AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of April 9, 2001 among Tangible Asset Galleries, Inc., a Nevada
corporation ("Parent"), and Tangible Asset Galleries Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), on
the one hand, and HotelInteractive, Inc., a Delaware corporation (the "Company")
on the other hand. Certain capitalized terms used in this Agreement are defined
in the text.
RECITALS
A. The Boards of Directors of the Company, Parent and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Parent acquire the Company
through the merger of the Company with and into the Merger Sub (the "Merger")
under the terms of this Agreement and, in furtherance thereof, have approved the
Merger, subject to the satisfaction of the conditions hereinafter set forth.
B. Under the Merger, among other things, and subject to the terms and
conditions of this Agreement, all issued and outstanding shares of the Company
Common Stock (hereinafter defined) and all issued and outstanding shares of the
Company Preferred Stock (hereinafter defined), will be converted into the right
to receive shares of common stock of Parent, par value $0.001 per share ("Parent
Common Stock"), as set forth in this Agreement.
C. The Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
merger within the meaning of Section 368 of the Code, and to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
NOW, THEREFORE, as consideration for the covenants, promises and representations
set forth herein, and for other good and valuable consideration, intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
I.1 The Merger. At the Effective Time (as defined in Section 1.2
hereof) and subject to and on the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of Delaware
("Delaware Law"), the Company shall be merged with and into the Merger Sub, the
separate corporate existence of the Company shall cease, and the Merger Sub
shall continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. The surviving corporation after the Merger is sometimes referred to
herein as the "Surviving Corporation."
I.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1 of this Agreement, the closing of the Merger (the
"Closing") will take place as promptly as practicable after the execution and
delivery hereof by the parties hereto, but no later than the later of (i) ninety
(90) days after this Agreement is first executed by all of the parties hereto,
or (ii) ten (10) business days following satisfaction or waiver of the
conditions set forth in Article VI hereof, at the offices of Parent, unless
another time and/or place is mutually agreed upon in writing by Parent and the
Company. The date on which the Closing occurs shall be referred to herein as
the "Closing Date." On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing a Certificate of Merger in the form attached
hereto as Exhibit A, with the Secretary of State of the State of Delaware (the
"Certificate of Merger") in accordance with the applicable provisions of
Delaware Law (the time of acceptance by the Secretary of State of the State of
Delaware of such filings shall be referred to in this Agreement as the
"Effective Time").
I.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise agreed to under the terms of this Agreement, all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
I.4 Certificate of Incorporation and Bylaws.
(a) Unless otherwise determined by Parent in consultation with the
Company before the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately before the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation at the Effective Time
until thereafter amended in accordance with Delaware Law and as provided in such
Certificate of Incorporation; provided, however, that at the Effective Time,
Article I of the Certificate of Incorporation of the Surviving Corporation shall
be amended and restated in its entirety to read as follows: "The name of the
corporation is HotelInteractive, Inc."
(b) Unless otherwise determined by Parent in consultation with the Company
before the Effective Time, the Bylaws of Merger Sub, as in effect immediately
before the Effective Time, shall be the Bylaws of the Surviving Corporation at
the Effective Time until thereafter amended in accordance with Delaware Law and
as provided in the Certificate of Incorporation of the Surviving Corporation and
such Bylaws.
I.5 Directors and Officers.
(a) The directors of the Surviving Corporation immediately after the
Effective Time shall be Xxxxxxx XxXxxxxx, Xxxxxxx Xxxxxx, Xxxxxxx Xxxxx and
Xxxxxx X. Xxxxxx, Esq., each to hold the office as a director of the Surviving
Corporation in accordance with the provisions of Delaware Law and the
Certificate of Incorporation and Bylaws of the Surviving Corporation until their
successors shall have been duly elected and qualified.
(b) The directors of Parent immediately after the Effective Time shall be
Xxxxxxx XxXxxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx Xxxxx, Xxxxxx X.
Xxxxxx, Esq., and Xxxxxx Xxxxxxx, each to hold the office as a director of
Parent in accordance with the provisions of General Corporation Law of the State
of Nevada and the Articles of Incorporation and Bylaws of Parent until their
successors shall have been duly elected and qualified.
(c) The officers of the Surviving Corporation immediately after the
Effective Time shall be Xxxxxxx XxXxxxxx as Chairman of the Board, Xxxxxxx Xxxxx
as President, Chief Executive Officer and Secretary, Xxxxxxx Xxxxxx as Chief
Financial Officer and the officers of Parent immediately after the Effective
Time shall be Xxxxxxx XxXxxxxx as Chairman of the Board of Directors and Chief
Executive Officer, Xxxxxxx Xxxxxx as President, Chief Operating Officer and
Chief Financial Officer and Xxxxxxx Xxxxx as Senior Vice President of Marketing
and Secretary, each to hold office in accordance with the provisions of the
Bylaws of the Surviving Corporation.
I.6 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, by virtue of the Merger and without any action on the part of
Merger Sub, the Company or the holders of any of the following securities, at
the Effective Time:
(a) Conversion of Company Capital Stock. Parent shall issue shares of
Parent Common Stock in exchange for the Company Capital Stock (as defined in
paragraph (h)(v) of this Section 1.6 below). Each share of Company Capital Stock
(other than any of the Dissenting Shares, as defined and to the extent provided
in Section 1.7), shall be exchanged automatically into the right to receive that
number of shares of Parent Common Stock as determined pursuant to the Exchange
Ratio (as defined in paragraph (h)(vi) of this Section 1.6 below) with such
receipt at the Effective Time, except for the Escrow Shares (as defined in
paragraph (a) of Section 7.2 below), upon surrender of the certificate
evidencing such share of Company Capital Stock in the manner provided in Section
1.8. A portion of the shares of Parent Common Stock to be issued under this
section will be deposited in an escrow account subject to Section 1.8(i) and
Section 7.2.
Parent shall issue the number of Parent Warrants (as defined in Section
1.6((h)(i)) in accordance with the Warrant Distribution Ratio (as defined in
Section 1.6(h)(vii)) such that for each share of Company Capital Stock (other
than any of the Dissenting Shares, as defined and to the extent provided in
Section 1.7), the holder thereof shall receive the right to that number of
Parent Warrants as determined pursuant to the Warrant Distribution Ratio with
such receipt at the Effective Time upon surrender of the Certificates (as
defined in Section 1.8(c) below) in the manner provided in Section 1.8.
(b) Cancellation of Parent-Owned and Company-Owned Stock. Each share of
Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or
indirect wholly-owned subsidiary of Parent immediately before the Effective Time
shall be canceled and extinguished without any exchange thereof.
(c) Cancellation of Company Rights. Parent shall not assume any of the
Company Rights (defined below) and all Company Rights shall be cancelled and
extinguished immediately before the Closing.
(d) Cancellation of Remaining Options, Warrants and Rights. All options,
warrants and other rights to purchase Company Capital Stock or any other
security of the Company that shall not have been exchanged or converted before
the Closing shall be canceled and extinguished, and shall be of no further force
or effect.
(e) Common Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately before the Effective Time shall be converted
into one (1) validly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation. Each stock certificate of Merger Sub evidencing
owner-ship of any such shares shall continue to evidence ownership of such
shares of common stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securi-ties convertible into Parent
Common Stock and Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock and Company Capital Stock
occurring after the date hereof and before the Effective Time with respect to
the Exchange Ratio.
(g) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued nor will a fraction of a Parent Warrant be issued. In lieu thereof,
the number of shares of Parent Common Stock and the number of Parent Warrants to
be received shall be rounded up to the whole number of shares or warrants, as
the case may be.
(h) Certain Definitions.
(i) Parent Shares and Parent Warrants. The "Parent Shares" means
the aggregate number of shares of Parent Common Stock outstanding immediately
before the Effective Time. The "Parent Warrants" means that number of warrants
issued by the Parent for the purchase of one (1) share of Parent Common Stock
according to the terms described in this Section 1.6 (h)(i), with such number of
warrants equal to the difference between (A) the aggregate number of options and
warrants listed on Section 3.2(b) of the Parent Disclosure Schedule hereof; and
(B) the number of options in such schedule issued to employees of the Parent as
of the date of such issuance (the resulting list of such options and warrants
referred to as the "Third Party Warrants"). The Parent Warrants shall: (1) be
immediately vested upon issue; (2) have an exercise price equal to the weighted
average of the exercise prices of the Third Party Warrants; and (3) have an
expiration period equal to the weighted average of the expiration periods of the
Third Party Warrants with the expiration period of each of the Third Party
Warrants measured from the Closing Date to the expiration date of such Third
Party Warrant.
(ii) Assumed Company Rights. "Assumed Company Rights" means those
options, warrants and rights to purchase shares of Company Capital Stock that
are referenced under Section 2.2(c) of this Agreement and described in Section
2.2(c) of the Company Disclosure Schedule, which will be restructured by the
Company before the Closing under Section 1.6(c) of this Agreement.
(iii) Company Common Stock. "Company Common Stock" means the shares of
Company common stock, $.001 par value, outstanding immediately before the
Effective Time.
(iv) Company Preferred Stock. "Company Preferred Stock" means the shares of
preferred stock of the Company outstanding immediately before the Effective
Time, including (without limitation) all shares of the Company's $500 Series A
8% Convertible Preferred Stock, if any.
(v) Company Capital Stock. "Company Capital Stock" means the aggregate of
the Company Common Stock and all shares of common stock of the Company issuable
upon conversion of Company Preferred Stock not converted to Company Common Stock
immediately before the Effective Time, if any.
(vi) Exchange Ratio. The "Exchange Ratio" means the quotient obtained by
dividing the number of Parent Shares by the number of shares of Company Capital
Stock.
(vii) Warrant Distribution Ratio. The "Warrant Distribution Ratio"
means the quotient obtained by dividing the number of Parent Warrants by the
number of shares of Company Capital Stock.
I.7 Dissenting Shares
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any share of Company Capital Stock that has not been exercised or had
appraisal rights thereon perfected in accordance with Delaware Law and over
which, as of the Effective Time, such rights of appraisal have not been
effectively withdrawn or lost, such shares (the "Dissenting Shares"), shall not
be exchanged for or represent a right to receive Parent Common Stock under
Section 1.6 hereof, but the holder thereof shall be entitled to such rights as
are provided by Delaware Law.
(b) Notwithstanding the provisions of Section 1.7(a) hereof, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) such holder's appraisal rights under Delaware Law,
then, as of the later of the Effective Time or the occurrence of such event,
such holder's shares shall be converted automatically into and represent only
the right to receive Parent Common Stock under Section 1.6 hereof, upon
surrender of the certificate evidencing such shares.
(c) The Company shall give Parent prompt notice of any written demand for
appraisal received by the Company pursuant to the applicable provisions of
Delaware Law.
I.8 Surrender of Certificates.
(a) Escrow Agent. The Parent shall name Alpha Tech Transfer & Trust to
serve as escrow agent (the "Escrow Agent") in the Merger.
(b) Parent to Provide Common Stock and Parent Warrants. Promptly after the
Effective Time, Parent shall make available to the Escrow Agent for exchange, in
accordance with this Article I, all of the Parent Warrants and the balance of
the number of shares of Parent Common Stock not deposited into the escrow
account under Section 1.8(i) of this Agreement.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately before the Effective Time
represented outstanding shares of Company Capital Stock and whose shares were
exchanged for the right to receive shares of Parent Common Stock and Parent
Warrants under Section 1.6, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Escrow Agent and shall
be in such form and have such other provisions as Parent and Company mutually
and reasonably agree before the Effective Time) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock and Parent Warrants.
