AGREEMENT AND PLAN OF MERGER
by and among
Platinum Acquisition Corp.
and
its sole stockholder,
Direct Insite Corp.
and
Platinum Communications, Inc.
and
its shareholders,
Xxxxx Xxxx
and
Xxx Xxxxxxx
May 10, 2001
TABLE OF CONTENTS
PAGE
----
1. The Merger 1
1.1 The Merger 1
1.2 Effect of the Merger 1
1.3 Consummation of the Merger 2
1.4 Charter; Bylaws; Directors and Officers 2
1.5 The Closing 2
1.6 Further Assurances 2
2. Conversion of Shares 2
2.1 Conversion of Shares 2
2.2 Stock Options, Warrants, Treasury Shares, Etc 2
2.3 Surrender and Exchange of Shares; Payment of
Merger Consideration 3
2.4 The Earn-Out Shares 3
2.5 Closing of Stock Transfer Book 5
2.6 Voting and Dividend Rights 6
3. Representations and Warranties of the Shareholders and the Company 6
3.1 Organization 6
3.2 Capitalization 6
3.3 Authorization; Validity of Agreement 7
3.4 No Violations; Consents and Approvals 7
3.5 Company Financial Statements 8
3.6 No Material Adverse Change 8
3.7 No Undisclosed Liabilities 8
3.8 Litigation; Compliance with Law; Licenses and Permits 9
3.9 Employee Benefit Plans; ERISA 9
3.10 Real Property 10
3.11 Intellectual Property; Computer Software 11
3.12 Tangible Personal Property; Capital Budget 12
3.13 Material Contracts 12
3.14 Taxes 13
3.15 Affiliated Party Transactions 16
3.16 Environmental Matters 16
3.17 No Brokers 18
3.18 Accounts Receivable and Accounts Payable 18
3.19 Inventories 18
3.20 Product Claims 18
3.21 Warranties and Returns 18
3.22 Assets Utilized in the Business 19
3.23 Insurance 19
3.24 Delivery of Documents; Corporate Records 19
3.25 Customers, Suppliers and Distributors 19
TABLE OF CONTENTS (Cont'd)
3.26 Labor Matters 19
3.27 Bank Accounts 20
3.28 Directors, Officers and Certain Employees 20
3.29 No Misstatements or Omissions 20
3.30 Investment Undertaking 20
3.31 Conduct of Business 20
3.32 Notice of Developments 22
3.33 Equipment and Other Assets 22
3.34 Repayment of Certain Obligations to the Company 22
4. Representations and Warranties of the Buyer and Direct Insite 23
4.1 Organization of the Buyer Group 23
4.2 Authorization; Validity of Agreement 23
4.3 No Violations; Consents and Approvals 24
4.4 Litigation 24
4.5 Compliance with Law; Licenses and Permits 24
4.6 Capital Structure 25
4.7 Valid Issuance of Shares, Etc 25
4.8 Direct Insite Form 10-K and Financial Statements 25
4.9 No Misstatements or Omissions 25
4.10 Conduct of Business 26
5. Other Agreements of the Parties 26
5.1 Tax Returns; Taxes 26
5.2 Non-Disclosure of Confidential Information 26
5.3 No Solicitation of Employees, Suppliers or Customers 27
5.4 Non-Competition 27
5.5 Other Actions 27
5.6 Employment Agreements 28
5.7 Accounts Receivables 28
5.8 Company Financial Statements 28
5.9 Direct Insite SEC Filings 28
6. Conditions Precedent to the Closing. 29
6.1 Conditions Precedent to the Buyer Group's Obligations
to Close 29
6.2 Conditions Precedent to the Seller Group's Obligations
to Close 29
7. Documents to be Delivered at the Closing 30
7.1 Deliveries of the Seller Group 30
7.2 Deliveries of the Buyer 30
8. Termination 31
9. Indemnification 31
9.1 Survival of Representations and Warranties of the
Seller Group 31
9.2 Survival of Representations and Warranties of the
Buyer Group 32
TABLE OF CONTENTS (Cont'd)
9.3 Determination of Damages Without Regard to
"Materiality" or "Knowledge" Qualifications 32
9.4 Indemnification by the Shareholders 33
9.5 Indemnification by the Buyer Group 33
9.6 Indemnification Procedures. 33
9.7 Limitations on Indemnification by the Shareholders. 35
9.8 Right to Set-Off 35
10. Miscellaneous 35
10.1 Transaction Fees and Expenses 35
10.2 Notices 36
10.3 Amendment 37
10.4 Waiver 37
10.5 Governing Law 37
10.6 Jurisdiction 37
10.7 Remedies 37
10.8 Severability 37
10.9 Further Assurances 38
10.10 Assignment 38
10.11 Binding Effect 38
10.12 No Third Party Beneficiaries 38
10.13 Entire Agreement 38
10.14 Headings 38
10.15 Counterparts 38
Schedules
---------
Schedule 3.2(a)(i) Stock Ownership and Percentage Participation
Schedule 3.2(a)(ii) Rights, Agreements and Interests in connection with
Company Shares
Schedule 3.4(b) Required Consents
Schedule 3.5(a) Financial Statements of the Company
Schedule 3.7(a) Liabilities Incurred since December 31, 2000
Schedule 3.8(a) Litigation
Schedule 3.8(b) Violations of Law
Schedule 3.9(a) Employee Benefit Plans
Schedule 3.9(b) Employee Benefit Plans subject to Title IV of ERISA
Schedule 3.10(b) Leased Property
Schedule 3.11(a) Intellectual Property
Schedule 3.11(b) Licenses
Schedule 3.12(a) Title to Tangible Personal Property
Schedule 3.12(b) Fixed Assets Ledger
Schedule 3.12(c) Capital Budget
Schedule 3.13 Material Contracts
Schedule 3.14(a) Taxes
Schedule 3.15 Affiliated Party Transactions
Schedule 3.16 Environmental Matters
Schedule 3.19 Inventories
Schedule 3.20 Service and Product Liability Claims
Schedule 3.21 Warranties and Returns Policies; Product Failures
or Defects
Schedule 3.22 Liens
Schedule 3.23 Insurance
Schedule 3.25 Customers; Suppliers and Distributors
Schedule 3.27 Bank Accounts
Schedule 3.28 Directors, Officers and Certain Employees
Schedule 3.31(c) Dividends and Distributions by the Company
Schedule 3.31(e) Permitted Benefits
Schedule 3.31(f) Permitted Transactions
Schedule 3.31(m) Permitted Expenditures
Schedule 4.4 Buyer Group Litigation
Exhibits
--------
Exhibit 1.3 Form of Articles of Merger (Texas)
Exhibit 5.6A Form of Xxxxx Xxxx Employment Agreement
Exhibit 5.6B Form of Xxx Xxxxxxx Employment Agreement
AGREEMENT AND PLAN OF MERGER
Dated May 10, 2001
The parties to this Agreement and Plan of Merger (this "Agreement") are
Platinum Acquisition Corp., a Texas corporation (the "Buyer") and a wholly-owned
subsidiary of Direct Insite Corp., a Delaware corporation ("Direct Insite"), on
the one hand, and Platinum Communications, Inc., a Texas corporation (the
"Company"), Xxxxx Xxxx and Xxx Xxxxxxx, as the shareholders of the Company
(each, a "Shareholder" and, collectively, the "Shareholders"), on the other
hand. The Buyer and Direct Insite are hereinafter referred to collectively as
the "Buyer Group" while the Company and the Shareholders are referred to
collectively as the "Seller Group."
This Agreement contemplates a transaction in which the Company will merge
with and into the Buyer with the result that the Buyer will continue as the
surviving corporation and the separate existence of the Company shall cease. As
a result of the Merger, on the Closing Date (as hereinafter defined) the
outstanding shares of the capital stock of the Company shall be converted into
the right to receive: (i) an aggregate of 66,667 shares (the "Direct Insite
Shares") of Direct Insite common stock, par value $.0001 per share ("Direct
Insite Common Stock"), (ii) the Cash Consideration (as defined in section
2.3(b)), and (iii) an aggregate of an additional 46,667 shares of Direct Insite
Common Stock (the "Earn-Out Shares"), subject to section 2.3(c). The parties
hereto intend that this merger transaction be a tax-free reorganization under
Section 368 of the Code (as hereinafter defined) and intend that this Agreement
be a "plan of reorganization" within the meaning of the regulations promulgated
under such Section of the Code.
The Board of Directors of the Buyer and the Board of Directors of the
Company have each determined that the Merger is in the best interests of their
respective shareholders, as the case may be, and have each duly adopted
resolutions approving this Agreement and the transactions contemplated hereby.
In accordance with the foregoing, the Buyer desires to merge with the Company
and the Company desires to merge with and into the Buyer, upon and subject to
the terms and conditions set forth below.
It is therefore agreed as follows:
1. The Merger.
1.1 The Merger. Subject to the terms and conditions of this Agreement, upon
the Closing (as hereinafter defined), in accordance with this Agreement, the
terms and conditions set forth herein and in accordance with the Texas Business
Corporation Act (the "TBCA"), Direct Insite and the Shareholders shall cause the
Company to be merged with and into the Buyer (the "Merger") such that the Buyer
shall be the surviving corporation.
1.2 Effect of the Merger. The Merger shall have the effects set forth in
the TBCA. Without limiting the generality of the foregoing, and subject thereto,
upon the Closing all the assets, properties, rights, privileges, powers and
franchises of the Company shall vest in the Buyer and, subject to section 3.34,
all debts, liabilities and duties of the Company shall become the debts,
liabilities and duties of the Buyer.
1
1.3 Consummation of the Merger. The Merger shall become effective upon the
filing with the Secretary of State of Texas of properly executed articles of
merger and other documents in the form of Exhibit 1.3 (the "Articles of Merger")
on the Closing Date. The Merger shall be effective when the Articles of Merger
have been filed.
1.4 Charter; Bylaws; Directors and Officers. The Articles of Incorporation
of the Buyer from and after the Closing shall be the Articles of Incorporation
of the Buyer immediately prior to the Closing unless amended pursuant to the
Articles of Merger and thereafter amended in accordance with the provisions
thereof and as provided by the TBCA. The Bylaws of the Buyer from and after the
Closing shall be the Bylaws of the Buyer as in effect immediately prior to the
Closing. The initial directors and officers of the Buyer on and after the
Closing shall be the directors and officers, respectively, of the Buyer
immediately prior to the Closing, in each case until their respective successors
are duly elected and qualified.
1.5 The Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of the Buyer Group's counsel in New York, New York at 10:00 a.m., local time, on
such date and such time as may be designated by the Buyer Group to the Seller
Group on not fewer than five (5) days written notice. The date on which the
Closing occurs is referred to as the "Closing Date."
1.6 Further Assurances. On and after the Closing Date, each of the parties
to this Agreement shall from time to time, at the request of any of the other
parties, promptly execute such instruments and take such other actions as the
requesting party may reasonably request to vest, perform or confirm, of record
or otherwise, in the Buyer, its respective rights, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
the Company, or otherwise to evidence or implement the transactions contemplated
by this Agreement.
2. Conversion of Shares.
2.1 Conversion of Shares. By virtue of the Merger and without any action on
the part of the Shareholders, at the Closing, all of the outstanding shares of
common stock (the "Company Shares") of the Company, $.01 par value (the "Company
Common Stock"), shall be converted into the right to receive (i) the Direct
Insite Shares, (ii) the Cash Consideration, and (iii) the Earn-Out Shares,
subject to section 2.3(c).
