EXHIBIT 10.16
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
the 30th day of July, 1999, by and among eUNIVERSE, INC., a Nevada corporation
("EUI"), THE BIG NETWORK, INC., a Delaware corporation ("BNI"), and Xxxxx
Xxxxxxx, Xxxx Xxxxx and Xxxxxxx Xxxxxxx (each individually, a "Majority BNI
Shareholder" and collectively, the "Majority BNI Shareholders").
RECITALS:
WHEREAS, the Majority BNI Shareholders are the owners of the issued and
outstanding shares of the capital stock of BNI, $0.001 par value, set forth on
Exhibit A hereto (collectively, the "Majority BNI Shares").
WHEREAS, EUI desires to acquire all of the issued and outstanding capital
stock of BNI in exchange for 1,800,000 shares of common stock, $.001 par value,
of EUI (the "EUI Shares") as set forth in this Agreement, and each Majority BNI
Shareholder desires to convey its Majority BNI Shares to EUI in exchange for the
number of EUI Shares set forth opposite such Majority BNI Shareholder's name on
Exhibit A hereto.
WHEREAS, EUI, BNI and the shareholders of BNI have determined that it is
desirable to effect a plan of reorganization (the "Reorganization") meeting the
requirements of Section 368(a) of the Internal Revenue Code of 1986, as amended,
as more particularly described below.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and respective
representations, warranties, covenants and agreements hereinafter contained, the
parties hereby agree as follows:
1. Certain Definitions.
1.1 Certain Definitions. As used in this Agreement, the following
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capitalized terms shall have the respective meanings set forth below:
"BNI Benefit Plans" shall mean any and all employee benefit plans maintained or
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contributed to by BNI (including, without limitation, any "employee benefit
plan", as defined in Section 3(3) of ERISA), and any material bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, insurance or other plan, arrangement
or understanding (whether or not legally binding).
"BNI Business" shall mean the business of creating and developing gaming,
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entertainment and
community software and other products for the Internet.
"BNI Disclosure Schedule" shall mean the disclosure schedule prepared and
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executed by BNI and attached hereto as Schedule 2.
"BNI Intellectual Property" shall mean any and all intellectual property
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(including, without limitation, patents, patent rights, patent applications,
trademarks, trademark applications, service marks, trade names, brands,
franchises, copyrights, drawings, trade secrets, know-how, computer software and
general intangibles of a like nature) licensed or owned by BNI or used by BNI in
the conduct of its business.
"BNI Permits" shall mean all permits, licenses and approvals of all Governmental
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Entities (as defined hereinafter) necessary for the lawful conduct of the BNI
Business.
"BNI Personnel" shall mean all personnel employed by BNI.
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"BNI Revenue" shall mean the gross revenue of BNI (as determined by EUI's
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regular accounting firm in accordance with United States generally accepted
accounting principles, consistently applied).
"BNI Shareholders" shall mean the Majority BNI Shareholders and each of the
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other shareholders of BNI who execute an Exchange Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
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amended, and all rules and regulations issued thereunder, as amended.
"EUI Disclosure Schedule" shall mean the disclosure schedule prepared and
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executed by EUI and attached hereto as Schedule 1.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
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"Exchange Agreement" shall mean each of those certain Stock Exchange Agreements
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by and between EUI and the shareholders of BNI, other than the Majority BNI
Shareholders, dated of equal date herewith and incorporated by reference herein.
"GAAP" shall mean United States generally accepted accounting principles,
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consistently applied.
"Governmental Entity" shall mean any national, state, municipal or local
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government, public body or authority, domestic or foreign, or any subdivision or
agency thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority, including courts of competent jurisdiction, domestic or foreign.
"Licenses" shall mean all licenses, registrations, franchises, qualifications,
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provider numbers,
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permits and authorizations issued by any Governmental Entity to BNI for the
operation of the BNI Business including, without limitation, those listed on
Section 4.18 of Schedule 2;
"Person" shall mean any individual, corporation, limited liability company,
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partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
"Prepaid Expenses" shall mean those actual prepaid expenses described in
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reasonable detail on Section 4.21 of Schedule 2, all of which have been prepaid
by BNI and/or the Majority BNI Shareholders in connection with the BNI Business.
"Securities Act" shall mean the Securities Act of 1933.
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"Specified Exchange Act Filings" shall mean, with respect to EUI, the Form 10
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filed with the Securities and Exchange Commission (the "SEC") on June 14, 1999
(the "Specified 10"), and (ii) each Quarterly Report, if any, on Form 10-Q and
Current Report on Form 8-K filed with the S EC since the filing of the Specified
10.
"Taxes" shall mean all taxes, assessments and governmental charges and any other
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similar charges imposed by any federal, state, county, local or foreign
government, taxing authority, subdivision or agency thereof, inclusive of
interest, penalties or additions imposed thereon or in connection therewith.
1.2 Terms Defined in Other Sections. Capitalized terms defined in a
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Section of this Agreement are defined in the Sections indicated below:
"Agreement" shall have the meaning set forth in the outset of this Agreement.
"BNI" shall have the meaning set forth in the outset of this Agreement.
"BNI Opinion" shall have the meaning set forth in Section 6.1(i).
"BNI Reports" shall have the meaning set forth in Section 4.5(b).
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Employment Agreements" shall have the meaning set forth in Section 6.1(i)(vii).
"EUI" shall have the meaning set forth in the outset of this Agreement.
"EUI Opinion" shall have the meaning set forth in Section 6.2(e).
"EUI Shares" shall have the meaning set forth in the recitals of this Agreement.
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"Leased Premises" shall have the meaning set forth in Section 4.7(b).
"Majority BNI Shareholders" shall have the meaning set forth in the outset of
this Agreement.
"Majority BNI Shares" shall have the meaning set forth in the recitals of this
Agreement.
"Reorganization" shall have the meaning set forth in the recitals of this
Agreement.
"Returns" shall have the meaning set forth in Section 4.12.
2. Plan of Reorganization.
The Reorganization shall consist of the following transactions:
2.1 At the closing of the transactions described in this Agreement (the
"Closing") within thirty (30) days from the execution of this Agreement, unless
otherwise agreed between the parties (the actual date, the "Closing Date"), the
Majority BNI Shareholders shall convey, assign, transfer and deliver all of the
Majority BNI Shares to EUI. Subsequent closings may occur from time to time up
until six (6) months from the date of this Agreement pursuant to executions of
the Exchange Agreements.
2.2 At the Closing on the Closing Date, EUI shall issue and deliver to
each Majority BNI Shareholder the number of EUI Shares set forth opposite such
Majority BNI Shareholder's name on Exhibit A hereto, provided, that, for the
purpose of securing the indemnification obligations of the Majority BNI
Shareholders set forth in this Agreement, twenty percent (20%) of the EUI
Shares, (together with the EUI Shares deposited pursuant to each of the Exchange
Agreements, the "Escrow Amount") which would otherwise have been delivered to
the Majority BNI Shareholders and the remaining BNI Shareholders at the Closing
shall instead be delivered to the Escrow Agent (as defined in Section 8.2(a)
below) and be held in escrow and disbursed solely for the purposes and in
accordance with the terms set forth in Section 8 of this Agreement.
2.3 On or prior to the Closing Date, all options, warrants and other stock
purchase rights to purchase BNI capital stock (the "Purchase Rights") shall be
terminated by either BNI or the Majority BNI Shareholders and there shall be no
outstanding Purchase Rights that survive the Closing. The Purchase Rights as of
the date of execution of this Agreement are listed in Schedule 2.3 hereto.
2.4 No fractional shares of EUI Shares will be issued, no cash will be
paid in lieu of fractional shares, and the total number of EUI Shares issued to
each BNI Shareholder shall be rounded down to the nearest whole number.
3. Representations and Warranties of EUI.
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EUI represents and warrants to BNI (which representations and warranties shall
survive the Closing for a period of fifteen (15) months from the Closing Date)
as follows:
3.1 Organization. Each of EUI and its subsidiaries is a corporation or
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other legal entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of EUI and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and/or in
good standing would not in the aggregate have a material adverse effect on the
business, operations or financial condition of EUI or its subsidiaries.
3.2 Capitalization. The authorized capital stock of EUI consists of
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250,000,000 shares of common stock, $.001 par value, of which, as of June 23,
1999 there were 14,809,598 issued and outstanding, and 50,000,000 shares of
Preferred Stock, $0.10 par value, of which, as of the date of this Agreement
1,832,912 shares of Series A 6% Convertible Preferred Stock are issued and
outstanding.
3.3 EUI Shares. All EUI Shares which are to be issued pursuant to the
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Reorganization will be, when issued in accordance with the terms thereof,
original issue, duly authorized, validly issued, fully paid and nonassessable
and free of all encumbrances.
