1
AGREEMENT AND PLAN OF REORGANIZATION
among
THE INSURANCE RESOURCE CENTER, INC.,
XXXXXXX XXXXX XXXXXX,
XXXXXXX X. XXXXXX & COMPANY
and
HOMECOM COMMUNICATIONS, INC.
Dated as of April 15, 1998
2
TABLE OF CONTENTS
THIS TABLE OF CONTENTS IS NOT PART OF THIS AGREEMENT BUT IS ATTACHED FOR
CONVENIENCE ONLY.
ARTICLE I EXCHANGE OF SHARES
Section 1.1 Method of Exchange 1
Section 1.2 Exchange Rate 1
Section 1.3 Allocation Between the Stockholders. 2
Section 1.4 Registration of HomeCom Shares. 2
Section 1.5 Additional Registration Rights 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF IRC AND THE STOCKHOLDERS
Section 2.1 Corporate Organization 3
Section 2.2 Authorization 4
Section 2.3 No Violation 4
Section 2.4 Subsidiaries and Investments 4
Section 2.5 Stock Record Book 4
Section 2.6 Title to Stock 4
Section 2.7 Options and Rights 5
Section 2.8 Financial Statements 5
Section 2.9 Employees 5
Section 2.10 Absence of Certain Changes 6
Section 2.11 Contracts 6
Section 2.12 Title and Related Matters 7
Section 2.13 Litigation 7
Section 2.14 Tax Matters 7
Section 2.15 Intellectual Property 8
Section 2.16 Commissions 8
Section 2.17 Disclosure 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOMECOM
Section 3.1 Corporate Organization 8
Section 3.2 Authorization 9
Section 3.3 No Violation 9
Section 3.4 Title to HomeCom Shares 9
Section 3.5 HomeCom Shares Outstanding 9
Section 3.6 Financial Statements 10
Section 3.7 Absence of Certain Changes 10
Section 3.8 Litigation 11
Section 3.9 Commissions 11
Section 3.10 Disclosure 11
ARTICLE IV OTHER AGREEMENTS
Section 4.1 Further Assurances 11
Section 4.2 Distributions and/or Expenditures of
3
Cash and/or Assets. 11
Section 4.3 Tax Returns 12
Section 4.4 Continued Use of Product by CMH 12
Section 4.5 Continued Use of CMH Facilities
and Utilities. 12
Section 4.6 Noncompetition Agreement. 12
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF HOMECOM
Section 5.1 Representations and Warranties 12
Section 5.2 Consents and Approvals 13
Section 5.3 No Material Adverse Change 13
Section 5.4 Secretary's Certificate 13
Section 5.5 Employment Agreement. 13
Section 5.6 Termination of Stockholders'
Agreement 13
Section 5.7 Resignations 13
Section 5.8 Closing Date Balance Sheet 13
Section 5.9 Maximum Amount of Total Issuance 13
Section 5.10 Legal Opinion. 14
Section 5.11 Other Documents 14
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF IRC AND THE STOCKHOLDERS
Section 6.1 Representations and Warranties 14
Section 6.2 Consents and Approvals 14
Section 6.3 Employment Agreement. 14
Section 6.4 Other Documents. 14
ARTICLE VII CLOSING
Section 7.1 Closing 15
Section 7.2 Exchange of Shares. 15
ARTICLE VIII SURVIVAL OF TERMS; INDEMNIFICATION
Section 8.1 Survival 15
Section 8.2 Indemnification by the Stockholders 15
Section 8.3 Indemnification by HomeCom 16
Section 8.4 Third Party Claims 17
ARTICLE IX GENERAL PROVISIONS
Section 9.1 Amendment and Modification 17
Section 9.2 Waiver 17
Section 9.3 Notices 18
4
Section 9.4 Assignment 18
Section 9.5 Governing Law 19
Section 9.6 Counterparts 19
Section 9.7 Entire Agreement 19
Section 9.8 No Benefit 19
Section 9.9 Severability 19
Section 9.10 Expenses 19
Section 9.11 Tax Implications of Stock Exchange. 20
SCHEDULES
2.9 Payment of Wages and Other Compensation
2.10 Certain Changes
2.11 Contracts
2.12(a) Owned Property
2.12(b) Liens
2.12(c) Leased Property
2.15 Intellectual Property
3.5 HomeCom Stock Information
3.7 Certain Changes
3.8 HomeCom Litigation
EXHIBITS
A Higham Employment Agreement
B IRC Action by Unanimous Consent
5
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is entered
into effective as of the 15th day of April, 1998, between and among HOMECOM
COMMUNICATIONS, INC., a Delaware corporation ("HOMECOM"), XXXXXXX XXXXX XXXXXX,
a resident of the State of North Carolina ("HIGHAM"), XXXXXXX X. XXXXXX &
COMPANY, a North Carolina corporation ("CMH")(Higham and CMH collectively
referred to hereinafter as the "STOCKHOLDERS" and individually as a
"STOCKHOLDER"), and THE INSURANCE RESOURCE CENTER, INC., a North Carolina
corporation ("IRC").
RECITALS
WHEREAS, Higham owns 510 shares of IRC $1.00 par value voting common
stock, and CMH owns 490 shares of IRC $1.00 par value voting common stock, the
1,000 shares constituting all of the issued and outstanding shares of capital
stock of IRC (the "IRC SHARES");
WHEREAS, IRC is in the business of designing Web sites and providing
other Internet services (the business of IRC is hereinafter referred to as the
"BUSINESS" or the "BUSINESS");
WHEREAS, it is the intention of the parties hereto that all of the IRC
Shares shall be acquired by HomeCom solely in exchange for HomeCom $.0001 par
value voting common stock in such numbers as described herein (the "HOMECOM
SHARES");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I.
EXCHANGE OF SHARES
SECTION I.1. Method of Exchange. At the Closing Date (as defined in
Section 7.1 hereof), on the terms and subject to the conditions set forth in
this Agreement, the Stockholders agree to deliver to HomeCom stock certificates
representing all of the IRC Shares, duly endorsed for transfer, free and clear
of all liens, encumbrances or restrictions of any kind ("Liens"). In exchange
for the IRC Shares, HomeCom will on the Closing Date issue and deliver HomeCom
Shares to the Stockholders. The number of HomeCom Shares to be issued and
delivered to the Stockholders shall be determined as provided in Section 1.2
below. The HomeCom Shares shall be allocated between the Stockholders as
provided in Section 1.3 below. The parties hereto agree that
-1-
6
this exchange shall constitute a tax-free reorganization under IRC Section
368(a)(1)(B).
