MERGER AND REORGANIZATION AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02 The Merger. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.03 Effective Time. . . . . . . . . . . . . . . . . . . . .1
SECTION 1.04 Effects of the Merger . . . . . . . . . . . . . . . . .2
SECTION 1.05 Certificate of Incorporation and By-Laws. . . . . . . .2
SECTION 1.06 Directors and Officers of the Surviving Corporation . .2
SECTION 1.07 The Closing . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II
CONVERSION OF INTERESTS AND RELATED MATTERS. . . . . . . . . . . . . . .2
SECTION 2.01 Outstanding Stock of The Merger Subsidiary. . . . . . .2
SECTION 2.02 Conversion of NetWolves Interests . . . . . . . . . . .3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. . . . . . . . . . . . . .3
SECTION 3.01 Organization. . . . . . . . . . . . . . . . . . . . . .3
SECTION 3.02 Authority . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.03 No Conflict; Required Filings and Consents. . . . . . .4
SECTION 3.04 Capitalization. . . . . . . . . . . . . . . . . . . . .5
SECTION 3.05 Licenses and Permits; Compliance with Laws. . . . . . .5
SECTION 3.06 Financial Statements. . . . . . . . . . . . . . . . . .5
SECTION 3.07 Real Property . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.08 Material Contracts. . . . . . . . . . . . . . . . . . .6
SECTION 3.09 Litigation. . . . . . . . . . . . . . . . . . . . . . .7
SECTION 3.10 Taxes, Tax Returns and Audits . . . . . . . . . . . . .7
SECTION 3.11 Absence of Certain Changes. . . . . . . . . . . . . . .7
SECTION 3.12 Employee Benefit Plans. . . . . . . . . . . . . . . . .8
SECTION 3.13 Labor Relations . . . . . . . . . . . . . . . . . . . .8
SECTION 3.14 Insurance Policies; Claims. . . . . . . . . . . . . . .8
SECTION 3.15 Intellectual Property . . . . . . . . . . . . . . . . .8
SECTION 3.16 Properties; Assets. . . . . . . . . . . . . . . . . . .9
SECTION 3.17 Bank Accounts . . . . . . . . . . . . . . . . . . . . .9
SECTION 3.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.19 Records . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.20 No Illegal or Improper Transactions . . . . . . . . . 10
SECTION 3.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.22 Environmental Matters . . . . . . . . . . . . . . . . 10
SECTION 3.23 Year 2000 Compliance. . . . . . . . . . . . . . . . . 12
SECTION 3.24 Investment Representations. . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WATCHDOG . . . . . . . . . . . . . . 12
SECTION 4.01 Organization. . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.02 Authority; Corporate Action . . . . . . . . . . . . . 13
SECTION 4.03 No Conflict; Required Filings and Consents. . . . . . 13
SECTION 4.05 Licenses and Permits; Compliance with Laws. . . . . . 14
SECTION 4.06 Financial Statements. . . . . . . . . . . . . . . . . 14
SECTION 4.07 Real Property . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.08 Material Contracts. . . . . . . . . . . . . . . . . . 15
SECTION 4.09 Litigation. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.11 Absence of Certain Changes. . . . . . . . . . . . . . 17
SECTION 4.12 Employee Benefit Plans. . . . . . . . . . . . . . . . 18
SECTION 4.13 Labor Relations . . . . . . . . . . . . . . . . . . . 18
SECTION 4.14 Insurance Policies; Claims. . . . . . . . . . . . . . 18
SECTION 4.15 Intellectual Property . . . . . . . . . . . . . . . . 18
SECTION 4.16 Properties; Assets. . . . . . . . . . . . . . . . . . 19
SECTION 4.17 Bank Accounts . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.19 Records . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.20 No Illegal or Improper Transactions . . . . . . . . . 20
SECTION 5.01 Additional Representations, Warranties and Covenants. 20
SECTION 5.02 Survival. . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI
COVENANTS OF THE MEMBERS . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.01 Conduct of Business . . . . . . . . . . . . . . . . . 21
SECTION 6.02 Maintenance of Assets; Insurance. . . . . . . . . . . 22
SECTION 6.03 Employment and Noncompete Agreements. . . . . . . . . 22
SECTION 6.05 No Other Negotiations . . . . . . . . . . . . . . . . 22
SECTION 6.06 No Securities Transactions. . . . . . . . . . . . . . 22
SECTION 6.07 Fulfillment of Conditions . . . . . . . . . . . . . . 22
SECTION 6.08 Disclosure of Certain Matters . . . . . . . . . . . . 23
SECTION 6.09 Assignment of Contracts . . . . . . . . . . . . . . . 23
SECTION 6.10 Termination of Operating Agreement. . . . . . . . . . 23
ARTICLE VII
COVENANTS OF WATCHDOG. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.01 Access to Information; Confidentiality. . . . . . . . 25
SECTION 8.02 Further Action. . . . . . . . . . . . . . . . . . . . 25
SECTION 8.03 Schedules . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8.04 Regulatory and Other Authorizations . . . . . . . . . 26
ARTICLE IX
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 9.01 Conditions to Each Party's Obligations26
SECTION 9.02 Conditions to Obligations of NetWolves26
SECTION 9.03 Conditions to Obligations of the Watchdog Parties27
ARTICLE X
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.01 Indemnification by the Members . . . . . . . . . . . 28
SECTION 10.02 Indemnification by Watchdog . . . . . . . . . . . . . 28
SECTION 10.03 Notice, Etc . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10.04 Limitations . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.01 Methods of Termination . . . . . . . . . . . . . . . 30
SECTION 11.02 Effect of Termination. . . . . . . . . . . . . . . . 31
ARTICLE XII
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 12.01 Certain Defined Terms. . . . . . . . . . . . . . . . 31
ARTICLE XIII
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 13.01 Expenses . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 13.02 Notices. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 13.03 Press Release; Public Announcements. . . . . . . . . 33
SECTION 13.04 Amendment. . . . . . . . . . . . . . . . . . . . . . 34
SECTION 13.05 Waiver . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 13.06 Headings . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 13.07 Severability . . . . . . . . . . . . . . . . . . . . 34
SECTION 13.08 Entire Agreement . . . . . . . . . . . . . . . . . . 34
SECTION 13.09 Benefit; Assignment. . . . . . . . . . . . . . . . . 34
SECTION 13.10 Governing Law; Consent to Jurisdiction. . . . . . . . 34
SECTION 13.11 Counterparts . . . . . . . . . . . . . . . . . . . . .35
SCHEDULES
Schedule 1.06 Directors and Officers of Surviving Corporation
Schedule 2.02 Watchdog Warrants Exercise Terms
Schedule 3.01 States in which NetWolves is Qualified
Schedule 3.08 NetWolves Material Contracts
Schedule 3.14 NetWolves Insurance
Schedule 3.15 NetWolves Intellectual Property
Schedule 4.05 Watchdog Permits
Schedule 4.07 Watchdog Real Property
Schedule 4.08 Watchdog Material Contracts
Schedule 4.14 Watchdog Insurance
Schedule 4.15 Watchdog Intellectual Property
Schedule 4.17 Watchdog Bank Accounts
EXHIBITS
Exhibit A Members
Exhibit B Certificate of Merger
Exhibit C Plan of Merger
Exhibit D NetWolves Warrant
Exhibit E Employment Agreement
Exhibit F Xxxxxx Warrant
Exhibit H Xxxxxx Right of First Refusal
Exhibit I Xxxxxx Private Placement Letter Agreement
Exhibit J Stock Option Plan
Exhibit K Registration Rights Agreement
Exhibit L Legal Opinion of Xxxxxxxx Mollen & Xxxxxx
Exhibit M Legal Opinion of Xxxxx Xxxxxxx
Exhibit N Press Release
MERGER AND REORGANIZATION AGREEMENT
MERGER AND REORGANIZATION AGREEMENT, dated June 15, 1998, among WATCHDOG
PATROLS, INC., a New York corporation, with offices at 00 Xxxx Xxxxxxx Xxxxx,
Xxxxx 000, Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000 ("Watchdog"), WATCHDOG ACQUISITION
CORP., a New York corporation and wholly-owned subsidiary of Watchdog ("Merger
Subsidiary, together with Watchdog, the "Watchdog Parties"), NETWOLVES, LLC, an
Ohio limited liability company, with offices at 00 X. Xxx Xxxxxx, Xxxxxxxx, Xxxx
00000 ("NetWolves") and each of the respective members of NetWolves listed on
Exhibit A attached hereto (collectively being referred to hereinafter as the
"Members", and together with NetWolves, the "NetWolves Parties").
WHEREAS, subject to the terms and conditions of this Merger and
Reorganization Agreement ("Agreement"), the Parties desire to consummate a
merger, as contemplated herein, pursuant to which NetWolves shall be merged with
and into the Merger Subsidiary; and
WHEREAS, for Federal income tax purposes, the Parties intend, by approving
resolutions authorizing this Agreement, that such merger qualify as a
reorganization under the provisions of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Internal
Revenue Code of 1986, as amended and the rules and regulations promulgated
thereunder ("Code").
IT IS AGREED:
ARTICLE I
THE MERGER
SECTION 1.01 Definitions. Certain capitalized terms used in this Agreement
shall have the meanings specified in Article XII.
SECTION 1.02 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Business
Corporation Law of the State of New York ("NYBCL") and the Limited Liability
Company Act of the State of Ohio ("OLLCA"), the Merger Subsidiary and NetWolves
shall consummate a merger ("Merger") of NetWolves with and into the Merger
Subsidiary at the Effective Time (as defined herein) in accordance with the
provisions of this Agreement. Following the Merger, the Merger Subsidiary shall
continue as the surviving corporation ("Surviving Corporation") and shall
continue its existence under the laws of the State of New York and the separate
corporate existence of NetWolves shall cease.
