the meaning set forth in Section 3.27.
“Law”
means any domestic or foreign Federal, state, municipality or local law,
statute, ordinance, code, rule or regulation or common law.
4
“Licensed
Image” has the meaning set forth in Section 3.16(d)(vii).
“Licensed
Intellectual Property” has the meaning set forth in section
3.16(c).
“Lien”
means, with respect to any asset, any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect of such asset, including any
agreement to give any of the foregoing and any conditional sale and including
any voting agreement or proxy.
“Loss(es)”
has the meaning set forth in Section 11.1.
“March
Balance Sheet” has the meaning set forth in Section 3.10(a).
“Material
Adverse Change” means a material adverse change in the business, assets,
condition (financial or otherwise), liabilities, results of operations or
prospects of the Business individually or as a whole; provided,
however,
without
prejudicing whether any other matter qualifies as a Material Adverse Change,
any
matter individually or in the aggregate involving a loss or payment in excess
of
$75,000 shall constitute a Material Adverse Change, per se.
“Material
Adverse Effect” means a material adverse effect on the business, assets,
condition (financial or otherwise), liabilities, results of operations or
prospects of the Business individually or as a whole; provided, however,
without
prejudicing whether any other matter qualifies as a Material Adverse Effect,
any
matter individually or in the aggregate involving a loss or payment in excess
of
$75,000 shall constitute a Material Adverse Effect, per se.
“Merger”
has the meaning set forth in the Recitals.
“Merger
Consideration” has the meaning set forth in Section 2.6(a).
“Money
Laundering Laws” has the meaning set forth in Section 3.35.
“Net
Worth” means, with respect to the Company, total assets minus total liabilities,
in each case computed in accordance with GAAP provided that total liabilities
does not include any liabilities relating to the Company’s Series A and Series B
Preferred Stock, including any dividends thereon, as shown on the balance
sheet
of the Company used to calculate Net Worth.
“Notes”
has the meaning set forth in Section 2.6(a)(ii).
“Offered
Images” has the meaning set forth in section 3.16(d)(v).
“Offices”
has the meaning set forth in Section 3.1.
“Office
Lease” has the meaning set forth in Section 3.14(a).
“Order”
means any decree, order, judgment, writ, award, injunction, rule or consent
of
or by an Authority.
5
“Outside
Closing Date” means May 25, 2006, provided that the Outside Closing Date may be
extended by thirty days by any party hereto upon notice to the other parties
hereto.
“Owned
Intellectual Property” has the meaning set forth in Section
3.16(a).
“Owned
Image” has the meaning set forth in Section 3.16(d)(vi).
“Parent”
has the meaning set forth in the Preamble.
“Parent
Charter Documents” has the meaning set forth in Section 5.9.
“Parent
Common Stock” means the Common Stock, $.001 par value per share, of
Parent.
“Parent
Financial Statements” has the meaning set forth in Section 5.11.
“Parent
Indemnitees” has the meaning set forth in Section 11.1.
“Permits”
has the meaning set forth in Section 3.21.
“Person”
means an individual, a corporation, a partnership, a limited liability company,
an association, a trust or other entity or organization, including a government,
domestic or foreign, or political subdivision thereof, the Company or an
agency
or instrumentality thereof.
“Preliminary
Schedule” has the meaning set forth in Section 2.8(a).
“Preferred
Stock” has the meaning set forth in Section 2.6(a)(iii).
“Proceeding”
has the meaning set forth in Section 3.28(b).
“Purchased
Assets” has the meaning set forth in Section 2.1.
“Purchaser”
has the meaning set forth in the preamble.
“Real
Property” means, collectively, all real properties and interests therein
(including the right to use), together with all buildings, fixtures, trade
fixtures, plant and other improvements located thereon or attached thereto;
all
rights arising out of use thereof (including air, water, oil and mineral
rights); and all subleases, franchises, licenses, permits, easements and
rights-of-way which are appurtenant thereto.
“Rebate
Obligations” has the meaning set forth in Section 3.31(e).
“Reg
D”
has the meaning set forth in Section 3.30(a).
“Restriction
Period” has the meaning set forth in Section 7.2(a).
“Restrictive
Covenants” has the meaning set forth in Section 7.3.
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“SEC”
means the Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933.
“Software”
has the meaning set forth in Section 3.16(b).
“Stockholder
Representative” has the meaning set forth in the preamble.
“Stockholders”
has the meaning set forth in the Preamble.
“Stockholder’s
Securities” means, with respect to a Stockholder, the Company Common Stock
and/or the Company Preferred Stock owned by such Stockholder as set forth
on
Schedule
I
hereto.
“Surviving
Corporation” has the meaning set forth in Section 2.1(a).
“Tangible
Assets” has the meaning set forth in Section 2.1(c).
“Tax”
has
the meaning set forth in Section 3.28(c).
“Tax
Return” has the meaning set forth in Section 3.28(d).
“Third
Party Claim” has the meaning set forth in Section 11.3(a).
“UCC”
shall mean the Uniform Commercial Code of the State of New York, or any
corresponding or succeeding provisions of Laws of the State of New
York,
or any
corresponding or succeeding provisions of Laws, in each case as the same
may
have been and hereafter may be adopted, supplemented, modified, amended,
restated or replaced from time to time.
“Unapproved
Image” has the meaning set forth in Section 3.16(d)(ii).
“Warrants”
has the meaning set forth in Section 2.6(a)(iv).
“Warrant
Shares” has the meaning set forth in Section 5.16.
“Website(s)”
shall mean all of the internet domain names for the Company set forth on
Schedule 3.7.
ARTICLE
II
PURCHASE
AND SALE
2.1. The
Merger.
(a) At
the
Effective Time, (i) the separate existence of Acquisition Corp. will cease
and
Acquisition Corp. will be merged with and into the Company (Acquisition Corp.
and the Company are sometimes referred to herein as the “Constituent
Corporations”; with respect to periods after the Effective Time, the Company is
sometimes referred to herein as the “Surviving Corporation”); (ii) the
Certificate of Incorporation of Acquisition Corp. in effect immediately prior
to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation; and (iii) the By-laws of Acquisition Corp. as in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving
Corporation.
7
(b) At
and
after the Effective Time, title to all property owned by each of the Constituent
Corporations shall vest in the Surviving Corporation without reversion or
impairment, and the Surviving Corporation shall automatically have all of
the
liabilities of each Constituent Corporation.
(c) Immediately
after the Effective Time, the members of the Board of Directors of the Surviving
Corporation shall be as follows, provided however, neither Parent nor the
Surviving Corporation is under any obligation to maintain any person in any
such
position:
(i) Xxx
Xxxxx, Xxx Xxxxxxxx and Xxxxx Xxxxxx; and
(ii) such
persons as Parent may elect.
(d) Immediately
after the Effective Time, the Board of Directors of the Surviving Corporation
shall name the following persons as officers of the Surviving Corporation,
provided however, subject only to the Employment Agreements, neither Parent
nor
the Surviving Corporation is under any obligation to maintain any person
in any
such position:
(i) Xxx
Xxxxx
–
President
Xxxxx
Xxxxxx – Vice President and General Manager
Xxx
Xxxxxxxx – Vice President – Chief Financial Officer and Secretary
(ii) such
other persons as the Board of Directors of the Surviving Corporation shall
designate.
(e) The
parties hereto acknowledge and agree that the fair market value of the shares
of
the Series A Convertible Preferred Stock of Parent issued to the Stockholders
is
$3,150,000 and will report it as such for all purposes with respect to the
transaction contemplated hereby, including for tax purposes.
2.2. Intentionally
Omitted.
2.3. Certificate
of Merger.
As soon
as practicable following fulfillment or waiver of the conditions specified
in
Article IX hereof, and provided that this Agreement has not been terminated
and
abandoned pursuant to Article XIII hereof, the Company and Acquisition Corp.
will cause the Certificate of Merger in substantially the form of Exhibit
A
attached
hereto (the “Certificate of Merger”) to be executed and filed with the Delaware
Secretary of State as provided in the Delaware General Corporation Law. The
purpose of the Surviving Corporation shall be to engage in any and all business
activities in which a corporation is permitted to engage in accordance with
the
Delaware General Corporation Law.
8
2.4. Effective
Time of the Merger.
The
Merger shall become effective at 11:59 p.m. on the day of the filing of the
Certificate of Merger with the Delaware Secretary of State or at such other
date
or time thereafter as the parties may agree. The date and time of such
effectiveness is herein sometimes referred to as the “Effective
Time”.
2.5. Effect
on Capital Stock; Exchange Procedures.
(a) As
of the
Effective Time, by virtue of the Merger and without any action on the part
of
the holder of any shares of the Company Securities or capital stock of
Acquisition Corp.:
(i) Each
issued and outstanding share of the Company Securities shall be converted
into
the right to receive a portion of the Merger Consideration as defined in
Section
2.6. All of the Company Securities shall be cancelled, and each holder of
a
certificate representing any of the Company Securities shall thereafter cease
to
have any rights with respect to the Company Securities except the right to
receive the Merger Consideration pursuant to the terms hereof. Any shares
of the
Company Securities held as treasury shares by the Company shall be canceled
and
not be converted into the right to receive any consideration.
(ii) Each
issued and outstanding share of the capital stock of Acquisition Corp. shall
remain outstanding.
(b) Immediately
after the Effective Time, Parent shall supply or cause to be supplied to
the
Exchange Agent, for exchange in accordance with this Section 2.5, through
such
reasonable procedures as the Exchange Agent may adopt, the Closing Payment.
The
Stockholders agree to comply with all such procedures, in addition to the
procedures set forth in this Section 2.
(c) As
soon
as practicable after the Effective Time, each holder of Company Securities
will
surrender the certificates representing the Company Securities to the
Exchange
Agent.
Upon
the surrender of all the Company Securities owned by a Stockholder, such
Stockholder shall promptly receive from the Exchange
Agent
the
portion of the Closing Payment which such Stockholder is entitled to receive
pursuant to Schedule I.
(d) If
the
Closing Payment (or any portion thereof) to be paid to any Stockholder is
to be
delivered to any person other than the person in whose name the Company
Securities are registered, it shall be a condition to such exchange that
the
Company Securities so surrendered shall be properly endorsed or otherwise
in
proper form for transfer and the person requesting such exchange (a) establish
to the satisfaction of the Exchange
Agent
and the
Parent the propriety of such transfer and (b) (i) pay any transfer or other
taxes required by reason of the payment of such consideration to a person
other
than the registered holder of the Company Securities surrendered, or (ii)
establish to the satisfaction of the Exchange
Agent
and the
Parent that such tax has been paid or is not applicable.
(e) If
any
certificate representing Company Securities has been lost, stolen or destroyed,
the Exchange
Agent
shall
issue the applicable Closing Payment deliverable in respect thereof upon
(i) the
making of an affidavit of that fact by the person claiming such certificate
to
be lost, stolen or destroyed and (ii) if required by the Parent, the posting
by
such person of a bond in such reasonable amount as the Parent may direct
as
indemnity against any claim that may be made against it with respect to such
certificate.
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(f) From
and
after the Effective Time, no transfer of any shares of Company Securities
outstanding prior to the Effective Time shall be made on the stock transfer
books of the Company.
2.6. Merger
Consideration.
(a) The
consideration that the Stockholders shall collectively be entitled to receive
by
virtue of the Merger shall be the sum of the cash set forth in subsection
(a)(i)
below, the Notes, the Preferred Stock and the Warrants, subject to adjustment
as
set forth in Sections 2.8 (collectively, the “Merger Consideration”). The Merger
Consideration shall consist of:
(i) $4,500,000
reduced by the Company Merger Costs in cash;
(ii) $2,350,000
in the form of three-year secured notes substantially in the form of
Exhibit
2.6(a)(ii)
hereto
(the “Notes”);
(iii) $3,150,000
in Series A Convertible Preferred Stock of Parent in the form of Exhibit
2.6(a)(iii)
hereto
(the “Preferred Stock”), at a per share price equal to $315;
(iv) Warrants
to purchase 750,000 shares of the Common Stock of Parent substantially in
the
form of Exhibit
2.6(a)(iv)
hereto
(the “Warrants”).
(b) The
“Closing Payment” shall mean:
(v) $4,000,000
reduced by the Company Merger Costs in cash;
(vi) $2,500,000
face amount of Preferred Stock; and
(vii) the
Warrants.
Each
Stockholder shall be entitled to receive the component of the Purchase Price
set
forth opposite his name on Schedule I hereto.
2.7. Payment
of the Merger Consideration.
The
Merger Consideration shall be payable by Acquisition Corp. and Parent as
follows:
(a) The
Closing Payment shall be payable by Acquisition Corp. and Parent to Stockholders
on the Closing Date. An amount equal to the Company Merger Costs will be
paid by
Acquisition Corp. and Parent to the Company on the Closing Date.
(b) The
cash
portion of the Closing Payment shall be payable in United States Dollars
and
shall be delivered by Acquisition Corp. and Parent on the Closing Date by
wire
transfer of immediately available funds.
(c) Subject
to the provisions of this Section 2.7, $500,000 in cash, Notes in the aggregate
principal amount of $2,350,000 and Preferred Stock in the face amount of
$650,000 (collectively, the “Escrow Fund”) shall be held in escrow subject to
the terms and conditions of the Escrow Agreement attached hereto as Exhibit
C.
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2.8. Procedure
to Establish Net Worth.
(a) Not
less
than three days nor more than ten days prior to the Effective Time, the Company
shall deliver to Parent a schedule (the “Preliminary Schedule”) detailing any
unpaid Company Merger Costs.
(b) Within
60
days after the Closing Date, the Stockholder Representative will provide
the
Parent with a Closing Balance Sheet and a calculation of the Company’s Net
Worth. For purposes of calculating Net Worth and the Closing Balance Sheet,
Company Merger Costs will be excluded from the calculation of Net Worth and
not
listed as a liability on the Closing Balance Sheet. The Parent must dispute
the
Net Worth calculation or the Closing Balance Sheet within 45 days of receiving
such calculation from the Stockholder Representative. If such calculation
or the
Closing Balance Sheet is not disputed by the Parent sending notice to the
Stockholder Representative within such period, the Parent will be deemed
to have
accepted the Net Worth calculation and the Closing Balance Sheet. If by the
120th
day
after the Closing Date the independent accountants regularly employed by
the
Parent (the “Parent’s accountants) and the independent accountants for the
Stockholder Representative (which shall be the same firm of accountants
previously employed by the Company) (the “Stockholder Representative’s
Accountants) are unable to agree upon the Net Worth calculations or the Closing
Balance Sheet, the Parent’s Accountants and the Stockholder Representative’s
Accountants shall provide their calculations of Net Worth and Closing Balance
Sheet to a third-party independent accountant (the “Third Party Accountant”)
familiar with the Business and mutually agreed upon by the Parent’s Accountants
and the Stockholder Representative’s Accountants who shall make a determination
as to the Company’s Net Worth as of the Closing Date. If the Parent’s
Accountants and the Stockholder Representative’s Accountants cannot agree upon
the Third Party Accountant, the dispute shall be submitted to Arbitration
in
accordance with Section 12.1 of this Agreement. The expenses for the Independent
Accountant shall be paid for by the party whose calculation of Net Worth
was
most different from the calculation of such third-party accountants, as
determined by such Third-Party Accountant in its reasonable discretion. To
the
extent that the Net Worth of the Company as of the Closing Date as finally
determined is in excess of $1,266,168 (the “Excess Net Worth”), additional Notes
issued as of the Effective Time in the principal amount of the Excess Net
Worth
shall be deposited into Escrow pursuant to the Escrow Agreement. In such
case
and if so requested by the Stockholder Representative, that number of shares
of
Preferred Stock in a face amount equal to the Excess Net Worth shall be released
from Escrow and distributed to the Stockholders in accordance with the Escrow
Agreement. Notwithstanding anything contained in this Agreement to the contrary,
if (i) the aggregate face amount of the Notes, plus (ii) the aggregate face
amount of the additional Notes required to be issued pursuant to the foregoing
provisions of this Section 2.8(b), would exceed forty percent (40%) of the
Merger Consideration (taking into account the aggregate face amount of the
additional Notes required to be issued pursuant to the foregoing provisions
of
this Section 2.8(c)), the aggregate face amount of the additional Notes in
excess of forty percent (40%) of the Merger Consideration (taking into account
the aggregate face amount of the additional Notes required to be issued pursuant
to the foregoing provisions of this Section 2.8(c) shall not be issued and
Parent shall instead issue such number of additional shares of Preferred
Stock
as is necessary to make-up the difference. If the Net Worth of the Company
as of
the Closing Date is less than $1,266,168, the deficiency will be addressed
as
provided in the Escrow Agreement. If the Net Worth of the Company as of the
Closing Date is equal to $1,266,168, no adjustments to the Merger Consideration
will be made pursuant to the provisions of this Section.
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(c) From
and
after the Closing, solely for the purpose of the Stockholder Representative
preparing the Closing Balance Sheet and calculating the Company’s Net Worth as
of the Closing Date, the Company will permit the Stockholder Representative
and
its representatives to have reasonable access to the Company’s respective
officers, directors, employees, agents, assets and properties and all relevant
books, records and documents of or relating to the Business and assets of
the
Company during normal business hours and will furnish to the Stockholder
Representative and its representatives such information, financial records
and
other documents relating to the Company and the Business as may reasonably
be
requested. Any such information, financial records and other documents relating
to the Company and the Business provided to the Stockholder Representative
and
its representative shall be subject to the provisions of Section 7.1 of this
Agreement.
2.9. [Intentionally
Omitted]
2.10. Closing.
Subject
to the satisfaction or waiver of the conditions set forth in Article VIII,
the
closing (the “Closing”) of the Merger hereunder shall take place at the offices
of Loeb & Loeb LLP in New York, on May 10, 2006 at 10:00 a.m., or at such
other date, time or place as Parent, Acquisition Corp., the Stockholder
Representative and the Company may agree (the date and time at which the
Closing
is actually held being the “Closing Date”). In addition to those obligations set
forth in Article IX, at the Closing,
(a) Parent
shall deliver the Closing Payment in accordance with Section 2.7(a);
and
(b) Each
of
the Stockholders will deliver to Acquisition Corp. certificates representing
the
Stockholder’s Company Securities, duly endorsed, together with any other
documents that are necessary to transfer to Acquisition Corp. good title
to all
of the Stockholder’s Securities, free and clear of any and all
Liens.
2.11. No
Further Transfers; Lost, Stolen or Destroyed
Certificates.
The
Merger Consideration paid pursuant to the Merger upon the surrender for exchange
of shares of Company Securities in accordance with the terms hereof shall
be
deemed to have been paid in full satisfaction of all rights pertaining to
such
shares of Company Securities, and upon and after the Effective Time, no transfer
of the shares of Company Securities outstanding prior to the Effective Time
shall be made on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided
in
this Article II.
2.12. Effect
of the Merger.
Upon
and after the Effective Time: (a) the shares of the Company shall be converted
as provided in this Agreement; (b) the former holders of such shares will
be
entitled only to the rights provided in this Agreement or to the rights provided
under Delaware General Corporation Law; and (c) the Merger shall otherwise
have
the effect provided under the applicable laws of the state of
Delaware.
12
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF
THE
STOCKHOLDERS AND THE COMPANY
The
Stockholders, joint and severally (but subject in all cases to the limitations
and conditions contained in Article XI and in the Escrow Agreement) hereby
represent and warrant to Parent and Acquisition Corp. that:
3.1. Corporate
Existence and Power.
The
Company is a corporation duly formed, validly existing and in good standing
under and by virtue of the Laws of the State of Delaware, and has all power
and
authority, corporate and otherwise, and all governmental licenses, franchises,
permits, authorizations, consents and approvals required to own and operate
its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. Except as set forth on Schedule 3.1, the Company
is
not qualified to do business as a foreign corporation in any jurisdiction,
and
there is no jurisdiction in which the character of the property owned or
leased
by the Company or the nature of its activities make qualification of the
Company
in any such jurisdiction necessary, except where the failure to so qualify
would
not have a Material Adverse Effect. The only offices, warehouses or business
locations of the Company are listed on Schedule 3.1 (the “Offices”). The Company
has not taken any action, adopted any plan, or made any agreement in respect
of
any merger, consolidation, sale of all or substantially all of its respective
assets, reorganization, recapitalization, dissolution or liquidation, except
as
explicitly set forth in this Agreement.
3.2. Corporate
Authorization.
The
execution, delivery and performance by the Company of this Agreement and
each of
the other Additional Agreements to which the Company is named as a party
and the
consummation by the Company of the transactions contemplated hereby and thereby
are within the corporate powers of the Company and have been duly authorized
by
all necessary action on the part of the Company, including the approval of
the
Stockholders. This Agreement constitutes, and, upon their execution and
delivery, each of the Additional Agreements will constitute, a valid and
legally
binding agreement of the Company, enforceable against the Company in accordance
with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and
the
relief of debtors, or (ii) rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3. Charter
Documents; Legality.
The
Company has previously delivered to Parent true and complete copies of its
Certificate of Incorporation and By-Laws, minute books and stock books (the
“Charter Documents”), as in effect or constituted on the date hereof. The
execution, delivery, and performance by the Company and each Stockholder
of this
Agreement and any Additional Agreement to which the Company or such Stockholder
is to be a party has not violated and will not violate, and the consummation
by
the Company or the Stockholders of the transactions contemplated hereby or
thereby will not violate, any of the Charter Documents or any
Law.
13
3.4. Capitalization
and Ownership of the Company.
Schedule 3.4 sets forth, with respect to the Company, (i) the Company’s
authorized capital, (ii) the number of the Company’s securities that are
outstanding, (iii) each Stockholder owning the Company’s securities and the
number of shares of such securities owned by such Stockholder, and (iv) each
security convertible into or exercisable or exchangeable for the Company’s
securities, the number and type of securities such security is convertible
into,
the exercise or conversion price of such security and the holder of such
security. Except as set forth on Schedule 3.4, no person other than the
Stockholders owns any securities of the Company. Except as set forth on Schedule
3.4, there is no Contract that requires or under any circumstance would require
the Company to issue, or grant any right to acquire, any securities of the
Company, or any security or instrument exercisable or exchangeable for or
convertible into, the capital stock or membership interest of the Company
or to
merge, consolidate, dissolve, liquidate, restructure, or recapitalize the
Company.
The
Company Securities (i) have been duly authorized and validly issued and are
fully paid and nonassessable, and the shares of Company Common Stock issued
upon
conversion of the Company Preferred Stock will, upon such conversion, be
validly
issued, fully paid and nonassessable, and (ii) were issued in compliance
with
all applicable federal and state securities laws.