SECTION I.2. Exchange Rate. The number of HomeCom Shares for which the
IRC Shares shall be exchanged shall be determined as follows: At the Closing
Date, Seven Hundred Fourteen Thousand Dollars ($714,000) shall be divided by the
average closing price of a HomeCom Share on the Nasdaq Small Cap(TM) Market for
the period commencing on March 10, 1998 and ending on the day preceding the
Closing Date, determined by adding together the closing price of a HomeCom Share
for each day during such period, and dividing the result by the number of
trading days contained in such period (the number of HomeCom Shares so
determined shall be referred to hereinafter as the "TOTAL ISSUANCE"). HomeCom
shall pay any and all applicable stamp tax payable on the issuance of the
HomeCom Shares. The Total Issuance of HomeCom Shares shall be issued to the
Stockholders on the Closing Date.
SECTION I.3. Allocation Between the Stockholders. The HomeCom Shares
shall be allocated between the Stockholders pro-rata, with Higham receiving 51%
and CMH receiving 49%, respectively.
SECTION I.4. Registration of HomeCom Shares. At the Closing, the Total
Issuance shall consist of unregistered HomeCom Shares. As soon as practical
after the Closing, but in no event later than June 30, 1998, HomeCom shall cause
fifty percent (50%) of the HomeCom Shares issued to be registered pursuant to a
registration statement filed with and declared effective by the United States
Securities and Exchange Commission. If the HomeCom Shares are not so registered
by June 30, 1998, then HomeCom shall pay to the Stockholders a penalty fee of
ten percent (10%) per month of the original number of HomeCom Shares to be
registered, to be paid monthly in newly issued HomeCom Shares, which shall also
then be registered as provided herein.
SECTION I.5. Additional Registration Rights. With respect to that fifty
percent (50%) portion of the Total Issuance which is not required to be
registered as provided in Section 1.4 above, HomeCom agrees that if at any time
within one (1) year after the date hereof (the "Registration Rights Period")
HomeCom proposes to register any capital stock under the Securities Act of 1933,
as amended (the "ACT") involving an underwritten public offering, then HomeCom
shall give prompt written notice thereof to the Stockholders. Such notice shall
set forth the intended plan of distribution of the securities proposed to be
registered. Notwithstanding the foregoing, in the event that either Stockholder
is deemed an Affiliate for purposes of Rule 144 of the Act, then the
Registration Rights Period shall be extended an additional one (1) year.
Further, in the event that any
-2-
7
Stockholder is unable to sell its HomeCom shares pursuant to Rule 144 of the Act
due to volume limitations, then the Registration Rights Period shall be further
extended to a maximum period of two and one-half (2 1/2) years from the date
hereof.
In the event the proposed registration of HomeCom Shares involves an
underwritten public offering, if the representative of the underwriters
participating in the sale and distribution of the HomeCom Shares covered by said
registration statement agrees that a number of outstanding HomeCom Shares (the
"Permissible Secondary Shares") may be included in the offering covered by the
registration statement, then HomeCom's notice shall afford each Stockholder an
opportunity to elect to include in such filing all or any part of the HomeCom
Shares then owned by such Stockholder. Each Stockholder shall have fifteen (15)
days after receipt of the HomeCom notice to notify HomeCom in writing of the
number of HomeCom Shares (the "Elected Shares") which such Stockholder elects to
include in the offering. The Elected Shares shall be included in the offering to
the extent permitted by the representative and pro-rata with those of all other
selling stockholders. If the aggregate number of Elected Shares that the
Stockholders desire to include in such filing exceeds the number of Permissible
Secondary Shares, then each Stockholder shall be entitled to include that number
of HomeCom Shares that bears the same ratio to the number of Permissible
Secondary Shares as the number of Elected Shares that such Stockholder desires
to include bears to the number of Elected Shares that all HomeCom stockholders
desire to include.
The inclusion in such filing of Elected Shares shall be upon the
condition that such Stockholder sell his HomeCom Shares to the underwriters on
the same terms and conditions as HomeCom. HomeCom shall afford the Stockholders
the right to participate in each underwritten registration until such time as
the Stockholders shall have had an opportunity (whether or not availed of) to
participate fully in effective registrations.
HomeCom shall bear those certain expenses incurred in connection with a
registration as contemplated in this Section 1.5, including, without limitation,
all registration, filing, qualification, printer's and accounting fees incurred
in connection with such registration. The Stockholders shall pay any
underwriting commissions or discounts attributable to their respective Elected
Shares.
-3-
8
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF IRC AND THE STOCKHOLDERS
IRC and the Stockholders hereby represent and warrant to HomeCom as
follows with respect to IRC (to the extent a representation is modified by a
knowledge requirement, it shall speak to the knowledge of each individual
Stockholder and of IRC):
SECTION II.1. Corporate Organization. IRC is a corporation duly
organized, validly licensed and existing and in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and authority to
own, operate and lease its properties and to conduct its business as presently
conducted.
SECTION II.2. Authorization. The Stockholders and IRC each have full
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Board of Directors of IRC has duly
authorized the execution, delivery and performance of this Agreement, and no
other corporate proceedings on IRC's part are necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes a legal, valid
and binding obligation of the Stockholders and IRC, enforceable against each
such party in accordance with its terms, subject to equitable considerations and
the effect of bankruptcy and other laws affecting the rights of creditors
generally.
SECTION II.3. No Violation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
each of the Stockholders and IRC do not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, or (b) constitute a
default or event of default under (with due notice, lapse of time or both): (i)
the charter or by-laws of IRC, or (ii) any agreement to which IRC or any of the
Stockholders is subject, or (iii) to the best knowledge of Stockholders, any
applicable law. All consents, authorizations, orders, filings and registrations
which IRC is required to obtain have been obtained or will be effective prior to
the Closing.