Upon surrender of a Certificate for cancellation to the Escrow Agent or to such
other agent or agents as may be reasonably appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the former holder of such Certificate shall be
entitled to receive in exchange therefor, at the Closing, certificates
representing the number of whole Parent Warrants or whole shares of Parent
Common Stock (less, at the Closing, the number of shares of Parent Common Stock
deposited into the escrow account under Section 1.8(i) and Section 7.2), and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, before the Effective Time, repre-sented
shares of Company Capital Stock, will be deemed from and after the Effective
Time, for all corporate purposes other than the payment of dividends, to
evidence the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock are to have been so exchanged. The
holder of each Certificate shall receive such holder's respective pro rata
portion of the number of Parent Warrants and shares of Parent Common Stock at
the Closing based on the Warrant Distribution Ratio and the Exchange Ratio,
respectively.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate until the holder of record of such
Certificate shall surrender such Certificate or provide an affidavit under
Section 1.11. Subject to applicable law, following surrender of any such
Certificate, there shall be provided to the record holder of such Certificate
stock certificates representing whole shares of Parent Common Stock issued in
exchange therefor at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for Parent Warrants or
shares of Parent Common Stock is to be issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
endorsed properly and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or its designee any transfer
or other tax required by reason of the issuance of a certificate for Parent
Warrants or shares of Parent Common Stock in any name other than that of the
registered holder of the Certificate surrendered, or established to the
reasonable satisfaction of Parent or any agent designated by it that such tax
has been paid or is not payable.
(f) Termination of Exchange. Any portion of the number of Parent Warrants
or shares of Parent Common Stock that remains undistributed to the previous
holders of Company Capital Stock one (1) year after the Effective Time, will be
delivered to Parent (except for such shares of Parent Common Stock deposited
into the escrow account under Section 1.8(i) of this Agreement) upon demand, and
any stockholder of the Company who previously has not complied with this Section
1.8 will thereafter look only to Parent for receipt of Parent Warrants or Parent
Common Stock and any dividend and distribution with respect to Parent Common
Stock. Notwithstanding the foregoing, each of the previous holders of Company
Capital Stock that has either waived or not properly exercised their rights of
appraisal as described in Section 1.7, shall continue to have the right to
receive the applicable number of shares of Parent Common Stock as may be
required under this Agreement.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.8, neither the Escrow Agent, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) Dissenting Shares. The provisions of this Section 1.8 also will apply
to Dissenting Shares that lose their status as such, except that the obligations
of Parent under this Section 1.8 will commence on the date of loss of such
status, and the holder of such shares will be entitled to receive in exchange
therefor the number of shares of Parent Common Stock to which such holder is
entitled under Section 1.7.
(i) Escrow. As soon as practicable after the Effective Time, and subject to
and in accordance with the provisions of Section 7.2, Parent will cause to be
deposited with the Escrow Agent a certificate or certificates evidencing ten
percent (10%) of the number of shares of Parent Common Stock to be issued under
Section 1.6(a) (the "Escrow Shares"). All such certificates deposited with
Escrow Agent will be registered in the name of Escrow Agent as nominee for the
holders of Certificates canceled under this Section 1.8, which holders will
beneficially own such Escrow Shares and be entitled to vote such Escrow Shares.
The Escrow Shares will be held in escrow and will be available to compensate
Parent for certain of the damages as provided in Article VII. To the extent
that they are not used for such purpose, such Escrow Shares will be released on
the date that is one (1) year after the Effective Time.
I.9 Delivery of Company Financial Statements. In connection with
Parent's due diligence review of Company, together with the execution of this
Agreement, the Company has delivered or is delivering to Parent the following:
(i) audited financial statements relating to the operations, balance sheet,
changes in stockholders' equity and cash flow of the Company for each year from
its inception through December 31, 2000, and (ii) the unaudited consolidated
statements of operations, changes in stockholders' equity and cash flows for the
one-month period ended January 31, 2001, and the Company's related balance sheet
at January 31, 2001 (the "Current Date Balance Sheet"). The above-described
financial statements will have been audited by such accounting firm as Parent
and the Company shall mutually and reasonably agree upon (the "Company
Independent Auditor"). No later than five (5) business days after the Closing
Date, the Company shall prepare and present to Parent a balance sheet of the
Company dated at the Closing Date (the "Closing Date Balance Sheet") and a
statement of changes in stockholders' equity for the period from January 1, 2001
through the Closing Date (collectively, the "Closing Date Company Financial
Statements"). The Closing Date Company Financial Statements shall be prepared
in accordance with GAAP (defined below) applied on a basis consistent throughout
the periods indicated and consistent with each other. The Closing Date Company
Financial Statements shall present fairly the financial condition and operating
results of the Company as of the date and during the periods indicated therein,
subject to normal adjustments, which will not be material in amount or
significance. After the Closing, to review and evaluate the Closing Date
Company Financial Statements, the Company Independent Auditor will have full
access, at all reasonable times and in a manner not disruptive of the ongoing
operations of Parent or the Surviving Corporation, to the books, records and
properties acquired by Parent hereunder.
I.10 No Further Transfers in Company Capital Stock. After the Effective Time
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock that were outstanding
immediately before the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
I.11 Lost, Stolen or Destroyed Certificates. In the event any of the
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Escrow Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock as may be required
under Section 1.6.
I.12 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code").
I.13 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Merger Sub are fully authorized in the name of their former respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
schedule (referencing the appropriate section and paragraph numbers) supplied by
the Company to Parent (the "Company Disclosure Schedule") and dated as of the
date hereof, that on the date hereof and as of the Effective Time, as though
made at the Effective Time as follows; provided, that the representations and
warranties made as of a specified date will be true and correct as of such date:
II.1 Organization. Each of the Company and its Subsidiary (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of incorporation. Each of the Company and
its Subsidiary has the corporate power to own its properties and to carry on its
business as now being conducted. Each of the Company and its Subsidiary is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), condition
(financial or otherwise), prospects or results of operations of such entity
(hereinafter referred to as a "Material Adverse Effect"). The Company has
delivered a true and correct copy of its Certificate of Incorporation and Bylaws
(and other applicable organizational documents) and the applicable
organizational documents of its Subsidiary, each as amended to date, to Parent.
Section 2.1 of the Company Disclosure Schedule lists the directors and officers
of the Company and its Subsidiary. Except as set forth in Section 2.1 of the
Company Disclosure Schedule, the operations now being conducted by the Company
or its Subsidiary are not now and have never been conducted by the Company or
its Subsidiary under any other name.
II.2 Company Capital Structure.
(a) As of the date of the execution hereof, the authorized capital
stock of the Company consists of:
(i) Preferred Stock. Twenty-five thousand (25,000) shares of Company
Preferred Stock of which ten thousand seven hundred and ninety-eight (10,798)
shares have been designated as $500 Series A 8% Convertible Preferred Stock, par
value $.001 per share (the "Series A Preferred Stock") of which eight thousand
six hundred and thirty-eight (8,638) shares are issued and outstanding. The
Company Preferred Stock has been duly and validly issued and are fully paid,
nonassessable, free of liens, encumbrances and restrictions on transfer other
than restrictions under applicable state and federal securities laws and are
free of liens, encumbrances and preemptive or similar rights contained in the
Company's Certificate of Incorporation or Bylaws, or any agreement to which the
Company is a party. The Company Preferred Stock has been issued in accordance
with the registration or qualification provisions of the Securities Act of 1933,
as amended (the "Securities Act") and any relevant state securities laws or
pursuant to valid exemptions therefrom. Each share of Company Preferred Stock is
convertible into two hundred (200) shares of Company Common Stock.
(ii) Common Stock. Twenty-five million (25,000,000) shares of Company Common
Stock, nine million four hundred and thirty-two thousand, four hundred and
thirty-three (9,432,433) shares of which are issued and outstanding. The
Company Common Stock has been duly and validly issued and are fully paid,
nonassessable, free of liens, encumbrances and restrictions on transfer other
than restrictions under applicable state and federal securities laws and are
free of liens, encumbrances and preemptive or similar rights contained in the
Certificate of Incorporation or Bylaws of the Company or in any agreement to
which the Company is a party. The Company Common Stock has been issued in
compliance with all provisions of the Securities Act and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(iii) Parent understands and agrees that the Company may make certain
changes to the capital structure at or prior to the Effective Time, including,
but not limited to, effecting a stock split, stock dividend, reorganization or
recapitalization, and may amend its Certificate of Incorporation and/or Bylaws
in connection therewith; provided, that the Company will obtain the written
consent of Parent to any such change, which consent will not be unreasonably
withheld.
(b) The Company Capital Stock is held by the persons with the domicile
addresses and in the amounts set forth on Section 2.2(b) of the Company
Disclosure Schedule. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound. There are no declared or accrued but unpaid dividends with respect to
any shares of Company Capital Stock. The Company has no other capital stock
authorized, issued or outstanding.
(c) The Company has reserved a total of one hundred three thousand, six
hundred and fifty-six (103,656) shares of Company Common Stock for issuance to
employees and consultants upon exercise of options, warrants and rights, all of
which are subject to outstanding, unexercised warrants. No shares of Company
Common Stock remain available for future grant. Section 2.2(c) of the Company
Disclosure Schedule sets forth, for each of the outstanding options and/or
warrants to purchase shares of Company Common Stock (the "Company Options and/or
Warrants"), the name of the holder of such option and/or warrant, the number of
shares of Company Common Stock subject to such options and/or warrants, the per
share price at which such options and/or warrants may be exercised and the
applicable expiration date. Section 2.2(c) of the Company Disclosure Schedule
also sets forth the name of the holder of any Company Common Stock subject to a
right or repurchase by the Company ("Company Restricted Stock"), the number of
shares of Company Restricted Stock and the vesting schedule for such Company
Restricted Stock. Except for the Company Options and/or Warrants described in
Section 2.2(c) of the Company Disclosure Schedule, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any share of the Company Common Stock
or obligating the Company to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.
The holders of Company Options and/or Warrants have been or will be given, or
shall have waived properly, any required notice before the Merger and all such
rights will be terminated at or before the Effective Time. Section 2.2(c) of
the Company Disclosure Schedule sets forth for each outstanding Company stock
appreciation right (each a "Company SAR"), the name of the holder of such
Company SAR, the number of shares of Common Stock associated with such Company
SAR. Except for the Company SARs described in Section 2.2(c) of the Company
Disclosure Schedule, there are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or other similar rights with respect to the
Company. Except as contemplated hereby, there are no voting trusts, proxies, or
other agreements or understandings with respect to the voting stock of the
Company. As a result of the Merger and as of the Effective Time, Parent will be
the record and sole beneficial owner of all outstanding shares of Company Common
Stock and rights to acquire or receive Company Common Stock.
(d) Except for (i) the conversion privileges of the Series A Preferred
Stock, and (ii) the Company Options and/or Warrants and rights to purchase or to
receive shares of Company Common Stock that are described in Section 2.2(c) of
Company Disclosure Schedule, which shall be restructured under Section 1.6(c),
there are not outstanding any options, warrants, rights or agreements for the
purchase or acquisition from the Company of any share of Company Common Stock.