2.2 Stock Options, Warrants, Treasury Shares, Etc. Immediately prior to the
Closing, the Company shall cause each outstanding stock option, warrant or other
right to purchase any capital stock of the Company, whether or not then
exercisable or vested, to be canceled, and no capital stock of Direct Insite,
cash or other consideration shall be paid or delivered in exchange therefor. Any
shares of the Company Common Stock held in the treasury of the Company shall be
canceled and retired and no cash, securities or other consideration shall be
paid in respect of such shares.
2
2.3 Surrender and Exchange of Shares; Payment of Merger Consideration
(a) At the Closing, the Shareholders shall deliver certificates
representing all issued and outstanding Company Shares to Direct Insite. The
Shareholders shall be entitled, upon such surrender, to receive in exchange
therefor, in the respective amounts set forth on Schedule 3.2(a)(i), without
cost to them, the Direct Insite Shares, Cash Consideration and Earn- Out Shares
into which the Company Shares represented by the certificate or certificates so
surrendered shall have been converted as provided in section 2.1 hereof, and the
certificate or certificates so surrendered in exchange for such consideration
shall forthwith be canceled by Direct Insite.
(b) At the Closing, upon the surrender for cancellation of the certificates
representing the Company Shares pursuant to section 2.3(a) above, Direct Insite
shall deliver the following:
(i) certificate(s) representing the Direct Insite Shares, free and
clear of all liens and encumbrances, claims, mortgages, pledges and
security interests of any kind (collectively, "Liens"), registered in the
names of the Shareholders as set forth on Schedule 3.2(a)(i), which
certificates, notwithstanding anything to the contrary contained herein, at
the Closing shall be deposited into escrow in accordance with section
2.3(c) hereof; and
(ii) $50,000 in cash (the "Cash Consideration"), which shall be paid
to the Shareholders at the Closing in proportion to their ownership of the
Company Shares immediately prior thereto; and
(iii) certificate(s) representing the Earn-Out Shares, free and clear
of all Liens, registered in the names of the Shareholders as set forth on
Schedule 3.2(a)(i), which certificates, notwithstanding anything to the
contrary contained herein, at the Closing shall be deposited into escrow in
accordance with section 2.3(c) hereof.
(c) All of the Direct Insite Shares and Earn-Out Shares at the Closing
shall be deposited into escrow by Direct Insite by delivery to Jenkens &
Xxxxxxxxx Xxxxxx Xxxxxx LLP, as escrow agent, to be held by such escrow agent in
accordance with the terms of the escrow agreement dated the Closing Date (the
"Escrow Agreement") among such escrow agent, the Shareholders, Direct Insite and
the Buyer.
2.4 The Earn-Out Shares.
(a) Subject to the terms of the Escrow Agreement, which in the event of any
conflict with the terms hereof shall control, the Earn-Out Shares shall be
subject to release from escrow as follows:
(i) In accordance with generally accepted accounting principles, on or
before April 16, 2002, Direct Insite shall determine the consolidated gross
revenue of Direct Insite and the Buyer for the period from the Closing Date
through December 31, 2001, which gross revenue for all purposes hereof
3
shall include all revenue during such period derived from the Buyer's
account management system software (as acquired in the Merger). Subject to
the procedures with respect to such determination as set forth in section
2.4(b) below, promptly following the final such determination of such gross
revenue for such period, one-third of the Earn-Out Shares (which shall
include interim cash dividends, the Earn-Out Shares and any and all shares
of Direct Insite Common Stock or other securities, property or monies
issued as a result of any stock split, stock dividend, subdivision,
reclassification, combination, exchange, recapitalization, spin-off,
split-off, merger, consolidation or other similar transaction with respect
to such shares ("Additional Property")) shall be released (A) to the
Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the event
that such gross revenue equals or exceeds $2,500,000, or (B) to the Buyer
or Direct Insite, as they shall instruct, in the event that such gross
revenue is less than $2,500,000;
(ii) In accordance with generally accepted accounting principles, on
or before April 16, 2003, Direct Insite shall determine the consolidated
gross revenue of Direct Insite and the Buyer for the full year ending
December 31, 2002. Subject to the procedures with respect to such
determination as set forth in section 2.4(b) below, promptly following the
final such determination of such gross revenue for such year, one- half of
the Earn-Out Shares (which shall include the Earn-Out Shares and any
Additional Property with respect to such shares) not previously released in
accordance herewith or with the Escrow Agreement shall be released (A) to
the Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the
event that such gross revenue equals or exceeds $7,500,000, or (B) to the
Buyer or Direct Insite, as they shall instruct, in the event that such
gross revenue is less than $7,500,000;
(iii) In accordance with generally accepted accounting principles, on
or before April 16, 2004, Direct Insite shall determine the consolidated
gross revenue of Direct Insite and the Buyer for the full year ending
December 31, 2003. Subject to the procedures with respect to such
determination as set forth in section 2.4(b) below, promptly following the
final such determination of such gross revenue for such year, all of the
Earn-Out Shares (which shall include the Earn-Out Shares and any Additional
Property with respect to such shares) not previously released in accordance
herewith or with the Escrow Agreement shall be released (A) to the
Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the event
that such gross revenue equals or exceeds $10,000,000, or (B) to the Buyer
or Direct Insite, as they shall instruct, in the event that such gross
revenue is less than $10,000,000; and
(iv) Notwithstanding anything to the contrary contained herein, in the
event that and upon the final closing of (i) a merger of Direct Insite with
an unaffiliated third party in which Direct Insite is not the surviving
entity and in which the holders of the combined voting power of Direct
Insite immediately prior to such closing represents not more than 30% of
the combined voting power of such surviving entity immediately following
such closing, or (ii) a sale by Direct Insite of all or substantially all
of its assets to an unaffiliated third party, then all of the Earn-Out
Shares remaining in escrow on the date of such closing pursuant to section
2.3 shall be released to the Shareholders in the proportion set forth in
Schedule 3.2(a)(i), it being further agreed that in any event a management
buy-out or similar "going-private" transaction shall not be deemed a
transaction covered by either clause (i) or (ii) of this paragraph.
4
(b) In each case as contemplated by section 2.4(a) above, Direct Insite
shall deliver to the Shareholders in writing Direct Insite's determination of
the consolidated gross revenue figure as prepared by Direct Insite (the "Revenue
Determination"). The Shareholders shall have twenty-five (25) days after receipt
of the Revenue Determination (the "Revenue Dispute Period") to dispute the
amount or the method of calculation of the amount reflected therein (a "Revenue
Dispute"). If the Shareholders do not give written notice signed by both
Shareholders of a Revenue Dispute to Direct Insite within the Revenue Dispute
Period, the Revenue Determination shall be deemed to have been accepted by the
Shareholders in the form in which it was delivered by Direct Insite. In the
event that the Shareholders do not agree with the amount or the method of
calculation of the Revenue Determination, the Shareholders shall give Direct
Insite written notice signed by both Shareholders (a "Revenue Dispute Notice")
within the Revenue Dispute Period, setting forth in detail the basis of
his/their disagreement, and Direct Insite and the Shareholders shall, within ten
(10) days after receipt by Direct Insite of such Revenue Dispute Notice, attempt
to resolve such Revenue Dispute and agree in writing upon the final
determination of gross revenue. In connection with the review by the
Shareholders of the Revenue Determination, Direct Insite shall use its best
efforts to make its workpapers of the Buyer's statements of income and cash
flows for the applicable 12-month period then ended available to the
Shareholders and both of the Shareholders shall sign any customary waivers
requested by Direct Insite. In the event that the Shareholders and Direct Insite
are unable to resolve any such Revenue Dispute within the ten (10) day
resolution period, then a non "Big- Five" accounting firm which has not in the
past provided any services to either Direct Insite, the Company or any affiliate
thereof, selected by Direct Insite and reasonably acceptable to the Shareholders
(the "Appraiser") shall be employed as appraiser hereunder to settle such
Revenue Dispute as soon as reasonably practicable in which case (x) each party
shall furnish to the Appraiser such workpapers and other documents and
information as the Appraiser may request, (y) each party and its accountants
shall be afforded reasonable opportunity to present such material relating to
the disputed issues as it may wish to the Appraiser and to discuss the disputed
issues with it, (z) the Appraiser shall render its determination(s) in writing
by notice to the parties, which determination(s) shall be final and binding on
the Shareholders and Direct Insite (the "Appraiser's Revenue Determination").
The Shareholders, on one hand, and Direct Insite, on the other hand, shall bear
the fees and expenses of the Appraiser for the services of the Appraiser in
proportion to the difference between the determination of gross revenue as
submitted to the Appraiser by the Shareholders and the Appraiser's Revenue
Determination, calculated as follows: (i) the Shareholders jointly shall bear
the portion of such fees and expenses equal to a fraction, the numerator of
which is equal to the excess of the determination of gross revenue as submitted
to the Appraiser by the Shareholders over the Appraiser's Revenue Determination,
and the denominator of which is the excess of the determination of gross revenue
as submitted to the Appraiser by the Shareholders and the Revenue Determination
as submitted to the Appraiser by Direct Insite and (ii) Direct Insite shall bear
the remaining portion of such fees and expenses; provided, however, that in the
event the fraction set forth in the preceding clause (i) is less than zero, such
fraction shall be deemed to equal zero, and in the event that the fraction set
forth in the preceding clause (i) is greater than one, such fraction shall be
deemed to equal one.
2.5 Closing of Stock Transfer Book. On and after the date of this Agreement
there shall be no transfers on the stock transfer books of the Company of shares
of capital stock of the Company that were issued and outstanding immediately
prior to the date hereof.
5
2.6 Voting and Dividend Rights.
(a) Subject to the terms of the Escrow Agreement, all voting rights with
respect to Direct Insite Shares and Earn-Out Shares (including all Direct Insite
Common Stock issued as Additional Property) held in escrow pursuant to the terms
of the Escrow Agreement may be exercised by the respective Shareholders during
the period that such shares are so held in escrow.
(b) Subject to the terms of the Escrow Agreement, all Additional Property
issued with respect to Direct Insite Shares and Earn-Out Shares held in escrow
pursuant to the terms of the Escrow Agreement shall be deemed to have been paid
or made to the respective Shareholders for income tax purposes.
3. Representations and Warranties of the Shareholders and the Company. Each
Shareholder, severally in the proportion that he owns the Company Shares
immediately prior to the Closing (subject to the limitations on indemnification
set forth in section 9.7), and the Company, jointly and severally with the
Shareholders, represent and warrant to the Buyer and Direct Insite as follows:
3.1 Organization. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Texas and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted in the State of Texas,
which is the only state in which a qualification or licensing to conduct its
business is required, except those states in which the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
would not have or be reasonably expected to have a material adverse effect on
the condition (financial or otherwise), business, assets or results of
operations of the Company or the Buyer either before or following the
transactions contemplated hereby (a "Material Adverse Effect on the Company").
The Company has delivered to the Buyer Group true, correct and complete copies
of the Company's Articles of Incorporation and Bylaws, as in effect immediately
prior to Closing.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 75,000 shares
of Company Common Stock. The Company Shares are the only shares of capital stock
of the Company that are issued and outstanding, and all of the Company Shares
are owned of record and beneficially by the Shareholders as set forth on
Schedule 3.2(a)(i), free and clear of any Liens. All of the Company Shares are
duly authorized, validly issued, fully paid and non- assessable. Except as set
forth on Schedule 3.2(a)(ii), there are no (i) options, warrants, calls,
preemptive rights, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating, now or in the future, the
Company or the Shareholders to issue, transfer or sell any shares of capital
stock, options, warrants, calls or other equity interest of any kind whatsoever
in the Company or securities convertible into or exchangeable for such shares or
equity interests, (ii) contractual obligations of the Company to repurchase,
redeem or otherwise acquire any capital stock or equity interest of the Company
or (iii) voting trusts, proxies or similar agreements to which the Company or
any of the Shareholders is a party with respect to the voting of the capital
stock of the Company.