SECTION 1.03 Effective Time. As soon as practicable on or after the Closing
Date, after the satisfaction or waiver of all conditions to the Merger,
NetWolves and the Merger Subsidiary shall file with the Secretary of State's
Office of the State of New York in accordance with the NYBCL an executed copy of
(i) the Certificate of Merger in the form of Exhibit B1 hereto ("Certificate of
Merger") reflecting the Merger and providing for an amendment to the Certificate
of Incorporation of Merger Subsidiary, as the Surviving Corporation, to effect a
change in name from "Watchdog Acquisition Corp." to "NetWolves Corporation" and
(ii) the Plan of Merger in the form of Exhibit C hereto (together with the
Certificate of Merger, the "Merger Documents"). NetWolves shall file a
Certificate of Consolidation with the Secretary of State's Office of the State
of Ohio in accordance with the OLLCA substantially in the form of Exhibit B2.
The Merger shall become effective at such time as the Merger Documents are so
filed with the Secretary of State's Office of the State of New York, or such
other time as the Merger Subsidiary and NetWolves shall agree should be
specified in the Certificate of Merger ("Effective Time").
SECTION 1.04 Effects of the Merger. The Merger shall have the effects set
forth in Section 906 of the NYBCL.
SECTION 1.05 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation, as amended to effect the name change contemplated in Section
1.03, and the By-Laws of the Merger Subsidiary shall be the Certificate of
Incorporation and By-Laws of the Surviving Corporation at the Effective Time.
SECTION 1.06 Directors and Officers of the Surviving Corporation. At the
Effective Time, the Board of Directors and officers of the Surviving Corporation
shall consist of the persons listed in Schedule 1.06, each to serve until his or
her successor is elected and qualified.
SECTION 1.07 The Closing. Subject to the terms and conditions of this
Agreement, the consummation of the Merger and the other transactions
contemplated by this Agreement shall take place at a closing ("Closing") to be
held at 10:00 a.m., local time, on the third Business Day after the date on
which the last of the conditions to Closing set forth in Article IX hereof is
fulfilled or waived by the appropriate Party, as the case may be, at the offices
of Xxxxxxxx Xxxxxx & Xxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other time, date or place as the Parties may agree upon in writing. The
date on which the Closing occurs is referred to herein as the "Closing Date."
ARTICLE II
CONVERSION OF INTERESTS AND RELATED MATTERS
SECTION 2.01 Outstanding Stock of The Merger Subsidiary. Upon consummation
of the Merger, each issued and outstanding share of the common stock, no par
value, of the Merger Subsidiary outstanding immediately prior to the Effective
Time shall continue as a validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Each certificate representing any
such shares of the Merger Subsidiary shall continue to represent the same number
of shares of common stock of the Surviving Corporation.
SECTION 2.02 Conversion of NetWolves Interests. The membership interests of
NetWolves that exist immediately prior to the Effective Time ("NetWolves
Interests") in the aggregate shall be converted into the right to receive, at
the Closing, the following consideration ("Merger Consideration"): (i) an
aggregate of 2,640,322 shares of Watchdog's common stock, $.0033 par value per
share ("Watchdog Stock") and (ii) three-year warrants in the form of Exhibit D
attached hereto to purchase an aggregate of 1,000,000 shares of Common Stock of
Watchdog at an exercise price of $1.63 ("Watchdog Warrants," and together with
the Watchdog Stock, the "Watchdog Securities"), which shall be issued in
accordance with the allocation set forth on Exhibit A. Each of the NetWolves
Interests that exist immediately prior to the Effective Time shall at the
Effective Time be automatically canceled and shall cease to exist, and each
certificate previously evidencing any NetWolves Interests ("Certificates") shall
thereafter represent the right to receive only the specified allocation of the
Merger Consideration. The holders of Certificates shall cease to have any rights
with respect to the NetWolves Interests previously represented thereby, except
as otherwise provided herein or by law. Such certificates previously evidencing
the NetWolves Interests shall be exchanged for certificates evidencing the
Watchdog Securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS
Each of the Members, jointly and severally, represents and warrants to
Watchdog and the Merger Subsidiary (together, the "Watchdog Parties") as
follows:
SECTION 3.01 Organization. NetWolves is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Other than its ownership of all of the outstanding shares of NetWolves,
Inc., a Florida corporation ("NetWolves Florida"), NetWolves does not own,
directly or indirectly, any capital stock or other securities of any issuer or
any equity interest in any other entity, including any partnership, limited
partnership, limited liability company, business trust and any other business
entity, and is not a party to any agreement to acquire any such securities or
interest. NetWolves does not conduct any business through any entity other than
itself. NetWolves is qualified to do business in each state where the nature of
the business it conducts or the properties it owns, leases or operates requires
it to so qualify (which states are listed in Schedule 3.01) except where the
failure to so qualify would not, singly or in the aggregate, have a material
adverse effect on the results of operations, financial condition, business,
assets or prospects of NetWolves (a "NetWolves Material Adverse Effect").
NetWolves has all requisite power as a limited liability company to own, lease
and operate its properties and to carry on its business as now being conducted
and as presently contemplated by NetWolves to be conducted in the future.
SECTION 3.02 Authority. NetWolves has all necessary power as a limited
liability company and authority to enter into this Agreement and to consummate
the Merger and other transactions contemplated hereby. All action necessary to
be taken by NetWolves as a limited liability company or the Members of NetWolves
in such capacity to authorize the execution, delivery and performance of this
Agreement and all other agreements and instruments delivered by NetWolves (and
each of the Members) in connection with the transactions contemplated hereby has
been duly and validly taken. Subject to the terms and conditions hereof, this
Agreement and all other agreements delivered in connection with the transactions
contemplated hereby constitute the valid, binding and enforceable obligation of
NetWolves and each of the Members (if they are a party thereto), enforceable
against NetWolves and each of the Members (if they are a party thereto) in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general application now or hereafter in effect
affecting the rights and remedies of creditors and by general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
SECTION 3.03 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement (and all other
agreements contemplated hereby) by each of the Members and NetWolves does not,
and the performance by each of the Members and NetWolves of their obligations
under this Agreement (and all other agreements contemplated hereby) will not,
(i) conflict with or violate the organizational documents of NetWolves, (ii)
conflict with or violate any law, statute, ordinance, rule, regulation, order,
judgment or decree applicable to NetWolves or by which any of its properties or
assets is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of NetWolves pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which NetWolves is a party or by which NetWolves or
any of its properties or assets is bound or affected, except, in the case of
clauses (ii) and (iii), above, for any such conflicts, violations, breaches,
defaults or other alterations or occurrences that would not have, either singly
or in the aggregate, a NetWolves Material Adverse Effect. The execution,
delivery and performance of the respective Employment Agreement of each Member
described in Section 6.03 hereof will not result in any breach of or conflict
with any agreement or other instrument or arrangement or obligation to which
such Member is a party.
(b) The execution and delivery of this Agreement (and all other
agreements contemplated hereby) by each of the Members and NetWolves does not,
and the performance of this Agreement by each of the Members and NetWolves (and
all other agreements contemplated hereby) will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except for filing and recordation of appropriate merger
documents as required by the laws of the States of New York and Ohio.
SECTION 3.04 Capitalization. The Members own in the aggregate 100% of the
membership interests of NetWolves and are the record and beneficial owners of
the Interests, free and clear of all Liens. There are no other outstanding
securities of NetWolves, including, any options, warrants, convertible
securities or other contractual rights outstanding which require, or give any
person the right to require, the issuance of any membership interests in
NetWolves, whether or not such rights are presently exercisable.
SECTION 3.05 Licenses and Permits; Compliance with Laws. No permits,
licenses and approvals (collectively, the "Permits") are required by any
Federal, state and local governmental authorities to enable NetWolves to own,
lease and operate its properties and to carry on its businesses as now being
conducted. The business of NetWolves is being and has been conducted in
compliance with all applicable laws, statutes, ordinances, regulations,
judgments, orders, decrees, concessions, grants and other authorizations of any
governmental authority.
SECTION 3.06 Financial Statements.
(a) NetWolves has delivered to Watchdog a balance sheet ("NetWolves
Balance Sheet") of NetWolves at May 31, 1998 ("NetWolves Balance Sheet Date").
The NetWolves Balance Sheet fairly presents in all material respects the
financial position of NetWolves as at the date thereof.
(b) The accounts receivable of NetWolves reflected on the NetWolves
Balance Sheet have arisen from bona fide transactions and are collectible in the
ordinary course of NetWolves business. Adequate reserves for the
uncollectability of such accounts receivable have been established on the books
and records of NetWolves and are reflected on the Balance Sheet, and none of the
Members has any knowledge of any facts or circumstances (other than general
economic conditions) which is likely to result in any material increase in the
uncollectability of such receivables in excess of such reserves.
(c) NetWolves has no debts, liabilities, commitments or obligations
(including, without limitation, unasserted claims whether known or unknown),
whether absolute or contingent, liquidated or unliquidated, or due or to become
due or otherwise, except for liabilities and obligations (a) reflected as
liabilities on the NetWolves Balance Sheet, or (b) that have arisen since the
NetWolves Balance Sheet Date in the ordinary course of business of NetWolves,
not in the aggregate in excess of $40,000.
(d) The financial statements of NetWolves Florida have not been
delivered to Watchdog. Parties understand that in the event NetWolves Florida is
considered to be a predecessor entity by Watchdog's accountants or the
Securities and Exchange Commission, its financial statements will have to be
audited. The Members represent that all necessary information required by the
accountants in connection with an audit is accessible and such parties will
cooperate in the preparation of the NetWolves Florida financial statements.
SECTION 3.07 Real Property. NetWolves does not lease or sublease or own any
real property in the operation of its business. The Company currently rents
office space on a month-to-month basis at 00 X. Xxx Xxxxxx, Xxxxx 000, Xxxxxxxx,
Xxxx 00000 at a monthly rental of $175.00.
SECTION 3.08 Material Contracts.