II.3 Subsidiary. Except for any subsidiary disclosed in the Company
Disclosure Schedule (the "Subsidiary"), the Company does not have, and has never
had, any subsidiary or affiliated company and does not otherwise own, and has
not otherwise owned, any share in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity. Section 2.3 of the Company Disclosure Schedule sets
forth the capitalization of the Subsidiary. The Company is the record and
beneficial owner of all the outstanding capital stock of the Subsidiary.
Section 2.3 of the Company Disclosure Schedule also sets forth each jurisdiction
where the Subsidiary is qualified to do business. There are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which either the Company or the Subsidiary is a party or by which it is
bound obligating the Subsidiary to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any share of
capital stock of the Subsidiary or obligating the Subsidiary to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Subsidiary.
II.4 Authority. The Company has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, subject to stockholder approval thereof. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, and no further action is required on the part of the Company to
authorize the Agreement and the transactions contemplated hereby, subject only
to the approval of this Agreement by the holders of shares of Company Capital
Stock (all such holders of Company Capital Stock collectively, the "Hotel
Stockholders"). Resolutions approving this Agreement and the Merger have been
unanimously adopted by the Board of Directors of the Company, subject to the
approval of the Hotel Stockholders. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, subject to
the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance, injunctive
relief or other equitable remedies.
II.5 No Conflict. Except as set forth in Section 2.5 of the Company
Disclosure Schedule, the execution and delivery of this Agreement by the Company
does not, and, the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Certificate of Incorporation and Bylaws of the Company or its Subsidiary,
(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company or its Subsidiary
or any of their respective properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company, its Subsidiary or their respective properties or assets.
II.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (a "Governmental Entity") or
any third party (other than the Hotel Stockholders), including a party to any
agreement with the Company (so as not to trigger any Conflict), is required by
or with respect to the Company or its Subsidiary in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws thereby, and (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware.
II.7 Company Financial Statements. Section 2.7 of the Company Disclosure
Schedule sets forth (i) the Company's audited consolidated balance sheet at
December 31, 2000, and the related audited consolidated statements of
operations, changes in stockholders' equity and cash flows for the years from
the Company's inception to December 31, 2000, and (ii) the Company's unaudited
Current Date Balance Sheet and the related unaudited consolidated statements of
operations, changes in stockholders' equity and cash flows for the one-month
period ended January 31, 2001 (collectively, the "Company Financials"). The
Company Financials are correct in all material respects and have been prepared
in accordance with generally accepted accounting principles, as practiced in the
United States ("GAAP"), applied on a basis consistent throughout the periods
indicated and consistent with each other. The Company Financials present fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein, subject to normal year-end adjustments,
which will not be material in amount or significance.
II.8 No Undisclosed Liabilities. Except as set forth in Section 2.8 of the
Company Disclosure Schedule, to the best knowledge of the Company, neither the
Company nor its Subsidiary has any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorse-ment of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not been
reflected in the Current Date Balance Sheet, or (ii) has not arisen in the
ordinary course of business since January 31, 2001, consistent with past
practices.
II.9 No Changes. Except as set forth in Section 2.9 of the Company
Disclosure Schedule and except as specifically described or contemplated in this
Agreement, since January 31, 2001, there has not been, occurred or arisen any:
(a) transaction by the Company or its Subsidiary except in the ordinary
course of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
or other organizational documents of the Company or its Subsidiary;
(c) capital expenditure or commitment by the Company or its Subsidiary
exceeding ten thousand dollars ($10,000) individually or twenty-five thousand
dollars ($25,000) in the aggregate;
(d) destruction of, damage to or loss of any material assets, business or
customer of the Company or its Subsidiary (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action with respect to the Company or its Subsidiary;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or its
Subsidiary;
(g) revaluation by the Company or its Subsidiary of any of its assets;
(h) strike or labor dispute, other than routine individual grievances, or to
the best of the knowledge of the Company, any activity or proceeding by a labor
union or representative thereof to organize any employee of Company, which
employee was not subject to a collective bargaining agreement at the date of the
Current Date Balance Sheet , or any material lockout, strike, slowdown, work
stoppage or threat thereof by or with respect to such employee;
(i) tax election, change in accounting method or any settlement or
compromise of any material tax liability;
(j) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) with respect to the Company
Capital Stock or the capital stock of its Subsidiary, or any split, combination
or reclassification with respect to the capital stock of the Company or its
Subsidiary, or any issuance or authorization of any issuance of any other
security in respect of, in lieu of or in substitution for shares of capital
stock of the Company or its Subsidiary or any direct or indirect redemption,
repurchase or other acquisition by the Company or its Subsidiary of its capital
stock (or options, warrants or other rights exercisable therefor);
(k) increase in the salary or other compensation payable or to become
payable by the Company or its Subsidiary to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment, by the Company or its Subsidiary, of a bonus or
other additional salary or compensation to any such person except as otherwise
contemplated by this Agreement;
(l) sale, lease, license or other disposition of any of the assets or
properties of the Company or its Subsidiary or any creation of any security
interest in such assets or properties, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(m) material agreement, contract, covenant, instrument, lease, license or
commitment to which the Company or its Subsidiary is a party or by which they or
any of its assets are bound or any termination, extension, amendment or
modification of the terms of any material agreement, contract, covenant,
instrument, lease, license or commitment to which the Company or its Subsidiary
is a party or by which it or any of its assets are bound;
(n) loan by the Company or its Subsidiary to any person or entity,
incurring by the Company or its Subsidiary of any indebtedness, guaranteeing by
the Company or its Subsidiary of any indebtedness, issuance or sale of any debt
securi-ties of the Company or its Subsidiary or guaranteeing of any debt
securities of others except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(o) waiver or release of any right or claim of the Company or its
Subsidiary, including any write-off or other compromise of any account
receivable of the Company or its Subsidiary;
(p) commencement or notice or, to the best of the knowledge of the Company,
threat of commencement of any lawsuit or proceeding against or investigation of
the Company or its Subsidiary or their affairs;
(q) notice of any claim of ownership by a third party of Company
Intellectual Property (as defined in Section 2.13 below) or of infringement by
the Company or its Subsidiary of any third party's intellectual property rights;
(r) issuance or sale, or contract to issue or sell, by the Company or its
Subsidiary of any shares of capital stock or securities exchangeable,
convertible or exercisable therefor, or any securities, warrants, options or
rights to purchase any of the foregoing, except for options to purchase capital
stock of the Company granted to employees of the Company or its Subsidiary in
the ordinary course of business consistent with past practice;
(s) (i) selling or entering into any license agreement with respect to
Company Intellectual Property with any third party or (ii) buying or entering
into any license agreement with respect to the intellectual property of any
third party;
(t) change in pricing or royalties set or charged by the Company or its
Subsidiary to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed intellectual property to the Company or its
Subsidiary;
(u) event or condition of any character that has or could be reasonably
expected to have a Material Adverse Effect on the Company or its Subsidiary; or
(v) agreement by the Company or its Subsidiary or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
II.10 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
(if any), including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreement or arrangement with any
other person with respect to such amounts and including any liability for taxes
of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Section 2.10 of the
Company Disclosure Schedule:
(i) Each of the Company and its Subsidiary as of the Effective Time
will have prepared and filed all required federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attribut-able to the Company or its Subsidiary
or their operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(ii) Each of the Company and its Subsidiary as of the Effective Time:
(A) will have paid all accrued Taxes it is required to pay (except for validly
contested Taxes) and (B) will have withheld with respect to its employees all
federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) Neither the Company nor its Subsidiary has been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company or its Subsidiary, nor has the Company or its
Subsidiary executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No government audit or other examination of any Return of the Company
or its Subsidiary is presently in progress, nor has the Company or its
Subsidiary been notified of any request for such government audit or other
examination.
(v) Neither the Company nor its Subsidiary has any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and neither the Company nor its Subsidiary
has knowledge of any basis for the assertion of any such liability attributable
to the Company, its Subsidiary or their assets or operations.
(vi) The Company has provided to Parent copies of all federal and state
income and all state sales and use Tax Returns for all periods since the date of
Company's incorporation.
(vii) There are (and as of immediately following the Closing there will be)
no liens, pledges, charges, claims, security interests or other encumbrances of
any sort ("Liens") on the assets of the Company or its Subsidiary relating to or
attributable to Taxes.
(viii) The Company has no knowledge of any basis for the assertion of any
claim relating or attributable to Taxes which, if adversely determined, would
result in any Lien on the assets of the Company or its Subsidiary.
(ix) None of the assets of the Company or its Subsidiary are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company or its
Subsidiary that, individually or collec-tively, could give rise to the payment
of any amount that would not be deductible pursuant to Section 280G or 162 of
the Code.
(xi) Neither the Company nor its Subsidiary has filed any consent agree-ment
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company or its Subsidiary.
(xii) Neither the Company nor its Subsidiary is a party to a tax sharing or
allocation agreement nor does the Company or its Subsidiary owe any amount under
any such agreement.
(xiii) Neither the Company nor its Subsidiary is, or has been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) Neither the Company nor its Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years before the date of this Agreement or (y) in a distribution which could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
II.11 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or its Subsidiary is a party or otherwise binding upon the
Company or its Subsidiary which has or may have the effect of prohibiting or
impairing any business practice of the Company or its Subsidiary, any
acquisition of property (tangible or intangible) by the Company or its
Subsidiary or the conduct of business by the Company or its Subsidiary. Without
limiting the foregoing, neither the Company nor its Subsidiary has entered into
any agreement under which the Company or its Subsidiary is restricted from
selling, licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
II.12 Title of Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor its Subsidiary owns real property, nor has
either ever owned any real property. Section 2.12(a) of the Company Disclosure
Schedule sets forth a list of all real property currently, or at any time in the
past, leased by the Company or its Subsidiary, the name of the lessor and the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease and the termination date of any such lease. All such current leases are
in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company or its Subsidiary has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Current Date Balance Sheet and except for Liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby.
(c) Section 2.12(c) of the Company Disclosure Schedule lists all material
items of equipment (the "Equipment") owned or leased by the Company or its
Subsidiary and such Equipment is, (i) sufficient for the conduct of the business
of the Company or its Subsidiary as currently conducted and (ii) in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
(d) The Company or its Subsidiary has sole and exclusive ownership, free and
clear of any Liens, of all customer files and other customer information
relating to customers of the current and former customers of the Company or its
Subsidiary (the "Customer Information"). No person other than the Company or
its Subsidiary possesses any claims or rights with respect to use of the
Customer Information.
II.13 Intellectual Property.
(a) Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (i) works of
authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, or data; (ii) inventions
(whether or not patentable), improvements, and technology; (iii) proprietary and
confidential information, including technical data and customer and supplier
lists, trade secrets and know how; (iv) databases, data compilations and
collections and technical data; (v) logos, trade names, trade dress, trademarks,
service marks; (vi) World Wide Web addresses, domain names and sites; (vii)
tools, methods and processes; and (viii) all instantiations of the foregoing in
any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States and foreign patents and utility models and applications therefor
and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof, and equivalent or
similar rights anywhere in the world in inventions and discoveries including
without limitation invention disclosures ("Patents"); (ii) all trade secrets and
other rights in know-how and confidential or proprietary information; (iii) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("Copyrights"); (iv) all
industrial designs and any registrations and applications therefor throughout
the world; (v) all rights in World Wide Web addresses and domain names and
applications and registrations therefor; (vi) all trade names, logos, common law
trademarks and service marks, trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith throughout the world
("Trademarks"); and (vii) any similar, corresponding or equivalent rights to any
of the foregoing anywhere in the world.