6
(b) The Company does not own any outstanding shares of capital stock (or
other equity interests of entities other than corporations) of any partnership,
joint venture, trust, corporation, limited liability company or other entity
(each, an "Entity").
3.3 Authorization; Validity of Agreement. Each of the Shareholders and the
Company has the requisite capacity or corporate power and authority, as the case
may be, to execute, deliver and perform this Agreement and each of the other
agreements, instruments, documents and certificates to be executed and delivered
by the Company or the Shareholders, as the case may be, pursuant to this
Agreement, including but not limited to any item referred to in Article 7
(collectively, with this Agreement, the "Transaction Documents"), to which the
Company or the Shareholders, as the case may be, are party, and to assume and
perform its or their obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by each of the Shareholders and the Company of this Agreement and
the other Transaction Documents to which the Company or any Shareholder is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by the Board of Directors of the Company
and the shareholders of the Company to the extent legally required, and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement and the other Transaction
Documents by the Company, and the consummation of the transactions contemplated
hereby and thereby. Each of this Agreement and the other Transaction Documents
has been duly executed and delivered by the Company and the Shareholders, as
applicable, and is a valid and binding obligation of the Company and the
Shareholders that are parties thereto, enforceable against each of them in
accordance with their respective terms, except that such enforcement may be
limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors' rights generally, (ii) equitable rules or
principles affecting the enforcement of obligations generally, whether at law or
in equity, or (iii) the exercise of the discretionary powers of any court before
which may be brought any proceeding seeking equitable remedies, including
without limitation specific performance and injunctive relief.
3.4 No Violations; Consents and Approvals.
(a) The execution, delivery and performance of each of this Agreement and
the other Transaction Documents by the Company and the Shareholders party
thereto, do not, and the consummation by them of the transactions contemplated
hereby and thereby will not: (i) violate any provision of the Articles of
Incorporation or Bylaws of the Company, or (ii) violate any Law (as defined in
section 3.8(b)) applicable to the Shareholders or the Company or any of their
respective properties or assets, except with respect to clause (ii) such
violations as would not individually or in the aggregate have or be reasonably
expected to have a Material Adverse Effect on the Company.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel or
other tribunal or judicial authority of any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch (each, a "Governmental Entity") or any
other individual or other entity (each, a "Person") is required in connection
with the execution, delivery and performance of this Agreement or any of the
other Transaction Documents by the Company or the Shareholders or the
7
consummation by the Company or the Shareholders of the transactions contemplated
hereby and thereby, except for such consents, approvals, orders, authorizations,
notifications, notices, estoppel certificates, releases, registrations,
ratifications, declarations, filings, waivers, exemptions or variances
(individually, a "Consent" and collectively, "Consents") with respect to any
License (as defined in section 3.8(c)) or Law as are set forth on Schedule
3.4(b) hereof (the "Required Consents") and except for those Consents whose
failure to be obtained individually or in the aggregate would not have or be
reasonably expected to have a Material Adverse Effect on the Company. 3.5
Company Financial Statements.
(a) Attached to Schedule 3.5(a) is the balance sheet of the Company as of
December 31, 2000 (the "Year-End Balance Sheet"), together with the related
statements of income and retained earnings and statements of cash flows for the
year ended December 31, 2000, a balance sheet (the "Pre-Closing Balance Sheet")
of the Company as of a date not earlier than ten days prior to the date hereof
and a detailed schedule of accounts receivable and accounts payable as of the
date of the Pre-Closing Balance Sheet, including the aging thereto
(collectively, the "Company Financial Statements").
(b) The Company Financial Statements have been derived from, and agree
with, the books and records of the Company and fairly present the financial
position of the Company as of the respective dates thereof and the results of
operations of the Company for the respective periods set forth therein. The
Company Financial Statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied ("GAAP"), as of
the dates and for the periods involved, except to the extent that the
Pre-Closing Balance Sheet omits footnotes and is subject to normal year-end
adjustments.
3.6 No Material Adverse Change. Since December 31, 2000, (i) no event,
condition or circumstance has occurred that could, or could be reasonably likely
to, have a Material Adverse Effect on the Company, other than events, conditions
or circumstances solely attributable to general economic conditions; and (ii)
the Company has not taken, nor have the Shareholders permitted to be taken, any
action that if taken or permitted to be taken after the date hereof would
constitute a violation or breach of or would otherwise be inconsistent with any
of the provisions set forth in section 3.31(a) through (p).
3.7 No Undisclosed Liabilities.
(a) The Company does not have, and as of the Closing will not have, any
liabilities (whether accrued, contingent, known, or otherwise) other than those
that (i) are set forth or reserved against on the Year-End Balance Sheet; or
(ii) were incurred since December 31, 2000 in the ordinary course of business,
none of which, individually or in the aggregate, is material to the Company's
business, operations, condition or prospects, all of which are set forth on
Schedule 3.7(a).
8
(b) The accounts payable of the Company set forth in the Year-End Balance
Sheet or arising subsequent thereto are the result of bona fide transactions in
the ordinary course of business.
3.8 Litigation; Compliance with Law; Licenses and Permits.
(a) Except as set forth in Schedule 3.8(a), there is no claim, suit,
action, or proceeding (each, a "Proceeding") pending, nor is there, to Seller
Group's best knowledge, any Proceeding threatened or any investigation, that
involves or affects the Company, by or before any Governmental Entity or any
other Person.
(b) Except as set forth on Schedule 3.8(b) and except where the failure to
so comply individually or in the aggregate would not have or be reasonably
expected to have a Material Adverse Effect on the Company, the Company has, and
on the Closing Date will have, complied in with all applicable criminal, civil
or common laws, statutes, ordinances, orders, codes, rules, regulations,
policies, guidance documents, writs, judgments, decrees, injunctions, or
agreements of any Governmental Entity (collectively, "Laws"), including but not
limited to Laws relating to Taxes (as defined in section 3.14(b)), zoning,
building codes, antitrust, occupational safety and health, industrial hygiene,
environmental protection, water, ground or air pollution, the generation,
handling, treatment, storage or disposal of Hazardous Substances (as defined in
section 3.16(k)), consumer product safety, product liability, hiring, wages,
hours, employee benefit plans and programs, collective bargaining and the
payment of withholding and social security taxes. Since January 1, 1998, no
member of the Seller Group has received any notice of any violation of any Law
except as set forth on Schedule 3.8(b).
(c) The Company has every license, permit, certification, qualification or
franchise issued by any Governmental Entity (each, a "License"), and every
Consent by or on behalf of any Person that is not a party to this Agreement, in
each case which the Seller Group believes necessary for the Company to conduct
its business as presently conducted. All such Licenses and Consents are in full
force and effect and neither the Company nor the Shareholders has received
notice of any pending cancellation or suspension of any thereof nor, to the
knowledge of the Shareholders, is any cancellation or suspension thereof
threatened. The applicability and validity of each such License and Consent will
not be adversely affected by the consummation of the transactions contemplated
by this Agreement, except where any inapplicability or invalidity would not have
or be reasonably expected to have a Material Adverse Effect on the Company.
3.9 Employee Benefit Plans; ERISA
(a) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")),
and all other material employee benefit (including, without limitation, any
non-qualified plans), bonus, deferred compensation, incentive, stock option (or
other equity-based), severance, change-in- control, medical insurance and fringe
benefit plans maintained for the benefit of, or contributed to by the Company or
any trade or business, whether or not incorporated (an "ERISA Affiliate"), that
would be deemed a "single employer" within the meaning of Section 4001 of ERISA,
9
for the benefit of any employee or former employee of the Company (the "Plans").
The Seller Group has heretofore delivered to the Buyer Group, true, correct and
complete copies of each of the Plans, including all amendments to date.
(b) Each of the Plans that is subject to ERISA complies with ERISA and the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and has been administered in accordance with ERISA and, where
applicable, the Code. Each of the Plans intended to be "qualified" within the
meaning of Code Section 401(a) has received a timely determination letter from
the Internal Revenue Service that it is so qualified and neither Shareholder nor
the Company knows of any facts or circumstances that would materially adversely
affect such qualification. Except as set forth in Schedule 3.9(b), none of the
Plans is subject to Title IV of ERISA. No "reportable event," as such term is
defined in Section 4043(b) of ERISA, has occurred with respect to any Plan.
There are no pending or, to the knowledge of any Shareholder or the Company,
threatened claims (other than routine claims for benefits), actions, suits or
proceedings by, on behalf of or against any of the Plans or any trusts related
thereto.
(c) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Company beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary).
(d) With respect to each Plan, neither the Company, the Shareholders nor
any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is
defined in Section 4975 or Section 406 of ERISA) that would subject the Company,
or the Buyer Group to any taxes, penalties or other liabilities resulting from
prohibited transactions under Code Section 4975 or Sections 409 or 502(i) of
ERISA.
(e) The Company has complied with the notice and continuation of coverage
requirements of Code Section 4980B and the regulations thereunder with respect
to each plan that is, or was during any taxable year of the Company for which
the statute of limitations on the assessment of federal income taxes remains
open, by consent or otherwise, a group health plan within the meaning of Section
4980B(g) of ERISA.
(f) No Plan has incurred an "Accumulated Funding Deficiency" (as defined in
Section 302(a) of ERISA or Code Section 412(a)), whether or not waived.
(g) Neither the Company, the Shareholders nor any ERISA Affiliate has
incurred or would incur a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result
in a withdrawal liability of the Company or any ERISA Affiliate under such Plan.
3.10 Real Property.
(a) The Company does not have any ownership interest in any real property.
10
(b) Schedule 3.10(b) contains a true, correct and complete list of all the
leases, subleases, licenses and other agreements under which the Company uses or
occupies or has the right to use or occupy, now or in the future, any real
property (such land, buildings and other improvements being herein called
collectively, the "Leased Property"), and all leases, subleases and other
agreements under which the Company gives another Person the right to use or
occupy, now or in the future, the Leased Property. All agreements set forth on
Schedule 3.10(b) are hereinafter called collectively, the "Real Property
Contracts." The Shareholders have heretofore delivered to the Buyer Group true
and correct copies of all Real Property Contracts. Each Real Property Contract
is in full force and effect, all rent and other sums and charges payable by or
to the Company thereunder are current, no written notice of default or
termination under any Real Property Contract is outstanding, no termination
event or condition or default which has remained uncured beyond applicable cure
periods on the part of the Company or any other Person exists under any Real
Property Contract, and no event has occurred and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. The Company has a valid and
enforceable leasehold interest in the Leased Property, subject to no Liens or
Title Defects which interfere with the operation of the Company's business. No
Affiliate (as defined in section 3.15) of the Company is the owner of, or has
any ownership, economic or similar interest in, any lease, sublease, license or
other agreement concerning the Leased Property. None of the Real Property
Contracts have been amended, modified or extended as of the date hereof. The
Company maintains actual and exclusive possession of the Real Property.
3.11 Intellectual Property; Computer Software.
(a) Schedule 3.11(a) lists all items of intellectual property including,
without limitation, trademarks, trade names, service marks, service names, xxxx
registrations, logos, assumed names, copyrights, copyright registrations,
patents, know-how and all applications therefor that are owned by the
Shareholders, the Company or any other Person and used by the Company in the
operations of its business, (collectively, "Intellectual Property"), and there
are no pending or threatened claims by any Person relating to the Company's use
of any Intellectual Property. Except as set forth in Schedule 3.11(a), the
Company has such rights of ownership (free and clear of all Liens) of, or such
rights by license, lease or other agreement to use (free and clear of all Liens)
the Intellectual Property as are necessary to permit the Company to conduct its
business and the Company is not obligated to pay any royalty or similar fee to
any Person in connection with the Company's use or license of any of the
Intellectual Property.