SECTION II.4. Subsidiaries and Investments. IRC has no interests,
subsidiaries or investments in any person.
SECTION II.5. Stock Record Book. The stock record book of IRC is
complete and correct in all material respects. No shares of capital stock of IRC
are currently reserved for issuance for any purpose or upon the occurrence of
any event or condition. There are 100,000 shares of common stock of IRC
authorized and no shares held in the treasury. The IRC Shares constitute all of
the issued and outstanding capital stock of IRC.
-4-
9
SECTION II.6. Title to Stock. The IRC Shares have been duly authorized
and validly issued and are fully paid and nonassessable. The IRC Shares were
issued pursuant to applicable exceptions from registration under Federal
securities laws and the securities laws of the State of North Carolina and will
be exchanged pursuant to this Agreement free and clear of all Liens. The
Stockholders are the true and lawful owners of the IRC Shares. Upon the First
Issuance of the HomeCom Shares to the Stockholders in accordance with this
Agreement, the Stockholders will convey to HomeCom good and marketable title to
the IRC Shares, free and clear of all Liens whatsoever. The assignments,
endorsements, stock powers and other instruments of transfer delivered by the
Stockholders to HomeCom at the Closing will be sufficient to transfer the
Stockholders' entire interest, legal and beneficial, in the IRC Shares.
SECTION II.7. Options and Rights. There are no outstanding
subscriptions, options, warrants, rights, puts, calls, convertible securities or
other contracts by which IRC is bound to issue or to repurchase or otherwise
acquire shares of its capital stock, or pursuant to which any person has a right
to purchase or to acquire, through conversion or otherwise, shares of IRC's
capital stock. Except as otherwise disclosed on IRC's Financial Statements (as
hereinafter defined) there are no securities or other instruments containing
anti-dilution or similar provisions and there are no outstanding debt
instruments of any kind.
SECTION II.8. Financial Statements. The Stockholders have delivered to
HomeCom correct and complete copies of the unaudited balance sheet of IRC as of
December 31, 1997 and the related statement of income for the fiscal year
reporting period then ended (the "FINANCIAL STATEMENTS"). The Financial
Statements (a) have been prepared in accordance with the books and records of
IRC and (b) fairly present the financial condition and results of operations and
cash flows of IRC as of, and for the period ended on, such date. The Financial
Statements do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein
in light of the circumstances in which they were made not misleading.
SECTION II.9. Employees.
(a) Payment of Wages and Other Compensation. IRC has paid or
made provision for the payment of all salaries and accrued wages, bonuses,
deferred compensation, accrued vacation and sick leave, and any other form of
accrued, but unpaid, compensation, and has complied in all material respects
with all applicable laws, rules and regulations relating to the employment of
labor, including those relating to wages, hours, collective
-5-
10
bargaining and the payment and withholding of taxes, and has withheld and paid
to the appropriate governmental authority, or is holding for payment not yet due
to such authority, all amounts required by law or agreement to be withheld from
the wages or salaries of its employees. Schedule 2.9 sets forth all such unpaid
and accrued amounts.
(b) Employment Contracts. Except for the Employment Agreement of
Higham, which shall be superseded at closing, IRC is not a party to any
outstanding employment agreements or contracts (whether oral or written) with
officers or employees or others that are not terminable at will without penalty
or payment of any kind. Except as may be contained in the Web Site Development
and Hosting Services Agreement with IVANS, Inc., dated March 14, 1997, as
amended and as contained in the Employment Agreement to be entered into by
Higham contemporaneously herewith, there are no contracts, agreements or
understandings to which IRC or any of the Stockholders is a party or under which
any such entity or person is in any way bound which restricts or precludes such
persons or entities from competing in any geographic area or business segment.
SECTION II.10. Absence of Certain Changes. Except as set forth in
Schedule 2.10, since December 31, 1997, IRC's business has been operated in the
ordinary course, and there has been no: (a) material adverse change in the
business, properties, financial statements, business prospects, customers,
condition (financial or otherwise) or results of operations of IRC; (b) damage,
destruction or loss, whether covered by insurance or not, having a material
adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of IRC; (c) increase in the
compensation payable to or to become payable by IRC to its employees, officers,
directors, stockholders, consultants or independent contractors other than in
the ordinary course of business; (d) entry by IRC into any contract not in the
ordinary course of business; (e) entry into or renewal of any lease by IRC
without the prior written consent of HomeCom, (f) sale, assignment, lease,
distribution, disposal or transfer of any assets or properties of IRC except in
the ordinary course of business, or any theft, damage, removal or destruction of
such assets or properties or any casualty loss materially affecting IRC or its
business; or (g) amendment or termination of any of IRC's permits or material
contracts. Other than general industry events or trends, IRC and the
Stockholders know of no event, liability, development or circumstance which has
occurred or exists, or which is likely to occur or exist, with respect to IRC or
its business, properties, prospects, operations or financial condition, which
could be material to HomeCom's future operation of IRC.
-6-
11
SECTION II.11. Contracts.
(a) Generally. Except as listed in Schedule 2.11, IRC is not a
party to any material (for purposes hereof, material is defined to involve
aggregate payments of $5,000 or more) agreement, contract, commitment,
instrument or other binding arrangement or understanding, whether written or
oral, relating to:
(i) The borrowing or loaning of money to or from any Person
or the mortgaging, pledging or otherwise placing a lien on any
asset of IRC;
(ii) A guarantee of any obligation;
(iii) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal;
(iv) Sales, commissions, advertising or marketing;
(v) Unconditional purchase or payment obligations;
(vi) Restricting in any way the sale of the IRC Shares;
(vii) Tax obligations of any kind; or
(viii) Any other contract not of the type covered by any of
the foregoing items of this Section 2.11(a) requiring total
annual payments by IRC in excess of five thousand dollars
($5,000), other than the CMH loan to IRC which shall have been
repaid prior to Closing.
(b) Compliance. IRC is not in default or breach of any
contract to which it is subject (including, without limitation, those required
to be disclosed on Schedule 2.11). No event has occurred which with the passage
of time or the giving of notice or both would result in a material default,
breach or event of non-compliance by IRC under any contract to which it is
subject.
SECTION II.12. Title and Related Matters.