(iii) "Company Intellectual Property" shall mean any Technology and
Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by or
exclusively licensed to the Company or its Subsidiary.
(iv) "Registered Intellectual Property Rights" shall mean all United States,
international and foreign: (i) Patents, including applications therefor; (ii)
registered Trademarks, applications to register Trademarks, including
intent-to-use applications, or other registrations or applications related to
Trademarks; (iii) Copyrights registrations and applications to register
Copyrights; and (iv) any other Technology that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any state, government or other public or private legal authority at
any time.
(b) Section 2.13 (b) of the Company Disclosure Schedule lists all
Registered Intellectual Property Rights owned by, filed in the name of, or
applied for, by the Company or its Subsidiary (the "Company Registered
Intellectual Property Rights") and lists any proceedings or actions before any
court, tribunal (including the United States Patent and Trademark Office (the
"PTO") or equivalent authority anywhere in the world) related to any of the
Company Registered Intellectual Property Rights or Company Intellectual
Property.
(c) Each item of Company Registered Intellectual Property Rights is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property Rights
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property Rights. Except as set forth on Section
2.13(c) of the Company Disclosure Schedule, there are no actions that must be
taken by the Company or its Subsidiary within one hundred twenty (120) days of
the Closing Date, including the payment of any registration, maintenance or
renewal fees or the filing of any responses to PTO office actions, documents,
applications or certificates for the purposes of obtaining, maintaining,
perfecting or preserving or renewing any Registered Intellectual Property
Rights. In each case in which the Company or its Subsidiary has acquired any
Technology or Intellectual Property Right from any person, the Company or its
Subsidiary has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Technology and the associated
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Company or its Subsidiary. To the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company or its Subsidiary has recorded each such assignment of a Registered
Intellectual Property Right assigned to the Company or its Subsidiary with the
relevant Governmental Entity, including the PTO, the U.S. Copyright Office, or
their respective equivalents in any relevant foreign jurisdiction, as the case
may be. Except as set forth on Section 2.13(c) of the Company Disclosure
Schedule, neither the Company nor its Subsidiary has claimed a particular
status, including "Small Business Status," in the application for any
Intellectual Property Rights, which claim of status was at the time made, or
which has since become, inaccurate or false or that will no longer be true and
accurate as a result of the Closing.
(d) The Company has no knowledge of any facts or circumstances that would
render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, the Company knows of no information, materials, facts,
or circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would adversely effect any pending
application for any Company Registered Intellectual Property Right and neither
Company nor its Subsidiary has misrepresented, or failed to disclose, or has
knowledge of any misrepresentation or failure to disclose, any fact or
circumstances in any application for any Company Registered Intellectual
Property Right that would constitute fraud or a misrepresentation with respect
to such application or that would otherwise affect the validity or
enforceability of any Company Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of any
Liens except for non-exclusive licenses granted to end-user customers in the
ordinary course of business. The Company or its Subsidiary is the exclusive
owner or exclusive licensee of all Company Intellectual Property. Without
limiting the foregoing: (i) the Company or its Subsidiary is the exclusive owner
of all Trademarks used in connection with the operation or conduct of the
business of the Company or its Subsidiary, including the sale, licensing,
distribution or provision of any products or services by the Company or its
Subsidiary; (ii) the Company or its Subsidiary owns exclusively, and has good
title to, all Copyrighted Works that are products of the Company or its
Subsidiary or which the Company or its Subsidiary otherwise purports to own; and
(iii) to the extent that any Patents would otherwise be infringed by any product
or services of the Company or its Subsidiary, such Patents constitute Company
Intellectual Property.
(f) All Company Intellectual Property will be fully transferable, alienable
or licensable by Surviving Corporation and/or Parent without restriction and
without payment of any kind to any third party.
(g) To the extent that any Technology has been developed or created by a
third party for the Company or its Subsidiary, the Company or its Subsidiary has
a written agreement with such third party with respect thereto and the Company
or its Subsidiary thereby either (i) has obtained ownership of, and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the conduct
of its business as currently conducted and as proposed to be conducted) to all
such third party's Intellectual Property Rights in such Technology by operation
of law or by valid assignment, to the fullest extent it is legally possible to
do so.
(h) Except as set forth on Section 2.13(h) of the Company Disclosure
Schedule and with exception of "shrink-wrap" or similar widely-available
commercial end-user licenses, all Technology used in or necessary to the conduct
of Company's or its Subsidiary's business as presently conducted or currently
contemplated to be conducted by the Company or its Subsidiary was written and
created solely by either (i) employees of the Company or its Subsidiary acting
within the scope of their employment or (ii) by third parties who have validly
and irrevocably assigned all of their rights, including Intellectual Property
Rights therein, to the Company or its Subsidiary, and no third party owns or has
any rights to any of the Company Intellectual Property.
(i) All employees of the Company or its Subsidiary have entered into a valid
and binding written agreement with the Company or its Subsidiary sufficient to
vest title in the Company or its Subsidiary of all Technology, including all
accompanying Intellectual Property Rights, created by such employee in the scope
of his or her employment with the Company or its Subsidiary.
(j) The Company or its Subsidiary has taken all steps that are reasonably
required to protect the rights in confidential information and trade secrets of
the Company or its Subsidiary or provided by any other person to the Company or
its Subsidiary.
(k) Except as set forth on Section 2.13(k) of the Company Disclosure
Schedule, no person who has licensed Technology or Intellectual Property Rights
to the Company or its Subsidiary has ownership rights or license rights to
improvements made by the Company or its Subsidiary in such Technology or
Intellectual Property Rights.
(l) Neither the Company nor its Subsidiary has transferred ownership of, or
granted any exclusive license of or right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Technology or
Intellectual Property Right that is or was Company Intellectual Property, to any
other person.
(m) Other than inbound "shrink-wrap" and similar publicly available
commercial binary code end-user licenses and outbound "shrink-wrap" licenses in
the form set forth on Section 2.13(m) of the Company Disclosure Schedule, the
contracts, licenses and agreements listed in Section 2.13(m) of the Company
Disclosure Schedule lists all contracts, licenses and agreements to which the
Company or its Subsidiary is a party with respect to any Technology or
Intellectual Property Rights. Neither the Company nor its Subsidiary is in
breach of nor has the Company or its Subsidiary failed to perform under, any of
the foregoing contracts, licenses or agreements and, to the knowledge of the
Company, no other party to any such contract, license or agreement is in breach
thereof or has failed to perform thereunder.
(n) Section 2.13(n) of the Company Disclosure Schedule lists all material
contracts, licenses and agreements between the Company or its Subsidiary and any
other person wherein or whereby the Company or its Subsidiary has agreed to, or
assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless,
guaranty or otherwise assume or incur any obligation or liability or provide a
right of rescission with respect to the infringement or misappropriation by the
Company or its Subsidiary or such other person of the Intellectual Property
Rights of any person other than the Company or its Subsidiary.
(o) To the best of the knowledge of the Company, there are no contracts,
licenses or agreements between the Company or its Subsidiary and any other
person with respect to Company Intellectual Property under which there is any
dispute regarding the scope of such agreement, or performance under such
agreement, including with respect to any payments to be made or received by the
Company or its Subsidiary thereunder.
(p) To the best of the knowledge of the Company, the operation of the
business of the Company or its Subsidiary as it currently is conducted or is
contemplated to be conducted by the Company or its Subsidiary, including but not
limited to the design, development, use, import, branding, advertising,
promotion, marketing, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) of the Company or its Subsidiary does not and will not and will not
when conducted by Parent and/or Surviving Corporation in substantially the same
manner following the Closing, infringe or misappropriate any Intellectual
Property Right of any person, violate any right of any person (including any
right to privacy or publicity) or constitute unfair competition or trade
practices under the laws of any jurisdiction, and neither the Company nor its
Subsidiary has received notice from any person claiming that such operation or
any act, product, technology or service (including products, technology or
services currently under development) of the Company or its Subsidiary infringes
or misappropriates any Intellectual Property Right of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor
does the Company have knowledge of any basis therefor).
(q) To the best of the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property Right.
(r) No Company Intellectual Property or service of the Company or its
Subsidiary is subject to any proceeding or outstanding decree, order, judgment
or settlement agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or its Subsidiary or may affect the
validity, use or enforceability of such Company Intellectual Property.
(s) To the best of the knowledge of the Company, no (i) product,
technology, service or publication of the Company or its Subsidiary, (ii)
material published or distributed by the Company or its Subsidiary, or (iii)
conduct or statement of the Company or its Subsidiary constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates in any material respect any law or regulation.
(t) Except as set forth on Section 2.13(t) of the Company Disclosure
Schedule, the Company Intellectual Property constitutes all the Technology and
Intellectual Property Rights used in and/or necessary to the conduct of the
business of the Company or its Subsidiary as it currently is conducted, and, to
the best of the knowledge of the Company, as it is currently planned or
contemplated to be conducted by the Company or its Subsidiary, including,
without limitation, the design, development, manufacture, use, import and sale
of products, technology and performance of services (including, without
limitation, products, technology or services currently under development).
(u) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent or Surviving Corporation, by
operation of law or otherwise, of any contracts or agreements to which the
Company or its Subsidiary is a party, will result in (i) either Parent's or the
Surviving Corporation's granting to any third party any right to or with respect
to any Technology or Intellectual Property Right owned by, or licensed to,
either of them, (ii) either Parent's or the Surviving Corporation's being bound
by, or subject to, any non-compete or other restriction on the operation or
scope of their respective businesses, or (iii) either Parent's or the Surviving
Corporation's being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent or Surviving Corporation,
respectively, before the Closing.
(v) All of the products of the Company or its Subsidiary (including products
currently under development): (i) will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on or
relating to such dates in the same manner, and with the same functionality, data
integrity and performance, as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Year 2000
Compliant"); (ii) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000; and (iii) will be
interoperable with other products used and distributed by Parent that may
reasonably deliver records to the Company's or its Subsidiary's products or
receive records from the Company's or its Subsidiary's products, or interact
with the Company's or its Subsidiary's products, including but not limited to
back-up and archived data. All of the Information Technology (as defined below)
of the Company or its Subsidiary is Year 2000 Compliant, and will not cause an
interruption in the ongoing operations of the business of the Company or its
Subsidiary. For purposes of the foregoing, the term "Information Technology"
shall mean and include all software, hardware, firmware, telecommunications
systems, network systems, embedded systems and other systems, components and/or
services (other than general utility services including gas, electric, telephone
and postal) that are owned or used by the Company or its Subsidiary in the
conduct of its business, or purchased by the Company or its Subsidiary from
third party suppliers.
II.14 Agreements, Contracts and Commitments.