(a) Schedule 3.08 sets forth a complete and correct list of all
agreements of the following types to which NetWolves is a party or may be bound
and all or any portion of which are currently in effect (collectively, the
"NetWolves Material Contracts"): (i) software technology development or sharing
arrangements; (ii) employment, severance, termination, consulting and retirement
agreements; (iii) loan agreements, indentures, letters of credit, mortgages,
notes and other debt instruments; (iv) agreements that require aggregate future
payments to or by NetWolves of more than Twenty-five Thousand Dollars ($25,000);
(v) outstanding purchase orders of NetWolves as of June 5, 1998; (vi) agreements
containing any "change of control" provisions; (vii) agreements, arrangements or
understandings with any employee, director or officer of NetWolves or with any
affiliate thereof; (viii) agreements prohibiting NetWolves from engaging or
competing in any line of business or limiting such competition; (ix) joint
venture, partnership and similar agreements; (x) acquisition or divestiture
agreements relating to the (A) sale or purchase of assets or interests of
NetWolves (other than sales of inventory in the ordinary course of business) or
(B) the purchase of assets or stock of any other person (other than the purchase
of inventory, supplies or equipment in the ordinary course of business); (xi)
brokerage, finder's or financial advisory agreements; (xii) guarantees of
indebtedness for borrowed money of any person; (xiii) customer contracts; (xiv)
reseller and dealer agreements; (xvi) licensing and rights arrangements for any
Intellectual Property (as defined); and (xv) agreements that, individually or
together with one or more related agreements, are material to the operations,
financial condition, business, assets or prospects of NetWolves. True and
complete copies of all NetWolves Material Contracts have been delivered to the
Watchdog Parties or made available for inspection.
(b) All Material Contracts are valid and in full force and effect and
NetWolves has not (nor does it or any Member have any knowledge that any other
party thereto has) violated any provision of, or committed or failed to perform
any act which with or without notice, lapse of time or both would constitute a
default under the provisions of, any Material Contract, except for defaults
which would not have, either singly or in the aggregate, a NetWolves Material
Adverse Effect.
SECTION 3.09 Litigation. There are no actions, suits, arbitrations,
mediations or other proceedings pending or, to the knowledge of any of the
Members, threatened against NetWolves at law or in equity before any court,
Federal, state, municipal or other governmental department or agency or other
tribunal. As of the date hereof, neither NetWolves nor its property is subject
to any order, judgment, injunction or decree which could have, either singly or
in the aggregate, a NetWolves Material Adverse Effect. To the knowledge of each
of the Members, there is no reasonable factual basis for any claims, actions,
suits, investigations or proceedings against NetWolves that, if adversely
determined against NetWolves, would have, either singly or in the aggregate, a
NetWolves Material Adverse Effect. No claim, action, proceeding or investigation
is pending or, to the best knowledge of any of the Members, threatened, which
seeks to delay or prevent the consummation of the transactions contemplated
hereby or would, if successful, have a material adverse effect on the ability of
any of the NetWolves Parties to consummate the transactions contemplated hereby.
SECTION 3.10 Taxes, Tax Returns and Audits. NetWolves commenced its
operations in February 1998 and has not yet been required to make any filings
with Federal, state, local and foreign governmental authorities in respect of
Taxes and will not be required to make any such filings prior to the Effective
Time. NetWolves has duly and timely elected to be classified as a corporation
pursuant to Treasury Regulations Sec. 301.7701-3 effective April 15, 1998 and
NetWolves has timely filed a properly signed and complete Form 8832, Entity
Classification Election, with the Internal Revenue Service Center evidencing
such classification election. In the case of Taxes accruing on or before the
Effective Time that are not due on or before the Effective Time, NetWolves has
or will have established adequate reserves on its books and records and on
NetWolves Balance Sheet for such payment. NetWolves has withheld from each
payment made to any of its present or former employees, officers, directors or
other party all amounts required by law to be withheld and has, where required,
remitted such amounts within the applicable periods to the appropriate
governmental authorities.
SECTION 3.11 Absence of Certain Changes. NetWolves has not, since the
NetWolves Balance Sheet Date:
(a) issued, delivered or agreed to issue any interests, bonds or other
corporate securities (whether authorized and unissued or held in the treasury),
or granted or agreed to grant any options (including employee stock options),
warrants or other rights for the issue thereof;
(b) borrowed or agreed to borrow any funds;
(c) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities incurred in the ordinary course of business and consistent with
prior practice;
(d) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any license or any of the
Intellectual Property (as defined herein) used in the businesses or operations
of NetWolves;
(e) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to any of its
Members or any affiliate of any of its Members, or purchased or redeemed, or
agreed to purchase or redeem, any of its capital stock, or made or agreed to
make any payment to any of its Members or any affiliate of any of its Members,
whether on account of debt, management fees or otherwise; or
(f) suffered any material adverse change, in any case or in the
aggregate, in its assets, liabilities, financial condition, results of
operations or business.
SECTION 3.12 Employee Benefit Plans. NetWolves does not have any employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), programs or arrangements maintained
for the benefit of any current or former employee, officer or director of
NetWolves.
SECTION 3.13 Labor Relations. NetWolves is not a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of the employees of NetWolves. NetWolves is in
compliance in all material respects with all laws relating to the employment or
the workplace, including, without limitation, provisions relating to wages,
hours, collective bargaining, safety and health, work authorization, equal
employment opportunity, immigration and the withholding of income taxes,
unemployment compensation, worker's compensation, employee privacy and right to
know and social security contributions. There are no pending or, to knowledge of
each of the Members, threatened proceedings or grievances with respect to labor
matters concerning NetWolves which would have, either singly or in the
aggregate, a NetWolves Material Adverse Effect.
SECTION 3.14 Insurance Policies; Claims. NetWolves does not have insurance
policies or bonds maintained by or on behalf of NetWolves. No claims have been
made against NetWolves as a result of allegedly defective products and none of
the Members or NetWolves knows of any basis for the assertion of any such claim.
SECTION 3.15 Intellectual Property.
(a) NetWolves owns or possesses all right, title and interest in and
to, or a valid and enforceable license or other right to use all of the
Intellectual Property (as defined below) that is material to the conduct of the
business of NetWolves and all of the rights, benefits and privileges associated
therewith. To the knowledge of each of the Members, NetWolves has not infringed,
misappropriated or otherwise violated any Intellectual Property of any other
person. To the knowledge of each of the Members, no person is infringing upon
any Intellectual Property right of NetWolves.
(b) "Intellectual Property" means all patents, patent applications and
patent disclosures; all inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, trade dress, trade names
and corporate names and all the goodwill associated therewith; all registered
and unregistered statutory and common law copyrights; all registrations,
applications and renewals for any of the foregoing; all protocols, codes and
operating systems; and all trade secrets, confidential information, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research information, drawings, specifications, design plans,
improvements, proposals, technical and computer data, documentation and
software, financial business and marketing plans, customer and supplier lists
and related proprietary information, marketing materials and all other
proprietary rights. All of NetWolves Intellectual Property is listed on Schedule
3.15 hereto.
SECTION 3.16 Properties; Assets. NetWolves (a) has good and marketable
title to all the properties and assets reflected on the Balance Sheet as being
owned by NetWolves (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), and those properties acquired
after the date thereof and not thereafter disposed of, free and clear of all
Liens, except (i) statutory liens securing payments not yet due, and (ii) such
imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances which do not secure monetary obligations and which do
not materially affect the use or marketability of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties, and (b) is the lessee of all personal property
reflected on the Balance Sheet as being leased by it as of the NetWolves Balance
Sheet Date (except for leases that have expired by their terms since the
NetWolves Balance Sheet Date) and those properties leased after the date
thereof. Each such lease and each lease entered into after the date thereof
which are material to the businesses of NetWolves is valid without default
thereunder by the lessee or, to the knowledge of each of the Members, lessor,
and NetWolves is in possession of the personal property purported to be leased
thereunder. The assets and properties of NetWolves are in good operating
condition and repair (ordinary wear and tear excepted), and constitute all of
the assets, rights and properties which are necessary for the businesses and
operations of NetWolves.
SECTION 3.17 Bank Accounts. Schedule 3.17 sets forth the name of each bank
in which NetWolves has an account or safe deposit box, vault, lock-box or other
arrangement, the account number and description of each account at each bank and
the names of all persons authorized to draw thereon or to have access thereto;
and the names of all persons, if any, holding tax or other powers of attorney
from NetWolves.
SECTION 3.18 Brokers. Other than the warrant being issued to Xxxxxx
Securities, Inc. ("Xxxxxx") or its designees as described in Section 7.02 hereof
and the warrants to purchase 75,000 and 12,500 shares of Common Stock of
Watchdog for an exercise price of $2.00 per share, to be issued to Xxxxxx
Habberstat and Xxxxxx Xxxxxx, respectively, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of NetWolves or any of the Members.
SECTION 3.19 Records. The books of account and minute book of NetWolves are
complete and correct in all material respects, and there have been no material
transactions involving NetWolves of the type typically recorded in such records
that have not been recorded.
SECTION 3.20 No Illegal or Improper Transactions. Neither NetWolves nor any
officer, director, employee, agent or affiliate of NetWolves has offered, paid
or agreed to pay to any person or entity (including any governmental official)
or solicited, received or agreed to receive from any such person or entity,
directly or indirectly, any money or anything of value for the purpose or with
the intent of (i) obtaining or maintaining business for the benefit of
NetWolves, (ii) illegally or improperly facilitating the purchase or sale of any
product or service, or (iii) avoiding the imposition of any fine or penalty, in
any manner which is in violation of any applicable ordinance, regulation or law.
SECTION 3.21 Disclosure. No representation or warranty by the Members
contained in this Agreement and no information contained in any schedule,
financial statement or other instrument furnished or to be furnished by any of
the Members or NetWolves to the Watchdog Parties pursuant to this Agreement or
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. Any furnishing of information to the Watchdog Parties by
the NetWolves Parties pursuant to, or otherwise in connection with, this
Agreement, including, without limitation, any information contained in any
document, contract, book or record of NetWolves to which the Watchdog Parties
shall have access or any information obtained by, or made available to, the
Watchdog Parties as a result of any investigation made by or on behalf of the
Watchdog Parties prior to or after the date of this Agreement, shall not affect
the Watchdog Parties' right to rely on any representation, warranty, covenant or
agreement made or deemed made by the Members in this Agreement and shall not be
deemed a waiver thereof.