(a) Owned Property. Set forth in Schedule 2.12(a) is a
description of all real and personal property owned by IRC. IRC has valid and
marketable title to all such property, free and clear of all Liens, except as
set forth in Schedule 2.12(b).
-7-
12
(b) Leased Property. Set forth in Schedule 2.12(c) is a
description of all real and personal property leased or used by IRC. Except as
otherwise set forth in Schedule 2.12(c), IRC's leases are in full force and
effect and are valid and enforceable in accordance with their respective terms.
There exists no event of default or event which constitutes or would constitute
(with notice or lapse of time or both) a default by IRC under any such lease.
All rent and other amounts due and payable with respect to each of IRC's leases
have been paid through the date of this Agreement.
SECTION II.13. Litigation.
(a) IRC is not engaged in or a party to, or threatened with, any
claim, controversy, investigation, legal action or other proceeding, whether or
not before any court, governmental or regulatory authority or administrative
agency;
(b) IRC is not a party to or subject to any judgment, decree or
order entered in any lawsuit or proceeding brought by any governmental agency or
by any other person against IRC; and
(c) Neither the Stockholders nor IRC knows of any valid basis
for any of the foregoing.
SECTION II.14. Tax Matters. As used herein, the term "TAX" or "TAXES"
means any income, ad valorem, estimated, sales, use, excise, franchise,
withholding, payroll, employment and other taxes, charges, fees, levies or other
assessments of any kind whatsoever (including interest, penalties, fines and
additions thereto) imposed by any taxing authority, federal, state, local or
foreign. IRC has timely filed all federal, state, local and foreign tax reports,
returns, information returns and any other documents required to be filed by it
(collectively, "TAX RETURNS") and has duly paid all Taxes shown to be due and
payable on such Tax Returns and all estimated or advance payments required by
law. All Taxes for periods ending on or prior to or including the Closing Date
have been fully paid or reserved against on the Financial Statements and on the
books of IRC. All Taxes which are required to be withheld or collected by IRC
have been duly withheld or collected and, to the extent required, have been paid
to the proper federal, state, local or foreign authorities or properly
segregated or deposited as required by applicable regulations. There are no
Liens for Taxes upon any property or assets of IRC, except for Liens for Taxes
not yet due and payable. Other than 1997 and 1998 Federal and State income taxes
and 1997 and 1998 personal property taxes, if any, there are no unpaid Taxes in
any material amount claimed to be due by
-8-
13
the taxing authority of any jurisdiction and the Stockholders know of no basis
for any such claim.
SECTION II.15. Intellectual Property. Schedule 2.15 sets forth a complete
and accurate list of the proprietary rights owned or used by IRC. If necessary,
IRC owns or holds valid licenses to use all proprietary rights used in the
operation of its business as presently conducted and proposed to be conducted.
IRC and the Stockholders do not have any knowledge of any infringement by IRC of
the intellectual property rights of any other person, nor of any infringement by
any person of the intellectual property rights of IRC.
SECTION II.16. Commissions. There are and will be no claims for brokerage
commissions, finder's fees, fees for fairness opinions or financial advisory
services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Stockholders or IRC.
SECTION II.17. Disclosure. Neither this Agreement nor any of the Schedules
attached hereto contains any untrue statement of a material fact or omits any
material fact necessary to make each statement contained in this Article II not
misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF HOMECOM
HomeCom hereby represents and warrants to the Stockholders and IRC as
follows:
SECTION III.1. Corporate Organization. HomeCom is a corporation duly
organized, validly licensed and existing and in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and authority to
own, operate and lease its properties and to conduct its business as presently
conducted.
SECTION III.2. Authorization. HomeCom has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Board of Directors of HomeCom has duly authorized the
execution, delivery and performance of this Agreement, and no other corporate
proceedings on HomeCom's part are necessary to authorize the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement constitutes a legal, valid and binding
obligation of HomeCom, enforceable against it in accordance with its terms,
subject to
-9-
14
equitable considerations and the effect of bankruptcy and other laws
affecting the rights of creditors generally.
SECTION III.3. No Violation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
HomeCom do not and will not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default or event of default
under (with due notice, lapse of time or both), or (c) require any
authorization, consent, approval, exemption or other action by, or notice to,
any person pursuant to (i) the charter or by-laws of HomeCom, or (ii) any
agreement to which HomeCom is subject, or (iii) to the best knowledge of
HomeCom, any applicable law. All consents, authorizations, orders, filings and
registrations which HomeCom is required to obtain have been obtained or will be
effective prior to the Closing.
SECTION III.4. Title to HomeCom Shares. HomeCom's authorized stock consists
of 15,000,000 shares, of which there are currently, as of March 31, 1998,
3,286,147 shares issued and outstanding. The issuance of the HomeCom Shares as
contemplated herein has been duly authorized, and when issued as contemplated
herein the HomeCom Shares will be validly issued, fully paid and nonassessable,
and the Stockholders will have good and marketable title thereto, free and clear
of all liens whatsoever. The HomeCom shares are presently trading on the Nasdaq
Small Cap(TM) Market and HomeCom is in full compliance with any and all
applicable rules and regulations under the Act applicable thereto and to the
issuance of its capital stock from time to time, including as part of this
transaction.
SECTION III.5. HomeCom Shares Outstanding. Except as set forth on Schedule
3.5, since March 10, 1998, except as contemplated in this Agreement (and except
that the numbers of authorized and issued shares of HomeCom stock is as at March
31, 1998), HomeCom:
(a) has not paid or declared, and through the Closing will not
pay or declare, any dividend or other distribution on HomeCom Shares;
(b) has not merged or consolidated with, or committed itself to
merge or consolidate with, any other corporation, and through the Closing will
not merge or consolidate with, or commit itself to merge or consolidate with,
any other corporation;
(c) has not split or committed itself to split the HomeCom
Shares, and through the Closing will not split, or commit itself to split, the
HomeCom Shares.
-10-
15
SECTION III.6. Financial Statements. HomeCom has delivered to the
Stockholders and IRC correct and complete copies of the audited balance sheet of
HomeCom as of December 31, 1997 and the related statement of income for the
fiscal year reporting period then ended (the "HOMECOM FINANCIAL STATEMENTS").