(a) Except as set forth in or excepted from (by virtue the specific
exclusions contained in Sections 2.13(g) or 2.13(h) hereof) Sections 2.13(g),
and 2.13(h) of the Company Disclosure Schedule or as set forth in 2.14(a) of the
Company Disclosure Schedule, and except as specifically described or
contemplated in this Agreement, neither the Company nor its Subsidiary is a
party to nor is either bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment with an
employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization,
(v) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value (either individually or
in the aggregate) in excess of twenty-five thousand dollars ($25,000),
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any covenant limiting
the freedom of the Company or its Subsidiary to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to capital expenditures
and involving future payments in excess of twenty-five thousand dollars
($25,000),
(xi) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of business,
(xii) any mortgage, indenture, loan or credit agreement, security agreement
or other debt obligation, or any other agreement or instrument relating to the
borrowing of money or extension of credit, including guaranties referred to in
clause (viii) hereof,
(xiii) any purchase order or contract for the purchase of raw materials
involving twenty-five thousand dollars ($25,000) or more,
(xiv) any construction contract,
(xv) any distribution, joint marketing or development agreement, or
(xvi) any other agreement, contract or commitment that involves twenty-five
thousand dollars ($25,000) or more or is not cancelable without penalty within
thirty (30) days.
(b) Each of the Company and its Subsidiary is in compliance with and
has not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the material terms or conditions
of any agreement, contract, covenant, instrument, lease, license or commitment
to which the Company or its Subsidiary is a party or by which it is bound
(collectively a "Contract"), nor is the Company aware of any event that would
constitute such a breach, violation or default with the lapse of time, giving of
notice or both. Each Contract is in full force and effect and, to the best of
the knowledge of the Company, is not subject to any default thereunder by any
party obligated to the Company pursuant thereto. The Company has obtained, or
will obtain before the Closing Date, all necessary consents, waivers and
approvals of parties to any Contract as are required thereunder in connection
with the Merger or for such Contracts to remain in effect without modification
after the Closing. Following the Effective Time, each of the Company and its
Subsidiary will be permitted to exercise all of its rights under the Contracts
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company or its Subsidiary would
otherwise be required to pay had the transactions contemplated by this Agreement
not occurred.
II.15 Compliance with Laws. Each of the Company and its Subsidiary has
complied in all material respects with, is not in material violation of, and has
not received any notices of violation with respect to, any foreign, federal,
state or local statute, law or regulation.
II.16 Governmental Authorization. Section 2.16 of the Company Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company or its Subsidiary by a Governmental Entity
(i) pursuant to which the Company or its Subsidiary currently operates or holds
any interest in any of their properties or (ii) which is required for the
operation of its business or the holding of any such interest (herein
collectively called "Company Authorizations"). The Company Authorizations are
in full force and effect and constitute all Company Authorizations required to
permit the Company and its Subsidiary to operate or conduct their respective
businesses or hold any interest in their respective properties or assets.
II.17 Litigation. Except as set forth in Section 2.17 of the Company
Disclosure Schedule, there is no action, suit or proceeding of any nature
pending or, to the best of the knowledge of the Company, threatened against the
Company or its Subsidiary, its proper-ties or any of its officers or directors,
in their respective capacities as such. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, to the best of the knowledge of the Company,
there is no investigation pending or threatened against the Company or its
Subsidiary, their respective properties or any of their officers or directors by
or before any governmental entity. Section 2.17 of the Company Disclosure
Schedule sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company or its Subsidiary to manufacture, offer or sell any of its products
in the present manner or style thereof.
II.18 Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company and its Subsidiary ("Accounts Receivable") as of
January 31, 2001 along with a range of days elapsed since the date of each
invoice.
(b) Except as set forth on Section 2.18(b) of the Company Disclosure
Schedule, all Accounts Receivable of the Company and its Subsidiary arose in the
ordinary course of business and are collectible except to the extent of reserves
therefor set forth in the Current Date Balance Sheet. Except as set forth on
Schedule 2.18(b), no person has any Lien on any of such Accounts Receivable and
no request or agreement for deduction or discount has been made with respect to
any of such Accounts Receivable.
II.19 Insurance. Each of the Company and its Subsidiary has obtained
and maintained in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended coverage,
as is reasonably prudent. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its Subsidiary, there is no
claim by the Company or its Subsidiary pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and its Subsidiary is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
Neither the Company nor its Subsidiary has knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
II.20 Environmental Matters.
(i) Hazardous Material. Neither the Company nor its Subsidiary has:
(i) operated any underground storage tanks at any property that the Company or
its Subsidiary has at any time owned, operated, occupied or leased; or (ii)
illegally released any material amount of any substance that has been designated
by any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "Hazardous Material"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present, as a result of the deliberate actions of the Company or
its Subsidiary, or, to the best of the knowledge of the Company, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company or its Subsidiary has at any time owned, operated, occupied or
leased.
(ii) Hazardous Materials Activities. Neither the Company nor its Subsidiary
has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company or its Subsidiary disposed
of, transported, sold, or manufactured any product containing a Hazardous
Material (any or all of the foregoing being collectively referred to as
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect before or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(iii) Permits. Each of the Company and its Subsidiary currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Hazardous Material
Activities and other businesses of the Company or its Subsidiary as such
activities and businesses are currently being conducted.
(iv) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or its Subsidiary.
Neither the Company nor its Subsidiary is aware of any fact or circumstance
which could involve the Company or its Subsidiary in any environmental
litigation or impose upon the Company or its Subsidiary any environmental
liability.
II.21 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.21(a)(i) below (which definition shall apply only to this
Section 2.21), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(iii) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former employee, consultant or
director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, contract or understanding between the Company or any
Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(ix) "FMLA"shall mean the Family Medical Leave Act of 1993, as amended;
(x) "International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by the Company or any Affiliate, whether
informally or formally, or with respect to which the Company or any Affiliate
will or may have any liability, for the benefit of Employees who perform
services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined below)
which is a "multiemployer plan," as defined in Section 3(37) of ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.21(b) of the Company Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement under each Company Employee Plan or Employee Agreement. The
Company does not have a plan or commitment to establish any new Company Employee
Plan or Employee Agreement, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or Employee
Agreement.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (ix) all correspondence to or from any governmental agency
relating to any Company Employee Plan; (x) all COBRA forms and related notices;
(xi) all policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Company Employee Plan; (xii) all discrimination tests for
each Company Employee Plan for the most recent plan year; and (xiii) all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Section 2.21(d) of the
Company Disclosure Schedule, (i) the Company has performed in all material
respects all obligations required to be performed by it under, is not in default
or violation of, and has no knowledge of any default or violation by any other
party, to each Company Employee Plan, and each Company Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each Company
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code has either received a
favorable determination, opinion, notification or advisory letter from the IRS
with respect to each such Plan as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a letter
and make any amendments necessary to obtain a favorable determination as to the
qualified status of each such Company Employee Plan; (iii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the best of the knowledge of the Company, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (v)
each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Parent or Surviving Corporation or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the best of the knowledge of the Company and each Affiliate,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multi-employer Plans. At no time has the Company or any Affiliate
contributed to or been obligated to contribute to any Multi-employer Plan.
(g) No Post-Employment Obligations. Except as set forth in Section 2.21(g)
of the Company Disclosure Schedule, no Company Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) COBRA etc. Neither the Company nor any Affiliate has, before the
Effective Time and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA, the requirements
of the Women's Heath and Cancer Rights Act, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any similar provisions of state
law applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Section 2.21(i) of the Company Disclosure
Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Section 2.21(i) of the Company Disclosure
Schedule, no payment or benefit which will or may be made by the Company or its
Affiliates with respect to any Employee will be characterized as a "parachute
payment," within the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company and its Subsidiary: (i) are in
compliance in all respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) have withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) are not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
are not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending,
threatened or reasonably anticipated claims or actions against the Company or
its Subsidiary under any worker's compensation policy or long-term disability
policy.
(k) Labor. No work stoppage or labor-strike against the Company or its
Subsidiary is pending, or to the best of the knowledge of the Company,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. Except
as set forth in Section 2.21(k) of the Company Disclosure Schedule, there are no
actions, suits, claims, labor disputes or grievances pending, or, to the best of
the knowledge of the Company, threatened or reasonably anticipated relating to
any labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company or its Subsidiary.
Neither the Company nor its Subsidiary has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Except as set forth in
Section 2.21(k) of the Company Disclosure Schedule, neither the Company nor its
Subsidiary is presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company or its
Subsidiary.
(l) International Employee Plan. Neither the Company nor its Subsidiary
does now, nor has it ever had the obligation to, maintain, establish, sponsor,
participate in, or contribute to any International Employee Plan.
II.22 Warranties; Indemnities. Except for the warranties and
indemnities contained in (i) those contracts and agreements set forth in Section
2.13(h) of the Company Disclosure Schedule and (ii) the "shrink wrap" license
agreements of the Company or its Subsidiary, neither the Company nor its
Subsidiary has given any warranties or indemnities relating to products or
technology sold or licensed or services rendered by the Company or its
Subsidiary.
II.23 Complete Copies of Materials. Each document of the Company delivered
to Parent under this Agreement or in connection with the Merger or any of the
ancillary or subsidiary transactions contemplated by this Agreement is a true
and complete copy (or summary).
II.24 Information Supplied. The information supplied by the Company
specifically for inclusion in the Information Statement (as defined in Section
5.2) to be sent to the stockholders shall not, on the date the Information
Statement is first mailed or delivered to the stockholders contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which it was made, not misleading or omit to
state any material fact necessary to correct any statement in any earlier
communication to stockholders with respect to this Agreement which has become
false or misleading. Notwithstanding the foregoing, the Company does not make
any representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
II.25 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Disclosure Schedule), nor any
statement made in any schedule or certificate furnished by the Company pursuant
to this Agreement, or furnished in or in connection with documents mailed or
delivered to the stockholders of the Company in connection with soliciting their
consent to this Agreement and the Merger, contains or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
II.26 No Brokers or Finders. No agent, broker, finder, or investment or
commercial banker, or other person or firm engaged by or acting on behalf of the
Company or any of its affiliates in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated by this
Agreement is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and the Merger Sub hereby jointly and severally represent and
warrant to Company, subject to such exceptions as are specifically disclosed in
the disclosure schedule (referencing the appropriate section and paragraph
numbers) supplied by Parent to Company (the "Parent Disclosure Schedule") and
dated as of the date hereof, that on the date hereof and as of the Effective
Time as though made at the Effective Time as follows; provided, that the
representations and warranties made as of a specified date will be true and
correct as of such date:
III.1 Organization. Each of Parent and its subsidiaries (as disclosed in
the Parent Disclosure Schedule, the "Parent Subsidiaries"), is a corpo-ration
duly organized, validly existing and in good standing under the laws of the
jurisdiction of organization. Each of Parent and the Parent Subsidiaries have
the corporate power to own their properties and to carry on their business as
now being conducted. Each of Parent and the Parent Subsidiaries are duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on such entity. Parent has delivered a true and correct copy of
its Articles of Incorporation and Bylaws (and other applicable organizational
documents) of Parent and the applicable organizational documents of its
Subsidiaries, each as amended to date, to Company. Section 3.1 of the Parent
Disclosure Schedule lists the directors and officers of Parent and the Parent
Subsidiaries. Except as set forth in Section 3.1 of the Parent Disclosure
Schedule, the operations now being conducted by Parent or the Parent
Subsidiaries are not now and have never been conducted by Parent or the Parent
Subsidiaries under any other name.
III.2 Parent Capital Structure.
(a) The authorized preferred stock of Parent consists of 15,000,000
shares of authorized preferred stock, none of which have been issued or are
outstanding.
(b) The authorized capital stock of Parent consists of 50,000,000 shares of
authorized Parent Common Stock of which 18,755,298 shares were issued and
outstanding at April 9, 2001. The Parent Common Stock is held by the persons,
with the domicile addresses and in the amounts set forth on Section 3.2(a) of
the Parent Disclosure Schedule. All outstanding shares of Parent Common Stock
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, its Articles of Incorporation
or Bylaws or any agreement to which Parent is a party or by which it is bound.