3.5. Subsidiaries.
The
Company does not own, and since its formation has not owned, directly or
indirectly, any security or other ownership interest in any other Person.
The
Company is not a party to any agreement relating to the formation of any
joint
venture, association or other Person.
3.6. Affiliates.
Other
than the Stockholders, the Company is not controlled by any Person and the
Company is not in control of any other Person. Schedule 3.6 lists each Contract,
arrangement, or understanding to which the Company and any Stockholder or
any
Affiliate of any Stockholder is a party. Except as disclosed in Schedule
3.6,
none of the Stockholders or any Affiliate of any Stockholder (i) own, directly
or indirectly, in whole or in part, any tangible or intangible property
(including Intellectual Property rights) that the Company uses or the use
of
which is necessary for the conduct of the Company’s business, or (ii) have
engaged in any transaction with the Company.
3.7. Assumed
Names.
Schedule 3.7 is a complete and correct list of all assumed or “doing business
as” names currently or formerly used by the Company, including names on any
Websites. The Company has not used any name other than the names listed on
Schedule 3.7 to conduct its business. The Company has filed appropriate “doing
business as” certificates in all applicable jurisdictions. Except as indicated
on Schedule 3.7, all Websites are in good working order.
3.8. Governmental
Authorization.
None of
the execution, delivery or performance by the Company of this Agreement or
any
Additional Agreement requires any consent, approval, license or other action
by
or in respect of, or registration, declaration or filing with, any
Authority.
3.9. Consents.
The
Contracts listed on Schedule 3.9 are the only material agreements, commitments,
arrangements, contracts or other instruments binding upon the Company or
any of
its properties requiring a consent, approval, authorization, order or other
action of or filing with any Person as a result of the execution, delivery
or
performance of this Agreement or any of the Additional Agreements or the
consummation of the transactions contemplated hereby or thereby (each of
the
foregoing, a “Company Consent”).
14
3.10. Financial
Statements.
(a) Attached
hereto as Schedule 3.10(a) are audited balance sheets of the Company as of
December 31, 2004 and December 31, 2005, and the related statements of
operations, stockholders’ deficit and cash flows for each of the years in the
three-year period ended December 31, 2005, and an unaudited balance sheet
of the
Company as of March 31, 2006 (collectively, the “Financial Statements”). The
balance sheet contained in the Financial Statements as of December 31, 2005
is
referred to herein as the “December Balance Sheet”. The balance sheet contained
in the Financial Statements as of March 31, 2006 is referred to herein as
the
“March Balance Sheet”. The Financial Statements (i) were prepared from the Books
and Records; (ii) except as set forth on Schedule 3.10, were prepared in
accordance with GAAP; (iii) fairly and accurately present the Company’s
financial condition and the results of its operations as of their respective
dates and for the periods then ended; (iv) contain and reflect all necessary
adjustments and accruals for a fair presentation of the Company’s financial
condition as of their dates; and (v) contain and reflect adequate provisions
for
all reasonably anticipated liabilities for all material income, property,
sales,
payroll or other Taxes applicable to the Company with respect to the periods
then ended. The Company has heretofore delivered to Parent complete and accurate
copies of all “management letters” received by it from the Company’s accountants
and all responses during the last three years by lawyers engaged by the Company
to inquiries from the Company’s accountant or any predecessor
accountants.
(b) Except
as
specifically disclosed, reflected or fully reserved against on the March
Balance
Sheet and for liabilities and obligations of a similar nature and in similar
amounts incurred in the ordinary course of business since the date of the
March
Balance Sheet and except as set forth on Schedule 3.10(b), there are no
liabilities, debts or obligations of any nature (whether accrued, absolute,
contingent, liquidated or unliquidated, unasserted or otherwise) relating
to the
Company. All debts and liabilities, fixed or contingent, which should be
included under GAAP on an accrual basis on the March Balance Sheets are included
therein.
(c) The
December Balance Sheet and March Balance Sheet accurately reflect the
outstanding Indebtedness of the Company as of the date thereof. Except as
set
forth on Schedules 3.10(a), the Company does not have any
Indebtedness.
(d) All
forecasts, presentations or projections relating to the future results of
operations of the Company were based upon reasonable assumptions and were
prepared in good faith by the Company.
(e) All
accounts, books and ledgers of the Company have been properly and accurately
kept and completed in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein.
The
Company has none of its records, systems controls, data or information recorded,
stored, maintained, operated or otherwise wholly or partly dependent on or
held
by any means (including any mechanical, electronic or photographic process,
whether computerized or not) which (including all means of access thereto
and
therefrom) is not under the exclusive ownership (excluding licensed software
programs) and direct control of the Company and which is not located at the
Offices or at locations set forth on Schedule 3.10(e).
15
3.11. Accounts
Receivable.
Schedule 3.11 sets forth as of a date within three days of the Closing Date
all
accounts, notes and other receivables, whether or not accrued, and whether
or
not billed, of the Company, in accordance with GAAP (“Accounts Receivable”).
Except as set forth in Schedule 3.11, all Accounts Receivable represent bona
fide revenues of the Company pursuant to the Business and are fully collectible,
net of any reserves shown on the March Balance Sheet. Except as set forth
on
Schedule 3.11, all accounts and notes receivable reflected on the December
Balance Sheet, or arising since December 31, 2005, have been collected, or
are
and to the knowledge of the Company will be good and collectible, in each
case
at the aggregate recorded amounts thereof without right of recourse, defense,
deduction, return of goods, counterclaim, offset, or set off on the part
of the
obligor.
3.12. Books
and Records.
(a) The
Books
and Records accurately and fairly, in reasonable detail, reflect the Company’s
transactions and dispositions of assets. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that:
(i) transactions
are executed in accordance with management’s authorization;
(ii) access
to
assets is permitted only in accordance with management’s authorization;
and
(iii) recorded
assets are compared with existing assets at reasonable intervals, and
appropriate action is taken with respect to any differences.
(b) The
Company has heretofore made all of its Books and Records available to Parent
for
its inspection and has heretofore delivered to Parent complete and accurate
copies of documents referred to in the Schedules or as Parent otherwise has
requested. All Contracts, documents, and other papers or copies thereof
delivered to Parent by or on behalf of the Company in connection with this
Agreement and the transactions contemplated herein are accurate, complete,
and
authentic.
(c) Schedule
3.12(c) is a complete and correct list of all savings, checking, brokerage
or
other accounts pursuant to which the Company has cash or securities on deposit
and such list indicates the signatories on each account.
3.13. Absence
of Certain Changes.
(a) Except
as
set forth in Schedule 3.13(a), since December 31, 2005, the Company has
conducted its business in the ordinary course of business consistent with
past
practices, and there has not been:
16
(i) any
Material Adverse Change or any event, occurrence, development or state of
circumstances or facts which could reasonably be expected to result individually
or in the aggregate in a Material Adverse Effect on the Company’s ability to
consummate the transactions contemplated herein or upon the value to Parent
or
Acquisition Corp. of the transactions contemplated hereby;
(ii) any
transaction, contract, agreement or other instrument entered into, or commitment
made, by the Company relating to the Business or any relinquishment by the
Company of any Contract or other right, in either case other than transactions
and commitments in the ordinary course of business consistent in all respects,
including kind and amount, with past practices and those contemplated by
this
Agreement;
(iii) any
bonus, salary or other compensation paid or agreed to be paid to any employee
except in accordance with Schedule 3.13(a);
(iv) any
capital expenditure except in the ordinary course of business consistent
with
past practice;
(v) any
sale,
lease, license or other disposition of any of its assets except (i) pursuant
to
existing Contracts or commitments disclosed herein and (ii) sales of products
or
inventory in the ordinary course of business consistent with past
practice;
(vi) acceptance
of any returns except in the ordinary course of business, consistent with
past
practice;
(vii) any
default under any term or provision of any Contract;
(viii) an
increase in the amount of Indebtedness of the Company;
(ix) the
incurrence of Liens on any of its assets;
(x) any
damage, destruction or loss of property related to any of its assets, whether
or
not covered by insurance;
(xi) any
delay, acceleration or cancellation of any receivables or indebtedness owed
to
the Company or write-off or additional reserves made with respect to the
same;
(xii) any
merger or consolidation with or acquisition of any other Person;
(xiii) the
lapse
of any insurance policy protecting the Company’s assets;
(xiv) any
change in its accounting principles or methods or write down the value of
any
inventory or assets;
(xv) any
change in location where the Company conducts business;
17
(xvi) any
extension of any loans other than travel or other expense advances to employees
in the ordinary course of business consistent with past practice exceeding
$1,000 individually or $10,000 in the aggregate;
(xvii) any
increase or reduction in the prices of products sold except in the ordinary
course of business consistent with past practice;
(xviii) any
agreement to change any practices or terms, including payment terms, with
respect to customers or suppliers;
(xix) any
change in the Company’s hiring practices for employees, consultants or
advisors;
(xx) any
dividend or distribution to Stockholders; or
(xxi) any
agreement to do any of the foregoing.
(b) Except
as
set forth on Schedule 3.13(a) and actions taken in good faith to invest in
the
Company’s business, since December 31, 2005, through and including the Closing
Date, the Company has not taken any action nor has had any event occur which
would have violated any covenant of the Company set forth in Article VI
hereof.
3.14. Real
Property.
(a) The
Company does not own any Real Property. The Company has delivered to Parent
true, correct, and complete copies of the lease and all amendments thereto
for
office space listed on Schedule 3.14(a) (the “Office Lease”). The Office Lease,
together with all amendments, is listed in Schedule 3.14(a) and is valid
and
enforceable by the Company with respect to the other party thereto. The Company
has not breached or violated and is not in default under the Office Lease
or any
local zoning ordinance, the breach or violation of which could individually
or
in the aggregate have a Material Adverse Effect, and no notice from any Person
has been received by the Company or served upon the Company or any Stockholder
claiming any violation of any lease or any local zoning ordinance. The Company
has no other leases for Real Property except as set forth on Schedule
3.14(a).
(b) The
Company has not experienced any material interruption in the delivery of
adequate quantities of any utilities (including electricity, natural gas,
potable water, water for cooling or similar purposes and fuel oil) or other
public services (including sanitary and industrial sewer service) required
by
the Company in the operation of the Business.
3.15. Tangible
Personal Property.
(a) Each
piece of Tangible Assets is in operating condition and repair and functions
in
accordance with its intended use (ordinary wear and tear excepted), has been
properly maintained, and is suitable for its present uses. Schedule 3.15(a)
sets
forth a complete and correct list of the Tangible Assets owned by the Company,
setting forth a description of such property and its location, as of a date
within three days of the Closing Date.
18
(b) The
Company has, and upon consummation of the transactions contemplated hereby
will
have, good, valid and marketable title in and to each piece of Tangible Assets
listed on Schedule 3.15(a) hereto, free and clear of all Liens, except as
set
forth on Schedule 3.15(b).
(c) The
Company has good title to, or a valid leasehold or license interest in, all
its
properties and assets (whether tangible or intangible), free and clear of
all
Liens. The
personal and other properties and assets owned by the Company or leased or
licensed by the Company from a third party constitute all such properties
and
assets which are necessary to the Business as presently conducted and as
presently proposed to be conducted.
(d) The
materials and supplies included in the inventory of the Company as of the
Closing Date will be (i) substantially equivalent in quality and quantity,
subject to seasonality, to the materials and supplies, and additions thereto,
generally included in such inventory in the past; and (ii) valued in accordance
with GAAP and applied on a basis consistent with that used in the Financial
Statements.
(e) Except
as
indicated on Schedule 3.15(a), all Tangible Assets are located at the
Offices.
3.16. Intellectual
Property.
(a) Schedule
3.16(a) sets forth a true and complete list of all patents and patent
applications, trademarks, service marks, trademark and service xxxx
registrations, trademark and service xxxx applications, registered copyrights
and copyright applications, and Internet domain names and Websites, in each
case
that are owned by the Company and used or held for use by or otherwise material
to the Business (collectively, together with unregistered copyrights and
trade
secrets, know-how and similar confidential and proprietary information owned
by
the Company and material to the Business (which unregistered copyrights and
information are not listed on Schedule 3.16(a)), “Owned Intellectual
Property”).
(b) Schedule
3.16(b) sets forth a true and complete list of all material computer software
developed in whole or in part by or on behalf of the Company, including such
developed computer software and databases that are operated or used by the
Company on its Websites or used by the Company in connection with processing
customer orders, storing customer information or storing and archiving Images
that are owned by the Company and used or held for use by or otherwise material
to the business (collectively, “Software”).
Except for the software (including prepackaged third party software) listed
on
Schedule 3.16(g), the Software is the only computer software that is used
or
held for use by or otherwise material to the Business.
(c) Schedule
3.16(c) sets forth a true and complete list of all licenses, sublicenses
and
other agreements pertaining to Intellectual Property or Software to which
the
Company is a party, including agreements with major Internet service providers
and major Internet portals, in each case which are valid and used or held
for
use by or otherwise material to the Business (collectively, “Licensed
Intellectual Property”).
19
(d) As
used
herein:
(i) “Intellectual
Property” means any and all of the following, but excluding Images: (A) U.S.,
international and foreign patents, patent applications and statutory invention
registrations; (B) trademarks, licenses, inventions, service marks, trade
names,
trade dress, slogans, logos and Internet domain names, including registrations
and applications for registration thereof; (C) copyrights, including
registrations and applications for registration thereof, and copyrightable
materials; (D) trade secrets, know-how and similar confidential and proprietary
information; (E) “ArtSelect” and the additional names listed on Schedule 3.7 and
all derivations thereof; (F) u.r.l.s; and (G) any other type of Intellectual
Property right, and all embodiments and fixations thereof and related
documentation, registrations and franchises and all additions, improvements
and
accessions thereto, in each case which is owned or licensed or filed by the
Company or used or held for use in the Business, whether registered or
unregistered or domestic or foreign.
(ii) “Image”
means a reproduction of any artwork, photograph, illustration or image of
any
type.
(iii) “Approved
Images” means Images used or held for use by the Company in connection with the
Business for which the Company has the right to grant sublicenses to third
parties.
(iv) “Unapproved
Images” means Images used or held for use by the Company in connection with the
Business for which the Company has not been granted the right to grant
sublicenses to third parties.
(v) “Offered
Images” means, collectively, Approved Images and Unapproved Images.
(vi) “Owned
Images” means Images for which the Company owns the copyright
thereto.
(vii) “Licensed
Images” means Images for which the Company has licensed rights from a third
party.
(e) The
Company’s ownership and use in the ordinary course of the Owned Intellectual
Property and the use of the Software and Licensed Intellectual Property does
not
infringe upon or misappropriate the valid Intellectual Property rights, privacy
rights or right of publicity of any third party.
(f) Except
as
set forth in Schedule 3.16(f), the Company is the owner of the entire and
unencumbered right, title and interest in and to each item of Owned Intellectual
Property, and the Company is entitled to use, and is using in the Business,
the
Owned Intellectual Property, Software, Offered Images and Licensed Intellectual
Property in the ordinary course.
(g) Except
for the Intellectual Property listed on Schedule 3.16(g), the Owned Intellectual
Property, Software, Offered Images and the Licensed Intellectual Property
include all of the Intellectual Property used in the ordinary day-to-day
conduct
of the Business, and there are no other items of Intellectual Property,
Software, Offered Images or Licensed Intellectual Property that are material
to
such ordinary day-to-day conduct of the Business. The Owned Intellectual
Property and, to the knowledge of the Company, the Licensed Intellectual
Property, is subsisting, valid and enforceable, and has not been adjudged
invalid or unenforceable in whole or part.
20
(h) Except
as
set forth on Schedule 3.16(h), no claims or legal proceedings have been asserted
against the Company and not disposed of, or are pending or, to the knowledge
of
the Company, threatened against the Company: (i) based upon or challenging
or
seeking to deny or restrict the use by the Company of any of the Owned
Intellectual Property, Software, Offered Images or Licensed Intellectual
Property; (ii) alleging that any services provided by, processes used by,
or
Images offered by the Company infringe upon or misappropriate any Intellectual
Property right, software or Images of any third party; (iii) alleging that
any
Intellectual Property licensed to the Company under the Licensed Intellectual
Property infringes upon any Intellectual Property right, software or Images
of
any third party or is being licensed or sublicensed to the Company in conflict
with the terms of any license or other agreement; or (iv) challenging the
Company’s ownership of the Owned Intellectual Property or use of any Licensed
Intellectual Property, Software, or Offered Images.
(i) To
the
knowledge of the Company, no Person is engaged in any activity that infringes
upon the Owned Intellectual Property, the Licensed Intellectual Property,
Software or Offered Images. The Company has not granted any license or other
right currently outstanding to any third party with respect to the Owned
Intellectual Property, Licensed Intellectual Property, Software, or Offered
Images, except for (i) licenses comprising invoices incurred in the ordinary
course, and (ii) those licenses set forth in Schedule 3.16(i). The consummation
of the transactions contemplated by this Agreement will not result in the
termination or impairment of any of the Owned Intellectual Property, Licensed
Intellectual Property, Software or Offered Images.
(j) Except
for licenses comprising invoices incurred in the ordinary course, the Company
has delivered or made available to Acquisition Corp. correct and complete
copies
of all documents relating to Owned Intellectual Property, Software and Offered
Images and licenses and sublicenses of the Licensed Intellectual Property
to
which the Company is a party. With respect to each such license and
sublicense:
(i) such
documents and license or sublicense are valid and binding and in full force
and
effect and, together with the related invoices, represents the entire agreement
between the respective licensor and licensee with respect to the subject
matter
of such license or sublicense;
(ii) assuming
the receipt or making of all necessary consents, approvals, waivers,
authorizations, novations, notices and filings in connection with the
transactions contemplated by this Agreement, such document, license or
sublicense will not cease to be valid and binding and in full force and effect
on terms identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the consummation
of
the transactions contemplated by this Agreement constitute a breach or default
under such document, license or sublicense or otherwise give the licensor
or
sublicensor a right to terminate such document, license or
sublicense;
21
(iii) the
Company has not (A) received any notice of termination or cancellation under
such document, license or sublicense, (B) received any notice of a breach
or
default under such document, license or sublicense, which breach has not
been
cured, or (C) granted to any other third party any rights, adverse or otherwise,
under such document, license or sublicense that would constitute a breach
of
such document, license or sublicense; and
(iv) assuming
the receipt or making of all necessary consents, approvals, waivers,
authorizations, novations, notices and filings in connection with the
transactions contemplated by this Agreement, neither the Company nor, to
the
knowledge of any Company, any other party to such license or sublicense is
in
breach or default in any material respect under such license or sublicense
and,
no event has occurred that, with notice or lapse of time would constitute
such a
breach or default or permit termination, modification or acceleration under
such
license or sublicense.
(k) The
Company has obtained all governmental authorizations necessary for exporting
the
Software outside the U.S. or Canada and importing the Software into any country
in which the Software is now sold or licensed for use, and all such export
and
import Governmental Authorizations in the U.S. and Canada and throughout
the
world are valid, current outstanding and in full force and effect. No rights
in
the Software have been transferred by the Company to any third party except
to
the customers of the Company to whom the Company has licensed such Software
in
the ordinary course.
(l) The
Company has the right to use all software development tools, image processing
tools, library functions, compilers and other third party software that is
material to the Business or that is required to operate or modify the
Software.
(m) The
Company has taken reasonable steps to maintain the confidentiality of its
trade
secrets and other confidential Intellectual Property and (i) there has been
no
misappropriation of any material trade secrets or other material confidential
Intellectual Property of the Company by any Person; (ii) no employee,
independent contractor or agent of the Company has misappropriated any trade
secrets of any other Person in the course of his performance as an employee,
independent contractor or agent; and (iii) no employee, independent contractor
or agent of the Company is in default or breach of any term of any employment
agreement, non-disclosure agreement, non-compete obligation, assignment of
invention agreement or similar agreement or contract relating in any way
to the
protection, ownership, development, use or transfer of Intellectual Property,
other than those which individually or in the aggregate would not have a
Material Adverse Effect.
(n) The
trademarks constituting Owned Intellectual Property have been duly registered
with, filed in, issued by or applied for with, as the case may be, the United
States Patent and Trademark Office or such other appropriate filing offices,
domestic or foreign, as are identified on Schedule 3.16(a), and such
registrations, filings, issuances, applications and other actions remain
in full
force and effect, and are current and unexpired.
22
3.17. Images.
(a) To
the
knowledge of the Company, based upon reasonable commercial practices, Schedule
3.17(a) sets forth a true and complete list of the 1,000 top Images by revenue
in each of the three fiscal years ended December 31, 2005, the amount of
revenue
accounted for by each such image and the number of times such Image was sold
or
licensed. Except for public domain imagery and except as set forth in Schedule
3.17(a), the Company either owns or licenses all Images used or held for
use by
the Company in connection with the Business. The Offered Images include all
of
the Images used or held for use by the Company and material to the operation
of
the Business as currently conducted. The Company has the right to display,
reproduce, distribute, market, transmit electronically (except when expressly
prohibited by contract), and (except in the case of Unapproved Images)
sublicense the use of each Offered Image to the extent required for the
continued operation of the Business in a manner consistent with the Company’s
past practice. Except as detailed on Schedule 3.17(a), to the knowledge of
the
Company, no public domain Image included in the Offered Images requires a
license or the payment of a fee for the Company’s use thereof in a manner
consistent with the Company’s past practice.
(b) The
Company has not granted any license, sublicense or other right to any Person
with respect to any Unapproved Images. The Company has not granted any license,
sublicense or other right to any Person with respect to any Approved Image
that
would constitute a breach of any agreement or license pertaining to such
Approved Image or which have a Material Adverse Effect.
(c) The
display, sale, reproduction, electronic transmission (except when expressly
prohibited by contract), marketing, distribution and sublicensing of the
Images
by the Company does not infringe upon the Intellectual Property right, privacy
rights or right of publicity of any third party, except for those that
individually or in the aggregate would not have a Material Adverse Effect.
The
display, sale, reproduction, electronic transmission (except when expressly
prohibited by contract), marketing, distribution and sublicensing of the
Images
by the Company does not constitute a breach of any agreement or license to
which
the Company is a party.