3.4 Authority Relative to this Agreement. EUI has full corporate power
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and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of EUI, and no other corporate
proceedings on the part of EUI are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by EUI and constitutes a valid and binding
agreement of EUI, enforceable against EUI in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights generally and by the application of general principles of
equity.
3.5 Consents and Approvals; No Violations. Except for applicable
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requirements of the Exchange Act, the Securities Act and state Blue Sky laws, no
filing with, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the consummation by EUI of the transactions
contemplated by this Agreement; provided that in making this representation EUI
is relying on and this representation is conditioned upon the accuracy of the
representations and warranties of BNI and the Majority BNI Shareholders in
Section 4 of this Agreement. Except as set forth in Section 3.5 of the EUI
Disclosure Schedule, neither the execution and delivery of this Agreement by EUI
nor the consummation by EUI of the transactions contemplated hereby nor
compliance by EUI with any of the provisions hereof
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will (i) conflict with or result in any breach of any provision of the charter
or bylaws of EUI; (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which EUI or any of its
subsidiaries is a party or by which any of them or any of their properties or
assets may be bound; or (iii) to the best knowledge of the officer executing
this Agreement on behalf of EUI, violate any order, writ, injunction, decree,
statute, treaty, rule or regulation applicable to EUI, any of its subsidiaries
or any of their properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which are not material to the business,
operations or financial condition of EUI or its subsidiaries and which will not
prevent or delay the consummation of the transactions contemplated hereby.
3.6 Specified Exchange Act Filings. EUI has made all filings with the SEC
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required by federal law or the applicable rules and regulations of the SEC
thereunder since June 14, 1999. EUI has delivered to BNI and the Majority BNI
Shareholders a copy of each of its Specified Exchange Act Filings. Each
Specified Exchange Act Filing, at the time filed, (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not materially false or
misleading, and (ii) complied as to form in all material respects with the
applicable requirements of the Exchange Act and the applicable rules and
regulations of the SEC thereunder. Since June 14, 1999, there has been no
material adverse change in the business, assets, operations or financial
condition of EUI or its subsidiaries.
3.7 Litigation. There is no action, suit, proceeding, claim, arbitration
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or investigation pending, or as to which EUI has received any notice of
assertion against EUI which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
3.8 No Material Adverse Changes. Except as set forth in Section 3.8 of
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the EUI Disclosure Schedule, since the date of the balance sheet included in
EUI's recently filed Form 10, EUI has conducted its business in the ordinary
course and there has not occurred:
(a) any material adverse change in the financial condition,
liabilities, assets or business of EUI;
(b) any amendment or change in the Articles of Incorporation or Bylaws
or EUI (except for the reincorporation of EUI in Delaware that may be
accomplished prior to the Closing); or
(c) any damage to, destruction or loss of any assets of EUI (whether
or not covered by insurance) that materially and adversely affects the financial
condition or business of EUI.
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4. Representations and Warranties of BNI and the Majority BNI Shareholders.
BNI and each Majority BNI Shareholder hereby jointly and severally
represent and warrant to EUI (which representations and warranties shall survive
the Closing for a period of fifteen (15) months from the Closing Date):
4.1 Organization. BNI is a corporation duly organized, validly existing
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and in good standing under the laws of the State of Delaware and has all
requisite power and authority to own, lease and operate its properties and to
carry on the BNI Business as now being conducted and to perform the terms of
this Agreement and the transactions contemplated herein. BNI is duly qualified
or registered and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the BNI Business
conducted by it makes such qualification or licensing necessary. BNI has
heretofore delivered to EUI complete copies of the charter and bylaws, as
currently in effect, of BNI. Such charter and bylaws are in full force and
effect and BNI is not in violation of any of the provisions therein.
4.2 Capitalization, Stock Ownership.
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(a) The authorized capital stock of BNI consists of 15,000,000 shares
of Common Stock, $ 0.001 par value, of which, as of July 29, 1999, 2,928,572 are
issued and outstanding, and 5,000,000 shares of Preferred Stock, $ 0.001 par
value. The authorized Preferred Stock consists of 1,300,000 shares designated
as Series A Preferred Stock, of which, as of July 29, 1999, 1,160,772 shares are
issued and outstanding and 3,700,000 shares of undesignated Preferred Stock,
none of which are issued and outstanding. All the issued and outstanding
Majority BNI Shares are validly issued, fully paid and non-assessable and free
of preemptive rights. As of the date of this Agreement, BNI has reserved
400,000 shares of Common Stock for issuance to employees and consultants
pursuant to a stock option plan, none of which are subject to outstanding,
unexcercised options and 120,000 shares remain available for future grant.
Except as disclosed in Section 4.2 of the BNI Disclosure Schedule and except as
set forth above, there are not now, and on the Closing Date there will not be,
any shares of capital stock (or securities substantially equivalent to capital
stock) of BNI issued or outstanding or any subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character obligating BNI to issue, transfer or sell any of its securities,
except as provided by this Agreement.
(b) BNI does not own, directly or indirectly, any capital stock or
other equity securities of any corporation or have any direct or indirect equity
or ownership interest in any Person. There are not now, and on the Closing Date
there will not be, any voting trusts or other agreements or understandings to
which BNI is a party or is bound with respect to the voting of the capital stock
of BNI. There are no Persons in which BNI has any voting rights, equity
interests or other investment.
(c) Each of the Majority BNI Shareholders is the beneficial and record
owners of the issued and outstanding shares of BNI set forth opposite his name
on Exhibit A free and
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clear of any liens, encumbrances or restrictions on transfer of any nature
whatsoever other than the obligations arising under this Agreement. Except for
this Agreement and the transactions contemplated hereby, none of the Majority
BNI Shareholders has any legal obligation, absolute or contingent, to any Person
or firm to sell any of the Majority BNI Shares or enter into any agreement with
respect thereto.
4.3 Authority Relative to this Agreement. BNI has full corporate power
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and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Each Majority BNI Shareholder has the power
and authority to execute and deliver this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by BNI and the Majority BNI Shareholders,
and no other corporate proceedings on the part of BNI are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement constitutes a valid and binding agreement of BNI and the Majority BNI
Shareholders, enforceable against BNI and the Majority BNI Shareholders in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reoganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
4.4 Consents and Approvals; No Violations. Except for applicable
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requirements, if any, of the Exchange Act, the Securities Act and state Blue Sky
laws, no filing with, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the consummation by BNI and/or the Majority
BNI Shareholders of the transactions contemplated by this Agreement. Neither BNI
nor any of the Majority BNI Shareholders is aware of any such requirements.
Neither the execution and delivery of this Agreement by BNI and/or the Majority
BNI Shareholders nor the consummation by BNI and/or the Majority BNI
Shareholders of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the charter or bylaws of BNI, (ii)
result in a violation or breach of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which BNI and/or any
Majority BNI Shareholder is a party or by which BNI and/or any Majority BNI
Shareholder or any of their respective properties or assets may be bound, or
(iii) violate any order, writ, injunction, decree, statute, treaty, rule or
regulation applicable to BNI and/or any Majority BNI Shareholder or any of their
respective properties or assets.
4.5 Reports.
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(a) None of the BNI Reports (as defined hereinafter) contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading. Each of the balance
sheets and related statements (including any related notes) included in the BNI
Reports presents fairly the consolidated financial position of BNI as of the
respective dates thereof, and present fairly the results of operations and the
changes in financial position of BNI for the respective periods, except, in the
case of unaudited interim financial statements, for year-end audit adjustments,
consisting only of normal year end
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adjustments. The BNI Reports are in accordance with the books and records of
BNI, and have been prepared in accordance with GAAP.
(b) BNI has delivered to EUI copies of unaudited statements of income
and a balance sheet for BNI for each month between and including January, 1998
and June, 1999 (collectively, the "BNI Reports").