SECTION 3.22 Environmental Matters.
(a) Except for matters which would not have, either singly or in the
aggregate, a NetWolves Material Adverse Effect, (i) NetWolves has complied and
is in compliance with all applicable Environmental Laws (as defined below); (ii)
NetWolves has not received any written communication that alleges that NetWolves
is not in compliance with all applicable Environmental Laws or that NetWolves
has incurred liability under Environmental Laws; (iii) all Permits and other
governmental authorizations currently held by NetWolves pursuant to the
Environmental Laws are in full force and effect, NetWolves is in compliance with
all of the terms of such Permits and authorizations, and no other Permits or
authorizations are required by NetWolves for the conduct of their respective
businesses; (iv) the management, handling, storage, transportation, treatment,
and disposal by NetWolves of any Hazardous Materials (as defined below) has been
in compliance with all applicable Environmental Laws; and (v) NetWolves has not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation,
any Hazardous Material, or owned or operated any property or facility (and, to
the knowledge of each of the Members and NetWolves, no such property or facility
is contaminated by any such substance), in a manner that has given or would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resource damages, or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Solid Waste Disposal
Act, as amended, or any other Environmental Laws.
(b) There is no Environmental Claim (as defined below) pending or, to
the knowledge of the Members, threatened against or involving NetWolves or
against any person or entity whose liability for any material Environmental
Claim NetWolves has or may have retained or assumed either contractually or by
operation of law.
(c) To the knowledge of each of the Members and NetWolves, there are
no past or present actions or activities by NetWolves including the storage,
treatment, release, emission, discharge, disposal or arrangement for disposal of
any Hazardous Materials, that could reasonably form the basis of any
Environmental Claim against NetWolves or against any person or entity whose
liability for any Environmental Claim NetWolves may have retained or assumed
either contractually or by operation of law.
(d) As used herein, these terms shall have the following meanings:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written) by any person or governmental authority alleging potential
liability arising out of, based on or resulting from the presence, or release or
threatened release into the environment, of any Hazardous Materials at any
location owned or leased by NetWolves or other circumstances forming the basis
of any violation or alleged violation of any Environmental Law.
(ii) "Environmental Laws" means all applicable foreign, Federal,
state and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or protection of human health as it relates to the environment
including, without limitation, laws and regulations relating to releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iii) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances," "toxic substances," "radioactive materials," or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
SECTION 3.23 Year 2000 Compliance. NetWolves has made every attempt
possible to ensure full year 2000 compliance in its manufactured product.
NetWolves warrants that to the best of its knowledge as of June 1, 1998, its
manufactured product will suffer no loss of functionality from December 31, 1999
capabilities to those capabilities on January 1, 2000. NetWolves will make every
attempt at speedy resolution to any unforeseen functionality problems concerning
year 2000 compliance.
SECTION 3.24 Investment Representations. All Watchdog Securities to be
acquired by the Members pursuant to this Agreement will be acquired for their
accounts and not with a view towards distribution thereof. The Members
understand that they must bear the economic risk of the investment in the
Watchdog Securities, which cannot be sold by them unless they are registered
under the Securities Act, or an exemption therefrom is available thereunder. The
Members have had both the opportunity to ask questions and receive answers from
the officers and directors of Watchdog concerning the business and operations of
Watchdog and to obtain any additional information to the extent Watchdog
possesses or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of such information. The
certificates representing the Watchdog Securities shall bear a legend to the
effect that the Watchdog Securities may not be transferred except upon
compliance with the registration requirements of the Securities Act (or an
exemption therefrom) and the provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WATCHDOG
Watchdog represents and warrants to the Members as follows:
SECTION 4.01 Organization. Each of the Watchdog Parties is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York, the only state in which it owns or leases property or
maintains offices, employees or assets material to its business or in which it
transacts business. Watchdog has all requisite corporate power to own, lease and
operate its properties and to carry on its business. The Merger Subsidiary was
formed on June 10, 1998 for the sole purpose of merging with NetWolves and has
not commenced any business activities other than in connection with the
execution of this Agreement.
SECTION 4.02 Authority; Corporate Action. Each of the Watchdog Parties has
all necessary corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby and thereby. All corporate
action necessary to be taken by the Watchdog Parties to authorize the execution,
delivery and performance of this Agreement and all other agreements delivered by
the Watchdog Parties in connection with the transactions contemplated hereby or
thereby has, or at the Closing will have been, duly and validly taken. Subject
to the terms and conditions hereof, this Agreement constitutes the valid,
binding and enforceable obligations of each of the Watchdog Parties, enforceable
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general application now or hereafter in effect
affecting the rights and remedies of creditors and by general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
SECTION 4.03 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by each of the
Watchdog Parties do not, and the performance by each of the Watchdog Parties of
its respective obligations under this Agreement will not, (i) conflict with or
violate the Certificate of Incorporation, By-laws or other organizational
documents of any of the Watchdog Parties, (ii) conflict with or violate any law,
statute, ordinance, rule, regulation, order, judgment or decree applicable to
any of the Watchdog Parties or by which any of their respective properties or
assets is bound or affected, or (iii) except for the Lease dated October 1997
between Narkis Funding Company, L.L.C. and Watchdog for the premises located at
00 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets of any of the Watchdog Parties pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any of the Watchdog Parties is a party or by
which any of the Watchdog Parties or any of their respective properties or
assets is bound or affected, except, in the case of clauses (ii) and (iii),
above, for any such conflicts, violations, breaches, defaults or other
alterations or occurrences that would not have, either singly or in the
aggregate, a material adverse effect ("a "Watchdog Material Adverse Effect") on
the results of operations, financial condition, business or assets of Watchdog.
(b) The execution and delivery of this Agreement by each of the
Watchdog Parties do not, and the performance of this Agreement by each of the
Watchdog Parties will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(i) for (a) compliance with the applicable requirements, if any, of the
Securities Act, state securities laws and state takeover laws and (b) filing and
recordation of appropriate merger documents as required by the laws of the State
of New York and the State of Ohio, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have, either singly or in the aggregate, a Watchdog
Material Adverse Effect.
(c) Notwithstanding subsections (a) and (b) of this Section 4.03, it
is understood and acknowledged by the NetWolves Parties that the Company's
licenses from the Secretary of State of New York for the operation of a security
guard business may require the filing of certain notices with respect to the
change in the composition of the stockholders, directors and/or officers of the
Company and approval of such changes by the Secretary of State of the State of
New York.
SECTION 4.04 Capitalization. The authorized capital stock of Watchdog
consists of 10,000,000 shares of Common Stock, $.0033 par value per share, of
which 1,673,548 shares are issued and outstanding. There are no options,
warrants or other contractual rights outstanding which require, or give any
person the right to require, the issuance of any capital stock of Watchdog,
whether or not such rights are presently exercisable.
SECTION 4.05 Licenses and Permits; Compliance with Laws. Schedule 4.05
lists all permits, licenses and approvals (collectively, the "Permits") from all
Federal, state and local governmental authorities held or required to be held by
Watchdog in connection with its business. Watchdog is in compliance in all
material respects with the Permits and the business of Watchdog is being
conducted in compliance in all material respects with all applicable laws,
statutes, ordinances, regulations, judgments, orders, decrees, concessions,
grants and other authorizations of any governmental authority. Neither Watchdog
nor any of its officers, directors and employees is in default in any material
respect under any of such Permits and no event has occurred and no condition
exists which, with the giving of notice, the passage of time, or both, would
constitute a default thereunder. Neither the execution and delivery of this
Agreement or any of the other documents contemplated hereby nor the consummation
of the transactions contemplated hereby or thereby nor compliance by each of the
Members and Watchdog with any of the provisions hereof or thereof will result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any Permit
except as set forth in subsection (c) of Section 4.03.
SECTION 4.06 Financial Statements.
(a) Watchdog has delivered to the NetWolves Parties financial
statements of Watchdog for the year ended December 31, 1997 and the three months
ended March 31, 1998 (collectively, the "Watchdog Financial Statements"). The
Watchdog Financial Statements, including all related notes and schedules
thereto, fairly present in all material respects the financial position of
Watchdog as at the respective dates thereof and the results of operations and
cash flows of Watchdog for the periods indicated in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be noted therein) and subject to normal
year-end adjustments.
(b) The accounts receivable of Watchdog reflected on the balance sheet
("Watchdog Balance Sheet) as at March 31, 1998 ("Watchdog Balance Sheet Date")
included in the Watchdog Financial Statements have arisen from bona fide
transactions and are collectible in the ordinary course of Watchdog business,
and are reflected on the books and records of Watchdog in accordance with GAAP.
Adequate reserves for the uncollectability of such accounts receivable have been
established on the books and records of Watchdog in accordance with GAAP and are
reflected on the Watchdog Balance Sheet, and Watchdog has no knowledge of any
facts or circumstances (other than general economic conditions) which is likely
to result in any material increase in the uncollectability of such receivables
in excess of such reserves.
(c) Watchdog has no debts, liabilities, commitments or obligations
(including, without limitation, unasserted claims whether known or unknown),
whether absolute or contingent, liquidated or unliquidated, or due or to become
due or otherwise, except for liabilities and obligations (a) covered by
insurance, (b) reflected as liabilities on the Watchdog Balance Sheet, or (c)
that have arisen since the Watchdog Balance Sheet Date in the ordinary course of
business of Watchdog.
SECTION 4.07 Real Property. Schedule 4.07 contains a true, correct and
complete list and brief description of all real property leased or subleased by
Watchdog and utilized or accessed by Watchdog in the operation of its business,
all of which properties are hereinafter referred to as the "Leased Real
Property." Watchdog has provided to NetWolves true, correct and complete copies
of the leases of the Leased Real Property ("Leases") and any sublease to any
third party ("Subleases"). Except as set forth in Schedule 4.07, Watchdog has
not subleased any Leased Real Property to others. Watchdog is in compliance in
all material respects with all of the provisions of such Leases and Subleases
and is not in default thereunder in any material respect. Each such leasehold
interest (i) is valid, subsisting and in full force and effect; and (ii) is not
subject to any Liens (other than collateral assignments of the leases granted by
the landlords thereunder to the extent permitted by the terms of such Leases and
which do not interfere with or detract from Watchdog's use of the property
subject to such Leases). The execution and delivery of this Agreement and the
performance of the obligations hereunder and thereunder, will not constitute a
default under any Lease.