(b) Except as set forth on Schedule 3.11(b), the Company has such rights of
ownership (free and clear of all Liens) of, or such rights by license, lease or
other agreement to use (free and clear of all Liens), the computer software
programs including, without limitation, application software that are used by
the Company and that are material to the conduct of its business as currently
conducted, as are necessary to permit the conduct of its business as currently
conducted. None of the Company's ownership rights or rights to use any of the
computer programs referred to above will be adversely affected by any of the
transactions contemplated hereby.
11
3.12 Tangible Personal Property; Capital Budget.
(a) Except as set forth on Schedule 3.12(a), the Company has good title to
all tangible personal property used in its business or located on its premises
free and clear of all Liens.
(b) All material items of machinery, equipment, tooling and other tangible
personal property owned or leased by the Company and used in the conduct of its
business (other than items of inventory) are listed in the detailed fixed assets
ledger of the Company attached to Schedule 3.12(b) (collectively, the "Personal
Property"). The Personal Property conforms in all material respects to all
requirements of applicable Laws, except as individually or in the aggregate
would not have or be reasonably expected to have a Material Adverse Effect on
the Company. All of the items of machinery and equipment included within the
Personal Property are fully operational and operating in the ordinary course of
the Company's business, as applicable, are in good operating condition and in a
good state of maintenance and repair, are adequate for use in the conduct of the
Company's business as previously conducted and as proposed to be conducted on an
efficient and profitable basis.
(c) Schedule 3.12(c) includes a true, correct and complete capital budget
for the fiscal year ending December 31, 2001. Except as set forth on Schedule
3.12(c), no capital expenditures are contemplated by the Company.
3.13 Material Contracts.
(a) Schedule 3.13 sets forth a true, complete and correct list of every
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
license, lease, option, contract, undertaking, understanding, covenant,
agreement or other instrument or document (each, a "Contract") to which the
Company is a party or by which any of its properties or assets may be bound or
otherwise subject that: (i) provides for aggregate future payments by the
Company or to the Company of more than $10,000 and has an unexpired term
exceeding three (3) months and may not be canceled upon thirty (30) days notice
without any liability, penalty or premium (excluding purchase orders and
invoices arising in the ordinary course of business); (ii) was entered into by
the Company with either of the Shareholders, or an officer, director or
significant employee of the Company; (iii) is a collective bargaining or similar
agreement; (iv) guarantees or indemnifies or otherwise causes the Company to be
liable or otherwise responsible for the obligations or liabilities of another or
provides for a material charitable contribution by the Company; (v) involves an
agreement with any bank, finance company or similar organization; (vi) restricts
the Company from engaging in any business or activity anywhere in the world;
(vii) is an employment agreement, consulting agreement or similar arrangement
with any employee of the Company; (viii) is a lease of real property; or (ix) is
otherwise material to the rights, properties, assets, business or operations of
the Company (the foregoing, collectively, "Material Contracts"). The Seller
Group has heretofore provided true, complete and correct copies of all Material
Contracts to the Buyer.
(b) Except as set forth in Schedule 3.13: (i) each of the Material
Contracts is in full force and effect, (ii) there is not, and there has not
been, claimed or alleged by any Person with respect to any Material Contract,
12
any existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Company, or to the
knowledge of the Company, on the part of any other party thereto and (iii) no
Consent from, or notice to, any Governmental Entity or other Person is required
in order to maintain in full force and effect any of the Material Contracts,
other than such Consents that have been obtained and are unconditional and in
full force and effect and such notices that have been duly given and copies of
such Consents have been delivered to the Buyer Group.
(c) Each of the Contracts to which the Company is a party and that is not
listed on Schedule 3.13 does not involve the payment by the Company or to the
Company of more than $10,000 (excluding purchase orders received from customers
in the ordinary course for the sale of products at standard prices, or purchase
orders given to suppliers in the ordinary course of business for the purchase of
products at standard prices) and is not otherwise material, individually or
together with one or more Contracts, to the Company or its business.
3.14 Taxes.
(a) Except as set forth in Schedule 3.14(a):
(1) the Company has (A) duly and timely filed or caused to be filed
with the appropriate Tax Authority each Tax Return that is required to be
filed by or on behalf of the Company or that includes or relates to the
Company, its income, sales, assets or business, which Tax Return is true,
correct and complete, (B) duly and timely paid in full or caused to be paid
in full, all Taxes due and payable on or prior to the date hereof, and (C)
properly accrued on the books and records of the Company (including, but
not limited to, the Year-End Balance Sheet) in accordance with generally
accepted accounting principles a provision for the payment of all Taxes due
or claimed to be due or for which the Company otherwise is or may be
liable;
(2) the Company has not requested an extension of time within which to
file any Tax Return in respect of any Tax period which has not since been
filed;
(3) the Company has complied in all respects with all applicable laws
relating to the payment, collection or withholding of any Tax, and the
remittance thereof to any and all Tax Authorities, including, but not
limited to, Code Sections 1441, 1442, 1445 and 3402;
(4) there is no lien for Taxes upon any asset or property of the
Company (except for any statutory lien for any Tax not yet due);
(5) the Company does not have, and is not expected to have, any
liability in respect of any Tax as a transferee or successor of any Person
(including, but not limited to, any liability arising under Treas. Reg.
Sec. 1.1502-6), and the Company is not, and never has been, a party to any
Tax allocation, Tax indemnification or Tax sharing contract or agreement;
(6) all Taxes assessed or proposed to be assessed, if any, with
respect to the Company's income, sales, assets or business, or for which
the Company is or may be liable have been paid;
13
(7) any assessment, deficiency or adjustment related to or in
connection with any Tax for which the Company is or may be liable or with
respect to the Company's income, sales, assets or business that is or was
required to be reported to any Tax Authority has been so reported, and any
additional Taxes owed with respect thereto have been paid;
(8) no Tax Proceeding has ever occurred or is pending, proposed, or
threatened with respect to any Tax, the payment, collection or withholding
of any Tax or any Tax Return filed by or on behalf of the Company;
(9) the statute of limitations for any Tax Proceeding or the
assessment or collection of any Tax for which the Company is or may be
liable or with respect to the Company's income, sales, assets or business
has never been extended or waived;
(10) there is no outstanding subpoena or request for information or
documents from any Tax Authority with respect to any Tax for which the
Company is or may be liable or with respect to the Company's income, sales,
assets or business;
(11) the Company has never entered into any agreement with any Tax
Authority (including, but not limited to, any closing agreement within the
meaning of Code Section 7121 or any analogous provision of applicable law
or any agreement relating to transfer or intercompany pricing) or requested
or received a private letter or other ruling from any Tax Authority
relating to any Tax for which the Company is or may be liable or with
respect to the Company's income, sales, assets or business;
(12) the Company is not a party to any contract, agreement or other
arrangement that could result, alone or in conjunction with any other
contract, agreement or other arrangement, in the payment of any amount that
would not be deductible by reason of Code Sections 162, 280G or 404 or any
similar provision of applicable law;
(13) the Company is not a "consenting corporation" within the meaning
of Code Section 341(f) or any similar provision of applicable law and has
not agreed to have Code Section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code Section 341(f)(4))
owned by the Company;
(14) the Company does not have any "tax-exempt use property" within
the meaning of Code Section 168(g) or Code Section 168(h) or any similar
provision of applicable law with respect to the Company, its income, sales,
assets or business;
(15) none of the assets of the Company is required to be treated as
being owned by any other person pursuant to any provision of applicable
law, including, but not limited to, the "safe harbor" leasing provisions of
Code Section 168(f)(8) as in effect prior to the repeal of those "safe
harbor" leasing provisions;
(16) the Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Code Section 897(c)(2)
at any time during the applicable period referred to in Code Section
897(c)(1)(A)(ii);
14
(17) no election under Code Section 338 or any similar provision of
applicable law has been made or required to be made by or with respect to
the Company (or a subsidiary, if any, of the Company);
(18) the Company (i) has not adjusted or changed or received any
request, demand, or proposal from a Tax Authority to adjust or change any
accounting method, (ii) is not required to include in income any adjustment
pursuant to Code Section 481(a) (or any similar provision of applicable
law) by reason of a change in accounting method, and (iii) has neither
deferred any income to a period after the Closing Date that has
economically accrued or is otherwise attributable to a period prior to the
Closing Date nor accelerated any deductions into a period ending on or
before the Closing Date that will or may economically accrue after the
Closing Date;
(19) there is no power of attorney in effect relating to any Tax for
which the Company is or may be liable or with respect to the Company's
income, sales, assets or business;
(20) no jurisdiction where the Company does not file a Tax Return has
made or threatened to make a claim that the Company is required to file a
Tax Return for such jurisdiction;
(21) the Company and the Shareholders, to the extent permitted by Law,
have closed (or taken all action necessary to permit the Company or the
Buyer Group to close) each Tax Period that begins prior to the Closing Date
as of the close of day immediately preceding the Closing Date or on the
Closing Date; and
(22) Schedule 3.14 sets forth a list of all elections currently in
effect (or made within the five most recent Tax periods ending on or prior
to the Closing Date) with respect to any Tax or Tax Return.
(b) For purposes of this Agreement,
(1) "Tax" means any tax, charge, fee, levy, deficiency or other
assessment of whatever kind or nature including, without limitation, any
net income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement,
excise, employment, unemployment, minimum, estimated, severance, stamp,
property, occupation, environmental, windfall profits, use, service, net
worth, payroll, franchise, license, gains, customs, transfer, recording and
other tax, duty, fee, assessment or charge of any kind whatsoever, imposed
by any Tax Authority, including any liability therefor as a transferee
(including without limitation under Code Section 6901 or any similar
provision of applicable law), as a result of Treas. Reg. Sec.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, penalties or additions to
tax relating thereto.
(2) "Tax Authority" means any branch, office, department, agency,
instrumentality, court, tribunal, officer, employee, designee,
representative, or other Person that is acting for, on behalf or as a part
of any foreign or domestic government (or any political subdivision
thereof) that is engaged in or has any power, duty, responsibility or
15
obligation relating to the legislation, promulgation, interpretation,
enforcement, regulation, monitoring, supervision or collection of or any
other activity relating to any Tax or Tax Return.
(3) "Tax Proceeding" means any audit, examination, review,
reassessment, litigation or other administrative or judicial proceeding
relating to any Tax for which the Company is (or is asserted to be) or may
be liable, the collection, payment or withholding of any Tax, or any Tax
Return filed by or on behalf of the Company.
(4) "Tax Return" means any return, election, declaration, report,
schedule, information return, document, information, opinion, statement, or
any amendment to any of the foregoing (including without limitation any
consolidated, combined or unitary return) submitted or required to be
submitted to any Tax Authority.
(5) "Treas. Reg." means any temporary, proposed or final regulation
promulgated under the Code.
3.15 Affiliated Party Transactions. Except for (i) obligations arising
under this Agreement and other documents to be signed at the Closing, and (ii)
as set forth on Schedule 3.15 hereto, as of the Closing Date neither the Company
nor any of its affiliates, nor the Shareholders or any of their respective
affiliates or immediate family (collectively, the "Affiliates"), will have,
directly or indirectly, any obligation to or cause of action or claim against
the Company.