4.6 No Material Adverse Changes. Except as disclosed on the unaudited
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statements of income and balance sheets of BNI for the six month period ended
June, 1999, or as set forth in Section 4.6 of the BNI Disclosure Schedule, since
June 30, 1999 there has not been any:
(a) change that has had a net effect greater than $50,000 on the BNI
Business, or the financial condition, assets, liabilities or earnings of BNI
("Material Adverse Change") and to the best knowledge of BNI, there is no fact,
circumstance, event, occurrence, contingency or condition which should
reasonably be expected to result in any Material Adverse Change in the BNI
Business or the assets, financial or other condition, operations, liabilities or
prospects of BNI;
(b) change in the number of shares of capital stock of BNI issued or
outstanding or any declaration, setting aside, or payment of any dividend or
other distribution (whether in cash, securities, property or otherwise) in
respect of BNI's capital stock;
(c) other than increases in salary or bonus of less than five percent
(5%) to each employee of BNI, (i) increase in the compensation payable or to
become payable to any BNI Personnel or (ii) any bonus, incentive compensation,
service award or other like benefit, granted, made or accrued, contingently or
otherwise, to the credit of any BNI Personnel;
(d) mortgage, pledge or subjection to any lien or encumbrance of any
character whatsoever of any of the assets of BNI, except the lien of current
Taxes incurred but not yet due and payable;
(e) sale, assignment or transfer of any assets of BNI that are
material, singly or in the aggregate to BNI other than in the ordinary course of
business;
(f) waiver of any rights of substantial value to BNI, whether or not
in the ordinary course of business;
(g) cancellation or termination by BNI of any contract, agreement or
other instrument to which BNI is or was a party, which cancellation or
termination has caused or could reasonably be expected to cause a loss of
expected revenue to BNI of more than $25,000;
(h) liability incurred by BNI except liabilities incurred in the
ordinary course of business;
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(i) capital expenditures or the execution of any lease other than
leases of personal property in the ordinary course with respect to any aspect
of the BNI Business or the incurring of any liability therefor;
(j) borrowing of money by BNI or guaranteeing by BNI of any
indebtedness of others;
(k) lending of any money by BNI or otherwise pledging the credit of
BNI;
(l) failure to conduct the business of BNI in the ordinary course
consistent with past practices;
(m) change in the method of accounting or accounting practice of BNI
from the methods and practice used to prepare the June, 1999 financial
statements;
(n) loss of services of any BNI Personnel that is material to the
conduct of the BNI Business;
(o) material cancellation by any supplier or contractor to BNI;
(p) cancellation by any customer or customers which have caused or
could reasonably be expected to cause a loss of expected revenue to BNI of more
than $10,000;
(q) extraordinary item of loss (as defined in Opinion No. 30 of the
Accounting Principles Board of the American Institute of Certified Public
Accountants); or
(r) agreement by BNI to do any of the foregoing.
4.7 Lists of Properties, Contracts, Etc. Sections 4.7(a) through 4.7(k)
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of the BNI Disclosure Schedule contain accurate lists and summary descriptions
of the following:
(a) Qualification. Section 4.7(a) of the BNI Disclosure Schedule
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contains all jurisdictions in which BNI is a registered foreign corporation;
(b) Real Property and Leases. Section 4.7(b) of the BNI Disclosure
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Schedule contains all leases of real property to which BNI is a party
(indicating in each such case, the terms of the lease) and all premises occupied
by BNI under rental arrangements without leases (including in each case the
amount of rent and the type of occupancy (collectively, the "Leased Premises").
(c) Intellectual Property. Section 4.7(c) of the BNI Disclosure
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Schedule contains, to the best knowledge of BNI, all BNI trademark, service
xxxx, patent and copyright registrations, pending or otherwise;
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(d) Personal Property. Section 4.7(d) of the BNI Disclosure Schedule
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contains, except for individual items having a fair market value of less than
$5,000 (subject to a maximum fair market value of $50,000 for all such
individual items in the aggregate), each item of machinery, inventory,
equipment, computer hardware, motor vehicles, office furniture, fixtures and
similar personal property and furnishings owned or leased by BNI indicating the
current depreciated book value of owned items and the terms and annual lease
payments of leased items;
(e) Insurance. Section 4.7(e) of the BNI Disclosure Schedule contains
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all policies of insurance in force with respect to BNI, including, without
restricting the generality of the foregoing, those covering properties,
buildings, machinery, inventory, equipment, furniture, fixtures, operations and
lives of, or performance of their duties by, BNI Personnel, including the policy
numbers, names and addresses of insurers, expiration dates, descriptions and
amounts of coverage and annual premiums as of the date hereof;
(f) Other Contracts. Section 4.7(f) of the BNI Disclosure Schedule
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contains all material contracts and commitments valued at greater than $10,000
in revenue or expense per year and not otherwise listed in any other schedule
hereto of BNI (including, without limitation, confidentiality agreements,
purchase orders, agreements, undertakings or commitments to any governmental or
regulatory authority, agreements with salespersons, and other agreements with
customers and suppliers). Section 4.7(f) also contains descriptions of each
existing oral agreement or arrangement of BNI (other than agreements or
arrangements that do not involve, individually, more than $15,000 per year in
revenue or expense). Except for oral agreements or arrangements that do not
involve, individually, more than $25,000 per year in revenue or expense, and, in
the aggregate, more than $100,000 per year in revenue or expense, BNI has no
obligations or liabilities under any oral agreements or arrangements that have
not been disclosed to EUI;
(g) Labor Agreements. Section 4.7(g) of the BNI Disclosure Schedule
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contains all labor contracts, employment agreements and BNI Benefit Plans with
respect to BNI;
(h) Powers of Attorney. Section 4.7(h) of the BNI Disclosure Schedule
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contains the names of all Persons holding powers of attorney from BNI;
(i) Indebtedness. Section 4.7(i) of the BNI Disclosure Schedule
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contains all notes, debentures, bonds, letters of credit and other instruments
evidencing indebtedness (including capital leases, guarantees and lines of
credit) of BNI;
(j) Bank Accounts. Section 4.7(j) of the BNI Disclosure Schedule
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contains the name of each institution in which BNI has a bank account, safe-
deposit box, the number of any such account or box, and the names of all Persons
authorized to draw thereon or to have access thereto; and
(k) Credit Cards. Section 4.7(k) of the BNI Disclosure Schedule
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contains the name of each institution with whom BNI has credit cards, debit
cards or similar charge accounts
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or lines of credit, the identifying account numbers for each such card, account
or line of credit and the names of all Persons authorized to use, draw upon or
have access to such cards, accounts or lines of credit.
(l) Copies of Documents. BNI has previously delivered to EUI or EUI's
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agents or representatives or otherwise made available for inspection by EUI or
EUI's agents or representatives, true and complete copies of:
(i) all leases, agreements, contracts, undertakings, commitments
and arrangements listed in Sections 4.7(b), 4.7(d), 4.7(f) and 4.7(g) of the BNI
Disclosure Schedule;
(ii) all agreements or written materials with respect to the BNI
Intellectual Property listed in Section 4.7(c) of the BNI Disclosure Schedule;
(iii) all policies of insurance listed in Section 4.7(e) of the
BNI Disclosure Schedule;
(iv) all instruments evidencing a power of attorney listed in
Section 4.7(h) of the BNI Disclosure Schedule; and
(v) all securities, notes, debentures, bonds, letters of credit
and other instruments of indebtedness listed in Section 4.7(i) of the BNI
Disclosure Schedule.
4.8 Title to Properties. Except as otherwise disclosed in Section 4.8 of
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the BNI disclosure Schedule, to the best knowledge of BNI, (i) BNI has good and
marketable title to all of its properties and assets, real and personal,
tangible and intangible; (ii) such properties and assets referred to in clause
(i) of this Section are free and clear of all liens and encumbrances of any
character whatsoever, except of the lien of Taxes not yet due and payable; (iii)
BNI has valid and enforceable leases with respect to the Leased Premises, has
performed all the obligations required to be performed by it under said leases
and possesses and quietly enjoys said premises under said leases, and such
premises are not subject to any liens, encumbrances, easements, rights of way,
building or use restrictions, exceptions, reservations or limitations that
interfere with or impair the present and continued use thereof in the usual and
normal conduct of the business of BNI. BNI has not has received notice of
violation of any applicable zoning regulation, ordinance or other law, order,
regulation or requirement relating to the operations of the Leased Premises, and
BNI knows of no such violation. BNI has not received notice of any pending or
threatened condemnation proceedings relating to any of the Leased Premises, and
to the best knowledge of BNI, there are no such pending or threatened
proceedings. The tangible properties and equipment owned, operated or leased by
BNI are in good operating condition, ordinary wear and tear excepted, and, to
the best knowledge of BNI, are in conformity in all material respects with all
applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning, environmental, occupational safety and health laws
and regulations) presently in effect or presently scheduled to take effect. BNI
does not own any of the buildings, plants or structures located on the Leased
Premises or any other real property and
12
is not a party to any contract, and does not hold any options, for the purchase
of any real property. The tangible properties and equipment owned, operated or
leased by BNI and the real property leased by BNI are all the tangible and real
properties necessary to operate the BNI Business in the manner currently
operated by BNI.
4.9 No Default. Except as set forth in Section 4.9 of the BNI Disclosure
----------
Schedule, BNI is not in default or violation (and no event has occurred which
with notice or the lapse of time or both would constitute a default or
violation) of any term, condition or provision of (i) its Certificate of
Incorporation or its bylaws, (ii) any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which BNI is a party or
by it or to which any of its properties or assets may be bound or (iii) any
order, writ, injunction, decree, statute, rule or regulation applicable to BNI.