There are no declared or accrued but unpaid dividends with respect to any shares
of Parent Common Stock. Parent has no other capital stock authorized, issued or
outstanding.
(c) Parent has reserved 3,790,000 shares of Parent Common Stock for issuance
to employees and consultants pursuant to outstanding, unexercised options and
warrants. Section 3.2(b) of the Parent Disclosure Schedule sets forth for each
of the outstanding Parent Options (defined below) the name of the holder of such
option and the number of shares of Common Stock subject to such option. Section
3.2(b) of the Parent Disclosure Schedule also sets forth the name of the holder
of any Parent Common Stock subject to a right or repurchase by Parent ("Parent
Restricted Stock"), the number of shares of Parent Restricted Stock and the
vesting schedule for such Parent Restricted Stock. Except for the options,
warrants and rights described in Section 3.2(b) of the Parent Disclosure
Schedule (the "Parent Options") and Parent Convertible Note (defined below),
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which Parent is a party or by which it is bound
obligating the Parent to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of the Parent or obligating the Parent to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. Section 3.2(b) of the Parent
Disclosure Schedule sets forth for each outstanding Parent stock appreciation
right (each a "Parent SAR"), the name of the holder of such Parent SAR, the
number of shares of Common Stock associated with such Parent SAR. Except for
the Parent SARs described in Section 3.2(b) of the Parent Disclosure Schedule,
there are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Parent. Except as
contemplated hereby, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Parent. As a result of
the Merger, Parent will be the record and sole beneficial owner of all
outstanding capital stock of the Surviving Corporation and rights to acquire or
receive the capital stock of the Surviving Corporation.
(d) Parent has reserved one million four hundred thousand (1,400,000) shares
of Parent Common Stock for issuance to Xxxxxxx XxXxxxxx under that certain
Convertible Promissory Note dated March 31, 1999 in the principal amount of one
million four hundred thousand dollars ($1,400,000) (the "Parent Convertible
Note"), which Parent issued to Xxxxxxx XxXxxxxx.
(e) The authorized capital stock of Merger Sub consists of 1,000,000 shares
of common stock, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are fully
paid and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof.
III.3 Subsidiaries. Except for any Parent Subsidiaries, the Parent
does not have, and has never had, any subsidiary or affiliated company and does
not otherwise own, and has not otherwise owned, any shares in the capital of or
any interest in, or control, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity. Section 3.3
of the Parent Disclosure Schedule sets forth the capitalization of the Parent
Subsidiaries. The Parent is the record and beneficial owner of all the
outstanding capital stock of the Parent Subsidiaries. Section 3.3 of the Parent
Disclosure Schedule also sets forth each jurisdiction where the Parent
Subsidiaries are qualified to do business. There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which either the Parent or any of the Parent Subsidiaries is a party or by which
it is bound obligating the Parent Subsidiaries to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of any of the Parent Subsidiaries or
obligating any of the Parent Subsidiaries to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or other
similar rights with respect to any of the Parent Subsidiaries.
III.4 Authority. The Parent has all requisite power and authority to
enter into 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 authorized by all necessary
corporate action on the part of the Parent, and no further action is required on
the part of the Parent to authorize the Agreement and the transactions
contemplated hereby. This Agreement and the Merger have been unanimously
approved by the Board of Directors of the Parent. This Agreement has been duly
executed and delivered by the Parent, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto, constitute
the valid and binding obligation of the Parent, as the case may be, enforceable
in accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies.
III.5 No Conflict. Except as set forth in Section 3.5 of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by the Parent
does not, and, the consummation of the transactions contemplated hereby will not
be subject to a Conflict with respect to (i) any provision of the Articles of
Incorporation and Bylaws of the Parent or the Parent Subsidiaries, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which the Parent or the Parent Subsidiaries
or any of their respective properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Parent or the Parent Subsidiaries, or their respective properties or
assets.
III.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any third
party, including a party to any agreement with the Parent (so as not to trigger
any Conflict), is required by or with respect to the Parent or the Parent
Subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws
thereby, and (ii) the filing of the Certificate of Merger with the Secretary of
the State of Delaware.
III.7 Parent Financial Statements; SEC documents.
(a) Section 3.7 of the Parent Disclosure Schedule sets forth the
Parent's unaudited consolidated balance sheet as of September 30, 2000 (the
"Current Parent Balance Sheet") and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows for the
three-month period then ended (collectively with the Parent Financial
Statements, the "Parent Financials"). The Parent Financials are correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. The Parent Financials present
fairly the financial condition and operating results of the Parent as of the
dates and during the periods indicated therein, subject to normal year-end
adjustments, which will not be material in amount or significance.
(b) Parent has furnished or made available and will continue to make
available to the Company true and complete copies of all reports or registration
statements filed by it with the U.S. Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), all in the form so filed (all of the foregoing being collectively
referred to as the "SEC Documents"). As of their respective filing dates, the
SEC Documents complied and will continue to comply in all material respects with
the requirements of the Exchange Act, and none of the SEC Documents contained or
will contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent corrected by a subsequently filed document with
the SEC. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "Parent Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Parent at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in Parent accounting policies except as
described in the notes to the Parent Financial Statements.
III.8 No Undisclosed Liabilities. To the best knowledge of Parent,
neither the Parent nor any Parent Subsidiaries has any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorse-ment of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with
generally accepted accounting principles), which individually or in the
aggregate (i) has not been reflected in the Current Date Balance Sheet, or (ii)
as set forth in the reports filed by Parent with the Securities Exchange
Commission, or (iii) has not arisen in the ordinary course of business since
January 31, 2001, consistent with past practices. The parties hereto agree and
acknowledge that, prior to the Effective Time, Parent shall distribute up to one
million five hundred thousand dollars ($1,500,000) worth of Parent's inventory
to Xxxxxxx XxXxxxxx as payment for certain promissory notes.
III.9 Representations Complete. None of the representations and warranties
made by Parent and Merger Sub, nor any statement made in any schedule or
certificate furnished by Parent pursuant to the Agreement, or furnished in or in
connection with the soliciting of consent to this Agreement and Merger, contains
or will contain at the Effective Time, any untrue statement of material fact ,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which made, not misleading.
III.10 Valid Issuance. The shares of Parent Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid,
nonassessable. Parent shall issue the shares of Parent Common Stock in the
Merger in a transaction exempt from registration under the Securities Act or as
otherwise provided in Section 6.1(c) of this Agreement.
ARTICLE IV
CONDUCT BEFORE THE EFFECTIVE TIME
IV.1 Conduct of Business of the Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Effective Time, the Company agrees (except to the extent
that the Parent shall otherwise consent in writing, which consent shall not be
unreasonably withheld), to carry on the business of the Company and its
Subsidiary in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practice and policies
to preserve intact the present business organization, keep available the
services of the present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unim-paired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency not
in the ordinary course of its business, and any material event involving it.
Except as expressly contemplated by this Agreement, neither the Company nor its
Subsidiary shall, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary course
of business.
(b) (i) Sell or enter into any license agreement with respect to the Company
Intellectual Property with any person or entity or (ii) buy or enter into any
license agreement with respect to the Intellectual Property of any person or
entity;
(c) Transfer to any person or entity any rights to the Company Intellectual
Property (other than pursuant to end user licenses in the ordinary course of
business);
(d) Enter into or amend any agreements pursuant to which any other party is
granted marketing, distribution or similar rights of any type or scope with
respect to any products or technology of the Company or its Subsidiary;
(e) Enter into or amend any Contract pursuant to which any other party is
granted marketing, distribution or similar rights of any type or scope with
respect to any products or technology of the Company or its Subsidiary;
(f) Amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the terms of, any of the Contracts set forth or
described in the Disclosure Schedule;
(g) Commence any litigation;
(h) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company or its Subsidiary, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock (or options, warrants or other rights exercisable therefor);
(i) Except for the issuance of shares of Company Capital Stock upon
conversion of Company Preferred Stock, issue, grant, deliver or sell or
authorize or propose the issuance, grant, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(j) Cause or permit any amendments to its Certificate of Incorporation or
Bylaws or other organizational documents;
(k) Acquire or agree to acquire by merging or xxxxxxx-dating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company or its Subsidiary;
(l) Sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or its
Subsidiary or guarantee any debt securities of others;
(n) Grant any loans to others or purchase debt securities of others or amend
the terms of any outstanding loan agreement except for advances to employees for
travel and business expenses in the ordinary course of business, consistent with
past practices;
(o) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(p) Adopt or amend any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(q) Revalue any of its assets, including without limitation writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
(r) Take any action, including the acceleration of vesting of any options,
warrants, restricted stock or other rights to acquire shares of the capital
stock of the Company which would be reasonably likely to interfere with Parent's
ability to account for the Merger as a pooling of interests or any other action
that could jeopardize the tax-free reorganization hereunder;
(s) Pay, discharge or satisfy, in an amount in excess of ten thousand
dollars ($10,000) (in any one case) or twenty-five thousand dollars ($25,000)
(in the aggregate), any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Company Financials (or the notes thereto);
(t) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(u) Enter into any strategic alliance or joint marketing arrangement or
agreement;
(v) Hire or terminate employees or encourage employees to resign other than
in the ordinary course of business;
(w) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (v) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
IV.2 No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, except as contemplated by this Agreement, the Company shall not take any
of the following actions (or permit any of their respective officers, directors,
agents, representatives or affiliates to take any such action), directly or
indirectly, with any of the other parties to this Agreement: (a) solicit,
encourage, initiate or participate in any negotiations or discussions with
respect to, any offer or proposal to acquire all, substantially all or a
significant portion of the business, properties or technologies of any of the
other parties or any of their respective subsidiaries or any portion of the
capital stock of any of the other parties or any of their respective
subsidiaries (whether or not outstanding) whether by merger, purchase of assets,
tender offer or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the business,
technologies or properties of any of the other parties or any of their
respective subsidiaries or afford to any person or entity access to the
Company's properties, technologies, books or records, (c) assist or cooperate
with any person to make any proposal to purchase all or any part of the capital
stock or assets of the other parties or any of their respective subsidiaries, or
(d) enter into any agreement with any person providing for the acquisition of
all or any significant portion of any other party or any of its subsidiaries
(whether by way of merger, purchase of assets, tender offer or otherwise). In
addition to the foregoing, if the Company receives, before the Effective Time or
the termination of this Agreement, any offer, proposal, or request relating to
any of the above, such party shall immediately notify the opposite parties
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. The parties hereto agree that irreparable damage
would occur in the event that the provisions of this Section 4.2 were not
performed in accordance with their specific terms or were otherwise breached.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 Financing Transaction. After the execution of this Agreement by
all of the parties hereto, Parent shall engage KSH Investment Group, Inc. and
any other investment banker(s), in the discretion of KSH Investment Group, Inc.