The HomeCom Financial Statements (a) have been prepared in accordance with the
books and records of HomeCom and (b) fairly present the financial condition and
results of operations and cash flows of HomeCom as of, and for the period ended
on, such date.
SECTION III.7. Absence of Certain Changes. Except as set forth in Schedule
3.7 and except as disclosed on HomeCom's public filings with the United States
Securities and Exchange Commission (the "SEC Filings") (full and complete copies
of which have been delivered to IRC and the Stockholders prior to Closing),
since December 31, 1997, HomeCom's business has been operated in the ordinary
course of business, and there has been no: (a) material adverse change in the
business, properties, financial statements, business prospects, customers,
condition (financial or otherwise) or results of operations of HomeCom; (b)
damage, destruction or loss, whether covered by insurance or not, having a
material adverse effect on the business, properties, business prospects,
condition (financial or otherwise) or results of operations of HomeCom; (c)
increase in the compensation payable to or to become payable by HomeCom to its
employees, officers, directors, stockholders, consultants or independent
contractors other than in the ordinary course of business; (d) entry by HomeCom
into any contract not in the ordinary course of business; (e) entry into or
renewal of any lease by HomeCom not in the ordinary course of business, (f)
sale, assignment, lease, distribution, disposal or transfer of any assets or
properties of HomeCom except in the ordinary course of business, or any theft,
damage, removal or destruction of such assets or properties or any casualty loss
materially affecting HomeCom or its business; or (g) amendment or termination of
any of HomeCom's permits or material contracts.
SECTION III.8. Litigation.
(a) Except as set forth on Schedule 3.8 or in the SEC Filings,
HomeCom is not engaged in or a party to, or threatened with, any material claim,
controversy, investigation, legal action or other proceeding, whether or not
before any court, governmental or regulatory authority or administrative agency,
which is pertinent to this transaction and/or which is not in the ordinary
course of HomeCom's business;
(b) Except as set forth on Schedule 3.8, HomeCom is not a party
to or subject to any judgment, decree or order
-11-
16
entered in any lawsuit or proceeding brought by any governmental agency or by
any other person against HomeCom; and
(b) HomeCom knows of no valid basis for any of the foregoing.
SECTION III.9. Commissions. There are and will be no claims for brokerage
commissions, finder's fees, fees for fairness opinions or financial advisory
services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of HomeCom.
SECTION III.10. Disclosure. Neither this Agreement nor any of the Schedules
attached hereto contains any untrue statement of a material fact or omits any
material fact necessary to make each statement contained in this Article III not
misleading.
ARTICLE IV.
OTHER AGREEMENTS
The parties hereto further agree as follows:
SECTION IV.1. Further Assurances. On the terms and subject to the
conditions of this Agreement, the parties hereto shall use all reasonable
efforts at their own expense to take, or cause to be taken, all action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable law to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement, and to cooperate with each other in
connection with the foregoing.
SECTION IV.2. Distributions and/or Expenditures of Cash and/or Assets. IRC
shall not have made since December 31, 1997 any distributions or payments of
cash or other assets of the Company except in the ordinary and customary
operations of the Company's business and except in repayment of an approximately
$67,000 loan from CMH to the Company. B. Tax Returns. The parties shall
cooperate in the preparation of all Tax Returns and reports and shall make
available all necessary records (including, but not limited to, accounting
records and accountants' work papers) and timely take all action necessary to
allow for the preparation and filing of all Tax Returns and reports. The parties
agree that the Stockholders shall have no obligation to prepare Tax Returns
pertaining to the operations of IRC after December 31, 1997 or to pay any Taxes
arising therefrom. The Stockholders will cooperate
-12-
17
with and supply all information in their possession to HomeCom in the
preparation of IRC's 1998 Tax Returns.
SECTION IV.3. Continued Use of Product by CMH. Following the Closing, CMH
shall have the continuing right to use at no further cost IRC's Certificates
Direct product for as long thereafter as it shall desire, provided that such use
is solely for CMH's own purposes, and CMH does not re-sell or otherwise
distribute such product. Notwithstanding the foregoing, CMH shall be required to
pay the prevailing market rate charged from time to time by HomeCom and/or IRC
for upgrades to the product.
SECTION IV.4. Continued Use of CMH Facilities and Utilities. Following the
Closing, CMH shall permit IRC to use its current facilities and utilities for up
to thirty (30) days free of any charges, until such time as IRC shall have
physically removed its operations to HomeCom's Atlanta offices.
SECTION IV.5. Noncompetition Agreement. Higham agrees to execute and
deliver to HomeCom at Closing a Noncompetition Agreement.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF HOMECOM
The obligations of HomeCom under this Agreement shall be subject to the
satisfaction of each of the following conditions unless waived in writing by
HomeCom:
SECTION V.1. Representations and Warranties. The representations and
warranties of the Stockholders and IRC contained in Article II hereof and
elsewhere in this Agreement and all information contained in any Exhibit,
Schedule or attachment hereto shall be true and correct in all material respects
when made and on the Closing Date as though then made. The Stockholders and IRC
shall have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to the Closing Date. The Stockholders and IRC shall have
delivered to HomeCom a certificate, dated the Closing Date, in a form reasonably
satisfactory to HomeCom, certifying to the foregoing.
SECTION V.2. Consents and Approvals. The parties shall have obtained all
consents required by all applicable corporate governance documents, regulations,
orders and contracts with respect to the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein.
-13-
18
SECTION V.3. No Material Adverse Change. There shall have been no
material adverse change in the properties, revenues, Financial Statements,
business prospects, condition (financial or otherwise) or results of operations
of IRC since December 31, 1997.
SECTION V.4. Secretary's Certificate. HomeCom shall have received a
certificate, signed by the Secretary of IRC, dated the Closing Date, as to the
charter and by-laws of IRC and the resolutions adopted by the directors of IRC
in connection with this Agreement in a form reasonably satisfactory to HomeCom.
SECTION V.5. Employment Agreement. Higham shall have entered into an
Employment Agreement in the form attached hereto as Exhibit A (the "HIGHAM
EMPLOYMENT AGREEMENT").