4.10 Litigation. Except as disclosed in Section 4.10 of the BNI
----------
Disclosure Schedule, there is no action, suit, proceeding, tax audit,
investigation or review pending or to BNI's knowledge threatened with respect to
BNI, the BNI Business, any of the assets of BNI, the Majority BNI Shares, or any
of the transactions contemplated hereby before any Governmental Entity, or
otherwise at law or in equity, which individually or in the aggregate are
reasonably likely to (i) have a material adverse effect on the assets, business,
operations or financial condition of BNI or (ii) prevent or impair the
consummation of the transactions contemplated hereby. BNI is not in default
with respect to any order, writ, injunction or decree of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality which, if not cured, should reasonably be expected to
(i) have a material adverse effect upon the BNI Business, or the assets,
operations and financial condition of BNI, or (ii) prevent or impair the
consummation of the transactions contemplated hereby.
4.11 Compliance with Applicable Law. BNI holds all BNI Permits, except
------------------------------
for such BNI Permits which would not have a material adverse effect on the BNI
Business or the assets, operations or financial condition of BNI. BNI is in
compliance with the terms of all BNI Permits, except where the failure to so
comply would not have a material adverse effect on the BNI Business or the
assets, operations or financial condition of BNI. The BNI Business is not being
conducted in violation of any applicable law, ordinance, rule, regulation,
decree or order of any Governmental Entity, except for violations which do not
and would not have a material adverse effect on the BNI Business, or the assets,
operations or financial condition of BNI.
4.12 Taxes. Except as set forth in Section 4.12 of the BNI Disclosure
-----
Schedule, BNI has correctly prepared and timely filed all material federal,
state, local and foreign tax returns, estimates and reports, including payroll
and sales tax reports (collectively, the "Returns") required to be filed by it,
and BNI has duly paid, caused to be paid or made adequate provision for the
payment of all Taxes required to be paid in respect of the periods covered by
the Returns and has established on its books and records reserves that are
adequate for payment of all Taxes anticipated to be payable in respect of all
calendar periods since the periods covered by the Returns. All deficiencies and
assessments asserted by federal, state, local or foreign taxing authorities have
been paid, fully settled or adequately provided for in the financial statements
contained in the BNI Reports. Except as set forth in Section 4.12 of the BNI
Disclosure
13
Schedule, there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal or foreign income tax return of
BNI. BNI has complied in all material respects with all applicable laws, rules
and regulations relating to the payment and withholding of taxes and has timely
and properly withheld from employees' wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under applicable laws.
4.13 ERISA and BNI Benefit Plans.
---------------------------
(a) With respect to any and all BNI Benefit Plans, BNI has provided to
EUI a true and correct copy of, where applicable, (i) the most recent annual
report, if any, (Form 5500) filed with the IRS, (ii) each BNI Benefit Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
BNI Benefit Plan and (iv) the most recent actuarial report or valuation relating
to a BNI Benefit Plan subject to Title IV of ERISA, if any. None of the BNI
Benefit Plans are multiemployer plans within the meaning of Section 3(37) of
ERISA. Each of the BNI Benefit Plans covered by ERISA, if any (i) has been
operated in all material respects in accordance with ERISA, (ii) has not engaged
in any prohibited transactions (as such term is defined in Section 406 of ERISA)
and (iii) has met the minimum funding standards of Section 412 of the Code. No
material Reportable Event (within the meaning of Section 4043 of ERISA) has
occurred and is continuing with respect to any BNI Benefit Plan. Since the
enactment of ERISA, BNI has not terminated any pension plan or withdrawn from
any multiemployer pension plan.
(b) With respect to the BNI Benefit Plans, no event has occurred, and
to the knowledge of BNI there exists no condition or set of circumstances which
are reasonably likely to occur, in connection with which BNI would be subject to
any liability (except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any other applicable
law.
(c) Except as set forth in Section 4.13(c) of the BNI Disclosure
Schedule, with respect to the BNI Benefit Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of BNI, which obligations are
reasonably likely to have a material adverse effect on the BNI Business or the
assets, operations or financial condition of BNI.
(d) Except as set forth in Section 4.13(d) of the BNI Disclosure
Schedule, and as required by law, BNI does not maintain, and is not required to
contribute to and has no liabilities with respect to, any BNI Benefit Plan and
no BNI Personnel or dependent thereof is entitled to any benefits from BNI. All
BNI Benefit Plans have been maintained and operated in material compliance with
their terms and applicable law. Except as set forth in Section 4.13(d) of the
BNI Disclosure Schedule, no individual is a party to an employment contract
pertaining to the BNI Business that will be effective on the Closing Date.
14
(e) Except as set forth in Section 4.13(e) of the BNI Disclosure
Schedule, the transactions contemplated by this Agreement (either alone or
together with any other transaction) will not (i) entitle any BNI Personnel to
severance pay or other similar payments, (ii) accelerate the time of payment or
vesting or increase the amount of benefits or compensation due to any BNI
Personnel or (iii) result in any payments (including parachute payments)
becoming due to any BNI Personnel.
(f) BNI has complied in all material aspects with all applicable laws,
rules and regulations relating to the employment of labor, including those
relating to wages, hours, collective bargaining and the payment of social
security and similar Taxes.
(g) BNI is not an employer subject to the Worker Adjustment and
Retraining Notification Act.
(h) There are no BNI Personnel who are entitled to (i) any pension
benefit that is unfunded or (ii) any pension or other benefit to be paid upon
termination of employment other than as required by Section 601 of ERISA, and no
other benefits whatsoever are payable to any BNI Personnel after termination of
employment (including retiree medical and death benefits).
(i) In connection with the operation of the BNI Business, (i) there is
no significant labor trouble, labor strike, material controversy, material
slowdown or stoppage actually pending against or affecting BNI and, to the best
knowledge of BNI, none is or has been threatened, and (ii) BNI has no collective
bargaining agreements with respect to any BNI Personnel.
(j) Section 4.13(j) of the BNI Disclosure Schedule sets forth the
name, location, title, date of employment, salaries, bonuses (and any changes in
salaries or bonuses since June, 1999 other than increases in salary or bonus of
less than 5% to each employee of BNI) of each employee of BNI. Except as set
forth on Section 4.13(j) of the BNI Disclosure Schedule, no employee of BNI
whose annual rate of income (including salary and bonus) is greater than $50,000
has terminated, or has provided notice to BNI of his or her intention to
terminate, his or her relationship with BNI. BNI has no knowledge of any plan
of any employee of BNI to do so.
4.14 Small Business Issues. None of the existing business relationships
---------------------
of BNI are based on or are the result of any agreement, understanding or
relationship arising out of or relating to BNI's status as a "small business
concern" or "minority-owned business concern" or other similar status, as such
terms or similar terms are used under applicable federal or state law.
4.15 Intellectual Property. Except as set forth in Section 4.15 of the
---------------------
BNI Disclosure Schedule, (i) no claim is pending or, to the knowledge of BNI,
threatened to the effect that the present or past operations of BNI infringes
upon or conflicts with the rights of others with respect to any BNI Intellectual
Property, and (ii) no claim is pending or, to the best knowledge of BNI,
threatened to the effect that any of BNI's rights to the BNI Intellectual
Property is/are invalid or unenforceable. To the knowledge of BNI, no contract,
agreement or understanding with any
15
party exists which would impede or prevent the continued use by BNI of the
entire right, title and interest of BNI in and to any BNI Intellectual Property.
The BNI Intellectual Property listed in Section 4.15 of the BNI Disclosure
Schedule consists of all BNI Intellectual Property used or being developed for
use in the BNI Business or necessary for the conduct of the BNI Business. No
Person has a right to receive a royalty with respect to any of the BNI
Intellectual Property. Except as set forth in Section 4.15 of the BNI Disclosure
Schedule, BNI has no licenses granted by or to it or other agreements to which
it is a party relating in whole or in part to any BNI Intellectual Property,
whether owned by BNI or otherwise. Except as set forth in Section 4.15 of the
BNI Disclosure Schedule, and to the knowledge of BNI, BNI is not infringing upon
or otherwise violating the rights of any third party with respect to any BNI
Intellectual Property or using any of the BNI Intellectual Property in a manner
that would give rise to an obligation to render an accounting to any Person as a
result of co-authorship, co-invention or an express or implied contract for any
use or transfer thereof. BNI has taken all reasonable measures to secure and to
protect confidential business information and the trade secrets of BNI. BNI has
not sent or otherwise communicated to any other Person any notice, charge, claim
or assertion of, or has any knowledge of, any present, impending or threatened
infringement by such other Person of any BNI Intellectual Property or
misappropriation of any BNI Intellectual Property by such other Person.
4.16 Change in Control. Except as set forth in Section 4.16 of the BNI
-----------------
Disclosure Schedule, BNI is not a party to any contract, agreement or
understanding which contains a "change in control" provision or "potential
change in control" provision that would violate the terms of this Agreement.
4.17 Insurance. All policies of insurance (or renewals thereof) set forth
---------
in Section 4.7(e) of the BNI Disclosure Schedule are outstanding and duly in
force on the date hereof. Such policies are in the amounts shown in Section
4.7(e) of the BNI Disclosure Schedule, and insure the structures and equipment
of BNI for their replacement values against loss, theft and destruction and
insure the properties and business of BNI against such losses and risks as are
adequate in accordance with customary industry practice to protect the
properties and business of BNI. BNI has not received notice from any insurer or
agent of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance, and no
such improvements or expenditures are required.