(the "Investment Banker,), to use their best efforts to offer units of
convertible securities for five dollars ($5) per unit, with each unit consisting
of: (a) one (1) share of a five dollar ($5.00) Series A six percent (6%)
convertible preferred stock of the Parent ("Parent Series A Preferred"), with
each such share convertible into ten (10) shares of Parent Common Stock and
dividends payable quarterly in Parent Common Stock, and; (b) two (2) redeemable
warrants, with each warrant entitling the holder to purchase one (1) share of
Parent Common Stock at an exercise price of sixty cents ($.60) for a period of
five (5) years from issue date (the units are referred to herein as the "Equity
Securities") for such purchase price yielding offering proceeds in the minimum
amount of one million dollars ($1,000,000) (the "Minimum Financing Condition")
and a maximum of five million dollars ($5,000,000). Based on the value of the
Parent Common Stock as of the effective date of the offering, the number of
shares of Parent Common Stock into which one share of Parent Series A Preferred
is convertible may be changed with the written consent of the Investment Banker
and Parent. Notwithstanding anything contained in this Agreement to the
contrary, Parent shall retain the sole and exclusive right to accept or reject
any transaction or investor without any liability to the Company or the Hotel
Stockholders for rejection thereof. The sale of Equity Securities shall
commence immediately following or contemporaneously with the Closing, as
described under Section 6.3 of this Agreement.
V.2 Access to Information.
(a) The Company will, and will cause the Company's Subsidiary to, make
available for inspection by Parent and its representatives, during normal
business hours and in a manner so as not to interfere with normal business
operations, all of Company's records (including tax records), books of account,
premises, contracts and all other documents in Company's possession or control
that are reasonably requested by Parent and its representatives to inspect and
examine the business and affairs of Company. The Company will cause its
managerial employees, counsel and regular independent accountants to be
available upon reasonable advance notice to answer questions of Parent and
Parent's representatives concerning the business and affairs of Company. Parent
and its representatives will treat and hold as confidential any information they
receive from Company in the course of the reviews contemplated by this Section
5.2. No examination by Parent and its representatives will, however, constitute
a waiver or relinquishment by Parent of its rights to rely on Company's
covenants, representations and warranties made herein or pursuant hereto.
(b) Parent will, and will cause the Parent Subsidiaries to, make available
for inspection by Company and its representatives, during normal business hours
and in a manner so as not to interfere with normal business operations, those of
Parent's records, premises, contracts and documents in Parent's possession or
control that are reasonably requested by Company and its representatives to
evaluate an investment in the Parent Common Stock and inspect and examine the
business and affairs of Parent. Parent will cause its managerial employees,
counsel and regular independent accountants to be available upon reasonable
advance notice to answer questions of Company and Company's representatives
concerning the business and affairs of Parent. No examination by Company and
its representatives will, however, constitute a waiver or relinquishment by
Company of its rights to rely on Parent's covenants, representations and
warranties made herein or pursuant hereto.
V.3 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.2, or pursuant to the negotia-tion and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession before the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
V.4 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
V.5 Public Disclosure. Unless otherwise required by law, before the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by both Company and Parent before release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws and the rules and
regulations of the National Association of Securities Dealers, Inc.
V.6 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Disclosure Schedule) so as to preserve all rights of, and benefits to
the Company thereunder.
V.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
V.8 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
neces-sary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
V.9 Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company contained
in this Agreement to be untrue or inaccurate at or before the Effective Time and
(ii) any failure of the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.10
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
(b) The Parent shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Parent contained
in this Agreement to be untrue or inaccurate at or before the Effective Time and
(ii) any failure of the Parent to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.10 shall not
limit or otherwise affect any remedies available to the party receiving such
notice.
V.10 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting com-pletely the consummation of this Agreement and the
transactions contemplated hereby.
V.11 Continuation of Certain Benefits; Termination of Certain Benefits.
(a) Termination of Severance Plans. The Company and its Affiliates, as
applicable, each agrees to terminate any and all group severance, separation or
salary continuation plans, programs or arrangements that are covered and filed
under ERISA immediately before Closing. The Parent shall receive from the
Company evidence that the Company's and each Affiliate's (as applicable) plan(s)
has been terminated pursuant to resolution of each such entity's Board of
Directors (the form and substance of which resolutions shall be subject to
review and approval of the Parent), effective as of the day immediately
preceding the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
VI.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or before the Closing of the following
conditions:
(a) Board Approval. This Agreement and the Merger shall have been
approved by each of the boards of directors of the parties hereto by the
requisite vote under applicable law and the parties' Certificate of
Incorporation or Articles of Incorporation, as the case may be.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(c) Issuance Exempt from Registration. Parent shall have been advised by
its legal counsel that the issuance and sale of the Parent Common Stock to the
former holders of Capital Stock of the Company shall be exempt from the
registration requirements of the Securities Act pursuant to one or more
exemptions. It is contemplated that the issuance and sale will be exempt
pursuant to Rule 506 of Regulation D. If such exemption is not available, the
parties agree to submit this Agreement for approval at a fairness hearing before
the California Department of Corporations (pursuant to Section 3(a)(10) of the
Securities Act) and agree to make any change required by the Department of
Corporations. If the issuance of the Parent Common Stock in the Merger is not
approved in such fairness hearing and is not otherwise exempt from registration
under the Securities Act, then the parties shall use their reasonable efforts to
register the issuance of such shares pursuant to a Registration Statement on
Form S-4.
(d) Employment Agreements. Xxxxxxx Xxxxx, Xxxxxxx XxXxxxxx and Xxxxxxx
Xxxxxx shall have executed and delivered to Parent an employment agreement in
substantially the form of Exhibit C and all such employment agreements shall be
in full force and effect.
(e) Consulting Agreements. Cyndel & Co., Inc. shall have executed and
delivered to Parent a consulting agreement to perform financial consulting
services for the Parent in such form and with such content as agreed upon by the
Parent and such consulting agreement shall be in full force and effect. Parent
shall have entered into an advisory agreement with Xxxxx Bayern to act as an
advisor to Parent's Board of Directors and with such content as agreed upon by
Parent and such advisory agreement shall be in full force and effect.
(f) Employees of Company. The Company shall use its best efforts to
communicate and persuade its employees to continue employment with the Company
after the Closing and Parent agrees to continue to employ such employees on the
same terms and conditions as existed prior to Closing. Parent agrees to either,
at the option of Xxxxxxx Xxxxx, continue the employee group health coverage of
the Company or to combine the employees of the Company into the group health
plan as available to all employees of Parent.
(g) Lock-up Agreement. Xxxxxxx XxXxxxxx, Xxxxx Bayern, ShawnBayern, Xxx
Xxxxxxx, Xxxxxxx Xxxxx, Xxxxx Xxxxxx and Xxxxxx Xxxxxxx shall each have executed
the Lock-up Agreement, a form of which is attached hereto as Exhibit E.
VI.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or before
the Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or before the
Effective Time, and the Company shall have received a certificate to such effect
signed by a duly authorized officer of Parent.
(c) Stockholder Approval. The Company shall have obtained the requisite
consent of the Hotel Stockholders.
(d) Third Party Consents. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents, approvals and
waivers set forth in Section 6.2(c) of the Disclosure Schedule.
(e) Registration Rights. The Hotel Stockholders and Parent shall have
entered into a registration rights agreement in the form attached to this
Agreement as Exhibit B (the "Registration Rights Agreement").
(f) Material Adverse Change. There shall not have occurred any material
adverse change in the business, assets (including intangible assets), condition
(financial or otherwise) or results of operations of Parent since the date
hereof.
(g) Due Diligence. The Company shall have completed its due diligence
review on Parent to its reasonable satisfaction and received all requested
documents in connection with such review. The Company shall have received a
certificate from Parent to the effect that Parent has completed its due
diligence review on the Company to Parent's satisfaction, which certificate
shall be signed by a duly authorized officer of the Parent. Three (3) business
days prior to the anticipated closing date, Parent shall deliver to the Company
audited financial statements for the year ended December 31, 2000 and an
unaudited consolidated balance sheet prepared in accordance with GAAP as of
February 28, 2001 ("Parent Pre-Closing Financial Statements") for review by the
Company.
(h) Listing of Parent Common Stock. From the date hereof until one (1) year
from the Effective Time, Parent shall maintain the listing of its Common Stock
on the Nasdaq OTC Electronic Bulletin Board.
(i) Authority. The Board of Directors of the Company and the Hotel
Stockholders shall have approved the transaction contemplated by this Agreement
and copies of the resolutions or approval, as the case may be, shall have been
delivered to the Parent.
VI.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or before the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, except for changes
contemplated by this Agreement (including the Disclosure Schedule) and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Effective Time, except, in all
such cases, for such breaches, inaccuracies or omissions of such representations
and warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the Company
by a duly authorized officer of the Company;
(b) Financing Transactions. The Parent shall have engaged the Investment
Banker for the sale of Equity Securities under the terms and parameters set
forth under Section 5.1 of this Agreement (the "Financing Engagement").
Notwithstanding anything contained or implied in this Agreement to the contrary,
Parent shall have no obligation whatsoever with respect to the satisfaction of
the terms of the Financing Engagement, and Parent shall not be liable to the
Company if (for any reason whatsoever) the Financing Engagement is not adhered
to.
(c) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or before the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by a duly authorized officer of the Company.
(d) Due Diligence. The Parent shall have completed its due diligence review
on the Company and received all requested documents in connection with such
review, including (without limitation) the financial statements of the Company
that are described elsewhere in this Agreement, together with the satisfactory
opinion of Company Independent Auditor (with respect to the 2000 financial
statements referenced elsewhere in this Agreement). Parent shall have received
a certificate from the Company to the effect that Company has completed its due
diligence review of Parent to the Company's reasonable satisfaction, which
certificate shall be signed by a duly authorized officer of the Company. Three
(3) business days prior to the anticipated closing date, the Company shall
deliver to Parent an unaudited balance sheet prepared in accordance with GAAP as
of five (5) business days prior to such anticipated closing date ("Pre-Closing
Balance Sheet") for review by Parent.
(e) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained the consents, approvals and
waivers set forth in Section 2.6 of the Disclosure Schedule.
(f) Material Adverse Change. There shall not have occurred any material
adverse change in the business, assets (including intangible assets) condition
(financial or otherwise) or results of operations of the Company since the date
hereof.
(g) Dissenters. Holders of more than five percent (5.0%) of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they have
any continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(h) Exemption from Registration. The offer, sale and issuance of the shares
of Parent Common Stock under this Agreement are exempt from registration under
the Securities Act.
(i) Stockholder Approval. Parent shall have obtained, on behalf of Merger
Sub, the requisite consent of the stockholders of Merger Sub
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
VII.1 Survival of Representations and Warranties. All of the
representations and warranties of the Company, the Parent and the Merger Sub in
this Agreement or in any instrument delivered pursuant to this Agreement (each
as modified by the Disclosure Schedule) shall survive the Merger and continue
until 11:59 p.m. California time one year following the date of this Agreement
with respect to all other matters (in each case, the "Expiration Date").
VII.2 Indemnity.
(a) As soon as practicable after the Effective Time, the Escrow Shares
will be registered in the name of, and deposited with, the Escrow Agent, such
deposit to constitute the escrow fund (the "Escrow Fund") and to be governed by
the terms set forth in the Escrow Agreement attached as Exhibit D (the "Escrow
Agreement"). The Escrow Fund will be available to compensate Parent pursuant to
the indemnification obligations of the Company, its Subsidiary and the Hotel
Stockholders.