3.16 Environmental Matters. Except as set forth on Schedule 3.16:
(a) The Company is in compliance with, and its business has been conducted
in compliance with, all Environmental Laws (as defined below) and Environmental
Permits (as defined below);
(b) No Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C. Sec. 6901 et seq., is on or ever was listed or is
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sec. 9601 et seq., or on any similar state list of sites requiring investigation
or cleanup;
(c) None of the Shareholders nor the Company has received any notice that
remains pending or outstanding with respect to its business or any Site from any
Governmental Entity or Person alleging that the Company is not in compliance
with any Environmental Law;
(d) There has been no Release (as defined below) caused by the acts or
omissions of the Company or the Shareholders, or its or their agents, employees
or representatives, of a Hazardous Substance (as defined below) at, from, in,
to, on or under any Site that would require any corrective action at such Site
and no Hazardous Substances are present in, on, about or migrating to or from
any Site that could give rise to an Environmental Claim (as defined below)
against the Company;
(e) There are no pending or outstanding notices, orders or other directives
by any Governmental Entity that require or may require the Company to conduct or
16
pay for any investigation, remediation or cleanup of any Site resulting from
acts or omissions of the Company or the Shareholders, or its or their agents,
employees or representatives, and there have been no corrective actions required
of the Company by any Governmental Entity at any Site in the past;
(f) The Company has obtained and holds all necessary Environmental Permits,
and those Environmental Permits will remain in full force and effect after the
consummation of the transactions contemplated hereby, subject to any notices,
modifications or amendments required to be filed with the appropriate
Governmental Entity to reflect the change in ownership or control and the
payment of any fees required in connection with such filings, all of which
required filings and fees are identified on Schedule 3.16.;
(g) There are no past or pending, or to the knowledge of the Shareholders
or the Company, threatened, Environmental Claims against the Company, and
neither the Company nor any Shareholder is aware of any facts or circumstances
that could be expected to form the basis for any Environmental Claim against the
Company that individually or in the aggregate would have or be expected to have
a Material Adverse Effect on the Company; and
(h) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil (collectively, "Claims"), pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential: (A) violation of or liability
under any Environmental Law, (B) violation of any Environmental Permit, or (C)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent by the Company for handling, storage, treatment, or disposal; (iii)
"Environmental Law" means any and all Laws relating to the protection of the
Environment, worker health and safety, and/or governing the handling, use,
generation, treatment, storage, transportation, disposal, manufacture,
distribution, formulation, packaging, labeling, or Release of Hazardous
Substances and the state analogies thereto, all as of the Closing Date, and any
common law doctrine, including, but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Release, or exposure to a Hazardous Substance; (iv) "Environmental
Permit" means any Licenses or Consents required by any Governmental Entity under
or in connection with any Environmental Law; (v) "Hazardous Substance" means
petroleum, petroleum hydrocarbons or petroleum products, petroleum by- products,
radioactive materials, asbestos or asbestos-containing materials, gasoline,
diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now included in
the definition of "hazardous substances," "hazardous materials," "hazardous
wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "pollutants," "regulated substances," "solid
wastes," or "contaminants" or words of similar import, under any Environmental
Law; (vi) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Company, any predecessors of the Company or any entities previously owned by the
Company, including all soil, subsoil, surface waters and groundwater thereat.
3.17 No Brokers. Neither the Company nor the Shareholders has employed, or
otherwise engaged, any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' fees or other
similar fees in connection with the transactions contemplated by this Agreement.
3.18 Accounts Receivable and Accounts Payable. All accounts receivable and
all accounts payable of the Company have arisen from bona fide transactions in
the ordinary course of the Company's business consistent with past practice and
established in the ordinary course of such Company's business consistent with
past practice. Each of the accounts receivable of the Company either has been or
will be collected in full, without any set-off, within one hundred twenty (120)
days after the day on which it first becomes due and payable. The Company has
since December 31, 2000 collected and will collect the accounts receivable in
the ordinary course of its business consistent with past practice and has not
and will not accelerate or otherwise alter its collection practices. Since
December 31, 2000, the Company has not and will not delay or alter in any way
the payment by the Company under any of its accounts payable in a way
inconsistent with its ordinary course of business.
3.19 Inventories. As reflected on the Company Financial Statements, the
inventories of the Company's business have been valued at the lower of cost (on
the first-in, first-out method) or market in accordance with GAAP, consistently
applied, and the value of obsolete materials and materials of below standard
quality has been written down in accordance with GAAP, consistently applied.
Except as reflected in the Year-End Balance Sheet referred to in section 3.5,
the inventories of the Company's business contain no material amount of items
not salable or usable within six months from the date thereof at normal profit
margins consistent with historical sales practices. Except as set forth in
Schedule 3.19, the Company is not under any liability or obligation with respect
to the return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or other customers.
3.20 Product Claims. No product liability claim is pending, or to the best
knowledge of the Shareholders or the Company, threatened, against the Company or
against any other party with respect to the products of the Company's business.
Schedule 3.20 lists all service and product liability claims seeking damages in
excess of $5,000 asserted against the Company (or in respect of which any member
of the Seller Group has received notice) with respect to the products of the
Company's business or the Company during the last three (3) years. Claims not
listed on Schedule 3.20 do not aggregate more than $10,000.
3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 3.21, there is not presently, nor has there been since December 31,
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1997, any failure or defect in any product sold by the Company that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of material quantities of returned or
defective goods of the Company.
3.22 Assets Utilized in the Business. The assets, properties and rights
owned, leased or licensed by the Company and used in connection with the
Company's business and that will be owned, leased or licensed by the Company as
of the Closing, and all the agreements to which any Shareholder or the Company
is a party relating to the Company's business, constitute all of the properties,
assets and agreements necessary to the Company in connection with the operation
and conduct by the Company of its business as presently and as proposed to be
conducted. Except as set forth on Schedule 3.22, as a result of the Merger and
upon the Closing the Buyer will obtain good title to all of such assets,
properties and rights, free and clear of all Liens.
3.23 Insurance. Schedule 3.23 contains a complete and correct list of all
policies of insurance of any kind or nature covering the Company, including any
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance. All such policies (i) are sufficient for compliance with
all material requirements of law and of all applicable material agreements; and
(ii) are valid, outstanding and enforceable policies. Complete and correct
copies of such policies have been furnished to the Buyer Group. All such
insurance policies or comparable coverage shall be continued in full force and
effect through the Closing Date. Since December 31, 1997, the Company has not
been denied any insurance coverage which it has requested.
3.24 Delivery of Documents; Corporate Records. The Seller Group has
heretofore delivered or made available to the Buyer Group true, correct and
complete copies of all documents, instruments, agreements and records referred
to in this Article 3 or in the Schedules to this Agreement and copies of the
minute and stock record books of the Company. The minute and stock record books
of the Company are, for all material purposes, true, correct and complete copies
of the records of all meetings and consents in lieu of a meeting of the Board of
Directors (and all committees thereof) and the shareholders of the Company since
the date of its incorporation.
3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i)
the sales of the Company for the fiscal year ended December 31, 2000 and the
sales of the Company for the three months ended March 31, 2001; (ii) the ten
customers with the highest dollar volume of purchases from the Company during
each of those periods indicating the approximate total sales to each of those
customers; and (iii) the ten largest suppliers and the ten largest distributors
of the Company during each of those periods. Except as set forth on Schedule
3.25, there has not been any adverse change in the business relationship of the
Company with any such customer, supplier or distributor, and neither the
Shareholder or the Company is aware of any threatened loss of any such customer,
supplier or distributor.
3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
other labor troubles pending or threatened with respect to the employees of the
Company; no representation questions exist; there is no collective bargaining
agreement binding on the Company and there is no agreement which restricts the
Company from relocating or closing any or all of its businesses or operations;
there are no grievances asserted that might have an adverse effect upon the
Company's business, or the financial condition or prospects of the Company, nor
is there pending any arbitration proceeding arising out of or under any labor
union agreement; the Company has not experienced any work stoppage during the
last five (5) years.
3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all
banks, depositories and other financial institutions in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.
3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Company who is a
party to an employment agreement with the Company or who received annual
compensation during the Company's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $30,000. Neither the Company nor either of the Shareholders
is aware of any employee in the Company's senior management who intends to
terminate his or her employment relationship with the Company, either as a
result of the transactions contemplated hereby or otherwise.
3.29 No Misstatements or Omissions. No representation or warranty by the
Shareholders or the Company contained in this Agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished to the
Buyer Group or hereafter furnished to the Buyer Group pursuant to this Agreement
on the part of any member of the Seller Group contains or will contain any
untrue statement of a material fact or omits or will omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
3.30 Investment Undertaking. Each Shareholder confirms that the shares of
Direct Insite Common Stock to be issued to him pursuant to this Agreement will
be "restricted securities" within the meaning of Rule 144 of the General Rules
and Regulations under the Securities Act of 1933 ("Rule 144"). Each Shareholder
is acquiring such shares for his own account and not with a view to their
distribution within the meaning of section 2(11) of the Securities Act of 1933.
Each Shareholder understands that such shares issued hereunder may not be
disposed of for a period of at least one year (and possibly two years) pursuant
to Rule 144. Each Shareholder understands that he must bear the economic risk of
the investment indefinitely because such shares may not be sold, hypothecated or
otherwise disposed of unless subsequently registered under the Securities Act of
1933 and applicable state securities laws or an exemption from registration is
available. Each Shareholder is a sophisticated investor who either (i) has such
knowledge and experience in financial and business matters such that he is
capable of evaluating the merits and risks of this investment in the securities
being acquired hereunder, or (ii) has obtained independent professional
financial advice sufficient to enable him to evaluate the merits and risks of
this investment in the securities being acquired hereunder.
3.31 Conduct of Business. Since December 31, 2000, the Company has
conducted its business in the ordinary course, consistent with past practice,
and in such a manner that would not result in a Material Adverse Effect. Without
20
limiting the generality of and in addition to the foregoing, prior to the
Closing Date, none of the Shareholders nor the Company has, except as the Buyer
may have otherwise consented to in writing, permitted the Company to:
(a) amend its Articles of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distributions (whether in
cash, stock or property or any combination thereof) to the Shareholders or
otherwise in respect of its capital stock or redeem or otherwise acquire
any of its securities, or make any payments or distributions to the
Shareholders, the Affiliates, or any Person (other than institutional bank
lenders) to which the Company had, prior to Closing, any liability (other
than trade accounts payable incurred in the ordinary course of business,
subject to the provisions of Article 5) or any officer or director of the
Company, except, as more fully described in Schedule 3.31(c), employment
compensation to the Shareholders in annualized amounts not exceeding such
payments made or accrued by the Company in the year ended December 31,
2000.
(d) (i) incur or assume any indebtedness other than trade payables
incurred in the ordinary course of business; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any obligations of any other Person; or
(iii) make any loans, advances or capital contributions to, or investments
in, any other Person (other than loans or advances to employees in the
ordinary course of business in accordance with past practices);
(e) except as set forth on Schedule 3.31(e), enter into, adopt or
amend any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreements, trusts, plans, funds or other arrangements of
or for the benefit or welfare of any employee, or increase in any manner
the compensation or fringe benefits of any employee or paid any benefit not
required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units);
(f) except as set forth on Schedule 3.31(f), acquire, sell, lease,
transfer or dispose of any of its properties or assets except in the
ordinary course of business and consistent with past practice or entered
into any material commitment or transaction;
(g) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for
the benefit of employees;
(h) modify any policy or procedure with respect to credit to customers
or collection of receivables;
21
(i) pay, discharge or satisfy before it was due any claim or liability
of the Company or fail to pay any such item in a timely manner, in each
case given the Company's prior practices;
(j) cancel any debts or waive any claims or rights of substantial
value;
(k) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of
foreign, federal, state or local income Taxes;
(l) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets
of the Company;
(m) except as set forth in Schedule 3.31(m), make or incur any capital
expenditure, lease or commitment for additions to property, plant,
equipment or other capital assets in excess of $10,000;
(n) except in the ordinary course of business consistent with past
practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, License or
Consent.
(o) except in the ordinary course of business consistent with past
practice, exercise any right or option under or extended or renewed any
Material Contract; or
(p) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.