4.18 Licenses. Except as set forth in Section 4.18 of the BNI Disclosure
--------
Schedule, to the best knowledge of BNI and the Majority BNI Shareholders, no
Licenses are required for BNI to own and operate the BNI Business in the manner
operated on the date hereof. The Licenses are in full force and effect and have
been validly issued. As of the date hereof, no action or proceeding is pending
or, to the knowledge of BNI and the Majority BNI Shareholders, threatened before
any Governmental Entity to revoke, refuse to renew or modify such Licenses or
other authorizations of the BNI Business.
4.19 Brokers. Neither this Agreement nor the conveyance of the Majority
-------
BNI Shares or any other transaction contemplated by this Agreement was induced
or procured through any
16
Person acting on behalf of or representing BNI and/or any of the Majority BNI
Shareholders as broker, finder, investment banker, financial advisor or in any
similar capacity.
4.20 Powers of Attorney. There are no Persons holding a power of attorney
------------------
on behalf of any Majority BNI Shareholder(s) which would enable such Persons to
sell any Majority BNI Shares.
4.21 Prepaid Expenses. All of the Prepaid Expenses set forth in Section
----------------
4.21 of Schedule 2 have been paid by BNI prior to the date hereof and relate to
good faith expenses incurred by BNI in connection with the conduct of the BNI
Business.
4.22 No Registration Under the Securities Act. Except as provided under
----------------------------------------
the terms of the Registration Rights Agreement attached hereto as Exhibit D (the
"Rights Agreement"), each Majority BNI Shareholder understands that the EUI
Shares to be issued to the Majority BNI Shareholders under this Agreement have
not been and will not be registered under the Securities Act in reliance upon
exemptions contained in the Securities Act or interpretations thereof, and
cannot be offered for sale, sold or otherwise transferred unless such shares of
EUI stock are registered or qualify for exemption from registration under the
Securities Act.
4.23 Investment. Each Majority BNI Shareholder has such knowledge and
----------
experience in financial and business matters that such Majority BNI Shareholder
is capable of evaluating the merits and risks such Majority BNI Shareholder's
investment in the EUI Shares being acquired hereunder. Each Majority BNI
Shareholder understands and is able to bear any economic risks associated with
such investment. Each Majority BNI Shareholder acknowledges that EUI has had
the opportunity ask questions to the officers and management of EUI about the
business and financial condition of EUI. The EUI Shares being issued to the
Majority BNI Shareholders hereunder are being acquired by the Majority BNI
Shareholders in good faith solely for their own accounts, for investment and not
with a view toward resale or other distribution within the meaning of the
Securities Act. Such EUI Shares shall not be offered for sale, sold or
otherwise transferred by the Majority BNI Shareholders without either
registration or exemption from registration under the Securities Act or
applicable state securities laws. No EUI Shares were offered to any of the
Majority BNI Shareholders by means of publicly disseminated advertisements or
sales literature.
5. Continued Accuracy of Representations and Warranties.
All representations and warranties of the parties contained herein shall be
true in all material respects at and as of the Closing Date with the same effect
as though such representations and warranties were made at and as of such time;
and each party shall have performed and complied with all obligations,
covenants, and conditions required by this Agreement to have been performed or
complied with by it prior to or on the Closing Date.
6. Conditions Precedent to the Obligations of the Parties.
17
6.1 Conditions Precedent to the Obligations of EUI. The obligations of
----------------------------------------------
EUI to effect the Reorganization are further subject to the satisfaction at or
prior to the Closing Date of the following conditions, unless waived by EUI in
writing:
(a) The representations and warranties of BNI and the Majority BNI
Shareholders set forth in this Agreement shall be true and correct as of the
date of this Agreement, and shall also be true and correct (except for such
changes as are contemplated by the terms of this Agreement) on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date. At the Closing, BNI shall deliver to EUI, a certificate signed by
an officer of BNI certifying that the representations and warranties of BNI set
forth in this Agreement are true and correct as of the date of this Agreement.
(b) From the date of this Agreement through the Closing Date, BNI
shall not have suffered any Material Adverse Changes (as defined in Section
4.6(a) herein) in the BNI Business or the assets, operations or financial
condition of BNI (other than changes relating to the transactions contemplated
by this Agreement, including the change in control contemplated hereby).
(c) BNI and the Majority BNI Shareholders shall have performed all
obligations and covenants and conditions required to be performed by it and them
under this Agreement at or prior to the Closing Date.
(d) BNI shall have furnished EUI with copies of (i) resolutions duly
adopted by the Board of Directors of BNI approving the execution and delivery of
this Agreement and all other necessary or proper corporate action to enable BNI
to comply with the terms of this Agreement, and (ii) resolutions duly adopted by
the requisite number of shareholders of BNI approving and adopting this
Agreement and the Reorganization, such resolutions to be certified by the
Secretary or Assistant Secretary of BNI.
(e) BNI shall have no outstanding debt other than reasonable and
customary accounts payable incurred in the ordinary course of business and what
is incurred as a result of the consummation of the transactions contemplated by
this Agreement.
(f) BNI shall have twenty-five thousand dollars ($25,000.00) excess of
current assets over current liabilities as shown on BNI's financial statements
as of the Closing Date prepared in accordance with GAAP.
(g) BNI shall have provided to EUI an earnings projection for one (1)
year satisfactory in form and substance to EUI.
(h) At EUI's election and expense, EUI may provide for the appraisal
of BNI's assets by an independent third party appraiser reasonably acceptable to
EUI, which appraisal is satisfactory to EUI.
18
(i) BNI shall have furnished EUI with an opinion (the "BNI Opinion"),
dated the Closing Date, of counsel to BNI, in form and substance satisfactory to
EUI and its counsel, to the effect that:
(i) BNI is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware;
(ii) the authorized capital stock of BNI consists of 15,000,000
shares of Common Stock, 5,000,000 shares of Preferred Stock, of which 1,300,000
shares are designated as Series A Preferred Stock and 3,700,000 shares are
undesignated Preferred Stock, all of which have a par value of $ 0.001 per
share, and the capital stock of BNI issued and outstanding on the date hereof
were validly issued and outstanding, fully paid and nonassessable and none of
such issued and outstanding capital stock of BNI were issued in violation of any
preemptive rights of shareholders of BNI, and between the date hereof and the
Closing Date no additional shares of stock of BNI have been issued;
(iii) BNI has taken all required corporate action to approve and
adopt this Agreement, and this Agreement is a valid and binding obligation of
BNI enforceable against BNI and the Majority BNI Shareholders in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(iv) the execution and delivery of this Agreement by BNI and the
Majority BNI Shareholders does not, and the consummation of the transactions
contemplated by this Agreement by BNI and the Majority BNI Shareholders will
not, constitute (i) a breach or violation of, or a default under, the charter or
bylaws of BNI, or (ii) a breach, violation or impairment of, or a default under,
any judgment, decree, order, statute, law, ordinance, rule or regulation now in
effect applicable to the Majority BNI Shareholders, BNI or its properties known
to such counsel, or any agreement, indenture, mortgage, lease or other
instrument of BNI;
(v) all filings required to be made by BNI prior to or on the
Closing Date with, and all consents, approvals, permits or authorizations
required to be obtained by BNI prior to or on the Closing Date from,
Governmental Entities in connection with the execution and delivery of this
Agreement by BNI and the Majority BNI Shareholders and the consummation of the
transactions contemplated by this Agreement by BNI and the Majority BNI
Shareholders, have been so made or obtained, as the case may be;
(vi) except as otherwise disclosed in the BNI Disclosure Schedule,
such counsel does not know of any litigation, proceedings, arbitral action or
governmental investigation pending against BNI, its assets, business or
properties, the capital stock of BNI, the Majority BNI Shareholders or the
transactions contemplated by this Agreement; and
(vii) the employment agreements with Xxxxx Xxxxxxx, Xxxx Xxxxx,
Xxxx Xxxxxxxx, Xxxx Xxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxx, Xxxxx Xxxxxxx and Skip
Sellers, substantially in the form attached hereto as Exhibits B and C,
respectively (collectively, the
19
"Employment Agreements"), have been duly executed and delivered by the employees
stated therein and are valid and binding obligations of the employees stated
therein enforceable against the employees stated therein in accordance with
their terms, subject as to enforcement to bankruptcy, reorganization, moratorium
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
In rendering the BNI Opinion, such counsel may rely on certificates of officers
and other agents of BNI and public officials as to matters of fact and, as to
matters relating to the law of jurisdictions other than California, upon
opinions of counsel of such other jurisdictions reasonably satisfactory to EUI
and its counsel, provided such reliance is expressly noted in the BNI Opinion
and the opinions of such other counsel and the certificates of such officers,
agents and public officials relied on are attached to the BNI Opinion.