(d) Except
as
set forth in Schedule 3.17(d), no claims have been asserted and not disposed
of,
or are pending or, to the knowledge of the Company, threatened against the
Company or, to the knowledge of the Company, against any customer of the
Company
or any third party licensor or licensee of any Images of the Company (whether
Owned Images, Licensed Images, or Offered Images): (i) based upon or challenging
or seeking to deny or restrict the display, sale, reproduction, electronic
transmission, performance, marketing, distribution or sublicensing by the
Company of any of the Images; (ii) alleging that the sale, reproduction,
distribution or sublicensing of the Images does or may infringe upon the
Intellectual Property rights, privacy rights, or right of publicity of any
third
party; or (iii) challenging the ownership of the Images or the Company’s rights
to the Images. Except as set forth in Schedule 3.17(d), within the past 12
months no Person has made a claim for indemnification from the Company based
on
the proper use of an Image.
(e) Except
as
set forth on Schedule 3.17(e), to the knowledge of the Company, no Person
is
engaging in any activity that infringes upon any Images or upon the rights
of
the Company therein. The consummation of the transactions contemplated by
this
Agreement will not result in the termination or impairment of the rights
of the
Company, as they exist on the date hereof or on the Closing Date, to sell,
reproduce, market, transmit electronically, perform, distribute or sublicense
any of the Images.
23
(f) Prior
to
any display, sale, marketing, electronic transmission, performance,
reproduction, distribution or sublicensing of any Image, either: (i) the
Company
has obtained in writing all such releases and/or other third party consents
or
authorizations necessary for such display, sale, marketing, electronic
transmission, performance, reproduction, distribution or sublicensing; (ii)
the
artist or photographer providing such Image has represented and warranted
to the
Company that he has obtained such releases and/or other third party consents
or
authorizations; or (iii) the Company has advised the licensee that other
third
party consents or authorizations necessary for the intended use are required
prior to any display by such licensee. Copies of such releases and/or other
third party consents or authorizations are kept by the Company at its Offices.
Schedule 3.17(f) identifies each Image for which the Company has assumed
any
obligation for the storage and handling of Images and whether or not the
Company
has an obligation to return such Image.
(g) With
respect to each license or agreement by which the Company has obtained the
right
to display, sell, reproduce, market, transmit electronically, perform,
distribute or sublicense the Images or by which the Company has granted to
any
third party the right to display, sell, reproduce, market, transmit
electronically, or distribute any Images:
(i) such
license or agreement is legal, valid, binding and enforceable and in full
force
and effect and, together with the related invoices, represents the entire
agreement between the parties thereto with respect to the subject matter
thereof;
(ii) assuming
the receipt or making of all necessary consents, approvals, waivers,
authorizations, novations, notices and filings in connection with the
transactions contemplated by this Agreement, such license or agreement will
not
cease to be legal, valid, binding and enforceable and in full force and effect
on terms identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the consummation
of
the transactions contemplated by this Agreement constitute a breach or default
under such license or agreement, or otherwise give any party thereto a right
to
terminate such license or agreement;
(iii) the
Company has not: (A) received any notice of termination or cancellation under
such license or agreement, and no party thereto has any right of termination
or
cancellation thereunder except in accordance with its terms; (B) received
any
notice of a breach or default under such license or agreement which breach
or
default has not been cured; and (C) granted to any other Person any rights,
adverse or otherwise, under such license or agreement; and
(iv) assuming
the receipt or making of all necessary consents, approvals, waivers,
authorizations, novations, notices and filings in connection with the
transactions contemplated by this Agreement, neither the Company nor, to
the
knowledge of the Company, any other party to such license or agreement is
in
breach or default thereof in any material respect and, to the knowledge of
the
Company, no event has occurred that, with notice or lapse of time would
constitute such a breach or default or permit termination, modification or
acceleration under such license or agreement.
24
(h) Schedule
3.17(h) identifies each contract providing the Company with the right to
display, reproduce, distribute or sublicense the use of any Image owned or
controlled by a third party that has, since December 31, 2005, been terminated
or revoked by either the Company or the third party.
3.18. Relationships
With Licensees, Customers, Suppliers, Etc.
(a) Schedule
3.18(a) identifies during the fiscal years ended December 31, 2005 and 2004,
respectively (i) the 100 largest customers of the Company, the amount of
revenues accounted for by such customer during each such period, and the
responsible account principal in charge of the customer and (ii) the 50 largest
suppliers of Images and the 20 largest other suppliers (other than attorneys,
accountants and office leases) of the Company, the amount of expense accounted
for by such supplier during each such period, and the responsible account
principal in charge of the supplier.
(b) Schedule
3.18(b) sets forth (i) all prepayments, pre-billed invoices and deposits
that
have been received by the Company as of the date hereof from customers for
products to be shipped, or services to be performed, after the Closing Date,
and
(ii) with respect to each such prepayment, pre-billed invoice or deposit,
(A)
the party and contract credited, (B) the date received or invoiced, (C) the
products and/or services to be delivered, and (D) the conditions for the
return
of such prepayment, pre-billed invoice or deposit. All such prepayments,
pre-billed invoices and deposits are properly accrued for on the Financial
Statements, in accordance with GAAP applied on a consistent basis with the
past
practice of the Company.
(c) Schedule
3.18(c) sets forth since December 31, 2005, all purchases (other than attorneys,
accountants and office leases) with a cost of in excess of $10,000 for any
single item or series or related items.
(d) Except
as
set forth on Schedule 3.18(d), since December 31, 2005: (a) there has not
been
any termination of the business relationship of the Company with any material
licensee, customer or supplier; (b) to the knowledge of the Company, there
has
not been any threatened termination or withholding of payments by, or any
material dispute with, any material licensee, customer or supplier; and (c)
the
Company has not received any notice or been informed that any such event
will
occur in the future, either as a result of the consummation of the transactions
contemplated by this Agreement or otherwise. Except as set forth on Schedule
3.18(d), the Company is not currently in dispute over any terms of any contract
or agreement to which the Company and any material licensee, customer or
supplier is a party.
3.19. Litigation.
There
is no Action (or any basis therefor) pending against, or to the knowledge
of the
Company, threatened against or affecting the Company, any of its officers
or
directors, any Stockholder, the business of the Company, or any Contract
before
any court or arbitrator or any governmental body, agency or official or which
in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby. There are no outstanding judgments against
the
Company. The Company is not now, nor has it been in the past five years,
subject
to any proceeding with the Federal Trade Commission or the Equal Employment
Opportunity Commission or any comparable body of any state or political
subdivision.
25
3.20. Contracts.
(a) Each
Contract to which the Company is a party is a valid and binding agreement,
and
is in full force and effect, and the Company nor, to the knowledge of the
Company, any other party thereto is in breach or default (whether with or
without the passage of time or the giving of notice or both) under the terms
of
any such Contract. The Company has not assigned, delegated, or otherwise
transferred any of its rights or obligations with respect to any Contracts,
or
granted any power of attorney with respect thereto. The Company has given
a true
and correct fully executed copy of each material Contract to
Parent.
(b) Schedule
3.20(b) lists each material Contract (other than the Charter Documents) of
the
Company, including:
(i) any
Contract pursuant to which the Company is required to pay, has paid or is
entitled to receive or has received an amount in excess of $25,000 during
the
current fiscal year or any one of the two preceding fiscal years (other than
purchase orders for Inventory entered into in the ordinary course of business
(excluding however any such purchase orders which are open for purchases
in
excess of $50,000));
(ii) all
employment contracts and sales representatives contracts;
(iii) all
sales, agency, factoring, commission and distribution contracts to which
the
Company is a party;
(iv) all
joint
venture, strategic alliance, limited liability company and partnership
agreements to which the Company is a party;
(v) all
significant documents relating to any acquisitions or dispositions of assets
by
the Company (other than of dispositions of Inventory in the ordinary course
of
business);
(vi) all
licensing agreements, including agreements licensing Intellectual Property
rights, other than “shrink wrap” licenses;
(vii) all
secrecy, confidentiality and nondisclosure agreements restricting the conduct
of
the Company;
(viii) all
Contracts relating to patents, trademarks, service marks, trade names, brands,
copyrights, trade secrets and other Intellectual Property rights of the
Company;
(ix) all
guarantees, with the terms and conditions and privacy policies and other
provisions of the Websites, indemnification arrangements and other hold harmless
arrangements made or provided by the Company;
26
(x) all
Website hosting contracts or agreements;
(xi) all
Contracts or agreements with or pertaining to the Company to which any
Stockholder or any Affiliate of any Stockholder is a party;
(xii) all
agreements relating to real property, including any real property lease,
sublease, or space sharing, license or occupancy agreement, whether the Company
is granted or granting rights thereunder to occupy or use any
premises;
(xiii) all
agreements relating to Tangible Assets; and
(xiv) all
agreements relating to outstanding Indebtedness.
(c) The
Company is not subject to any Contract which prohibits, limits or restricts
any
use by it of any information regarding its customers, including limiting
the
solicitation of or other communication by it with its customers or providing
any
information regarding its customers to any third party.
(d) The
Company is in compliance with all material covenants, including all financial
covenants, in all notes, indentures, bonds and other instruments or agreements
evidencing any Indebtedness.
3.21. Licenses
and Permits.
Schedule 3.21 is a complete and correct list of each material license,
franchise, permit, order or approval or other similar authorization affecting,
or relating in any way to, the Business, together with the name of the
government agency or entity issuing the same (the “Permits”). Such Permits are
valid and in full force and effect and, assuming the related Company Consents,
if any, have been obtained prior to the Closing Date, are transferable by
the
Company, and none of the Permits will, assuming the related Company Consents
have been obtained or waived prior to the Closing Date, be terminated or
impaired or become terminable as a result of the transactions contemplated
hereby. The Company has all Permits necessary to operate the Business other
than
those Permits whose absence individually or in the aggregate would not cause
a
Material Adverse Effect.
3.22. Compliance
with Laws.
The
Company is not in violation of, has not violated, and to the knowledge of
the
Company, is not under investigation with respect to nor have been threatened
to
be charged with or given notice of, any violation or alleged violation of,
any
Law or Order, nor is there any basis for any such charge.
3.23. Pre-payments.
Except
as set forth on Schedule 3.23, the Company has not received any payments
with
respect to any services to be rendered or goods to be provided after the
Closing.
3.24. Employees.
Schedule 3.24 sets forth a true and complete list of the names, titles, annual
salaries or wage rates and other compensation, vacation and fringe benefits,
claims under benefit plans that the Company has been made aware of, resident
alien status (if applicable), residence addresses, social security numbers,
and
office location of all employees of the Company, indicating part-time and
full-time employment and all changes in salaries and wage rates per employee
since January 1, 2004. The Company has not promised any employee, consultant
or
agent of the Company that he or she will be employed by or receive any
particular benefits from the Parent or Acquisition Corp. on or after the
Closing. Schedule 3.24 sets forth a true and complete list of the names,
addresses and titles of the directors and officers of the
Company.
27
3.25. Compliance
with Labor Laws and Agreements.
The
Company has complied with all applicable Laws and Orders relating to employment
or labor other than those Laws and Orders with which it could fail to comply,
either individually or in the aggregate, without causing a Material Adverse
Effect. Except as set forth on Schedule 3.25, no present or former employee,
officer or director of the Company has, or will have at the Closing Date,
any
claim against the Surviving Corporation for any matter including for wages,
salary, vacation, severance, or sick pay except for the same incurred in
the
ordinary course of business for the last payroll period prior to the Closing
Date. To the knowledge of the Company, there is no:
(a) unfair
labor practice complaint against the Company pending before the National
Labor
Relations Board or any state or local agency;
(b) pending
labor strike or other material labor trouble affecting the Company;
(c) material
labor grievance pending against the Company;
(d) pending
representation question respecting the employees of the Company; or
(e) pending
arbitration proceeding arising out of or under any collective bargaining
agreement to which the Company is a party.
In
addition, to the Company’s knowledge: (i) none of the matters specified in
clauses (a) through (e) above is threatened against the Company; (ii) no
union
organizing activities have taken place with respect to the Company; and (iii)
no
basis exists for which a claim may be made under any collective bargaining
agreement to which the Company is a party.
3.26. Pension
and Benefit Plans.
Except
as set forth on Schedule 3.26, the Company is not individually or jointly
and
severally liable, and, to the knowledge of the Company, the Company’s officers
and employees are not liable for any liability arising under ERISA, the Code
or
any other law or regulation, relating to: (1)
an
employee benefit plan, within the meaning of Section
3(3) of
ERISA (a “Plan”), covering or formerly covering any present or former employee
of the Company (a “Company Plan”); (2) a Plan not described in clause (1)
covering or formerly covering any present or former employee of a Person
which,
together with the Company, are treated as a single employer under Code Section
414 (such Person hereinafter being referred to as an “ERISA Affiliate” and such
Plan hereinafter being referred to as an “ERISA Affiliate Plan”); or (3) an
employee benefit plan or arrangement, other than an ERISA Plan, maintained
by
the Company providing benefits to some or all their employees or directors,
including, but not limited to, stock option, stock appreciation, equity
incentive and deferred compensation plans and arrangements (a “Benefits
Arrangement”), which (in all cases) is not fully and accurately reflected in the
Company’s most recent Financial Statement or on Schedule
3.26. No
Company Plan or ERISA Affiliate Plan has incurred any “accumulated funding
deficiency” as that term is defined in Section 412 of the Code (whether or not
waived) and, with respect to each Company Plan and ERISA Affiliate Plan,
the
accumulated benefit obligation of the Plan does not exceed the fair market
value
of the assets of such Plan based upon actuarial
28
assumptions
which are reasonable in the aggregate. The Company Plans and Benefits
Arrangements have been maintained and administered in all respects in compliance
with all applicable laws, rules and regulations and the applicable plan
documents except where the failure to comply would not have a Material Adverse
Effect. The Company Plans which are intended to be qualified under Code Section
401(a) have received a determination letter from the IRS that the Plan satisfies
the requirements of the Code, as amended by the Tax Reform Act of 1986, has
not
been amended since receiving such determination letter (other than by the
adoption of IRS model amendments) and nothing has occurred with respect thereto
which could reasonably be expected to result in the loss of such qualification.
Except as set forth on Schedule 3.26 hereto, (i) the Company has not received
written or oral notice of any Claims pending (other than routine benefit
claims)
or, to the knowledge of the Company, threatened, relating to the Company
Plan or
Benefits Arrangement; (ii) the Company has not received written or oral notice
from any Governmental Entity, including the IRS, the Department of Labor
and the
Pension Benefit Guaranty Corporation (“PBGC”), that such Governmental Entity has
initiated an examination, audit or investigation of a Company Plan or Benefits
Arrangement which has not been completed; (iii) the Company has not received
written or oral notice of, no event has occurred and, to the Company’s
knowledge, there does not now exist any condition or set of circumstances,
that
could subject the Company to any material liability arising under the Code,
ERISA or any other applicable legal requirement or under any indemnity Agreement
to which the Company is a party, excluding liability for routine benefit
claims
and funding obligations payable in the ordinary course; (iv) to the knowledge
of
the Company, the transactions contemplated by the Transaction Documents will
not
result in a reportable event, within the meaning of ERISA Section 4043, other
than a reportable event with respect to which the ERISA Section 4043 reportable
event notice requirement has been waived or the PBGC has announced that it
will
not apply a penalty for failure to satisfy the reportable event notice
requirement; (v) the
transactions contemplated by the Additional Agreements will not result in
a
liability for severance or termination pay or result in increased or accelerated
employee benefits becoming payable to any of the employees of the Company
pursuant to the terms of any Contract; (vi) all contributions to Company
Plans
and Benefit Arrangements (including both employee and employer contributions)
which are required to have been made, whether by virtue of the terms of the
particular plan or arrangement or by operation of law, have been made by
the due
date thereof (including all applicable extensions) and all contributions
which
are not yet due but which relate to periods which began prior to the date
hereof
have either been paid or have been reflected by the Company as an accrued
liability on the Company’s books and records or are set forth on Schedule 3.26
hereto; (vii) the Company does not maintain any plan or arrangement which
provides for retiree health or other welfare benefits, except as required
by
COBRA; (viii) the
Company has not currently or in the past participated in a multiemployer
plan,
within the meaning of Section 3(37) or 4001(a)(3) of ERISA (a “Multiemployer
Plan”); and (ix) the Company is not under an obligation (express or implied) to
modify the Company Plan or Benefit Arrangement. Schedule 3.26 contains a
complete list of all Company Plans currently maintained by the Company or
in
which the Company currently participates (“Current Company Plans”) and all
Benefit Arrangements. With respect to each current Company Plan, the Company
has
delivered to the Purchaser a correct and complete copy of (1) the Plan document,
(2) the summary plan description, (3) the most recent Annual Report (Form
5500
series) and accompanying Schedules, (4) the most recent certified financial
statements, and (5) if applicable, the most recent actuarial valuation report.
With respect to each Benefit Arrangement, the Company has delivered to the
Purchaser a correct and complete copy of each applicable plan document,
Agreement and/or summary description.
29
3.27. Employment
Matters.
Schedule 3.27 sets forth a true and complete list of every employment agreement,
commission agreement, employee group or executive medical, life, or disability
insurance plan, and each incentive, bonus, profit sharing, retirement, deferred
compensation, equity, phantom equity, option, equity purchase, equity
appreciation right or severance plan of the Company now in effect or under
which
the Company has or might have any obligation, or any understanding between
the
Company and any employee concerning the terms of such employee’s employment that
does not apply to such Company’s employees generally (collectively, “Labor
Agreements”).
3.28. Tax
Matters.
(a) Compliance
Generally.
Except
as set forth on Schedule 3.28(a), the Company has (A) duly and timely filed
all
Tax Returns required to be filed by the Company on or prior to the Effective
Time, which Tax Returns are true, correct and complete, and (B) duly and
timely
paid all Taxes due and payable in respect of all periods up to and including
the
date which includes the Effective Time or has made adequate provision on
its
books and records and Financial Statements in accordance with GAAP for any
such
Tax which is not due on or before such time. Prior to the Closing Date, the
Company shall provide Parent and Acquisition Corp. with a schedule which
sets
forth each Taxing jurisdiction in which the Company has filed or is required
to
file Tax Returns and whether the Company has filed consolidated, combined,
unitary or separate income or franchise Tax Returns with respect to each
such
jurisdiction and a copy of such Tax Returns as have been requested by Parent
and
Acquisition Corp. Any Tax Returns filed subsequent thereto were consistent
with
the Tax Returns finished to the Buyer and did not make, amend or terminate
any
election with respect to any Tax or change any accounting method, practice
or
procedure. The Company has compiled with all applicable law relating to the
reporting, payment, collection and withholding of Taxes and has duly and
timely
withheld or collected, paid over and reported all Taxes required to be withheld
or collected by the Company on or before the date hereof.
(b) No
Audit. Except
as
set forth on Schedule 3.28(b) (A) no Taxing Authority has asserted any
adjustment that could result in an additional Tax for which the Company is
or
may be liable or that could result in a Lien on any of its assets which has
not
been fully paid or adequately provided for on the Closing Balance Sheet
(collectively, “Tax Liability”), or which adjustment, if asserted in another
period, would result in any Tax Liability, (B) there is not pending audit,
examination, investigation, dispute, proceeding or claim (collectively,
“Proceeding”) relating to any Tax Liability and, to the knowledge of the
Company, no Taxing Authority is contemplating such a Proceeding and there
is not
basis for any such Proceeding, (C) no statute of limitations with respect
to any
Tax has been waived or extended (unless the period to which it has been waived
or extended has expired), (D) there is no outstanding power of attorney
authorizing anyone to act on behalf of the Company in connection with any
Tax
Liability, Tax Return or Proceeding relating to any Tax, (E) there is not
outstanding closing agreement, ruling request, request to consent to change
a
method of accounting, subpoena or request for information with or by any
Taxing
authority with respect to the Company, its income, assets or business, or
any
Tax Liability, (F) the Company is not required to include any adjustment
under
Section 481 of the Code (or any corresponding provision of applicable law)
in
income for any period ending after the Closing Date, (G) the Company is not
and has never been a party to any Tax sharing or Tax allocation agreement,
arrangement or understanding, (H) The Company is not and has never been
included in any consolidated, combined or unitary Tax Return, (I) all Taxable
periods for the assessment or collection of any Tax Liability are closed
by
agreement or by operation of the normal statute of limitations (without
extension) or will close by operation of the normal statute of limitations
for
such Taxes (in each case determined without regard to any omission, fraud
or
other special circumstance other than the timely filing of the Tax Return),
and
(J) no Taxing Authority has ever asserted that the Company should file a
Tax
Return in a jurisdiction where it does not file.
30
(c) Taxes.
The
Company is not a party to any agreement, contract or arrangement for services
that would result, individually or in the aggregate, in the payment of any
amount that would not be deductible by the Company by reason of Section 162,
280G or 404 of the Code. The Company is not a “consenting corporation” within
the meaning of Section 341(f) of the Code (as in effect prior to the repeal
of
such provision). The Company does not have any plan, arrangement or agreement
providing for deferred compensation that
is
subject to Section 409A(a) of the Code or any asset, plan, arrangement or
agreement that is subject to Section 409A(b) of the Code. The Company does
not
have any “tax-exempt bond financed property” or “tax-exempt use property” within
the meaning of Section 168(g) or (h), respectively, of the Code. The Company
has
not entered into any sale-leaseback or leveraged lease transaction. None
of the
assets of the Company is required to be treated as being owned by any other
person pursuant to the “safe harbor” leasing provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, as in effect prior to the repeal of said
leasing provisions. The Company has never made or been required to make an
election under Section 338 of the Code. During the last two years, the Company
has not engaged in any exchange under which gain realized on the exchanged
was
not recognized under Section 1031 of the Code. The Company has not constituted
a
“distributing corporation” or a “controlled corporation” under Section 355 of
the Code in any distribution in the last two years or pursuant to a plan
or
series of related transactions (within the meaning of Code Section 355(e))
with
the transactions contemplated by this Agreement. The Company is not and has
never been a “personal holding company” (within the meaning of Code Section
542), a shareholder in a “controlled foreign corporation” (within the meaning of
Code Section 957), in a “foreign personal holding company” (within the meaning
of Code Section 552), or in a “passive foreign investment company” (within the
meaning of Code Section 1297), or an owner in any entity treated as a
partnership or disregarded entity for federal income tax purposes. The Company
does not have and has never had a fixed place of business or permanent
establishment in any foreign country. None of the outstanding indebtedness
of
the Company constitutes indebtedness to which any interest deduction may
be
disallowed under Section 163(i), 163(l), 265 or 279 of the Code or under
any
other provision of Applicable Law. The Company has not been a “United States
real property holding corporation” (within the meaning of Code Section
897(c)(2)) at any time during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. The Company has not entered into any “reportable
transaction” (within the meaning of Treasury Regulations Section 1.6011-4 or any
predecessor thereof). In the case of any transaction that could result in
a
“substantial understatement to income tax” (within the meaning of Code Section
6662(d)) if the claimed Tax treatment were disallowed, the Company has
“substantial authority” (within the meaning of Code Section 6662(d)) for the
claimed treatment, or in the case of a transaction other than a “tax shelter”
(within the meaning of Code Section 6662(d)(2)(C)(ii)), has “adequately
disclosed” (within the meaning of Code Section 6662(d)) the relevant facts
affecting the tax treatment on its income Tax Return.