3.32 Notice of Developments. Prior to the Closing Date, the Seller Group
shall promptly notify the Buyer Group, and vice versa, in writing of: (i) all
events, circumstances, facts and occurrences arising subsequent to the date of
this Agreement that could result in any material breach of a representation or
warranty or covenant of the Seller Group or the Buyer Group, as the case may be,
in this Agreement or which could have the effect of making any representation or
warranty of the Seller Group or the Buyer Group, as the case may be, in this
Agreement untrue or incorrect in any material respect, and (ii) all other
material developments affecting the business, financial condition, operations,
results of operations, customer or supplier relations, employee relations,
projections or prospects of the Company or Direct Insite, as the case may be.
3.33 Equipment and Other Assets. The Shareholders have, and have caused
Affiliates and other Persons affiliated with them to, contribute to the Company
all assets (including, without limitation, all equipment, intellectual property,
real estate or other assets) owned by any of them that are or have been used by
the Company. Any consideration received in connection with such transactions
shall reduce by the same amount the Cash Consideration.
3.34 Repayment of Certain Obligations to the Company. The Shareholders have
paid in full, and have caused their respective Affiliates and other Persons
affiliated with them to pay in full, to the Company the outstanding amount of
all obligations, if any, of the Shareholders and such Persons (including,
22
without limitation, an amount equal to all outstanding principal and interest on
all indebtedness of the Shareholders or such Persons) to the Company and all
claims, if any, of the Company against the Shareholders and Affiliates, in full
satisfaction thereof.
4. Representations and Warranties of the Buyer and Direct Insite. Each of the
Buyer and Direct Insite, jointly and severally, represent and warrant to the
Shareholders and the Company as follows:
4.1 Organization of the Buyer Group. Each of the Buyer and Direct Insite is
a corporation duly incorporated, validly existing and in good standing under the
laws of its respective states of organization or incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, except, as to subsidiaries, for those states in which the failure to
be so incorporated, existing or in good standing individually or in the
aggregate would not have or be reasonably expected to have a material adverse
effect on the condition (financial or otherwise), business, assets or results of
operations of Direct Insite either before or following the transactions
contemplated hereby (a "Material Adverse Effect on Direct Insite"). Each of the
Buyer and Direct Insite is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions that recognize such concept) in
each jurisdiction in which the nature of its business or the ownership, leasing
or operation of its properties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing individually or in the aggregate would not have a
Material Adverse Effect on Direct Insite. The Buyer Group has heretofore
delivered to the Seller Group true and correct copies of the Articles of
Incorporation and Certificate of Incorporation and Bylaws of each of the Buyer
and Direct Insite as currently in effect.
4.2 Authorization; Validity of Agreement. Each of the Buyer and Direct
Insite has the requisite corporate power and authority to execute, deliver and
perform this Agreement and each other agreement executed or to be executed by
each of the Buyer or Direct Insite pursuant to the terms of this Agreement
(collectively, the "Buyer Acquisition Agreements") and to assume and perform its
or their obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by each of the Buyer and Direct Insite of this Agreement and the
other Buyer Acquisition Agreements to which the Buyer or Direct Insite is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by the Board of Directors of the Buyer and
Direct Insite and, where necessary, the shareholders of the Buyer and Direct
Insite, and no other corporate proceedings on the part of the Buyer and Direct
Insite are necessary to authorize the execution, delivery and performance of
this Agreement and the other Buyer Acquisition Agreements by the Buyer and
Direct Insite, as the case may be, and the consummation of the transactions
contemplated hereby and thereby. Each of this Agreement and each Buyer
Acquisition Agreement has been duly executed and delivered by the Buyer and
Direct Insite, as the case may be, and is a valid and binding obligation of the
Buyer and Direct Insite, enforceable against each of them in accordance with
their respective terms, except that such enforcement may be limited by (i)
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally, (ii) equitable rules or principles
affecting the enforcement of obligations generally, whether at law or in equity,
or (iii) the exercise of the discretionary powers of any court before which may
be brought any proceeding seeking equitable remedies, including without
limitation specific performance and injunctive relief.
23
4.3 No Violations; Consents and Approvals.
(a) The execution, delivery and performance of this Agreement and the Buyer
Acquisition Agreements by each of the Buyer or Direct Insite, as the case may
be, do not, and the consummation by each of the Buyer and Direct Insite of the
transactions contemplated hereby and thereby will not, (i) violate any provision
of the Articles of Incorporation or Certificate of Incorporation or Bylaws of
the Buyer or Direct Insite, as the case may be, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material Contract to
which the Buyer or Direct Insite is a party or by which the Buyer or Direct
Insite or any of their respective properties or assets may be bound or otherwise
subject or (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to the Buyer or Direct Insite or any of
their respective properties or assets.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity or any other Person is required
in connection with the execution, delivery and performance of this Agreement or
the Buyer Acquisition Agreements by each of the Buyer and Direct Insite, as the
case may be, or the consummation by the Buyer or Direct Insite of the
transactions contemplated hereby and thereby.
4.4 Litigation. Except as set forth on Schedule 4.4, there is no Proceeding
pending nor, to the knowledge of the Buyer or Direct Insite, is there any
investigation or Proceeding threatened, that involves or affects the Buyer or
Direct Insite, by or before any Governmental Entity or any other Person that if
adversely determined would be reasonably likely to have a Material Adverse
Effect on Direct Insite.
4.5 Compliance with Law; Licenses and Permits.
(a) The Buyer Group has, and on the Closing Date will have, complied with
all applicable Laws, including but not limited to Laws relating to Taxes,
zoning, building codes, antitrust, occupational safety and health, industrial
hygiene, environmental protection, water, ground or air pollution, the
generation, handling, treatment, storage or disposal of Hazardous Substances,
consumer product safety, product liability, hiring, wages, hours, employee
benefit plans and programs, collective bargaining and the payment of withholding
and social security taxes, except where the failure to so comply individually or
in the aggregate would not have or be reasonably expected to have a Material
Adverse Effect on Direct Insite. Neither the Buyer nor Direct Insite has
received any notice of any material violation of any Law, except for such
notices relating to violations that would not be reasonably likely to have a
Material Adverse Effect on Direct Insite.
(b) To the knowledge of the Buyer Group: (i) Direct Insite has every
License, and every Consent by or on behalf of any Person that is not a party to
this Agreement, required for it to conduct its business as presently conducted
and (ii) all such Licenses and Consents are in full force and effect and neither
Buyer nor Direct Insite has received notice of any pending cancellation or
suspension of any thereof nor is any cancellation or suspension thereof
24
threatened, except where the failure of any such statement in items (i) or (ii)
of this section 4.5(b) to be true relates to a fact or circumstance that would
not be reasonably likely to have a Material Adverse Effect on Direct Insite,
taken as a whole. The applicability and validity of each such License and
Consent will not be adversely affected by the consummation of the transactions
contemplated by this Agreement, except where any inapplicability or invalidity
would not have or be reasonably expected to have a Material Adverse Effect on
Direct Insite.
4.6 Capital Structure. The authorized capital stock of Direct Insite
consists of 150,000,000 shares of Direct Insite Common Stock. As of the date
hereof, there were outstanding 1,425,462 (after giving effect to the reverse
stock split of Direct Insite Common Stock on May 8, 2001, but prior to the
issuances of shares of Direct Insite Common Stock contemplated hereby).
4.7 Valid Issuance of Shares, Etc. Each of the Direct Insite Shares to be
issued in the Merger pursuant to the terms of section 2.3(b) will, upon such
issuance, be duly authorized, validly issued, fully paid and non-assessable and
owned of record by the Shareholder, free and clear of preemptive rights and all
Liens other than Liens that may result from acts of the Shareholder.
4.8 Direct Insite Form 10-K and Financial Statements.
(a) Direct Insite has made available to the Shareholders true and complete
copies of (i) its Annual Report on Form 10-K for the year ended December 31,
2000 (the "Form 10-K"), as filed with the Commission, and (ii) its proxy
statement (the "Proxy Statement") relating to its most recent annual meeting of
its stockholders. As of their respective filing dates, the Form 10-K and Proxy
Statement (including, without limitation, any financial statements or schedules
or other information included or incorporated by reference therein) complied as
to form and content, in all material respects, with the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as the case may
be, and the rules and regulations promulgated thereunder, and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Direct Insite for the year ended December 31, 2000
included in the Form 10-K were prepared in accordance with GAAP (as in effect
from time to time) applied on a consistent basis and (except as may be indicated
therein or in the notes thereto) present fairly the consolidated financial
position, consolidated results of operations and consolidated cash flows of
Direct Insite and its subsidiaries as of and for the year ended December 31,
2000.
4.9 No Misstatements or Omissions. No representation or warranty by the
Buyer or Direct Insite contained in this Agreement and no statement contained in
any certificate, list, Schedule, Exhibit or other instrument specified or
referred to in this Agreement, whether heretofore furnished to the Seller Group
or hereafter furnished to the Seller Group pursuant to this Agreement on the
part of the Buyer or Direct Insite Group contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
25
4.10 Conduct of Business. Since December 31, 2000, the Buyer and Direct
Insite have conducted their respective businesses in the ordinary course,
consistent with past practice, and in such a manner that would not result in a
Material Adverse Effect.
5. Other Agreements of the Parties.
5.1 Tax Returns; Taxes.
(a) The Shareholders acknowledge that on and after the Closing Date the
Company shall cease to exist as a result of the Merger and, accordingly, any Tax
Return relating to the Company referred to in section 3.14 that was not required
to be filed prior to the Closing Date shall be filed or caused to be filed by
the Shareholders after the Closing Date, subject to approval of the Buyer Group.
The Shareholders agree to prepare and file, at their expense, such Tax Returns,
including without limitation income tax returns with respect to the periods
ended on the Closing Date; provided that such Tax Returns shall be subject to
approval by the Buyer Group prior to filing following reasonable opportunity of
the Buyer Group to review such Tax Returns.
(b) After the Closing Date, the Buyer Group and the Shareholders shall each
make available to the other, upon reasonable request, all information, records
or other documents relating to any Tax and shall preserve all such information,
records or other documents until the date that is six (6) months after the
expiration of the statute of limitations applicable to the Tax. In addition, the
Buyer Group and the Shareholders shall cooperate with each other upon request in
connection with all matters relating to the preparation of any Tax Returns and
in connection with any Tax Proceeding. Any investigation, review, comment or
discussion by the Buyer Group related to or in connection with the payment of
Taxes, the preparation of Tax Returns or drafts of Tax Returns, the filing of
Tax Returns, any Tax Proceeding or any provision of this section 5.1 shall not
affect the indemnity provisions of Article 9 or limit the scope of such
provisions (including but not limited to section 9.1) in any way, or affect any
other representations, warranties or obligations of the Seller Group. Each party
shall bear its own costs and expenses in complying with the provisions of this
section 5.1(b).
(c) After the Closing Date, the Shareholders shall duly and timely file
with the applicable Taxing Authority all Tax Returns required to be filed by
them in connection with the transactions contemplated by this Agreement
(including without limitation, all Tax Returns relating to any stock transfer
Tax or any documentary stamp Tax).
5.2 Non-Disclosure of Confidential Information.
(a) From and after the Closing Date, no member of the Seller Group shall
divulge, communicate, use to the detriment of the Buyer Group or for the benefit
of any other Person, or misuse in any way, any confidential information or trade
secrets relating to the Company including, without limitation, personnel
information, secret processes, know-how, customer lists or other technical data.
(b) From and after the Closing Date, no member of the Buyer Group shall
divulge, communicate, use to the detriment of the Shareholders or for the
26
benefit of any other Person, or misuse in any way, any confidential information
or trade secrets relating to the Shareholders, including, without limitation,
personnel information, secret processes, know-how, customer lists or other
technical data.