(j) BNI shall have received all credit and debit cards listed on the
BNI Disclosure Schedule.
(k) BNI shall have (i) delivered to EUI one or more certificates
representing the Majority BNI Shares, free and clear of all liens and
encumbrances of any nature whatsoever, duly endorsed in blank for transfer or
accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed; and (ii) delivered or
otherwise made available for inspection to EUI, the official and complete
corporate records of BNI comprised of the Certificate of Incorporation and all
amendments thereto, the board and shareholder minute books, stock ledger and by-
laws of BNI.
(l) BNI shall have delivered to EUI written resignations, effective as
of the Closing Date, of each Person that is a director or officer of BNI from
such officer or director.
(m) All actions, proceedings, instruments and documents required to
carry out this Agreement, or incidental hereto, and all other legal matters
shall have been approved by counsel to EUI, and such counsel shall have received
all documents, certificates and other papers reasonably requested by it in
connection therewith.
(n) The Majority BNI Shareholders shall state, and reaffirm as of the
Closing Date, that the materials, including current financial statements,
prepared and delivered by EUI to the Majority BNI Shareholders, have been read
and understood by the Majority BNI Shareholders, that they are familiar with the
business of EUI, that they are acquiring the EUI Shares under Section 4(2),
commonly known as the private offering exemption of the Securities Act, and that
the EUI Shares are restricted and may not be resold, except in reliance on an
exemption under the Securities Act.
(o) Each Majority BNI Shareholder shall have executed with EUI the
Rights Agreement substantially in the form attached hereto at Exhibit D.
20
6.2 Conditions Precedent to Obligations of BNI. The obligations of BNI to
------------------------------------------
effect the Reorganization are subject to the satisfaction at or prior to the
Closing Date of the following conditions, unless waived by BNI in writing:
(a) The representations and warranties of EUI set forth in this
Agreement shall be true and correct as of the date of this Agreement, and shall
also be true in all material respects (except for such changes as are
contemplated by the terms of this Agreement) on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date, except
if and to the extent any failures to be true and correct would not have a
material adverse effect on EUI. At the Closing, EUI shall deliver to BNI, a
certificate signed by an officer of EUI certifying that the representations and
warranties of EUI set forth in this Agreement are true and correct as of the
date of this Agreement.
(b) From the date of this Agreement through the Closing Date, except
as set forth in the EUI Disclosure Schedule, EUI shall not have suffered any
adverse changes in its business, operations or financial condition which are
material to EUI (other than changes generally affecting the industries in which
EUI operates, including changes due to actual or proposed changes in law or
regulation).
(c) EUI shall have materially performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(d) EUI shall have furnished BNI with copies of (i) resolutions duly
adopted by its Boards of Directors approving the execution and delivery of this
Agreement and all other necessary or proper corporate action to enable them to
comply with the terms of this Agreement, and (ii) to the extent required
pursuant to EUI's charter or bylaws, resolutions duly adopted by the holders of
the EUI Shares approving the issuance of the EUI Shares, such resolutions to be
certified by the Secretary or Assistant Secretary of EUI.
(e) EUI shall have executed with each BNI Shareholder a Rights
Agreement substantially in the form attached hereto at Exhibit D.
(f) EUI shall have furnished BNI with an opinion (the "EUI Opinion"),
dated the Closing Date, of counsel to EUI, in form and substance satisfactory to
BNI and its counsel, to the effect that:
(i) EUI is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada;
(ii) EUI has the corporate power to carry on its business as it
is being conducted on the Closing Date;
(iii) the EUI Shares are validly issued and outstanding, fully
paid and nonassessable;
21
(iv) the authorized capital stock of EUI consists of 250,000,000
shares of common stock, $.001 par value, and 50,000,000 shares of preferred
stock, $ 0.10 par value;
(v) EUI has taken all required corporate action to approve and adopt
this Agreement, and this Agreement is a valid and binding obligation of EUI,
enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, reorganization, moratorium, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles;
(vi) the execution and delivery of this Agreement by EUI do not, and
the consummation of the transactions contemplated by this Agreement by EUI will
not, constitute (i) a breach or violation of, or a default under, the charter or
bylaws of EUI, or (ii) a breach, violation or impairment of, or a default under,
any judgment, decree, order, statute, law, ordinance, rule or regulation now in
effect applicable to either EUI or EUI's properties known to such counsel, or
any agreement, indenture, mortgage, lease or other instrument of either or to
which EUI is subject and in each case known to such counsel;
(vii) all filings required to be made by EUI prior to or on the
Closing Date with, and all consents, approvals, permits or authorizations
required to be obtained by EUI prior to or on the Closing Date from,
governmental and regulatory authorities of the United States and the State of
Nevada in connection with the execution and delivery of this Agreement by EUI
and the consummation of the transactions contemplated by this Agreement have
been so made or obtained, as the case may be;
(viii) all applicable requirements of the Exchange Act, the
Securities Act and state Blue Sky laws related to the consummation of the
transactions contemplated by this Agreement have been so met by EUI;
(ix) the Employment Agreements have been duly executed and delivered
by EUI and are valid and binding obligations of EUI, enforceable against EUI in
accordance with their terms, subject as to enforcement to bankruptcy,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
In rendering the EUI Opinion, such counsel may rely on certificates of officers
and other agents of EUI and public officials as to matters of fact and, as to
matters relating to the law of jurisdictions other than Nevada, upon opinions of
counsel of such other jurisdictions reasonably satisfactory to BNI and its
counsel, provided such reliance is expressly noted in the EUI Opinion and the
opinions of such other counsel and the certificates of such officers, agents and
public officials relied on are attached to the EUI Opinion.
(g) All actions, proceedings, instruments and documents required to
carry out this Agreement, or incidental hereto, and all other legal matters
shall have been approved by counsel to BNI, and such counsel shall have received
all documents, certificates and other papers reasonably requested by it in
connection therewith.
22
7. Closing.
The Closing of the Reorganization shall take place on the Closing Date, or
on such other date as the parties may mutually agree. All shares of capital
stock to be delivered hereunder shall be duly endorsed or with duly executed
stock powers attached, in either case in proper form for transfer, and in
accordance with all necessary corporate action.
8. Escrow.
8.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties by BNI and the Majority BNI Shareholders in this
Agreement or in any instrument delivered at the Closing pursuant to this
Agreement (each as modified by the respective section in the BNI Disclosure
Schedule) and all the representations and warranties by EUI (each as modified by
the respective section in the EUI Disclosure Schedule) in this Agreement or in
any instrument delivered at the Closing pursuant to this Agreement shall survive
the Reorganization and shall continue for the periods following the Closing Date
set forth in Section 8.2(a). No other representations or warranties of BNI and
the Majority BNI Shareholders shall survive the Reorganization.
8.2 Escrow Arrangements.
-------------------
(a) At the Closing, the Majority BNI Shareholders will be deemed to
have received and deposited with the Escrow Agent (as defined below) the Escrow
Amount (plus any additional shares as may be issued upon any stock split, stock
dividend or recapitalization effected by EUI after the Closing) without any act
of any BNI Shareholder. As soon as practicable after the Closing, the Escrow
Amount, without any act of any BNI Shareholder, will be deposited with Xxxxxx,
Xxxx & Xxxxxxxxxx, LLC, or other institution acceptable to EUI and the
Securityholder Agent (as defined in Section 8.2(g) below)) as Escrow Agent (the
"Escrow Agent), such deposit to constitute an escrow fund (the "Escrow Fund") to
be governed by the terms set forth herein and at EUI's cost and expense. The
portion of the Escrow Amount contributed on behalf of each BNI Shareholder shall
be in proportion to the aggregate EUI Shares, which such holder would otherwise
be entitled under Section 2.2. The Escrow Fund shall be available to compensate
EUI for any claims, losses, liabilities damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses and expenses of
investigation and defense incurred by EUI, its officers or directors directly or
indirectly as a result of any inaccuracy or breach of a representation or
warranty of BNI or of any Majority BNI Shareholder contained herein, or in any
certificate, instrument, schedule or document delivered by BNI in connection
with this Agreement or the Reorganization, or any failure by BNI prior to the
Closing to perform or comply with any covenant contained herein (hereinafter
individually a "Loss" and collectively "Losses"), provided that claims arising
out of an inaccuracy or breach of any representations and warranties and any
covenant of BNI and the Majority BNI Shareholders contained in this Agreement
and in any certificate, instrument, schedule or document delivered
23
by BNI or the Majority BNI Shareholders at the Closing in connection with this
Agreement or the Reorganization must be asserted on or before 5:00 p.m.,
California time on the date that is fifteen (15) months following the Closing
Date. EUI may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d) below) identifying Losses,
the aggregate amount of which exceed $25,000, have been delivered to the Escrow
Agent as provided in paragraph (d) and either there is no objection thereto or
any objection has been resolved in accordance with the provisions of this
Section 8.2.