SECTION V.6. Termination of Stockholders' Agreement. The Stockholders'
Agreement between and among the Stockholders and IRC, as dated effective July
19, 1995, shall be terminated effective as of the Closing, as provided in the
action by unanimous consent attached hereto as Exhibit B.
SECTION V.7. Resignations. All directors and officers of IRC, as well as
its registered agent in the State of North Carolina, shall have resigned,
effective as of the Closing.
SECTION V.8. Closing Date Balance Sheet. At or prior to the Closing, IRC
and the Stockholders shall present their best good faith estimate of the balance
sheet and working capital of IRC as of the Closing Date (the "ESTIMATED CLOSING
DATE BALANCE SHEET"). The Estimated Closing Date Balance Sheet shall reflect net
worth and working capital which shall be not less than as reflected on the
December 31, 1997 Financial Statements, except for approximately $67,000 of
indebtedness due by the Company to CMH, which shall have been repaid prior to
the Closing Date.
SECTION V.9. Maximum Amount of Total Issuance. The number of HomeCom
Shares constituting the Total Issuance, as calculated in Section 1.2 hereof,
shall not exceed Three Hundred Fifty-Seven Thousand and No/100 (357,000) shares
of HomeCom capital stock. In the event of the failure of such condition, HomeCom
shall have the option in its sole and absolute discretion of terminating this
Agreement, with no resulting penalty or monetary obligation to IRC or the
Stockholders, including but not limited to those set forth in Article IX hereof.
SECTION V.10. Legal Opinion. IRC and the Stockholders shall have caused
their counsel, Xxxxxxxxx Xxxxxx Xxxxxx &
-14-
19
Xxxxxx, P.A., to deliver its legal opinion, reasonably satisfactory to counsel
for HomeCom.
SECTION V.11. Other Documents. HomeCom shall have been furnished with
such other and further documents and certificates as HomeCom shall reasonably
request to evidence compliance with the conditions set forth in this Agreement.
ARTICLE VI.
CONDITIONS TO THE OBLIGATIONS OF IRC AND THE STOCKHOLDERS
The obligations of IRC and the Stockholders under this Agreement shall
be subject to the satisfaction of each of the following conditions unless waived
in writing by the Stockholders:
SECTION VI.1. Representations and Warranties. The representations and
warranties of HomeCom contained in Article III hereof and elsewhere in this
Agreement and all information contained in any Exhibit, Schedule or attachment
hereto shall be true and correct in all material respects when made and on the
Closing Date as though then made, except as expressly provided herein or
therein. HomeCom shall have performed and complied in all material respects with
all agreements, covenants and conditions required by this Agreement to be
performed and complied with by it prior to the Closing Date. HomeCom shall have
delivered to IRC and the Stockholders a certificate, dated the Closing Date, in
a form reasonably satisfactory to IRC and the Stockholders, certifying to the
foregoing.
SECTION VI.2. Consents and Approvals. The parties shall have obtained all
consents required by all applicable corporate governance documents, regulations,
orders and contracts with respect to the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein.
SECTION VI.3. Employment Agreement. Higham shall have entered into the
Higham Employment Agreement.
SECTION VI.4. Other Documents. IRC shall have been furnished with such
other and further documents and certificates as IRC shall reasonably request to
evidence compliance with the conditions set forth in this Agreement.
-15-
20
ARTICLE VII.
CLOSING
SECTION VII.1. Closing. Unless this Agreement shall have been terminated
or abandoned pursuant to the provisions of Articles V or VI hereof, a closing of
the transactions contemplated by this Agreement (the "CLOSING") shall be held on
April 16, 1998 (the "CLOSING DATE") in the offices of Xxxx Xxxx Xxxxx & Xxxxx,
LLP, the attorney for HomeCom, in Atlanta, Georgia, or on such other date and at
such other location as the parties hereto shall mutually agree upon.
SECTION VII.2. Exchange of Shares. On the Closing Date, (i) the
Stockholders will assign and transfer to HomeCom good and valid title in and to
the IRC Shares, free and clear of all Liens, by delivering to HomeCom a stock
certificate or certificates representing all of the IRC Shares, duly endorsed
for transfer or accompanied by duly executed stock powers endorsed in blank with
requisite stock transfer tax stamps, if any, attached; (ii) HomeCom shall
deliver to each of the Stockholders duly executed certificates representing the
Total Issuance of HomeCom Shares, as provided in Sections 1.2 and 1.3 hereof.
Additionally, the parties shall deliver to each other all other documents
required under this Agreement to be delivered at or prior to the Closing.
ARTICLE VIII.
SURVIVAL OF TERMS; INDEMNIFICATION
SECTION VIII.1. Survival. All of the terms and conditions of this
Agreement, together with the representations, warranties and covenants contained
herein or in any instrument or document delivered or to be delivered pursuant to
this Agreement and the agreements of the parties to indemnify each other as set
forth in this Article VIII shall survive the execution of this Agreement and the
Closing notwithstanding any investigation heretofore or hereafter made by or on
behalf of any party hereto, and shall continue for two (2) years following the
Closing Date; provided, however, that with respect to any Taxes or Tax liability
of IRC for any period ending prior to or on December 31, 1997, the agreement of
the Stockholders to indemnify HomeCom and IRC shall survive until, and all
claims with respect thereto shall be made prior to, the expiration of the
applicable statute of limitations prescribed by the Internal Revenue Code of
1986, as amended, or any applicable state or local laws or regulations.
-16-
21
SECTION VIII.2. Indemnification by the Stockholders. After the Closing,
HomeCom and IRC shall be indemnified and held harmless by the Stockholders
against and in respect of any and all damage, loss, liability, cost or expense
resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any material misrepresentation
or breach of warranty of IRC or the Stockholders, or nonfulfillment of any
obligation on the part of either IRC (to be performed on or prior to the
Closing) or the Stockholders under this Agreement, or contained in any Schedule
or Exhibit to this Agreement, or from any material misrepresentation in or
omission from any certificate, Schedule, Exhibit, related agreement, Financial
Statement or instrument delivered by or on behalf of the Stockholders or IRC
hereunder.
(b) Taxes. All Taxes of IRC attributable to any period ending
prior to or on December 31, 1997.