31
(d) Taxes
and Tax Return Defined.
For
purposes of this Agreement, “Tax” shall mean all federal, state, local and
foreign tax, charge, fee, levy, deficiency or other assessment of whatever
kind
or nature (including without limitation, any net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, unemployment, excise, estimated, severance,
stamp, occupation, real property, personal property, intangible property,
occupancy, recording, minimum, environmental and windfall profits tax),
including any liability therefor as a transferee (including without limitation
under Section 6901 of the Code or any similar provision of applicable law),
as a
result of Treasury Regulation Section 1.1502-6 or, any similar provision
of
applicable law, or as a result of any Tax sharing or similar agreement, together
with any interest, penalty, addition to tax or additional amount imposed
by any
federal, state, local or foreign Taxing authority. For purposes of this
Agreement, “Tax Return” includes any return, declaration, report, claim for
refund or credit, information return or statement, and any amendment thereto,
including without limitation any consolidated, combined or unitary return
or
other document (including any related or supporting information or schedule),
filed or required to be filed with any federal, state, local or foreign
governmental entity or agency in connection with the determination, assessment,
collection or payment of Taxes or the administration of any laws, regulations
or
administrative requirements relating to Taxes or ERISA.
3.29. Finders’
Fees.
There
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of the Company, any Stockholder
or
any of their respective Affiliates who might be entitled to any fee or
commission from either Acquisition Corp., the Surviving Corporation, Parent
or
any of its Affiliates upon consummation of the transactions contemplated
by this
Agreement.
3.30. Business
Operations; Servers.
(a) Schedule
3.30(a) is a complete and correct list of the methods of payment (including
specific types of credit cards accepted and whether or not personal checks,
bank
checks or money orders are accepted) that the Company accepts for sales on
its
Websites. Schedule 3.30(a) also indicates the average amount of time previously
taken for the Company to receive payment on any form of payment and the
likelihood of the Company not receiving payment based on the form of
payment.
(b) The
Company owns all of its servers and other computer equipment (other than
webservers) necessary to operate its Business as conducted as of the date
hereof
and as such Business will be conducted by the Company as of the
Closing.
(c) The
amounts payable and paid by the Company each month for various hosting and
bandwidth services provided to the Company have not materially increased
since
December 31, 2005 and except as set forth on Schedule 3.30(c), are not expected
to materially increase. Consummation of the transactions contemplated by
this
Agreement will not result in any increase in fees or any change with respect
to
such services.
32
(d) Acquisition
Corp. has been furnished with complete and correct copies of the standard
terms
and conditions of sale, if any, of each of the products of the Company. Except
as set forth on Schedule 3.30(d) or as required by law, no product manufactured,
sold or delivered by the Company is subject to any guaranty, warranty or
other
indemnity, express or implied, beyond such standard terms and conditions.
The
warranty reserve is reflected in the Financial Statements in accordance with
GAAP.
(e) Except
in
the ordinary course of business or as set forth on Schedule 3.30(e), the
Company
has not entered into, or offered to enter into, any written agreement, Contract
or other arrangement with respect to the Business pursuant to which such
the
Company is or will be obligated to make any rebates, discounts, promotional
allowances or similar payments or arrangements to any customer (“Rebate
Obligations”). All Rebate Obligations listed on Schedule 3.30(e) and all
ordinary course Rebate Obligations are reflected in the Financial Statements
in
accordance with GAAP.
(f) Except
as
set forth in Schedule 3.30(f), the Company has not experienced any returns
of
its products since December 31, 2005 other than returns in the ordinary course
of business. All product returns listed on Schedule 3.30(f) are reflected
on the
Financial Statements in accordance with GAAP.
3.31. Powers
of Attorney and Suretyships.
The
Company has no general or special powers of attorney outstanding (whether
as
grantor or grantee thereof) or any obligation or liability (whether actual,
accrued, accruing, contingent, or otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation
of any
Person.
3.32. Other
Information.
Neither
this Agreement, nor any of the documents or other information made available
to
Parent or its Affiliates, attorneys, accountants, agents or representatives
pursuant hereto or in connection with Parent’s due diligence review of the
Business or the transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to
state a
material fact necessary in order to make the statements contained therein
not
misleading. To the best knowledge of the Company, the Company has provided
Parent with all material information regarding the Business.
3.33. Certain
Business Practices.
Neither
the Company nor any director, officer, agent or employee of the Company (in
their capacities as such) has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials
or
employees, to foreign or domestic political parties or campaigns or violated
any
provision of the Foreign Corrupt Practices Act of 1977 or (iii) made any
other
unlawful payment. Neither the Company nor any director, officer, agent or
employee of the Company (nor any Person acting on behalf of any of the
foregoing, but solely in his or her capacity as a director, officer, employee
or
agent of the Company) has, since January 1, 2000, directly or indirectly,
given
or agreed to give any gift or similar benefit in any material amount to any
customer, supplier, governmental employee or other Person who is or may be
in a
position to help or hinder the Company or assist the Company in connection
with
any actual or proposed transaction, which, if not given could reasonably
be
expected to have had an adverse effect on the Company, or which, if not
continued in the future, could reasonably be expected to adversely affect
the
business or prospects of the Company, or which could reasonably be expected
to
subject the Company to suit or penalty in any private or governmental litigation
or proceeding.
33
3.34. Money
Laundering Laws.
The
operations of the Company are and have been conducted at all times in compliance
with laundering statutes in all applicable jurisdictions, the rules and
regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental authority
(collectively, the “Money Laundering Laws”) and no Action involving the Company
with respect to the Money Laundering Laws is pending or, to the knowledge
of the
Company, threatened.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF STOCKHOLDERS
Each
Stockholder, severally and not jointly, represents to the Acquisition Corp.
and
the Parent as follows:
4.1. Ownership
of Stock; Authority.
(a) Each
Stockholder has good and marketable title to the Stockholder’s Securities, free
and clear of any and all Liens.
(b) Each
Stockholder has full legal capacity, power and authority to execute and deliver
this Agreement and the Additional Agreements to which such Stockholder is
named
as a party, to perform such Stockholder’s obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. This
Agreement and the Additional Agreements to which each Stockholder is named
as a
party have been, or at Closing will be, duly executed and delivered by each
Stockholder and are, or upon their execution and delivery will be, valid
and
legally binding obligations of each Stockholder, enforceable against each
Stockholder in accordance with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and
the
relief of debtors, or (ii) rules of law governing specific performance,
injunctive relief or other equitable remedies.
(c) Neither
the execution and delivery by such Stockholder of any or all of the Agreements
and the Additional Agreements to which such Stockholder is a party, nor the
consummation by such Stockholder of the transaction contemplated thereby,
will
(i) conflict with, result in a breach of, constitute (with or without due
notice
or lapse of time or both) a default under, or require any notice, consent
or
waiver under, any instrument, contract, agreement or arrangement to which
such
Stockholder is a party or by which such Stockholder is bound, or (ii) result
in
the imposition of any Lien upon the Stockholder’s Securities owned by such
Stockholder.
4.2. Approvals.
No
consent, approval, waiver, authorization or novation is required to be obtained
by such Stockholder from, and no notice or filing is required to be given
by
such Stockholder to or made by any Stockholder with, any Authority or other
Person in connection with the execution, delivery and performance by such
Stockholder of this Agreement and each of the Additional
Agreements.
34
4.3. Non-Contravention.
The
execution, delivery and performance by such Stockholder of this Agreement
and
each of the Additional Agreements, and the consummation of the transaction,
do
not and will not (a) violate any provision of the articles of incorporation,
bylaws or other organizational documents of such Stockholder if it is not
a
natural person, or (b) violate or result in a breach of or constitute a default
under any Law, judgment, injunction, order, decree or other restriction of
any
Authority to which such Stockholder, or the Stockholder’s Securities owned by
such Stockholder, is subject.
4.4. Litigation
and Claims.
There
is no civil, criminal or administrative action, suit, demand, claim, hearing,
proceeding or disclosed investigation pending or, to the knowledge of such
Stockholder, threatened, against such Stockholder and such Stockholder is
not
subject to any order, writ, judgment, award, injunction or decree of any
Authority of competent jurisdiction or any arbitrator that would prevent
consummation of the transaction or materially impair the ability of such
Stockholder to perform its obligations hereunder.
4.5. Merger
Consideration.
Each
holder of Company Preferred Stock acknowledges that he, she or it is not
receiving the consideration he, she or it would be entitled pursuant to the
Company’s Certificate of Incorporation, as amended to date. Each holder of
Company Preferred Stock hereby waives any and all right, title and interest
in
and to any consideration that he, she or it would be entitled to pursuant
to the
Certificate of Incorporation, as amended to date that is in excess of the
consideration that is provided for in this Agreement.
4.6. Investment
Representations.
For
purposes of this Section 4.6 of the Agreement only, “Stockholder” does not
include any person receiving only cash as Merger Consideration in accordance
with Schedule I hereto.
(a) Each
Stockholder is an “accredited investor” as such term is defined in Rule 501 of
Regulation D (“Reg. D”) promulgated under the Act by virtue of the fact that
each Stockholder is a natural person whose individual net worth or joint
net
worth with that person’s spouse exceeds $1,000,000; and or is a natural person
who had an individual income in excess of $200,000 in each of the two most
recent years or joint income with that person’s spouse is in excess of $300,000
in each of those years and has a reasonable expectation of reaching the same
income in the current year. Each Stockholder acknowledges that Parent has
the
right to require evidence of such Stockholder’s status as an accredited
investor, if necessary.
(b) Each
Stockholder acknowledges that it has prior investment experience, including
investments in non-listed and non-registered securities, or has employed
the
services of an investment advisory, attorney or accountant to evaluate the
merits and risks of such an investment on its behalf, and each Stockholder
represents that it or he, as the case may be, understands the highly speculative
nature of an investment in Preferred Stock which may result in the loss of
the
total amount of such investment.
(c) Each
Stockholder has adequate means of providing for such Stockholder’s current needs
and possible personal contingencies, and each Stockholder has no need, and
anticipates no need in the foreseeable future, for liquidity in such
Stockholder’s investment in the Preferred Stock. Each Stockholder is able to
bear the economic risks of this investment and, consequently, without limiting
the generality of the foregoing, each Stockholder is able to hold the Preferred
Stock for an indefinite period of time and has a sufficient net worth to
sustain
a loss of the entire investment in the event such loss should
occur.
35
(d) No
Stockholder has made an overall commitment to investments which are not readily
marketable that are disproportionate to such Stockholder’s net worth, and such
Stockholder’s investment in the Preferred Stock will not cause such overall
commitment to become excessive.
(e) Except
as
otherwise set forth in Article V, Parent has not and is not making any
representations or warranties to the Stockholders or providing any advice
or
information to the Stockholders at all. Each Stockholder acknowledges that
it
has retained its own professional advisors to evaluate the tax and other
consequences of an investment in the Preferred Stock and Parent Common
Stock.
(f) Each
Stockholder acknowledges that this offering of Preferred Stock has not been
reviewed by the SEC because this is intended to be a non-public offering
pursuant to Section 4(2) of the Act and Rule 506 under Regulation D of the
Act.
Each Stockholder acknowledges that it is not acquiring the Preferred Stock
as a
result of any general solicitation or advertising. The Preferred Stock and
underlying Parent Common Stock will be received by each Stockholder for the
Stockholder’s own account, for investment and not for distribution or resale to
others.
(g) Each
Stockholder understands that there is no market for the Preferred
Stock.
(h) Each
Stockholder understands and consents to the placement of a legend on any
certificate or other document evidencing Preferred Stock and Parent Common
Stock
stating that such Preferred Stock or Parent Common Stock has not been registered
under the Act and setting forth or referring to the restrictions on
transferability and sale thereof. Each certificate evidencing the shares
shall
bear the legends set forth below, or legends substantially equivalent thereto,
together with any other legends that may be required by federal or state
securities laws at the time of the issuance of the Preferred Stock or Parent
Common Stock:
THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) REGISTERED
UNDER THE ACT OR (II) THE ISSUER OF THE SHARES (THE “ISSUER”) HAS RECEIVED AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT
SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE
ACT.
36
4.7. Tax.
Neither
the Stockholders nor the Company will be required to pay any transfer Taxes
to
any Authority with respect to any transaction contemplated by this
Agreement.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF PARENT
Parent
represents and warrants to the Company and each Stockholder as
follows:
5.1. Due
Incorporation.
Parent
is a corporation duly organized, validly existing and in good standing under
the
Laws of the State of Texas. Except as set forth on Schedule 5.1, the Parent
is
not qualified to do business as a foreign corporation in any jurisdiction,
and
there is no jurisdiction in which the character of the property owned or
leased
by the Parent or the nature of its activities make qualification of the Parent
in any such jurisdiction necessary, except where the failure to so qualify
would
have a Material Adverse Effect. Acquisition Corp. is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of
Delaware. Parent has all requisite power and authority, corporate and otherwise,
and all governmental licenses, franchises, permits, authorizations, consents
and
approvals required to own, lease, and operate its assets, properties and
businesses and to carry on its business as now conducted on the date hereof.
Acquisition Corp. has not conducted any business to date and has only engaged
in
certain activities relating to its organization. Parent has not adopted any
plan, or made any agreement in respect of any merger, consolidation, sale
of all
or substantially all of its assets, reorganization, recapitalization,
dissolution or liquidation.
5.2. Corporate
Authorization.
The
execution, delivery and performance by Parent and Acquisition Corp. of this
Agreement and each of the other Additional Agreements to which it is a party
and
the consummation by Parent and Acquisition Corp. of the transactions
contemplated hereby and thereby are within the corporate powers of Parent
and
Acquisition Corp. and have been duly authorized by all necessary corporate
action on the part of Parent and Acquisition Corp. This Agreement constitutes,
and upon their execution and delivery, each of the Additional Agreements
will
constitute, the valid and legally binding agreement of Parent or Acquisition
Corp., as applicable, enforceable against each in accordance with their
respective terms.
5.3. Governmental
Authorization.
Except
for the Certificate of Amendment to Parent’s Certificate of Incorporation in
connection with the issuance of Preferred Stock, none of the execution, delivery
or performance by Parent or Acquisition Corp. of this Agreement or any
Additional Agreement requires any consent, approval, license or other action
by
or in respect of, or registration, declaration or filing with, any Authority
by
Parent or Acquisition Corp., except for the filing of the certificate of
amendment or certificate of designation by the Parent to create the Preferred
Stock, a Form D with the SEC and applicable state authorities and a registration
statement upon exercise of the Stockholders of their registration rights
pursuant to the terms of this Agreement.
5.4. No
Violation.
Neither
the execution and delivery of this Agreement or any Additional Agreement
to be
executed by Parent or Acquisition Corp. hereunder nor the consummation of
the
transactions contemplated herein and therein will (a) violate any provision
of
Parent’s or Acquisition Corp.’s Certificate of Incorporation, By-laws or other
charter documents; (b) violate any Laws or Orders to which either Parent
or
Acquisition Corp. or their property is subject, or (c) violate the provisions
of
any material agreement or other material instrument binding upon or benefiting
Parent or Acquisition Corp.
37
5.5. Consents.
There
are no agreements, commitments, arrangements, contracts or other instruments
binding upon Parent or Acquisition Corp. or any of their properties requiring
a
consent, approval, authorization, order or other action of or filing with
any
Person as a result of the execution, delivery and performance of this Agreement
or any of the Additional Agreements or the consummation of the transactions
contemplated hereby or thereby.
5.6. Litigation.
There
is no action, suit, investigation, hearing or proceeding pending against,
or to
the best knowledge of Parent, threatened against or affecting, Parent, any
of
its officers or directors, or the business of Parent, before any court or
arbitrator or any governmental body, agency or official which if adversely
determined against Parent, has or could reasonably be expected to have a
material adverse effect on the business, assets, condition (financial or
otherwise), liabilities, results or operations or prospects of Parent, or
which
in any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated hereby. There are no outstanding judgments against
Parent.
5.7. Issuance
of Preferred Stock.
The
Preferred Stock, when issued in accordance with this Agreement, will be duly
authorized and validly issued, fully paid and nonassessable.
5.8. Finders’
Fees.
There
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Parent or Acquisition Corp.
or
any of their Affiliates who might be entitled to any fee or commission from
The
Company or the Stockholders or any of their respective Affiliates upon
consummation of the transactions contemplated by this Agreement.
5.9. Charter
Documents; Legality.
Parent
has previously delivered to the Company true and complete copies of its
Certificate of Incorporation and By-Laws (the “Parent Charter Documents”), as in
effect or constituted on the date hereof. The execution, delivery, and
performance by Parent and Acquisition Corp. of this Agreement and any Additional
Agreement to which Parent or Acquisition Corp. is to be a party has not violated
and will not violate, and the consummation by Parent or Acquisition Corp.
of the
transactions contemplated hereby or thereby will not violate, any of the
Parent
Charter Documents or any Law.
5.10. Capitalization
and Ownership of the Parent.
Schedule 5.10 sets forth, with respect to the Parent, (i) Parent’s authorized
capital, (ii) the number of Parent’s securities that are outstanding, and (iii)
the number of securities convertible into or exercisable or exchangeable
for the
Parent’s securities. Except as set forth in the Exchange Act Filings, there is
no Contract that requires or under any circumstance would require the Company
to
issue, or grant any right to acquire, any securities of the Parent, or any
security or instrument exercisable or exchangeable for or convertible into,
the
capital stock or membership interest of the Parent or to merge, consolidate,
dissolve, liquidate, restructure, or recapitalize the Parent.
38
5.11. Financial
Statements.
(a) Parent
has filed with the SEC true and correct copies of the audited consolidated
balance sheets of Parent and its consolidated subsidiaries as of December
31,
2005, and the related consolidated statements of operations, comprehensive
loss
and stockholders’ equity and cash flows for the year then ended, including
footnotes thereto, audited by BDO Xxxxxxx LLP, registered independent public
accountants ( the “Parent Financial Statements”). The Parent Financial
Statements (i) were prepared in accordance with GAAP; (ii) fairly and accurately
present the Parent’s financial condition and the results of its operations as of
their respective dates and for the periods then ended, in all material respects;
(iii) contain and reflect all necessary adjustments and accruals for a fair
presentation of the Parent’s financial condition as of their dates, in all
material respects; and (iv) contain and reflect adequate provisions for all
reasonably anticipated liabilities for all material income, property, sales,
payroll or other Taxes applicable to the Parent with respect to the periods
then
ended. The Parent has heretofore delivered to the Company complete and accurate
copies of all “management letters” received by it from the Parent’s accountants
and all responses during the last three years by lawyers engaged by the Parent
to inquiries from the Parent’s accountant or any predecessor
accountants.
(b) Except
as
specifically disclosed or as reflected in the Exchange Act Filings, reflected
or
fully reserved against in the Parent Financial Statements and for liabilities
and obligations of a similar nature and in similar amounts incurred in the
ordinary course of business since the date of the Parent Financial Statements,
there are no liabilities, debts or obligations of any nature (whether accrued,
absolute, contingent, liquidated or unliquidated, unasserted or otherwise)
relating to the Parent. All debts and liabilities, fixed or contingent, which
should be included under GAAP on an accrual basis on the Parent Financial
Statements are included therein. Except as set forth on Schedule 5.11(b),
the
indebtedness evidenced by the Notes will be senior in right of payment to
all
existing indebtedness of the Parent, and the Liens that secure the Notes
(consisting of all assets of the Company) will be senior in right of priority
to
all other Liens that secure any other existing or future indebtedness of
the
Parent covering the assets of the Company other than $3,000,000 in indebtedness
in the aggregate.
5.12. Absence
of Certain Changes.
(a) Except
as
set forth in Schedule 5.12(a), since December 31, 2005, the Parent has conducted
its business in the ordinary course consistent with past practices, and there
has not been:
(i) any
Material Adverse Change or any event, occurrence, development or state of
circumstances or facts which could reasonably be expected to result individually
or in the aggregate in a Material Adverse Change or on the Parent’s ability to
consummate the transactions contemplated herein or upon the value to the
Stockholders or the Company of the transactions contemplated
hereby;
(ii) any
transaction, contract, agreement or other instrument entered into, or commitment
made, by the Parent relating to the business of the Parent and its Subsidiaries
or any relinquishment by the Parent or any Subsidiary of any Contract or
other
right, in either case other than transactions and commitments in the ordinary
course of business consistent in all respects, including kind and amount,
with
past practices and those contemplated by this Agreement.
39
5.13. Other
Information.
Neither
this Agreement nor any of the documents filed by the Parent with the SEC,
nor
any other documents or other information made available to the Company, the
Stockholders or their Affiliates, attorneys, accountants, agents or
representatives pursuant hereto or in connection with the Company’s and the
Stockholders’ due diligence review of the business of the Parent or the
transactions contemplated by this Agreement contains or will contain any
untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein not misleading.
To
the best knowledge of the Parent, the Parent has provided the Company with
all
material information regarding its business.
5.14. Compliance
with Laws.
The
Parent is not in violation of, has not violated, and to the knowledge of
Parent,
is not under investigation with respect to nor have been threatened to be
charged with or given notice of, any violation or alleged violation of, any
Law
or Order, nor is there any basis for any such charge.
5.15. Money
Laundering Laws.
The
operations of the Parent are and have been conducted at all times in compliance
with laundering statutes in all applicable jurisdictions, the rules and
regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental authority
(collectively, the “Money Laundering Laws”) and no Action involving the Parent
with respect to the Money Laundering Laws is pending or, to the knowledge
of the
Parent, threatened.
5.16. Ownership
of Parent Securities.
Upon
issuance and delivery of the Preferred Stock, Conversion Shares, Warrants
and
Warrant Shares, each as defined below, to each Stockholder pursuant to this
Agreement against payment of the consideration therefor, the Preferred Stock,
Conversion Shares, Warrants and Warrant Shares, as the case may be will be
duly
authorized and validly issued, fully paid and nonassessable, free and clear
of
all Liens, other than (i) restrictions arising from applicable securities
laws,
and (ii) any Lien created by or through such Stockholder. The delivery of
the
Notes, Preferred Stock and Warrants to each Stockholder at the Closing, the
Parent Common Stock issuable upon conversion of the Preferred Stock (the
“Conversion Shares”), and the Parent Common Stock issuable upon exercise of the
Warrants (the “Warrant Shares”), will transfer good and valid title to, and
beneficial ownership of, such securities to such Stockholder, provided that
such
securities will be subject to restrictions imposed by the Securities Act.