(b) Escrow Period; Distribution upon Termination of Escrow Period.
-------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Closing and shall terminate at 5:00 p.m., California
time on the date that is fifteen (15) months following the Closing Date, both
such dates to be certified to the Escrow Agent in an Officer's Certificate (the
"Escrow Period"). That amount of the Escrow Fund that is necessary in the
reasonable judgment of EUI, subject to the objection of the Securityholder Agent
and the subsequent arbitration of the matter in the manner provided in Section
8.2(f) hereof, to satisfy any unsatisfied claims (and reasonable legal and other
fees) asserted prior to the termination of such Escrow Period as are specified
in any Officer's Certificate delivered to the Escrow Agent prior to termination
of such Escrow Period, may be retained in the Escrow Fund after termination of
the Escrow Period. As soon as all such claims have been resolved as evidenced
by the written memorandum of the Securityholder Agent and EUI, the Escrow Agent
shall deliver to the BNI Shareholders the remaining portion of the Escrow Fund
that is not required to satisfy such claims and related expenses. If no
Officer's Certificate pertaining to unsatisfied claims is delivered to the
Escrow Agent prior to the termination of the Escrow Period, upon termination of
the Escrow Period, the Escrow Agent, without further authorization or
instruction shall distribute the remainder of the Escrow Fund to the BNI
Shareholders in accordance with the provisions of this Section 8.2(b).
Deliveries of Escrow Amounts to the BNI Shareholders pursuant to this Section
8.2(b) shall be made in proportion to their respective original contributions to
the Escrow Fund (as set forth in Exhibit A delivered to the Escrow Agent
immediately upon the formation of the Escrow Fund).
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of EUI and shall hold
and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any of the EUI Shares or other equity securities issued or
distributed by EUI (including shares issued upon a stock split) ("New Shares")
in respect of EUI Shares in the Escrow Fund which have not been released from
the Escrow Fund shall be deposited with the Escrow Agent and added to the Escrow
Fund and become a part thereof. New Shares issued in respect of shares of EUI
Shares which have been released from the Escrow Fund shall not be added to the
Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on EUI Shares held in the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the record holders thereof.
24
(iii) Until a claim is made by EUI under this Section 8.2, each
BNI Shareholder shall have voting rights with respect to the EUI Shares
contributed to the Escrow Fund by such BNI Shareholder (and on any voting
securities added to the Escrow Fund in respect of such EUI Shares).
(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of EUI
(an "Officer's Certificate''): (A) stating that EUI has paid or properly accrued
or reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 8.2(e) hereof, deliver to EUI out of
the Escrow Fund, as promptly as practicable, EUI Shares held in the Escrow Fund
in an amount equal to such Losses.
(ii) For the purposes of determining the number of EUIShares to
be delivered to EUI out of the Escrow Fund pursuant to Section 8.2(d)(i) hereof,
the EUI Shares shall be valued at the price per share of the EUI Shares on the
Closing Date.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
receipt of such Officer's Certificate, the Escrow Agent shall make no delivery
to EUI of any Escrow Amounts pursuant to Section 8.2(d) hereof unless the Escrow
Agent shall have received written authorization from the Securityholder Agent to
make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of shares of EUI Shares from the Escrow Fund in
accordance with Section 8.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in writing to
any claim or claims made in any Officer's Certificate, the Securityholder Agent
and EUI shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Securityholder Agent and EUI
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute EUI Shares
from the Escrow Fund in accordance with the terms thereof.
25
(ii) If no such agreement can be reached after good faith
negotiation, either EUI or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
such matter shall be settled by arbitration conducted by three arbitrators. EUI
and the Securityholder Agent shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator, each of which
arbitrators shall be independent and have at least ten years relevant
experience. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a court of competent law or equity, should
the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 8.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Any arbitration under this Section 8 shall be held in San
Francisco County, California, and shall be conducted by, and under the
Commercial Arbitration Rules then in effect, of the American Arbitration
Association. For purposes of this Section 8.2(f), in any arbitration hereunder
in which any claim or the amount is at issue, EUI shall be deemed to be the Non-
Prevailing Party in the event that the arbitrators award EUI less than the sum
of one-third (1/3) of the disputed amount; otherwise, the BNI Shareholders as
represented by the Securityholder Agent shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation reasonable attorneys' fees and costs,
incurred by the other party to the arbitration. Judgment upon any award
rendered by the arbitrators may be entered in any court having jurisdiction.
The Securityholder Agent may pay such amounts (including without limitation
unreimbursed expenses of counsel for the BNI Shareholders and EUI, arbitrator
fees and administrative costs) by distributing shares of EUI Shares from the
Escrow Fund with respect to which EUI has not made a claim; provided, however,
that no EUI Shares may be distributed from the Escrow Fund prior to the
termination of the Escrow Period and such shares may be distributed only to the
extent that such shares are not required to satisfy any claim for Losses.
(g) Securityholder Agent of the BNI Shareholders; Power of Attorney.
---------------------------------------------------------------
(i) In the event that the Reorganization is approved, effective
upon such vote, and without further act of any Shareholder, Xxxxxxx Xxxxxxx
shall be appointed as agent and attorney-in-fact (the "Securityholder Agent")
for each BNI Shareholder (except such BNI
26
Shareholders, if any, as shall have perfected their appraisal or dissenters'
rights under California Law), for and on behalf of BNI Shareholders, to give and
receive notices and communications, to authorize delivery to EUI of EUI Shares
from the Escrow Fund in satisfaction of claims by EUI, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the BNI Shareholders from time to
time upon no less than thirty (30) days prior written notice to EUI and Escrow
Agent; provided that the Securityholder Agent may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the position of Securityholder
Agent may be filled by approval of the holders of a majority in interest of the
Escrow Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the BNI Shareholders.
(ii) The Securityholder Agent shall not be liable for any act done
or omitted hereunder as Securityholder Agent while acting in good faith and in a
manner that is not grossly negligent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of all the
BNI Shareholders for whom a portion of the Escrow Amount otherwise issuable to
them is deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such BNI Shareholders, and the Escrow Agent and EUI may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision act, consent or instruction of each and every such BNI
Shareholder of BNI. The Escrow Agent and EUI are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event either EUI or any BNI
------------------
Shareholder becomes aware of a third-party claim which it believes may result in
a demand against the Escrow Fund, such party shall notify the Securityholder
Agent or EUI, as the case may be, of such claim, and the Securityholder Agent,
as representative for the BNI Shareholders, shall be entitled, at the expense of
the BNI Shareholders, to participate in any defense of such claim. EUI shall
have the right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Securityholder Agent, no settlement
of any such claim with third-party claimants shall alone be determinative of the
amount of any claim against the Escrow Fund. In the event that the
Securityholder Agent has consented to any such settlement and acknowledged that
the claim is a valid claim against the Escrow Fund, the Securityholder Agent
shall have no power or authority to object under any provision of this Section 8
to the amount of any claim by EUI against the Escrow Fund with respect to such
settlement amount.
(j) Escrow Agent's Duties.
---------------------
27
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth in this Section 8.2, and as set forth
in any additional written escrow instructions which the Escrow Agent may receive
after the date of this Agreement which are signed by an officer of EUI and the
Securityholder Agent and approved by the Escrow Agent, and may rely and shall be
protected in relying or refraining from acting on any Officer's Certificate,
memorandum, instruction or other instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) Except as otherwise provided herein, the Escrow Agent is hereby
expressly authorized to disregard any and all warnings given by any of the
parties hereto or by any other person, excepting only orders or process of
courts of law, and is hereby expressly authorized to comply with and obey
orders, judgments or decrees of any court. In the event that the Escrow Agent
obeys or complies with any such order, judgment or decree of any court, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement,
or with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding
28
it. The Escrow Agent may hold all documents and EUI Shares and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court of competent jurisdiction all documents and EUI Shares held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader. The parties jointly and severally agree
to immediately pay the Escrow Agent, to the extent not previously reimbursed,
such amounts so incurred by the Escrow Agent upon the Escrow Agent's demand
therefor, which demand may be made at any time before or after completion of
such action of interpleader. Upon initiating such action, the Escrow Agent
shall be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) EUI and the BNI Shareholders agree jointly and severally to
indemnify and hold the Escrow Agent harmless against any and all losses, claims,
damages, liabilities and expenses, including reasonable costs of investigation,
counsel fees, and disbursements that may be imposed on the Escrow Agent or
incurred by Escrow Agent in connection with the performance of its duties under
this Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to EUI and the Securityholder Agent; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: EUI and the
Securityholder Agent shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice. If
EUI and the Securityholder Agent fail to agree upon a successor escrow agent
within such time, the Escrow Agent shall have the right to appoint a successor
escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Thereafter,
the predecessor escrow agent shall be discharged from any further duties and
liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its
----
duties hereunder shall be paid by EUI. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned
29
thereby. EUI promises to pay these sums upon demand.