(c) Limitations. Notwithstanding anything herein to the
contrary, the Stockholders' obligation to indemnify IRC and HomeCom as provided
in this Article VIII shall be limited as follows:
(i) Each Stockholder shall be liable only for his or its
pro rata portion of any amount with respect to which an
indemnity claim is asserted hereunder. The failure or inability
of either Stockholder to pay his or its pro rata portion of such
claim shall in no way obligate the other Stockholder to pay all
or any part of such unpaid pro rata portion.
(ii) The maximum amount which each Stockholder shall be
obligated to indemnify hereunder, on a cumulative basis, shall
be equal to the value of the HomeCom Shares which have been
issued to such Stockholder at Closing hereunder . For purposes
of this Section 8.2 (c) (ii), the value of such HomeCom shares
as of the date they were issued to such Stockholder shall
control.
(iii) The Stockholders shall only indemnify HomeCom to
the extent such damage, loss, liability, cost or expense
exceeds, on a cumulative basis, Twenty-Five Thousand and No/100
Dollars ($25,000).
SECTION VIII.3. Indemnification by HomeCom. After the Closing, the
Stockholders shall be indemnified and held harmless by HomeCom against and in
respect of any and all damage, loss, liability, cost or expense resulting from,
or in respect of, any of the following:
-17-
22
(a) Misrepresentation or Breach. Any material misrepresentation
or breach of warranty of HomeCom, or nonfulfillment of any obligation on the
part of IRC (to be performed after the Closing) or HomeCom under this Agreement,
or contained in any Schedule or Exhibit to this Agreement or from any material
misrepresentation in or omission from any certificate, Schedule, Exhibit,
related agreement or instrument delivered by or on behalf of HomeCom hereunder.
(b) Taxes. All Taxes of IRC attributable to any period after
December 31, 1997.
(c) Limitations. Notwithstanding anything herein to the
contrary, HomeCom's obligation to indemnify the Stockholders as provided in this
Article VIII shall be limited as follows:
(i) The maximum amount which HomeCom shall be obligated
to indemnify the Stockholders hereunder, on a cumulative basis,
shall be equal to the aggregate value of the HomeCom Shares
which have been issued to the Stockholders at Closing. For
purposes of this Section 8.3(c)(i), the value of such HomeCom
shares as of the date they were issued to the Stockholders shall
control.
(ii) HomeCom shall only indemnify the Stockholders to
the extent such damage, loss, liability, cost or expense
exceeds, on a cumulative basis, Twenty-five Thousand and No/100
Dollars ($25,000).
SECTION VIII.4. Third Party Claims. In the event a party seeking
indemnification hereunder (the "INDEMNITEE") shall receive written notice of any
claim or proceeding against it that, if successful, might result in an
indemnifiable claim under this Article VIII, then the Indemnitee shall give the
party which may be liable for such indemnification hereunder (the "INDEMNITOR")
prompt written notice of such claim or proceeding and shall permit the
Indemnitor to participate in the defense of such claim or proceeding by counsel
of the Indemnitor's own choosing and at the Indemnitor's expense. In addition,
the Indemnitor, upon written request, and upon the Indemnitee's written consent
which shall be in its sole discretion, may assume control of the defense of any
such claim or proceeding, provided that the Indemnitee may participate in any
such defense as it may deem necessary or appropriate to protect its interests
and the Indemnitor shall assume the cost thereof.
-18-
23
ARTICLE IX.
GENERAL PROVISIONS
SECTION IX.1. Amendment and Modification. Subject to all applicable laws,
this Agreement may be amended, modified and supplemented at any time with
respect to any of the terms contained herein, by a written agreement signed by
all of the parties hereto.
SECTION IX.2. Waiver. The failure of any party hereto to comply with any
obligation, covenant, agreement or condition herein may be waived in writing by
the other parties hereto, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing.
SECTION IX.3. Notices. All notices, claims, requests, demands or other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, by first class certified
mail, return receipt requested, with postage paid, or by receipted overnight
courier service to the intended recipient at the address specified below or at
such other address as shall be designated by such party in any notice to the
other parties.
Notices to HomeCom:
------------------
With a Copy to:
--------------
HomeCom Communications, Inc.
Xxxx Xxxx Xxxxx & Xxxxx,
LLP
Xxxxxxxx 00, Xxxxx 000
000 Xxxxxxxxx Xxxx Center
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
0000 Xxxxxxxxx Xxxx, X.X.
ATTN: Xxxxxx Xxx, President
Xxxxxxx, XX 00000
ATTN: Xxxxxxx X. Xxxx, Esq.
-19-
24
Notices to Stockholders:
-----------------------
With a Copy to:
--------------
Xxxxxxx Xxxxx Xxxxxx
Xxxxxxx X. Xxxx, Esq.
0000 Xxxxxxx Xxxx Xxxxxx
Xxxxxxxxx Xxxxxx Xxxxxx &
Xxxxx, XX 00000
Xxxxxx, P.A.
Charlotte Plaza Building
000 X. Xxxxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx & Company
Xxxxxxx X. Xxxx, Esq.
P. O. Box 220748
Xxxxxxxxx Xxxxxx Xxxxxx &
Xxxxxxxxx, XX 00000
Xxxxxx, P.A.
ATTN: Xxxxxxx X. Xxxxxxx, Xx.
Charlotte Plaza Building
000 X. Xxxxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
SECTION IX.4. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties;
provided, however, that HomeCom may, without the prior written consent of the
Stockholders or IRC, assign its rights hereunder and under any other contracts
or documents executed or delivered in connection herewith to an affiliate of
HomeCom, provided that HomeCom's ownership interest in such affiliate is at
least fifty percent (50%), and provided further that in the event of any such
assignment the IRC Shares shall nevertheless be exchanged for HomeCom Shares as
provided herein, and not for shares of such HomeCom affiliate.
SECTION IX.5. Governing Law. This Agreement shall be governed by the laws
of the State of Georgia, without regard to its principles of conflict of laws.
Any action or proceeding arising out of this Agreement may be brought against
any of the parties in the State of Georgia, Xxxxxx County, or if it has or
-20-
25
can acquire jurisdiction, in the Northern District of Georgia, and each party
consents to jurisdiction of such courts in any such action and waives any
objection to venue laid therein.