5.3 No Solicitation of Employees, Suppliers or Customers. The Shareholders
shall not, and shall not permit any of their respective Affiliates to, from and
after the Closing Date and for a period of two years thereafter, directly or
indirectly, for itself or on behalf of any other Person, employ, engage or
retain any Person who, at any time during the then-preceding 12- month period,
shall have been an employee of the Buyer, or contact any supplier, customer or
employee of the Buyer for the purpose of soliciting or diverting any such
supplier, customer or employee from the Buyer.
5.4 Non-Competition.
(a) Until the second anniversary of the Closing Date, neither Shareholder
shall, and neither Shareholder shall permit any of his Affiliates to, anywhere
in North America or Europe, directly or indirectly, alone or in association with
any other Person, firm, corporation or other business organization, (i) acquire
or own in any manner, any interest in any Person that is engaged in any facet of
the business of the Company, (ii) engaged in any facet of the business of the
Company or compete in any way with the business of the Company, (iii) be
employed in any capacity by, serve as an employee of, or consultant or advisor
to, or otherwise participate in the management or operation of, any Person that
(x) engages in any facet of the business of the Company, or (y) competes with
the business of the Company in any way; provided, however, that notwithstanding
the foregoing, the Shareholders and their respective Affiliates (collectively
and not individually) may own up to two percent (2%) of the voting securities of
any publicly- traded Company.
(b) The parties hereto intend that the covenant contained in section 5.4(a)
shall be construed as a series of separate covenants, one for each state or
country specified. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in section 5.4(a)
above. If in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in section 5.4(a) unenforceable covenant
shall be deemed reduced in scope or, if necessary, eliminated from these
provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforce.
(c) The Shareholders acknowledge that the provisions of this section 5.4,
and the period of time, geographic area and scope and type of restrictions on
its activities set forth herein, are reasonable and necessary for the protection
of the Buyer Group and are an essential inducement to the Buyer Group's entering
into the Transaction Documents to which it is a party and consummating the
transactions contemplated thereby.
5.5 Other Actions. Each of the parties hereto shall use all reasonable
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
27
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.
5.6 Employment Agreements. At the Closing, each of the Shareholders shall
enter into an employment and non-competition agreement with Direct Insite, in
the form attached hereto as Exhibit 5.6A for Xx. Xxxx (the "Ford Employment
Agreement") and Exhibit 5.6B for Xx. Xxxxxxx (the "Tanoury Employment Agreement"
and, with the Ford Employment Agreement, the "Employment Agreements").
5.7 Accounts Receivables. After the Closing, it shall be the Buyer's
responsibility to collect the Company's accounts receivable. The Shareholders
shall permit the Buyer to collect, in the name of the Company, all of the
Company's accounts receivable and to endorse with the name of the Company for
deposit in the Buyer's account any checks or drafts received in payment thereof.
The Shareholders shall take any and all steps reasonably requested by the Buyer,
at the Buyer's expense, to effectuate the intent of the preceding sentence. The
Shareholders shall promptly turn over to the Buyer any cash, checks or other
property that he may receive after the Closing in respect of any of the
Company's receivable.
5.8 Company Financial Statements.
(a) At any time after the Closing, the Buyer may cause to be prepared
audited balance sheets, income statement, statements of cash flow and statements
of changes in stockholders' equity prepared in accordance with GAAP, for the
Company's business for the fiscal year ended December 31, 2000 and for the
period commencing on May 1, 1999 and ended on the Closing Date. The Shareholders
shall fully assist and cooperate with the Buyer in the preparation of such
financial statements and shall use his best efforts to cause others to so assist
the Buyer.
(b) The Shareholders shall provide the Buyer and its agents, including the
Buyer's auditors, full access to the books and records, work papers and other
documents of the Company that is required in connection with the preparation by
the Buyer of any other financial statements for any fiscal periods the Buyer
deems necessary which take into account the operations and financial condition
of the Company's business. In preparing the Buyer's financial statements, the
Buyer's auditors shall consult with the Company's independent accountants and
any consultants designated by the Shareholders ("Company Accountants"). The
Shareholders shall use their best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or desirable in
order to expeditiously complete the Buyer's financial statements which may be
related to the Company's business for the fiscal periods desired by the Buyer.
5.9 Direct Insite SEC Filings. Following the Closing, Direct Insite shall
use its reasonable efforts to file on a timely basis all reports required to be
filed by it under the Securities Act of 1933 and the Securities Exchange Act of
1934 and the rules and regulations adopted by the Securities and Exchange
Commission thereunder to the extent required to enable the holders of the Direct
Insite Shares to sell such Shares pursuant to Rule 144 (as such Rule may be
amended from time to time) or any similar rule or regulation hereafter adopted
by the Securities and Exchange Commission.
28
6. Conditions Precedent to the Closing.
6.1 Conditions Precedent to the Buyer Group's Obligations to Close. The
obligation of the Buyer and Direct Insite to enter into this Agreement and to
consummate the transactions contemplated hereby is subject to the satisfaction
prior to or on the Closing Date of each of the following conditions; provided,
however, the Buyer or Direct Insite shall have the right to waive all or any
part of each such condition and to close the transactions contemplated hereby
without, however, releasing the Shareholders or the Company from any covenant,
obligation, agreement or condition contained herein or from any liability for
any loss or damage sustained by the Buyer or Direct Insite by reason of the
breach by the Shareholders or the Company of any covenant, obligation, agreement
or condition contained herein or by reason of any misrepresentation made by the
Shareholders or the Company:
(a) The Buyer Group shall have received, each in form and substance
reasonably satisfactory to each member of the Buyer Group, all Required Consents
and any other Consent from any Governmental Entity or other Person that is
required for the consummation of the transactions contemplated hereby and for
the Buyer to own and operate the assets and business of the Company.
(b) The form and substance of all certificates, consents, instruments, and
other documents delivered to the Buyer Group under this Agreement shall be
satisfactory in all reasonable respects to the Buyer Group and its counsel.
(c) The Shareholders and/or the Company shall have delivered to the Buyer
Group each of the items required to be delivered pursuant to section 7.1.
(d) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby.
(e) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this Agreement or Proceeding that threatens to
prevent such transactions.
(f) The Buyer Group shall have received from the Shareholders at the
Closing a certificate of non-foreign status (the "Certificate of Non-Foreign
Status") in the form required by Code Section 1445 and the regulations
thereunder, signed by both of the Shareholders under penalties of perjury.
6.2 Conditions Precedent to the Seller Group's Obligations to Close. The
obligations of the Shareholders and the Company to consummate the transactions
contemplated hereby is subject to the satisfaction prior to or on the Closing
Date of each of the following conditions; provided, however, that the Seller
Group shall have the right to waive all or any part of each such condition, and
to close the transactions contemplated hereby without, however, releasing the
Buyer or Direct Insite from any covenant, obligation, agreement or condition
contained herein or from any liability for any loss or damage sustained by the
Seller Group by reason of the breach by the Buyer or Direct Insite of any
covenant, obligation, agreement or condition contained herein, or by reason of
any misrepresentation made by the Buyer or Direct Insite:
29
(a) The form and substance of all certificates, consents, instruments and
other documents delivered to the Seller Group under this Agreement shall be
satisfactory in all reasonable respects to the Seller Group and its counsel;
(b) The Buyer Group shall have delivered to the Seller Group each of the
items required to be delivered pursuant to section 7.2;
(c) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby; and
(d) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this Agreement or Proceeding that threatens to
prevent such transactions.
7. Documents to be Delivered at the Closing.
7.1 Deliveries of the Seller Group. At the Closing, the Company shall, and
the Shareholders shall cause the Company to, deliver the following items to the
Buyer Group:
(a) The Required Consents;
(b) The Employment Agreements referred to in section 5.6 duly executed by
the respective Shareholders;
(c) The Escrow Agreement duly executed by the Company and the Shareholders;
(d) Stock certificates representing the Company Shares, duly indorsed in
blank or accompanied by stock transfer powers and with all requisite stock
transfer tax stamps attached;
(e) A certificate duly executed by the secretary of the Company, attesting,
with respect to the Company, the resolutions duly and validly adopted by the
Board of Directors of the Company evidencing the authorization of its execution
and delivery of this Agreement and the other Transaction Documents to which the
Company is a party and the consummation of the transactions contemplated hereby
and thereby, as to its Articles of Incorporation and Bylaws, and as to the
incumbency of each of its executive officers;
(f) A certificate with respect to the Company from the Secretary of State
of the State of Texas attesting as to its valid existence as of a date recent to
the Closing Date;
(g) The Articles of Merger; and
(h) The Certificate of Non-Foreign Status.
7.2 Deliveries of the Buyer. At the Closing, the Buyer shall and Direct
Insite shall cause the Buyer to deliver the following items:
30
(a) A certificate of the secretary of each of the Buyer and Direct Insite
certifying the resolutions duly and validly adopted by the Buyer Group
evidencing the authorization of their execution and delivery of this Agreement
and the other Transaction Documents to which the members of the Buyer Group are
parties and the consummation of the transactions contemplated hereby and
thereby, and the names and signatures of the officers of each member of the
Buyer Group authorized to sign this Agreement and the other Transaction
Documents to be delivered hereunder;
(b) The Cash Consideration required to be delivered pursuant to section
2.3(b)(ii), to be delivered into escrow pursuant to section 2.3(c);
(c) The Direct Insite Shares required to be delivered pursuant to section
2.3(b)(i), to be delivered into escrow pursuant to section 2.3(c);
(d) The Earn-Out Shares required to be delivered pursuant to section
2.3(b)(iii), to be delivered into escrow pursuant to section 2.3(c);
(e) The Employment Agreements referred to in section 5.6 duly executed by
an officer of Direct Insite;
(f) The Escrow Agreement duly executed by Direct Insite;
(g) Evidence reasonably satisfactory to the Seller Group of the listing as
of the Closing Date of the Direct Insite Common Stock on Nasdaq;
(h) A certificate with respect to each of Direct Insite and the Buyer from
the Secretary of State of the State of Delaware and Texas, respectively, as to
their respective valid existence as of a date recent to the Closing Date; and
(i) A certificate of an authorized officer of Direct Insite certifying as
to the number of issued and outstanding shares of Direct Insite Common Stock
immediately prior to the Closing Date.
8. Termination.
[Intentionally Omitted].
9. Indemnification.
9.1 Survival of Representations and Warranties of the Seller Group. At the
Closing, the Buyer Group shall, without waiving any of its rights hereunder,
advise the Shareholders if the Buyer Group has actual knowledge of (i) any
material breach of any of the representations and warranties of the Company and
the Shareholders herein and (ii) any situation in existence prior to the Closing
which would result in the payment of Damages by the Shareholders or the Company.
Notwithstanding any right of the Buyer or Direct Insite to fully investigate the
affairs of the Company and the Shareholders and notwithstanding any knowledge of
facts determined or determinable by the Buyer or Direct Insite pursuant to such
investigation or right of investigation, the Buyer and Direct Insite have the
right to rely fully upon the representations and warranties of the Shareholders
31
and the Company contained in this Agreement or in any other Transaction
Document. All such representations and warranties shall survive the execution
and delivery of this Agreement and the Closing hereunder and shall thereafter
continue in full force and effect until the second anniversary of the Closing
Date, and the Shareholders' liability in respect of any breach of any such
representation or warranty shall terminate on the second anniversary of the
Closing Date, except for liability with respect to which notice shall have been
given on or prior to such date to the party against which such claim is asserted
pursuant to section 9.6. Notwithstanding the foregoing, the representations and
warranties contained in sections 3.2(a), 3.3, 3.9, 3.12, 3.14 and 3.16 shall
survive the Closing, and the Shareholders' liability in respect of any breach
thereof shall continue, in the case of sections 3.2 and 3.12, in perpetuity, in
the case of section 3.16, until the date of the expiration of the statute of
limitation applicable to any liability relating thereto, which liability shall
remain an obligation of the party against whom such claim is asserted, and, in
the case of sections 3.9 and 3.14, until the date that is six (6) months after
the expiration of the statute of limitation applicable to any liability relating
thereto, which liability shall remain an obligation of the party against whom
such claim is asserted.