(b) Each of the Hotel Stockholders severally (but not jointly) and the
Company hereby agrees to indemnify and hold Parent and the Parent Subsidiaries,
directors, officers and agents harmless against and in respect of any loss,
cost, expense, claim, liability, deficiency, judgment or damage (hereinafter,
individually, a "Loss," and collectively, "Losses") incurred by the Parent, the
Parent Subsidiaries, officers, directors or agents as a result of any material
inaccuracy in or material breach of a representation or warranty of the Company
contained in this Agreement, or any instrument delivered by the Hotel
Stockholders at the Closing or any material failure by the Company to perform or
comply with any covenant contained in this Agreement. The Hotel Stockholders
shall not have any right of contribution from the Company with respect to any
Loss claimed after Closing by Company.
(c) The Company agrees to indemnify and hold Parent and the Parent
Subsidiaries, directors, officers and agents harmless against and in respect of
any Loss incurred by Parent, the Parent Subsidiaries, officers, directors or
agents as a results of any material inaccuracy in or material breach of any of
the representations or warranties of the Company and any third party claims
under Section 7.2(i).
(d) The Parent and the Merger Sub hereby agree to jointly and severally
indemnify and hold the Hotel Stockholders, the Company, and its officers,
directors, agents and attorneys harmless against and in respect of any Loss
incurred by the Hotel Stockholders, the Company, its Subsidiaries, officers,
directors, agents and attorneys as a result of any material inaccuracy in or
material breach of a representation or warranty of Parent contained in this
Agreement or any instrument delivered by Parent at the Closing or any material
failure by Parent to perform or comply with any covenant contained in this
Agreement.
(e) Expiration of Indemnification. The indemnification obligations under
this Section 7.2 shall terminate on the Expiration Date, but shall not terminate
as to any Loss (or a potential claim by an appropriate party) asserted in good
faith before such date in accordance with Section 7.2(f) below.
(f) Procedure for Indemnification. In the event that either party
shall incur or suffer any Losses in respect of which indemnification may be
sought by such party pursuant to the provisions of this Article VII, the
indemnified party shall assert a claim for indemnification by written notice (a
"Notice") to Parent or the Company, as the case may be, briefly stating (i) that
the party delivering the Notice has paid or accrued Losses and (ii) specifying
in reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or 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 indemnified party shall
provide the other party on request with all information and documentation
reasonably necessary to support and verify any Losses which the indemnified
party believes give rise to a claim for indemnification hereunder and shall give
reasonable access to all books, records and personnel in the possession or under
the control of that party which would have bearing on such claim.
(i) Payment. The indemnifying party may meet its indemnification
obligations by, at their option, either making payment to the indemnified party
in cash by wire transfer of the amount owed or delivering shares of Parent
Common Stock, duly endorsed or with stock powers attached which have been
endorsed in blank.
(g) Calculation of Parent Common Stock. For the purposes of
determining the number of shares of Parent Common Stock to be delivered in
satisfaction of an indemnification obligation under Section 7.2 hereof (to the
extent payment is made in Parent Common Stock), the price per share shall be
equal to the Fair Market Value (defined below) at the Closing Date. "Fair Market
Value" of a share of Parent Common Stock as of a particular date means: (i) the
average of the closing prices over the ten (10) day period ending immediately
before the applicable date of valuation, if the Parent Common Stock is traded in
the over-the-counter market (including trading on the Nasdaq OTC Bulletin
Board); (ii) the average of the closing prices of the Parent Common Stock over
the five (5) business days ending immediately before the applicable date of
valuation, if the Parent Common Stock is traded on a securities exchange or the
Nasdaq National Market or Nasdaq Small Cap Market; and (iii) as determined in
good faith by Parent's Board of Directors upon a review of relevant factors, if
no active public market exists for the Parent Common Stock.
(h) Resolution of Conflicts; Arbitration.
(i) In the event of any dispute among the parties in connection with
this Agreement, including without limitation, disputes over a claim pursuant to
this Section 7.2 or any disputes under the state or federal securities laws in
connection with this Agreement, Xxxxxxx Xxxxx on behalf of the Hotel
Stockholders and the Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the Hotel
Stockholders and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith negotiation (or in
any event after sixty (60) days from the date of the Notice), either Parent or
the Hotel Stockholders 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 either such event the matter shall
be settled by arbitration conducted by three arbitrators. Parent and the Hotel
Stockholders shall each select one (1) arbitrator, and the two (2) arbitrators
so selected shall select a third arbitrator. 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 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 Notice
shall be binding and conclusive upon the parties to this Agreement. 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. The arbitrators shall not be empowered to award punitive
damages.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Newport Beach, California under the rules then in effect of the American
Arbitration Association. The arbitrators shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
(i) Third-Party Claims.
(i) Promptly after receipt by an indemnified party of notice of the
commencement of any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted or heard before or otherwise involving
any court, governmental agency or entity or arbitrator (a "Proceeding") against
it, such indemnified party will, if a claim is to be made against an
indemnifying party under this Section 7.2, give notice to the indemnifying party
of the commencement of such claim, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability that it may have
to any indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnified
party's failure to give such notice.
(ii) If any Proceeding referred to in Section 7.2(h)(i) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless the
indemnifying party is also a party to such Proceeding and the indemnified party
reasonably determines that joint representation would be inappropriate), to
assume the defense of such Proceeding with counsel satisfactory to the
indemnified party (acting in good faith) and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 7 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A) there is
no finding or admission of any violation of any law, statute, ordinance,
regulation or ruling or any violation of the rights of any person and no effect
on any other claims that may be made against the indemnified party, and (B) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (ii) the indemnified party will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within thirty days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(iii) Notwithstanding the foregoing, if an indemnified party reasonably
determines that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(j) Certain Limitations. Notwithstanding anything to the contrary in
this Agreement, the indemnifying party will have no liability for
indemnification with respect to the matters described in Section 7.2(a), (b) or
(c), as applicable, until the total of all Losses with respect to such matters
individually or in the aggregate exceeds one hundred thousand dollars
($100,000), in which case the indemnifying party shall be liable to the extent
the amount of such Losses exceeds twenty-five thousand dollars ($25,000).
Notwithstanding anything to the contrary in this Agreement, the total liability
of an indemnifying party under this Article VII shall (i) in no event exceed the
Fair Market Value of the Parent Shares on the Closing Date, and (ii) be reduced
to the extent of payment to the indemnified party of applicable insurance
proceeds.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
VIII.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time before the
Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred by
the close of business on the 110th day after the date on which this Agreement
shall have been executed by the parties hereto (provided that the right to
terminate this Agreement under this clause 8.1(b)(i) shall not be available to
any party whose willful failure to fulfill any obligation hereunder has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date); (ii) if the Minimum Financing Condition is not satisfied at
Closing; (iii) there shall be a final nonappealable order of a federal or state
court in effect prevent-ing consummation of the Merger; (iv) there shall be any
sta-tute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal, or (v) pursuant to Section 6.1(c);
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
(d) by Parent if it is not in material breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company and (i) such
breach has not been cured within five (5) business days after written notice to
the Company (provided that, no cure period shall be required for a breach which
by its nature cannot be cured), and (ii) as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not
then be satisfied;
(e) by the Company if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or
Merger Sub and (i) such breach has not been cured within five (5) business days
after written notice to Parent (provided that, no cure period shall be required
for a breach which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be,
would not then be satisfied.
(f) by Parent if it is unable to complete (to Parent's satisfaction) its due
diligence review on the Company, or if in the course of its due diligence review
Parent discovers the existence of any material obligation or other condition not
reflected in this Agreement (or the Company Disclosure Schedule) or on the
Current Date Balance Sheet or the Pre-Closing Balance Sheet that has a Material
Adverse Effect (or in the future could have a Material Adverse Effect) on the
Company or the Company's operations or business or the Company's financial
condition or operating results or if the Stockholders' Equity on the Pre-Closing
Balance Sheet is less than one million dollars ($1,000,000); and
(g) by the Company if it is unable to complete (to the Company's
satisfaction) its due diligence review on Parent, or if in the course of its due
diligence review the Company discovers the existence of any material obligation
or other condition not reflected in this Agreement (or the Parent Disclosure
Schedule) or on the Parent Pre-Closing Financial Statements that has a Material
Adverse Effect (or in the future could have a Material Adverse Effect) on Parent
or Parent's operations or business or Parent's financial condition or operating
results.
Where action is taken to terminate this Agreement pursuant to this Section 8.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
VIII.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and, except as set forth in Section 8.3 or 8.4, there shall be no liability or
obligation on the part of Parent, Merger Sub or the Company, or their
respec-tive officers, directors or stockholders, provided that each party shall
remain liable for any breaches of this Agreement before its termination; and
provided further that, the provisions of Sec-tions 5.4 and 5.5 and Articles VIII
and IX of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
VIII.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
VIII.4 Extension; Waiver. At any time before the Closing, Parent, on the
one hand, and the Company and the Hotel Stockholders, on the other hand, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
IX.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered person-ally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
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 Parent or Merger Sub, to:
Tangible Asset Galleries Inc.
0000 Xxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx XxXxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Pillsbury Winthrop
000 Xxxx Xxxxxx Xxxxx
0xx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxxxxx Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company:
HotelInteractive, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx, Xxxxxx & Xxxxxxxxx, LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(c) if to the Escrow Agent:
Alpha Tech Stock Transfer
000 X. Xxxxxx Xxxx
Xxxxxx, Xxxx 00000
Attention: Xxx Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (801) 571- 6112
IX.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
IX.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counter-parts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
IX.4 Representative. The Company and the Hotel Stockholders, by virtue of
their approval of this Agreement, will be deemed to have irrevocably constituted
and appointed, Xxxxxxx Xxxxx ("Representative"), effective as of the Effective
Time, as their true and lawful agent and attorney-in-fact to enter into any
agreement in connection with the transactions contemplated by this Agreement or
any transaction contemplated by the Escrow Agreement, to exercise all or any of
the powers, authority and discretion conferred on him under either this
Agreement or the Escrow Agreement, to waive any term and condition of any such
agreement, to give and receive notices on their behalf and to be their exclusive
representative with respect to any Action (defined below) arising with respect
to any transaction contemplated by any such agreement, including, without
limitation, the defense, settlement or compromise of any Action for which Parent
or Merger Sub may be entitled to indemnification and the Representative agrees
to act as, and to undertake the duties and responsibilities of, such agent and
attorney-in-fact. The power of attorney is coupled with an interest and is
irrevocable. The Representative will not be liable for any action taken or not
taken by him in connection with his obligations under this Agreement in the
absence of his own gross negligence or willful misconduct. If the
Representative shall be unable or unwilling to serve in such capacity, his
successor, who will serve and exercise the powers of the Representative
hereunder, will be named by those persons holding a majority of the shares of
Seller Capital Stock. For the purposes of this Agreement, "Action" means any
action, complaint, petition, investigation, suit or other proceeding, whether
civil or criminal, in law or in equity, or before any arbitrator or Governmental
Entity.
IX.5 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
IX.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforce-able, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent pos-sible, the economic, business and other
purposes of such void or unenforceable provision.
IX.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
IX.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Orange County, State of California, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
IX.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
IX.10 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
[Signatures on following page]
IN WITNESS WHEREOF, each of Parent, Merger Sub and the Company have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
TANGIBLE ASSET GALLERIES, INC. HOTELINTERACTIVE, INC.
By: /s/ Xxxxxxx XxXxxxxx By: Xxxxxxx Xxxxx
Xxxxxxx XxXxxxxx, Chief Executive Xxxxxxx Xxxxx, President
Officer & Chairman of the Board
TANGIBLE ASSET GALLERIES ACQUISITION CORP.
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: President