SECTION IX.6. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION IX.7. Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto with regard to the subject
matter hereof and supersedes all prior agreements, representations, warranties,
promises, covenants, arrangements and understandings, oral or written, express
or implied, among the parties with respect to such subject matter. There are no
agreements, representations, warranties, promises, covenants, arrangements or
understandings among the parties with respect to such subject matter other than
those expressly set forth or referred to herein.
SECTION IX.8. No Benefit. This Agreement shall not be construed so as to
confer any right or benefit upon any person other than the signatories to this
Agreement and each of their respective successors and permitted assigns.
SECTION IX.9. Severability. The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement is either
unenforceable or void shall not affect the validity of any other provision of
this Agreement.
SECTION IX.10. Expenses. Each of the parties hereto shall bear its own
expenses, including, without limitation, legal fees and expenses, with respect
to this Agreement and the transactions contemplated hereby. Notwithstanding the
foregoing, in the event the transactions contemplated by this Agreement are not
consummated due to the failure, without reasonable cause, of either the
Stockholders (collectively) or HomeCom to perform their respective conditions
precedent as detailed in Articles V or VI hereof, then such party shall pay
immediately the other party a break-up fee in the amount of Fifteen Thousand and
No/100 ($15,000) dollars.
SECTION IX.11. Tax Implications of Stock Exchange. HomeCom and the
Stockholders each acknowledge that they have sought legal and tax counsel with
respect to the tax implications of the transactions described in this Agreement
and each shall not hold or attempt to hold the other liable for any such
implications or for any implications which may differ from those explained to
them by their counsel, including any implications arising from the failure of
this transaction to qualify as a tax-free reorganization.
-21-
26
[This space left intentionally.]
-22-
27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
(SEAL)
XXXXXXX XXXXX XXXXXX
XXXXXXX X. XXXXXX & COMPANY
ATTEST:
By:
Vice President
----------------------------------
Secretary
(Corporate Seal)
THE INSURANCE RESOURCE CENTER, INC.
ATTEST:
By:
President
----------------------------------
Secretary
(Corporate Seal)
HOMECOM COMMUNICATIONS, INC.
ATTEST:
By:
President
----------------------------------
Secretary
(Corporate Seal)
-23-
28
Schedule 2.9
Payment of Wages and Other Compensation
Accrued Vacation Not Yet Taken
------------------------------
Xxx Xxxxxx 3.75 accrued vacation days
Xxxx Xxxxx 2.50 accrued vacation days
Xxx Xxxxx 2.50 accrued vacation days
Xxx Xxxxxxx 2.50 accrued vacation days
Xxx Xxxxxxx 0.00 accrued vacation days
Xxxx Xxxxxx 2.00 accrued vacation days
Matt Fury 2.00 accrued vacation days
Pay Period ends on the fifteenth (15th) day of each month, so IRC employees will
transfer to HomeCom's payroll as of April 16, 1998.
29
Schedule 2.10
Certain Changes
None.
30
Schedule 2.11
Material Contracts
None.
31
Schedule 2.12(a)
Owned Property
See attached.
32
Schedule 2.12(b)
Liens
None.
33
Schedule 2.12(c)
Leased Property
None.
34
Schedule 2.15
Intellectual Property
Tradenames Certificates Direct, Market Match, Agent Pro, Employee Pro,
Web Pro, and Job Pro, none of which has been registered with the Federal or any
State Trademark Office.
35
Schedule 3.5
HomeCom Stock Information
36
Schedule 3.8
HomeCom Litigation
None.
37
EXHIBIT A
Higham Employment Agreement
See attached.
38
EXHIBIT B
IRC Action by Unanimous Consent
See attached.
39
I. AMENDMENT TO PURCHASE AGREEMENT. The parties hereto agree to amend the
Purchase Agreement in accordance with the follow:
1. Conversion Price. The definition of "Conversion Price" set forth in
Section 1 of the Purchase Agreement is amended to be and read as
follows:
""Conversion Price" means an amount equal to the lessor of (a) a
twenty-five (25%) percent discount from the average closing bid price
of the Common Stock as reported by NASDAQ or on other securities
exchanges or markets on which the Common Stock is listed for the
previous three (3) trading days ending on the day before the
Conversion Date, or (b) 2 5/8."
2. Restrictions on Conversion of Debenture. The Purchasers agree that not
to convert any portion of the Remaining Debentures held by each of
them for a period of thirty (30) days from the date hereof and
thereafter not to convert more than 25% of the Remaining Debentures
held by each of them in any thirty (30) day period thereafter (the
"Gating Restrictions"). However, in the event that the closing bid
price of the Common Stock as reported by NASDAQ or on other securities
exchanges or markets on which the Common Stock is listed for the
previous five (5) trading days is $3.50 or greater, the foregoing
Gating Restrictions shall not apply as long as the closing bid price
for the previous five (5) trading days is $3.50 or greater. In
addition, if the Common Stock is not traded on the NASDAQ SmallCap
Market or the electronic bulletin board, the foregoing Gating
Restrictions shall no longer apply. As used herein "Remaining
Debentures" shall mean those Debentures described in Exhibit "A"
attached hereto.
II. AMENDMENT TO DEBENTURE. The parties hereto agree to amend the Debenture in
accordance with the following:
1. Section 7 - Events of Default. Subparagraph (f) shall be amended and
restated as follows:
"The Issuer's Common Stock is delisted from trading on NASDAQ SmallCap
Market or the electronic bulletin board unless it is thereupon
admitted to trading on a national stock exchange."
III. DELIVERY OF SHARES OF COMMON STOCK SUBJECT TO CONVERSION NOTICE. Assuming
that this Agreement is duly executed and delivered by all parties as of the
date hereof, in the interest of settlement and compromise without admitting
liability, the Company agrees to issue instructions to its transfer agent to
honor the conversion notices of the Purchasers as attached as Exhibit "B hereto
(the "Conversion Notices") and to instruct the transfer agent as of the date
hereof to (i) issue such shares of Common Stock to the Purchasers in the
amounts set forth in the Conversion Notices (the "Conversion Shares") and (ii)
to give instructions to DWAC the Conversion Shares with an effective date as of
the date hereof.