SECTION 4.08 Material Contracts.
(a) Schedule 4.08 sets forth a complete and correct list of all
agreements of the following types to which Watchdog is a party or may be bound
and all or any portion of which are currently in effect (collectively, the
"Watchdog Material Contracts"): (i) employment, severance, termination,
consulting and retirement agreements; (ii) loan agreements, indentures, letters
of credit, mortgages, notes and other debt instruments; (iii) agreements that
require aggregate future payments to or by Watchdog of more than Twenty-five
Thousand Dollars ($25,000); (iv) agreements containing any "change of control"
provisions; (v) agreements, arrangements or understandings with any employee,
director or officer of Watchdog or affiliate thereof; (vi) joint venture,
partnership and similar agreements; (vii) acquisition or divestiture agreements
relating to the (A) sale or purchase of assets or stock of Watchdog (other than
the ordinary course of business) or (B) the purchase of assets or stock of any
other person (other than in the ordinary course of business); (viii) brokerage,
finder's or financial advisory agreements; (ix) guarantees of indebtedness for
borrowed money of any person; (x) customer contracts; (xi) licensing and rights
arrangements for any Intellectual Property (as defined); and (xii) agreements
that, individually or together with one or more related agreements, are material
to the assets, financial condition, business or operations of Watchdog. True and
complete copies of all Material Contracts have been delivered to the Watchdog
Parties or made available for inspection.
(b) All Watchdog Material Contracts are valid and in full force and
effect and Watchdog has not violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any Watchdog Material Contract,
except for defaults which would not have, either singly or in the aggregate, a
Watchdog Material Adverse Effect.
SECTION 4.09 Litigation. Except for claims and costs covered by insurance
and except as set forth on Schedule 4.09 hereto, there are no actions, suits,
arbitrations, mediations or other proceedings pending or, to the knowledge of,
threatened against Watchdog at law or in equity before any court, Federal,
state, municipal or other governmental department or agency or other tribunal.
As of the date hereof, neither Watchdog nor its property is subject to any
order, judgment, injunction or decree which could have, either singly or in the
aggregate, a Watchdog Material Adverse Effect. To the knowledge of Watchdog,
there is no reasonable factual basis for any claims, actions, suits,
investigations or proceedings against Watchdog that, if adversely determined
against Watchdog, would have, either singly or in the aggregate, a Watchdog
Material Adverse Effect. No claim, action, proceeding or investigation is
pending or, to the best knowledge of Watchdog, threatened, which seeks to delay
or prevent the consummation of the transactions contemplated hereby or would, if
successful, have a material adverse effect on the ability of any of the Watchdog
Parties to consummate the transactions contemplated hereby.
SECTION 4.10 Taxes, Tax Returns and Audits. Watchdog has (or, in the case
of returns becoming due after the date hereof and on or before the Effective
Time, will have prior to the Effective Time) prepared and filed on a timely
basis with all appropriate Federal, state, local and foreign governmental
authorities all returns in respect of Taxes it is required to file on or prior
to the Effective Time or by such date will have obtained the appropriate
extensions to file, and all such returns completely and accurately (or, in the
case of returns becoming due after the date hereof and on or before the
Effective Time, will completely and accurately) set forth the amount due of any
Taxes relating to the applicable period. Watchdog has paid (or, in the case of
Taxes becoming due after the date hereof and on or before the Effective Time,
will have paid) in full all Taxes due on or before the Effective Time and, in
the case of Taxes accruing on or before the Effective Time that are not due on
or before the Effective Time, Watchdog has or will have established adequate
reserves on its books and records and financial statements (including the
Watchdog Balance Sheet) for such payment in accordance with GAAP. Watchdog has
withheld from each payment made to any of its present or former employees,
officers, directors or other party all amounts required by law to be withheld
and has, where required, remitted such amounts within the applicable periods to
the appropriate governmental authorities. In addition,, (i) there are no
assessments against Watchdog with respect to Taxes that have been issued and are
outstanding; (ii) no governmental authorities have audited or, to the knowledge
of Watchdog, examined Watchdog in respect of Taxes; (iii) Watchdog has not
executed or filed any agreement extending the period of assessment or collection
of any Taxes which has not yet expired by its terms; (iv) Watchdog has not
received written notification from any governmental authority of its intention
to commence any audit or investigation; (v) Watchdog is not a party to or bound
by or nor does it have any obligation under any Tax sharing or Tax
indemnification agreement, provision or arrangement, whether formal or informal,
and no power of attorney, which is currently in effect, has been granted with
respect to any matter relating to Taxes of Watchdog; and (vi) Watchdog is not
presently required nor will it be required to include any adjustment in taxable
income under Section 481 of the Code (or any similar provision of the Tax laws
of any jurisdiction) as a result of any change in method of accounting or
otherwise.
SECTION 4.11 Absence of Certain Changes. Watchdog has not, since the
Watchdog Balance Sheet Date:
(a) issued, delivered or agreed to issue any stock, bonds or other
corporate securities (whether authorized and unissued or held in the treasury),
or granted or agreed to grant any options (including employee stock options),
warrants or other rights for the issue thereof;
(b) borrowed or agreed to borrow any funds;
(c) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities incurred in the ordinary course of business and consistent with
prior practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to any of its
stockholders or any affiliate of any of its stockholders, or purchased or
redeemed, or agreed to purchase or redeem, any of its capital stock, or made or
agreed to make any payment to any of its stockholders or any affiliate of any of
its stockholders, whether on account of debt, management fees or otherwise; or
(e) suffered any material adverse change, in any case or in the
aggregate, in its assets, liabilities, financial condition, results of
operations or business.
SECTION 4.12 Employee Benefit Plans. "Employee Plans" means all plans
required to be disclosed on Schedule 4.12. No Employee Plan fails to comply in
full with applicable provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA") and regulations issued under ERISA, in such a manner as to
constitute, in the aggregate, a material adverse event. Except as shown on
Schedule 4.12, each such plan is a "qualified" plan under section 401(a) of the
Internal Revenue Code. Complete and correct copies of all determination letters
issued by the Internal Revenue Service relating to such qualified plans have
previously been delivered to the NetWolves Parties. No facts or circumstances,
including, without limitation, any "reportable events" as defined in ERISA and
the regulations promulgated under ERISA, exist in connection with such plans
which constitute, in the aggregate, a material adverse event, or which might
constitute grounds for the termination of any such plan or for the appointment
by the appropriate United States District Court of a trustee to administer any
such plan, nor does any such plan have any funding deficiency.
SECTION 4.13 Labor Relations. Other than the Collective Bargaining
Agreement between Watchdog and Allied International Union dated September 1,
1997, Watchdog is not a party to any collective bargaining agreement or other
contract or agreement with any labor organization or other representative of any
of the employees of Watchdog. Watchdog is in compliance in all material respects
with all laws relating to the employment or the workplace, including, without
limitation, provisions relating to wages, hours, collective bargaining, safety
and health, work authorization, equal employment opportunity, immigration and
the withholding of income taxes, unemployment compensation, worker's
compensation, employee privacy and right to know and social security
contributions. There are no pending or, to knowledge of Watchdog, threatened
proceedings or grievances with respect to labor matters concerning Watchdog
which would have, either singly or in the aggregate, a Watchdog Material Adverse
Effect.
SECTION 4.14 Insurance Policies; Claims. Schedule 4.14 sets forth all
insurance policies and bonds maintained by or on behalf of Watchdog. Except as
disclosed in Schedule 4.14, the insurance policies and bonds set forth in
Schedule 4.14 are provided by reputable insurers or issuers, and provide
adequate coverage for all normal risks incident to the businesses of Watchdog
and its assets. No insurance policy issued to or on behalf of Watchdog has ever
been canceled by the policy issuer.
SECTION 4.15 Intellectual Property.
(a) Watchdog owns or possesses all right, title and interest in and
to, or a valid and enforceable license or other right to use all of the
Intellectual Property (as defined below) that is material to the conduct of the
business of Watchdog and all of the rights, benefits and privileges associated
therewith. To the knowledge of Watchdog, it has not infringed, misappropriated
or otherwise violated any Intellectual Property of any other person. To the
knowledge of Watchdog, no person is infringing upon any Intellectual Property
right of Watchdog.
(b) "Intellectual Property" means all patents, patent applications and
patent disclosures; all inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, trade dress, trade names
and corporate names and all the goodwill associated therewith; all registered
and unregistered statutory and common law copyrights; all registrations,
applications and renewals for any of the foregoing; all protocols, codes and
operating systems; and all trade secrets, confidential information, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research information, drawings, specifications, design plans,
improvements, proposals, technical and computer data, documentation and
software, financial business and marketing plans, customer and supplier lists
and related proprietary information, marketing materials and all other
proprietary rights. All of Watchdog Intellectual Property is listed on Schedule
4.15 hereto.
SECTION 4.16 Properties; Assets. Watchdog (a) has good title to all the
properties and assets reflected on the Watchdog Balance Sheet as being owned by
Watchdog (except properties sold or otherwise disposed of since the date thereof
in the ordinary course of business), and those properties acquired after the
date thereof and not thereafter disposed of, free and clear of all Liens, except
(i) statutory liens securing payments not yet due, and (ii) such imperfections
or irregularities of title, claims, liens, charges, security interests or
encumbrances which do not secure monetary obligations and which do not
materially affect the use or marketability of the properties or assets subject
thereto or affected thereby or otherwise materially impair business operations
at such properties, and (b) is the lessee of all personal property reflected on
the Balance Sheet as being leased by it as of the Watchdog Balance Sheet Date
(except for leases that have expired by their terms since the Watchdog Balance
Sheet Date) and those properties leased after the date thereof. Each such lease
and each lease entered into after the date thereof which are material to the
businesses of Watchdog is valid without default thereunder by the lessee or, to
the knowledge of Watchdog, lessor, and Watchdog is in possession of the personal
property purported to be leased thereunder. The assets and properties of
Watchdog are in good operating condition and repair (ordinary wear and tear
excepted), and constitute all of the assets, rights and properties which are
necessary for the businesses and operations of Watchdog.