The
issuance and sale of the Notes, Preferred Stock and Warrants pursuant hereto
(and the issuance of the Conversion Shares upon conversion of the Preferred
Stock and the issuance of the Warrant Shares upon conversion of the Warrants)
will not be subject to or give rise to any preemptive rights or rights of
first
refusal.
5.17. Acquisition
Corp.
Acquisition Corp. was incorporated in the State of Delaware on April 28,
2006.
Acquisition Corp. has no liabilities, debts or obligations of any nature
(whether accrued, absolute, contingent, liquidated or unliquidated, unasserted
or otherwise) except those incurred in connection with this Agreement and
all of
the transactions contemplated hereby.
40
ARTICLE
VI
COVENANTS
OF THE COMPANY PENDING CLOSING
The
Company covenants and agrees that:
6.1. Conduct
of the Business.
From the
date hereof through the Closing Date, the Company shall conduct the Business
only in the ordinary course (including the payment of accounts payable and
the
collection of accounts receivable), consistent with past practices, and shall
not enter into any material transactions without the prior written consent
of
Parent, and shall use its best efforts to preserve intact the Company’s business
relationships with employees, advertisers, suppliers, customers and other
third
parties.
Without
limiting the generality of the foregoing, from the date hereof until the
Closing
Date, without Parent’s prior written consent, the Company shall
not:
(a) Except
in
the ordinary course of business, amend, waive any provision of, terminate
prior
to its scheduled expiration date, or otherwise compromise in any way, any
Contract (including contracts described in clause (b) below), or any other
right
or asset of the Company;
(b) enter
into any contract, agreement, lease, license or commitment, which (i) is
with
respect to real property, (ii) except in the ordinary course of business,
extends for a term of one year or more or (iii) obligates the payment of
more
than $50,000 (individually or in the aggregate);
(c) make
any
capital expenditures in excess of $50,000 (individually or in the
aggregate);
(d) sell,
lease, license or otherwise dispose of any assets or assets covered by any
Contract except (i) pursuant to existing contracts or commitments disclosed
herein and (ii) sales of inventory in the ordinary course consistent with
past
practice;
(e) pay,
declare or promise to pay any dividends or other distributions with respect
to
its capital stock, or pay, declare or promise to pay any other payments to
any
Stockholder or any Affiliate of the Company;
(f) authorize
any salary increase of more than 10% for any employee making an annual salary
of
greater than $50,000 or in excess of $5,000 in the aggregate on an annual
basis
or change the bonus or profit sharing policies of the Company;
(g) obtain
or
suffer to exist any Indebtedness in excess of $25,000 in the
aggregate;
(h) suffer
or
incur any Lien on any asset of the Company except for Liens existing as of
the
date hereof as set forth on Schedule 3.15(b);
41
(i) suffer
any material damage, destruction or loss of property related to any assets
of
the Company, which is not covered by insurance;
(j) delay,
accelerate or cancel any receivables or Indebtedness owed to the Company
or
write-off or make further reserves against the same, except in the ordinary
course of business;
(k) merge
or
consolidate with or acquire any other Person or be acquired by any other
Person;
(l) suffer
any insurance policy protecting the assets of the Company to lapse;
(m) make
any
change in its accounting principles or methods or write down the value of
any
inventory or assets;
(n) change
the place of business of the Company;
(o) extend
any loans other than travel or other expense advances to employees in the
ordinary course of business not to exceed $2,000 individually or $7,500 in
the
aggregate;
(p) issue,
redeem or repurchase any shares of their capital stock;
(q) effect
or
agree to any changes in shipping practices, terms or rates;
(r) reduce
the prices of products sold from Inventory for customers except in the ordinary
course of business;
(s) effect
or
agree to any change in any practices or terms, including payment terms, with
respect to customers or suppliers;
(t) hire
any
employees, consultants or advisors;
(u) make
or
rescind any election related to Taxes, file any amended income Tax Return
or
make any changes in its methods of Tax accounting; or
(v) agree
to
do any of the foregoing.
The
Company will not (i) take or agree to take any action that might make any
representation or warranty of the Company hereunder inaccurate in any respect
at, or as of any time prior to, the Closing Date or (ii) omit to take, or
agree
to omit to take, any action necessary to prevent any such representation
or
warranty from being inaccurate in any respect at any such time.
6.2. Access
to Information.
(a) From
the
date hereof until and including the Closing Date, the Company shall (a) continue
to give Parent, its counsel and other representatives full access to the
offices, properties, books and records of the Company, (b) furnish to Parent,
its counsel and other representatives such information relating to the Business
as such Persons may request and (c) cause the employees, counsel, accountants
and representatives of the Company to cooperate with Parent in its investigation
of the Business; provided
that
no
investigation pursuant to this Section 6.2 (or any investigation prior to
the date hereof) shall affect any representation or warranty given by the
Company.
42
(b) The
Company shall arrange for representatives of Parent to meet with or speak
to the
representatives of the three largest customers of the Company.
6.3. Notices
of Certain Events.
The
Company shall promptly notify Parent of:
(i) any
notice or other communication from any Person alleging or raising the
possibility that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement or that the transactions
contemplated by this Agreement might give rise to any claims or causes of
action
or other rights by or on behalf of such Person or result in the loss of any
rights or privileges of the Company to any such Person;
(ii) any
notice or other communication from any Authority in connection with the
transactions contemplated by this Agreement;
(iii) any
actions, suits, claims, investigations or proceedings commenced or threatened
against, relating to or involving or otherwise affecting the Company or the
Business or that relate to the consummation of the transactions contemplated
by
this Agreement; and
(iv) the
occurrence of any fact or circumstance which might make any representation
made
hereunder by the Company and/or any Stockholder false in any respect or result
in the omission or the failure to state a material fact.
ARTICLE
VII
COVENANTS
OF THE COMPANY AND THE STOCKHOLDERS
The
Company and, to the extent specifically stated, each of the Stockholders,
severally but not jointly, covenant and agree that:
7.1. Confidentiality.
Except
as otherwise required by law, on and after the Closing, no Stockholder shall,
without the prior written consent of Parent, or a person authorized thereby,
disclose to any other Person or use (whether for the account of any Stockholder
or any other party) any confidential information or proprietary work product
of
Parent, Acquisition Corp. or the Company or any client of Parent, Acquisition
Corp. or the Company. In the event the Company or any Stockholder believes
that
it is required to disclose any such confidential information pursuant to
applicable Laws, the Company or such Stockholder shall give timely written
notice to Parent so that Parent may have an opportunity to obtain a protective
order or other appropriate relief. The Company and all Stockholders shall
cooperate fully in any such action by Parent.
43
7.2. Non-Solicitation.
(a) The
Stockholders and their Affiliates may not, during the period beginning on
the
Closing Date and ending three years and six months (i.e.,
3.5
years) after the Closing Date (the “Restriction Period”), directly or indirectly
through any other individual, person or entity, employ, solicit or induce
any
individual other than Xxx Xxxxx beginning ninety (90) days after the Closing
Date, who is, or was at any time during the period beginning on or after
December 31, 2005 and through and after, the Closing Date, an employee or
consultant of the Company to terminate or refrain from renewing or extending
his
or her employment by or consulting relationship with the Company or to become
employed by or enter into a consulting relationship with any of the Stockholders
or any of their Affiliates or any other individual, person or
entity.
(b) The
Stockholders and their Affiliates shall not, during the Restriction Period,
directly or indirectly through any other individual, person or entity, solicit,
persuade or induce any Customer to terminate, reduce or refrain from renewing
or
extending its contractual or other relationship with the Company or any of
its
Affiliates in regard to the purchase of products or services manufactured,
marketed or sold by the Company, or to become a customer of or enter into
any
contractual or other relationship with any of the Stockholders or any of
their
Affiliates or any other individual, person or entity in regard to the purchase
of products or services similar or identical to those manufactured, marketed
or
sold by the Company or any of its Affiliates. For purposes hereof, “Customer”
means any individual, person or entity which is or was at any point in time
during the two (2) year period prior to the Closing Date a customer of the
Company or any of its Affiliates.
(c) The
Stockholders and their Affiliates may not, during the Restriction Period,
directly or indirectly through any other individual, person or entity, solicit,
persuade or induce any customer or supplier to terminate, reduce or refrain
from
renewing or extending his, her or its contractual or other relationship with
the
Company or any of its Affiliates or to become a customer or supplier of or
enter
into any contractual or other relationship with the Company, directly or
indirectly, in regard to the sale of products or services similar or identical
to those manufactured, marketed or sold by the Company or any of its Affiliates
as of the Closing Date.
7.3. Non-Competition.
During
the Restriction Period, neither the Stockholders, which for the purposes
of this
Section 7.3 of the Agreement only shall mean Stockholders owning more than
5% of
the common stock of the Company, par value $.001 per share, nor any of their
Affiliates shall (except on behalf of the Company or any of its Affiliates,
if
any, with respect to any Stockholder who continues to be employed by the
Company) directly or indirectly, in his, her and its own capacity or through
one
or more Affiliates, whether as owner, consultant, executive, partner, member,
manager, officer, director, venturer, or agent, or through stock ownership,
investment of capital, lending of money or property, or rendering of services,
or otherwise, engage in the Business; provided, that the each Stockholder
may
own not more than 3% of the outstanding shares of a company engaged in such
Business if such shares are listed on the Nasdaq Stock Market or a national
securities exchange; provided further, that the restriction in this Section
7.3
is limited to businesses in which the Acquisition Corp. or Parent currently
engages or which the Acquisition Corp. or Parent enters into or evaluates
(that
relates to its current Business) during the Restriction Period.
7.4. Reporting
and Compliance With Law.
From
the date hereof through the Closing Date, the Company shall duly and timely
file
all Tax Returns required to be filed with Authorities, pay any and all Taxes
required by any Authority and duly observe and conform, in all material
respects, to all applicable Laws and Orders.
44
7.5. Injunctive
Relief.
If one
or more of the Stockholders breaches, or threatens to commit a breach of,
any of
the covenants set forth in Section 7.1 or Section 14.4 (the “Restrictive
Covenants”), Parent shall have the following rights and remedies, which shall be
in addition to, and not in lieu of, any other rights and remedies available
to
Parent by agreement (including those set forth in Section 12.1 hereof), under
law or in equity:
(a) The
right
and remedy to have the Restrictive Covenants specifically enforced by any
court
having equity jurisdiction, all without the need to post a bond or any other
security or to prove any amount of actual damage or that money damages would
not
provide an adequate remedy, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to Parent and that
monetary damages will not provide adequate remedy to Parent; and
(b) The
right
and remedy to require such breaching Stockholder(s) (i) to account for and
pay
over to Parent all compensation, profits, monies, accruals, increments or
other
benefits derived or received by the Company or any associated party as the
result of any such breach; and (ii) to indemnify Parent against any other
losses, damages (including special and consequential damages), costs and
expenses, including actual attorneys fees and court costs, which may be incurred
by it and which result from or arise out of any such breach or threatened
breach.
7.6. Resignations.
The
Company will deliver to Acquisition Corp. the resignations of all officers
and
directors of the Company effective as of the Closing Date, except for those
officers and directors who Acquisition Corp. notifies the Company that it
will
retain in their current positions.
ARTICLE
VIII
COVENANTS
OF ALL PARTIES HERETO
The
parties hereto, as applicable, covenant and agree that:
8.1. Best
Efforts; Further Assurances.
Subject
to the terms and conditions of this Agreement, each party shall use its best
efforts to take, or cause to be taken, all actions and to do, or cause to
be
done, all things necessary or desirable under applicable Laws, and in the
case
of the Company and each Stockholder as reasonably requested by Parent, to
consummate and implement expeditiously the transactions contemplated by this
Agreement. The parties hereto shall execute and deliver such other documents,
certificates, agreements and other writings and take such other actions as
may
be necessary or desirable in order to consummate or implement expeditiously
the
transactions contemplated by this Agreement.
8.2. Confidentiality
of Transaction.
Any
information (except publicly available or freely usable material obtained
from
another source) respecting any party or its Affiliates will be kept in strict
confidence by all other parties to this Agreement and their agents. Except
as
required by Law, neither the Company, any Stockholder nor any of their
respective Affiliates, directors, officers, employees or agents will disclose
the terms of the transactions contemplated hereunder at any time, currently,
or
on or after the Closing, regardless of whether the Closing takes place, except
as necessary to their attorneys, accountants and professional advisors, in
which
instance such persons and any employees or agents of the Company shall be
advised of the confidential nature of the terms of the transaction and shall
themselves be required by the Company to keep such information confidential.
Except as required by Law, each party shall retain all information obtained
from
the other and their lawyers on a confidential basis except as necessary to
their
attorneys, accountants and professional advisors, in which instance such
persons
and any employees or agents of such party shall be advised of the confidential
nature of the terms of the transaction and shall themselves be required by
such
party to keep such information confidential.
45
8.3. Best
Efforts to Obtain Consents.
The
Company hereby agrees to use its reasonable best efforts to obtain each
respective Company Consent as promptly as practicable hereafter; provided,
however, that such reasonable best efforts shall not involve the expenditure
of
money.
8.4. Tax
Matters.
(a) The
Stockholder Representative shall prepare or cause to be prepared and file
or
cause to be filed on a timely basis all Tax Returns with respect to the Company
for taxable periods ending on or prior to the date that includes the Effective
Time. Such Tax Returns shall be true, correct and complete, shall be prepared
on
a basis consistent with the similar Tax Returns for the immediately preceding
periods and shall not make, amend, revoke or terminate any election or change
any accounting practice or procedure without Parent’s consent. The Stockholder
Representative shall give a copy of each such Tax Return to Parent with
sufficient time for its review and comment prior to filing. The Company shall
pay the Taxes shown due and owing on such Returns. Parent’s receipt or review of
or giving comments on any Tax Return does not affect the obligations of the
Stockholder’s pursuant to Article XI of this Agreement. The Company will permit
the Stockholder Representative and its representatives to have reasonable
access
to the Company’s respective officers, directors, employees, agents, assets and
properties and all relevant books, records and documents of or relating to
the
Business and assets of the Company during normal business hours and will
furnish
to the Stockholder Representative and its representatives such information,
financial records and other documents relating to the Company and the Business
as may reasonably be requested, provided, however, that such access and
information is reasonably related to the completion of the Tax Returns the
Stockholder Representative is required to filed pursuant to this Section
8.4(a).
Any such information, financial records and other documents relating to the
Company and the Business provided to the Stockholder Representative and its
representatives shall be subject to the provisions of Section 7.1 of this
Agreement, but such information may be incorporated into any such Tax
Return.
(b) To
the
extent permitted by applicable law, the parties shall elect to treat the
period
that includes the Effective Time with respect to any Tax as ending on the
date
that includes the Effective Time and shall take such steps as may be necessary
therefor. For purposes of this Agreement, any Taxes for a period which includes
but does not end on the date that includes the Effective Time shall be allocated
between the period through and including the date that includes the Effective
Time (the “Pre-Closing Period”) and the balance of the period based on an
interim closing of the books as of the close of the date that includes the
Effective Time, provided,
however,
that
any real property or personal property taxes and any annual exemption amounts
shall be allocated based on the relative number of days in the Pre-Closing
Period and the balance of the period.
46
(c) Parent
covenants and agrees that with respect to all Tax Returns to be filed by
Parent
for the period from the Effective Time through December 31, 2006, it will
file
consolidated Tax Returns, including in such Tax Returns, the Company, as
the
surviving entity in the Merger, and its results of operations.
8.5. Parent
Common Stock.
(a) Parent
will take all commercially reasonable actions necessary in accordance with
the
laws of the State of Texas and Parent’s certificate of incorporation and bylaws
to obtain the necessary consent from its shareholders to increase its authorized
shares of Parent Common Stock to allow for the full conversion of the Preferred
Stock into Common Stock and to reincorporate a21 in the State of Delaware
and
Parent will use its commercially reasonable efforts to obtain such consent
as
soon as practicable after the date of this Agreement, but in no event later
than
July 30, 2006. Parent’s Board of Directors will recommend that the shareholders’
consent to the increase of the authorized shares of Parent Common Stock and
the
reincorporation in the State of Delaware by Parent’s shareholders as provided
herein and will use its commercially reasonable efforts to solicit such consent
and provide any necessary notification pursuant to state and federal law,
including the Securities Act, and Parent’s certificate of incorporation and
bylaws to those shareholders who have not consented. All notices sent to
holders
of Parent Common Stock and all documents or instruments executed by Parent
or
filed with an Authority relating to the increase in the authorized shares
of
Parent Common Stock and the reincorporation in the State of Delaware shall
be
sent promptly to the Stockholder Representative. In the event that a holder
of
the Preferred Stock elects to convert the Preferred Stock into Common Stock
prior to the date that the Company has increased its authorized shares of
Common
Stock to accommodate such conversion, the holder agrees that the holder will
not
be entitled to receive the Common Stock issuable to him upon such conversion
until such time as the Parent has increased its number of authorized shares
of
Common Stock to accommodate the conversion of the Preferred Stock, provided
that, as promptly as practicable after the date the Parent has increased
its
authorized shares of Common Stock to accommodate the issuance of the Common
Stock, the Parent shall issue such number of shares of Common Stock as the
holder would have been entitled to receive on the effective date of the Holder’s
election to convert the Preferred Stock. In other words, if the effective
date
of the Holder’s election to convert the Preferred Stock is June 1, 2006, and the
effective date of the increase in the authorized shares of Parent Common
Stock
is June 15, 2006, the Parent shall issue, on or about June 15, 2006, such
number
of shares as the Holder would have been entitled to receive on June 1,
2006.
(b) Parent
shall use its commercially reasonable efforts (including the filing of any
necessary documentation with the SEC and applicable state authorities) to
obtain
the written authorization of a majority of its shareholders (the “Approval”) to
increase the number of its authorized shares (the “Share Increase”) to allow for
the full conversion of the Warrant Shares and the Preferred Stock into Parent
Common Stock. If the Approval is not obtained prior to July
30,
2006, Parent shall pay to the Shareholder Representative three-quarters of
a
percent (.75%) per month on the face amount of the Preferred Stock on
July
30,
2006 and on the 30th
day of
each calendar month thereafter, up to a maximum of nine percent (9%) per
annum
on the face amount of the Preferred Stock, until the Approval is
obtained.
47
8.6. Rights
to Piggyback.
(a) If
(and
on each occasion that) the Parent proposes to register any of its securities
under the Securities Act, either for the Parent’s own account or for the account
of any of its stockholders (other than pursuant to a Form S-4 or Form S-8
or
comparable form and other than pursuant to a demand registration right granted
to other persons to the extent that such rights prohibit the Parent from
including securities of any other person in such registration statement)
(each
such registration not withdrawn or abandoned prior to the effective date
thereof
being herein called a “Piggyback Registration”), the Parent will give written
notice to the Stockholder’s owning Preferred Stock and/or Warrant Shares (each a
“Holder”) of such proposal not later than the tenth day following the receipt by
the Parent of notice of exercise of any registration rights by any persons
or
twenty (20) days prior to filing of a registration statement with the SEC,
whichever shall be earlier. For the purposes of this Agreement, the term
“Registrable Securities” shall mean the Shares of Common Stock underlying the
Preferred Stock and the Warrant Shares that have not been previously sold
by the
Stockholders.
(b) Subject
to the provisions contained in Section 8.7 and in the last sentence of this
paragraph (b), (A) the Parent will be obligated and required to include in
each
Piggyback Registration all Registrable Securities with respect to which the
Parent shall receive from the Holder, within 15 days after the date on which
the
Parent shall have given written notice of such Piggyback Registration to
the
Holder, the written requests of such Holder for inclusion in such Piggyback
Registration, and (B) the Parent will use commercially reasonable efforts
in
good faith to effect promptly the registration of all such Registrable
Securities. The Holder shall be permitted to withdraw all or any part of
the
Registrable Securities of such Holder from any Piggyback Registration at
any
time prior to the effective date of such Piggyback Registration unless such
Holder shall have entered into a written agreement with the Parent’s
underwriters establishing the terms and conditions under which such Holder
would
be obligated to sell such Registrable Securities in such Piggyback Registration.
The Parent will not be obligated or required to include any shares in any
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the SEC is applicable.
8.7. Priority
on Piggyback Registrations.
If a
Piggyback Registration is an underwritten registration, and the managing
underwriters shall give written advice to the Parent of a number of securities
to which such registration should, in the opinion of the managing underwriters
of such registration in the light of marketing factors, be limited (the
“Underwriters’ Maximum Number”), then: (i) the Parent shall be entitled to
include in such registration that number of securities which the Parent proposes
to offer and sell for its own account in such registration and/or number
of
securities requested to be included in such registration by persons exercising
demand registration rights which does not exceed the Underwriters’ Maximum
Number; (ii) if the Underwriters' Maximum Number exceeds the number of
securities which the Parent proposes to offer and sell for its own account
in
such registration, then the Parent will be obligated and required to include
in
such registration that number of Registrable Securities requested by the
Holder
thereof to be included in such registration and which does not exceed such
excess and such securities to be registered shall be allocated pro rata among
the Holder on the basis of the number of Registrable Securities requested
to be
included therein by the Holder and any other person to whom the Parent has
granted piggyback registration rights; (iii) if the Underwriters' Maximum
Number
exceeds the sum of the number of Registrable Securities which the Parent
shall
be required to include in such registration pursuant to clause (ii) above
and
the number of securities which the Parent proposes to offer and sell for
its own
account in such registration, then the Parent may include in such registration
that number of other securities which persons shall have requested be included
in such registration and which shall not be greater than such
excess.
48
8.8. Procedures
on Registration.