9.2 Survival of Representations and Warranties of the Buyer Group. At the
Closing, the Shareholders shall, without waiving any of their rights hereunder,
advise the Buyer Group if the Shareholders have actual knowledge of any material
breach of any of the representations and warranties of the Buyer Group herein.
The Shareholders and the Company have the right to rely fully upon the
representations and warranties of the Buyer and Direct Insite contained in this
Agreement or in any other Transaction Document. All such representations and
warranties shall survive the execution and delivery of this Agreement and the
Closing hereunder and shall thereafter continue in full force and effect until
the second anniversary of the Closing Date and the Buyer's and Direct Insite's
liability in respect of any breach of any such representation or warranty shall
terminate on the second anniversary of the Closing Date, except for liability
with respect to which notice shall have been given on or prior to such date to
the party against which such claim is asserted pursuant to section 9.6.
9.3 Determination of Damages Without Regard to "Materiality" or
"Knowledge" Qualifications.
(a) Certain representations and warranties contained in this Agreement and
in certain agreements, documents and instruments executed and delivered in
connection with this Agreement include either (or both) a Materiality
Qualification (as defined below) or a Knowledge Qualification (as defined
below). Notwithstanding any such qualification, it is the intention of the
parties that the only purpose of the Materiality Qualifications and the
Knowledge Qualifications is to determine whether the representations and
warranties contained in this Agreement are true and correct for purposes of the
parties' condition to consummate the transactions contemplated at the Closing.
Accordingly, Damages recoverable under this section 9 shall be determined as
though no Materiality Qualification and no Knowledge Qualification were
contained in or applied with respect to any representation or warranty contained
in this Agreement.
(b) As used herein:
32
(1) the term "Materiality Qualification" means any term, expression, word
or combination thereof that qualifies a representation, warranty or other
statement made with respect to "materiality," "in all material respects," or
insofar as any misstatement of such representation, warranty or other statement
would result in or reflect a "Material Adverse Effect," or words or terms of
similar import, and
(2) the term "Knowledge Qualification" means any term, expression, word or
combination thereof that qualifies a representation, warranty or other statement
made with respect to the "knowledge" of the party making the representation,
warranty or other statement.
9.4 Indemnification by the Shareholders. Each Shareholder, severally in
proportion to his ownership of the Company Shares immediately prior to the
Closing, shall indemnify and defend the Buyer and Direct Insite and each of its
respective officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless from, any loss, liability, obligation, deficiency, damage,
Tax or expense including, without limitation, interest, penalties, reasonable
attorneys' and consultants' fees and disbursements (collectively, "Damages"),
that any Buyer Indemnitee may suffer or incur based upon, arising out of,
relating to or in connection with any of the following:
(a) Any breach of any representation or warranty made by the Shareholders
or the Company contained in this Agreement or in any other Transaction Document
or in respect of any claim made based upon facts that would constitute any such
breach;
(b) The Shareholders' or the Company's failure to perform or to comply with
any covenant or condition required to be performed or complied with by the
Shareholders or the Company contained in this Agreement or in any other
Transaction Document; or
9.5 Indemnification by the Buyer Group. The Buyer and Direct Insite,
jointly and severally, shall indemnify and defend the Shareholders and their
agents, advisors or representatives (each, a "Shareholder Indemnitee") against,
and hold each Shareholder Indemnitee harmless from, any Damages that the
Shareholder Indemnitee may suffer or incur arising from, related to or in
connection with any of the following:
(a) any breach of any representation or warranty made by the Buyer or
Direct Insite contained in this Agreement or in any other Transaction Document
or in respect of any claim made based upon facts alleged that would constitute
any such breach; or
(b) the Buyer's or Direct Insite's failure to perform or to comply with any
covenant or condition required to be performed or complied with by the Buyer
Group contained in this Agreement or in any other Transaction Document.
9.6 Indemnification Procedures.
(a) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damages referred to in sections 9.4 or 9.5, such indemnified party
shall, if a claim for indemnification in respect thereof is to be made against
33
an indemnifying party pursuant to this Article 9, give written notice to the
latter of the commencement of such claim or Proceeding, setting forth in
reasonable detail the nature thereof and the basis upon which such party seeks
indemnification hereunder.
(b) (1) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of the settlement or compromise thereof (without
the written consent of the indemnifying party).
(2) anything in section 9.6(b)(1) notwithstanding, if both the indemnifying
party and the indemnified party are named as parties or subject to such
Proceeding and either such party determines upon advice of counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to the other party or that a material conflict of
interest between such parties may exist in respect of such Proceeding, then the
indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense. If a Proceeding shall be commenced against more than one Buyer
Indemnitee (a "Multi-Buyer Indemnitee Proceeding"), each Shareholder, severally
in proportion to his ownership of the Company Shares immediately prior to the
Closing, shall be responsible for the legal and other expenses which are
actually incurred in connection with the representation of all Buyer Indemnitees
who are named as defendants in such a Multi-Buyer Indemnitee Proceeding only to
the extent the Buyer Indemnitees are represented in such a Multi-Buyer
Indemnitee Proceeding by a single legal counsel.
(c) If the indemnifying party assumes the defense of any such Proceeding,
the indemnified party shall cooperate fully with the indemnifying party and
shall appear and give testimony, produce documents and other tangible evidence,
allow the indemnifying party access to the books and records of the indemnified
party and otherwise assist the indemnifying party in conducting such defense. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement or compromise which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or Proceeding. Provided that proper notice is duly given, if the
indemnifying party shall fail promptly and diligently to assume the defense
thereof, then the indemnified party may respond to, contest and defend against
such Proceeding (but the indemnifying party shall have the right to participate
at its own cost and expense in such defense by counsel of its own choice) and
may make in good faith any compromise or settlement with respect thereto, and
recover from the indemnifying party the entire cost and expense thereof
34
including, without limitation, reasonable attorneys' fees and disbursements and
all amounts paid or foregone as a result of such Proceeding, or the settlement
or compromise thereof. The indemnification required hereunder shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills or invoices are received or loss, liability,
obligation, damage or expense is actually suffered or incurred.
9.7 Limitations on Indemnification by the Shareholders.
(a) Anything herein to the contrary notwithstanding, no Shareholder shall
have any liability with respect to Damages that result from breaches of
representations or warranties set forth in this Agreement (other then the
representations and warranties contained in sections 3.2(a), 3.3 and 3.14) for
and to the extent that the aggregate amount of such Damages exceeds the
aggregate value of the consideration received by such Shareholder in connection
with the Merger plus any bonus (but excluding base salary) earned by such
Shareholder pursuant to section 3(c) of his Employment Agreement.
(b) The limitations set forth in paragraph (a) of this section 9.7 shall
not limit or reduce the Shareholders' obligations to indemnify the Buyer or
Direct Insite in respect of Damages that result from actual or claimed breaches
of the representations and warranties contained in sections 3.2(a), 3.3 and
3.14.
(c) Limitations on Indemnification by the Buyer Group. The Buyer and Direct
Insite shall have indemnification obligations pursuant to section 9.5 respecting
Damages that result from breaches of representations or warranties set forth in
this Agreement only if and only to the extent that the aggregate of all Damages
resulting from such breaches shall exceed $25,000. Anything herein to the
contrary notwithstanding, the Buyer and Direct Insite shall have no liability
with respect to Damages that result from breaches of representations or
warranties set forth in this Agreement, for and to the extent that the aggregate
amount of such Damages exceeds the aggregate value of the consideration received
by the Shareholders in the Merger.
(d) Limitation on Remedies. The remedies set forth in this Article Nine
shall constitute the exclusive remedies for breaches of representations and
warranties set forth in this Merger Agreement, except that the foregoing shall
not limit any remedies that may be available for claims of fraud.
9.8 Right to Set-Off. The Buyer and Direct Insite shall have the right to
set-off the amount of any and all Damages for which a Shareholder is liable to
the Buyer or Direct Insite hereunder against any sums payable to such
Shareholder pursuant to section 3(c) of such Shareholder's Employment Agreement.
10. Miscellaneous
10.1 Transaction Fees and Expenses. The Buyer and Direct Insite shall bear
such costs, fees and expenses as may be incurred by them in connection with this
Agreement and the transactions contemplated hereby and, up to an aggregate
amount of $10,000, one-half of the costs, fees and expenses as may be incurred
by the Shareholders in connection with this Agreement and the transactions
35
contemplated hereby. The Shareholders shall bear the balance of all of such
costs, fees and expenses.
10.2 Notices. Any notice, demand, request or other communication which is
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:
if to the Buyer Group, to:
Direct Insite Corp.
00 Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx
Facsimile No.: (000) 000-0000
if to the Seller Group, to:
Mr. Xxxxx Xxxx
0000 Xxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to:
Fulbright & Xxxxxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
36
(5) business days after such notice or demand is sent, and, in the case of
clause (b), the business day next following the date such notice or demand is
sent.
10.3 Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.
10.4 Waiver. No course of dealing of any party hereto, no omission, failure
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith.
10.5 Governing Law. This Agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York.
10.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the United States District Court
for the Southern District of New York in connection with any Proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby,
waives any objection to venue in such District (unless such court lacks
jurisdiction with respect to such Proceeding, in which case, each of the parties
hereto irrevocably consents to the jurisdiction of the courts of the State of
New York, County of New York, in connection with such Proceeding) and waives any
objection to venue in the State of New York, and agrees that service of any
summons, complaint, notice or other process relating to such Proceeding may be
effected in the manner provided by clause (a) of section 10.2.
10.7 Remedies. In the event of any actual or prospective breach or default
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages.
10.8 Severability. The provisions hereof are severable and if any provision
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable; provided,
however, that nothing herein shall be construed as allowing a court to change
the Merger Consideration provided for in section 2.3.
37
10.9 Further Assurances. Each party hereto covenants and agrees promptly to
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.
10.10 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
rights hereunder of the Buyer or Direct Insite shall include any Person
controlling, controlled by or under common control of the Buyer or Direct
Insite. Permitted assignees of the Shareholders' rights hereunder shall include
any Affiliate (as defined in section 3.15 hereof). Neither the Buyer or Direct
Insite nor the Shareholders may assign any of their obligations hereunder
without the consent of the other party. Except for the permitted assignees,
neither party shall have the right to assign any rights hereunder without the
consent of the other party.
10.11 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.
10.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.
10.13 Entire Agreement. This Agreement, together with the Exhibits,
Schedules, certificates and other documentation referred to herein or required
to be delivered pursuant to the terms hereof, contains the terms of the entire
agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, commitments, understandings,
discussions, negotiations or arrangements of any nature relating thereto.
10.14 Headings. The headings contained in this Agreement are included for
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank;
the next succeeding page is a signature page]
38
DIRECT INSITE CORP.
By:/s/____________________________
Name: Xxxxxx Xxxxxx
Title: Chief Executive Officer
PLATINUM ACQUISITION CORP.
By: /s/___________________________
Name: Xxxxxx Xxxxxx
Title: Chief Executive Officer
PLATINUM COMMUNICATIONS, INC.
By: /s/___________________________
Name: Xxxxx Xxxx
Title: Chief Executive Officer
/s/_______________________________
Xxxxx Xxxx, shareholder of Platinum
Communications, Inc.
/s/ _______________________________
Xxx Xxxxxxx, shareholder of Platinum
Communications, Inc.
39