SECTION 4.17 Bank Accounts. Schedule 4.17 sets forth the name of each bank
in which Watchdog and the Surviving Corporation has an account or safe deposit
box, vault, lock-box or other arrangement, the account number and description of
each account at each bank and the names of all persons authorized to draw
thereon or to have access thereto; and the names of all persons, if any, holding
tax or other powers of attorney from Watchdog and the Surviving Corporation.
SECTION 4.18 Brokers. Except for the warrant being issued to Xxxxxx as
described in Section 7.02 hereof, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transaction contemplated by this Agreement based upon arrangements made
by or on behalf of the Watchdog Parties.
SECTION 4.19 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of Watchdog are complete and correct in all
material respects, and there have been no material transactions involving
Watchdog of the type typically recorded in such records that have not been
recorded.
SECTION 4.20 No Illegal or Improper Transactions. Neither Watchdog nor any
officer, director, employee, agent or affiliate of Watchdog has offered, paid or
agreed to pay to any person or entity (including any governmental official) or
solicited, received or agreed to receive from any such person or entity,
directly or indirectly, any money or anything of value for the purpose or with
the intent of (i) obtaining or maintaining business for the benefit of Watchdog,
(ii) illegally or improperly facilitating the purchase or sale of any product or
service, or (iii) avoiding the imposition of any fine or penalty, in any manner
which is in violation of any applicable ordinance, regulation or law.
ARTICLE V
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
SECTION 5.01 Additional Representations, Warranties and Covenants. All
statements contained in any schedule, document, certificate or other instrument
delivered by or on behalf of any Party to the other pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed
representations, warranties, covenants and agreements made by the delivering
Party, as if made under this Agreement.
SECTION 5.02 Survival. Each statement, representation, warranty, covenant
and agreement made or deemed made by the NetWolves Parties to the Watchdog
Parties under this Agreement shall remain in effect continuously through the
two-year anniversary of the Effective Time and each statement, representation,
warranty, covenant and agreement made or deemed made by the Watchdog Parties to
the NetWolves Parties under this Agreement shall remain in effect continuously
through the date the security guard operations of Watchdog are sold.
ARTICLE VI
COVENANTS OF THE MEMBERS
SECTION 6.01 Conduct of Business. The Members covenant and agree that, from
the date hereof through the Closing Date, except as otherwise set forth in this
Agreement, they shall cause NetWolves to:
(a) conduct its business only in the ordinary course and in a manner
consistent with the current practice of such business, preserve substantially
intact the business organization of NetWolves, keep available the services of
the current employees of NetWolves, preserve the current relationships of
NetWolves with customers and other persons with which NetWolves has significant
business relations and comply with all requirements of law, the violation of
which could have a NetWolves Material Adverse Effect;
(b) not pledge, sell, transfer, dispose of, or otherwise encumber or
grant any rights or interests to others of any kind with respect to, all or any
part of its capital stock or enter into any discussions or negotiations with any
other party to do so;
(c) not pledge, sell, lease, transfer, dispose of or otherwise
encumber any of its property or assets of other than consistent with past
practices and in the ordinary course of business or enter into any discussions
or negotiations with any other party to do so;
(d) not (i) issue any interests nor any options, obligations, rights,
warrants or other securities convertible into or exchangeable for its capital
stock, or any other class of securities, whether debt or equity, of NetWolves;
or (ii) amend or otherwise modify the terms of any such securities, options,
obligations, rights or warrants in a manner inconsistent with the provisions of
this Agreement or the effect of which shall be to make such terms more favorable
to the holders thereof;
(e) not propose or adopt any amendments to its organizational doctrine
which would affect this Agreement or the transactions contemplated hereby;
(f) not merge or consolidate with, or acquire all or substantially all
of the assets of, or otherwise acquire any business operations of, any person or
entity or enter into any agreement for any of the foregoing;
(g) (i) change any of its methods of accounting in effect on the
NetWolves Balance Sheet Date, or (ii) make or rescind any express or deemed
election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, except as may be required by law or GAAP;
(h) take any action that will, or could reasonably be expected to,
result in any of its representations and warranties set forth in this Agreement
being inaccurate or in any of the conditions to the Merger not being satisfied;
or
(i) agree in writing or otherwise to do any of the foregoing.
SECTION 6.02 Maintenance of Assets; Insurance. The Members shall cause
NetWolves to continue to maintain and service the assets of NetWolves consistent
with past practice.
SECTION 6.03 Employment and Noncompete Agreements. On the Closing Date,
Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxxx, Xx., Xxxxxx X. Xxxxxxx,
Xxxx Xxxxxxx, and (in each case, the "NetWolves Executive") shall each enter
into an employment and noncompete agreement ("Employment Agreement") with
NetWolves substantially in the form of Exhibit E attached hereto.
SECTION 6.04 Lock-up Agreements. On the Closing Date each Member shall
enter into a lock-up agreement ("Lock-up Agreement") with Watchdog and Xxxxxx
substantially in the form of Exhibit F attached hereto pursuant to which such
Member will agree not to sell the Shares owned by him for a period of two years
after the Closing without the consent of Xxxxxx.
SECTION 6.05 No Other Negotiations. Unless and until this Agreement shall
have been terminated pursuant to its terms, none of the NetWolves Parties or any
of their Representatives shall, directly or indirectly, solicit, institute,
initiate, pursue or enter into any inquiries, discussions, proposals or
negotiations with any person concerning any merger, sale of substantial assets,
tender offer, sale of shares of stock or similar transaction involving NetWolves
or disclose, directly or indirectly, any information not customarily disclosed
to the public concerning NetWolves, afford to any other person access to the
properties, books or records of NetWolves, or otherwise assist any person
preparing to make or who has made such an offer, or enter into any agreement
with any third party providing for a business combination transaction, equity
investment or sale of significant amount of assets of NetWolves.
SECTION 6.06 No Securities Transactions. None of the NetWolves Parties
shall engage in any transactions involving the securities of Watchdog prior to
the Closing Date, and thereafter, any of the Members that is an employee of the
Surviving Corporation, shall not engage in any such transaction except as
allowed under Watchdog's policies.
SECTION 6.07 Fulfillment of Conditions. The Members shall use their best
efforts to fulfill, or cause to be fulfilled, the conditions specified in
Article IX to the extent that the fulfillment of such conditions is within their
control. The foregoing obligation includes taking or refraining from such
actions as may be necessary to fulfill such conditions (including NetWolves to
conduct its businesses in such manner that on the Closing Date the
representations and warranties of the Members contained herein shall be accurate
as though then made, except as contemplated by the terms hereof).
SECTION 6.08 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, the NetWolves Parties shall give the Watchdog
Parties prompt written notice of any event or development that occurs that (a)
had it existed or been known on the date hereof would have been required to be
disclosed under this Agreement, (b) would cause any of the representations and
warranties of any of the NetWolves Parties contained herein to be inaccurate or
otherwise misleading, (c) gives NetWolves any reason to believe that any of the
conditions set forth in Article IX will not be satisfied, or (d) is of a nature
that is or may be materially adverse to the operations, prospects or condition
(financial or otherwise) of NetWolves.
SECTION 6.09 Assignment of Contracts. The NetWolves Parties shall, in
consultation with the Watchdog Parties and their Representatives, immediately
take all necessary action to, and shall, obtain consents under all Material
Contracts, Leases and Permits and all other instruments to which NetWolves is a
party or by which it is bound which require the consent of any other party or
person to the assignment thereof either by the terms thereof or as a matter of
law for their assumption by the Surviving Corporation in the Merger.
SECTION 6.10 Termination of Operating Agreement. Members hereby agree that
concurrently with the consummation of the Merger (i) each Member will deliver to
NetWolves an executed release reflecting that there are no further obligations
to such Member due and owing from NetWolves and (ii) the NetWolves operating
agreement dated April 15, 1998 will terminate.
SECTION 6.11 Restriction Against Issuance of Additional Shares. For a
period of two years after the Closing, the Members will not (i) vote, as
shareholders of Watchdog, to adopt a stock option plan (other than the plan
described in Section 7.04 hereof) or increase the number of shares subject to
the proposed stock option plan or (ii) take any action which would result in
additional shares of Watchdog Stock being issued to them, directly or indirectly
(other than pursuant to the exercise of the Watchdog Warrants) or result in any
option, warrant or other security exercisable or convertible into Watchdog Stock
to be issued directly or indirectly to them without first obtaining the consent
or affirmative vote of the holders of at least 80% of the outstanding shares of
Common Stock of Watchdog.
SECTION 6.12 Voting Agreement. Each of the Members hereby agrees to vote
all of the shares of Common Stock of Watchdog owned by him "for" the election of
the director designee of Xxxxxx pursuant to the agreement described in Section
7.03 hereof for a period of three years from the Closing Date and "for" the
election of the two directors designated by Xxxxxxxxx Capital Partners, L.L.C.
("Xxxxxxxxx") or its designee until the two-year anniversary of the Effective
Time, except that when the Company's security guard business is sold, the number
of such directors that may be designated by Xxxxxxxxx shall be reduced to one.
The initial directors designated by Xxxxxxxxx are set forth on Schedule 1.06.
SECTION 6.13 Questionnaires. The information provided in the Directors' and
Officers' Questionnaire and the Questionnaire furnished to International
Business Research, Inc. by each Member is complete and true and correct in all
respects.
ARTICLE VII
COVENANTS OF WATCHDOG
SECTION 7.01 Composition of Watchdog Board and Offices At Effective Time.
Concurrently with the consummation of the Merger, the directors and officers of
Watchdog and Merger Subsidiary shall resign and Watchdog shall take all
necessary actions to ensure that at the Effective Time, the Board of Directors
of Watchdog and the Surviving Corporation is comprised of, and the offices of
Watchdog and the Surviving Corporation are occupied by, the persons set forth in
Schedule 1.06.