If and
whenever the Parent is required by the provisions hereof to effect the
registration of any Registrable Securities under the Securities Act, the
Company
will, as expeditiously as possible:
(a) respond
as promptly as commercially reasonable to any comments received from the
SEC,
and use its commercially reasonable efforts to cause such Piggyback Registration
to become effective, and promptly provide to the Stockholder Representative
copies of all filings and SEC letters of comment relating thereto provided
that
such letters do not contain material non-public information, in which case
such
letters may be redacted by the Parent;
(b) furnish
to each Holder such number of copies of the Piggyback Registration and the
prospectus included therein as such Holder reasonably may request to facilitate
the public sale or disposition of the Registrable Securities covered by such
Registration Statement;
(c) use
its
commercially reasonable efforts to register or qualify each Holder’s Registrable
Securities covered by such Piggyback Registration under the securities or
“blue
sky” laws of such jurisdictions within the United States as such Holder may
reasonably request, provided, however, that the Parent shall not for any
such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent
to
general service of process in any such jurisdiction;
(d) list
the
Registrable Securities covered by such Piggyback Registration with any
securities exchange on which the Common Stock of the Parent is then
listed;
(e) immediately
notify the Stockholder Representative at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event of which the Parent has knowledge as a result of which the
prospectus contained in such Piggyback Registration, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not
misleading in light of the circumstances then existing;
and
(f) notify
the Stockholder Representative of the effectiveness of each registration
statement filed.
8.9. Selection
of Underwriters.
In any
Piggyback Registration, the Parent shall have the right to select the investment
bankers and managing underwriters in such registration.
49
8.10. Right
to Terminate Registration.
The
Parent shall have the right to terminate or withdraw any registration initiated
by it under this Section 8.6 prior to the effectiveness of such registration
whether or not any Holder has elected to include shares in such
registration.
8.11. Indemnification.
(a) In
the
event of a registration of any securities under the Securities Act pursuant
to
this Agreement, the Parent will indemnify and hold harmless each Holder, and
its
officers, directors and each other person, if any, who controls such Holder
within the meaning of the Securities Act, against any losses, claims, damages
or
liabilities, joint or several, to which such Holder, or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Securities were
registered under the Securities Act pursuant to this Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse such Holder, and
each
such person for any reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided,
however, that the Parent will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon (i) an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by or on behalf of
such Holder, any other Holder or any such person in writing or (ii) the use
by
such Holder, any other Holder or any such person of an outdated or defective
prospectus (without any Parent provided supplement correcting such outdated
or
defective prospectus) after the Parent has notified such Holder or any person
in
writing that such prospectus is suspended from use, outdated or
defective.
(b) In
the
event of a registration of any securities under the Securities Act pursuant
to
this Agreement, each Holder will indemnify and hold harmless the Parent, its
Subsidiaries and their respective officers, directors and each other person,
if
any, who controls the Parent or any such subsidiary within the meaning of the
Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Parent, any such subsidiary or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based
upon any untrue statement or alleged untrue statement of any material fact
which
was furnished in writing by such Holder to the Parent (and such information
is
contained in) the Registration Statement under which such Securities were
registered under the Securities Act pursuant to this Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse the Parent, its
subsidiaries and each such person for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that such Holder will
be
liable in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished in writing to the Parent or such Subsidiary by or
on
behalf of such Holder specifically for use in any such document or the use
by
such Holder of an outdated or defective prospectus (without the Parent provided
supplement correcting such outdated or defective prospectus) after the Parent
has notified such Holder in writing that such prospectus is suspended from
use,
outdated or defective, and provided further, that in no case shall any such
Holder be liable or responsible for any amount in excess of the net amount
received by such Holder for shares sold by him, her or it pursuant to such
Registration Statement.
50
(c) Promptly
after receipt by a party entitled to claim indemnification hereunder (a “Section
8.10 Indemnified Party”) of notice of the commencement of any action, such
Section 8.10 Indemnified Party shall, if a claim for indemnification in respect
thereof is to be made against a party hereto obligated to indemnify such
Indemnified Party (an “Section 8.10 Indemnifying Party”), notify the Section
8.10 Indemnifying Party in writing thereof, but the omission so to notify the
Section 8.10 Indemnifying Party shall not relieve it from any liability which
it
may have to such Section 8.10 Indemnified Party other than under this Section
8.10 and shall only relieve it from any liability which it may have to such
Section 8.10 Indemnified Party under this Section 8.10 if and to the extent
the
Section 8.10 Indemnifying Party is prejudiced by such omission. In case any
such
action shall be brought against any Section 8.10 Indemnified Party and it shall
notify the Section 8.10 Indemnifying Party of the commencement thereof, the
Section 8.10 Indemnifying Party shall be entitled to participate in and, to
the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such Section 8.10 Indemnified Party, and, after notice from
the
Section 8.10 Indemnifying Party to such Section 8.10 Indemnified Party of its
election so to assume and undertake the defense thereof, the Section 8.10
Indemnifying Party shall not be liable to such Section 8.10 Indemnified Party
under this Section 8.10 for any legal expenses subsequently incurred by such
Section 8.10 Indemnified Party in connection with the defense thereof; if the
Section 8.10 Indemnified Party retains its own counsel, then the Section 8.10
Indemnified Party shall pay all fees, costs and expenses of such counsel,
provided,
however, that, if the defendants in any such action include both the indemnified
party and the Section 8.10 Indemnifying Party and the Section 8.10 Indemnified
Party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to
the
Section 8.10 Indemnifying Party or if the interests of the Section 8.10
Indemnified Party reasonably may be deemed to conflict with the interests of
the
Section 8.10 Indemnifying Party, the Section 8.10 Indemnified Party shall have
the right to select separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the Section 8.10 Indemnifying Party as
incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) any Holder, or any
officer, director or controlling person of such Holder, makes a claim for
indemnification pursuant to this Section 8.10 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the
fact that this Section 8.10 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of such Holder
or such officer, director or controlling person of such Holder in circumstances
for which indemnification is provided under this Section 5; then, and in each
such case, the Parent and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible only for
the
portion represented by the percentage that the public offering price of its
securities offered by the Registration Statement bears to the public offering
price of all securities offered by such Registration Statement, provided,
however, that, in any such case, (A) such Holder will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such Registration Statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 10(f) of the Act) will be entitled to contribution from any person
or
entity who was not guilty of such fraudulent misrepresentation.
51
ARTICLE
IX
CONDITIONS
TO CLOSING
9.1. Condition
to the Obligations of Parent, Acquisition Corp., Stockholders and the
Company.
The
obligations of Parent, Acquisition Corp., Stockholders and the Company to
consummate the Closing are subject to the satisfaction of all the following
conditions:
(a) No
provision of any applicable Law or Order shall prohibit or impose any condition
on the consummation of the Closing or limit in any material way Parent’s right
to control or operate Acquisition Corp., the Surviving Corporation or any
material portion of the Business.
(b) There
shall not be pending or threatened any proceeding by a third-party to enjoin
or
otherwise restrict the consummation of the Closing.
9.2. Conditions
to Obligations of Parent and Acquisition Corp.
In
addition to the terms and provisions of Section 2.10, the obligation of Parent
and Acquisition Corp. to consummate the Closing is subject to the satisfaction,
or the waiver at Parent’s and Acquisition Corp.’s sole and absolute discretion,
of all the following further conditions:
(a) (i)
Each
of the Company and the Stockholders shall have duly performed in all material
respects all of their respective obligations hereunder required to be performed
by them at or prior to the Closing Date, (ii) the representations and warranties
of the Company and the Stockholders contained in this Agreement, the Additional
Agreements and in any certificate or other writing delivered by the Company
or
any Stockholder pursuant hereto, disregarding all qualifications and exceptions
contained therein relating to materiality or Material Adverse Effect, shall
be
true and correct at and as of the Closing Date, as if made at and as of such
date with only such exceptions as could not in the aggregate reasonably be
expected to have a Material Adverse Effect, (iii) there shall have been no
event, change or occurrence which individually or together with any other event,
change or occurrence, could reasonably be expected to have a Material Adverse
Change or a Material Adverse Effect, regardless of whether it involved a known
risk, and (iv) Parent and Acquisition Corp. shall have received a certificate
signed by the President and Secretary of the Company to the effect set forth
in
clauses (i), (ii) and (iii) of this Section 8.2(a).
52
(b) Parent
shall have received (i) a copy of the certificate of incorporation of the
Company certified as of a recent date by the Secretary of State of Delaware,
(ii) copies of the Company’s By-Laws as effective on the date hereof; (iii)
copies of resolutions duly adopted by the Board of Directors of the Company
and
by the vote or consent of the Company’s stockholders authorizing this Agreement
and the Additional Agreements and the transaction contemplated hereby and
thereby, (iv) a certificate of the Secretary of the Company certifying each
of
the foregoing and as to signatures of the officer(s) authorized to execute
this
Agreement and any certificate or document to be delivered pursuant hereto,
together with evidence of the incumbency of such Secretary, and (v) a recent
good standing certificate regarding the Company from the office of the Secretary
of State of the State of Delaware, and each other jurisdiction in which the
Company is qualified to do business.
(c) Parent
or
Acquisition Corp. shall have reasonably determined that, after Parent or
Acquisition Corp. has had the opportunity to meet or speak to representatives
of
the largest customers of the Company pursuant to Section 6.2, all such customers
will continue the relationship such customer had with the Company.
(d) Parent
shall have received all material Company Consents (including any required
consents of the landlords under the Office Leases), in form and substance
reasonably satisfactory to Parent, and no such material Company Consent shall
have been revoked.
(e) The
Company shall have delivered to Parent documents satisfactory to Parent to
evidence the release of all Liens on any portion of the assets of the Company
and the filing of appropriate UCC-3 Termination Statements.
(f) [Intentionally
Omitted]
(g) Parent
will have received an opinion of counsel to the Company and the Stockholders
substantially in the form of Exhibit
G
hereto.
(h) Certificates
representing no less than 95 percent, on a fully-diluted basis, of the issued
and outstanding shares of the Company Securities shall be presented at the
Closing for cancellation, together with the original stock ledgers and minute
books of the Company.
(i) FIRPTA
Certificate.
At the
Closing, each Stockholder shall deliver to Parent and Acquisition Corp. a
certificate of non-foreign status, in the form set forth in Treasury Regulations
Section 1.1445-2(b)(2)(iii)(B), signed under penalties of perjury. Each
Stockholder understands that such certificates will be retained by Parent and
Acquisition Corp. and will be made available to the Taxing authorities upon
request.
9.3. Conditions
to Obligations of the Company and the Stockholders.
In
addition to the terms and provisions of Section 2.10, the obligation of the
Company and the Stockholders to consummate the Closing is subject to the
satisfaction, or the waiver at the Company’s and the Stockholder’s discretion,
of all the following further conditions:
53
(a) Parent
and Acquisition Corp. shall have performed in all material respects all of
their
respective obligations hereunder required to be performed by it at or prior
to
the Closing Date, (ii) the representations and warranties of Parent contained in
this Agreement, the Additional Agreements and in any certificate or other
writing delivered by Parent or Acquisition Corp. pursuant hereto, disregarding
all qualifications and expectations contained therein relating to materiality,
shall be true and correct in all material respects at and as of the Closing
Date, as if made at and as of such date, (iii) there shall have been no event,
change or occurrence which individually or together with any other event, change
or occurrence, could reasonably be expected to have a material adverse effect,
regardless of whether it involved a known risk, on the business, assets,
condition (financial or otherwise), liabilities, result of operations of
prospects of the Parent, and (iv) each Stockholder and the Company shall have
received a certificate signed by an authorized officer of Parent and Acquisition
Corp. to the foregoing effect.
(b) The
Company and the Stockholders shall have received (i) a copy of the certificate
of incorporation of each of Parent and Acquisition Corp., (ii) copies of the
bylaws of each of Parent and Acquisition Corp. as effective on the date hereof;
(iii) copies of resolutions duly adopted by the Board of Directors of Parent
and
Acquisition Corp. and by the unanimous vote or consent of Acquisition Corp.’s
shareholders authorizing this Agreement and the Additional Agreements and the
transaction contemplated hereby and thereby, (iv) a certificate of the Secretary
or Assistant Secretary of Parent and Acquisition Corp. certifying each of the
foregoing and as to signatures of the officer(s) authorized to execute this
Agreement and any certificate or document to be delivered pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary, and (v) a recent good standing certificate regarding Parent and
Acquisition Corp. from the office of the Secretary of State of its respective
jurisdiction of organization and each other jurisdiction in which each of Parent
and Acquisition Corp. is qualified to do business.
(c) The
Company shall have delivered to each of the persons listed on Schedule 9.3(c)
a
duly executed copy of their respective Employment Agreements.
(d) The
Stockholders will have received an opinion of counsel to the Parent and the
Acquisition Corp. substantially in the form of Exhibit
H
hereto.
ARTICLE
X
RELIANCE
ON REPRESENTATIONS AND WARRANTIES
10.1. Reliance
on Representations and Warranties of the Company and the
Stockholders.
Notwithstanding any right of Parent and Acquisition Corp. to fully investigate
the affairs of the Company and notwithstanding any knowledge of facts determined
or determinable by Parent and Acquisition Corp. pursuant to such investigation
or right of investigation, Parent and Acquisition Corp. shall have the right
to
rely fully upon the representations, warranties, covenants and agreements of
the
Company and the Stockholders contained in this Agreement.
10.2. Reliance
on Representations and Warranties of Parent.
Notwithstanding any right of the Company or Stockholders to investigate the
affairs of Parent and Acquisition Corp. and notwithstanding any knowledge of
facts determined or determinable by the Company or Stockholders pursuant to
such
investigation or right of investigation, the Company and Stockholders shall
have
the right to rely fully upon the representations, warranties, covenants and
agreements of Parent and Acquisition Corp. contained in this
Agreement.
54
ARTICLE
XI
INDEMNIFICATION
11.1. Indemnification
of Parent, Acquisition Corp.
Prior to
the Effective Time, the Company and each Stockholder, and subsequent to the
Effective Time each Stockholder, hereby severally agrees to indemnify and hold
harmless Parent, Acquisition Corp., Surviving Corporation and their Affiliates
and each of their respective directors, officers, employees, shareholders,
attorneys and agents and permitted assignees (collectively, the “Parent
Indemnitees,” provided,
however,
the
term “Parent Indemnitees” shall not include any of the Stockholders regardless
of their capacity), against and in respect of any and all loss, payments,
demand, penalty, liability, judgment, damage, diminution in value, claim or
out-of-pocket costs and expenses (including actual costs of investigation and
attorneys’ fees and other costs and expenses) (all of the foregoing
collectively, “Losses”) incurred or sustained by any Parent Indemnitee as a
result of (i) any breach, inaccuracy or nonfulfillment or the alleged breach,
inaccuracy or nonfulfillment of any of the representations, warranties and
covenants of the Company or any of the Stockholders contained herein or in
the
Additional Agreements (but not the Employment Agreements) or any certificate
or
other writing delivered pursuant hereto or of the Stockholders, (ii) the
exercise or attempted exercise of one or more Stockholders of appraisal or
other
similar rights in accordance with the Delaware General Corporation Law, or
(iii)
the failure to pay any claims by any third parties (including breach of contract
claims, violations of warranties, trademark infringement, for “spamming”,
privacy violations, torts or consumer complaints) with respect to the business
of the Company for any period prior to the Closing Date; provided,
that
Losses in connection with Sections 11.1(iii), shall be deemed to include any
amounts payable after the Closing pursuant to or otherwise in connection with
any of the matters, and provided
further
that,
(x) except to the extent provided in Section 11.2, it is hereby acknowledged
and
understood that the obligations of the Stockholders pursuant to this Section
11.1 are limited to and that the Parent Indemnitees may only look to the Escrow
Fund (and after the Escrow Fund is distributed, the proceeds thereof received
by
the Stockholders) to recover any Losses, (y) the Company and Stockholders shall
not be liable under this Section 11.1 unless the aggregate amount of Losses
with
respect to all matters referred to in this Section 11.1 exceeds One Hundred
Twenty Five Thousand Dollars ($125,000), but in the event that such Losses
do
exceed One Hundred Twenty Five Thousand Dollars ($125,000), the Company and
the
Stockholders will be liable for the entire amount of such Losses, and (z) the
aggregate liability of the Stockholders may not exceed the amount of the Escrow
Fund whether held pursuant to the Escrow Agreement or distributed to the
Stockholders in accordance with its terms. The indemnification provided by
this
Article XI shall not apply to claims arising under or related to Section 8.10
of
this Agreement.
11.2. Special
Indemnity.
Each
Stockholder, severally but not jointly, shall indemnify, defend and hold the
Parent Indemnitees harmless from and against any Losses incurred by any Parent
Indemnitee based upon, arising out of or otherwise in respect of (i) any
breach or inaccuracy of the representations or warranties made by such
Stockholder contained in Sections 4.1, 4.2, 4.3 or 4.4, (ii) any breach,
inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment
of any of the representations, warranties and covenants of any of the
Stockholders contained herein or in the Additional Agreements, which breach
occurs due to the intentional, willful, reckless or grossly negligent conduct
of
the Stockholders, or (iii) the exercise or attempted exercise of one or
more Stockholders of appraisal or other similar rights in accordance with the
Delaware General Corporation Law; provided,
that
Losses in connection with this Section 11.2, other than those Losses
attributable to Sections 7.1, 7.2 and 7.3, shall be limited as to each such
Stockholder to the amount of the Merger Consideration received by such
Stockholder.
55
11.3. Indemnification
of Stockholders.
Parent
and Acquisition Corp. hereby agree to indemnify and hold harmless the
Stockholders and their respective Affiliates, and each of their respective
directors, officers, employees, shareholders, attorneys, agents and permitted
assignees (the “Company Indemnitees”) against and in respect of any Losses
incurred or sustained by the Company Indemnitees as a result of (i) any breach,
inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment
of any of the representations, warranties and covenants of Parent or Acquisition
Corp. contained herein or any certificate or other writing delivered pursuant
hereto, and (ii) actions or inactions of the Surviving Corporation with regard
to the Business occurring after the Closing; provided,
that
Losses in connection with this Section 11.3 shall be limited to the amount
of
the Merger Consideration.
11.4. Procedure.
The
following shall apply with respect to all claims by either a Parent Indemnitee
or a Company Indemnitee (together, “Indemnified Party”) for
indemnification:
(a) An
Indemnified Party shall give the Parent, Acquisition Corp., or the
Indemnification Agent, as applicable (either, “Indemnifying Parties”), prompt
notice (an “Indemnification Notice”) of any third-party claim, investigation,
action, suit, hearing or proceeding with respect to which such Indemnified
Party
seeks indemnification pursuant to Section 11.1, 11.2 or 11.3 (a “Third
Party Claim”), which shall describe in reasonable detail the loss, liability or
damage that has been or may be suffered by the Indemnified Party. The failure
to
give the Indemnification Notice shall not impair any of the rights or benefits
of such Indemnified Party under Section 11.1, 11.2 or 11.3, except to the extent
such failure materially and adversely affects the ability of the Indemnifying
Parties to defend such claim or to the limited extent the failure to give such
notice increases the amount of such liability.
(b) In
the
case of any Third Party Claims as to which indemnification is sought by any
Indemnified Party, such Indemnified Party shall be entitled, at the sole expense
and liability of the Indemnifying Parties, to exercise full control of the
defense, compromise or settlement of any Third Party Claim unless the
Indemnifying Parties, within a reasonable time after the giving of an
Indemnification Notice by the Indemnified Party (but in any event within 10
days
thereafter), shall (i) deliver a written confirmation to such Indemnified Party
that the indemnification provisions of Section 11.1, 11.2 or 11.3 are applicable
to such claim, investigation, action, suit, hearing or proceeding and the
Indemnifying Parties will indemnify such Indemnified Party in respect of such
claim, investigation, action or proceeding pursuant to the terms of Section
11.1, 11.2 or 11.3 and, notwithstanding anything to the contrary, shall do
so
without asserting any challenge, defense, limitation on the Indemnifying Parties
liability for Losses, counterclaim or offset, (ii) notify such Indemnified
Party
in writing that the Indemnifying Parties is assuming the defense thereof, and
(iii) retain legal counsel reasonably satisfactory to such Indemnified Party
to
conduct the defense of such Third Party Claim.
56
(c) If
the
Indemnifying Parties assume the defense of any such Third Party Claim then
the
Indemnified Party shall cooperate with the Indemnifying Parties in any manner
reasonably requested in connection with the defense, compromise or settlement
thereof. If the Indemnifying Parties so assume the defense of any such Third
Party Claim the Indemnified Party shall have the right to employ separate
counsel and to participate in (but not control) the defense, compromise, or
settlement thereof, but the fees and expenses of such counsel employed by the
Indemnified Party shall be at the expense of such Indemnified Party unless
(i)
the Indemnifying Parties have agreed to pay such fees and expenses, or (ii)
the
named parties to any such Third Party Claim (including any impleaded parties)
include an Indemnified Party and an Indemnifying Party and such Indemnified
Party shall have been advised by its counsel that there may be a conflict of
interest between such Indemnified Party and the Indemnifying Parties in the
conduct of the defense thereof, and in any such case the reasonable fees and
expenses of such separate counsel shall be borne by the Indemnifying
Parties.
(d) If
the
Indemnifying Parties elect to direct the defense of any Third Party Claim,
the
Indemnified Party shall not pay, or permit to be paid, any part of any claim
or
demand arising from such asserted liability unless the Indemnifying Parties
withdraw from or fail to vigorously prosecute the defense of such asserted
liability, or unless a judgment is entered against the Indemnified Party for
such liability. If the Indemnifying Parties do not elect to defend, or if,
after
commencing or undertaking any such defense, the Indemnifying Parties fail to
prosecute or withdraw such defense, the Indemnified Party shall have the right
to undertake the defense or settlement thereof, at the Indemnifying Parties’
expense. Notwithstanding anything to the contrary, the Indemnifying Parties
shall not be entitled to control, but may participate in, and the Indemnified
Party (at the expense of the Indemnifying Parties) shall be entitled to have
sole control over, the defense or settlement of (x) that part of any Third
Party
Claim (i) that seeks a temporary restraining order, a preliminary or permanent
injunction or specific performance against the Indemnified Party, or (ii) to
the
extent such Third Party Claim involves criminal allegations against the
Indemnified Party or (y) the entire Third Party Claim if such Third Party Claim
could impose liability on the part of the Indemnified Party in an amount which
is greater than the amount as to which the Indemnified Party is entitled to
indemnification under this Agreement. In the event the Indemnified Party retains
control of the Third Party Claim, the Indemnified Party will not settle the
subject claim without the prior written consent of the Indemnifying Party,
which
consent will not be unreasonably withheld or delayed.