(l) Consequential Damages. In no event shall the Escrow Agent be
---------------------
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
9. Termination.
9.1 This Agreement shall terminate prior to the Closing upon the
occurrence of any of the following:
(a) the written agreement of all parties to this Agreement;
(b) the bankruptcy, receivership or dissolution of BNI or EUI; or
(c) the failure to satisfy any of the conditions precedent as provided in
Section 6 above, in which case this Agreement shall be null and void and the
parties shall have no further obligations hereunder, except for the obligations
set forth in Section 10 herein, provided that the parties have used reasonable
efforts to satisfy such conditions precedent.
10. Publicity.
Neither BNI nor the Majority BNI Shareholders shall issue any press release
or otherwise make any public statements with respect to the Reorganization or
this Agreement or the transactions contemplated herein without consulting EUI
and obtaining the prior written consent of EUI.
As a breach or threatened breach of any of the provisions of this Section
10 of this Agreement by BNI or the Majority BNI Shareholders cannot be
adequately compensated for in money damages and would cause irreparable harm to
the non-breaching party, the parties agree that in the event of a breach or
threatened breach of any of the provisions of this Section 10, EUI shall have
the right, in addition to any other remedies available to it at law or in
equity, to enjoin the breaching party in a court of equity from violating or
threatening to violate its obligations under this Section 10 and recover all
reasonable costs and expenses (including, without limitation, reasonable
attorney's fees and expenses) incurred in connection with the enforcement of any
of the provisions of this Section 10.
11. Indemnification.
11.1 Obligation of the Majority BNI Shareholders to Indemnify. The
Majority BNI Shareholders shall, jointly and severally, indemnify, defend and
hold harmless EUI, together with its officer, directors, employees, agents and
representatives from and against any and all
30
losses, judgments, claims, awards, damages, settlements, costs and expenses,
including, without limitation, attorneys fees, resulting from, imposed upon,
sustained or incurred by EUI, directly or indirectly, as a result or arising out
of any the following: (i) the breach of any representation, warranty or covenant
of BNI or the Majority BNI Shareholders, or each of them, contained herein or in
any agreement or document executed and delivered in connection with the
transactions contemplated herein at or before the date hereof under this
Agreement; or (ii) the BNI Business prior to the Closing or any other business
of the Majority BNI Shareholders related to the BNI Business, or each of them,
or any act, omission, debt, obligation or liability of the Majority BNI
Shareholders, or each of them, their agents, contractors, employees, officers,
directors.
11.2 Obligation of EUI to Indemnify. EUI shall indemnify, defend and hold
harmless the Majority BNI Shareholders from and against any and all losses,
judgments, claims, awards, damages, settlements, costs and expenses, including,
without limitation, reasonable attorneys' fees, sustained or incurred by the
Majority BNI Shareholders as a result of EUI's breach of any representation,
warranty or covenant of EUI in this Agreement.
11.3 Notice to Indemnifying Party. If any party (the "Indemnitee")
receives notice of any third-party claim or of the commencement of any action or
proceeding or becomes aware of the occurrence of any event with respect to which
any other party (or parties) (the "Indemnifying Party") is required to provide
indemnification pursuant to Section 11.1 or 11.2, the Indemnitee shall promptly
give the Indemnifying Party notice thereof. The Indemnifying Party may take
control of the defense, settlement or compromise of such claim, action or
proceeding at the Indemnifying Party's own expense and with the assistance of
the Indemnifying Party's own counsel, which counsel shall be reasonably
acceptable to the Indemnitee. If the Indemnifying Party chooses to defend any
claim, the Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or appropriate
for such defense, and shall otherwise cooperate fully with the Indemnifying
Party. The Indemnitee shall also have the right to participate in any defense
and/or settlement of a claim at the Indemnitee's expense and may, if the
Indemnifying Party shall not choose to defend or resist said claim within twenty
(20) days after notice thereof from the Indemnitee (or such shorter time
specified in the notice as the circumstances of the matter may dictate), dispose
of the matter at the reasonable cost of the Indemnifying Party in any way it
reasonably deems to be in its best interest.
11.4 Limitation. Notwithstanding anything to the contrary set forth
herein, except with respect to claims based on fraud, bad faith, gross
negligence or willful misconduct, the aggregate liability of the Majority BNI
Shareholders, other than those described in clause (ii) of Section 11.1(a),
shall not exceed the Escrow Amount, and the sole remedy of EUI for damages under
this Section 11 shall be to make a claim against the Escrow Amount in accordance
with Section 8 of this Agreement. No Majority BNI Shareholder shall have any
right of contribution, subrogation or recovery against BNI with respect to any
liability of any of the Majority BNI Shareholders or BNI that may arise out of
any of its representations, warranties, covenants or agreements hereunder. Each
Majority BNI Shareholder hereby irrevocably waives any and all right to recourse
against BNI with respect to any misrepresentation or breach of any
representation, warranty or indemnity, or noncompliance with any conditions or
covenants, given or made by the Majority BNI
31
Shareholders or BNI in this Agreement or in any document, certificate or
agreement entered into or delivered pursuant to this Agreement.
12. Miscellaneous.
12.1 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of each of the parties hereto and their respective
heirs, legal representatives, successors and assigns, and shall also be binding
on all Persons who have or claim an interest in any shares of capital stock of
BNI.
12.2 Entire Agreement. This Agreement constitutes the entire understanding
----------------
between the parties with respect to the subject matter hereof and no
modification, discharge or waiver, in whole or in part, of any of the provisions
contained herein or therein shall be valid unless in writing and signed by the
parties. All exhibits and attachments referenced herein are hereby incorporated
by reference.
12.3 Headings. The paragraph headings in this Agreement are for
--------
convenience of reference and do not constitute part of the agreement.
12.4 Validity. If any provision of this Agreement is found to be invalid
--------
or unenforceable, such provision shall be, and shall be deemed to be modified so
as to cure the invalidity or unenforceability, and all other provisions of this
Agreement shall be enforceable notwithstanding such invalidity or
unenforceability.
12.5 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
construed and enforced in accordance with the laws of the State of Connecticut.
12.6 Enforcement. In the event that either party hereto commits a breach
-----------
of that party's obligations hereunder, the non-breaching party damaged thereby
shall be entitled to recover from the party in breach the costs and expenses
incurred, including reasonable attorneys' fees and disbursements, in connection
with enforcing the provisions hereof. The obligation of any Person to transfer
shares in accordance with the terms of this Agreement may be specifically
enforced by any court of competent jurisdiction, it being acknowledged and
agreed that money damages will not provide an adequate remedy for the breach of
any such obligation. The rights and remedies set forth in this subsection shall
be in addition to, and not in lieu of, any other rights and remedies available
at law or in equity.
12.7 Notices. All notices and other communications hereunder shall be in
-------
writing (and shall be deemed given upon receipt) if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to EUI, to
32
eUniverse, Inc.
000 Xxxxx Xxxxxxxxxx Xxxxxx Xxxx
Xxxxxxxxxxx, XX 00000
Attention: President
---------
with a copy to
Xxxxxxxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxxxx, LLC
0000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
(b) if to BNI, to
The Big Network, Inc.
00 Xxxxx Xx., Xxxxx xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
with a copy to:
Xxxxxx X. Xxxxxxxxx, Esq.
Xxxxxxx Xxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
12.9 Waivers. No waiver by a party, or by anyone claiming by, through or
-------
under such party, of any right or of the breach of any representation, warranty,
covenant, agreement, condition or duty, shall ever be held or construed as a
waiver of the same or any other right or waiver of any other breach of the same
or of any representation, warranty, covenant, agreement, condition, or duty. In
the event of a breach by a party of any representation, warranty, covenant,
agreement, condition or duty, the failure by any other party to take action on
account of such breach or to enforce any rights resulting therefrom shall not be
deemed a waiver, and such breach shall be a continuing breach until the same has
been cured. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a continuing waiver unless otherwise expressly
provided therein.
12.10 Confidentiality. BNI shall not, and BNI shall use its best efforts
---------------
to ensure that all BNI Personnel do not, discuss with or disclose to any Person
other than BNI or any individual other than BNI Personnel any term or terms of
this Agreement or that certain letter of intent between EUI and BNI dated June
9, 1999.
----------------------------------------
33
Signatures appear on the following page.
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
eUNIVERSE, INC.
By______________________________________
Its
THE BIG NETWORK, INC.
By_______________________________________
Its
MAJORITY BNI SHAREHOLDERS
_________________________________________
XXXXXXX X. XXXXXXX
_________________________________________
XXXX X. XXXXX
_________________________________________
XXXXXXX X. XXXXXXX
35