SECTION 7.02 Xxxxxx Warrant. On the Closing Date, Watchdog shall issue to
Xxxxxx or its designees five-year warrants to purchase 500,000 shares of Common
Stock at an exercise price of $1.63 per share ("Xxxxxx Warrant") substantially
in the form of Exhibit G attached hereto.
SECTION 7.03 Xxxxxx Agreements. On the Closing Date, Watchdog will execute
a letter, substantially in the form of Exhibit H attached hereto, in connection
with (i) the grant to Xxxxxx of a three-year right of first refusal with respect
to any financings and (ii) certain other matters. On the Closing Date, Xxxxxx
will deliver to Watchdog the letter substantially in the form of Exhibit I
attached hereto with respect to a private placement of shares of Common Stock of
Watchdog.
SECTION 7.04 Stock Option Plan. On the Closing Date, Watchdog will adopt a
stock option plan substantially in the form of Exhibit J attached hereto
providing for the grant of options to purchase up to 282,500 shares of Common
Stock.
SECTION 7.05 Registration Rights Agreement. On the Closing Date, Watchdog
will execute the Registration Rights Agreement substantially in the form of
Exhibit K attached hereto.
SECTION 7.06 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, the Watchdog Parties shall give the NetWolves
Parties prompt written notice of any event or development that occurs that (a)
had it existed or been known on the date hereof would have been required to be
disclosed under this Agreement, (b) would cause any of the representations and
warranties of any of the Watchdog Parties contained herein to be inaccurate or
otherwise misleading, (c) gives Watchdog any reason to believe that any of the
conditions set forth in Article IX will not be satisfied, or (d) is of a nature
that is or may be materially adverse to the operations, prospects or condition
(financial or otherwise) of Watchdog.
ARTICLE VIII
JOINT COVENANTS OF THE PARTIES
SECTION 8.01 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Closing Date, each
Party will (i) permit the other Party and its representatives reasonable access
to all of the books, records, reports and other related materials, offices and
other facilities and properties of such Party; (ii) permit the other Party and
its representatives to make such inspections thereof as they may reasonably
request; and (iii) furnish the other Party and its representatives with such
financial and operating data and other information as the other Party may from
time to time reasonably request.
(b) Between the date of this Agreement and the Closing Date, employees
or Representatives of each Party may meet with and interview all employees of
the other Party at reasonable times during business hours as may be mutually
agreed to.
(c) Each Party shall hold and shall cause its Representatives to hold
in strict confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all documents and information
concerning the other party furnished to them or their Representatives in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known,
(ii) in the public domain through no fault of any of such Party or (iii) later
lawfully acquired by the other Party from another source, and, except as
otherwise required by applicable law, rule or regulation, none of the Parties
shall release or disclose such information to any other person, except its
auditors, actuaries, attorneys, financial advisors, bankers and other
consultants and advisors who need to know same in connection with this
Agreement.
SECTION 8.02 Further Action. Each of the Parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Upon the terms and subject to the conditions hereof, each
of the Parties shall use its best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
SECTION 8.03 Schedules. The Parties shall have the obligation to supplement
or amend the Schedules being delivered concurrently with the execution of this
Agreement and annexed hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules. The obligations of
the Parties to amend or supplement the Schedules being delivered herewith shall
terminate on the Closing Date. Notwithstanding any such amendment or
supplementation, the representations and warranties of the Parties shall be made
with reference to the Schedules as they exist at the time of execution of this
Agreement.
SECTION 8.04 Regulatory and Other Authorizations. The Parties will promptly
make all necessary filings and use their best efforts to obtain all
authorizations, consents, orders and approvals of all Federal, state and other
regulatory bodies and officials that are required for the consummation of the
transactions contemplated by this Agreement.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.01 Conditions to Each Party's Obligations. The respective
obligations of each Party to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions:
(a) Directors and Officers of Watchdog and the Surviving Corporation.
The persons listed in Schedule 1.06 shall have been appointed directors or
elected officers, for Watchdog and the Surviving Corporation, as the case may
be;
(b) No Governmental Order or Regulation. There shall not be in effect
any order, decree or injunction (whether preliminary, final or appealable) of a
United States Federal or state court of competent jurisdiction, and no
regulation shall have been enacted or promulgated by any governmental authority
or agency, that prohibits consummation of the Merger.
SECTION 9.02 Conditions to Obligations of NetWolves. The obligations of the
Members and NetWolves to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Watchdog Parties contained in this Agreement shall be true and
correct as of the Closing, with the same force and effect as if made as of the
Closing, and all the covenants contained in this Agreement to be complied with
by the Watchdog Parties on or before the Closing Date shall have been complied
with, and the Members shall have received a certificate of the officers of the
Watchdog Parties to such effect;
(b) Legal Opinion. The Members shall have received from Xxxxxxxx
Xxxxxx & Xxxxxx, counsel to the Watchdog Parties, a legal opinion addressed to
the Members and dated the Closing Date, in the form of Exhibit L hereto;
(c) Necessary Proceedings. All proceedings, corporate or otherwise, to
be taken by the Watchdog Parties in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by officers of the Watchdog Parties as of the Closing,
shall have been delivered to the Members;
(d) No Adverse Change. At the Closing, there shall have been no
material adverse change in the assets, liabilities, financial condition or
business of Watchdog from that shown or reflected in the Watchdog Financial
Statements as of March 31, 1998. Between the date of this Agreement and the
Closing Date, there shall not have occurred an event which, in the reasonable
opinion of NetWolves, materially and adversely affects or could reasonably be
expected to constitute a Watchdog Material Adverse Effect; and
(e) Other Agreements. The Watchdog Subsidiary shall execute and
deliver the Employment Agreements and Watchdog shall execute the NetWolves
Warrant.
SECTION 9.03 Conditions to Obligations of the Watchdog Parties. The
obligations of the Watchdog Parties to consummate the Merger and the other
transactions contemplated by this Agreement shall be subject to the fulfillment,
at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Members contained in this Agreement shall be true and correct
as of the Closing, with the same force and effect as if made as of the Closing,
and all the covenants and agreements contained in this Agreement to be complied
with by any of the NetWolves Parties on or before the Closing Date shall have
been complied with, and the Watchdog Parties shall have received a certificate
of the Members to such effect;
(b) Legal Opinion. The Watchdog Parties shall have received from Xxxxx
Xxxxxxx, general counsel to NetWolves, legal opinion addressed to the Watchdog
Parties dated the Closing Date, in the form of Exhibit M annexed hereto;
(c) Consents. The Members shall have obtained and delivered to the
Watchdog Parties consents to the Merger of all third parties as may be
necessary;
(d) No Adverse Change. At the Closing, there shall have been no
material adverse change in the assets, liabilities, financial condition or
business of NetWolves from that shown or reflected in the NetWolves Financial
Statements as of March 31, 1998. Between the date of this Agreement and the
Closing Date, there shall not have occurred an event which, in the reasonable
opinion of Watchdog, materially and adversely affects or could reasonably be
expected to constitute a NetWolves Material Adverse Effect.
(e) Necessary Proceedings. All proceedings, corporate or otherwise, to
be taken by the NetWolves Parties in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by the officers of NetWolves as of the Closing, shall
have been delivered to the Watchdog Parties;
(f) Other Agreements. The Members shall execute and deliver the
Employment Agreements and the Lock-up Agreements. The Xxxxxx Warrant and Letter
Agreements and the Registration Rights Agreement shall have been executed.
ARTICLE X
INDEMNIFICATION
SECTION 10.01 Indemnification by the Members. Subject to the limitations
set forth in Section 10.04, the Members shall severally, in proportion of their
ownership of the NetWolves Interests, indemnify and hold harmless Watchdog and
the Surviving Corporation from and against, and shall reimburse Watchdog and the
Surviving Corporation for, any Damages which may be sustained, suffered or
incurred by them, whether as a result of any Third Party Claim or otherwise, and
which arise from or in connection with or are attributable to (i) the breach of
any of the Member's covenants, representations, warranties, agreements,
obligations or undertakings contained in this Agreement or (ii) the operations
of NetWolves through the Closing Date. This indemnity shall survive the Closing
until the two-year anniversary of the Effective Time.
SECTION 10.02 Indemnification by Watchdog. Subject to the limitations set
forth in Section 10.04, Watchdog shall indemnify and hold harmless the Members
from and against, and shall reimburse the Members for, any Damages which may be
sustained, suffered or incurred by the Members, whether as a result of Third
Party Claims or otherwise, and which arise or result from or in connection with
or are attributable to the breach of any of the Watchdog Parties covenants,
representations, warranties, agreements, obligations or undertakings contained
in this Agreement. This indemnity shall survive the Closing.
SECTION 10.03 Notice, Etc. A Party required to make an indemnification
payment pursuant to this Agreement ("Indemnifying Party") shall have no
liability with respect to Third Party Claims or otherwise with respect to any
covenant, representation, warranty, agreement, undertaking or obligation under
this Agreement unless the Party entitled to receive such indemnification payment
("Indemnified Party") gives notice to the Indemnifying Party specifying (i) the
covenant, representation or warranty, agreement, undertaking or obligation
contained herein which it asserts has been breached, (ii) in reasonable detail,
the nature and dollar amount of any Claim the Indemnified Party may have against
the Indemnifying Party by reason thereof under this Agreement, and (iii) whether
or not the Claim is a Third Party Claim. All Claims by any Indemnified Party
under this Article X shall be asserted and resolved as follows:
(a) Third-Party Claims. In the event that an Indemnified Party becomes
aware of a Third Party Claim for which an Indemnifying Party would be liable to
an Indemnified Party hereunder, the Indemnified Party shall with reasonable
promptness notify in writing the Indemnifying Party of such Claim, identifying
the basis for such Claim or demand, and the amount or the estimated amount
thereof to the extent then determinable (which estimate shall not be conclusive
of the final amount of such Claim and demand; the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party and shall pay the reasonable fees and disbursements of such counsel with
regard thereto; provided, however, that any Indemnified Party is hereby
authorized, prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose fees and
expenses shall be at the expense of the Indemnifying Party, to file any motion,
answer or other pleading and take such other action which it reasonably shall
deem necessary to protect its interests or those of the Indemnifying Party until
the date on which the Indemnified Party receives such notice from the
Indemnifying Party. After the Indemnifying Party shall retain such counsel, the
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (x) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (y) the named parties of any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Indemnifying Party shall not, in connection with any proceedings or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one such firm for the Indemnified Party (except to the
extent the Indemnified Party retained counsel to protect its (or the
Indemnifying Party's) rights prior to the selection of counsel by the
Indemnifying Party). If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Third Party Claim which the Indemnifying Party defends. A Third
Party Claim may not be settled by the Indemnifying Party without the prior
written consent of the Indemnified Party (which consent will not be unreasonably
withheld) unless, as part of such settlement, the Indemnified Party shall
receive a full and unconditional release; provided, however, that the
Indemnifying Party shall not settle any claim without the prior written consent
of the Indemnified Party (which consent shall not be unreasonably withheld) if
such Claim is not exclusively for monetary Damages.