(e) If
the
Indemnified Party assumes the defense of any such Third Party Claim pursuant
to
Section 11.1, 11.2 or 11.3 and proposes to settle the same prior to a final
judgment thereon or to forgo appeal with respect thereto, then the Indemnified
Party shall give the Indemnifying Parties prompt written notice thereof and
the
Indemnifying Parties shall have the right to participate in the settlement,
assume or reassume the defense thereof or prosecute such appeal, in each case
at
the Indemnifying Parties’ expense. The Indemnifying Parties shall not, without
the prior written consent of such Indemnified Party, settle or compromise or
consent to entry of any judgment with respect to any such Third Party Claim
(i)
in which any relief other than the payment of money damages is or may be sought
against such Indemnified Party or (ii) which does not include as an
unconditional term thereof the giving by the claimant, person conducting such
investigation or initiating such hearing, plaintiff or petitioner to such
Indemnified Party a release from all liability with respect to such Third Party
Claim and all other claims or causes of action (known or unknown) arising or
which might arise out of the same facts.
57
11.5. Periodic
Payments.
Any
indemnification required by Section 11.1, 11.2 or 11.3 for costs, disbursements
or expenses of any Indemnified Party in connection with investigating, preparing
to defend or defending any claim, action, suit, hearing, proceeding or
investigation shall be made by periodic payments by the Indemnifying Parties
to
each Indemnified Party during the course of the investigation or defense, as
and
when bills are received or costs, disbursements or expenses are incurred. With
respect to an indemnification required by Section 11.1 and 11.2, any such cost,
disbursement or expense shall be payable as provided in the Escrow
Agreement.
11.6. Payment
of Indemnification by Stockholders.
In the
event that Parent or Acquisition Corp. or the Surviving Corporation is entitled
to any indemnification pursuant to this Article, the Parent, Acquisition Corp.
and the Stockholder Representative shall issue an instruction to the escrow
agent named in the Escrow Agreement to release such Escrow Funds as are
necessary to cover the Losses as provided in the Escrow Agreement.
11.7. Insurance.
Any
indemnification payments hereunder shall only be reduced by any insurance
proceeds or other third party reimbursement actually received by the
Company.
11.8. Survival
of Indemnification Rights.
Except
for the representations and warranties in Section 3.4 (Capitalization and
Ownership of Shares), Section 3.10(b) (Financial Statements), Section 3.28
(Tax
Matters), Section 4.1 (Ownership of Stock; Authority), Section 5.10
(Capitalization and Ownership of the Parent) and Section 5.11(b) (Financial
Statements) which shall survive until three months after the expiration of
the
statute of limitations with respect thereto (including any extensions and
waivers thereof), the representations and warranties of the Stockholders, Parent
and Acquisition Corp. shall survive until the third anniversary of the Closing
Date. The indemnification to which any Indemnified Party is entitled from the
Indemnifying Parties pursuant to Section 11.1, 11.2 or 11.3 for Losses shall
be
effective so long as it is asserted prior to the third anniversary of the
Closing Date (or three months after expiration of the statute of limitations,
in
the case of the section specifically mentioned in the first sentence of this
Section 11.8), in the case of all representations and warranties of the
Stockholders and Parent hereunder. Notwithstanding the foregoing, any claim
arising pursuant to Section 11.2 shall survive until three (3) months after
the
expiration of the statute of limitations with respect thereto (including any
extensions and waivers thereof).
ARTICLE
XII
DISPUTE
RESOLUTION
12.1. Arbitration.
58
(a) In
the
event a dispute arises relating to this Agreement, the parties agree to meet
to
resolve their disputes in good faith. Any party may seek injunctive relief,
without the need to post a bond, pending the completion of arbitration under
this Agreement for any breach or threatened breach of any covenant contained
herein.
(b) If
after
good faith negotiations the dispute is not resolved, the parties shall promptly
submit any dispute, claim, or controversy arising out of or relating to this
Agreement, or any Additional Agreement (including with respect to the meaning,
effect, validity, termination, interpretation, performance, or enforcement
of
this Agreement or any Additional Agreement) or any alleged breach thereof
(including any action in tort, contract, equity, or otherwise), to binding
arbitration before one arbitrator that is familiar with the Business and not
an
Affiliate of any party to this Agreement (“Arbitrator”). The parties agree that
binding arbitration shall be the sole means of resolving any dispute, claim,
or
controversy arising out of or relating to this Agreement or any Additional
Agreement (including with respect to the meaning, effect, validity, termination,
interpretation, performance or enforcement of this Agreement or any Additional
Agreement) or any alleged breach thereof (including any claim in tort, contract,
equity, or otherwise).
(c) If
the
parties cannot agree upon the Arbitrator, the Arbitrator shall be selected
by
the New York City chapter head of the American Arbitration Association upon
the
request of either side. The Arbitrator shall be selected within 30 days of
request.
(d) The
laws
of the State of New York shall apply to any arbitration hereunder. In any
arbitration hereunder, this Agreement and any agreement contemplated hereby
shall be governed by the laws of the State of New York applicable to a contract
negotiated, signed, and wholly to be performed in the State of New York, which
laws the Arbitrator shall apply in rendering his decision. The Arbitrator shall
issue a written decision, setting forth findings of fact and conclusions of
law,
within sixty (60) days after he shall have been selected. The Arbitrator shall
have no authority to award punitive or other exemplary damages.
(e) The
arbitration shall be held in New York City, New York in accordance with and
under the then-current provisions of the rules of the American Arbitration
Association, except as otherwise provided herein.
(f) On
application to the Arbitrator, any party shall have rights to discovery to
the
same extent as would be provided under the Federal Rules of Civil Procedure,
and
the Federal Rules of Evidence shall apply to any arbitration under this
Agreement; provided, however, that the Arbitrator shall limit any discovery
or
evidence such that his decision shall be rendered within the period referred
to
in Section 12.1(e).
(g) The
Arbitrator may, at his discretion and at the expense of the party who will
bear
the cost of the arbitration, employ experts to assist him in his
determinations.
(h) The
costs
of the arbitration proceeding and any proceeding in court to confirm any
arbitration award or to obtain relief as provided in Section 12.1, as applicable
(including actual attorneys’ fees and costs), shall be borne by the unsuccessful
party and shall be awarded as part of the Arbitrator’s decision, unless the
Arbitrator shall otherwise allocate such costs for the reasons set forth in
such
decision. The determination of the Arbitrator shall be final and binding upon
the parties and not subject to appeal.
59
(i) Any
judgment upon any award rendered by the Arbitrator may be entered in and
enforced by any court of competent jurisdiction. The parties expressly consent
to the exclusive jurisdiction of the courts (Federal and state) in New York
City, New York to enforce any award of the Arbitrator or to render any
provisional, temporary, or injunctive relief in connection with or in aid of
the
Arbitration. The parties expressly consent to the personal and subject matter
jurisdiction of the Arbitrator to arbitrate any and all matters to be submitted
to arbitration hereunder. None of the parties hereto shall challenge any
arbitration hereunder on the grounds that any party necessary to such
arbitration (including the parties hereto) shall have been absent from such
arbitration for any reason, including that such party shall have been the
subject of any bankruptcy, reorganization, or insolvency
proceeding.
(j) The
parties shall indemnify the Arbitrator and any experts employed by the
Arbitrator and hold them harmless from and against any claim or demand arising
out of any arbitration under this Agreement or any agreement contemplated
hereby, unless resulting from the willful misconduct of the person
indemnified.
(k) This
arbitration clause shall survive the termination of this Agreement and any
agreement contemplated hereby.
12.2. Waiver
of Jury Trial; Exemplary Damages.
ALL
PARTIES HEREBY WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE
ARISING UNDER THIS AGREEMENT OR ANY ADDITIONAL AGREEMENT. No party shall be
awarded punitive or other exemplary damages respecting any dispute arising
under
this Agreement or any Additional Agreement.
12.3. Attorneys’
Fees.
The
unsuccessful party to any court or other proceeding arising out of this
Agreement that is not resolved by arbitration under Section 12.1 shall pay
to
the prevailing party all actual attorneys’ fees and costs actually incurred by
the prevailing party, in addition to any other relief to which it may be
entitled. As used in this Section 12.3 and elsewhere in this Agreement, “actual
attorneys’ fees” means the full and actual cost of any legal services actually
performed in connection with the matter for which such fees are sought,
calculated on the basis on the usual fees charged by the attorneys performing
such services, and shall not be limited to “reasonably attorneys’ fees” as that
term may be defined in statutory or decisional law.
ARTICLE
XIII
TERMINATION
13.1. Termination
Without Default.
In the
event that the Closing of the transactions contemplated hereunder has not
occurred by the Outside Closing Date and no material breach of this Agreement
by
the party seeking to terminate this Agreement shall have occurred or have been
made (as provided in Section 13.2 hereof), Parent and Acquisition Corp. or
the
Company and the Stockholder Representative shall have the right, at its or
their
sole option, to terminate this Agreement without liability to the other side.
Such right may be exercised by Parent and Acquisition Corp., on the one hand,
or
the Company and the Stockholder Representative on the other, as the case may
be,
giving written notice to the other at any time after the Scheduled Closing
Date.
60
13.2. Termination
Upon Default.
(a) Parent
and Acquisition Corp. may terminate this Agreement by giving notice to the
Company and the Stockholder Representative on or prior to the Closing, without
prejudice to any rights or obligations Parent and Acquisition Corp. may have,
if
the Company or any Stockholder shall have materially breached any representation
or warranty or breached any agreement or covenant contained herein or in any
Additional Agreement to be performed prior to Closing and such breach shall
not
be cured within the earlier of the Scheduled Closing Date and five (5) days
following receipt by the Company or the Stockholders of a notice describing
in
reasonable detail the nature of such breach.
(b) The
Company and the Stockholder Representative may terminate this Agreement by
giving prior written notice to Parent on or prior to the Closing, without
prejudice to any rights or obligations the Company or the Stockholders may
have,
if Parent or Acquisition Corp. shall have materially breached any of its
covenants, agreements, representations, and warranties contained herein to
be
performed prior to Closing and such breach shall not be cured within the earlier
of the Scheduled Closing Date and five (5) days following receipt by Parent
of a
notice describing in reasonable detail the nature of such breach.
13.3. Survival.
The
provisions of Sections 8.2 and 14.4 shall survive any termination hereof
pursuant to Article XIII.
ARTICLE
XIV
MISCELLANEOUS
14.1. Notices.
All
notices, requests, demands and other communications to any party hereunder
shall
be in writing and shall be given to such party at its address or telecopier
number set forth below, or such other address or telecopier number as such
party
may hereinafter specify by notice to each other party hereto:
if
to
Parent and Acquisition Corp., to:
c/o
a21,
Inc.
0000
Xxxxxxxxx Xxxxxxx
Xxxxxxxxxxxx,
XX 00000
Attn:
President
Telecopy:
(000) 000-0000
61
with
a
copy
to:
Loeb
& Loeb LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxxxxxxx
Telecopy:
(000) 000-0000
if
to the
Company
or any
Stockholders:
ArtSelect,
Inc.
0000
000xx
Xxxxxx,
Xxxxx X
Xxxxxxxxx,
Xxxx 00000
Attention:
Xxxxx Xxxxxx
Telecopy:
(000) 000-0000
with
a
copy
to:
Ellenoff
Xxxxxxxx & Schole LLP
000
Xxxxxxxxx Xxxxxx,
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxxxxx
Telecopy
: (000) 000-0000
if
to the
Stockholder
Representative
Xx.
Xxx
Xxxxxxxx
Millennium
3 Capital, Inc.
0
Xxxxxx
Xxxx Xxxx
Xxxxxxxx,
XX 00000
Telecopy:
(000) 000-0000
Each
such
notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answer back is received or, (ii) if given by
certified mail, 72 hours after such communication is deposited in the mails
with
first class postage prepaid, properly addressed or, (iii) if given by any other
means, when delivered at the address specified herein.
14.2. Amendments;
No Waivers.
(a) Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment,
by
each party hereto, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.
62
14.3. Ambiguities.
The
parties acknowledge that each party and its counsel has materially participated
in the drafting of this Agreement and consequently the rule of contract
interpretation that, and ambiguities if any in, the writing be construed against
the drafter, shall not apply.
14.4. Publicity.
Except
as required by law, the parties agree that neither they nor their agents shall
issue any press release or make any other public disclosure concerning the
transactions contemplated hereunder without the prior approval of the other
party hereto.
14.5. Expenses.
Except
as specifically provided in this Agreement, all costs and expenses incurred
in
connection with this Agreement and the transactions contemplated hereby shall
be
paid by the party incurring such cost or expense.
14.6. Successors
and Assigns.
The
provisions of this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and assigns; provided,
that
(i) neither the Company nor any Stockholder may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of Parent; (ii) in the event Parent assigns its
rights and obligations under this Agreement to an Affiliate, Parent shall
continue to remain liable for its obligations hereunder; and (iii) Parent,
the
Surviving Corporation or Acquisition Corp. may assign any of its rights and
benefits under this Agreement to secured lenders of Parent, the Surviving
Corporation or Acquisition Corp. Except as specifically set forth in clauses
(ii) and (iii) above, neither Parent nor Acquisition Corp. may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the prior written consent of the Company.
14.7. Governing
Law.
This
Agreement has been entered into in the State of New York. This Agreement shall
be construed in accordance with and governed by the laws of the State of New
York, without giving effect to the conflict of laws principles
thereof.
14.8. Counterparts;
Effectiveness.
This
Agreement may be signed by facsimile signatures and in any number of
counterparts, each of which shall be an original and all of which shall be
deemed to be one and the same instrument, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14.9. Entire
Agreement.
This
Agreement constitutes the entire agreement among the parties with respect to
the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, among the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by any party hereto. Neither this Agreement nor any provision hereof
is intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder other than Indemnified Parties as set forth in Section
10.1 and 10.2 hereof, which shall be third party beneficiaries
hereof.
14.10. Severability.
If
any
one or more provisions of this Agreement shall, for any reasons, be held to
be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
63
14.11. Captions.
The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof.
14.12. Construction.
References in this Agreement to “Articles,” “Sections,” “Schedules” and
“Exhibits” shall
be
to the Articles, Sections, Schedules and Exhibits of
this
Agreement, unless otherwise specifically provided; all Schedules to this
Agreement are incorporated herein by reference; any use in this Agreement of
the
singular or plural, or the masculine, feminine or neuter gender, shall be deemed
to include the others, unless the context otherwise requires; the words
“herein”, “hereof” and “hereunder” and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; the word “including” when used in this
Agreement shall mean “including without limitation”; and except as otherwise
specified in this Agreement, all references in this Agreement (a) to any
agreement, document, certificate or other written instrument shall be a
reference to such agreement, document, certificate or instrument, in each case
together with all exhibits, schedules, attachments and appendices thereto,
and
as amended, restated, supplemented or otherwise modified from time to time
in
accordance with the terms thereof; and (b) to any law, statute or regulation
shall be deemed references to such law, statute or regulation as the same may
be
supplemented, amended, consolidated, superseded or modified from time to
time.
14.13. Stockholder
Representative.
Xxx
Xxxxxxxx is hereby appointed as agent and attorney-in-fact (the “Stockholder
Representative”) for each Stockholder, (i) to give and receive notices and
communications to Parent and Acquisition Corp. for any purpose under this
Agreement and the Additional Agreements, (ii) to agree to, negotiate, enter
into
settlements and compromises of and demand arbitration and comply with orders
of
courts and awards of arbitrators with respect to any indemnification claims
(including Third Party Claims) under Section 11.1 or other disputes arising
under or related to this Agreement, (iii) to enter into and deliver the Escrow
Agreement on behalf of each of the Stockholders, (iv) to authorize or object
to
delivery to Parent, Acquisition Corp. and the Surviving Corporation of the
Escrow Fund, or any portion thereof, in satisfaction of indemnification claims
by Parent, Acquisition Corp. and the Surviving Corporation in accordance with
the provisions of the Escrow Agreement, (v) to act on behalf of Stockholders
in
accordance with the provisions of the Agreement, the Notes, the Warrants, the
Guaranty, the Intercreditor Agreement and any other document or instrument
executed in connection with the Agreement and the Merger and (vi) to take all
actions necessary or appropriate in the judgment of the Stockholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by the Stockholders from time to time upon no less than twenty (20)
days
prior written notice to the Parent, the Acquisition Corp. and, if after the
Effective Time, the Surviving Corporation, provided, however, that the
Stockholder Representative may not be removed unless holders of at least 51%
of
all of the Company Preferred Stock on an as-if converted basis outstanding
immediately prior to the transaction contemplated by this Agreement agree to
such removal. Any vacancy in the position of Stockholder Representative may
be
filled by approval of the holders of at least 51% of all of the Company
Preferred Stock on an as-if converted basis outstanding immediately prior to
the
transaction contemplated by this Agreement. Any removal or change of the
Stockholder Representative shall not be effective until written notice is
delivered to Parent. No bond shall be required of the Stockholder
Representative, and the Stockholder Representative shall not receive any
compensation for his services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from the Stockholders.
The Stockholder Representative shall not be liable for any act done or omitted
hereunder while acting in good faith and in the exercise of reasonable business
judgment. A decision, act, consent or instruction of the Stockholder
Representative shall, for all purposes hereunder, constitute a decision, act,
consent or instruction of all of the Stockholders of the Company and shall
be
final, binding and conclusive upon each of the Stockholders. In order to aid
the
Stockholder Representative in the performance of his duties hereunder, the
Stockholders shall contribute at Closing the amount of One Hundred Thousand
($100,000) Dollars (the “Expense Fund”) from the Closing Payment, on a pro rata
basis, to a fund to be established by the Stockholder Representative to cover
the costs and expenses that may be incurred by the Stockholder
Representative. Upon the cessation of his duties hereunder, any amount in
the Expense Fund shall be returned to the Stockholders on a pro rata basis.
The
Stockholders shall severally indemnify the Stockholder Representative and hold
him harmless against any loss, liability, or expense incurred without gross
negligence or bad faith on the part of the Stockholder Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder. Notwithstanding anything in this Section 14.13 to the
contrary, the Stockholder Representative shall have no obligation or authority
with respect to any indemnification claims against a Stockholder made by Parent,
Acquisition Corp. or the Surviving Corporation under Section 11.2.
[The
balance of this page is intentionally left blank]
64
IN
WITNESS WHEREOF, Parent, Acquisition Corp. and the Company have caused this
Agreement to be duly executed by their respective authorized officers and the
Stockholders and the Representative have executed this Agreement as of the
day
and year first above written.
| a21, Inc. | ||
| |
|
|
|
Name: |
||
|
Title:
|
||
| AE Acquisition Corp. | ||
| |
|
|
|
Name: |
||
| Title | ||
| ArtSelect, Inc. | ||
| |
|
|
|
Name: |
||
|
Title:
|
||
|
Stockholder
Representative
|
||
| |
|
|
|
Xxx Xxxxxxxx |
||
65
|
Stockholder:
|
||
| |
|
If
an entity: |
|
Name:___________________
|
||
| |
|
|
|
By:
_____________________
|
||
|
Name:
|
||
|
Title:
|
||
|
If
an individual:
|
||
|
_____________________
|
||
|
Name:
|
||
66
|
Stockholders
|
Number
of Shares
|
Total
Consideration
|
Consideration
to be paid on Closing Date
|
Consideration
to be held in the Escrow Fund
|
||||||||||||||||||||||||||||||||||||
|
Cash
|
Notes
|
Preferred
Stock
|
Warrants
|
Cash
|
Notes
|
Preferred
Stock
|
Warrants
|
Cash
|
Notes
|
Preferred
Stock
|
Warrants
|
|||||||||||||||||||||||||||||
|
Common
stock
|
||||||||||||||||||||||||||||||||||||||||
|
Founders
|
||||||||||||||||||||||||||||||||||||||||
|
Xxxx
Xxxxxxx, Inc.
|
1,142,417
|
$
|
22,737.85
|
$
|
-
|
$
|
-
|
-
|
$
|
22,737.85
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Fairfield
Consulting Group, Inc.
|
1,475,750
|
$
|
29,372.27
|
$
|
-
|
$
|
-
|
-
|
$
|
29,372.27
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxx
|
2,196,500
|
$
|
43,717.56
|
$
|
-
|
$
|
-
|
-
|
$
|
43,717.56
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
4,814,667
|
||||||||||||||||||||||||||||||||||||||||
|
Series
A holders of common
|
||||||||||||||||||||||||||||||||||||||||
|
Beta
Assets Limited
|
25,000
|
$
|
497.58
|
$
|
-
|
$
|
-
|
-
|
$
|
497.58
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxxxxxx
Xxxx
|
2,545
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxx
Xxxx
|
71,854
|
$
|
1,430.13
|
$
|
-
|
$
|
-
|
-
|
$
|
1,430.13
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Estate
of Xxx X. Xxxxxx
|
119,757
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxx
Xxxxxxxxxx
|
71,854
|
$
|
1,430.13
|
$
|
-
|
$
|
-
|
-
|
$
|
1,430.13
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
X. Xxxxxxxxx
|
119,761
|
$
|
2,383.64
|
$
|
-
|
$
|
-
|
-
|
$
|
2,383.64
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxxxx
|
59,880
|
$
|
1,191.81
|
$
|
-
|
$
|
-
|
-
|
$
|
1,191.81
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxxx
Xxxxxxxx
|
95,806
|
$
|
1,906.85
|
$
|
-
|
$
|
-
|
-
|
$
|
1,906.85
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
KMM
Enterprises, LLC
|
83,830
|
$
|
1,668.49
|
$
|
-
|
$
|
-
|
-
|
$
|
1,668.49
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxx
Xxxxx (F1 Venture)
|
119,757
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Mans/Xxxxxxx
Living Trust
|
119,757
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxxxxxx
|
119,757
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
2,383.56
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxx
Xxxx
|
2,545
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Okoboji
Trust
|
479,029
|
$
|
9,534.25
|
$
|
-
|
$
|
-
|
-
|
$
|
9,534.25
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxx
|
59,879
|
$
|
1,191.79
|
$
|
-
|
$
|
-
|
-
|
$
|
1,191.79
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
R.