(b) Books and Records. After delivery of a Claim Notice, so long as
any right to indemnification exists pursuant to this Article X, the affected
Parties each agree to retain all books and records related to such Claim Notice.
In each instance, the Indemnified Party shall have the right to be kept fully
informed by the Indemnifying Party and its legal counsel with respect to any
legal proceedings. Any information or documents made available to any Party
hereunder and designated as confidential by the Party providing such information
or documents and which is not otherwise generally available to the public and
not already within the knowledge of the Party to whom the information is
provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the Parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third party (except
for the representatives of the Party being provided with the information, in
which event the Party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
SECTION 10.04 Limitations. No Indemnifying Party shall be required to
indemnify an Indemnified Party pursuant to this Article X unless the aggregate
of all amounts for which indemnity would otherwise be due against it exceeds
$50,000. Notwithstanding anything to the contrary contained in this Section 10,
any decision regarding the enforcement, execution or settlement of an indemnity
claim hereunder in which the Members are the Indemnifying Party, may only be
made by the member(s) of the Board of Directors of Watchdog who was designated
by Xxxxxxxxx.
ARTICLE XI
TERMINATION
SECTION 11.01 Methods of Termination. The transactions contemplated herein
may be terminated and/or abandoned at any time but not later than the Closing:
(a) By mutual written consent of the Watchdog Parties and the
NetWolves Parties;
(b) By either the NetWolves Parties or the Watchdog Parties if a
material default or breach shall be made by the other Party with respect to the
due and timely performance of any of its covenants and agreements contained
herein and such default cannot be cured within a reasonable period of time, or
if any of the other Party's representations and warranties are not true and
correct in all material respects as of the Closing Date; or
(c) By the Watchdog Parties, on the one hand, or the NetWolves
Parties, on the other, if either of the Parties amends or supplements any
Schedule hereto in accordance with Section 8.02 hereof and such amendment or
supplement reflects a material adverse change in the condition or operations of
NetWolves or the Watchdog Companies, as the case may be, or their respective
businesses, taken as a whole, after the date hereof.
SECTION 11.02 Effect of Termination. In the event of termination by a
Party, or both Parties, pursuant to Section 11.01 hereof, written notice thereof
shall forthwith be given to the other Party and all payment obligations (except
as set forth in this Section 11.02) and all further obligations of the Parties
shall terminate and no Party shall have any right against the other Party hereto
and each Party shall bear its own expenses. Notwithstanding the foregoing, if
this Agreement is so terminated by one Party because one or more of the
conditions to such Party's obligations hereunder is not satisfied as a result of
the other Party's failure to comply with its obligations under this Agreement
(other than a failure by a Party, after the good faith exercise of best efforts,
to obtain any consent, approval or other permission required pursuant to this
Agreement), it is expressly agreed and understood that the terminating Party's
right to pursue all legal remedies for breach of contract or otherwise,
including, without limitation, Damages (other than consequential Damages)
relating thereto, shall survive such termination unimpaired. If the transactions
contemplated by this Agreement are terminated and/or abandoned as provided
herein:
(a) Each Party hereto will return all documents, work papers and other
material (and all copies thereof) of the other Party, relating to the
transactions contemplated hereby, whether so obtained before or after the
execution hereof, to the Party furnishing the same; and
(b) All confidential information received by either Party hereto with
respect to the business of the other Party shall be treated in accordance with
Section 8.02 hereof.
ARTICLE XII
DEFINITIONS
SECTION 12.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Business Day" means a day of the year on which banks are not required or
not authorized to be closed in the City of New York.
"Damages" means the dollar amount of any loss, damage, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements incurred by an Indemnified Party in any action or proceeding
between the Indemnified Party and the Indemnifying Party or between the
Indemnified Party and a third party, which is determined (as provided in Article
X) to have been sustained, suffered or incurred by a Party and to have arisen
from or in connection with an event or state of facts which is subject to
indemnification under this Agreement; the amount of Damages shall be the amount
finally determined by a court of competent jurisdiction or appropriate
governmental administrative agency (after the exhaustion of all appeals) or the
amount agreed to upon settlement in accordance with the terms of this Agreement,
if a Third Party Claim, or by the parties, if a Direct Claim.
"Lien" means any lien, claim, charge, option, security interest,
restriction or encumbrance.
"Party" means Watchdog and/or the Merger Subsidiary, on the one hand, and
the Members and/or NetWolves, on the other hand (collectively, the "Parties").
"Representatives" of either Party means such Party's employees,
accountants, auditors, actuaries, counsel, financial advisors, bankers,
investment bankers and consultants.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax" or "Taxes" means all income, gross receipts, sales, stock transfer,
excise, bulk transfer, use, employment, franchise, profits, property or other
taxes, fees, stamp taxes and duties, assessments, levies or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority with respect thereto.
"Third Party Claim" means a claim, demand, suit, proceeding or action by a
person, firm, corporation or government entity other than a party hereto or any
affiliate of such party.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.01 Expenses. Except as otherwise provided herein, all costs and
expenses, including, without limitation, fees and disbursements of
Representatives, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, whether or not the Closing shall have occurred. The Parties
acknowledge that Watchdog and NetWolves may have outstanding obligations as of
the Closing to pay their respective attorneys, accountants, investment bankers
(i.e., GKN Securities Corp.) and IBR. The Members hereby agree to cause Watchdog
to pay such obligations promptly as approved by the Board of Directors of
Watchdog.
SECTION 13.02 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or by
telecopy, one day after delivery to a nationally recognized courier, or three
business days after mailed by registered mail (postage prepaid, return receipt
requested), in each case, to the Parties at the following addresses (or at such
other address for a Party as shall be specified by like notice, except that
notices of changes of address shall be effective upon receipt):
(a) If to NetWolves or the Members, as set forth in Exhibit A,
NetWolves, LLC
00 X. Xxx Xxxxxx
Xxxxx 000
Xxxxxxxx, Xxxx 00000
Attention: Xxxx Xxxxxxx
Telecopier No.: (000) 000-0000
with a copy to:
00 X. Xxx Xxxxxx
Xxxxx 000
Xxxxxxxx, Xxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopier No.: (000) 000-0000
(b) If to Watchdog or the Merger Subsidiary:
Watchdog Patrols, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx XxXxxxx
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxxx Mollen & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopier No.: 000-000-0000
SECTION 13.03 Press Release; Public Announcements. Promptly after execution
of this Agreement, the Parties shall issue a joint press release in the form of
Exhibit O annexed hereto. The Parties shall not make any other public
announcements in respect of this Agreement or the transactions contemplated
herein without prior consultation and approval by the other party as to the form
and content thereof, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, any Party may make any disclosure which its
counsel advises is required by applicable law or regulation, in which case the
other Party shall be given such reasonable advance notice as is practicable in
the circumstances and the Parties shall use their best efforts to cause a
mutually agreeable release or announcement to be issued.
SECTION 13.04 Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by the Parties.
SECTION 13.05 Waiver. At any time prior to the Closing, either Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Party, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the Party to be bound thereby.
SECTION 13.06 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 13.07 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 13.08 Entire Agreement. This Agreement and the Schedules and
Exhibits hereto constitute the entire agreement and supersede all prior
agreements and undertakings, both written and oral, between the Members and
Watchdog with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 13.09 Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
Parties. This Agreement is not assignable by any Party without the express
written consent of the other Parties.
SECTION 13.10 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the law of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law. Each Party hereby submits to the exclusive
jurisdiction of the courts (city, state and federal) located in the County of
New York, State of New York, for any action, proceeding or claim brought by any
other Party pursuant to this Agreement or any other agreement, instrument or
other document executed and delivered in connection with this Agreement or
pursuant hereto and waives any objection to the venue of any such suit, action
or proceeding and the right to assert that such forum is not a convenient forum.
Service of process in any such action or proceeding brought against a Party may
be made by registered mail addressed to such Party at the address set forth in
Section 13.02 or to such other address as such Party shall notify the other
Party in writing is to be used for such purpose pursuant to Section 13.02.
SECTION 13.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first written above.
NETWOLVES, LLC WATCHDOG PATROLS, INC.
By: By:/s/ Xxxxxx X. XxXxxxx
Name: Xxxxxx X. XxXxxxx
/s/ XXxxxxx X. Xxxxx Title:Chairman
XXXXXXX X. XXXXX, As Member and Individually
/s/ Xxxxx X. Xxxxxxx WATCHDOG ACQUISITION CORP.
XXXXX X. XXXXXXX, As Member and Individually
/s/ Xxxxxx X. Xxxxxxx By:/s/ Xxxxxx X. XxXxxxx
XXXXXX X. XXXXXXX, As Member and Individually Name: Xxxxxx X. XxXxxxx
Title:Chairman
/s/ Xxxxx X. Xxxxxxxx
XXXXX X. XXXXXXXX, As Member and Individually
/s/ Xxxxxx X. Xxxxxxxx
XXXXXX X. XXXXXXXX, XX., As Member and Individually
/s/ Xxxx Xxxxxxx
XXXX XXXXXXX, As Member and Individually