Xxxxx Xxxx
|
2,545
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxxx Rev. Trust
|
359,281
|
$
|
7,150.87
|
$
|
-
|
$
|
-
|
-
|
$
|
7,150.87
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxx
|
226,790
|
$
|
4,513.87
|
$
|
-
|
$
|
-
|
-
|
$
|
4,513.87
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxxxxxx
|
2,545
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxx
X. Xxxxxx
|
239,514
|
$
|
4,767.12
|
$
|
-
|
$
|
-
|
-
|
$
|
4,767.12
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxxxx
X. Xxxx
|
2,545
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
50.65
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
2,384,231
|
||||||||||||||||||||||||||||||||||||||||
|
Series
B holders of common
|
||||||||||||||||||||||||||||||||||||||||
|
Millennium
3 Opportunity Fund, LLC
|
8,475,117
|
$
|
168,682.66
|
$
|
-
|
$
|
-
|
-
|
$
|
168,682.66
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxxxxx
|
2,102,719
|
$
|
41,851.01
|
$
|
-
|
$
|
-
|
-
|
$
|
41,851.01
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Entrust
Capital Frontier Fund L.P.
|
7,141,782
|
$
|
142,144.92
|
$
|
-
|
$
|
-
|
-
|
$
|
142,144.92
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
17,719,618
|
||||||||||||||||||||||||||||||||||||||||
|
Employee
or former employee holders of common
|
||||||||||||||||||||||||||||||||||||||||
|
Xxxxxx
Xxxxx
|
6,933
|
$
|
137.99
|
$
|
-
|
$
|
-
|
-
|
$
|
137.99
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxxxx
|
100
|
$
|
1.99
|
$
|
-
|
$
|
-
|
-
|
$
|
1.99
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxx
Xxxxxxx
|
143,250
|
$
|
2,851.15
|
$
|
-
|
$
|
-
|
-
|
$
|
2,851.15
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxx
|
20,000
|
$
|
398.07
|
$
|
-
|
$
|
-
|
-
|
$
|
398.07
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxxxxx
|
667
|
$
|
13.28
|
$
|
-
|
$
|
-
|
-
|
$
|
13.28
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxx
|
312
|
$
|
6.21
|
$
|
-
|
$
|
-
|
-
|
$
|
6.21
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxx
Xxx Xxxx
|
1,438
|
$
|
28.62
|
$
|
-
|
$
|
-
|
-
|
$
|
28.62
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxx
Xxxx
|
266
|
$
|
5.29
|
$
|
-
|
$
|
-
|
-
|
$
|
5.29
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
Xxxxxxx
X. Xxxxxx
|
10,000
|
$
|
199.03
|
$
|
-
|
$
|
-
|
-
|
$
|
199.03
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
182,966
|
||||||||||||||||||||||||||||||||||||||||
|
Other
holders of common
|
||||||||||||||||||||||||||||||||||||||||
|
Xxxxx
Xxxx
|
20,000
|
$
|
398.07
|
$
|
-
|
$
|
-
|
-
|
$
|
398.07
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
||||||||||||||||||
|
20,000
|
||||||||||||||||||||||||||||||||||||||||
|
Total
common stock
|
25,121,482
|
$
|
500,000.00
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
500,000.00
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||
|
Series
A Preferred
|
||||||||||||||||||||||||||||||||||||||||
|
Beta
Assets Limited
|
212,500
|
$
|
53,059.57
|
$
|
35,434.95
|
$
|
47,498
|
11,101
|
$
|
45,520.22
|
$
|
-
|
$
|
37,696.76
|
11,101
|
$
|
7,539.35
|
$
|
35,434.95
|
$
|
9,801.16
|
-
|
||||||||||||||||||
|
Okoboji
Trust
|
400,000
|
$
|
99,876.84
|
$
|
66,701.09
|
$
|
89,408
|
20,895
|
$
|
85,685.12
|
$
|
-
|
$
|
70,958.60
|
20,895
|
$
|
14,191.72
|
$
|
66,701.09
|
$
|
18,449.24
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxx
|
189,375
|
$
|
47,285.44
|
$
|
31,578.80
|
$
|
42,329
|
9,893
|
$
|
40,566.55
|
$
|
-
|
$
|
33,594.46
|
9,893
|
$
|
6,718.89
|
$
|
31,578.80
|
$
|
8,734.56
|
-
|
||||||||||||||||||
|
Xxxxxxx
Xxxxx (X0Xxxxxxxx.xxx)
|
100,000
|
$
|
24,969.21
|
$
|
16,675.27
|
$
|
22,352
|
5,224
|
$
|
21,421.28
|
$
|
-
|
$
|
17,739.65
|
5,224
|
$
|
3,547.93
|
$
|
16,675.27
|
$
|
4,612.31
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxxxx
|
50,001
|
$
|
12,484.85
|
$
|
8,337.80
|
$
|
11,176
|
2,612
|
$
|
10,710.85
|
$
|
-
|
$
|
8,870.00
|
2,612
|
$
|
1,774.00
|
$
|
8,337.80
|
$
|
2,306.20
|
-
|
||||||||||||||||||
|
Xxxxxx
X Xxxxx Revocable Trust
|
300,008
|
$
|
74,909.63
|
$
|
50,027.15
|
$
|
67,058
|
15,672
|
$
|
64,265.55
|
$
|
-
|
$
|
53,220.37
|
15,672
|
$
|
10,644.07
|
$
|
50,027.15
|
$
|
13,837.30
|
-
|
||||||||||||||||||
|
Xxxx
X. Xxxxxxxxx
|
100,003
|
$
|
24,969.96
|
$
|
16,675.77
|
$
|
22,353
|
5,224
|
$
|
21,421.92
|
$
|
-
|
$
|
17,740.18
|
5,224
|
$
|
3,548.04
|
$
|
16,675.77
|
$
|
4,612.45
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxxxxxx
|
100,000
|
$
|
24,969.21
|
$
|
16,675.27
|
$
|
22,352
|
5,224
|
$
|
21,421.28
|
$
|
-
|
$
|
17,739.65
|
5,224
|
$
|
3,547.93
|
$
|
16,675.27
|
$
|
4,612.31
|
-
|
||||||||||||||||||
|
Xxx
X. Xxxxxx
|
100,000
|
$
|
24,969.21
|
$
|
16,675.27
|
$
|
22,352
|
5,224
|
$
|
21,421.28
|
$
|
-
|
$
|
17,739.65
|
5,224
|
$
|
3,547.93
|
$
|
16,675.27
|
$
|
4,612.31
|
-
|
||||||||||||||||||
|
Xxxxx
X. Xxxxxx
|
200,000
|
$
|
49,938.42
|
$
|
33,350.54
|
$
|
44,704
|
10,448
|
$
|
42,842.56
|
$
|
-
|
$
|
35,479.30
|
10,448
|
$
|
7,095.86
|
$
|
33,350.54
|
$
|
9,224.62
|
-
|
||||||||||||||||||
|
KMM
Enterprises, LLC
|
70,000
|
$
|
17,478.45
|
$
|
11,672.69
|
$
|
15,646
|
3,657
|
$
|
14,994.90
|
$
|
-
|
$
|
12,417.76
|
3,657
|
$
|
2,483.55
|
$
|
11,672.69
|
$
|
3,228.62
|
-
|
||||||||||||||||||
|
Mans/Xxxxxxx
Living Trust
|
100,000
|
$
|
24,969.21
|
$
|
16,675.27
|
$
|
22,352
|
5,224
|
$
|
21,421.28
|
$
|
-
|
$
|
17,739.65
|
5,224
|
$
|
3,547.93
|
$
|
16,675.27
|
$
|
4,612.31
|
-
|
||||||||||||||||||
|
Xxxx
Xxxxxxx
|
50,000
|
$
|
12,484.60
|
$
|
8,337.64
|
$
|
11,176
|
2,612
|
$
|
10,710.64
|
$
|
-
|
$
|
8,869.83
|
2,612
|
$
|
1,773.97
|
$
|
8,337.64
|
$
|
2,306.15
|
-
|
||||||||||||||||||
|
Xxxxxxxxxxx
Xxxx
|
2,125
|
$
|
530.60
|
$
|
354.35
|
$
|
475
|
111
|
$
|
455.20
|
$
|
-
|
$
|
376.97
|
111
|
$
|
75.39
|
$
|
354.35
|
$
|
98.01
|
-
|
||||||||||||||||||
|
Xxxxxxxxx
X. Xxxx
|
2,125
|
$
|
530.60
|
$
|
354.35
|
$
|
475
|
111
|
$
|
455.20
|
$
|
-
|
$
|
376.97
|
111
|
$
|
75.39
|
$
|
354.35
|
$
|
98.01
|
-
|
||||||||||||||||||
|
R.
Xxxxx Xxxx
|
2,125
|
$
|
530.60
|
$
|
354.35
|
$
|
475
|
111
|
$
|
455.20
|
$
|
-
|
$
|
376.97
|
111
|
$
|
75.39
|
$
|
354.35
|
$
|
98.01
|
-
|
||||||||||||||||||
|
Xxxxxxx
Xxxx
|
2,125
|
$
|
530.60
|
$
|
354.35
|
$
|
475
|
111
|
$
|
455.20
|
$
|
-
|
$
|
376.97
|
111
|
$
|
75.39
|
$
|
354.35
|
$
|
98.01
|
-
|
||||||||||||||||||
|
Xxxxxx
X. Xxxxxxxx
|
2,125
|
$
|
530.60
|
$
|
354.35
|
$
|
475
|
111
|
$
|
455.20
|
$
|
-
|
$
|
376.97
|
111
|
$
|
75.39
|
$
|
354.35
|
$
|
98.01
|
-
|
||||||||||||||||||
|
Xxxxxxxx
Xxxxxxxx
|
80,000
|
$
|
19,975.37
|
$
|
13,340.22
|
$
|
17,882
|
4,179
|
$
|
17,137.02
|
$
|
-
|
$
|
14,191.72
|
4,179
|
$
|
2,838.34
|
$
|
13,340.22
|
$
|
3,689.85
|
-
|
||||||||||||||||||
|
Xxxxx
Xxxxxxxxxx
|
60,000
|
$
|
14,981.53
|
$
|
10,005.16
|
$
|
13,411
|
3,134
|
$
|
12,852.77
|
$
|
-
|
$
|
10,643.79
|
3,134
|
$
|
2,128.76
|
$
|
10,005.16
|
$
|
2,767.39
|
-
|
||||||||||||||||||
|
Xxxxx
Xxxx
|
60,000
|
$
|
14,981.53
|
$
|
10,005.16
|
$
|
13,411
|
3,134
|
$
|
12,852.77
|
$
|
-
|
$
|
10,643.79
|
3,134
|
$
|
2,128.76
|
$
|
10,005.16
|
$
|
2,767.39
|
-
|
||||||||||||||||||
|
2,182,512
|
$
|
544,956.00
|
$
|
363,939.80
|
$
|
487,834
|
114,012
|
$
|
467,522.00
|
$
|
-
|
$
|
387,170.00
|
114,012
|
$
|
77,434.00
|
$
|
363,939.80
|
$
|
100,664.20
|
-
|
|||||||||||||||||||
|
Series
B Preferred
|
||||||||||||||||||||||||||||||||||||||||
|
Entrust
Capital
|
1,913,281
|
$
|
1,076,141.39
|
$
|
708,285.19
|
$
|
949,403.55
|
226,811
|
$
|
925,442.41
|
$
|
-
|
$
|
753,494.88
|
226,811
|
$
|
150,698.98
|
$
|
708,285.19
|
$
|
195,908.67
|
-
|
||||||||||||||||||
|
Millennium
3
|
1,913,281
|
$
|
1,076,141.39
|
$
|
708,285.19
|
$
|
949,403.55
|
226,811
|
$
|
925,442.41
|
$
|
-
|
$
|
753,494.88
|
226,811
|
$
|
150,698.98
|
$
|
708,285.19
|
$
|
195,908.67
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxxxxx
|
765,312
|
$
|
430,456.33
|
$
|
283,313.93
|
$
|
379,761.22
|
90,724
|
$
|
370,176.77
|
$
|
-
|
$
|
301,397.79
|
90,724
|
$
|
60,279.56
|
$
|
283,313.93
|
$
|
78,363.43
|
-
|
||||||||||||||||||
|
Entrust
Capital (from warrants)
|
322,101
|
$
|
181,168.48
|
$
|
119,239.86
|
$
|
159,832.16
|
38,184
|
$
|
155,798.30
|
$
|
-
|
$
|
126,850.92
|
38,184
|
$
|
25,370.18
|
$
|
119,239.86
|
$
|
32,981.24
|
-
|
||||||||||||||||||
|
Millennium
3 (from warrants)
|
322,101
|
$
|
181,168.48
|
$
|
119,239.86
|
$
|
159,832.16
|
38,184
|
$
|
155,798.30
|
$
|
-
|
$
|
126,850.92
|
38,184
|
$
|
25,370.18
|
$
|
119,239.86
|
$
|
32,981.24
|
-
|
||||||||||||||||||
|
Xxxxxx
Xxxxxxx (from warrants)
|
128,841
|
$
|
72,467.73
|
$
|
47,696.17
|
$
|
63,933.16
|
15,274
|
$
|
62,319.61
|
$
|
-
|
$
|
50,740.60
|
15,274
|
$
|
10,148.12
|
$
|
47,696.17
|
$
|
13,192.56
|
-
|
||||||||||||||||||
|
5,364,917
|
$
|
3,017,543.81
|
$
|
1,986,060.20
|
$
|
2,662,165.80
|
635,988
|
$
|
2,594,977.81
|
$
|
-
|
$
|
2,112,830.00
|
635,988
|
$
|
422,566.00
|
$
|
1,986,060.20
|
$
|
549,335.80
|
-
|
|||||||||||||||||||
dated
May
15,
2006
by
and
among
a21,
Inc., a Texas corporation,
as
the
Parent,
AE
Acquisition Corp., a Delaware corporation,
as
the
Acquisition Corp.,
ArtSelect,
Inc.
a
Delaware corporation,
as
the
Company,
the
Stockholders of the Company
as
the
Stockholders
and
Xxx
Xxxxxxxx
As
the
Stockholder Representative
TABLE
OF CONTENTS
| Page
|
||
|
ARTICLE
I
|
DEFINITIONS
|
1
|
|
1.1.
|
Definitions
|
1
|
|
ARTICLE
II
|
PURCHASE
AND SALE
|
7
|
|
2.1.
|
The
Merger.
|
7
|
|
2.2.
|
Intentionally
Omitted.
|
8
|
|
2.3.
|
Certificate
of Merger
|
8
|
|
2.4.
|
Effective
Time of the Merger
|
9
|
|
2.5.
|
Effect
on Capital Stock; Exchange Procedures.
|
9
|
|
2.6.
|
Merger
Consideration.
|
10
|
|
2.7.
|
Payment
of the Merger Consideration
|
10
|
|
2.8.
|
Procedure
to Establish Net Worth.
|
11
|
|
2.9.
|
[Intentionally
Omitted]
|
12
|
|
2.10.
|
Closing
|
12
|
|
2.11.
|
No
Further Transfers; Lost, Stolen or Destroyed Certificates
|
12
|
|
2.12.
|
Effect
of the Merger
|
12
|
|
ARTICLE
III
|
REPRESENTATIONS
AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY
|
13
|
|
3.1.
|
Corporate
Existence and Power
|
13
|
|
3.2.
|
Corporate
Authorization
|
13
|
|
3.3.
|
Charter
Documents; Legality
|
13
|
|
3.4.
|
Capitalization
and Ownership of the Company
|
14
|
|
3.5.
|
Subsidiaries
|
14
|
|
3.6.
|
Affiliates
|
14
|
|
3.7.
|
Assumed
Names
|
14
|
|
3.8.
|
Governmental
Authorization
|
14
|
|
3.9.
|
Consents
|
14
|
|
3.10.
|
Financial
Statements.
|
15
|
|
3.11.
|
Accounts
Receivable
|
16
|
|
3.12.
|
Books
and Records.
|
16
|
|
3.13.
|
Absence
of Certain Changes.
|
16
|
|
3.14.
|
Real
Property.
|
18
|
|
3.15.
|
Tangible
Personal Property.
|
18
|
|
3.16.
|
Intellectual
Property.
|
19
|
|
3.17.
|
Images.
|
22
|
|
3.18.
|
Relationships
With Licensees, Customers, Suppliers, Etc.
|
25
|
|
3.19.
|
Litigation
|
25
|
|
3.20.
|
Contracts.
|
26
|
|
3.21.
|
Licenses
and Permits
|
27
|
|
3.22.
|
Compliance
with Laws
|
27
|
|
3.23.
|
Pre-payments
|
27
|
|
3.24.
|
Employees
|
27
|
i
|
Page
|
||
|
3.25.
|
Compliance
with Labor Laws and Agreements
|
28
|
|
3.26.
|
Pension
and Benefit Plans
|
28
|
|
3.27.
|
Employment
Matters
|
30
|
|
3.28.
|
Tax
Matters.
|
30
|
|
3.29.
|
Finders’
Fees
|
32
|
|
3.30.
|
Business
Operations; Servers.
|
32
|
|
3.31.
|
Powers
of Attorney and Suretyships
|
33
|
|
3.32.
|
Other
Information
|
33
|
|
3.33.
|
Certain
Business Practices
|
33
|
|
3.34.
|
Money
Laundering Laws
|
34
|
|
ARTICLE
IV
|
REPRESENTATIONS
AND WARRANTIES OF STOCKHOLDERS
|
34
|
|
4.1.
|
Ownership
of Stock; Authority.
|
34
|
|
4.2.
|
Approvals
|
34
|
|
4.3.
|
Non-Contravention
|
35
|
|
4.4.
|
Litigation
and Claims
|
35
|
|
4.5.
|
Merger
Consideration
|
35
|
|
4.6.
|
Investment
Representations
|
35
|
|
4.7.
|
Tax
|
37
|
|
ARTICLE
V
|
REPRESENTATIONS
AND WARRANTIES OF PARENT
|
37
|
|
5.1.
|
Due
Incorporation
|
37
|
|
5.2.
|
Corporate
Authorization
|
37
|
|
5.3.
|
Governmental
Authorization
|
37
|
|
5.4.
|
No
Violation
|
37
|
|
5.5.
|
Consents
|
38
|
|
5.6.
|
Litigation
|
38
|
|
5.7.
|
Issuance
of Preferred Stock
|
38
|
|
5.8.
|
Finders’
Fees
|
38
|
|
5.9.
|
Charter
Documents; Legality
|
38
|
|
5.10.
|
Capitalization
and Ownership of the Parent
|
38
|
|
5.11.
|
Financial
Statements.
|
39
|
|
5.12.
|
Absence
of Certain Changes.
|
39
|
|
5.13.
|
Other
Information
|
40
|
|
5.14.
|
Compliance
with Laws
|
40
|
|
5.15.
|
Money
Laundering Laws
|
40
|
|
5.16.
|
Ownership
of Parent Securities
|
40
|
|
5.17.
|
Acquisition
Corp
|
40
|
|
ARTICLE
VI
|
COVENANTS
OF THE COMPANY PENDING CLOSING
|
41
|
|
6.1.
|
Conduct
of the Business
|
41
|
|
6.2.
|
Access
to Information.
|
42
|
|
6.3.
|
Notices
of Certain Events
|
43
|
ii
|
Page
|
||
|
ARTICLE
VII
|
COVENANTS
OF THE COMPANY AND THE STOCKHOLDERS
|
43
|
|
7.1.
|
Confidentiality
|
43
|
|
7.2.
|
Non-Solicitation.
|
43
|
|
7.3.
|
Non-Competition
|
44
|
|
7.4.
|
Reporting
and Compliance With Law
|
44
|
|
7.5.
|
Injunctive
Relief
|
45
|
|
7.6.
|
Resignations
|
45
|
|
ARTICLE
VIII
|
COVENANTS
OF ALL PARTIES HERETO
|
45
|
|
8.1.
|
Best
Efforts; Further Assurances
|
45
|
|
8.2.
|
Confidentiality
of Transaction
|
45
|
|
8.3.
|
Best
Efforts to Obtain Consents
|
46
|
|
8.4.
|
Tax
Matters.
|
46
|
|
8.5.
|
Parent
Common Stock.
|
47
|
|
8.6.
|
Rights
to Piggyback.
|
48
|
|
8.7.
|
Priority
on Piggyback Registrations
|
48
|
|
8.8.
|
Procedures
on Registration
|
49
|
|
8.9.
|
Selection
of Underwriters
|
49
|
|
8.10.
|
Right
to Terminate Registration
|
50
|
|
8.11.
|
Indemnification.
|
50
|
|
ARTICLE
IX
|
CONDITIONS
TO CLOSING
|
52
|
|
9.1.
|
Condition
to the Obligations of Parent, Acquisition Corp., Stockholders and
the
Company
|
52
|
|
9.2.
|
Conditions
to Obligations of Parent and Acquisition Corp
|
52
|
|
9.3.
|
Conditions
to Obligations of the Company and the Stockholders
|
53
|
|
ARTICLE
X
|
RELIANCE
ON REPRESENTATIONS AND WARRANTIES
|
54
|
|
10.1.
|
Reliance
on Representations and Warranties of the Company and the
Stockholders
|
54
|
|
10.2.
|
Reliance
on Representations and Warranties of Parent
|
54
|
|
ARTICLE
XI
|
INDEMNIFICATION
|
55
|
|
11.1.
|
Indemnification
of Parent, Acquisition Corp
|
55
|
|
11.2.
|
Special
Indemnity
|
55
|
|
11.3.
|
Indemnification
of Stockholders
|
56
|
|
11.4.
|
Procedure
|
56
|
|
11.5.
|
Periodic
Payments
|
58
|
|
11.6.
|
Payment
of Indemnification by Stockholders
|
58
|
|
11.7.
|
Insurance
|
58
|
|
11.8.
|
Survival
of Indemnification Rights
|
58
|
|
ARTICLE
XII
|
DISPUTE
RESOLUTION
|
58
|
|
12.1.
|
Arbitration.
|
58
|
|
12.2.
|
Waiver
of Jury Trial; Exemplary Damages
|
60
|
iii
|
Page
|
||
|
12.3.
|
Attorneys’
Fees
|
60
|
|
ARTICLE
XIII
|
TERMINATION
|
60
|
|
13.1.
|
Termination
Without Default
|
60
|
|
13.2.
|
Termination
Upon Default.
|
61
|
|
13.3.
|
Survival
|
61
|
|
ARTICLE
XIV
|
MISCELLANEOUS
|
61
|
|
14.1.
|
Notices
|
61
|
|
14.2.
|
Amendments;
No Waivers.
|
62
|
|
14.3.
|
Ambiguities
|
63
|
|
14.4.
|
Publicity
|
63
|
|
14.5.
|
Expenses
|
63
|
|
14.6.
|
Successors
and Assigns
|
63
|
|
14.7.
|
Governing
Law
|
63
|
|
14.8.
|
Counterparts;
Effectiveness
|
63
|
|
14.9.
|
Entire
Agreement
|
63
|
|
14.10.
|
Severability
|
63
|
|
14.11.
|
Captions
|
64
|
|
14.12.
|
Construction
|
64
|
|
14.13.
|
Stockholder
Representative
|
64
|
|
Schedule
I
|
68
|
iv
